Polycom (PLCM) 8-K Polycom Reports Third Quarter Earnings

Exhibit 99.1

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

POLYCOM REPORTS THIRD QUARTER EARNINGS

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.

Third quarter 2007 consolidated net revenues were $240.0 million, compared to $173.2 million for the third quarter of 2006. As previously reported, Polycom’s acquisition of SpectraLink was completed on March 26, 2007. SpectraLink contributed $37.8 million to net revenues for the third quarter of 2007. Non-GAAP net income in the third quarter of 2007 was $32.8 million, or 35 cents per diluted share. This compares to Non-GAAP net income of $24.5 million, or 27 cents per diluted share, for the third 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 third quarter of 2007 was $19.8 million, or 21 cents per diluted share, compared to $17.1 million, or 19 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 atwww.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 atwww.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 atwww.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.

POLYCOM, INC.

Non-GAAP Condensed Consolidated Statements of Operations

Excluding Stock-based compensation expense, 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 Income tax effect of the preceding adjustments

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2007		September 30, 2006			September 30, 2007			September 30, 2006
Revenues:
Product revenues	$	206,979	$	152,410		$	578,353		$	435,919
Service revenues		33,068		20,798			88,264			59,957
Total revenues		240,047		173,208			666,617			495,876
Cost of revenues:
Cost of product revenues		80,130		55,091			217,791			157,095
Cost of service revenues		15,507		10,321			41,950			30,407
Total cost of revenues		95,637		65,412			259,741			187,502
Gross profit		144,410		107,796			406,876			308,374
Operating expenses:
Sales and marketing		58,097		40,985			165,273			119,872
Research and development		32,643		26,894			93,905			79,435
General and administrative		12,477		10,263			37,172			29,122
Total operating expenses		103,217		78,142			296,350			228,429
Operating income		41,193		29,654			110,526			79,945
Interest income, net		4,197		5,616			14,787			14,142
Other expense, net		185		(333	)		(349	)		401
Income before provision for income taxes		45,575		34,937			124,964			94,488
Provision for income taxes		12,761		10,481			34,624			28,346
Non-GAAP net income	$	32,814	$	24,456		$	90,340		$	66,142
Basic net income per share	$	0.36	$	0.28		$	0.99		$	0.75
Diluted net income per share	$	0.35	$	0.27		$	0.95		$	0.74
Weighted average shares outstanding for basic net income per share		91,148		88,373			91,224			88,093
Weighted average shares outstanding for diluted net income per share		94,561		90,506			95,014			89,871

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					Nine Months Ended
	September 30, 2007		September 30, 2006			September 30, 2007			September 30, 2006
Revenues:
Product revenues	$	206,979	$	152,410		$	578,353		$	435,919
Service revenues		33,068		20,798			88,264			59,957
Total revenues		240,047		173,208			666,617			495,876
Cost of revenues:
Cost of product revenues		84,465		55,650			230,374			158,599
Cost of service revenues		16,457		10,753			44,383			31,720
Total cost of revenues		100,922		66,403			274,757			190,319
Gross profit		139,125		106,805			391,860			305,557
Operating expenses:
Sales and marketing		61,510		42,736			174,437			124,848
Research and development		36,006		28,694			102,939			84,974
General and administrative		15,663		11,894			44,881			33,693
Acquisition-related costs		423		52			3,140			137
Purchased in-process research and development		—		—			9,400			—
Amortization of purchased intangibles		2,416		1,451			6,223			4,640
Restructuring costs		—		1,312			213			1,867
Total operating expenses		116,018		86,139			341,233			250,159
Operating income		23,107		20,666			50,627			55,398
Interest income, net		4,197		5,616			14,787			14,142
Loss on strategic investments		—		—			(7,400	)		—
Other expense, net		185		(333	)		(349	)		401
Income before provision for income taxes		27,489		25,949			57,665			69,941
Provision for income taxes		7,697		8,823			17,585			23,780
Net income	$	19,792	$	17,126		$	40,080		$	46,161
Basic net income per share	$	0.22	$	0.19		$	0.44		$	0.52
Diluted net income per share	$	0.21	$	0.19		$	0.42		$	0.51
Weighted average shares outstanding for basic net income per share		91,148		88,373			91,224			88,093
Weighted average shares outstanding for diluted net income per share		94,561		90,506			95,014			89,871

