Second Quarter Revenues and EPS Exceed Guidance; Company Achieves Targeted Gross & Operating Margins
Plantronics, Inc. (NYSE: PLT) today announced second quarter fiscal 2010
net revenues of $167.4 million compared with $216.9 million in the
second quarter of fiscal 2009. Net revenues were above the previously
provided guidance of $155 million to $160 million. Plantronics’ GAAP
loss per share was $0.02 in the second quarter of fiscal 2010, primarily
due to non-cash asset impairment charges, compared with diluted earnings
per share of $0.36 in the same quarter of the prior year. Non-GAAP
diluted earnings per share for the second quarter of fiscal 2010 were
$0.40 compared with $0.44 in the second quarter of fiscal 2009 and were
greater than the previously provided non-GAAP guidance of $0.27 to
$0.32. The difference between GAAP and non-GAAP earnings (loss) per
share for the second quarter of fiscal 2010 includes a $15.6 million
impairment charge, net of tax on our Audio Entertainment Group (”AEG”)
long-lived assets, restructuring and other related costs, purchase
accounting amortization and the cost of stock-based compensation.
Plantronics also announced that its Board of Directors declared a
quarterly dividend of $0.05 per share. The dividend is payable on
December 10, 2009 to stockholders of record at the close of business on
November 20, 2009.
“Revenues were above expectations as we experienced stable demand in our
Office & Contact Center business and increased demand in our consumer
markets. Our improved cost structure allowed us to achieve our long-term
targeted gross and operating margins at the current revenue level,”
stated Ken Kannappan, President & CEO. “Our new corporate organizational
structure along with the pending sale of Altec Lansing, our AEG segment,
will produce better and more efficient corporate alignment to target our
top market opportunity, Unified Communications (”UC”), providing an
excellent earnings growth opportunity ahead as UC adoption becomes more
substantial”.
Audio Communications Group (ACG) Non-GAAP Results
(Office & Contact Center, Mobile, Gaming and Computer & Clarity)
Comparisons are to the Same Quarter in the Prior Year
Second quarter fiscal 2010 net revenues of $144.4 million decreased 26%
compared with $195.3 million in the prior year quarter, but increased 2%
from $141.1 million in the first quarter of fiscal 2010. General
economic weakness led to declines in net revenues in all major
geographies and most product groups compared with the prior year
quarter. Revenues in the U.S., Asia Pacific and Latin America regions
improved sequentially.
Office and Contact Center net revenues were $93.5 million, a decrease of
22% from $119.5 million in the second quarter of fiscal 2009 and a
sequential decrease of 3% from $95.9 million in the prior quarter. Bluetooth
headset net revenues were $33.3 million, a decrease of 42% from the year
ago quarter of $57.4 million, and a sequential increase of 10% from
$30.3 million. The prior year quarter was stronger in part due to higher
demand driven by hands-free legislation in California and Washington
states which was partially offset by higher average selling prices in
the second quarter of fiscal 2010. The Discovery 975 Bluetooth
headset, introduced during the quarter, received positive editorial and
consumer reviews and is now available through a number of top consumer
electronics retailers.
Gross margin in the second quarter of fiscal 2010 was 48.7% compared
with 47.9% in the second quarter of the prior year. The improvement was
primarily due to a favorable product mix, lower freight costs, and lower
requirements for excess and obsolete inventory provisions, partially
offset by higher manufacturing costs as a result of lower production
volumes.
Actions taken by the Company earlier this calendar year continued to
have a beneficial effect, with operating expenses down by 22% from $55.6
million in the prior year quarter to $43.6 million in the current
quarter. As a result of the leaner cost structure, operating income was
$26.7 million resulting in an 18.5% operating margin. While these
results were down from the second quarter in the prior year, the results
are within the Company’s long term target model for this business.
The Company continues to believe that the implementation of UC
technologies by large corporations will be a significant long-term
driver of office headset adoption, and, as a result, a key long-term
driver of revenue and profit growth. Our UC portfolio continued to enjoy
strong customer and partner reception. The Company expects that there
will be a significantly higher level of growth in UC enabled products
compared to headsets for desk phones in the future, and continues to
believe that revenue from headset sales related to UC will be material
to the Company beginning in fiscal 2011.
