Polycom, Inc . (Nasdaq: PLCM) today reported second quarter 2016 revenues of $288 million. On a GAAP basis, Polycom reported a net loss of $10 million, or 7 cents per share for the second quarter 2016. On a non-GAAP basis, Polycom reported net income of $29 million and earnings of 21 cents per diluted share. Polycom's quarterly reconciliation of GAAP to non-GAAP performance is provided in the tables at the end of this press release.

"Polycom delivered solid operating performance despite a more challenging top line," said Peter Leav, President and Chief Executive Officer. "Asia Pacific posted strong sequential growth, driven by higher revenues in China and Australia."
($ in millions, except per share data)             Q2 2016
Revenues $ 287.8
GAAP gross profit margin 56.0 %
GAAP operating expenses $ 162.7
GAAP operating margin (0.5 )%
GAAP EPS $ (0.07 )
 
Non-GAAP gross profit margin 57.4 %
Non-GAAP operating expenses $ 128.7
Non-GAAP operating margin 12.7 %
Non-GAAP EPS $ 0.21

"Polycom continued to exhibit sound financial management," said Laura Durr, Chief Financial Officer. "We continue to generate positive operating cash flow and ended the quarter with $722 million in cash and investments."

On a comparative basis, consolidated financial results were:

($ in millions, except per share data)       Q2 2016       Q1 2016         Q2 2015         Quarter-Over-Quarter Change       Year-Over-Year Change
Revenues $ 287.8 $ 290.1 $ 316.6   (1 )%   (9 )%
GAAP net (loss) income $ (10.0 ) $ 3.3 $ 19.6 (403 )% (151 )%
GAAP EPS $ (0.07 ) $ 0.02 $ 0.14 (450 )% (150 )%
Non-GAAP net income $ 29.4 $ 25.7 $ 29.9 14 % (2 )%
Non-GAAP EPS $ 0.21 $ 0.19 $ 0.22 11 % (5 )%

The Americas declined both sequentially and year-over-year. Sequential and year-over-year results for EMEA were primarily impacted by foreign exchange. Asia Pacific grew sequentially as a result of growth in China and Australia, but was down on a year-over-year basis.

In terms of product category results, UC Group revenues declined sequentially and year-over-year, primarily as a result of lower UC Group revenues in the Americas and EMEA regions. UC Personal revenue increased sequentially and year-over-year. UC Platform revenue grew sequentially as a result of China, which had higher overall revenue this quarter.

On a geographic basis, consolidated revenues were comprised of:
($ in millions)         Q2 2016       Q1 2016       Q2 2015     Quarter-Over-Quarter Change   Year-Over-Year Change
Americas $ 142.0 $ 155.5 $ 158.3     (9 )%       (10 )%
% of total revenues 49 % 54 % 50 %
Europe, Middle East & Africa

(EMEA)
72.7 73.5 80.9 (1 )% (10 )%
% of total revenues 25 % 25 % 26 %
Asia Pacific 73.1 61.1 77.4 20 % (6 )%
% of total revenues   26 %   21 %   24 %
Totals * $ 287.8 $ 290.1 $ 316.6 (1 )% (9 )%

* may not foot due to rounding

By product category, inclusive of its service component, consolidated revenues were comprised of:
($ in millions)           Q2 2016       Q1 2016       Q2 2015       Quarter-Over-Quarter Change       Year-Over-Year Change
UC Group Systems $ 171.4 $ 178.9 $ 195.2   (4 )%   (12 )%
% of total revenues 60 % 62 % 62 %
UC Personal Devices 68.8 67.8 66.8 1 % 3 %
% of total revenues 24 % 23 % 21 %
UC Platform 47.6 43.4 54.6 10 % (13 )%
% of total revenues   16 %   15 %   17 %
Totals * $ 287.8 $ 290.1 $ 316.6 (1 )% (9 )%

* may not foot due to rounding

In the second quarter of 2016, Polycom generated a total of $19 million in operating cash flow. Cash and investments at the end of the second quarter of 2016 totaled $722 million, of which approximately $297 million is located in the United States. Net of existing debt, cash and investments at the end of the second quarter of 2016 totaled $490 million.

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 future profitability and operating cash flow. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the impact on our business of the recent announcement regarding the proposed acquisition of Polycom by entities affiliated with Siris Capital Group, LLC, 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 our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

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 (loss) income and (loss) 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 (loss) income or diluted net (loss) 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 400,000 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.

