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ARRIS Announces Preliminary And Unaudited Second Quarter 2013 Results

August 7, 2013 America/New_York

SUWANEE, Ga., Aug. 7, 2013 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ:ARRS), today announced preliminary and unaudited financial results for the second quarter 2013.

On April 17, 2013 the Company closed the acquisition of Motorola Home.  As a result, comparisons to prior periods will be significantly impacted.

Revenues in the second quarter 2013 were $1,000.4 million as compared to second quarter 2012 revenues of $349.3 million and as compared to first quarter 2013 revenues of $353.7 million.  The Company estimates that prior to the close of the acquisition, Motorola Home recorded approximately $66 million of revenue in the second quarter.  Through the first two quarters of 2013 and 2012, revenues were $1,354.0 million and $652.2 million, respectively.  As previously disclosed, the first quarter 2013 revenue reflects a $13.2 million reduction related to Comcast's investment in ARRIS associated with the Company's acquisition of Motorola Home.

Adjusted net income (a non-GAAP measure) in the second quarter 2013 was $0.46 per diluted share, compared to $0.25 per diluted share for the first quarter 2013 and $0.25 per diluted share for the second quarter 2012.  The Company estimates that prior to the close of the acquisition, Motorola Home  generated an operating loss of approximately $(30) million or an equivalent impact of $(0.15) per share had that result been included in the Company's second quarter results.  Year to date, adjusted net income was $0.72 per diluted share for 2013 as compared to $0.44 per diluted share in 2012.

GAAP net loss in the second quarter 2013 was $(0.37) per diluted share, as compared to second quarter 2012 GAAP net income of $0.13 per diluted share and first quarter 2013 GAAP net loss of $(0.13) per diluted share. Year to date, GAAP net loss was $(0.52) per diluted share in 2013 as compared to GAAP net income of $0.18 per diluted share in 2012.  A reconciliation of adjusted net income to GAAP net income per diluted share is attached to this release and also can be found on the Company's website (www.arrisi.com).

The Company ended the second quarter 2013 with $764.1 million of cash resources, which includes $741.2 million of cash, cash equivalents and short-term investments, and $22.9 million of long-term marketable security investments, as compared to $631.3 million, in the aggregate, at the end of the first quarter 2013.   The Company generated $294.0 million of cash from operating activities during the second quarter 2013 and $344.0 million through the first six months of 2013, which compares to $30.6 million and $65.9 million generated during the same periods in 2012.  Much of the cash from operating activities relates to working capital changes, in particular accounts payable and inventory. Accounts payable was affected by transitional services provided by Google, following the Motorola Home acquisition. In the third quarter 2013 the Company anticipates decreasing accounts payable and accrued liabilities by approximately $200 million.  The Company and Google have settled certain litigation matters for which the Company's maximum liability is $50 million under the terms of the acquisition agreement.  The Company anticipates paying the litigation settlement in the third quarter 2013. 

Order backlog at the end of the second quarter 2013 was $534.9 million as compared to $251.9 million and $282.1 million at the end of the second quarter 2012 and the first quarter 2013, respectively. The Company's book-to-bill ratio in the second quarter 2013 was 0.95 as compared to the second quarter 2012 of 0.93 and the first quarter 2013 of 1.17.

"I am very pleased with our second quarter and first half results. The industry continues to react positively to our Motorola Home acquisition.  Our integration plans are well on their way and ahead of schedule," said Bob Stanzione, ARRIS Chairman and CEO.  "I am encouraged by the progress we are making in delivering new products to our customers and by an improving business climate."

"Our second quarter results were in line with our previously announced revenue guidance and above our Non GAAP EPS guidance, reflecting a strong start to our integration actions," said David Potts, ARRIS EVP & CFO.  "With respect to the third quarter 2013, we now project that revenues for the Company will be in the range of $1,050 to $1,080 million, with adjusted net income per diluted share in the range of $0.32 to $0.37 and GAAP net loss per diluted share in the range of $(0.07) to $(0.12)."

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, August 7, 2013, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4213 or 617-213-4865 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 18982813 and Bob Puccini as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the conference call. A replay of the conference call can be accessed approximately two hours after the call through August 12, 2013 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24874293. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arrisi.com.

