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ARRIS Announces Preliminary and Unaudited First Quarter 2006 Results

SUWANEE, Ga., April 26 /PRNewswire-FirstCall/ -- 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 first quarter 2006.

ARRIS Announces Preliminary and Unaudited First Quarter 2006 Results
ARRIS Announces Preliminary and Unaudited First Quarter 2006 Results
    Financial Highlights:
     - Revenues were $208.3 million for the first quarter of 2006, up 53% as
       compared to $135.9 million in the first quarter 2005 and up 15% as
       compared to $181.3 million in the fourth quarter of 2005.
     - Net income per diluted share for the first quarter 2006 was $0.19, up
       375% as compared to $0.04 in the first quarter 2005 and down 5% as
       compared to $0.20 in the fourth quarter of 2005.  Excluding the items
       detailed below, net income per diluted share for the first quarter 2006
       was $0.21 (a non-GAAP measure).
     - Consistent with prior guidance, gross margins were 27.1% in the first
       quarter 2006, equal to the first quarter 2005 and down from 31.9% in
       the fourth quarter 2005 primarily due to changes in product mix coupled
       with price reductions that took effect at the beginning of 2006.
     - Cash on hand and short-term investments at the end of the first quarter
       2006 were $165.8 million, up $57.8 million, or 54%, as compared with
       $107.9 at the end of the first quarter 2005 and up $36.3 million, or
       28%, from the end of the fourth quarter 2005.  Cash of $31.3 million
       was generated from operating activities in the first quarter of 2006.
     - Book-to-bill ratio was 1.01 in the first quarter as compared to 0.97 in
       the fourth quarter 2005.

    Financial details:

Revenues for the first quarter 2006 were $208.3 million. On a U.S. GAAP
basis, net income was $20.7 million or $0.19 per diluted share in the first
quarter 2006 as compared to the fourth quarter 2005 net income of $22.0
million
or $0.20 per diluted share and to the first quarter 2005 net income of
$3.4 million or $0.04 per diluted share. Excluding amortization of
intangibles, equity compensation expense and other items, the net income was
$0.21 per diluted share in the first quarter 2006. A reconciliation of our
GAAP to our non-GAAP earnings per share is attached to this release and can
also be found on the Company website.

Broadband product revenues were $85.4 million in the first quarter, down
approximately 8.1% from the fourth quarter 2005 level of $92.9 million
reflecting lower sales of CBR telephony products. Supplies & CPE product
revenues were $123.0 million in the first quarter, up approximately 39.1% as
compared to $88.4 million in the fourth quarter of 2005, reflecting primarily
the strong resurgence of E-MTA sales in the first quarter as customer VoIP
rollouts continue. E-MTA revenues and units reached new record levels in the
first quarter, exceeding the previous levels of the third quarter 2005.
International sales were $51.0 million in the first quarter, as compared to
$52.3 million in the fourth quarter 2005. Backlog at the end of the first
quarter was $168.9 million compared to $166.5 million at the end of the fourth
quarter 2005. Bookings in the first quarter were $210.8 million as compared
to $176.6 million in the fourth quarter 2005. The book-to-bill ratio in the
first quarter was approximately 1.01, up from 0.97 in the fourth quarter 2005.

Gross margins were 27.1% in the first quarter as compared to fourth
quarter 2005 margins of 31.9%. This decrease is predominantly the result a
change in product mix during the quarter and price reductions implemented by
the Company to win market share. Gross margins of Broadband products were
45.6% in the first quarter as compared to 43.3% in the fourth quarter. Gross
margins of the Supplies & CPE products were 14.3% in the first quarter as
compared to 19.9% in the fourth quarter.

Operating expenses were $36.9 million in the first quarter, which included
equity compensation expense of approximately $2.1 million. This compares to
$36.7 million for the fourth quarter, which included $2.4 million of equity
compensation expense. Research and development costs included in operating
expenses were $15.1 million in the first quarter as compared to $15.0 million
in the fourth quarter of 2005.

