POLYCOM INC - FORM 8-K - EX-99.1

Attached files

file	filename
8-K - 8-K - POLYCOM INC	plcm-8k_20151021.htm

Exhibit 99.1

Investor Contact:		Ben Jones
		Polycom, Inc.
		1.408.586.4370
		ben.jones@polycom.com
Press Contact:		Michael Rose
		Polycom, Inc.
		1.408.586.3839
		michael.rose@polycom.com

Polycom Announces Third Quarter 2015 Financial Results

Non-GAAP Operating Margin grows 5 percent year-over-year

GAAP Operating Margin grows 16 percent year-over-year

SAN JOSE, Calif. – October 21, 2015 – Polycom, Inc. (Nasdaq: PLCM) today reported third quarter 2015 revenues of $303 million, non-GAAP net income of $29 million and non-GAAP earnings per diluted share of 21 cents. GAAP net income for the third quarter was $14 million, or 10 cents per diluted share on a GAAP basis. A reconciliation of GAAP to non-GAAP results is provided in the tables at the end of this press release.

“In the third quarter of 2015, we delivered non-GAAP earnings-per-share consistent with our expectations and achieved year-over-year growth in operating margins,” said Peter Leav, President and Chief Executive Officer. “Improving operational performance and making sound strategic investments remain top priorities for Polycom. Additionally, we are very excited about the game-changing products that we recently announced.”

“In the third quarter, Polycom generated $26 million in operating cash flow and repurchased $25 million of common stock under our current share repurchase program,” said Laura Durr, Chief Financial Officer and Executive Vice President. “We continue to be good stewards of our capital and remain focused on improving operational performance.”

On a comparative basis, consolidated financial results were:

($ in millions, except per share data)	Q3 2015		Q2 2015		Q3 2014		Year-Over-Year Change
Revenues	$	303.1	$	316.6	$	335.7		(10	)%
Non-GAAP Net Income	$	28.9	$	29.9	$	30.7		(6	)%
Non-GAAP EPS	$	0.21	$	0.22	$	0.22		(5	)%
GAAP Net Income	$	13.6	$	19.6	$	17.0		(20	)%
GAAP EPS	$	0.10	$	0.14	$	0.12		(17	)%

On a geographic basis, consolidated revenues were comprised of:

($ in millions)	Q3 2015			Q2 2015			Q3 2014			Year-Over-Year Change
Americas	$	148.2		$	158.3		$	166.4			(11	)%
% of revenues		49	%		50	%		50	%
Europe, Middle East & Africa (EMEA)		77.3			80.9			84.0			(8	)%
% of revenues		25	%		26	%		25	%
Asia Pacific		77.7			77.4			85.3			(9	)%
% of revenues		26	%		24	%		25	%
Totals *	$	303.1		$	316.6		$	335.7			(10	)%

* may not foot due to rounding

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

($ in millions)	Q3 2015			Q2 2015			Q3 2014			Year-Over-Year Change
UC Group Systems	$	184.9		$	195.2		$	217.3			(15	)%
% of revenues		61	%		62	%		65	%
UC Personal Devices		63.3			66.8			60.1			5	%
% of revenues		21	%		21	%		18	%
UC Platform		55.0			54.6			58.3			(6	)%
% of revenues		18	%		17	%		17	%
Totals *	$	303.1		$	316.6		$	335.7			(10	)%

* may not foot due to rounding

In Q3 2015, Polycom generated a total of $26 million in operating cash flow. Operating cash flow on a trailing 12 month basis was $180 million. Cash and investments at the end of Q3 2015 totaled $655 million, of which approximately $206 million is located in the United States. Net of existing debt, cash and investments at the end of Q3 2015 totaled $418 million.

Earnings Call Details

Polycom will hold a conference call today, October 21, 2015, at 5:00 p.m. ET/2:00 p.m. PT to discuss third quarter 2015 financial results and guidance for the fourth 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 +1.800.707.7561 and for callers outside of the United States and Canada, by calling +1.303.223.4363. A replay of the call will also be available at www.polycom.com/investors or, for callers in the United States and Canada, at +1.800.633.8284 and, for callers outside of the United States and Canada, at +1.402.977.9140. The access number for the replay is 21779325.

