ARRIS Announces Preliminary and Unaudited Second Quarter 2018 Results
SUWANEE, Ga., Aug. 1, 2018 /PRNewswire/ -- ARRIS International plc (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the second quarter 2018.
Second Quarter 2018 Financial Highlights
-- Revenues were $1.727 billion
-- GAAP net income was $0.19 per diluted share
-- Adjusted net income (a non-GAAP measure) was $0.72 per diluted share
-- End-of-quarter cash resources were $548 million
-- $100 million of share repurchases ($175 million YTD as of 8/1/2018)
-- Order backlog was $1.3 billion
-- Book-to-bill ratio was 0.98
"ARRIS posted a solid second quarter, with non-GAAP earnings growing 14% year-over-year to $0.72 per share with continued strong performance from our higher margin Network & Cloud and Enterprise businesses," said Bruce McClelland, ARRIS CEO. "Revenue grew by 4% year-over-year with the addition of Ruckus and increased E6000 CCAP sales. We have been active buyers of our stock in 2018 and intend to allocate the majority of our free cash flow to stock repurchases for the remainder of the year, targeting a minimum of $400 million for the year."
"For the third quarter 2018, we are estimating revenues in the range of $1.680 billion to $1.730 billion. We expect GAAP net income per diluted share in the range of $0.20 to $0.25 and adjusted net income per diluted share in the range of $0.65 to $0.70. For full year 2018, we now expect sales to be in the range of $6.850 billion to $7.0 billion, GAAP net income per diluted share in the range of $0.68 to $0.83 and adjusted net income per diluted share in the range of $2.85 to $3.00."
Revenues in the second quarter 2018 of $1.727 billion were up $63 million, or 4%, as compared to second quarter 2017 revenues of $1.664 billion and up $149 million, or 9%, as compared to first quarter 2018 revenues of $1.578 billion.
Through the first six months of 2018, revenues were $3.304 billion, up $157 million, or 5%, as compared to the first six months of 2017 revenues of $3.147 billion.
GAAP net income in the second quarter 2018 was $0.19 per diluted share, as compared to GAAP net income of $0.16 per diluted share in the second quarter 2017 and a GAAP net loss of $(0.07) per diluted share in the first quarter 2018.
Year to date 2018 GAAP net income was $0.12 per diluted share, as compared to the first six months of 2017 GAAP net loss of $(0.05) per diluted share.
Adjusted net income (a non-GAAP measure) in the second quarter 2018 was $0.72 per diluted share, as compared to $0.63 per diluted share for the second quarter 2017, and first quarter 2018 adjusted net income of $0.73 per diluted share.
Year to date adjusted net income was $1.45 per diluted share for 2018 as compared to the first six months of 2017 adjusted net income of $1.04 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 can be found on the Company's website (www.arris.com).
Cash & Cash Equivalents - The Company ended the second quarter 2018 with $548 million of cash resources, as compared to $543 million at the end of the first quarter 2018. The Company generated $103 million of cash from operating activities during the second quarter 2018, as compared to $246 million during the second quarter of 2017. Through the first six months of 2018 the company generated $199 million of cash from operating activities. This compares to $496 million during the same period in 2017.
The Company repurchased approximately 4.0 million ordinary shares for $100 million during the second quarter of 2018. Since the end of the second quarter, the Company has repurchased approximately 2.0 million additional ordinary shares for $50 million. Through August 1, 2018, the Company has repurchased 6.9 million ordinary shares for $175 million. As of August 1, 2018, the Company has $350 million remaining in available repurchase authorization.
Order backlog at the end of the second quarter 2018 was $1.258 billion as compared to $1.326 billion and $1.293 billion at the end of the second quarter 2017 and the first quarter 2018, respectively. The Company's book-to-bill ratio in the second quarter 2018 was 0.98 as compared to the second quarter 2017 of 1.01 and the first quarter 2018 of 1.11.
ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, August 1, 2018, to discuss second quarter 2018 results. 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. 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 8, 2018, by dialing 855-859-2056 or 404-537-3406 for international calls and using the pass code 4368658. 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 and full year 2018, growth expectations, share repurchases, cost initiatives, 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 2018, as well as the general
outlook for 2018, are based on preliminary estimates, assumptions and
projections that management believes to be reasonable at this time, but
are beyond management's control;
-- volatility in component pricing and supply could impact revenues and
gross margins more than currently anticipated;
-- fluctuations in share price or reductions in free cash flow may impact
the volume of share repurchases;
-- recently enacted tariffs on imports from China and the proposed 10%
tariff on additional products imported from China could have a material
adverse impact on our financial results;
-- the anticipated benefits from the Ruckus Networks acquisition may not be
realized;
-- volatility in currency fluctuation may adversely impact our
international customers' ability or willingness to purchase products and
the pricing of products;
-- impacts of the U.K. invoking Article 50 of the Lisbon Treaty to leave
the European Union, could have an adverse impact on results of
operations;
-- regulatory changes, including those related to recently completed
changes to the U.S. income tax code, could have an adverse impact on
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; and
-- the Company's 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 the Company offers.
These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company's business and results from operations. 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, 2018. 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 ARRIS
ARRIS International plc (NASDAQ: ARRS) is powering a smart, connected world. The company's leading hardware, software and services transform the way that people and businesses stay informed, entertained and connected. For more information, visit www.arris.com.
For the latest ARRIS news:
-- Check out our blog: ARRIS EVERYWHERE
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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. © 2018 ARRIS Enterprises, Inc. 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.
Acquisition Accounting Impacts Related to Deferred Revenue: In connection with the accounting related to our acquisitions, business combination rules require us to account for the fair values of deferred revenue arrangements for post contract support in our purchase accounting. The non-GAAP adjustment to our sales and cost of sales is intended to include the full amounts of such revenues as if these purchase accounting adjustments had not been applied. We believe the adjustment to these revenues is useful as a measure of the ongoing performance of our business. We historically have experienced high renewal rates related to our support agreements, and our objective is to increase the renewal rates on acquired post contract support agreements. However, we cannot be certain that our customers will renew their contracts.
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 the 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 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 measures. We incurred expenses in connection with the Pace and Ruckus Networks acquisitions, 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, abandoned facilities, product line disposition and other exit costs. We believe it is useful to understand the effects of these items on our total operating expenses.
Impairment of Goodwill and Intangible Assets: We have excluded the effect of the estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and net income measures. Although an impairment does not directly impact the Company's current cash position, such expense represents the declining value of the business, technology and other intangible assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.
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 Income 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 Statements 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 on Investments: We have excluded the effect of other-than-temporary impairments and certain gains on investments 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 maturities of certain loan facilities. 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 other expense (income).
Remeasurement of Deferred Taxes: The Company records foreign currency remeasurement gains and losses related to deferred tax liabilities in the United Kingdom. The foreign currency remeasurement gains and losses derived from the remeasurement of the deferred income taxes from GBP to USD. We have excluded the impact of these gains and losses in the calculation of our non-GAAP measures. We believe it is useful to understand the effects of this item on our total other expense (income).
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 and non-US valuation allowances, benefits for releases of uncertain tax positions due to settlement, change in law or statute of limitations and provision to return differences.
