[July 19, 2007] Polycom Reports Second Quarter Earnings Tweet PLEASANTON, Calif., July 19 /PRNewswire-FirstCall/ -- Polycom, Inc. , the world's leading provider of unified collaborative communications solutions, today reported its earnings for the second quarter ended June 30, 2007. Second quarter 2007 consolidated net revenues were $233.9 million, compared to $165.0 million for the second quarter of 2006. As previously reported, we completed our acquisition of SpectraLink on March 26, 2007. SpectraLink contributed $36.4 million to net revenues for the second quarter of 2007. Non-GAAP net income in the second quarter of 2007 was $28.9 million, or 30 cents per diluted share. This compares to Non-GAAP net income of $21.9 million, or 24 cents per diluted share, for the second quarter of 2006. Non-GAAP financial measures exclude stock-based compensation expense, the 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 the income tax effect of the preceding adjustments. GAAP net income for the second quarter of 2007 was $10.1 million, or 11 cents per diluted share, compared to $15.0 million, or 17 cents per diluted share, for the same period last year. For the six months ended June 30, 2007, net revenues were $426.6 million, compared to $322.7 million for the first six months of 2006. Non-GAAP net income for the period was $57.5 million, or 60 cents per diluted share, compared to $41.7 million, or 47 cents per diluted share, for the first six months of 2006. GAAP net income for the six months ended June 30, 2007 was $20.3 million, or 21 cents per diluted share, compared to GAAP net income of $29.0 million, or 32 cents per diluted share, for the same period last year. The reconciliation of the GAAP statement of operations to the respective Non-GAAP statement of operations, for the three and six month periods ended June 30, 2007 and 2006, is set forth at the end of this press release. On a product line basis, consolidated net revenues for the second quarter of 2007 were comprised of: -- 62 percent video solutions, or $144.3 million (49 percent video communications, or $113.3 million, and 13 percent network systems, or $31.0 million); and -- 38 percent voice communications, or $89.6 million. This compares to the second quarter of 2006, in which consolidated net revenues were comprised of: -- 72 percent video solutions, or $119.2 million (54 percent video communications, or $89.0 million, and 18 percent network systems, or $30.2 million); and -- 28 percent voice communications, or $45.8 million. "The backdrop for IP-based collaborative communications is the best in history," said Robert Hagerty, president and CEO. "Enterprises, governments, and educational institutions alike are adopting video, voice, and content collaboration to enable them to achieve greater agility and faster growth. Drivers such as high definition and telepresence are serving to catalyze this growth through an unprecedented quality of experience. In Q2, this was evidenced by the continued fast growth of Polycom's video business and the return to growth of our network systems products. Our newly acquired voice over wireless business also generated strong revenues in Q2 as we began to integrate these solutions into the broader Polycom portfolio." Hagerty continued, "Looking into the second half of 2007, I could not be more excited about our increasing customer coverage and our breadth of new product offerings. These products include the RMX high definition multimedia conferencing platform, the new Proxias(TM) service provider application server, the HDX high definition video products, the RPX(TM) telepresence products, and the suite of new voice products-from the line of Microsoft VoIP phones to our new wireless LAN voice offerings. With the strong market dynamics, Polycom's strategic partnerships, our industry leading products, and our ever-increasing sales coverage, we believe we are poised to have fast growth in the second half and 2008." "Polycom's revenues grew 20 percent year-over-year in the second quarter, excluding our SpectraLink product line revenues, and 42 percent year-over-year including SpectraLink," said Michael Kourey, senior vice president, finance and administration, and CFO. "This strong growth was driven by demand for our video product lines, the contributions of our new wireless voice business, and the return to growth of Polycom's network systems offering." About Polycom Polycom, Inc. is the worldwide leader in unified collaborative communications (UCC) that maximize the efficiency and productivity of people and organizations by integrating the broadest array of high definition video, wired and wireless voice, and content solutions to deliver the ultimate collaborative experience. Polycom's high quality, standards-based conferencing and collaboration solutions are easy to deploy and manage, as well as intuitive to use. Supported by an open architecture, they integrate seamlessly with leading telephony, workplace wireless telephony, and presence-based networks. With its market-driving technologies, best-in-class products, alliance partnerships, and world-class service, Polycom is the smart choice for organizations seeking proven solutions and a competitive advantage from on-demand communications and collaboration. For additional information, call 800-POLYCOM or visit the Polycom web site at http://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 Polycom as being poised for fast growth in the second half of 2007 and 2008 and the factors contributing to such anticipated growth. 