Original Source: FD (FAIR DISCLOSURE) WIRE
. Robert Stanzione, ARRIS Group Inc., Chairman, CEO . Jim Bauer, ARRIS Group Inc., Vice President, Investor Relations . Dave Potts, ARRIS Group Inc., EVP, CFO . Brian Coyne, Friedman, Billings Ramsey and Co., Analyst . Ehud Geblum, J.P. Morgan, Analyst . Jason Adler, Thomas Weisel Partners, Analyst . Raimundo Archibold, Kaufman Brothers, Analyst . Glen Anderson, Oppenheimer & Company, Analyst . David Wright, Henry Investment and Trust, Analyst . Bruce McClellan, ARRIS Group Inc, President Broadband Communication . Todd Kaufman, Raymond James, Analyst . Simon Leopold, Morgan, Keegan & Company, Analyst . John Caezza, ARRIS Group, Inc., President Access Transport and Supply Business . Greg Mesniaeff, Needham & Company, Analyst
. Amitabh Passi, UBS, Analyst
ARRS reported 4Q07 sales of $249.6m and GAAP EPS of $0.08. Full-year 2007 GAAP EPS was $0.87. Expects 1Q08 sales to be $270-285m, GAAP diluted EPS to be breakeven to $0.04, and non-GAAP diluted EPS to be $0.08-0.12.
A. Key Data From Call 1. 4Q07 sales = $249.6m. 2. Full-year 2007 GAAP EPS = $0.87. 3. 4Q07 GAAP EPS = $0.08. 4. Full-year 2007 non-GAAP EPS = $0.79. 5. 4Q07 non-GAAP EPS = $0.16. 6. 4Q07 GM = 25.6%.
7. 4Q07 OpEx = $51.3m. 8. Dec.-end inventory = $131.8m. 9. 2007-end cash and short-term investments = just under $392m. 10. 1Q08 sales guidance = $270-285m. 11. 1Q08 GAAP diluted EPS guidance = breakeven to $0.04. 12. 1Q08 non-GAAP diluted EPS guidance = $0.08-0.12.
S1. Business Review (B.S.) 1. Highlights: 1. 2007 was a year of solid growth and excellent execution. 2. Enters 2008 with solid, profitable and highly capable co. 3. YoverY, grew topline by 11%.
4. Diversified customer base significantly. 5. Early in 2007, exited from Co.'s old Circuit Switched Telephony product line.
1. Established itself as the world's leading vendor of cable
VoIP customer premise equipment. 2. Shipments: 1. Shipped 7.6m CPE units in the year. 1. Up 46% from 5.2m in 2006. 2. In 4Q07, shipped 1.79m units vs. 1.40m in 4Q06. 3. Grew CMTS business significantly. 1. Added numerous customers. 2. C4 CMTS business reached a record revenue level in 4Q07. 4. For the year, shipments of downstream ports grew by 30%. 1. Reached a record level of 7,810 in 4Q07 alone. 5. Shipped almost 1,100 chassis in 2007. 1. Up over 100% from 2006. 2. Many of these chassis are partially filled, which leaves room for more growth when Co. introduces next generation blades in the middle of this year. 6. Strategy of aggressively marketing DOCSIS 3.0 evolution plan
clearly hit the mark as Co. increased market share from approx. 25% at 2006-end to 35% by 3Q07. 3. Diversified Customer Base: 1. Continues to diversify customer base by growing international
presence most significantly in Canada and Latin America. 2. Made major gains in: 1. Europe, particularly in Germany and the eastern countries. 2. Asia. 3. Smaller MSOs in Japan.
3. 4Q07 was by far Co.'s best ever for international sales in
terms of dollars and percent. 1. International sales were almost 32% of the total. 4. New customers substantially diversify customer base and represent one of Co.'s best growth opportunities.
5. Domestic front, CMTS sales to Time Warner, Bright House, and
Cablevision began to take off. 1. Time Warner recently announced that it had passed 3m VoIP subscribers and are still growing.
