Earnings Presentation October 31, 2017 NYSE:PLT

Transcription

1 Earnings Presentation October 31, 2017 NYSE:PLT

2 FORWARD LOOKING STATEMENTS This presentation 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 our: (i) our belief that the successful outcome of litigation with GN and strategic investments will lead to operating margin improvements; (ii) our expectations for our long-term strategy; (iii) estimates of GAAP and non-gaap financial results for Q3 FY18, including net revenues, operating income, shares outstanding and diluted EPS; and (iv) estimates of stock-based compensation, two-class method adjustment, GAAP only tax charges and other related charges, as well as their impact on Non-GAAP operating income and diluted Q3 FY18 EPS; (v) our expectations regarding revenue and profit considerations in Q3 FY18 and full year FY18, including Consumer revenues, the impact of the divestiture of Clarity, Enterprise purchase decision cycles, product mix and its impact on gross margins, estimated GN-related litigation fees and the impact of the trial on future fees and operating margins, in addition to other matters discussed in this presentation that are not purely historical data. Forwardlooking statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by such statements. We do not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise, except as required by applicable law. The factors that could cause actual results to differ are discussed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ( SEC ) on May 10, 2017, in our reports on Form 10-Q and Form 8-K filed with the SEC as well as our other public disclosures, including our press releases. Please also refer to the Safe Harbor included in our press release regarding our results for Q2 FY18 filed with the SEC on Form 8-K on October 31, The SEC filings and our press releases can be accessed on our website at investor.plantronics.com. 2

3 USE OF NON-GAAP 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, accelerated depreciation, early lease termination charges, restructuring, asset impairments, executive transition costs, and the effect 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 credit adjustments, and the impact of tax law changes. We exclude these expenses from our non-gaap measures primarily because Plantronics 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. A reconciliation between GAAP and Non-GAAP measures for Q1 FY18 and prior year quarter is attached as an appendix to this document. Other historical reconciliations are available at investor.plantronics.com. As a company with significant global operations and sales, fluctuations in foreign currency exchange rates may have a material effect on our reported results. Consequently, we also present supplemental metrics as identified in the reconciliation within this release on a constant currency basis which excludes the impact of currency exchange rate fluctuations. The constant currency presentation, which is a non-gaap measure, is intended to supplement our reported operating results and, when considered in conjunction with the corresponding GAAP measures, facilitate a better understanding of changes in the metrics from period to period and the core operations of the Company. We calculate constant currency percentages by removing any hedge gains or losses from the particular metric in the current period and then converting our current period local currency financial results using the foreign currency exchange rates in effect during the prior year period and comparing these adjusted amounts to the corresponding current period metric. 3

4 OVERVIEW 4

5 A Compelling Investment Opportunity Market leader in Enterprise headsets globally, and Mono Bluetooth headsets in the U.S. 50+ year history of market leadership, innovation and evolution with the market Investing in new secular growth opportunities: Software and Soundscaping Solid gross margins of 50% to 52%, targeting operating margins of 20% in FY18 Multiple cost reduction activities completed, improved cost structure in FY18 Strong history of positive cash flow/free cash flow Proven commitment to return capital to shareholders: $1.3B in past 10 years Strong financial position: ~$100M in cash & equivalents, net of debt 5

6 Audio Pioneer and Communications Technology Leader Founded in 1961, public listing (NYSE: PLT) in 1994 Technology leader with over 400 engineers and 800 patents, including 223 utility patents Award-winning design team with expertise in human behavior, anatomy, and ergonomics Globally recognized manufacturing excellence 6

7 It all began in a garage in 1961 when two airline pilots set out to invent an alternative to the conventional headsets of commercial aviation. Plantronics headsets never failed, either in space or on the ground. Which was why Plantronics was the only supplier NASA specified by name. Gene Krantz, NASA Flight Director during the Gemini and Apollo programs That s one small step for man, one giant leap for mankind. Neil Armstrong Eight years later, Plantronics made history when Neil Armstrong walked on the moon and uttered those legendary words: through a Plantronics headset. 7