ARRIS INTERNATIONAL PLC
PRELIMINARY CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
June 30, March 31, December 31, September 30, June 30,
2018 2018 2017 2017 2017
---- ---- ---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $501,410 $506,240 $487,573 $1,379,827 $1,346,028
Short-term investments, at fair value 46,698 36,804 23,874 33,309 38,759
------ ------ ------ ------ ------
Total cash, cash equivalents and short term investments 548,109 543,044 511,447 1,413,136 1,384,787
Accounts receivable, net 1,183,360 1,034,608 1,218,089 1,056,225 991,539
Other receivables 192,067 169,681 157,845 145,658 132,742
Inventories, net 803,217 849,069 825,211 775,142 657,881
Prepaid income taxes 10,406 26,409 28,351 41,780 16,354
Prepaids 40,290 36,308 26,644 27,954 32,149
Other current assets 196,014 172,993 145,953 109,567 119,405
------- ------- ------- ------- -------
Total current assets 2,973,463 2,832,112 2,913,540 3,569,462 3,334,857
Property, plant and equipment, net 299,991 309,457 372,467 347,506 355,033
Goodwill 2,259,177 2,336,820 2,278,512 2,016,580 2,014,550
Intangible assets, net 1,580,393 1,583,299 1,771,362 1,406,591 1,491,103
Investments 69,902 69,858 71,082 73,199 61,047
Deferred income taxes 146,443 131,417 115,436 193,703 199,102
Other assets 72,155 103,525 101,858 57,246 54,843
------ ------- ------- ------ ------
$7,401,524 $7,366,488 $7,624,257 $7,664,287 $7,510,535
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,125,619 $1,010,812 $1,206,656 $1,266,214 $1,201,883
Accrued compensation, benefits and related taxes 140,387 113,029 155,966 102,222 81,355
Accrued warranty 38,651 42,434 44,507 45,036 44,812
Deferred revenue 123,590 143,740 115,224 118,598 130,454
Current portion of LT debt & financing lease obligations 83,709 83,633 83,559 89,156 89,336
Income taxes payable 2,093 4,937 6,244 4,420 9,487
Other accrued liabilities 361,315 316,206 321,113 327,099 303,013
------- ------- ------- ------- -------
Total current liabilities 1,875,365 1,714,791 1,933,269 1,952,745 1,860,340
Long-term debt & financing lease obligations, net of current portion 2,074,352 2,095,320 2,116,244 2,112,494 2,134,506
Accrued pension 31,889 43,443 42,637 54,867 55,532
Noncurrent deferred revenue 58,233 56,041 54,090 34,569 36,855
Noncurrent income taxes 120,987 159,148 144,665 115,434 114,187
Deferred income taxes 62,886 68,825 68,888 83,058 83,516
Other noncurrent liabilities 68,507 71,546 80,430 83,852 83,526
------ ------ ------ ------ ------
Total liabilities 4,292,219 4,209,114 4,440,223 4,437,018 4,368,462
Stockholders' equity:
Ordinary shares 2,722 2,769 2,768 2,788 2,786
Capital in excess of par value 3,424,906 3,392,415 3,387,128 3,367,940 3,356,183
Accumulated other comprehensive loss (4,649) 12,545 4,552 8,838 2,211
Accumulated deficit (329,731) (266,264) (225,881) (188,375) (256,705)
-------- -------- -------- -------- --------
Total ARRIS International plc stockholders' equity 3,093,248 3,141,465 3,168,567 3,191,191 3,104,475
Stockholders' equity attributable to noncontrolling interest 16,056 15,909 15,467 36,078 37,598
------ ------ ------ ------ ------
Total stockholders' equity 3,109,304 3,157,374 3,184,034 3,227,269 3,142,073
--------- --------- --------- --------- ---------
$7,401,524 $7,366,488 $7,624,257 $7,664,287 $7,510,535
========== ========== ========== ========== ==========
ARRIS INTERNATIONAL PLC
PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
2018 2017 2018 2017
---- ---- ---- ----
Net sales $1,726,540 $1,664,170 $3,304,250 $3,147,276
Cost of sales 1,227,785 1,260,813 2,329,812 2,406,661
--------- --------- --------- ---------
Gross margin 498,755 403,357 974,438 740,615
Operating expenses:
Selling, general, and administrative expenses 173,353 113,921 334,557 218,560
Research and development expenses 167,200 133,098 336,997 266,060
Amortization of intangible assets 90,485 91,012 205,193 184,657
Impairment of goodwill - - 3,400 -
Integration, acquisition, restructuring and other costs 22,844 9,690 36,500 19,785