6. Strategic front, began 2007 with an objective of gaining scale
and diversifying ARRS by expanding product lines and reaching
new customers, while remaining primarily focused on cable MSO
market. 1. Achieved outstanding progress toward this objective through C-COR acquisition, which closed in Dec. 2. With this acquisition, Co. added a critical video component to its already strong positions in voice and data. 3. Picked up two software intensive high margin businesses on-demand and OSS that have significant growth potential. 7. Gained enhanced presence in key accounts, such as Time Warner and Cablevision in the US, and with international operator such as Telefonica and ONO in Spain, and many others around the world. 8. Although business slowed a bit as the year ended taking in everything into account, 2007 was a solid year. 4. Guidance: 1. Even with lower sales, expects to remain profitable and bounce back sharply as the year goes on. 2. Slowdown is centered with Comcast, largest customer. 3. Business in other customer segments looks quite healthy as Co. starts 2008. 1. Expects sales to Comcast will rebound sharply as the year goes on. 4. Largest impact is in EMTA product line.
1. After over a year during which Co. enjoyed virtually 100% market share at Comcast, a second vendor entered into the mix in 4Q07.
2. At the same time, an apparent leveling out of its net subscriber growth over the past two quarters. 1. Adjustment of inventory is causing Comcast orders in [1Q08] to fall to a low level. 3. Expects EMTA orders to bounce back significantly in 2Q08 and beyond, although not to peak levels that Co. saw when it was their sole EMTA source.
5. Seeing a similar, though smaller effect on topline of business
for CMTS revenues for a different reason. 1. Comcast appears to be reserving much of its CMTS budget for an aggressive DOCSIS 3.0 rollout in 2H of the year to meet its objective of wide band deployment over 20% of the footprint by year-end. 2. In VoIP EMTAs and CMTS, remains a preferred primary supplier to Comcast.
3. Expected a slow start in 2008. 4. These reductions are far beyond what it expected and have come to light only recently.
6. 2H08 outlook is quite good. 1. Expects to be reporting respectable YoverY gains in revenues and earnings. 7. Expects good margin expansion this year with margins well above 30% level. 8. Intends to increase R&D spending somewhat. 1. Will continue to drive for expense synergies associated with C-COR acquisition.
2. Will keep tight reins on spending, in general. 9. MSO spending will surely be focused this year, especially if the economy continues to slow down and household formation remains at a low level. 1. Forces of competition and growing demand for bandwidth driven by rapidly growing video traffic will require more of market leading products that Co. provides. 2. Will see significant benefit coming from: 1. DOCSIS 3.0. 2. Switch digital video. 3. Commercial services rollouts. 3. Sees growing demand for on-demand products as subscribers seek more control over content. 4. MSOs increase their focus on advanced advertising. 10. Sees growing demand for OSS solutions, as system operators seek ways to reduce rapidly escalating OpEx. 11. Continued expansion of HDTV in conjunction with push to expand voice penetration and high-speed data capacity bodes well for Access business as operators continue to segment
their notes. 12. Although 1Q08 outlook is certainly a disappointment, sees substantial improvements coming, especially over 2H08.
S2. Financials (D.P.) 1. Highlights: 1. Closed C-COR acquisition on 12/14/07. 1. Year-end balance sheet includes: 1. Impacts of recording assets and liabilities at fair value in close. 2. Impact of (indiscernible) shares to C-COR shareholders. 2. 4Q07 results include approx. two weeks of operating results for C-COR. 1. Two weeks are seasonally low, due to normal slower activity during holiday period. 2. In conjunction with C-COR acquisition, implemented new organizational structure. 1. Beginning in 4Q07, began to report current and historical results in three reporting segments that align to this new structure. 3. Three new reporting segments: 1. Broadband communications (BCS).
2. Access transport and supplies (ATS). 3. Media and communication systems (MCS). 4. Customer premises equipment, specifically EMTAs and cable modems, are no longer grouped with supplies. 1. Now part of broadband communication system segment. 5. With addition of C-COR products, Co. has expanded supplies categories to include access and transport products. 6. New media and communication segment focuses on delivery and management of content and services.
2. Results: 1. 4Q07 sales were $249.6m. 1. Up 6% YoverY.
2. Down 2% from 3Q07. 3. Includes approx. $6.6m of …