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

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

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.

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.

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.

Now for some balance sheet and cash flow highlights. We finished the quarter with $437 million in cash and investments on our balance sheet, and generated over $29 million in cash flow from operations during the period. Of the $437 million in cash and investments at quarter end, approximately $11 million was domestic. We used $12.4 million to repurchase shares during the quarter. Our DSO was 63 days, up from 54 days at the end of Q1 of the prior year. The increase was due in part to less time and focus spent during the quarter on customer collection activities as a result of our ERP implementation in the quarter. We estimate that our ERP focus increased DSO by approximately 7 days. In addition, the timing of billings within the quarter added approximately 3 days to our DSO compared to the same quarter in the prior year.

It should be noted that we are a book-and-ship model with 48-hour delivery targets. As a result, billings linearity trends are driven by relatively short-term fluctuations in demand and seasonality in our business. Backlog numbers and billings linearity should not be used as an indicator, nor are they reflective of any long-term business trends or significant fluctuations in business demand.

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Turning to our capital expenditures. Our Q1 investment was approximately $7 million, and slightly over 3% of net revenues. Expenditures include a large deposit on the construction of a new smart working facility in our European headquarters in the Netherlands, Santa Cruz facility improvements and equipment and tooling for our operations. Depreciation expense on a GAAP basis for Q1 was $4.6 million, up $0.6 million from the prior year.

Now turning to the outlook. We believe that total net revenues for our second fiscal year — second fiscal quarter ending in September, will be in the range of $210 million to $220 million. This focus assumes growth — this forecast assumes gross margins to be approximately flat to slightly up from the current quarter. Depending on revenue mix and other factors, we believe our GAAP operating income will be approximately $35 million to $40 million, and non-GAAP operating income of approximately $42 million to $47 million. The GAAP reconciling items we expect in the second quarter include approximately $7 million in stock-based comp expense and purchase accounting amortization before tax. Although the low end of this non-GAAP operating margin range is just below our long-term targeted range, we do expect to make up for this with a higher profitability in the second half of the year. Our guidance includes an expected spend of approximately $1.9 million on GN litigation in Q2.

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