Palm, Inc. (Nasdaq:PALM) today reported revenue of $355.8 million in the first quarter of fiscal year 2007, ended Sept. 1, up 4 percent from the year-ago period. Operating income rose 28 percent from the year-ago period. Net income in the fiscal quarter totaled $16.5 million, or $0.16 per diluted share.
Net income included stock-based compensation expense of $6.7 million and amortization of intangible assets of $0.3 million. This is the first quarter in which Palm implemented SFAS 123R, which includes the expensing of stock options, restricted stock and the company's employee stock purchase plan in GAAP(1) results. This compares to net income for the first quarter of fiscal year 2006 of $18.2 million, or $0.18 per diluted share.
Net income for the quarter, on a non-GAAP basis, totaled $21.5 million, or $0.21 per diluted share, excluding stock-based compensation expense and amortization of intangible assets, and adjusting the income-tax provision to 40 percent. This compares to non-GAAP net income in the first quarter of fiscal year 2006 of $13.7 million, or $0.13 per diluted share, excluding amortization of intangible assets and deferred stock-based compensation and adjusting the income tax provision to 40 percent.
"We executed well on a number of fronts, significantly increasing profits and Treo sell-through," said Ed Colligan, Palm president and chief executive officer. "The product announcements we made this month put us in an even better position to meet marketplace demands and extend our worldwide reach."
In a related news release issued today, the company announced that it has received approval from its board of directors to repurchase up to $250 million worth of Palm shares outstanding.
Second Quarter Fiscal Year 2007 Outlook
Based on current trends, Palm provided its outlook for financial results in the second quarter of fiscal year 2007, which ends Dec. 1. The company expects the following:
-- Revenue to be in the range of $430 million to $450 million;
-- Gross margin to be between 33.3 percent and 33.8 percent on a GAAP basis and between 33.5 percent and 34.0 percent on a non-GAAP basis;
-- Operating expenses to be between $121 million and $124 million on a GAAP basis and between $115 million and $118 million on a non-GAAP basis;
-- The tax rate on a GAAP basis to be 42.5 percent and, on a non-GAAP basis, 40 percent;
-- Earnings per diluted share to be between $0.15 and $0.18 on a GAAP basis and between $0.20 and $0.23 on a non-GAAP basis; and
-- SFAS 123R stock-based compensation expense, before taxes, to be between $6.5 million and $7.0 million and amortization of intangible assets to be $0.3 million. These amounts and the related income tax amounts are excluded from Palm's second quarter of fiscal year 2007 outlook on a non-GAAP basis.
For the remainder of the year, Palm said it will balance top-line growth and market share over profitability. In view of dynamic market conditions, including Palm's launch of new products and expansion into new geographies, the company is not reaffirming previous annual guidance at this time, and is providing guidance only for the second quarter.
Highlights of the Quarter
During the first quarter of fiscal year 2007, the company accomplished the following:
-- Announced a relationship with Vodafone Group, Europe's largest carrier, and many of its European operating companies, to expand Treo(TM) sales in Europe as part of Palm's corporate objective to grow the Treo market presence outside the United States. (Following the quarter's close, Palm announced the availability of a new Treo 750v smartphone, running on Vodafone's 3G/UMTS network and using the Windows Mobile 5.0 Pocket PC Phone Edition operating system);
-- Shipped the Treo 700wx to Sprint in the United States, expanding the Treo 700w family of Windows Mobile-based products;
-- Launched BlackBerry Connect for the Treo 650 smartphone with Cingular Wireless in the United States, Vodafone in Australia and Movistar in Spain;
-- Launched the Treo 650 in Peru on the Claro network; and
-- Established a new carrier relationship with the UK carrier 02.
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. The dial-in number is 800-818-5264 for callers within the United States and 913-981-4910 for international callers. No passcode is required. A replay of the conference call will be available through Oct. 5, beginning today at approximately 6 p.m. Pacific. The dial-in numbers for the replay are 888-203-1112 for callers within the United States and 719-457-0820 for international callers, passcode 1936471. 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: 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 first 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 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 and the acquisition of the Palm(R) brand, which resulted in operating expenses that would not otherwise have been incurred. Palm believes that providing non-GAAP information for amortization of intangible assets 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, the amortization of intangible assets 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 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 Expense. Palm believes that assuming a 40 percent effective tax rate on a non-GAAP basis provides an appropriate prospect 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.
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, 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.
(1) GAAP stands for Generally Accepted Accounting Principles.