© 2016 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 Six Months Ended
June 30,

2016
      June 30,

2015
June 30,

2016
      June 30,

2015
Revenues:
Product revenues $ 201,715 $ 221,896 $ 404,975 $ 455,583
Service revenues   86,064   94,679   172,879   191,692
Total revenues   287,779   316,575   577,854   647,275
Cost of revenues:
Cost of product revenues 94,029 95,752 189,084 197,021
Cost of service revenues   32,478   34,898   63,669   71,509
Total cost of revenues   126,507   130,650   252,753   268,530
Gross profit   161,272   185,925   325,101   378,745
Operating expenses:
Sales and marketing 82,505 89,433 161,968 180,292
Research and development 43,981 46,545 87,051 95,882
General and administrative 20,291 22,269 40,401 43,436
Amortization of purchased intangibles 2,017 2,417 4,217 4,834
Restructuring costs 6,007 343 13,509 367
Transaction-related costs   7,887     12,131  
Total operating expenses   162,688   161,007   319,277   324,811
Operating (loss) income (1,416 ) 24,918 5,824 53,934
Interest and other income (expense), net
Interest expense (1,668 ) (1,523 ) (3,305 ) (3,007 )
Other income (expense), net   1,966   1,345   2,835   1,367
Interest and other income (expense), net 298 (178 ) (470 ) (1,640 )
(Loss) income before provision for income taxes (1,118 ) 24,740 5,354 52,294
Provision for income taxes   8,879   5,093   12,016   11,449
Net (loss) income $ (9,997 ) $ 19,647 $ (6,662 ) $ 40,845
 
Basic net (loss) income per share $ (0.07 ) $ 0.15 $ (0.05 ) $ 0.30
 
Diluted net (loss) income per share $ (0.07 ) $ 0.14 $ (0.05 ) $ 0.30
 
Number of shares used in computation of net (loss) income per

share:
Basic   135,700   134,057   134,934   134,417
Diluted   135,700   137,347   134,934   138,290

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

POLYCOM, INC.

Reconciliation of GAAP to Non-GAAP Net (Loss) Income

(In thousands, except per share amounts)

(Unaudited)
 
Three Months Ended Six Months Ended
June 30,

2016
      March 31,

2016
      June 30,

2015
June 30,

2016
      June 30,

2015
GAAP net (loss) income $ (9,997 ) $ 3,335 $ 19,647 $ (6,662 ) $ 40,845
Amortization of purchased intangibles 2,117 2,300 2,517 4,417 5,591
Restructuring costs 6,007 7,502 343 13,509 367
Transaction-related costs 7,887 4,244 12,131
Stock-based compensation expense 21,606 11,480 9,711 33,087 18,943
Effect of stock-based compensation on warranty rates 235 106 80 341 133
Costs associated with CEO separation and related SEC

investigation
64 399
Income tax effect of non-GAAP exclusions   1,532   (3,283 )   (2,415 )   (1,752 )   (4,096 )
Non-GAAP net income $ 29,387 $ 25,684 $ 29,947 $ 55,071 $ 62,182
GAAP net (loss) income per share:
Basic $ (0.07 ) $ 0.02 $ 0.15 $ (0.05 ) $ 0.30
Diluted $ (0.07 ) $ 0.02 $ 0.14 $ (0.05 ) $ 0.30
Non-GAAP net income per share:
Basic $ 0.22 $ 0.19 $ 0.22 $ 0.41 $ 0.46
Diluted $ 0.21 $ 0.19 $ 0.22 $ 0.40 $ 0.45
Number of shares used in computation of GAAP net (loss)

income per share:
Basic   135,700   134,168   134,057   134,934   134,417
Diluted   135,700   137,292   137,347   134,934   138,290
Number of shares used in computation of non-GAAP net

income per share:
Basic   135,700   134,168   134,057   134,934   134,417
Diluted   138,012   137,292   137,347   137,652   138,290

Note: As a result of the GAAP net loss in some of the periods presented, all potentially issuable common shares for those periods 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)
 
June 30,

2016
December 31,

2015
ASSETS
Current assets
Cash and cash equivalents $ 576,516 $ 435,093
Short-term investments 126,238 184,242
Trade receivables, net 154,212 187,888
Inventories 96,748 89,392
Prepaid expenses and other current assets   50,118   52,852
Total current assets 1,003,832 949,467
Property and equipment, net 93,123 101,853
Long-term investments 18,788 46,484
Goodwill and purchased intangibles, net 568,307 572,840
Deferred taxes 86,659 89,865
Other assets   20,994   21,738
Total assets $ 1,791,703 $ 1,782,247
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 78,444 $ 73,472
Accrued payroll and related liabilities 32,977 38,781
Taxes payable 2,130 4,342
Deferred revenue 174,119 170,559
Current portion of long-term debt 5,717 5,717
Other accrued liabilities   74,607   85,095
Total current liabilities 367,994 377,966
Long-term deferred revenue 83,272 86,191
Taxes payable 10,382 9,983
Deferred taxes 135
Long-term debt 225,940 228,799
Other non-current liabilities   24,074   25,964
Total liabilities 711,662 729,038
Stockholders' equity   1,080,041   1,053,209
Total liabilities and stockholders' equity $ 1,791,703 $ 1,782,247
             
