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Polycom Announces Second Quarter 2015 Financial Results
[July 22, 2015]

Polycom Announces Second Quarter 2015 Financial Results


Polycom, Inc. (Nasdaq: PLCM) today reported second quarter 2015 revenues of $317 million, non-GAAP net income of $30 million and non-GAAP earnings per diluted share of 22 cents. GAAP net income for the second quarter was $20 million, or 14 cents per diluted share. A reconciliation of GAAP to non-GAAP results is provided in the tables at the end of this press release.

"In the second quarter, we delivered year-over-year growth in operating margins and earnings-per-share consistent with our expectations, despite a more challenging quarter from a top-line perspective," said Peter Leav, President and Chief Executive Officer. "We continue to be focused on investing in new solutions for both core and adjacent markets and working closely with our strategic partners, while improving sales execution in the field."

"In the second quarter, we continued to be good stewards of our capital," said Laura Durr, Chief Financial Officer and Executive Vice President. "Polycom generated $33 million in operating cash flow and repurchased $25 million of common stock under our current share repurchase program during the quarter."

On a comparative basis, consolidated financial results were:



($ in millions, except per share data)             Q2 2015         Q1 2015         Q2 2014      

Year-Over-Year

Change

Revenues $ 316.6 $ 330.7 $ 332.0   (5 )%
Non-GAAP Net Income $ 29.9 $ 32.2 $ 29.6 1 %
Non-GAAP EPS $ 0.22 $ 0.23 $ 0.21 5 %
GAAP Net Income $ 19.6 $ 21.2 $ 8.6 130 %
GAAP EPS $ 0.14 $ 0.15 $ 0.06 133 %

On a geographic basis, consolidated revenues were comprised of:

($ in millions)             Q2 2015       Q1 2015       Q2 2014    

Year-Over-Year

Change

Americas $ 158.3 $ 157.4 $ 167.8   (6 )%
% of revenues 50 % 48 % 51 %
Europe, Middle East & Africa (EMEA) 80.9 93.8 83.1 (3 )%
% of revenues 26 % 28 % 25 %
Asia Pacific 77.4 79.5 81.1 (5 )%
% of revenues   24 %   24 %   24 %
Totals * $ 316.6 $ 330.7 $ 332.0 (5 )%

* may not foot due to rounding

By product category, inclusive of its service component, consolidated revenues were comprised of:

($ in millions)             Q2 2015         Q1 2015         Q2 2014      

Year-Over-Year

Change

UC Group Systems $ 195.2 $ 204.6 $ 218.5   (11 )%
% of revenues 62 % 62 % 66 %
UC Personal Devices 66.8 67.5 53.6 25 %
% of revenues 21 % 20 % 16 %
UC Platform 54.6 58.6 59.9 (9 )%
% of revenues   17 %   18 %   18 %
Totals * $ 316.6 $ 330.7 $ 332.0 (5 )%

* may not foot due to rounding

In Q2 2015, Polycom generated a total of $33 million in operating cash flow. Operating cash flow on a trailing 12 month basis was $188 million. Cash and investments at the end of Q2 2015 totaled $660 million, of which approximately $213 million is located in the United States. Net of existing debt, cash and investments at the end of Q2 2015 totaled $421 million.

Earnings Call Details

Polycom will hold a conference call today, July 22, 2015, at 5:00 p.m. ET/2:00 p.m. PT to discuss second quarter 2015 financial results and guidance for the third quarter 2015. You may participate by listening to the webcast at www.polycom.com/investors or, for callers in the United States and Canada; you may participate by calling +1.800.230.1085 and for callers outside of the United States and Canada, by calling +1.612.234.9960. A replay of the call will also be available at www.polycom.com/investors or, for callers in the United States and Canada, at +1.800.475.6701 and, for callers outside of the United States and Canada, at +1.320.365.3844. The access number for the replay is 363902.

