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ARRIS Announces Preliminary And Unaudited First Quarter 2013 Results

April 24, 2013 America/New_York

SUWANEE, Ga., April 24, 2013 /PRNewswire/ -- ARRIS Group, Inc. (NASDAQ: ARRS), today announced preliminary and unaudited financial results for the first quarter 2013.

Revenues in the first quarter 2013 reflect a $13.2 million reduction related to Comcast's investment in ARRIS associated with the Company's acquisition of Motorola Home, which closed on April 17, 2013.  Prior to the adjustment, revenues were $366.8 million.  Including the adjustment, revenues were $353.7 million as compared to first quarter 2012 revenues of $302.9 million and as compared to fourth quarter 2012 revenues of $344.0 million.    

Adjusted net income (a non-GAAP measure) in the first quarter 2013 was $0.25 per diluted share, compared to $0.19 per diluted share for the first quarter 2012 and $0.28 per diluted share for the fourth quarter 2012. GAAP net loss in the first quarter 2013 was $(0.13) per diluted share, as compared to first quarter 2012 GAAP net income of $0.05 per diluted share and fourth quarter 2012 GAAP net income of $0.13 per diluted share. 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).

Excluding the reduction of revenue and a corresponding reduction in gross profit related to the investment in ARRIS by Comcast, gross margin for the first quarter 2013 was 33.2%. Gross margin including the adjustments for the first quarter 2013 was 30.7%.  The Company ended the first quarter of 2013 with $631.3 million of cash resources, which included $608.4 million of cash, cash equivalents and short-term investments, and $22.9 million of long-term marketable security investments, as compared to $584.0 million, in the aggregate, at the end of the fourth quarter of 2012. The Company generated $50.1 million of cash from operating activities during the first quarter 2013, which compares to $35.3 million generated in the first quarter 2012.

Order backlog at the end of the first quarter 2013 was $282.1 million as compared to $277.7 million and $222.6 million at the end of the first quarter 2012 and the fourth quarter 2012, respectively. The Company's book-to-bill ratio in the first quarter 2013 was 1.17 as compared to the first quarter 2012 of 1.43 and the fourth quarter 2012 of 1.11.

"Our record first quarter revenues reflect the culmination of a decade of growth during which ARRIS revenues have tripled. I am looking forward to continued growth now that we have closed our acquisition of Motorola Home. We welcome all of our new employees to the ARRIS team.  The combination will be very powerful for our customers and shareholders," said Bob Stanzione, ARRIS Chairman and CEO.

"We are off to a good start to the year with sales and adjusted net income per share in the upper half of our guidance.  As previously disclosed, the investment in ARRIS by Comcast in conjunction with the acquisition of the Motorola Home business resulted in fair value impacts on the balance sheet and income statement; $13.2 million was recorded as a reduction in revenue and gross margin, and $19.3 million was recorded as other expense in the first quarter 2013.  An explanation of the accounting for these impacts is attached to the press release," said David Potts, ARRIS EVP & CFO.  "With the closure of our Motorola Home acquisition last week, we are now in the midst of reviewing our outlook for the second quarter and the balance of 2013. We plan on providing an update in the near future."

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, April 24, 2013, to discuss these results in detail. You may participate in this conference call by dialing (888) 680-0892 or (617) 213-4858 for international calls prior to the start of the call and providing the ARRIS Group, Inc. name, conference pass code 78256359, 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 1, 2013 by dialing (888) 286-8010 or (617) 801-6888 and using the pass code 35756915. Live internet access to the call will be available through the Investor Relations section of the Company's website at www.arrisi.com.  A replay will also 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. Information about ARRIS products and services can be found at www.arrisi.com.

Forward-looking statements:

Statements made in this press release and in the related conference call, including those related to:

  • growth expectations and business prospects;
  • revenues and net income for the second quarter 2013 and beyond;
  • 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 2013 as well as the general outlook for 2013 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 economic uncertainty 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 current volatility in the capital markets, the potential impact on the business of the Motorola Home acquisition, the retention of employees and the ability of ARRIS to successfully integrate Motorola Home's business opportunities, technology, personnel and operations; 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-K for the year ended December 31, 2012.  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)













March 31

December 31,

September 30,

June 30,

March 31,


2013

2012

2012

2012

2012











ASSETS




















Current assets:









