Polycom, Inc. Q2 2008 Earnings Call Transcript

Jul.17.08 | About: Polycom, Inc. (PLCM)

Polycom, Inc. (NASDAQ:PLCM)

Q2 2008 Earnings Call

July 16, 2008 5:00 pm ET

Executives

Bob Hagerty - Chairman. Chief Executive Officer

Mike Kourey - Chief Financial Officer

Analysts

Elliot Gold - TeleSpan Publishing

Jack Monti - Lehman Brothers

Scott Sutherland - Wedbush Morgan

Manuel Recarey - Kaufman Brothers

Tree Lam - Integral Capital Partners

Scott Thompson - Banc of America

Operator

Welcome to the Polycom quarter two earnings results conference call. (Operator Instructions) I’d now like to turn the conference over to Mike Kourey, Chief Financial Officer.

Mike Kourey

Welcome to Polycom’s second quarter earning call. I am Mike Kourey, Polycom’s Chief Financial Officer and here with me is Bob Hagerty, Chairman and CEO. As with previous quarterly calls, we are again augmenting today’s voice conference call with a webcast. If you would like to receive the webcast, please open your web browser at this time and enter Polycom’s home page, which is polycom.com and click on Q2 earnings call. Then follow the instructions provided.

For the analysts participating in the Q-and-A session, leave your call live, so that you can use your conference call connection for the Q-and-A session at the end of our call. Please note that Q-and-A is for financial and market research analysts. We welcome all others to listen into the Q-and-A session. Please also note that this entire webcast, including Q-and-A, will be maintained on Polycom’s website for 12 months from today for your convenience and replay.

Most of you participating in this call are aware of the Federal Legislation regarding forward-looking statements. Accordingly, we would like to note that during the course of this conference call, Bob and I will be making forward-looking statements and present forward-looking visual materials regarding future events, anticipated future trends, future product offerings and the future performance of the company including financial guidance.

We wish to caution you that such statements and visual materials are just predictions that involve risk and uncertainties and that actual events or results could differ materially. We discussed a number of these risks in our business in detail in the company’s SEC reports including most recently in the companies form 10-Q for the year ended March 31, 2008 and any forward-looking statements must be considered in the context of such risks and uncertainties.

Also please note that Polycom’s application of U.S. generally accepted the accounting principles or U.S. GAAP requires disclosure that availability of new products, plan features and upgrades discussed during this call are subject to change or cancellation.

At this time, let me turn the call back over to Bob Hagerty, Chairman and CEO.

Bob Hagerty

Thanks Mike. To begin I’d like to provide our second quarter financial highlights. Later in the call, Mike will go through the operating results in greater detail. Revenues for the first quarter were record $271.6 million, representing a 5% sequential increase from the first quarter and a 16% increase year-over-year. We exited Q2 with a record backlog of $60.9 million, up 4% sequentially and 28% year-over-year.

Polycom’s deferred revenues were $105.6 million in Q2, down 1% sequentially, but up 40% over the year ago period. Excluding the Cody and deferred license revenue of $13.5 million from Q1, 2008. Our deferred revenues grew 22% year-over-year. For the quarter, non-GAAP earnings were $0.35 cents per diluted share, representing a 17% growth in EPS year-over-year.

In Q2 our strong revenue growth was positively influence by several core drivers. First showing travel cost are becoming increasingly important driver for the adoption of our unified collaboration solutions worldwide. In fact due to the immersive experience of Polycom’s HD telepresence solutions our customers can reduce travel while experiencing increase productivity, savings of out-of-pocket cost and emulating the opportunity of cost being on the road.

In addition to the substantial cost saving benefits our customers can achieve both commercial and public sectors customers are utilizing Polycom’s solutions to achieve Carbon Emissions reductions and comply with the environmental standards in key geographies throughout the world. As a result of Polycom’s investments in global sales coverage and high impact marketing, Polycom is becoming widely recognized for our innovations in market leadership.

For example, Media and Entertainment giant Time Warner recently selected Polycom’s RPX telepresence solution to facilitate increase communications between CEO of Time Warner, Turner Broadcasting, Warner Brothers and AOL. Polycom's solution with its full screen, cinematic view and true-to-life people dimensions will help promote dynamic group interactions amongst all of Time Warner's executives, while at the same time supporting Time Warner's commitment to social responsibility and goal to reduce its carbon footprint and conduct business on an environmentally sustainable manner.

Another key example is Deloitte's recent selection of Nortel's Managed Global Telepresence Services, which is based on Polycom’s RealPresence Experience RPX immersive telepresence and the HDX 9000 HD video solutions. Finally, in June, we received CIO Magazine’s 2008 CIO 100 Award, recognizing Polycom as a company that exemplifies the highest level of operational and strategic excellence in the information technology. These are, but are few of the examples of how fast-rising travel costs and green initiatives are driving the use of Polycom's leading solutions.

In a moment I will share with you on several other important client links during the quarter. For a budget priority standpoint, it’s also important to note that Gartner Inc’s most recent CIO survey states that collaboration actually moved up two slots from 2007 to a number eight IT budget priority in 2008 for enterprises worldwide. This provides further evidence that unified collaboration solutions are proceed within the IT arena as mission-critical applications.

Importantly, Gartner gave Polycom a positive rating in their markets scope for Video Telepresence Solutions 2008 study, which was issued on April 21, 2008. According to the study a positive ratings signals that Gartner considers that particular vendor, a buyable choice for strategic investments. In this study it further states that by 2010 Gartner expects telepresence to generate 600 million in annual equipment revenue worldwide with services included, the total telepresence market could reach 1.5 billion by 2010.

Moving up these important demand drivers and market dynamics, we are delivering unprecedented quality of customer experience, through our immersive telepresence and HD video solutions. We provide our customer with a life like face-to-face experience that’s unparalleled in the industry. Our solutions provide our customers with the ability to collaborate regardless of the location within a telepresence room, our conference room, on the desktop or via and mobile. Only Polycom has an end-to-end offering that’s inherently standard space to enabling an ease-of-use and ease integration for all participants.

Examples of the our customer success are bound across their commercial and public sectors for instance a large European base facilities management company is using our TPX telepresence products for their key management level site-to-site communications. In the financial and management consulting sector we’ve won several customers with our RPX and HDX products enabling these organizations to reduce travel cost and fly with their green initiatives.

