ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2011 Results
SUWANEE, Ga., Feb. 8, 2012 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the fourth quarter and full year 2011.
Revenues in the fourth quarter 2011 were $281.1 million, up from both the fourth quarter 2010 revenues of $266.2 million, and third quarter 2011 revenues of $274.4 million. Full year 2011 and 2010 revenues were $1,088.7 million and $1,087.5 million, respectively.
Adjusted net income (a non-GAAP measure) in the fourth quarter 2011 was $0.21 per diluted share, compared to $0.19 per diluted share for the fourth quarter 2010 and $0.21 per diluted share for the third quarter of 2011. Adjusted net income in the fourth quarter 2011 includes approximately $(0.01) net loss per diluted share related to BigBand's operations (excluding acquisition, severance, amortization expenses). Adjusted net income was $0.82 per diluted share for the full year 2011 and compares to $0.85 per diluted share for the full year 2010.
During the fourth quarter the company recorded an estimated non-cash goodwill and intangible assets impairment associated with the MCS segment (net of related estimated tax benefits) of approximately $(59) million, or $(0.50) per diluted share, resulting from the Company's lower year over year long-term projections for this segment. This analysis is not complete and the impairment related estimates may change when the analysis is completed. As a result, the GAAP net loss in the fourth quarter 2011 is estimated to be $(0.47) per diluted share, as compared to fourth quarter 2010 GAAP net income of $0.09 per diluted share and third quarter 2011 GAAP net income of $0.11 per diluted share. Full year 2011 GAAP net loss is estimated to be $(0.11) per diluted share as compared to GAAP net income of $0.50 per diluted share in 2010. Significant GAAP items that have been adjusted in computing adjusted net income and adjusted net income per diluted share include: purchase accounting impacts related to acquired deferred revenue; amortization of intangible assets; goodwill, intangible and long term investment impairments; equity compensation; non-cash interest expense; acquisition and restructuring charges; and certain discrete tax items. A reconciliation of adjusted net income to GAAP net income (loss) per diluted share is attached to this release and also can be found on the Company's website (www.arrisi.com).
Gross margin for the fourth quarter 2011 was 37.9%, which compares to the fourth quarter 2010 gross margin of 36.2% and the third quarter 2011 gross margin of 36.5%.
The Company ended the fourth quarter 2011 with $561.1 million of cash resources, which includes $518.8 million of cash, cash equivalents and short-term investments, and $42.3 million of long-term marketable security investments, as compared to $620.1 million at the end of the fourth quarter 2010 and $590.6 million at the end of the third quarter 2011. During the fourth quarter the Company used $34.4 million to repurchase 3.3 million shares of its common stock. During 2011, the Company used a total of $109.1 million to repurchase 10.0 million shares of its common stock and $5 million in face value of convertible notes. Also, in the fourth quarter 2011 the Company used approximately $53 million of cash (net of cash and marketable securities acquired) to complete the acquisition of BigBand Networks. The Company generated $60.9 million of cash from operating activities during the fourth quarter 2011 and $113.2 million during the full year 2011, which compares to $22.6 million and $118.5 million during the same periods in 2010, respectively.
Order backlog at the end of the fourth quarter 2011 was $148.5 million as compared to $140.4 million and $155.3 million at the end of the fourth quarter 2010 and the third quarter 2011, respectively. The Company's book-to-bill ratio in the fourth quarter 2011 was 0.98 as compared to the fourth quarter 2010 of 1.08 and the third quarter 2011 of 1.00.
"Our business continues to be driven by the dramatic rise in the number and usage of connected devices in the home. This in turn drove strong demand for our products during the December quarter. Our customers continue to increase their broadband market share and expand their networks as they meet subscribers' demand for more bandwidth," said Bob Stanzione, ARRIS Chairman & CEO, "Looking forward, I believe we are well positioned for revenue growth as we continue to see gathering momentum across our entire product line."
