Polycom Announces Revenues of $336 Million for Third Quarter 2013

  • Americas revenues grow 4 percent year-over-year
  • UC Personal Devices revenues grow 24 percent year-over-year
  • $400 million return of capital program initiated

SAN JOSE, Calif.--()--Polycom, Inc. (Nasdaq: PLCM), the global leader in open, standards-based unified communication and collaboration (UC&C), today reported financial results for the third quarter ended September 30, 2013. Polycom reported third quarter 2013 net revenues of $336 million, non-GAAP net income of $19 million and non-GAAP earnings per diluted share of 11 cents. GAAP net income for the third quarter was a loss of $24 million, or 14 cents per share. A reconciliation of GAAP to non-GAAP results is provided in the tables at the end of this press release.

“Polycom’s financial performance in Q3 was on target with our expectations, driven by our U.S. Enterprise and voice related businesses, partially offset by a more challenging quarter in Asia Pacific,” stated Kevin Parker, Polycom’s Chairman and interim Chief Executive Officer. “We continue to prioritize those areas of the business that maximize growth, while also pursuing opportunities to reduce expenses and drive expanded profitability.”

“Our third quarter results demonstrate the diversity of our revenue base, including growth from voice and services,” continued Eric Brown, Polycom Chief Operating Officer and Chief Financial Officer. “We announced a new $400 million return of capital program, including a Term Loan A financing and a tender offer for our shares, and closed the quarter with trailing 12 month operating cash flow of $183 million.”

On a comparative basis, consolidated financial results were:

($ in millions, except per share data)   Q3 2013   Q2 2013   Q3 2012
Revenues $ 336.5 $ 345.2 $ 335.4
Non-GAAP Net Income $ 19.3 $ 25.9 $ 17.2
Non-GAAP EPS $ 0.11 $ 0.15 $ 0.10
GAAP Net Income (Loss) $ (24.0 ) $ 5.3 $ (14.8 )
GAAP EPS $ (0.14 ) $ 0.03 $ (0.08 )
 

On a geographic basis, consolidated net revenues were comprised of:

($ in millions)   Q3 2013   Q2 2013   Q3 2012  

Sequential
Change

 

Year-Over-
Year
Change

Americas $ 177.3 $ 175.6 $ 171.0 1% 4%
% of revenues 53% 51% 51%
Europe, Middle East & Africa (EMEA) 80.0 79.7 78.6 0% 2%
% of revenues 24% 23% 23%
Asia Pacific 79.2 89.9 85.9 -12% -8%
% of revenues   23%   26%   26%    
Totals * $ 336.5 $ 345.2 $ 335.4 -3% 0%
* may not foot due to rounding
 

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

($ in millions)   Q3 2013   Q2 2013   Q3 2012  

Sequential
Change

 

Year-Over-
Year
Change

UC Group Systems $ 221.4 $ 233.0 $ 225.8 -5% -2%
% of revenues 66% 67% 67%
UC Personal Devices 56.9 50.8 45.7 12% 24%
% of revenues 17% 15% 14%
UC Platform 58.2 61.4 63.9 -5% -9%
% of revenues   17%   18%   19%    
Totals * $ 336.5 $ 345.2 $ 335.4 -3% 0%
* may not foot due to rounding
 

In Q3 2013, Polycom generated a total of $36 million in operating cash flow. Operating cash flow on a trailing 12 month basis was $183 million. Cash and investments at the end of Q3 2013 totaled $954 million following the close of the $250 million Term Loan A facility. Deferred revenue was $260 million. Polycom repurchased $18 million of common stock in Q3 2013. As of September 30, 2013, Polycom has $400 million remaining in share repurchase authorization, inclusive of the $250 million Tender Offer launched on September 13, 2013, which will expire on October 30, 2013, unless extended.

Earnings Call Details

Polycom will hold a conference call today, October 23, 2013, at 4:30 p.m. EST/1:30 p.m. PST to discuss its third quarter 2013 financial results. Kevin Parker, Chairman and interim CEO, and Eric Brown, Chief Operating Officer and Chief Financial Officer, will host the call. You may participate by viewing the webcast at www.polycom.com/investors or, for callers in the U.S. and Canada, you may participate by calling 1.800.741.5804 and for callers outside of the U.S. and Canada, by calling 1.212.231.2912. 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 U.S. and Canada, at 1.800.633.8284 and, for callers outside of the U.S. and Canada, at 1.402.977.9140. The access number for the replay is 21675843. A replay of the call will be available on www.polycom.com for at least three months.