453,882 347,721 916,647 689,062
------- ------- ------- -------
Operating income 44,873 55,636 57,792 51,553
Other expense (income):
Interest expense 23,647 23,344 46,173 43,027
(Gain) loss on investments (844) 3,609 (317) 8,139
(Gain) loss on foreign currency (824) 9,373 4,009 14,113
Interest income (1,792) (1,788) (3,324) (3,709)
Other (income) expense, net (169) 926 (61) 841
---- --- --- ---
Income (loss) before income taxes 24,855 20,172 11,312 (10,858)
Income tax (benefit) expense (9,944) (8,302) (6,454) 1,699
------ ------ ------ -----
Consolidated net income (loss) 34,799 28,474 17,766 (12,557)
Net loss attributable to noncontrolling interests (955) (1,862) (4,388) (3,795)
---- ------ ------ ------
Net income (loss) attributable to ARRIS International plc $35,754 $30,336 $22,154 ($8,762)
======= ======= ======= =======
Net net (loss) per ordinary share (1):
Basic $0.19 $0.16 $0.12 $(0.05)
===== ===== ===== ======
Diluted $0.19 $0.16 $0.12 $(0.05)
===== ===== ===== ======
Weighted average ordinary shares:
Basic 184,216 186,803 184,376 188,291
======= ======= ======= =======
Diluted 185,669 189,002 186,288 188,291
======= ======= ======= =======
(1) Calculated based on net income (loss) attributable to shareowners of ARRIS International plc
ARRIS INTERNATIONAL PLC
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
2018 2017 2018 2017
---- ---- ---- ----
Operating Activities:
Consolidated net income (loss) $34,799 $28,474 $17,766 $(12,557)
Depreciation 21,235 21,690 44,109 43,003
Amortization of acquired intangible assets 92,360 92,672 208,955 187,978
Amortization of deferred finance fees and debt discount 1,207 1,988 2,422 3,891
Impairment of goodwill - - 3,400 -
Deferred income taxes (32,750) (16,740) (46,077) (37,523)
Foreign currency remeasurement of deferred income taxes (3,676) 4,060 21 7,191
Stock compensation expense 23,503 22,325 42,759 41,740
Provision for non-cash warrants - 2,658 - 5,081
Provision (recovery) for doubtful accounts - (69) (292) (248)
Loss on disposal of plant, property and equipment and
other 66 1,298 222 1,590
Loss on investments and others (844) 3,609 (182) 8,139
Changes in operating assets & liabilities, net of effects of
acquisitions and
disposals:
Accounts receivable (162,538) 24,060 20,862 368,020
Other receivables (22,386) (23,625) (34,222) (59,549)
Inventories 43,817 (103,689) 19,420 (106,841)
Accounts payable and accrued liabilities 123,764 181,521 (104,470) 36,881
Prepaids and other, net (15,220) 5,628 24,557 9,124
------- ----- ------ -----
Net cash provided by operating activities 103,337 245,860 199,250 495,920
Investing Activities:
Purchases of investments (10,809) (6,371) (37,309) (62,250)
Sales of investments 549 58,416 11,549 150,301
Purchases of property, plant & equipment, net (13,450) (21,033) (28,646) (42,900)
Deposit proceeds for sale of property, plant and equipment 20,000 - 30,000 -
Purchases of intangible assets (423) (422) (423) (422)
Other, net - - 171 826
Net cash (used in) provided by investing activities (4,133) 30,590 (24,658) 45,555
Financing Activities:
Proceeds from issuance of debt - 30,314 - 30,314
Payment of financing lease obligation (224) (201) (414) (405)
Payment of debt obligations (21,875) (52,864) (43,750) (75,239)
Payment for deferred financing costs and debt discount - (1,462) - (1,462)
Repurchase of shares (86,244) (43,855) (111,244) (126,965)
Repurchase of shares to satisfy employee minimum tax
withholdings (3) (128) (13,979) (13,882)
Proceeds from issuance of shares, net 8,996 8,530 9,018 8,553
Contribution from noncontrolling interest 1,050 3,500 2,257 3,500
Net cash used in financing activities (98,300) (56,166) (158,112) (175,586)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (6,440) (450) (2,649) 147
Net (decrease) increase in cash, cash equivalents and restricted cash (5,536) 219,834 13,831 366,036
Cash, cash equivalents and restricted cash at beginning of period 508,483 1,127,894 489,116 981,692