Forward Looking Statements and Risk Factors

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 regarding our future areas of focus and financial performance, including statements regarding future investments in new solutions, our focus on strategic partners and future improvements in sales execution. 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 on our customers and partners, and any resulting loss of business; 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 global 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 implement process improvements and cost containment initiatives; changes to our strategic areas of focus and investment; our ability to successfully integrate our acquisitions into our business; possible delays in the development, availability and shipment of new products due to engineering, manufacturing or other delays; increasing costs and the availability of capital; changes in key sales and other personnel that may cause disruption to the business; 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 March 31, 2015, 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. 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 GAAP in the United States.

About Polycom

Polycom helps organizations unleash the power of human collaboration. More than 415,000 companies and institutions worldwide defy distance with secure video, voice and content solutions from Polycom to increase productivity, speed time to market, provide better customer service, expand education and save lives. Polycom and its global partner ecosystem provide flexible collaboration solutions for any environment that deliver the best user experience, the broadest multi-vendor interoperability and unmatched investment protection. Visit www.polycom.com or connect with us on Twitter, Facebook and LinkedIn to learn more.

© 2015 Polycom, Inc. All rights reserved. POLYCOM®, the Polycom 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.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30,

2015

      June 30,

2014

June 30,

2015

      June 30,

2014

Revenues:
Product revenues $ 221,896 $ 236,565 $ 455,583 $ 468,074
Service revenues   94,679   95,454   191,692   192,469
Total revenues   316,575   332,019   647,275   660,543
Cost of revenues:
Cost of product revenues 95,752 97,710 197,021 195,346
Cost of service revenues   34,898   39,087   71,509   77,990
Total cost of revenues   130,650   136,797   268,530   273,336
Gross profit   185,925   195,222   378,745   387,207
Operating expenses:
Sales and marketing 89,433 97,836 180,292 191,804
Research and development 46,545 49,031 95,882 97,178
General and administrative 22,269 24,636 43,436 48,429
Amortization of purchased intangibles 2,417 2,436 4,834 4,928
Restructuring costs 343 9,175 367 39,518
Transaction-related costs   -   -   -   156
Total operating expenses   161,007   183,114   324,811   382,013
Operating income 24,918 12,108 53,934 5,194
Interest and other income (expense), net
Interest expense (1,523 ) (1,460 ) (3,007 ) (2,934 )
Other income (expense), net   1,345   (236 )   1,367   543
Interest and other income (expense), net (178 ) (1,696 ) (1,640 ) (2,391 )
Income before provision for (benefit from) income taxes 24,740 10,412 52,294 2,803
Provision for (benefit from) income taxes   5,093   1,855   11,449   (1,763 )
Net income $ 19,647 $ 8,557 $ 40,845 $ 4,566
 
Basic net income per share: $ 0.15 $ 0.06 $ 0.30 $ 0.03
 
Diluted net income per share: $ 0.14 $ 0.06 $ 0.30 $ 0.03

 

Number of shares used in computation of net income per

share:

Basic   134,057   138,016   134,417   137,406
Diluted   137,347   142,876   138,290   142,521
                     
 

POLYCOM, INC.

Reconciliation of GAAP to Non-GAAP Net Income

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30,

2015

      March 31,

2015

      June 30,

2014

June 30,

2015

      June 30,

2014

GAAP net income $ 19,647 $ 21,198 $ 8,557 $ 40,845 $ 4,566
Amortization of purchased intangibles 2,517 3,074 3,167 5,591 6,500
Restructuring costs 343 24 9,175 367 39,518
Transaction-related costs - - - - 156
Stock-based compensation expense 9,711 9,232 13,763 18,943 19,410
Effect of stock-based compensation on warranty rates 80 53 77 133 206
Costs associated with CEO separation and related SEC

investigation

64 335 381 399 991
Income tax effect of non-GAAP exclusions   (2,415 )   (1,681 )   (5,540 )   (4,096 )   (15,680 )
Non-GAAP net income $ 29,947 $ 32,235 $ 29,580 $ 62,182 $ 55,667
GAAP net income per share
Basic $ 0.15 $ 0.16 $ 0.06 $ 0.30 $ 0.03
Diluted $ 0.14 $ 0.15 $ 0.06 $ 0.30 $ 0.03
Non-GAAP net income per share
Basic $ 0.22 $ 0.24 $ 0.21 $ 0.46 $ 0.41
Diluted $ 0.22 $ 0.23 $ 0.21 $ 0.45 $ 0.39
Number of shares used in computation of net

income per share:

Basic 134,057 134,777 138,016 134,417 137,406
Diluted 137,347 139,233 142,876 138,290 142,521
                       
 

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 
June 30,

2015

December 31,

2014

ASSETS
Current assets
Cash and cash equivalents $ 412,573 $ 443,132
Short-term investments 198,160 185,783
Trade receivables, net 161,155 169,400
Inventories 99,909 100,328
Deferred taxes 38,739 38,805
Prepaid expenses and other current assets   57,377   61,072
Total current assets 967,913 998,520
Property and equipment, net 107,878 109,195
Long-term investments 49,391 59,197
Goodwill and purchased intangibles, net 578,187 583,798
Deferred taxes 49,856 54,019
Other assets   25,689   26,493
Total assets $ 1,778,914 $ 1,831,222
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 90,285 $ 108,172
Accrued payroll and related liabilities 39,912 42,901
Taxes payable 3,774 4,056
Deferred revenue 176,890 173,532
Current portion of long-term debt 6,250 6,250
Other accrued liabilities   75,664   86,193
Total current liabilities 392,775 421,104
Long-term deferred revenue 83,551 89,366
Taxes payable 11,847 11,719
Deferred taxes 169 173
Long-term debt 232,813 235,938
Other non-current liabilities   34,609   49,189
Total liabilities 755,764 807,489
Stockholders' equity   1,023,150   1,023,733
Total liabilities and stockholders' equity $ 1,778,914 $ 1,831,222
           
 

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Six Months Ended
June 30,

2015

            June 30,

2014

Cash flows from operating activities:
Net income $ 40,845 $ 4,566
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 27,210 29,034
Amortization of purchased intangibles 5,629 6,538
Amortization of capitalized software development costs for products to be sold 1,354 702
Amortization of debt issuance costs 266 267
Amortization of discounts and premiums on investments, net 1,090 944
Provision for doubtful accounts - 600
Write-down of excess and obsolete inventories 6,810 2,253
Stock-based compensation expense 18,943 19,410
Excess tax benefits from stock-based compensation expense (3,487 ) (1,819 )
Loss on disposal of property and equipment 544 4,965
Changes in assets and liabilities:
Trade receivables 8,245 5,805
Inventories (6,791 ) (4,848 )
Deferred taxes (2,744 ) (4,848 )
Prepaid expenses and other assets 4,960 (7,327 )
Accounts payable (19,229 ) 6,130
Taxes payable 9,663 4,124
Other accrued liabilities and deferred revenue   (30,160 )   14,125
Net cash provided by operating activities   63,148   80,621
Cash flows from investing activities:
Purchases of property and equipment (23,922 ) (24,338 )
Capitalized software development costs for products to be sold (2,311 ) (2,474 )
Purchases of investments (107,675 ) (151,611 )
Proceeds from sale of investments 6,892 37,056
Proceeds from maturities of investments   97,187   77,440
Net cash used in investing activities   (29,829 )   (63,927 )
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans 12,528 13,542
Payments on debt (3,125 ) (3,125 )
Purchase and retirement of common stock under share repurchase plan (64,999 ) -
Purchase and retirement of common stock for tax withholdings on vesting of employee

stock-based awards

(11,769 ) (8,426 )
Excess tax benefits from stock-based compensation expense   3,487   1,819
Net cash provided by (used in) financing activities   (63,878 )   3,810
Net increase (decrease) in cash and cash equivalents (30,559 ) 20,504
Cash and cash equivalents, beginning of period   443,132   392,629
Cash and cash equivalents, end of period $ 412,573 $ 413,133
                             
 

POLYCOM, INC.

