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Revenue Up 18% Year-over-Year
MILPITAS, Calif., March 17, 2005 -- palmOne, Inc. (Nasdaq: PLMO) today reported revenue of $285.3 million for the third quarter of fiscal year 2005, ended Feb. 25, up approximately 18 percent from the $242.5 million reported during the comparable quarter a year ago.
Net income was $4.4 million, or $0.09 per diluted share, measured on a Generally Accepted Accounting Principles, or GAAP, basis and reflecting certain non-recurring employee-separation costs . This compares to a loss in the year-ago period of $9.3 million, or $0.20 per share.
Net income in the third quarter of fiscal year 2005, measured on a non-GAAP basis, totaled $10.6 million, or $0.21 per diluted share, excluding the effects of amortization of intangible assets and deferred stock-based compensation and employee-separation costs. This compares to a non-GAAP net income in the third quarter of fiscal year 2004 of $0.6 million, or $0.01 per diluted share, which excluded the effects of amortization of intangible assets and deferred stock-based compensation and restructuring charges.
"We executed well and delivered strong revenue growth and gross margin during the quarter. Treo (TM) smartphone sell-through rose by almost 50 percent, and our share of the handheld-computer market expanded around the world," said Ed Colligan , palmOne president and interim chief executive officer. "Going forward, we're committed to investing in our product-development engine and software-application differentiation. We'll also work to accelerate the pace at which we bring our smartphones to new carriers and higher-speed networks."
Colligan noted the following financial highlights:
- Revenue rose approximately 18 percent, marking the seventh consecutive quarter of year-over-year growth;
- Gross margin rose to 31.0 percent in the quarter from 28.9 percent in the comparable quarter a year ago;
- Operating margin was 1.8 percent, and non-GAAP operating margin was 4.0 percent;
- Net income was $4.4 million, and non-GAAP net income totaled $10.6 million; and
- The company generated $21.5 million in cash from operations in the quarter.
During the quarter, palmOne accomplished the following:
- Expanded smartphone sales to include the Treo 650 across the Cingular Wireless network in the United States, building upon sales of Treo 600 smartphones and taking advantage of Cingular's high-speed Enhanced Data for Global Evolution, or EDGE, network, the nation's fastest data network;
- Expanded the relationship with Orange in the U.K. , France and Switzerland to include the Treo 650 smartphone , building upon Orange 's previous sales of Treo 600 smartphones. Orange is expected to begin selling the Treo 650 in the fourth fiscal quarter;
- Signed an agreement with Telecom Italia Mobile, or TIM, to distribute the Treo 650 smartphone in Italy . TIM is expected to begin selling the Treo 650 in the fourth fiscal quarter;
- Announced the sale of 1.5 million units of the Tungsten (TM) E handheld computer in 14 months on the market. The Tungsten E consistently has been the best-selling handheld in the United States and represented 20 percent of all U.S. handheld sales since its introduction, according to The NPD Group; and
- Shipped approximately 938,000 Zire (TM), Tungsten and Treo family devices. Cumulative shipments to date total approximately 29.9 million units.
Guidance for the Fourth Quarter of Fiscal Year 2005
The company also provided guidance for the fourth fiscal quarter of 2005, which ends June 3, 2005 , as follows:
- Revenue will be between $320 million and $330 million, which represents 22 percent growth over the year-ago period, measured at the midpoint of the range. This guidance assumes that certain products originally expected to ship early in the fourth quarter will ship later in the fourth quarter or move to the first quarter of fiscal year 2006;
- Smartphones are expected to generate approximately 50 percent of anticipated net revenue;
- Gross margin is expected to be in the range of 29.5 percent to 30.5 percent;
- Operating expenses on a GAAP basis, which includes approximately
$2.5 million for amortization of intangible assets and stock-based compensation, are expected to be in the $79 million to $81 million range. On a non-GAAP basis the company anticipates operating expenses to be in the range of $76 million to $78 million, which includes increased investments in our product-development engine; - Earnings per diluted share on a GAAP basis in the range of $0.20 to $0.27 and on a non-GAAP basis in the range of $0.25 to $0.32; and
- Continued positive cash flow from operations.