During the fourth quarter, the Company closed its acquisition of BigBand Networks. This acquisition supports the Company's strategy of expanding its video product suite and the ongoing investment in the evolution towards network convergence onto an all IP platform.
"With respect to the first quarter, we now project that revenues for the Company will be in the range of $285 to $305 million, with adjusted net income per diluted share in the range of $0.13 to $0.17 and GAAP net income per diluted share in the range of $0.01 to $0.05," said David Potts, ARRIS EVP & CFO. "Included in our first quarter guidance we estimate an approximate non-GAAP $(0.03) per diluted share loss related to the full quarter inclusion of BigBand in our results. Also, Congress has not renewed the R&D tax credit legislation resulting in an approximate $(0.01) per diluted share impact in the first quarter."
ARRIS management will conduct a conference call at 5:00 pm EST, today, Wednesday, February 8, 2012, to discuss these results in detail. You may participate in this conference call by dialing 888-680-0879 or 617-213-4856 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 14376738 and Jim Bauer as the moderator. Please note that ARRIS will not accept any calls related to this earnings release until after the conclusion of the 5:00 pm EST conference call. A replay of the conference call can be accessed approximately two hours after the call through Monday, February 13, 2012 by dialing 888-286-8010 or 617-801-6888 for international calls and using the pass code 16001901. 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 global communications technology company specializing in the design, engineering and supply of communications and IP technologies that support broadband services for residential and business customers around the world. The company supplies broadband operators with the tools and platforms they need to deliver and monitor advanced video, data and voice subscriber services, including whole home video across multiple screens, ultra high-speed data, personalized advertising and carrier-grade telephony. Headquartered near Atlanta, in Suwanee, Georgia, USA, ARRIS has R&D centers in Beaverton, OR; Beijing, China, Chicago, IL; Cork, Ireland; Kirkland, WA; Redwood City, CA; Shenzhen, China; State College, PA; Tel Aviv, Israel; Wallingford, CT and Waltham, MA, and operates support and sales offices 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:
-- growth expectations and business prospects;
-- revenues and net income for the first quarter 2012, full year 2012, and
beyond;
-- expected market and product expansion;
-- 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 first quarter as well as the general outlook
for 2012 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;
-- 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 materially 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 September 30, 2011. 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)
September
December 31, 30, June 30, March 31, December 31,
2011 2011 2011 2011 2010
---- ---- ---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $235,875 $354,659 $360,281 $358,747 $353,121
Short-term investments, at
fair value 282,904 220,318 231,254 260,862 266,981
------- ------- ------- ------- -------
Total cash, cash equivalents
and short term investments 518,779 574,977 591,535 619,609 620,102
Restricted cash 4,101 3,647 3,646 4,176 4,937
Accounts receivable, net 152,437 165,821 152,436 149,976 125,933
Other receivables 8,789 5,296 406 5,275 6,528
Inventories, net 115,912 116,769 113,020 105,787 101,763
Prepaids 10,408 10,692 10,272 12,115 9,237
Current deferred income tax
assets 22,048 24,239 22,681 20,450 19,819
Other current assets 28,148 21,695 25,216 33,535 33,054
------ ------ ------ ------ ------
