Polycom Reports First Quarter Earnings; Year-Over-Year Revenue Growth

    Business Editors/High-Tech Editors

    PLEASANTON, Calif.--(BUSINESS WIRE)--April 20, 2005--Polycom(R), Inc. (NASDAQ:PLCM), the world's leading provider of unified collaborative communications solutions, today reported its earnings for the first quarter ended March 31, 2005.
    First quarter 2005 consolidated net revenues were $137.5 million, compared to $119.1 million for the first quarter of 2004. Non-GAAP net income in the first quarter of 2005 was $17.6 million, or 18 cents per diluted share. This compares to Non-GAAP net income of $12.9 million, or 13 cents per diluted share, for the first quarter of 2004. Non-GAAP financial measures exclude acquisition-related costs, purchased in-process research and development costs, amortization 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 first quarter of 2005 was $16.4 million, or 16 cents per diluted share, compared to $3.3 million, or 3 cents per diluted share, for the same period last year.
    The reconciliation of the GAAP statement of operations amounts to the respective Non-GAAP figures, for the three months ended March 31, 2005 and 2004, is set forth at the end of this press release.
    On a product line basis, consolidated net revenues for the first quarter of 2005 were comprised of 55 percent video communications, or $75.6 million; 24 percent network systems, or $33.6 million; and 21 percent voice communications, or $28.3 million. This compares to the first quarter of 2004, in which consolidated net revenues were comprised of 58 percent video communications, or $68.6 million; 23 percent network systems, or $28.0 million; and 19 percent voice communications, or $22.5 million.
    "Polycom made progress in driving key initiatives to further leverage our channel partnerships during the first quarter," said Robert Hagerty, president and CEO. "We have implemented a wide variety of marketing programs that optimize our high-touch sales force in concert with initiatives of our channel network."
    Hagerty continued, "From a macro perspective, voice and video over IP (V2oIP) continues to be a significant driver for our business. Polycom is devoting the resources necessary to make industry breakthroughs with products that are standards-driven and integrated with the major communications and desktop platforms across the customer landscape. Consistent with our delivering against this vision, we announced phase two of our strategic alliance with Microsoft, expanding on the integration of Polycom's voice and video platforms with Microsoft's Live Communications Server and Live Meeting Service. Recognized for vision and delivery of solutions against that vision, we are pleased that in February 2005, Gartner Group, a leading market research firm, positioned Polycom in the Visionary Quadrant of Unified Communications."
    "With our solid gross margins and significant increase in year-over-year profitability, Polycom generated our twenty-eighth consecutive quarter of positive operating cash flow in the first quarter," said Michael Kourey, senior vice president, finance and administration, and CFO. "Including this positive cash flow and net of approximately $25 million in Polycom stock repurchases in the period, our cash and investments balance at the end of the first quarter is $518.1 million."

    About Polycom

    Polycom, Inc. is the worldwide leader in unified collaborative communications (UCC) that maximize the efficiency and productivity of people and organizations by integrating the broadest array of video, voice, data and Web solutions to deliver the ultimate communications experience. Polycom's high quality, standards-based conferencing and collaboration solutions are easy to deploy and manage, as well as intuitive to use. Supported by an open architecture, they integrate seamlessly with leading telephony and presence-based networks. With its market driving technologies, best-in-class products, alliance partnerships, and world-class service, Polycom is the smart choice for organizations seeking proven solutions and a competitive advantage in real-time communications and collaboration. For additional information call 1-800-POLYCOM (765-9266) or +1-408-526-9000, or visit the Polycom website at www.polycom.com.

    This release contains forward-looking statements, within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, regarding future events, future demand for our products, and the future performance of the Company, including statements regarding the impact of initiatives to leverage our channel partner relationships, the demand for voice and video over IP communications solutions, and our continued product rollout through our collaboration with Microsoft. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the impact of competition for our customers and products, market acceptance of Polycom's products and changing market demands, possible delays in the development, availability and shipment of new products, and risks associated with changes in general economic conditions. Many of these risks and uncertainties are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligation to update these forward-looking statements.
    As has been noted on the Company's web site since April 13, 2005, Polycom will hold a conference call today, April 20, 2005, at 5:00 p.m. ET/2:00 p.m. PT to discuss its first quarter earnings. Robert Hagerty, chairman, president and CEO, and Michael Kourey, chief financial officer, will host the conference. You may participate by viewing the webcast at www.polycom.com or, for callers in the US and Canada, by calling 800-633-8556; and for callers outside of the US and Canada, by calling 212-676-5270, with the pass code being Polycom. A replay of the call will also be available at www.polycom.com or, for callers in the US and Canada, at 800-633-8284; and for callers outside of the US and Canada, at 402-977-9140. The access number for the replay is 21243542. A replay of the call will also be maintained on our website at www.polycom.com under Investor Relations - Archived Conference Calls for twelve months.

