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8-K - FORM 8-K - ARRIS International plcd528129d8k.htm

Exhibit 99.1

ARRIS Announces Preliminary and Unaudited Fourth Quarter and Full Year 2017 Results

SUWANEE, Ga., February 14, 2018 – ARRIS International plc (NASDAQ: ARRS) today announced preliminary and unaudited financial results for the fourth quarter and full year 2017.

Fourth Quarter 2017 Financial Highlights

 

    Revenues were $1.739 billion

 

    GAAP net income was $0.07 per diluted share

 

    Adjusted net income (a non-GAAP measure) was $0.88 per diluted share

 

    End-of-quarter cash resources were $511 million

 

    $50 million of share repurchases

 

    $822 million of cash resources used to complete Ruckus Networks acquisition

 

    Order backlog was $1.1 billion

 

    Book-to-bill ratio was 1.02

“Our strong fourth quarter results capped a year in which we made important strategic and financial strides in positioning ARRIS for long-term profitable growth,” said Bruce McClelland, ARRIS CEO. “A favorable product mix helped drive record quarterly non-GAAP earnings, and we achieved sequential profitability improvement throughout the year, while returning nearly $200 million in capital to shareholders via share repurchases. The recently closed Ruckus acquisition is already contributing to results and creates a more compelling, diversified platform for growth as we deliver innovative connectivity solutions across the enterprise and service provider markets.”

“With respect to the first quarter 2018, we are estimating revenues in the range of $1.575 billion to $1.625 billion. We expect GAAP net loss per diluted share in the range of $(0.43) to $(0.38) and adjusted net income per diluted share in the range of $0.50 to $0.55. For full year 2018, we expect revenues to be in the range of $7.100 billion to $7.350 billion, GAAP net income per diluted share in the range of $0.48 to $0.73, and adjusted net income per diluted share to be in the range of $2.80 to $3.05. We expect our 2018 performance to be driven by our new Enterprise segment, expanded Network and Cloud share, growing international sales, and continued shift to broadband in our CPE business.”

ARRIS will host its 2018 Investor Day on Wednesday, March 28, 2018 at The Westin New York at Times Square.    Registration for the event can be found at the Company’s website in the Investor Relations section.

Revenues in the fourth quarter 2017 of $1.739 billion were down $20 million, or 1%, as compared to fourth quarter 2016 revenues of $1.759 billion. Fourth quarter 2017 revenues were up $10 million, or 1%, as compared to third quarter 2017 revenues of $1.729 billion. Full year 2017 revenues were $6.614 billion, down $215 million, or 3%, as compared to the full year 2016 revenues of $6.829 billion.

GAAP net income in the fourth quarter 2017 was $0.07 per diluted share, as compared to GAAP net income of $0.46 per diluted share in the fourth quarter 2016 and a GAAP net income of $0.47 per diluted share in the third quarter 2017.

Full year 2017 GAAP net income was $0.49 per diluted share, as compared to 2016 GAAP net income of $0.09 per diluted share.                

Adjusted net income (a non-GAAP measure) in the fourth quarter 2017 was $0.88 per diluted share, as compared to $0.79 per diluted share for the fourth quarter 2016, and third quarter 2017 adjusted net income of $0.80 per diluted share.

Adjusted net income was $2.72 per diluted share for 2017 as compared to 2016 adjusted net income of $2.86 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 fourth quarter 2017 with $511 million of cash resources, as compared to $1.413 billion at the end of the third quarter 2017.

The Company used $822 million of cash resources to acquire the Ruckus Networks business and cash-out unvested equity awards held by transferring employees during the fourth quarter 2017, as required by the purchase agreement.


The Company repurchased 1.9 million ordinary shares for $50 million during the fourth quarter of 2017. For full year 2017, the Company repurchased 7.5 million ordinary shares for $197 million. As of December 31, 2017, the Company had $225 million remaining in available repurchase authorization.

