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Polycom Reports First Quarter 2010 Earnings

Q1 Revenue Growth of 23 Percent Year-Over-Year to a Record $276 Million (April 21, 2010)

PLEASANTON, CA -- (Marketwire) -- 04/21/10 -- 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, 2010.

First quarter 2010 consolidated net revenues were a record $276 million, compared to $225 million for the first quarter of 2009. GAAP net income for the first quarter of 2010 was $5 million, or 6 cents per diluted share, compared to $8 million, or 10 cents per diluted share, for the same period last year. Non-GAAP net income for the first quarter of 2010 was $25 million, or 29 cents per diluted share. This compares to Non-GAAP net income of $23 million, or 27 cents per diluted share, for the first quarter of 2009.

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, consolidated net revenues for the first quarter of 2010 were comprised of:


-- 69 percent video solutions, or $189 million (53 percent video communications, or $146 million, and 16 percent network systems, or $43 million); and -- 31 percent voice communications, or $87 million.

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

-- 69 percent video solutions, or $156 million (55 percent video communications, or $124 million, and 14 percent network systems, or $32 million); and -- 31 percent voice communications, or $69 million.

"We believe Polycom's improving growth trajectory, particularly over the past two quarters, validates the key thesis points of our strategic investment plan. Specifically, Polycom generated record revenues in the first quarter of 2010, the Company's fourth consecutive quarter of sequential growth and second consecutive quarter of growth on a year-over-year basis," said Robert Hagerty, Polycom chairman and CEO. "In particular, we have already gained significant traction with our go-to-market initiative, recruiting top talent and increasing productivity at higher than anticipated rates. Also, although early in the cycle, we are beginning to see positive results from our new strategic partnerships. We also announced a new relationship with HP that promises to yield significant customer wins over the coming quarters. In fact, we see the Polycom Open Collaboration Network as a key mechanism to galvanize the growth of our integrated and unparalleled solution."

"Product innovation also continued at a fast pace in the first quarter of 2010. For instance, we announced breakthroughs in both the user experience of our HD video solutions and in reducing the total cost of ownership (TCO). With our new H.264 High Profile software, we have cut the bandwidth requirements for 1080p HD video approximately in half, dramatically improving TCO for our customers and further enhancing the already robust return on investment of our solutions. Finally, we gained US government UC APL certification for our RMX network platform and we launched our CMA Desktop video solution for the Apple Mac. Bottom line, we have an extraordinary team, our execution against the strategic investment plan is on-target, and we believe we are positioned well to seize the tremendous market opportunity in the unified collaboration space over time," concluded Hagerty.

"In the first quarter, strong customer demand drove sharp year-over-year growth in revenues, backlog and deferred revenues," said Michael Kourey, Polycom senior vice president, finance and administration, and CFO. "As a result of this strong operating performance and working capital management, we generated positive operating cash flow of $21 million, representing Polycom's 49th consecutive quarter of positive operating cash flow. We exited Q1 with $470 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 validation of and future execution against the Company's strategic investment plan and new strategic partnerships, expected customer wins from our new strategic partnerships, including the recently-announced HP relationship, the Polycom Open Collaboration Network as a means of stimulating future growth of our solution, and the Company as being well positioned to capture the market opportunity in the Unified Collaboration space. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the fact that the Company's strategic investment plan may not yield the intended results or may take longer than originally anticipated to achieve such results, the impact of competition on our product sales and for our customers and partners, the impact of increased competition due to consolidation in our industry or competition from companies that are larger or that have greater resources than we do, potential fluctuations in results and future growth rates, risks associated with general economic conditions, 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 that may cause disruption to the business, 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, 2009, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

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.

As has been noted on the Company's web site since April 14, 2010, Polycom will hold a conference call today, April 21, 2010, at 5 p.m. EDT/2 p.m. PDT to discuss its first quarter earnings. Robert Hagerty, chairman, president and CEO, Michael Kourey, chief financial officer, and Andrew Miller, executive vice president of global field operations, 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 800.897.4662; and for callers outside of the US and Canada, by calling 303.223.0120, 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 21465070. 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.

