SOURCE: Polycom

April 16, 2008 16:05 ET

Polycom Reports First Quarter 2008 Earnings

Revenue Growth of 34 Percent Year-Over-Year; Revenue Growth of 15 Percent Year-Over-Year Excluding SpectraLink

PLEASANTON, CA--(Marketwire - April 16, 2008) - Polycom, Inc. (NASDAQ: PLCM), the world's leading provider of unified collaborative communications solutions, today reported its earnings for the first quarter ended March 31, 2008.

First quarter 2008 consolidated net revenues were $258.9 million, compared to $192.7 million for the first quarter of 2007. SpectraLink contributed $39.4 million to net revenues for the first quarter of 2008 compared to $2.1 million in the first quarter of 2007 for the six-day period following the acquisition, which was completed on March 26, 2007. Non-GAAP net income for the first quarter of 2008 was $32.7 million, or 36 cents per diluted share. This compares to Non-GAAP net income of $28.6 million, or 30 cents per diluted share, for the first quarter of 2007. GAAP net income for the first quarter of 2008 was $14.2 million, or 16 cents per diluted share, compared to $10.2 million, or 11 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, consolidated net revenues for the first quarter of 2008 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.
    

This compares to the first quarter of 2007, in which consolidated net revenues were comprised of:

--  71 percent video solutions, or $136.6 million (56 percent video
    communications, or $108.0 million, and 15 percent network systems, or $28.6
    million); and
--  29 percent voice communications, or $56.1 million.
    

"Unified Collaboration continues to be a key priority for our customers worldwide," said Robert Hagerty, chairman and CEO. "We believe the fast return on investment of our solution, compliance with the green initiatives in Europe and other important markets, and globalization of the workforce, are driving adoption within enterprise and public sector customers alike. In addition, we are pleased to report that first quarter revenues for our SpectraLink wireless products grew sharply from the fourth quarter, validating both the customer demand for voice mobility solutions and the successful completion of the integration of this strategically important acquisition."

"Looking forward, we expect growing contributions from our strategic partnerships such as Microsoft, Nortel, Avaya, IBM, and others as we deliver our highly differentiated video and voice collaboration solutions. Coupled with these partnerships, our new offerings in telepresence, HD video, and voice over IP products differentiate Polycom and illustrate the exceptional value proposition that our innovations are delivering to customers. With these products and partnerships, we believe Polycom is best positioned to capture customer demand being driven by rapidly growing travel costs, globalization, and environmental concerns. Further, through the sales investments we made in late 2007 and in Q1, we have increased our coverage in both existing and emerging markets. This is enabling Polycom to drive close customer relationships that deliver near-term business opportunity and long-term annuities through product adoption and service opportunities," Hagerty concluded.

"We delivered solid operating results in the first quarter, including revenues of $258.9 million and $36.3 million in operating cash flow," said Michael Kourey, senior vice president, finance and administration, and CFO. "In concert with these operating results, backlog and deferred revenues grew to record levels. During the first quarter, we purchased $60 million in Polycom stock, exiting the quarter with a remaining $80 million authorization under the current share repurchase program."

About Polycom

Polycom, Inc. is the worldwide leader in unified collaborative communications (UCC) that maximize the efficiency and productivity of people and organizations. Polycom delivers the broadest array of high definition telepresence video, wired and wireless voice, and content solutions so people can enjoy the best communications, whether from a real-time collaborative interaction or on-demand streamed video experience. Spanning from the desktop to the industry's only immersive telepresence suite, Polycom's high quality collaboration and communications solutions are easy to deploy and manage, as well as intuitive to use. Based on open standards, they integrate seamlessly with leading telephony and presence-based networks. With innovative market-driving technologies, a compelling vision for next generation visual communications, best-in-class products, alliance partnerships, and world-class service, Polycom is the smart choice for organizations to gain a competitive advantage with proven and trusted communication solutions. For additional information, call 800-POLYCOM or visit the Polycom web site at www.polycom.com.

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 drivers for the adoption of our products, the anticipated growing contributions of our strategic partnerships in future periods, our ability to capture customer demand through our product offerings and solutions, and the ability of our sales and services teams to create near-term opportunities and long-term annuity streams. 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, 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, the impact of global conflicts such as those in the Middle East, and risks associated with general economic conditions, including current negative macroeconomic indicators in the United States and globally, 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, 2007, 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 9, 2008, Polycom will hold a conference call today, April 16, 2008, at 5:00 p.m. ET/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 800.931.6358; and for callers outside of the US and Canada, by calling 212.231.2924, 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 21380669. 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.

Polycom, the Polycom logo, SpectraLink, and the SpectraLink logo are registered trademarks of Polycom in the U.S. and various countries. ©2008, Polycom, Inc. All rights reserved.