8 INVESTING FOR GROWTH OVER 50 YEARS OF R&D INNOVATION Revenue $50m $100m $590m $620m $819m Wave 1.0 ACTIVATE Launched SaaS model Developed Soundscaping Explore adjacencies Cultivated our Culture $881m Wave 1.1 BUILD MOMENTIUM Build a SaaS ecosystem Launch Soundscaping Expand into new categories Evolve GTM strategy C L O U D E N A B L E D Wave 2.0 BUILD OUR ECOSYSTEM Deliver software and services revenue Drive profitable and sustainable growth Foster innovation that solves customer needs FY18 FY19-22 Aviation & Telco ContactCenter Office Corded Wireless UC Software & Services 8

9 PLANTRONICS KEY FOCUS AREAS IMPROVE PROFITABILITY Long-term Non-GAAP operating margin target of 20% - 23% ADAPT AND LEAD as communications industry migrates to UCaaS and CCaaS cloud solutions MONETIZE OPPORTUNITY of mega-trend Open Office spaces and flexible work policies CONTINUED INNOVATION to further leadership in headsets, software, analytics, and soundscaping 9

10 THE BIG OPPORTUNITIES Unified Communications Largest trend in the communications industry Excellent market position and solid growth Represents our largest revenue & growth opportunity SaaS Leveraging data from headsets to provide insights Simplify and increase management capabilities Long-term revenue opportunity Soundscaping Intelligent acoustic management service to help customers tackle noise in the open office Leverages our excellence in active & passive sound reduction 10

11 NEW PRODUCTS 11

12 A next-generation headset for today s office professional Plantronics Blackwire 5200 Series 12

13 Blackwire 5200 Series Created for the way you work in today s changing office and UC environment Multi-device connectivity All-day comfort Outstanding audio Easy-to-use controls Appealing lava-colored accents Plantronics Manager Pro* Two styles *Plantronics Manager Pro is a subscription-based software-as-a-service that is sold separately 13

14 Blackwire 3200 Series Easy to deploy with a variety of connectivity and wearing options to suit every work style. 14

15 What is the Blackwire 3200 Series? For IT-managed mass deployments where cost is a major obstacle The Blackwire 3200 series of headsets offer the best in comfort and audio quality for the price With the addition of 3.5 mm connectivity (Blackwire 3215/3225), this series offers more options for connectivity to PC and mobile devices than previously available models at this price point Blackwire 3210 Blackwire 3220 Blackwire 3215 Blackwire

16 Introducing the new BackBeat FIT Family BackBeat FIT 300 Series BackBeat FIT 500 Series BackBeat FIT Boost & Trainer Editions MSRP: $79.99 MSRP: $99.99 MSRP: $ & $

17 Made for life in motion From the gym to the grocery aisle, you re always on the move. Enjoy big sound in a small package with the ultra-light and portable BackBeat FIT 300 series of wireless sport earbuds. The sweatproof coating provides water-resistant protection during workouts, while the unique patent-pending, secure-fit eartips block out noise and offer all-day comfort no matter what you re doing. 17

18 You were made to move Whether you re warming up or winding down, move freely with the BackBeat FIT 500 series of wireless sport headphones. It offers deep, rich sound, sweat-resistant nano-coating technology by P2i and a lightweight design for comfortable all day listening. 18

19 Boost your workout The BackBeat FIT Boost Edition offers stability and water protection for any level of activity, designed with an open eartip for outdoor safety now with a portable charging pouch and exclusive access to the PEAR Personal Coach app. 19

20 FINANCIAL RESULTS 20

21 Q2FY18 SUMMARY FINANCIALS (NON-GAAP) Q Q Increase (Decrease) Revenue $216.2M $210.3M (2.7)% Gross Margin 51.4% 51.6% 20 bps Op. Expense $69.0M 1 $69.1M 2 0.2% Op. Income $42.3M $39.4M (6.7)% Op. Margin 19.6% 18.8% (80 bps) Diluted EPS $0.82 $0.80 (2.4)% Op. Cash Flow $36.3M $36.4M 0.3% 1) Includes GN litigation related expenses of $0.8 million. 2) Includes GN litigation related expenses of $6.3 million. 21