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 future growth, expense reduction and expanded profitability. 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 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 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 differing uses of capital; changes in key 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 June 30, 2013, 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 open, standards-based unified communications and collaboration (UC&C) solutions for voice and video collaboration, trusted by more than 415,000 customers around the world. Polycom solutions are powered by the Polycom® RealPresence® Platform, comprehensive software infrastructure and rich APIs that interoperate with the broadest set of communication, business, mobile and cloud applications and devices to deliver secure face-to-face video collaboration in any environment. Polycom and its ecosystem of over 7,000 partners provide truly unified communications solutions that deliver the best user experience, highest multi-vendor interoperability, and lowest TCO. Visit www.polycom.com or connect with us on Twitter, Facebook, and LinkedIn to learn how we're pushing the greatness of human collaboration forward.

© 2013 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 Nine Months Ended
September 30,
2013
September 30,
2012
September 30,
2013
September 30,
2012
Revenues:
Product revenues $ 242,515 $ 247,058 $ 740,066 $ 780,611
Service revenues   93,946     88,334     280,381     258,991  
Total revenues   336,461     335,392     1,020,447     1,039,602  
 
Cost of revenues:
Cost of product revenues 102,830 102,235 309,994 316,863
Cost of service revenues   38,587     36,799     114,714     106,123  
Total cost of revenues   141,417     139,034     424,708     422,986  
 
Gross profit   195,044     196,358     595,739     616,616  
 
Operating expenses:
Sales and marketing 107,292 117,853 325,663 348,041
Research and development 54,220 53,997 164,782 153,425
General and administrative 28,468 27,376 76,461 72,375
Amortization of purchased intangibles 2,487 2,512 7,535 7,318
Restructuring costs 24,887 6,171 34,639 21,829
Acquisition-related expenses   39     6,334     3,411     11,793  
Total operating expenses   217,393     214,243     612,491     614,781  
 
Operating income (loss) (22,349 ) (17,885 ) (16,752 ) 1,835
 
Interest expense (850 ) (287 ) (1,736 ) (470 )
Interest income and other income (expense)   (784 )   57     (1,041 )   (2,540 )
Interest and other income (expense), net (1,634 ) (230 ) (2,777 ) (3,010 )
 
Loss from continuing operations before provision for income taxes (23,983 ) (18,115 ) (19,529 ) (1,175 )
Provision for (benefit from) income taxes   (5 )   (2,709 )   (2,963 )   105  
Loss from continuing operations (23,978 ) (15,406 ) (16,566 ) (1,280 )
 
Income from operations of discontinued operations, net of taxes - 645 - 7,710
Gain from sale of discontinued operations, net of taxes   -     -     459     -  
Net income (loss) $ (23,978 ) $ (14,761 ) $ (16,107 ) $ 6,430  
 
 
Basic and diluted net income (loss) per share:
Loss per share from continuing operations $ (0.14 ) $ (0.09 ) $ (0.10 ) $ (0.01 )
Income per share from discontinued operations, net of taxes $ - $ - $ - $ 0.04
Gain per share from sale of discontinued operations, net of taxes $ -   $ -   $ -   $ -  
Basic net income (loss) per share $ (0.14 ) $ (0.08 ) $ (0.09 ) $ 0.04  
 
 
Number of shares used in computation of net income (loss) per share:
Basic and diluted   170,310     176,847     172,644     177,331  
Note:
Earnings per share amounts for continuing operations, discontinued operations and net income, as presented above, are calculated individually and may not sum due to rounding differences.
As a result of the net loss from continuing operations for all periods presented, all potentially issuable common shares have been excluded from the diluted shares used in the computation of earnings per share as their effect is anti-dilutive.
The tax provision and net income for the three and nine months ended September 30, 2012 have been revised from previously issued financial statements to correct an error. These adjustments were not considered material to previously issued financial statements. However, because of the significance of these adjustments to the current period, the Company has revised the prior periods contained herein. The adjustments had no impact on income before provision for income taxes or net cash flows.
 
