Q2 2020 Earnings Call
Ladies and gentlemen, the steel Peter please call. So just kick into became momentarily until that time to like the place all musicals. Thank you. Please continue standby.
Ladies and gentlemen, thank you for standing by and welcome to the Poly Q2 fiscal year tiny tiny conference call. At this time, all participants' lines are no listen only mode.
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No that's a hand the conference over to your speaker today Mr., Mike I break head of Investor Relations. Please go ahead Sir.
Thank you operator.
Welcome to Polys financial results conference call for the second quarter fiscal year 2020.
It's Mike I Berg head of Investor Relations, and joining me today, or Joe burden, President and CEO , and Chuck Boynton Executive Vice President and CFO .
The information presented and discussed today includes forward looking statements were made under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Risks and uncertainties related to such statements are detailed in our most recent 10- Q1 0-K.
In today's press release and earnings presentation.
Throughout todays remarks, we refer to specific slides from our Q2 for 20 earnings presentation. This presentation is available on the front page of our Investor Relations website at Investor stuck Poly Dot com.
Unless otherwise noted all comparisons discuss today will be to the same quarter in the prior year.
You should refer to the materials, we provided today for an explanation of the non-GAAP financial measures discussed on this call along with a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators. The management uses to provide additional meaningful comparisons between current results and previously reported results.
And as a basis for planning and forecasting future periods. These materials are posted on our website under Investor Relations Web site at Investor Dot Poly Dot com with that I'll now turn the call over to Joe.
Thanks, Mike and thank you everyone for joining us today before I begin I wanted to let everyone know done on November Twentyth, we will host an investor day at our offices in New York City, We plan to review, our corporate strategy public some partnerships and provide a financial update.
As a result, this call may seem a bit shorter than usual.
For the past couple of years, we've been describing three market transitions affecting the unified communications industry. The move from on premises communication solutions to the cloud the move to open offices and the rise of mobile workers. These dynamics are playing out in the market as we predicted driving demand.
And for intelligent endpoints that can simplify and improved collaboration.
Probably continues to undergo significant transformation last quarter, we highlighted several issues that would affect our results for a couple more corners, well deeper than predicted the results today reflect the continued impact of an aging video product line disguise to teams transition China trade 10.
Actions in a softening gaming market.
As we work aggressively to manage through these issues. We're very excited to have announced a series of new products that reaffirm our leadership position across our core markets.
And just the past few months, we've announced the largest portfolio refresh in our company's history. Additionally, we significantly expanded the number of solutions, we offer with our strategic partners. This is an exciting time for poly this wave of innovative new products showcased the potential of poly and Cigna.
Inefficiently enhance the value we bring to the market into our key Alliance partners.
As we've noted in the past, we acquired probably come because we could see these major transitions on the horizon. Today. These dynamics are in motion and are dramatically reshaping the unified communications industry, creating demand for new services and endpoints to capture the full breadth of this market.
The opportunity, we created poly, which combines the deep scientific and technical acumen of Polycom with the customer focus and operational excellence of Plantronics, Our recently announced portfolio refreshed leverages. The combined expertise of these two technology leaders to deliver into.
Three leading innovation.
While these are still early days for our integrated company. We are already encouraged by the momentum we are building.
Our recent announcements provide some of the first tangible proof points of the strategic benefits This acquisition will deliver.
Within the video category, we announced the studio Exline a video solutions, we come by old feedback from large and small customers alike work closely with our alliance partners and we'll bring these new products to market in record time.
Video solutions are designed to be remotely managed and completely self contained requiring no PC in the room to function.
The studio WEX video bars are built to natively attached to cloud platforms, such as Microsoft teams and zoom as well as interoperate with any standards based video solution.
As we push to dramatically improve the meeting experience. These solutions incorporate breakthroughs and machine learning and artificial intelligence. The make video meetings feel more natural and collaborative all wrapped in a user interface that isn't as intuitive and easy to use as a smartphone.
Combined with the probably studio in the GE 7500, we now have a full portfolio of software driven video endpoints built on an entirely new platform.
This allows us to continually enhanced functionality through software upgrades, so as technology progresses and requirements to evolve we can continue to tailor the experience to individual in corporate needs.
With these new products, our video portfolio now delivers industry, leading experiences from the huddle room to the board room and everything in between.
Within the voice category, just yesterday at Microsoft Ignite, we announced our CCX family of desktop phones for Microsoft teams.
