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Polycom Q2-2016 Financials

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Polycom Q2-2016 Financials
    

By: -
24 Jul 2016
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Just 13 days after announcing the end to the Mitel merger talks and the impending takeover by private equity firm Siris Capital, Polycom reported second quarter 2016 revenues of $288 million. On a GAAP basis, Polycom reported a net loss of $10 million, or 7 cents per share for the second quarter. On a non-GAAP basis, Polycom reported net income of $29 million and earnings of 21 cents per diluted share.  Like so many other firms, Polycom uses non-GAAP measures of operating results, profit and loss per share, which are adjusted to exclude certain costs, expenses, gains and losses the company’s management believes appropriate to enhance an overall understanding of past performance and prospects for the future.  

As shown in our tables and charts, the big picture might best be described as one of continuous, gradual decline.  This quarter, of the 12 growth numbers (by product, Q/Q, and Y/Y) in the table, ten are negative.  Three months ago, the same was also true – 10 out of 12 negative.  Most troubling perhaps is the decline in the all-important UC Group category.  The brightest spot, in contrast, is in UC Personal (phones), and while the numbers here are small, they are generally positive.

As was the case last quarter, Polycom did not hold an earnings call.  So all the information we have right now is based on the press release.

One observation: total revenues were down less than 1% on a sequential basis.  Quite frankly, I had expected much worse due to the distractions caused by the Mitel merger.  Surely the company’s senior management, sales and marketing professionals, as well as Polycom’s channel partner organization must have had their attention drawn away from the day to day chores of selling what’s in the sales bag.  Back in the middle ages of the video conferencing industry, the Cisco-Tandberg deal caused quite a drop in the numbers short term.  Doesn’t look like that is the case here.

Despite the company’s wildly successful efforts at cost cutting, you can see the effect that declining revenues have had on GAAP net income.  We hasten to add that Polycom generated $19M in operating cash flow.

As I wrote last quarter, Polycom is clearly caught in a market transition.  One thing is the shift to cloud, a development that is killing off infrastructure sales, although eventually the cloud guys will have to invest.  The cloud boat left the dock a few years ago, leaving Polycom nearly high and dry.  Another thing is that the market for room systems has tilted and interest in high end conference rooms is being overrun by interest in smaller rooms with fewer AV complications and less expensive collaboration systems.  

The revenue charts above show four years of declining sales.  I’ve described this in the past as “been down so long looks like up to me” (with attribution to Richard Farina).  When the Siris deal closes, Polycom will be a private company and we have no guarantees that financial performance data will continue to be released.  We’d like to think that with the burden of quarterly financial earnings removed, Polycom and Siris can re-focus on innovation, shrewd product and service developments, and strengthened channel partner relationships.  They need to execute on a plan to “Make Polycom Great Again.”