SUWANEE, Ga. -- ARRIS (NASDAQ:ARRS) , a global telecommunications technology leader, today announced preliminary and unaudited financial results for the first quarter 2005.

Financial Highlights:

Financial details:

Revenues for the quarter were $135.9 million with GAAP net income per share of $0.04 inclusive of certain items described below. Revenue growth in the quarter of over 22%, as compared with the first quarter 2004 revenue of $111.6 million, was driven by strong acceptance of ARRIS' market leading CPE product offerings for VoIP rollouts in both domestic and international markets. The first quarter financial results were at the upper range of the revenue and earnings guidance that the Company provided on February 10, 2005.

Arris Group Inc.

On a GAAP basis, net income (loss) was $3.4 million or $0.04 per diluted share in the first quarter as compared to the fourth quarter 2004 net income (loss) of $(0.6) million or $(0.01) per share and as compared to the first quarter 2004 net income (loss) of $(18.7) million or $(0.24) per share. Included in the first quarter 2005 net income (loss) per share was amortization of intangibles of $(0.01) per share. Excluding amortization and other items, the net income (loss) was $0.05 per diluted share in the first quarter. A reconciliation of our GAAP to our non-GAAP earnings per share is attached to this release and can be found on our website.

Broadband product revenues were $69.7 million in the first quarter, down approximately 10% from the fourth quarter 2004 level of $77.8 million. Supplies & CPE product revenues were $66.2 million in the first quarter, up approximately 28% compared to $51.7 million in the fourth quarter 2004. International sales were $36.0 million in the first quarter, as compared to $42.3 million in the fourth quarter 2004. Backlog at the end of the first quarter was $122.6 million, up 62% as compared to $75.6 million at the end of the fourth quarter 2004. Bookings in the first quarter 2005 were $182.9 million as compared to $140.4 million in the fourth quarter 2004. The book- to-bill ratio in the first quarter was approximately 1.35, up from 1.08 in the fourth quarter 2004.

Gross margins of 27.1% were up approximately 100 basis points as compared to fourth quarter 2004 margins of 26.1%, with margin increases in both product groups and compares to 32.5% in the first quarter 2004. Gross margins of Broadband products were 37.4% in the first quarter 2005 as compared to 34.6% in the fourth quarter 2004. Gross margins of the Supplies & CPE products were 16.2% in the first quarter as compared to 13.4% in the fourth quarter.

Operating expenses were $32.1 million in the first quarter, which included $0.6 million of amortization of intangibles and $0.2 million of restructuring and impairment costs. This compares to $35.7 million for the fourth quarter 2004, which included $4.6 million of amortization of intangibles and $0.5 million of restructuring and other costs. Excluding these items, operating expenses were $31.3 million in the first quarter and $30.6 million in the fourth quarter. Research and development costs included in operating expenses were $14.8 million in the first quarter as compared to $16.0 million in the fourth quarter. The Company had a foreign exchange loss of $(0.9) million in the first quarter as compared to a gain of $1.2 million in the fourth quarter 2004.

The Company ended the first quarter with $107.9 million of cash on hand and short-term investments, up from the year end 2004 level of $103.1 million. Approximately $6.9 million of cash was generated from operating activities in the first quarter. Inventory at the end of the first quarter and turns for the first quarter were $76.2 million and 4.7, respectively, as compared to $92.6 million and 4.2, respectively, for the fourth quarter 2004. Accounts receivable ended the first quarter at $63.9 million with DSOs of 40, and compare to $55.7 million and DSOs of 42 at the end of the fourth quarter 2004.

"It is now clear that convergence of voice, data and video is the major driving force within our industry and with our customers," said Bob Stanzione, ARRIS Chairman & CEO. "Our R&D investments have positioned ARRIS as a clear industry thought leader and our work in new wideband CMTS architectures and preliminary DOCSIS 3.0 standards has already resulted in new products that will be ready for introduction later this year. ARRIS is a strong proponent of the technique recently approved by CableLabs known as Packet-Based channel bonding, which will permit us to provide timely solutions to our customers and which will allow our customers to use their existing installed base of DOCSIS 2.0 CMTS units in channel bonding wideband applications. The C4 Flexpath(R) feature, first demonstrated at the NCTA show in 2004 at 80Mbps and again in 2005 at 100Mbps is based on this technique and allows download speeds up to 25 times faster than today's rates."

During the quarter the Company announced a number of significant developments that position it well for the future. On March 30, 2005, the Company announced that Insight Communications, already a customer for a range of ARRIS products, had approved and ordered the Cadant C4(R) CMTS for its VoIP deployments. On March 25, 2005, the Company announced that the Cadant C4(R) won Euro-DOCSIS 2.0 certification in tComLabs Certification Wave 18, which, along with the already Euro-DOCSIS 2.0 certified Touchstone CPE, allows deployment of a full Euro-DOCSIS solution to European customers. Also during the quarter, the Company announced that Canadian operator, Videotron, had selected the ARRIS Telephony Modem for its large scale VoIP deployments throughout Canada.

"We now anticipate that our revenues for the second quarter 2005 will be in the range of $145 to $155 million with net income per share, on a U.S. GAAP basis in the range of $0.06 to $0.10 inclusive of amortization of intangibles of approximately $0.3 million," said David Potts, ARRIS EVP & CFO. "Growing demand for ARRIS products that enable the worldwide rollout of VoIP by our customers should sustain both top line and bottom line growth throughout 2005. Our confidence comes from improved visibility based upon announced plans by our customers."

Arris Group Inc.