EXHIBIT 99.1
CONTACT: Jim Bauer
Investor Relations
(678) 473-2647
jim.bauer@arrisi.com
ARRIS ANNOUNCES PRELIMINARY AND UNAUDITED
SECOND QUARTER 2006 RESULTS
SUWANEE, GA. (JULY 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 second quarter
2006.
FINANCIAL HIGHLIGHTS:
o Revenues were $220.0 million for the second quarter of 2006, up
35.6% as compared to $162.2 million in the second quarter 2005 and
up 5.6% as compared to $208.3 million in the first quarter 2006.
o Net income in the second quarter 2006 was $24.8 million or $0.23
per diluted share as compared to net income of $7.3 million or
$0.08 per diluted share in the second quarter 2005 and as compared
to net income of $20.7 million or $0.19 per diluted share in the
first quarter 2006. Excluding the items detailed below, net income
per diluted share for the second quarter 2006 was $0.24 (a
non-GAAP measure).
o Gross margins were 29.0% in the second quarter 2006, as compared
to 25.3% in the second quarter 2005 and 27.1% in the first quarter
2006.
o Cash on hand and short-term investments at the end of the second
quarter 2006 were $197.2 million, more than doubling from $97.2
million at the end of the second quarter 2005 and up $31.4
million, from the end of the first quarter 2006. Cash of $31.7
million was generated from operating activities in the second
quarter of 2006.
o Book-to-bill ratio was 0.91 in the second quarter as compared to
1.01 in the first quarter 2006.
FINANCIAL DETAILS:
Revenues for the second quarter 2006 were $220.0 million with GAAP net income of
$0.23 per diluted share, inclusive of certain items described below. Revenues
grew by $57.8 million or 35.6% and by $11.7 million or 5.6% as compared to the
second quarter 2005 and the first quarter 2006, respectively. Through the first
six months, revenues were $428.3 million, up $130.2 million or 43.7% from the
same period last year. The revenue growth is a result of strong
demand for the Company's Voice over IP (VoIP) and high speed data products as
cable operators rollout telephone service and as their need for higher speed
data service offerings continues to grow.
Net income in the second quarter 2006 was $24.8 million or $0.23 per diluted
share as compared to the second quarter 2005 net income of $7.3 million or $0.08
per diluted share and as compared to the first quarter 2006 net income of $20.7
million or $0.19 per diluted share. Excluding amortization of intangibles,
equity compensation expense and other items, net income was $0.24 per diluted
share in the second quarter 2006. A reconciliation of GAAP to non-GAAP earnings
per share is attached to this release and can also be found on the Company
website. Net income for the first half of 2006 was $45.5 million or $0.42 per
diluted share and compares to $10.7 million or $0.12 per diluted share in the
first half of 2005.
Broadband product revenues were $98.8 million in the second quarter, up
approximately 15.7% from the first quarter 2006 level of $85.4 million. Year to
date Broadband sales of $184.2 million are up 30.7% as compared to year to date
2005 Broadband sales of $140.9 million. This increase was the result of strong
demand for the Company's flagship C4 CMTS and from CBR telephony equipment
sales. Demand for CMTS products has been spurred by the growing threat posed by
telephone companies' FTTX programs and advanced digital subscriber line
technologies and the need for MSOs to offer higher data rates to their
subscribers. Supplies & CPE product revenues were $121.2 million in the second
quarter, up 33.2% as compared to $91.0 million in the second quarter 2005, but
notwithstanding record EMTA unit sales, down approximately 1.5% as compared to
$123.0 million in the first quarter of 2006 due principally to shifts in EMTA
product mix. Year to date Supplies & CPE sales of $244.1 million are up 55.3% as
compared to year to date 2005 Supplies & CPE sales of $157.2 million.
International sales were $58.2 million in the second quarter, up 32.3% as
compared to $44.0 million in the second quarter 2005 and up 14.1% as compared to
$51.0 million in the first quarter 2006. Backlog at the end of the second
quarter was $149.2 million compared to $168.9 million at the end of the first
quarter 2006. Bookings in the second quarter 2006 were $200.3 million as
compared to $210.8 million in the first quarter 2006. The book-to-bill ratio in
the second quarter was approximately 0.91, down from 1.01 in the first quarter
2006 reflecting shortenings of order lead times.