                              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,
                                                        2008       2007
                                                      ---------- ---------

Revenues:
     Product revenues                                 $  222,451 $ 169,472
     Service revenues                                     36,469    23,246
                                                      ---------- ---------
        Total revenues                                   258,920   192,718
                                                      ---------- ---------

Cost of revenues:
     Cost of product revenues                             85,693    62,381
     Cost of service revenues                             17,184    11,256
                                                      ---------- ---------
        Total cost of revenues                           102,877    73,637
                                                      ---------- ---------

Gross profit                                             156,043   119,081
                                                      ---------- ---------

Operating expenses:
     Sales and marketing                                  70,691    48,412
     Research and development                             32,020    28,098
     General and administrative                           12,726    10,425
                                                      ---------- ---------
        Total operating expenses                         115,437    86,935
                                                      ---------- ---------

Operating income                                          40,606    32,146

Interest income, net                                       3,186     6,568
Other expense, net                                         1,060       (64)
                                                      ---------- ---------

Income before provision for income taxes                  44,852    38,650
Provision for income taxes                                12,110    10,049
                                                      ---------- ---------
Non-GAAP net income                                   $   32,742 $  28,601
                                                      ========== =========

Basic net income per share                            $     0.37 $    0.31
                                                      ========== =========
Diluted net income per share                          $     0.36 $    0.30
                                                      ========== =========

Weighted average shares outstanding for basic
 net income per share                                     88,526    90,807
                                                      ========== =========

Weighted average shares outstanding for diluted
 net income per share                                     90,247    94,988
                                                      ========== =========




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,
                                                        2008       2007
                                                      ---------- ---------

Revenues:
     Product revenues                                 $  222,451 $ 169,472
     Service revenues                                     36,469    23,246
                                                      ---------- ---------
        Total revenues                                   258,920   192,718
                                                      ---------- ---------

Cost of revenues:
     Cost of product revenues                             90,187    64,282
     Cost of service revenues                             18,254    11,899
                                                      ---------- ---------
        Total cost of revenues                           108,441    76,181
                                                      ---------- ---------

Gross profit                                             150,479   116,537
                                                      ---------- ---------

Operating expenses:
     Sales and marketing                                  73,861    50,936
     Research and development                             34,934    30,675
     General and administrative                           14,894    12,476
     Acquisition-related integration costs                   159     1,170
     Purchased in-process research and development             -     9,400
     Amortization and impairment of purchased
      intangibles                                          1,827     1,431
     Restructuring costs                                   3,615       213
     Litigation reserves and payments                      6,238         -
                                                      ---------- ---------
        Total operating expenses                         135,528   106,301
                                                      ---------- ---------

Operating income                                          14,951    10,236

Interest income, net                                       3,186     6,568
Other income (expense), net                                1,060       (64)
                                                      ---------- ---------

Income before provision for income taxes                  19,197    16,740
Provision for income taxes                                 4,991     6,529
                                                      ---------- ---------
Net income                                            $   14,206 $  10,211
                                                      ========== =========

                                                      ---------- ---------
Basic net income per share                            $     0.16 $    0.11
                                                      ========== =========

                                                      ---------- ---------
Diluted net income per share                          $     0.16 $    0.11
                                                      ========== =========

Weighted average shares outstanding for basic
 net income per share                                     88,526    90,807
                                                      ========== =========

Weighted average shares outstanding for diluted
 net income per share                                     90,427    94,988
                                                      ========== =========





                              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 integration
      costs                                   159       159              -
     Purchased in-process research and
      development                               -         -              -
     Amortization and impairment 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 income (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.
                      GAAP to Non-GAAP Reconciliation
                 (In thousands, except per share amounts)
                                (Unaudited)


                                               Three Months Ended
                                       ----------------------------------
                                                 March 31, 2007
                                       ----------------------------------
                                         GAAP     Excluded      Non-GAAP
                                       ---------  ---------     ---------


Revenues:
     Product revenues                  $ 169,472  $       -     $ 169,472
     Service revenues                     23,246          -        23,246
                                       ---------  ---------     ---------
        Total revenues                   192,718          -       192,718
                                       ---------  ---------     ---------

Cost of revenues:
     Cost of product revenues             64,282      1,901 (a)    62,381
     Cost of service revenues             11,899        643 (b)    11,256
                                       ---------  ---------     ---------
        Total cost of revenues            76,181      2,544        73,637
                                       ---------  ---------     ---------

Gross profit                             116,537     (2,544)      119,081
                                       ---------  ---------     ---------

Operating expenses:
     Sales and marketing                  50,936      2,524 (b)    48,412
     Research and development             30,675      2,577 (b)    28,098
     General and administrative           12,476      2,051 (b)    10,425
     Acquisition-related integration
      costs                                1,170      1,170             -
     Purchased in-process research and
      development                          9,400      9,400             -
     Amortization and impairment of
      purchased intangibles                1,431      1,431             -
     Restructuring costs                     213        213             -
                                       ---------  ---------     ---------
        Total operating expenses         106,301     19,366        86,935
                                       ---------  ---------     ---------

Operating income                          10,236    (21,910)       32,146

Interest income, net                       6,568          -         6,568
Other income (expense), net                  (64)         -           (64)
                                       ---------  ---------     ---------

