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Videoconferencing equipment maker Polycom Inc. (PLCM - Analyst Report) posted solid financial results for the second quarter of 2013 yesterday after the closing bell. Both the top and the bottom lines surpassed the Zacks Consensus Estimate.

However, the company provided a disappointing financial outlook for the ensuing third quarter. Recently, Polycom’s CEO Mr. Andrew Miller resigned after irregularities in his expense submissions as discovered by the board of directors. This affected Polycom’s stock price, down 78 cents (6.98%) to $10.40, in the after market trade on NASDAQ.   

GAAP net income in the second quarter of 2013 was $5.3 million or 3 cents per share compared with $2 million or 1 cent per share in the prior-year quarter. However, adjusted (excluding special items) earnings per share of 7 cents were a penny higher than the Zacks Consensus Estimate.

Total revenue in the second quarter of 2013 was $345.2 million, down 3.7% year over year, but has beaten the Zacks Consensus Estimate of $342 million. Segment wise, Product revenues were $251.4 million, down 7.7% year over year. Service revenues were $93.8 million, down 8.8% year over year.

Technological Distribution of Sales

UC Group Systems revenues were $233 million, down 7% year over year. UC Personal Devices revenues were $50.8 million, up 18% year over year. UC Platform (Network Infrastructure) revenues were $61.4 million, down 4% year over year.

Geographic Distribution of Sales

America (North and South) generated approximately $175.6 million of revenues, down 1% year over year. Europe, Middle East and Africa generated $79.7 million, down 1% year over year. Asia-Pacific accounted for the remaining $89.9 million, down 10% year over year.


Gross margin in the reported quarter was 58.4% compared with 59.7% in the year-ago quarter. Quarterly operating expenses were $195.5 million, down 7% year over year. Quarterly operating margin was 1.8% compared with 1% in the year-ago quarter.

Balance Sheet

At the end of first-half 2013, Polycom had nearly $694.4 million of cash and marketable securities on its balance sheet compared with $724.6 million at the end of 2012. Its balance sheet remained clear of any outstanding debt.

Cash Flow

Cash flow from operations, during the end of the first half of 2013, was $81.3 million compared with $73.4 million in the year-ago period. Free cash flow, during the reported period, was $53.7 million compared with $37.9 in the year-ago period.

Financial Outlook

Management stated that the company’s total revenue for the third quarter of 2013 will be $330 million - $340 million. Its mid-point of $335 million is significantly below the current Zacks Consensus Estimate of $356 million. GAPP earnings per share will be ranging from breakeven to a loss of 2 cents per share. Non-GAAP earnings per share will be 10 cents – 12 cents. Assuming an average stock-based compensation of 8 cents per share, the mid-point of the non-GAAP earnings per share of 3 cents is well below the current Zacks Consensus Estimate of 6 cents. 

Other Stocks to consider

Polycom currently has a Zacks Rank #3 (Hold). Other stocks worth considering in this sector include Mitel Networks Corp. (MITL - Snapshot Report), Sonus Networks Inc. (SONS - Snapshot Report) and ViaSat Inc. (VSAT - Snapshot Report). All three carry a Zacks Rank #2 (Buy).

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