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Plantronics Reports First Quarter Fiscal Year 2009 Results

Surge in Bluetooth Headset Sales drive Record Audio Communications Group Revenue; Revenue and Earnings per Share Exceed Guidance

Tuesday, July 22, 2008 5:08 am PDT

Dateline:

SANTA CRUZ, CA
"We are pleased with the better than expected retail placements for our soon to be announced Altec Lansing products. Overall, we remain optimistic about our long-term prospects and ability to enhance shareholder value"

Plantronics, Inc., (NYSE: PLT) today announced first quarter fiscal 2009 net revenues of $219.2 million compared with $206.5 million in the first quarter of fiscal 2008. Revenues were above the guidance range of $205 to $210 million. Plantronics’ GAAP diluted earnings per share were $0.42 in the first quarter of fiscal 2009 compared with $0.31 in the same quarter of the prior year. This compares to the GAAP EPS guidance issued on April 29, 2008 of $0.26 to $0.30. Non-GAAP diluted earnings per share for the current quarter were $0.45 compared with $0.37 in the first quarter of fiscal 2008. Earnings per share were greater than the previously provided non-GAAP guidance of $0.33 to $0.36. The differences between GAAP and non-GAAP earnings per share for the current quarter are primarily the cost of equity-based compensation and a $1.7 million tax benefit resulting from the expiration of the statute of limitations in certain jurisdictions on previous tax filings.

“Our June quarter results reflect strong Bluetooth headset demand primarily as a result of California and Washington adopting hands-free driving laws on July 1, 2008. Enterprise market conditions grew weaker in the U.S. and Europe as the slowdown in the U.S. financial services sector spread to other industries and geographies. Despite the higher mix of lower margin Bluetooth products, a significant improvement in gross margin on our consumer products compensated, resulting in a higher overall company operating margin and an operating profit increase of 25% from the same quarter last year,” said Ken Kannappan, President and CEO. “We are pleased with the better than expected retail placements for our soon to be announced Altec Lansing products. Overall, we remain optimistic about our long-term prospects and ability to enhance shareholder value,” stated Kannappan.

Audio Communications Group (ACG) Non-GAAP Results

(Office & Contact Center, Mobile, Computer, Clarity)

First quarter net revenues of $198.5 million were up 7% compared with $185.6 million in the year-ago quarter. Revenue growth compared to the year-ago quarter was driven by strong demand for Bluetooth headsets of $55.2 million, up 52% from the prior year, and Gaming & Computer products of $9.6 million, up 48% from the prior year. Office and Contact Center (OCC) revenues were $122.8 million, down 7% from the previous year due to continued weakness in North American markets and flat sales in Europe.

Gross margin in the first quarter of fiscal 2009 was 45.2% compared with 46.6% in the year-ago quarter. The lower gross margin was due to a product mix shift, with substantially higher sales of lower gross margin Bluetooth headsets and a decline in higher margin Office and Contact Center headsets. However, the impact of this product mix shift was largely offset by substantial improvement in the gross margin on our Bluetooth products as well as some improvement in our OCC products. Operating income increased 0.6% to $33.0 million, and the operating margin was 16.6% compared with 17.7% in the year-ago quarter primarily as a result of the lower gross margin.

Audio Entertainment Group (AEG) Non-GAAP Results

(Altec Lansing)

First quarter net revenues of $20.6 million were down 1.4% from $20.9 million in the year-ago quarter. However, these results are not directly comparable as the year ago figures included approximately $1.7 million of PC & Gaming headset revenue which at that time was managed by AEG and sold under the Altec Lansing brand. Responsibility for all PC & Gaming headsets, regardless of the brand used, was transferred to ACG effective July 1 last year. Gross margin was 8.4% compared with negative 10.6% in the year-ago quarter and the division’s operating loss was $6.0 million compared with $10.8 million.

While the turn-around of this division remains heavily dependent on a refreshed product portfolio, other steps have been taken in the past year to return the division to profitability, including the consolidation of manufacturing operations, a reduction in headcount and other cost reductions. The focus on cost reduction enabled the division to operate on expenses 10% lower than the year-ago quarter. Placements of the new products for the Fall launch are going well and supply plans to meet the expected demand are in place. Plantronics continues to target profitability for the division by the December quarter of this calendar year and intends to introduce new products during the current quarter.

Balance Sheet and Cash Flow

Our balance sheet is strong with $190.2 million in cash and cash equivalents as of June 30, 2008 compared with $163.1 million in the previous quarter.

First quarter fiscal 2009 cash flow from operations was approximately $34 million compared with $13 million in the first quarter of fiscal 2008. In addition, key metrics such as inventory turns were 3.7 in the current quarter compared with 3.6 in the first quarter of fiscal year 2008. In addition, key metrics such as days sales outstanding were 54 days in the current quarter compared to 53 days in same quarter of the prior fiscal year.

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 September quarter tends to be characterized by a slowdown in incoming purchase orders during July which intensifies in August, but historically picks up strongly after Labor Day. This pattern tends to be particularly true in our highest margin office and contact center business. This trend has begun to manifest itself in the current quarter, and we need the historical pick up in September to recur to achieve the revenue levels we are forecasting. Sequentially, we are currently expecting revenues for ACG to be flat to down, and AEG to increase somewhat in the second quarter. Subject to the foregoing, we are currently expecting the following financial results for the second quarter of fiscal 2009:

  • Net revenues for the second quarter of fiscal 2009 to be in the range of $210 - $220 million;
  • Non-GAAP consolidated tax rate to be between 23%-24%;
  • Non-GAAP earnings per share for the second quarter of fiscal 2009 to be in the range of $0.35 - $0.40; and
  • The EPS cost of equity compensation pursuant to FAS 123(R) to be approximately $0.06, resulting in
  • GAAP earnings per share of $0.29 to $0.34.

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 second quarter fiscal year 2009 results or by other public disclosure. Any statements by persons outside Plantronics speculating on the progress of the second 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, Tuesday, July 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 #20286967 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.

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 profitability target of the December 2008 calendar quarter for our AEG business; our intention to introduce new AEG products during the current calendar quarter; our ability to timely supply new products to the market place to meet demand for our new AEG products; our estimates of net revenues, margins, operating expenses, tax rate and earnings for the second 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 Statesor global economy;
  • We have experienced cost increases from our suppliers and in light of the cost of oil, food supplies and other products in the United States and around the world, we may continue to receive cost increases, which could negatively affect profitability and/or market share.
  • 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;
    • we must be able to retain or obtain the shelf space for these products in our sales channel;
    • we must retain or improve the brand recognition associated with the Altec Lansing brand during the turnaround;
    • our ability to successfully complete the restructuring and consolidation activities and the financial impact that such actions may have is difficult to predict;
    • there is a risk that the consolidation of the AEG Asian operations may cost more than we currently expect. There is also a risk that the savings that we currently predict may not materialize and that the timing of costs and benefits may be different than what we currently expect. If the cost of consolidation is more than we currently anticipate or the savings that we currently anticipate from these activities do not materialize, our future financial results may be adversely affected; and
    • Failure to achieve any of these objectives may adversely affect our financial results;
  • 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;
  • 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 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;
  • Fluctuations in foreign exchange rates;
  • 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
  • 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 first 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.

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