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Polycom Reports Fourth Quarter and Fiscal Year 2010 Earnings

PLEASANTON, CA--(Marketwire - 01/20/11) - Polycom, Inc. (NASDAQ:PLCM - News), a global leader in unified communications (UC), today reported its earnings for the fourth quarter ended Dec. 31, 2010.Fourth quarter 2010 consolidated net revenues were a record $340 million, compared to $268 million for the fourth quarter of 2009. GAAP net income for the fourth quarter of 2010 was $33 million, or 37 cents per diluted share, compared to $13 million, or 15 cents per diluted share, for the same period last year. Non-GAAP net income for the fourth quarter of 2010 was $43 million, or 49 cents per diluted share, compared to Non-GAAP net income of $28 million, or 33 cents per diluted share, for the fourth quarter of 2009.For the year ended Dec. 31, 2010, net revenues were $1.2 billion, compared to $967 million for the year ended Dec. 31, 2009. GAAP net income for the year ended Dec. 31, 2010 was $68 million, or 78 cents per diluted share, compared to GAAP net income of $50 million, or 58 cents per diluted share, for the same period last year. Non-GAAP net income for the year ended Dec. 31, 2010 was $133 million, or $1.50 per diluted share, compared to $102 million, or $1.19 per diluted share, for the same period last year.The reconciliation between GAAP net income and Non-GAAP net income is provided in the tables at the end of this release.On a geographic basis, consolidated net revenues for the fourth quarter of 2010 were comprised of:

 
-- 53 percent Americas, or $181 million;
-- 25 percent Europe, Middle East and Africa, or $86 million; and
-- 22 percent Asia Pacific, or $73 million.

On a geographic basis, consolidated net revenues for the fourth quarter of 2009 were comprised of:

 
-- 53 percent Americas, or $143 million;
-- 26 percent Europe, Middle East and Africa, or $70 million; and
-- 21 percent Asia Pacific, or $55 million.

"The fourth quarter capped a transformative year for Polycom in which we successfully launched and executed an ambitious plan to seize the opportunities in UC and establish our presence as market leader and ecosystem partner of choice," said Andrew Miller, Polycom president and CEO. "These efforts yielded impressive results for 2010, including accelerating revenue growth, market gains, breakthrough innovations, new strategic partnerships and expanding margins. Importantly, our momentum continued in the fourth quarter, driven by back-to-back gains in network infrastructure sales and broad-based revenue growth in each of our geographic theatres and major product lines.""As we turn to 2011, we believe Polycom is best positioned to deliver an intuitive UC experience at work, in the home, or while mobile. Through our Polycom Open Collaboration Network, we will continue to develop integrated UC solutions with leading platforms including Microsoft Lync, IBM Lotus Sametime, and HP Network Solutions. With the recent introduction of Polycom's Open Exchange Consortium and our partnerships with AT&T, Verizon, BT, China Unicom and many other leading service providers, we will deliver a cloud-based solution, for not just enterprise and government, but also penetrate the significant opportunity in the small-to-medium business and connected home arena as well. Finally, expect to see Polycom's UC solution present on many of the key mobile platforms as evidenced by our initial alliance with Samsung on its Galaxy Tab Android-based device.""In summary, 2011 promises to be a year of significant revenue growth, expanding operating margins, and Polycom's delivery of what we refer to as UC Everywhere. With our customers demanding Polycom's UC solution at unprecedented levels, coupled with our strong and growing brand and channel, we believe we are best positioned to be the go-to provider of UC solutions. Looking forward, we plan to continue to deliver innovations that transform the way that individuals and organizations communicate and collaborate both professionally and socially," concluded Miller."We are pleased with another consecutive quarter of sharp revenue growth," said Michael Kourey, Polycom executive vice president, finance and administration, and CFO. "Driven by network infrastructure growth of 20 percent sequentially and 25 percent year-over-year and record demand for Polycom's entire solution, both gross and operating margins again expanded year-over-year. As a result of these strong operating results and effective working capital management, we generated fourth quarter positive operating cash flow of $42 million, exiting the fourth quarter with $536 million in cash and investments and no debt."About PolycomPolycom, Inc. (NASDAQ:PLCM - News) is a global leader in unified communications solutions with industry-leading telepresence, video, voice and infrastructure solutions built on open standards. Polycom powers smarter conversations, transforming lives and businesses worldwide. Please visit www.polycom.com for more information or connect with Polycom on Twitter, Facebook, and LinkedIn .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 our expectations for 2011, Polycom as being best positioned to deliver an intuitive UC experience and to be the go-to provider of UC solutions, the future development of integrated UC solutions with leading platforms, future cloud-based solutions and expansion into the small-to-medium business and home markets, future UC solutions on key mobile platforms, continued innovation, and significant revenue growth, expanding operating margins and the delivery of UCEverywhere(SM) by Polycom. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the fact that the Company's continuing strategic investment plan may not yield the intended results or may take longer than originally anticipated to achieve such results, the impact of competition on our product sales and for our customers and partners, the impact of increased competition due to consolidation in our industry or competition from companies that are larger or that have greater resources than we do, potential fluctuations in results and future growth rates, risks associated with general economic conditions and external market factors, the market acceptance of 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 that may cause disruption to the business, any disruptive impact to the Company that may result from the new executive hires, the impact of restructuring actions, and the impact of global conflicts that may adversely impact our business. Many of these risks and uncertainties are discussed in the Company's Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2010, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.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.Earnings Call DetailsAs has been noted on the Company's web site since Jan. 6, 2011, Polycom will hold a conference call today, Jan. 20, 2011, at 5 p.m. EST/2 p.m. PST to discuss its fourth quarter earnings. Andrew Miller, 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/investors or, for callers in the US and Canada, by calling 800.769.7315; and for callers outside of the US and Canada, by calling 212.231.2900. The pass code for the call is "Polycom." A replay of the call will also be available at www.polycom.com or, for callers in the US and Canada, at 800.633.8284; and for callers outside of the US and Canada, at 402.977.9140. The access number for the replay is 21506809. A replay of the call will also be available on www.polycom.com for approximately 12 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.© 2011 Polycom, Inc. All rights reserved. POLYCOM®, the Polycom "Triangles" logo and the names and marks associated with Polycom's products are trademarks and/or service marks of Polycom, Inc. and are registered and/or common law marks in the United States and various other countries. All other trademarks are property of their respective owners.

