Polycom (PLCM) 8-K Polycom Reports Third Quarter 2010 Earnings

Exhibit 99.1

        

Investor Contact:	Investor Relations Polycom, Inc. 925-924-5907 investor@polycom.com
Press Contact:	Caroline Japic Polycom, Inc. 408-474-2265 caroline.japic@polycom.com

Polycom Reports Third Quarter 2010 Earnings

Q3 Revenue Growth of 27 Percent Year-over-Year to a Record $308 Million

PLEASANTON, Calif.– Oct. 21, 2010– Polycom, Inc. (Nasdaq: PLCM), a global leader in unified communications solutions, today reported its earnings for the third quarter ended Sept. 30, 2010.

Third quarter 2010 consolidated net revenues were a record $308 million, compared to $243 million for the third quarter of 2009. GAAP net income for the third quarter of 2010 was $17 million, or 20 cents per diluted share, compared to $14 million, or 16 cents per diluted share, for the same period last year. Non-GAAP net income for the third quarter of 2010 was $34 million, or 38 cents per diluted share. This compares to Non-GAAP net income of $27 million, or 31 cents per diluted share, for the third quarter of 2009.

For the nine months ended Sept. 30, 2010, net revenues were $879 million, compared to $699 million for the first nine months of 2009. GAAP net income for the nine months ended Sept. 30, 2010 was $35 million, or 40 cents per diluted share, compared to GAAP net income of $37 million, or 44 cents per diluted share, for the same period last year. Non-GAAP net income for the period was $89 million, or $1.02 per diluted share, compared to $74 million, or 86 cents per diluted share, for the first nine months of 2009.

The reconciliation between GAAP net income and Non-GAAP net income is provided in the tables at the end of this release.

On a product line basis, consolidated net revenues for the third quarter of 2010 were comprised of:

• 67 percent video solutions, or $206 million (52 percent video communications, or $160 million, and 15 percent network systems, or $46 million); and

• 33 percent voice communications, or $102 million.

On a product line basis, consolidated net revenues for the third quarter of 2009 were comprised of:

• 68 percent video solutions, or $165 million (53 percent video communications, or $130 million, and 15 percent network systems, or $35 million); and

• 32 percent voice communications, or $78 million.

“Q3 represented a hallmark quarter for Polycom across the business, validating the speed and precision with which we have executed our go-to-market strategy and underscoring our unique role as the UC ecosystem partner of choice,” said Andrew Miller, Polycom president and CEO. “Importantly, we generated sharp growth in network systems revenues, driven by the launch of the Polycom UC Intelligent

Core, leveraging our best-in-class infrastructure technology and our highly-effective sales engine. These customer wins at the core not only contributed to Polycom’s record revenues but, more importantly, bodes well for the proliferation of our collaboration solution into our growing customer base. We also achieved significant gains with the Polycom Open Collaboration Network, which was punctuated by our new strategic relationship with Microsoft where we are jointly developing and marketing a unified communications solution that leverages the demand for the next-generation Microsoft Lync UC server.”

“Looking to Q4 and 2011, we believe Polycom is in a unique position to capture the emerging network effect of UC adoption by enterprise, public sector, service providers, SMB, and, ultimately, the connected home. In order to most effectively deliver on this mounting demand, we recruited a slate of world-class executives from industry leading companies to execute on the strategy that we set forth one year ago today. Through our unparalleled innovations, strategic partnerships, and customer-centric go-to-market capabilities, we have been taking share and, more importantly, leading this industry to unprecedented levels of customer adoption. The strategic investment plan is working, our margins are expanding, and we are now staged to take this business to the next level,” concluded Miller.

“In the third quarter, revenues grew 27 percent year-over-year, underpinned by record bookings that generated record backlog exiting Q3,” said Michael Kourey, Polycom executive vice president, finance and administration, and CFO. “Driven by network systems growth of 15 percent sequentially and 31 percent year-over-year and the robust demand environment for Polycom’s entire solution, gross margins increased more than one point sequentially and over two points year-over-year. As a result of these strong operating results and effective working capital management, we generated third quarter positive operating cash flow of $41 million, exiting the third quarter with $500 million in cash and investments and no debt.”

About Polycom

Polycom, Inc. (Nasdaq: PLCM) is a global leader in unified communications solutions with industry-leading telepresence, video, voice and infrastructure solutions built on open standards. Polycom powers smarter conversations, transforming lives and businesses worldwide. Please visitwww.polycom.com for more information or connect with Polycom onTwitter,Facebook, andLinkedIn.