About ARRIS

ARRIS is a premier video and broadband technology company that transforms how service providers worldwide deliver entertainment and communications without boundaries.  Its powerful end-to-end platforms enable service and content providers to improve the way people connect – with each other and with their favorite content.  The Company's vision and expertise continue to drive the industry's innovations, as they have for more than 60 years. Headquartered north of Atlanta, in Suwanee, Georgia, ARRIS has R&D, sales and support centers throughout the world. For more information: www.arrisi.com

Forward-looking statements:

Statements made in this press release, including those related to:

  • growth expectations and business prospects;
  • revenues and net income for the third quarter 2013, and beyond;
  • the integration of the Motorola Home business
  • expected sales levels and acceptance of new ARRIS products; and
  • the general market outlook and 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,

  • projected results for the third quarter 2013 as well as the general outlook for 2013 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;
  • we may encounter difficulties in combining the Motorola Home operations with ours, including difficulties combining personnel, facilities, and other operations or preserving customer relationships;
  • ARRIS' customers operate in a capital intensive consumer based industry, and the current volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness  to purchase the products that the Company offers; and
  • 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 uncertain current economic climate and its impact on our customers' plans and access to capital; 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, 2013.  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.

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


























June 30,

March 31,

December 31,

September 30,

June 30,


2013

2013

2012

2012

2012












ASSETS






















Current assets:










Cash and cash equivalents

$       610,502

$       423,551

$       131,703

$       188,653

$       199,395

Short-term investments, at fair value

130,723

184,838

398,414

359,753

340,166

   Total cash, cash equivalents and short term investments

741,225

608,389

530,117

548,406

539,561












Restricted cash

3,801

4,689

4,722

4,665

3,942

Accounts receivable, net

662,156

206,236

188,581

171,143

179,371

Other receivables 

11,007

3,743

350

578

1,414

Inventories, net

320,778

126,530

133,848

137,496

102,361

Prepaid income taxes

38,186

10,703

9,235

8,300

4,090

Prepaids

17,296

13,227

11,682

12,408

12,124

Current deferred income tax assets

127,225

25,927

24,944

20,787

21,972

Other current assets

283,491

13,674

16,413

10,607

12,676

   Total current assets

2,205,165

1,013,118

919,892

914,390

877,511












Property, plant and equipment, net 

404,157

54,109

54,378

54,593

56,175

Goodwill

807,142

193,976

194,115

194,469

194,626

Intangible assets, net

1,372,196

86,926

94,529

102,258

110,000

Investments

78,733

55,938

86,164

57,483

70,967

Noncurrent deferred income tax assets

12,340

52,410

47,431

49,589

47,228

Other assets

55,476

11,089

9,385

9,913

10,575


$     4,935,209

$     1,467,566

$     1,405,894

$     1,382,695

$     1,367,082
























LIABILITIES AND STOCKHOLDERS' EQUITY






















Current liabilities:










Accounts payable

$       485,291

$         47,783

$         45,719

$         49,061

$         44,800

Accrued compensation, benefits and related taxes

88,382

36,791

29,773

35,066

28,165

Accrued warranty

40,206

2,768

2,882

3,036

2,995

Deferred revenue

80,254

61,431

44,428

50,859

63,023

Current portion of LT debt

289,990

225,368

222,124

-

-

Current income taxes liability

8,887

350

853

-

56

Other accrued liabilities

498,788

59,055

24,942

21,768

23,924

   Total current liabilities

1,491,798

433,546

370,721

159,790

162,963

Long-term debt, net of current portion

1,837,952

-

-

218,943

215,823

Accrued pension

60,216

27,200

26,883

26,172

25,696

Accrued severance liability, net of current portion

3,782

4,262

4,119

3,895

3,758

Noncurrent income taxes payable

35,320

30,168

24,389

24,434

26,676

Noncurrent deferred income tax liabilities

190,176

351

351

334

340

Other noncurrent liabilities

48,196

18,836

19,043

20,362

21,039

Total liabilities

3,667,440

514,363

445,506

453,930

456,295












Stockholders' equity:










Preferred stock

-

-

-

-

-

Common stock

1,726

1,509

1,488

1,479

1,473

Capital in excess of par value

1,657,383

1,292,971

1,285,575

1,270,561

1,259,946

Treasury stock at cost

(306,330)

(306,330)

(306,330)

(306,330)

(295,960)

Unrealized gain (loss) on marketable securities

(19)

288

206

74

211

Unfunded pension liability

(8,558)

(8,592)

(8,558)

(10,231)

(10,231)

Accumulated deficit

(76,736)

(26,459)

(11,809)

(26,604)

(44,468)

Cumulative translation adjustments

303

(184)

(184)

(184)

(184)

   Total stockholders' equity

1,267,769

953,203

960,388

928,765

910,787


$     4,935,209

$     1,467,566

$     1,405,894

$     1,382,695

$     1,367,082

 

 

 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)









For the Three Months

For the Six Months

Ended June 30,

Ended June 30,

2013

2012

2013

2012








Net sales

$1,000,362

$    349,327

$1,354,012

$   652,227

Cost of sales

769,285

230,801

1,014,409

424,793

Gross margin

231,077

118,526

339,603

227,434

 