The Company consumed $77.8 million of cash in operating activities during the fourth quarter 2017, including $61.5 million of employee equity payouts as part of the Ruckus Networks acquisition. This compares to $35.3 million generated during the fourth quarter 2016. For full year 2017, the Company generated $534 million of cash from operating activities as compared to $362 million generated during the full year 2016.

Order backlog at the end of the fourth quarter 2017 was $1.121 billion as compared to $1.106 billion and $1.083 billion at the end of the fourth quarter 2016 and the third quarter 2017, respectively. The Company’s book-to-bill ratio in the fourth quarter 2017 was 1.02 as compared to the fourth quarter 2016 of 1.04 and the third quarter 2017 of 0.86.

ARRIS management will conduct a conference call at 5:00 pm EDT, today, Wednesday, February 14, 2018, to discuss fourth quarter 2017 results and first quarter and full year 2018 guidance. 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 February 21, 2018, by dialing 855-859-2056 or 404-537-3406 for international calls and using the pass code 9197819. 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 first quarter and full year 2018, growth expectations, 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 first quarter and full year 2018 are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management’s control;

 

    the anticipated benefits from the Ruckus Networks acquisition may not be realized;

 

    the Company may encounter significant integration costs and unknown liabilities in connection with the Ruckus Networks acquisition;

 

    volatility in component pricing and supply could impact revenues and gross margins more than currently anticipated;

 

    failure to receive clearance from U.S. Customs and Border Protection to allow the import and sale of certain products currently subject to an ITC exclusion order could significantly impact financial results;

 

    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 September 30, 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 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

 

    Follow us on Twitter: @ARRIS

# # #

Contact:

Bob Puccini

Investor Relations

+1.720.895.7787

ARRIS and the ARRIS Logo are trademarks or registered trademarks of ARRIS Enterprises, Inc. All other trademarks are the property of their respective owners. © 2018 ARRIS Enterprises, Inc. All rights reserved.


ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

    December 31,     September 30,     June 30,     March 31,     December 31,  
    2017     2017     2017     2017     2016  

ASSETS

         

Current assets:

         

Cash and cash equivalents

  $ 487,573     $ 1,379,827     $ 1,346,028     $ 1,126,248     $ 980,123  

Short-term investments, at fair value

    23,874       33,309       38,759       90,673       115,553  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents and short term investments

    511,447       1,413,136       1,384,787       1,216,921       1,095,676  

Accounts receivable, net

    1,218,088       1,056,225       991,539       1,069,771       1,359,430  

Other receivables

    158,970       145,658       132,742       57,454       73,193  

Inventories, net

    819,373       775,142       657,881       556,264       551,541  

Prepaid income taxes

    28,351       41,780       16,354       21,845       51,476  

Prepaids

    26,644       27,954       32,149       27,898       21,163  

Other current assets

    145,953       109,567       119,405       132,338       127,593  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    2,908,826       3,569,462       3,334,857       3,082,491       3,280,072  

Property, plant and equipment, net

    372,467       347,506       355,033       354,050       353,377  

Goodwill

    2,278,512       2,016,580       2,014,550       2,018,012       2,016,169  

Intangible assets, net

    1,771,363       1,406,591       1,491,103       1,586,187       1,677,178  

Investments

    71,082       73,199       61,047       65,035       72,932  

Deferred income taxes

    115,435       193,703       199,102       190,037       298,757  

Other assets

    101,858       57,246       54,843       58,919       59,877  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 7,619,543     $ 7,664,287     $ 7,510,535     $ 7,354,731     $ 7,758,362  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

         

Current liabilities:

         

