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Polycom Reports Fourth Quarter and Fiscal Year 2011 Earnings

Q4 Revenue Growth of 20 Percent Year-Over-Year to a Record $407 Million; Q4 Operating Cash Flow Growth of 192 Percent Year-Over-Year to a Record $122 Million (January 23, 2012)

PLEASANTON, CA -- (Marketwire) -- 01/23/12 -- Polycom, Inc. (NASDAQ: PLCM), the global leader in standards-based unified communications (UC), today reported its earnings for the fourth quarter and fiscal year ended December 31, 2011.

Fourth quarter 2011 consolidated net revenues were a record $407 million, compared to $340 million for the fourth quarter of 2010. GAAP net income for the fourth quarter of 2011 was $50 million, or 28 cents per diluted share, compared to $33 million, or 19 cents per diluted share, for the same period last year. Non-GAAP net income for the fourth quarter of 2011 was $74 million, or 41 cents per diluted share, compared to non-GAAP net income of $43 million, or 24 cents per diluted share, for the fourth quarter of 2010. Note that the share and per share data for all periods presented in this release have been adjusted to reflect the two-for-one stock split that was effective July 1, 2011.

For the year ended December 31, 2011, net revenues were $1.5 billion, compared to $1.2 billion for the year ended December 31, 2010. GAAP net income for the year ended December 31, 2011 was $136 million, or 75 cents per diluted share, compared to GAAP net income of $68 million, or 39 cents per diluted share, for the same period last year. Non-GAAP net income for the year ended December 31, 2011 was $213 million, or $1.18 per diluted share, compared to $133 million, or $0.75 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 geographic basis, consolidated net revenues for the fourth quarter of 2011 were comprised of:

-- 48 percent Americas, or $193.8 million, an increase of 7 percent year-over-year; -- 27 percent Europe, Middle East, and Africa, or $109.7 million, an increase of 28 percent year-over-year; and -- 25 percent Asia Pacific, or $103.5 million, an increase of 42 percent year-over-year.

"2011 closed strong with full-year revenues of $1.5 billion, driven by particular strength in sales of the Polycom® RealPresence™ Platform and broad geographic growth," said Andrew Miller, Polycom president and CEO. "Enabled by Polycom's innovations, we experienced unprecedented demand for our secure, interoperable, unified collaboration solutions by both enterprise and service provider customers. Leveraging our industry-leading technology and powerful network of strategic partners, Polycom's cloud, mobility, and software-driven infrastructure strategy is beginning to yield and we look forward to another year of solid growth in 2012."

"Polycom generated 20 percent year-over-year revenue growth in Q4, which drove revenues, operating profits, and operating cash flow to record levels," said Michael Kourey, Polycom's executive vice president, finance and administration, and CFO. "We are pleased to have achieved significant operating margin expansion and unprecedented operating cash flow of $122 million in the fourth quarter. Net of the strategic acquisitions and stock repurchases in the period, Polycom exited 2011 with $592 million in cash and investments and no debt."

Q4 2011 Business Highlights

-- Strong revenue growth in both Europe and Asia Pacific with emerging geographies up over 40 percent year-over-year -- North American sales management structure with key leadership hires in place -- Polycom RealPresence Platform generated revenue growth of 45 percent year-over-year -- Acquired ViVu, Inc., a video collaboration software company, reinforcing Polycom's cloud and software strategy -- Launched Polycom® RealPresence™ Mobile software for Apple® iPad® 2 and the leading Android devices -- Expanded Microsoft® Lync™ integration with new Polycom® CX7000 unified group video collaboration system

Earnings Call Details

Polycom will hold a conference call today, Jan. 23, 2012, at 5 p.m. EST/2 p.m. PST to discuss its fourth quarter earnings. You may participate by viewing the webcast at www.polycom.com/investors or, for callers in the US and Canada, by calling 888.227.5826; and for callers outside of the US and Canada, by calling 303.223.2680. The pass code for the call is "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 21572693. A replay of the call will be available on www.polycom.com for approximately 12 months.