The Company ended the first quarter with $165.8 million of cash on hand
and short-term investments, up from the fourth quarter level of $129.5 million
and from the first quarter 2005 level of $107.9 million. Approximately $31.3
million
of cash was generated from operating activities in the first quarter.
Inventory and turns for the first quarter were $99.7 million and 5.7,
respectively, as compared to $113.9 million and 4.8, respectively for the
fourth quarter 2005. Accounts receivable ended the first quarter at $91.4
million
with DSOs of 38 as compared to $83.5 million and DSOs of 45 at the end
of the fourth quarter 2005.

'Our results this quarter show that we have started 2006 with great
momentum,' said
Bob Stanzione, ARRIS Chairman & CEO. 'Accelerating
competition within our customers' markets continues to drive demand for more
bandwidth, more new services and higher levels of quality. The new,
innovative and market leading products that ARRIS is now delivering for data,
voice and video transport, help our customers in the growing competition
between, cable, telco and satellite. As a result, I am very positive about
the outlook for ARRIS in 2006 and beyond.'

During the first quarter the Company announced a 100 Mb/s broadband trial
with NTL, the largest cable operator in the United Kingdom and the
introduction of new customer premises products for T1/E1 services over cable
operator's HFC networks. Also of long term importance was the Company's April
7, 2006
announcement of a joint development, licensing and supply agreement
with UTStarcom (Nasdaq: UTSI) that will together enable the fourth leg of the
quadruple play for cable MSOs worldwide. The joint solution will allow
customers with Wi-Fi enabled handsets to seamlessly roam between their
cellular and Wi-Fi connections, or a service commonly referred to as Fixed
Mobile Convergence (FMC). The Company recently demonstrated this FMC
capability at the National Cable show in Atlanta.

'We are off to a strong start to 2006 as customers continue robust
deployments of VoIP,' said
David Potts, ARRIS EVP & CFO. 'We now anticipate
that our revenues for the second quarter of 2006 will be in the range of $210
to $220 million
with net income per diluted share, on a U.S. GAAP basis in the
range of $0.20 to $0.23 including amortization of intangibles and equity
compensation expense of $0.02. Also included in the second quarter operating
expense is $2.5 million, or $0.02 per diluted share, related to license fees
encompassed in the agreements recently entered into with UTStarcom. The
Company anticipates that a total of $5.0 million will be invested with
UTStarcom for license fees over a three year period with the next payment
scheduled in 2007.'

ARRIS management will conduct a conference call at 8:30am EDT on Thursday,
April 27, 2006
to discuss these results in detail. You may participate in
this conference call by dialing 877-691-0879 prior to the start of the call
and providing the ARRIS Group, Inc. name 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 April 26, 2006 and
the completion of the scheduled conference call on April 27, 2006. A replay
of the conference call can be accessed through Tuesday, May 2, 2006 by dialing
877-519-4471 and using the PIN#7252270. 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:

     - second quarter 2006 revenues and net income;
     - the general market outlook and acceptance of ARRIS products; and
     - the outlook for industry conditions

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 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,
     - 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. 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)

                           March 31, Dec. 31, Sept. 30,  June 30,   March 31,
                              2006     2005     2005       2005       2005
                          (unaudited)        (unaudited)(unaudited)(unaudited)

    ASSETS

    Current assets:
       Cash and cash
        equivalents          $129,559   $75,286   $48,194   $97,194   $26,546
       Short-term
        investments            36,250    54,250    46,250       -      81,400
          Total cash, cash
           equivalents and
           short-term
           investments        165,809   129,536    94,444    97,194   107,946

       Restricted cash          6,092     6,073     4,053     4,037     4,025
       Accounts receivable,
        net                    91,360    83,540    95,791    87,900    63,938
       Other receivables        4,138       286       887       288       400
       Inventories, net        99,673   113,909    90,122    80,869    76,249
       Other current assets     7,345    15,276    20,198     6,700     9,310
          Total current
           assets             374,417   348,620   305,495   276,988   261,868