Investor's Note:
The company will provide a detailed
description of its financial results in a conference call and
webcast with investors today at 2 p.m. PST . The dial-in number
for the call is 800.291.5365 in the United States and 617.614.3922
for international callers. The passcode for both live calls is
42982984. The conference call will be available live over the
Internet by logging onto http://ir.palmone.com.
A slide presentation also will be available simultaneously with
the conference call. An audio replay and text transcript of the
conference call also can be accessed at the same URL beginning
today at approximately 5:30 p.m. PST.
A replay of the conference
call will be available through March 24, 2005 . The dial-in number
for the replay will be 888.286.8010, pass code 83270323, or,
internationally at 617.801.6888, with a passcode of 83270323.
An archive of the audio and visual portion of the conference
call will be available on palmOne's investor
relations website at http://ir.palmone.com.
Cautionary Note Regarding Forward-looking Statements:
This press
release contains forward-looking statements within the meaning
of the federal securities laws, including, without limitation,
statements regarding palmOne's expected fourth
quarter of fiscal year 2005 revenue, gross margin, operating
expenses, earnings per share and cash flow from operations ,
product revenue mix, investments in product development and differentiation
and bringing palmOne's smartphones to new carriers and
higher-speed networks. These statements are subject to risks
and uncertainties that could cause actual results and events
to differ materially, including, without limitation, the following:
fluctuations in the demand for palmOne's existing and future
products and services and growth in palmOne's industries
and markets; palmOne's ability to forecast demand for its
products; possible defects in products and technologies developed;
palmOne's ability to introduce new products and services
successfully and in a cost-effective and timely manner; palmOne's
ability to timely and cost-effectively obtain components and
elements of its technology from suppliers; palmOne's ability
to compete with existing and new competitors; palmOne's
dependence on wireless carriers and ability to meet wireless-carrier
certification requirements; palmOne's ability to utilize
its net operating losses. A detailed discussion of these and
other risks and uncertainties that could cause actual results
and events to differ materially from such forward-looking statements
is included in palmOne's most recent filings with the Securities
and Exchange Commission, including its Quarterly Report on Form
10-Q for the fiscal quarter ended November 26, 2004 and its Annual
Report on Form 10-K for the fiscal year ended May 28, 2004. palmOne undertakes no obligation to update forward-looking statements
to reflect events or circumstances occurring after the date of
this press release.
Non-GAAP Financial Measures:
To supplement the company's
consolidated financial statements presented in accordance with
GAAP, palmOne uses non-GAAP measures of certain components of
financial performance, including operating income (loss), net
income (loss) and per share data, which are adjusted from results
based on GAAP to exclude certain expenses, gains and losses.
These non-GAAP measures are provided to enhance investors' overall
understanding of the company's
current financial performance and the company's prospects
for the future. Specifically, the company believes the non-GAAP
results provide useful information to both management and investors
by excluding certain expenses, gains and losses that may not
be indicative of its core operating results. These non-GAAP results
are among the primary indicators management uses as a basis for
planning and forecasting of future periods and facilitating management's
internal comparisons to the company's historical operating
results and comparisons to competitors' operating results.
In addition, because palmOne has historically reported certain
non-GAAP results to investors, the company believes the inclusion
of non-GAAP measures provides consistency in the company's
financial reporting. These measures should be considered in addition
to results prepared in accordance with generally accepted accounting
principles, but should not be considered a substitute for, or
superior to, GAAP results. These non-GAAP financial measures
may also be different from non-GAAP financial measures used by
other companies. Consistent with the company's practice,
the non-GAAP measures included in this press release have been
reconciled to the nearest GAAP measure.
About palmOne, Inc.
palmOne, Inc. -- a leader in handheld computing and communications solutions
-- strives to put the power of computing in people's hands so they can access
and share their most important information. The company's products include Treo
(TM) smartphones, Zire (TM) and Tungsten (TM) handhelds, and software and accessories.
palmOne products are sold through select Internet, retail, reseller and wireless
operator channels throughout the world.
