Press Release
Palm Reports Q3 FY07 Results
SUNNYVALE, Calif., Mar 22, 2007 (BUSINESS WIRE) -- Palm, Inc. (Nasdaq:PALM) today reported revenue of $410.5 million in the third quarter of fiscal year 2007, ended March 2. Smartphone sell-through for the period reached a company record high totaling 738,000 units, up 30 percent year over year and up 20 percent sequentially.
Net income in the fiscal quarter totaled $11.8 million, or $0.11 per diluted share. Net income included stock-based compensation expense of $5.7 million, an in-process research and development charge from acquisitions during the quarter of $3.7 million and amortization of intangible assets of $0.3 million. This compares to net income for the third quarter of fiscal year 2006 of $29.9 million, or $0.28 per diluted share.
Net income for the quarter, on a non-GAAP(1) basis, totaled $16.5 million, or $0.16 per diluted share, excluding stock-based compensation expense, an in-process research and development charge and amortization of intangible assets, and adjusting the income tax provision to 40 percent. This compares to non-GAAP net income in the third quarter of fiscal year 2006 of $19.8 million, or $0.19 per diluted share, excluding the effects of amortization of intangible assets and deferred stock-based compensation, the related income tax provision, and the partial reversal of Palm's valuation allowance against its deferred tax assets.
"We delivered solid results in the third fiscal quarter and continue to expand our global market presence," said Ed Colligan, Palm president and chief executive officer. "Treo smartphone sell-through and revenue reached record levels, and Palm products were available to smartphone customers through seven of the top 10 carriers in the world."
Fourth Quarter Fiscal Year 2007 Outlook
Based on current trends, Palm provided its outlook for financial results in the fourth quarter of fiscal year 2007, which ends June 1, 2007. The company expects the following:
-- Revenue to be in the range of $400 million to $410 million;
-- Gross margin to be between 35.9 percent and 36.4 percent on a GAAP basis and between 36.0 percent and 36.5 percent on a non-GAAP basis;
-- Operating expenses to be between $130 million and $135 million on a GAAP basis and between $124 million and $129 million on a non-GAAP basis;
-- Annual tax rate on a GAAP basis of 40 percent and, on a non-GAAP basis, 40 percent;
-- Earnings per diluted share to be between $0.10 and $0.13 on a GAAP basis and between $0.13 and $0.16 on a non-GAAP basis; and
-- SFAS 123R stock-based compensation expense, before taxes, to be between $5.0 million and $5.5 million and amortization of intangible assets to be $1.0 million. These amounts and the related income tax amounts are excluded from Palm's fourth quarter of fiscal year 2007 outlook on a non-GAAP basis.
INVESTORS' NOTE: The company will hold a conference call for the public today at 1:30 p.m. Pacific / 4:30 p.m. Eastern to discuss matters covered in this news release. Investors and other interested parties are encouraged to listen to the call by logging on to the conference call webcast prior to the start of the conference call at Palm's Investor Relations website http://investor.palm.com. Participants will be able to simultaneously view the slides during the call. Investors wishing to listen to the conference call via telephone may dial 800.819.9193 (domestic) and 913.981.4911 (international). There is no passcode required for the call. A telephone replay of the conference call will be available through April 5, 2007. The dial-in number for the replay will be 888.203.1112 (domestic) and 719.457.0820 (international), passcode 1855744. An archive of the audio and visual portion of the conference call will be posted on Palm's Investor Relations website at http://investor.palm.com.