When combined with the VX line released last year, we now offer new or refreshed phones for small and medium sized businesses as well as large enterprise customers.
Additionally for Smbs, we introduced the trio 8300 conference phone and the D to 30, DECT wireless phone both designed for easy deployment by businesses on their own or working with their service provider of choice.
The combination of feature set some price points, coupled with advanced remote management capabilities means we have the ideal endpoint for every business use case.
Within enterprise headsets, we announced several new additions to our popular savvy wireless family.
With the new savvy office and you see series, we now offer more wearing styles for mobile in office professionals and are the first to offer DECT headsets with active noise cancellation to help employees focus on the job in hand, we continue to deliver headsets with industry leading features include.
Leading advanced Ergonomics superior audio quality and extended battery life, all while offering the broad a strange of headsets with active noise cancellation for the enterprise.
We view these new offerings as important opportunities for us to strengthen our strategic relationships.
Our solutions are designed to simplify the lives of our end users showcase our partners technology and expand the range of opportunities available to them. Let me walk you through a few of the highlights of how we're delivering for our partners.
When we announced the studio WEX family as Zootopia, We noted they were capable of natively running the zoom out without the need for a laptop connected to the device.
We believe this is a critical element of element of video deployments of any size, where remote management in standalone capabilities are critical rather than a pure bring your own device approach our studio acts in G. 7500 were disease designed with these requirements in mind, allowing are you.
See partners to succeed and accounts of any size.
At Microsoft Ignite, we announce new versions of the studio X solutions, specifically designed and optimized to run a native Microsoft teams similar to how it works with zoom the studio ex 30, and X 50 will be capable of running teams natively on the device with no need for.
Our PC. This functionality is critical to our partners as it continues to lower the cost for enterprise adoption and I T management of you see deployments.
With our comprehensive line not the of native video phone and headset devices.
We reinforced our position as the Premier end to end solution provider for Microsoft teams.
As these projects ship in volume and become certified over the next few quarters. We expect this to be instrumental in our returned to growth in F. Slide 21.
Last week in conjunction with eight by eight and Scansource, we announced the launch of cloud fuel a program designed to accelerate and simplify the process of transitioning from legacy on premises communication systems to cloud based solutions.
Before I turn the call over to Chuck I want to provide some context on what has been a difficult topline environment for us this fiscal year.
As we outlined on our August 5th earnings call and I took touched on earlier today, we continued to be impacted by our aging video products. The Microsoft teams transition in macro issues as we navigate these dynamics and prepare for the upcoming product transitions.
We're taking a number of actions to proactively manage our business.
These will include a leadership change in our sales organization and a reduction of channel inventory in the December quarter.
The completion of our comprehensive portfolio refresh.
And prioritizing costing cast management with a focus on debt reduction.
We expect the inventory reduction will have a material short term impact on our results. However, we are confident the recent product in partnership announcements combined with the other actions. We're taking this quarter will benefit our long term performance.
With our recently announced industry, leading new products, coupled with yesterday's announcement of a full portfolio of endpoints optimized for Microsoft teams. We believe we are nearing the end of a difficult period in our history.
We expect the balance of fiscal 20 to remain challenging but revenue and profitability will recover in fiscal 21.
We'll provide more color on the financials and just a moment, but I want to emphasize that despite the near term headwinds I continue to firmly believe that the future and growth potential for poly is stronger than ever.
In summary, these product in partnership announcements or just the tip of the iceberg in terms of what poly will bring to market over the coming years.
We believe the market transitions, we discussed when we created poly our truer today than ever the first round of new products is a major step forward and will allow us to capitalize on these market opportunities while focusing on innovative solutions that are not just compatible but add value for our partners.
With that I'll turn the call over to Chuck to discuss our financial results in more detail.
Thanks, Joe as I walk through the financials I'll be referencing a specific page numbers in the earnings presentation deck, where you can find the details along with additional information.
All the comparisons I reference will be to the same period in the prior year unless otherwise noted.
As Joe outlined our revenue performance was consistent with the headwinds we highlighted on last quarters earnings call overall, our non-GAAP net revenue of 470 million was down 10% year over year Slide 23 shows the breakdown byproduct and geography.
Consumer headset revenues were down 26% as each of our consumer categories declined in the quarter.
The strategic review of our consumer business continues to make progress.
Similar to last quarter, if we are able to consummate a transaction we expect it would close at the end of our calendar year within our enterprise business legacy Headsets voice and services declined while video endpoints and you see headsets grew on a sequential basis video rebounded sharply well enterprise.