In addition a major pharmaceutical company is rolling a 10 Rap’s and integrating this solutions with 100’s of Polycom HDX systems. In the educational space a large well known university in the U.S. is adopting RPX as their campus-to-campus collaboration solution and the U.S. Federal Space we want a large defense agency for our RPX solutions space largely on this agencies high definition requirements for facial recognition and its demands for integration capabilities of our standards base product lines, and many of these examples and others like them we are finding that customers choose Polycom due to the uniquely immersive nature of our telepresence products and our integrated approach to HDX meeting room video and desktop video as well.

As a result of our unique value proposition and key customer wins Polycom video sales increased shortly last quarter and for the first time over 50% of our video revenues were contributed to buy our telepresence in HD video solutions. As I mentioned before, key driver of the adoption of our unified collaboration solutions is our ability to reduce customer’s carbon emissions to the use of our HD video solutions.

We have a range of services that support our clients green initiatives including our Green Assessment Service, through this service, professional services staff examines the customer’s current utilization of conferencing versus travel patterns to develop effective programs designed to increase the environmentally responsible use of video collaboration technology in existing and new applications.

In addition we offer important new application called Video-Miles that can be licensed for each registered video endpoint. This unique software monitors and measures every video conference by automatically calculating the number of travel mails eliminated and the amount of carbon emissions saved and provide the a detailed ROI from travel costs savings. Results are tracked and are available in a variety on-demand reports.

Examples of organizations using Polycom video for the green initiatives including, Easynet, an international managed network and hosting company owned by British Sky Broadcasting. Mike Ayers, business development director at Easynet capture the market sentiment well when he stated “We wanted to reduce our travel spend, reduce our carbon footprint and environmental impact, improve our employees work life and balance, and improve employee productivity”. Another example is CoStar, the number one provider for commercial and real estate information and marketing solutions in the U.S. and U.K. Here another example is international Legal firm Kirkland & Ellis.

Switching gears to Polycom’s voice business I would like to highlight that in Q2 voice revenues surpassed a 100 million mark in quarterly revenues for the first time in our company’s history. I would like to thank our customers and sales force for driving as past this important benchmark. Polycom’s voice offering is comprised a three powerful platforms; Conference Phones, Wireless handsets and wired desktop voice of our IP phones. Let me first discuss our industry leading SoundStation family of triangular conference phones.

The iconic platform is a soul voice conferencing platform for Avaya, Cisco, Nortel and many others. With plug-and-play IP connectivity, our customers are now able to adopt this product more easily than ever before. In fact an estimated 12% to 15% of the conference rooms penetrated Polycom has a significant opportunity to leverage the shift standard to drive our solution to much broader base of meeting rooms.

In addition to further penetration we have made significant enhancement to then send our customer base to upgrade the nearly three million units that Polycom has already shift. First we now have HD Voice quality that provides wide band voice quality that’s unparallel in the industry.

Second we now have immunity cell phone emissions that previously caused buzzing during calls, and third we have recently launched the SoundStation 7000 conference phone with an exciting updated design that utilizes the famous SoundStation triangular shape and takes the distinctive look of the SoundStation product to the next level. We believe these enhancements and others to come will drive not only upgrades, but further penetration of our SoundStation product and meeting rooms worldwide.

Another significant platform in Polycom’s voice business is our IP and deck based wireless handsets. These product lines are utilized by our customers wherever mobile staff needs to be reached on network. These unique offering had well been receive by many companies in retail, healthcare, energy, military basis and the like. For instance in Q2 we won a large U.S food retailer account where our wireless handsets will be deployed in over 250 stores from a product standpoint over the next few quarters you should expect to see innovations in this product area that continue to leverage Polycom’s Voice qualities strengths into the mobility market, and third major Polycom Voice platform is our wired desktop VoIP business.

Our rapidly growing SoundPoint IP platform is offered through a variety of service providers in calling management partners to a wider array of small medium business, enterprise and public sector customers. We believe our partnerships with Microsoft, Horizon, AT&T, Telstra’s - Telstra and many others are providing a thorough go to market that is making Polycom the IP based desktop phone of choice in shift standards based environments.

As a testament to our unique quality our SoundPoint IP 650 Desktop recently received the InfoWorld's 2008 Technology of the Year Award. In addition we just announced the SoundPoint IP 670 desktop that packs in a Gigabit Ethernet connection Polycom’s HD Voice Quality and the first color attendant console in the industry.

In summary, we believe Polycom’s position in Voice driven by our strong brand, diverse channels, leading strategic partners provides an excellent foundation for growth and as a leverage point for customers looking to adopt telepresence in HD Video all from one provider. Before I turn the call over to Mike Kourey I would like to briefly address the reduction in gross margins that occurred in the quarter, which as many of you have seen decline to 58.5% in Q2.

Before I turn the call over to Mike Kourey I would like to address the reduction in gross margins that occurred in the quarter, which as many of you have seen decline to 58.5% in Q2. I would like to also briefly highlight the initiatives we’re undertaking to optimize gross margins going forward. First of all a big portion of this reduction is simply related to the inventory build levels, and with increased build this quarter to support our anticipated revenue growth, we expect to begin to have favorable impact in Q3.

Second, it’s important to note that the average selling prices for video products have been increasing and were up again in Q2. Even excluding the contributions of RPX and CPX telepresence products this ASP increase is being driven by the shift to HD products, and these HDX products have unit gross profits higher than their standard definition counter price, but the gross margin percentages are currently lower than the standard definition family.

This is often the case when new products are launched. However, in addition to the economies up scaled we expect to achieve with this fast growing product line, we are currently value engineering the HDX product line which we expect to yield gross margin benefits by the end of this year and of course throughout 2009.

Third, Polycom’s network systems product line had the highest gross margin profile in the company. The recent decrease in the network systems revenue unfavorably impacted our consolidated gross margins due to, in order to reverse this situation we’re taking steps to return our networks systems to growth.

In late Q2 we directed a portion of our sales coverage investment to create a focused over the network systems sales team, these individuals under the leadership of one of our most successful network sales executives, as assisting our broad sales force by increasing the attach rate of Polycom’s RMX solutions to our fast growing telepresence in HD video adoption.

From a development standpoint we are broadening our fast growing RMX product line which we expect will enable us to capture greater market share in the near term. Keeping inline that the RMX revenue growth has accelerated in Q2 we’re confident that these network systems initiatives will exhibit fast success. The net result of these factors is that we are confident in our target gross margin range up 59% to 63% and we’re taking the necessary steps to drive improvement in this important metric, on that note let me turn the call back over to Mike Kourey for a discussion of Polycom’s financials.

