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Plantronics’ (PLT) CEO Kenneth Kannappan on Q1 2015 Results – Earnings Call Transcript

To receiving exceptional product reviews from both editorial reviewers such as CNN and PC Magazine, as well as consumers, and has proven to be an incredible competitive offering for its price point. Demand for the products is very strong, and we are likely be supply constrained for an extended period.

Fourth, we continue to make great strategic progress. Besides our market share gains and profitability growth, we have made solid progress on our product pipeline and has some exciting product announcements planned for the fall. Today, we announced an evolution of our Plantronics Spokes software platform by introducing Plantronics Manager Pro version 3.0, a cloud service that customers and partners can use to deploy and manage Plantronics communication devices, as well as a consistent user experience. Also part of this portfolio, the new Plantronics Hub application, helps IT managers rapidly diagnose and resolve client-side Unified Communications deployment issues. We have a good track record of increasing long-term stockholder value and believe we are very well positioned to continue doing so by investing in excellent growth opportunities, leveraging our business model as we grow, and continuously returning cash to shareholders.

With that, let me turn the call over to Pam to discuss our Q1 results.

Pamela J. Strayer – Chief Financial Officer, Principal Accounting Officer and Senior Vice President

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Thanks, Ken. First, an overview of our results. As a reminder, unless stated otherwise, all comparisons of our Q1 fiscal year 2015 financial results are to Q1 of fiscal year 2014. First quarter net revenues were $216.7 million, representing 6.8% growth, non-GAAP operating income of $44.1 million is an increase of $1.7 million or 4%. Non-GAAP EPS of $0.78 per share is $0.08 per share higher than the prior year, an increase of approximately 11%. I want to highlight a few key points on our financial results for the quarter.

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First, our financial results were better-than-expected, with revenue and earnings per share exceeding guidance. We also did better-than-expected on operating margins in the quarter with our Q1 operating margin coming in at 20.4%, just above the low end of our long-term target range of 20%.

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Second, I’m very pleased with the improvements we are making in the business that are strengthening gross margins. Our gross margin of 53.2% remains above our long-term range of 50% to 52%. Even with the strong increase in revenues from consumer products, which generally have lower margins, our operations and in-house manufacturing expertise provide enormous competitive advantages as the lowest-cost producer of headsets with the highest quality. Our focus on continuous improvement in all areas of the business has resulted in lower cost of goods sold through a variety of efforts, including engineering changes, supplier cost control, improved inventory management, as well as facilities improvements, which drove lower overhead rates due to lower total cost and increased production capacity.

Third, we completed the reimplementation of our ERP system during the quarter. We successfully cut over to the new system with limited business impact and are feeling confident about our new platform. This new system will be instrumental in supporting global processes, scaling well to support higher revenues and transactional volumes, improving global data and analytics and reducing our cost of maintenance on the system.

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Now I’ll cover revenue in more detail. Total net revenues for the first quarter of $216.7 million were up $13.9 million, or 6.8% compared to the first quarter last year, most of which was driven by 15% growth in our Europe and Africa region. The E&A region experienced growth in revenues from products in the traditional Office and Contact Center, UC, as well as mobile products. In addition, in the U.S. and the Asia Pac region, we experienced growth in mobile revenues, driven by stronger product portfolio that was well received in the retail market. In addition, U.S. and Asia Pac also saw growth in UC revenues, offset by year-over-year declines in the core Office and Contact Center revenues. Growth in the U.S. and Asia Pac region was approximately 3% and 13%, respectively.

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The following are key product line comparisons to Q1 last year: Enterprise net revenue of $152.4 million were up roughly $1.2 million and 1%; UC was a driver for that growth with core Enterprise being down year-to-year, due to an unusually strong quarter in the prior year; UC revenues of $49.2 million were up $7.1 million and approximately 17% over Q1 of the prior year; consumer net revenue of $64.3 million were up roughly $12.7 million and 25%, driven primarily by growth in our stereo products, including the introduction of our new BackBeat FIT product. Mobile Bluetooth products also experienced strong growth, aided by the launch of our new Voyager Edge product; growth in revenue from our consumer products was strong across all regions of the world.

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Non-GAAP gross margin was better-than-expected at 53.2%, that’s up 60 basis points compared with last year’s margin of 52.6%. Our shift in product mix toward mobile and UC products brought down average product margins by approximately 220 basis points compared to the prior year’s gross margin. However, this decrease was more than offset by cost reductions mentioned above, which reduced component costs and overhead rates. In addition, excess and obsolete inventory charges were down by over $1 million compared to the prior year.

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Non-GAAP operating expenses were $71.1 million, up $6.9 million, due primarily to increases in headcount, annual salary increases and increases in variable pay associated with our strong results. In addition, we have higher IT-related spend, primarily associated with our Oracle Go-Live activities and higher legal expenses associated with an ongoing litigation. Offsetting these increases is a benefit of $2 million we recorded in the quarter from a litigation settlement.

As a percentage of revenue, operating expenses were 32.8%, that’s up 110 basis points from the prior year of 31.7%. Our non-GAAP operating margin was 20.4%, down slightly from 20.9% in the prior year. Our effective non-GAAP tax rate for the quarter was 27%. As a result of all these items, our Q1 non-GAAP net income of $33 million was 7.8% higher than a year ago, yielding non-GAAP EPS of $0.78, up $0.08 and approximately 11% from last year.

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