Forward Looking Statements

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 expected growth for Polycom in 2012. 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; 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 and external market factors; the market acceptance of our products and changing market demands, including demands for differing technologies or product and services offerings; our ability to successfully integrate our acquisitions into our business; possible delays in the development, availability and shipment of new products; increasing costs and differing uses of capital; changes in key personnel that may cause disruption to the business; any disruptive impact to us that may result from new executive hires; the impact of restructuring actions; and the impact of global conflicts that may adversely impact our business. Many of these risks and uncertainties are discussed in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

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.

GAAP to non-GAAP Reconciliation

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.

About Polycom

Polycom is the global leader in standards-based unified communications (UC) solutions for telepresence, video, and voice, powered by the Polycom RealPresence platform. The RealPresence platform interoperates with the broadest range of business, mobile and social applications and devices. More than 400,000 organizations trust Polycom solutions to collaborate and meet face to face from any location for more productive and effective engagement with colleagues, partners, customers and prospects. Polycom, together with its broad partner ecosystem, provides customers with the best TCO, scalability, and security -- on-premises, hosted or cloud delivered. Visit www.polycom.com or connect with Polycom on Twitter, Facebook, and LinkedIn.

© 2012 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 ---------------------------------- December 31, 2011 ---------------------------------- GAAP Excluded Non-GAAP --------- --------- --------- Revenues: Product revenues $ 318,425 $ - $ 318,425 Service revenues 88,582 - 88,582 --------- --------- --------- Total revenues 407,007 - 407,007 --------- --------- --------- Cost of revenues: Cost of product revenues 128,712 4,022 (a) 124,690 Cost of service revenues 34,268 929 (b) 33,339 --------- --------- --------- Total cost of revenues 162,980 4,951 158,029 --------- --------- --------- Gross profit 244,027 (4,951) 248,978 --------- --------- --------- Operating expenses: Sales and marketing 114,897 8,213 (b) 106,684 Research and development 53,951 4,403 (b) 49,548 General and administrative 20,908 4,249 (c) 16,659 Amortization of purchased intangibles 3,738 3,738 - Restructuring costs 4,657 4,657 - Acquisition-related costs 1,764 1,764 - --------- --------- --------- Total operating expenses 199,915 27,024 172,891 --------- --------- --------- Operating income 44,112 (31,975) 76,087 Other income (expense), net 1,666 421 (d) 1,245 --------- --------- --------- Income before provision for income taxes 45,778 (31,554) 77,332 Provision for (benefit from) income taxes (3,795) (7,105)(e) 3,310 --------- --------- --------- Net income $ 49,573 $ (24,449) $ 74,022 ========= ========= ========= Basic net income per share $ 0.28 $ (0.14) $ 0.42 ========= ========= ========= Diluted net income per share $ 0.28 $ (0.13) $ 0.41 ========= ========= ========= Weighted average shares outstanding for basic net income per share 176,729 176,729 ========= ========= Weighted average shares outstanding for diluted net income per share 179,331 179,331 ========= ========= Twelve Months Ended --------------------------------------- December 31, 2011 --------------------------------------- GAAP Excluded Non-GAAP ----------- --------- ----------- Revenues: Product revenues $ 1,207,787 $ - $ 1,207,787 Service revenues 288,011 - 288,011 ----------- --------- ----------- Total revenues 1,495,798 - 1,495,798 ----------- --------- ----------- Cost of revenues: Cost of product revenues 481,634 15,233 (a) 466,401 Cost of service revenues 116,808 3,904 (b) 112,904 ----------- --------- ----------- Total cost of revenues 598,442 19,137 579,305 ----------- --------- ----------- Gross profit 897,356 (19,137) 916,493 ----------- --------- ----------- Operating expenses: Sales and marketing 435,614 27,404 (b) 408,210 Research and development 201,067 15,394 (b) 185,673 General and administrative 82,901 17,297 (c) 65,604 Amortization of purchased intangibles 9,831 9,831 - Restructuring costs 9,396 9,396 - Acquisition-related costs 9,688 9,688 - ----------- --------- ----------- Total operating