As headsets were lower driven by declines in legacy products.
We have seen a pronounced decline in the products that are being replaced and upgraded while new products like studio and you see headsets are seeing nice growth.
The topline FX impact it was approximately 4 million negative, which was offset by a benefit to operating expenses of approximately 3 million for a negative EBITDA impact of 1 million.
Turning to slide 24.
Gross margins were down 80 basis points to 52.4% as geographic mix and pricing programs impacted our margin profile.
We do expect margins to improve overtime with a new product portfolio consistent with the long term financial model.
Operating expenses were down 15 million, primarily due to cost synergies lower variable compensation and favorable FX rates.
Going forward, we will continue to manage expenses in line with a business, but expect runrate operating expenses to be above the results. We saw this quarter.
Operating margins declined to 120 basis points in the quarter to 17.3% or 81 million.
This was below our operating target of 21% to 24%.
Moving to slide 25.
Adjusted EBITDA was 93 million in the quarter, bringing our trailing 12 month adjusted EBITDA to 399 million.
non-GAAP diluted earnings per share was $1.24.
Moving to slide 26.
We repaid 25 million of debt and ended the quarter with 201 million in cash and investments. This is roughly right on our corporate target of $300 million of liquidity, which includes our 100 million dollar undrawn revolver.
Cash flow from operations was 25 million in the quarter improving sequentially as outflows from integration restructuring have begun to step down.
As Joe touched on earlier, we are taking actions across the business in order to navigate the current macro environment and prepare for the significant product transitions ahead.
After careful consideration, we believe it's prudent to reduce channel inventory at this time.
As a result, we expect to reduce channel inventory in the December quarter by approximately $65 million.
This action will have a material impact on our third quarter and full year results and is incorporated into the guidance we are providing today.
Given the impact on our guidance, we do not expect to reach a net leverage ratio of three times EBITDA by the end of the fiscal year. We now believe we will achieve this target in fiscal 2001, which we will cover in more detail at our Investor day in a couple of weeks.
Once our channels stabilization is complete we expect to margins and cash generation to improve while integration and restructuring payments continue to taper off and working capital stabilizes and becomes a source of cash.
Turning to guidance.
For fiscal Q3, including a channel inventory reduction of approximately 65 million, we expect GAAP net revenue of 383 million to $423 million.
We expect non-GAAP revenue of 390 to 430 million.
Adjusted EBITDA is expected to be in the range of 33 million to 53 million.
non-GAAP EPS is expected to be in the range of one cents to 31 cents.
Looking at fiscal year 2020.
We expect GAAP net revenue of 1.72 to 1.81 billion.
non-GAAP revenue of 1.76 to 1.84 billion.
Adjusted EBITDA of 283 million to 323 million.
non-GAAP EPS of $2.94 to $3.74.
Our second half outlook does not contemplate the consumer divestiture or other associated cost reductions.
Finally, we want to say that we are committed to the long term financial model.
Well the short term has been more difficult than expected with the new products and continued cost reductions. We're confident that we can drive sustainable profitable growth with that I'll turn the call back to the operator to open it up for Q in a operator.
I'm sorry to ask a question you will need good press star one are no telephone to withdraw your question priced at powder Heskey.
Please standby, while the compiled looking on a roster.
Your first question comes the line to call me.
From Evercore.
Yes.
Thanks for taking my question guys I guess two for me if I may I'll first telephone Chuck if I go through the math on the full you a guide I think you guys are reducing the topline by about 170 million at the midpoint, but the EBITDA reduction at the mid bunch about 130 million or so we'll see a prior guide Julie just walk us through wide the detrimental margin than EBIT dollar so severe.
And importantly, how did they recovered as you go forward beyond fiscal 20.
Certainly admit thank you.
[noise] effectively what we're seeing is continued weakness that we had experienced both in Q1 and this past quarter, specifically with a legacy products. So you know we did see some strong growth in and you see and in studio, but the legacy products that are being updated.
Desk phones.
You are conferencing equipment.
Specifically, we are experiencing softness and we think that that will materially improve in the future not directly in Q3 in Q4, but into fiscal 2001 with the release of all the new products that are coming out we've released a few of them already and we have a whole flu of releases coming out here in the near future.
Got it and I guess, if I just follow up Neil maybe Joe or you could talk a little bit about what exactly are you doing with a channel inventory right. Now is it essentially things that have to be discounted to be sold other getting written off and then he asked the question would just be what's your conviction that 65 million channel reduction has the right number was this perhaps.
