ARRIS Announces Preliminary and Unaudited First Quarter 2016 Results

SUWANEE, Ga., May 4, 2016 /PRNewswire/ -- ARRIS International plc (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the first quarter 2016.

First Quarter 2016 Financial Highlights

• Revenues were $1,614.7 million
• GAAP net income (loss) was $(1.06) per diluted share
• Adjusted net income (a non-GAAP measure) was $0.47 per diluted share
• End-of-quarter cash resources were $676.2 million
• Order backlog was $1,335.1 million
• Book-to-bill ratio was 1.24
• Repurchased approximately 6.4 million shares for $150 million

"We are off to a good start to 2016.  Our first quarter came in stronger than our non-GAAP guidance and we entered the second quarter with positive momentum.  With respect to the second quarter 2016, we expect revenues will be in the range of $1,675 million to $1,725 million, with adjusted net income per diluted share in the range of $0.65 to $0.70 and GAAP net income per diluted share in the range of $0.09 to $0.14.  We are increasingly confident that we are on track to meet the full year targets we laid out at our recent Investor Day," said Bob Stanzione, ARRIS Chairman and CEO. 

On January 4, 2016 the Company completed the acquisition of Pace plc (the "Combination") and, as a result, comparisons to prior periods are materially affected.  First quarter 2016 results include several acquisition related items that significantly impact GAAP earnings and cash flow.

Revenues in the first quarter 2016 of $1,614.7 million were up $399.5 million, or 33%, as compared to first quarter 2015 revenues of $1,215.2 million.  First quarter revenues were also up $513 million, or 47%, as compared to fourth quarter 2015 revenues of $1,101.7 million. 

GAAP net income (loss) in the first quarter 2016 was $(1.06) per diluted share, which includes the impact of various items related to the Combination: 1) withholding tax of $55 million, 2) restructuring costs of $51 million, 3) integration/other deal costs of $40 million, and 4) the impact of revaluing Pace's inventory from historical cost to fair market value as required in purchase accounting of $30 million.  First quarter 2015 GAAP net income was $0.13 per diluted share and fourth quarter 2015 GAAP net income was $0.20 per diluted share.    

Adjusted net income (a non-GAAP measure) in the first quarter 2016 was $0.47 per diluted share, as compared to $0.44 per diluted share for the first quarter 2015, and the fourth quarter 2015 adjusted net income of $0.62 per diluted share.  

A reconciliation of adjusted net income per diluted share to GAAP net income per diluted share is attached to this release and also can be found on the Company's website (www.arris.com).

Cash & Cash Equivalents - The Company borrowed $800 million in the quarter to complete the Combination using $639 million to satisfy the cash portion of the purchase price and retiring $240 million of Pace debt.  At close, $298 million of cash was acquired as part of the Combination.  $225 million of cash was used for operating activities during the first quarter 2016, primarily the result of reducing the acquired accounts payable from Pace.  The Company ended the first quarter 2016 with $676 million of cash resources, while down $203 million from the end of the fourth quarter 2015, the reduction included the repurchase of 6.4 million ordinary shares for $150 million.

Order backlog at the end of the first quarter 2016 was $1,335.1 million as compared to $725.7 million and $715.8 million at the end of the first quarter 2015 and the fourth quarter 2015, respectively. The Company's book-to-bill ratio in the first quarter 2016 was 1.24 as compared to the first quarter 2015 of 1.08 and the fourth quarter 2015 of 1.14.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, May 4, 2016, to discuss these results in detail. You may participate in this conference call by dialing 888-713-4209 or 617-213-4863 for international calls prior to the start of the call and providing the ARRIS International plc name, conference pass code 11922388 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 May 11, 2016, by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 24260601. A replay also will be made available for a period of 12 months following the conference call on ARRIS' website at www.arris.com.

Forward-Looking Statements

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

• revenues and net income for the second quarter 2016, and beyond;
• integration of the recently acquired Pace 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 second quarter and full year 2016, as well as the general outlook for 2016 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;
• the strengthening U.S. Dollar may adversely impact our international customer's ability or willingness to purchase products and the pricing of our products;
• we may fail to realize the expected benefits of the recently completed Pace acquisition and may incur significant additional transaction costs and/or unknown liabilities;
• regulatory changes, including those related to tax, could have an adverse impact on our operations and results of operations;
• our customers operate in a capital intensive consumer based industry, and volatility in the capital markets or changes in customer spending may adversely impact their ability or willingness  to purchase the products that we offer;
• because the market in which we operate 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; and
• announced and recently completed transactions within our customer base, including the proposed acquisition of Cablevision by Altice, and the announced acquisition of Time Warner by Charter, may have an impact on the amount and/or timing of customer's spending.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: rights to intellectual property, including related litigation; the impact of rapidly changing technologies; market trends and the adoption of industry standards.  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 the Company's reports filed with the Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2015. 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.