Gross margins were 29.0% in the second quarter as compared to first quarter 2006
margins of 27.1%. The increase reflects margin improvements in both product
categories and a more favorable mix. Gross margins of Broadband products were
46.0% in the second quarter as compared to 45.6% in the first quarter. Gross
margins of the Supplies & CPE products were 15.1% in the second quarter as
compared to 14.3% in the first quarter. Operating expenses were $41.3 million in
the second quarter, which included equity compensation expense of approximately
$2.3 million, previously disclosed technology licensing fees of approximately
$2.4 million, and bad debt income of approximately $1.1 million related to
previously written off receivables. This compares to $36.9
million for the first quarter, which included $2.1 million of equity
compensation expense. Research and development costs included in operating
expenses were $19.3 million in the second quarter, which includes the previously
mentioned technology licensing fees, and compares to $15.1 million in the first
quarter of 2006.
The Company ended the second quarter with $197.2 million of cash on hand and
short-term investments, up from the first quarter level of $165.8 million and up
from the second quarter 2005 level of $97.2 million. Approximately $31.7 million
of cash was generated from operating activities in the second quarter. Inventory
and turns for the second quarter were $91.8 million and 6.5, respectively, as
compared to $99.7 million and 5.7, respectively for the first quarter 2006.
Accounts receivable ended the second quarter at $104.1 million with DSOs of 41
as compared to $91.4 million and DSOs of 38 at the end of the first quarter
2006.
"2006 continues to shape up like a very good year for ARRIS," said Bob
Stanzione, ARRIS Chairman & CEO. "Competition to offer the 'triple-play' of
voice, video and data, as well as ever higher bandwidth speeds within the
industry drives demand for innovative ARRIS products. Our recent announcements
of many new network and CPE products have been well received by our customers.
We expect to see the industry trends for higher bandwidth, bundled services by
the MSOs and even wireless offerings continuing for the foreseeable future."
During the second quarter the Company announced that its VoIP product offerings
had helped UPC reach one million telephony customers in Europe. In addition, the
Company announced a new international customer, Columbus Communications
Trinidad, had selected the C4 CMTS as it prepares to offer the triple-play of
voice, digital video, and high speed data to its customers. Also, in June at
Cable Tec Expo in Denver, the Company demonstrated an Open Standard Switched
Digital Video solution with Vertasent, a leading developer of on-demand
management systems.
"Our results for the second quarter reflected the strong demand for, and
acceptance of, our product offerings," said David Potts, ARRIS EVP & CFO. "As
previously discussed, we expect sales of our CBR products to decline in 2006. In
the third quarter we anticipate a decline in CBR sales while at the same time we
see an increase in sales of our E-MTAs. As a result, we project that our
revenues for the third quarter of 2006 will be in the range of $220 to $230
million with net income per diluted share, on a U.S. GAAP basis in the range of
$0.20 to $0.24 including amortization of intangibles and equity compensation
expense of $0.02."
ARRIS management will conduct a conference call at 8:30am EDT on Thursday, July
27, 2006 to discuss these results in detail. You may participate in this
conference call by dialing 866-425-6192 prior to the start of the call and
providing
the ARRIS Group, Inc. name, conference ID# 7587941 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 July 26,
2006 and the completion of the scheduled conference call on July 27, 2006. A
replay of the conference call can be accessed through Tuesday, August 1, 2006 by
dialing 877-519-4471 and using the PIN#7587941. 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 third quarter 2006 revenues and net income;
o expected sales levels and acceptance of certain ARRIS products;
o the general market outlook; and
o the outlook for industry trends
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 third 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, including its Form 10-Q for
the quarter ended March 31, 2006. 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)
