Polycom Inc PLCM
Q4 2010 Earnings Call Transcript
Transcript Call Date 01/20/2011

Operator: Thank you for standing by and welcome to the Polycom Q4 2010 Quarterly Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, January 20, 2011.

I would now like to turn the conference over to Mike Kourey, Chief Financial Officer. Please go ahead.

Michael R. Kourey - EVP Finance and Administration and CFO: All right, thank you. Good afternoon, everyone, and welcome to Polycom's Fourth Quarter 2010 Earnings Call. I am Mike Kourey, Polycom's Chief Financial Officer, and here with me today is Andy Miller, President 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 homepage, which is polycom.com, and click on the Q4 earnings call link. Then, follow the instructions provided.

For the analysts participating in the Q&A session, leave your call live so that you can use your conference call connection for the Q&A session at the end of our call. Please note that the Q&A is for financial analysts. We welcome all others to listen into the Q&A session. Each analyst will be limited to one question and one follow-up.

Please note that this entire webcast, including Q&A, will be maintained on Polycom's website for 12 months from today for your convenience in replay. Also, a link to the call will be provided on Twitter, Facebook and LinkedIn at Polycom.

Most of you participating in this call today are aware of the federal legislation regarding forward-looking statements. Accordingly, we would like to note that during the course of this conference call, Andy and I will both be making forward-looking statements and presenting forward-looking visual materials regarding future events, anticipated future trends, future product offerings and the future performance of the Company, including financial guidance, strategic initiatives and future investments in the business.

We wish to caution you that such statements and visual materials are just predictions that involve risks and uncertainties and that actual events or results could differ materially. We discuss a number of these risks in our business in detail in the Company's SEC reports, including most recently in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2010, 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 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. In addition, we will be presenting both GAAP and non-GAAP financial measures here today. Please refer to our reconciliation of GAAP to non-GAAP financial measures in the tables entitled 'GAAP to non-GAAP Reconciliation' in today's earnings release, which is also posted on our website.

Now, at this time, let me turn the call over to Andy Miller, President and CEO.

Andrew M. Miller - President and CEO: Thank you, Mike. It's a pleasure to be here today. 2010 proved to be an exceptional year for Polycom. We grew revenues up to $1.2 billion, up 26% over 2009 and exited the year at $1.4 billion run rate. We generated non-GAAP earnings per share of a $1.50 driven by expanded gross and operating margins.

Importantly, our momentum continued in the fourth quarter as revenues grew faster than anticipated to a record $340 million. We exited the fourth quarter with a record backlog of $76 million, growing 8% from Q4 and 10% from the same period last year.

Polycom's deferred revenues grew to a record $160 million, growing 9% sequentially and up 27% from Q4 of last year.

Non-GAAP gross margin improved sequentially by 30 basis points to 61.2% and non-GAAP operating margin improved to 16.5%, which yields non-GAAP earnings per diluted share of $0.49. But 2010 was more than just a year of successful financial performance. It was a year of great strategic importance for Polycom as well.

We transformed our business from a voice and video product company to a fully integrated, customer-centric, unified communications provider of choice. We build out our sales coverage model in each of our key geographies and vertical markets. We forged an ecosystem of strategic partnerships with the industry's most sought-after companies. We delivered a broad array of critical innovations from our UC Intelligent Core solutions to breakthrough improvements in the user experience.

Of course, in 2010 we also recruited some of the world's leading executives on to Polycom's management team. Turning the page on 2010 also marks an important progression in our strategy. As you know our execution last year was focused on five key strategic pillars. One, go-to-market; two, strategic partnerships; three, service provider; four, professional services; and five, innovation.

As we look forward to 2011, I'd like to map the strategic pillars from 2010 into our strategic pillars that will drive our growth and brand this year.

Here in 2011, with last year's phase one of our strategy executed, we are poised to execute phase two of our strategy. Although, of course, our go-to-market machine will continue to be in an important component of our strategy as we move to the multibillion level, we have completed a significant forward investing here. Likewise, even though we expect Professional Services to continue to be a key differentiator in our go-to-market and customer relationships, we have now established this business and expect it to continue to evolve and grow as we become even more deeply enriched with our customers.

Let me now outline our strategic pillars for 2011. Throughout this year, you will hear us consistently discussing and delivering against these imperatives; number one, cloud-based UC solutions; number two, mobility; number three, the UC ecosystem; number four, our UC Intelligent Core; and number five our UC innovation engine.

Taking these one at a time, the cloud is already gaining significant traction in the video communications or UC space. For instance, in the fourth quarter Polycom secured the win of a huge cloud deployment with China Unicom who is significantly expanding its network using Polycom's UC Intelligent Core to service over 10,000 businesses and government organizations throughout China. In fact, we believe this is the biggest cloud deployment of video by any service provider in history.

Not only is this a significant cloud-based win, but this enables the growing adoption of our group and personal UC devices over the next several months and quarters. This significant event in China is in addition to other key and important wins with AT&T, Verizon, British Telecom, Telstra and others as cloud UC becomes the adoption method of choice for small to medium businesses and enterprises alike. Looking forward, expect Polycom to be increasingly present with our service provider partners in the cloud.

Further enabling Cloud and CPU-based UC is Polycom's move into the mobility space. As we announced in November, we are first launching into mobility with a high-quality video solution embedded on Samsung's Android-based GALAXY device, providing high-quality video in 3G, 4G and Wi-Fi environments. An important differentiator for Polycom is the secure integration of our mobile video solution with enterprise and government UC networks.

Over the year, our plan is to launch with other Android-based devices and also on other platforms, such as RIM BlackBerry, Microsoft Windows Mobile 7 and Apple. In other words, Polycom's view is that every individual, whether a consumer or a professional worker, should be able to have a high-quality UC communications experience at the desk, in a meeting room or when mobile, all integrated cross platform with a common user interface.

Not surprisingly, Polycom is in a unique position of delivering this clean integration due to our powerful ecosystem, the Polycom Open Collaboration Network. As you saw in October with IBM and then in November with Microsoft, Polycom and our strategic partners are delivering an unparalleled user experience for unified communications and collaboration.

With IBM, we launched a tight integration with Lotus Sametime that delivers a complete end-to-end solution combining IBM's feature-rich Lotus Sametime platform with a scalable, secure, and standard space Polycom UC Intelligent Core.

With Microsoft, we announced six strategic agreements that tightly coupled Microsoft Lync with Polycom's UC technology including embedding Polycom's SVC code into the Microsoft Lync platform. Of course, we're making significant progress as well with Hewlett-Packard, Siemens and other key partners including winning many key customers together. In fact, as a proof point, we generated approximately 23% of Polycom's revenue from our top seven Open Collaboration Network partners in Q4, up from 18% in Q3.

Let me give you just a few examples. With Microsoft, we won a high-definition video project with Bausch & Lomb. Building on Polycom's UC Intelligent Core Bausch & Lomb is utilizing our solution for project management, sales meetings, and corporate earnings calls. We closed the very large deployment of UC personal devices for NDS, a division of News Corp, due to our tight integration with Microsoft Lync.

With Siemens, we won British Petroleum who chose Polycom's UC Intelligent Core solutions to significantly expand its HD video collaboration capacity across Europe, Middle East, and Africa.