------- --------- ------- -------
Cash, cash equivalents and restricted cash at end of period $502,947 $1,347,728 $502,947 $1,347,728
======== ========== ======== ==========
Reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets
Cash and cash equivalent 501,410 1,346,028
Restricted cash included in other current assets 820 165
Restricted cash included in other assets 717 1,535
Total 502,947 1,347,728
ARRIS INTERNATIONAL PLC
PRELIMINARY ADJUSTED SALES & NET INCOME RECONCILIATION
(in thousands, except per share data) (unaudited)
Q2 2017 Q1 2018 Q2 2018 JUN YTD 2017 JUN YTD 2018
------- ------- ------- ------------ ------------
Amount Per Amount Per Amount Per Amount Per Amount Per
Diluted Diluted Diluted Diluted Diluted
Share Share Share Share Share
--- --- --- --- -----
Sales $1,664,170 $1,577,710 $1,726,540 $3,147,276 $3,304,250
----- ---------- ---------- ---------- ---------- ----------
Highlighted items: 2,658 - - 5,081 -
Reduction in revenue related to warrants
Acquisition accounting impacts of deferred revenue - 5,694 3,307 - 9,002
--------------------------------------------------
Adjusted sales $1,666,828 $1,583,404 $1,729,847 $3,152,357 $3,313,252
-------------- ---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to ARRIS International plc $30,336 $0.16 $(13,600) $(0.07) $35,754 $0.19 $(8,762) $(0.05) $22,154 $0.12
--------------------------------------------------------- ------- ----- -------- ------ ------- ----- ------- ------ ------- -----
Highlighted Items:
Impacting gross margin:
-----------------------
Stock compensation expense 3,495 0.02 3,253 0.02 3,809 0.02 6,747 0.04 7,062 0.04
-------------------------- ----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Reduction in revenue related to warrants 2,658 0.01 - - - - 5,081 0.03 - -
---------------------------------------- ----- ---- --- --- --- --- ----- ---- --- ---
Acquisition accounting impacts of deferred revenue - - 5,694 0.03 3,307 0.02 - - 9,002 0.05
-------------------------------------------------- --- --- ----- ---- ----- ---- --- --- ----- ----
Acquisition accounting impacts of fair valuing inventory - - 16,971 0.09 - - 908 0.00 16,971 0.09
-------------------------------------------------------- --- --- ------ ---- --- --- --- ---- ------ ----
Impacting operating expenses:
-----------------------------
Integration, acquisition, restructuring and other costs 9,690 0.05 13,655 0.07 22,844 0.12 19,785 0.10 36,499 0.20
------------------------------------------------------- ----- ---- ------ ---- ------ ---- ------ ---- ------ ----
Amortization of intangible assets 91,012 0.48 114,708 0.61 90,485 0.49 184,657 0.97 205,193 1.10
--------------------------------- ------ ---- ------- ---- ------ ---- ------- ---- ------- ----
Impairment on goodwill and intangible assets - - 3,400 0.02 - - - - 3,400 0.02
-------------------------------------------- --- --- ----- ---- --- --- --- --- ----- ----
Stock compensation expense 18,829 0.10 16,003 0.09 19,694 0.11 34,992 0.18 35,697 0.19
-------------------------- ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Noncontrolling interest share of non-GAAP adj (811) - (2,321) (0.01) (867) (0.00) (1,615) (0.01) (3,188) (0.02)
--------------------------------------------- ---- --- ------ ----- ---- ----- ------ ----- ------ -----
Impacting other (income)/expense:
---------------------------------
Impairment on investments 2,782 0.01 - - - - 2,750 0.01 - -
------------------------- ----- ---- --- --- --- --- ----- ---- --- ---
Debt amendment fees - - - - - - 2,782 0.01 - -
------------------- --- --- --- --- --- --- ----- ---- --- ---
Remeasurement of deferred taxes 2,828 0.01 3,697 0.02 (3,676) (0.02) 4,940 0.03 20 0.00
------------------------------- ----- ---- ----- ---- ------ ----- ----- ---- --- ----
Impacting income tax expense:
-----------------------------
Net tax items (40,937) (0.22) (24,541) (0.13) (37,387) (0.20) (54,270) (0.28) (61,928) (0.33)
------- ------- ------- ------- -------
