Plantronics Revealed a Report on the Fourth Quarter & Fiscal Year 2014 Results

Plantronics bare out a report on the fiscal year 2014 fourth quarter results where focuses are placed on the annual UC net revenue growth of 27% and the dividend increase from $0.10 to $0.15 per quarter. 

All inputs were made in comparison to the fourth quarter of fiscal year 2013. The report focuses on seven different aspects

• Net Revenues: increased from $204.2 million to $209.1 million
• GAAP gross margin: increased from 52.0% to 53.1%
• Non-GAAP gross margin: 53.5% from 52.3%
• GAAP operating income: decreased from $36.9 million to $35.5 million
• Non-GAAP operating income: decreased from $41.9 million to $41.7 million
• GAAP diluted earnings per share (EPS) resulted to $0.65: increased from $0.52 to 0.58 (above the company’s guidance)
• Non-GAAP diluted EPS of $0.74: $0.62 increased to $0.68 (above the company’s guidance)

CEO and President, Ken Kannappan said that Plantronics will begin the fiscal year 2015 by moderately investing and at the same time expecting that there will be earnings and revenue growth in the process. Furthermore, he said, “Fiscal 2014 was a year of investment in infrastructure, people and product ahead of what we expect to be substantial Unified Communications (UC) revenue opportunity within the next several years.”

Plantronics Chief Financial Officer and Vice President, Pam Strayer, said “We generated approximately $49 million in cash flow from operations in the fourth quarter of fiscal year 2014 and approximately $141 million for the full fiscal year. We grew our cash, cash equivalents and short and long term investments position to approximately $436 million from equivalents $426 million at the end of the prior fiscal year, while repurchasing about $86 million in stock.”

The OOC net revenues increased from $142.7 million to $150.5 million, a 6% difference. The said change was brought by the strength in the revenues of UC. A 17% increase of $43.6 million from $36.9 million came from the UC products which is a subset of OOC. One the other hand, there is a $0.9 million decrease in the mobile net revenues from $49.9 million to $49.1. This includes the short-term increase in the demand because of China’s hands-free driving law that began last January 2013.

When it comes to the company’s quarterly dividend though, it increase from $0.10 to $0.15. And the payment to all shareholders who were able to be registered on May 20, 2014, will be made on June 10, 2014.

According to Pam Strayer, Plantronics Chief Financial Officer, Plantronics was able to bring back a total of $103 million, from quarterly dividends and share repurchases, to shareholders in the entire fiscal year of 2014. In addition, she said, “The dividend increase is commensurate with our philosophy of returning approximately one third of our domestic cash generation to our stockholders via dividends, with the balance being share repurchases.”

Plantronics’ Business Outlook and Expectations

The statements which were provided are all based on the company’s current expectations, as well as its forward-looking business outlook. This means that there is a probability for the actual results to be different, especially considering the different uncertainties and risks involved in the business.

The company follows the “book and ship” business, which focuses on fulfilling most of the orders accepted within 48 hours. The problem though lies with customers’ short notice or no penalty cancellations and reschedules in the company’s backlog. Because of this, there is an evident difference between the end of a fiscal period’s backlog and net revenues.

This makes the business difficult to predict. With how uncertain the regional economic conditions are, the expectations of the result of the incoming orders over the current quarter’s balance will have no assurance whatsoever. There is though a possibility of decrease in short-term expense management and revenue visibility because of the company implementing the ERP system.

The expectations for the third quarter of the fiscal 2015’s financial results are:

• Net revenues: increases from $205 million to $215 million
• GAAP operating income: a $4 million increase is expected from $31 million to $35 million
• Non-GAAP income: increases to $42 million from $38 million (without considering the impact from GAAP operating income’s purchase accounting amortization and stock-based compensation totaling to $8 million)
• GAAP Dilutes EPS: increases from $0.54 to $0.61 (assuming that the outstanding dilute average weighted shares is approximately $42.9 million)
• Non-GAAP Diluted EPS: springs from $0.65 to $0.72
• Purchase accounting amortization and stock-based compensation cost: expected to be approximately $0.11 per diluted share

Fourth Quarter Fiscal Year 2014 Results Scheduled Conference Call

In order to discuss the financial results, a conference call has been scheduled on the 29^th of April, 2014 at 2 in the afternoon, Pacific Time. All of the company stock’s potential investors and enticed stockholders are invited to take part in the conference regarding the results of the second quarter fiscal year of 2015. Joining the conference call can be possible by dialing in at most 10 minutes before the scheduled time and refer to “Plantronics Conference Call”. North American participants can dial the number (888) 301-8736 while others can dial (706) 634-7260. The conference call will also have a webcast in the corporate website’s Investor Relations section, simultaneous with the call.

For those who can’t take part in the live conference call, there will be a replay on the 29^th day of May, 2014. North American participants can dial two numbers, (855) 859-2056 and (800) 585-8367. Callers can refer to the Conference ID# 10253522.

Mexico Factory Tour and Investor Meeting

The investors will have a meeting and a factory tour in the award-winning and renowned facility, Plamex, on the 25^th of June, 2014 in Tijuana, Mexico. Plamex has earned a lot of global awards including US Secretary of State John Kerry’s 2013 Award of Excellence or ACE, and ranked #1 for four years as the Great Place to Work in Mexico.

