Polycom Announces Second Quarter 2015 Financial Results

Investor Contact:

Jane Underwood Polycom, Inc. 1.408.586.4271 [email protected]

Press Contact:

Michael Rose Polycom, Inc. 1.408.586.3839 [email protected]

Polycom Announces Second Quarter 2015 Financial Results  

Non-GAAP Earnings Per Share grows 5 percent year-over- year GAAP Earnings Per Share grows 133 percent year-over-year

SAN JOSE, Calif. – July 22, 2015 – Polycom, Inc. (Nasdaq: PLCM) today reported second quarter 2015 revenues of $317 million, non-GAAP net income of $30 million and non-GAAP earnings per diluted share of 22 cents. GAAP net income for the second quarter was $20 million, or 14 cents per diluted share. A reconciliation of GAAP to non-GAAP results is provided in the tables at the end of this press release. “In the second quarter, we delivered year-over-year growth in operating margins and earnings-per-share consistent with our expectations, despite a more challenging quarter from a top-line perspective,” said Peter Leav, President and Chief Executive Officer. “We continue to be focused on investing in new solutions for both core and adjacent markets and working closely with our strategic partners, while improving sales execution in the field.” “In the second quarter, we continued to be good stewards of our capital,” said Laura Durr, Chief Financial Officer and Executive Vice President. “Polycom generated $33 million in operating cash flow and repurchased $25 million of common stock under our current share repurchase program during the quarter.” On a comparative basis, consolidated financial results were:

($ in millions, except per share data)

Revenues Non-GAAP Net Income Non-GAAP EPS GAAP Net Income GAAP EPS

Q2 2015

$ $ $ $ $

316.6 29.9 0.22 19.6 0.14

Q1 2015

$ $ $ $ $

330.7 32.2 0.23 21.2 0.15

Q2 2014

$ $ $ $ $

332.0 29.6 0.21 8.6 0.06

Year-Over-Year Change

(5)% 1% 5% 130% 133%

On a geographic basis, consolidated revenues were comprised of:

($ in millions)

Americas % of revenues Europe, Middle East & Africa (EMEA) % of revenues Asia Pacific % of revenues Totals * * may not foot due to rounding

Q2 2015

$

$

158.3 $ 50% 80.9 26% 77.4 24% 316.6 $

Q1 2015

157.4 $ 48% 93.8 28% 79.5 24% 330.7 $

Q2 2014

167.8 51 % 83.1 25 % 81.1 24 % 332.0


(6)% (3)% (5)% (5)%

By product category, inclusive of its service component, consolidated revenues were comprised of:

($ in millions)

UC Group Systems % of revenues UC Personal Devices % of revenues UC Platform % of revenues Totals * * may not foot due to rounding

Q2 2015

$

$

195.2 $ 62% 66.8 21% 54.6 17% 316.6 $

Q1 2015

204.6 $ 62% 67.5 20% 58.6 18% 330.7 $

Q2 2014

218.5 66 % 53.6 16 % 59.9 18 % 332.0


(11)% 25% (9)% (5)%

In Q2 2015, Polycom generated a total of $33 million in operating cash flow. Operating cash flow on a trailing 12 month basis was $188 million. Cash and investments at the end of Q2 2015 totaled $660 million, of which approximately $213 million is located in the United States. Net of existing debt, cash and investments at the end of Q2 2015 totaled $421 million. Earnings Call Details Polycom will hold a conference call today, July 22, 2015, at 5:00 p.m. ET/2:00 p.m. PT to discuss second quarter 2015 financial results and guidance for the third quarter 2015. You may participate by listening to the webcast at www.polycom.com/investors or, for callers in the United States and Canada; you may participate by calling +1.800.230.1085 and for callers outside of the United States and Canada, by calling +1.612.234.9960. A replay of the call will also be available at www.polycom.com/investors or, for callers in the United States and Canada, at +1.800.475.6701 and, for callers outside of the United States and Canada, at +1.320.365.3844. The access number for the replay is 363902. 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 regarding our future areas of focus and financial performance, including statements regarding future investments in new solutions, our focus on strategic partners and future improvements in sales execution. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including 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 the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements. Polycom reserves the right to modify future product plans at any time. Products and/or related specifications referenced in this press release are not guaranteed and will be delivered on a when and if available basis. 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 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. 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 GAAP in the United States.