    Property, plant and
     equipment, net            24,327    25,557    26,483    26,351    26,217
    Goodwill                  150,569   150,569   150,569   150,569   150,569
    Intangibles, net              702       920     1,138     1,356       884
    Investments                 3,358     3,321     3,347     3,223     4,450
    Other assets                  388       416       395       399     2,210
                             $553,761  $529,403  $487,427  $458,886  $446,198


    LIABILITIES AND
     STOCKHOLDERS' EQUITY

    Current liabilities:
       Accounts payable       $41,478   $35,920   $25,602   $30,863   $30,922
       Accrued compensation,
        benefits and related
        taxes                   9,503    20,424    16,083     9,927     6,990
       Accrued warranty         8,020     8,479     6,724     6,534     5,450
       Other accrued
        liabilities            22,151    20,633    23,104    23,345    25,431
          Total current
           liabilities         81,152    85,456    71,513    70,669    68,793
    Long-term debt, net of
     current portion                -         -         -         -    75,000
    Accrued pension            12,943    12,636    11,040    11,574    11,309
    Other long-term
     liabilities                5,618     5,594     5,643     5,637     5,687
                               99,713   103,686    88,196    87,880   160,789

    Stockholders' equity:
       Preferred stock              -         -         -         -         -
       Common stock             1,081     1,069     1,065     1,053       873
       Capital in excess
        of par value          740,954   732,405   727,249   727,096   644,891
       Unearned compensation        -         -         -    (8,112)   (3,939)
       Unrealized gain on
        marketable securities   1,114     1,076       975       838       742
       Unfunded pension losses (4,618)   (4,618)   (3,345)   (3,345)   (3,345)
       Accumulated deficit   (284,831) (305,554) (327,520) (346,340) (353,629)
       Unrealized gain on
        derivatives               532     1,523       991         -         -
       Cumulative translation
        adjustments              (184)     (184)     (184)     (184)     (184)
          Total stockholders'
           equity             454,048   425,717   399,231   371,006   285,409
                             $553,761  $529,403  $487,427  $458,886  $446,198



                              ARRIS GROUP, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except share data)
                                 (unaudited)

                                                    For the Three Months
                                                       Ended March 31,
                                               2006                    2005

    Net sales                                $208,344                $135,924
    Cost of sales                             151,837                  99,133
       Gross profit                            56,507                  36,791
       Gross profit %                            27.1%                   27.1%

    Operating expenses:
       Selling, general, and administrative
        expenses                               21,278                  16,519
       Research and development expenses       15,074                  14,801
       Restructuring and impairment charges       328                     198
       Amortization of intangibles                218                     557
                                               36,898                  32,075
    Operating income                           19,609                   4,716
    Other expense (income):
       Interest expense                            10                   1,018
       Loss on investments and notes receivable     -                      75
       Loss (gain) on foreign currency           (317)                    935
       Interest income                         (1,520)                   (609)
       Other (income) expense, net                106                      51
    Income from continuing operations
     before income taxes                       21,330                   3,246
    Income tax expense (benefit)                  628                    (152)
    Net income from continuing operations      20,702                   3,398
    Income from discontinued operations            21                      10
       Net income                             $20,723                  $3,408

    Net income per common share - basic:
       Income from continuing operations        $0.20                   $0.04
       Income from discontinued operations       0.00                    0.00
       Net income                               $0.20                   $0.04

    Net income per common share - diluted:
       Income from continuing operations        $0.19                   $0.04
       Income from discontinued operations       0.00                    0.00
       Net income                               $0.19                   $0.04

    Weighted average common shares:
       Basic                                  106,227                  87,851
       Diluted                                109,345                  90,497



                              ARRIS GROUP, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (unaudited)

                                                       For the Three Months
                                                          Ended March 31,
                                                       2006             2005

