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| 8-K - FORM 8-K - ARRIS GROUP INC | d354881d8k.htm |
 May 23, 2012
Dave Potts, CFO
Barclay’s Capital
Global Technology,
Media and Telecommunications
Conference
Exhibit 99.1 |
 Safe
Harbor Statements in this presentation including those related to expected
sales levels, acceptance of new ARRIS products (including the
Moxi® Gateway and the E6000 Converged Edge Router),
growth in Internet video traffic and the expanded use of IP MSO infrastructure, the
general market outlook, the impact of the acquisition of BigBand, the timing
and impact of new growth opportunities 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 are based on
preliminary estimates, assumptions and projections that management believes
to be reasonable at this time, but are beyond management’s control;
ARRIS is dependent upon customer decisions to purchase the Company’s
products -- these decisions can be deferred and customers also may
select competitor’s products; the BigBand acquisition has the
integration and other risks attendant to all acquisitions; and because the
market in which ARRIS operates is volatile, actions taken and
contemplated may not achieve the desired impact. Other factors that could
cause results to differ from current expectations include: the uncertain
current economic climate and financial markets, and their impact on our
customers’ plans and access to capital; 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; rights to intellectual property and the current trend
toward increasing patent litigation, market trends and the adoption of
industry standards; possible acquisitions and dispositions; 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, including its Form
10-Q for the quarter ended March 31, 2012. 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. 2
Barclay's Capital Conference
May 23, 2012 |
 Barclay's Capital Conference
May 23, 2012
Company Overview
3 |
 ARRIS Company Overview
High tech, pure play provider of voice, high-speed data, and
video solutions to the global broadband industry
4
Barclay's Capital Conference
May 23, 2012
Note:
1.Based on closing share price of $12.93 on 4/30/2012
Direct presence in 21
countries
Channel presence in 30
countries
Headquartered in
Suwanee, Georgia
~2,117 employees
Customers Worldwide
Market Cap ~1.5 billion
1 |
 ARRIS Company Highlights
Profitable business with solid cash generation
Product roadmap, R&D, and acquisition strategy focused
on enabling convergence of cable services on a unified IP
platform
Significant market share of major product areas
-
~45% worldwide installed base of VoIP enabled high speed modems
•
#1 Worldwide Market Share*
-
~31% worldwide installed base of cable edge routers (CMTS)
•
#2 Worldwide Revenue Market Share*
5
* Infonetics 4Q11
May 23, 2012
Barclay's Capital Conference |
 ARRIS Portfolio Across the Network
May 23, 2012
Barclay's Capital Conference
6 |
 Our
Vision Continues to Expand 7
Barclay's Capital Conference
May 23, 2012
Our Path to Growth
-
“Everything IP, Everywhere”
-
In the Home and on the Go! |
 Q1
2012 Results & Highlights Revenue $302.9M
-
Up 8% vs. Q4 2011, 13% vs. Q1 2011
Record bookings and order backlog
Gross Margin 36.0%
Non-GAAP EPS $0.19
75% Domestic, 25% International
Strong cash flow
$335.1M Net cash position
Stock repurchase program continued
BigBand integration complete (acquired 11/2011)
8
Barclay's Capital Conference
May 23, 2012
1
See reconciliation of GAAP to Non-GAAP measures.
Off to a great start
1 |
 Q1
2012 Results & Highlights Record CMTS downstream port shipments
109,744 C4™downstreams, 10% more than previous high
Shipped >1.6 million CPE units in the quarter
-
Up 35% vs. Q4 2011
-
60% of CPE units were DOCSIS 3.0
-
Wi-Fi Gateways, data modem business
Moxi®
Gateway
-
Successful launch at WOW
-
Buckeye beginning commercial deployments
-
Additional operators in line for commercial deployments
New Gateway Platform Programs
-
3rd party middleware software integrations launched
BigBand
-
Product/feature execution improving
-
MSP deployments underway
9
Barclay's Capital Conference
May 23, 2012 |
 Barclay's Capital Conference
May 23, 2012
Business Drivers
10 |
 Online Video Drives Bandwidth Growth
11
84% of the total U.S. Internet
audience viewed online video
89% of the total Brazil Internet
audience viewed online Video
4.7 B
2.7 B
30 B
43 B
Videos Viewed
Grows +45% in
Past Year
May 23, 2012
Barclay's Capital Conference
* Based on video content sites: excludes video server networks. Online Video includes both
streaming and progressive download video, total U.S.- Home/Work/University
Locations |
 DOCSIS 3.0 Technology Upgrade Cycle Accelerating
Our guarantee is our promise to you.
