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Analyst Blog

Yesterday, after the closing bell, Arris Enterprises Inc. (ARRS - Analyst Report) reported impressive financial results for the fourth quarter of 2013, significantly beating the Zacks Consensus Estimate. Moreover, management provided a strong financial outlook for the ensuing first quarter of 2014.

As a result, in the after-market trade on Nasdaq, the stock price of Arris was up 66 cents (2.36%) to $28.60. Arris currently has a Zacks Rank #3 (Hold).

GAAP net loss in the fourth quarter of 2013 was $2.9 million or a loss of 2 cents per share compared with a net income of $14.8 million or 13 cents per share in the prior-year quarter.

However, quarterly adjusted (excluding special items) earnings per share came in at 49 cents, significantly above the Zacks Consensus Estimate of 42 cents.

Quarterly revenues totaled $1,199.1 million, up a whopping 248.6% year over year and well above the Zacks Consensus Estimate of $1,164 million.

Segment wise, Network and Cloud segment accounted $336.9 million of the total revenue, up 84.9% year over year. CPE segment generated $865.4 million of total revenue, up a substantial 434.9% year over year.  

Quarterly Domestic revenues accounted for 68.9% of the total revenue while International revenues contributed the remaining 31.1%. Comcast Corp. (CMCSA - Analyst Report), Verizon Communications Inc. (VZ - Analyst Report) and Time Warner Cable Inc. (TWC - Analyst Report) together constituted 38% of the total fourth-quarter 2013 revenue.

Quarterly gross margin came in at 30.6% compared with 35.8% in the year-ago quarter. However, operating income, in the reported quarter, was $49.4 million against $25.5 million in the prior-year quarter. Quarterly operating stood at 4.1% compared with 7.4% in the year-ago quarter.

Total order backlog of Arris, at the end of the reported quarter, was $538.6 million compared with $222.6 million at the end of the year-ago quarter. The book-to-bill ratio was 1.01 in the last quarter compared with 1.11 in the prior-year quarter.

Arris generated $190.9 million of cash from operations during the fourth quarter of 2013 compared with a meager $11.8 million in the prior-year quarter. Quarterly free cash flow was $172.8 million compared with $4.9 million in the year-ago quarter.

At the end of 2013, Arris had $509.8 million of cash & marketable securities on its balance sheet compared with $530.1 million at the end of 2012. Total debt was $1,744.3 million at the end of 2013 compared with $222.1 million at the end of 2012. The debt-to-capitalization ratio stood at 0.56.

Future Financial Outlook

Management expects first-quarter 2014 total revenue within $1,170–$1,210 million. GAAP earnings per share are likely to be between 5 to 10 cents. Non-GAAP earnings per share are estimated in the 37–42 cents range, excluding 5 cents per share of stock-based compensation expenses. Tax rate is projected at 36%.

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