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Conferencing/telepresence

Polycom Reports Q3

PLEASANTON, Calif. -- Polycom, Inc. (NASDAQ:PLCM), the world's leading provider of unified collaborative communications solutions, today reported its earnings for the third quarter ended September 30, 2006.Third quarter 2006 consolidated net revenues were $173.2 million, compared to $144.4 million for the third quarter of 2005. Non-GAAP net income in the third quarter of 2006 was $24.5 million, or 27 cents per diluted share. This compares to Non-GAAP net income of $19.1 million, or 20 cents per diluted share, for the third quarter of 2005. Non-GAAP financial measures exclude stock-based compensation expense, the effect of stock-based compensation expense on warranty rates, acquisition-related costs, purchased in-process research and development costs, amortization and impairment of purchased intangibles, restructuring costs, litigation reserves and payments, gain (loss) on strategic investments, income tax effect of the preceding adjustments, income (loss) from discontinued operations, net of taxes, and gain from sale of discontinued operations, net of taxes.

GAAP net income for the third quarter of 2006 was $17.1 million, or 19 cents per diluted share. GAAP net income for the third quarter of 2006 includes stock-based compensation expense related to the implementation of Statement of Financial Accounting Standard (SFAS) 123R in fiscal 2006 of $3.9 million, net of tax, or 4 cents per diluted share. GAAP net income for the third quarter of 2005 was $17.1 million, or 18 cents per diluted share. GAAP net income prior to fiscal 2006 did not include stock-based compensation expense. Including the pro forma stock-based compensation expense previously disclosed in Polycom's financial statement footnotes, GAAP net income for the third quarter of 2005 would have been $13.9 million, or 14 cents per diluted share.

For the nine months ended September 30, 2006, net revenues were $495.9 million, compared to $424.6 million for the first nine months of 2005. Non- GAAP net income for the current year period was $66.1 million, or 74 cents per diluted share, compared to $54.5 million, or 55 cents per diluted share for the first nine months of 2005. GAAP net income for the nine months ended September 30, 2006 was $46.2 million, or 51 cents per diluted share, compared to GAAP net income of $53.5 million, or 54 cents per diluted share, for the same period last year. GAAP net income for the nine months ended September 30, 2006 includes stock-based compensation expense related to the implementation of Statement of Financial Accounting Standard (SFAS) 123R in fiscal 2006 of $11.6 million, net of tax, or 13 cents per diluted share. Including the pro forma stock-based compensation expense previously disclosed in Polycom's financial statement footnotes, GAAP net income for the nine months ended September 30, 2005 would have been $39.4 million or 40 cents per diluted share.

The reconciliation of the GAAP statement of operations amounts to the respective Non-GAAP figures, for the three and nine months ended September 30, 2006 and 2005, is set forth at the end of this press release.On a product line basis, consolidated net revenues for the third quarter of 2006 were comprised of 54 percent video communications, or $93.1 million; 29 percent voice communications, or $49.8 million; and 17 percent network systems, or $30.3 million. This compares to the third quarter of 2005, in which consolidated net revenues were comprised of 52 percent video communications, or $75.6 million; 26 percent voice communications, or $37.3 million; and 22 percent network systems, or $31.5 million.

"Collaborative communications is the next big application layer for IP- based networks," said Robert Hagerty, president and CEO. "With year-over-year revenue growth increasing again in Q3, Polycom experienced real operating leverage with significant sequential and year-over-year margin expansion. The collaborative communications industry is at an exciting point, with customers in all sectors at various stages of planning and deployment of voice and video over IP (V2oIP) solutions. With Polycom's breadth of offering, we believe we are best positioned to capture the demand as customers move to an integrated, IP-based communications solution.

"Hagerty continued, "In addition to our strong partnerships with Alcatel, Avaya, Cisco, IBM, Microsoft, and Nortel, Polycom is also partnering with other IP-based communications providers to offer our customers the most innovative and integrated solution available. For instance, in Q3, we announced a voice and video over IP alliance with Ditech Networks, Empirix, Global IP Sound, and JDSU to work with key technology providers, integrators, service providers, and industry experts to define industry best practices in deploying IP-based communications solutions. Also, building on our Skype partnership that we launched in May with our new Polycom Communicator(TM) product, we announced Skype integration with our VoiceStation(R) 500 conference phone."

"In Q3, we announced and demonstrated our Polycom HD Voice(TM) products at the VON show. These products offer a remarkable wideband voice quality that represents the next wave in voice over IP. These HD Voice products and our HD Video products will both be available in the fourth quarter and will offer a collaborative communications experience that is amazingly lifelike. These products further drive Polycom's opportunity in this fast-growing IP-based collaborative communications market.""Polycom's year-over-year revenue growth increased to 20 percent in the third quarter," said Michael Kourey, senior vice president, finance and administration, and CFO. "With the resulting revenues of $173.2 million and strong gross and operating margins, Polycom generated $39.2 million in positive operating cash flow in Q3. In concert with these substantial operating gains, Polycom's backlog and deferred revenues also rose to record levels in the quarter."

Polycom Inc. (Nasdaq: PLCM)

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