About Polycom Polycom helps organizations unleash the power of human collaboration. More than 415,000 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. © 2015 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 June 30, June 30, 2015 2014

Revenues: Product revenues Service revenues Total revenues Cost of revenues: Cost of product revenues Cost of service revenues Total cost of revenues Gross profit Operating expenses: Sales and marketing Research and development General and administrative Amortization of purchased intangibles Restructuring costs Transaction-related costs Total operating expenses Operating income Interest and other income (expense), net Interest expense Other income (expense), net Interest and other income (expense), net Income before provision for (benefit from) income taxes Provision for (benefit from) income taxes Net income

$

221,896 94,679 316,575

$

Six Months Ended June 30, June 30, 2015 2014

236,565 95,454 332,019

$

455,583 191,692 647,275

$

468,074 192,469 660,543

95,752 34,898 130,650 185,925

97,710 39,087 136,797 195,222

197,021 71,509 268,530 378,745

195,346 77,990 273,336 387,207

89,433 46,545 22,269 2,417 343 — 161,007 24,918

97,836 49,031 24,636 2,436 9,175 — 183,114 12,108

180,292 95,882 43,436 4,834 367 — 324,811 53,934

191,804 97,178 48,429 4,928 39,518 156 382,013 5,194

$

(1,523) 1,345 (178) 24,740 5,093 19,647 $

(1,460) (236) (1,696) 10,412 1,855 8,557 $

(3,007) 1,367 (1,640) 52,294 11,449 40,845 $

(2,934) 543 (2,391) 2,803 (1,763) 4,566

Basic net income per share:

$

0.15

$

0.06

$

0.30

$

0.03

Diluted net income per share:

$

0.14

$

0.06

$

0.30

$ \

0.03

Number of shares used in computation of net income per share: Basic Diluted

134,057 137,347

138,016 142,876

134,417 138,290

137,406 142,521

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

June 30, 2015

GAAP net income Amortization of purchased intangibles Restructuring costs Transaction-related costs Stock-based compensation expense Effect of stock-based compensation on warranty rates Costs associated with CEO separation and related SEC investigation Income tax effect of non-GAAP exclusions Non-GAAP net income GAAP net income per share Basic Diluted Non-GAAP net income per share Basic Diluted Number of shares used in computation of net income per share: Basic Diluted

$

Three Months Ended March 31, June 30, 2015 2014

19,647 2,517 343 — 9,711 80 64

$

21,198 3,074 24 — 9,232 53 335

$

8,557 3,167 9,175 — 13,763 77 381


$

40,845 5,591 367 — 18,943 133 399

$

4,566 6,500 39,518 156 19,410 206 991

$

(2,415) 29,947 $

(1,681) 32,235 $

(5,540 ) 29,580 $

$ $

0.15 0.14

$ $

0.16 0.15

$ $

0.06 0.06

$ $

0.30 0.30

$ $

0.03 0.03

$ $

0.22 0.22

$ $

0.24 0.23

$ $

0.21 0.21

$ $

0.46 0.45

$ $

0.41 0.39

134,057 137,347

134,777 139,233

138,016 142,876

(4,096) (15,680) 62,182 $ 55,667

134,417 138,290

137,406 142,521

POLYCOM, INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) June 30, 2015

ASSETS Current assets Cash and cash equivalents Short-term investments Trade receivables, net Inventories Deferred taxes Prepaid expenses and other current assets Total current assets Property and equipment, net Long-term investments Goodwill and purchased intangibles, net Deferred taxes Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable Accrued payroll and related liabilities Taxes payable Deferred revenue Current portion of long-term debt Other accrued liabilities Total current liabilities Long-term deferred revenue Taxes payable Deferred taxes Long-term debt Other non-current liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity

$

$

$

$

December 31, 2014

412,573 198,160 161,155 99,909 38,739 57,377 967,913 107,878 49,391 578,187 49,856 25,689 1,778,914

$

90,285 39,912 3,774 176,890 6,250 75,664 392,775 83,551 11,847 169 232,813 34,609 755,764 1,023,150 1,778,914

$

$

$

443,132 185,783 169,400 100,328 38,805 61,072 998,520 109,195 59,197 583,798 54,019 26,493 1,831,222

108,172 42,901 4,056 173,532 6,250 86,193 421,104 89,366 11,719 173 235,938 49,189 807,489 1,023,733 1,831,222