Working with IBM, we closed UniFirst, a global supplier of uniforms and a record of sales and network infrastructure in this quarter. We believe our success is driven by our superior platform which offers virtualized architecture, port flexibility, bandwidth efficiency and integration with our UC ecosystem. You will continue to see our UC Intelligent Core as the central point of our technology across cloud, CPE and mobile environments.

Lastly, on the 2011 strategic pillars, let me touch on Polycom's UC innovation engine. As many of you know, we recruited Sudhakar Ramakrishna or Rama as our Chief Development Officer onto our executive team last fall with a mission of bringing together our various deployment sites into one agile forward-leaning UC innovation engine. Working side by side with Joe Burton, our Chief Strategy and Technology Officer, Rama has been nothing short of spectacular and delivering on this vision.

Even though my demanding lens, I'm seeing creativity, efficiency and agility. Expected here a great deal about our innovations throughout 2011 as Rama, Joe and their teams deliver against these solutions around the strategic pillars that I have just described. As a group, we believe our execution against these strategic pillars will enable us to capture the network effect that is already beginning to occur in unified communications, and build on our current market leadership.

As our Chief Strategy and Technology Officer, Joe Burton and I discussed last November on our webcast, cloud and mobility coupled with our innovations and integration with Polycom Open Collaboration Network partners are the core building blocks to enable what we call UC Everywhere.

Bottom line, the UC space stands to be one of the top two or three fastest-growing markets in technology for the foreseeable future, and I believe Polycom has the team, the brand, the channel and the innovation engine to execute on this opportunity better than any provider in the market.

Through aggressive execution against the strategic imperatives I just outlined, I expect Polycom to grow very effectively in this environment and capture what is clearly a once in a lifetime sea change in the way people communicate in both their professional and social lives. As we did last year, I plan to update you each step of the way with tangible evidence of our successes. We will also update you with any course corrections that we decide to make along the way.

On that note, let me turn the call over to Mike for a discussion of Polycom's financial highlights. Mike?

Michael R. Kourey - EVP Finance and Administration and CFO: Thank you, Andy. Before I get started, please note that for the financial guidance that we are giving here 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 guidance regarding our expectations of future financial execution and performance, which are subject to many risks and uncertainties that could cause actual results to differ materially from our expectations.

Moving to look at our results, as Andy stated earlier, Polycom generated record revenues in the fourth quarter of $340 million. This represents sequential growth of 10% and an increase of 27% compared to Q4 of last year. Looking at revenue by geography in Q4, Americas revenue grew by 7% sequentially and increased 27% over the year ago period. EMEA revenues grew by 15% sequentially and by 22% year-over-year. Asia revenues were up 14% sequentially and grew 33% year-over-year.

Moving to look at revenue on a product line basis, which includes the service elements of each product line, revenues for UC group systems, which includes all immersive telepresence, group video, group voice systems, that total was a record $221 million or 65% of revenues in Q4, growing by 10% sequentially and 29% year-over-year.

UC personal devices, which includes all desktop video devices, desktop voice and wireless LAN products, were $63 million or 19% of revenues in Q4, growing by 3% sequentially and 21% year-over-year. Importantly, network infrastructure revenues grew a significant 20% sequentially and were up 25% year-over-year to a record $55 million or now 16% of revenues.

From the channel standpoint, the revenue breakout for the fourth quarter is as follows; 32% through value-added resellers, 56% through distributors and 10% through service providers, with just 2% direct. Note that 3 percentage points of our distribution business in Q4 was driven by the ITSPs and other service providers that are fulfilled through distribution, making the total service provider percentage 13% in the fourth quarter, up from 12% in Q3.

Driven by ramping demand in the fourth quarter, we shipped 41% of revenues in the last month of the fourth quarter, representing a 10 point linearity improvement over the year ago period. Polycom exited Q4 with a record backlog of $76 million, up 8% sequentially and growing 10% year-over-year. Polycom's deferred revenues grew to a record $160 million in Q4, up 9% sequentially and 27% over the year ago period.

Please note that going forward we will not any longer be separately reporting our backlog number. With our lead time profile, backlog typically represents approximately three weeks of sales and we believe deferred revenues are a more relevant balance sheet metric. Of course, we will continue to give color around the momentum in the quarter and the underlying booking environment.

In reviewing our Q4 revenue drivers, we see broad-based bookings momentum and revenue growth across all major geographies and product categories.

In the Asia Pacific, the revenue growth has been nothing short of stellar due to the favorable market macro dynamics in that region coupled with strong demand for Polycom's UC solution and excellent execution by Polycom's Asia Pacific team.

Of particular note are China, India, and Australia, where we continue to make gains both in enterprise and to our service provider partners.

In EMEA, our new Theater President, Gary Rider in that theater has already begun to make an impact through alignment of our team with the fastest growing regions and verticals in his geography. One important area of success in EMEA is Russia, where customer demand for our UC solutions is growing at one of the fastest rates in the globe. The Americas also generated strong growth in the fourth quarter; in fact, the fastest Q4 sequential growth that we've seen since 2003.

On the product side, the back-to-back sharp increase in network infrastructure revenues again validates the effectiveness of the mid-year actions that we undertook to leverage our best-in-class UC Intelligent Core offering.

Moving on to the statement of operations, non-GAAP gross margins for the fourth quarter improved to 61.2%, up 30 basis points from 60.9% in Q3 due primarily to the strong network infrastructure results, a solid pricing environment and cost reductions.

Switching gears to non-GAAP operating expenses for the fourth quarter, Polycom's operating expenses increased sequentially in absolute dollars, but were down as a percent of revenues in Q4.

Looking at the specific Q4 non-GAAP operating expense line items on a percent of revenues basis, sales and marketing represented 29.1% of revenues for the period, down from 29.3% in Q3.

R&D closed at 11.2% of revenues, down from 11.7% in Q3. G&A was 4.5% of revenues, down from 4.9% in Q3.

In total, non-GAAP operating expenses represented 44.8% of net revenues in the fourth quarter, down from 45.8% of net revenues in the third quarter.

Moving to look at the Company's operating income, Polycom generated fourth quarter non-GAAP operating income of $56 million or 16.5% of net revenues, up 140 basis points from 15.1% in Q3. This compares to $38 million in non-GAAP operating income or 14.1% of net revenues in Q4 of 2009 or a year-over-year non-GAAP operating income growth of 48%.

As a recap of our performance against our previously stated long-term target model, we operated within our target gross margin range of 59% to 63%. Sales and marketing operated 3.1 percentage points over the high end of its target range in support of the strategic plan. R&D and G&A continued to operate within their target ranges.

Our Q4 non-GAAP operating margin of 16.5% is 3.5 percentage points below the low end of our target range, which is 20% to 22% for operating margin. Other income and expense in Q4 resulted in net other income of approximately $200,000, comprised of $100,000 in net interest income and net other income also of approximately $100,000.

Interest income continues to be impacted by the lower interest rate environment. Net other income was primarily driven by net foreign currency gains, which may not occur in the future, partially offset by non-income related taxes and fees. Looking forward to Q1, we expect a net other expense of approximately $1 million.

