Q3 2020 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the fall, we worked or lead conference call.

This time, all participants I didn't understand all the more.

After the speakers presentation, there will be a question and answer session.

Last question during the session, you'll need to press star one thing or telephone.

We can get bikes that todays conference is being recorded.

According to forget assistance, Please press star zero.

No like plan to confidential, but to your speaker today Mr., Mike I think you. Please go ahead Sir.

Thank you operator, welcome to Polys financial results conference call for the third quarter fiscal year Twentytwenty. My name is my Guy Burke head of Investor Relations and joining me today, our 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 in today's press release and earnings presentation.

Throughout todays remarks, we will refer to specific slide pages from our Q3 420 earnings presentation.

This presentation doesn't made available on the front page of our Investor Relations website at Investor stopped Poly Dot com.

Unless otherwise noted all comparisons discuss today will be to the same quarter in the prior year.

You should also you should also refer to the materials, we provide 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 that 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 Investor Relations Web site at Investor Day, Poly Dot com with that I'll now turn the call over to Joe.

Thanks, Mike and thank you everyone for joining us today I'd like to begin on slide six.

Well the results and outlook posted today do not meet our expectations. We are implementing a series of plans across the business to address the underlying issues and returned to growth.

Few quarters ago, we discuss sales integration in channel consolidation issues impacting revenue.

In addition, we talked about the impacts of long existing product lines within our portfolio disguise. The teams transition trade issues in China and volatility in the consumer gaming market.

While the impact has been more severe than anticipated we are aggressively working to address these issues. This quarter, we hired a new head of sales launched our new product portfolio and today, we're announcing the divestiture of our consumer gaming business.

Looking at our Q3 financial results Enterprise revenues fell short of our guidance expectations by approximately $5 million with particular weakness in headsets walk consumer was below expectations by approximately 13 million.

Additionally, as we outlined last quarter, we reduced channel inventory by approximately $60 million.

The decision to reduce channel inventory was driven by the previously mentioned product transitions sales integration in channel consolidation, we've generally achieved the inventory reduction goals outlined last quarter.

To improve our sales execution I'm pleased to announce that Carl we see has joined poly as our new head of global sales.

It comes to probably with an impressive track record in enterprise sales at a number of notable companies, including Blackberry and Cisco He will be key architect of our efforts to drive profitable growth and we're excited to have him on board.

Next we have signed a definitive agreement to sell our consumer gaming portfolio and expect this transaction to close in March the balance of the consumer portfolio will be reviewed and optimized over the next few quarters.

On the product side, we're now shipping nearly all of our recently announced next generation portfolio, including the studio X series, a video bars in the CCX line of Microsoft teams phones, we anticipate revenue contribution from new products to be modest in Q4.

And then ramp through a flight 21.

Moving to slide eight this new portfolio was designed to make the transition to unified communications effortless with an intuitive and simple user experience. These products are designed to capture the opportunities created by the three major market transitions driving the unified communications industry.

The today, specifically the move from on Prem communications to the cloud.

The move to open offices and the rise of mobile workers. We are encouraged by the positive feedback and traction our new solutions are getting from both end users and Archi Alliance partners.

We continued to strengthen our offerings with these partners as RCC X 400 in 500, Microsoft teams phones have completed certification and are now shipping for revenue.

Additionally, we're now shipping a number of new headsets within our savvy, Voyager and encore pro product families.

Many of these have already been Microsoft team certified and most along with our studio trio in Callisto solutions are now certified are supported by Jim.

Our zune certified voice video and hedged portfolio now represents the broader set of them points that officially support zoom meetings and zoom phone.

We have included a reference table on slide 15 of our recently announced new products and their status as it relates to availability and certifications.

Well the results have not been what we expected with our new products shipping and our new head of sales on board. We believe the pieces are now in place to drive the company forward and capitalize on the growth in unified communications as we progress through F. why 21 with that I'll now turn the call over to Chuck.

To review the financials Chuck.

Thanks, Joe a financial summary is provided on slide 17, <unk> non-GAAP revenue was 392 million and includes the reduction in channel inventory of approximately 60 million.

