Plantronics Announces Third Quarter Fiscal Year 2018 Financial Results

SANTA CRUZ, Calif., Jan. 30, 2018 (GLOBE NEWSWIRE) -- Plantronics, Inc. (NYSE:PLT) today announced third quarter Fiscal Year 2018 financial results. Highlights of the third quarter include the following (comparisons are against the third quarter Fiscal Year 2017):

• Net revenues were $226.5 million, a decrease of 2.7% compared with $232.9 million, and above our guidance range of $215 million to $225 million
• GAAP gross margin was 50.4% compared with 47.3%
  ◦ Non-GAAP gross margin was 50.8% compared with 47.6%
• GAAP operating income was $36.8 million compared with $31.9 million 
  ◦ Non-GAAP operating income was $44.7 million compared with $40.7 million
• GAAP diluted loss per share was $1.54 compared with earnings per share ("EPS") of $0.68, primarily driven by a discrete provisional tax charge resulting from the Tax Cuts and Jobs Act of 2017 
  ◦ Non-GAAP diluted EPS was $1.02 compared with $0.79, and above our guidance range of $0.75 to $0.85

A PDF accompanying this release is available at http://resource.globenewswire.com/Resource/Download/9098a570-5cfa-4da2-9a95-ba6b4577be4f

A reconciliation between our GAAP and Non-GAAP results is provided in the tables at the end of this press release.

“We are transforming the business by complementing our hardware leadership with software and analytics,” stated Joe Burton, President and Chief Executive Officer. “These software-driven solutions provide valuable insights, making our solutions more critical to our customers than ever before."

"We believe our software innovation strategy will provide long-term profitable growth opportunities," stated Pam Strayer, Senior Vice President and Chief Financial Officer. "Growth in UC revenues led to record Enterprise revenues for the second consecutive quarter, which combined with our disciplined approach to cost management resulted in notable improvements in operating margins for the quarter.”

Financial Highlights for the Third Quarter Fiscal Year 2018

Revenue

Total net revenues for the third quarter of Fiscal Year 2018 were $226.5 million, down 2.7%, or $6.4 million compared to the third quarter last year.  Enterprise net revenues of $167.6 million were up 6.5%, or $10.3 million, driven by growth in our UC revenues which were partially offset by a slight decline in non-UC headset revenues. Consumer net revenues were $58.9 million, down 22.1%, or $16.7 million, primarily driven by lower stereo Bluetooth revenues and the divestiture of our Clarity business.

Total net revenues for the first three quarters of Fiscal Year 2018 of $640.8 million were down 4.7%, or $31.5 million, compared to the first three quarters of Fiscal Year 2017. Enterprise net revenues of $485.2 million were up 3.7%, or $17.4 million, driven by growth in UC revenues and partially offset by declines in non-UC headset revenues. Consumer net revenues were $155.6 million, a decrease of 23.9%, or $48.8 million driven by lower stereo Bluetooth revenues, the divestiture of our Clarity business, and the continued decline of the mono Bluetooth market.

Operating Income

GAAP operating income for the third quarter was $36.8 million, an increase of 15.4%, or $4.9 million from the prior year quarter.  As a percentage of revenues, GAAP operating income for the third quarter was 16.2%, compared to 13.7% in the prior year quarter. GAAP operating income for the first three quarters of Fiscal Year 2018 was $90.4 million, a decrease of 4.9%, or $4.7 million. As a percentage of revenues, GAAP operating income for the first three quarters of Fiscal Year 2018 was 14.1%, which was flat compared to the prior year period.

Non-GAAP operating income for the third quarter was $44.7 million, an increase of 9.8%, or $4.0 million. As a percentage of revenue, Non-GAAP operating income for the third quarter was 19.7%, compared to 17.5% in the prior year quarter. Non-GAAP operating income for the first three quarters of Fiscal Year 2018 was $121.1 million, a decrease of 0.5%, or $0.6 million. As a percentage of revenues, Non-GAAP operating income was 18.9% in the first three quarters of Fiscal Year 2018, compared with 18.1% in the prior year period.

Improvements to both GAAP and Non-GAAP operating margins for the third quarter of Fiscal Year 2018 were primarily due to product cost reductions and favorable product mix shifts driving higher gross margins. Additionally, savings from lower variable compensation expenses, restructuring actions, and cost control initiatives led to flat or declining operating expenses in both the quarter and year-to-date periods.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Act”) was signed into law in the United States. The Act includes several changes to existing tax law, including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21% and the move from a worldwide to a territorial tax system.

The move to a territorial tax system was accompanied by federal taxation of a one-time deemed repatriation of accumulated unremitted earnings ("toll charge"), which we will elect to pay over an eight-year period.  We recorded a $69.3 million toll charge as part of GAAP income tax expense in third quarter of Fiscal Year 2018, representing a provisional estimate that will be finalized when we complete our review of data spanning a 30-year period. The provisional toll charge increased our GAAP effective tax rate by 217.3% and 94.1% for the quarter and year-to-date periods, respectively.