Audio Entertainment Group (AEG) Non-GAAP Results
(Docking Audio, PC Audio & Other)
Comparisons are to the Same Quarter in the Prior Year
Second quarter fiscal 2010 net revenues of $23.0 million increased 7%
from $21.5 million in the prior year quarter driven by higher sales of
Docking Audio products in all major geographies, and were up 21%
sequentially from $19.0 million in the prior quarter. In addition, we
experienced higher PC Audio sales in Asia and EMEA, which were offset by
lower PC Audio sales in the U.S.
Gross margin increased to 20.9% from 9.0% as a result of improved
product mix and margins along with lower requirements for excess and
obsolete inventory provisions. This was partially offset by higher
freight charges, royalty costs and other manufacturing costs.
Operating expenses declined by 12% from $6.5 million in the prior year
quarter to $5.7 million in the current quarter, and the operating loss
decreased from $4.6 million in the prior year quarter to $0.9 million in
the current quarter.
On October 2, 2009, the Company entered into an Asset Purchase Agreement
to sell Altec Lansing, its AEG segment, to an affiliate of Prophet
Equity LP, a Southlake, Texas based private equity firm (”Prophet”). On
October 23, 2009, the Company and Prophet entered into a letter
agreement which amended the Asset Purchase Agreement to provide that the
closing date for the sale of the AEG segment will be extended to not
later than December 1, 2009.
Subsequent to the closing of the sale of the AEG segment, the Company
will report all future and historical AEG segment results as
discontinued operations in its financial statements beginning in the
third quarter of fiscal 2010.
Business Outlook
Continuing Operations (Excludes Audio Entertainment Group business
segment due to pending sale expected to be completed no later than
December 1, 2009)
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.
Plantronics has a “book and ship” business model whereby it ships most
orders to customers within 48 hours of its receipt of those orders, and,
therefore, the level of backlog does not provide reliable visibility
into potential future revenues. The Company’s business is inherently
difficult to forecast, and there can be no assurance that the incoming
orders it expects to receive over the balance of the quarter will
materialize. With continuing uncertainty resulting from the global
economic conditions, the Company’s business remains difficult to
forecast. The December quarter tends to be characterized by an increase
in incoming sales orders during October which diminishes in December.
Net revenues in the third quarter of fiscal 2010 are expected to be
higher than the second quarter of fiscal 2010 and the third quarter of
fiscal 2009, primarily based on the fact that the December quarter has
historically been a stronger quarter than the September quarter and the
current bookings trend supports our belief that revenues will be in the
ranges below.
Subject to the foregoing, we are currently expecting the following range
of financial results for continuing operations (excludes AEG due to the
pending sale expected to be completed no later than December 1, 2009)
for the third quarter of fiscal 2010:
-
Net revenues of $155 million - $160 million;
-
Non-GAAP operating income of $26 million to $29 million;
-
Non-GAAP earnings per share of $0.38 - $0.42;
-
Non-GAAP consolidated tax rate to be approximately 26%;
-
The EPS cost of stock-based compensation to be approximately $0.05; and
-
GAAP earnings per share of $0.33 to $0.37.
If these results are achieved, the performance compared with Q3 Fiscal
2009 would be revenue growth of approximately 2% to 5% and Non-GAAP
operating income growth of 189% to 222%.
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 2010 results or by
other public disclosure. Any statements by persons outside Plantronics
speculating on the progress of the third quarter fiscal 2010 will not be
based on internal Company information and should be assessed accordingly
by investors.
Conference Call Scheduled to Discuss Actual Financial Results
Plantronics has scheduled a conference call to discuss second quarter
fiscal 2010 results. The conference call will take place Tuesday,
October 27th 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 #22257821 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 website for thirty days.