This reduction affects all product categories, making comparisons to prior periods difficult.

As Joe noted, we have entered into a definitive agreement to sell our gaming product lines to Nick on a French strategic buyer sales, an all cash transaction for certain assets and liabilities of the business. The overall cash proceeds are immaterial to our financials and a specific terms are comping.

Central.

We expect this deal to close by the end of March. In addition, we're currently working to optimize the remaining parts of our consumer business. As a result of these actions we've taken gap charges for restructuring and consumer optimization, which we expect will improve our working capital and earnings over time.

Moving to slide 19, as expected gross margins were impacted by lower manufacturing volumes across our fixed cost base as we executed on our channel inventory reduction program.

We expect to see a similar impact to gross margins in Q4 seasonality impacts volumes and new product availability remains limited.

We also saw incremental tariffs primarily related to consumer products. The December quarter included the full impact of list for a tariffs at 15%.

In the coming quarters, as we execute further product cost reductions and continue to optimize our consumer portfolio, we expect the tariff impact to be largely mitigated.

Operating expenses declined to 18 million, primarily due to cost savings from previous restructuring activities and lower variable compensation.

Operating margins declined 9.6 percentage points in the quarter to 8% or 31 million.

This is due primarily to lower sales volume.

Adjusted EBITDA was 43 million, bringing our trailing 12 months to 336 million.

Changes in FX rates negatively impacted revenue by approximately 4 million and partially offset by a benefit to operating expenses of 2 million.

Turning to slide 20.

GAAP operating expenses include 22 million of restructuring charges of which approximately half our noncash or facility related charges and approximately 5 million of severance charges related to the sale of our gaming portfolio and other consumer optimization activities.

Non-GAAP diluted earnings per share was above the midpoint of our guidance range at 30 cents, primarily due to a tax benefit which increased EPS by 10 cents.

Moving to slide 22.

Free cash flow was impacted in the quarter by the reduction in channel inventory now, but we have materially reduced channel inventory, we will shift focus to reducing on hand inventory to unlock working capital.

Through working capital management, we expect to repay 50 to 75 million in debt by the end of March.

Additionally, we have freed up foreign trapped cash and can now operate the company at a lower level of cash, including using the excess cash to pay down debt.

Regarding our debt covenants with the cash on hand, and continued cost reductions we remain confident in our plan going forward.

Turning to guidance on page 24.

For fiscal Q4 with the upcoming sale of gaming and optimization of consumer we are providing additional information on revenue guidance.

In total we expect GAAP net revenues of 354 to 394 million and non-GAAP revenues of 362 400 million.

Slide 25 provides the breakdown of this range between enterprise product lines and consumer products being sold are optimized.

If you adjust for the impact of the Q3 channel inventory reduction enterprise revenues are forecasted to decline sequentially.

This is partially driven by seasonality from Q2, Q4, Q3 to Q4 as enterprise products sold through the channel historically decline approximately 10%.

Finally revenue was also impacted by our actions around the consumer business.

Continuing with Q4 guidance total adjusted EBITDA is expected to be in the range of 20 to 45 million and non-GAAP EPS is expected to be in the range of a loss of 36 cents to a profit of 19 cents.

Touching briefly on the Corona virus, which has been a news lately, although much of our manufacturing has moved in Mexico, We still source many components and some products from China. Given this we have contemplated the impact of component delays within our guidance ranges. We believe the guidance we are providing today can accommodate a.

Modest delay in the supply chain of a few weeks a more severe impact has not been contemplated at this point.

Finally, we are actively managing the business through the short term transitional phase and expect to return to growth with our nexgen portfolio in fiscal 21.

With that I will now turn the call back to the operator to begin QNX.

Operator.

At this time, if you would like to ask a question you May Press Star then the number one on your telephone keypad.

Again, it's star Wars telephone keypad, well pause for just a moment to comply with you any roster.

Your first question comes from the line Amit Daryanani. Your line is open. Please ask your question.

