Arris Reports Q1

SUWANEE, Ga. -- ARRIS (Nasdaq: ARRS - News), a global telecommunications technology leader, today announced financial results for the first quarter 2004, in line with prior financial guidance.

Financial Highlights:

Financial details:

Revenues for the first quarter 2004 were $111.6 million with net income (loss) per share of $(0.24) and were within the range of revenue and earnings guidance which the Company provided on February 4, 2004.

On a U.S. GAAP basis, net income (loss) was $(18.7) million or $(0.24) per share in the first quarter 2004 as compared to $3.4 million or $0.04 per share in the first quarter 2003 (which included a gain of $0.34 per share related to the debt retirement of the Nortel Networks' membership interest), and compared to $(8.4) million or $(0.11) per share in the fourth quarter 2003. Included in the first quarter net income (loss) per share were: 1) amortization of intangibles of $(0.11), 2) an interest make-whole payment, which was made using common stock, associated with the $50 million redemption of Convertible Notes of $(0.06), 3) an $(0.08) charge related to the previously announced consolidation of facilities in Atlanta, and 4) the write-down to market of an investment, severance costs, and partial recovery with respect to amounts previously written off associated with an Argentinean customer aggregating to $(0.01). Excluding these items, the net income (loss) in the first quarter was $0.02 per share.

Broadband revenue of $72.1 million in the first quarter 2004 was up $11.3 million or 18.7% as compared to the first quarter 2003, and down $15.2 million from the fourth quarter 2003 level of $87.3 million. Supplies product revenue of $39.5 million in the first quarter 2004 was up $8.9 million or 29.2% over first quarter 2003 revenue of $30.6 million, and down $1.0 million from $40.5 million in the fourth quarter 2003. International sales were $24.8 million in the first quarter 2004 as compared to $18.7 million in the first quarter 2003 and $28.1 million in the fourth quarter 2003. Sales to Comcast were $27.7 million in the first quarter 2004 as compared to $23.6 million in the first quarter 2003 and $41.0 million in the fourth quarter 2003. Backlog at the end of the first quarter 2004 was $69.8 million as compared to $56.1 million at the end of the first quarter 2003 and $53.0 million at the end of the fourth quarter 2003. Bookings in the first quarter 2004 were $128.4 million as compared to $102.9 million in the first quarter 2003 and $121.2 million in the fourth quarter 2003. The book-to-bill ratio in the first quarter 2004 was approximately 1.15 as compared to 1.13 in the first quarter 2003 and 0.95 in the fourth quarter 2003.

Gross margins of 32.5% during the first quarter 2004 were up over 500 basis points as compared to 27.1% during the first quarter 2003, and down approximately 70 basis points as compared to 33.2% during the fourth quarter 2003, primarily the result of a shift in product mix during the quarter. Broadband gross margins were approximately 41.6% in the first quarter 2004 as compared to 33.1% in the first quarter 2003 and 43.3% in the fourth quarter 2003. Supplies gross margins were 15.9% in the first quarter 2004 as compared to 15.1% in the first quarter 2003 and 11.6% in the fourth quarter 2003.

Operating expenses (excluding amortization of intangibles) were $39.9 million for the quarter, which included $6.2 million for the facilities consolidation and $0.5 million for severance. Excluding these items, operating expenses were $33.2 million in the first quarter. This compares to $36.6 million for the fourth quarter 2003, which included $3.0 million of litigation related charges, $1.0 million of restructuring, severance, lease termination costs, and a $1.5 million gain related to the sale of its Cabovisao accounts receivable. Excluding these items, operating expenses were $34.1 million in the fourth quarter 2003. Research and development expenses included in operating expenses were $16.2 million the first quarter 2004 and compare to $15.4 million in the fourth quarter 2003 and $14.9 million in the first quarter 2003.

The Company ended the first quarter with $97.2 million of cash on hand, up from the fourth quarter 2003 level of $84.9 million. Approximately $7.8 million of cash was generated from operating activities in the first quarter. Inventory levels and turns for the first quarter 2004 were $73.4 million and 4.0, respectively, as compared to $104.3 million and 2.6, respectively, for the first quarter 2003 and $78.6 million and 3.9, respectively, for the fourth quarter 2003. Accounts receivable ended the first quarter 2004 at $57.9 million with DSOs of 47, and compares to $69.6 million and DSOs of 75 at the end of the first quarter 2003 and $56.3 million and DSOs of 42 at the end of the fourth quarter 2003. The Company ended the quarter with no short-term bank debt.

The Company called for redemption of $50 million of its Convertible Notes due 2008, which were converted to shares of common stock prior to the redemption date, leaving $75 million outstanding. The notes were converted into approximately 10.5 million common shares. The Company recorded a charge of $4.4 million for an interest make-whole payment due under the indenture's terms for redemptions.

"Performance during the quarter was generally in line with our expectations and I am encouraged by our order backlog as we entered the second quarter. We continue to be very optimistic about the implementation of new VoIP services by our customers both domestically and internationally," said Bob Stanzione, ARRIS Chairman & CEO. "Customer acceptance of our CMTS product line moved us into first place in CMTS sales in North America in the fourth quarter of 2003 and positions us well for future next-generation high-speed data and VoIP deployments around the world. Our market successes coupled with the recent CableLabs DOCSIS 2.0 and PacketCable(TM) 1.0 certification of our Touchstone® Telephony Modem 402P makes me very confident about our ability to continue to grow this important part of our business."

During the quarter the Company announced that it had received orders from Charter Communications for its Cadant® C4 CMTS and G2 IMS Management Platform for use in expansion of Charter's VoIP system deployments. The Company also announced that its customers worldwide had installed over four million lines of its market leading Cornerstone® cable telephony equipment, and as of the end of March 2004 had purchased capacity for approximately 18 million lines.

"Revenues for the second quarter of 2004 are expected to be in the range of $113 to $125 million with net income (loss) per share, on a U.S. GAAP basis, in the range of $(0.09) to $(0.04) inclusive of amortization of intangibles of approximately $(0.10) per share," said David Potts, ARRIS EVP & CFO. "We anticipate continued demand for our products as our customers implement new data and voice services over the next several quarters and we are also optimistic about new product opportunities in the coming periods."

Arris Group Inc.