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Edited Transcript of PLT earnings conference call or presentation 7-May-19 9:00pm GMT

Q4 2019 Plantronics Inc Earnings Call

SANTA CRUZ May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Plantronics Inc earnings conference call or presentation Tuesday, May 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles D. Boynton

Plantronics, Inc. - Executive VP & CFO

* Joseph B. Burton

Plantronics, Inc. - President, CEO & Director

* Michael R. Iburg

Plantronics, Inc. - VP of IR

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Conference Call Participants

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* David Luke Eller

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Gregory John Burns

Sidoti & Company, LLC - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Lance, and I will be your conference operator today. At this time, I would like to welcome everyone to the Poly Q4 fiscal year 2019 conference call.

Mr. Mike Iburg, you may begin your conference.

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Michael R. Iburg, Plantronics, Inc. - VP of IR [2]

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Thank you. Welcome to Poly's Financial Results Conference Call for the fourth quarter of fiscal year 2019. My name is Mike Iburg, Head of Investor Relations; and joining me today are Joe Burton, President and CEO; and Chuck Boynton, Executive Vice President and CFO.

The information presented and discussed today includes forward-looking statements, which are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our most recent 10-Q, 10-K and today's press release and earnings presentation.

You should also refer to the materials we provide today for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and the previously reported results. And as a basis for planning and forecasting future periods. These materials are posted on our Investor Relations website at investor.poly.com.

With that, I will now turn the call over to Joe.

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [3]

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Good afternoon, everyone, and thank you for joining us today. I want to take this opportunity to provide a brief overview before I turn the call over to our new CFO, Chuck Boynton, for a review of the financials. Fiscal year 2019 was a milestone year for Poly as we executed on our strategic vision of becoming the preferred endpoint provider for the open collaboration ecosystem. We launched exciting new products allowing us to enter new markets and achieve or beat our financial commitments and integration goals.

Notice -- notably, this past March, we debuted our new brand, a new lineup of products and new strategic relationships. We also built a world-class leadership team, blending the right mix of industry experience and skills to succeed in the UC industry and deliver on our strategic vision.

As we announced earlier today, Darrius Jones, joins us as Executive Vice President of Strategy, bringing with him a strong background in unified communications and customer care. With a great leadership team in place, we enter FY '20 with a laser focus on building our brand, executing our strategy and achieving our long-term goals.

As I've said before, the $40 billion unified communications industry is undergoing a massive shift. The old world of vertically-integrated vendors with proprietary endpoints is giving way to born-in-the-cloud collaboration platforms that require open endpoints.

In this new world, Poly sits in a critical position with both our customers and partners. On the front-end, we provide a simple user interface that can start meetings with 1 touch, avoiding the far too common hassles users often experience.

On the back end, we have the deep integrations that allow our UC partners to leverage our endpoints to deliver the differentiated experience they want for their customers. We've combined this with software and services that make procurement, installation and management meaningfully easier, which means our customers and partners significantly benefit from deploying Poly endpoints compared to choosing from multiple vendors.

The unified communications market continues to accelerate, and so does our market opportunity. We're focused on 4 areas of innovation. First, we make workplaces actually work for everyone. While the modern open office offers many advantages, it has also introduced distraction and noise into the workplace leading to lower productivity and lower employee satisfaction. Poly offers solutions that make huddle rooms as powerful as board rooms and technologies to address audio distraction in open spaces.

Second, we help people collaborate their way. People are now using 3 or more collaboration applications in any given day, and need endpoints that work with and across these applications. Poly offers a wide range of solutions to meet this growing need.

Third, we design solutions that are mobile first for the modern workforce. Whether it's using a personal smartphone as a business phone or navigating through a day where personal and business activities blend, workers need voice and video capabilities that move with them.

And finally, we provide advanced cloud services that help IT pros and users get more out of their devices. As the macro trend of end-user empowerment continues, IT professionals are more challenged keeping track of what's being used by whom and where. Poly is focused on making easy-to-use solutions that are also easy to manage.

