• Polycom Reports Third Quarter Earnings

    10-17-2007

    Revenue Growth of 39 Percent Year-over-Year; Revenue Growth of 17 Percent Year-over-Year Excluding SpectraLink; Operating Cash Flow of $42.0 Million

    PLEASANTON, Calif. – Oct. 17, 2007 – Polycom, Inc. (NASDAQ: PLCM), the world's leading provider of unified collaborative communications solutions, today reported its earnings for the third quarter ended Sept. 30, 2007.

    Second quarter 2007 consolidated net revenues were $233.9 million, compared to $165.0 million for the second quarter of 2006. As previously reported, we completed our acquisition of SpectraLink on March 26, 2007. SpectraLink contributed $36.4 million to net revenues for the second quarter of 2007. Non-GAAP net income in the second quarter of 2007 was $28.9 million, or 30 cents per diluted share. This compares to Non-GAAP net income of $21.9 million, or 24 cents per diluted share, for the second quarter of 2006. Non-GAAP financial measures exclude stock-based compensation expense, the effect of stock-based compensation expense on warranty rates, impact to cost of sales from purchase accounting adjustments to inventory, 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, and the income tax effect of the preceding adjustments. GAAP net income for the second quarter of 2007 was $10.1 million, or 11 cents per diluted share, compared to $15.0 million, or 17 cents per diluted share, for the same period last year.

    For the nine months ended Sept. 30, 2007, net revenues were $666.6 million, compared to $495.9 million for the first nine months of 2006. Non-GAAP net income for the period was $90.3 million, or 95 cents per diluted share, compared to $66.1 million, or 74 cents per diluted share, for the first nine months of 2006. GAAP net income for the nine months ended Sept. 30, 2007 was $40.1 million, or 42 cents per diluted share, compared to GAAP net income of $46.2 million, or 51 cents per diluted share, for the same period last year.

    The reconciliation of the GAAP statement of operations to the respective Non-GAAP statement of operations, for the three and nine month periods ended Sept. 30, 2007 and 2006, is set forth at the end of this press release.

    On a product line basis, consolidated net revenues for the third quarter of 2007 were comprised of:

    • 61 percent video solutions, or $146.4 million (47 percent video communications, or $113.7 million, and 14 percent network systems, or $32.6 million); and
    • 39 percent voice communications, or $93.7 million.

    This compares to the third quarter of 2006, in which consolidated net revenues were comprised of:

    • 71 percent video solutions, or $123.4 million (54 percent video communications, or $93.1 million, and 17 percent network systems, or $30.3 million); and
    • 29 percent voice communications, or $49.8 million.

    "Overall, demand for IP-based collaboration solutions remains robust," said Robert Hagerty, chairman and CEO. "We were pleased to generate broad based growth in key international markets and across our diversified product offering. In particular, we returned to organic growth in our voice products, delivered sequential growth in our new wireless voice offering, and generated an accelerated year-over-year growth in our network systems product line."

    Hagerty continued, "Looking forward into the fourth quarter and full year 2008, we anticipate several growth drivers to have a positive impact on our business including: (1) our expanded HD group video offering with the Polycom® HDX8000™ and HDX9000™ series, (2) the launch of Polycom's new HDX4000™ executive desktop product, (3) the introduction of our new Microsoft® Office Communications Server 2007 voice products, (4) the continued ramp of our Polycom RPX™ and TPX™ Telepresence products, (5) the rollout of our best-in-class RMX media server network platform, and (6) new contributions from previous investments in our high-touch sales force."

    "In addition, we look forward to leveraging our strategic partnerships with Avaya, Cisco, IBM, Microsoft, Nortel, Alcatel-Lucent, 3COM, and several of the leading service providers around the world. With the integration of our new wireless business unit nearing completion, we believe Polycom is well positioned to capture the full opportunity of the fast growth collaboration market," concluded Hagerty.

    "We delivered strong operating results in the third quarter, including record revenues of $240.0 million, a 17.2 percent operating margin, and $42.0 million in operating cash flow," said Michael Kourey, senior vice president, finance and administration, and CFO. "In concert with these operating results, we also achieved a solid increase in backlog and deferred revenues. During the third quarter, we purchased $50 million in Polycom stock and exited the quarter with a remaining $190 million authorization under the current share repurchase program."

    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 high definition video, wired and wireless voice, and content solutions to deliver the ultimate collaborative 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, workplace wireless 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 from on-demand communications and collaboration. For additional information, call 800-POLYCOM or visit the Polycom web site 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 Polycom as being well positioned to capture the full opportunity of the fast growth collaboration market, the drivers contributing to such anticipated growth and our future ability to leverage our strategic partnerships. 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 for our customers and partners, our ability to rapidly and effectively integrate SpectraLink and its operations, potential fluctuations in results and future growth rates, the market acceptance of Polycom's products, such as the products highlighted in this release and changing market demands, including demands for differing technologies or product and services offerings, possible delays in the development, availability and shipment of new products, increasing costs and differing uses of capital, changes in key personnel, the impact of global conflicts such as those in the Middle East, and risks associated with changes in general economic conditions. Many of these risks and uncertainties are discussed in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

    As has been noted on the Company's web site since Oct. 11, 2007, Polycom will hold a conference call today, Oct. 17, 2007, at 5:00 p.m. ET/2:00 p.m. PT to discuss its third 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 800-926-5188; and for callers outside of the US and Canada, by calling 212-231-2900, 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 21352006. A replay of the call will also be maintained on our website for twelve months at www.polycom.com under Investor Relations – Financial Summaries – Financial Results Archives.

    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.

    Polycom, the Polycom logo, SpectraLink, and the SpectraLink logo are registered trademarks of Polycom and Polycom HDX4000, HDX8000, HDX9000, RPX, and TPX are trademarks of Polycom in the U.S. and various countries. ©2007, Polycom, Inc. All rights reserved.