 
POLYCOM, INC.
GAAP to Non-GAAP Reconciliation
(In thousands, except per share amounts)
(Unaudited)





Three Months Ended
-----------------------------
December 31, 2010
-----------------------------
GAAP Excluded Non-GAAP
-------- -------- --------

Revenues:
Product revenues $282,607 $ - $282,607
Service revenues 57,024 - 57,024
-------- -------- --------
Total revenues 339,631 - 339,631
-------- -------- --------

Cost of revenues:
Cost of product revenues 109,856 4,092(a) 105,764
Cost of service revenues 26,830 952(b) 25,878
-------- -------- --------
Total cost of revenues 136,686 5,044 131,642
-------- -------- --------

Gross profit 202,945 (5,044) 207,989
-------- -------- --------

Operating expenses:
Sales and marketing 104,717 5,928(b) 98,789
Research and development 40,568 2,479(b) 38,089
General and administrative 19,034 3,918(c) 15,116
Amortization of purchased
intangibles 1,380 1,380 -
Restructuring costs 1,565 1,565 -
Litigation reserves and payments - - -
-------- -------- --------
Total operating expenses 167,264 15,270 151,994
-------- -------- --------

Operating income 35,681 (20,314) 55,995

Other income (expense), net 159 - 159
-------- -------- --------

Income before provision for income
taxes 35,840 (20,314) 56,154
Provision for income taxes 2,714 (10,200)(e) 12,914
-------- -------- --------
Net income $ 33,126 $(10,114) $ 43,240
======== ======== ========

Basic net income per share $ 0.38 $ (0.12) $ 0.50
======== ======== ========

Diluted net income per share $ 0.37 $ (0.12) $ 0.49
======== ======== ========

Weighted average shares outstanding
for basic net income per share 86,189 86,189
======== ========

Weighted average shares outstanding
for diluted net income per share 89,148 89,148
======== ========





Twelve Months Ended
----------------------------------
December 31, 2010
----------------------------------
GAAP Excluded Non-GAAP
---------- -------- ----------

Revenues:
Product revenues $1,010,955 $ - $1,010,955
Service revenues 207,534 - 207,534
---------- -------- ----------
Total revenues 1,218,489 - 1,218,489
---------- -------- ----------

Cost of revenues:
Cost of product revenues 401,319 16,402(a) 384,917
Cost of service revenues 101,220 3,940(b) 97,280
---------- -------- ----------
Total cost of revenues 502,539 20,342 482,197
---------- -------- ----------

