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Polycom, Inc.: Polycom Reports First Quarter 2009 Earnings

^{Published on 2009-04-15 13:20:49, Last Modified on 2009-11-03 07:50:38 - Market Wire}
 

PLEASANTON, CA--(Marketwire - April 15, 2009) - Polycom, Inc. (NASDAQ: [ PLCM ]), the global leader in telepresence, video and voice communications solutions, today reported its earnings for the first quarter ended March 31, 2009.

First quarter 2009 consolidated net revenues were $225.4 million, compared to $258.9 million for the first quarter of 2008. Non-GAAP net income for the first quarter of 2009 was $22.5 million, or 27 cents per diluted share. This compares to Non-GAAP net income of $32.7 million, or 36 cents per diluted share, for the first quarter of 2008. GAAP net income for the first quarter of 2009 was $8.0 million, or 10 cents per diluted share, compared to $14.2 million, or 16 cents per diluted share, for the same period last year.

The reconciliation between GAAP net income and Non-GAAP net income is provided in the tables at the end of this release.

On a product line basis, including applicable service revenues, consolidated net revenues for the first quarter of 2009 were comprised of:

 -- 69 percent video solutions, or $156.4 million (55 percent video communications, or $124.3 million, and 14 percent network systems, or $32.1 million); and -- 31 percent voice communications, or $69.0 million. 

This compares to the first quarter of 2008, in which consolidated net revenues were comprised of:

 -- 62 percent video solutions, or $159.5 million (51 percent video communications, or $130.3 million, and 11 percent network systems, or $29.2 million); and -- 38 percent voice communications, or $99.4 million. 

"Although we experienced the challenges of the current economic environment in the first quarter, we believe the core drivers of our business remain strong," said Robert Hagerty, Polycom chairman and CEO. "Now, more than ever, our customers are sensitive to discretionary spending and are increasingly focused on solutions that drive a hard-dollar return on investment (ROI) to improve their bottom line. We are fulfilling this need, as evidenced by customer adoption of Polycom's highly-differentiated RPX and TPX solutions, driving 45 percent growth in our telepresence business, to a record level for us. Also, fueled by our wave of new network infrastructure products, Polycom's network systems product line returned to double-digit, year-over-year growth. One of the factors offsetting this growth was our performance in the voice business, which continues to be adversely impacted by the economic downturn. However, the voice business continues to perform well competitively and remains integral to our Unified Collaboration (UC) solution, and we expect this business to return to growth as the economy improves."

"Looking forward, we expect our broad range of new products to expand our market opportunity and to enable us to make competitive gains in our video solutions business. Our customers continue to tell us that video conferencing, telepresence and network infrastructure solutions are critical in reducing costs and managing their business during this challenging time. For example, with our recent launch of the Polycom® RMX 2000™ Version 4.0, the Polycom Converged Management Application (CMA™), and the Polycom Distributed Media Application (DMA™) solutions, we believe Polycom has now surpassed all competitive technologies to manage video-centric networks, providing extensive benefits to our customers. In fact, our DMA solution is the first media server virtualization product in the UC market, enabling exceptional management, scalability and reliability for our customers' UC environments. In addition, through our strategic partnership with Microsoft, we jointly introduced the CX5000, a room-based video system that leverages Microsoft's Office Communications Server 2007 and Live Meeting Service. Lastly, we launched the Polycom QDX™ 6000 and the Polycom VVX™ 1500 video products, designed to broaden our offering at the desktop and throughout organizations of all sizes," Hagerty concluded.

"We executed prudent cost controls during the quarter by proactively aligning our cost structure to the current economic climate," said Michael Kourey, Polycom senior vice president, finance and administration, and CFO. "As a result, we achieved a solid operating margin in spite of the revenue challenges. In addition, driven by our strong profits and working capital management, we generated $26.8 million in positive operating cash flow, our 45th consecutive quarter of positive operating cash flow. We exited the quarter with a robust balance sheet, including $338.7 million in cash and investments and no debt."

About Polycom

Polycom, Inc. (NASDAQ: [ PLCM ]) is the global leader in telepresence, video, and voice solutions and a visionary in communications that empower people to connect and collaborate everywhere. Please visit [ www.polycom.com ] for more information.

