Arris Group Inc. (ARRS) recently declared third quarter 2009 financial results. Quarterly total revenue of $275.8 million was down approximately 7.3% year-over-year and down 1% sequentially. However, it was better than the Zacks Consensus Estimate of $274 million.

The decline in revenue was the result of a lukewarm demand in all the three product segments of the company due to economic slowdown, partially offset by strong demand for DOCSIS 3.0 CMTS products.

On a GAAP basis, net earnings in the quarter were $21.7 million or 17 cents per share compared to a net income of $24.1 million or 19 cents per share in the prior-year quarter and a net income of $22.9 million or 18 cents per share in the previous quarter. Adjusted net income (excluding special items) in the reported quarter was $29.3 million or 23 cents per share, in line with the Zacks Consensus Estimate.

Quarterly gross margin was 42% compared to 35.8% in the year-ago quarter and 42.2% in the previous quarter. This reflects the aggressive cost cutting measures taken by management and favorable product-mix. Operating expenses in the quarter were $76.6 million compared to $69.8 million in the prior-year quarter and $79.1 million in the previous quarter.

Total order backlog at the end of the reported quarter was $170 million compared to $166 million at the end of the previous quarter. Book-to-bill ratio was 1.01 compared to 1.04 in the previous quarter.

At the end of the quarter, Arris had $577 million of cash & marketable securities on its balance sheet compared to $342.3 million at the end of the prior-year quarter and $524 million at the end of the previous quarter. Total debt was $208.6 million at the end of the quarter compared to $276.6 million at the end of the year-ago quarter and $205.9 million at the end of the previous quarter.

Arris generated $63 million in cash from operations during the reported quarter compared to $45.4 million in the prior-year quarter and $94.3 million in the previous quarter. Quarterly free cash flow (cash flow from operation less capital expenditure) was $59.6 million compared to $40.8 million in the year-ago quarter and $88.5 million in the previous quarter.

Broadband Communications Systems Segment
Quarterly revenue was $211.3 million, down 3% year-over-year and down 0.2% sequentially. Despite poor revenues, Arris received increasing traction for its CMTS products, primarily driven by a massive deployment of high-speed DOCSIS 3.0 technology by several large cable MSOs.

Arris has successfully upgraded its existing C4 CMTS line cards to DOCSIS 3.0, garnering fabulous market acceptance. As a result of the Wideband implementation, downstream port shipment exceeded 34,000 during the quarter.

Access, Transport & Supplies Segment
Quarterly revenue was $45.5 million, down 26.7% year-over-year but up 4.8% sequentially. A devastated U.S. housing market together with the credit crunch resulted in the lack of new plant construction and fewer new subscribers.

Media & Communication System Segment
Quarterly revenue was $19 million, up 7.3% year-over-year but down 18.5% sequentially. During the quarter, Arris deployed its newly launched ConvergeMedia management back office software and video-on-demand service to a number of cable MSOs in the North America region.

Future Financial Outlook

Management expects net sales in the fourth quarter to be within the range of $265 million ? $285 million. Earnings per share on a GAAP basis are expected within the range of 13 cents to 17 cents, which include non-cash special charges of 9 cents per share. Earnings per share on a non-GAAP basis are expected within the range of 22 cents to 26 cents.

Zacks Investment Research
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