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Press Release
Palm Reports Q3 FY06 Results
Quarterly Revenue $388.5M, Up 36% Year Over Year; Treo Smartphone Sell-through Up More Than 100% Year Over YearSUNNYVALE, Calif., Mar 23, 2006 (BUSINESS WIRE) -- Palm, Inc. (Nasdaq:PALM) today reported revenue of $388.5 million
in its third quarter of fiscal year 2006, ended March 3, up 36 percent
from the year-ago period.
"We delivered strong results this quarter, a result of solid
execution against company objectives," said Ed Colligan, president and
chief executive officer of Palm. "We extended our record of
double-digit year-over-year revenue growth and profitability gains.
Smartphone sell-through reported by our carrier partners more than
doubled over the year-ago period, validating our strategic decision to
support multiple open platforms and offer a choice of smartphones
based on either Windows Mobile(R) or Palm OS(R)."
Net income in the third fiscal quarter was $29.9 million, or $0.28
per diluted share. Net income reflected the effect of a partial
reversal of a deferred tax asset valuation allowance of approximately
$13 million. This compares to net income for the third quarter of
fiscal year 2005 of $4.4 million, or $0.04 per diluted share.
Net income for the quarter, on a non-GAAP(1) basis, totaled $19.8
million, or $0.19 per diluted share, excluding the partial reversal of
the company's valuation allowance against its deferred tax assets and
amortization of intangible assets and deferred stock-based
compensation, and adjusting the income-tax provision to 40 percent.
This compares to non-GAAP net income in the third quarter of fiscal
year 2005 of $10.6 million, or $0.10 per diluted share, which excluded
employee separation costs and amortization of intangible assets and
deferred stock-based compensation.
Fourth Quarter Fiscal Year 2006 Outlook
Based on current trends, Palm provided its outlook for financial
results in the fourth quarter of fiscal year 2006, ending June 2,
2006. At this time, the company expects the following:
- Revenue in the range of $400 million to $405 million;
- Gross margin between 33.5 percent and 33.7 percent;
- Operating expenses between $101 million and $103 million on a
GAAP basis and between $100 million and $102 million on a
non-GAAP basis; and
- Earnings per diluted share between $0.33 and $0.34 on a GAAP
basis and between $0.22 and $0.23 on a non-GAAP basis, which
excludes amortization of intangible assets and deferred
stock-based compensation and reflects the difference between
utilizing a 40 percent effective tax rate on a non-GAAP basis
compared to an effective tax rate of approximately 7.5 percent
to 8.5 percent on a GAAP basis.
Highlights of the Quarter:
During the third quarter of fiscal year 2006, the company
accomplished the following:
- Shipped a total of 564,000 Treo(TM) smartphones. Treo
sell-through reported by the company's carriers and other
smartphone distributors was a record-high 569,000, up 102
percent from the year-ago period, reflecting strong demand for
the Treo 650 and Treo 700w smartphones;
- Grew Palm's share of the U.S. converged smartphone/PDA market
to 30 percent, up from 22 percent a year ago, according to
Canalys. Palm's unit shipments grew by 111 percent compared to
the overall market growth of 56 percent, according to Canalys;
- Began selling the company's first smartphone that uses the
Microsoft Windows Mobile operating system. The Palm(R) Treo
700w smartphone is the first of four new smartphones the
company will introduce this calendar year;
- Delivered the first Treo smartphone built to take advantage of
high-speed EV-DO (Evolution Data Optimized) radios. The Treo
700w runs on the Verizon Wireless network;
- Created additional breakthrough software differentiation by
providing a Palm experience on the Windows Mobile operating
system. Features include the ability to dial by name or image,
perform a Google web search from the Today Screen, manage
multiple voicemail-box commands with VCR-like icons, and
decline an incoming phone call with a quick text message;
- Increased its carrier business for Treo 650 smartphones in
Latin America with Telefonica/movistar in Argentina, Chile,
Colombia and Venezuela; Vivo in Brazil; and CTI Movil in
Argentina. In the United States, Cellular South introduced the
Treo 650 to its customers, and Verizon Wireless began selling
the Treo 700w in addition to the Treo 650; and
- Hired Ronald R. Rhodes as senior vice president of Global
Operations, who brings to Palm 30 years' experience in
operations and manufacturing, and promoted Roy Bedlow as vice
president, Europe, Middle East and Africa.