Mike Kourey Before I get started, please note that for the financial guidance that Bob and I are giving today, Polycom is not assuming the responsibility to provide any updates regarding this financial guidance, regardless of changes, adverse or otherwise, which may occur in the future. Also, during this portion of the call, I remind you that we will both be making forward-looking statements, including our expectations of future financial execution and performance, which are subject to many risks and uncertainties.

Moving to look at our results, as Bob stated earlier, revenues for the second quarter were a record $271.6 million. This represents a sequential revenue increase of 5% and a 16% increase over Q2 of last year. On a product line basis, which includes the service elements from each product line, revenues for video solutions were $169.2 million in Q2, growing sequentially by 6% and increasing 17% year-over-year.

Video Solutions is comprised of our video communications and network systems product lines. Of these product lines, video communications generated a record $141.2 million of revenues, growing sequentially by 8% and up 25% year-over-year. On a unit basis, we shipped 20,845 group video systems. Importantly telepresence and HD video comprised over 50% of Polycom video communications revenues for the first time in Q2. On the desktop video front, we shipped 11,926 units in the second quarter. The Network Systems product line generated $28 million in revenues, down 4% sequentially and 10% year-over-year.

The Voice Communications Business generated record revenues of a $102.4 million representing 3% sequential growth from Q1 and a 14% increase from the year-ago period. Linearity in Q2 improved sequentially with 46% of revenues in the last months of the quarter. Polycom exited Q2 with a record $60.9 million in backlog, up 4% sequentially and 28% year-over-year. Polycom’s deferred revenues were $105.6 million in Q2, decreasing 1% sequentially, but increasing 40% over the year-ago period. Excluding the Cody and settlements from Q1 Polycom’s deferred revenues grew 22% year-over-year.

Moving to revenue by geography in the second quarter, North America revenues were up 7% both sequentially and over the year-ago period. Representing a significant growth improvement from the first quarter [Inaudible] sequentially grew 36% year-over-year. Asia revenues grew 3% sequentially and 20% year-over-year. Latin America was up 17% sequentially and 36% year-over-year. From the channel standpoint, the revenue breakout for the second quarter is as follows: 35% to value-added resellers, 52% through distributors, 7% through service providers and 6% direct. Reviewing the revenue drivers for Q2 we are pleased with the ROI driven growth in North America and the solid performance in the international regions.

From the product line standpoint our best in industry telepresence and HD Video offerings are clearly gaining strength and now represent over 50% of our video communications business. In fact video growth accelerated in the second quarter to 25% year-over-year. Voice also accelerated to a growth rate of 14% year-over-year driven by a leading voice over IP solutions. Of course network systems declined in the second quarter due to very little voice networking revenues and the products transition to our new RMX platform.

Looking forward into the third quarter we expect the following drivers to favorably impact our business. First, we anticipate the continued ramp of the productivity of our hires we made in sales. Second we believe the immediate ROI for telepresence and HD video vis-à-vis, the skyrocketing travel cost not to mention the environmental green benefits will continue to drive our video business in Q3 and future quarters.

Third we have a pipeline for voice networking solutions that should contribute to some growth in our network systems business in the near term. Additionally, in network systems our RMX growth rate jumped in Q2 which combined with our pipeline visibility gives us some optimism that network systems will return to growth both sequentially and year-over-year in the third quarter. Taking into consideration some seasonality associated with the summer quarter we anticipate consolidated revenues to grow sequentially by approximately 3% in Q3.

Moving onto the statement of operations non-GAAP gross margins for the second quarter were 58.5% representing a sequential decrease of 1.8 percentage points. As discussed in our last conference call we plan to reduce builds in Q2 which would have a negative impact on gross margins. Of course we did execute on this plan and improved inventory turns accordingly.

In addition we experienced some mix issues in Q2 away from network systems, our highest margin product category to our newer products such as the HDX which currently have below average gross margins for the category and the desktop video or our voice over IP. As Bob explained earlier we are taking several actions expected to improve gross margins in Q3 and beyond.

That being said we also are trying to further improve inventory turns in Q3, which will have some impact on gross margins or be it smaller than in Q2. Net of these factors we anticipate a 50 basis point improvement in Q3 gross margins to 59%. Breaking out our gross margin objectives by product family our network systems product line continues to have targeted gross margins in a high 60’s.

Voice and video communication product of gross margins targeted in the high 50’t to mid 60’s range, wireless voice gross targeted in the mid 50’s and desktop voice and service gross margin are targeted in the low 40’s. For the second quarter service operated above its target range, network systems video through voice and wireless voice all operated within their target ranges and desktop voice operated below its target range. As noted above gross margins in the future maybe higher or lower and are subject to mix variations and other factors.

Switching gears to non-GAAP operating expenses for the second quarter, Polycom’s operating expenses increased sequentially in absolute dollars, but declined on a percent of revenue in Q2. Looking at the specific non-GAAP operating expenses line items for the second quarter sales and marketing represented 26.7% of revenues for the period down from 27.3% in Q1. R&D closed at 12.4% of revenues flat with Q1. G&A was 4.7% of revenues down from 4.9% in Q1. In total Q2 non-GAAP operating expenses represented 43.8% net revenue from the second quarter down as a percent of revenue from 44.6% in the first quarter.

Moving to a look at the company’s operating income; Polycom generated the second quarter non-GAAP operating income of $40.1 million or 14.8% of net revenues. This represents an 8% growth in operating income from $37.2 million in non-GAAP operating income in Q2 of 2007. As a recap of our performance against our previously stated long-term target model we’re half of the percentage point under the low-end of our target gross margin range of 59% to 63%.

So as the marketing operated 0.7 percentage points over the high end of its target range R&D operated 0.12 percentage points over the high end of its target range and G&A operated within its target range. Our non-GAAP operating margin of 14.8% is 5.2 percentage points below our target range of 20% to 22%. Q2 non-GAAP net income was $30.7 million. This represents a 6% growth from $28.9 million in non-GAAP net income in the comparable period last year.

Non-GAAP diluted EPS in Q2 up $0.35 grew by 17% from $0.30 per diluted share in Q2 of 2007. GAAP profitability for the quarter was $17.8 million or $0.20 per diluted share in Q2 of 2008 versus $10.1 million or $0.11 per diluted share in the comparable period last year. This represents a 77% increase in GAAP net income and an 82% increase in GAAP EPS from the year ago period. Looking forward to the third quarter as noted above we expect gross margins to increase by 50 basis points.