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 future proliferation of our collaboration solution into a growing customer base and Polycom as being uniquely positioned to capture the emerging network effect of UC adoption and as leading the industry to unprecedented levels of customer adoption. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the fact that the Company’s continuing strategic investment plan may not yield the intended results or may take longer than originally anticipated to achieve such results, the impact of competition on our product sales and for our customers and partners, 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 general economic conditions and external market factors, the market acceptance of Polycom’s products 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 that may cause disruption to the business, any disruptive impact to the Company that may result from the new executive hires, the impact of restructuring actions, and the impact of global conflicts such as those in the Middle East 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 June 30, 2010, and in other reports filed by Polycom with the SEC. Polycom disclaims any intent or obligations to update these forward-looking statements.

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.

Earnings Call Details

As has been noted on the Company’s web site since Oct. 6, 2010, Polycom will hold a conference call today, Oct. 21, 2010, at 5 p.m. EDT/2 p.m. PDT to discuss its third quarter earnings. Andrew Miller, president and CEO, and Michael Kourey, chief financial officer, will host the conference call. You may participate by viewing the webcast atwww.polycom.com/investors or, for callers in the US and Canada, by calling 800.763.6049; and for callers outside of the US and Canada, by calling 212.231.2900. The pass code for the call is “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 21484381. A replay of the call will also be available onwww.polycom.com for approximately 12 months.

Future Events

Delivering on the Promise of Unified Communications

President and CEO Andrew Miller and Chief Strategy and Technology Officer Joe Burton will host a one-hour, live global web broadcast on Monday, November 8 at 10 a.m. EST/7 a.m. PST, which will be moderated by Lane Cooper from Computerworld Magazine. For webcast details, please go to:http://www.polycom.com/company/events/webcast-miller-burton.html

Transatlantic Analyst Event

Polycom will also host a live global web broadcast on Monday, December 6 at Noon EST/9 a.m. PST. President and CEO Andrew Miller and other key members of the executive team will discuss Polycom’s Unified Communications vision and strategy and provide updates on the strategic investment plan. For webcast details, please go to:http://www.polycom.com/company/investor_relations/financial_investor_events.html

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.

© 2010 Polycom, Inc. All rights reserved. POLYCOM®, the Polycom “Triangles” 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.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended							Nine Months Ended
	September 30, 2010							September 30, 2010
	GAAP		Excluded			Non-GAAP		GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	255,496	$	—		$	255,496	$	728,348		$	—		$	728,348
Service revenues		52,573		—			52,573		150,510			—			150,510
Total revenues		308,069		—			308,069		878,858			—			878,858
Cost of revenues:
Cost of product revenues		99,913		4,044	(a)		95,869		291,463			12,310	(a)		279,153
Cost of service revenues		25,371		849	(b)		24,522		74,390			2,988	(b)		71,402
Total cost of revenues		125,284		4,893			120,391		365,853			15,298			350,555
Gross profit		182,785		(4,893	)		187,678		513,005			(15,298	)		528,303
Operating expenses:
Sales and marketing		97,214		7,095	(b)		90,119		282,491			20,658	(b)		261,833
Research and development		38,278		2,339	(b)		35,939		108,423			7,788	(b)		100,635
General and administrative		19,440		4,322	(c)		15,118		55,627			13,013	(c)		42,614
Amortization of purchased intangibles		1,406		1,406			—		4,267			4,267			—
Restructuring costs		3,301		3,301			—		6,574			6,574			—
Litigation reserves and payments		—		—			—		1,235			1,235			—
Total operating expenses		159,639		18,463			141,176		458,617			53,535			405,082
Operating income		23,146		(23,356	)		46,502		54,388			(68,833	)		123,221
Other income (expense), net		293		249	(d)		44		(7,931	)		(5,324	)(d)		(2,607	)
Income before provision for income taxes		23,439		(23,107	)		46,546		46,457			(74,157	)		120,614
Provision for income taxes		6,171		(6,512	)		12,683		11,174			(20,111	)		31,285
Net income	$	17,268	$	(16,595	)	$	33,863	$	35,283		$	(54,046	)	$	89,329
Basic net income per share	$	0.20	$	(0.20	)	$	0.40	$	0.41		$	(0.64	)	$	1.05
Diluted net income per share	$	0.20	$	(0.18	)	$	0.38	$	0.40		$	(0.62	)	$	1.02
Weighted average shares outstanding for basic net income per share		85,313					85,313		85,045						85,045
Weighted average shares outstanding for diluted net income per share		87,984					87,984		87,864						87,864

(a) For the three months ended September 30, 2010, the excluded amount includes $3,321 related to the amortization of purchased intangibles for core and existing technologies, $610 for stock-based compensation expense recorded during the period and $113 related to the effect of stock-based compensation on warranty expense rates. For the nine months ended September 30, 2010, the excluded amount includes $9,996 related to the amortization of purchased intangibles for core and existing technologies, $1,968 for stock-based compensation expense recorded during the period and $346 related to the effect of stock-based compensation on warranty expense rates.