POLYCOM, INC.
Reconciliation of GAAP to Non-GAAP Net Income
(In thousands, except per share amounts)
(Unaudited)
       
Three Months Ended Nine Months Ended
September 30,
2013
September 30,
2012
September 30,
2013
September 30,
2012
 
GAAP net income (loss) $ (23,978 ) $ (14,761 ) $ (16,107 ) $ 6,430
 
Income from discontinued operations, net of taxes - (645 ) - (7,710 )
Gain from sale of discontinued operations, net of taxes - - (459 ) -
Amortization of purchased intangibles 3,735 4,421 11,279 13,044
Restructuring costs 24,887 6,171 34,639 21,829
Acquisition-related expenses 39 6,334 3,411 11,793
Stock-based compensation expense 17,202 24,823 53,300 65,071
Effect of stock-based compensation on warranty rates 120 169 421 541
Severance costs associated with CFO retirement - - - 929
Legal costs associated with the indemnification of a former officer - 121 - 236
Costs associated with CEO separation and related SEC investigation 2,107 - 2,107 -
Income tax effect of non-GAAP exclusions   (4,826 )   (9,396 )   (20,088 )   (21,038 )
 
Non-GAAP net income $ 19,286   $ 17,237   $ 68,503   $ 91,125  
 
GAAP earnings per share
Basic and diluted $ (0.14 ) $ (0.08 ) $ (0.09 ) $ 0.04  
 
Non-GAAP earnings per share
Basic $ 0.11   $ 0.10   $ 0.40   $ 0.51  
Diluted $ 0.11   $ 0.10   $ 0.39   $ 0.51  
 
Number of shares used in computation of GAAP earnings per share:
Basic and diluted 170,310 176,847 172,644 177,331
 
Number of shares used in computation of non-GAAP earnings per share:
Basic 170,310 176,847 172,644 177,331
Diluted 173,992 178,292 176,241 179,276

Note: As a result of the GAAP net loss from continuing operations for all periods presented, all potentially issuable common shares have been excluded from the diluted shares used in the computation of GAAP earnings per share as their effect is anti-dilutive

 
POLYCOM, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
   
September 30,
2013
December 31,
2012
 
ASSETS
Current assets
Cash and cash equivalents $ 712,694 $ 477,073
Short-term investments 161,339 197,196
Trade receivables, net 175,223 194,654
Inventories 107,681 99,960
Deferred taxes 48,562 48,916
Prepaid expenses and other current assets   66,861   52,539
Total current assets 1,272,360 1,070,338
 
Property and equipment, net 122,379 133,319
Long-term investments 79,776 50,333
Goodwill and purchased intangibles 605,411 608,802
Deferred taxes 26,702 28,406
Other assets   28,864   21,238
Total assets $ 2,135,492 $ 1,912,436
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 91,136 $ 89,983
Accrued payroll and related liabilities 33,878 39,469
Taxes payable 4,880 4,736
Deferred revenue 172,056 158,482
Current portion of long term debt 6,250 -
Other accrued liabilities   71,592   63,018
Total current liabilities 379,792 355,688
 
Non-current liabilities
Deferred revenue 88,112 91,061
Long term debt 243,750 -
Taxes payable 14,926 15,598
Deferred taxes 229 236
Other non-current liabilities   34,381   22,079
Total liabilities 761,190 484,662
 
Stockholders' equity   1,374,302   1,427,774
Total liabilities and stockholders' equity $ 2,135,492 $ 1,912,436

The tax provision and net income for the year ended December 31, 2012 have been revised from previously issued financial statements to correct an error. These adjustments were not considered material to previously issued financial statements. However, because of the significance of these adjustments to the current period, the Company has revised the prior periods contained herein. The adjustments had no impact on income before provision for income taxes or net cash flows.

 
POLYCOM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
Nine Months Ended
September 30,
2013
September 30,
2012
 
Cash flows from operating activities:
Net income (loss) $ (16,107 ) $ 6,430

Adjustments to reconcile net income to net cash provided by operating activities:

Gain from sale of discontinued operations, net of tax (459 ) -
Depreciation and amortization 49,654 45,592
Amortization of purchased intangibles 11,335 15,878
Amortization of debt issue costs 52 -
Write-down of excess and obsolete inventories 5,625 5,297
Provision for doubtful accounts - 800
Stock-based compensation expense 53,300 66,256
Excess tax benefits from stock-based compensation (780 ) (9,587 )
Loss on disposals of property and equipment 3,658 3,502
 

Changes in assets and liabilities, net of the effect of acquisitions:

Trade receivables 21,857 20,435
Inventories (13,346 ) (13,858 )
Deferred taxes 2,058 (12,947 )
Prepaid expenses and other assets (18,915 ) 4,188
Accounts payable (1,118 ) (31,552 )
Taxes payable (4,006 ) 1,032
Other accrued liabilities   24,661     19,958  
Net cash provided by operating activities   117,469     121,424  
 
