Palm Announces Q1 FY 2010 Results, Announces Common Stock Offering | webOS Nation
 
 

Palm Announces Q1 FY 2010 Results, Announces Common Stock Offering 33

by Dieter Bohn Thu, 17 Sep 2009 4:32 pm EDT

Palm has just announced their results for the first quarter for their financial 2010 year. They reported that gross revenues hit $68 million with gross profits of $2.8 million. 

Unfortunately, we have not only gross and net figures to contend with here, but also GAAP and non-GAAP (for how Palm must account for Pre revenues). On a non-GAAP basis, adjusted revenues hit $360.7 million, with non-GAAP adjusted gross profit of $100.6 million. Looking at the GAAP, net site of things, we have a net loss of $164.5 million, or $1.17 per diluted common share. GAAP reporting requires that Palm (and other advanced smartphone makers, such as Apple), report the revenue of their sales over the expected life of the device instead of all-at-once.

The big question that everybody has long been waiting on is whether Palm would finally come clean and disclose some clear numbers on Palm Pre sales - to date they've only provided numbers on overall handset sales. Last quarter that total number was 351,000 units.  This quarter Palm disappointed yet again by not sharing broken-out numbers. Either way, though, the numbers were quite good given Palm's recent history: 823,000 shipped units, a 134% increase over last quarter (but a 30% decrease over last year).

Palm also announced that they intend to offer 16 million share of common stock, with the option for an additional 2.4 million share to cover over-allotments. Elevation Partners will be buying $35 million worth at the public price - signaling yet again that Palm is short on cash but that Elevation is still behind them.

The full press release is after the break. We're going to listen in on the call and let you know if there's any news there.

 SUNNYVALE, Calif., Sep 17, 2009 (BUSINESS WIRE) -- Palm, Inc. (NASDAQ: PALM) today reported that total revenues in the first quarter of fiscal year 2010, ended Aug. 28, 2009, were $68.0 million. Gross profit was ($2.8) million, and gross margin was (4.1) percent. These results include the effects of subscription accounting applied to Palm webOS products as required by GAAP.(1) In accordance with this methodology, revenues and direct cost of revenues for Palm webOS products (currently Palm(R) Pre(TM) smartphone) are deferred and recognized over the product's estimated economic life.

To facilitate comparisons to Palm's historical results, Palm has included non-GAAP adjusted measures, which exclude the impact of subscription accounting, stock-based compensation and other items detailed later in this release. The company believes this information will help investors better evaluate its current period performance and trends in its business.

Non-GAAP Adjusted Revenues in the first quarter totaled $360.7 million, non-GAAP Adjusted Gross Profit was $100.6 million and non-GAAP Adjusted Gross Margin was 27.9 percent.

"We're making significant progress with Palm's transformation, and our culture of innovation is stronger than ever. We're launching more great Palm webOS products with more carriers, and turning our sights toward growth," said Jon Rubinstein, chairman and chief executive officer.

The company shipped a total of 823,000 smartphone units during the quarter, representing a 134 percent increase from the fourth quarter of fiscal year 2009 and a year-over-year decrease of 30 percent. Smartphone sell-through for the quarter was 810,000 units, up 76 percent from the fourth quarter of fiscal year 2009 and down 21 percent year-over-year.

On a GAAP basis, net loss applicable to common stockholders for the first quarter of fiscal year 2010 was $(164.5) million, or $(1.17) per diluted common share. This compares to a net loss applicable to common stockholders for the first quarter of fiscal year 2009 of $(41.9) million, or $(0.39) per diluted common share.

The company's net loss applicable to common stockholders on a GAAP basis reflects new accounting guidance, effective this quarter, which requires the anti-dilutive provisions of Palm's series C preferred shares and related warrants to be treated as derivatives for financial reporting purposes. The fair value of the derivatives were estimated as of the first day of fiscal year 2010 and are marked to market on a quarterly basis, with any change in value reflected in the company's financial results for the period. As of Aug. 28, 2009, Palm recorded a $235.0 million current liability related to its series C derivatives. A $27.4 million non-cash loss on series C derivatives was reflected in the company's financial results. With regard to the series C derivatives, any future increases in Palm's stock price from period to period will be reflected as a non-cash loss on these derivatives in the company's financial results, and any future decreases will be reflected as a non-cash gain in the company's financial results.