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 regarding future events, future demand for our products, and the future performance of the Company, including statements regarding the strength of the core drivers of our business, the return to growth of our voice business, the expected expansion of our market opportunity and competitive gains in our video solutions business due to our new product offerings and our surpassing of competitive technologies with respect to managing video-centric networks. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the impact of competition on our product sales and for our customers and partners, potential fluctuations in results and future growth rates, risks associated with general economic conditions, including the continuation and prolonged impact of the crisis in the worldwide financial markets and the global recession, the market acceptance of Polycom's products and changing market demands, including demands for differing technologies or product and services offerings, possible delays in the development, availability and shipment of new products, increasing costs and differing uses of capital, changes in key personnel and our sales organization and the impact of recent restructuring actions, and the impact of global conflicts such as those in the Middle East that may adversely impact our business. Many of these risks and uncertainties are discussed in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2008, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

As has been noted on the Company's web site since April 8, 2009, Polycom will hold a conference call today, April 15, 2009, at 5:00 p.m. EDT/2:00 p.m. PT to discuss its first quarter earnings. Robert Hagerty, chairman, president and CEO, and Michael Kourey, chief financial officer, will host the conference call. You may participate by viewing the webcast at [ www.polycom.com ] or, for callers in the US and Canada, by calling 800.913.1647; and for callers outside of the US and Canada, by calling 212.231.2900, with the passcode being Polycom. A replay of the call will also be available at [ www.polycom.com ] or, for callers in the US and Canada, at 800.633.8284; and for callers outside of the US and Canada, at 402.977.9140. The access number for the replay is 21420413. A replay of the call will also be maintained on our website for twelve months at [ www.polycom.com ] under Investor Relations - Earnings Calls-Archives.

Polycom reserves the right to modify future product plans at any time. Products and/or related specifications referenced in this press release are not guaranteed and will be delivered on a when and if available basis.

© 2009 Polycom, Inc. All rights reserved. POLYCOM®, the Polycom "Triangles" logo and the names and marks associated with Polycom's products are trademarks and/or service marks of Polycom, Inc. and are registered and/or common law marks in the United States and various other countries. All other trademarks are property of their respective owners.

