Polycom's new RealPresence Immersive Studio. Image source: Polycom.
Don't look now, but Polycom (PLCM +0.00%) is showing some signs of life, with shares rising around 2.5% after the video-conferencing specialist released third-quarter results Wednesday evening. Polycom stock is now up more than 25% during the past month, spurred by an activist investor urging the company to consider a strategic merger with its peers. Let's take a closer look at what Polycom accomplished in Q3.
Polycom results: The raw numbers
|
Q3 2015 Actuals |
Q3 2014 Actuals |
Growth (YOY) | |
|---|---|---|---|
|
Revenue |
$303.1 million |
$335.7 million |
-10% |
|
Net Income (GAAP) |
$13.6 million |
$17 million |
-20% |
|
Earnings per share (GAAP) |
$0.10 |
$0.12 |
-17% |
Source: Polycom,
What happened with Polycom this quarter?
- Polycom's guidance called for higher revenue in the range of $305 million to $315 million, and higher GAAP earnings per share of $0.11 to $0.13
- However, Polycom's adjusted (non-GAAP) earnings of $0.21 per share were in line with both the company's guidance and analysts' consensus estimates
- On a geographic basis:
- Revenue in the Americas fell 11% year over year, to $148.2 million, representing 49% of Polycom's total sales
- Revenue from Europe, Middle East, and Africa (EMEA) fell 8%, to $77.3 million
- Asia Pacific revenue dropped 9%, to $77.7 million.
- On a product category basis:
- UC Group Systems fell 15%, to $184.9 million, or 61% of sales
- UC Personal Devices increased 5%, to $63.3 million
- UC Platform fell 6%, to $55 million
- In early October, successfully launched four "highly differentiated" collaboration products: RealPresence Trio, RealPresence Debut, RealPresence Centro, and RealPresence Medialign
- Released new software updates focused on simplicity and ease of use, and representing "a reinforcement of [Polycom's] commitment to Microsoft's (MSFT 2.77%) collaboration ecosystem"
- GAAP operating margin increased 16% year over year, and adjusted operating margin rose 5%
- Per-share results were boosted by $25 million spent during the quarter to repurchase common stock
- Operating cash flow in Q3 of $26 million
- Ended the quarter with cash and investments of $655 million, $206 million of which is in the U.S.
- Net of debt, cash and investments at quarter-end were $418 million.
What management had to say
"Improving operational performance and making sound strategic investments remain top priorities for Polycom," stated Polycom CEO Peter Leav. "Additionally, we are very excited about the game-changing products that we recently announced."
During the subsequent conference call, Leav also elaborated, "[O]ne of the elements that we believe affected the quarter was the pause related to the new solutions that we announced in early Q4 two weeks ago." Several key customers were involved with the development of those products, Leav says, which likely hurt near-term demand for its current solutions.
What's more -- and true to many investors' recent concerns -- competition played a large role in the continued decline of Polycom's North American sales. Referring to Cisco (CSCO +2.59%), Leav explained, "Typically, Q3 is our largest competitor's best quarter. [...] That's their end-of-year and obviously they're in the midst of a new product refresh, their first in five or six years."
Looking forward
Nonetheless, Polycom remains excited for what's to come, Leav says, and is "thrilled with the success of our recent product launch, including early customer, analyst, and partner feedback, and the long-term opportunity these solutions create for our business."
With Cisco already nipping at Polycom's heals, investors should also be encouraged that Polycom management was very deliberate in repeatedly pointing out their dedication to, and close partnership with, Microsoft. Earlier this year, several Wall Street analysts expressed concern over Polycom's long-term relationship with Microsoft, especially after the tech behemoth unveiled its own videoconferencing solution called Microsoft Surface Hub. It's worth noting, however, that Polycom still hasn't seen the impact of that product; Microsoft recently pushed back the targeted shipment date of Surface Hub to Jan. 1, 2016, rather than its original plan to launch on Sept. 1, 2015.
In the meantime, for the current quarter, Polycom expects revenue of $310 million to $320 million, adjusted earnings per share of $0.22 to $0.24, and GAAP earnings per share of $0.12 to $0.14. Analysts' consensus estimates called for Polycom to achieve roughly the same adjusted earnings per share on higher revenue of $322.5 million, but that doesn't include future share repurchases.
For now, given Polycom's improving operational performance and the promise of new products, it's hard to blame investors for bidding up Polycom stock. But going forward, shareholders would be wise to keep a close eye on whether these products live up to expectations in light of ever-increasing competition in the space.
