Revenue In-line and Earnings per Share Exceeds Guidance;
Bluetooth Product Line Profitable on Strong Revenue Growth
Plantronics, Inc., (NYSE: PLT) today announced second quarter fiscal
2009 net revenues of $216.9 million compared with $208.2 million in the
second quarter of fiscal 2008. Revenues were within the guidance range
of $210 to $220 million. Plantronics’ GAAP diluted earnings per share
were $0.36 in the second quarter of fiscal 2009 compared with $0.34 in
the same quarter of the prior year. This compares to the GAAP EPS
guidance issued on July 22, 2008 of $0.29 to $0.34. Non-GAAP diluted
earnings per share for the current quarter were $0.41 compared with
$0.39 in the second quarter of fiscal 2008. Earnings per share were
greater than the previously provided non-GAAP guidance of $0.35 to
$0.40. The difference between GAAP and non-GAAP earnings per share for
the current quarter is primarily the cost of stock-based compensation.
“Overall profits were solid as strong Bluetooth sales at improved
margins compensated for weakening enterprise market conditions and
foreign exchange losses. We achieved the highest gross and operating
margins in two years as a result of improved product margins and expense
management, and we continue to target a long-term non-GAAP operating
margin of 15% to 18%. Global economic conditions have become
increasingly uncertain, but we remain in a very strong financial
position with approximately $200 million in cash and equivalents and no
debt. We can improve our position further by managing inventory much
more tightly than we have in the past,” said Ken Kannappan, President
and CEO.
“The strong market reception of our new Altec Lansing products has
resulted in approximately 40% greater retail placements this fiscal year
than the prior year, and we anticipate that these new higher margin
products will account for a majority of our AEG revenue through fiscal
2010. We continue to believe that the fundamentals of the AEG turnaround
are on track,” stated Kannappan.
Audio Communications Group (ACG) Non-GAAP Results
(Office & Contact Center, Mobile, Gaming and Computer, Other)
Second quarter fiscal 2009 net revenues of $195.3 million were up 7.9%
compared with $181.0 million in the year-ago quarter. Revenue growth
compared to the year-ago quarter was driven by strong demand for
Bluetooth headsets of $57.4 million, up 85% from the same quarter in the
prior year, and Gaming & Computer products of $9.0 million, up 8.5% from
the same quarter in the prior year. Office and Contact Center (OCC)
revenues were $119.5 million in the second quarter of fiscal 2009, down
9% from the year-ago quarter due to continued weakness in North American
markets and declining sales internationally.
Gross margin in the second quarter of fiscal 2009 was 47.8% compared
with 47.2% in the year-ago quarter. The higher gross margin was due to
better factory utilization and stronger Bluetooth product margins, which
were offset by a lower mix of OCC products and higher freight expense.
Operating income increased 13.1% to $37.5 million, and the operating
margin was 19.2% compared with 18.3% in the year-ago quarter.
The Company continues to believe that the implementation of Unified
Communications technologies by large corporations will be a significant
driver of office headset adoption, and as a result, a key long-term
driver of revenue and profit growth. The Company has already introduced
a number of headsets specifically designed for Unified Communications
and intends to allocate a significant portion of research and
development for future Unified Communications hardware and software
solutions.
Audio Entertainment Group (AEG) Non-GAAP Results
(Altec Lansing)
Second quarter fiscal 2009 net revenues of $21.5 million were up 4.2%
from $20.6 million in the previous quarter and down 20.9% from $27.2
million in the year-ago quarter. While net revenues were down from the
year ago quarter, they were in line with our expectations. The year ago
period included a large deal with a warehouse club that was not planned
for this period. We also liquidated inventory on certain discontinued
products in the year ago quarter.
Evidence of the progress of the AEG turnaround can be seen in the 26.4%
reduction in operating expenses as compared to the prior year along with
the positive gross margin due to reductions in manufacturing overhead
and pruning of unprofitable products. These items contributed to the
$3.5 million, or 36.5%, reduction in the operating loss in the current
quarter of fiscal 2009 compared to the year-ago quarter.
Our AEG team is working hard to position the division to return to
profitability, and we believe we are making considerable progress as
reflected in the cost reductions from the year-ago quarter. A
significant effort was made to refresh the product line with highly
competitive products and all ten of our new products are now shipping.