Thanks, a lot guys I guess just start with <unk>, Joe maybe for you on the revenue line. All you know what I still don't look at the revenue declines a down like 25% in December down low twentys opting in March I'm, just talking about how much of this revenue declines you're seeing in December and Big India Guide is reflective of the channel inventory diner.

Makes worse is what the true and underlying end demand trends are I'm, just trying to get a sense of what the end market trends looked like especially as you get into the March quarter.

Yeah, you bet all love all talk about it if Chuck has anything to add filled he can feel free to jump in so of course as we mentioned we did a we did take out about the $60 million of channel inventory as expected from the midpoint of our guide on the end.

Her price revenues, meaning our b to B revenues in general we were maybe $5 million off our mid point with <unk> off our mid point with particular weakness in enterprise headsets and that actually corresponds to actual sell out as well on the concern.

Merseyside no surprise, we were particularly weak having announced that we were.

Looking at strategic options for that business. So broadly enterprise hung together was about what we were looking for except for a slightly disappointing headset number and then particularly weak on consumer as we look to guide and.

As we look to guide Q4 couple of things first of all as Chuck mentioned.

In our enterprise business, we always see a seasonal drop off of our fiscal Q3, two our fiscal Q4 of as much as 10%. So we tried to guide very prudently on the enterprise side, we guided the 10% drop off.

That that always happens quarter on quarter, plus a little bit of additional weakness related to product transition and sales integration of course on the consumer side, it's a bit more but difficult to have compares with a part of the business being sold hope that helps.

No that's helpful and if I was just follow up all youre on the inventory side or is it fair to think that the channel inventory at this point is imbalance in jet largest speaking where you wanted to be <unk>. That's one part in the second part I guess is how do you think about your on working capital metrics broadly.

And inventory within Dod and how does that shake out of the free cash flow generator for you as you go through fiscal 21.

Yeah, great questions, Matt So first of all on the channel inventory, we're satisfied with where with where our channel inventories are at this time. So we took the appropriate amount at all given the product transitions that we have coming up and we feel that all that's very manageable internally, we're always looking too.

Optimize our inventory management and our working capital. So we do see our internal inventories continuing to be managed even tighter as we go forward over the next few quarters, but we got to be careful there to to make sure that we can do our product transitions correctly.

That's it for me.

Okay. Thanks for that operator, well take the next question.

Your next question comes from the line up math on Marshall. Your line is open. Please ask your question.

Hi. Thanks. This is Eric on for me to maybe just looking at you launch the new Microsoft teams product do you see pent up demands for the pent up demand for that product and how should we think about the pace I know you said growth in 2021, but.

Just as we're kind of working in forecasting the how quickly that starts to ramp.

Yeah. Yeah, you bet. This is Joe I'll go ahead and talk about that so first of all its been a long time common and I got to say inspite of the financial results I could not be more pleased with our recent execution on the product side, we think our new headsets that we brought to market for.

Or Microsoft presume and for others are spot on the new teams phones. This CCX 405 hundred.

And the new probably studio ex 30, a next 50 products are all I'm really really good products. So we see a you asked about pent up demand, we see strong demand for the products.

They are selling well however, we're in a normal product ramp on a new product introduction. So we are supply constrained not because of any problems, but just because of the way they ramp, but we do expect those products to sell a very well over.

Over both Q4 to the extent that we have product and then even more early in the next year as supply loosens up.

Thank you and then maybe just quick on the Divesture of the consumer gaming business.

Well the proceeds of that sale will be enough to go to some debt pay down or do you have other plans, maybe you could just rightsize the expectation there.

Yeah, Eric This is Chuck I'd say two things one is on you know the cash proceeds or are fairly immaterial, but we are applying excess cash to de levering and paying down debt. A importantly, as Joe mentioned, you know, we expect our inventory levels to come down overtime.

And that would be a source of cash to also help pay down debt. So the short answer is yes, but it's not that material.

Got it thank you.

Your next question comes from the line Greg Burns. Your line is open. Please ask your question.

Good afternoon.

Just to.

Follow up on that last game in question can use let us know how much revenue that gaming business accounts for and.

The margin profile those products or.