    Polycom and the Polycom logo are registered trademarks of Polycom in the U.S. and various countries. All other trademarks are the property of their respective owners. (C)2005, Polycom, Inc. All rights reserved.

POLYCOM, INC. Non-GAAP Condensed Consolidated Statements of Operations Excluding Acquisition-related costs, Purchased in-process R&D costs, Amortization of purchased intangibles, Restructuring costs, Litigation reserves and payments, Gain (loss) on strategic investments, income tax effect of preceding adjustments, Income (loss) from discontinued operations, net of taxes, Gain from sale of discontinued operations, net of taxes

(In thousands, except per share amounts) (Unaudited)

Three Months Ended ------------------- March 31, March 31, 2005 2004 --------- ---------

Revenues: Product revenues $122,117 $106,605 Service revenues 15,401 12,542 --------- --------- Total revenues 137,518 119,147 --------- ---------

Cost of revenues: Cost of product revenues 41,382 35,063 Cost of service revenues 9,625 9,064 --------- --------- Total cost of revenues 51,007 44,127 --------- ---------

Gross profit 86,511 75,020 --------- ---------

Operating expenses: Sales and marketing 34,215 28,446 Research and development 21,842 22,026 General and administrative 8,991 8,066 --------- --------- Total operating expenses 65,048 58,538 --------- ---------

Operating income 21,463 16,482

Interest income, net 2,744 1,681 Other expense, net (59) (474) --------- ---------

Income before provision for income taxes 24,148 17,689 Provision for income taxes 6,520 4,776 --------- --------- Non-GAAP net income $17,628 $12,913 ========= =========

Basic net income per share $0.18 $0.13 ========= ========= Diluted net income per share $0.18 $0.13 ========= =========

Weighted average shares outstanding for basic net income per share 98,870 99,866 ========= =========

Weighted average shares outstanding for diluted net income per share 100,357 102,664 ========= =========

Use of Non-GAAP Financial Information

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. For example, 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 generally accepted accounting principles in the United States.

POLYCOM, INC. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)

Three Months Ended ------------------------- March 31, March 31, 2005 2004 ------------ ------------

Revenues: Product revenues $122,117 $106,605 Service revenues 15,401 12,542 ------------ ------------ Total revenues 137,518 119,147 ------------ ------------

Cost of revenues: Cost of product revenues 41,382 35,063 Cost of service revenues 9,625 9,064 ------------ ------------ Total cost of revenues 51,007 44,127 ------------ ------------

Gross profit 86,511 75,020 ------------ ------------

Operating expenses: Sales and marketing 34,215 28,446 Research and development 21,842 22,026 General and administrative 8,991 8,066 Acquisition-related costs 66 825 Purchased in-process research and development - 4,600 Amortization of purchased intangibles 1,807 6,363 Litigation reserves and payments (28) - ------------ ------------ Total operating expenses 66,893 70,326 ------------ ------------

Operating income 19,618 4,694

Interest income, net 2,744 1,681 Gain (loss) on strategic investments (5) 9 Other expense, net (59) (474) ------------ ------------

Income from continuing operations before provision for income taxes 22,298 5,910 Provision for income taxes 6,005 2,854 ------------ ------------ Income from continuing operations 16,293 3,056

Income from discontinued operations, net of taxes - 151 Gain from sale of discontinued operations, net of taxes 105 106 ------------ ------------ Net income $16,398 $3,313 ============ ============

Basic net income per share: Income per share from continuing operations $0.17 $0.03 Income per share from discontinued operations, net - - Gain per share from sale of discontinued operations, net - - ------------ ------------ Basic net income per share $0.17 $0.03 ============ ============