INVESTORS' NOTE: The company will hold a conference call for the
public today at 2 p.m. Pacific/5 p.m. Eastern to discuss matters
covered in this news release. The dial-in number is 866.510.0710 for
callers within the United States and 617.597.5378 for international
callers. The passcode for both is 90593474. A replay of the conference
call will be available through March 30, 2006 beginning today at
approximately 6 p.m. Pacific. The dial-in numbers for the replay are
888.286.8010 (domestic) and 617.801.6888 (international), passcode
88212503. The live conference call and slide presentation will be
available over the Internet by logging onto the investor relations
section of Palm's website at http://ir.Palm.com. An audio replay and
text transcript of the conference call also can be accessed at the
same URL beginning today at approximately 6 p.m. Pacific.
NON-GAAP FINANCIAL MEASURES: To supplement the company's
consolidated financial statements presented in accordance with GAAP,
Palm 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. The presentation of
non-GAAP financial results is not meant to be considered in isolation
or as a substitute for, or superior to, GAAP results. Investors should
be aware that non-GAAP measures have inherent limitations and should
be read only in conjunction with Palm's consolidated financial
statements prepared in accordance with GAAP. These non-GAAP financial
measures may also be different from non-GAAP financial measures used
by other companies.
Palm believes the non-GAAP measures that it presents enhance
investors' overall understanding of the company's current financial
performance, ongoing operations and prospects for the future. These
non-GAAP results are among the primary indicators management uses as a
basis for planning and forecasting future periods because they provide
meaningful supplemental information regarding the company's
operational performance, including the company's ability to provide
cash flows to invest in research and development and fund acquisitions
and capital expenditures. These non-GAAP results also facilitate
management's internal comparisons to the company's historical
operating results and comparisons to competitors' operating results.
In addition, because Palm 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.
Consistent with the company's practice, the non-GAAP measures included
in this press release have been reconciled to the nearest GAAP
measure.
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 Palm's expected fourth quarter of fiscal year 2006 revenue,
gross margin, operating expenses and earnings per share, its tax rate
and the introduction of new product and service offerings. 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 Palm's
existing and future products and services and growth in Palm's
industries and markets; Palm's ability to forecast demand for its
products; possible defects in products and technologies developed;
Palm's ability to introduce new products and services successfully and
in a cost-effective and timely manner; Palm's ability to timely and
cost-effectively obtain components and elements of its technology from
suppliers; Palm's ability to obtain other key technology from third
parties free from errors and defects, integrate it with Palm's
products and meet certification requirements, all on a timely basis;
Palm's ability to compete with existing and new competitors; Palm's
dependence on wireless carriers and ability to meet wireless-carrier
certification requirements; Palm'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 Palm's
most recent filings with the Securities and Exchange Commission,
including its Quarterly Report on Form 10-Q for the fiscal quarter
ended Dec. 2, 2005 and its Annual Report on Form 10-K for the fiscal
year ended June 3, 2005. Palm undertakes no obligation to update
forward-looking statements to reflect events or circumstances
occurring after the date of this press release.
CAUTIONARY NOTE REGARDING REPORTED SELL-THROUGH: Palm generally
records revenues for its smartphone products based on sell-in to
carriers and other distributors. To facilitate investors'
understanding of end-user demand for the company's products, Palm also
reports smartphone sell-through information in this press release and
its earnings conference calls. Palm relies on reports from carriers
and other distributors for its smartphone sell-through and inventory
information. This information is subject to variance, and Palm can not
assure investors of its accuracy, although Palm believes it to be
accurate in all material respects.
About Palm, Inc.
Palm, Inc., a leader in mobile computing, 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 for consumers, mobile
professionals and businesses include Palm(R) Treo(TM) smartphones,
Palm handheld computers, and Palm LifeDrive(TM) mobile managers, as
well as software, services and accessories.
Palm products are sold through select Internet, retail, reseller
and wireless operator channels throughout the world, and at Palm
Retail Stores and Palm online stores (http://www.palm.com/store).
More information about Palm, Inc. is available at
http://www.palm.com.
(1) GAAP stands for Generally Accepted Accounting Principles.
Palm, Palm OS, Treo and LifeDrive are among the trademarks or
registered trademarks owned by or licensed to Palm, 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.
