EXHIBIT 99.1
CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
FIRST QUARTER 2006 RESULTS
SUWANEE, GA. (APRIL 26, 2006) ARRIS (NASDAQ:ARRS), a global communications
technology leader in the development of advanced cable telephony solutions and
next generation high-speed data across the broadband local access network, today
announced preliminary and unaudited financial results for the first quarter
2006.
FINANCIAL HIGHLIGHTS:
o Revenues were $208.3 million for the first quarter of 2006, up 53% as
compared to $135.9 million in the first quarter 2005 and up 15% as
compared to $181.3 million in the fourth quarter of 2005.
o Net income per diluted share for the first quarter 2006 was $0.19, up
375% as compared to $0.04 in the first quarter 2005 and down 5% as
compared to $0.20 in the fourth quarter of 2005. Excluding the items
detailed below, net income per diluted share for the first quarter 2006
was $0.21 (a non-GAAP measure).
o Consistent with prior guidance, gross margins were 27.1% in the first
quarter 2006, equal to the first quarter 2005 and down from 31.9% in
the fourth quarter 2005 primarily due to changes in product mix coupled
with price reductions that took effect at the beginning of 2006.
o Cash on hand and short-term investments at the end of the first quarter
2006 were $165.8 million, up $57.8 million, or 54%, as compared with
$107.9.0 at the end of the first quarter 2005 and up $36.3 million, or
28%, from the end of the fourth quarter 2005. Cash of $31.3 million was
generated from operating activities in the first quarter of 2006.
o Book-to-bill ratio was 1.01 in the first quarter as compared to 0.97 in
the fourth quarter 2005.
FINANCIAL DETAILS:
Revenues for the first quarter 2006 were $208.3 million. On a U.S. GAAP basis,
net income was $20.7 million or $0.19 per diluted share in the first quarter
2006 as compared to the fourth quarter 2005 net income of $22.0 million or $0.20
per diluted share and to the first quarter 2005 net income of $3.4 million or
$0.04 per diluted share. Excluding amortization of intangibles, equity
compensation expense and other items, the net income was $0.21 per diluted share
in the first
quarter 2006. A reconciliation of our GAAP to our non-GAAP earnings
per share is attached to this release and can also be found on the Company
website.
Broadband product revenues were $85.4 million in the first quarter, down
approximately 8.1% from the fourth quarter 2005 level of $92.9 million
reflecting lower sales of CBR telephony products. Supplies & CPE product
revenues were $123.0 million in the first quarter, up approximately 39.1% as
compared to $88.4 million in the fourth quarter of 2005, reflecting primarily
the strong resurgence of E-MTA sales in the first quarter as customer VoIP
rollouts continue. E-MTA revenues and units reached new record levels in the
first quarter, exceeding the previous levels of the third quarter 2005.
International sales were $51.0 million in the first quarter, as compared to
$52.3 million in the fourth quarter 2005. Backlog at the end of the first
quarter was $168.9 million compared to $166.5 million at the end of the fourth
quarter 2005. Bookings in the first quarter were $210.8 million as compared to
$176.6 million in the fourth quarter 2005. The book-to-bill ratio in the first
quarter was approximately 1.01, up from 0.97 in the fourth quarter 2005.
Gross margins were 27.1% in the first quarter as compared to fourth quarter 2005
margins of 31.9%. This decrease is predominantly the result a change in product
mix during the quarter and price reductions implemented by the Company to win
market share. Gross margins of Broadband products were 45.6% in the first
quarter as compared to 43.3% in the fourth quarter. Gross margins of the
Supplies & CPE products were 14.3% in the first quarter as compared to 19.9% in
the fourth quarter.
Operating expenses were $36.9 million in the first quarter, which included
equity compensation expense of approximately $2.1 million. This compares to
$36.7 million for the fourth quarter, which included $2.4 million of equity
compensation expense. Research and development costs included in operating
expenses were $15.1 million in the first quarter as compared to $15.0 million in
the fourth quarter of 2005.
The Company ended the first quarter with $165.8 million of cash on hand and
short-term investments, up from the fourth quarter level of $129.5 million and
from the first quarter 2005 level of $107.9 million. Approximately $31.3 million
of cash was generated from operating activities in the first quarter. Inventory
and turns for the first quarter were $99.7 million and 5.7, respectively, as
compared to $113.9 million and 4.8, respectively for the fourth quarter 2005.