With that, let's take a few minutes to walk through some highlights from the quarter. With the enterprise headset business, we continue to see strong performance in UC headsets with revenue growing 16% in Q4 and 15% for the full year. Among the many exciting new product announcements this quarter, we introduced a new addition to the Blackwire family, a lightweight, boomless and stylish headset with active noise cancellation that's tuned for the distractions of the open office. We also announced Amazon Alexa integration with our Voyager 4200 headset, giving workers access to their own virtual assistant.

Within our voice category, our newly launched VVX phones continue to show strong growth with revenue nearly tripling sequentially and leading to a new strategic alliance with Google, making the VVX the first and only IP phones certified for Google Voice. Although the voice category saw a slight pullback after a very strong Q3, we saw a growth of 5% for the full year.

Trio, our flagship conference phone, continued to see strong market adoption with approximately 50% growth for the year. Trio products were subject to several exciting announcements this quarter, including integration with Amazon Alexa for business and Amazon Chime as well as a new partnership with GoToMeeting.

In the video category, we've begun to see stabilization with a return to growth of 5% this quarter. Video benefited from sales of the newly launched Poly Studio that began shipping at the end of the quarter.

At Enterprise Connect, Poly Studio stole the show, winning a Best of Enterprise Connect Award. Demand is strong going into the June quarter, and we've already announced expanded partnerships with Zoom, Microsoft and GoToMeeting for solutions featuring Poly Studio.

On our group series products designed for medium and large conference room, we saw slight growth in the quarter as well. We continue to expect headwinds in the group series as this category remains in transition. However, we're taking steps that we believe will improve our competitive position and result in future growth. As expected, services was in line with the prior year. We continue to see significant opportunities and services as we innovate with our IT management and analytics tools and explore new avenues of service attached as our NexGen products come to market.

Now I'd like to make a few comments on our consumer business. As you may have already seen in our press release, we've decided to explore strategic alternatives for our consumer business, and I like to provide a little color on our thinking. Over the past several years, we have designed and brought to market an excellent portfolio of consumer products, ranging from our BackBeat family of fitness and lifestyle headsets to our RIG family of battle-ready gaming headsets. We are universally recognized as having great products, innovative designs and a strong brand, allowing us to build a loyal following.

The consumer business is a very good business, and we have every reason to be proud of our accomplishments and growth. However, the dynamics of the consumer market are very different from the enterprise market. With consumer now roughly 8% of our total revenue, we believe it makes more sense for us to be laser-focused on the enterprise market and the fast-growing UC opportunity in front of us. We don't know where this will land in terms of timing, deal structure or financial impact. We will provide periodic updates as we make progress.

As I said before, I'm incredibly pleased with our achievements this year and believe that we're only just beginning to realize the benefits and opportunities that lie ahead for Poly. As we continue to integrate our product portfolio, we can truly offer a better together story where purchasing all endpoints from Poly provides enhanced functionality, improved data analytics and a simplified management experience.

With that, I'll hand the call over to Chuck.

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Charles D. Boynton, Plantronics, Inc. - Executive VP & CFO [4]

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Thanks, Joe. Thank you all, for taking the time to attend today's earnings call. I started with Poly just about 2 months ago and I'm very excited to be here. Before I review the financials, I wanted to outline my top 4 priorities as CFO. First, I'm committed to deleveraging the balance sheet to a comfortable level below 3 turns and also ensuring we're optimizing our capital allocation. Second, I am committed to delivering on the long-term financial model, as outlined previously. Third, working more closely with the investment community to get additional research coverage and improve our communications with investors. And finally, I am committed to driving profitable growth to the benefit of both the top and bottom line.

Now onto the financials. We had a strong quarter and met or exceeded all our guidance targets. GAAP net revenue for the year was $1.7 billion, almost doubling from the prior year, which did not include any Polycom results.