Moving to tax, you'll note that our Q4 non-GAAP effective tax rate was 23%. This was driven by the strong international mix, the retroactive reinstatement of the U.S. R&D tax credit, and one-time discrete tax items.

Looking forward to the first quarter, we are forecasting a 25% effective tax rate based on our geographic mix assumptions. Of course, our tax 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.

Q4 non-GAAP net income was $43 million, up 28% from Q3 levels and 52% from $28 million in non-GAAP net income in the comparable period last year. Non-GAAP diluted EPS was $0.49 in Q4, up from $0.38 in the third quarter and $0.33 in the year ago period. GAAP profitability for the quarter was $33 million or $0.37 per diluted share in Q4 versus $13 million or $0.15 per diluted share in the comparable period last year.

Looking forward to Q1, we note the strong revenue dynamics due to the increase in productivity of our sales force, the expanding reach of our strategic partners, the obvious success of winning at the core with Polycom's fast-growing network infrastructure solution. We're also pleased with the success of our strategic plan with regard to the sales coverage that we've build out over the last year in sales, sales engineering, our solution centers around the world and our growing Professional Services practice.

Therefore, even with the significant revenue over performance in Q4 and in spite of the typical Q4 to Q1 seasonality, we are guiding revenues to be flat to down 2% from fourth quarter levels. Driven by the robust pricing environment and our mix expectations, we anticipate Q1 gross margin at approximately 61%. Of course, gross margins in the future may be higher or lower and are subject to mix variations and other factors.

Moving to operating expenses in Q4, we plan to continue to drive our momentum in support of the strategic initiatives that Andy discussed earlier. Through these initiatives, we believe we will continue to deliver market leading revenue and earnings growth in 2011 as we did in 2010. In Q1, we plan to make a few targeted investments in support of our Polycom Open Collaboration Network partnerships, including customer touch and development resources to further leverage our expected Microsoft Lync revenue ramp.

We also plan to make a few targeted investments in Asia to further capture our growth momentum in China and India. Finally, we will add a small amount of development resources in support of our cloud and mobility initiatives. As such, we expect sales and marketing, R&D and G&A to all increase slightly as a percent of revenues in Q1.

As a result, we expect first quarter operating margin to decrease sequentially by approximately 150 basis points from the fourth quarter, but to grow by approximately 200 basis points from the first quarter of 2010. Following Q1, we expect sequential and year-over-year growth in operating margin each quarter, and Andy and I are also guiding that we expect to achieve our operating margin objective of 20% in the fourth quarter of this year.

Before turning to the balance sheet, I'd like to briefly highlight our full year performance in 2010. For the year, Polycom delivered record revenues of $1.2 billion, a growth of 26% over the prior year. Coupled with this top line growth, Polycom's 2010 non-GAAP gross margins improved 160 basis points over 2009. In addition, even with our strategic investment plan of last year, our full year non-GAAP operating margin improved by 50 basis points.

Turning to the balance sheet, Polycom generated $42 million in positive operating cash flow in Q4. These operating cash results were driven by our profitability and strong working capital management. We exited the fourth quarter with cash and investments of $536 million and the Company continues to be debt free.

Moving to DSO, the Company's net trade receivables of $155 million resulted in a DSO of 41 days, a 3-day improvement over Q3 and a 4-day improvement over the comparable period last year. Looking forward, we are maintaining our best-in-class DSO guidance of 40 to 50 days. Inventory turns at the end of the fourth quarter were 4.6 turns, up from 4.5 turns in Q3. We expect turns to increase gradually over time to the 5 to 6 level as we optimize our supply chain around our growing demand levels.

Regarding share count, we expect Polycom's weighted average shares for dilutive EPS to grow by approximately 750,000 shares in Q1, exclusive of stock repurchases. This is driven by the stock price and other factors. Note that during the fourth quarter, we purchased $9 million of shares under our share buyback program.

Entering the fourth quarter, we have $180 million remaining in our share buyback authorization. In addition to future potential buybacks of our stock, our share count will change based upon Polycom's stock price, any acquisition activity, and other factors.

Moving to headcount, Polycom had 3,230 people at the end of Q4, representing a 4% increase from the end of Q3. These additions are primarily in R&D and go-to market in support of Polycom's strategic imperatives.

At this time, let me turn the call back over to Andy Miller for closing comments.

Andrew M. Miller - President and CEO: Thank you, Mike. In summary, the fourth quarter capped a transformative year for Polycom in which we successfully launched and executed a very ambitious plan to seize the opportunities in the unified communications space and establish our presence as a market leader and ecosystem partner of choice.

These efforts yielded impressive results for 2010, including accelerating revenue growth, market share gains, breakthrough innovations, new strategic partnerships, and expanding margins. Importantly, our momentum continued in the fourth quarter, driven to back-to-back gains in network infrastructure sales and broad-based revenue growth in each of our major geographic theaters and product lines.

As we turn to 2011, we believe Polycom is best positioned to deliver an intuitive UC experience at work, in the home or while mobile. Through our Polycom Open Collaboration Network, we will continue to develop integrated UC solutions with leading platforms, including Microsoft Lync, IBM Lotus Sametime and HP Network Solutions.

With the recent introduction of Polycom's Open Exchange Consortium and our partnerships with AT&T, Verizon, British Telecom, China Unicom and many other leading service providers, we will deliver a cloud-based solution, not just for enterprise and government, but also penetrate the significant opportunity in the small-to-medium business and connected home arena as well.

Finally, expect to see Polycom's UC solution present on many of the key mobile platforms as evidenced by our initial alliance with Samsung on the Galaxy Tab Android-based device.

2011 promises to be a year of significant revenue growth, expanding operating margins, and Polycom's delivery of what we refer to as UC Everywhere. With our customers demanding Polycom's UC solution at unprecedented levels, coupled with our strong and growing brand and channel, we believe that we are best positioned to be the go-to provider of UC solutions.

Looking forward, we plan to continue to deliver innovations that transform the way that individuals and organizations communicate and collaborate both professionally and socially.

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

Transcript Call Date 01/20/2011

Operator: Mark Sue, RBC Capital Markets.

Mark Sue - RBC Capital Markets: Andy, Mike, maybe if you could just touch on the sustainability of the business trends going forward, should we plan for sequential growth each subsequent quarter following the March quarter? I'm a little hesitant to extrapolate the strength, so if you can tell me not to be shy that will be helpful. Overall, having finished the year at 26%, how should be think about the growth rate this year since UC is accelerating and you are gaining market share?

Michael R. Kourey - EVP Finance and Administration and CFO: I think sequentially it typically does make sense for our business and the dynamics to expect sequential growth after Q1. As you may know, we guided flat to down 2% in Q1 off Q4, but typically coming off Q1, you would see sequential growth. So I would expect that. As far as pegging the forecasted growth rate, clearly, the market dynamics and the forecast that are out there, we do not give full year revenue guidance. So, we've not guided for 2011 revenue growth here today, but as we touched on, the dynamics are quite strong and we do expect this to be a quite solid growth year.