<![CDATA[
Palm, 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,
2006 2005 2006 2005
--------- --------- ----------- ---------
Revenues $388,540 $285,265 $1,175,373 $934,590
Costs and operating expenses:
Cost of revenues (a) 257,862 196,773 804,394 645,054
Sales and marketing 53,298 44,391 152,774 126,994
Research and development 38,146 23,410 98,256 62,385
General and administrative 9,683 9,416 30,388 30,527
Amortization of intangible
assets and deferred stock-
based compensation (b) 791 2,520 5,737 7,386
Employee separation costs -- 3,666 -- 3,666
Restructuring charges -- -- 1,954 --
--------- --------- ----------- ---------
Total costs and operating
expenses 359,780 280,176 1,093,503 876,012
--------- --------- ----------- ---------
Operating income 28,760 5,089 81,870 58,578
Interest and other income
(expense), net 3,406 1,205 6,980 1,782
--------- --------- ----------- ---------
Income before income taxes 32,166 6,294 88,850 60,360
Income tax provision
(benefit) 2,227 1,921 (220,155) 11,702
--------- --------- ----------- ---------
Net income $29,939 $4,373 $309,005 $48,658
========= ========= =========== =========
Net income per share:
Basic $0.30 $0.04 $3.08 $0.50
========= ========= =========== =========
Diluted (c) $0.28 $0.04 $2.95 $0.47
========= ========= =========== =========
Shares used in computing per
share amounts:
Basic 101,109 97,501 100,172 96,507
Diluted 105,972 102,882 104,921 102,592
(a) Cost of revenues does not include that portion of amortization of
intangible assets and deferred stock-based compensation related to
cost of revenues.
(b) Amortization of intangible assets and deferred stock-based
compensation:
Cost of revenues $3 $30 $388 $693
Sales and marketing 506 1,629 4,086 4,997
Research and development 152 64 280 192
General and
administrative 130 463 983 1,170
Employee separation
costs -- 334 -- 334
--------- --------- ----------- ---------
$791 $2,520 $5,737 $7,386
========= ========= =========== =========
(c) Diluted net income per share accounts for the effect of the
convertible debt using the "if converted" method:
Numerator for basic net
income $29,939 $4,373 $309,005 $48,658
Effect of dilutive
securities:
Interest expense on
convertible debt, net
of taxes 263 -- 788 --
--------- --------- ----------- ---------
Numerator for diluted
net income per share $30,202 $4,373 $309,793 $48,658
========= ========= =========== =========
Palm'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.
Certain prior period amounts have been reclassified for current year
presentation.
All share and per share amounts referred to in this press release have
been adjusted to reflect the two-for-one stock split in the form of a
stock dividend, effective March 14, 2006.
Palm, Inc.
Reconciliation of GAAP Items to Non-GAAP Items
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
----------- ----------- ----------- ----------
Net income, as reported $29,939 $4,373 $309,005 $48,658
Adjustments:
Amortization of
intangible assets and
deferred stock-based
compensation 791 2,520 5,737 7,386
Employee separation
costs -- 3,666 -- 3,666
Restructuring charges -- -- 1,954 --
Income tax provision /
benefit (10,956) -- (258,771) --
----------- ----------- ----------- ----------
Net income, non-GAAP $19,774 $10,559 $57,925 $59,710
=========== =========== =========== ==========
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
----------- ----------- ----------- ----------
Net income per share:
Basic, as reported $0.30 $0.04 $3.08 $0.50
Adjustments (0.10) 0.07 (2.50) 0.12
----------- ----------- ----------- ----------
Basic, non-GAAP $0.20 $0.11 $0.58 $0.62
=========== =========== =========== ==========
Diluted, as reported $0.28 $0.04 $2.95 $0.47
Adjustments (0.09) 0.06 (2.39) 0.11
----------- ----------- ----------- ----------
Diluted, non-GAAP $0.19 $0.10 $0.56 $0.58
=========== =========== =========== ==========
Shares used in computing
per share amounts:
Basic, as reported 101,109 97,501 100,172 96,507
=========== =========== =========== ==========
Diluted, as
reported 105,972 102,882 104,921 102,592
Adjustments:
Effect of dilutive
securities:
Convertible debt (1,084) -- (1,084) --
----------- ----------- ----------- ----------
Diluted, non-GAAP 104,888 102,882 103,837 102,592
=========== =========== =========== ==========
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 the
change in the valuation allowance against our deferred tax assets, and
for the related income tax provision of 40% which is the expected
normalized rate for future years. Non-GAAP net income per diluted
share amounts exclude the dilutive effect of the convertible debt
using the "if converted" method because on a non-GAAP basis it is
anti-dilutive.