NON-GAAP FINANCIAL MEASURES: Palm utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall business performance, for making operating decisions and for forecasting and planning future periods. Palm considers the use of non-GAAP financial measures helpful in assessing its current financial performance, ongoing operations and prospects for the future. Ongoing operations are the ongoing revenue and expenses of the business, excluding certain costs that Palm does not anticipate to recur on a quarterly basis. While Palm uses non-GAAP financial measures as a tool to enhance its understanding of certain aspects of its financial performance, Palm does not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, Palm believes that disclosing non-GAAP financial measures to the readers of its financial statements provides such readers with useful supplemental data that, while not a substitute for GAAP financial measures, allows for greater transparency in the review of its financial and operational performance. In assessing its business during the third quarters of fiscal years 2007 and 2006, Palm excluded or adjusted items in the following general categories, each of which are described below:
Acquisition-related Expenses. Palm excluded amortization of intangible assets and in-process research and development resulting from acquisitions to allow more accurate comparisons of its financial results to its historical operations, forward-looking guidance and the financial results of peer companies. In recent years, Palm has completed the acquisition of Handspring, the acquisition of the Palm(R) brand and the acquisition of other assets and technologies, which resulted in operating expenses that would not otherwise have been incurred. Palm believes that providing non-GAAP information for expenses related to acquisitions allows the users of its financial statements to review both the GAAP expenses in the period, as well as the non-GAAP expenses, thus providing for enhanced understanding of historic and future financial results and facilitating comparisons to peer companies. Additionally, had Palm internally developed these intangible assets or incurred the expenses related to the development of the in-process research and development, the amortization of intangible assets and the research and development expenses would have been expensed historically, and Palm believes the assessment of its operations excluding these costs is relevant to the assessment of internal operations and comparisons to industry performance.
Stock-based Compensation. Palm believes that the exclusion of non-cash stock-based compensation expense allows for more accurate comparisons of its operating results to peer companies. Further, Palm believes that excluding stock-based compensation expense allows for a more accurate comparison of its financial results to previous periods. In addition, Palm prepares and maintains its budgets and forecasts for future periods on a basis consistent with this non-GAAP financial measure.
Income Tax Provision (Benefit). Palm believes that excluding the partial reversal of the valuation allowance on its deferred tax assets during fiscal year 2006 provides its senior management as well as other users of its financial statements with a valuable perspective on the performance and health of the business. This partial reversal relates to realization of tax losses incurred in prior periods and is not indicative of current or future operations and expenses. Further, the Company believes that assuming a 40 percent effective tax rate provides a better indication of the income tax expense Palm will experience in future years. Prior to the partial reversal of the valuation allowance on its deferred tax assets, Palm's tax rate consisted primarily of foreign and state income taxes.
Other Expenses. Palm excludes certain other expenses that are the result of unplanned events to measure its operating performance. Included in these expenses for the nine months ended Feb. 28, 2006 are items such as restructuring charges. Palm assesses its operating performance excluding restructuring charges as these amounts relate to costs that are unplanned and are not expected to recur on a quarterly basis. Therefore, by providing this information Palm believes its management and the users of its financial statements are better able to understand the financial results of what Palm considers to be its current financial performance, ongoing operations and prospects for the future.
Each of the non-GAAP financial measures described above, and used in this press release, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measure reflect the exclusion of items that are recurring and will be reflected in the company's financial results for the foreseeable future. In addition, other companies, including other companies in our industry, may calculate non-financial measures differently than the company does, limiting their usefulness as a comparative tool. Palm compensates for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, Palm evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial information.
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 2007 revenue, gross margin, operating expenses, tax rate, earnings per share, stock-based compensation expense and amortization of intangible assets; expansion of Palm's global market presence. 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 meet the expectations of securities analysts or investors; Palm's ability to introduce new products and services successfully and in a cost effective and timely manner; possible defects in products and technologies developed; Palm's dependence on wireless carriers and ability to meet wireless carrier certification requirements; Palm's reliance on a concentrated number of significant customers; Palm's ability to compete with existing and new competitors; Palm's ability to forecast demand for its products; Palm's reliance on third parties to sell and distribute its products; Palm's dependence on third parties to design, manufacture, distribute, warehouse and support its products; 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; risks associated with international sales and operations; the impact of increasingly stringent laws, standards and other regulatory requirements. 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 December 1, 2006 and its Annual Report on Form 10-K for the fiscal year ended June 2, 2006. Palm undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.
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 and Palm handheld computers, 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 and Treo 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.