Total highlighted items 89,546 0.47 150,519 0.80 98,209 0.53 206,757 1.08 248,728 1.34
----------------------- ------ ---- ------- ---- ------ ---- ------- ---- ------- ----
Adjusted net income $119,882 $0.63 $136,919 $0.73 $133,963 $0.72 $197,995 $1.04 $270,882 $1.45
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Weighted average ordinary shares - basic 186,803 184,805 184,216 188,291 184,376
---------------------------------------- ------- ------- ------- ------- -------
Weighted average ordinary shares - diluted 189,002 187,175 185,669 190,932 186,288
------------------------------------------ ------- ------- ------- ------- -------
ARRIS INTERNATIONAL PLC
PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED SALES & GROSS MARGIN RECONCILIATION
(in thousands)
(unaudited)
Q2 2017 Q1 2018 Q2 2018 Jun YTD 2017 Jun YTD 2018
------- ------- ------- ------------ ------------
Sales - GAAP 1,664,170 1,577,710 1,726,540 3,147,276 3,304,250
Adjustment to revenue related to warrants 2,658 - - 5,081 -
Acquisition accounting impacts of deferred revenue - 5,694 3,307 - 9,002
Adjusted Sales - Non-GAAP 1,666,828 1,583,404 1,729,847 3,152,357 3,313,252
========= ========= ========= ========= =========
GAAP Gross Margin 403,357 475,683 498,755 740,615 974,438
Acquisition accounting impacts of fair valuing inventory - 16,971 - 908 16,971
Acquisition accounting impacts of deferred revenue - 5,694 3,307 - 9,002
Stock compensation expense 3,495 3,253 3,809 6,747 7,062
Adjustment to revenue related to warrants 2,658 - - 5,081 -
Adjusted Gross Margin - Non-GAAP 409,510 501,601 505,871 753,351 1,007,473
======= ======= ======= ======= =========
GAAP Gross Margin - % 24.2% 30.2% 28.9% 23.5% 29.5%
Adjusted Gross Margin - Non-GAAP - % 24.6% 31.7% 29.2% 23.9% 30.4%
ARRIS INTERNATIONAL PLC
PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED SALES & ADJUSTED DIRECT CONTRIBUTION RECONCILIATION
(in thousands)
(unaudited)
Q2 2018
-------
Network & CPE Enterprise Corp/ Other Total
Cloud
-----
Net Sales 549,496 1,008,131 172,240 (3,327) 1,726,540
Non GAAP Adjustments (1) - - - 3,307 3,307
--- --- ---
Adjusted Net Sales 549,496 1,008,131 172,240 (20) 1,729,847
======= ========= ======= === =========
Direct Contribution(2) 201,282 85,723 17,774 (146,577) 158,202
Adjusted Direct Contribution (3) 187,886 78,946 19,194 (83,092) 202,934
------- ------ ------ ------- -------
Adjusted Direct Contribution % of sales 34.2% 7.8% 11.1% 11.7%
Other Items
-----------
Amortization of intangibles 24,749 50,621 14,300 815 90,485
Integration,acquisition, restructuring and other costs 6,427 14,589 1,650 179 22,845
Depreciation expense 6,571 6,958 3,158 4,543 21,230
Equity compensation expense 8,647 5,927 4,485 4,444 23,503
(1) Impact of adjustment related to acquisition accounting impacts
(2) Defined as gross margin less direct operating expenses, excluding amortization of intangible assets, restructuring charges, acquisition, integration and other costs.
(3) Defined as direct contribution less allocated facility costs, service provider sales and marketing costs plus equity compensation and depreciation expense
ARRIS INTERNATIONAL PLC
PRELIMINARY SUPPLEMENTAL DIRECT CONTRIBUTION TO ADJUSTED DIRECT CONTRIBUTION RECONCILIATION
(in thousands)
(unaudited)
Q2 2018
-------
Network & CPE Enterprise Corp/ Other Total
Cloud
-----
Direct Contribution(1) 201,282 85,723 17,774 (146,577) 158,202
Allocated costs (2) (28,614) (19,622) (6,223) 54,499 40,446
------- ------- ------ ------ ------
Direct Contribution after allocation 172,668 66,101 11,551 (92,078) 158,242
Equity compensation expense 8,647 5,927 4,485 4,444 23,503
Depreciation expense 6,571 6,958 3,158 4,543 21,230
Adjusted Direct Contribution 187,886 78,986 19,194 (83,091) 202,975
======= ====== ====== ======= =======
(1) Defined as gross margin less direct operating expenses, excluding amortization of intangible assets, restructuring charges, acquisition, integration and other costs.