(b) Excluded amount represents stock-based compensation expense recorded during the period.

(c) For the three months ended September 30, 2010, the excluded amount includes $3,904 for stock-based compensation expense recorded during the period and $418 for severance. legal and other costs associated with the CEO transition in May 2010. For the nine months ended September 30, 2010, the excluded amount includes $9,008 for stock-based compensation expense recorded during the period and $4,005 for severance, legal and other costs associated with the CEO transition in May 2010.

(d) For the three months ended September 30, 2010, the excluded amount represents the net gain realized during the period on preferred equity securities for which we previously recognized a loss as the securities were deemed to be other than temporarily impaired. For the nine months ended September 30, 2010, the excluded amount represents the loss recognized during the period on preferred securities considered to be other than temporarily impaired, net of any subsequent realized gains.

POLYCOM, INC.

GAAP to Non-GAAP Reconciliation

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended									Nine Months Ended
	September 30, 2009									September 30, 2009
	GAAP			Excluded			Non-GAAP			GAAP			Excluded			Non-GAAP
Revenues:
Product revenues	$	198,955		$	—		$	198,955		$	570,668		$	—		$	570,668
Service revenues		44,064			—			44,064			128,452			—			128,452
Total revenues		243,019			—			243,019			699,120			—			699,120
Cost of revenues:
Cost of product revenues		84,288			3,950	(a)		80,338			242,778			12,835	(a)		229,943
Cost of service revenues		20,509			740	(b)		19,769			60,569			2,110	(b)		58,459
Total cost of revenues		104,797			4,690			100,107			303,347			14,945			288,402
Gross profit		138,222			(4,690	)		142,912			395,773			(14,945	)		410,718
Operating expenses:
Sales and marketing		70,819			2,542	(b)		68,277			203,605			7,053	(b)		196,552
Research and development		29,004			1,669	(b)		27,335			85,532			5,430	(b)		80,102
General and administrative		13,556			2,265	(b)		11,291			39,873			5,742	(b)		34,131
Amortization of purchased intangibles		1,446			1,446			—			4,344			4,344			—
Restructuring costs		4,632			4,632			—			11,476			11,476			—
Litigation reserves and payments		700			700			—			700			700			—
Total operating expenses		120,157			13,254			106,903			345,530			34,745			310,785
Operating income		18,065			(17,944	)		36,009			50,243			(49,690	)		99,933
Other expense, net		(637	)		—			(637	)		(1,995	)		—			(1,995	)
Income before provision for income taxes		17,428			(17,944	)		35,372			48,248			(49,690	)		97,938
Provision for income taxes		3,722			(4,987	)		8,709			11,192			(13,246	)		24,438
Net income	$	13,706		$	(12,957	)	$	26,663		$	37,056		$	(36,444	)	$	73,500
Basic net income per share	$	0.16		$	(0.16	)	$	0.32		$	0.44		$	(0.44	)	$	0.88
Diluted net income per share	$	0.16		$	(0.15	)	$	0.31		$	0.44		$	(0.42	)	$	0.86
Weighted average shares outstanding for basic net income per share		84,189						84,189			83,855						83,855
Weighted average shares outstanding for diluted net income per share		86,199						86,199			85,168						85,168

(a) For the three months ended September 30, 2009, the excluded amount includes $3,386 related to the amortization of purchased intangibles for core and existing technologies, $469 for stock-based compensation expense recorded during the period and $95 related to the effect of stock-based compensation on warranty expense rates. For the nine months ended September 30, 2009, the excluded amount includes $10,066 related to the amortization of purchased intangibles for core and existing technologies, $1,050 related to past license fees claims, $1,437 for stock-based compensation expense recorded during the period and $282 related to the effect of stock-based compensation on warranty expense rates.

(b) Excluded amount represents stock-based compensation expense recorded during the period.