Total current assets 860,622 923,136 919,212 950,923 921,373
Property, plant and
equipment, net 61,375 57,619 57,100 56,617 56,306
Goodwill 194,047 233,430 233,440 233,471 234,964
Intangible assets, net 131,192 141,784 150,728 159,672 168,616
Investments 71,095 47,221 34,237 32,787 31,015
Noncurrent deferred income
tax assets 35,982 9,637 9,839 10,183 6,293
Other assets 10,997 5,400 5,878 5,798 5,520
------ ----- ----- ----- -----
$1,365,310 $1,418,227 $1,410,434 $1,449,451 $1,424,087
========== ========== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $40,671 $38,918 $27,825 $35,796 $50,736
Accrued compensation,
benefits and related taxes 36,764 25,320 20,832 26,278 28,778
Accrued warranty 3,350 2,933 3,300 2,931 2,945
Deferred revenue 43,746 39,094 47,166 43,019 31,625
Other accrued liabilities 32,907 19,653 17,805 17,594 18,847
------ ------ ------ ------ ------
Total current liabilities 157,438 125,918 116,928 125,618 132,931
Long-term debt, net of
current portion 209,766 206,825 208,336 205,447 202,615
Accrued pension 25,260 17,989 17,730 17,472 17,213
Accrued severance liability 4,191 - - - -
Noncurrent income taxes
payable 24,450 22,471 21,844 21,844 17,702
Noncurrent deferred income
tax liabilities - 21,117 24,808 25,827 29,151
Other noncurrent liabilities 23,088 16,253 17,367 18,271 15,406
------ ------ ------ ------ ------
Total liabilities 444,193 410,573 407,013 414,479 415,018
Stockholders' equity:
Preferred stock - - - - -
Common stock 1,449 1,446 1,443 1,438 1,409
Capital in excess of par
value 1,245,115 1,237,852 1,228,729 1,219,615 1,206,157
Treasury stock at cost (254,409) (220,034) (202,933) (145,286) (145,286)
Unrealized gain (loss) on
marketable securities (648) 26 1,530 1,244 392
Unfunded pension liability (9,850) (5,813) (5,813) (5,813) (5,813)
Accumulated deficit (60,356) (5,639) (19,351) (36,042) (47,606)
Cumulative translation
adjustments (184) (184) (184) (184) (184)
---- ---- ---- ---- ----
Total stockholders' equity 921,117 1,007,654 1,003,421 1,034,972 1,009,069
------- --------- --------- --------- ---------
$1,365,310 $1,418,227 $1,410,434 $1,449,451 $1,424,087
========== ========== ========== ========== ==========
ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
2011 2010 2011 2010
---- ---- ---- ----
Net
sales $281,076 $266,168 $1,088,685 $1,087,506
Cost
of
sales 174,531 169,855 678,172 663,417
------- ------- ------- -------
Gross
margin 106,545 96,313 410,513 424,089
Operating
expenses:
Selling,
general,
and
administrative
expenses 40,829 34,205 148,755 137,694
Research
and
development
expenses 37,785 35,427 146,519 140,468
Acquisition
costs 2,730 - 3,205 -
Restructuring
charges 3,391 (8) 4,360 65
Goodwill
and
intangibles
impairment 82,561 - 82,561 -
Amortization
of
intangible
assets 6,520 8,944 33,352 35,957
173,816 78,568 418,752 314,184
------- ------ ------- -------
Operating
income
(loss) (67,271) 17,745 (8,239) 109,905
Other
expense
(income):
Interest
expense 4,258 4,237 16,940 17,965
Impairment
of
investment 3,000 - 3,000 -
Gain
on
investments (926) (13) (1,430) (414)
Gain
on
foreign
currency (705) (327) (579) (44)
Interest
income (715) (528) (3,154) (1,997)
Loss
(gain)
on
debt
redemption - 5 19 (373)
Other
(income)
expense,
net (211) 31 (893) 138
---- --- ---- ---
Income
(loss)
from
continuing
operations
before
income
taxes (71,972) 14,340 (22,142) 94,630
Income
tax
expense
(benefit) (17,255) 3,019 (9,392) 30,502
------ ------
Net
income
(loss) $(54,717) $11,321 $(12,750) $64,128
======== ======= ======== =======
Net
income
(loss)
per
common
share:
Basic $(0.47) $0.09 $(0.11) $0.51
====== ===== ====== =====
Diluted $(0.47) $0.09 $(0.11) $0.50
====== ===== ====== =====
Weighted
average
common
shares:
Basic 117,316 122,866 120,157 125,157
======= ======= ======= =======
Diluted 117,316 125,758 120,157 128,271
======= ======= ======= =======
ARRIS GROUP, INC.