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, our ability to rapidly and effectively integrate SpectraLink and its operations, potential fluctuations in results and future growth rates, the market acceptance of Polycom's products, such as our video collaboration and voice and video over IP 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 changes in general economic conditions. Many of these risks and uncertainties are discussed in the Company's Quarterly Report on Form 10-Q for the quarter ended March 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 July 9, 2007, Polycom will hold a conference call today, July 19, 2007, at 5:00 p.m. ET/2:00 p.m. PT to discuss its second quarter earnings. Robert Hagerty, chairman, president and CEO, and Michael Kourey, chief financial officer, will host the conference. You may participate by viewing the webcast at http://www.polycom.com/ or, for callers in the US and Canada, by calling 800-926-7385; and for callers outside of the US and Canada, by calling 212-231-2900, with the pass code being Polycom. A replay of the call will also be available at http://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 21344062. A replay of the call will also be maintained on our website at http://www.polycom.com/ under Investor Relations - Archived Conference Calls for twelve months. 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 and Proxias and RPX are trademarks of Polycom in the U.S. and various countries. (C)2007, 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 Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 Revenues: Product revenues $201,902 $144,841 $371,374 $283,509 Service revenues 31,950 20,114 55,196 39,159 Total revenues 233,852 164,955 426,570 322,668 Cost of revenues: Cost of product revenues 75,280 51,898 137,661 102,004 Cost of service revenues 15,187 10,455 26,443 20,086 Total cost of revenues 90,467 62,353 164,104 122,090 Gross profit 143,385 102,602 262,466 200,578 Operating expenses: Sales and marketing 58,764 40,152 107,176 78,887 Research and development 33,164 26,784 61,262 52,541 General and administrative 14,270 9,925 24,695 18,859 Total operating expenses 106,198 76,861 193,133 150,287 Operating income 37,187 25,741 69,333 50,291 Interest income, net 4,022 4,608 10,590 8,526 Other income (expense), net (470) 870 (534) 734 Income before provision for income taxes 40,739 31,219 79,389 59,551 Provision for income taxes 11,814 9,365 21,863 17,865 Non-GAAP net income $28,925 $21,854 $57,526 $41,686 Basic net income per share $0.32 $0.25 $0.63 $0.47 Diluted net income per share $0.30 $0.24 $0.60 $0.47 Weighted average shares outstanding for basic net income per share 91,718 87,829 91,263 87,953 Weighted average shares outstanding for diluted net income per share 95,492 89,761 95,240 89,553 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 Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 Revenues: Product revenues $201,902 $144,841 $371,374 $283,509 Service revenues 31,950 20,114 55,196 39,159 Total revenues 233,852 164,955 426,570 322,668 Cost of revenues: Cost of product revenues 81,627 52,495 145,909 102,949 Cost of service revenues 16,027 10,932 27,926 20,967 Total cost of revenues 97,654 63,427 173,835 123,916 Gross profit 136,198 101,528 252,735 198,752 Operating expenses: Sales and marketing 61,991 41,937 112,927 82,112 Research and development 36,258 28,757 66,933 56,280 General and administrative 16,742 11,622 29,218 21,799 Acquisition-related costs 1,547 40 2,717 85 Purchased in-process research and development - - 9,400 - Amortization of purchased intangibles 2,376 1,601 3,807 3,189 Restructuring costs - - 213 555 Total operating expenses 118,914 83,957 225,215 164,020 Operating income 17,284 17,571 27,520 34,732 Interest income, net 4,022 4,608 10,590 8,526 Loss on strategic investments (7,400) - (7,400) - Other income (expense), net (470) 870 (534) 734 Income before provision for income taxes 13,436 23,049 30,176 43,992 Provision for income taxes 3,359 8,046 9,888 14,957 Net income $10,077 $15,003 $20,288 $29,035 Basic net income per share $0.11 $0.17 $0.22 $0.33 Diluted net income per share $0.11 $0.17 $0.21 $0.32 Weighted average shares outstanding for basic net income per share 91,718 87,829 91,263 87,953 Weighted average shares outstanding for diluted net income per share 95,492 89,761 95,240 89,553 POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended June 30, 2007 GAAP Excluded Non-GAAP Revenues: Product revenues $201,902 $- $201,902 Service revenues 31,950 - 31,950 Total revenues 233,852 - 233,852 Cost of revenues: Cost of product revenues 81,627 6,347 (a) 75,280 Cost of service revenues 16,027 840 (b) 15,187 Total cost of revenues 97,654 7,187 90,467 Gross profit 136,198 (7,187) 143,385 Operating expenses: Sales and marketing 61,991 3,227 (b) 58,764 Research and development 36,258 3,094 (b) 33,164 General and administrative 16,742 2,472 (b) 14,270 Acquisition-related costs 1,547 1,547 - Purchased in-process research and development - - - Amortization of purchased intangibles 2,376 2,376 - Restructuring costs - - - Total operating expenses 118,914 12,716 106,198 Operating income 17,284 (19,903) 37,187 Interest income, net 4,022 - 4,022 Loss on strategic investments (7,400) (7,400) - Other income (expense), net (470) - (470) Income before provision for income taxes 13,436 (27,303) 40,739 Provision for income taxes 3,359 (8,455) 11,814 Net income $10,077 $(18,848) $28,925 Basic net income per share $0.11 $(0.21) $0.32 Diluted net income per share $0.11 $(0.19) $0.30 Weighted average shares outstanding for basic net income per share 91,718 91,718 Weighted average shares outstanding for diluted net income per share 95,492 95,492 Six Months Ended June 30, 2007 GAAP Excluded Non-GAAP Revenues: Product revenues $371,374 $- $371,374 Service revenues 55,196 - 55,196 Total revenues 426,570 - 426,570 Cost of revenues: Cost of product revenues 145,909 8,248 (c) 137,661 Cost of service revenues 27,926 1,483 (b) 26,443 Total cost of revenues 173,835 9,731 164,104 Gross profit 252,735 (9,731) 262,466 Operating expenses: Sales and marketing 112,927 5,751 (b) 107,176 Research and development 66,933 5,671 (b) 61,262 General and administrative 29,218 4,523 (b) 24,695 Acquisition-related costs 2,717 2,717 - Purchased in-process research and development 9,400 9,400 - Amortization of purchased intangibles 3,807 3,807 - Restructuring costs 213 213 - Total operating expenses 225,215 32,082 193,133 Operating income 27,520 (41,813) 69,333 Interest income, net 10,590 - 10,590 Loss on strategic investments (7,400) (7,400) - Other income (expense), net (534) - (534) Income before provision for income taxes 30,176 (49,213) 79,389 Provision for income taxes 9,888 (11,975) 21,863 Net income $20,288 $(37,238) $57,526 Basic net income per share $0.22 $(0.41) $0.63 Diluted net income per share $0.21 $(0.39) $0.60 Weighted average shares outstanding for basic net income per share 91,263 91,263 Weighted average shares outstanding for diluted net income per share 95,240 95,240 (a) Excluded amount includes $3,357 related to the amortization of purchased intangibles for core and existing technologies, $690 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period, $231 related to the effect of stock-based compensation on warranty expense rates and $2,069 related to purchase accounting adjustments made to inventory. (b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period. (c) Excluded amount includes $4,168 related to the amortization of purchased intangibles for core and existing technologies, $1,216 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period, $400 related to the effect of stock-based compensation on warranty expense rates and $2,464 related to purchase accounting adjustments made to inventory. POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended June 30, 2006 GAAP Excluded Non-GAAP Revenues: Product revenues $144,841 $- $144,841 Service revenues 20,114 - 20,114 Total revenues 164,955 - 164,955 Cost of revenues: Cost of product revenues 52,495 597 (a) 51,898 Cost of service revenues 10,932 477 (b) 10,455 Total cost of revenues 63,427 1,074 62,353 Gross profit 101,528 (1,074) 102,602 Operating expenses: Sales and marketing 41,937 1,785 (b) 40,152 Research and development 28,757 1,973 (b) 26,784 General and administrative 11,622 1,697 (b) 9,925 Acquisition-related costs 40 40 - Amortization of purchased intangibles 1,601 1,601 - Restructuring costs - - - Total operating expenses 83,957 7,096 76,861 Operating income 17,571 (8,170) 25,741 Interest income, net 4,608 - 4,608 Other income (expense), net 870 - 870 Income before provision for income taxes 23,049 (8,170) 31,219 Provision for income taxes 8,046 (1,319) 9,365 Net income $15,003 $(6,851) $21,854 Basic net income per share $0.17 $(0.08) $0.25 Diluted net income per share $0.17 $(0.07) $0.24 Weighted average shares outstanding for basic net income per