Palm, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2007 2006 2007 2006
-------------------- ----------------------
Revenues $ 410,529 $ 388,540 $1,159,213 $1,175,373
Cost of revenues (a) 259,183 257,865 737,500 804,407
--------- --------- ---------- ----------
151,346 130,675 421,713 370,966
Operating expenses:
Sales and marketing (a) 68,949 53,464 185,859 153,360
Research and development
(a) 50,619 38,298 133,763 98,536
General and
administrative (a) 15,155 9,813 44,421 30,997
In-process research and
development 3,700 -- 3,700 --
Amortization of
intangible assets 340 340 1,020 4,249
Restructuring charges -- -- -- 1,954
--------- --------- ---------- ----------
Total operating expenses 138,763 101,915 368,763 289,096
--------- --------- ---------- ----------
Operating income 12,583 28,760 52,950 81,870
Interest and other income
(expense), net 5,181 3,406 16,143 6,980
--------- --------- ---------- ----------
Income before income taxes 17,764 32,166 69,093 88,850
Income tax provision
(benefit) 6,007 2,227 28,062 (220,155)
--------- --------- ---------- ----------
Net income $ 11,757 $ 29,939 $ 41,031 $ 309,005
========= ========= ========== ==========
Net income per share:
Basic $ 0.12 $ 0.30 $ 0.40 $ 3.08
========= ========= ========== ==========
Diluted (b) $ 0.11 $ 0.28 $ 0.39 $ 2.95
========= ========= ========== ==========
Shares used in computing per share amounts:
Basic 102,142 101,109 102,607 100,172
Diluted 103,711 105,972 104,327 104,921
(a) Costs and expenses include stock-based compensation as follows:
Cost of revenues $ 583 $ 3 $ 1,851 $ 13
Sales and marketing 1,423 166 4,681 586
Research and development 2,004 152 6,917 280
General and
administrative 1,701 130 5,412 609
--------- --------- ---------- ----------
$ 5,711 $ 451 $ 18,861 $ 1,488
========= ========= ========== ==========
Prior to June 1, 2006, the Company accounted for stock-based
compensation expense under APB No. 25, Accounting for Stock Issued to
Employees, which measured stock-based compensation expense using the
intrinsic value method. As of June 1, 2006, the Company accounts for
stock-based compensation expense under SFAS No. 123R, Share-Based
Payment, which requires stock-based compensation expense to be
recognized based on grant date fair value. Periods prior to June 1,
2006, have not been restated to conform with the provisions of SFAS
No. 123R.
(b) Diluted net income per share accounts for the effect of the
convertible debt using the "if converted" method:
Numerator for basic net
income per share $ 11,757 $ 29,939 $ 41,031 $ 309,005
Effect of dilutive
securities:
Interest expense on
convertible debt, net of
taxes -- 263 -- 788
--------- --------- ---------- ----------
Numerator for diluted net
income per share $ 11,757 $ 30,202 $ 41,031 $ 309,793
========= ========= ========== ==========
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.
Palm, Inc.
Reconciliation of GAAP Items to Non-GAAP Items
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2007 2006 2007 2006
--------------------- --------------------
Net income, as reported $ 11,757 $ 29,939 $ 41,031 $ 309,005
Adjustments:
Stock-based compensation 5,711 451 18,861 1,488
In-process research and
development 3,700 -- 3,700 --
Amortization of
intangible assets 340 340 1,020 4,249
Restructuring charges -- -- -- 1,954
Income tax provision /
benefit (4,999) (10,956) (9,008) (258,771)
--------- ---------- --------- ---------
Net income, non-GAAP $ 16,509 $ 19,774 $ 55,604 $ 57,925
========= ========== ========= =========
Three Months Ended Nine Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2007 2006 2007 2006
--------------------- --------------------
Net income per share:
Basic, as reported $ 0.12 $ 0.30 $ 0.40 $ 3.08
Adjustments 0.04 (0.10) 0.14 (2.50)
--------- ---------- --------- ---------
Basic, non-GAAP $ 0.16 $ 0.20 $ 0.54 $ 0.58
========= ========== ========= =========
Diluted, as reported $ 0.11 $ 0.28 $ 0.39 $ 2.95
Adjustments 0.05 (0.09) 0.14 (2.39)
--------- ---------- --------- ---------
Diluted, non-GAAP $ 0.16 $ 0.19 $ 0.53 $ 0.56
========= ========== ========= =========
Shares used in computing per
share amounts:
Basic, as reported 102,142 101,109 102,607 100,172
========= ========== ========= =========
Diluted, as reported 103,711 105,972 104,327 104,921
Adjustments:
Effect of dilutive
securities:
Convertible debt -- (1,084) -- (1,084)
--------- ---------- --------- ---------
Diluted, non-GAAP 103,711 104,888 104,327 103,837
========= ========== ========= =========
The above non-GAAP amounts have been adjusted to eliminate stock-based
compensation expense, in-process research and development,
amortization of intangible assets, restructuring charges, the change
in the valuation allowance against our deferred tax assets, and for
the related income tax provision on a non-GAAP basis of 40%. Non-GAAP
net income per diluted share amounts for the three and nine months
ended February 28, 2006 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.