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended							Nine Months Ended
	September 30, 2007							September 30, 2007
	GAAP		Excluded			Non-GAAP		GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	206,979	$	—		$	206,979	$	578,353		$	—		$	578,353
Service revenues		33,068		—			33,068		88,264			—			88,264
Total revenues		240,047		—			240,047		666,617			—			666,617
Cost of revenues:
Cost of product revenues		84,465		4,335	(a)		80,130		230,374			12,583	(c)		217,791
Cost of service revenues		16,457		950	(b)		15,507		44,383			2,433	(b)		41,950
Total cost of revenues		100,922		5,285			95,637		274,757			15,016			259,741
Gross profit		139,125		(5,285	)		144,410		391,860			(15,016	)		406,876
Operating expenses:
Sales and marketing		61,510		3,413	(b)		58,097		174,437			9,164	(b)		165,273
Research and development		36,006		3,363	(b)		32,643		102,939			9,034	(b)		93,905
General and administrative		15,663		3,186	(b)		12,477		44,881			7,709	(b)		37,172
Acquisition-related costs		423		423			—		3,140			3,140			—
Purchased in-process research and development		—		—			—		9,400			9,400			—
Amortization of purchased intangibles		2,416		2,416			—		6,223			6,223			—
Restructuring costs		—		—			—		213			213			—
Total operating expenses		116,018		12,801			103,217		341,233			44,883			296,350
Operating income		23,107		(18,086	)		41,193		50,627			(59,899	)		110,526
Interest income, net		4,197		—			4,197		14,787			—			14,787
Loss on strategic investments		—		—			—		(7,400	)		(7,400	)		—
Other expense, net		185		—			185		(349	)		—			(349	)
Income before provision for income taxes		27,489		(18,086	)		45,575		57,665			(67,299	)		124,964
Provision for income taxes		7,697		(5,064	)		12,761		17,585			(17,039	)		34,624
Net income	$	19,792	$	(13,022	)	$	32,814	$	40,080		$	(50,260	)	$	90,340
Basic net income per share	$	0.22	$	(0.14	)	$	0.36	$	0.44		$	(0.55	)	$	0.99
Diluted net income per share	$	0.21	$	(0.14	)	$	0.35	$	0.42		$	(0.53	)	$	0.95
Weighted average shares outstanding for basic net income per share		91,148					91,148		91,224						91,224
Weighted average shares outstanding for diluted net income per share		94,561					94,561		95,014						95,014

(a) Excluded amount includes $3,349 related to the amortization of purchased intangibles for core and existing technologies, $725 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period and $261 related to the effect of stock-based compensation on warranty expense rates.

(b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period.

(c) Excluded amount includes $7,518 related to the amortization of purchased intangibles for core and existing technologies, $1,941 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period, $661 related to the effect of stock-based compensation on warranty expense rates and $2,464 related to purchase accounting adjustments made to inventory.

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended									Nine Months Ended
	September 30, 2006									September 30, 2006
	GAAP			Excluded			Non-GAAP			GAAP		Excluded			Non-GAAP
Revenues:
Product revenues	$	152,410		$	—		$	152,410		$	435,919	$	—		$	435,919
Service revenues		20,798			—			20,798			59,957		—			59,957
Total revenues		173,208			—			173,208			495,876		—			495,876
Cost of revenues:
Cost of product revenues		55,650			559	(a)		55,091			158,599		1,504	(c)		157,095
Cost of service revenues		10,753			432	(b)		10,321			31,720		1,313	(b)		30,407
Total cost of revenues		66,403			991			65,412			190,319		2,817			187,502
Gross profit		106,805			(991	)		107,796			305,557		(2,817	)		308,374
Operating expenses:
Sales and marketing		42,736			1,751	(b)		40,985			124,848		4,976	(b)		119,872
Research and development		28,694			1,800	(b)		26,894			84,974		5,539	(b)		79,435
General and administrative		11,894			1,631	(b)		10,263			33,693		4,571	(b)		29,122
Acquisition-related costs		52			52			—			137		137			—
Purchased in-process research and development		—			—			—			—		—			—
Amortization of purchased intangibles		1,451			1,451			—			4,640		4,640			—
Restructuring costs		1,312			1,312			—			1,867		1,867			—
Total operating expenses		86,139			7,997			78,142			250,159		21,730			228,429
Operating income		20,666			(8,988	)		29,654			55,398		(24,547	)		79,945
Interest income, net		5,616			—			5,616			14,142		—			14,142
Loss on strategic investments		—			—			—			—		—			—
Other expense, net		(333	)		—			(333	)		401		—			401
Income before provision for income taxes		25,949			(8,988	)		34,937			69,941		(24,547	)		94,488
Provision for income taxes		8,823			(1,658	)		10,481			23,780		(4,566	)		28,346
Net income	$	17,126		$	(7,330	)	$	24,456		$	46,161	$	(19,981	)	$	66,142
Basic net income per share	$	0.19		$	(0.09	)	$	0.28		$	0.52	$	(0.23	)	$	0.75
Diluted net income per share	$	0.19		$	(0.08	)	$	0.27		$	0.51	$	(0.23	)	$	0.74
Weighted average shares outstanding for basic net income per share		88,373						88,373			88,093					88,093
Weighted average shares outstanding for diluted net income per share		90,506						90,506			89,871					89,871

