With its integration of U.K.-based set-top maker Pace plc largely behind it, Arris posted Q3 sales of $1.735 billion, near consensus of $1.739 billion, but just slightly below a Raymond James estimate of $1.759 billion.
Earnings of 77 cents per share hit the high end of guidance (72 cents to 77 cents) and beat the 76 cents per share from Raymond James, which maintained its “Strong Buy” on the stock.
Arris said three customers represented 10% or more of revenues in Q3, with that trio responsible for 52% of overall sales. International sales were $482 million, or 28% of total revenue.
“Although there are moving parts, we believe the story remains a good one and the stock offers upside from overblown worries around regulatory changes and cord cutting,” Raymond James analyst Simon Leopold said in a research note issued Thursday.
Arris said it expects Q4 revenues of $1.675 billion to $1.725 billion (excluding any impact of warrants agreements with Comcast and Charter Communications), and earnings of 68 cents to 72 cents.
Speaking on Wednesday’s earnings call, Bruce McClelland, Arris’s new CEO, said he is confident that the company is “on track” to hit full year revenue guidance of $6.6 billion to $6.8 billion, and sees non GAAP earnings per share to be “comfortably above” the $2.60 the company estimated earlier this year.
Despite that outlook, Arris shares were down $2.12 (7.18%) to $27.41 each in late morning trading Thursday.
A bright spot in the quarter was sales of set-tops and other consumer premises equipment (CPE), which were up 5% versus the prior quarter and up 52% year-over-year (thanks to the addition of Pace). On the broadband end, Arris sales of DSL modems and gateways rose, while there was a small decrease in DOCSIS volumes.
“We began shipping DOCSIS 3.1 data modems to multiple customers to support trial activities, as well as early deployments,” Larry Robinson, president of Arris’s CPE division, said. “There is a growing focus and enthusiasm across the industry regarding DOCSIS 3.1, and we expect the portfolio to migrate in this direction as we go through 2017 and into 2018.”
With respect to D3.1 CPE, “We think there is a broader transition or migration that's going to happen…starting maybe in earnest in 2017, but certainly well into 2018 as well,” Robinson said.
On the other end, sales in Arris’s Network and Cloud unit dropped 11% year-on-year as the company transitioned to second-gen linecards for the E6000, the company’s flagship converged cable access platform (CCAP), McClelland said. But that drop was offset by a record quarter for Arris’s access technologies business, he said.
McClelland also noted that Arris is in the process of closing call centers it inherited from the Pace deal, and that the sale of its Moxi Whole Home Solution to Espial will result in about $50 million in lower sales annually, “but with minimal impact on operating income.”
Looking ahead, McClelland noted that the shift toward distributed access architectures remains a hot topic in the cable industry. Arris demonstrated those capabilities at the recent SCTE/ISBE Cable-Tec Expo in Philadelphia, and expects to start lab and field trials in the first half of 2017.
Arris ended Q3 with $1.11 billion of cash resources, up from $903 million at the end of Q2.
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