From an operating expenses standpoint we planned to continue to invest in our go-to-market initiative to maximize our revenue growth opportunity in this fast growing unified collaboration market. Along these lines we are trying to add about three quarter of a point in sales and marketing on a percent of revenues basis in Q3. We expect R&D to be flat to down on the dollars basis in the third quarter and we expect to see G&A up slightly on a percent of revenues basis in the third quarter.

Net of these quarter-to-quarter moments we anticipate that our operating margin percent will be down slightly in Q3 from Q2 actual. However with the expected revenue growth we expect the operating profits on the dollar basis to be up slightly in Q3. Moving to tax you will note that our Q2 effective tax rate was 25.1%. We accomplished this improves rates for our geographic mix of profits and new lower tax rate in Singapore and to various discrete line items in the second quarter.

Looking to the third quarter we are forecasting a 26% effect of tax-rate based on our mix assumptions. Of course this 26% rate is subject to change based upon changes in geographic mix as well as changes resulting from any new U.S. or international regulations or interpretations.

Other income for the second quarter was $900,000 driven by the lower interest rate environment. Our cash investment and our extensive Q2 stock repurchases and approximately $500,000 of foreign exchange hedging expensing in the period. Looking forward to Q3 we expect the other income of approximately $1 million to $1.25 million excluding the interest reductions associated with further stock repurchases plan in the third quarter.

Moving to cash in Q2, Polycom generated $39.5 million in operating cash flow representing Polycom’s 32nd consecutive quarter of positive operating cash flow. These solid cash results were driven largely by our strong profitability and working capital management. Cash investments at the end of the second quarter totaled $317.1 million.

Moving to DSO, the company’s net trade receivables of $130.3 million resulted in a DSO of 44 days representing a significant improvement of five day sequentially and one day year-over-year. Looking forward, we are continuing with our best-in-class DSO guidance of 40 to 50 days.

Inventory turns at the end of the second quarter improved to 4.8 turns, driven by build levels, better linearity. Although we’ve planned to further improve the inventory trends in Q3 as discussed earlier we are also taking step to optimize our transportation costs as we globally distribute our builds to our major customer geographies. As such, we expect inventory turns of five or better over the foreseeable planning horizon.

Regarding expected share count, we expect Polycom’s weighted average shares for diluted EPS to grow by approximately 500,000 shares in Q3 exclusive of stock repurchases. During the second quarter, we purchased $80 million of our common stock. Entering Q3 we have $300 million remaining in our share buyback authorization.

We plan to be active in the share buyback program in Q3, as we continue to bring value back to our shareholders. In addition of huge potential buybacks of our stock our share account will change based upon Polycom’s stock price, any acquisition activity and other factors.

Moving to headcount, Polycom had 2,598 employees at the end of Q2, representing a net increase of 78 employees over the prior quarter. This change was primarily driven by additions in customer facing functions.

As a final note on the financials, we have presented both non-GAAP and GAAP financial measures here today. Please refer to our reconciliation of non-GAAP to GAAP financial measures and the tables entitled GAAP to non-GAAP reconciliation in today’s earnings release.

At this time, I would like to turn the call back over to Bob Hagerty for closing comments.

Bob Hagerty

In summary, soaring travel costs and resulting ROI benefits of our solutions continued to be the number one driver for Polycom and the unified collaboration industry.

Further driving our growth, are the green initiatives that many of our customers are undertaking particularly in Europe and other selected regions around the world and of course globalization is creating the need for robust collaboration solutions for enterprise public sector organizations of all sizes. We believe all of these drivers accelerated our video top line in the second, and in addition to our video, our voice business also accelerated in Q2, driven by our growth in plug-in-play voiceover IP solutions.

Looking forward, we are making the measured investments in our go-to-market strategy that we believe will enable Polycom to fully capitalize on this significant market opportunity at is important stage of adoption. Of course, many leading call management and service providers such as Avia, Microsoft, Nortel, Verizon, Tel STRA and others are partnering with the Polycom to capture the benefits of this innovative industry leading solution.

The net result is that we are capturing new customers, penetrating existing customers and building a very strong Hi-Touch profile in the process. Going forward, we expect to continue to deliver fast growth and leverage our investments to drive margin expansion and improve profitability.

On that note, we’d like to open the call to financial and market analysts for questions, all others we invite you to stay on the call and listen in. Of course as we discussed earlier in the call, many of our statements we’ve made, and will make during the Q-and-A period are forward-looking statements, which are subject to many risks and uncertainties. Is the conference call operator available at this time?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Troy Jensen - Piper Jaffray.

Troy Jensen - Piper Jaffray

Mike, just on the gross margins, obviously they came in about 80 basis points below what you had guided into. Could you just distinguish how much of that was mixed between the infrastructure business versus maybe the inventory issued that’s impacting gross margins?

Bob Hagerty

Yes, I mean both here are core drivers. The absorption was a very big driver as we brought builds down, so that was one of the biggest impacts. The other one was a mix to voice-over IP products particularly on the desktop side where the gross margins were at the low end of our product lines. They typically operate around 40 on average, a little below that for the quarter on mix and then as far as the network systems they’ve reduced as a percent of revenue a couple of points from Q1.

Troy Jensen - Piper Jaffray

All right, this will be a follow-up on the inventory stocks. Three months ago you made it sound like the inventories type was one time in natures. I think half of it coming from lower than expected revenues the other half due to a build up in some of the skews. I am just curious why that hasn’t come down more materially here this quarter?

Bob Hagerty

Well, I mean with the revenue ramp that we had in the quarter obviously we had guided revenues not being up as high as they ended up coming in. So we had a great top-line performance, which was better than guidance in that case. The support is frankly by great bookings activity. So, there is obviously more inventory associated with that.

The other thing that I mentioned in my prepared comments is that with new cost for air freight being what they are today with the fast change in those, we are spending some real efforts to optimize our physical distribution of products and I don’t mean their channel distribution, I mean physical movement of product with as much sea freight as possible to minimize those costs, which will also helps in the gross margin and with that, we’ve been operating in the fives before and we are trying to get back into the fives, near are five or better. So we don’t have a long way to go with where we have revenue in that Q2 and where we expect it to coming in Q3.

So there will be a little more of that activity this quarter and then we shall be done and the dollar amount will be whatever that is mathematically, but we are looking to operate the business it’s five or better, not that six or seven in the near term. I think long term it could get back in the six to seven, but right now frankly we’re going to put some more focus on sea freight versus air.