share 87,829 87,829 Weighted average shares outstanding for diluted net income per share 89,761 89,761 Six Months Ended June 30, 2006 GAAP Excluded Non-GAAP Revenues: Product revenues $283,509 $- $283,509 Service revenues 39,159 - 39,159 Total revenues 322,668 - 322,668 Cost of revenues: Cost of product revenues 102,949 945 (c) 102,004 Cost of service revenues 20,967 881 (b) 20,086 Total cost of revenues 123,916 1,826 122,090 Gross profit 198,752 (1,826) 200,578 Operating expenses: Sales and marketing 82,112 3,225 (b) 78,887 Research and development 56,280 3,739 (b) 52,541 General and administrative 21,799 2,940 (b) 18,859 Acquisition-related costs 85 85 - Amortization of purchased intangibles 3,189 3,189 - Restructuring costs 555 555 - Total operating expenses 164,020 13,733 150,287 Operating income 34,732 (15,559) 50,291 Interest income, net 8,526 - 8,526 Other income (expense), net 734 - 734 Income before provision for income taxes 43,992 (15,559) 59,551 Provision for income taxes 14,957 (2,908) 17,865 Net income $29,035 $(12,651) $41,686 Basic net income per share $0.33 $(0.14) $0.47 Diluted net income per share $0.32 $(0.15) $0.47 Weighted average shares outstanding for basic net income per share 87,953 87,953 Weighted average shares outstanding for diluted net income per share 89,553 89,553 (a) Excluded amount includes $401 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period and $196 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 includes $749 for stock-based compensation expense recorded in accordance with SFAS 123R, "Share-Based Payment," during the period and $196 related to the effect of stock-based compensation on warranty expense rates. POLYCOM, INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) June 30, December 31, 2007 2006 ASSETS Current assets Cash and cash equivalents $223,594 $316,368 Investments 83,474 157,345 Trade receivables, net 114,733 79,057 Inventories 68,112 48,029 Deferred taxes 42,571 22,459 Prepaid expenses and other current assets 19,104 16,719 Total current assets 551,588 639,977 Property and equipment, net 56,001 39,426 Long-term investments 64,060 102,133 Goodwill 494,536 356,755 Purchased intangibles, net 99,603 12,935 Deferred taxes 10,602 16,746 Other assets 14,527 22,043 Total assets $1,290,917 $1,190,015 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $61,906 $53,602 Accrued payroll and related liabilities 28,644 22,182 Taxes payable 1,536 58,092 Deferred revenue 50,807 40,227 Other accrued liabilities 50,618 39,780 Total current liabilities 193,511 213,883 Non-current liabilities Deferred revenue 24,684 20,798 Taxes payable 33,333 - Deferred taxes 6,314 - Other long-term liabilities 10,553 8,614 Total non-current liabilities 74,884 29,412 Total liabilities 268,395 243,295 Stockholders' equity 1,022,522 946,720 Total liabilities and stockholders' equity $1,290,917 $1,190,015 POLYCOM, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, June 30, 2007 2006 Cash flows from operating activities: Net income $20,288 $29,035 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,656 10,337 Amortization of purchased intangibles 7,976 3,189 Provision for doubtful accounts - 59 Provision for (benefit from) excess and obsolete inventories 320 (92) Non-cash stock based compensation 18,644 11,534 Excess tax benefits from stock- based compensation (11,645) (2,273) Loss on strategic investments 7,400 - Purchase of in-process research and development 9,400 - Loss on disposals of property and equipment 58 85 Changes in assets and liabilities, net of the effect of acquisitions: Trade receivables (18,038) (8,605) Inventories (805) 3,719 Deferred taxes 3,405 - Prepaid expenses and other assets (1,647) (2,110) Accounts payable (1,180) 311 Taxes payable 3,519 4,228 Other accrued liabilities 2,384 15,304 Net cash provided by operating activities 51,735 64,721 Cash flows from investing activities: Purchase of property and equipment (14,500) (10,443) Purchases of investments (201,859) (364,042) Proceeds from sale and maturity of investments 313,292 344,933 Net cash paid in purchase acquisitions (275,619) - Net cash used in investing activities (178,686) (29,552) Cash flows from financing activities: Proceeds from issuance of common stock under employee option and stock purchase plans 48,264 23,470 Repurchase of common stock (25,732) (52,405) Excess tax benefits from stock-based compensation 11,645 2,273 Net cash provided by (used in) financing activities 34,177 (26,662) Net increase (decrease) in cash and cash equivalents (92,774) 8,507 Cash and cash equivalents, beginning of period 316,368 189,271 Cash and cash equivalents, end of period $223,594 $197,778 Polycom, Inc. CONTACT: Michael R. Kourey, CFO of Polycom, Inc., +1-925-924-5742,[email protected] Web site: http://www.polycom.com/ [ Back To TMCnet.com's Homepage ]