Non-GAAP Net Loss for the first quarter of fiscal year 2010 was $(13.6) million, or $(0.10) per diluted share. This compares to a non-GAAP Net Loss for the first quarter of fiscal year 2009 of $(12.8) million, or $(0.12) per diluted share.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the first quarter of fiscal year 2010 totaled $(149.2) million. EBITDA, adjusted to exclude the impact of subscription accounting, stock-based compensation, net other income (expense), restructuring charges (adjustments), an impairment of non-current auction rate securities and a loss on series C derivatives, or Adjusted EBITDA, totaled $(2.0) million.

The company's cash, cash equivalents and short-term investments balance was $211.8 million at the end of the first quarter of fiscal year 2010. Cash used in operations for the first quarter of fiscal year 2010 was $45.1 million.

Palm's quarterly operating results are, and will continue to be, significantly impacted by the timing and size of product launches. The company's non-GAAP first quarter results reflected the scale of the launch of Palm Pre with Sprint at the beginning of the quarter and the subsequent launch of Palm Pre with Bell Mobility in Canada. Due to the timing and scale of expected product launches in Palm's second fiscal quarter compared to those which took place in Palm's first fiscal quarter, and due to lower anticipated demand for legacy products, the company expects non-GAAP Adjusted Revenues for its second quarter of fiscal year 2010 to be between $240 million and $270 million.

The company's planned product launches with additional carriers in the second half of its fiscal year, together with continuing sales from products launched in the first half of its fiscal year, are expected to yield stronger operating performance, resulting in non-GAAP Adjusted Revenues for fiscal year 2010 of $1.6 billion to $1.8 billion.

Three Months Ended
    Aug. 31, 2009   Aug. 31, 2008
Revenues   $ 68,004     $ 366,857  
Cost of revenues (a)     70,788       269,516  
Gross profit (loss)     (2,784 )     97,341  
         
Operating expenses:        
Sales and marketing (a)     55,989       57,407  
Research and development (a)     43,726       48,809  
General and administrative (a)     16,295       14,065  
Amortization of intangible assets     404       883  
Restructuring charges (adjustments) (a)     8,254       (473 )
Patent acquisition refund     --       (1,537 )
Total operating expenses     124,668       119,154  
         
Operating loss     (127,452 )     (21,813 )
Impairment of non-current auction rate securities     (1,957 )     (14,965 )
Interest (expense)     (4,589 )     (6,894 )
Interest income     514       2,016  
Loss on series C derivatives     (27,418 )     --  
Other income (expense), net     (128 )     (455 )
         
Loss before income taxes     (161,030 )     (42,111 )
Income tax provision (benefit)     65       (2,634 )
Net loss     (161,095 )     (39,477 )
                 

Accretion of series B and series C redeemable convertible preferred stock

    3,372       2,401  
         
Net loss applicable to common stockholders   $ (164,467 )   $ (41,878 )
         
Net loss per common share:        
Basic and diluted   $ (1.17 )   $ (0.39 )
         
Shares used to compute net loss per common share:        
Basic and diluted     141,003       108,291  
--------------------------        
(a) Costs and expenses include stock-based compensation as follows:        
Cost of revenues   $ 488     $ 364  
Sales and marketing     930       1,417  
Research and development     2,041       3,248  
General and administrative     3,088       1,971  
Restructuring charges (adjustments)     5,054       --  
    $ 11,601     $ 7,000
Category:

33 Comments

Good?? lol sounds good yet not good idk why. anyone wanna simplify for me? i am a simple man...yet still a man

Hmmmm....Pre or Android? That is the question...

Didn't have a Pre in my hand yet, but Android is imo, from all its inherent ideas and functionality, just 'yesterday'. Polished old news.

and palm is so tomorrow, that today very many things does not work as someone can expect from a modern smart phone

Slight unrelated, but...

Thursday App Updates/Release are out in the App Catalog.

Nothing really major.
Mostly updates (of note: Pandora) and a couple new programs/demos.

Additional Info:
When you click on Updates, it now includes updates to programs that are installed.

I was checking for 1.2 - not there - but found it listed Mileage Monitor and Pandora as update available/free.

Kinda cool/nice addition... now I just need 1.2

updates has always told you when an app has been updates.

at least it has for me since day 1 (june 6th for those of you at home).

I guess I have always updated from the app catalog before checking updates. Good to know there is an easier way to update apps as they become available. - thanks

way to go everyone is checking now and I can't access it...haha!

Your table is extremely misleading. The 2008 results were in non-GAAP format while the 2009 ones are under GAAP accounting practices. This is because Palm is required to use GAAP accounting for the Pre, which defers the revenue over a 24 month period so that they can continue to issue updates to the phone.