 POLYCOM, INC. Non-GAAP Condensed Consolidated Statements of Operations Excluding Stock-based compensation expense, Effect of stock-based compensation expense on warranty rates, Impact to cost of sales from purchase accounting adjustments to inventory, Acquisition-related costs, Purchased in-process research and development costs, Amortization and impairment of purchased intangibles, Restructuring costs, Litigation reserves and payments, Gain (loss) on strategic investments, and Income tax effect of the preceding adjustments (In thousands, except per share amounts) (Unaudited) Three Months Ended --------------------- March 31, March 31, 2009 2008 --------- ---------- Revenues: Product revenues $ 183,294 $ 222,451 Service revenues 42,116 36,469 --------- ---------- Total revenues 225,410 258,920 --------- ---------- Cost of revenues: Cost of product revenues 72,971 85,693 Cost of service revenues 19,716 17,184 --------- ---------- Total cost of revenues 92,687 102,877 --------- ---------- Gross profit 132,723 156,043 --------- ---------- Operating expenses: Sales and marketing 64,333 70,691 Research and development 26,580 32,020 General and administrative 11,714 12,726 --------- ---------- Total operating expenses 102,627 115,437 --------- ---------- Operating income 30,096 40,606 Interest income, net 515 3,186 Other expense, net (796) 1,060 --------- ---------- Income before provision for income taxes 29,815 44,852 Provision for income taxes 7,305 12,110 --------- ---------- Non-GAAP net income $ 22,510 $ 32,742 ========= ========== Basic net income per share $ 0.27 $ 0.37 ========= ========== Diluted net income per share $ 0.27 $ 0.36 ========= ========== Weighted average shares outstanding for basic net income per share 83,625 88,526 ========= ========== Weighted average shares outstanding for diluted net income per share 84,250 90,247 ========= ========== Use of Non-GAAP Financial Information To supplement our consolidated financial statements presented on a GAAP basis, Polycom uses non-GAAP measures of operating results, net income and income per share, which are adjusted to exclude certain costs, expenses, gains and losses we believe appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Polycom's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or diluted net income per share prepared in accordance with generally accepted accounting principles in the United States. POLYCOM, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended --------------------- March 31, March 31, 2009 2008 --------- ---------- Revenues: Product revenues $ 183,294 $ 222,451 Service revenues 42,116 36,469 --------- ---------- Total revenues 225,410 258,920 --------- ---------- Cost of revenues: Cost of product revenues 78,007 90,187 Cost of service revenues 20,469 18,254 --------- ---------- Total cost of revenues 98,476 108,441 --------- ---------- Gross profit 126,934 150,479 --------- ---------- Operating expenses: Sales and marketing 66,233 73,861 Research and development 28,453 34,934 General and administrative 13,589 14,894 Acquisition-related costs - 159 Amortization of purchased intangibles 1,464 1,827 Restructuring costs 6,417 3,615 Litigation reserves and payments - 6,238 --------- ---------- Total operating expenses 116,156 135,528 --------- ---------- Operating income 10,778 14,951 Interest income, net 515 3,186 Other expense, net (796) 1,060 --------- ---------- Income before provision for income taxes 10,497 19,197 Provision for income taxes 2,472 4,991 --------- ---------- Net income $ 8,025 $ 14,206 ========= ========== --------- ---------- Basic net income per share $ 0.10 $ 0.16 ========= ========== --------- ---------- Diluted net income per share $ 0.10 $ 0.16 ========= ========== Weighted average shares outstanding for basic net income per share 83,625 88,526 ========= ========== Weighted average shares outstanding for diluted net income per share 84,250 90,247 ========= ========== POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended ----------------------------------- March 31, 2009 ----------------------------------- GAAP Excluded Non-GAAP --------- --------- --------- Revenues: Product revenues $ 183,294 $ - $ 183,294 Service revenues 42,116 - 42,116 --------- --------- --------- Total revenues 225,410 - 225,410 --------- --------- --------- Cost of revenues: Cost of product revenues 78,007 5,036 (a) 72,971 Cost of service revenues 20,469 753 (b) 19,716 --------- --------- --------- Total cost of revenues 98,476 5,789 92,687 --------- --------- --------- Gross profit 126,934 (5,789) 132,723 --------- --------- --------- Operating expenses: Sales and marketing 66,233 1,900 (b) 64,333 Research and development 28,453 1,873 (b) 26,580 General and administrative 13,589 1,875 (b) 11,714 Amortization of purchased intangibles 1,464 1,464 - Restructuring costs 6,417 6,417 - Litigation reserves and payments - - - --------- --------- --------- Total operating expenses 116,156 13,529 102,627 --------- --------- --------- Operating income 10,778 (19,318) 30,096 Interest income, net 515 - 515 Other expense, net (796) - (796) --------- --------- --------- Income before provision for income taxes 10,497 (19,318) 29,815 Provision for income taxes 2,472 (4,833) 7,305 --------- --------- --------- Net income $ 8,025 $ (14,485) $ 22,510 ========= ========= ========= Basic net income per share $ 0.10 $ (0.17) $ 0.27 ========= ========= ========= Diluted net income per share $ 0.10 $ (0.17) $ 0.27 ========= ========= ========= Weighted average shares outstanding for basic net income per share 83,625 83,625 ========= ========= Weighted average shares outstanding for diluted net income per share 84,250 84,250 ========= ========= (a) Excluded amount includes $3,326 related