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, including statements regarding our top priorities, improving operating performance, and making sound strategic investments. 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 June 30, 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						Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Revenues:
Product revenues	$	211,318		$	240,059		$	666,901		$	708,133
Service revenues		91,792			95,627			283,484			288,096
Total revenues		303,110			335,686			950,385			996,229
Cost of revenues:
Cost of product revenues		91,272			101,399			288,293			296,745
Cost of service revenues		32,948			37,617			104,457			115,607
Total cost of revenues		124,220			139,016			392,750			412,352
Gross profit		178,890			196,670			557,635			583,877
Operating expenses:
Sales and marketing		86,915			97,953			267,207			289,757
Research and development		46,744			51,024			142,626			148,202
General and administrative		22,720			25,746			66,156			74,175
Amortization of purchased intangibles		2,399			2,435			7,233			7,363
Restructuring costs		213			(2,631	)		580			36,887
Litigation reserves and payments		—			3,130			—			3,130
Transaction-related costs		—			—			—			156
Total operating expenses		158,991			177,657			483,802			559,670
Operating income		19,899			19,013			73,833			24,207
Interest and other income (expense), net
Interest expense		(1,538	)		(1,470	)		(4,545	)		(4,404	)
Other income (expense), net		969			1,285			2,336			1,828
Interest and other income (expense), net		(569	)		(185	)		(2,209	)		(2,576	)
Income before provision for income taxes		19,330			18,828			71,624			21,631
Provision for income taxes		5,757			1,817			17,206			54
Net income	$	13,573		$	17,011		$	54,418		$	21,577

Basic net income per share:	$	0.10		$	0.12		$	0.41		$	0.16

Diluted net income per share:	$	0.10		$	0.12		$	0.40		$	0.15

Number of shares used in computation of net income per share:
Basic		132,944			136,606			133,926			137,139
Diluted		135,792			142,176			137,458			142,406

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, 2015			June 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
GAAP net income	$	13,573		$	19,647		$	17,011		$	54,418		$	21,577
Amortization of purchased intangibles		2,499			2,517			3,167			8,090			9,667
Restructuring costs		213			343			(2,631	)		580			36,887
Litigation reserves and payments		—			—			3,130			—			3,130
Transaction-related costs		—			—			—			—			156
Stock-based compensation expense		13,959			9,711			14,768			32,902			34,178
Effect of stock-based compensation on warranty rates		96			80			204			229			410
Costs associated with CEO separation and related SEC investigation		22			64			960			421			1,951
Income tax effect of non-GAAP exclusions		(1,451	)		(2,415	)		(5,865	)		(5,547	)		(21,545	)
Non-GAAP net income	$	28,911		$	29,947		$	30,744		$	91,093		$	86,411
GAAP net income per share
Basic	$	0.10		$	0.15		$	0.12		$	0.41		$	0.16
Diluted	$	0.10		$	0.14		$	0.12		$	0.40		$	0.15
Non-GAAP net income per share
Basic	$	0.22		$	0.22		$	0.22		$	0.68		$	0.63
Diluted	$	0.21		$	0.22		$	0.22		$	0.66		$	0.61
Number of shares used in computation of net income per share:
Basic		132,944			134,057			136,606			133,926			137,139
Diluted		135,792			137,347			142,176			137,458			142,406

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	September 30, 2015		December 31, 2014
ASSETS
Current assets
Cash and cash equivalents	$	412,453	$	443,132
Short-term investments		198,155		185,783
Trade receivables, net		156,075		169,400
Inventories		99,904		100,328
Deferred taxes		37,404		38,805
Prepaid expenses and other current assets		48,706		61,072
Total current assets		952,697		998,520
Property and equipment, net		107,646		109,195
Long-term investments		44,428		59,197
Goodwill and purchased intangibles, net		575,461		583,798
Deferred taxes		49,753		54,019
Other assets		24,400		26,493
Total assets	$	1,754,385	$	1,831,222
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	85,743	$	108,172
Accrued payroll and related liabilities		32,442		42,901
Taxes payable		5,913		4,056
Deferred revenue		172,465		173,532
Current portion of long-term debt		6,250		6,250
Other accrued liabilities		68,721		86,193
Total current liabilities		371,534		421,104
Long-term deferred revenue		81,224		89,366
Taxes payable		9,644		11,719
Deferred taxes		115		173
Long-term debt		231,250		235,938
Other non-current liabilities		30,940		49,189
Total liabilities		724,707		807,489
Stockholders' equity		1,029,678		1,023,733
Total liabilities and stockholders' equity	$	1,754,385	$	1,831,222