Additionally, we completed our remeasurement of deferred tax assets and liabilities and recorded a charge of $7 million resulting from this remeasurement.

On a Non-GAAP basis, the reduction of the corporate income tax rate reduced our third quarter Fiscal Year 2018 effective tax rate from 21.9% and 22.9% to 17.0% and 21.0%, for the quarter and year-to-date periods, respectively. This drove an increase to earnings per share of approximately $0.06 in both the quarter and year-to-date periods.

Earnings Per Share

GAAP diluted loss per share for the third quarter was $1.54, down $2.22 and 326.5% compared to the prior year quarter.

Non-GAAP diluted EPS for the third quarter was $1.02, up $0.23 and 29.1% compared to the prior year quarter.

We repurchased approximately 298,000 shares of our common stock in the third quarter of Fiscal Year 2018 for approximately $13.7 million. In the year-to-date period, we repurchased approximately 1.1 million shares of our common stock for approximately $52.9 million.

Balance Sheet and Cash Flow Highlights

We finished the third quarter of Fiscal Year 2018 with $618 million in cash and investments and generated $32 million in cash flow from operations during the quarter, an increase of $11 million from the prior year quarter.

Of the $618 million in cash and investments at the end of the third quarter of Fiscal Year 2018, $18 million was held domestically.

Capital expenditures for the third quarter and first three quarters of Fiscal Year 2018 were $2.7 million and $9.4 million, or 1.2% and 1.5% of revenues, respectively. Our long-term expectation for capital expenditures is approximately 2.5% of revenues.

Plantronics Announces Quarterly Dividend of $0.15

We are also announcing that we have declared a quarterly dividend of $0.15 per common share, to be paid on March 9, 2018, to all shareholders of record as of the close of business on February 20, 2018.

Business Outlook

The following statements are based on our current expectations, and many of these statements are forward-looking. Actual results are subject to a variety of risks and uncertainties and may differ materially from our expectations.

We currently expect the following range of financial results for the fourth quarter of Fiscal Year 2018 (all amounts assuming currency rates remain stable):

• Net revenues of $205 million to $215 million;
• GAAP operating income of $29 million to $34 million;
• Non-GAAP operating income of $37 million to $42 million, excluding the impact of $8 million from stock-based compensation.
• Assuming approximately 32 million diluted average weighted shares outstanding: 
  ◦ GAAP diluted EPS of $0.53 to $0.63;
  ◦ Non-GAAP diluted EPS of $0.75 to $0.85; and
• Cost of stock-based compensation, effect of participating securities, and GAAP only related tax charges to be approximately $0.22 per diluted share.

Please see our updated Investor Relations Presentation available on our corporate website at investor.plantronics.com.

We have a “book and ship” business model whereby we fulfill the majority of orders received within 48 hours of receipt of those orders.  However, our backlog is occasionally subject to cancellation or rescheduling by our customers on short notice with little or no penalty.  Therefore, there is a lack of meaningful correlation between backlog at the end of a fiscal period and net revenues in a succeeding fiscal period.

Our business is inherently difficult to forecast, particularly with continuing uncertainty in regional economic conditions and currency fluctuations, and there can be no assurance that expectations of incoming orders over the balance of the current quarter will materialize.

Conference Call and Prepared Remarks

Plantronics is providing a quarterly overview in combination with its press release. The overview is offered to provide shareholders and analysts with additional time and detail for analyzing results in advance of our quarterly conference call. The overview will be available in the Investor Relations section of our corporate website at investor.plantronics.com along with this press release. A reconciliation between our GAAP and Non-GAAP results is provided in the tables at the end of this press release.

We have scheduled a conference call to discuss third quarter Fiscal Year 2018 financial results.  The conference call will take place today, January 30, 2018 at 2:00 PM (Pacific Time). All interested investors and potential investors in our 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.”  The dial-in from North America is (888) 301-8736 and the international dial-in is (706) 634-7260.

The conference call will also be simultaneously webcast in the Investor Relations section of our website. A replay of the call with the conference ID #55437190 will be available until March 30, 2018 at (855) 859-2056 or (800) 585-8367 for callers from North America and at (404) 537-3406 for all other callers.

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial statements presented on a GAAP basis, we use non-GAAP measures of operating results, including non-GAAP operating income, non-GAAP net income and non-GAAP diluted EPS which exclude certain non-cash expenses and charges that are included in the most directly comparable GAAP measure. These non-cash charges and expenses include stock-based compensation related to stock options, restricted stock and employee stock purchases made under our employee stock purchase plan, purchase accounting amortization, restructuring and other related charges and credits, asset impairments, executive transition charges, and the impact of participating securities, all net of any associated tax impact.  We also exclude tax benefits from the release of tax reserves, discrete tax adjustments including transfer pricing, tax deduction and tax credit adjustments, and the impact of tax law changes.  We exclude these expenses from our non-GAAP measures primarily because management does not believe they are part of our target operating model.  We believe that the use of non-GAAP financial measures provides meaningful supplemental information regarding our performance and liquidity and helps investors compare actual results with our long-term target operating model goals.  We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods; however, non-GAAP financial measures are not meant to be considered in isolation or as a substitute for, or superior to, gross margin, operating income, operating margin, net income or EPS prepared in accordance with GAAP.