(a) Excluded amount includes $359 for stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period and $200 related to the effect of stock-based compensation on warranty expense rates.

(b) Excluded amount represents stock-based compensation expense recorded in accordance with SFAS 123R, “Share-Based Payment,” during the period.

(c) Excluded amount includes $1,108 for stock-based compensation expense recorded in accordance with SFAS 123R,

“Share-Based Payment,” during the period and $396 related to the effect of stock-based compensation on warranty expense rates.

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	September 30, 2007		December 31, 2006
ASSETS
Current assets
Cash and cash equivalents	$	247,987	$	316,368
Investments		77,925		157,345
Trade receivables, net		120,887		79,057
Inventories		69,841		48,029
Deferred taxes		42,758		22,459
Prepaid expenses and other current assets		19,851		16,719
Total current assets		579,249		639,977
Property and equipment, net		58,119		39,426
Long-term investments		45,539		102,133
Goodwill		496,595		356,755
Purchased intangibles, net		94,594		12,935
Deferred taxes		10,269		16,746
Other assets		14,837		22,043
Total assets	$	1,299,202	$	1,190,015
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	61,535	$	53,602
Accrued payroll and related liabilities		28,796		22,182
Taxes payable		2,273		58,092
Deferred revenue		54,297		40,227
Other accrued liabilities		51,134		39,780
Total current liabilities		198,035		213,883
Non-current liabilities
Deferred revenue		25,649		20,798
Taxes payable		33,318		—
Deferred taxes		6,594		—
Other long-term liabilities		11,995		8,614
Total liabilities		275,591		243,295
Stockholders’ equity		1,023,611		946,720
Total liabilities and stockholders’ equity	$	1,299,202	$	1,190,015

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2007			September 30, 2006
Cash flows from operating activities:
Net income	$	40,080		$	46,161
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,205			15,596
Amortization of purchased intangibles		13,726			4,640
Provision for doubtful accounts		(33	)		127
Provision for (benefit from) excess and obsolete inventories		50			1,540
Non-cash stock based compensation		30,281			17,507
Excess tax benefits from stock-based compensation		(14,190	)		(6,181	)
Gain on strategic investments		7,400			—
Purchase of in-process research and development		9,400			—
Loss on disposals of property and equipment		56			90
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(24,051	)		(5,567	)
Inventories		(2,264	)		(217	)
Deferred taxes		4,394			3
Prepaid expenses and other assets		(3,029	)		(2,812	)
Accounts payable		(1,551	)		2,671
Taxes payable		6,566			11,264
Other accrued liabilities		8,704			19,143
Net cash provided by operating activities		93,744			103,965
Cash flows from investing activities:
Purchase of property and equipment		(23,131	)		(17,317	)
Purchases of investments		(286,492	)		(522,320	)
Proceeds from sale and maturity of investments		421,624			488,596
Net cash paid in purchase acquisitions		(275,619	)		(188	)
Net cash used in investing activities		(163,618	)		(51,229	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		63,152			53,408
Repurchase of common stock		(75,849	)		(77,955	)
Excess tax benefits from stock-based compensation		14,190			6,181
Net cash provided by (used in) financing activities		1,493			(18,366	)
Net increase (decrease) in cash and cash equivalents		(68,381	)		34,370
Cash and cash equivalents, beginning of period		316,368			189,271
Cash and cash equivalents, end of period	$	247,987		$	223,641