Sure Great your little faint, but I think your question was the margin or the revenue profile of gaming and margins. So we've included some supplemental tables and the earnings materials to effectively help show.

The consumer revenues that represent gaming as well as the other products that are being optimized and so I'd point you to the supplemental deck that the revenue for the quarter for Q3 was 30 million and our expectation for that line in Q4.

Our is 13 million and so the.

That gives you a sense of how much is gaming plus the other consumer businesses that we're optimizing.

Okay. So that the Q4 guidance excludes gaming as like a discontinued operation.

The Q4 Guy does have some gaming revenue built in because we do we expect to deal to close at the end of March. So there is some gaming, but as you will note it with that industry, specifically that the March quarter is typically the low point given the a the holiday.

Seasonal rush so its a.

We've been in but as we've been optimizing we have been a you know sort of or reducing and.

Taking various products and skews to make sure that we're optimizing the cash proceeds of those product lines that in the future. We may decide to end of life or discontinue.

Clearly the gaming products will be selling to an icon they'll be carrying those forward and a and then the balance we'll talk to you in a lot more detail next quarter. Once we have gotten through our optimization plan.

Okay and then in terms of the Q4 guide on the enterprise side of the business.

I understand there's a little bit of.

Actual seasonality on that side of the business, but this quarter you also had a $60 million drawdown.

And.

Channel inventory.

I guess.

Into a sequential decline awful.

That number which includes that unusual drawdown of inventories I'm just trying to understand.

I guess the demand dynamics in the market why why are we still seeing revenue.

Declining in the fourth quarter, even though we had this kind of unusual channel inventory adjustment in the third quarter.

Yeah, I think I understood, Greg you are coming and going a little bit, but it sounded like generally.

Over and above the step down from Q3 to Q4, that's normal still sounds like a down guide.

It's still sounds like a don't guide overall when you consider the channel inventory step down.

You know I think as I mentioned a minute ago. The real key there is it is a little bit of a guide down over and above.

We're trying to be very cautious during this.

Product transition now most other onward during these product transitions as some of our older video and foam products that are still selling well.

Are going to be in the market at the same time with some of our new products that we've announced like the CCX phones their native for Microsoft teams. The studio ex 30 annex 50 for zoom and Microsoft and others were just trying to be appropriately cautious to make sure that we can manage through.

All of the mix around that well. We're also frankly, finishing some of these sales a integration issues that we talked about previously.

Okay, and then just lastly on the debt covenants could you, maybe just give us a little bit more.

Perspective on that why why you feel that you're still going to.

Yeah, and compliance with your debt covenants despite the.

Yep.

Certainly Greg. Thank you you know so you know we have a number of tools available to us and so you know we are actively managing the business weekend effectively you know pay down more debt with cash on hand, we're going to generate cash with a working capital and driving inventory down.

Well, obviously, you know looked at cost reduction both on Cogs and Opex and then notably you know drive revenue to improve EBITDA and cash flow and it you know the thing I think is that the thing about the loan covenants are part of the revolver and they have specific features of add backs.

And so I think with you know the tools that we have and the debt agreement and our you know our outlook in the business. We feel that are that we are our plan is as workable and that there's not a and underlying issue.

Okay. Thank you.

Thanks, Greg.

Next question next question comes from the line Paul Coster. Your line is open. Please ask your question.

Yeah, I'd like to follow up on the prior questions and a it feels little bit like there's a tail wagging the dog Kirin sums up the in been street drove down is it primarily to beef up the cash to manage the debt.

Or is it.

To do the product transition.

Since both things that you're trying to do at same time could you elaborate please.

Hey, Paul This is Joe So I'll talk to the first part of it the product transition and the a appropriate amounts of inventory to have out there during a product transition and then I'll let Chuck.

Talk to cash management.

To be very clear the reason for driving a inventory down a bit in the channel over the last quarter was all about getting ready for the product transitions that we feel that we need to do.

In order to compete and win in this industry over the next year or to the old products, while very very good are different than the products that we need to be doing fantastic work with Microsoft zoom and the rest of the cloud connected unified communications market. So we brought.