Andrew M. Miller - President and CEO: I would just add on to that, Mike, that what we're seeing in the market right now it's not an issue of a customer wanting to spend, it's an issue of really who the customer is going to spend with. We just talked about around innovation. We talked about in terms of the accelerated growth through the Polycom Open Collaboration Network. There is no reason to see that this trend line will not continue. Clearly, we believe it will continue. One important factor as we continue to talk about the cloud and this transformation between CPE to cloud is that we expect by 2012 that 40% of customers will be requesting their delivery of this technology in a hybrid-type model, both enterprise and cloud. So really the trajectory of the business, the demand from our clients, the increased relationship with the Polycom Open Collaboration Network partners and this formation of moving the industry from CPE to cloud, I think, as I tell the team everyday, is the perfect setup to execute in. Therefore, I'm right in line with Mike and right in line with everything we've said in terms of a great growth opportunity for the Company.

Mark Sue - RBC Capital Markets: As a follow-up, as we look at your partners, should we see that 23% of revenues as accelerating this year? Can it potentially go to 50%? How should we model that or think about that? Just give us your thoughts on margin implications as partners expand for Polycom?

Michael R. Kourey - EVP Finance and Administration and CFO: I think as far as the percent, that's a great question, Mark, but I think that's difficult to say. We also have these cloud-based initiatives, and what we're quoting there are the top seven strategic partners in the Polycom Open Collaboration Network, but we have others that are partners, obviously, that are not in that number. We also have the service providers and what's happening with the cloud. Our cloud drivers that I think that curve will bear out here over the next several quarters. There is the whole SMB work that we're doing as well, some of which will be fulfilled through these POCN networks, but some will not be. Some will be through other partners and other mechanism. So we're not targeting a particular drive to a certain level of POCN partners, but we're getting great success. Obviously, things like Microsoft Lync are a huge driver for us as well as HP, IBM and some of these things we have talked, but we're not driving a particular objective there. As far as the margin implications, there aren't any really particular margin implications and some of these relationships – and we don't go through each of the contract publicly individually, but some of them are sell-through, meaning literally through the (eight) partner. In some cases it sell with, where we're out there with their sales forces selling to a end user customer and it's going through another channel partner or common channel partner, et cetera. So, what we find is that margin implications there are really not material in either direction as far as mix goes with POCN.

Andrew M. Miller - President and CEO: Just to add one, I think very important point on this is that, it was only literally year ago next week that we actually launch Polycom Open Collaboration Network partners. We've also talked about these seven partners. I think one of things that's more important in terms of what the percentage is going forward is that there may be fewer partners and there would be more partners in terms of this Polycom Open Collaboration Network. Some of that 23% comes through influence revenue, OEM revenue, and direct revenue. So, I'm actually more interested from a company perspective of the quality of those partnerships and the cooperation between those partnerships to grow their market jointly than I am, whether its 18% or 23% to 25%. So, I'm going to focus more on the quality of those relationships. Also the fact really is over the last year, many of those relationships, such as HP and Microsoft are really just in their beginning. A lot of the first year was laying the groundwork and more of the bureaucratic work to establish the relationships and now we're moving into the fact of actually joint selling with joint products and delivery mechanism. So, I think it's just a really great opportunity and a very key differentiator from our major competitor.

Operator: Jess Lubert, Wells Fargo Securities.

Jess Lubert - Wells Fargo: First question is, could you quantify how big the China Unicom deal is, where is it in terms of deployment and revenue recognition? Is this deal reflective of how you expect other cloud deployments to look like?

Andrew M. Miller - President and CEO: Let me start off with some qualitative perspective. If you look at the marketplace in China, what you'll see in China – and the reason for this large cloud deployment is, it's very government-based. They are very large user of this conferencing technology. Most importantly, when they use this technology, they use it in very large conferences, which requires very large bridging infrastructure. So, I won't say that you'll be able to replicate this quickly with other service providers around the world of that size because of the unique attributes in China and how they use the technology. But I think you will see, as we talked about on this a few minutes ago, with AT&T, with BT, with Telstra, as an example, you're seeing very similar cloud deployments, not quite from a size perspective as what we saw at China Unicom, but I think we'll see a propensity of more of those quarter-by-quarter, and I do think over time they'll grow to the size of what we just were in the process of selling and deploying. We are in the deployment phase with China Unicom as we speak

Jess Lubert - Wells Fargo: But it's fair to assume that there is a heavy component of network systems in these cloud deployments?

Andrew M. Miller - President and CEO: Very much so. The UC Intelligent Core is the brains these cloud deployments in these large bridging and cloud infrastructures, absolutely.

Jess Lubert - Wells Fargo: On the operating margins, could you help us understand how we should think about the progression towards 20%? Is Q1 the low point and it ramps up through the course of the year? Do you expect it to be lumpy?

Michael R. Kourey - EVP Finance and Administration and CFO: We have the Q1 which is sequentially flat to down by 2 is the guidance that we gave. Based on that, we said that the operating margins would go down by 150 basis points, but of course, it is up by 200 basis points over last Q1. As we move forward, we did mention – just for clarity for you is that we do expect each quarter progressing through the year to have expanded operating margins, both sequentially and year-over-year. So not lumpy.

Andrew M. Miller - President and CEO: I'd just like to add one comment on that. It is very important from the CEO perspective that as we talk about the 20% operating margin, we have committed that to take place in Q4 of 2011. In Q1 there were several very specific items that we thought were very important to finish out this platform of spending. So, I want to make sure on this call and the way I answer your questions is that we have done majority of the spending at Polycom to establish the platform that we set out almost 18 months ago to set into place. In Q1 there were several specific areas and Mike articulated that we wanted to further our hands on in terms of our market share lead, but we feel very comfortable that the big spend is behind us and we are committed to that Q4 operating margin of 20%.

Operator: Troy Jensen, Piper Jaffray.

Troy Jensen - Piper Jaffray: Andy, a quick question for you here. I'm pretty sure you probably follow this closely, but I haven't heard Polycom talk about it much. Could you quantify at all your win rate against Cisco, what did it look like here in the December quarter and what was that like to past 6 to 12 months ago?

Andrew M. Miller - President and CEO: I think the big difference between 6 to 12 months ago is that we have really done a very good job in repositioning, messaging, branding and articulating our UC Intelligent Core. So, if I look back 6 or even 12 months ago, the biggest difference is that we are very good now at articulating the UC Intelligent Core and how that differs significantly from Cisco. As I said before, the two major components of that, one is in the total cost of ownership, the fact that our Intelligent Core requires 38% to 50% less bandwidth than that of Cisco. So we're really getting good at articulating that to customers, and the fact that 70% of the spend on a deployment is around network, this is a key TCO attribute. Secondly is around the Polycom Open Collaboration Network. We have gotten very good at – and the differentiator is to make sure that the customer truly understands that the ability to interoperate it with their enterprise platform is very much different than interoperating with their call manager or IP call control platform. We talk about the integration with Microsoft Lync or Exchange, we talk about IBM Lotus, we talk about utilizing that investment that they already have in the enterprise platform, when we talk about that and compare that with the TCO, and frankly, a better solution on the UC Intelligent Core, our win rates have significantly improved quarter-by-quarter against Cisco. I would say that there are many attributes. I think we have a better educated sales force. I think we have a forward leaning proposition in terms of everything from consumer to cloud. That story is really beginning to take hold and you want to think that's why you saw the results that you did in Q4.