About ARRIS
ARRIS International plc (NASDAQ: ARRS) is a world leader in entertainment and communications technology. Our innovations combine hardware, software, and services across the cloud, network, and home to power TV and Internet for millions of people around the globe. The people of ARRIS collaborate with the world's top service providers, content providers, and retailers to advance the state of our industry and pioneer tomorrow's connected world. For more information, visit www.arris.com.

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ARRIS and the ARRIS Logo are trademarks or registered trademarks of ARRIS Enterprises, LLC. All other trademarks are the property of their respective owners. © ARRIS Enterprises, LLC. 2016. All rights reserved.

Notes to GAAP to Adjusted Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP" or referred to herein as "reported"). However, management believes that certain non-GAAP financial measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning for and forecasting future periods.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the Company's reported results prepared in accordance with GAAP.  Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

Stock-Based Compensation Expense: We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income (loss) measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of restricted stock units. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods.

Acquisition Accounting Impacts Related to Inventory Valuation:  In connection with the accounting related to our acquisition, business combinations rules require the inventory be recorded at fair value on the opening balance sheet.  This is different from historical cost.  Essentially we are required to write the inventory up to end customer price less a reasonable margin as a distributor.  We have excluded the resulting adjustments in inventory and cost of goods sold.

Integration, Acquisition and Restructuring Costs:  We have excluded the effect of acquisition, integration, and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income (loss) measures. We incurred expenses in connection with the ActiveVideo and the Pace acquisition, which we generally would not otherwise incur in the periods presented as part of our continuing operations. Acquisition and integration expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. Restructuring consists of employee severance and abandoned facilities. We believe it is useful to understand the effects of these items on our total operating expenses.

Amortization of Intangible Assets: We have excluded the effect of amortization of intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Amortization of intangible assets is non-cash, and is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

Noncontrolling Interest share of Non-GAAP Adjustments:  The joint venture formed with Charter for the acquisition of ActiveVideo is accounted for by ARRIS under the consolidation method.  As a result, the consolidated statement of operations include the revenues, expenses, and gains and losses of the noncontrolling interest.  The amount of net income (loss) related to the noncontrolling interest are reported and presented separately in the consolidated statement of operations.  We have excluded the noncontrolling share of any non GAAP adjusted measures recorded by the joint venture, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance. 

Impairment of Investment: We have excluded the effect of an other-than-temporary impairment of a cost method investment in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this non-cash item in our other expense (income). 

Debt Amendment Fees: In 2015, the Company amended its credit agreement.  This debt modification allowed us to improve the terms and conditions of the credit agreement, extend the maturities of certain loan facilities, increase the amount of the revolving credit facility, and add a new term A-1 loan facility.   We have excluded the effect of the associated fees in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this item in our other expense (income).

Credit Facility - Ticking Fees:  In connection with our acquisition of Pace, the cash portion of the consideration was funded through debt financing commitments.  A ticking fee is a fee paid to our banks to compensate for the time lag between the commitment allocation on a loan and the actual funding. We have excluded the effect of the ticking fee in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of this item in our other expense (income). 

Loss on Sale of Building:  In the first quarter of 2015, the Company sold land and a building that qualified for sale-leaseback accounting and was classified as an operating lease.  A loss has been recorded on the sale.  We have excluded the effect of the loss on sale of property in calculating our non-GAAP financial measures. We believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.

Foreign Withholding Tax:  In connection with our acquisition of Pace, ARRIS US Holdings, Inc. transferred shares of its subsidiary ARRIS Financing II Sarl to ARRIS International plc.  Under U.S. tax law, based on the best available information, we believe the transfer constituted a deemed distribution from ARRIS U.S. Holdings Inc. to ARRIS International plc that is treated as a dividend for U.S. tax purposes.  A deemed dividend of this type is subject to  U.S. withholding tax to the extent of the current and accumulated earnings and profits (as computed for tax purposes) ("E&P") of ARRIS U.S. Holdings Inc., which include the E&P of the former ARRIS Group, Inc. and subsidiaries through December 31, 2016.  Accordingly, ARRIS U.S. Holdings Inc. remitted U.S. withholding tax in the amount of $55 million based upon its estimated E&P of $1.1 billion and the U.S. dividend withholding tax rate of 5 percent (as provided in Article 10 (Dividends) of the United Kingdom-United States Tax Treaty).  We have excluded the withholding tax in calculating our non-GAAP financial measures.

Income Tax Expense (Benefit): We have excluded the tax effect of the non-GAAP items mentioned above.  Additionally, we have excluded the effects of certain tax adjustments related to tax and legal restructuring, state valuation allowances, research and development tax credits and provision to return differences.

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SOURCE ARRIS

Bob Puccini, bob.puccini@arris.com, Investor Relations, +1.720.895.7787