ARRIS Announces Preliminary and Unaudited Second Quarter 2017 Results

SUWANEE, Ga., Aug. 2, 2017 /PRNewswire/ -- ARRIS International plc (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the second quarter 2017.

Second Quarter 2017 Financial Highlights

• GAAP revenues were $1.664 billion
• Adjusted revenues (a non-GAAP measure) were $1.667 billion
• GAAP net income was $0.16 per diluted share
• Adjusted net income (a non-GAAP measure) was $0.63 per diluted share
• End-of-quarter cash resources were $1.385 billion
• Cash from operating activities was $243.6 million
• Order backlog was $1.326 billion
• Book-to-bill ratio was 1.01

"We entered the second quarter with significantly increased momentum across both our segments and exceeded our expectations.  Growing consumer internet usage delivering high value video content fuels the increasing investment in broadband capacity.  With respect to the third quarter 2017, we expect performance to improve further with revenues in a range of $1.740 billion to $1.790 billion, GAAP net income per diluted share of $0.23 to $0.28, and adjusted net income per diluted share of $0.66 to $0.71.  We remain on track to achieve results within our full year 2017 guidance ranges provided at our investor day in March," said Bruce McClelland, ARRIS CEO.  "While slightly delayed, we anticipate closing the Ruckus Networks acquisition early in the fourth quarter once regulatory approvals are complete.  We expect the acquisition to be accretive on a non-GAAP basis in 2018."

GAAP revenues in the second quarter 2017 of $1.664 billion were down $66 million, or 4%, as compared to second quarter 2016 revenues of $1.730 billion.  Second quarter revenues were up $181 million, or 12%, as compared to first quarter 2017 revenues of $1.483 billion.  The second quarter 2017 revenues reflect a reduction of $2.7 million related to outstanding warrants held by customers.

Through the first six months of 2017, revenues of $3.147 billion were down $198 million, or 6%, as compared to the first six months of 2016 revenues of $3.345 billion.

Adjusted revenues (a non-GAAP measure) in the second quarter 2017 were $1.667 billion as compared to $1.734 billion for the second quarter 2016, and first quarter 2017 revenues of $1.485 billion.

Year to date, adjusted revenues were $3.152 billion for 2017 as compared to the first six months of 2016 adjusted revenues of $3.349 billion. 

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

GAAP net income in the second quarter 2017 was $0.16 per diluted share, as compared to GAAP net income of $0.44 per diluted share in the second quarter of 2016 and a GAAP net loss of $(0.21) per diluted share in the first quarter 2017.  

Year to date, GAAP net loss was $(0.05) per diluted share for 2017, as compared to the first six months of 2016 GAAP net loss of $(0.62) per diluted share.       

Adjusted net income (a non-GAAP measure) in the second quarter 2017 was $0.63 per diluted share, as compared to $0.84 per diluted share for the second quarter 2016, and the first quarter 2017 adjusted net income of $0.40 per diluted share.  

Year to date, adjusted net income was $1.04 per diluted share for 2017 as compared to the first six months of 2016 adjusted net income of $1.30 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 ended the second quarter 2017 with $1.385 billion of cash resources, as compared to $1.217 billion at the end of the first quarter 2017.  The Company generated $243.6 million of cash from operating activities during the second quarter 2017, as compared to $260.8 million during the second quarter of 2016.  Through the first six months of 2017, the Company generated $495.8 million of cash from operating activities.  This compares to $38.2 million generated during the same period in 2016. 

The Company purchased 1.7 million ordinary shares for $43.9 million during the second quarter.  Through the first six months of 2017 the Company purchased 4.9 million ordinary shares for $127.0 million.   As of June 30, 2017 the Company had $295.0 million remaining in available repurchase authorization.