Cash flows from investing activities:
Purchases of property and equipment (41,793 ) (51,979 )
Purchases of investments (200,945 ) (212,377 )
Proceeds from sale of investments 21,802 37,794
Proceeds from maturities of investments 185,634 178,162
Net cash received from sale of discontinued operations 556 -
Net cash paid in purchase acquisitions   (7,974 )   (4,583 )
Net cash used in investing activities   (42,720 )   (52,983 )
 
Cash flows from financing activities:

Proceeds from issuance of common stock under employee option and stock purchase plans

23,326 24,362
Proceeds from debt, net of debt issue costs 247,582 -
Repurchase of common stock (110,816 ) (62,073 )
Excess tax benefits from stock-based compensation   780     9,587  
Net cash provided by (used in) financing activities   160,872     (28,124 )
 
Net increase in cash and cash equivalents 235,621 40,317
Cash and cash equivalents, beginning of period   477,073     375,441  
Cash and cash equivalents, end of period $ 712,694   $ 415,758  
 
POLYCOM, INC.
Selected Summary Data
(In millions except per share amounts and headcount)
(Unaudited)
     
September 30,
2013
June 30,
2013
September 30,
2012
Balance Sheet Highlights
 
Cash and investments $ 954 $ 694 $ 629
Number of shares outstanding 170 170 175
Cash and investments per share $ 5.60 $ 4.08 $ 3.59
Debt $ 250.00 $ - $ -
Operating cash flow - quarterly $ 36 $ 32 $ 48
Operating cash flow - trailing 12 months $ 183 $ 195 $ 243
DSO (Days Sales Outstanding) 47 54 51
Inventory turns - GAAP 5.3 5.7 5.4
Inventory turns - non-GAAP 5.1 5.6 5.2
Deferred revenues $ 260 $ 259 $ 249
Share repurchases:
Quarter-to-date share repurchases - shares 1.7 4.7 2.9
Quarter-to-date share repurchases - dollars $ 18 $ 50 $ 30
Year-to-date share repurchases - shares 9.8 8.1 4.7
Year-to-date share repurchases - dollars $ 102 $ 84 $ 50
Remaining authorization for share repurchases (1) $ 400 $ 89 $ 28
 
Ending headcount 3,789 3,844 3,733
 
 
For the three months ended
September 30,
2013
June 30,
2013
September 30,
2012
Income Statement Highlights
 
GAAP:
Revenues $ 336 $ 345 $ 335
Gross margin 58.0%

58.4%

58.5%
Operating expenses $ 217 $ 196 $ 214
Operating margin -6.6%

1.8%

-5.3%
Diluted EPS $ (0.14) $ 0.03 $ (0.08)
 
Non-GAAP:
Revenues $ 336 $ 345 $ 335
Gross margin 59.0%

59.5%

60.0%
Operating expenses $ 173 $ 173 $ 177
Operating margin 7.7%

9.5%

7.2%
Diluted EPS $ 0.11 $ 0.15 $ 0.10
(1)

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. On September 11, 2013, Polycom's Board of Directors authorized the repurchase of $400 million though a $250 million modified Dutch Auction self-tender offer and subsequent open market purchases of privately negotiated transactions. The program is expected to be funded by $150 million in cash and a $250 million term loan.

 
POLYCOM, INC.
Reconciliations of GAAP Measures to Non-GAAP Measures
(In thousands)
(Unaudited)
       
Three Months Ended Nine Months Ended
September 30,
2013
September 30,
2012
September 30,
2013
September 30,
2012
 
GAAP cost of revenues used in inventory turns $ 141,417 $ 139,034 $ 424,708 $ 422,986
Stock-based compensation expense (2,165 ) (2,889 ) (6,852 ) (7,672 )
Effect of stock-based compensation on warranty rates (120 ) (169 ) (421 ) (541 )
Amortization of purchased intangibles   (1,248 )   (1,909 )   (3,744 )   (5,726 )
Non-GAAP cost of revenues used in inventory turns $ 137,884   $ 134,067   $ 413,691   $ 409,047  
 
GAAP gross profit $ 195,044 $ 196,358 $ 595,739 $ 616,616
Stock-based compensation expense 2,165 2,889 6,852 7,672
Effect of stock-based compensation on warranty rates 120 169 421 541
Amortization of purchased intangibles   1,248     1,909     3,744     5,726  
Non-GAAP gross profit $ 198,577   $ 201,325   $ 606,756   $ 630,555  
Non-GAAP gross margin 59.0 % 60.0 % 59.5 % 60.7 %
 