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2015			September 30, 2014
Cash flows from operating activities:
Net income	$	54,418		$	21,577
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		39,462			43,201
Amortization of purchased intangibles		8,140			9,724
Amortization of capitalized software development costs for products to be sold		2,174			1,269
Amortization of debt issuance costs		399			400
Amortization of discounts and premiums on investments, net		1,617			1,440
Provision for doubtful accounts		—			600
Write-down of excess and obsolete inventories		9,697			3,682
Stock-based compensation expense		32,902			34,178
Excess tax benefits from stock-based compensation expense		(4,068	)		(2,595	)
Loss on disposal of property and equipment		562			4,987
Changes in assets and liabilities:
Trade receivables		13,325			1,432
Inventories		(9,731	)		1,678
Deferred taxes		(2,494	)		(7,705	)
Prepaid expenses and other assets		11,726			(11,974	)
Accounts payable		(25,492	)		8,867
Taxes payable		11,030			7,178
Other accrued liabilities and deferred revenue		(54,622	)		(3,290	)
Net cash provided by operating activities		89,045			114,649
Cash flows from investing activities:
Purchases of property and equipment		(34,389	)		(36,847	)
Capitalized software development costs for products to be sold		(3,845	)		(3,069	)
Purchases of investments		(176,594	)		(220,575	)
Proceeds from sale of investments		11,168			40,709
Proceeds from maturities of investments		166,340			132,753
Net cash used in investing activities		(37,320	)		(87,029	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		21,683			23,407
Payments on debt		(4,687	)		(4,688	)
Purchase and retirement of common stock under share repurchase plan		(89,953	)		(25,000	)
Purchase and retirement of common stock for tax withholdings on vesting of employee stock-based awards		(13,515	)		(10,240	)
Excess tax benefits from stock-based compensation expense		4,068			2,595
Net cash used in financing activities		(82,404	)		(13,926	)
Net (decrease) increase in cash and cash equivalents		(30,679	)		13,694
Cash and cash equivalents, beginning of period		443,132			392,629
Cash and cash equivalents, end of period	$	412,453		$	406,323

POLYCOM, INC.

Selected Summary Data

(In millions except per share amounts and headcount)

(Unaudited)

	September 30, 2015		June 30, 2015		September 30, 2014
Balance Sheet Highlights
Cash and investments	$	655	$	660	$	643
Number of shares outstanding		132		133		136
Cash and investments per share	$	4.95	$	4.95	$	4.71
Debt	$	238	$	239	$	244
Operating cash flow - quarterly	$	26	$	33	$	34
Operating cash flow - trailing 12 months	$	180	$	188	$	164
DSO (Days Sales Outstanding)		47		46		49
Inventory turns - GAAP		5.0		5.2		5.7
Inventory turns - non-GAAP		4.9		5.2		5.6
Deferred revenue	$	254	$	260	$	257
Share repurchases:
Quarter-to-date share repurchases - shares		2.2		1.9		1.9
Quarter-to-date share repurchases - dollars	$	25	$	25	$	25
Year-to-date share repurchases - shares⁽¹⁾		7.0		4.8		3.4
Year-to-date share repurchases - dollars	$	90	$	65	$	25
Remaining authorization for share repurchases ⁽²⁾	$	60	$	85	$	175
Ending headcount		3,511		3,553		3,528

	For the Three Months Ended
	September 30, 2015			June 30, 2015			September 30, 2014
Income Statement Highlights
GAAP:
Revenues	$	303		$	317		$	336
Gross margin		59.0	%		58.7	%		58.6	%
Operating expenses	$	159		$	161		$	178
Operating margin		6.6	%		7.9	%		5.7	%
Diluted EPS	$	0.10		$	0.14		$	0.12
Non-GAAP:
Revenues	$	303		$	317		$	336
Gross margin		59.7	%		59.2	%		59.4	%
Operating expenses	$	144		$	150		$	161
Operating margin		12.1	%		11.9	%		11.5	%
Diluted EPS	$	0.21		$	0.22		$	0.22

(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									Nine Months Ended
	September 30, 2015			June 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
GAAP cost of revenues used in inventory turns	$	124,220		$	130,650		$	139,016		$	392,750		$	412,352
Stock-based compensation expense		(1,986	)		(1,382	)		(1,770	)		(5,631	)		(4,992	)
Effect of stock-based compensation expense on warranty rates		(96	)		(80	)		(204	)		(229	)		(410	)
Amortization of purchased intangibles		(100	)		(100	)		(732	)		(857	)		(2,304	)
Non-GAAP cost of revenues used in inventory turns	$	122,038		$	129,088		$	136,310		$	386,033		$	404,646
GAAP gross profit	$	178,890		$	185,925		$	196,670		$	557,635		$	583,877
Stock-based compensation expense		1,986			1,382			1,770			5,631			4,992
Effect of stock-based compensation expense on warranty rates		96			80			204			229			410
Amortization of purchased intangibles		100			100			732			857			2,304
Non-GAAP gross profit	$	181,072		$	187,487		$	199,376		$	564,352		$	591,583
Non-GAAP gross margin		59.7	%		59.2	%		59.4	%		59.4	%		59.4	%