Measuring Non-GAAP Results Going Forward
The Company has concluded that the most common industry practice for
reporting non-GAAP results is to exclude purchase accounting
amortization from Non-GAAP reporting as it is a non-cash charge that
does not correlate or help explain quarterly operating performance. For
Plantronics in total, the amortization of purchase accounting was
approximately $2 million in the second quarter of fiscal 2009, of which
$1.5 million is recorded in the AEG segment. This compares to $2 million
in Q2 fiscal 2008, of which approximately $1.8 million was recorded in
the AEG segment. These largely fixed non-cash charges thus represent a
significant percent of revenue and a larger percent of operating income
for AEG. Thus, beginning with the non-GAAP guidance for Q3 included in
this press release, we are excluding amortization of purchase
accounting. When we report Q3 results, we will report on a basis
comparable to how we developed the guidance and also provide all the
non-GAAP measures for prior periods on a consistent basis.
Business Outlook
The following statements are based on current expectations. As described
in “Safe Harbor” below, many of these statements are forward-looking.
Actual results are subject to a variety of risks and uncertainties and
may differ materially from the forward-looking statements.
We have a “book and ship” business model whereby we ship most orders to
our customers within 48 hours of our receipt of those orders, and we
thus cannot rely on the level of backlog to provide visibility into
potential future revenues. Our business is inherently difficult to
forecast, and there can be no assurance that the incoming orders we
expect to receive over the balance of the quarter will materialize. With
increasing economic uncertainty, our business is even more difficult to
forecast than usual. The consumer related portions of our business are
expected to grow in the third quarter and we expect enterprise revenues
to decline given the global economic environment. We therefore expect
gross margin will be lower in Q3 fiscal 2009 than it was in Q2 fiscal
2009 due to product and segment mix, but that it should be roughly
comparable to Q3 a year ago. Sequentially, we are currently expecting
revenues for ACG to be down and AEG revenue to increase significantly
from Q2 fiscal 2009. Our consolidated guidance includes a range of
results for AEG from a small loss to a small profit for the December
quarter under the new non-GAAP measure. Subject to the foregoing, we are
currently expecting the following financial results for the third
quarter of fiscal 2009:
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Net revenues for the third quarter of fiscal 2009 to be in the range
of $205 - $220 million;
-
Non-GAAP earnings per share for the third quarter of fiscal 2009 to be
in the range of $0.25 - $0.33; and
-
GAAP consolidated tax rate to be between 16%-19%, which includes a
benefit of approximately $800,000 due to the reinstatement of the R&D
tax credit;
-
The EPS cost of purchase accounting amortization of approximately
$0.02 - $0.03; and
-
The EPS cost of equity compensation pursuant to FAS 123(R) to be
approximately $0.05, resulting in
-
GAAP earnings per share of $0.19 to $0.27.
Plantronics does not intend to update these targets during the quarter
or to report on its progress toward these targets. Plantronics will not
comment on these targets to analysts or investors except by its next
press release announcing its third quarter fiscal year 2009 results or
by other public disclosure. Any statements by persons outside
Plantronics speculating on the progress of the third quarter fiscal year
2009 will not be based on internal company information and should be
assessed accordingly by investors.
Conference Call Scheduled to Discuss Financial Results
Plantronics has scheduled a conference call to discuss the contents of
this release. The conference call will take place today, Wednesday,
October 22 at 2:00 PM (PDT). All interested investors and potential
investors in Plantronics stock are invited to participate. To listen to
the call, please dial in five to ten minutes prior to the scheduled
starting time and refer to the “Plantronics Conference Call.”
Participants from North America should call (888) 301-8736 and other
participants should call (706) 634-7260.
A replay of the call with the conference ID #36991951 will be available
for 72 hours at (800) 642-1687 for callers from North America and at
(706) 645-9291 for all other callers. The conference call will also be
simultaneously web cast at www.plantronics.com
under Investor Relations, and the web cast of the conference call will
remain available at the Plantronics Web site for thirty days.
A new corporate presentation is available on the investor relations
section of the corporate website www.plantronics.com.
Current Use of Non-GAAP Financial Information
Plantronics excludes non-recurring transactions and non-cash expenses
such as stock-based compensation related to stock options, awards and
employee stock purchases from non-GAAP net income, non-GAAP earnings per
diluted share, non-GAAP operating income, non-GAAP operating margin and
non-GAAP effective tax rate. Plantronics excludes these expenses from
its non-GAAP measures primarily because Plantronics does not believe
they are reflective of ongoing operating results and are not part of its
target operating model. Plantronics believes that the use of non-GAAP
financial measures provides meaningful supplemental information
regarding its performance and liquidity, and helps investors compare
actual results to its long-term target operating model goals.
Plantronics believes that both management and investors benefit from
referring to these non-GAAP financial measures in assessing its
performance and when planning, forecasting and analyzing future periods.
