Palm’s comeback is looking solid. The company beat Wall Street estimates on sales and its quarterly loss, and shipped more smartphones than expected.
But low guidance from the company’s earnings call could spook investors: Palm expects its Nov. quarter’s non-GAAP revenue to fall between $240-270 million, below the Street’s $344 million consensus.
The rest of the year looks better. Palm says it expects full fiscal year non-GAAP revenue to be between $1.6 billion and $1.8 billion, above the Street’s $1.57 billion consensus. Palm expects to be cash-flow positive and non-GAAP profitable on a quarterly basis before the end of the fiscal year.
Palm CEO Jon Rubinstein announced that the company would no longer develop devices for other platforms, such as Microsoft’s Windows Mobile. It will only invest in WebOS devices in the future, he said.
Palm also announced it would offer 16 million shares of common stock. Its underwriters will have the option to purchase another 2.4 million shares if there are any over-allotments. And Elevation Partners, which has invested millions in Palm, will buy another $35 million worth of stock at the public offering price.
Key stats from release:
- Non-GAAP revenue: $361 million vs. $298 million consensus
- Non-GAAP EPS: -$0.10 vs. -$0.24 consensus
- Smartphone sellthrough: 810,000 vs. 700,000-800,000 RBC est.
LIVE Earnings call notes:
4:29 Waiting for call to begin.
4:31 Standard disclaimers.
4:33 Jon Rubinstein reading off script: Results show great confidence for Palm’s future. Moving forward with significantly transformed teams. Goals: Designing a family of WebOS products. 2. Establishing WebOS as world-class dev platform. 3. Building greater awareness of Palm brand. 4. Outstanding execution underscores everything we do.
4:34 Q1 was landmark quarter. Successfully launched “technological trifecta” — WebOS, cloud services infrastructure, brought Palm Pre to market. In addition to recent announcement of Palm Pixi, we also announced that effective last week, Pre now $149.99 after all rebates. These two initiatives should help make WebOS more accessible to customers.
4:35 Launched Pre in Canada, working in Europe to generate demand ahead of launch this fall. Excellent reviews from Pre buyers.
4:36 Dedicating all resources to WebOS, roadmap will ONLY include WebOS devices. (No more Windows Mobile. Not a surprise.)
4:37 Working with EA, OpenTable, Yelp on development. Response to WebOS has been overwhelmingly positive.
4:38 Talking about air hockey game. Will be rolling out full dev platform this fall, including commerce and opening to all devs.
4:39 Reorgnized Palm’s marketing into Product Marketing and Brand Design, added two execs. Ex-Yahoo exec joined in June as head of Product Marketing. In July, Factor Design founder joined the team. (Sorry, didn’t get the names. This has probably been announced.)
4:40 Still have work to do, near-term pressures. Confident we’re on the path to success.
4:41 Going over results from earnings release. BRB.
4:43 Back! Could deliver non-GAAP operating margins over 30% once get to scale.
4:45 Cash balance at end of Qtr 211.8 mm
4:45 Outlook: Don’t intend to provide guidance regularly, wanted to discuss business dynamics unfolding. As noted, performance at current scale is particularly sensitive to product launches. Revenue reflects major product launches with Sprint and Bell Mobility. Expect timing and size of product launches in Q2 plus lower demand for legacy products, expect revenue to shrink sequentially, between $240 mm and $270 mm. Should strenghthen throughout rest of fiscal year. Fiscal non GAAP 1.6-1.8b for year. Cash flow positive and non-GAAP profitable before end of fiscal year.
4:49 Web OS experience is a very strong one, feedback from carrier partners as well. Palm won’t say much about marketing spend vs. carriers.
4:50 Any sense of the Pre’s performance vs. other phones? Sell-in and sell-through: “Vast majority” is Palm Pre. Expectations for Pixi at Sprint? Helps store traffic to sell more Pre sales or caniballizes Pre? Happy to have both products out, non-answer.
4:52 Why is Pixi on Sprint? Non-answer. Sprint has been great partner, invested very heavily in advertising, really looking forward to doing holiday season. Not talking about roadmap. Will have more carriers and more products in the future.
4:58 Gross margins will be lower in period. Not giving specific guidance. In Q2, lower margins. Over time, path toward 30% or better in the long run.
5:02 Some decline in legacy business in short term, yes.
5:03 How does MOTOBLUR compete with Pre? Jon: We don’t actually know much about it, but to build really great consumer products, you have to own the OS and services. The fact that we have WebOS as our asset is really important. Can move quickly, bring on new tech, etc.
5:04 Walk through maths on true cost of sales and get a better picture of gross margin? Talk qualitatively how trends are looking? Subscription revenues: recognise revenue and direct costs over 24 months. COS also includes other costs — staff, overhead, etc. — that don’t get deferred. Need to consider indirect costs that affect the ultimate margin on the product.
5:07 Very methodical plan to roll out WebOS products both in US and Intl. When look at which carrier, choose those that can not only drive WebOS adoption, but can help experience. We’re a small company, want to have great experiences wherever we go, so we work very methodically. Centro sold over 3 million units, over 30 carriers before we were done.
5:10 Not going to provide quarterly guidance on ongoing basis aka not going to give away product launch roadmap.
5:12 Voice apps on other platforms. When will WebOS support native voice apps? We have a long list of features and capabilities that we’ll be adding in the future. But can’t give you a specific as to when each feature will be. But we do have over the air update mechanism. Can deliver incremental updates.
5:19 Abramsky from RBC. How easy for WebOS to adapt to different form factor? We had unique oppty to develop Web OS and start with blank sheet of paper. Sticking with Palm’s basic DNA, using advanced tech. Old Palm OS lasted 16 years. Designing WebOS to last for 10-15 years. Team challenged not just for Pre or Pixi, but for product designed maybe 3-5 years from now. For mobile devices and we designed it to not have limitations that would prevent us from having product development we may have in the future.
5:22 Wow, this is weird. Strange exchange, trying to figure out Pre’s impact on Sprint. Analyst talking and breathing weird. If 800k shipped to Sprint, 1 in 4 phones Sprint shipped were Pres, which seems unlikely. Palm tells the guy that they’ll deal with questions after the call.
5:25 Hmm call seems to be over. Windows Media streaming really is terrible.
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