Troy Jensen - Piper Jaffray

And then how about the telepresence? I think the last quarter you gave us a data point that it was up something 53% or 58% sequentially. Can you give us any insight in how big data, the RPX and the TPX products are currently?

Bob Hagerty

Yes, the bottom-line is RPX. TPX is doing very well. It grew significantly in the period. It was up in those low to mid 20’s sequentially and it was up, well up small numbers, you can decide what are small numbers and big numbers, it was up almost 600% year-over-year. So the very, very big quarter for that product and we got a lot of new businesses coming in there both in orders that we booked as well as pipelines. So we are very encouraged by that and then HDX took a huge step up. They grew dramatically sequentially and year-over-year and now it’s almost by itself. It’s almost half of the video communications revenues.

Operator

Your next question comes from Richard Keiser - Sanford & Bernstein.

Richard Keiser - Sanford Bernstein

I just wanted to ask a longer-term question based on your experiences on video and the core video conferencing product. Did you experience or notice, the step change in demand when the product reached a penetration level that really supported positive network effects and if so cay you just provide some perspective with respect to the telepresence products since obviously that will benefit a lot more I think once your penetration base gets larger.

Bob Hagerty

Well clearly we’ve seen that over the years as the industry was able to build out a much stronger base, video become much more widely used. In fact we believe it’s over a million, well over a million units in active use around the globe of this current standards based solution, so the things that are used what we call H.323 and H.264.

The exciting think about our telepresence solutions is it builds right on that network so we should be able to and are experiencing actually the fact that you come leverage that installed base with telepresence that fully interoperates with the existing rooms systems that are out there and have been out there for the last several years of this generation of protocol that allows you to communicate.

So the big step up we are seeing right now the fact we move to high definition which gives your much better picture and again with our solution, the telepresence equipment is completely interoperable with the HDX platforms that we have been shipping and as Mike said, the HDX numbers are up substantially, so we are seeing a very dramatic shift over to HD.

So the answer is I think that in our case clearly we are seeing leverage of the install base because we are using all the same standards and telepresence is ramping very nicely and again the ship from standard definition to HD is start to occur at a very rapid pace.

Richard Keiser - Sanford Bernstein

If I can just follow up very quickly on your comments and if I get a little bit more specific; when you used to talk to, “we do CIO surveys like everybody else” when I have conversations with CIOs, what they’ve said in the past is “Look we’ve got around with video conferencing equipment and some times its used and sometimes its not, but its really not an exciting or a high ROI type of product yet.”

When we look at this and this telepersence stuff we get really excited and on this stuff we are doing some trial, we’ve been trying out and so my question was more along if you think about, Polycom’s development and sales growth with the initial product, did you see growth rate X up until penetration Y and then growth rate 2X thereafter and then a slowing down, somewhat, consistent with like you are seeing a growing installed base and how you thought about that with respect to telepresence; it was more along those line.

Bob Hagerty

I think the things that are less about this installed base which is quite large, I think that the factors that really achieved the growth in what we’ve seen as being the driving factors from a technology perspective are really a couple of things. First off, they improved call reliability that you get by moving from ISDN world to the IP world. I think that, you can’t or cannot under estimate the capabilities of the IP Network. The second is, which is also related to IP is the fact that people have conditioned their network for Voice Over IP and thus conditioned and understood how to do Real Time Over IP.

I think those two factors have done more to accelerate the growth rate than anything else and the icing on the cake is clearly now that you have done those two things that you start looking at the high definition and getting the telepresence implementations. The across to doing the call is down significantly, but I mean you can’t underestimate the call reliability you get on a well conditioned IP Network

Operator

Your next question comes from Bill Choi of Jefferies & Company.

William Choi – Jefferies & Co.

A couple of more follow-up questions on this gross margins. If you break it up between products versus services you saw both segments decline and perhaps surprisingly on the services given that there shouldn’t have been much been absorption issue. Maybe you could explain first the services gross margin decline and then secondly on the product part, it’s down probably about 160 basis points. Could you just break that out between the absorption versus product mix related stuff and then I have a couple of more follow-ups?

Bob Hagerty

Sure, first of all on service fees, that adds in with investments that we’ve made in bringing into additional staff with all the high-tech’s work that we are doing on the services side and frankly just building out for more of this high-tech customer support and some of our activities that we are doing around our product deployments. So, that there is a little bit of or an unevenness of the investment to the yield that expect to have on the top-line, but that’s something that should be fairly short-term in balance. So, that’s a good observation and that is staff spending and customer facing people on the service side. So, that’s on the service side. On the product side --

William Choi – Jefferies & Co.

Would that product then return back to the low 50’s and short order?

Bob Hagerty

You would expect to see service stable on gross margins over any brief momentum not in a immediate period of time yes, so that should improve. Secondly you’ve had the absorption issue, which cost us over a point in this most recent period and you will have some of that, all be it smaller than in Q2 and Q3 as we do that, a final tweak there, but that was apart of it and then another part and then the other major issue was mix.

We had mix away from network and toward that some Voice-Over IP and the very fast shift from standard DEF to HD and as part of that line we are actually underway on, there is some that just comes with higher built-in shift that you’re going to get, just economies of scale that Bob noted, but frankly from the initiative standpoint more importantly we’re doing value engineering on that product line, like we would do as it comes into maturity here where we will be lowering the cost of that products as well.

William Choi – Jefferies & Co

Just to clarify the 160 basis point decline for the product, probably a point or so in the absorption and then the remaining parts on these different mix issues?

Bob Hagerty

Yeah, about a point on the absorption and the rest is mix.

William Choi – Jefferies & Co

And is telepresence gross margins similar to standard or are they at around or below at the HDX?

Mike Kourey

They are below the HDX because keep in mind that with that product you’re also incorporating, it’s a whole room within a room that’s what makes this a most of experience such as winning very big deals out there and getting the hearts and minds of the suite.

Now what that means is we are also selling if you will with that as part of the product ceilings, light fixtures, displays. I mean this is a fully integrated cinematic room that you’re in with tables and chairs and graphics displays and all these kinds of things and so you’re obviously not marking those up to the level that do with your core video technology. So, overall it ends up with a little lower margin. We’re also doing initiatives there to improve costs there, but from a -- what really drives that the gross margin consolidated initiatives around HDX shift by pure math are more critical.