22 REVENUE BY PRODUCT ($MM) 1 $216 $233 $209 $204 $210 $62 $76 $48 $49 $47 $154 $157 $161 $155 $163 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 (1) Fiscal year ends March 31st Enterprise Consumer 22

23 REVENUE BY GEOGRAPHY ($MM) 1 $119.1 $30.8 $111.1 $22.5 $88.3 $88.6 $51.4 $15.3 $36.1 $56.3 $14.0 $42.3 $28.5 $12.7 $24.2 $8.8 $17.1 $18.7 $15.8 $15.4 $14.4 $16.6 Q2'17 Q2'18 Q2'17 Q2'18 Q2'17 Q2'18 Q2'17 Q2'18 US E&A APAC Amer, ex. US Enterprise Consumer (1) Fiscal year ends March 31st 23

24 LEVERAGE IN OUR LONG-TERM OPERATING MODEL Non-GAAP TARGET MODEL* Q2 FY18** Gross Margin 50 52% 51.6% R & D 8 10% 8.5% S, G & A 21 23% 24.4% Operating Margin 20 23% 18.8% * This target model is not a projection for FY18 or any other particular quarter or fiscal period. ** Non-GAAP metrics presented here for the second quarter of Fiscal Year 2018 do not include expenses related to stock-based compensation, executive transition costs, restructuring and other related charges (credits), and purchase accounting amortization. 24

25 Q2FY18 KEY TAKEAWAYS Record Enterprise Revenue 5% increase in Enterprise revenues driven by the continued growth of our UC product revenues, driven by the success of our Blackwire and Voyager product lines. Decline in Consumer driven by stereo, transition of portfolio is ongoing. Cost control initiatives have kept total opex flat while investment in innovation increases. Commitment to Profitability GN Litigation related expenses continued to weigh on margins during the quarter. Excluding litigation fees, operating margin was 21.8%, within our long-term target range of 20% 23%. Successful outcome of the trial and strategic investments pave the way for margin improvements. Continued Positive Cash Flows Cash flow from operations was flat to prior year at $36.4M, maintaining our track record of consistent positive operating cash flows. Strong Long-Term Outlook While headwinds in the short-term have impacted results in the first half of FY18, we remain extremely confident in our long-term strategy. We are improving product development, accelerating time-to-market, reducing costs, and transforming as the markets shift from on-premise to inthe-cloud solutions. 25

26 Q3FY18 GUIDANCE (As of October 31, 2017) Q3 FY18 GUIDANCE Net Revenue $215M - $225M GAAP Operating Income $29M - $34M Non-GAAP Operating Income 1 $37M - $42M Assuming approximately 32 million diluted average weighted shares outstanding: GAAP Diluted EPS $ $0.65 Non-GAAP Diluted EPS 2 $ $0.85 (1) Excluding the impact of $8 million from stock-based compensation (2) Excluding stock-based compensation, effect of participating securities, and GAAP-only related tax charges of approximately $0.20 per diluted share Plantronics does not intend to update these targets during the quarter or to report on its progress toward these targets. Plantronics will not comment on these targets to analysts or investors except by its press release announcing its third quarter fiscal year 2018 results or by other public disclosure. Any statements by persons outside Plantronics speculating on the progress of the third quarter fiscal year 2018 will not be based on internal company information and should be assessed accordingly by investors. 26

27 Q3FY18 CONSIDERATIONS REVENUE Consumer revenues are typically highest in Q3 as it includes the majority of the holiday shopping season. Divestiture of Clarity will continue to impact Y/Y Consumer comparisons. Slowdown of Enterprise purchase decision cycle due to market conditions is expected to last multiple quarters, but not persist in the long-term. PROFIT Typically higher Consumer product mix in Q3 will unfavorably impact gross margin; however, full-year FY18 gross margins are expected to remain within target range. GN litigation fees will drop sequentially in Q3 after the favorable outcome of the trial. However, we continued to incur significant legal fees through the October trial period, which will drive an estimated increase in legal fees for Q3'18 of $1 - $2 million over the $1.9 million incurred in the prior year. Excluding GN litigation related expenses, we are targeting Non-GAAP operating margins just below the long-term target of 20% - 23% for the year. 27