Our GAAP revenues for fiscal '19 do not include $85 million of purchase accounting adjustments for revenue, which we have added back to our non-GAAP results. We expect our GAAP and non-GAAP revenues to more closely converge over the next several quarters. In fiscal Q4, non-GAAP revenue was $488 million, up $272 million from the prior year. When adjusted for Polycom, revenue was essentially in line. However, we had an FX impact of approximately $8 million in fiscal Q4. Taking this into account on a constant currency basis, non-GAAP revenue grew 2% year-over-year. Non-GAAP gross margin of 55% in the quarter was above our long-term target model, partially driven by product mix. Also the MLCC impact was immaterial in the quarter, and we are pleased that this issue is largely behind us.

Non-GAAP operating expenses continue to drop sequentially, primarily driven by our cost savings programs. We are on target to complete our synergy target of $85 million by the end of the June quarter.

As of today's conference call, we have captured approximately $48 million annualized run rate operating expense synergies and have captured approximately $25 million of annualized run rate COGS synergies for a total of $73 million of annualized synergies. These remaining COGS synergies are on track to be captured by the end of the June quarter and we'll see the benefits to the P&L in the back half of our fiscal year.

The improvements in both gross margin and OpEx led to Q4 non-GAAP operating income of $90 million, up $4 million from the prior-year combined quarter. For the full year non-GAAP operating income grew $15 million or 4% on a combined basis, demonstrating the significant profitability of this business as we continue to gain efficiencies.

Adjusted EBITDA for the quarter was $102 million with trailing 12 months adjusted EBITDA of $402 million. Non-GAAP diluted earnings per share was $1.44, significantly better than planned, driven by both improved operating profit and benefits to the tax line.

Going forward, we expect the tax rate to normalize to a range of 18% to 20%. Our full year stand-alone non-GAAP EPS was $5.12, an increase of $1.57 and growing more than 40% over the prior year with only 3 quarters of combined results, highlighting the accretive nature of the Polycom acquisition.

Now I'd like to cover some key points on cash and debt. We have completed the previously announced repayment of $100 million in the quarter. In addition, we bought back over 230,000 shares of common stock at an average price of $36 per share, and paid our quarterly dividend of $6 million.

In the March quarter, we experienced $67 million of cash outflow, primarily related to the integration, restructuring and working capital as we transfer products into our Mexico facility to capture COGS synergies. We expect a material improvement to our cash flows in the second half of the year as integration and restructuring costs decline.

Our net debt-to-EBITDA at year-end was 3.6x. As we consider our cash priorities, our first objective is to get our net leverage ratio to approximately 3 turns by the end of fiscal '20. To achieve this, we intend to improve EBITDA and pay down debt while maintaining healthy liquidity of approximately $300 million, including the undrawn revolver.

As we've stated in the past, we believe the business will generate approximately $300 million per year in operating cash flow after integration and restructuring costs are behind us.

Also of note, the Board approved a dividend payment for the June quarter. Over the next quarter or so, we'll consider revisions to our capital allocation model. As Joe noted, we are exploring strategic alternatives for our consumer business. We believe this will be beneficial as it will allow us to focus exclusively on the opportunities in the enterprise market, while also simplifying our business processes.

In the event of a transaction, given the gross margin profile of the consumer versus the enterprise business, we think this would further improve our financials.

Moving to guidance. We are issuing both quarterly and full year guidance for fiscal '20. In addition, we are replacing operating income with adjusted EBITDA for simplicity. The main difference is about $12 million of depreciation.

For Q1 fiscal '20, we expect GAAP revenues of $471 million to $501 million. Excluding approximately $14 million of purchase accounting adjustments, we expect non-GAAP revenues of $485 million to $515 million. Adjusted EBITDA in the range of $92 million to $108 million.

Finally, assuming a tax rate of 18% to 20% and 40 million weighted average shares outstanding, diluted non-GAAP EPS is expected to be in the range of $1.15 to $1.45. For the full year 2020, we expect GAAP net revenue growth of 21% to 24%. Including approximately $38 million of purchase accounting, we expect non-GAAP revenue growth of 17.5% to 20% when comparing against the 3 quarters of Polycom results in fiscal '19. This translates to 1.5% to 3.5% non-GAAP revenue growth when adjusting fiscal '19 to include Polycom results for all 4 quarters. We expect full year adjusted EBITDA of $410 million to $460 million for fiscal '20.