SAFE HARBOR
This release contains forward-looking statements within the meaning of
Section 27A of the Securities Exchange Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Specific
forward-looking statements include: our target of a long-term Non-GAAP
operating margin of 15 to 18%; our belief that AEG’s new higher margin
products will account for a majority of our AEG revenue through fiscal
2010; fundamentals of the AEG turnaround are on track; our intent to
reduce our inventory by managing inventory and turns much more tightly
than we have in the past; the implementation of Unified Communications
technologies by large corporations will be a significant driver of
office headset adoption, and as a result a key long term driver of
revenue and profit growth; our intent to allocate a significant portion
of research and development for future Unified Communications hardware
and software solutions; our expectation that AEG revenues will be up
significantly sequentially; our targeting break even for AEG for the
December quarter of the 2009 fiscal year and for the full fiscal year
2010; our belief that the consumer related portions of our business will
grow in the third quarter of fiscal year 2009; and our estimates of net
revenues, margins, tax rate and earnings for the third quarter of fiscal
year 2009. These forward-looking statements involve a number of risks
and uncertainties, and are based on current information and management
judgment. Plantronics does not assume any obligation to update or revise
any such forward-looking statements, whether as the result of new
developments or otherwise.
Among the factors that could cause actual results to differ materially
from those projected are:
-
Our operating results are difficult to predict, particularly in light
of the current economic conditions in both the domestic and
international markets;
-
We do not know how the market for office wireless headsets and
products from our other product groups may be affected in the event of
a recession in the United States or global economy;
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Fluctuations in foreign exchange rates;
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Failure to match production to demand given long lead times and the
difficulty of forecasting unit volumes and acquiring the component
parts to meet demand without having excess inventory or incurring
cancellation charges;
-
The ability to achieve the turnaround of AEG is uncertain because:
-
it is dependent upon our ability to more effectively research and
implement features in our AEG products that consumers want and are
willing to purchase;
-
we must be able to meet the market windows for these products;
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We have significant intangible assets and goodwill recorded on our
balance sheet. If the carrying value of our intangible assets and
goodwill is not recoverable, an impairment loss must be recognized
which would adversely affect our financial results;
-
The market for our products is characterized by rapidly changing
technology, short product life cycles, and frequent new product
introductions, and we may not be able to develop, manufacture or
market new products in response to changing customer requirements and
new technologies;
-
The actions of existing and/or new competitors, especially with regard
to pricing and promotional programs;
-
Product mix is difficult to estimate and standard margin varies
considerably by product;
-
The inability to successfully develop, manufacture and market new
products and achieve volume shipment schedules to meet demand;
-
A softening of the level of market demand for our products;
-
Variations in sales and profits in higher tax, as compared to lower
tax, jurisdictions;
-
We have experienced cost increases and volatility in prices from our
suppliers, including our manufacturers located in China, and in light
of the uncertainties of the economy in the United States and around
the world, we may continue to receive cost increases, which could
negatively affect profitability and/or market share.
-
Class action lawsuits are being brought against us and other Bluetooth
headset manufacturers claiming “noise induced hearing loss,” which are
costly to defend and the results of litigation are not predictable;
-
Changes in the regulatory environment either as to headsets directly
or as to the products, such as mobile phones, with which our products
are used; and
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Additional risk factors include: changes in the timing and size of
orders from our customers, price erosion, increased requirements from
retail customers for marketing and advertising funding, interruption
in the supply of sole-sourced critical components, continuity of
component supply at costs consistent with our plans, failure of our
distribution channels to operate as we expect, failure to develop
products that keep pace with technological changes, the inherent risks
of our substantial foreign operations, problems which might affect our
manufacturing facilities in Mexico or in China, and the loss of the
services of key executives and employees.
For more information concerning these and other possible risks, please
refer to the Company’s Annual Report on Form 10-K filed May 27, 2008,
quarterly reports filed on Form 10-Q and other filings with the
Securities and Exchange Commission as well as recent press releases.
These filings can be accessed over the Internet at http://www.sec.gov/edgar/searchedgar/companysearch.html
Financial Summaries
The following related charts are provided:
About Plantronics
In 1969, a Plantronics headset carried the historic second words from
the moon: “That’s one small step for man, one giant leap for mankind.”
Since then, Plantronics has become the headset of choice for
mission-critical applications such as air traffic control, 911 dispatch,
and the New York Stock Exchange. Today, this history of Sound
Innovation® is the basis for every product we build for the office,
contact center, personal mobile, entertainment and residential markets.
The Plantronics family of brands includes Plantronics, Altec Lansing,
Clarity, and Volume Logic. For more information, go to www.plantronics.com
or call (800) 544-4660.
Altec Lansing, Clarity, Plantronics, Sound Innovation, Volume Logic and
AudioIQ are trademarks or registered trademarks of Plantronics, Inc. All
other trademarks are the property of their respective owners.