On a non-GAAP comparison of these results with the analysts expectations for the quarter, Palm lost 10 cents a share versus a loss of 24 cents per share estimated. Basically, this looks good for Palm.

You are correct and it's a huge beat! The only thing holding back the stock now is the new issuance of more stock. Haven't yet had chance to figure dilution, but Elevation promising to purchase $35 million worth is a good start. I wonder what the offering price will be.

Why do I feel like I'm rooting for George Bailey???

LOL!

can't believe nobody on this call has asked for a real date for the app store of if if they'll write their own software as an itunes alternative.

being a novice i was not sure if these results were good or bad, was dying to know that. so i went over to engadget and they clearly said the results are very positive for palm.

YES!!!

These results are perfect IMO! If they had been too good, I would have really worried about the long term sustainability of their plans.

I'm waiting for inventories to get the cherry on top.

The results are good. Quite good. They are NOT perfect. Palm's one issue is their second quarter revenue guidance is lower then estimates so the people who claimed right or wrong that sales are slowing are saying, "see, Pre's success is slowing. it's not being sustained." That remains to be seen. Hey if next quarter is good you'll see more upward direction. But the lower guidance is countering the better than expected earnings. and you can see the volatility in the after ours trading. It was down, then up to around 16, and it's back down in after hours again. I think there's still a lot of we'll wait and see. going on.

Being a realist, and not liking street estimates in general, the results are "perfect, IMO." (I will not feign humility! =)) This is about as good as _I_ expected. I would have been concerned if they managed to "beat the street."

i understand your point. the street is often wrong. i got the IMO part. I was just saying in regular people terms they basically said, "we had a great quarter but next quarter won't be as good." It would have been better if they had said, "We had a great quarter and next quarter will be just as good if not better." So from an investor standpoint I want the latter. The former makes me nervous. because i'd be buying and selling on next quarter which palm says won't be as good. And i can tell you you can look at the after hours and see that's exactly what they are doing. Hopefully it will get a bit of a pop tomorrow but it's not going to 25 like The RBC guy said. Well not soon and i don't think it will before they get second quarter earnings. Now hopefully i'm wrong and it goes to 25 tomorrow. I'll be happy if it can get to 16.5 though.

Yep, different investors look for different things. I like being a realist, and I see their forcast for the next quarter as an indication that Palm's management is looking at their situaltion realistically. Opening up these new markets will continue to negatively impact profits, and actuall sales in the new markets will be hard to predict. Their estimates are clearly erring on the conservative side.

That being said, i'm actually hoping the stock will tank for a few weeks (it's probably not going to, unless something drastic happens) just to get a lower price for my long term picks.

So 351,000 units last quarter, and they said roughly 130,00 of those were Other palm devices besides the Pre. This quarter we have 823,000 shipped. Roughly 80% of that is Palm Pre's. Sound fair? 602,300 sold this quarter and about 210,000 sold last quarter. By Christmas they will have sold 1.2-1.5 million Palm Pre's and probably a few hundred thousand Palm Pixi's (That is if they are still only in U.S.A. and Canada) which they won't be. If they have a big europe release we may be talking 2-2.5 million Palm Pre's sold by Christmas worldwide. That is EXCITING!!!! Also I love how John said they are focused on the Evolution of WebOS. Not just on customer support/repairs. They want to keep improving it and that makes my 199.99 worth every penny. New apps in the app catalog today btw and next week hopefully 1.2 and Beta E-commerce! Woot!

yeah i think that's the rub. "80%" Well palm basically ducked the question on the call and wouldn't give a number. Not really sure why if the number really was good.

"1.5 Mill by xmas?" i hope so but i think forward looking guidance was an issue too because someone asked, how is revenue gonna be lower if sales are going to be good?

Sweet new apps

"1.5 Mill by xmas?" i hope so but i think forward looking guidance was an issue too because someone asked, how is revenue gonna be lower if sales are going to be good? -blackmagic

Hey there, did anyone respond to the question? I got home late and haven't had a chance to listen. I would imagine they're going to have much higher marketing expenses as well as development costs for the Pixi. Now they'll have two phones and three carriers in three entirely different markets that sounds like a lot more expense. What do you think?

no not really. they essentially talked around it with a canned answer about we have more costs, we'll be advertising, blah blah blah. Not really concerned with that. As a hypothetical, If you can release palm pre and make a 15% net profit in the U.S., I expect you to do make 15% net in Canada, and 15% with the Pixi. It's not like Palm didn't have to advertise those, honestly their adds just sucked so it only seems like they didn't advertise. These are expense that accompany every phone release so they aren't one time charges. So if you can't release a phone for the same level of profit i have to wonder whether you're (management) has the ability to quarter after quarter deliver similar earnings.