More information about palmOne, Inc. is available at http://www.palmOne.com/asia.
palmOne,
Zire, Tungsten and Treo are among the trademarks or registered
trademarks owned by or licensed to palmOne, Inc. All other brand
and product names are or may be trademarks of, and are used to
identify products or services of, their respective owners.
palmOne, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2005 2004 2005 2004
Revenues $285,265 $242,485 $934,590 $682,308
Costs and operating
expenses:
Cost of revenues (*) 196,773 172,169 645,054 491,132
Sales and marketing 44,391 38,582 126,994 116,869
Research and
development 23,410 19,831 62,385 51,607
General and
administrative 9,416 9,170 30,527 27,219
Amortization of
intangible assets and
deferred stock-based
compensation (**) 2,186 5,414 7,052 7,473
Employee separation
costs 4,000 -- 4,000 --
Restructuring charges -- 4,522 -- 8,110
Total costs and
operating expenses 280,176 249,688 876,012 702,410
Operating income (loss) 5,089 (7,203) 58,578 (20,102)
Interest and other
income (expense), net 1,205 (486) 1,782 965
Income (loss) before
income taxes 6,294 (7,689) 60,360 (19,137)
Income tax provision 1,921 1,633 11,702 4,415
Income (loss) from
continuing operations 4,373 (9,322) 48,658 (23,552)
Loss from discontinued
operations (net of taxes
of $0, $0, $0 and $252,
respectively ) -- -- -- (11,634)
Net income (loss) $4,373 $(9,322) $48,658 $(35,186)
Net income (loss) per share:
Basic:
Continuing operations $0.09 $(0.20) $1.01 $(0.63)
Discontinued operations -- -- -- (0.31)
$0.09 $(0.20) $1.01 $(0.94)
Diluted:
Continuing operations $0.09 $(0.20) $0.95 $(0.63)
Discontinued operations -- -- -- (0.31)
$0.09 $(0.20) $0.95 $(0.94)
Shares used in computing
per share amounts:
Basic 48,751 46,073 48,254 37,373
Diluted 51,441 46,073 51,296 37,373
(*) Cost of revenues does not include that portion of amortization of
intangible assets and deferred stock-based compensation related to cost of
revenues.
(**) Amortization of intangible assets and deferred stock-based
compensation:
Cost of revenues $30 $243 $693 $331
Sales and marketing 1,629 4,709 4,997 6,366
Research and development 64 68 192 132
General and
administrative 463 394 1,170 644
$2,186 $5,414 $7,052 $7,473
palmOne's fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
palmOne, Inc.
Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of
Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Three Months Ended
Feb. 28, 2005 Feb. 28, 2004
Adjust- Non- Adjust- Non-
GAAP ments GAAP GAAP ments GAAP
Revenues $285,265 $- $285,265 $242,485 $- $242,485
Costs and operating
expenses:
Cost of
revenues (*) 196,773 -- 196,773 172,169 -- 172,169
Sales and
marketing 44,391 -- 44,391 38,582 -- 38,582
Research and
development 23,410 -- 23,410 19,831 -- 19,831
General and
administrative 9,416 -- 9,416 9,170 -- 9,170
Amortization of
intangible
assets and
deferred
stock-based
compensation
(**) 2,186 (2,186) -- 5,414 (5,414) --
Employee
separation
costs 4,000 (4,000) -- -- -- -
Restructuring
charges -- -- -- 4,522 (4,522) --
Total costs and
operating
expenses 280,176 (6,186) 273,990 249,688 (9,936) 239,752
Operating income
(loss) 5,089 6,186 11,275 (7,203) 9,936 2,733
Interest and
other income
(expense), net 1,205 -- 1,205 (486) -- (486)
Income (loss)
before income
taxes 6,294 6,186 12,480 (7,689) 9,936 2,247
Income tax
provision 1,921 -- 1,921 1,633 -- 1,633
Income (loss)
from continuing
operations 4,373 6,186 10,559 (9,322) 9,936 614
Loss from
discontinued
operations -- -- -- -- -- --
Net income
(loss) $4,373 $6,186 $10,559 $(9,322) $9,936 $614
Net income (loss)
per share:
Basic:
Continuing
operations $0.09 $0.13 $0.22 $ (0.20) $0.21 $0.01
Discontinued
operations -- -- -- -- -- --
$0.09 $0.13 $0.22 $(0.20) $0.21 $0.01
Diluted:
Continuing
operations $0.09 $0.12 $0.21 $(0.20) $0.21 $0.01
Discontinued
operations -- -- -- -- -- --
$0.09 $0.12 $0.21 $(0.20) $0.21 $0.01
Shares used in
computing per
share amounts:
Basic 48,751 -- 48,751 46,073 -- 46,073
Diluted 51,441 -- 51,441 46,073 1,156 47,229
(*) Cost of revenues does not include that portion of amortization of
intangible assets and deferred stock-based compensation related to cost of
revenues.