© 2010 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. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended ----------------------------------- March 31, 2010 ----------------------------------- GAAP Excluded Non-GAAP --------- --------- --------- Revenues: Product revenues $ 228,057 $ - $ 228,057 Service revenues 48,097 - 48,097 --------- --------- --------- Total revenues 276,154 - 276,154 --------- --------- --------- Cost of revenues: Cost of product revenues 92,549 4,254 (a) 88,295 Cost of service revenues 24,286 1,179 (b) 23,107 --------- --------- --------- Total cost of revenues 116,835 5,433 111,402 --------- --------- --------- Gross profit 159,319 (5,433) 164,752 --------- --------- --------- Operating expenses: Sales and marketing 90,916 6,291 (b) 84,625 Research and development 33,905 3,082 (b) 30,823 General and administrative 15,982 2,497 (b) 13,485 Amortization of purchased intangibles 1,440 1,440 - Restructuring costs 1,749 1,749 - --------- --------- --------- Total operating expenses 143,992 15,059 128,933 --------- --------- --------- Operating income 15,327 (20,492) 35,819 Interest and other income (expense), net (8,581) (6,530) (c) (2,051) --------- --------- --------- Income before provision for income taxes 6,746 (27,022) 33,768 Provision for income taxes 1,335 (7,103) 8,438 --------- --------- --------- Net income $ 5,411 $ (19,919) $ 25,330 ========= ========= ========= Basic net income per share $ 0.06 $ (0.24) $ 0.30 ========= ========= ========= Diluted net income per share $ 0.06 $ (0.23) $ 0.29 ========= ========= ========= Weighted average shares outstanding for basic net income per share 84,665 84,665 ========= ========= Weighted average shares outstanding for diluted net income per share 87,364 87,364 ========= ========= (a) Excluded amount includes $3,364 related to the amortization of purchased intangibles for core and existing technologies, $770 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period and $120 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. (c) Excluded amount represents loss recognized during the period on preferred securities considered to be other than temporarily impaired. 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 - --------- --------- --------- Total operating expenses 116,156 13,529 102,627 --------- --------- --------- Operating income 10,778 (19,318) 30,096 Interest and other income (expense), net (281) - (281) --------- --------- --------- 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. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) March 31, December 31, 2010 2009 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 293,154 $ 331,098 Short-term investments 169,446 123,686 Trade receivables, net 135,165 132,813 Inventories 82,930 76,863 Deferred taxes 23,807 23,824 Prepaid expenses and other current assets 29,418 24,299 ------------ ------------ Total current assets 733,920 712,583 Property and equipment, net 89,046 81,252 Long-term investments 7,347 12,687 Goodwill 493,207 495,299 Purchased intangibles, net 41,078 46,255 Deferred taxes 23,975 23,943 Other assets 16,027 13,882 ------------ ------------ Total assets $ 1,404,600 $ 1,385,901 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 90,270 $ 87,233 Accrued payroll and related liabilities 21,893 23,707 Taxes payable - 617 Deferred revenue 87,287 79,504 Other accrued liabilities 41,183 52,360 ------------ ------------ Total current liabilities 240,633 243,421 Non-current liabilities Long-term deferred revenue 47,992 46,787 Taxes payable 22,640 27,111 Deferred taxes 2,550 2,702 Other long-term liabilities 12,478 12,027 ------------ ------------ Total liabilities 326,293 332,048 Stockholders' equity 1,078,307 1,053,853 ------------ ------------ Total liabilities and stockholders' equity $ 1,404,600 $ 1,385,901 ============ ============ POLYCOM, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended ---------------------- March 31, March 31, 2010 2009 ---------- ---------- Revenues: Product revenues $ 228,057 $ 183,294 Service revenues 48,097 42,116 ---------- ---------- Total revenues 276,154 225,410 ---------- ---------- Cost of revenues: Cost of product revenues 92,549 78,007 Cost of service revenues 24,286 20,469 ---------- ---------- Total cost of revenues 116,835 98,476 ---------- ---------- Gross profit 159,319 126,934 ---------- ---------- Operating expenses: Sales and marketing 90,916 66,233 Research and development 33,905 28,453 General and administrative 15,982 13,589 Amortization of purchased intangibles 1,440 1,464 Restructuring costs 1,749 6,417 ---------- ---------- Total operating expenses 143,992 116,156 ---------- ---------- Operating income 15,327 10,778 Interest and other income (expense), net (8,581) (281) ---------- ---------- Income before provision for income taxes 6,746 10,497 Provision for income taxes 1,335 2,472 ---------- ---------- Net income $ 5,411 $ 8,025 ========== ========== ---------- ---------- Basic net income per share $ 0.06 $ 0.10 ========== ========== ---------- ---------- Diluted net income per share $ 0.06 $ 0.10 ========== ========== Weighted average shares outstanding for basic net income per share 84,665 83,625 ========== ========== Weighted average shares outstanding for diluted net income per share 87,364 84,250 ========== ========== POLYCOM, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended ---------------------- March 31, March 31, 2010 2009 ---------- ---------- Cash flows from operating activities: Net income $ 5,411 $ 8,025 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,243 7,863 Amortization of purchased intangibles 4,804 4,797 Provision for doubtful accounts - 247 Provision for excess and obsolete inventories 716 1,517 Non-cash stock based compensation 13,819 6,949 Excess tax benefits from stock-based compensation (3,731) - Write down of investments other than temporarily impaired 6,530 - Loss on disposals of property and equipment 61 10 Changes in assets and liabilities, net of the effect of acquisitions: Trade receivables (2,352) 13,089 Inventories (6,783) 1,096 Deferred taxes (528) 1,175 Prepaid expenses and other assets (8,228) 1,778 Accounts payable 3,037 (5,437) Taxes payable 1,359 (737) Other accrued liabilities and deferred revenue (2,674) (13,539) ---------- ---------- Net cash provided by operating activities 20,684 26,833 ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (16,998) (8,548) Purchases of investments (108,862) (158,045) Proceeds from sale and maturity of investments 70,464 130,600 ---------- ---------- Net cash used in investing activities (55,396) (35,993) ---------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock under employee option and stock purchase plans 19,720 6,404 Repurchase of common stock (26,683) (7,828) Excess tax benefits from stock-based compensation 3,731 - ---------- ---------- Net cash used in financing activities (3,232) (1,424) ---------- ---------- Net decrease in cash and cash equivalents (37,944) (10,584) Cash and cash equivalents, beginning of period 331,098 165,669 ---------- ---------- Cash and cash equivalents, end of period $ 293,154 $ 155,085 ========== ==========

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Investor Contact:
Michael R. Kourey, CFO
Polycom, Inc.
925-924-5742
Email Contact

Press Contact:
Caroline Japic
Polycom, Inc.
408-474-2265
Email Contact


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