William Choi – Jefferies & Co

I wanted to talk about sales force and productivity. First overall headcount, I mean 78 headcount addition is quite sizable. If you’re looking at your sales and marketing costs to go up another $4 million plus sequentially, can you give us a framework of what type of headcount increases you plan to do in Q3 and throughout the year and this shift that’s going on in sales force, the overlay network solution in sales force, is there anything else going on to increase the productivity of your current sales force?

Bob Hagerty

Sure, we’re doing a lot of things to increase the productivity of the sale force. A lot of training as you can imagine, a large number of people coming into the sales force and having to ramp. So, we do everything we can to accelerate that ramp and that’s primarily with training product managers on the road. All of those standard things that you would do to get at the sales force trained and ramped up as fast as you can.

We’re really happy with quality of people of were doing on this sales force and so that we’re hopeful the ramp up time will be a little less. They won’t have to learn to sell, they just have to learn the details of our product platform and our product solutions differ from others in the space.

We are seeing the RPX, the telepresence solutions do take a little longer to sell, but nonetheless I think we’re very pleased with the ramp up and how things are moving along with that and as we said we are going to continue to invest in it because we think it’s a model that is working.

In terms of the overlay team on the network systems area it’s not necessarily large in number but they should be high in impact. They are a catalyst group that will working support of and work with the account managers who are out there. So, as a fact account managers and the DL, they are going to start sell network. They have a resource they can call and use expert in the deep knowledge about that particular platform.

William Choi – Jefferies & Co

Are there any changes to the way the account managers are currently structured along with this overlay network?

Bob Hagerty

Well it is a huge. I mean there has been a huge shift towards direct touch and as we’ve add coverage we can add direct touch coverage on more and more customers. So, as we grown our sales force we have moved from just a handful of global account managers to a larger number of assigned accounts for our major account managers and our commercial account managers. So yes we increase that, we increase our coverage.

William Choi – Jefferies & Co

Okay and then any other total headcounts for the year.

Bob Hagerty

I’m probably not comfortable giving our sales headcount expectations at this stage. I think we have some pretty good guidance on the revenue and the expenses, but needless to say we will continue to invest, I don’t want to target where we’re going to invest and even in the absolute numbers as our -- that’s a competitive advantage or disadvantage to t he extent that’s out there.

Mike Kourey

Bob we’re closer in the three quarter points step up that I described in the guidance which will be related to headcount.

Operator

Your next question comes from Elliot Gold of TeleSpan.

Elliot Gold - TeleSpan Publishing

Mike one of them is something you probably just responded me by e-mail. In fact let me give you that first. I couldn’t find in my notes the break out of that revenue by distribution for Q1 ’08 you gave it today for Q2, so if you could just have somebody e-mail it to me.

Mike Kourey

You have got it.

Elliot Gold - TeleSpan Publishing

The other thing is in the past few have broken out the SpectraLink revenues you had Q1 ’08 you said 39.4, any comment on the Q2 ’08 versus Q2 ’07 and then I have one another question.

Bob Hagerty

Right yes, as we have discussed ever since we did the acquisition we would breakout the sub element of SpectraLink whenever it was an unfair either sequential or a year-over-year comparison. Q1 with the last such quarter and that in Q1 we had only owned them for six days in Q1 ’07, but in Q2 over Q2 everything now, everything is organic, it’s like the old pooling days at this billings. So, now it’s all voice.

Elliot Gold - TeleSpan Publishing

That’s fine. My main question though is you made a comment that maybe Bob that network was down due to lower voice and I would say network sales products; can you comment on the audio network product sales, the old pointed unit. Thank you.

Bob Hagerty

So, it was challenging. It’s always been a lumpy business, and it was not very good you would say in Q2. So we again talking about long sales cycle, that’s the longest sales cycle platform we have. We have a number of very, very high quality customers and in this period it was in the cycle for them to -- it was a cycle for them to order, but not for them buy so as Mike commented in the call we expect to see some revenues from that particular market in this third quarter coming.

Mike Kourey

Yes, certainly quarters we set out some opportunity there. Q1 and Q2 same stories there, very, very little in Q1 and Q2.

Bob Hagerty

Very charging...

Mike Kourey

So with some of that coming back in the third quarter, that does give us some newer guarantees list plus the RMX actually had jump in its growth rate; it’s falling very quickly, which boards well as well in cycle of things.

Bob Hagerty

Yes, RMX growing extremely fast, so when you get that product transition that’s difficult because you got the very exciting product that we’ve had for many year, the UGC, it is still very strong in certain markets, still have very strong in certain applications, but the RMX as it brings on more and more applications picking up speed and growing really nicely. So we’re really happy about the RMX platform, and it makes us feel comfortable about where we are heading in the near-term

Operator

Your next question comes from Jack Monti - Lehman Brothers.

Jack Monti - Lehman Brothers

I am just curious, and I wanted to touch on the R&D expense. They are little bit higher than from modeling in the quarter and we are curious if there is anything driving it and a secondary question to that. If you could comment on the competitive environment that you see out there among the competitors who released the new product and I mean if its any significant change and then also I think I may have missed it, but if you could touch again and on your R&D expenses going forward if we should expect them to go up in the third quarter or how you’re thinking about that? Thanks a lot.

Bob Hagerty

So on the R&D, the guidance we gave is that they were on the dollars basis they’d be flat to down in Q3 over Q2. So that’s what we expect with R&D going forward.

Mike Kourey

So, on the competitor; we’ve got a lot of competitors voice video telepresence, can you give me some color on which one you’re talking about?

Jack Monti - Lehman Brothers

Yes, I was just referring to the Cisco product.

Mike Kourey

The C500?

Jack Monti - Lehman Brothers

Yes.

Mike Kourey

So Cisco is a formidable competitor in this space, because we cooperate with them in many spaces and it’s a competition relationship, we respect them a lot. They are a tough competitor. They are the people we see the most in telepresence deals and we’ve won quite a number of deals, we’re very happy with our win rate and we wish we had their sales coverage and marketing money and ability to have the products out there that basically give away, not give away but trials and others things they are doing. They are doing quite a number of things out there.

I don’t think the C500 is direct issue against the HDX; it doesn’t have the pencils and camera, so this application is a good product that matches to their solution, but again its not standard space. It doesn’t really fit with, although we were particularly going out to market. So, we do see Cisco a lot. They are a formidable competitor. We are winning with our platform. We think we are significantly differentiated from them and continue to pursue as fast as we can and building on our sales coverage to touch as many customers as we can.

Operator

Your next question comes from Scott Sutherland - Wedbush Morgan Securities.