Troy Jensen - Piper Jaffray: Just quickly my follow-up here, on the tablet market that you guys are going after, is there any way you can quantify the dollar content that you guys will get per tablet?

Andrew M. Miller - President and CEO: I think, I'll let Mike answer that. I think it's too early right now. We were very proud and excited about the work we are doing with Samsung and as we said on the conference where we are working with RIM and Apple and Microsoft, but I think – if you just look at CES, for example, there are 150 tablet manufacturers selling their wares. So we are still trying to get our arms around exactly who we want to work with, what the pricing model will look like and I will turn it over to Mike.

Michael R. Kourey - EVP Finance and Administration and CFO: From an early perspective though, we know where some of this is landing. Although of course, we cannot disclose what it is, I think what you should expect, Troy, is in the embedded model, it would be a relatively low dollar amount, but nonetheless a software margin opportunity on each and every tablet going out in the embedded cases. You would also see a premier version with some added enterprise grade functionality as well, which would be a value-add step up, which would actually be quite a bit more material on a per unit basis, but that would not be embedded likely and then of course, the unsaid value of the branding and all the devices shipping out of a given factory.

Andrew M. Miller - President and CEO: Troy, I would also add that remember everything that we do whether it's consumer even on the tablet, everything is about the clouds. What that does, it draws in the network infrastructure as well. So, it's not just a tablet per se. The two most important attributes of our mobile story are not mobile to mobile, but mobile to enterprise and how it draws in the entire UC Intelligent Core bridging infrastructure in that. It's not just the standalone approach. It's really holistic to our entire model.

Operator: Tavis McCourt, Morgan Keegan.

Tavis McCourt - Morgan Keegan: I also wanted to dig a little deeper into the cloud-based opportunity out there because we've been waiting for this for a lot of years and it seems like you're starting to a little bit traction as service providers are building business models. Are you still seeing it in terms of just being used for communications within each company or service providers starting to really view this is as kind of something that they can offer between companies for not just conferencing, but also one-to-one communication?

Andrew M. Miller - President and CEO: I think it's a great question. There are two things that we're seeing, really just in the past two quarters that are different from as long as I've been in this business and one is that we just talked about it real quickly on the call. We talked about this open consortium between the service providers. So, as you look at key service providers like Telstra or BT or AT&T, the difference is that they are now working with Polycom in an open-standard consortium model world, where you can actually traverse from service provider to service provider and that was the one barrier that was really keeping this type of technologies just internally to the Company. So now it has not only opened up the supply chain in terms of enterprise to supply chain, but most importantly through our approach, which is very different than our largest competitor's approach. Our approach is through open standard, multiple service providers and providing this consortium where all service providers can traverse across their networks so to provide this from a global perspective. I think what you're seeing in service providers like Telstra do, is the connectivity to SingTel and then back to one of the service providers in the U.S. through this open consortium. It's just really the tipping point. I think the (governor) that's been taking off this technology, not only through our approach, but also through things like firewall traversal and some of the cloud-based opportunities.

Tavis McCourt - Morgan Keegan: A follow-up to that is, with all the partnership activities – I may have missed this one, but if you can talk a little bit about what you've developed or has this commercialized with Juniper so far and what we should expect in terms of product creation through that partnership, not just resell, but actual product creation, that'd be helpful?

Andrew M. Miller - President and CEO: Sometimes we like instantaneous recognition. One of the things about Juniper is that because they are really are our key service provider partner in POCN or Polycom Open Collaboration Network, as you all know, the service provider timeframe in terms of testing, certification, deployment and then serviceability is much more elongated than a enterprise model. So, Juniper is as important as our other partners. The most important thing that you'll see and actually we've just kicked it off at the Juniper meeting two weeks back is, with the Junos platform and the integration into the Polycom open-standard platform, especially with the UC Intelligent bridge, it provides a much different approach than our largest competitor in terms of bandwidth allocation and bandwidth delivery and manageability. So, I think you will see the Juniper Polycom relationship really take hold in the marketplace in Q2. The announcement was in Q4. Frankly, the kickoff between the two companies just occurred and I think you'll see and hear a lot more about the Polycom Juniper relationship. It provides us a great tailwind into service provider accounts and it provide us a great engine, frankly, to illuminate the clouds in many Juniper and Polycom accounts. So, we are very excited about that relationship.

Operator: Todd Koffman, Raymond James.

Todd Koffman - Raymond James: I wanted to ask you about your decisions to change your segment reporting, and specifically this quarter, it's sounding like you are no longer going to report your backlog. Last quarter, I guess, you said you are changing your segment reporting. With regard to the decision to no longer share backlog, your backlog has always been a relative small, call it, 20% of your quarterly revenue, so I'm wondering what about the backlog metric – is no longer relevant.

Michael R. Kourey - EVP Finance and Administration and CFO: First of all, we are very much focused on as we've discussed previously. Andy has talked about in the Transatlantic Analyst Event, et cetera, and theater-centered execution with the theater presidents of Brad in the Americas and Gary Rider in Europe and Hansjoerg Wagner over in Asia Pacific. So, that's the focus of the Company. Clearly, there are terrific product lines within those theaters, but we are very much managing with some of the unique differences in those theaters and it's been quite effective quite candidly. So, that's the driver there. As we file the 10-K here soon, you'll see that that's where the MD&A is. That's what we're going to talking lot about, and of course, some discussion around some product drivers as well inside of those theatres. So, I think that's an important one. As far as the backlog piece, as I mentioned in my prepared comments, it's three weeks. You're right, it's always been thereabouts, I mean in some cases not even. So you might say why did we do it in the past? I think at this stage of this Company, as we have evolved now into this – as we exited the year $1.4 billion run rate company with expectations of obviously further growth this year, that's not a core metric. Deferred revenues is a core metric as we drive more and more attach rate on services, as we drive more and more attach on renewals of our service contracts. As we become a trusted long-term provider of network and products and services to our customers, we anticipate having long-term contracts, we do expect to drive deferred revenues. Clearly, bookings momentum also goes into the mix there. We're also going to continue to give you the linearity metrics that we've been very transparent about. As I mentioned, Andy or I, I'm sure, either our script or comments or in Q&A, we'll continue to give you the color that you need. So, I guess you could argue about the past, why did we do it in the past. Maybe that wouldn't have been as relevant, but as a smaller company I think it was important for all the investment community out there to get these various metrics. Going forward, three weeks of sales, not a key metric, but believe me, we will give you the color that you need to assess each quarter, not to mention the obvious metrics like DSO that help you figure that out.

Todd Koffman - Raymond James: One quick follow-up, Mike. On your partnership revenues, which was up nicely, I think you called out 23% of your total revenue, I think up from 18% or something like that, I'm guessing a lot of that comes from Microsoft. In conjunction with now Microsoft rolling out Lync, is it fair to say that what historically would have been reported in voice, are the products that are likely to be holding along going forward in that partnership or is that not the case at all?