Additionally, one item I would like to note before we turn the call over for Q&A. In connection with the acquisition of Polycom, we are required to register for sale approximately 6.4 million shares of stock acquired by Siris Capital Group in the transaction. To save time and money, we have elected to file the S-3 at the same time as the 10-K next week. Under the terms of the agreement, the lock-up restriction for the first 1/3 of these shares ends on July 2 this year, with the remaining 2/3 released over the following 12 months. We will not speculate on the timing of Siris selling their shares.

In closing, we saw a strong execution across the board with revenues meeting and profitability beating the guidance that we had set forth in the fourth quarter.

With that, I'll now turn the call over to the operator for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Greg. (Operator Instructions)

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [2]

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Just a question on your thoughts on the consumer business. I've seen that the slide deck you've given adjustment -- you adjusted revenue for some changes in the consumer business. And it looks like you're planning on keeping some of that business, maybe the high-end Bluetooth segment and moving that to the Enterprise business, but what are your thoughts on -- how are you looking at divesting this business? Is it the whole thing? Are you keeping some? And in terms of, I guess, the IP between the 2 segments, I am assuming there's a lot of crossover between the Enterprise and Consumer business in terms of IP. How is that handled in separating the 2 businesses?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [3]

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Greg, this is Joe. Thanks for the question. I figured that would be a popular topic today. So you hit it spot on. The adjustment that you saw in the slide deck was indeed the high end of the mono Bluetooth business. In other words, the Voyager product line, the Voyager 5200, 3200 and a couple of SKUs that are similar are sold through retail but they're really predominantly business headsets. They are for information professionals like all of us, truck drivers, delivery drivers and so forth. So the Voyager part of the business while retail, we really consider it part of Enterprise, so it is not for sale at this time. As we mentioned, we're exploring options around the mid- and lower-end mono Bluetooth business. The stereo business, which includes our lifestyle and fitness BackBeat products and of course, the RIG gaming business. Very early days of thinking this through. So whether that would be a single transaction to a single buyer, multiple transactions, a JV, all that's a little bit still in front of us. So little early to say. But as we really look at the $40 billion unified communications opportunity and how we're positioned with the other 92% of the business, we really want to be laser-focused on that going forward.

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Charles D. Boynton, Plantronics, Inc. - Executive VP & CFO [4]

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And then, Greg, on the IP question, we would likely do some cross-licensing, the details we have not really worked out, but it's likely to be some level of cross-licensing of IP between the parties.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [5]

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Okay. Great. And then turning to the Enterprise, the headset business. Assuming, I guess, a 50-50 split between UC and the kind of legacy OCC, I guess, like a 3% growth implies about a 10% decline in the traditional business, which is a little bit of an acceleration from what we've seen. Can you just talk about maybe what's the outlook specifically for the traditional headset business? And then more broadly, maybe talk about any changes in market share that you're seeing in that market.

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [6]

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Yes. Sure. I mean, I'll start out and if Chuck has anything to add, he can always jump in. So broadly speaking, once again, I think you hit it about right. So we saw a really nice growth on the UC headset side, the unified communications growth part of the business, which is now a little bit bigger than the legacy headset business. Last quarter, they were about at parity. This quarter, we're actually seeing UC starting to pull ahead as we predicted over the last few quarters. UC headset is up 15%, 16%, somewhere in that range year-over-year. As you mentioned, the legacy headset business, which is still a great set of products that hook to traditional telephones in a traditional contact center or maybe a traditional office. Off a little bit more than the last few quarters but not really a trend we want to call there yet. It tends to be a little bit lumpy, it moves up and down based on big contact center (inaudible) that are hitting in a quarter or not at a given time. So we really don't see that as an acceleration down as much as a single quarter thing for the moment.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [7]

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Okay. And then in terms of your view on market share within the enterprise headset market, has there been any shifts over the last year?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [8]