Accounts payable

  $ 1,201,094     $ 1,266,214     $ 1,201,883     $ 1,020,234     $ 1,048,904  

Accrued compensation, benefits and related taxes

    155,966       102,222       81,355       73,220       139,794  

Accrued warranty

    44,507       45,036       44,812       46,330       49,618  

Deferred revenue

    115,223       118,598       130,454       145,197       132,128  

Current portion of LT debt & financing lease obligations

    83,559       89,156       89,336       82,767       82,734  

Income taxes payable

    6,897       4,420       9,487       20,278       23,133  

Other accrued liabilities

    320,211       327,099       303,013       300,861       357,823  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    1,927,458       1,952,745       1,860,340       1,688,887       1,834,134  

Long-term debt & financing lease obligations, net of current portion

    2,116,244       2,112,494       2,134,506       2,159,300       2,180,009  

Accrued pension

    42,637       54,867       55,532       54,809       52,652  

Noncurrent income taxes

    144,665       115,434       114,187       120,493       123,344  

Deferred income taxes

    68,888       83,058       83,516       89,260       223,529  

Other noncurrent liabilities

    134,519       118,420       120,381       112,977       117,957  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    4,434,412       4,437,018       4,368,462       4,225,726       4,531,625  

Stockholders’ equity:

         

Ordinary shares

    2,768       2,788       2,786       2,802       2,831  

Capital in excess of par value

    3,387,128       3,367,940       3,356,183       3,322,803       3,314,707  

Accumulated other comprehensive loss

    4,552       8,838       2,211       10,628       3,291  

Accumulated deficit

    (224,784     (188,375     (256,705     (243,207     (132,013
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ARRIS International plc stockholders’ equity

    3,169,664       3,191,191       3,104,475       3,093,026       3,188,816  

Stockholders’ equity attributable to noncontrolling interest

    15,467       36,078       37,598       35,979       37,921  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    3,185,131       3,227,269       3,142,073       3,129,005       3,226,737  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 7,619,543     $ 7,664,287     $ 7,510,535     $ 7,354,731     $ 7,758,362  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     For the Three Months     For the Twelve Months  
     Ended December 31,     Ended December 31,  
     2017     2016     2017     2016  

Net sales

   $ 1,738,593     $ 1,759,223     $ 6,614,392     $ 6,829,118  

Cost of sales

     1,244,124       1,323,222       4,948,153       5,121,501  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     494,469       436,001       1,666,239       1,707,617  

Operating expenses:

        

Selling, general, and administrative expenses

     140,653       115,597       473,619       454,190  

Research and development expenses

     141,441       132,401       539,094       584,909  

Amortization of intangible assets

     100,588       100,046       375,407       397,464  

Integration, acquisition, restructuring and other costs

     67,734       15,450       98,356       160,337  

Impairment of goodwill and intangible assets

     55,000       —         55,000       —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     505,417       363,494       1,541,477       1,596,900  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (10,948     72,507       124,762       110,717  

Other expense (income):

        

Interest expense

     23,850       20,985       87,088       79,817  

Loss on investments

     2,088       7,788       11,066       21,194  

Loss (gain) on foreign currency

     4,188       (22,151     9,757       (13,982

Interest income

     (1,978     (1,623     (7,976     (4,395

Other (income) expense, net

     (402     (7,601     1,873       3,991  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (38,693     75,109       22,952       24,092  

Income tax (benefit) expense

     (31,656     (10,937     (44,268     15,131  
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net (loss) income

     (7,038     86,046       67,221       8,961  

Net loss attributable to noncontrolling interests

     (20,604     (2,237     (25,903     (9,139
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to ARRIS International plc

   $ 13,566     $ 88,283     $ 93,124     $ 18,100  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per ordinary share (1):

        

Basic

   $ 0.07     $ 0.46     $ 0.50     $ 0.09  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.07     $ 0.46     $ 0.49     $ 0.09  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares:

        

Basic

     186,548       190,145       187,133       190,701  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     188,829       192,400       189,616       192,185  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Calculated based on net income attributable to shareowners of ARRIS International plc


ARRIS INTERNATIONAL PLC

PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     For the Three Months
Ended December 31,
    For the Twelve Months
Ended December 31,
 