 

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)
 
Six Months Ended
June 30,

2016
      June 30,

2015
Cash flows from operating activities:
Net (loss) income $ (6,662 ) $ 40,845
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 23,663 27,210
Amortization of purchased intangibles 4,417 5,629
Amortization of capitalized software development costs for products to be sold 2,140 1,354
Amortization of debt issuance costs 267 266
Amortization of discounts and premiums on investments, net 645 1,090
Write-down of excess and obsolete inventories 5,477 6,810
Stock-based compensation expense 33,087 18,943
Excess tax benefits from stock-based compensation expense (1,405 ) (3,487 )
Loss on disposal of property and equipment 175 544
Changes in assets and liabilities:
Trade receivables 33,601 8,245
Inventories (12,880 ) (6,791 )
Deferred taxes (4,435 ) (2,744 )
Prepaid expenses and other assets 2,362 4,960
Accounts payable 4,058 (19,229 )
Taxes payable 5,296 9,663
Other accrued liabilities and deferred revenue   (17,540 )   (30,160 )
Net cash provided by operating activities   72,266   63,148
Cash flows from investing activities:
Purchases of property and equipment (13,508 ) (23,922 )
Capitalized software development costs for products to be sold (1,446 ) (2,311 )
Purchases of investments (78,222 ) (107,675 )
Proceeds from sale of investments 13,937 6,892
Proceeds from maturities of investments   149,699   97,187
Net cash provided by (used in) investing activities   70,460   (29,829 )
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock

purchase plans
10,811 12,528
Payments on debt (3,126 ) (3,125 )
Purchase and retirement of common stock under share repurchase plan (64,999 )
Purchase and retirement of common stock for tax withholdings on vesting of employee

stock-based awards
(9,772 ) (11,769 )
Excess tax benefits from stock-based compensation expense   1,405   3,487
Net cash used in financing activities   (682 )   (63,878 )
Effect of exchange rate changes on cash and cash equivalents   (621 )  
Net increase (decrease) in cash and cash equivalents   141,423   (30,559 )
Cash and cash equivalents, beginning of period   435,093   443,132
Cash and cash equivalents, end of period $ 576,516 $ 412,573
                           
 

POLYCOM, INC.

Selected Summary Data

(In millions except per share amounts and headcount)

(Unaudited)
 
June 30,

2016
March 31,

2016
June 30,

2015
Balance Sheet Highlights
Cash and investments $ 722 $ 713 $ 660
Number of shares outstanding 136 136 133
Cash and investments per share $ 5.31 $ 5.26 $ 4.95
Debt $ 232 $ 233 $ 237
Operating cash flow - quarterly $ 19 $ 53 $ 33
Operating cash flow - trailing 12 months $ 129 $ 142 $ 188
DSO (Days Sales Outstanding) 49 51 46
Inventory turns - GAAP 5.2 5.1 5.2
Inventory turns - non-GAAP 5.1 5.1 5.2
Deferred revenue $ 257 $ 263 $ 260
Share repurchases:
Quarter-to-date share repurchases - shares 1.9
Quarter-to-date share repurchases - dollars $ $ $ 25
Year-to-date share repurchases - shares 4.8
Year-to-date share repurchases - dollars $ $ $ 65
Ending headcount 3,176 3,275 3,553
                For the Three Months Ended
June 30,

2016
          March 31,

2016
          June 30,

2015
Income Statement Highlights
GAAP:
Revenues $ 288 $ 290 $ 317
Gross margin 56.0 % 56.5 % 58.7 %
Operating expenses $ 163 $ 157 $ 161
Operating margin (0.5 )% 2.5 % 7.9 %
Diluted EPS $ (0.07 ) $ 0.02 $ 0.14
Non-GAAP:
Revenues $ 288 $ 290 $ 317
Gross margin 57.4 % 57.2 % 59.2 %
Operating expenses $ 129 $ 133 $ 150
Operating margin 12.7 % 11.3 % 11.9 %
Diluted EPS $ 0.21 $ 0.19 $ 0.22
                     
 

POLYCOM, INC.