(2) Allocated facility costs and service provider sales and marketing costs
ARRIS INTERNATIONAL PLC
PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED EPS GUIDANCE RECONCILIATION
(in millions, except per share data)
Q3 2018 Guidance FY 2018 Guidance
---------------- ----------------
Estimated GAAP EPS $ 0.20 - $ 0.25 $ 0.68 - $ 0.83
Reconciling Items:
Amortization of intangibles 0.48 2.09
Stock compensation expense 0.13 0.49
Integration, acquisition, restructuring and other costs 0.02 0.13
Purchase accounting Items 0.01 0.16
Impairment of goodwill - 0.02
Net Tax items (0.19) (0.72)
----- -----
Subtotal 0.45 2.17
---- ----
Estimated Adjusted (Non-GAAP) EPS $ 0.65 - $ 0.70 $ 2.85 - $ 3.00
=============== ===============
ARRIS INTERNATIONAL PLC
PRELIMINARY ADJUSTED SALES & EBITDA RECONCILIATION
(in millions)
(unaudited)
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
Sales $1,260 $1,221 $1,102 $1,615 $1,730 $1,725 $1,759 $1,483 $1,664 $1,729 $1,739 $1,578 $1,727
Highlighted items: - - - - 4 10 16 2 3 3 (8) - -
Reduction in revenue related to warrants
Acquisition accounting impacts of deferred revenue - - - - - - - - - - 1 6 3
Adjusted sales 1,260 1,221 1,102 1,615 1,734 1,735 1,775 1,486 1,667 1,732 1,732 1,583 1,730
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Trailing Twelve Months Adjusted Sales $5,198 $5,672 $6,185 $6,859 $6,730 $6,663 $6,659 $6,616 $6,713 $6,776
Net income (loss) as reported $15 $23 $27 $(205) $82 $46 $86 $(41) $28 $87 $(8) $(17) $35
Income tax expense (benefit) 13 12 (7) 86 (69) 9 (11) 10 (8) (14) (32) 3 (10)
Interest income (1) (1) (1) (1) (1) (1) (2) (2) (2) (2) (2) (2) (2)
Interest expense 28 15 14 20 19 20 21 20 23 20 24 23 24
Depreciation expense 17 17 18 24 22 23 22 21 22 22 23 23 21
Amortization of intangible assets 57 57 56 98 110 89 100 94 91 90 101 115 90
EBITDA 130 124 107 22 164 186 216 102 154 203 105 145 158
Adjustments
Stock-based compensation expense 16 16 18 14 12 18 16 19 22 20 19 19 24
Integration, acquisition, restructuring and other costs 13 8 8 91 41 11 8 10 10 11 68 14 23
Impairment on goodwill and intangible assets - - - - 2 - - - - - 55 3 -
Reduction in revenue related to warrants - - - - 4 10 16 - - - - - -
Acquisition accounting impacts of deferred revenue - - - - - - - 2 3 3 (7) 6 3
Acquisition accounting impacts of fair valuing inventory - - - 30 20 - 1 1 - - 8 17 -
Impairment (gain) on investments 0 - (0) - 5 3 4 3 - (2) - - -
Credit facility - ticking fees - 1 1 (0) - - - - - - - - -
FX contract losses related to acquisition (7) 15 14 2 - - (16) - - - - - -
Adjustment to liability related to foreign tax credit - (4) - - - - - - - - - - -
Remeasurement of deferred taxes - - - - - - - 2 3 4 1 4 (4)
Adjusted EBITDA - Non-GAAP $152 $160 $148 $159 $248 $227 $245 $139 $192 $239 $248 $208 $204
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Trailing Twelve Months Adjusted EBITDA $619 $715 $782 $879 $859 $803 $815 $818 $886 $899
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SOURCE ARRIS