GAAP sales and marketing expense	$	86,915		$	89,433		$	97,953		$	267,207		$	289,757
Stock-based compensation expense		(4,217	)		(2,698	)		(4,673	)		(9,528	)		(10,397	)
Non-GAAP sales and marketing expense	$	82,698		$	86,735		$	93,280		$	257,679		$	279,360
Non-GAAP sales and marketing expense as percent of revenues		27.3	%		27.4	%		27.8	%		27.1	%		28.0	%

GAAP research and development expense	$	46,744		$	46,545		$	51,024		$	142,626		$	148,202
Stock-based compensation expense		(2,725	)		(1,915	)		(3,203	)		(7,213	)		(7,304	)
Non-GAAP research and development expense	$	44,019		$	44,630		$	47,821		$	135,413		$	140,898
Non-GAAP research and development expense as percent of revenues		14.5	%		14.1	%		14.2	%		14.2	%		14.1	%

GAAP general and administrative expense	$	22,720		$	22,269		$	25,746		$	66,156		$	74,175
Stock-based compensation expense		(5,031	)		(3,716	)		(5,122	)		(10,530	)		(11,485	)
Costs associated with CEO separation and related SEC investigation		(22	)		(64	)		(960	)		(421	)		(1,951	)
Non-GAAP general and administrative expense	$	17,667		$	18,489		$	19,664		$	55,205		$	60,739
Non-GAAP general and administrative expense as percent of revenues		5.8	%		5.8	%		5.9	%		5.8	%		6.1	%

GAAP total operating expenses	$	158,991		$	161,007		$	177,657		$	483,802		$	559,670
Stock-based compensation expense		(11,973	)		(8,329	)		(12,998	)		(27,271	)		(29,186	)
Amortization of purchased intangibles		(2,399	)		(2,417	)		(2,435	)		(7,233	)		(7,363	)
Restructuring costs		(213	)		(343	)		2,631			(580	)		(36,887	)
Litigation reserves and payments		—			—			(3,130	)		—			(3,130	)
Transaction-related costs		—			—			—			—			(156	)
Costs associated with CEO separation and related SEC investigation		(22	)		(64	)		(960	)		(421	)		(1,951	)
Non-GAAP total operating expenses	$	144,384		$	149,854		$	160,765		$	448,297		$	480,997
Non-GAAP total operating expenses as percent of revenues		47.6	%		47.3	%		47.9	%		47.2	%		48.3	%

GAAP operating income	$	19,899		$	24,918		$	19,013		$	73,833		$	24,207
Stock-based compensation expense		13,959			9,711			14,768			32,902			34,178
Effect of stock-based compensation expense on warranty rates		96			80			204			229			410
Amortization of purchased intangibles		2,499			2,517			3,167			8,090			9,667
Restructuring costs		213			343			(2,631	)		580			36,887
Litigation reserves and payments		—			—			3,130			—			3,130
Transaction-related costs		—			—			—			—			156
Costs associated with CEO separation and related SEC investigation		22			64			960			421			1,951
Non-GAAP operating income	$	36,688		$	37,633		$	38,611		$	116,055		$	110,586
Non-GAAP operating margin		12.1	%		11.9	%		11.5	%		12.2	%		11.1	%

POLYCOM, INC.

Summary of Stock-Based Compensation Expense

(In thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Cost of product revenues	$	731	$	668	$	2,191	$	1,828
Cost of service revenues		1,255		1,102		3,440		3,164
Stock-based compensation expense in total cost of revenues		1,986		1,770		5,631		4,992
Sales and marketing		4,217		4,673		9,528		10,397
Research and development		2,725		3,203		7,213		7,304
General and administrative		5,031		5,122		10,530		11,485
Stock-based compensation expense in operating expenses		11,973		12,998		27,271		29,186
Total stock-based compensation expense	$	13,959	$	14,768	$	32,902	$	34,178

POLYCOM INC - FORM 8-K - EX-99.1 - October 21, 2015

Attached files

POLYCOM INC Reports