Accounts receivable ended the first quarter at $91.4 million with DSOs of 38 as
compared to $83.5 million and DSOs of 45 at the end of the fourth quarter 2005.
"Our results this quarter show that we have started 2006 with great momentum,"
said Bob Stanzione, ARRIS Chairman & CEO. "Accelerating competition within our
customers' markets continues to drive demand for more bandwidth, more
new services and higher levels of quality. The new, innovative and market
leading products that ARRIS is now delivering for data, voice and video
transport, help our customers in the growing competition between, cable, telco
and satellite. As a result, I am very positive about the outlook for ARRIS in
2006 and beyond."
During the first quarter the Company announced a 100 Mb/s broadband trial with
NTL, the largest cable operator in the United Kingdom and the introduction of
new customer premises products for T1/E1 services over cable operator's HFC
networks. Also of long term importance was the Company's April 7, 2006
announcement of a joint development, licensing and supply agreement with
UTStarcom (NASDAQ:UTSI) that will together enable the fourth leg of the
quadruple play for cable MSOs worldwide. The joint solution will allow customers
with Wi-Fi enabled handsets to seamlessly roam between their cellular and Wi-Fi
connections, or a service commonly referred to as Fixed Mobile Convergence
(FMC). The Company recently demonstrated this FMC capability at the National
Cable show in Atlanta.
"We are off to a strong start to 2006 as customers continue robust deployments
of VoIP," said David Potts, ARRIS EVP & CFO. "We now anticipate that our
revenues for the second quarter of 2006 will be in the range of $210 to $220
million with net income per diluted share, on a U.S. GAAP basis in the range of
$0.20 to $0.23 including amortization of intangibles and equity compensation
expense of $0.02. Also included in the second quarter operating expense is $2.5
million, or $0.02 per diluted share, related to license fees encompassed in the
agreements recently entered into with UTStarcom. The Company anticipates that a
total of $5.0 million will be invested with UTStarcom for license fees over a
three year period with the next payment scheduled in 2007."
ARRIS management will conduct a conference call at 8:30am EST on Thursday, April
27, 2006 to discuss these results in detail. You may participate in this
conference call by dialing 877-691-0879 prior to the start of the call and
providing the ARRIS Group, Inc. name and Jim Bauer as the moderator. Please note
that ARRIS will not accept any calls related to this earnings release during the
period between the 6:30pm EDT release on April 26, 2006 and the completion of
the scheduled conference call on April 27, 2006. A replay of the conference call
can be accessed through Tuesday, May 2, 2006 by dialing 877-519-4471 and using
the PIN#7252270. A replay also will be made available for a period of 12 months
following the conference call on ARRIS' website at www.arrisi.com.
ARRIS provides broadband local access networks with innovative next generation
high-speed data and telephony systems for the delivery of voice, video and data
to the home and business. ARRIS' complete solutions enhance the reliability and
value of converged services from the network to the subscriber. Headquartered in
Suwanee, Georgia, USA, ARRIS has design, engineering, distribution, service and
sales office locations throughout the world. Information about ARRIS' products
and services can be found at www.arrisi.com
Forward-looking statements:
Statements made in this press release, including those related to:
o second quarter 2006 revenues and net income;
o the general market outlook and acceptance of ARRIS products;
and
o the outlook for industry conditions
are forward-looking statements. These statements involve risks and uncertainties
that may cause actual results to differ materially from those set forth in these
statements. Among other things,
o projected results for the second quarter of 2006 as well as
the general outlook for 2006 and beyond are based on
preliminary estimates, assumptions and projections that
management believes to be reasonable at this time, but are
beyond management's control; and,
o because the market in which ARRIS operates is volatile,
actions taken and contemplated may not achieve the desired
impact relative to changing market conditions and the success
of these strategies will be dependent on the effective
implementation of those plans while minimizing organizational
disruption.
In addition to the factors set forth elsewhere in this release, other factors
that could cause results to differ from current expectations include: the impact
of rapidly changing technologies; the impact of competition on product
development and pricing; the ability of ARRIS to react to changes in general
industry and market conditions including regulatory developments; rights to
intellectual property, market trends and the adoption of industry standards; and
consolidations within the telecommunications industry of both the customer and
supplier base. These factors are not intended to be an all-encompassing list of
risks and uncertainties that may affect the Company's business. Additional
information regarding these and other factors can be found in ARRIS' reports
filed with the Securities and Exchange Commission. In providing forward-looking
statements, the Company expressly disclaims any obligation to update publicly or
otherwise these statements, whether as a result of new information, future
events or otherwise.
ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
2006 2005 2005 2005 2005
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 129,559 $ 75,286 $ 48,194 $ 97,194 $ 26,546
Short-term investments 36,250 54,250 46,250 -- 81,400
------------- ------------- ------------- ------------- -------------
Total cash, cash equivalents
and short-term investments 165,809 129,536 94,444 97,194 107,946
Restricted cash 6,092 6,073 4,053 4,037 4,025
Accounts receivable, net 91,360 83,540 95,791 87,900 63,938
Other receivables 4,138 286 887 288 400
Inventories, net 99,673 113,909 90,122 80,869 76,249
Other current assets 7,345 15,276 20,198 6,700 9,310
------------- ------------- ------------- ------------- -------------
Total current assets 374,417 348,620 305,495 276,988 261,868
Property, plant and equipment, net 24,327 25,557 26,483 26,351 26,217
Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles, net 702 920 1,138 1,356 884
Investments 3,358 3,321 3,347 3,223 4,450
Other assets 388 416 395 399 2,210
------------- ------------- ------------- ------------- -------------
$ 553,761 $ 529,403 $ 487,427 $ 458,886 $ 446,198
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,478 $ 35,920 $ 25,602 $ 30,863 $ 30,922
Accrued compensation, benefits
and related taxes 9,503 20,424 16,083 9,927 6,990
Accrued warranty 8,020 8,479 6,724 6,534 5,450
Other accrued liabilities 22,151 20,633 23,104 23,345 25,431
------------- ------------- ------------- ------------- -------------
Total current liabilities 81,152 85,456 71,513 70,669 68,793
Long-term debt, net of current
portion -- -- -- -- 75,000
Accrued pension 12,943 12,636 11,040 11,574 11,309
Other long-term liabilities 5,618 5,594 5,643 5,637 5,687
------------- ------------- ------------- ------------- -------------
99,713 103,686 88,196 87,880 160,789
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 1,081 1,069 1,065 1,053 873
Capital in excess of par value 740,954 732,405 727,249 727,096 644,891
Unearned compensation -- -- -- (8,112) (3,939)
Unrealized gain on marketable
securities 1,114 1,076 975 838 742
Unfunded pension losses (4,618) (4,618) (3,345) (3,345) (3,345)
Accumulated deficit (284,831) (305,554) (327,520) (346,340) (353,629)
Unrealized gain on derivatives 532 1,523 991 -- --
Cumulative translation
adjustments (184) (184) (184) (184) (184)
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 454,048 425,717 399,231 371,006 285,409
------------- ------------- ------------- ------------- -------------
$ 553,761 $ 529,403 $ 487,427 $ 458,886 $ 446,198
============= ============= ============= ============= =============
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
2006 2005
------------- -------------
Net sales $ 208,344 $ 135,924
Cost of sales 151,837 99,133
------------- -------------
Gross profit 56,507 36,791
Gross profit % 27.1% 27.1%
Operating expenses:
Selling, general, and administrative expenses 21,278 16,519
Research and development expenses 15,074 14,801
Restructuring and impairment charges 328 198
Amortization of intangibles 218 557
------------- -------------
36,898 32,075
------------- -------------
Operating income 19,609 4,716
Other expense (income):
Interest expense 10 1,018
Loss on investments and notes receivable -- 75
Loss (gain) on foreign currency (317) 935
Interest income (1,520) (609)
Other (income) expense, net 106 51
------------- -------------
Income from continuing operations before income taxes 21,330 3,246
Income tax expense (benefit) 628 (152)
------------- -------------
Net income from continuing operations 20,702 3,398
Income from discontinued operations 21 10
------------- -------------
Net income $ 20,723 $ 3,408
============= =============
Net income per common share - basic:
Income from continuing operations $ 0.20 $ 0.04
Income from discontinued operations 0.00 0.00
------------- -------------
Net income $ 0.20 $ 0.04
============= =============
Net income per common share - diluted:
Income from continuing operations $ 0.19 $ 0.04
Income from discontinued operations 0.00 0.00
------------- -------------
Net income $ 0.19 $ 0.04
============= =============
Weighted average common shares:
Basic 106,227 87,851
============= =============
Diluted 109,345 90,497
============= =============
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------
2006 2005
------------- -------------
OPERATING ACTIVITIES:
Net income $ 20,723 $ 3,408
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 2,618 2,727
Amortization of intangibles 218 557
Equity compensation expense 2,248 553
Excess tax benefits from stock-based
compensation plans (169) --