Gross profit 715,950 (20,342) 736,292
---------- -------- ----------

Operating expenses:
Sales and marketing 387,208 26,586(b) 360,622
Research and development 148,991 10,266(b) 138,725
General and administrative 74,661 16,931(c) 57,730
Amortization of purchased
intangibles 5,647 5,647 -
Restructuring costs 8,139 8,139 -
Litigation reserves and payments 1,235 1,235 -
---------- -------- ----------
Total operating expenses 625,881 68,804 557,077
---------- -------- ----------

Operating income 90,069 (89,146) 179,215

Other income (expense), net (7,772) (5,324)(d) (2,448)
---------- -------- ----------

Income before provision for income
taxes 82,297 (94,470) 176,767
Provision for income taxes 13,888 (30,311)(e) 44,199
---------- -------- ----------
Net income $ 68,409 $(64,159) $ 132,568
========== ======== ==========

Basic net income per share $ 0.80 $ (0.75) $ 1.55
========== ======== ==========

Diluted net income per share $ 0.78 $ (0.72) $ 1.50
========== ======== ==========

Weighted average shares outstanding
for basic net income per share 85,331 85,331
========== ==========

Weighted average shares outstanding
for diluted net income per share 88,185 88,185
========== ==========


(a) For the three months ended December 31, 2010, the excluded amount
includes $3,351 related to the amortization of purchased intangibles
for core and existing technologies, $620 for stock-based compensation
expense recorded during the period and $121 related to the effect of
stock-based compensation on warranty expense rates. For the twelve
months ended December 31, 2010, the excluded amount includes $13,347
related to the amortization of purchased intangibles for core and
existing technologies, $2,588 for stock-based compensation expense
recorded during the period and $467 related to the effect of
stock-based compensation on warranty expense rates.
(b) Excluded amount represents stock-based compensation expense recorded
during the period.
(c) For the three months ended December 31, 2010, the excluded amount
includes $3,789 for stock-based compensation expense recorded during
the period and $129 for costs associated with the CEO transition in
May 2010. For the twelve months ended December 31, 2010, the excluded
amount includes $12,797 for stock-based compensation expense recorded
during the period and $4,134 for severance, legal and other costs
associated with the CEO transition in May 2010.
(d) For the twelve months ended December 31, 2010, the excluded amount
represents the loss recognized during the period on preferred
securities considered to be other than temporarily impaired, net of
any subsequent realized gains.
(e) For the three and twelve months ended December 31, 2010, the excluded
amount represents the tax impact on expenses which are excluded in
items (a)-(d) above, as well as $8,008 related to a one-time provision
true-up during the quarter.


POLYCOM, INC.
GAAP to Non-GAAP Reconciliation
(In thousands, except per share amounts)
(Unaudited)





Three Months Ended
------------------------------
December 31, 2009
------------------------------
GAAP Excluded Non-GAAP
-------- -------- --------


Revenues:
Product revenues $220,840 $ - $220,840
Service revenues 47,024 - 47,024
-------- -------- --------
Total revenues 267,864 - 267,864
-------- -------- --------

Cost of revenues:
Cost of product revenues 92,918 3,972(a) 88,946
Cost of service revenues 21,743 720(b) 21,023
-------- -------- --------
Total cost of revenues 114,661 4,692 109,969
-------- -------- --------

Gross profit 153,203 (4,692) 157,895
-------- -------- --------

Operating expenses:
Sales and marketing 81,707 3,472(b) 78,235
Research and development 32,043 2,589(c) 29,454
General and administrative 14,138 1,724(b) 12,414
Amortization of purchased intangibles 1,456 1,456 -
Restructuring costs 4,459 4,459 -
Litigation reserves and payments - - -
-------- -------- --------
Total operating expenses 133,803 13,700 120,103
-------- -------- --------

Operating income 19,400 (18,392) 37,792

Other expense, net (92) - (92)
-------- -------- --------


Income before provision for income taxes 19,308 (18,392) 37,700
Provision for income taxes 6,485 (2,797) 9,282
-------- -------- --------
Net income $ 12,823 $(15,595) $ 28,418
======== ======== ========

-------- -------- --------
Basic net income per share $ 0.15 $ (0.19) $ 0.34
======== ======== ========

-------- -------- --------
Diluted net income per share $ 0.15 $ (0.18) $ 0.33
======== ======== ========