Find out more at comcast.com.
Important
information
regarding
your
XFINITY®
Service.
To ensure that your modem
can take advantage of all
that XFINITY Internet has to
offer, you will need to
replace your current
modem with a DOCSIS 3.0
modem.
May 23, 2012
Barclay's Capital Conference
12
Valued Comcast Customer
Alpharetta, GA
Subject: Important Service Announcement Regarding Your Cable Modem
Dear Valued Comcast Customer:
Our records indicate that the cable modem which you currently use for
your XFINITY®
Internet service may not be able to receive the full range of
speeds available with XFINITY Internet.
To ensure that your modem can take advantage of all that XFINITY
Internet has to offer, you will need to replace your current modem with
a DOCSIS 3.0 modem.
There are several convenient modem replacement options available
to you:
To protect our environment, please dispose of your older modem properly.
Instead of disposing with household trash, you can return it to the front
counter of any Comcast Payment Center or you can check with your
local municipality to learn about its recycling days.
Sincerely,
Comcast
•
Visit a retailer to purchase a new cable modem. You may visit
http://mydeviceinfo.comcast.net/ for a list of modems certified to
work on our network.
•
Arrange to lease a cable modem by calling 1-800-XFINITY. You may
have a leased modem sent to you with a self-installation kit. If
you do so, no installation charges apply and there will be no shipping or
handling charge. Standard installation fees apply for professional
installation. Applicable equipment charges apply when leasing a
modem from Comcast. |
 Ramped R&D Investment in Response to
Emerging Growth Opportunities
Barclay's Capital Conference
May 23, 2012
13
~$155 Million of R&D past twelve months
While Remaining Solidly Profitable
ARRIS R&D Quarterly Investment ($M)
*
Includes Bigband |
 Increased R&D Investment
Bearing Fruit in 2012 and Beyond…
Moxi®
Gateway
–
supports
a
new
generation
of
devices
-
Whole Home Solution
-
Hybrid legacy/IPTV
Entirely
refreshed
C4
product
line
–
world
class
density
-
Double the density
•
32D Downstream Card (Software upgradeable)
•
24U Upstream Card
-
Two new software releases
•
IP V6
•
Upstream Channel Bonding
E6000
Converged
Edge
Router
–
the
IPTV
solution
-
Radical new concept in high density edge routers
-
Platform for the next decade
Completely revamped CPE product line
-
Voice enabled
-
Wi-Fi enabled
-
Embedded routing
Ethernet
Passive
Optical
Network
(EPON)
-
Fiber
to
the
Home
New Assurance software suite
14
Barclay's Capital Conference
May 23, 2012 |
 …While Growing a Valuable Patent Portfolio
US
Foreign
Total
Patents Granted
444
167
611
Applications Pending
268
107
375
TOTAL
712
274
986
2010
2011
2012 YTD
Patents Granted
28
36
20
Applications Filed
81
92
22
May 23, 2012
Barclay's Capital Conference
15 |
 Excellent Opportunities for Growth
Goals:
-
10%+ Revenue CAGR
-
High Teens Non-GAAP EBITDA %
16
Barclay's Capital Conference
May 23, 2012
Growth Will Drive Operating Leverage
and EPS Expansion
32D &
24U
MOXI
®
Gateway
E6000™
Edge Router
MSP
Multiple
Screens
International expansion
CPE
Wi-Fi
Non
GAAP
EBITDA
%
=
(GAAP
EBITDA
+
Equity
Compensation
Expense
+
Other
Non-GAAP
Adjustments)
/
Sales
2011
2013 |
 Q2
2012 Guidance Revenue $330M -
$350M
-
Entering quarter with good momentum
-
Center of guidance represents 28% growth vs. Q2 2011
Adjusted(Non-GAAP)EPS $0.20 -
$0.24
(1)
/GAAP $.10 -
$.14
-
Mix expected to shift towards CPE and CMTS hardware
~34% tax rate assumed
-
Versus 26.9% for Q2 2011
116.0M diluted shares assumed
-