to the amortization of purchased intangibles for core and existing technologies, $1,050 related to past license fee claims, $548 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period and $112 related to the effect of stock-based compensation on warranty expense rates. (b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period. POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended ------------------------------------ March 31, 2008 ------------------------------------ GAAP Excluded Non-GAAP ---------- --------- ---------- Revenues: Product revenues $ 222,451 $ - $ 222,451 Service revenues 36,469 - 36,469 ---------- --------- ---------- Total revenues 258,920 - 258,920 ---------- --------- ---------- Cost of revenues: Cost of product revenues 90,187 4,494 (a) 85,693 Cost of service revenues 18,254 1,070 (b) 17,184 ---------- --------- ---------- Total cost of revenues 108,441 5,564 102,877 ---------- --------- ---------- Gross profit 150,479 (5,564) 156,043 ---------- --------- ---------- Operating expenses: Sales and marketing 73,861 3,170 (b) 70,691 Research and development 34,934 2,914 (b) 32,020 General and administrative 14,894 2,168 (b) 12,726 Acquisition-related costs 159 159 - Purchased in-process research and development - - - Amortization of purchased intangibles 1,827 1,827 - Restructuring costs 3,615 3,615 - Litigation reserves and payments 6,238 6,238 - ---------- --------- ---------- Total operating expenses 135,528 20,091 115,437 ---------- --------- ---------- Operating income 14,951 (25,655) - 40,606 Interest income, net 3,186 - 3,186 Other expense, net 1,060 - 1,060 ---------- --------- ---------- Income before provision for income taxes 19,197 (25,655) 44,852 Provision for income taxes 4,991 (7,119) 12,110 ---------- --------- ---------- Net income $ 14,206 $ (18,536) $ 32,742 ========== ========= ========== ---------- --------- ---------- Basic net income per share $ 0.16 $ (0.21) $ 0.37 ========== ========= ========== ---------- --------- ---------- Diluted net income per share $ 0.16 $ (0.20) $ 0.36 ========== ========= ========== Weighted average shares outstanding for basic net income per share 88,526 88,526 ========== ========== Weighted average shares outstanding for diluted net income per share 90,247 90,247 ========== ========== (a) Excluded amount includes $3,493 related to the amortization of purchased intangibles for core and existing technologies, $806 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period and $195 related to the effect of stock-based compensation on warranty expense rates. (b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period. POLYCOM, INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) March 31, December 31, 2009 2008 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 155,085 $ 165,669 Short-term investments 178,502 152,407 Trade receivables, net 113,161 126,497 Inventories 87,117 89,730 Deferred taxes 29,134 29,295 Prepaid expenses and other current assets 32,065 34,207 ------------ ------------ Total current assets 595,064 597,805 Property and equipment, net 78,323 77,294 Long-term investments 5,140 6,420 Goodwill 492,777 495,083 Purchased intangibles, net 60,026 65,369 Deferred taxes 19,289 19,415 Other assets 14,333 16,298 ------------ ------------ Total assets $ 1,264,952 $ 1,277,684 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 52,294 $ 57,731 Accrued payroll and related liabilities 21,041 28,711 Taxes payable 1,093 - Deferred revenue 72,800 69,238 Other accrued liabilities 51,768 58,402 ------------ ------------ Total current liabilities 198,996 214,082 Non-current liabilities Long-term deferred revenue 42,427 43,285 Taxes payable 35,214 35,878 Deferred taxes 2,500 2,638 Other long-term liabilities 11,587 13,459 ------------ ------------ Total liabilities 290,724 309,342 Stockholders' equity 974,228 968,342 ------------ ------------ Total liabilities and stockholders' equity $ 1,264,952 $ 1,277,684 ============ ============ POLYCOM, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended -------------------- March 31, March 31, 2009 2008 --------- --------- Cash flows from operating activities: Net income $ 8,025 $ 14,206 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,863 6,475 Amortization of purchased intangibles 4,797 5,308 Provision for doubtful accounts 247 245 Provision for excess and obsolete inventories 1,517 159 Non-cash stock based compensation 6,949 10,128 Excess tax benefits from stock-based compensation - (422) Loss on disposals of property and equipment 10 7 Changes in assets and liabilities, net of the effect of acquisitions: Trade receivables 13,089 (2,597) Inventories 1,096 (25,825) Deferred taxes 1,175 819 Prepaid expenses and other assets 1,778 (10,157) Accounts payable (5,437) 15,831 Taxes payable (737) (2,720) Other accrued liabilities (13,539) 24,795 --------- --------- Net cash provided by operating activities 26,833 36,252 --------- --------- Cash flows from investing activities: Purchases of property and equipment (8,548) (9,246) Purchases of investments (158,045) (90,889) Proceeds from sale and maturity of investments 130,600 98,669 --------- --------- Net cash used in investing activities (35,993) (1,466) --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock under employee option and stock purchase plans 6,404 12,725 Repurchase of common stock (7,828) (62,243) Excess tax benefits from stock-based compensation - 422 --------- --------- Net cash used in financing activities (1,424) (49,096) --------- --------- Net decrease in cash and cash equivalents (10,584) (14,310) Cash and cash equivalents, beginning of period 165,669 279,560 --------- --------- Cash and cash equivalents, end of period $ 155,085 $ 265,250 ========= =========