POLYCOM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	September 30, 2010		December 31, 2009
ASSETS
Current assets
Cash and cash equivalents	$	307,720	$	331,098
Investments		156,824		123,686
Trade receivables, net		147,434		132,813
Inventories		107,743		76,863
Deferred taxes		24,165		23,824
Prepaid expenses and other current assets		33,199		24,299
Total current assets		777,085		712,583
Property and equipment, net		104,118		81,252
Long-term investments		35,948		12,687
Goodwill		493,647		495,299
Purchased intangibles, net		31,373		46,255
Deferred taxes		28,107		23,943
Other assets		24,188		13,882
Total assets	$	1,494,466	$	1,385,901
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	106,556	$	87,233
Accrued payroll and related liabilities		30,943		23,707
Taxes payable		4,154		617
Deferred revenue		95,481		79,504
Other accrued liabilities		54,831		52,360
Total current liabilities		291,965		243,421
Non-current liabilities
Deferred revenue		51,437		46,787
Taxes payable		18,031		27,111
Deferred taxes		2,570		2,702
Other long-term liabilities		12,708		12,027
Total liabilities		376,711		332,048
Stockholders’ equity		1,117,755		1,053,853
Total liabilities and stockholders’ equity	$	1,494,466	$	1,385,901

POLYCOM, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2010		September 30, 2009			September 30, 2010			September 30, 2009
Revenues:
Product revenues	$	255,496	$	198,955		$	728,348		$	570,668
Service revenues		52,573		44,064			150,510			128,452
Total revenues		308,069		243,019			878,858			699,120
Cost of revenues:
Cost of product revenues		99,913		84,288			291,463			242,778
Cost of service revenues		25,371		20,509			74,390			60,569
Total cost of revenues		125,284		104,797			365,853			303,347
Gross profit		182,785		138,222			513,005			395,773
Operating expenses:
Sales and marketing		97,214		70,819			282,491			203,605
Research and development		38,278		29,004			108,423			85,532
General and administrative		19,440		13,556			55,627			39,873
Amortization of purchased intangibles		1,406		1,446			4,267			4,344
Restructuring costs		3,301		4,632			6,574			11,476
Litigation reserves and payments		—		700			1,235			700
Total operating expenses		159,639		120,157			458,617			345,530
Operating income		23,146		18,065			54,388			50,243
Other income (expense), net		293		(637	)		(7,931	)		(1,995	)
Income before provision for income taxes		23,439		17,428			46,457			48,248
Provision for income taxes		6,171		3,722			11,174			11,192
Net income	$	17,268	$	13,706		$	35,283		$	37,056
Basic net income per share	$	0.20	$	0.16		$	0.41		$	0.44
Diluted net income per share	$	0.20	$	0.16		$	0.40		$	0.44
Weighted average shares outstanding for basic net income per share		85,313		84,189			85,045			83,855
Weighted average shares outstanding for diluted net income per share		87,984		86,199			87,864			85,168

POLYCOM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2010			September 30, 2009
Cash flows from operating activities:
Net income	$	35,283		$	37,056
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,728			24,931
Amortization of purchased intangibles		14,263			14,405
Provision for doubtful accounts		—			247
Provision for excess and obsolete inventories		3,337			3,124
Non-cash stock based compensation		42,410			21,772
Excess tax benefits from stock-based compensation		(6,649	)		(1,638	)
Write down of investments other than temporarily impaired		6,530			—
Loss on disposals of property and equipment		215			90
Changes in assets and liabilities, net of the effect of acquisitions:
Trade receivables		(14,621	)		1,572
Inventories		(34,217	)		17,248
Deferred taxes		(5,068	)		1,460
Prepaid expenses and other assets		(24,353	)		213
Accounts payable		19,323			531
Taxes payable		3,571			2,974
Other accrued liabilities		31,913			(10,974	)
Net cash provided by operating activities		101,665			113,011
Cash flows from investing activities:
Purchase of property and equipment		(51,816	)		(25,994	)
Purchases of investments		(291,613	)		(408,413	)
Proceeds from sale and maturity of investments		237,205			400,087
Net cash used in investing activities		(106,224	)		(34,320	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee option and stock purchase plans		43,796			33,958
Repurchase of common stock		(69,264	)		(35,439	)
Excess tax benefits from stock-based compensation		6,649			1,638
Net cash provided by (used in) financing activities		(18,819	)		157
Net increase (decrease) in cash and cash equivalents		(23,378	)		78,848
Cash and cash equivalents, beginning of period		331,098			165,669
Cash and cash equivalents, end of period	$	307,720		$	244,517