Polycom Inc. ( PLCM)

Q3 2011 Earnings Conference Call

October 19, 2011 5:00 PM ET


Laura Graves – VP, IR

Andy Miller – President and CEO

Mike Kourey – CFO


Jeff Kvaal – Barclays Capital

Jess Lubert – Wells Fargo Securities

Troy Jensen – Piper Jaffrey

Mark Sue – RBC Capital Markets

Jason Ader – William Blair

Jack Monti – UBS

Joanna Makris – Mizuho Securities

Jim Suva – Citi

Tim Long – Bank of Montreal

Larry Harris – CL King



Ladies and gentlemen, thank you for standing by. Welcome to Polycom’s Q3 2011, quarterly results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference call is being recorded Wednesday, October 19, 2011. I would now like to turn the call over to Laura Graves, VP Investor Relations, please go ahead ma’am.

Laura Graves

Thank you very much operator. Hello and welcome everyone to Polycom’s third quarter 2011 earnings 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 the previous quarterly calls, Polycom is again augmenting today’s voice conference 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 Q3 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 do 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.com.

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 our company including financial guidance, strategic initiatives and future investments in the business.

We wish to caution you that such statements and visual materials are just predications that involve risks and uncertainties and that actual results may differ materially. We discuss a number of these risks in our business in detail on the company’s SEC reports, including most recently in the company’s quarterly report on Form 10-Q for the quarter ended June 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 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 measure to you today. Please refer to reconciliation of GAAP and non-GAAP financial measures in today’s earnings release which is also posted on our website. Now with that, let me turn the call over to Polycom’s President and CEO, Mr. Andy Miller. Andy?

Andy Miller

Thank you, Laura and good afternoon everyone. Strategically, this was an outstanding quarter for Polycom as we continued to execute on our five pillar strategy focused on cloud, mobility our UC ecosystem, innovation and our software platform. For example in Q3, we unveiled our software strategy with Polycom’s RealPresence platform. We completed our acquisition of Hewlett-Packard’s Visual Collaboration business, substantially increasing our position in the immersive telepresence space. We launched Polycom RealPresence mobile for Apple’s iPad in the leading android platform.

We announced a new partnership with Jive Software to integrate Polycom HD video into Jive’s social business platform and just earlier this week, we announced the acquisition of ViVu further enhancing our position in the web and cloud-based video collaboration. Financially, we generated solid operating results at both the top and bottom line.

In Q3, we achieved record revenues of $379 million, growing 23% year-over-year and 4% sequentially with non-GAAP operating profit growing 32% year-over-year. Non-GAAP operating margin was 15.2% and non-GAAP EPS was $0.26. We exited the quarter with $205 million in deferred revenues, up 39% year-over-year and 9% sequentially. Finally, we generated $47 million in quarterly operating cash flows.

Looking at the specific dynamics of our third quarter and what we expect in Q4, I’d like to highlight the following

First our strategy of aggressively pursuing emerging growth markets is achieving excellent results. In fact, emerging or growth geographies which includes China, India, Russia, Latin America, Middle East and Africa, grew a significant 58% year-over-year in the third quarter.

Our growth geography strategy is clearly yielding excellent results and now represents 24% of our consolidated revenues. Second, we also noted previously that we are implementing coverage plans to improve our footprint in Central Europe and that is yielding excellent results, especially in the large and important markets of Germany. Third and very importantly, we embarked on a two year journey in 2009 to invest in a US Federal sector through sales coverage, a greatly expanded Washington DC presence, new relationships with the federal systems integrators and the certifications required to participate fully with the DOD agencies.

I’m pleased to report that this is coming to fruition. In Q3 we’ve got the first installment of the market gains and revenue opportunity we expect with this large and important vertical. In fact, US Federal bookings grew 120% sequentially and nearly 40% year-over-year in the third quarter. One key highlight here is, over a $1 million transaction, competitive win of a large US military, forward to four days in Southwest Asia, enabled by our recertification, this organization procured Polycom’s RealPresence platform for their command and control.

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