Operating expenses:






Selling, general, and administrative expenses

87,774

40,135

127,900

79,678

Research and development expenses

123,400

42,881

167,482

87,028

Acquisition and other costs

19,392

102

26,582

709

Loss on sale of product line

-

-

-

337

Restructuring charges

32,257

1,039

32,266

6,242

Amortization of intangible assets

58,130

7,444

65,733

14,823

320,953

91,601

419,963

188,817

Operating income 

(89,876)

26,925

(80,360)

38,617

Other expense (income):






Interest expense

18,612

4,422

23,243

8,772

Loss (gain) on investments

(728)

356

(1,293)

(605)

Loss on foreign currency

206

540

1,027

1,348

Interest income

(640)

(729)

(1,478)

(1,484)

Other (income) expense, net

(7,735)

(226)

11,681

(662)

Income (loss) from continuing operations before income taxes

(99,591)

22,562

(113,540)

31,248

Income tax expense (benefit)

(49,314)

7,561

(48,613)

10,448

   Net income (loss)

$    (50,277)

$     15,001

$    (64,927)

$     20,800








Net income (loss) per common share:






Basic

$       (0.37)

$         0.13

$       (0.52)

$        0.18

Diluted

$       (0.37)

$         0.13

$       (0.52)

$        0.18








Weighted average common shares:






Basic

134,626

113,842

124,940

114,457

Diluted

134,626

115,111

124,940

116,352

 

ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)





For the Three Months

For the Six Months





Ended June 30,

Ended June 30,





2013

2012

2013

2012












Operating Activities:








Net income

$        (50,277)

$         15,001

$      (64,927)

$       20,800


Depreciation

15,609

6,982

22,118

14,177


Amortization of intangible assets

58,130

7,444

65,733

14,823


Amortization of deferred finance fees

2,077

160

2,237

320


Non-cash interest expense

3,308

3,058

6,552

6,057


Deferred income tax provision (benefit)

(35,202)

(5,085)

(41,197)

(9,720)


Stock compensation expense

7,180

7,867

13,924

14,516


Reduction in revenue related to Comcast investment in ARRIS

-

-

13,182

-


Mark-to-market fair value adjustment related to Comcast investment in ARRIS

(6,159)

-

13,189

-


Provision for doubtful accounts

-

-

-

54


Loss on sale of product line

-

-

-

337


Loss (gain) on disposal of fixed assets

(34)

3

(38)

6


Gain on investments

(428)

356

(992)

(605)


Gain on equity investments

(301)

-

(301)

-


Excess tax benefits from stock-based compensation plans

(1,111)

(806)

(5,770)

(2,460)

Changes in operating assets & liabilities, net of effects of acquisitions and disposals:









Accounts receivable

1,141

4,056

(16,514)

(27,743)


Other receivables

(3,238)

3,700

(7,127)

7,393


Inventory

85,314

2,753

92,632

9,996


Income taxes payable/recoverable

(20,441)

2,087

(16,633)

8,452


Accounts payable and accrued liabilities

223,282

(17,262)

251,296

5,136


Other, net

15,102

279

16,645

4,327



Net cash provided by operating activities

293,952

30,593

344,009

65,866












Investing Activities:








Purchases of investments

(58,021)

(62,587)

(58,021)

(140,353)

Disposals of investments

113,310

31,253

358,021

83,161

Purchases of property & equipment, net

(15,113)

(5,494)

(21,402)

(9,256)

Sale of property & equipment

37

-

90

-

Cash paid for acquisition, net of cash acquired

(2,159,762)

-

(2,159,762)

-

Sale of product line

-

-

-

3,249



Net cash used in investing activities

(2,119,549)

(36,828)

(1,881,074)

(63,199)












Financing Activities:








Proceeds from issuance of debt

1,925,000

-

1,925,000

-

Cash paid for debt discount

(9,853)

-

(9,853)

-

Payment of debt obligations

(15,813)

-

(15,813)

-

Early redemption of long-term debt

(79)

-

(79)

-

Deferred financing costs paid

(42,207)

-

(42,207)

-

Repurchase of common stock

-

(15,236)

-

(41,551)

Excess income tax benefits from stock-based compensation plans

1,111

806

5,770

2,460

Repurchase of shares to satisfy employee tax withholdings

(415)

(19)

(12,407)

(8,052)

Fees and proceeds from issuance of common stock, net

154,804

4,271

165,453

7,996



Net cash used in financing activities

2,012,548

(10,178)

2,015,864

(39,147)



Net increase (decrease) in cash and cash equivalents

186,951

(16,413)

478,799

(36,480)

Cash and cash equivalents at beginning of period

423,551

215,808

131,703

235,875

Cash and cash equivalents at end of period

$       610,502

$       199,395

$      610,502

$      199,395

 