So getting more severe and how confident are what gives you confidence that this should be the lasota inventory reduction do you need to do with a channel.
Yes, let me start on that on that admit this is Joe So couple of things. So first of all as we kind of work through that these are products that we that we feel are still good products in the channel and we're not going to do excessive discounting to flush these out they need to flow through in a normal kind of way these products are selling.
Just fine, albeit a little slower than we thought.
Unfortunately, we thought the sell out was going to be a little stronger we built a bit more channel inventory then we than we would like but really as we look forward over the next couple of quarters, taking this 65 million out which if you do the math is broadly a couple of weeks of inventory out of the chance.
Ill.
We feel like is going to put us at the at the right amount of inventory in the channel going forward. Other reason, we can actually shortened this up is as we've actually pulled a lot of our manufacturing together in Mexico, frankly, we can shorten that supply line, a little bit hold less in the channel and.
Be able to be more more responsive to our customers as demand does does spike up overtime. So we think this is the right number.
Got it thank you I'll get back into queue.
Thanks Summit.
The next question is from Paul Silverstein from Cowen.
Hey, guys. Thanks for taking my question first off.
And I recognize you ought to give guidance for the third quarter previously, but if I looked at where our industry or roll through its worth regarding for now it looks like it was about $100 million shortfall in I don't know if you can answer the question this way, but I'll ask the question which is.
Oh, the 100 million can you portion where the short fall what drives the total hundred million dollar number piece parts of the and then I've got a couple of follow.
Sure Paul. Thank you. So in Q3 65 is effectively channel inventory and that is somewhat across the board.
And in terms of the the remaining amount that where that we've lowered it is more concentrated in a desk phones, and then secondarily into headsets and audio conferencing and did that I'd say the desk phones.
Is directly related to the skikda teams transition and audio conferencing and video is primarily the launch of the whole new suite of video products that we will go into production and hat and start to ship at volume in Q4.
Well I appreciate it if you already responding as my apologies, but looking at the video the new video platforms. The whole room of platforms in particular can.
Can you all just remind me remind us how many platforms now have into the marketplace, how many more than our to go.
And Joe and Chuck I Trust your commentary it sounds like.
And I guess, here's the question the weakness that you referenced in terms of the uptick thing. Okay are good but just not quite as much as you had expected or how does that also apply to these new video conferencing platforms, new smaller on less expensive platforms were one would expect the unit uptake pretty promise.
And then.
And what do you see going on there how much of this.
In there is larger question here I apologize, but how much of the weakness is company specific how much of this is macro in demand related.
Appreciate it thanks.
Yes, great Great question, Paul all take as much of that as I cant as I, possibly can enough I'm missing a piece just feel free to.
Yes, the follow up so once again, we think that broadly speaking the market is alive and well we've experienced some weakness for the reasons, we talked about we're getting impacted by an aging video product line Skype to teams transition I guess, a China trade tensions are a bit.
Macro of course, and then the softening gaming headset market, but let's say a zero on on the first two aging video product line and ski Skype to teams transition, which are somewhat interrelated. So first of all the they have our new video lined up which we've now announced all.
Yes.
But to be really clear the product that's been in the market for several quarters is our studio are probably studio product, which is a us be product. It's been out there since February or so and is ramping nicely. Although we've always said it won't be material to revenues before.
Our fiscal Q4 at the earliest so still satisfied with its ramp.
Its ramp in the market.
The next two products that we announced at zoom Topia with native zoom support on the product and then we announced the Microsoft variant this week at Microsoft Ignite.
Our our studio ex 30 and studio X 50 products. So these are video bars that run the that run the zoom out run the teams app natively on the product.
And also in or operate with any standards based video system out there. So a standard separate three to three those have been announced over the last couple of weeks fantastic early write ups on them, but a oh by the video industry analysts, but those products actually start ship.
Saying in mid December to January depending upon the product. So clearly no material effect on revenues really probably until our fiscal Q1. So those products are a bit out the last of video product that matters is our GE 7500 product we've been talking about for.
A couple of quarters once again shares the same hardware platform inside shares the same software. So it all so we'll get the native zoo native teams and the standards based interoperability. The great News is we're through building our IND.
Tire video line that we need to refresh our video products, we've announced the mall and we're shipping them either already or over the next month or so they'll take a little while for those to transition through we think between the new video products as they get end market.
The new.
The new teams native CCX phones.
And then a couple of little headset releases that are going on as well, we think were back to having a fully winning product portfolio.