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Not in any significant way. It's a little hard to parse through some of the numbers. We think in classic UC headsets and also in legacy headset, market share is barely stable, maybe bumping up and down 1 point or 2, one way or the other but nothing material. Certainly, a couple of our competitors have some consumer crossover through wireless that they actually count in their enterprise number, have some personal speakers, not a conference phone like the Trio, but a smaller personal speaker like our Calisto line where they have some nice market share that's been put in with the headsets in some cases. But when they really look at UC headsets and legacy headset, we don't see any major share shifts. So, I mean, maybe we give up 1 point or 2 in one quarter, and we get 1 point in other but no big shifts.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [9]

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Okay. Great. And I guess, you mentioned Studio having little bit of an impact on some of the growth you're seeing on the video side of the business. How is demand been for that product so far? And maybe what's your outlook for the remainder of the year for that product?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [10]

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Well, I got to say, we just love the Poly Studio product that we've put out and indeed, the huddle room opportunity in general. So first of all, on the opportunity side, I mean, the huddle room is a multi-hundred million dollars dollar opportunity annually, growing somewhere up around 35% year-over-year. And Poly and our predecessor company, Polycom, never really participated in that industry until Studio shipped. So effectively, we had 0 market share, while we were a leading company in the larger conference room. Poly Studio has just been a runaway hit in the early few weeks here. So the few weeks this product's been in the market, it's won best UC device at Enterprise Connect, which is the primary trade show for the communications industry. All of the industry analyst reports on it are just phenomenal. I mean, 100% of them say great things about it, and we've had very, very brisk sell-through on that product over the first few weeks it's been in the market, and we expect big things to come. Although, it'll probably take a couple of quarters before it becomes material.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [11]

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Okay. And lastly, if tariffs go up to 25% on Friday or get extended beyond the current group of products that applies to, how does that impact you and what are your plans to circumvent that?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [12]

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You might imagine, Greg, we actually watch this one like a hawk and it's a place where we really do feel like Poly is uniquely positioned out there versus some of our competitors. As you know, we have a very unique manufacturing and supply chain set up where we have a considerable number of our products that we actually build in-house in a factory that we own in Tijuana, Mexico. We actually have some products that are manufactured in China, which would very much be according to these tariffs. And there's a third group of products where we have an additional set of contract manufacturers and ODMs across other parts of Asia that are not, of course, Mainland China. So across those 3, Tijuana, Mainland China and the rest of Asia, our ability to rapidly move products between those 3 really gives us a competitive advantage that we think very few people have. So we continue the scenario plan literally day by day on tariffs. If we see anything moving, we will lift and shift ahead of our competition we believe.

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Gregory John Burns, Sidoti & Company, LLC - Senior Equity Research Analyst [13]

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Okay. Do you have a sense of, from a financial perspective, like how many hundred of basis points to the gross margin the tariffs would impact...

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [14]

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It's impossible to know until we understand what the tariffs are. I mean, at the moment because of some of the exemptions around Bluetooth products, the tariffs are not tremendously material for us. It really would depend on how high they go, what products it applies to. And like I said, we literally, and I do mean literally, we scenario plan this everyday based on the latest thinking that we're seeing.

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Operator [15]

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Next question comes from the line of Mike Latimore.

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Unidentified Analyst, [16]

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This is [Vijay Devar] for Mike Latimore. Could you talk a little bit about your sales organization in terms of any restructuring going on, what update there? And given that your -- increasing your focus towards UC, I mean, should be more interesting to understand your strategy there?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [17]

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It's a great question, [Vijay], and I am incredibly proud of our sales team. So our major sales restructuring actually occurred during this last quarter. So we went from having the traditional Polycom sales team, the traditional Plantronics sales team, 2 sets of tools for tracking orders, for tracking sales leads, for tracking compensation on and on and on. In this last quarter we reported on, having planned for a couple of quarters after we announced the acquisition, we actually got through all of that. So we are a single sales team with a single set of leadership. All the accounts are sorted out, a single sales motion, one set of ordering and sales tracking tools and so forth. So at this point, we really did focus very, very much on making sure that we are ready to capitalize on the UC opportunity worldwide. Great sales team for calling directly on large named accounts, great sales team set up to call on the two-step distribution tier and make sure we're paying proper attention, along with regional salespeople that call on smaller customers within a metropolitan area. So all of that is behind us at this point. So any slight confusion that goes on during a reorg, we manage to get through and still turn in a very nice quarter, so we are very excited about that.