Inventory down a bit to make sure we were in exactly the right spot as these new products are flowing in.

Had nothing to do a cash management all love, let Chuck talk about cash yes, Paul If you go back and look at the company's historically, a you know even individually or the inventory levels were much lower than where they are today. Our inventory levels are below four turns and if you looked at best in class It would be eight turns our target.

Would be out between six and eight turns.

Today, we are less than than four.

And the backdrop. There is you know our ending inventory was 215 million. If you went back a little more than a year ago. It was you know below 150 million and our belief is that by moving products from southeast Asia to Mexico.

By a exiting a part of our consumer business that effectively we can drive inventory levels down and that will generate a lot of cash and so I. My personal feeling is that our inventory levels have drifted up and we need to get those back and check to where a you know the you know the appropriate.

Level would be at north of six turns yeah. So our internal inventory management, absolutely the ability to thinned out a little bit as we've moved in internal not not a problem I was talking to our channel inventory, sorry, if I misunderstood Paul.

No that's okay, but I guess I'm going to just keep it pushed but one more time on the channel inventory that is.

It's Joel the.

Oh products hoops to go in a show momentum no strike the and the strong demand for new products, new supply constrained why wouldn't you be.

Kept law as you can pull in this and why wouldn't you be seeing a inflection starting now it's kind of an and well do an oil.

As opposed to the old business in the moves and.

That the old products are older products are still selling through well out in the out in the channel as we've talked about over the last couple of quarters, we've seen some slowed down with the the Skype the teams transition frankly with competition in with some of our new products being.

So the idea was very much.

To make sure that we had send the channel out just a little bit. So there was plenty of room for the new products to go in and so as our sales engine starts executing a little better here there's.

Room for the room for the new products and the channel a lung along with the old.

We didn't feel that the channel needed as many weeks of the old products out there once the new products were starting to flip to flow in however, those products still should sell for awhile.

Okay got it right. My last question is on the enterprise so I'd be a weakness there is.

You are notable it so I think the lowest revenue you've had in the headset space for wall or for long time actually and you know it seemed raises the question is if you're losing share to maybe losing it are you losing it to conventional a headset enterprise headsets or is this a consumer substitution.

Plus you can give us and Uh huh.

Yeah.

Sure Cam Paul so the so on the headset side that make no question about at the enterprise headset side as we have gone through our channel consolidation and our sales integration.

We've missed a trick on the headset side our products are excellent our portfolio was still very strong we should not be getting beaten the market. Our execution on go to market on headsets frankly has been poor for a couple of quarters.

We're losing that we're losing right now to normal competitors.

And we're taking the steps right now a with Carl we see the new sales leader in some of the folks he's bringing in.

To go to go when that back pronto, so on the sale. So Fortunately, we see it as a sales problem.

Not a product problem and it's not a massive shift of the headset industry to.

Consumer substitution or something that would be more difficult right.

Okay. Thank you.

Thanks for your next question comes from the line up. Please state. Your line is open. Please ask your question.

Hi, this is less calling in for Paul Silverstein. Thanks for taking my question. Most of my questions have been answered just a couple of quick ones on Opex that was a positive surprise relative to our expectations. I'm can you talk about how we should think about that for the March quarter and on a go forward basis or Oh, we.

And kind of stay in this this sort of level that we're at now.

Certainly was you know opex weve, the company's than a nice job on cost containment and I. Appreciate all the employees efforts to keep costs in check during this transitional period.

So we did have some onetime benefits in Q3.

Q4, we expect to drift up a little bit and then for 21 will provide more guidance on the next earnings call. But you know we are very cost focused right now in this transitional time, and I think I'll leave it at that.

Okay. Thanks.

On your progress and the Halo around.

Are there more even even introduced a number I think at least three or four products to date and they're more in the pipeline.

Well, that's or is that it for now and then maybe you can help us size up the contribution what has the contribution pin to date <unk> huddle room opportunity.

Yeah, Yeah lives I'll start on that so we announce the poly studio product coming up on a year ago now I guess, which was really our first product as a joint company to go after the huddle room. So probably studio has been shipping for getting close to a year now.