Cash and cash equivalents

$     423,551

$        131,703

$         188,653

$     199,395

$     215,808

Short-term investments, at fair value

184,838

398,414

359,753

340,166

298,539

Total cash, cash equivalents and short term investments

608,389

530,117

548,406

539,561

514,347











Restricted cash

4,689

4,722

4,665

3,942

3,943

Accounts receivable, net

206,236

188,581

171,143

179,371

183,427

Other receivables 

3,743

350

578

1,414

5,071

Inventories, net

126,530

133,848

137,496

102,361

105,114

Prepaids

13,227

11,682

12,408

12,124

12,436

Current deferred income tax assets

25,927

24,944

20,787

21,972

22,068

Other current assets

24,377

25,648

18,907

16,766

16,792

Total current assets

1,013,118

919,892

914,390

877,511

863,198











Property, plant and equipment, net 

54,109

54,378

54,593

56,175

57,810

Goodwill

193,976

194,115

194,469

194,626

195,268

Intangible assets, net

86,926

94,529

102,258

110,000

117,444

Investments

55,938

86,164

57,483

70,967

82,968

Noncurrent deferred income tax assets

52,410

47,431

49,589

47,228

42,106

Other assets

11,089

9,385

9,913

10,575

11,699


$  1,467,566

$     1,405,894

$      1,382,695

$  1,367,082

$  1,370,493






















LIABILITIES AND STOCKHOLDERS' EQUITY




















Current liabilities:









Accounts payable

$       47,783

$          45,719

$           49,061

$       44,800

$       54,576

Accrued compensation, benefits and related taxes

36,791

29,773

35,066

28,165

31,081

Accrued warranty

2,768

2,882

3,036

2,995

3,094

Deferred revenue

61,431

44,428

50,859

63,023

60,129

Current portion of LT debt

225,368

222,124

-

-

-

Other accrued liabilities

59,405

25,795

21,768

23,980

31,054

Total current liabilities

433,546

370,721

159,790

162,963

179,934

Long-term debt, net of current portion

-

-

218,943

215,823

212,765

Accrued pension

27,200

26,883

26,172

25,696

25,739

Accrued severance liability, net of current portion

4,262

4,119

3,895

3,758

3,884

Noncurrent income taxes payable

30,168

24,389

24,434

26,676

26,676

Noncurrent deferred income tax liabilities

351

351

334

340

352

Other noncurrent liabilities

18,836

19,043

20,362

21,039

22,372

Total liabilities

514,363

445,506

453,930

456,295

471,722











Stockholders' equity:









Preferred stock

-

-

-

-

-

Common stock

1,509

1,488

1,479

1,473

1,467

Capital in excess of par value

1,292,971

1,285,575

1,270,561

1,259,946

1,247,763

Treasury stock at cost

(306,330)

(306,330)

(306,330)

(295,960)

(280,724)

Unrealized gain on marketable securities

288

206

74

211

149

Unfunded pension liability

(8,592)

(8,558)

(10,231)

(10,231)

(10,231)

Accumulated deficit

(26,459)

(11,809)

(26,604)

(44,468)

(59,469)

Cumulative translation adjustments

(184)

(184)

(184)

(184)

(184)

Total stockholders' equity

953,203

960,388

928,765

910,787

898,771


$  1,467,566

$     1,405,894

$      1,382,695

$  1,367,082

$  1,370,493











    


 ARRIS GROUP, INC.

 PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



For the Three Months

Ended March 31,

2013

2012




Net sales

$  353,650

$  302,901

Cost of sales

245,124

193,993

Gross margin

108,526

108,908

Operating expenses:


Selling, general, and administrative expenses

40,126

39,544

Research and development expenses

44,082

44,147

Acquisition costs

7,190

607

Loss on sale of product line

-

337

Restructuring charges

9

5,203

Amortization of intangible assets

7,603

7,379

99,010

97,217

Operating income 

9,516

11,691

Other expense (income):


Interest expense

4,631

4,350

Gain on investments

(564)

(961)

Loss on foreign currency

821

808

Interest income

(838)

(755)

Other (income) expense, net

19,416

(436)

Income (loss) from continuing operations before income taxes

(13,950)

8,685

Income tax expense (benefit)

700

2,886

Net income (loss) 

$   (14,650)

$      5,799




Net income (loss) per common share:


Basic

$       (0.13)

$        0.05

Diluted

$       (0.13)

$        0.05




Weighted average common shares:


Basic

115,150

115,075

Diluted

115,150

117,597




    






ARRIS GROUP, INC.