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Unidentified Analyst, [18]

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Good. Could you talk a little bit about your channel partners or channel network on expanding and any focus on geographies?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [19]

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Only at the highest level because we don't go into it too far. So Poly remains a two-step distribution company, meaning we have salespeople that are out there stimulating demand, explaining the Poly story to very large customers, be it a General Electric or somebody else you've heard of. But our fulfillment is 100% through two-step distribution. So we sell to the people you would expect, the Ingram Micros and ScanSources of the world, internationally in over 100 countries. They then sell in turn to a local reseller that actually is taking the product out, installing it and training the customer, typically. We did go through a channel rationalization to make sure that the Polycom and Plantronics coming together have the right distribution network but once again, that is behind us at this point and we're ready to rock 'n' roll as we move into the future.

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Unidentified Analyst, [20]

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Okay. And on the huddle room, it looks like there's huge opportunity here and also the competitors seem to be rolling out new products to capture this market. Now here's to note, I mean, given that you launched Studio, any other products do you have in the pipeline in that huddle room?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [21]

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Yes. So we try to be careful not to spend too much time on unannounced products, but the huddle room is a great opportunity, and it is the perfect intersection of Polycom and Plantronics DNA. All Polycom's know-how around video and audio with Plantronics' know-how around inexpensive self-installing, very easy to maintain products, this is a perfect sweet spot for the combined company. And you might imagine, we're going to play for keeps there and there'll be more than one product.

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Unidentified Analyst, [22]

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And maybe I can sneak in one more. Very close to the previous question, do you have plans for any true wireless product for the Enterprise?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [23]

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We actually have a fantastic true wireless running product in the BackBeat Fit 3100. We've learned a lot from that product, and you might imagine that wherever the enterprise professional goes, be it in the office or in the coffee shop on-the-go, if there's a preference towards a particular wearing style, be it true wireless mono or stereo, we're going to be there with fantastic products.

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Operator [24]

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Next question comes from the line of David Eller.

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David Luke Eller, Wells Fargo Securities, LLC, Research Division - Associate Analyst [25]

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This is David Eller from Wells Fargo. Just looking at your 2020 guidance, you've given a range on sales to grow 1.5% to 3.5%. And so as we think about that in relation to your long-term revenue growth guidance of the 5% to 8%, what would be holding you back from that this year? Is it just -- as you fuse the 2 companies together or are there other headwinds that are expected to hit this coming year?

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Charles D. Boynton, Plantronics, Inc. - Executive VP & CFO [26]

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David, this is Chuck. Thanks for the question. I would say, this year we're pretty bullish on the business overall, but we are in the midst of launching new products. A lot of the growth that you'll see in the long-term model of 5% to 8% is going to be on the heels of Studio at full ramp, along with all the other products being refreshed. This year is really about the transformation and completing the integration. And so while revenues are roughly growing 1% to 3.5% this year, the growth will accelerate, and we think that the long-term model is very attainable.

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David Luke Eller, Wells Fargo Securities, LLC, Research Division - Associate Analyst [27]

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Got it. And then as I look at the midpoint of the guidance, it looks like it implies a little more than 100 basis points of EBITDA margin expansion for the year. And so can you just talk through the sequencing of that improvement? So is it going to be more straight line? Or should we expect it to be more back half-weighted as those synergies kick in?

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Charles D. Boynton, Plantronics, Inc. - Executive VP & CFO [28]

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Yes. It will accelerate throughout the year. So we're pleased with our progress in synergy capture to date. We effectively, as of today, have fully realized all the OpEx savings, and so that will flow through in full force through the rest of the year. The COGS side, we're sort of about 25% captured to date in the P&L, and you'll see the balance of that really accelerate through the back half of our fiscal year and by the end of the year, we'll be sort of fully ramped. And then we'd also outlined additional savings and that you'll see throughout next year as well.