    Operating Activities:
        Net income                                   $20,723           $3,408
        Adjustments to reconcile net
         income to net cash provided by
         (used in) operating activities:
           Depreciation                                2,618            2,727
           Amortization of intangibles                   218              557
           Equity compensation expense                 2,248              553
           Excess tax benefits from stock-
            based compensation plans                    (169)               -
           Amortization of deferred finance fees           -              153
           Provision for doubtful accounts              (265)            (153)
           Gain related to Adelphia receivables         (475)               -
           Loss on disposal of fixed assets                2              (12)
           Loss (gain) on investments and
            notes receivable                               -               75
           Impairment of long-lived assets                 -              291
           Income from on discontinued operations        (21)             (10)
        Changes in operating assets & liabilities,
         net of effects of acquisitions and disposals:
           Accounts receivable                        (7,555)          (8,124)
           Other receivables                          (3,852)              20
           Inventory                                  14,236           16,387
           Accounts payable and accrued liabilities   (3,666)          (8,833)
           Prepaids and Other, net                     7,280             (133)
              Net cash provided by (used
               in) operating activities               31,322            6,906

    Investing Activities:
        Purchases of property, plant, and
         equipment                                   (1,389)          (1,924)
        Cash proceeds from sale of
         property, plant, and equipment                   -               40
        Purchases of short term investments               -           (5,000)
        Disposals of short term investments          18,000            1,600
        Other                                             -             (259)
              Net cash provided by (used
               in) investing activities              16,611           (5,543)

    Financing Activities:
        Excess tax benefits from stock-
         based compensation plans                       169                -
        Proceeds from issuance of common
         stock and other                              6,171              111
              Net cash provided by (used
               in) financing activities               6,340              111

              Net increase in cash and cash
               equivalents                           54,273            1,474
    Cash and cash equivalents at
     beginning of period                             75,286           25,072
    Cash and cash equivalents at end of period     $129,559          $26,546



                              ARRIS GROUP, INC.
                     SUPPLEMENTAL EARNINGS RECONCILIATION
                    (in thousands, except per share data)
                                 (unaudited)

                               Q1 2006          Q1 2005          Q4 2005
                                       Per             Per               Per
                                     Diluted         Diluted           Diluted
                            Amount    Share  Amount   Share   Amount    Share

      Net income (loss)    $20,723    $0.19  $3,408   $0.04  $21,966    $0.20

      Highlighted items:
        Impacting gross
         margin:
           Equity
            compensation*      108      -        31     -        125      -

        Impacting operating
         expenses:
           Impairment
            of long-
            lived assets         -      -       291     -          -      -
           Gain related to
            Adelphia
            receivables       (475)     -         -     -          -      -
           Restructuring
            charges -
            adjustments to
            existing accruals  328      -       (93)    -        901     0.01
           Amortization of
            intangibles        218      -       557    0.01      219      -
           Equity
            compensation*    2,140     0.02     522    0.01    2,448     0.02

        Impacting other
         expenses:
           Gain on
            investment           -      -         -     -        131      -

        Impacting
         discontinued
         operations:
           Restructuring
            charges -
            adjustments to
            existing accruals  (21)     -       (10)    -       (152)     -

      Total highlighted
       items                 2,298     0.02   1,298    0.01    3,672     0.03
      Net income (loss)
       excluding
       highlighted items   $23,021    $0.21  $4,706   $0.05  $25,638    $0.24

      Weighted average
       common shares -
       diluted                      109,345          90,497           107,296


    * ARRIS adopted SFAS 123R effective July 1, 2005.  Prior to the adoption
      date, the provisions of APB 25 were followed.  In the periods before Q3
      2005, the Company recorded compensation expense related to restricted
      stock and options subject to variable accounting.

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. With respect to the gain related to Adelphia receivables,
ARRIS adjusted its reserve estimate associated with a previously written off
Adelphia receivable. 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 that 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.

SOURCE ARRIS