     2017     2016     2017     2016  

Operating Activities:

        

Consolidated net (loss) income

   $ (7,038   $ 86,046     $ 67,221     $ 8,961  

Depreciation

     22,855       21,764       88,195       90,577  

Amortization of acquired intangible assets

     102,455       102,647       382,416       404,475  

Amortization of deferred finance fees and debt discount

     2,339       1,915       7,960       7,705  

Impairment of goodwill and intangible assets

     55,000       —         55,000       2,200  

Deferred income taxes

     (29,449     (53,600     (65,989     (148,418

Foreign currency remeasurement of deferred income taxes

     320       (16,356     10,490       (16,356

Stock compensation expense

     18,706       15,997       81,557       60,049  

Provision for non-cash warrants

     (8,145     16,265       —         30,159  

Provision for doubtful accounts

     (7     246       (566     1,386  

Loss on disposal of plant, property and equipment and other

     1,187       3,828       7,063       8,706  

Loss on investments and others

     2,088       7,788       11,065       21,194  

Excess tax benefits from stock-based compensation plans

     —         (16,525     —         (20,085

Changes in operating assets & liabilities, net of effects of acquisitions and disposals:

        

Accounts receivable

     (129,282     (256,788     175,930       (258,677

Other receivables

     (13,312     (27,737     (85,777     (31,517

Inventories

     3,989       51,515       (218,744     282,644  

Accounts payable and accrued liabilities

     (88,913     69,859       43,524       (178,086

Prepaids and other, net

     (10,568     28,435       (25,508     97,578  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (77,775     35,299       533,837       362,495  

Investing Activities:

        

Purchases of investments

     (243     (71,688     (68,493     (141,543

Sales of investments

     10,000       22,605       165,301       25,931  

Purchases of property, plant & equipment, net

     (15,683     (26,114     (78,072     (66,760

Acquisitions, net of cash acquired

     (760,802     —         (760,802     (340,118

Purchases of intangible assets

     —         (2,216     (6,422     (5,526

Other, net

     —         —         826       3,507  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (766,728     (77,413     (747,662     (524,509

Financing Activities:

        

Proceeds from issuance of debt

     145,533       —         175,847       800,000  

Payment of accounts receivable financing facility

     —         —         —         (23,546

Payment of financing lease obligation

     (187     (201     (777     (758

Payment of debt obligations

     (145,033     (22,375     (244,009     (319,750

Payment for deferred financing costs and debt discount

     (4,499     —         (5,961     (2,304

Repurchase of shares

     (50,000     —         (196,965     (178,035

Excess income tax benefits from stock-based compensation plans

     —         16,525       —         20,085  

Repurchase of shares to satisfy employee minimum tax withholdings

     (214     (163     (26,573     (17,925

Proceeds from issuance of shares, net

     8,846       8,570       17,469       12,885  

Contribution from noncontrolling interest

     —         —         3,500       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (45,554     2,356       (277,469     290,652  

Effect of exchange rate changes on cash and cash equivalents

     (2,197     (12,097     (1,256     (12,097

Net (decrease) increase in cash and cash equivalents

     (892,254     (51,855     (492,550     116,541  

Cash and cash equivalents at beginning of period

     1,379,827       1,031,978       980,123       863,582  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 487,573     $ 980,123     $ 487,573     $ 980,123  
  

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS INTERNATIONAL PLC

PRELIMINARY ADJUSTED SALES & NET INCOME RECONCILIATION

(in thousands, except per share data) (unaudited)

 

    Q4 2016     Q3 2017     Q4 2017     DEC YTD 2016     DEC YTD 2017  
    Amount     Per
Diluted
Share
    Amount     Per
Diluted
Share
    Amount     Per
Diluted
Share
    Amount     Per
Diluted
Share
    Amount     Per
Diluted
Share
 