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION















(in thousands, except per share data)

Q1 2013

Q2 2013

YTD 2013




Per Diluted


Per Diluted





Amount

Share

Amount

Share

Amount


Sales 

$  353,650


$ 1,000,362


$ 1,354,012















Highlighted items:











   Reduction in revenue related to Comcast investment in ARRIS

13,182


-


13,182


   Purchase accounting impacts of deferred revenue

-


2,417


2,417


Sales excluding highlighted items

$  366,832


$ 1,002,779


$ 1,369,611





























Q1 2013

Q2 2013

YTD 2013




Per Diluted


Per Diluted


Per Diluted


Amount

Share

Amount

Share

Amount

Share

Net income (loss)

$   (14,650)

$          (0.13)

$     (50,277)

$          (0.37)

$     (64,927)

$          (0.52)














Highlighted items:











  Impacting gross margin:











     Reduction in revenue related to Comcast investment in ARRIS

13,182

0.11

-

-

13,182

0.10

     Acquisition accounting impacts related to Motorola Home fair value of inventory

-

-

57,600

0.42

57,600

0.45

     Product rationalization

-

-

13,582

0.10

13,582

0.11

     Stock compensation expense

831

0.01

866

0.01

1,697

0.01

     Acquisition accounting impacts related to Motorola Home deferred revenue

-

-

1,472

0.01

1,472

0.01



























  Impacting operating expenses:











     Acquisition costs and other

7,190

0.06

19,392

0.14

26,582

0.21

     Restructuring

9

-

32,257

0.24

32,266

0.25

     Amortization of intangible assets

7,603

0.06

58,130

0.43

65,733

0.51

     Stock compensation expense

5,913

0.05

6,314

0.05

12,227

0.10














  Impacting other (income) / expense:











     Non-cash interest expense

3,244

0.03

3,308

0.02

6,552

0.05

     Credit facility - ticking Fees

388

-

477

-

865

0.01

     Mark to market FV adjustment related to Comcast investment in ARRIS

19,348

0.16

(6,159)

(0.05)

13,189

0.10














  Impacting income tax expense:











     Adjustments of income tax valuation allowances and other

(7,516)

(0.06)

-

-

(7,516)

(0.06)

  Tax related to highlighted items above

(5,735)

(0.05)

(74,784)

(0.55)

(80,520)

(0.63)














Total highlighted items

44,457

0.37

112,455

0.82

156,911

1.23

Net income excluding highlighted items

$    29,807

$           0.25

$      62,178

$           0.46

$      91,984

$           0.72














Weighted average common shares - basic

115,150


134,626


124,940

Weighted average common shares - diluted

119,022


136,626


127,731








































(in thousands, except per share data)

Q1 2012

Q2 2012

YTD 2012




Per Diluted


Per Diluted





Amount

Share

Amount

Share

Amount


Sales 

$  302,901


$    349,327


$    652,228















Highlighted items:











     Purchase accounting impacts of deferred revenue

1,258

0.01

663

-

1,921


Sales excluding highlighted items

$  304,159


$    349,990


$    654,149





























Q1 2012

Q2 2012

YTD 2012




Per Diluted


Per Diluted


Per Diluted


Amount

Share

Amount

Share

Amount

Share

Net income

$     5,799

$           0.05

$      15,001

$           0.13

$      20,800

$           0.18














Highlighted items:











  Impacting gross margin:











     Acquisition accounting impacts related to Motorola Home deferred revenue

1,258

0.01

663

-

1,921

0.02

     Stock compensation expense

750

0.01

809

0.01

1,559

0.01














  Impacting operating expenses:











     Acquisition costs and other

944

0.01

102

-

1,046

0.01

     Restructuring

5,203

0.04

1,039

0.01

6,242

0.05

     Amortization of intangible assets

7,379

0.06

7,444

0.05

14,823

0.12

     Stock compensation expense

5,899

0.05

7,058

0.05

12,957

0.10














  Impacting other (income) / expense:











     Non-cash interest expense

2,999

0.03

3,058

0.02

6,057

0.05

     Impairment of investment

-

-

466

-

466

-














  Tax related to highlighted items above

(8,121)

(0.07)

(6,749)

(0.05)

(14,870)

(0.12)














Total highlighted items

16,311

0.14

13,890

0.12

30,201

0.26

Net income excluding highlighted items

$    22,110

$           0.19

$      28,891

$           0.25

$      51,001

$           0.44



























Weighted average common shares - diluted

117,597


115,111


116,514


























 

 

 

SOURCE ARRIS Group, Inc.

Bob Puccini, Investor Relations, (720) 895-7787, bob.puccini@arrisi.com

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