Polycom, Inc. Displays a Decent Quarter, Light Guidance

Polycom (PLCM) reported fourth-quarter 2015 results Tuesday after the market close, and the market promptly drove shares of the video conferencing specialist to a fresh 52-week-low early Wednesday as a result.

That's not to say Polycom's quarter was terrible. More than anything, the company largely delivered on guidance while insisting its latest products are gaining traction -- an obvious effort to appease investors' concerns over increasing competition in its niche. Before we get there, however, let's take a closer look at Polycom's headline numbers:

Polycom results: The raw numbers

Data source: Polycom. 

What happened with Polycom this quarter?

• GAAP earnings per share once again came in below guidance of $0.12 to $0.14.
• At the same time, revenue was slightly above the mid-point of Polycom's guidance (for $310 million to $320 million), while Polycom's adjusted (non-GAAP) earnings of $0.23 per share were exactly in line with both consensus estimates and Polycom's expectations.
• On a geographic basis:
• Revenue in the Americas fell 7% year over year to $153.4 million, representing 48% of Polycom's total sales
• Revenue from Europe, Middle East, and Africa (EMEA) fell 9% to $84.9 million
• Asia-Pacific revenue decreased 13% to $78.6 million.
• On a product-category basis:
• UC Group Systems sales decreased 14% to $188.1 million, or 59% of sales
• UC Personal Devices increased 5% to $69.7 million
• UC Platform revenue declined 6% to $59.1 million
• Adjusted operating margin increased 20 basis points year over year to 12.5%
• Generated operating cash flow of $31 million, bringing trailing 12-month operating cash flow to $120 million.
• Ended the quarter with cash and investments of $666 million (up from $655 million last quarter), $206 million of which is in the U.S.
• Net of debt, cash and investments at the end of the year totaled $431 million.
• Enjoyed greater-than-expected customer demand for RealPresence Trio -- one of four collaboration products launched last quarter -- including orders from multiple Fortune 500 companies.
• Began taking orders for RealPresence Centro, which will begin shipping later in the current quarter.
• Subsequent to the quarter's end, announced RealPresence Clarity, a complementary collaboration infrastructure software that utilizes an "industry-first hybrid cloud-bursting services to seamlessly manage spikes in demand [...]."
• Notable project wins included:
• A competitive win over Cisco involving a million-dollar deal of Polycom RealPresence Centro, RealPresence Trio, infrastructure, and services from a "well-known Fortune 50 company in the worldwide beverage, food, and snack business." This business saw "a clear path to integration with their Skype for Business environment."
• NATO Communications and Information Agency ehanced its existing Polycom network with RealPresence and RealConnect technology to bridge video infrastructure with Skype for Business. This will be one of the first customers to deploy RealPresence Centro.
• A multimillion-dollar deal with a subsidiary of a leading European bank that wanted a "practical, unified collaboration solution that would integrate with Microsoft Skype for Business and maintain the seamless collaboration their customers valued."

What management had to say 
In Polycom's press release, CEO Peter Leav said, "Polycom reported in-line quarterly performance and continued year-over-year improvement in non-GAAP operating margin. We are excited with the positive customer feedback and long term opportunities created by our newest product innovations."

Leav elaborated during the subsequent conference call:

In 2015, we invested in our business to produce a suite of innovative solutions, including Polycom RealPresence Trio, RealPresence Debut, RealPresence Centro, and now RealPresence Clarity, as well as major enhancements to our Group Series offering, including Touch and our market-leading user experience interface RealPresence Concierge. We also continued our relentless focus on improving operating performance. Our customer focus, experience, knowledge and vision for this industry provide us a distinct competitive advantage. 

Looking forward 
Seasonality typically means lower revenue in the first quarter on a sequential basis, and Polycom expects to continue to endure near-term macroeconomic and political pressures in China, Russia, and the Middle East. As such, Polycom expects revenue in the current quarter to range from $295 million to $305 million, down 9.3% year over year at the midpoint, and adjusted operating margin of 10.6% to 11.3%. That should translate to adjusted earnings per share of $0.18 to $0.20, and GAAP earnings per share of $0.02 to $0.04. By comparison, analysts' consensus estimates were slightly more optimistic, calling for adjusted earnings at the high end of Polycom's guidance range, and revenue just above the midpoint of guidance at $302.5 million.

In the end, investors should be encouraged that Polycom's new products are enjoying generally positive feedback from current and prospective customers -- especially those looking for solutions to further integrate with Skype for Business considering concerns voiced by Wall Street last year that Polycom's long-term relationship with Microsoft could be in jeopardy.

But at the same time -- the few big wins notwithstanding -- that feedback has yet to translate to meaningful revenue and earnings growth, and Polycom can't rely forever on propping up results through improved operational performance. With that in mind, it's no surprise the market was willing to bid shares of Polycom down on Wednesday.