Michael R. Kourey - EVP Finance and Administration and CFO: I would say it's not the case at all, but it is some of those voice-only products, but it's also these integrated UC devices at the desktop. It's also these, what we call UC Group Systems, with group video devices and even telepresence and those kinds of activities, and then candidly it's also very much of UC Intelligent Core. So, yes, that is part of it, but frankly and we don't, of course, breakout the partners, we're not allowed to do by the contract. But we actually are getting pulled by Microsoft and others across our product categories, not just in one particularly category.

Andrew M. Miller - President and CEO: I just think it's important just to reiterate that that 23% was very balanced. It was not tilted in a majority of one specific partner and that the whole aspect, especially as we talk about Lync or even IBM Lotus is, you'll see pull through clearly on this CX series of phones, but the ultimate is to be able to pull through both UC Core and the UC Group Systems and network infrastructure. So, we see it as a pull through there ultimately for our entire product line.

Operator: Stephen Patel, Gleacher & Company.

Stephen Patel - Gleacher & Company: Can you talk a little about the month of December? If I'm doing my math right, the first two months of the quarter were up about 50% year-over-year and the month of December was roughly flat. Was there something structural that changed in your sales process during the quarter and how would you compare your visibility going into March compared to last quarter?

Michael R. Kourey - EVP Finance and Administration and CFO: Sure. I can comment on it and then Andy, can as well, of course. What we had was great linearity. That has very much been an objective of this business as we drive our supply chain and the efficiencies around that and gross margin and the kinds of things that we've been working on, and frankly seeing success even better than we had guided, of course. So, that's been a key driver there. We also wanted to ensure that since Q4 is the quarter that has some year-end shutdowns in various parts of the world that we had a linearity that was strong going into December, and we did. The environment was obviously very good in the various sectors and the various geographies throughout the world. I mean all three theaters had great results. I mean the Americas, without the carve out to things like Russia or China, actually, as I mentioned, had the best sequential growth since 2003. So, great results, and that's an objective is to be linear. I mean objectively we'd like to be – and certainly in the 40s in the last month of the quarter. We did a very good job on that in Q4. The dynamic entering this quarter, we're in a very good position, hence guidance – I mean last year you may remember that we guided down 2% to 3% sequentially. Of course, we ended being up 3% in actuals, but this year we guided flat to down 2%. So, we feel good about it. The pricing environment, as I mentioned in my comments was quite strong as well. A lot of good indicators there if you had to bite on to. Andy, would you like to add to any of that?

Andrew M. Miller - President and CEO: I think you said as good as I should have.

Stephen Patel - Gleacher & Company: Just a follow-up. Can you give us any additional detail on you telepresence sales and whether you crossed the $15 million threshold there?

Michael R. Kourey - EVP Finance and Administration and CFO: Yeah, we don't break that out exactly, but you're about right with that. We actually did have record sales of telepresence. It was a very nice grower in the quarter. Again, like we've said all along, it's not going to be the majority of video sales, but what it is, is it our flagship. It's where sometimes you really get that win with the CIOs and CEOs and Chairman and Chairwoman of various companies and government agencies. We're having a lot of success there, and of course, that pulls the UC Intelligent Core, the other group systems, the other UC devices. So, we are very pleased with the record levels that we achieved in the fourth quarter and the growth that we achieved in the fourth quarter. You want to add to that at all.

Andrew M. Miller - President and CEO: Actually there is one only piece that I would add, Mike, would be around the OTX, which we announced two quarters back, which I think transformed how telepresence will be delivered in a very – not only the total cost of ownership, but just the aesthetic look and feel, the quality of the environment. The flexibility of the room has become the de facto telepresence standard in the business even against our largest competitor. We see that pipeline growing quite nicely. So, we are very pleased about our positioning of the RPX at the high end and the OTX in terms of the midrange from a telepresence perspective. We will also be growing out our telepresence portfolio as we go into Q2 as well.

Operator: Woo Jin Ho, Bank of America Merrill Lynch.

Woo Jin Ho - Bank of America Merrill Lynch: Andy, as you move towards the cloud and work with service providers, can you just talk about the product portfolio? Do you believe you have the product portfolio to provide some of the initiatives that you have laid out for 2011 or do you have to implement new products or create new products through the course of the year?

Andrew M. Miller - President and CEO: I think the cloud really is around the UC Intelligent Core and the cloud has to be illuminated by the service provider. So, I think one of the things that we're doing, I talked about Rama and Joe, is taking the UC Intelligent Core, which was, frankly, previously a very enterprise based, and then modifying it to the requirements of the cloud. There are couple of fairly simple things that have to be done. I won't say simple, but billing infrastructure for service providers, some further redundancy for service providers in a racket environment. Finally, I think in terms of the partitioning, especially as you start serving small to medium businesses. So I think the core elements from there was the UC Intelligent Core. The beauty of the differentiator that we have in the cloud is the way that we use virtualization in our distributed architecture. Then make the modifications around billing, around redundancy and around the ability to partition. I think that by Q3 of this year we will have exactly what we want to really be able to take on that cloud space. Then, you add on top of that the connectivity with Juniper with the Junos platform, some of the cloud activities that Microsoft is involved in, and most importantly, this consortium around open standards. I think the ingredients there to really move into the cloud and just approach that we think that 40% of our business in 2012 will be delivered by the cloud is there. I feel very comfortable and confident in that.

Woo Jin Ho - Bank of America Merrill Lynch: As a follow-up to that, in terms of consumer side, Polycom is still known as more of an enterprise company. Can you just talk a little bit about the branding strategy as well as the investments needed to brand Polycom as a consumer play?

Michael R. Kourey - EVP Finance and Administration and CFO: I think we talked on November 8, when Joe Burton and I had our telecast webinar that reached over 5,000 people, we talked about entering the consumer market with a service provider, which is our intention. So, a couple of quick things about consumer. One is that we look at consumer not only as the home consumer, but also as the teleworker working from home, but by 2015, 200 million telewokers will actually be working from home. So, what we want to do is differentiate our approach versus some of the over the top players, with a better experience, better security, and an ability to come into an enterprise environment through the firewall. So, you're going see our consumer strategy differentiated from some of the over the top players. You're going to see it delivered from a service provider. You're not going to see us mandating to go out to a consumer electronics to them buying the product or mandating a particularly monthly fee. So, our approach, again, fewer service provider, ease of use, ability to satisfy both the consumer and the teleworker at a price point that will be positioned into your triple play or quadruple play in terms of your TV, your telephone, et cetera. I think you'll see from us over the next several quarters a very different consumer play than that of our competitor. Mike, any comments?

Operator: Jason Ader, William Blair.

Jason Ader - William Blair: So, I have a couple of quick things. First, could you give us the puts and takes in UC personal in Q4 and going forward just how we should be thinking about the various elements and what's going well, what's not, what's going to grow well and what's not?

Michael R. Kourey - EVP Finance and Administration and CFO: Let me start and then Andy can jump on. For UC personal devices, our wired desktop devices like voice-only phones, voice and video phones, which are often called business media phones. It includes wireline and DECT. DECT more for Europe wireline more for the rest of the world, and it includes executive desktop video as well. Things like the HDX 4000, you might be familiar with the big embedded, fully integrated desktop devices for video and UC communications by executives and senior management, that type of thing. So, if you look at those dynamics, there are a variety of moving parts. Now, we are not going to go through and break it out by SKU obviously. At this point, Jason, it's really – we provide a UC solution, UC devices is a big opportunity, and frankly, there is a mobility opportunity that we're very early on with, but you're going to be seeing some real contributions on the mobility side as well which is a personal device. So, what you saw there is a decent growth certainly, but you saw much stronger growth out of; first, the UC Intelligent Core, the UC network infrastructure, and then group systems. We're not projecting by element on a given quarter what's going to move in which direction, but that's how it's comprised.