POLYCOM, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, June 30, 2015 2014

Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of purchased intangibles Amortization of capitalized software development costs for products to be sold Amortization of debt issuance costs Amortization of discounts and premiums on investments, net Provision for doubtful accounts Write-down of excess and obsolete inventories Stock-based compensation expense Excess tax benefits from stock-based compensation expense Loss on disposal of property and equipment Changes in assets and liabilities: Trade receivables Inventories Deferred taxes Prepaid expenses and other assets Accounts payable Taxes payable Other accrued liabilities and deferred revenue Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Capitalized software development costs for products to be sold Purchases of investments Proceeds from sale of investments Proceeds from maturities of investments Net cash used in investing activities Cash flows from financing activities: Proceeds from issuance of common stock under employee option and stock purchase plans Payments on debt Purchase and retirement of common stock under share repurchase plan Purchase and retirement of common stock for tax withholdings on vesting of employee stock-based awards Excess tax benefits from stock-based compensation expense Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period

$

$

40,845

$

4,566

27,210 5,629 1,354 266 1,090 — 6,810 18,943 (3,487) 544

29,034 6,538 702 267 944 600 2,253 19,410 (1,819) 4,965

8,245 (6,791) (2,744) 4,960 (19,229) 9,663 (30,160) 63,148

5,805 (4,848) (4,848) (7,327) 6,130 4,124 14,125 80,621

(23,922) (2,311) (107,675) 6,892 97,187 (29,829)

(24,338) (2,474) (151,611) 37,056 77,440 (63,927)

12,528 (3,125) (64,999) (11,769)

13,542 (3,125) — (8,426)

3,487 (63,878) (30,559) 443,132 412,573 $

1,819 3,810 20,504 392,629 413,133

POLYCOM, INC. Selected Summary Data (In millions except per share amounts and headcount) (Unaudited) June 30, 2015

Balance Sheet Highlights Cash and investments Number of shares outstanding Cash and investments per share Debt Operating cash flow - quarterly Operating cash flow - trailing 12 months DSO (Days Sales Outstanding) Inventory turns - GAAP Inventory turns - non-GAAP Deferred revenue Share repurchases: Quarter-to-date share repurchases - shares (1) Quarter-to-date share repurchases - dollars Year-to-date share repurchases - shares (1) Year-to-date share repurchases - dollars Remaining authorization for share repurchases (2) Ending headcount

$

660 133 4.95 239 33 188 46 5.2 5.2 260

$ $ $ $

$

1.9 25 4.8 65 85 3,553

$ $ $

June 30, 2015

Income Statement Highlights GAAP: Revenues Gross margin Operating expenses Operating margin Diluted EPS Non-GAAP: Revenues Gross margin Operating expenses Operating margin Diluted EPS (1) (2)

$ $ $ $ $ $

March 31, 2015

$ $ $ $ $

$

$ $ $

June 30, 2014

669 135 4.95 241 30 217 47 5.9 5.7 265 2.9 40 2.9 40 110 3,497

For the Three Months Ended March 31, 2015

$

640 137 4.68 245 62 167 49 5.2 5.1 259

$ $ $ $

$

1.5 — 1.5 — — 3,558

$ $ $

June 30, 2014

317 $ 58.7% 161 $ 7.9% 0.14 $

331 $ 58.3 % 164 $ 8.8 % 0.15 $

332 58.8% 183 3.6% 0.06

317 $ 59.2% 150 $ 11.9% 0.22 $

331 $ 59.2 % 154 $ 12.6 % 0.23 $

332 59.5% 159 11.6% 0.21

The final settlement of shares under prior Accelerated Share Repurchase program was completed in the three month period ended June 30, 2014, for which funds were advanced in the three month period ended December 31, 2013. Polycom is not obligated to purchase any specific number of shares under its Share Repurchase Program and the program may be modified, suspended or discontinued at any time.

