Smartphone maker Palm, Inc. (PALM) said Thursday after the markets closed that its third quarter loss narrowed from last year, helped by higher revenue and gain on series C derivatives. However, the company's quarterly loss per share, excluding items, was biggest than what analysts predicted. The company also said its smartphone sell-through for the quarter fell from a year ago.
The Sunnyvale, California-based company reported a GAAP net loss for the third quarter of $18.5 million, compared to a GAAP net loss of $95.0 million for the year-ago quarter.
GAAP net loss attributable to common shareholders for the third quarter was $22.0 million or $0.13 per share, compared to a GAAP net loss attributable to common shareholders of $98.0 million or $0.89 per share in the prior year quarter.
The company's GAAP loss attributable to common stockholders reflects accounting guidance, effective in the first quarter of fiscal year 2010, which requires the anti-dilutive provisions of Palm's series C preferred shares and related warrants to be treated as derivatives for financial reporting purposes. The fair value of the derivatives was estimated as of the first day of fiscal year 2010 and is marked to market on a quarterly basis, with any change in value reflected in the company's financial results for the period. The reduction in fair value resulted in a $96.6 million non-cash gain on series C derivatives in the third quarter of the current fiscal year.
Excluding stock options expense, the gain on series C derivatives and other items, non-GAAP net loss for the third quarter was $102.8 million or $0.61 per share, compared to a non-GAAP net loss $94.7 million or $0.86 per share in the third quarter of last year.
On average, 26 analysts polled by Thomson Reuters expected the company to report a loss of $0.42 per share for the third quarter. Analysts' estimates typically exclude special items.
GAAP revenue for the third quarter rose to $349.93 million from $90.6 million in the same quarter last year. Non-GAAP revenue for the latest quarter was $366.01 million. Twenty-five analysts had a consensus revenue estimate of $316.19 million for the third quarter.
In accordance with two recently released accounting standards related to revenue recognition, the GAAP results include the effects of accounting for multiple-element arrangements, including ratable revenue recognition for the future deliverables for Palm webOS products.
On February 25, Palm shares tumbled after the company cut its fiscal year 2010 revenue outlook and forecast third quarter revenue below Wall Street expectations, citing slower than expected consumer adoption of its products.
The company said at that time it expected fiscal third quarter revenue to be in the range of $285 million to $310 million on a GAAP basis and in the range of $300 million to $320 million on a non-GAAP basis. As a result, Palm said, it expected fiscal year 2010 revenues to be well below its prior guidance of $1.6 billion to $1.8 billion.
The company said Thursday it shipped 960,000 smartphone units during the third quarter, up 23% from the previous quarter and up almost 300% from a year earlier. Smartphone sell-through for the quarter was down 29% sequentially and down 15% year-over-year at 408,000 units.
"Our recent underperformance has been very disappointing, but the potential for Palm remains strong," said Jon Rubinstein, Palm chairman and chief executive officer.
The company ended the quarter with cash, cash equivalents and short-term investments of $591.9 million.
For the nine months, the company reported a GAAP net loss of $108.3 million, compared to a GAAP net loss of $640.7 million for the same period last year.
GAAP net loss attributable to common shareholders for the nine-month period was $118.6 million or $0.76 per share, compared to a GAAP net loss attributable to common shareholders of $648.5 million or $5.92 per share in the prior year period.
Non-GAAP net loss for the nine-month period was $168.5 million or $1.08 per share, compared to a non-GAAP net loss $187.7 million or $1.71 per share in the year-ago period.
GAAP revenue for the nine-month period increased to $984.17 million from $649.10 million in the corresponding period last year. Non-GAAP revenue for the latest nine-month period was $1.03 billion.
Palm executives told analysts on a post-earnings conference call that fourth quarter revenue will be less than $150 million. Analysts currently expect the company to post revenue of $305.77 million for the fourth quarter.
Palm, once a leader in the smart phone market, fell behind Apple, Inc. (APPL) and Research In Motion Ltd. (RIMM, RIM.TO) over the last several years. Of late, the company is also facing fierce competition from Motorola Inc. (MOT) and Google Inc. (GOOG).
Palm launched its new Pre touch-screen phone in early June and Pixi, the Pre's smaller, lighter cousin late last year to revive its fortune. Both had been initially been offered exclusively on the Sprint Nextel Corp. (S) network. Verizon Wireless, a venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc (VOD), began selling the Pre and Pixi last month.
Palm shares closed Thursday's regular trading session at $5.65, up 28 cents or 5.21%. The stock is currently losing 78 cents or 13.81% in after hours trading.
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