Jason Ader - William Blair: Well, could you comment on the phone business, just the personal phone business, and how that's doing and what kind of growth that you expect out of that business?

Michael R. Kourey - EVP Finance and Administration and CFO: It's frankly going quite well. Andy can add to that. It's going very well, both on the independent side as well as with our POCN partners or Polycom Open Collaboration Network partners. That's a good business.

Andrew M. Miller - President and CEO: I would add two pieces and I think are really important. One is, is that on the wireless piece of the business, we are now transitioning to a brand new platform that I personally feel as well as the Company does, that this will transform the wireless space. It's a very different approach in terms of, not only barcode, for example, vertical market applications, the ability to develop applications on the phone. So, it's our next-generation wireless product, it's superior in the industry, and I think that will provide some very fast traction. Secondly, on the UC devices, if you look at the CX Series that was developed for Lync, Lync is just coming into its own in terms of over deployments. So the connect rate to the CX Series is very low today because those deployments have not truly started, but we see in our forecast of our pipeline a great opportunity on the CX Series, which basically encompasses the VoIP phones, the conference phones, even the CX5000, which was previously known as the RoundTable device. So I'm very confident that we have the right portfolio in wireless, we have right portfolio in VoIP, we have the right portfolio in conferencing, and as an added bonus, the CX Series that we've have developed for Microsoft Lync will have a nice trajectory. So, we're very confident about what we used to call our voice business, which is now the UC personal devices.

Operator: Sanjiv Wadhwani, Stifel Nicolaus.

Sanjiv Wadhwani - Stifel Nicolaus: A couple of questions. Mike, you've projected your operating margins at about 15% for March, and then heading to 20% in December. I'm curious whether should we see a steady progression from that 15% to 20% or are you going to see a big uptick in the December quarter of investments continuing in March, June and September?

Michael R. Kourey - EVP Finance and Administration and CFO: As you probably know, I always prefer to see conservative modeling. So, we have not given quarter-by-quarter guidance other than saying that we will have sequential increases and year-over-year increases each and every quarter this year after Q1. So, we definitely have given that guidance, and then the 20% in the fourth quarter. As far as exactly how you model it, of course, there is a lot of moving parts there and since we haven't guided to that, I wouldn't really want to give additional color.

Sanjiv Wadhwani - Stifel Nicolaus: I guess, the investments that you're making in Q1, are we looking at that as being a one-time event or are we looking at some continued investments over the next couple of quarters of that nature?

Michael R. Kourey - EVP Finance and Administration and CFO: I think there's always going to be some ongoing activities as we build out this business. With the growth profile that we've been on, there's going to be clearly opportunity to continue to build out the various elements of the Company. That being said, we also expect to see continued operating margin expansion this year, and frankly, moving into that model as we move into next year, the 20% to 22%. So that's clearly what our objective is. So it's not a one-time per se, but you do have to, of course, contemplate mathematically the increases in operating margin that we expect.

Sanjiv Wadhwani - Stifel Nicolaus: Second question on the government side of the equation. Can you talk about how that did sequentially, and particularly state and local, how that did?

Andrew M. Miller - President and CEO: State and local, we held our own in state and local, and as Mike talked about, from a state and local and from a federal perspective, it was actually a very good Q4. There are some states that have been hit harder than others in terms of tax revenues, such as Florida, Arizona, California, but there's others that were quite healthy and there were some very nice wins and very good traction in linearity and public sector. So, we were balanced. We saw no degradation over previous quarters in public sector. In fact, we saw growth. As we've talked about in the past, as we go into Q3 and Q4 of 2011, with our investments in terms of our solution centers around the world, but specifically in this case in Washington, D.C., our new federal office, our (indiscernible) certifications coming into reality in Q3. We continue to see the public sector and the federal market as healthy growing markets for this company.

Operator: Tim Long, Bank of Montreal

Tim Long - BMO Capital Markets: Just on the network systems business, obviously two strong quarters in a row; two parts of this. One, we saw a kind of a pretty similar increase in percentage of overall revenues, yet we didn't see the same gross margin jump Q3 to Q4 that we saw Q2 to Q3. So was there something that went on with margins in this business or in the other businesses that diluted that and also in the past when you had this spikes in this business, you did put two in a row here, but other times there has been one or two weak quarters after that. So are you concerned at all that maybe there has been some advanced spending and we might see a few quarters of weaker performance out of this business? Then I have a separate follow-up.

Michael R. Kourey - EVP Finance and Administration and CFO: Yes, so Tim, I can start this and Andy can follow. As far as the back to back gains, it is really driven by the messaging and compensation work and all those initiatives that we undertook mid-year and the successes that are coming off of that as it gets into the broader story of cloud and building out those large enterprise CPU networks as well. So that's actually going quite well and frankly, there is even some SMB opportunities and all of that. So, that's going well. As far as what we would expect going forward, we expect the UC Intelligent Core to be a strong growth driver for this company, because if you look at mobility, you look at desktop, if you look at, of course, the room build-outs, that drives the need for capacity for virtualizing those networks etc, which is all about that UC Intelligent Core or our network infrastructure reporting line. So I think that's very important. Seasonally, of course, Q4 to Q1, there is always the normal Q4 to Q1 type dynamics; hence we guided the flat to down 2% for Q1, and we'll, of course, see how that all turns out, but that is what that's all about. As far as the gross margin differences, we did have a 30-basis point improvement, and that's with some strong growth in emerging geographies. That's actually an excellent result quite frankly. Then within the product lines, we just had various mixed dynamics. But we're very pleased that we kind of traded so to speak for gross margin nose over the mid-point of our target range in Q4. You said you had a follow-on?

Tim Long - BMO Capital Markets: Let me just hit this, getting to 20% from a different angle. So last year was – 2010 was a great year, 26% revenue growth. First quarter was a 13% margin, and 16.5% in the fourth quarter, so increased 350 basis points through the year. Your guidance implies 15% for Q1, so you got to increase by a greater amount than last year. So, just from a high level, how do we do that, given that last year was so strong? Does it have to be all revenue driven? Maybe if you could just explain how are you going to have more margin expansion than you did in the solid 2010?

Michael R. Kourey - EVP Finance and Administration and CFO: Yeah. I think that's a pretty straight forward one and it's a good question. I am glad you asked it. The difference would be around – as far as how we plan and execute or our intention to execute, would be around the spending growth during the year. As you recall, 2010 was very much the strategic investment plan, as Andy commented earlier in Q&A, he wanted to make sure that he covered the fact that we were committed to the results and the ramp that we've talked about. The expectation here is that you would not see a spending ramp at the same rate as you saw in 2010. Hence, your math is correct, but if you are not increasing spending at the same rate, then you would get to the 20%.

Operator: Rohit Chopra, Wedbush Securities.