<unk> has been ramping nicely over the last couple of quarters. So that product is doing well the new products that we have added that really bridge bridge, both the huddle room and the small to medium size traditional conference room, which is the poly studio.

Next thing.

30, you the probably studio X 50, with the T C. A controller as well as a couple of cameras, we really feel like we have what we need to go compete and win on the product side and the huddle room now and we're doing quite well I think with the help of Carl and others.

On the sales and go to market team, we Gotta go make sure that we're winning not only in the traditional channel where poly is very strong but in some of the E. Commerce <unk> channels that the that huddle room buyers also buy and sometimes so we think we got all the right ammunition now products are ramping.

Nicely and we Gotta go Oh, we Gotta go make sure that we're taking share in that market very very shortly.

Great and just just one final question on gross margins as we look at a the March quarter.

I think trucking you mentioned there you know.

Let me see some further under utilization correct me, if I'm wrong, but gross margins sequentially up down flat. They can help us on that thatll be great.

Yeah, I would expect gross margins to be down a bit sequentially is the is the you know revenue outlook and build out looking to factory in factory capacity I think we're going to have additional under your utilization charges.

Carry into our Q4 quarter.

Okay, great. Thank you.

Thanks, Alicia Thank you.

Your next question comes from the line up babies Ela. Your line is open. Please ask your question.

Hi, good afternoon.

If you could help me just what the slot in the back on the portion of the consumer business that you're selling and optimizing it it looks like you're maybe winding down about 70% of that portfolio is that the right way to read it.

And then just maybe I guess, though to afford run rate would it be something like 50 million with gross margins above.

85% us as my back of the envelope calculation for those in the ballpark.

So David we have not a sort of unveiled our final plans for a for the the consumer business.

In slide 31, we do show a table that shows effectively the ongoing kind of enterprise revenues and then the a the history of the consumer revenues being sold are optimized.

The great news is that the gaming business was our lowest margin business, that's being sold and we're sort of optimizing and prioritizing the products that have the best margins and or the best cash flow. So next quarter. We plan to talk Holistically about are in the optimization.

Plan a in so we look forward to updating you in a quarter on that your revenue the margin profile on average has been 25, it should be a little higher once we're out of the gaming business, though.

Got it and then can you update of slow but on the relationship with Microsoft I think maybe the Investor day. It sounded like they were pushing customers and integrators to sell other products until your new teams portfolio was available and so I just wanted to ask you know if there are still actively pushing customers towards other products.

Extra Huston subsided as she started to two to some sent products into the channel.

Yes first of all I'd say that might be just a tad overstated, although I can understand why you got there Microsoft has been very very clear that.

When they were on Skype they wanted people buying native Skype solutions now that they are advocating teams. They want people are buying native teams solutions, how they had a gap where we were in particular on phones and video headsets, we're always fine, but on phones and video.

We were late to market with native team solutions.

I got to say that the.

The are indications from all our partners at Microsoft right now is they could not be happier with the solutions that a though that we haven't market. The new CCX 405 hundred native teams phones, the new studio X 30, a video bar in particular.

The Eagle like Q family.

Camera that got a team certification in the last few days and of course, the poly studio with teams certification. Microsoft is very satisfied that the partnership these days and feels like we're very much entre back on track together.

Okay, and then as we think about some of your newer larger product launches facts 30 X 50, CCIX you know sounds like maybe the March quarter, we're still not gonna have not great ever read.

You know by the time you report June quarter results in August you know, what do you ever feel fairly concrete read on the longer term, you know kind of trajectory and success for those products.

Yeah, absolutely I mean, depending upon exactly how supply goes this quarter, we may or may not have have some color to add a next time, we report, but you're exactly right. Those products are going to we expect to have a reasonably fast ramp so by the time.

We get into the.

Reporting on the summer quarters, we expect to have a a strong understanding of how those are doing but I got to tell you I've been in this industry for a long time and I feel great about those products I think there I think there on target the right thing for the market and there what we've been working towards for the last 18 months.