That is announced built in starts filling into the channel, which should address which should address our weakness a couple of quarters out.
Between now and then you know we have two we have to live with the aging video products and the new ones trickling down a little bit.
Is that helpful.
Just working wrong as thank you all that offer some comments or in terms of quantifying where you were at with respect to revenue from the new video platforms or in both the initial quarter launch and then last quarter.
Can you give us an off the us aware that revenue was that this quarter.
Sure. So we don't disclose the specific number.
But the great indicator is our sales out quarter over quarter of almost doubled so we feel really good about how it's selling through the channel, which is the really really important indicator and a great leading indicator for the next products that are shipping in December .
So Chuck.
In the second quarter in the print preceding quarter, if I, if I remember correctly doubled.
Relative to the initial quarter launch and then it doubled yet again this past quarter.
Comment.
What last quarter, we talked about revenue doubling so this quarter, we didn't talk about sales out because it was still a brand new product last quarter. So it would have way more than doubled the prior quarters because it was a very small number in a sale out.
Now, we're seeing actually the products in market selling through the channel and gaining some real nice share and accounts like CDW and others.
All right uppers and responsible vessel thanks.
Thanks, Paul.
The next question is from my time Marshall from Morgan Stanley .
Great. Maybe first question for me is just on the head of sales transition you know have somebody new been put into that spot and just.
Are they from within the company outside the company, maybe starting there and then second question, maybe just piggybacking on Paul's question of.
We take kind of the 100 million topline impact from this quarter and a 65. It was channel inventory and 35 is from other products that would imply kind of 80 90.
Guide down for Q4, where there is that kind of an accompanying.
If it like inventory corrections I guess I'm, just wondering Mike why it gets worse than Q4, particularly as you have a lot of new products out where you've made a lot of announcements baby prior to them coming out.
I would have expected that there would have been kind of some pent up demand for them and that you wouldn't have had to wait so long for there to be I'm revenue on some of those products. Those are my too. Thanks.
Yes, Hi, Matt This is Joe I'll take the sales question, which is relatively easy and then and then let Chuck lead off on the on the numbers here in a minute. So first of all to be real clear, yes. The head of sales to the head of sales is a has departed the company we have not identified a permit.
<unk> head of sales yet we have several strong candidates in the pipeline, we're working with an external firm and we think we'll make a higher there over the next few weeks when the time as appropriate in the meantime, I'm I'm personally driving sales so the three theater lead sale.
As operations in a couple of other folks are reporting to me.
While I don't intend to run sales permanently I want to get a great sales person then at the right time. This is the third time in my career that I've had sales reporting to me for multiple quarters on and.
Driving that so.
Certainly a move I'm very comfortable with in the short run and.
Look forward to working with all of them to really drive our sales out correctly. During these product transitions hopefully that helps and I'll, let Chuck answered. The numbers question and then you can always come back if there's more on sales go ahead, Jeff great. Thank you me to.
So a year ago Q4, we did $48.8 million in revenue and if you just run the math the midpoint of the guide for Q4 would be for 55. So it's about a 30 million dollar.
Reduction year over year.
A portion of that is consumer and again, we are in a strategic review process. We've included consumer so far.
In our forecast, but understand that the consumer drop is relatively immaterial in that reduction.
The great news is that in Q4, the new some of the new video products are coming to market. The bad news is we don't have a huge amount of supply allocation in Q4, a lot of the higher volumes start ramping in Q1, but we will be having the new studio ex Thirteenx 50 us selling into the channel in Q4.
Recognizing some revenue, but not as much as we'd like given the supply constraint.
So the actual as you know I'm not sure your exact model, but as we look at kind of year over year. It is down 30 million a big portion of that though as consumer and then as we get the new desk phones and team certifications, we expect that those revenues will recover.
Got it thank you.
Next question is from Greg Burns from Sidoti and company.
Yes, just.
Question on the cash flow.
Working capital continues to build.
Cash flows a little weaker as a result, this quarter than we were expecting.
Yes.
How should we.
Looking at that when do we see the working capital.
Filled turnaround.
Yes. Thanks.
Hey, Hey, Greg I think I heard most of what you were saying it was a little faint, but if I can if I can pieces together. The question was around the working capital build how do we think about the statement of cash flows.
So we had a pretty strong cash quarter, a little better than our outlook, we generated 25 million a cash flow from operations. Our free cash flow was 22 million, we were able to use that cash to then pay down our long term debt by 25 million, we did that even while working capital increased approximately $30 million.