(**) Amortization of intangible assets and deferred stock-based
compensation:
Cost of revenues $30 $(30) $-- $243 $(243) $--
Sales and
marketing 1,629 (1,629) -- 4,709 (4,709) --
Research and
development 64 (64) -- 68 (68) --
General and
administrative 463 (463) -- 394 (394) --
$2,186 $(2,186) $-- $5,414 $(5,414) $--
The above non-GAAP amounts have been adjusted to eliminate amortization
of intangible assets and deferred stock-based compensation, employee
separation costs and restructuring charges.
palmOne's fiscal periods
are generally 13 weeks in length and end on a Friday. For presentation
purposes, the periods are presented as ending on Aug. 31, Nov.
30, Feb. 28 and May 31.
palmOne, Inc.
Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of
Operations
(In thousands, except per share data)
(Unaudited)
Nine Months Ended Nine Months Ended
Feb. 28, 2005 Feb. 28, 2004
Adjust- Non- Adjust- Non-
GAAP ments GAAP GAAP ments GAAP
Revenues $934,590 $-- $934,590 $682,308 $-- $682,308
Costs and operating
expenses:
Cost of
revenues (*) 645,054 -- 645,054 491,132 -- 491,132
Sales and
marketing 126,994 -- 126,994 116,869 -- 116,869
Research and
development 62,385 -- 62,385 51,607 -- 51,607
General and
administrative 30,527 -- 30,527 27,219 -- 27,219
Amortization of
intangible
assets and
deferred
stock-based
compensation
(**) 7,052 (7,052) -- 7,473 (7,473) --
Employee
separation
costs 4,000 (4,000) -- -- -- --
Restructuring
charges -- -- -- 8,110 (8,110) --
Total costs
and operating
expenses 876,012 (11,052) 864,960 702,410 (15,583) 686,827
Operating income
(loss) 58,578 11,052 69,630 (20,102) 15,583 (4,519)
Interest and
other income
(expense),
net 1,782 -- 1,782 965 -- 965
Income (loss)
before income
taxes 60,360 11,052 71,412 (19,137) 15,583 (3,554)
Income tax
provision 11,702 -- 11,702 4,415 -- 4,415
Income (loss)
from continuing
operations 48,658 11,052 59,710 (23,552) 15,583 (7,969)
Loss from
discontinued
operations
(net of taxes
of $0 and $252,
respectively) -- -- -- (11,634) 11,634 --
Net income
(loss) $48,658 $11,052 $59,710 $(35,186) $27,217 $(7,969)
Net income
(loss) per share:
Basic:
Continuing
operations $1.01 $0.23 $1.24 $(0.63) $0.42 $(0.21)
Discontinued
operations -- -- -- (0.31) 0.31 --
$1.01 $0.23 $1.24 $(0.94) $0.73 $(0.21)
Diluted:
Continuing
operations $0.95 $0.21 $1.16 $(0.63) $0.42 $(0.21)
Discontinued
operations -- -- -- (0.31) 0.31 --
$0.95 $0.21 $1.16 $(0.94) $0.73 $(0.21)
Shares used in
computing per
share amounts:
Basic 48,254 -- 48,254 37,373 -- 37,373
Diluted 51,296 -- 51,296 37,373 -- 37,373
(*) Cost of revenues does not include that portion of amortization of
intangible assets and deferred stock-based compensation related to cost of
revenues.