Use of Non-GAAP Financial Information
Plantronics excludes non-recurring transactions and non-cash expenses
and charges such as restructuring and other related charges, certain tax
credits and the release of certain tax reserves, stock-based
compensation expenses related to stock options, awards and employee
stock purchases, purchase accounting amortization and impairment of
goodwill and long-lived assets from non-GAAP net income, non-GAAP
earnings per diluted share, non-GAAP operating income, non-GAAP gross
margin, 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 considered as 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,
including statements relating to (i) implementation of UC technologies
by large enterprises as a significant driver of headset adoption, and,
its effect on our revenue and profit growth; (ii) our products,
including the Discovery 975 and the Savi Office and Savi Go headsets;
(iii) revenue from headset sales related to UC and its materiality to
the Company beginning in fiscal 2011; (iv) growing adoption and
deployment of UC in general and our expectation that this will be
advantageous for headset sales; (v) seasonality during the December
quarter and its effect on our financial results; (vi) our estimates of
GAAP and non-GAAP financial results for the third quarter of fiscal
2010, including revenue and earnings per share; (vii) our estimated tax
rate for the third quarter of fiscal 2010; (viii) our estimated
stock-based compensation expense for the third quarter of fiscal 2010;
(ix) the anticipated closing of the sale of the AEG segment no later
than December 1, 2009, as well as other matters discussed in this press
release that are not purely historical data. Plantronics does not assume
any obligation to update or revise any such forward-looking statements,
whether as the result of new developments or otherwise.
Forward-looking statements involve risks and uncertainties that may
cause actual results to differ materially from those contemplated by
such statements. Among the factors that could cause actual results to
differ materially from those contemplated are:
-
economic conditions in both the domestic and international markets;
-
fluctuations in foreign exchange rates;
-
the bankruptcy or financial weakness of distributors or key customers,
or the bankruptcy of or reduction in capacity of our key suppliers;
-
the effect of restructuring actions on GAAP results;
-
our ability to realize our UC plans and to achieve the financial
results projected to arise from UC adoption could be adversely
affected by the following factors: (i) as UC becomes more widely
adopted, the risk that competitors will offer solutions that will
effectively commoditize our headsets which, in turn, will reduce the
sales prices for our headsets; (ii) our plans are dependent upon
adoption of our UC solution by major platform providers such as
Microsoft, Avaya, IBM and Cisco, and we have a limited ability to
influence such providers with respect to the functionality of their
platforms, their rate of deployment, and their willingness to
integrate their platforms with our solutions; (iii) the development of
UC solutions is technically complex and this may delay or obstruct our
ability to introduce solutions to the market on a timely basis and
that are cost effective, feature rich, stable and attractive to our
customers; (iv) as UC becomes more widely adopted we anticipate that
competition for market share will increase, and some competitors may
have superior technical and economic resources, and (v) UC solutions
may not be adopted with the breadth and speed in the marketplace that
we currently anticipate;
-
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;
-
further impairment losses on the carrying value of our intangible
assets and goodwill could be recognized if it is determined the value
is not recoverable which would adversely affect our financial results;
-
volatility in prices from our suppliers, including our manufacturers
located in China, have and could negatively affect our profitability
and/or market share;
-
the consummation of the sale of the AEG segment is subject to certain
closing conditions which may not be met and, in the event the sale
does not close, our business may be materially and adversely affected;
-
in the event the sale of the AEG segment is consummated, the effects
of the sale, including the level of cash flow and the timing of the
receipt of any cash flow resulting from such sale are uncertain; and
-
additional risk factors including: interruption in the supply of
sole-sourced critical components, continuity of component supply at
costs consistent with our plans, the inherent risks of our substantial
foreign operations, and problems which might affect our manufacturing
facilities in Mexico, and unexpected delays and uncertainties
affecting our ability to realize targeted expense reductions and
annualized savings by outsourcing the manufacturing of our Bluetooth
products in China to GoerTek, Inc.
For more information concerning these and other possible risks, please
refer to the Company’s Annual Report on Form 10-K filed May 26, 2009,
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
Plantronics is a world leader in personal audio communications for
professionals and consumers. From unified communication solutions to
Bluetooth headsets, Plantronics delivers unparalleled audio experiences
and quality that reflect our nearly 50 years of innovation and customer
commitment. Plantronics is used by every company in the Fortune 100 and
is the headset of choice for air traffic control, 911 dispatch and the
New York Stock Exchange. For more information, please visit www.plantronics.com
or call (800) 544-4660.
Altec Lansing, Clarity, Plantronics, the logo design and Savi are
trademarks or registered trademarks of Plantronics, Inc. The Bluetooth
name and the Bluetooth trademarks are owned by Bluetooth
SIG, Inc. and are used by Plantronics, Inc. under license. All other
trademarks are the property of their respective owners.