GAAP sales and marketing expense $ 107,292 $ 117,853 $ 325,663 $ 348,041
Stock-based compensation expense   (5,889 )   (9,765 )   (19,742 )   (27,069 )
Non-GAAP sales and marketing expense $ 101,403   $ 108,088   $ 305,921   $ 320,972  
Non-GAAP sales and marketing expense as percent of revenues 30.1 % 32.2 % 30.0 % 30.9 %
 
GAAP research and development expense $ 54,220 $ 53,997 $ 164,782 $ 153,425
Stock-based compensation expense   (3,669 )   (5,409 )   (12,578 )   (14,808 )
Non-GAAP research and development expense $ 50,551   $ 48,588   $ 152,204   $ 138,617  
Non-GAAP research and development expense as percent of revenues 15.0 % 14.5 % 14.9 % 13.3 %
 
GAAP general and administrative expense $ 28,468 $ 27,376 $ 76,461 $ 72,375
Stock-based compensation expense (5,479 ) (6,760 ) (14,128 ) (15,522 )
Severance costs associated with CFO retirement - - - (929 )
Legal costs associated with the indemnification of a former officer - (121 ) - (236 )
Costs associated with CEO separation and related SEC investigation   (2,107 )   -     (2,107 )   -  
Non-GAAP general and administrative expense $ 20,882   $ 20,495   $ 60,226   $ 55,688  
Non-GAAP general and administrative expense as percent of revenues 6.2 % 6.1 % 5.9 % 5.4 %
 
GAAP total operating expenses $ 217,393 $ 214,243 $ 612,491 $ 614,781
Stock-based compensation expense (15,037 ) (21,934 ) (46,448 ) (57,399 )
Amortization of purchased intangibles (2,487 ) (2,512 ) (7,535 ) (7,318 )
Restructuring costs (24,887 ) (6,171 ) (34,639 ) (21,829 )
Acquisition-related expenses (39 ) (6,334 ) (3,411 ) (11,793 )
Severance costs associated with CFO retirement - - - (929 )
Legal costs associated with the indemnification of a former officer - (121 ) (236 )
Costs associated with CEO separation and related SEC investigation   (2,107 )   -     (2,107 )

-

 
Non-GAAP total operating expenses $ 172,836   $ 177,171   $ 518,351   $ 515,277  
Non-GAAP total operating expenses as percent of revenues 51.4 % 52.8 % 50.8 % 49.6 %
 
GAAP operating income (loss) $ (22,349 ) $ (17,885 ) $ (16,752 ) $

1,835

Stock-based compensation expense 17,202 24,823 53,300 65,071
Effect of stock-based compensation on warranty rates 120 169 421 541
Amortization of purchased intangibles 3,735 4,421 11,279 13,044
Restructuring costs 24,887 6,171 34,639 21,829
Acquisition-related expenses 39 6,334 3,411 11,793
Severance costs associated with CFO retirement - - - 929
Legal costs associated with the indemnification of a former officer - 121 - 236
Costs associated with CEO separation and related SEC investigation   2,107     -     2,107     -  
Non-GAAP operating income $ 25,741   $ 24,154   $ 88,405   $ 115,278  
Non-GAAP operating margin 7.7 % 7.2 % 8.7 % 11.1 %
 
POLYCOM, INC.
Summary of Stock-Based Compensation Expense
(In thousands)
(Unaudited)
       
Three Months Ended Nine Months Ended
September 30,
2013
September 30,
2012
September 30,
2013
September 30,
2012
 
Cost of sales - product $ 686 $ 969 $ 2,252 $ 2,720
Cost of sales - service   1,479   1,920   4,600   4,952
Stock-based compensation expense in cost of sales   2,165   2,889   6,852   7,672
 
Sales and marketing 5,889 9,765 19,742 27,069
Research and development 3,669 5,409 12,578 14,808
General and administrative   5,479   6,760   14,128   15,522
Stock-based compensation expense in operating expenses 15,037 21,934 46,448 57,399
       
Total stock-based compensation expense $ 17,202 $ 24,823 $ 53,300 $ 65,071

Contacts

Polycom, Inc.
Laura Graves, 1-408-586-4271 (Investors)
laura.graves@polycom.com
Shawn Dainas, 1-408-586-3768 (Press)
shawn.dainas@polycom.com

Release Summary

Polycom today reported financial results for the third quarter ended September 30, 2013.

Sharing

Contacts

Polycom, Inc.
Laura Graves, 1-408-586-4271 (Investors)
laura.graves@polycom.com
Shawn Dainas, 1-408-586-3768 (Press)
shawn.dainas@polycom.com