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months For the Twelve Months
Ended December 31, Ended December 31,
------------------ ------------------
2011 2010 2011 2010
---- ---- ---- ----
Operating Activities:
Net income (loss) $(54,717) $11,321 $(12,750) $64,128
Depreciation 6,589 5,972 24,139 22,865
Amortization of intangible assets 6,520 8,944 33,352 35,956
Amortization of deferred finance fees 160 164 647 691
Impairment of goodwill & intangibles 82,561 - 82,561 -
Non-cash interest expense 2,941 2,777 11,545 11,325
Deferred income tax provision (benefit) 2,997 5,990 (12,490) 8,588
Deferred income tax related to goodwill
& intangible impairment (23,242) - (23,242) -
Stock compensation expense 5,108 5,769 22,055 21,827
Provision for doubtful accounts 201 (366) 200 (283)
Loss (gain) on debt retirement - 5 19 (373)
Loss on disposal of fixed assets 10 37 16 406
Gain on investments (926) (13) (1,430) (414)
Impairment of investment 3,000 - 3,000 -
Excess tax benefits from stock-based
compensation plans (679) (69) (3,668) (2,752)
Changes in operating assets & liabilities, net of
effects of acquisitions and disposals:
Accounts receivable 17,794 8,348 (22,093) 18,058
Other receivables (1,618) (2,819) (1,635) (59)
Inventory 7,862 (12,560) (7,144) (5,912)
Income taxes payable/recoverable (2,158) (3,614) 15,795 (17,787)
Accounts payable and accrued
liabilities 7,003 (6,082) 671 (48,308)
Other, net 1,476 (1,236) 3,605 10,553
----- ------ ----- ------
Net cash provided by operating
activities 60,882 22,568 113,153 118,509
Investing Activities:
Purchases of investments (49,833) (182,829) (277,937) (514,376)
Disposals of investments 36,547 204,163 296,774 364,077
Purchases of property & equipment, net (4,359) (5,518) (23,307) (22,645)
Cash proceeds from sale of property &
equipment 14 2 84 245
Cash paid for acquisition, net of cash
acquired (1) (130,227) (4,000) (130,227) (4,000)
-------- ------ -------- ------
Net cash provided by (used in)
investing activities (147,858) 11,818 (134,613) (176,699)
Financing Activities:
Payment of debt obligations - (12) - (124)
Early redemption of long-term debt - (4,956) (4,984) (23,287)
Repurchase of common stock (34,375) (30,038) (109,123) (69,326)
Excess income tax benefits from stock-
based compensation plans 679 69 3,668 2,752
Repurchase of shares to satisfy
employee tax withholdings (72) (25) (8,332) (6,447)
Fees and proceeds from issuance of
common stock, net 1,960 1,803 22,985 7,178
----- ----- ------ -----
Net cash used in financing activities (31,808) (33,159) (95,786) (89,254)
Net increase (decrease) in cash and
cash equivalents (118,784) 1,227 - (117,246) (147,444)
Cash and cash equivalents at beginning
of period 354,659 351,894 353,121 500,565
------- ------- ------- -------
Cash and cash equivalents at end of
period $235,875 $353,121 $235,875 $353,121
======== ======== ======== ========
(1) Excludes $77,074 thousand of short and long-term investments acquired from BigBand in
2011
ARRIS GROUP, INC.
PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION
(in thousands, except per share data) (unaudited)
Q4 2011 YTD 2011
------- --------
Amount Amount
------ ------
Sales $281,076 $1,088,685
Highlighted items:
Purchase accounting impacts of deferred revenue 4,332 4,332
Sales excluding highlighted items $285,408 $1,093,017
======== ==========
Q4 2011 YTD 2011 Q4 2010 YTD 2010
------- -------- ------- --------
Per Diluted Per Diluted Per Diluted Per Diluted
Amount Share Amount Share Amount Share Amount Share
------ ----- ------ ----- ------ ----- ------ -----
Net income (loss) $(54,717) $(0.47) $(12,750) $(0.11) $11,321 $0.09 $64,128 $0.50
Highlighted items:
Impacting gross margin:
Purchase accounting impacts of deferred revenue 3,126 0.03 3,126 0.03 - - - -
Stock compensation expense 521 - 2,040 0.02 492 - 1,897 0.01
Impacting operating expenses:
Acquisition costs 2,730 0.02 3,205 0.03 - - - -
Restructuring 3,391 0.03 4,360 0.04 (8) - 65 -
Amortization of intangible assets 6,520 0.05 33,352 0.27 8,944 0.07 35,957 0.28
Goodwill and intangibles impairment 82,561 0.69 82,561 0.67 - - - -
Stock compensation expense 4,587 0.04 20,015 0.16 5,277 0.04 19,930 0.15
Impacting other (income) / expense:
Non-cash interest expense 2,941 0.02 11,545 0.09 2,777 0.02 11,325 0.09
Impairment of investment 3,000 0.03 3,000 0.02 - - - -
Loss on retirement of debt - - 19 - 5 - (373) -
Impacting income tax expense:
Adjustments of income tax valuation allowances and
other 2,344 0.02 (3,573) (0.03) 1,058 0.01 889 0.01
Tax impact related to goodwill and intangibles
impairment (23,242) (0.19) (23,242) (0.19) - - - -
Tax related to highlighted items above, except
goodwill and (8,448) (0.07) (23,652) (0.19) (6,503) (0.05) (24,311) (0.19)
intangibles impairment
Total highlighted items 80,031 0.67 112,756 0.92 12,042 0.10 45,379 0.35
------ ---- ------- ---- ------ ---- ------ ----
Net income excluding highlighted items $25,314 $0.21 $100,006 $0.82 $23,363 $0.19 $109,507 $0.85
======= ===== ======== ===== ======= ===== ======== =====
Weighted average common shares - basic 117,316 120,157
======= =======
Weighted average common shares - diluted (1) 119,609 122,555 125,758 128,271
======= ======= ======= =======
(1) Basic shares used for 2001 as losses were reported for those periods and the inclusion of dilutive shares would be antidilutive
See Notes to GAAP to Adjusted Non-GAAP Financial Measures
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:
Purchase Accounting Impacts Related to Deferred Revenue: In connection with our acquisition of BigBand, business combination rules require us to account for the fair values of arrangements for which acceptance has not been obtained, and post contract support in our purchase accounting. The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business. We have historically experienced high renewal rates related to our support agreements and our objective is to increase the renewal rates on acquired post contract support agreements; however, we cannot be certain that our customers will renew our contracts.
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 options and restricted stock. 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 Costs: We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net income (loss) measures. We incurred significant expenses in connection with our recent acquisition of BigBand, which we generally would not have otherwise incurred in the periods presented as part of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related outside services. We believe it is useful to understand the effects of these items on our total operating expenses.
Restructuring Costs: We have excluded the effect of restructuring charges in calculating our non-GAAP operating expenses and net income (loss) measures. Restructuring expenses consist of employee severance, abandoned facilities, and other exit costs. 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.
Impairment of Goodwill and Intangibles: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income (loss) measures. Although an impairment does not directly impact the Company's current cash position, such expense represents the declining value of the technology and other intangibles assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.
Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in calculating our non-GAAP operating expenses and net income (loss) measures. We record the accretion of the debt discount related to the equity component non-cash interest expense. We believe it is useful to understand the component of interest expense that will not be paid out in cash.
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).
Loss (Gain) on Retirement of Debt: We have excluded the effect of the loss (gain) on retirement of debt in calculating our non-GAAP financial measures. We believe it is useful for investors to understand the effect of this non-cash item in our other expense (income).
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 state valuation allowances, research and development tax credits and provision to return differences.
SOURCE ARRIS Group, Inc.