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)





For the Three Months





Ended March 31,





2013

2012








Operating Activities:




Net income (loss)

$ (14,650)

$    5,799


Depreciation

6,509

7,195


Amortization of intangible assets

7,603

7,379


Amortization of deferred finance fees

160

160


Non-cash interest expense

3,244

2,999


Deferred income tax provision (benefit)

(5,995)

(4,635)


Stock compensation expense

6,744

6,649


Revenue reduction related to Comcast's investment in ARRIS

13,182

-


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

19,348

-


Provision for doubtful accounts

-

54


Loss on sale of product line

-

337


Loss (gain) on disposal of fixed assets

(4)

3


Gain on investments

(564)

(961)


Excess tax benefits from stock-based compensation plans

(4,659)

(1,654)

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





Accounts receivable

(17,655)

(31,799)


Other receivables

(3,889)

3,693


Inventory

7,318

7,243


Income taxes payable/recoverable

3,808

6,365


Accounts payable and accrued liabilities

28,014

22,398


Other, net

1,543

4,048



Net cash provided by operating activities

50,057

35,273








Investing Activities:




Purchases of investments

-

(77,766)

Disposals of investments

244,711

51,908

Purchases of property & equipment, net

(6,289)

(3,762)

Sale of property & equipment

53

-

Sale of product line

-

3,249



Net cash provided by (used in) investing activities

238,475

(26,371)








Financing Activities:




Repurchase of common stock

-

(26,315)

Excess income tax benefits from stock-based compensation plans

4,659

1,654

Repurchase of shares to satisfy employee tax withholdings

(11,992)

(8,033)

Fees and proceeds from issuance of common stock, net

10,649

3,725



Net cash provided by (used in) financing activities

3,316

(28,969)











Net increase (decrease) in cash and cash equivalents

291,848

(20,067)

Cash and cash equivalents at beginning of period

131,703

235,875

Cash and cash equivalents at end of period

$423,551

$215,808








    












ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)






























Q1 2012

Q4 2012

Q1 2013
















Amount


Amount


Amount



Sales 

$  302,901


$  344,003


$  353,650

















Highlighted items:












Acquisition accounting impacts of BigBand deferred revenue

1,771


432


-



Reduction in revenue related to Comcast's investment in ARRIS

-


-


13,182



Sales excluding highlighted items

$  304,672


$  344,435


$  366,832
































Q1 2012

Q4 2012

Q1 2013




Per Diluted


Per Diluted


Per Diluted


Amount

Share

Amount

Share

Amount

Share

Net income (loss)

$     5,799

$       0.05

$   14,795

$       0.13

$  (14,650)

$      (0.13)















Highlighted items:












Impacting gross margin:












Acquisition accounting impacts of BigBand deferred revenue

1,258

0.01

432

0.00

-

-

Reduction in gross margin related to Comcast's investment in ARRIS

-

-

-

-

13,182

0.11

Stock compensation expense

750

0.01

802

0.01

831

0.01















Impacting operating expenses:












Acquisition costs

607

0.01

5,131

0.04

7,190

0.06

Restructuring

5,203

0.04

306

0.00

9

0.00

Amortization of intangible assets

7,379

0.06

7,729

0.07

7,603

0.06

Loss of sale of product line

337

0.00

-

-

-

-

Settlement charge - pension

-

-

3,064

0.03

-

-

Stock compensation expense

5,899

0.05

5,910

0.05

5,913

0.05















Impacting other (income) / expense:












Non-cash interest expense

2,999

0.03

3,181

0.03

3,244

0.03

Impairment of investment

-

-

67

0.00

-

-

Credit facility - ticking fees

-

-

-

-

388

0.00

Mark-to-market FV adjustment related to Comcast's investment in ARRIS

-

-

-

-

19,348

0.16















Impacting income tax expense:












Adjustments of income tax valuation allowances and other

-

-

(475)

(0.00)

(7,516)

(0.06)

Tax related to highlighted items above

(8,121)

(0.07)

(8,724)

(0.07)

(5,735)

(0.05)















Total highlighted items

16,311

0.14

17,423

0.15

44,457

0.37

Net income excluding highlighted items

$   22,110

$       0.19

$   32,218

$       0.28

$   29,807

$       0.25















Weighted average common shares - Basic

115,075


114,028


115,150

Weighted average common shares - Diluted(1)

117,597


117,013


119,022





























(1) Basic shares used for Q1 2013 as losses were reported for those periods and the inclusion of dilutive shares would be anti-dilutive

See Notes to GAAP and Adjust Non-GAAP Financial Measures

    

ARRIS GROUP, INC.

PRELIMINARY SUPPLEMENTAL RECONCILIATION 

ADJUSTMENTS RELATED TO COMCAST'S INVESTMENT IN ARRIS

(unaudited)









Adjustments recorded in Q1 2013

Share
Price - $

Share
Appreciation - $









December 19, 2012 (date of signing with Google)

14.11

(1)








>

1.24

January 11, 2013 (date of signing with Comcast)

15.35









>

1.82

March, 31, 2013 (quarter end)

17.17




























Total Before Tax
Impact - $M

Revenue / Gross Margin Impact






*

10.6M shares x $1.24 




13.2

*  

Recorded as contra revenue per ASC 605















Other (Income) Expense Impact






*

10.6M shares x $1.82 




19.3

*  

Mark to market per fair value measurement guidance






















32.5









(1)

20 trading day trailing closing price

SOURCE ARRIS

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

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