Polycom (



Q4 2011 Earnings Call

January 23, 2012 5:00 p.m. ET


Laura Graves - VP, Investor Relations

Andy Miller- President and CEO

Mike Kourey - Chief Financial Officer


Jim Suva – Citi

Jess Lubert – Wells Fargo Securities

Tim Long – Bank of Montreal

Jeff Kvaal – Barclays Capital

Troy Jensen – Piper Jaffrey

Kent Schofield - Goldman Sachs

Tavis McCourt - Morgan Keegan

Mark Sue – RBC Capital Markets

Sanjiv Wadhwani - Stifel Nicolaus

Jack Monti – UBS

Larry Harris – CL King

Rohit Chopra - Wedbush Securities

Jason Ader – William Blair



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Ladies and gentlemen, thank you for standing by. Welcome to Polycom’s Q4 2011 quarterly conference call. [Operator instructions.] I would now like to turn the conference call over to Laura Graves, vice president of investor relations. Please go ahead ma’am.

Laura Graves

Thank you very much. Hello and welcome everyone to Polycom’s fourth quarter 2011 conference call. I’m Laura Graves, Polycom’s vice president of investor relations and here with me are Andy Miller, our president and CEO, and Mike Kourey, our chief financial officer.

As with previous quarterly calls, Polycom is again augmenting today’s voice conference call with a video webcast. If you would like to receive the full webcast, please open your browser at this time and enter Polycom’s home page, which is Polycom.com, and click on the Q4 earnings call link.

For the analysts participating in the Q&A session, leave your voice call live so that you can use your conference call connection for the Q&A session at the end of our call. Please note that the Q&A is for financial analysts. We welcome all others to listen into the Q&A session.

Please note that this entire webcast, including Q&A, will be maintained on Polycom’s website for 12 months from today. Also, a link to the call will be provided on Twitter, Facebook and LinkedIn at Polycom.

During the course of this conference call, Andy and Mike will make forward-looking statements and present forward-looking visual materials regarding future events, anticipated future trends, future product offerings and the future performance of the company including financial guidance, strategic imperatives, and future business investments.

We wish to caution you that such statements and visual materials are just predications that involve risks and uncertainties and that actual events or results may differ materially. We discuss a number of these risks in our business in detail in the company’s SEC reports, including most recently in the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2011 and any forward-looking statements must be considered in the context of such risks and uncertainties.

Also, please note that Polycom’s application of US GAAP requires disclosures and the availability of new products, planned features and upgrades discussed during this call are subject to change or cancellation. In addition, we will be presenting both GAAP and non-GAAP financial measures here today. Please refer to our reconciliation of GAAP and non-GAAP financial measures in today’s earnings release, which is also posted on our website.

Now let me turn the call over to Polycom’s president and CEO, Andy Miller. Andy?

Andy Miller

Thank you Laura. I appreciate it. Good afternoon everyone. Polycom continued to execute aggressively against our strategic plan in the fourth quarter. We launched Polycom RealPresence Mobile software for the Apple iPad 2 and the leading Android devices. We launched new products that expanded our strategic alliance with Microsoft and our integration with the Microsoft Lync platform.

Last week, we announced our cloud strategy and took the next step in our growing partnership with IBM to deliver social business-based video. We announced our strategy agreement with Lenovo to deliver embedded Polycom video and voice solutions optimized for their line of laptops and tablets.

Earlier in Q4, we acquired ViVu, a video collaboration software company reinforcing Polycom’s cloud and software strategy. Financially, we generated strong operating results, both at the top and bottom line. In Q4, revenues grew 20% year over year and 7% sequentially to a record $407 million and non-GAAP operating profits grew 36% year over year. Non-GAAP operating margin expanded to 18.7%, and coupled with some tax benefits, Polycom generated a non-GAAP EPS of $0.41.

I’m delighted by these results, especially as we continue to fund long term strategic investments previously announced on our Q3 conference call. We exited the quarter with $226 million in deferred revenues, growing 41% year over year and 11% sequentially. This is the highest leverage of deferred revenue in Polycom’s history and could be attributed to the larger, more strategic deployments, as well as the services associated with sales of our RealPresence platform. Finally, we generated a record $122 million in quarterly operating cash flow in Q4. Mike will go through the financial results in detail later in this call.

Now let’s take a look at Polycom’s geographic growth dynamics. Polycom is thriving in the international markets. It is achieving major milestones in the realignment of North America. In fact, our growth rates increased in Europe and Asia-Pacific, both sequentially and year over year.

In Europe, or the EMEA theater, Polycom’s revenues grew 19% over Q3 and 28% year over year. This success, in spite of the challenging macroeconomic environment in Europe, is a testament to the value proposition delivered by Polycom’s video collaboration solutions. The hard dollar benefits of productivity and efficiency are matched by the soft dollar benefits of improved collaboration, better work relationships, and faster decision making.

As a result of these drivers, and excellent execution by the EMEA go-to-market team, we’re capturing subsequently growth in EMEA across a broad base of countries throughout the region. We experienced strong growth in major markets such as the UK, Germany, and the Nordics and delivered fast growth in the emerging EMEA markets such as Russia and the Middle East.

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