Scott Sutherland - Wedbush Morgan

Your long-term operating margin going into it, you spend a lot in R&D and sales and marketing through its high-touch model and which is in place. Can you discuss, so far the benefits you have seen from this high-touch model that have been benefiting the company? When do you think you can pull back a plan that helps you get to your long-term margin goals?

Bob Hagerty

So I think that, given the market opportunities head of us that we would expect to see our sales and marketing grow as the company grows, so I would say that the -- we still have a lot of coverage issues that we’ve got to get a handle on. There are an enormous number of customers coming into this space that need attention. The benefit we’re getting particularly about moving to the direct touch or high-touch model is the deepness in which we’re able to touch a customer, build a relationship and yield revenue and margin success over a wide number of years. So, the customers that we’ve got in account management and stabilize account management as opposed to what we call maybe we and the rest of the industry did slight by selling, you just went after the accounts that where happen to have something on the budget.

We’re actually developing deep relationship with the customers understanding their needs, how we’re going to attack the productivity cost and then so those relations we expect to pay benefits over the longer times. Certainly, the first effect we’ve seen is by moving into the telepresence. We were able to close telepresence build deals and then more or less change the way companies are working or at least building out a higher communication capability using our HDX platform and/or both in the meeting rooms, rebuilding the meeting rooms to IP and with HD product line and then of course even movement in the desktop.

I think it’s changed materially our relationship to our end user customers. If you were taking to us five years ago, we really didn’t talk a lot about end user customers as we spent mostly of the time behind channels and so that move in front of channels I think it’s extraordinarily positive. I think it’s it solidifies the company’s future in a way that is very positive for the shareholders over the longer term and I expect to see -- so you said flattened; I expect to see that’s the growth rate in that to come down normally overtime as we go about this coverage model.

Scott Sutherland - Wedbush Morgan

And is there any thought on getting back to operating margin goals or it is more of a two year goal or it is going back where you’ve been investing towards quite a few in both quarters as well?

Bob Hagerty

Well, I mean in the first space we invested a lot in getting this platform completely rebuilt around high definition both architectures. We clearly started with end point architecture, rebuilding that onto the HD platform optimized for IP, things like our ability to deal with networks that have packet loss, I mean all of those architecture take a lot of effect to get switched over, switch over in even on chip technologies to what we feel is a more viable long term platform on chip technologies.

We were partially through that in the bridge world but for the most part of R&D investment is materially in a stable place. Now we switched and in parallel with that we switched over to starting to build out our sales coverage model. So I expect to continue to build out the sales model coverage and you’ve seen R&D on absolute dollar start to slow down materially and I would expect that we would not need to grow our R&D certainly faster than the models.

So I expect to see synergy out of R&D and we have a few more -- probably in the near term where we continue to invest in sales and marketing but moderating that in the later quarters.

Scott Sutherland - Wedbush Morgan

Okay and just another question I had is can you give some comments about the Federal Government. Usually it’s pretty big in Q2 and Q3; do you see any change in outlook here from the typical Q3’s in the Federal government spend?

Bob Hagerty

I think Federal government still looks strong in the third quarter and that’s good positioning there. We just had a press release on certification of the HDX 9000 for I think its FIPs and Jidic and a few other thing. So, we continue to invest in the federal area, we see there is a strong market and continue to a strong market.

Operator

Your next question comes from Manuel Recarey - Kaufman Brothers.

Manuel Recarey - Kaufman Brothers

Two questions, one if we can talk little bit about the network services again. Yes, I know the weakness is on the voice side, so can you talk about the strong RMX on the video side? You look at Tamburg they had a quite strong quarter in the network services. So, is that fair to see that, I think it was on the video side, was that up sequentially?

Michael Kourey

Yes, so let me go see that a little bit. First of all that that’s a testament to the fact that this just whole you’ll see inside collaboration market opportunity is at a place it’s never been and it is driven by the travel costs and great initiatives and all the things that Bob pointed it out. Along with all that end point to plan it comes, the need for additional network infrastructure, so the opportunity is there. So, if you feel like the [inaudible] is Polycom, first of all you do out voice network systems.

Voice network systems was very low in Q1, very low in Q2, service provider only business, we do have pipeline which we are getting some revenue here in Q3 and Q4, which is by definition is up, so that’s a real good thing. On the video network system side of things, if I wanted to purify like that then no, the video network system was not up.

However, the RMX which is our new platform, a platform that we’re transitioning into which is what we believe it’s the best platform in the industry and we have that new release out, a three dot software that’s come out, which has all the lost type of recovery many other feathers and just frankly more to come on that, letting it’s multiyear platform that than gross rate jumped fairly significantly in Q2 from even it’s growth in Q1.

So, big success beginning to happen in RMX, lot of growth, big-big sequential end year-over-year growth; however you have the MGC platform that is decreasing and on the dollars basis it decreased on a faster rate than the new platform RMX came up. So, it’s the two core drivers.

So just from that product area there will be some voice success that will help, but then you also have this very important piece with this new product platform, which is gaining traction and to catalyze our attached rate of network to endpoints where we are having all those endpoint gains and again it looks like we intent to head regains from revenue share in video here in Q2, so it’s an important role.

That should go very well for the cash that we can get in some of these incremental experts and the other way organization that Bob talked about, we should be able to drive that more quickly and get that up. So, now we are optimistic about growth in network systems and frankly its not just great top line, its great gross margin expansion as well, because we have suffered confessions due to -- here in the recent past.

Manuel Recarey - Kaufman Brothers

Can you give a little color and what drove the North American market for you, that was obviously very nicely sequentially, which certainly wasn’t expecting concerning the economic environment so can you give a little color on what drove that?

Bob Hagerty

We have got great sales coverage here in the U.S. The U.S. it seems quiet sensitive to travel cost, I think the whole world is but there is a lot of budget and reviews going on around travel cost that personally, with anecdotal I’ve personally spoken with many either had to travel with CFO’s that I know out there from company’s our size or in some cases much larger and everybody is working through that issuing.

Quite frankly if you look at why we are making the sales investments for making this is an unprecedented time in this space. This whole soaring travel cost, this whole climate change issue, the globalization and being able to collaboratively work with all of these peoples, because within your enterprise and with your extended enterprise its crucial and its crucial for the U.S. too and quite frankly with the good sales team that we’ve got and all the coverage we’ve got along with there is no budget issue that people have here around travel, where we are getting a big chunk of business and in fact we even did well possibly from a share standpoint in the U.S. as well. So the net, net we are pleased.