Weighted average shares outstanding for
basic net income per share 84,432 84,432
======== ========

Weighted average shares outstanding for
diluted net income per share 86,732 86,732
======== ========





Twelve Months Ended
------------------------------
December 31, 2009
------------------------------
GAAP Excluded Non-GAAP
-------- -------- --------


Revenues:
Product revenues $791,508 $ - $791,508
Service revenues 175,476 - 175,476
-------- -------- --------
Total revenues 966,984 - 966,984
-------- -------- --------

Cost of revenues:
Cost of product revenues 335,696 16,807(a) 318,889
Cost of service revenues 82,312 2,830(b) 79,482
-------- -------- --------
Total cost of revenues 418,008 19,637 398,371
-------- -------- --------

Gross profit 548,976 (19,637) 568,613
-------- -------- --------

Operating expenses:
Sales and marketing 285,312 10,525(b) 274,787
Research and development 117,575 8,019(c) 109,556
General and administrative 54,011 7,466(b) 46,545
Amortization of purchased intangibles 5,800 5,800 -
Restructuring costs 15,935 15,935 -
Litigation reserves and payments 700 700 -
-------- -------- --------
Total operating expenses 479,333 48,445 430,888
-------- -------- --------

Operating income 69,643 (68,082) 137,725

Other expense, net (2,087) - (2,087)
-------- -------- --------


Income before provision for income taxes 67,556 (68,082) 135,638
Provision for income taxes 17,677 (16,043) 33,720
-------- -------- --------
Net income $ 49,879 $(52,039) $101,918
======== ======== ========

-------- -------- --------
Basic net income per share $ 0.59 $ (0.62) $ 1.21
======== ======== ========

-------- -------- --------
Diluted net income per share $ 0.58 $ (0.61) $ 1.19
======== ======== ========

Weighted average shares outstanding for
basic net income per share 84,000 84,000
======== ========

Weighted average shares outstanding for
diluted net income per share 85,559 85,559
======== ========


(a) For the three months ended December 31, 2009, the excluded amount
includes $3,404 related to the amortization of purchased intangibles
for core and existing technologies, $449 for stock-based compensation
expense recorded during the period and $119 related to the effect of
stock-based compensation on warranty expense rates. For the twelve
months ended December 31, 2009, the excluded amount includes $13,472
related to the amortization of purchased intangibles for core and
existing technologies, $1,050 related to past license fees claims,
$1,886 for stock-based compensation expense recorded during the period
and $399 related to the effect of stock-based compensation on warranty
expense rates.
(b) Excluded amount represents stock-based compensation expense recorded
during the period.
(c) For the three months endeded December 31, 2009, the excluded amount
includes $2,220 related to stock-based compensation expense recorded
during the period and $369 related to severance, legal and other
benefits due under the Severance Agreement and Release between the
Company and Sunil K. Bhalla dated November 25, 2009. For the twelve
months ended December 31, 2009, the excluded amount includes $7,650
related to stock based compensation expense recorded during the period
and $369 related to severance, legal and other benefits due under the
Severance Agreement and Release between the Company and Sunil K. Bhalla
dated November 25, 2009.



POLYCOM, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)





December 31, December 31,
2010 2009
------------- -------------

ASSETS
Current assets
Cash and cash equivalents $ 324,188 $ 331,098
Investments 170,154 123,686
Trade receivables, net 154,507 132,813
Inventories 113,994 76,863
Deferred taxes 32,357 23,824
Prepaid expenses and other current assets 41,884 24,299
------------- -------------
Total current assets 837,084 712,583

Property and equipment, net 110,321 81,252
Long-term investments 41,316 12,687
Goodwill 493,105 495,299
Purchased intangibles, net 26,580 46,255
Deferred taxes 18,388 23,943
Other assets 20,611 13,882
------------- -------------
Total assets $ 1,547,405 $ 1,385,901
============= =============



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 90,890 $ 87,233
Accrued payroll and related liabilities 35,222 23,707
Taxes payable - 617
Deferred revenue 104,919 79,504
Other accrued liabilities 54,651 52,360
------------- -------------
Total current liabilities 285,682 243,421

Non-current liabilities
Deferred revenue 55,292 46,787
Taxes payable 16,690 27,111
Deferred taxes 2,057 2,702
Other long-term liabilities 12,714 12,027
------------- -------------
Total liabilities 372,435 332,048

