Financial Results of the Second Quarter Fiscal 2015 Announced by Plantronics

Announcing the second quarter fiscal year 2015 results, Plantronics, Inc. provided a detailed account on what the results are. Summarizing the entire results to the revenue growth of 11% and EPS growth of 23%, Plantronics was able to meet the guidance of the revenue and earnings per share.

The highlights of the entire report focused on 7 aspects: the Net Revenues, GAAP and Non-GAAP Gross Margin, GAAP and Non-GAAP Operating Income and finally, GAAP and Non-GAAP Diluted (EPS). All results were compared to the results of the second quarter of fiscal year 2014.

• Net Revenues: $215.8 million compared to $194.0 million, an evident 11.3% change
• GAAP Gross Margin: 23.1% change from 54.6% compared to 51.4%
• Non-GAAP Margin: increased from 52.3% to 54.9%
• GAAP Operating Income: increased from $30.8 million to $37.9 million
• Non-GAAP Operating Income: increased from $38.0 million to $45.3 million
• GAAP Diluted EPS: increased from $0.53 to $0.65 (within the company’s guidance, there is a 22.6% change from $0.60 to $0.68)
• Non-GAAP Diluted EPS: increased from $0.64 to $0.77 (20.4% change from $0.72 to $0.80, when within the guidance of the company)

President and CEO, Ken Kannappan said, “Strength in our Enterprise portfolio, including both Core and Unified Communications product groups contributed to solid revenue growth and stronger earnings per share growth. We believe new products are positioning us well for continued leadership in all of our major markets. We’re especially pleased with industry reception to our first significant product introductions for the Contact Center category in 10 years.”

Senior Vice President and Chief Finance Office, Pam Strayer said, “We are managing the company with a focus on improving our operating margins and are pleased with the improvement over the year. While our gross margins were very strong this quarter, we continue to expect long-term Non-GAAP gross margins to be in the 50% to 52% range as UC grows to represent a larger portion of the revenue mix. We’re also pleased with our improved inventory levels and collections results.” 

The enterprise net revenues resulted to a 12% change from $139.3 million to $156.7 million which was caused by the enterprise core and UC revenues, part of the entire enterprise net revenues. From $36.9 million to $47.8 million, there is an evident 30% change in the results. For the consumer net revenues, there is a 9% change from $54.0 million to $59.1 million. The mono and stereo Bluetooth product categories are the ones responsible for the big change.

And finally, to be paid to all recorded shareholders as of the 20^th of November on 10^th of December of year 2014, the quarterly dividend per common share will be $0.15. 

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.

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

• Net Revenues: increases from $220 million to $230 million
• GAAP Operating Income: a $5 million increase is expected from $37 million to $42 million
• Non-GAAP income: increases to $50 million from $45 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 $0.64 to $0.72 (assuming that the outstanding dilute average weighted shares is approximately $42.5 million)
• Non-GAAP Diluted EPS: springs from $0.77 to $0.80. (assuming that the outstanding dilute average weighted shares is approximately $42.5 million)
• Purchase Accounting Amortization and Stock-based Compensation Cost: it is expected to be approximately $0.13 per diluted share

Second Quarter Fiscal Year 2015 Results Scheduled Conference Call

In order to discuss the financial results, a conference call has been scheduled on the 28^th of October, 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 28^th day of November, 2014. North American participants can dial two numbers, (855) 859-2056 and (800) 585-8367. Callers can refer to the Conference ID# 10462931.

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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