Sales

  $ 1,759,223       $ 1,728,524       $ 1,738,593       $ 6,829,118       $ 6,614,392    

Highlighted items:

                   

Reduction in revenue related to warrants

    16,265         3,064         (8,145       30,159         —      

Acquisition accounting impacts of deferred revenue

    —               1,120         —           1,120    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted sales

  $ 1,775,488       $ 1,731,588       $ 1,731,568       $ 6,859,277       $ 6,615,512    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to ARRIS International plc

  $ 88,283     $ 0.46     $ 88,320     $ 0.47     $ 13,566     $ 0.07     $ 18,100     $ 0.09     $ 93,124     $ 0.49  

Highlighted Items:

                   

Impacting gross margin:

                   

Stock compensation expense

    2,388       0.01       3,897       0.02       3,303       0.02       9,397       0.05       13,947       0.07  

Reduction in revenue related to warrants

    16,265       0.08       3,064       0.02       (8,145     (0.04     30,159       0.16       —         —    

Acquisition accounting impacts of deferred revenue

    —         —         —         —         1,120       0.01       —         —         1,120       0.01  

Acquisition accounting impacts of fair valuing inventory

    581       0.00       —         —         7,560       0.04       51,405       0.27       8,468       0.04  

Impacting operating expenses:

                   

Integration, acquisition, restructuring and other costs

    7,922       0.04       10,836       0.06       67,734       0.36       152,810       0.80       98,356       0.52  

Amortization of intangible assets

    100,046       0.52       90,162       0.48       100,588       0.53       397,464       2.07       375,407       1.98  

Impairment on goodwill and intangible assets

    —         —         —         —         55,000       0.29       —         —         55,000       0.29  

Stock compensation expense

    13,608       0.07       16,316       0.09       15,403       0.08       50,652       0.26       66,711       0.35  

Noncontrolling interest share of non-GAAP adj

    (807     —         (711     —         (20,026     (0.11     (3,145     (0.02     (22,352     (0.12

Impacting other (income)/expense:

                   

Impairment (gain) on investments

    4,446       0.02       (1,821     (0.01     —         —         12,297       0.06       929       0.00  

Debt amendment fees

    —         —         —         —         3,069       0.02       (237     —         5,851       0.03  

Credit facility - ticking fees

    —         —         —         —         —         —         (9     —         —         —    

FX contract losses related to cash consideration of Pace acquisition

    —         —         —         —         —         —         1,610       0.01       —         —    

Remeasurement of certain deferred tax liabilities

    (16,356     (0.09     3,569       0.02       851       —         (16,356     (0.09     9,359       0.05  

France R&D tax credit

    (4,992     (0.03     —         —         —         —         —         —         —         —    

Impacting income tax expense:

                   

Foreign withholding tax

    —         —         —         —         —         —         54,741       0.28       —         —    

Net tax items

    (58,513     (0.30     (62,698     (0.33     (73,038     (0.39     (208,524     (1.09     (189,884     (1.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total highlighted items

    64,588       0.34       62,614       0.33       153,419       0.81       532,264       2.77       422,912       2.23  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

  $ 152,871     $ 0.79     $ 150,934     $ 0.80     $ 166,985     $ 0.88     $ 550,364     $ 2.86     $ 516,036     $ 2.72  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares - basic

      190,145         187,064         186,548         190,701         187,133  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares - diluted

      192,400         188,941         188,829         192,185         189,616  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


ARRIS INTERNATIONAL PLC

PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED SALES & GROSS MARGIN RECONCILIATION

(in thousands)

(unaudited)

 

     Q4 2016     Q3 2017     Q4 2017     FY 2016     FY 2017  

Sales - GAAP

     1,759,220       1,728,524       1,738,593       6,829,110       6,614,392  

Fair Value of Warrants Adjustment

     16,264       3,064       (8,145     30,159       —    

Fair Value of Deferred Revenue Adjustment

     —         —         1,120         1,120  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Sales - Non- GAAP