Diluted net income per share: Income per share from continuing operations $0.16 $0.03 Income per share from discontinued operations, net - - Gain per share from sale of discontinued operations, net - - ------------ ------------ Diluted net income per share $0.16 $0.03 ============ ============

Weighted average shares outstanding for basic net income per share 98,870 99,866 ============ ============

Weighted average shares outstanding for diluted net income per share 100,357 102,664 ============ ============

POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited)

Three Months Ended -------------------------------- March 31, 2005 -------------------------------- GAAP Excluded Non-GAAP ---------- --------- -----------

Revenues: Product revenues $122,117 $ - $122,117 Service revenues 15,401 - 15,401 ---------- --------- ----------- Total revenues 137,518 - 137,518 ---------- --------- -----------

Cost of revenues: Cost of product revenues 41,382 - 41,382 Cost of service revenues 9,625 - 9,625 ---------- --------- ----------- Total cost of revenues 51,007 - 51,007 ---------- --------- -----------

Gross profit 86,511 - 86,511 ---------- --------- -----------

Operating expenses: Sales and marketing 34,215 - 34,215 Research and development 21,842 - 21,842 General and administrative 8,991 - 8,991 Acquisition-related costs 66 66 - Amortization of purchased intangibles 1,807 1,807 - Litigation reserves and payments (28) (28) - ---------- --------- ----------- Total operating expenses 66,893 1,845 65,048 ---------- --------- -----------

Operating income 19,618 (1,845) 21,463

Interest income, net 2,744 - 2,744 Gain on strategic investments (5) (5) - Other expense, net (59) - (59) ---------- --------- -----------

Income from continuing operations before provision for income taxes 22,298 (1,850) 24,148 Provision for income taxes 6,005 (515) 6,520 ---------- --------- ----------- Income from continuing operations 16,293 (1,335) 17,628

Gain from sale of discontinued operations, net of taxes 105 105 - ---------- --------- ----------- Net income $16,398 $(1,230) $17,628 ========== ========= ===========

Basic net income per share: Income per share from continuing operations $0.17 $(0.01) $0.18 Gain per share from sale of discontinued operations, net - - - ---------- --------- ----------- Basic net income per share $0.17 $(0.01) $0.18 ========== ========= ===========

Diluted net income per share: Income per share from continuing operations $0.16 $(0.02) $0.18 Gain per share from sale of discontinued operations, net - - - ---------- --------- ----------- Diluted net income per share $0.16 $(0.02) $0.18 ========== ========= ===========

Weighted average shares outstanding for basic net income per share 98,870 98,870 ========== ===========

Weighted average shares outstanding for diluted net income per share 100,357 100,357 ========== ===========

POLYCOM, INC. GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) (Unaudited)

Three Months Ended ---------------------------------- March 31, 2004 ---------------------------------- GAAP Excluded Non-GAAP ----------- ----------------------

Revenues: Product revenues $106,605 $ - $106,605 Service revenues 12,542 - 12,542 ----------- ----------- --------- Total revenues 119,147 - 119,147 ----------- ----------- ---------

Cost of revenues: Cost of product revenues 35,063 - 35,063 Cost of service revenues 9,064 - 9,064 ----------- ----------- --------- Total cost of revenues 44,127 - 44,127 ----------- ----------- ---------

Gross profit 75,020 - 75,020 ----------- ----------- ---------

Operating expenses: Sales and marketing 28,446 - 28,446 Research and development 22,026 - 22,026 General and administrative 8,066 - 8,066 Acquisition-related costs 825 825 - Purchased in-process research and development 4,600 4,600 - Amortization of purchased intangibles 6,363 6,363 - ----------- ----------- --------- Total operating expenses 70,326 11,788 58,538 ----------- ----------- ---------

Operating income 4,694 (11,788) 16,482

Interest income, net 1,681 - 1,681 Loss on strategic investments 9 9 - Other expense, net (474) - (474) ----------- ----------- ---------

Income from continuing operations before provision for income taxes 5,910 (11,779) 17,689 Provision for income taxes 2,854 (1,922) 4,776 ----------- ----------- --------- Income from continuing operations 3,056 (9,857) 12,913

Loss from discontinued operations, net of taxes 151 151 - Gain from sale of discontinued operations, net of taxes 106 106 - ----------- ----------- --------- Net income $3,313 $(9,600) $12,913 =========== =========== =========