That increase quite frankly is because our sell through was a little lower than we'd expected and so our inventory went up a little bit.
A our I believe went up a little bit as well both of those we expect.
We will improve significantly in the long term. So we think that working capital will be a source of free cash flow materially inventory, probably will not improve much in Q3 because of the channel inventory reduction plan, but we do expect our on hand inventory to significantly reduce in Q4 once this the.
Channel is stabilized we do expect a our to improve materially in Q3.
From a cash generation standpoint, but again it is our biggest revenue quarter. So the total a our balance will go up but we believe that the overall our turns metric should improve hopefully that answers. Your question, Greg if not maybe you could repeat because it is a little faint.
Got it.
Yeah, I guess you focused a lot here on the.
The aging video product portfolio, you did mentioned, China little bit did come up last quarter can you just.
Maybe update us on on what's going on with China, if that got any worse in the quarter here and is that part of the reason for the.
No I would say a couple of things one is on China has been difficult we've highlighted macro trade tensions et cetera.
We have a reasonable services business with okay margins in China product sales have been modest we did launch a four product made in China for China product last quarter called the G 200, we didnt announce that here because it's a China only product that did sell out the limited quantities that we.
Absolutely leading indicators were somewhat.
As a live but China is really been a very difficult market for us and we don't expect that to turn around in the near term.
Okay, and I guess last quarter, you put a number on.
Revenue in China.
Yeah.
So on that.
It roughly inline with last quarter.
Alright, thank you.
Thanks, Greg.
Next question is from David Taylor from Wells Fargo.
Hey, good afternoon. Thank you for taking the question.
Chuck you've been in the seat for a couple months and I wondered if you could talk about just your view on visibility into the business.
I think when you know into Polycom transition or the transaction was announced.
Expectation or should get some additional visibility into a couple of quarters for years, but if you could just talk about that and then also you called out the transitional factors, but also kind of some self inflicted wounds from.
Projections any other self inflicted ones to call out in the quarter.
So I would say visibility you know, we've we've been struggling a bit it's obvious last quarter in this quarter been too difficult quarters.
Built channel inventory and we are now taking it down our inventories have gone up we want those to go down so I would say the integration has been a little more challenging than we expected. We did highlight sales integration challenges last quarter.
We did make a leadership change in the sales organization. So we do expect.
To improve visibility, but it has been I'd say, improving but not great Joe and I are very very focused on improving our ability to forecast the business. What I would say is we're proud of the team and the work they've done a launching these great new products and the early indicators are quite strong with.
With arch all of our on a go to market partners and so we expect that invisibility will improve we still think that we have its helpful. A couple of tough quarters ahead of us, but we're bullish certainly on a 2021 and we look forward to talking about 21 at our analyst Day November Twentyth.
Okay, and then any thoughts on self inflicted ones on the quarter that were outside of the teams trends are shown on the China and the aging product line.
You know I think those are broadly yet I think when we talked a quarter or so ago, we talked about there being significant integration issues at that time and that there might be some overhang this quarter.
Maybe a little overhang, but not materially I think where.
So out has been a little bit weaker than we thought.
Primarily due to the aging products and the frankly, the teams transition going even faster and more powerful than we thought interestingly that goes from being a detriment a when we have old products and it really becomes a positive as soon as the new products are in market.
Unfortunately, we're on the wrong cited that CASM for another quarter or so here, but no other than just some normal integration stuff no.
No huge things I guess, the only while the one I might note a little bit was.
Some discounting related to some of the aging products that we thought would stimulate demand and frankly, maybe did not stimulate quite as much as we would like so we may have given a little money away, we shut knows and that's always painful but no nothing material.
Okay, and then can you go back to the earlier question on the revenue.
Production revenue guidance somewhere under 60 870 million in EBITDA guidance came down a 135 could you just put a finer point on that again of why the.
The decremental margins are so harsh.
Certainly from a margin standpoint on.
Theres a couple of things that are happening one is when you have less products being manufactured there's a overhead being absorbed into fewer products. So that is one factor. The second is the discounting as Joe mentioned, given the the age of the products.
And so there's some other items in there as well, but effectively most of the.
Margin EBITDA reduction is tied to a lower volumes that would be to clear out channel inventory as well as adjusting to the reality of the age products.
Okay and then.
Could you talk about them and the slide deck you know you.
