Palm Posts Preliminary Q3 FY09 Results: Hanging by a Thread?
Well ahead of their scheduled March 19th quarterly conference call, Palm has just posted preliminary results for their 3rd Quarter of Fiscal Year 2009. The numbers are grim enough and the posting early enough that one assumes that Palm is doing their best to separate the bad news from whenever the Palm Pre will launch (still on track for the 1st half of the year, according to the release).
Revenue for the quarter is expected to be between $85 and $90 million, just a bit less than their cash burn for the quarter of close to $100 million, with somewhere in the neighborhood of $220 million cash-on-hand by the end of the quarter. In other words, things are awfully tight.
So tight, in fact, that Palm "intends to strengthen its working capital position" -- which is to say they're looking at ways to bring in some cash in a time when the economy makes that awfully difficult. They may "remarket[...] a portion of the common shares underlying the Series C preferred stock." Your guess as to what exactly that means is likely better than mine (full release is after the break).
Finally, if you were hoping for a gigantic revenue bump at the launch of the Palm Pre, think again. Since Palm intends on offering free feature updates to the webOS, they will need to account for the income the Pre generates over a 2 year cycle (similar to how Apple accounts for the iPhone) instead of at the moment of sale. They'll have more at http://investor.palm.com.
In short, Palm's March 19th call is going to be very interesting indeed. Palm is stating very strongly that they're not going to run out of cash and one assumes that an acquisition is still most definitely off the table, but these numbers are as grim as I've ever seen from Palm. They're spending about the same amount that they're taking in in revenue right now and while I'm no investor, analyst, or CFO-type, that doesn't sound good to me.
Full release after the break.
SUNNYVALE, Calif., Mar 03, 2009 (BUSINESS WIRE) -- Palm, Inc. (Nasdaq:PALM) today reported preliminary results for its third quarter of fiscal year 2009, which ended Feb. 27, 2009.
The company announced that it expects to report revenues for the third quarter of fiscal year 2009 in the range of $85 million to $90 million. The revenue declines vs. the company's second quarter of fiscal year 2009 and third quarter of fiscal year 2008 are the result of reduced demand for Palm's maturing legacy smartphone products, the challenging economic environment and later-than-expected shipments of the Treo(TM) Pro in the United States. The company expects declining revenues and continued margin pressure from its legacy product lines in the fiscal fourth quarter.
"The much-anticipated launch of the Palm(R) Pre(TM) remains on track for the first half of calendar year 2009, but as expected we've got a difficult transition period to work through," said Palm President and Chief Executive Officer Ed Colligan. "Despite the challenging market environment, the extraordinary response to the Palm Pre and the new Palm webOS(TM) reaffirms our confidence in our long-term prospects and our ability to reestablish Palm as the leading innovator in the growing smartphone market."
Palm stated that cash used in operations for the quarter is expected to be between $95 million and $100 million. The company's cash, cash equivalents and short-term investments balance is expected to be between $215 million and $220 million at the end of the third quarter.
Although Palm believes it has sufficient cash, cash equivalents and short-term investments to meet its working capital needs under its current operating plan, the company intends to strengthen its working capital position given the challenging economic environment and the opportunity to drive both the launch of the Palm Pre and future product-development efforts. The company is currently evaluating options in this regard, including the exercise of its right to direct the remarketing of a portion of the common shares underlying the Series C preferred stock and warrant units owned by Elevation Partners. Palm is entitled to retain any net profits realized from such remarketing.
Separately, Palm indicated that since it expects to periodically provide new software features free of charge to customers of its Palm webOS products, including the recently announced Palm Pre, it will recognize the revenues and cost of revenues associated with Palm webOS product sales on a straight-line basis over the product's estimated economic life of 24 months. The company will be recording deferred revenues and deferred cost of revenues on its balance sheet, and amortizing them into earnings on a straight-line basis over the estimated economic product life of 24 months. The company will continue to expense engineering, sales and marketing costs as they are incurred. This accounting treatment will have no impact on cash flow. A more detailed discussion of this accounting treatment can be found on Palm's Investor Relations website at http://investor.palm.com.
Palm Investors' Note
Palm will report its complete third-quarter fiscal year 2009 financial results on Thursday, March 19, 2009, and will host a conference call to review the complete financial results beginning at 1:30 p.m. PT / 4:30 p.m. ET. The conference call will be hosted by Ed Colligan, president and chief executive officer. Investors and other interested parties are encouraged to listen to the call by logging onto the conference call webcast prior to the start of the conference call at Palm's Investor Relations website (http://investor.palm.com). Investors wishing to listen to the conference call via telephone may dial 800.901.5247 (domestic) or 617.786.4501 (international). There is no pass code required for the live call. A telephone replay of the conference call will be available through March 30, 2009. The dial-in number for the replay will be 888.286.8010 (domestic) and 617.801.6888 (international). The pass code 15222468 is required for the replay. An archive of the audio webcast and visual portion of the conference call will be posted on Palm's Investor Relations website at http://investor.palm.com.