Basic net income per share: Income per share from continuing operations $0.03 $(0.10) $0.13 Loss per share from discontinued operations, net - - - Gain per share from sale of discontinued operations, net - - - ----------- ----------- --------- Basic net income per share $0.03 $(0.10) $0.13 =========== =========== =========

Diluted net income per share: Income per share from continuing operations $0.03 $(0.10) $0.13 Loss per share from discontinued operations, net - - - Gain per share from sale of discontinued operations, net - - - ----------- ----------- --------- Diluted net income per share $0.03 $(0.10) $0.13 =========== =========== =========

Weighted average shares outstanding for basic net income per share 99,866 99,866 =========== =========

Weighted average shares outstanding for diluted net income per share 102,664 102,664 =========== =========

POLYCOM, INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited)

March 31, December 31, 2005 2004 ----------- -------------

ASSETS Current assets Cash and cash equivalents $96,713 $96,331 Short-term investments 84,689 118,009 Trade receivables, net 68,983 62,535 Inventories 35,686 27,804 Deferred taxes 20,879 20,879 Prepaid expenses and other current assets 16,138 19,898 ----------- ------------- Total current assets 323,088 345,456

Property and equipment, net 36,912 37,544 Long-term investments 336,679 320,907 Goodwill 352,534 352,572 Purchased intangibles, net 25,108 26,915 Deferred taxes 49,180 49,060 Other assets 22,152 22,187 ----------- ------------- Total assets $1,145,653 $1,154,641 =========== =============

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $41,013 $45,682 Accrued payroll and related liabilities 13,185 18,852 Taxes payable 57,545 52,665 Deferred revenue 30,970 26,889 Other accrued liabilities 26,291 30,065 ----------- ------------- Total current liabilities 169,004 174,153

Long-term deferred revenue 6,271 5,238 Other long-term liabilities 10,741 10,636 ----------- ------------- Total liabilities 186,016 190,027

Stockholders' equity 959,637 964,614 ----------- ------------- Total liabilities and stockholders' equity $1,145,653 $1,154,641 =========== =============

POLYCOM, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)

Three Months Ended ------------------ March 31, March 31, 2005 2004 -------- ---------

Cash flows from operating activities: Net income $16,398 $3,313 Adjustments to reconcile net income to net cash provided by operating activities: Gain from sale of discontinued operations, net of taxes (105) (106) Depreciation and amortization 5,101 4,699 Amortization of purchased intangibles 1,807 6,363 Provision for (benefit from) doubtful accounts - (210) Provision for (benefit from) excess and obsolete inventories (436) 787 Tax benefit from exercise of stock options - 1,692 Gain (Loss) on strategic investments 5 (9) Amortization of unearned stock-based compensation 35 63 Purchase of in-process research and development - 4,600 Loss on disposals of property and equipment 70 -

Changes in assets and liabilities, net of the effect of acquisitions: Trade receivables (6,448) 3,503 Inventories (7,446) 617 Prepaid expenses and other assets 3,840 3,782 Accounts payable (4,631) (6,861) Taxes payable 4,820 494 Other accrued liabilities (4,222) (4,084) -------- --------- Net cash provided by operating activities 8,788 18,643 -------- ---------

Cash flows from investing activities: Purchase of property and equipment (4,082) (4,659) Purchases of investments (87,965) (201,683) Proceeds from sale and maturity of investments 104,142 203,466 Proceeds from sale of discontinued operations 165 167 Net cash paid in purchase acquisitions - (95,162) -------- --------- Net cash provided by (used in) investing activities 12,260 (97,871) -------- ---------

Cash flows from financing activities: Proceeds from issuance of common stock under employee option and stock purchase plans 4,325 5,444 Repurchase of common stock (24,991) - -------- --------- Net cash provided by (used in) financing activities (20,666) 5,444 -------- ---------

Net increase (decrease) in cash and cash equivalents 382 (73,784) Cash and cash equivalents, beginning of period 96,331 154,312 -------- --------- Cash and cash equivalents, end of period $96,713 $80,528 ======== =========

--30--IK/sf*

CONTACT: Polycom, Inc. Michael R. Kourey, 925-924-5742 mkourey@polycom.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE TELECOMMUNICATIONS NETWORKING EARNINGS CONFERENCE CALLS SOURCE: Polycom, Inc.

Copyright Business Wire 2005