28 RETURN ON CAPITAL 28

29 RETURN OF CAPITAL 27% Reduction in shares outstanding with authorizations in the past 5 years Quarterly dividend tripled from $0.05 to $0.15 over past 5 years 16 million in share repurchase authorizations over the last 5 years 5 million shares repurchased in Q1 FY2016 $500M in 5.5% 8-year notes issued in May 2015 to fund repurchases 29

30 RETURNING VALUE TO SHAREHOLDERS ($ Millions) Historical Returns (FY2006 Q2 18) (1) Share Repurchases $1,290 Dividends $173 Total Value Returned to Shareholders $1,464 Total Return of Capital to Shareholders (% of Free Cash Flow) 123% (1) Fiscal year ends March 31 st 30

31 TOTAL CASH POSITION (Net of Debt) (1) $369 $469 $353 $425 $436 $448 $52 2 $116 $113 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Q2FY18 90% of offshore cash is denominated in U.S. dollars Offshore cash unencumbered by operations Revolver Capacity: $100M Minimum Domestic Cash Balance Needed to Run Operations: $10M to $20M (1) Fiscal year ends March 31 st (2) $500M in 5.50% Senior Notes issued in Q1 FY16 31

32 APPENDIX 32

33 HISTORICAL OPERATING INCOME RECONCILIATION (1) ($ Millions) FY2010 (2) FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Q1 FY2018 GAAP Operating Income $97.6 $140.7 $141.4 $138.1 $140.1 $149.1 $108.0 $125.1 $23.4 $30.2 Stock-Based Compensation $13.7 $15.9 $17.5 $18.3 $23.2 $28.6 $33.3 $33.5 $9.3 $8.8 Executive Transition Costs $ $0.5 Q2 FY2018 Restructuring and Other Related Charges $1.9 ($0.4) -- $2.3 $ $16.2 ($0.1) $2.6 ($0.1) Loss on Sale of Assets $ Impairment of Indirect Tax Asset $ Accelerated Depreciation $ $1.7 $ Lease Termination Charges $ Purchase Accounting Amortization Non-GAAP Operating Income (1) Fiscal year ends March 31 st (2) Pro forma for the divestiture of Plantronics Audio Entertainment Group (AEG) segment $1.2 $2.6 $ $0.3 $0.2 $0.2 $ $119.6 $158.8 $159.2 $160.4 $166.1 $177.9 $157.7 $161.5 $36.9 $

34 HISTORICAL EBITDA RECONCILIATION (1) ($ Millions) FY2010 (2) FY2011 (1) FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Q1 FY2018 Q2 FY2018 GAAP Operating Income $97.6 $140.7 $141.4 $138.1 $140.1 $149.1 $108.0 $125.1 $23.4 $30.2 Stock-Based Compensation $13.7 $15.9 $17.5 $18.4 $23.2 $28.6 $33.3 $33.5 $9.3 $8.8 Executive Transition Costs $ $0.5 Restructuring and Other Related Charges $7.1 (3) ($0.4) -- $2.3 $ $16.1 ($0.1) $2.6 ($0.1) Loss on Sale of Assets $ Impairment of Indirect Tax Asset $ Lease Termination Charges $ Depreciation & Amortization (4) $17.0 $16.4 $14.5 $16.6 $15.7 $19.3 $20.3 $21.5 $5.8 $5.5 Adjusted EBITDA $135.4 $172.6 $173.4 $175.4 $181.0 $197.0 $177.7 $182.6 $42.7 $44.9 (1) Fiscal year ends March 31 st (2) Pro forma for the divestiture of Plantronics Audio Entertainment Group (AEG) segment (3) Includes $5.2MM in accelerated depreciation expense (4) Includes loss on disposal of fixed assets 34