Versus 123.7M for Q2 2011
17
Barclay's Capital Conference
May 23, 2012
(1) See reconciliation of GAAP to Adjusted Non-GAAP EPS Guidance
reconciliation Optimistic about the year as a whole
|
 Executing on our Strategy
-
Strategic
acquisitions
–
Fortify
IP
Video
offering
and
patent
portfolio
•
Digeo
•
BigBand
-
Deep
IP
Product
Portfolio
–
Positions
ARRIS
for
growth
•
Moxi Whole Home Solution
•
Wireless
•
DOCSIS 3.0
•
CCAP
-
Strong Balance Sheet
•
Cash generation
•
Share buyback
•
Acquisition strategy
-
Shareholder value increasing as we remain focused on achieving 10%
revenue growth and high teens Non-GAAP EBITDA margin
18
Barclay's Capital Conference
May 23, 2012 |
 Questions? |
 GAAP EPS/Adjusted EPS Reconciliation Q1 2012
(Preliminary & Unaudited)
Barclay's Capital Conference
20
May 23, 2012
See the Notes to GAAP / Adjusted Non-GAAP Financial Measures slide
Per Diluted
Per Diluted
Per Diluted
Amount
Share
Amount
Share
Amount
Share
Net income (loss)
11,564
$
0.09
$
(59,629)
$
(0.51)
$
5,799
$
0.05
$
Highlighted items:
Impacting gross margin:
Purchase accounting impacts of deferred revenue
-
-
3,126
0.03
1,258
0.01
Stock compensation expense
437
-
521
-
750
0.01
Impacting operating expenses:
Acquisition costs
-
-
2,730
0.02
607
0.01
Restructuring
-
-
3,391
0.03
5,203
0.04
Amortization of intangible assets
8,944
0.07
6,817
0.06
7,379
0.06
Goodwill and intangibles impairment
-
-
88,633
0.74
-
-
Loss of sale of product line
-
-
-
-
337
-
Stock compensation expense
4,847
0.04
4,586
0.04
5,899
0.05
Impacting other (income) / expense:
Non-cash interest expense
2,832
0.02
2,941
0.02
2,999
0.03
Impairment of investment
-
-
3,000
0.03
-
-
Impacting income tax expense:
Adjustments of income tax valuation allowances and other
(3,583)
(0.03)
3,032
0.03
-
-
Tax impact related to goodwill and intangibles impairment
-
-
(25,584)
(0.21)
-
-
Tax related to highlighted items above
(5,024)
(0.04)
(8,553)
(0.07)
(8,121)
(0.07)
Total highlighted items
8,453
0.07
84,640
0.71
16,311
0.14
Net income excluding highlighted items
20,017
$
0.16
$
25,011
$
0.21
$
22,110
$
0.19
$
Weighted average common shares -
basic
117,316
(1)
Weighted average common shares -
diluted
125,732
119,609
(2)
117,597
(1) Basic shares used for Q4 2011 as losses were reported for those periods and the
inclusion of dilutive shares would be antidilutive (2) Non-GAAP net
income for Q4 2011 is positive and , therefore, the diluted shares used in this calculation include the effect of options
Q1 2012
Q4 2011
Q1 2011 |
 GAAP EBITDA/Adjusted EBITDA Reconciliation
(Preliminary & Unaudited)
Barclay's Capital Conference
21
May 23, 2012
See the Notes to GAAP / Adjusted Non-GAAP Financial Measures slide
(in thousands)
Q1 2011
Q4 2011
Q1 2012
Earnings (loss) before tax
11,325
(78,341)
8,686
Depreciation
5,855
6,589
7,195
Amortization of intangibles
8,944
6,817
7,379
Goodwill & intangible impairment
-
88,633
-
Interest expense
4,225
4,258
4,350
Interest income
(778)
(715)
(755)
GAAP EBITDA
29,571
27,241
26,855
GAAP EBITDA - % of Sales
11.1%
9.7%
8.9%
Highlighted items:
Purchase accounting impact of def revenue
-
3,126
1,258
Stock compensation expense
5,284
5,108
6,649
Acquisition costs
-
2,730
607
Restructuring
-
3,391
5,203
Impairment on investments
-
3,000
-
Loss of sale of product line
-
-
337
Total highlighted items
5,284
17,355
14,054
Adjusted Non-GAAP EBITDA
34,855
44,596
40,909
Adjusted Non GAAP EBITDA - % of Adjusted Non GAAP Sales
13.0%
15.6%
13.4% |
 GAAP to Adjusted Non-GAAP
EPS Guidance Reconciliation
Barclay's Capital Conference
22
May 23, 2012