Stockholders' equity 1,174,970 1,053,853
------------- -------------
Total liabilities and stockholders'
equity $ 1,547,405 $ 1,385,901
============= =============



POLYCOM, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)





Three Months Ended Twelve Months Ended
----------------------- ----------------------
December December December December
31, 31, 31, 31,
2010 2009 2010 2009
----------- ---------- ---------- ----------


Revenues:
Product revenues $ 282,607 $ 220,840 $1,010,955 $ 791,508
Service revenues 57,024 47,024 207,534 175,476
----------- ---------- ---------- ----------
Total revenues 339,631 267,864 1,218,489 966,984
----------- ---------- ---------- ----------

Cost of revenues:
Cost of product
revenues 109,856 92,918 401,319 335,696
Cost of service
revenues 26,830 21,743 101,220 82,312
----------- ---------- ---------- ----------
Total cost of
revenues 136,686 114,661 502,539 418,008
----------- ---------- ---------- ----------

Gross profit 202,945 153,203 715,950 548,976
----------- ---------- ---------- ----------

Operating expenses:
Sales and marketing 104,717 81,707 387,208 285,312
Research and
development 40,568 32,043 148,991 117,575
General and
administrative 19,034 14,138 74,661 54,011
Amortization of
purchased intangibles 1,380 1,456 5,647 5,800
Restructuring costs 1,565 4,459 8,139 15,935
Litigation reserves and
payments - - 1,235 700
----------- ---------- ---------- ----------
Total operating
expenses 167,264 133,803 625,881 479,333
----------- ---------- ---------- ----------

Operating income 35,681 19,400 90,069 69,643

Other income (expense),
net 159 (92) (7,772) (2,087)
----------- ---------- ---------- ----------

Income before provision
for income taxes 35,840 19,308 82,297 67,556
Provision for income taxes 2,714 6,485 13,888 17,677
----------- ---------- ---------- ----------
Net income $ 33,126 $ 12,823 $ 68,409 $ 49,879
=========== ========== ========== ==========

----------- ---------- ---------- ----------
Basic net income per share $ 0.38 $ 0.15 $ 0.80 $ 0.59
=========== ========== ========== ==========

----------- ---------- ---------- ----------
Diluted net income per
share $ 0.37 $ 0.15 $ 0.78 $ 0.58
=========== ========== ========== ==========

Weighted average shares
outstanding for basic
net income per share 86,189 84,432 85,331 84,000
=========== ========== ========== ==========

Weighted average shares
outstanding for diluted
net income per share 89,148 86,732 88,185 85,559
=========== ========== ========== ==========



Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Twelve Months
Ended
------------------
December December
31, 31,
2010 2009
-------- --------


Cash flows from operating activities:
Net income $ 68,409 $ 49,879
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 41,440 34,075
Amortization of purchased intangibles 18,994 19,268
Provision for doubtful accounts - 247
Provision for excess and obsolete inventories 5,712 3,830
Non-cash stock-based compensation 56,177 30,358
Excess tax benefits from stock-based compensation (11,618) (3,082)
Write down of investments other than temporarily
impaired 6,530 -
Loss on disposals of property and equipment 143 706

Changes in assets and liabilities:
Trade receivables (21,694) (6,563)
Inventories (42,843) 9,037
Deferred taxes (3,537) 2,223
Prepaid expenses and other assets (29,537) 8,474
Accounts payable 3,657 29,502
Taxes payable 2,770 2,222
Other accrued liabilities 48,797 588
-------- --------
Net cash provided by operating activities 143,400 180,764
-------- --------

Cash flows from investing activities:
Purchase of property and equipment (69,331) (37,766)
Purchases of investments (374,946) (538,440)
Proceeds from sale of investments 102,079 332,518
Proceeds from maturity of investments 199,622 224,213
-------- --------
Net cash used in investing activities (142,576) (19,475)
-------- --------

Cash flows from financing activities:
Proceeds from issuance of common stock
under employee option and stock purchase plans 64,854 36,497
Repurchase of common stock (84,206) (35,439)
Excess tax benefits from stock-based
compensation 11,618 3,082
-------- --------
Net cash provided by (used in) financing activities (7,734) 4,140
-------- --------

Net increase (decrease) in cash and cash equivalents (6,910) 165,429
Cash and cash equivalents, beginning of period 331,098 165,669
-------- --------
Cash and cash equivalents, end of period $324,188 $331,098
======== ========