Palm'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.
All share and per share amounts referred to in this press release have
been adjusted to reflect the two-for-one stock split in the form of a
stock dividend, effective March 14, 2006.
Palm, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
Feb. 28, 2006 May 31, 2005
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $131,643 $128,164
Short-term investments 404,632 234,535
Accounts receivable, net of
allowance for doubtful accounts
of $4,168 and $6,874,
respectively 119,078 140,162
Inventories 51,065 35,544
Deferred income taxes 82,495 --
Investment for committed tenant
improvements 4,936 6,182
Prepaids and other 10,303 8,225
--------------- ---------------
Total current assets 804,152 552,812
Restricted investments 775 775
Land held for sale 60,000 --
Land not in use -- 60,000
Property and equipment, net 22,550 19,158
Goodwill 166,538 249,161
Intangible assets, net 26,123 30,373
Deferred income taxes 325,349 36,217
Other assets 1,512 1,536
--------------- ---------------
Total assets $1,406,999 $950,032
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $156,525 $135,720
Income taxes payable 49,633 8,441
Accrued restructuring 9,683 15,400
Provision for committed tenant
improvements 4,936 6,182
Current portion of long-term
convertible debt 35,000 --
Other accrued liabilities 200,342 156,009
--------------- ---------------
Total current liabilities 456,119 321,752
Non-current liabilities:
Long-term convertible debt -- 35,000
Other non-current liabilities 13,381 12,257
Stockholders' equity:
Preferred stock, $.001 par value,
125,000 shares authorized; none
outstanding -- --
Common stock, $.001 par value,
2,000,000 shares authorized;
outstanding: 102,069 shares and
98,977 shares, respectively 102 99
Additional paid-in capital 1,454,245 1,406,885
Unamortized deferred stock-based
compensation (1,565) (2,422)
Accumulated deficit (515,246) (824,251)
Accumulated other comprehensive
income (loss) (37) 712
--------------- ---------------
Total stockholders' equity 937,499 581,023
--------------- ---------------
Total liabilities
and stockholders'
equity $1,406,999 $950,032
=============== ===============
Palm'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.
Certain prior balances have been reclassified to conform to current
quarter presentation.
All share and per share amounts referred to in this press release have
been adjusted to reflect the two-for-one stock split in the form of a
stock dividend, effective March 14, 2006.
Palm, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
Feb. 28, 2006 Feb. 28, 2005
------------------- ------------------
Cash flows from operating
activities:
Net income $29,939 $4,373
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 4,280 3,687
Amortization 791 2,520
Deferred income taxes (3,081) (600)
Realized loss (gain) on
sale of equity and
short-term investments 5 (191)
Changes in assets and
liabilities:
Accounts receivable 84,431 60,887
Inventories (20,070) (16,501)
Prepaids and other 3,107 1,788
Accounts payable (12,353) (33,981)
Income taxes payable (3,345) (2,032)
Tax benefit related to
stock options 5,843 --
Accrued restructuring (4,139) (1,814)
Other accrued
liabilities 5,810 3,408
------------------- ------------------
Net cash provided by
operating activities 91,218 21,544
------------------- ------------------
Cash flows from investing
activities:
Purchase of property and
equipment (3,988) (1,699)
Purchase of short-term
investments (395,333) (54,875)
Sale of equity investments -- 1,200
Sale of short-term investments 245,708 47,734
------------------- ------------------
Net cash used in investing
activities (153,613) (7,640)
------------------- ------------------
Cash flows from financing
activities:
Proceeds from issuance of
common stock; employee stock
plans 12,688 2,756
------------------- ------------------
Net cash provided by
financing activities 12,688 2,756
------------------- ------------------
Change in cash and cash
equivalents (49,707) 16,660
Cash and cash equivalents,
beginning of period 181,350 89,721
------------------- ------------------
Cash and cash equivalents, end
of period $131,643 $106,381
=================== ==================
Other cash flow information:
Cash paid for income
taxes $2,645 $3,400
=================== ==================
Cash paid for interest $882 $907
=================== ==================
Palm'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.
Certain prior balances have been reclassified to conform to current
quarter presentation.
]]>
SOURCE: Palm, Inc.
Palm, Inc.
Sandy O'Halloran, 408-617-7639 (Investor Relations)
sandy.ohalloran@palm.com
Marlene Somsak, 408-617-7451 (Media Relations)
marlene.somsak@palm.com
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