     1,775,485       1,731,588       1,731,569       6,859,270       6,615,513  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Gross Margin

     435,997       431,155       494,469       1,707,609       1,666,239  

Fair Value of Inventory Adjustment

     580       —         7,560       51,405       8,468  

Fair Value of Deferred Revenue Adjustment

     —         —         1,120       —         1,120  

Equity Compensation

     2,388       3,897       3,303       9,397       13,947  

Fair Value of Warrants Adjustment

     16,264       3,064       (8,145     30,159       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Gross Margin - Non-GAAP

     455,229       438,116       498,307       1,798,569       1,689,774  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Gross Margin - %

     24.8     24.9     28.4     25.0     25.2

Adjusted Gross Margin - Non-GAAP - %

     25.6     25.3     28.8     26.2     25.5


ARRIS INTERNATIONAL PLC

PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED SALES & DIRECT CONTRIBUTION RECONCILIATION

(in thousands)

(unaudited)

 

     Q4 2017  
     Network &
Cloud
    CPE     Enterprise     Corp/Other     Total  

Net Sales

     595,842       1,089,981       45,749       7,021       1,738,593  

Non GAAP Adjustments (1)

     —         —         —         (7,021     (7,021
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Sales

     595,842       1,089,981       45,749       0       1,731,572  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Direct Contribution (2)

     262,868       123,678       6,094       (180,265     212,375  

Non GAAP Adjustments (3)

     —         —         —         19,241       19,241  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Direct Contribution

     262,868       123,678       6,094       (161,024     231,616  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Direct Contribution % of sales

     44.1     11.3     13.3       13.4

 

(1) Impact of warrants adjustment and 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) Equity compensation expense, adjustments related to the acquisition accounting impacts and warrants adjustment


ARRIS INTERNATIONAL PLC

PRELIMINARY SUPPLEMENTAL GAAP TO ADJUSTED EPS GUIDANCE RECONCILIATION

(in millions, except per share data)

 

     Q1 2018 Guidance     FY 2018 Guidance  

Estimated GAAP EPS

   $  (0.43) - $(0.38)     $  0.48 - $ 0.73  

Reconciling Items:

    

Amortization of Intangibles

     0.63       2.12  

Stock Compensation Expense

     0.11       0.50  

Integration and Other Costs

     0.12       0.15  

Purchase Accounting Items

     0.15       0.20  

Impairment of Goodwill and Intangible Assets

     0.04       0.04  

Net tax items

     (0.12     (0.69
  

 

 

   

 

 

 

Subtotal

     0.93       2.32  
  

 

 

   

 

 

 

Estimated Adjusted (Non-GAAP) EPS

   $ 0.50 - $ 0.55     $ 2.80 - $ 3.05  
  

 

 

   

 

 

 


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 Deferred Revenue: In connection with our acquisition of Ruckus Networks, 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

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.

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 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 intangible assets that were acquired. We exclude these impairments when significant and they are not reflective of ongoing business and operating results.

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 (Gain) on Investments: We have excluded the effects 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 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).

France R&D Tax Credit: France R&D tax credits were recorded as an other asset on the date of our acquisition of Pace, as Pace France, a subsidiary of Pace, had a history of losses and did not expect to utilize their R&D Tax Credits against a future France income tax liability but rather expected to use the credits to offset non-income taxes. In the third quarter of 2016, our restructuring in France required a reclassification of the R&D tax credits from other assets to deferred tax assets prior to the utilization of the tax credits. This impact of the reclassification was a charge to other expense with an offsetting tax benefit. However, during the fourth quarter of 2016, the Company determined that the original classification within income taxes was more appropriate and therefore the reclassification from the third quarter of 2016 reversed. We have excluded the effect of the other expense and tax benefit in the calculation of our non-GAAP financial measures. We believe it is useful to understand the effects of this event on our total other expense (income) and income tax.

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.