Order backlog at the end of the second quarter 2017 was $1.326 billion as compared to $1.239 billion and $1.304 billion at the end of the second quarter 2016 and the first quarter 2017, respectively. The Company's book-to-bill ratio in the second quarter 2017 was 1.01 as compared to the second quarter 2016 of 0.94 and the first quarter 2017 of 1.13.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, August 2, 2017, to discuss these results in detail. You may participate in this conference call by dialing 888-655-5028 or 503-343-6025 for international calls prior to the start of the call and providing the ARRIS International plc name, conference pass code 51622616# 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 9, 2017 8:00 pm/ET, by dialing 855-859-2056 or 404-537-3406 for international calls and using the pass code 51622616. 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 third quarter 2017 and beyond, the proposed acquisition of the Ruckus Networks business, 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 2017, as well as the general outlook for 2017, are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management's control;
• the proposed acquisition of the Ruckus Networks business may not be completed as a result of failure to obtain regulatory approvals or other reasons;
• the anticipated benefits from the Ruckus Networks acquisition may not be realized;
• we may encounter significant transaction costs and unknown liabilities in connection with the Ruckus Networks acquisition;
• volatility in currency fluctuation may adversely impact our international customers' ability or willingness to purchase products and the pricing of our products;
• volatility in component pricing and supply could impact revenues and gross margins more than currently anticipated;
• impacts of the U.K. invoking Article 50 of the Lisbon Treaty to leave the European Union, could have an adverse impact on our results of operations;
• regulatory changes, including those related to tax and the FCC, could have an adverse impact on our operations and results of operations;
• the impact of litigation and similar regulatory proceedings that we are involved in or may become involved in, including the costs of such litigation;
• 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; and
• 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.

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; 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-Q for the quarter ended March 31, 2017. In providing forward-looking statements, the Company expressly disclaims any obligation to update these statements publicly or otherwise, whether as a result of new information, future events or otherwise, except as required by law.

About ARRISARRIS 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. 2017. 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:

Reduction in Revenue Related to Warrants:    We entered into agreements with two customers for the issuance of warrants to purchase up to 14.0 million of ARRIS's ordinary shares. Vesting of the warrants is subject to certain purchase volume commitments, and therefore the accounting guidance requires that we record any change in the fair value of warrants as a reduction in revenue. Until final vesting, changes in the fair value of the warrants will be marked to market and any adjustment recorded in revenue. We have excluded the effect of the implied fair value in calculating our non-GAAP financial measures. We believe it is useful to understand the effects of these items on our total revenues and gross margin.

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 acquisitions, business combinations rules require the acquired 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 as the historic and forward gross margin trends will differ as a result of the adjustments. We believe it is useful to understand the effects of this on cost of goods sold and margin.

Integration, Acquisition, Restructuring Costs and Other 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, Pace Combination and pending Ruckus Networks 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 expenses consist 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 for the ActiveVideo acquisition is accounted for by ARRIS under the consolidation method.  As a result, the consolidated statements 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 venture, as we believe it is useful to understand the effect of excluding this item when evaluating our ongoing performance.  

Impairment of Investments:    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 2017, the Company amended its credit agreement.  This debt modification allowed us to improve the terms and conditions of the credit agreement and extend the maturitity of the Term Loan B.     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 interest expense.

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 was 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). 

Foreign Exchange Contract Losses Related to Cash Consideration of Pace Acquisition: In the second quarter of 2015, the Company announced its intent to acquire Pace plc in exchange for stock and cash.  We subsequently entered into foreign exchange forward contracts in order to hedge the foreign currency risk associated with the cash consideration of the Pace acquisition.  These foreign exchange forward contracts were not designated as hedges, and accordingly, all changes in the fair value of these instruments are recognized as a loss (gain) on foreign currency in the Consolidated Statements of Operations.  We believe it is useful to understand the effect of this on our other expense (income). 

Remeasurement of Certain Deferred Tax Liabilities:    The Company recorded a foreign currency remeasurement (gain) loss related to a deferred income tax liability, in the United Kingdom, arising from the assignment of intangibles acquired in the Pace acquisition. This deferred income tax liability is denominated in GBP. The foreign currency remeasurement gain derives from the remeasurement of the GBP deferred income tax liability to the USD, since the date of the acquisition. We have excluded the impact of this gain in the calculation of our non-GAAP measures. We believe it is useful to understand the effect of this item on our total other expense (income).

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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