Income before provision for income
 taxes                                    16,740    (21,910)       38,650
Provision for income taxes                 6,529     (3,520)       10,049
                                       ---------  ---------     ---------
Net income                             $  10,211  $ (18,390)    $  28,601
                                       =========  =========     =========

                                       ---------  ---------     ---------
Basic net income per share             $    0.11  $   (0.20)    $    0.31
                                       =========  =========     =========

                                       ---------  ---------     ---------
Diluted net income per share           $    0.11  $   (0.19)    $    0.30
                                       =========  =========     =========

Weighted average shares outstanding
 for basic net income per share           90,807                   90,807
                                       =========                =========

Weighted average shares outstanding
 for diluted net income per share         94,988                   94,988
                                       =========                =========

(a) Excluded amount includes $811 related to the amortization of purchased
    intangibles for core and existing technologies, $395 related to
    purchase accounting adjustments made to inventory, $526 for stock-based
    compensation expense recorded in accordance with SFAS 123R,
    "Share-Based Payment," during the period and $169 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,
                                                    2008          2007
                                                ------------- -------------

ASSETS
Current assets
   Cash and cash equivalents                    $     265,250 $     279,560
   Investments                                         77,324        62,663
   Trade receivables, net                             140,656       138,133
   Inventories                                         96,772        71,106
   Deferred taxes                                      40,773        43,295
   Prepaid expenses and other current assets           28,792        23,104
                                                ------------- -------------
      Total current assets                            649,567       617,861

Property and equipment, net                            60,643        57,610
Long-term investments                                   9,251        32,340
Goodwill                                              504,461       504,955
Purchased intangibles, net                             82,292        86,423
Deferred taxes                                          7,270         8,062
Other assets                                           17,072        14,687
                                                ------------- -------------
      Total assets                              $   1,330,556 $   1,321,938
                                                ============= =============



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable                             $      91,633 $      75,802
   Accrued payroll and related liabilities             24,448        29,518
   Taxes payable                                          635         3,790
   Deferred revenue                                    66,003        59,130
   Other accrued liabilities                           52,489        48,814
                                                ------------- -------------
      Total current liabilities                       235,208       217,054

Non-current liabilities
Deferred revenue                                       40,869        27,853
Taxes payable                                          34,386        34,899
Deferred taxes                                          3,598         4,709
Other long-term liabilities                            14,949        13,429
                                                ------------- -------------
      Total liabilities                               329,010       297,944

Stockholders' equity                                1,001,546     1,023,994
                                                ------------- -------------
      Total liabilities and stockholders'
       equity                                   $   1,330,556 $   1,321,938
                                                ============= =============





                               POLYCOM, INC.
              Condensed Consolidated Statements of Cash Flows
                              (In thousands)
                                (Unaudited)

                                                       Three Months Ended
                                                      --------------------
                                                      March 31,  March 31,
                                                        2008       2007
                                                      ---------  ---------


Cash flows from operating activities:
Net income                                            $  14,206  $  10,211
Adjustments to reconcile net income
 to net cash provided by operating activities:
   Depreciation and amortization                          6,475      5,458
   Amortization and impairment of purchased
    intangibles                                           5,308      2,242
   Provision for doubtful accounts                          245          -
   Provision for excess and obsolete inventories            159        237
   Non-cash stock-based compensation                     10,128      8,321
   Excess tax benefits from stock-based
    compensation                                           (422)    (8,665)
   Purchase of in-process research and development            -      9,400
   Loss on disposals of property and equipment                7         23

   Changes in assets and liabilities, net of the
    effect of acquisitions:
       Trade receivables                                 (2,597)    (5,848)
       Inventories                                      (25,825)    (2,463)
       Deferred taxes                                       819      3,093
       Prepaid expenses and other assets                (10,157)    (2,124)
       Accounts payable                                  15,831       (410)
       Taxes payable                                     (2,720)     4,066
       Other accrued liabilities                         24,795     (6,694)
                                                      ---------  ---------
Net cash provided by operating activities                36,252     16,847
                                                      ---------  ---------

Cash flows from investing activities:
    Purchase of property and equipment                   (9,246)    (5,945)
    Purchases of investments                            (90,889)  (123,461)
    Proceeds from sale and maturity of investments       98,669    197,565
    Net cash paid in purchase acquisitions                    -   (254,725)
                                                      ---------  ---------
Net cash used in investing activities                    (1,466)  (186,566)
                                                      ---------  ---------

Cash flows from financing activities:
    Proceeds from issuance of common stock
     under employee option and stock purchase plans      12,725     35,304
    Purchase and retirement of common stock             (62,243)         -
    Excess tax benefits from stock-based compensation       422      8,665
                                                      ---------  ---------
Net cash (used in) provided by financing activities     (49,096)    43,969
                                                      ---------  ---------

Net increase (decrease) in cash and cash
 equivalents                                            (14,310)  (125,750)
Cash and cash equivalents, beginning of period          279,560    316,368
                                                      ---------  ---------
Cash and cash equivalents, end of period              $ 265,250  $ 190,618
                                                      =========  =========

Contact Information

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