Rohit Chopra - Wedbush Securities: Mike, I had a couple of questions for you. I just want to get a sense on the R&D tax credit, how much did that add to earnings in the quarter? I think recently we spoke total number of sales people just in the organizations, like the sales organization, not sales people, but just the overall number, I think last quarter it was 800. For Andy, you mentioned some pretty high profile wins. Those wins, were they competitive? How did you win them? What was the actual driver that got you those deals, was it the partner, was there something you changed over the last four quarters?

Andrew M. Miller - President and CEO: I will take while Mike is looking at the metrics. Every win is a competitive win. There are no bluebirds where there are no unencumbered opportunities that we participate in because I imagine the entire sales force is watching this earnings call. They will validate that. It goes back to what I said before. If you go back a year ago, right when I came here, 18 months ago, while it was a very good company, it was very product specific and it was not solutions oriented. What we've migrated to is a Company that's very solutions focused and we've really gone away from point of product. So, when we go to this competitive wins now, we differentiate ourselves into four ways that I've always talked about. One, we really are getting good at the total cost of ownership, which is a big differentiator against our largest competitor. Secondly, the bandwidth allocation, the 38% to 50%, it's been validated by a major consultant organization. We use it everyday in terms of the total cost of ownership. Thirdly is the ability to have a solution with both our voice components and video component. So we're now able to basically tie in a very open standard approach in terms of how we face the market. We always talk about open standards. We always talk against proprietary standards in a closed environment. Fourthly, every one of those transactions we go in with IBM, Microsoft, HP, Juniper, BroadSoft, Siemens, Avaya. So the four things that every employee of this Company does on the sales side or in a customer environment, total cost of ownership, open standards, bandwidth utilization, Polycom Open Collaboration Networks, and then our basically continuum of products in terms of mobility to cloud. So, everything we talk about the customer is about Polycom as a UC leader, and that is night and day difference from a year ago. We're doing that well. We're not doing it great yet. We're getting there, but when you come in to a competitor such as Cisco or others, you got to have that arrow in your quiver to compete and I think every one of those was used on these key wins that I articulated in my message.

Michael R. Kourey - EVP Finance and Administration and CFO: As far as the all-in sales organization headcount, if that's your question, it was 937. It was 800 in the past, but that's going back a few quarters. It was 937 exiting the year.

Rohit Chopra - Wedbush Securities: Just the R&D tax credit on the earnings is how much of that?

Michael R. Kourey - EVP Finance and Administration and CFO: If you look at it, we ended up at a 23% rate. We had about a penny of benefit for tax, is what the impact was in Q4.

Andrew M. Miller - President and CEO: Operator, we're approaching 3.20 Pacific Time. We have about 10 minutes left. So, maybe time for two more questions.

Operator: Jack Monti, UBS.

Jack Monti - UBS: Just want to focus a little bit on the gross margin line. 61.2% this past quarter, the highest in the last 13 quarters. It's up about 200 basis points year-over-year. I was just curious if you could maybe highlight some of the drivers in that improvement that we've seen over the past year, maybe from mixed standpoint, and then take that one step farther and when we think about this operating margin target in the fourth quarter, should we think about maybe 63% gross margins as being part of that goal?

Michael R. Kourey - EVP Finance and Administration and CFO: As far as the gross margins, we're right now at 20 basis points over the mid-point of the range. I would not recommend it anybody model off the mid-point. I think that's where we would expect it to be given an average quarter with these dynamics. Over time, could we reach up higher into that and continuing to have some success there beyond where we are today? That's possible. But we're not counting on that and I would say that you probably shouldn't model counting on that. If you look at the trajectory then, it's all about revenue growth and it's all about the spending ramping at a slower rate and those would be the drivers as we move forward through Q4 and into 2012.

Jack Monti - UBS: Then just to kind of circle back and follow-up. What is, kind of, a recap of some of the biggest items driving that margin improvement over the past year? Should we think about those items being removed, maybe certain type of mix being removed from improving the margin profile in 2011?

Michael R. Kourey - EVP Finance and Administration and CFO: The reality is we've had great success with the UC Intelligent Core over the last couple of quarters. That's been a big driver. We've also done quite a bit of work around our supply chain, optimizing our air and sea freight mix. That's something that we've talked about in the past few quarters and we've been very good at that, and making sure that we try to have our supply chain keep pace with what has been a rising demand environment in many quarters, of course, better than what we had anticipated. So that's been a driver. It's getting that in equilibrium. So, that's another key driver. We've also been working through various cost reduction activities around just the share procurement cost side of the house, which is run by the manufacturing team under Bob Steele, as well as value engineering by the development teams with Rama's organization. We've had a fair amount of success around that as well. So you see cost reductions, you see mix, and you see just the general supply chain optimization. Lastly, you've seen frankly a very robust pricing environment. That's a great driver in the business as well. So you put that all together and it's been nice. Yes, we've definitely been able to benefit from that. Does that trajectory continue or now that we're in balance, is that where it is? Again, I would set the expectation I'd want to plan for, saying, hey, we're at the midpoint of that range, great place to be, good work, and the rest, I'd leave that for icing on the cake.

Operator: Jeff Kvaal, Barclays.

Jeff Kvaal - Barclays Capital: I was wondering if the two of you could touch a little bit on the SMB market. That's been one of the drivers that you held out there for us, and some of the dynamics there. Specifically, I'm wondering if the competitive roster is there in that market is a bit different and how much did you run up against like Skype and to what extent might – like Skype and possibly even FaceTime be competitors there?

Andrew M. Miller - President and CEO: So, as I mentioned on our call, one of the things that we've been working really hard on is around the SMB space. You have to understand there is a definite correlation between the cloud and the SMB space because majority of those SMB customers, as we look out that are 1,000 employees or under, will be delivered this type of technology through the cloud. So, they are not bifurcated service provider and SMB. So, we went out and we hired a woman named Sue Hayden who is one of the best in the business understanding the small to medium business market. Along with Joe, both organically and inorganically, and Rama in terms of building products, we believe that we have the foundation in place to deliver and not only compete, but be a leader in that market. If you look at our UC personal devices today, a lot of those devices are participating in the SMB market, our conference technology, our VOIP technology, even some of our UC video devices. So, we believe that the cloud initiative will illuminate the SMB market. We believe that we have the brand that will carry into that market. Probably one of the biggest differences in that market is not as much as the product as it is the channel. It's a different channel than the traditional video market that we live in today from the distribution perspective. So, we're also working on that as well. We actually have some announcements that would be forthcoming during Q1 around our not only entree into the SMB market, but how we believe that we will be a leader in the SMB market. So I'll ask you to stay tune for that in Q1.

Jeff Kvaal - Barclays Capital: So, we should see some additional products and announcements from you shortly, is that the implication?

Andrew M. Miller - President and CEO: That's correct. Yes, it is.

Michael R. Kourey - EVP Finance and Administration and CFO: I think we're right at an hour and a half, and we very much appreciate your time. So, let me close out. In closing, I would like to thank you again for your continued support of Polycom. Have a great afternoon. Appreciate you bearing with us the last hour and a half. We are very pleased with our results and have a great afternoon. Thank you.

Andrew M. Miller - President and CEO: Thank you. Bye-bye.