(**) Amortization of intangible assets and deferred stock-based
compensation:
Cost of
revenues $693 $(693) $-- $331 $(331) $--
Sales and
marketing 4,997 (4,997) -- 6,366 (6,366) --
Research and
development 192 (192) -- 132 (132) --
General and
administrative 1,170 (1,170) -- 644 (644) --
$7,052 $(7,052) $-- $7,473 $(7,473) $--
The above non-GAAP amounts have been adjusted to eliminate amortization
of intangible assets and deferred stock-based compensation, employee
separation costs, restructuring charges and loss from discontinued
operations.
palmOne's fiscal periods are generally 13 weeks in
length and end on a Friday. For presentation purposes, the periods
are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May
31.
palmOne, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
February 28, 2005 May 31, 2004
ASSETS
Current assets:
Cash and cash equivalents (1) $106,381 $98,569
Short-term investments (1) 229,852 153,882
Accounts receivable, net of allowance for
doubtful accounts of $7,615 and $8,317,
respectively 158,540 120,757
Inventories 45,620 14,030
Investment for committed tenant improvements 6,306 7,197
Prepaids and other 8,976 8,067
Total current assets 555,675 402,502
Restricted investments 775 1,175
Land not in use 60,000 60,000
Property and equipment, net 16,632 19,425
Goodwill 251,879 257,363
Intangible assets, net 5,167 10,979
Deferred income taxes 35,400 34,800
Other assets 564 1,694
Total assets $926,092 $787,938
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $150,567 $112,772
Accrued restructuring 19,095 27,156
Provision for committed tenant improvements 6,306 7,197
Other accrued liabilities 156,290 112,679
Total current liabilities 332,258 259,804
Non-current liabilities:
Long-term convertible debt 35,000 35,000
Other non-current liabilities 1,150 1,600
Stockholders' equity:
Preferred stock, $.001 par value, 125,000 shares
authorized; none outstanding -- --
Common stock, $.001 par value, 2,000,000 shares
authorized; outstanding: 48,977 shares and
47,032 shares, respectively 49 47
Additional paid-in capital 1,401,985 1,383,630
Unamortized deferred stock-based compensation (3,209) (1,995)
Accumulated deficit (841,980) (890,638)
Accumulated other comprehensive income 839 490
Total stockholders' equity 557,684 491,534
Total liabilities and stockholders' equity $926,092 $787,938
(1) In the third quarter of fiscal year 2005, the Company began
to classify its investment in auction-rate securities as short-term
investments. These investments were included in cash and cash
equivalents in previous periods ($104.5 million at May 31, 2004),
and such amounts have been reclassified in the accompanying interim
financial statements to conform to the current period classification.
This change in classification had no effect on the amounts of
total current assets, total assets, net income or cash flow from
operations of the Company.
palmOne's fiscal periods are generally
13 weeks in length and end on a Friday. For presentation purposes,
the periods are presented as ending on Aug. 31, Nov. 30, Feb.
28 and May 31.
palmOne, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
Feb. 28, 2005 Feb. 28, 2004
Cash flows from operating activities:
Income from continuing operations $4,373 $(9,322)
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation 3,687 5,151
Amortization 2,186 5,625
Deferred income taxes (600) --
Realized gain on sale of equity investments (200) --
Changes in assets and liabilities, net of
effect of business acquisition:
Accounts receivable 60,887 51,535
Inventories (16,501) 9,294
Prepaids and other 1,797 6
Accounts payable (33,981) (19,977)
Accrued restructuring (1,814) (3,055)
Other accrued liabilities 1,710 (18,547)
Net cash provided by (used in) operating
activities 21,544 20,710
Cash flows from investing activities:
Purchase of property and equipment (1,699) (770)
Sale of equity investments 1,200 --
Purchase of short-term investments (54,875) (137,762)
Sale of short-term investments 47,734 87,676
Sale of restricted investments -- 1,041
Net cash provided by (used in) investing
activities (7,640) (49,815)
Cash flows from financing activities:
Proceeds from issuance of common stock;
employee stock plans 2,756 635
Net cash provided by financing activities 2,756 635
Change in cash and cash equivalents 16,660 (28,470)
Cash and cash equivalents, beginning of
period (1) 89,721 150,020
Cash and cash equivalents, end of period (1) $106,381 $121,550
Other cash flow information:
Cash paid for income taxes $3,400 $582
Cash paid for interest $907 $1,191
(1) In the third quarter of fiscal year 2005, the Company began to classify its investment in auction-rate securities as short-term investments. These investments were included in cash and cash equivalents in previous periods ($69.0 million at February 28, 2004 and $68.2 million at November 30, 2003), and such amounts have been reclassified in the accompanying interim financial statements to conform to the current period classification. This change in classification had no effect on the amounts of total current assets, total assets, net income or cash flow from operations of the Company.
palmOne's fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