Palm, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
Feb. 28, May 31,
2007 2006
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 181,970 $ 113,461
Short-term investments 322,115 405,433
Accounts receivable, net of allowance for
doubtful accounts of $4,485 and $4,801,
respectively 213,881 204,337
Inventories 37,505 58,010
Deferred income taxes 143,226 153,854
Investment for committed tenant
improvements 2,609 3,967
Prepaids and other 11,697 10,937
---------- ----------
Total current assets 913,003 949,999
Land held for sale 60,000 60,000
Property and equipment, net 34,914 22,990
Goodwill 167,911 166,538
Intangible assets, net 80,553 25,783
Deferred income taxes 257,374 260,713
Other assets 1,499 1,499
---------- ----------
Total assets $1,515,254 $1,487,522
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 198,616 $ 184,501
Income taxes payable 55,336 50,021
Accrued restructuring 5,673 7,209
Provision for committed tenant improvements 2,609 3,967
Current portion of long-term convertible
debt -- 35,000
Other accrued liabilities 216,179 216,374
---------- ----------
Total current liabilities 478,413 497,072
Non-current liabilities:
Non-current liabilities 8,243 6,545
Stockholders' equity:
Preferred stock, $.001 par value, 125,000
shares authorized; none outstanding -- --
Common stock, $.001 par value, 2,000,000 shares
authorized; outstanding: 102,650 shares and
103,469 shares, respectively 103 103
Additional paid-in capital 1,473,500 1,475,319
Unamortized deferred stock-based
compensation -- (2,752)
Accumulated deficit (447,050) (488,081)
Accumulated other comprehensive income
(loss) 2,045 (684)
---------- ----------
Total stockholders' equity 1,028,598 983,905
---------- ----------
Total liabilities and stockholders'
equity $1,515,254 $1,487,522
========== ==========
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.
Palm, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
Feb. 28, Feb. 28,
2007 2006
--------- ---------
Cash flows from operating activities:
Net income $ 11,757 $ 29,939
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,071 4,280
Stock-based compensation 5,711 451
Amortization of intangible assets 3,140 340
In-process research and development 3,700 --
Deferred income taxes (6,886) (3,081)
Realized (gain) loss on sale of investments 10 5
Excess tax benefit related to stock-based
compensation (1,283) --
Tax benefit related to stock options -- 5,843
Changes in assets and liabilities:
Accounts receivable 33,559 84,431
Inventories 1,354 (20,070)
Prepaids and other 4,008 3,107
Accounts payable 6,276 (12,353)
Income taxes payable 9,895 (3,345)
Accrued restructuring (267) (4,139)
Other accrued liabilities 8,290 5,810
--------- ---------
Net cash provided by operating activities 83,335 91,218
--------- ---------
Cash flows from investing activities:
Purchase of brand name intangible (44,000) --
Purchase of property and equipment (5,362) (3,988)
Cash paid for acquisitions (19,000) --
Purchase of short-term investments (201,052) (395,333)
Sale of short-term investments 245,207 245,708
--------- ---------
Net cash used in investing activities (24,207) (153,613)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock;
employee stock plans 4,416 12,688
Repayment of debt (35,272) --
Excess tax benefit related to stock-based
compensation 1,283 --
--------- ---------
Net cash (used in) provided by financing
activities (29,573) 12,688
--------- ---------
Change in cash and cash equivalents 29,555 (49,707)
Cash and cash equivalents, beginning of period 152,415 181,350
--------- ---------
Cash and cash equivalents, end of period $ 181,970 $ 131,643
========= =========
Other cash flow information:
Cash paid for income taxes $ 4,010 $ 2,645
========= =========
Cash paid for interest $ 833 $ 882
========= =========
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.
Christine Nakamoto, 408-617-7626 (investor relations)
christine.nakamoto@palm.com
Marlene Somsak, 408-617-7451 (media relations)
marlene.somsak@palm.com
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