35 HISTORICAL FREE CASH FLOW RECONCILIATION (1) ($ Millions) FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Q1 FY2018 Q2 FY2018 Cash Provided by Operating Activities $143.7 $158.2 $140.4 $125.5 $141.5 $154.4 $146.9 $138.0 $12.9 $36.4 Capital Expenditures ($6.2) ($18.5) ($19.1) ($39.3) ($51.0) ($22.0) 2 ($30.7) 3 ($23.2) ($3.1) ($3.7) Free Cash Flow $137.5 $139.7 $121.3 $86.2 $90.5 $132.4 $116.2 $114.8 $9.8 $32.7 (1) Fiscal year ends March 31 st (2) Excludes $2.1MM in capital expenditures for which cash payment has not yet been remitted (reflected in Accounts Payable balance) (3) Includes $0.3MM in capital expenditures which were acquired in FY15 but for which cash payment was remitted in FY16 35

36 HISTORICAL R&D RECONCILIATION (1) ($ Millions) FY2009 (2) FY2010 (2) FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Q1 FY2018 Q2 FY2018 GAAP R&D $63.8 $57.8 $63.2 $69.7 $80.4 $84.8 $91.6 $90.4 $88.3 $21.2 $19.9 Stock-Based Compensation ($3.5) ($3.3) ($3.8) ($3.9) ($4.8) ($6.4) ($8.1) ($9.9) ($8.6) ($2.2) ($2.0) Accelerated Depreciation ($0.7) ($0.2) Purchase Accounting Amortization ($0.2) ($0.1) ($0.1) ($0.2) ($0.2) ($0.2) ($0.2) Non-GAAP R&D $60.1 $54.4 $59.3 $65.7 $74.8 $78.0 $83.3 $80.3 $79.5 $19.0 $17.9 (1) Fiscal year ends March 31 st (2) Pro forma for the divestiture of Plantronics Audio Entertainment Group (AEG) segment 36

37 CONSTANT CURRENCY RECONCILIATION (Q2 FY18) Net Revenues (in millions) by Region by Product Category Consolidated Americas E&A APAC Enterprise Consumer Net Revenues as reported (GAAP) $210.3 $129.7 $56.3 $24.2 $162.9 $47.4 Excluding Hedge (Gain)/Loss Impact of YoY Fx Movements (1.5) (0.1) (1.3) (0.1) (1.0) (0.5) Constant Currency Revenues (Non-GAAP) $209.9 $129.7 $56.1 $24.1 $162.7 $47.2 Gross Profit (in millions) ($) (%) Gross Profit as reported (GAAP) $ % Stock-based compensation 0.9 Non-GAAP Gross Profit $ % Excluding Hedge (Gain)/Loss, net 1.1 Impact of YoY Fx Movements (1.5) Constant Currency Gross Profit (Non- GAAP) $ % Operating Expenses (in millions) Operating Expenses as reported (GAAP) $77.5 Stock-based compensation, Purchase accounting amortization, and Restructuring (7.9) Executive Transition Costs (0.5) Non-GAAP Operating Expenses 69.1 Impact of YoY Fx Movements (0.6) Constant Currency Operating Expenses (Non-GAAP) $

38 CONSTANT CURRENCY RECONCILIATION (Q2 FY18) CONTINUED Operating Income (in millions) ($) (%) Operating Income as reported (GAAP) $ % Stock-based compensation & Purchase accounting amortization 8.8 Restructuring and other related charges (0.1) Executive transition costs 0.5 Non-GAAP Operating Income $ % Excluding Hedge (Gain)/Loss, net 1.1 Impact of YoY Fx Movements (1.5) Constant Currency Operating Income (Non- GAAP) $ % Diluted Earnings per Common Share ("EPS") Diluted EPS (GAAP) $0.59 Stock-based compensation 0.27 Executive transition costs 0.02 Income tax effect (0.10) Effect of participating securities 0.02 Non-GAAP Diluted EPS $0.80 Excluding Hedge (Gain)/Loss, net of tax 0.07 Impact of Fx Movements, net of tax (0.07) Constant Currency Diluted EPS (Non GAAP) $

39 39