Selected Summary Data

(In millions except per share amounts and headcount)

(Unaudited)

 
June 30,

2015

March 31,

2015

June 30,

2014

Balance Sheet Highlights
Cash and investments $ 660 $ 669 $ 640
Number of shares outstanding 133 135 137
Cash and investments per share $ 4.95 $ 4.95 $ 4.68
Debt $ 239 $ 241 $ 245
Operating cash flow - quarterly $ 33 $ 30 $ 62
Operating cash flow - trailing 12 months $ 188 $ 217 $ 167
DSO (Days Sales Outstanding) 46 47 49
Inventory turns - GAAP 5.2 5.9 5.2
Inventory turns - non-GAAP 5.2 5.7 5.1
Deferred revenue $ 260 $ 265 $ 259
Share repurchases:
Quarter-to-date share repurchases - shares (1) 1.9 2.9 1.5
Quarter-to-date share repurchases - dollars $ 25 $ 40 $ -
Year-to-date share repurchases - shares (1) 4.8 2.9 1.5
Year-to-date share repurchases - dollars $ 65 $ 40 $ -
Remaining authorization for share repurchases (2) $ 85 $ 110 $ -
Ending headcount 3,553 3,497 3,558
             
For the Three Months Ended
June 30,

2015

          March 31,

2015

          June 30,

2014

Income Statement Highlights
GAAP:
Revenues $ 317 $ 331 $ 332
Gross margin 58.7 % 58.3 % 58.8 %
Operating expenses $ 161 $ 164 $ 183
Operating margin 7.9 % 8.8 % 3.6 %
Diluted EPS $ 0.14 $ 0.15 $ 0.06
Non-GAAP:
Revenues $ 317 $ 331 $ 332
Gross margin 59.2 % 59.2 % 59.5 %
Operating expenses $ 150 $ 154 $ 159
Operating margin 11.9 % 12.6 % 11.6 %
Diluted EPS $ 0.22 $ 0.23 $ 0.21

(1) The final settlement of shares under prior Accelerated Share Repurchase program was completed in the three month period ended June 30, 2014, for which funds were advanced in the three month period ended December 31, 2013.

(2) Polycom is not obligated to purchase any specific number of shares under its Share Repurchase Program and the program may be modified, suspended or discontinued at any time.

                     
 

POLYCOM, INC.

Reconciliations of GAAP Measures to Non-GAAP Measures

(In thousands)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30,

2015

    March 31,

2015

    June 30,

2014

June 30,

2015

    June 30,

2014

GAAP cost of revenues used in inventory turns $ 130,650 $ 137,880 $ 136,797 $ 268,530 $ 273,336
Stock-based compensation expense (1,382 ) (2,263 ) (1,621 ) (3,645 ) (3,222 )
Effect of stock-based compensation expense on warranty

rates

(80 ) (53 ) (77 ) (133 ) (206 )
Amortization of purchased intangibles   (100 )   (657 )   (731 )   (757 )   (1,572 )
Non-GAAP cost of revenues used in inventory turns $ 129,088 $ 134,907 $ 134,368 $ 263,995 $ 268,336
GAAP gross profit $ 185,925 $ 192,820 $ 195,222 $ 378,745 $ 387,207
Stock-based compensation expense 1,382 2,263 1,621 3,645 3,222
Effect of stock-based compensation expense on warranty

rates

80 53 77 133 206
Amortization of purchased intangibles   100   657   731   757   1,572
Non-GAAP gross profit $ 187,487 $ 195,793 $ 197,651 $ 383,280 $ 392,207
Non-GAAP gross margin 59.2 % 59.2 % 59.5 % 59.2 % 59.4 %
 