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
2006 2006 2005 2005 2005
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ------------ ------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 167,174 $ 129,559 $ 75,286 $ 48,194 $ 97,194
Short-term investments 30,000 36,250 54,250 46,250 --
--------- --------- --------- --------- ---------
Total cash, cash equivalents and short-term investments 197,174 165,809 129,536 94,444 97,194
Restricted cash 6,112 6,092 6,073 4,053 4,037
Accounts receivable, net 104,143 91,360 83,540 95,791 87,900
Other receivables 4,621 4,138 286 887 288
Inventories, net 91,764 99,673 113,909 90,122 80,869
Prepaids 2,959 4,094 10,945 16,507 3,704
Other current assets 4,119 3,251 4,331 3,691 2,996
--------- --------- --------- --------- ---------
Total current assets 410,892 374,417 348,620 305,495 276,988
Property, plant and equipment, net 24,423 24,327 25,557 26,483 26,351
Goodwill 150,569 150,569 150,569 150,569 150,569
Intangibles, net 483 702 920 1,138 1,356
Investments 3,410 3,358 3,321 3,347 3,223
Other assets 408 388 416 395 399
--------- --------- --------- --------- ---------
$ 590,185 $ 553,761 $ 529,403 $ 487,427 $ 458,886
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,241 $ 41,478 $ 35,920 $ 25,602 $ 30,863
Accrued compensation, benefits and related taxes 14,648 9,503 20,424 16,083 9,927
Accrued warranty 8,296 8,020 8,479 6,724 6,534
Other accrued liabilities 27,012 22,151 20,633 23,104 23,345
--------- --------- --------- --------- ---------
Total current liabilities 90,197 81,152 85,456 71,513 70,669
Accrued pension 13,266 12,943 12,636 11,040 11,574
Other long-term liabilities 5,644 5,618 5,594 5,643 5,637
--------- --------- --------- --------- ---------
109,107 99,713 103,686 88,196 87,880
Stockholders' equity:
Preferred stock -- -- -- -- --
Common stock 1,083 1,081 1,069 1,065 1,053
Capital in excess of par value 744,556 740,954 732,405 727,249 727,096
Unearned compensation -- -- -- -- (8,112)
Unrealized gain on marketable securities 1,165 1,114 1,076 975 838
Unfunded pension losses (4,618) (4,618) (4,618) (3,345) (3,345)
Accumulated deficit (260,081) (284,831) (305,554) (327,520) (346,340)
Unrealized gain (loss) on derivatives (843) 532 1,523 991 --
Cumulative translation adjustments (184) (184) (184) (184) (184)
--------- --------- --------- --------- ---------
Total stockholders' equity 481,078 454,048 425,717 399,231 371,006
--------- --------- --------- --------- ---------
$ 590,185 $ 553,761 $ 529,403 $ 487,427 $ 458,886
========= ========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
----------------------- -----------------------
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net sales $ 219,990 $ 162,201 $ 428,334 $ 298,125
Cost of sales 156,250 121,118 308,087 220,251
--------- --------- --------- ---------
Gross profit 63,740 41,083 120,247 77,874
Gross profit % 29.0% 25.3% 28.1% 26.1%
Operating expenses:
Selling, general, and administrative expenses 21,721 17,214 42,999 33,733
Research and development expenses 19,320 14,336 34,394 29,137
Restructuring and impairment charges 15 198 343 396
Amortization of intangibles 219 218 437 775
--------- --------- --------- ---------
41,275 31,966 78,173 64,041
--------- --------- --------- ---------
Operating income 22,465 9,117 42,074 13,833
Other expense (income):
Interest expense 13 1,004 23 2,022
Loss on debt retirement -- 2,372 -- 2,372
Loss (gain) on investments and notes receivable .. (3) -- (3) 75
Gain on foreign currency (827) (1,078) (1,144) (143)
Interest income (2,081) (713) (3,601) (1,322)
Other (income) expense, net 95 232 201 283
--------- --------- --------- ---------
Income from continuing operations before income taxes 25,268 7,300 46,598 10,546
Income tax expense (benefit) 606 87 1,234 (65)
--------- --------- --------- ---------
Net income from continuing operations 24,662 7,213 45,364 10,611
Income from discontinued operations 88 76 109 86
--------- --------- --------- ---------
Net income $ 24,750 $ 7,289 $ 45,473 $ 10,697
========= ========= ========= =========
Net income per common share - basic:
Income from continuing operations $ 0.23 $ 0.08 $ 0.43 $ 0.12
Income from discontinued operations 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
Net income $ 0.23 $ 0.08 $ 0.43 $ 0.12
========= ========= ========= =========
Net income per common share - diluted:
Income from continuing operations $ 0.23 $ 0.08 $ 0.42 $ 0.12
Income from discontinued operations 0.00 0.00 0.00 0.00