CEO and President Ken Kannappan, SVP and CFO Pam Strayer, and SVP and CTO Joe Burton will be present to provide an overview of the different manufacturing operations, business model, product innovation, market opportunities, and strategy.

If more information are necessary, Lisa Demmert can be reached through lisa.demmert@plantronics.com.

Using Non-GAAP Financial Measures

The consolidated and condensed financial statements used by the company is based on GAAP and use the non-GAAP measures to disregard certain expenses and charges which are non-cash. These includes accelerated depreciations, all net associated tax impact, charges from early lease termination, purchase accounting amortization, employee stock purchase plan’s stock purchases and restricted stock, transfer pricing, and stock options-related and stock-based compensations. It also includes tax-related charges like tax credit adjustments, release of tax reserves’ tax benefits, tax deductions, and changes of tax law impacts resulted from non-GAAP gross margin, operating income and diluted EPS.

These charges and expenses are excluded from the measures because of three main reasons. First, the company’s management believes that these charges are not part of the target operating model and so are disregarded. Secondly, these non-GAAP financial measures are used to have relevant supplemental information on the company’s liquidity and performance, which will be helpful in investors’ comparisons between the operating models’ goals and the actual results. And lastly, the non-GAAP financial measures in the company’s evaluation of its performance will be used in the future for planning, analyzing and forecasting. Despite its great importance, the company also recognizes the fact that these non-GAAP measures should not be used as substitute, as something better, or as an isolated factor from net incomes, operating income, operating margin, gross margin, and GAAP-accorded and prepared EPS.

Safe Harbor and Limits of Plantronics’ Forward-looking Statements

The company’s forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, an amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements relating to:

1. leadership position in the markets
2. long-term gross margins
3. UC and revenue mix 
4. expectations regarding earnings and revenue growth
5. estimates of GAAP and non-GAAP financial results for the second quarter of fiscal year 2015, including net revenues, operating income and diluted EPS;
6. estimates of stock-based compensation, purchase accounting amortization and other related charges, as well as the impact of these non-cash expenses on Non-GAAP operating income and diluted EPS for the second quarter of fiscal year 2015;
7. estimate of the weighted average shares outstanding for the second quarter of fiscal year 2015, in addition to other matters discussed in this press release that are not purely historical data

Updating or revising the forward-looking statements is not the company’s job, whatever factor may have affected it. It is only normal for these statements to be materially different than the actual results due to several uncertainties and risks. Some of these factors include competition, uncertainties in the economic conditions, changes in geographic and product sales mix, and quarterly received timing and volume of orders.

Another major factor that can affect the evident difference of the expectation from the actual results is the ability to attain UC financial results, which have been initially planned rising from the UC adoption. This could be a result from different situations and probabilities. Competition is one of the most powerful factors. There is a probability that the competition will increase, where other may have access to better resources, economically and technically speaking. Another probability will be that competitors may commoditized the UC as it continuous to be widely accepted in the market. This will result to the reduction of the headsets’ sales prices, which will greatly affect the actual results.

When the UC solutions is adopted by major platforms, the individual plans of these providers can also affect the end result. This includes:

• Alcatel-Lucent
• Avaya, Inc.
• Cisco Systems, Inc.
• Microsoft Corporation

Since Plantronics does not have the power to influence the providers with how they will use the solutions offered by the company and how they will incorporate it in their own platforms, the support expenditures will most likely increase gradually but remarkably because of how complex some of the products and platforms offered by these providers, as they are adopted and developed.

There is a possible increase in the costs due to implementing a different approach or method in the development, manufacturing and design of the software, hardware and firmware of the complex electronic systems. Making sure that these systems work in different variations and environments can also increase the cost and at the same time the development risk of having errors and delays. In addition to that, hiring new people for the job and even second party contractors may be required, which will further increase the costs.

A possible delay can occur if the development of the UC solutions is too complex. It could lead to the company limiting the ability of the solutions in the market, which are:

• Attractive to the customers
• Feature-rich
• Cost-effective
• Stable
• On a timely basis

Other factors which could foil the plans for UC financial results are the need for continuous evolutions, and development of new models because of the complexity of UC’s software and hardware infrastructure. The adoption of the UC solutions may be slower and less enthusiastic than anticipated, and there might be changes in the expected probabilities of the overall margins of the UC solutions, unpredictably and swiftly evolve that the company won’t be able to adapt cost-wise and time-wise.

Another factor which can lead to different actual results than what were anticipated is the inability of the company to match the demands of the customers. If the customers’ demands are fluctuating, there is a higher probability that the production will not be able to catch up, especially because of the difficulty in predicting the volume of the orders, as well as acquiring extra parts and materials.

Other factors include seasonality of the business segments, fluctuation in the exchange rates, key suppliers/customers/distributors’ financial weakness or bankruptcy, and accounting changes which resulted from revenue recognition changes as the product’s functionality and features are incorporated.

Changes in stock market conditions, specifically the company’s stock’s price and the repurchase program can also be influential factors. Other factors include the suppliers’ prices’ volatility, substantial foreign operations’ inherent risks, the continuity of the company plans’ component supply at cost, interruption in the critical components of the sole-sources’ supply, and corporate tax rate fluctuations and litigation. 

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