POLYCOM, INC. Reconciliations of GAAP Measures to Non-GAAP Measures (In thousands) (Unaudited)

June 30, 2015

GAAP cost of revenues used in inventory turns Stock-based compensation expense Effect of stock-based compensation expense on warranty rates Amortization of purchased intangibles Non-GAAP cost of revenues used in inventory turns GAAP gross profit Stock-based compensation expense Effect of stock-based compensation expense on warranty rates Amortization of purchased intangibles Non-GAAP gross profit Non-GAAP gross margin

$

GAAP sales and marketing expense Stock-based compensation expense Non-GAAP sales and marketing expense Non-GAAP sales and marketing expense as percent of revenues

$

$ $

130,650 (1,382) (80) (100) 129,088 185,925 1,382 80

$

$ $

137,880 (2,263) (53) (657) 134,907 192,820 2,263 53


June 30, 2014

$

$ $

136,797 (1,621 ) (77 ) (731 ) 134,368 195,222 1,621 77

$

$ $

268,530 (3,645) (133) (757) 263,995 378,745 3,645 133

$

$ $

273,336 (3,222) (206) (1,572) 268,336 387,207 3,222 206

100 187,487 $ 59.2%

657 195,793 $ 59.2%

731 197,651 $ 59.5 %

757 383,280 $ 59.2%

1,572 392,207 59.4%

89,433 $ (2,698) 86,735 $ 27.4%

90,859 $ (2,613) 88,246 $ 26.7%

97,836 $ (5,333 ) 92,503 $ 27.9 %

180,292 $ (5,311) 174,981 $ 27.0%

191,804 (5,724) 186,080 28.2%

46,545 $ (1,915) 44,630 $ 14.1%

49,337 $ (2,573) 46,764 $ 14.1%

49,031 $ (3,059 ) 45,972 $ 13.8 %

95,882 $ (4,488) 91,394 $ 14.1%

97,178 (4,101) 93,077 14.1%

$

22,269 (3,716) (64)

21,167 (1,783) (335)

24,636 (3,750 ) (381 )

43,436 (5,499) (399)

48,429 (6,363) (991)

$

18,489 $ 5.8%

$

$

$ GAAP research and development expense Stock-based compensation expense $ Non-GAAP research and development expense Non-GAAP research and development expense as percent of revenues GAAP general and administrative expense Stock-based compensation expense Costs associated with CEO separation and related SEC investigation Non-GAAP general and administrative expense Non-GAAP general and administrative expense as percent of revenues

Three Months Ended March 31, 2015

$ GAAP total operating expenses Stock-based compensation expense Amortization of purchased intangibles Restructuring costs Transaction-related costs Costs associated with CEO separation and related SEC investigation $ Non-GAAP total operating expenses Non-GAAP total operating expenses as percent of revenues

161,007 (8,329) (2,417) (343) — (64)

$ GAAP operating income Stock-based compensation expense Effect of stock-based compensation expense on warranty rates Amortization of purchased intangibles Restructuring costs Transaction-related costs Costs associated with CEO separation and related SEC investigation $ Non-GAAP operating income Non-GAAP operating margin

24,918 9,711 80

$

$

149,854 $ 47.3% $

2,517 343 — 64 37,633 $ 11.9%

$

19,049 $ 5.8%

163,804 (6,969) (2,417) (24) — (335)

$

154,059 $ 46.6% 29,016 9,232 53

$

3,074 24 — 335 41,734 $ 12.6%

$

20,505 $ 6.2 %

183,114 (12,142 ) (2,436 ) (9,175 ) — (381 )

$

158,980 $ 47.9 % 12,108 13,763 77

$

3,167 9,175 — 381 38,671 $ 11.6 %

$

37,538 $ 5.8%

324,811 (15,298) (4,834) (367) — (399)

$

303,913 $ 47.0% 53,934 18,943 133

$

5,591 367 — 399 79,367 $ 12.3%

41,075 6.2%

382,013 (16,188) (4,928) (39,518) (156) (991) 320,232 48.5% 5,194 19,410 206 6,500 39,518 156 991 71,975 10.9%

POLYCOM, INC. Summary of Stock-Based Compensation Expense (In thousands) (Unaudited) Three Months Ended June 30, June 30, 2015 2014

Cost of product revenues Cost of service revenues Stock-based compensation expense in total cost of revenues Sales and marketing Research and development General and administrative Stock-based compensation expense in operating expenses Total stock-based compensation expense

$

$

505 877 1,382 2,698 1,915 3,716 8,329 9,711

$

$

520 1,101 1,621 5,333 3,059 3,750 12,142 13,763


$

$

1,460 2,185 3,645 5,311 4,488 5,499 15,298 18,943

$

$

1,160 2,062 3,222 5,724 4,101 6,363 16,188 19,410