This slide that has to be long term growth rates for each one of your segments. You know there's no change this quarter versus last quarter, but could you just give us an outlook on or an update on you know any changes in those end markets and then also could you put a finer point on the outlook by business line for this year and what's implied in the 520 gone up till now.
Revenue.
A little bit this slide we intend to talk about us significantly at analyst day, So while port <unk>, Joe May want to add some color here, but we do planning going in detail into each of the categories. And then also talking about fiscal 21. So.
That is a key part of our topic in two weeks.
Yes, only thing I would add look looking at this slide and obviously as Chuck said, we'll have more color in a couple of weeks. These are still essentially the industry growth rates I mean, a couple of them may have shifted up a point or down a point, but those are the growth rates.
Once again as we refreshed our product line fully which we've announced all of 'em, we get all those in market over the next couple or three quarters.
Next couple of quarters.
Our ability to compete for these growth rates. We think is reasonable now the exact color on which ones. We think we'll do a little worse, which ones. We think we'll do a little better based on geography, and whatnot more to come at the analyst day, but we do see ourselves in a position to compete for these kind of growth rates very comfortable.
The with the new with the new products overall.
And then outlook by business line, that's embedded in the 20 guidance.
So, we'll certainly cover that in detail, both 20 and 21.
Mentioned earlier, we see you see headsets, having strong growth studio having strong growth.
And then desk phones being the most challenged in the short term along and then secondarily audio and video conferencing.
Great. Thanks for taking the questions.
Thanks, David.
Your next question is from Mike Latimore from <unk> capital markets.
Hi, This is Jay therefore, Mike Latimore, Thanks for taking my question.
That's what I'm just not products up now you plan to release the for the rest of this fiscal year.
Well.
Sorry, I didn't fully understand VJ, what about the products were going to release the rest of this fiscal year.
Which are they.
So couple of things once again as we thanks, Vijay I understand now so one of the things I, even with a tough top line environment. So far this year for us I'm really excited that by the end of this calendar year, we will have refreshed every major product out poly every major.
Plantronics product every major polycom product refreshed and on target for the industry.
Quick recap over the last year or so we have obviously refresh many many of our headsets, we've put out our new VX 50 line of phones, we've put out the studio use to be product. We were talking about earlier, that's ramping very nicely and we put out the G. Seven.
The 500, our modular flagship video product. So all of those we've already executed on over the first year or so of the.
Of the merger.
Over the next few months, we've announced them, we'll be putting out our studio ex video bars that natively run zemin, Xu Microsoft teams and inter operate with.
Standards based video systems and these are fantastic products I expect these to really be industry leaders in every way and if you go out and look at what's been written about them. So far I think the market agrees other new products still to come out are the CCX phones, which our premium phone line does.
And especially for Microsoft teams Fabulous phones, I got one on my desk and it's a good one and several new headsets that we've announced that are also either updated general market headsets or specific ones dedicated for Microsoft teams anyway, you want to look at it.
Every single product, we have we think is refreshed and at or above market in most cases above and a little bit of a plug for the analyst day, we talked about.
The vast majority of these products will be available at the analyst day for you to see demos and even touch and feel for yourself.
No that's.
Good and comment on the demand from the Microsoft Cisco and on our via the environments and.
Sure I mean, how do you look at the some now given that it aided wind up nine December quarter or in the subsequent quarter. So although they have been will now be at tailwind art, It's oh will that be.
And challenge for the next couple of quarters.
You bet, let me take a let me take a avaya and Cisco first and then go to team since it's a longer answer.
Avaya and Cisco are great partners in the industry for the most most part we still sell a fair number of headsets with both Avaya and Cisco in particular into the contact center, but also with their unified communications products No real change there, even though they both have a few here.
Headsets, we continued to be interoperate, inder interoperable with them.
I know just a couple of weeks ago. Some of our latest products went up on the Cisco website as fully as fully integrated and tested and compatible so those partnerships remain alive and well.
On the Microsoft teams side, we participate across all four of our major enterprise product lines enterprise headsets that are compatible with teams.
A desk phones that are compatible with teams conferencing phones that are compatible with teams and video that's compatible with teams to be clear our headset business has done very well during the skikda teams transition those products state compatible the whole way.
We were out in front on our development roadmap and our testing all good. So we do wonderful with Microsoft teams with our headset business.
It's the phones in the video products that we fell just a little bit behind on our timeframe and frankly it was an interesting bet and I was a big part of it we decided not to be first to market, we decided to be best to market. There are ways, we could have got out there.