Reconciliations of GAAP Measures to Non-GAAP Measures

(In thousands)

(Unaudited)
 
Three Months Ended Six Months Ended
June 30,

2016
      March 31,

2016
      June 30,

2015
June 30,

2016
      June 30,

2015
GAAP cost of revenues used in inventory turns $ 126,507 $ 126,246 $ 130,650 $ 252,753 $ 268,530
Stock-based compensation expense (3,506 ) (1,892 ) (1,382 ) (5,398 ) (3,645 )
Effect of stock-based compensation expense on warranty rates (235 ) (106 ) (80 ) (341 ) (133 )
Amortization of purchased intangibles   (100 )   (100 )   (100 )   (200 )   (757 )
Non-GAAP cost of revenues used in inventory turns $ 122,666 $ 124,148 $ 129,088 $ 246,814 $ 263,995
GAAP gross profit $ 161,272 $ 163,829 $ 185,925 $ 325,101 $ 378,745
Stock-based compensation expense 3,506 1,892 1,382 5,398 3,645
Effect of stock-based compensation expense on warranty rates 235 106 80 341 133
Amortization of purchased intangibles   100   100   100   200   757
Non-GAAP gross profit $ 165,113 $ 165,927 $ 187,487 $ 331,040 $ 383,280
Non-GAAP gross margin 57.4 % 57.2 % 59.2 % 57.3 % 59.2 %
 
GAAP sales and marketing expense $ 82,505 $ 79,463 $ 89,433 $ 161,968 $ 180,292
Stock-based compensation expense   (7,550 )   (3,743 )   (2,698 )   (11,293 )   (5,311 )
Non-GAAP sales and marketing expense $ 74,955 $ 75,720 $ 86,735 $ 150,675 $ 174,981
Non-GAAP sales and marketing expense as a percent of revenues 26.0 % 26.1 % 27.4 % 26.1 % 27.0 %
 
GAAP research and development expense $ 43,981 $ 43,070 $ 46,545 $ 87,051 $ 95,882
Stock-based compensation expense   (4,912 )   (2,029 )   (1,915 )   (6,941 )   (4,488 )
Non-GAAP research and development expense $ 39,069 $ 41,041 $ 44,630 $ 80,110 $ 91,394
Non-GAAP research and development expense as a percent of

revenues
13.6 % 14.1 % 14.1 % 13.9 % 14.1 %
 
GAAP general and administrative expense $ 20,291 $ 20,110 $ 22,269 $ 40,401 $ 43,436
Stock-based compensation expense (5,638 ) (3,816 ) (3,716 ) (9,455 ) (5,499 )
Costs associated with CEO separation and related SEC

investigation
      (64 )     (399 )
Non-GAAP general and administrative expense $ 14,653 $ 16,294 $ 18,489 $ 30,946 $ 37,538
Non-GAAP general and administrative expense as a percent of

revenues
5.1 % 5.6 % 5.8 % 5.4 % 5.8 %
 
GAAP total operating expenses $ 162,688 $ 156,589 $ 161,007 $ 319,277 $ 324,811
Stock-based compensation expense (18,100 ) (9,588 ) (8,329 ) (27,689 ) (15,298 )
Amortization of purchased intangibles (2,017 ) (2,200 ) (2,417 ) (4,217 ) (4,834 )
Restructuring costs (6,007 ) (7,502 ) (343 ) (13,509 ) (367 )
Transaction-related costs (7,887 ) (4,244 ) (12,131 )
Costs associated with CEO separation and related SEC

investigation
      (64 )     (399 )
Non-GAAP total operating expenses $ 128,677 $ 133,055 $ 149,854 $ 261,731 $ 303,913
Non-GAAP total operating expenses as a percent of revenues 44.7 % 45.9 % 47.3 % 45.3 % 47.0 %
 
GAAP operating (loss) income $ (1,416 ) $ 7,240 $ 24,918 $ 5,824 $ 53,934
Stock-based compensation expense 21,606 11,480 9,711 33,087 18,943
Effect of stock-based compensation expense on warranty rates 235 106 80 341 133
Amortization of purchased intangibles 2,117 2,300 2,517 4,417 5,591
Restructuring costs 6,007 7,502 343 13,509 367
Transaction-related costs 7,887 4,244 12,131
Costs associated with CEO separation and related SEC

investigation
      64     399
Non-GAAP operating income $ 36,436 $ 32,872 $ 37,633 $ 69,309 $ 79,367
Non-GAAP operating margin 12.7 % 11.3 % 11.9 % 12.0 % 12.3 %
                     
 

POLYCOM, INC.

Summary of Stock-Based Compensation Expense

(In thousands)

(Unaudited)
 
Three Months Ended Six Months Ended
June 30,

2016
        June 30,

2015
June 30,

2016
        June 30,

2015
Cost of product revenues $ 1,133 $ 505 $ 1,914 $ 1,460
Cost of service revenues   2,373   877   3,484   2,185
Stock-based compensation expense in total cost of revenues   3,506   1,382   5,398   3,645
Sales and marketing 7,550 2,698 11,293 5,311
Research and development 4,912 1,915 6,941 4,488
General and administrative   5,638   3,716   9,455   5,499
Stock-based compensation expense in operating expenses   18,100   8,329   27,689   15,298
Total stock-based compensation expense $ 21,606 $ 9,711 $ 33,087 $ 18,943
 

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