Amortization of deferred finance fees -- 153
Provision for doubtful accounts (265) (153)
Gain related to Adelphia receivables (475) --
Loss on disposal of fixed assets 2 (12)
Loss (gain) on investments and notes
receivable -- 75
Impairment of long-lived assets -- 291
Income from on discontinued operations (21) (10)
Changes in operating assets & liabilities, net of effects of
acquisitions and disposals:
Accounts receivable (7,555) (8,124)
Other receivables (3,852) 20
Inventory 14,236 16,387
Accounts payable and accrued liabilities (3,666) (8,833)
Prepaids and Other, net 7,280 (133)
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 31,322 6,906
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,389) (1,924)
Cash proceeds from sale of property, plant,
and equipment -- 40
Purchases of short term investments -- (5,000)
Disposals of short term investments 18,000 1,600
Other -- (259)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 16,611 (5,543)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation plans 169 --
Proceeds from issuance of common stock and other 6,171 111
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,340 111
NET INCREASE IN CASH AND CASH EQUIVALENTS 54,273 1,474
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 75,286 25,072
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 129,559 $ 26,546
============= =============
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Q1 2006 Q1 2005 Q4 2005
-------------------------- -------------------------- --------------------------
PER DILUTED PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 20,723 $ 0.19 $ 3,408 $ 0.04 $ 21,966 $ 0.20
Highlighted items:
Impacting gross margin:
Equity compensation * 108 -- 31 -- 125 --
Impacting operating expenses:
Impairment of long-lived assets -- -- 291 -- -- --
Gain related to Adelphia receivables (475) -- -- -- -- --
Restructuring charges - adjustments to
existing accruals 328 -- (93) -- 901 0.01
Amortization of intangibles 218 -- 557 0.01 219 --
Equity compensation * 2,140 0.02 522 0.01 2,448 0.02
Impacting other expenses:
Gain on investment -- -- -- -- 131 --
Impacting discontinued operations:
Restructuring charges - adjustments to
existing accruals (21) -- (10) -- (152) --
----------- ----------- ----------- ----------- ----------- -----------
Total highlighted items 2,298 0.02 1,298 0.01 3,672 0.03
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) excluding highlighted items $ 23,021 $ 0.21 $ 4,706 $ 0.05 $ 25,638 $ 0.24
=========== =========== =========== =========== =========== ===========
Weighted average common shares - diluted 109,345 90,497 107,296
=========== =========== ===========
* ARRIS adopted SFAS 123R effective July 1, 2005. Prior to the adoption date,
the provisions of APB 25 were followed. In the periods before Q3 2005, the
Company recorded compensation expense related to restricted stock and options
subject to variable accounting.
ARRIS believes that presenting net income (loss) and related per share amounts
adjusted for the items detailed above provides meaningful information that will
allow investors to more easily understand ARRIS' financial performance and
compare its period-to-period results. With respect to stock compensation
expense, ARRIS adopted SFAS 123R effective July 1, 2005, as a result of which
ARRIS will record non-cash compensation expense related to grants of options and
restricted stock. Depending upon the size, timing and the terms of the grants
this non-cash compensation expense may vary significantly. With respect to the
gain related to Adelphia receivables, ARRIS adjusted its reserve estimate
associated with a previously written off Adelphia receivable. With respect to
amortization of intangibles, the intangibles being amortized relate to our most
recent acquisitions and will not recur. Similarly, the impairment of long-lived
assets, restructuring charge adjustments and gain on investment reflect items
that, although they or similar items might recur, are of a nature and magnitude
that identifying them separately provides that investors with a greater ability
to project ARRIS' future performance. As importantly, in assessing operating
performance and preparing budgets and forecasts, ARRIS' management considers
performance after making these adjustments and believes that providing investors
with the same information provides greater transparency and insight into
management's analysis. ARRIS expects to continue providing similar information
in the future with schedules reconciling the differences between GAAP and
non-GAAP financial measures.