There with early teams products, but it would have set back getting out the solutions. We really wanted to have that we thought our customers is demanded and deserved those products are all announced and coming out.
In Q3 will continue to be a tough quarter with teams on phones and video Q4 will be a mixed corridor because those products will be beginning to ship in volume and we really think we're out in Q1 in Q1 Q2 before we get the full effect of having the best.
Portfolio, Oh, I see on the headset side, we actually have 12 team certified headsets out there on the Microsoft Web site right now.
Hope that helps.
Yes, definitely I think we'll take a we'll take one more question.
Thank you. The next question, it's probably for hot Rod from Cowen.
Hi, Thank you for taking my question.
I don't want to visit the competitive dynamics that you are seeing and if you can comment on.
One you know who recently invested in eight.
And Cisco and Microsoft collaborating on team is.
So seems like two very interesting development somewhat competitive landscape that.
Could potentially present, a competitive headwinds to you guys.
I'm wondering to what extent youre beginning to.
Thank you for some of that in your outlook and how we should be thinking about.
These new shifting.
Collaboration partnerships.
In the marketplace affecting you guys.
Yep.
Great Great question happy to go into it so when we put poly together and we talked about these three market transitions of on premises communications moving to the cloud the move to the open office and the rise of mobile workers literally taking the $40 billion every year communication.
Adds industry and turning it on and we did not think we were going to be the only company to notice and want to compete in that so we're not surprise these things are happening.
Frankly, we predicted a company like neat.
Occurring.
Based on what was going on out there I'm clearly I know the leadership of that company I know some of the engineers they build a a decent single product.
Frankly, we intend to out execute them and get the Lions share of the business was zoom period, the end to the Cisco and Microsoft announcement, if anything once again, we see this as a.
We see this as kind of proof of our idea that people are going to use different systems. We say the reason probably is going to win is because at one point and today you will be on teams later, you'll be collaborating with somebody on zoom and yet later in the day, you're likely to be on Cisco or go to meeting or who are who.
Knows what we're building endpoints for that market, what was actually announce between Cisco and Microsoft.
Was cloud video interoperability or CVI since industry term, Microsoft actually published a blog today, saying that what this really says is if you're in a Microsoft call and Osisko call you can at least lash those together and insight.
Each other.
Frankly, it mentions in the same blog that they are now doing this with Cisco that they've been doing it with poly for years and that they do it with blue jeans.
And picks up as well that's who it was so this is really just basic interoperability and the on in the industry, which we fully support and encouraged because if we can get every body using video on every on every call. Obviously it just grows the market thats great for all of us.
If I could push you on the last piece in terms of how.
Okay. So what I'm looking at it and maybe I am told you all see you can correct me.
Is it.
If I Cisco end device of Webex room device can connect to eight teens meeting perspective, it could extend the life.
Ben and the value of.
A fiscal end devices and enterprise would probably be lesser look didnt, who would be less.
Looking to upgrade their devices when they shift to a team for example, so wouldn't that be a negative thing for your business.
You know, Microsoft So I understand your thesis and it and it's not unreasonable. So I think you're thinking about that you're thinking about it in a reasonable way. If you go look at everything Microsoft has to say everything zoom has to say ironically everything Cisco has to say.
Going forward, it's all about native experiences Microsoft is pushing that when you move to teams you should get a need of teams endpoints. So you can get the full teens experience rather than rather than getting a basic interoperability so Microsoft.
If there is going to be in those accounts pushing for a native solution. The only end to end provider of native solutions for Microsoft teams as poly.
Well there might be the occasional deal that gets delayed a little bit it's a big big market out there I.
I think you're talking about the relative corner case, as we break it down and boy we have of somebody that is aggressively going to teams and has fairly new Cisco equipment.
Would be the part of the market to get that might get stalled by this but that is.
Already baked into our growth plans and we still feel very good about where we're headed nicely get through this transition.
I greatly appreciate you assets if I can squeeze one last question and.
Can you tell us or maybe quantify for us how big your video installed bases. So we can try to at least model and some.
Operating revenue over the long term from this video refresh.
I'll be honest I'll be honest farhat I'm going to punt on that one because I don't have a I don't have a good number at my fingertips right here.
Appreciate it. Thank you so much of your answers.
You have excellent okay, well. Thank you all we look forward to seeing many of you on November Twentyth in New York at our office for our annual Analyst day. Thank you have a great day bye bye.
Ladies and gentlemen, which includes todays conference. Thank you for participating you may now disconnect.
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