But most investors want consistent earnings. And if there's an indication that there won't be they'll leave. And at least today they left. it's down 4% at the moment on fears of a worse quarter.

I could be wrong, but I recall that we established (as Palm did NOT say)that approximately 70,000 Pres were in channel (based on weekend release sales selling out and estimated at that range) in the final days of May (remember last quarter ended before the Pre release) so if you subtract that from 350,000 units for last quarter leaves you with 280,000 non-Pres.

Now while they say sales of non-Pres are declining, we don't know by how much so let's round that figure off to 250,000 non-Pres this quarter (a little more than 10% decline) which would mean that out of 823,000 phones, about 575,000 were Pres. That would be the top range of the analyst estimates and well over what the majority of analysts estimated. Big hit, especially considering most of those were U.S. one carrier sales only.

Either way, we both seem to be in general agreement for a range: 575,000-602,300 Pres this quarter.

i'm not even going to try and speculate but logically, if it wasn't a decent number i don't think they'd say we are axeing legacy palm devices. If it was the larger part of sale's i doubt they'd drop it so soon and take the hit.

The question isn't so much how many pre's shipped, but rather what has been the inventory levels (or turn) of the pre's that have been manufactured. As long as Palm has sold all of the pre's they've produced, hasn't over-produced, and has avoided a creeping inventory of unsold units, then I would say that the pre has to be considered an umitigated success (financially, at least.) The pre is almost certainly the bulk of the 823k units shipped, and the revenues generated are contributing to an improving bottom line. This is the go slow approach I had hoped would be successful for Palm. Profits and revenues will continue to increase as new markets for the new phones will open, and so long as Palm is able to limit production to just meet demand, and keep their new product development and OS development teams fully funded, Palm's turn around should continue to be positive.

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I really don't know what to say. Earnings seem pretty good and I have faith Palm can pull great things off. I'm really considering getting a Hero. Not knocking Palm. I just wanna see a little more progress. Maybe 1.2 can change my mind? I feel it possibly will. I moved from a Tour to a Pre. I'm somewhat happy as of now....

Before you buy a Hero, have a look at Engadget's review. The processing speed is sluggish.

Sorry, but I have to say it looks bad for Palm.

We really don't know much from the financials. We don't know the number of units sold. We don't know the return rate. We don't know the channel inventory. We don't know the margin.

However, the R&D expense DECREASED comparing to 2008. For a technology company, R&D is the blood. If Palm has any kind of confidence in their business, they would be increasing R&D instead of decreasing it.

It tells me the Palm management is not in an expasion mode. In another word, they don't feel that great about their business.

I think that you might be mis-interpreting the RD expenses. The Pre and the Pixi, as well as WebOS were all RD'ed in the last fiscal year. Quarterly costs in this will vary greatly. One of the biggest drains in this market is just coming up with a workable form-factor, and IC/Circuit board design. When Palm starts final development of the next device, the RD expenses will spike. Of course that's all IMO.

Sorry, John, but I couldn't disagree more with you on this one. R&D was HUGE last year; Palm put everything they had into that one basket, trying to get WebOS out there. Of course it was going to go down from there. That would be like a guy hitting .400 for a season and the next year, he bats only .333, so he's in a slump.

I'm excited by Palm's numbers, especially the 800k smartphones moved. I don't care if they beat, or even compare to, Apple; I just want to know they'll be here next year for me (us). :)

I have a hunch that Palm may be keeping the Pre sales numbers close to their chest as it does not just affect them, but also Sprint as part of their exclusivity agreement hinges on weekly sales of the Pre.

Even though Verizon may already have the P100 on their inventory, it would not be unfathomable that Palm would have offered it to them only on a contingency basis.

If our 600k units guess is close, I think that may put the actual sales numbers very close to the break-point of Sprint contract.

FYI, the article is misleading as Palm is not operating at a $2.8M gross profit, but instead is at $2.8M gross loss.

Plus as someone else stated you can't really interpret much from the table since the data is not comparable (GAAP vs Non-GAAP). Looking at their operating cash flows (loss of $161M) it looks like things are pretty bleak, but things don't turn around over a night or a quarter.

I think Palm will see things pick up considerably when they release the Pre on Verizon and AT&T in Q3, but until then you can't really expect much of a turn around on the income statement.

The good news is that Palm is very much relevant again and the product is great. They need to roll out great applications shortly and keep the buzz going until Verizon and AT&T are able to sell the phone.