Mike Kourey

It was an earlier question about the sales and maybe it wasn’t really related to the ramp, but I through in the ramp issue, so the first place we invested in the direct touch group increasing the number of direct touch sales people was in the U.S. and I believe a couple of things, clearly we did some management refocusing and then we’ve got more time and grade for those new sales people and they are starting to ramp up. So I would attribute it to those two things, management focus and more timing grade for the direct touch people to ramp up.

Operator

Your next question comes from the line of [Tree Lam] of Integral Capital Partners.

Tree Lam – Integral Capital Partners

What’s the driver behind the product mix and do you see that continuing or do you see that whether there is a catalyst to grow the network product as a percentage of product mix.

Bob Hagerty

So you have seen a strong shift to HD in the video space, very strong shift to HD in the video space. We are coming through the transition of the MGC which we still run and still support it, still that’s offer on it. It works in several applications, it’s a powerful platform, and it will continue to run for a long while. It has HD on it.

For the Enterprise-Class solutions in many cases the RMX is the preferred solution, and so we are seeing the fact that we shifted to HD and people are re-looking at their infrastructure to either add capability to their MGC or in most cases now go to -- stepping up to RMX. So, we are seeing one, the underlying driver, the underlying demand in just volume, in video and in the shift to HD which would drive you to buy more capacity because the HD uses more resources to do an HD call than it does a regular call.

So we think all those things line up very well for network systems over the long-term, and we will continue to invest in that platform and a lot of -- quite frankly a lot of the engineering work is that we have been doing is not yet out into the marketplace. So there is a lot going on.

We invested in architecture; we build an architecture that has long life. MTC now is pushing up on eight, 10 years and we have been keeping it fresh with a number of board upgrades to it. We expect that RMX will see the same life cycle or similar life cycle and certainly we’re at early stage of brining on applications and developing features into that platform.

Tree Lam – Integral Capital Partners

Okay great, great and the second question I have is you’d mentioned initiatives that you’ve taking to upgrade to HD voice, no buzzing when your cell phones around; where do you see yourself on that upgrade cycle and what did you need to do to push it forward?

Bob Hagerty

Well, so we’ve been doing some marketing around NoBuzz. Certainly everybody I talked to, most of the number one compliant I get from all the CEO’s is the buzz and so we continue to push our marketing on that campaign. We’ve had some very successful campaigns. We continue to see good lead generation from that’s it’s running on a online basis, direct mail basis, so we’re just trying to get the word out right now that you can get rid all of your SoundStation, move up to the new ones, get rid of the buzz.

Then the other key driver is the ease of installing and management that comes by moving the chip based and IP based conference phones. So our conference phone right now is got a full line of the platforms from good, better, best if you want in the IP based products now and I think those two factors again, the ability of these technologies to deliver increased functionality, high definition voice, no buzzing it’s so much better on an IP network.

So, we can create a lot more feature functionality on the phones; even the IP desktop phones by running applications on the phones in addition to the traditional dial-in connect capabilities.

Tree Lam – Integral Capital Partners

So, there is a lot more legwork to go to remove the old devices that you have installed?

Bob Hagerty

I mean tons more to do and in terms of getting up as old ones. There is a little over 3 million phones out there in conference rooms that are the old generation stuff. Unfortunately, we build or fortunately or unfortunately we build probably on the most robust platforms around first of all from an ID’s shape that product that we shipped in was it 1992-1993, still probably the most recognized, still used in TV commercials, not our commercials, but other people using it to show a store conference room. So the look it’s still very fresh and then, quite frankly it is that the quality is held up for long and they don’t break.

So there is a lot of heavy lifting to do in terms of messaging not in terms of selling, but in terms of messaging to let people know that older generation phone looks hot and it looks good, but doesn’t sound nearly as good as the new ones and certainly will buzz if you bring a cell phone in there. So there’s a nice daily reminder anytime you’re on a conference call and somebody leaves their cell phone on you certainly know they are on an older generation. We just got to get that message out.

Operator

Your next question comes from Scott Thompson - Banc of America.

Scott Thompson – Banc of America

This is actually Scott Thompson calling in for Tim Long. I think many of my questions have been answered, but I still do have one around your strategic partnerships. I know in the last quarter you gave us a little bit an update on how things are going with Microsoft, Three Com people like that; can you give us a little detail around that this quarter?

Bob Hagerty

What I think we’re doing is a great example of that strategic relationship is a fact that Nortel announced with us that Deloit is using their telepresence solution. So, those relationships are specially when it comes to telepresence, both the service providers that we talked about earlier and those strategic partners like Avia and Nortel are great examples and the Nortel one we just highlighted here in the call and also was out in a Nortel press release is a great example of how those deliver a broader usage solution of which Polycom is the video engine behind it and of course the conference phone engine behind it.

Scott Thompson – Banc of America

And what about Three Com, do you expect that to have an impact through the end of the year?

Bob Hagerty

Yes, Three Com is in process. As products get to their supply chain of what they originally had as their own and mostly into our products that will yield for us. It did grow this last quarter, but it’s still not in to the point where I’d give out a lot of energy to highlighting of that from the pure revenue deployments standpoint, so not the case yet. Will likely begin to be the case later this year, that rollout has not yet come to full fruition.

In the case of Microsoft, although we are certainly not at liberty to talk about other people’s numbers again that was different and that is further along and with that again we are just not allowed to give numbers, but I would say that one grew quite well in the period. So with that said that’s a strong -- that’s already at a strong level.

Operator

You have a follow-up question from Troy Jensen of Piper Jaffray.

Troy Jensen - Piper Jaffray

Can you give me what the Cody and royalty contribution was in the quarter and also the number of shares you repurchased?

Michael Kourey

We’re not allowed to give out that numbers. The number of shares, I can’t give out the exact amount. No, I can’t answer that.

Troy Jensen - Piper Jaffray

Just the absolute number of shares you repurchased?

Michael Kourey

The absolute number of shares was a little over 3.3 million shares in the period, 3.332 million.

Operator

We have no further questions at this time.

Robert Hagerty

Thank you very much for following Polycom as we capitalize in this important and fast growing unified collaboration market and build our leadership and brand through unique telepresence, HD innovations, strategic partnerships, increased sales coverage. Over the next several quarters promise to be exciting time for Polycom. We look forward to updating you on our successes each step of the way. Thank you very much and we will see soon. Bye.

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