GAAP sales and marketing expense $ 89,433 $ 90,859 $ 97,836 $ 180,292 $ 191,804
Stock-based compensation expense   (2,698 )   (2,613 )   (5,333 )   (5,311 )   (5,724 )
Non-GAAP sales and marketing expense $ 86,735 $ 88,246 $ 92,503 $ 174,981 $ 186,080
Non-GAAP sales and marketing expense as percent of

revenues

27.4 % 26.7 % 27.9 % 27.0 % 28.2 %
 
GAAP research and development expense $ 46,545 $ 49,337 $ 49,031 $ 95,882 $ 97,178
Stock-based compensation expense   (1,915 )   (2,573 )   (3,059 )   (4,488 )   (4,101 )
Non-GAAP research and development expense $ 44,630 $ 46,764 $ 45,972 $ 91,394 $ 93,077
Non-GAAP research and development expense as percent of

revenues

14.1 % 14.1 % 13.8 % 14.1 % 14.1 %
 
GAAP general and administrative expense $ 22,269 $ 21,167 $ 24,636 $ 43,436 $ 48,429
Stock-based compensation expense (3,716 ) (1,783 ) (3,750 ) (5,499 ) (6,363 )
Costs associated with CEO separation and related SEC

investigation

  (64 )   (335 )   (381 )   (399 )   (991 )
Non-GAAP general and administrative expense $ 18,489 $ 19,049 $ 20,505 $ 37,538 $ 41,075
Non-GAAP general and administrative expense as percent

of revenues

5.8 % 5.8 % 6.2 % 5.8 % 6.2 %
 
GAAP total operating expenses $ 161,007 $ 163,804 $ 183,114 $ 324,811 $ 382,013
Stock-based compensation expense (8,329 ) (6,969 ) (12,142 ) (15,298 ) (16,188 )
Amortization of purchased intangibles (2,417 ) (2,417 ) (2,436 ) (4,834 ) (4,928 )
Restructuring costs (343 ) (24 ) (9,175 ) (367 ) (39,518 )
Transaction-related costs - - - - (156 )
Costs associated with CEO separation and related SEC

investigation

  (64 )   (335 )   (381 )   (399 )   (991 )
Non-GAAP total operating expenses $ 149,854 $ 154,059 $ 158,980 $ 303,913 $ 320,232
Non-GAAP total operating expenses as percent of revenues 47.3 % 46.6 % 47.9 % 47.0 % 48.5 %
 
GAAP operating income $ 24,918 $ 29,016 $ 12,108 $ 53,934 $ 5,194
Stock-based compensation expense 9,711 9,232 13,763 18,943 19,410
Effect of stock-based compensation expense on warranty

rates

80 53 77 133 206
Amortization of purchased intangibles 2,517 3,074 3,167 5,591 6,500
Restructuring costs 343 24 9,175 367 39,518
Transaction-related costs - - - - 156
Costs associated with CEO separation and related SEC

investigation

  64   335   381   399   991
Non-GAAP operating income $ 37,633 $ 41,734 $ 38,671 $ 79,367 $ 71,975
Non-GAAP operating margin 11.9 % 12.6 % 11.6 % 12.3 % 10.9 %
                       
 

POLYCOM, INC.

Summary of Stock-Based Compensation Expense

(In thousands)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30,

2015

          June 30,

2014

June 30,

2015

          June 30,

2014

Cost of product revenues $ 505 $ 520 $ 1,460 $ 1,160
Cost of service revenues   877   1,101   2,185   2,062
Stock-based compensation expense in total cost of revenues   1,382   1,621   3,645   3,222
Sales and marketing 2,698 5,333 5,311 5,724
Research and development 1,915 3,059 4,488 4,101
General and administrative   3,716   3,750   5,499   6,363
Stock-based compensation expense in operating expenses   8,329   12,142   15,298   16,188
Total stock-based compensation expense $ 9,711 $ 13,763 $ 18,943 $ 19,410


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