Safe Harbor

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements relating to: (i) our belief that our software-driven solutions are becoming more critical to our customers; (ii) our expectation that our software innovation strategy will provide long-term profitable growth opportunities; (iii) estimates of GAAP and non-GAAP financial results for the third quarter of Fiscal Year 2018, including net revenues, operating income and diluted EPS; (iv) our estimates of stock-based compensation, as well as the impact of non-cash expenses on Non-GAAP operating income and diluted EPS for the third quarter of Fiscal Year 2018; and (v) our estimate of weighted average shares outstanding for the third quarter of Fiscal Year 2018, in addition to other matters discussed in this press release that are not purely historical data.  We do not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by such statements.  Among the factors that could cause actual results to differ materially from those contemplated are:

• Micro and macro-economic conditions in our domestic and international markets;
• our ability to realize and achieve positive financial results projected to arise in the Enterprise market from UC adoption could be adversely affected by a variety of factors including the following: (i) as UC becomes more widely adopted, the risk that competitors will offer solutions that will effectively commoditize our headsets which, in turn, will reduce the sales prices for our headsets; (ii) our plans are dependent upon adoption of our UC solution by major platform providers and strategic partners such as Microsoft Corporation, Cisco Systems, Inc., Avaya, Inc.,  Alcatel-Lucent, and Huawei, and our influence over such providers with respect to the functionality of their platforms or their product offerings, their rate of deployment, and their willingness to integrate their platforms and product offerings with our solutions is limited; (iii) delays or limitations on our ability to timely introduce solutions that are cost effective, feature-rich, stable, and attractive to our customers within forecasted development budgets; (iv) our successful implementation and execution of new and different processes involving the design, development, and manufacturing of complex electronic systems composed of hardware, firmware, and software that works seamlessly and continuously in a wide variety of environments and with multiple devices; (v) failure of UC solutions generally, or our solutions in particular, to be adopted with the breadth and speed we anticipate (vi) our sales model and expertise must successfully evolve to support complex integration of hardware and software with UC infrastructure consistent with changing customer purchasing expectations; (vii) as UC becomes more widely adopted we anticipate that competition for market share will increase, particularly given that some competitors may have superior technical and economic resources; (vii) (viii) sales cycles for more complex UC deployments are longer as compared to our traditional Enterprise products; (ix) our inability to timely and cost-effectively adapt to changing business requirements may impact our profitability in this market and our overall margins; and (x) our failure to expand our technical support capabilities to support the complex and proprietary platforms in which our UC products are and will be integrated;
• failure to match production to demand given long lead times and the difficulty of forecasting unit volumes and acquiring the component parts and materials to meet demand without having excess inventory or incurring cancellation charges;
• volatility in prices from our suppliers, including our manufacturers located in China, have in the past and could in the future negatively affect our profitability and/or market share;
• fluctuations in foreign exchange rates;
• with respect to our stock repurchase program, prevailing stock market conditions generally, and the price of our stock specifically;
• the bankruptcy or financial weakness of distributors or key customers, or the bankruptcy of or reduction in capacity of our key suppliers;
• additional risk factors including: interruption in the supply of sole-sourced critical components, continuity of component supply at costs consistent with our plans, and the inherent risks of our substantial foreign operations; and
• seasonality in one or more of our product categories.

For more information concerning these and other possible risks, please refer to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 10, 2017 and other filings with the Securities and Exchange Commission, as well as recent press releases.  The Securities and Exchange Commission filings can be accessed over the Internet at http://www.sec.gov/edgar/searchedgar/companysearch.html.

Financial Summaries

The following related charts are provided:

• Summary Unaudited Condensed Consolidated Financial Statements
• Unaudited Reconciliations of GAAP Measures to Non-GAAP Measures
• Summary of Unaudited Reconciliations of GAAP Measures to Non-GAAP Measures and Other Unaudited GAAP Data

About Plantronics

Plantronics is an audio pioneer and a global leader in the communications industry. We create intelligent and adaptive solutions that support our customers’ most important needs: experiencing and facilitating simple and clear communications while enjoying distraction-free environments.  Our solutions are used worldwide by consumers and businesses alike, and are an optimal choice for open office environments. From Unified Communications and customer service ecosystems, to data analytics and Bluetooth headsets, Plantronics delivers high-quality communications solutions that our customers count on today, while relentlessly innovating on behalf of their future. For more information visit plantronics.com.

Plantronics is a registered trademark of Plantronics, Inc.  The Bluetooth name and the Bluetooth trademarks are owned by Bluetooth SIG, Inc. and are used by Plantronics, Inc. under license.  All other trademarks are the property of their respective owners.

INVESTOR CONTACT:
Will Zelver
Manager, Investor Relations & External Reporting
(831) 420-3168

MEDIA CONTACT:
George Gutierrez
Sr. Director, Global Communications & Content Strategy
(831) 458-7537