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David Luke Eller, Wells Fargo Securities, LLC, Research Division - Associate Analyst [29]

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Okay. And then, Chuck, in the press release, you talked about continuing to pay down debt. I think you mentioned that as one of your top priorities on capital allocation as well. As we think about the potential sale of the consumer business, would that be kind of the most obvious use of proceeds for that, for those -- for that asset sale?

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Charles D. Boynton, Plantronics, Inc. - Executive VP & CFO [30]

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It could be. It's not the high priority, it's not a reason for the potential divestiture. But I do think that's a fair assumption. If there are proceeds that are in excess, then I think we would look at delevering as a top priority.

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David Luke Eller, Wells Fargo Securities, LLC, Research Division - Associate Analyst [31]

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Got it. And then last question for me, if you could just provide little bit more color on the decline in voice for the quarter, was that primarily on the audio conferencing side? And maybe talk about Open SIP performance as well?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [32]

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Yes, David. So this is Joe jumping back in. A little bit of both the desktop and the audio conferencing side. So let me break those 2 down. So on the desktop phone side, remember, we have had a line of VVX phones that have been out for quite some time, a number of years, and then we put out a new line of VVX phones, the so called x50 line of phones, about 2 quarters ago. So right now, we are right in the middle of the transition with the service providers and UCaaS from the old VVX phones to the new VVX phones. Last quarter, we -- last quarter, meaning a quarter ago, we actually saw a nice bump where we were still selling the old VVX very briskly, and we were seeing some channel load in and early customer wins around the new x50s. Right now, we're seeing a little bit of the evaluation phase going on, on the x50s before those really start taking off here soon. So very temporary pause that is somewhat predictable, but we do expect to see the desktop Open SIP phone growth to be very much in the ballpark of industry growth rate again over the next couple of quarters. On the audio conferencing side, Trio, which is our high-end award-winning conference phones, just continues to sell very, very well, up about 50% year-over-year, just a fantastic product. A little lower in the -- in our conferencing phone line up under the Trio, some of the more entry-level products or little older haven't been refreshed in a while, and saw a little slower growth invade the overall growth there, but we see both of those businesses as being alive and well with just huge opportunities in front of us. Just a little bit of a pause in this quarter but nothing structural.

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David Luke Eller, Wells Fargo Securities, LLC, Research Division - Associate Analyst [33]

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Great. And then last question for me. The revenue growth you gave for the year, 1.5% to 3.5% growth for the year, can you talk through just your different segments, if there's anything to call out in terms of Enterprise, will it outperform that number or underperform or any color you can give on the different segment?

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Joseph B. Burton, Plantronics, Inc. - President, CEO & Director [34]

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I'll at least start there and Chuck can always chime in as well as we're going through it. So certainly, Enterprise headsets we expect to be a very solid grower for us, no real issue there at all. Consumer headsets are a little softer just in that the Fortnite phenomena is starting to play out a little bit and I think our competitors are primarily seeing that as well. So consumers are a little bit of a drag there if you will. Audio and video -- or pardon me, audio, both desktop and conferencing, we expect to be very solid for the year. Video is still in transition at the high end of the market. So we had a couple of quarters with our Group series products that were kind of double-digit down this quarter, then we bounced back up on the back of a few nice deals in the positive territory. We believe the high end of the market is still going to work through for a couple of more quarters and maybe be a little bit of a drag before we fully, fully have those products sorted out. And then, of course, huddle starts coming to the rescue a little bit as well as it builds.

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Charles D. Boynton, Plantronics, Inc. - Executive VP & CFO [35]

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And I would just add, in a ranking from highest growth to lowest, we'd start with desk phones, Enterprise headsets, and then video and services are lower single-digit growth and of course, we'll take consumer out of this equation for the obvious reasons.

Okay. Hearing no more questions. Thank you, all, for attending our earnings call, and we'll talk to all of you next quarter. Thank you very much.

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Operator [36]

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This concludes today's conference call. You may now disconnect.