That's great and then Chuck last question for me I know I think in the past you talked about you know preference for paying down term loan with a what for debt pay down as opposed to the bonds and I wondered if you could you know kind of update us on stuff. If those are still what your thoughts or if that's changed at all.

No no no change our plan would be to pay the term loan b down.

And this quarter I mentioned that we plan to pay between 50 and 75 million.

Primarily through national we've been generating from operations.

Thank you very much.

Great. Thank you David.

Your next question comes from the line up Mike Latimore. Your line is open. Please ask your question.

Yeah, great. Thank you I'm on the legacy headset.

Do you see that I think you had done a promotion in the September quarter <unk>, you see I think he stopped that promotion in the December quarter, just wondering any change in sort of a you know demand for those.

He has that given those pattern.

You know, Mike I think overall frankly, the part that you're referring to we we certainly did a watch our discounting on headsets and frankly everything very carefully over the last quarter. However.

Both you see headsets and legacy headsets, we're not at the expectations that we had you understand that business better than a better than many Mike.

Legacy headsets are legacy headsets are projected to be flat to down they were they were a little more down than we projected frankly, you see headsets are supposed to grow in did not grow quite as much as they should have either.

We strongly attribute that as we go back and look at it to overall not a product problem. You can always have one more product, but our product portfolio and headsets is quite strong as I described earlier.

Yes, our sales integration and our channel consolidation.

No question, Oh, we took a little step back on our ability to take those great headsets to market and we're fixing that are right now.

Okay. Thanks, and then services they were flat sequentially I guess, how should we think about the services business or you know next few quarters as though.

Yes.

Oh really quite a nice quarter and services. Thank you to the team for doing a terrific job on renewals.

Hi services, I will step down a little bit a in Q4 in the March quarter and it should be in a low single digit decline this year.

Okay. Okay.

Your next question comes from the line up meal Beeper. Your line is open. Please ask your question.

Yes.

Thank you as you.

Now are getting closer to getting to market, what's your new voice and video products.

If you look out.

Two years from now which.

Chunk do you think it's going to be a bigger contributor to your overall revenue.

And in terms of the near term momentum, our which one of the two it's going to have.

Faster momentum do you think.

Yes, Hi, Bill this is Joe maybe I'll start and Chuck can jump in so certainly we think about our visit our business as a as voice video and enterprise headsets sitting consumer aside for a for a minute <unk>.

We have some pretty exciting software stuff, oh overtime as well, but all in all our restricted to the hardware right now.

The great news for Poly in spite of disappointing results is we're in three growing industries. So the video market the voice market and the enterprise headset market are all large and growing over the next several years.

Good news on this as headsets are up our our biggest business still of the three.

And have a nice growth.

Profile, so if we fix some of our.

Sales integration and channel consolidation issues that should grow nicely I am going to answer your question on the voice side on the voice side I'm also a nice business growing I think 5% to 8% a year. According to external sources over the next few years.

We have a number one or number two market position there as well depending upon how you are.

Upon how you account and frankly in a video.

We also have a business that is growing quite well going forward. So headsets overall, 8% grower going forward and we have the number one market position phones, when you kind of blended altogether and meeting conferencing incept phones, maybe a seven push.

Grower overall going forward.

Where we have a number one market position. However in desk phones were only down around 20% to 25% share. So a lot of room to go beat the competition.

Frankly on video.

Videos interesting video going forward with the huddle room and the moved to the cloud is projected to also be about a 7% grow or these are all the numbers that are out of our oh out of our investor deck, but in the case a video it's a very large market. So Vince.

Joe is a three or 4 billion dollar market that we're up fairly.

There were a fairly small.

That we are the number two player in so frankly bell going forward, we see a lot of room to grow in video in phones and didn't headsets <unk> video has the most room to grow we expect to execute extraordinarily well across all three of these and take share, but if I. If we do it right across all three still.

If you go out two or three years.

I'd like to seen everything grow well, but video probably starting to pull ahead, just because of the size of the market.

Okay with that we want to thank everyone for dialing in to the Poly Q3 earnings call and look forward to talking to everyone on next quarter. Thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].