See the Notes to GAAP / Adjusted Non-GAAP Financial Measures slide
See the Notes to GAAP / Adjusted Non-GAAP Financial Measures slide
Q2 2012 EPS
Guidance
Estimated GAAP EPS
$0.10 -
$0.14
Reconciling Items:
Amortization of Intangibles (after tax)
$0.04
Stock Compensation Expense (after tax)
$0.04
Non-Cash Interest -
Convertible Debt (after tax)
$0.02
Subtotal
$0.10
Estimated Adjusted (Non-GAAP) EPS
$0.20 -$ 0.24 |
 Notes to GAAP/Adjusted Non-GAAP Financial Measures
(Preliminary & Unaudited)
Barclay's Capital Conference
23
May 23, 2012
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:
Purchase Accounting Impacts Related to Deferred Revenue: In connection with our acquisition of
BigBand, business combination rules require us to account for the fair values of arrangements
for which acceptance has not been obtained, and 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. We believe the adjustment to these revenues is useful
as a measure of the ongoing performance of our business. We have historically 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 our 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 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 options and restricted stock. 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 Costs: We have
excluded the effect of acquisition related and other expenses and the effect of restructuring expenses in calculating our non-GAAP operating expenses and net
income measures. We incurred significant expenses in connection with our recent acquisition of
BigBand, which we generally would not have otherwise incurred in the periods presented as part
of our continuing operations. Acquisition related expenses consist of transaction costs, costs for transitional employees, other acquired employee related costs, and integration related
outside services. We believe it is useful to understand the effects of these items on our total
operating expenses. Restructuring Costs: We have excluded the effect of
restructuring charges in calculating our non-GAAP operating expenses and net income measures. Restructuring expenses consist of
employee severance, abandoned facilities, and other exit costs. 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 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. Impairment of Goodwill and Intangibles: We have excluded the effect of the
estimated impairment of goodwill and intangible assets in calculating our non-GAAP operating expenses and
net income (loss) measures. Although an impairment does not directly impact the Company’s current
cash position, such expense represents the declining value of the technology and other
intangibles assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.
Loss on Sale of Product Line: We have excluded the effect of a loss on the sale of a product
line in calculating our non-GAAP operating expenses and net income measures. We believe it
is useful to understand the effects of these items on our total operating expenses.
Non-Cash Interest on Convertible Debt: We have excluded the effect of non-cash interest in
calculating our non-GAAP operating expenses and net income measures. We record the
accretion of the debt discount related to the equity component non-cash interest expense. We
believe it is useful to understand the component of interest expense that will not be paid out in
cash.
Impairment of Investment: 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).
Income Tax Expense: 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 state
valuation allowances, research and development tax credits and provision to return
differences. |