expenses 748,497 89,010 659,487 ----------- --------- ----------- Operating income 148,859 (108,147) 257,006 Other income (expense), net (1,639) (79)(d) (1,560) ----------- --------- ----------- Income before provision for income taxes 147,220 (108,226) 255,446 Provision for (benefit from) income taxes 11,406 (30,799)(e) 42,205 ----------- --------- ----------- Net income $ 135,814 $ (77,427) $ 213,241 =========== ========= =========== Basic net income per share $ 0.77 $ (0.44) $ 1.21 =========== ========= =========== Diluted net income per share $ 0.75 $ (0.43) $ 1.18 =========== ========= =========== Weighted average shares outstanding for basic net income per share 176,426 176,426 =========== =========== Weighted average shares outstanding for diluted net income per share 181,195 181,195 =========== =========== (a) For the three months ended December 31, 2011, the excluded amount includes $3,043 related to the amortization of purchased intangibles for core and existing technologies, $798 for stock-based compensation expense recorded during the period and $181 related to the effect of stock-based compensation on warranty expense rates. For the twelve months ended December 31, 2011, the excluded amount includes $11,911 related to the amortization of purchased intangibles for core and existing technologies, $2,815 for stock-based compensation expense recorded during the period and $507 related to the effect of stock-based compensation on warranty expense rates. (b) Excluded amount represents stock-based compensation expense recorded during the period. (c) For the three months ended December 31, 2011, the excluded amount includes $4,336 for stock-based compensation expense recorded during the period and ($87) adjustment for the legal costs related to the indemnification of a former officer of the Company. For the twelve months ended December 31, 2011, the excluded amount includes $15,745 for stock-based compensation expense recorded during the period and $1,552 for the legal costs related to the indemnification of a former officer of the Company. (d) Excluded amount represents the impairment or recovery of an investment in a private company. (e) For the three months ended December 31, 2011 the excluded amount represents the tax impact on expenses which are excluded in items (a)-(d) above, as well as $2,124 related to the adoption of deferred tax accounting in certain foreign subsidiaries. For the twelve months ended December 31, 2011, the excluded amount represents the tax impact on expenses which are excluded in items (a) - (d) above, as well as a $7,487 benefit related to the resolution of a multi-year tax audit and $2,124 related to the adoption of deferred tax accounting in certain foreign subsidiaries. POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended ---------------------------------- December 31, 2010 ---------------------------------- GAAP Excluded Non-GAAP --------- --------- --------- Revenues: Product revenues $ 282,607 $ - $ 282,607 Service revenues 57,024 - 57,024 --------- --------- --------- Total revenues 339,631 - 339,631 --------- --------- --------- Cost of revenues: Cost of product revenues 109,856 4,092 (a) 105,764 Cost of service revenues 26,830 952 (b) 25,878 --------- --------- --------- Total cost of revenues 136,686 5,044 131,642 --------- --------- --------- Gross profit 202,945 (5,044) 207,989 --------- --------- --------- Operating expenses: Sales and marketing 104,717 5,928 (b) 98,789 Research and development 40,568 2,479 (b) 38,089 General and administrative 19,034 3,918 (c) 15,116 Amortization of purchased intangibles 1,380 1,380 - Restructuring costs 1,565 1,565 - Litigation reserves and payments - - - --------- --------- --------- Total operating expenses 167,264 15,270 151,994 --------- --------- --------- Operating income 35,681 (20,314) 55,995 Other income (expense), net 159 - 159 --------- --------- --------- Income before provision for income taxes 35,840 (20,314) 56,154 Provision for income taxes 2,714 (10,200)(e) 12,914 --------- --------- --------- Net income $ 33,126 $ (10,114) $ 43,240 ========= ========= ========= Basic net income per share $ 0.19 $ (0.06) $ 0.25 ========= ========= ========= Diluted net income per share $ 0.19 $ (0.06) $ 0.24 ========= ========= ========= Weighted average shares outstanding for basic net income per share 172,378 172,378 ========= ========= Weighted average shares outstanding for diluted net income per share 178,296 178,296 ========= ========= Twelve Months Ended --------------------------------------- December 31, 2010 --------------------------------------- GAAP Excluded Non-GAAP ----------- --------- ----------- Revenues: Product revenues $ 1,010,955 $ - $ 1,010,955 Service revenues 207,534 - 207,534 ----------- --------- ----------- Total revenues 1,218,489 - 1,218,489 ----------- --------- ----------- Cost of revenues: Cost of product revenues 401,319 16,402 (a) 384,917 Cost of service revenues 101,220 3,940 (b) 97,280 ----------- --------- ----------- Total cost of revenues 502,539 20,342 482,197 ----------- --------- ----------- Gross profit 715,950 (20,342) 736,292 ----------- --------- ----------- Operating expenses: Sales and marketing 387,208 26,586 (b) 360,622 Research and development 148,991 10,266 (b) 138,725 General and administrative 74,661 16,931 (c) 57,730 Amortization of purchased intangibles 5,647 5,647 - Restructuring costs 8,139 8,139 - Litigation reserves and payments 1,235 1,235 - ----------- --------- ----------- Total operating expenses 625,881 68,804 557,077 ----------- --------- ----------- Operating income 90,069 (89,146) 179,215 Other income (expense), net (7,772) (5,324)(d) (2,448) ----------- --------- ----------- Income before provision for income taxes 82,297 (94,470) 176,767 Provision for income taxes 13,888 (30,311)(e) 44,199 ----------- --------- ----------- Net income $ 68,409 $ (64,159) $ 132,568 =========== ========= =========== Basic net income per share $ 0.40 $ (0.38) $ 0.78 =========== ========= =========== Diluted net income per share $ 0.39 $ (0.36) $ 0.75 =========== ========= =========== Weighted average shares outstanding for basic net income per share 170,662 170,662 =========== =========== Weighted average shares outstanding for diluted net income per share 176,370 176,370 =========== =========== (a) For the three months ended December 31, 2010, the excluded amount includes $3,351 related to the amortization of purchased intangibles for core and existing technologies, $620 for stock-based compensation expense recorded during the period and $121 related to the effect of stock-based compensation on warranty expense rates. For the twelve months ended December 31, 2010, the excluded amount includes $13,347 related to the amortization of purchased intangibles for core and existing technologies, $2,588 for stock-based compensation expense recorded during the period and $467 related to the effect of stock-based compensation on warranty expense rates. (b) Excluded amount represents stock-based compensation expense recorded during the period. (c) For the three months ended December 31, 2010, the excluded amount includes $3,789 for stock-based compensation expense recorded during the period and $129 for costs associated with the CEO transition in May 2010. For the twelve months ended December 31, 2010, the excluded amount includes $12,797 for stock-based compensation expense recorded during the period and $4,134 for severance, legal and other costs associated with the CEO transition in May 2010. (d) For the twelve months ended December 31, 2010, the excluded amount represents the loss recognized during the period on preferred securities considered to be other than temporarily impaired, net of any subsequent realized gains. (e) For the three and twelve months ended December 31, 2010, the excluded amount represents the tax impact on expenses which are excluded in items (a)-(d) above, as well as $8,008 related to a one-time provision true-up during the quarter. POLYCOM, INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) December 31, December 31, 2011 2010 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 375,441 $ 324,188 Short-term investments 159,426 170,154 Trade receivables, net 219,557 154,507 Inventories 107,613 113,994 Deferred taxes 40,153 32,357 Prepaid expenses and other current assets 51,375 41,884 ------------ ------------ Total current assets 953,565 837,084 Property and equipment, net 130,047 110,321 Long-term investments 56,772 41,316 Goodwill and purchased intangibles 663,070 519,685 Deferred taxes 20,930 18,388 Other assets 20,421 20,611 ------------ ------------ Total assets $ 1,844,805 $ 1,547,405 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 113,922 $ 90,890 Accrued payroll and related liabilities 40,650 35,222 Deferred revenue 143,091 104,919 Other accrued liabilities 61,502 54,651 ------------ ------------ Total current liabilities 359,165 285,682 Non-current liabilities Deferred revenue 83,143 55,292 Taxes payable 16,845 16,690 Deferred taxes 2,274 2,057 Other non-current liabilities 13,262 12,714 ------------ ------------ Total liabilities 474,689 372,435 Stockholders' equity 1,370,116 1,174,970 ------------ ------------ Total liabilities and stockholders' equity $ 1,844,805 $ 1,547,405 ============ ============ POLYCOM, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Twelve Months Ended ------------------------ ------------------------ December 31, December 31, December 31, December 31, 2011 2010 2011 2010 ----------- ------------ ----------- ----------- Revenues: Product revenues $ 318,425 $ 282,607 $ 1,207,787 $ 1,010,955 Service revenues 88,582 57,024 288,011 207,534 ----------- ------------ ----------- ----------- Total revenues 407,007 339,631 1,495,798 1,218,489 ----------- ------------ ----------- ----------- Cost of revenues: Cost of product revenues 128,712 109,856 481,634 401,319 Cost of service revenues 34,268 26,830 116,808 101,220 ----------- ------------ ----------- ----------- Total cost of revenues 162,980 136,686 598,442 502,539 ----------- ------------ ----------- ----------- Gross profit 244,027 202,945 897,356 715,950 ----------- ------------ ----------- ----------- Operating expenses: Sales and marketing 114,897 104,717 435,614 387,208 Research and development 53,951 40,568 201,067 148,991 General and administrative 20,908 19,034 82,901 74,661 Amortization of purchased intangibles 3,738 1,380 9,831 5,647 Restructuring costs 4,657 1,565 9,396 8,139 Acquisition-related expenses 1,764 - 9,688 - Litigation reserves and payments - - - 1,235 ----------- ------------ ----------- ----------- Total operating expenses 199,915 167,264 748,497 625,881 ----------- ------------ ----------- ----------- Operating income 44,112 35,681 148,859 90,069 Other income (expense), net 1,666 159 (1,639) (7,772) ----------- ------------ ----------- ----------- Income before provision for income taxes 45,778 35,840 147,220 82,297 Provision for (benefit from) income taxes (3,795) 2,714 11,406 13,888 ----------- ------------ ----------- ----------- Net income $ 49,573 $ 33,126 $ 135,814 $ 68,409 =========== ============ =========== =========== Basic net income per share $ 0.28 $ 0.19 $ 0.77 $ 0.40 =========== ============ =========== =========== Diluted net income per share $ 0.28 $ 0.19 $ 0.75 $ 0.39 =========== ============ =========== =========== Weighted average shares outstanding for basic net income per share 176,729 172,378 176,426 170,662 =========== ============ =========== =========== Weighted average shares outstanding for diluted net income per share 179,331 178,296 181,195 176,370 =========== ============ =========== =========== POLYCOM, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Twelve Months Ended ------------------------ December 31, December 31, 2011 2010 ----------- ----------- Cash flows from operating activities: Net income $ 135,814 $ 68,409 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 52,564 41,440 Amortization of purchased intangibles 21,742 18,994 Provision for excess and obsolete inventories 8,567 5,712 Non-cash stock based compensation 65,262 56,177 Impairment of private company investments 79 - Excess tax benefits from stock-based compensation (13,430) (11,618) Write down of investments other than temporarily impaired - 6,530 Loss on disposals of property and equipment 1,537 143 Changes in assets and liabilities, net of the effect of acquisitions: Trade receivables (63,009) (21,694) Inventories 2,545 (42,843) Deferred taxes (12,446) (3,537) Prepaid expenses and other assets (3,190) (29,537) Accounts payable 22,816 3,657 Taxes payable 13,496 2,770 Other accrued liabilities 67,298 48,797 ----------- ----------- Net cash provided by operating activities 299,645 143,400 ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (69,279) (69,331) Purchases of investments (372,567) (374,946) Proceeds from sale of investments 41,461 102,079 Proceeds from maturities of investments 326,332 199,622 Net cash paid in purchase acquisitions (163,630) - ----------- ----------- Net cash used in investing activities (237,683) (142,576) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock under employee option and stock purchase plans 40,798 64,854 Repurchase of common stock (64,937) (84,206) Excess tax benefits from stock-based compensation 13,430 11,618 ----------- ----------- Net cash used in financing activities (10,709) (7,734) ----------- ----------- Net increase (decrease) in cash and cash equivalents 51,253 (6,910) Cash and cash equivalents, beginning of period 324,188 331,098 ----------- ----------- Cash and cash equivalents, end of period $ 375,441 $ 324,188 =========== ===========

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Investor Contact:
Laura Graves
Polycom, Inc.
925.924.5630
laura.graves@polycom.com

Press Contact:
Shawn Dainas
Polycom, Inc.
925.924.5676
shawn.dainas@polycom.com


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