Yesterday, after the closing bell, Arris Group Inc. (ARRS) declared its financial results for the second quarter of 2012 beating the Zacks Consensus Estimates. The company exited the second quarter with a strong order backlog.
GAAP net income in the second quarter of 2012 was $15.0 million or 13 cents per share compared with $16.7 million or 13 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) earnings per share came in at 20 cents, beating the Zacks Consensus Estimate by a penny.
Quarterly total revenue was $349.3 million, up 31.4% year over year, surpassing the Zacks Consensus Estimate of $342 million. Quarterly Domestic revenue was 74% while International revenue was 26%. Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC) together constituted 49.1% of the total second-quarter revenue.
Quarterly gross margin came in at 33.9% compared with 40.2% in the year-ago quarter. Operating income, in the second quarter of 2012, was $26.9 million compared with $25.4 million in the prior-year quarter. Quarterly operating margin was 7.7% compared with 9.6% in the year-ago quarter.
Total order backlog of Arris, at the end of the second quarter, was $251.9 million compared with $154.2 million at the end of the year-ago quarter. Book-to-bill ratio was 0.93 in the second quarter compared with 0.91 in the prior-year quarter. In the previous quarter, Arris repurchased approximately 1.4 million of its common outstanding shares for a total consideration of $15.2 million.
Arris generated $30.6 million of cash from operations during the second quarter of 2012 compared with $31.4 million in the prior-year quarter. Quarterly free cash flow (cash flow from operations less capital expenditures) was $25.1 million, remaining the same year over year.
At the end of the second quarter of 2012, Arris had $576.3 million of cash & marketable securities on its balance sheet compared with $589.9 million at the end of 2011. Total debt was $215.8 million at the end of the second quarter of 2012 compared with $209.8 million at the end of 2011. At the end of the second quarter of 2012, its debt-to-capitalization ratio was 0.19, flat with year-end 2011.
Broadband Communications Systems Segment
Quarterly revenue was $280.6 million, up 39% year over year. Quarterly gross margin was 34.3% compared with 42.5% in the year-ago quarter. Arris shipped a total of 1.962 million CPE units, 82% of which were DOCSIS 3.0. The company also shipped 75,662 C4 CMTS downstream ports. The company’s E6000 Cable Edge Router is expected to go for trial runs during the second half of 2012.
Access, Transport, & Supplies Segment
Quarterly revenue was $52.2 million, up 11.3% year over year. Quarterly gross margin was 21%, compared with 24.2 year over year.
Media & Communication System Segment
Quarterly revenue was $16.5 million, down 3.5% year over year. Quarterly gross margin was 67.8% compared with 57.1% in the year-ago quarter.
Future Financial outlook
Management’s guidance for net sales in the third quarter of 2012 is expected to be in the range of $348 million–$368 million. Earnings per shares (EPS), on a GAAP basis, are expected to be in the range of 9 cents to 13 cents. EPS, on a non-GAAP basis, is expected within the range of 19 cents to 23 cents. This includes stock-based compensation expenses of 4 cents per share.
Recommendation
We maintain our long-term Neutral recommendation on Arris. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
ARRIS GROUP INC (ARRS): Free Stock Analysis Report
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