--------- --------- --------- ---------
Net income $ 0.23 $ 0.08 $ 0.42 $ 0.12
========= ========= ========= =========
Weighted average common shares:
Basic 107,099 88,837 106,665 88,348
========= ========= ========= =========
Diluted 109,670 91,356 109,294 90,507
========= ========= ========= =========
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
2006 2005 2006 2005
--------- -------- --------- --------
Operating Activities:
Net income $ 24,750 $ 7,289 $ 45,473 $ 10,697
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 2,440 2,643 5,058 5,370
Amortization of intangibles 219 218 437 775
Equity compensation expense 2,393 1,177 4,641 1,730
Excess tax benefits from stock-based compensation plans (185) -- (354) --
Amortization of deferred finance fees -- 152 -- 305
Provision for doubtful accounts 51 (357) (214) (510)
Gain related to previously written off receivables (1,098) -- (1,573) --
Loss (gain) on disposal of fixed assets (6) 143 (4) 131
Loss on investments and notes receivable -- -- -- 75
Loss on debt retirement -- 2,372 -- 2,372
Impairment of long-lived assets -- -- -- 291
Income from discontinued operations (88) (76) (109) (86)
Changes in operating assets & liabilities, net of effects of acquisitions
and disposals:
Accounts receivable (13,397) (23,355) (20,952) (31,479)
Other receivables (483) 112 (4,335) 132
Inventory 7,909 (4,310) 22,145 12,077
Accounts payable and accrued liabilities 9,164 1,908 5,498 (6,925)
Prepaids and other, net 1 3,027 7,281 2,894
--------- -------- --------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 31,670 (9,057) 62,992 (2,151)
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (2,553) (2,928) (3,942) (4,852)
Cash proceeds from sale of property, plant, and equipment 20 -- 20 40
Cash paid for acquisition, net of cash acquired -- (89) -- (89)
Purchases of short term investments (51,900) -- (51,900) (5,000)
Disposals of short term investments 58,150 81,400 76,150 83,000
Other -- -- -- (259)
--------- -------- --------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,717 78,383 20,328 72,840
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation plans 185 -- 354 --
Proceeds from issuance of common stock and other 2,043 1,322 8,214 1,433
--------- -------- --------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,228 1,322 8,568 1,433
NET INCREASE IN CASH AND CASH EQUIVALENTS 37,615 70,648 91,888 72,122
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 129,559 26,546 75,286 25,072
--------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 167,174 $ 97,194 $ 167,174 $ 97,194
========= ======== ========= ========
ARRIS GROUP, INC.
SUPPLEMENTAL EARNINGS RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
------------------------- ------------------------ ------------------------
Q1 2006 Q2 2006 YTD 2006
------------------------- ------------------------ ------------------------
PER DILUTED PER DILUTED PER DILUTED
AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
--------- ----------- --------- ----------- --------- -----------
Net income (loss) $ 20,723 $ 0.19 $ 24,750 $ 0.23 $ 45,473 $ 0.42
Highlighted items:
Impacting gross margin:
Equity compensation 108 -- 112 -- 220 --
Impacting operating expenses:
Gain related to previously written off
receviables (475) -- (1,098) (0.01) (1,573) (0.01)
Restructuring charges - adjustments to
existing accruals 328 -- 15 -- 343 --
Amortization of intangibles 218 -- 219 -- 437 --
Equity compensation 2,140 0.02 2,281 0.02 4,421 0.04
Impacting discontinued operations:
Restructuring charges - adjustments to
existing accruals (21) -- (88) -- (109) --
--------- ----------- --------- ----------- --------- -----------
Total highlighted items 2,298 0.02 1,441 0.01 3,739 0.03
--------- ----------- --------- ----------- --------- -----------
Net income (loss) excluding highlighted items $ 23,021 $ 0.21 $ 26,191 $ 0.24 $ 49,212 $ 0.45
========= =========== ========= =========== ========= ===========
Weighted average common shares - diluted 109,345 109,670 109,294
=========== =========== ===========
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. In prior periods,
ARRIS highlighted significant losses related to bad debt expense associated with
Adelphia and Cabovisao. ARRIS recognized gains in the first half of 2006
associated with these previously written off receivables. 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 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.