Q4 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Poly fourth quarter financial results Conference call.
This time, all participants are in I listen only mode.
After the speakers presentation, there will be question and answer session.
Yes. Good question during the session no need to press Star one no telephone keypad.
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I'd now like the conference over to your Speaker today, Mike I'm, sorry head of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator welcome to Paul is preliminary financial results conference call for the fourth quarter fiscal year Twentytwenty. My name is my Guy Burke head of Investor Relations and joining me today or Bob Haggerty, Chairman of the board and interim CEO and Chuck Boynton Executive Vice President and CFO.
The preliminary unaudited 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, Okay and today's press release an earnings presentation.
Throughout todays remarks, we will refer to specific slides from or Q4 earnings presentation.
This presentation is available on the front page of our Investor Relations website at Investor Dot Poly Dot com unless otherwise noted all comparisons discussed today will be to the same quarter in the prior year.
You should also refer to the materials, we provided today for an explanation of the non-GAAP financial matters 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 website at Investor, but Paul <unk> Dot com with that I will now turn the call over to Bob.
Thanks, Mike and thanks, everyone for joining us today.
Before I discuss our performance for the quarter I'd like to make a few opening remarks.
Our strategy is to be the endpoint provider of choice as customers move their communication platforms to the cloud.
For the past several months the pandemic is forced businesses around the world you shipped many of their employees to remote work.
As business is dealt with these work from home mandates there was a rush to provide employees would the tools needed to stay engaged in productive.
For many companies that men duplicating the home.
Many of the collaboration tools employees have grown accustomed to in the office.
Another dynamic is the widespread adoption of video collaboration.
Which has moved beyond the corporate concentrated into the mainstream.
Two platforms like Microsoft teens Zoom and others video collaboration has become a key tool.
Keep remote employees engaged in connected.
In our view the concept of office work is fundamentally shifting.
Even after the work from home mandates are lifted the number of remote workers will likely likely remain significantly higher than the past.
And businesses will need to ensure these workers have a consistent set of manageable professional collaboration endpoints.
The net result.
We'll be in expanding Tam and long term growth opportunity for poly and our industry.
Turning to our preliminary financial results on page five.
Q4 was a strong finish to a challenging year.
Our team overcame a series of supply chain disruptions and took aggressive steps to manage expenses.
Allowing us to deliver revenue and earnings above the high end of our guidance range.
We exited the March quarter with six weeks of backlog in a very strong cash position.
Chuck will discuss the results in greater detail just a moment.
Now, let me take a few minutes and provide a brief update on how cobot 19 has impacted the company.
Turning to page six.
We saw historically high demand for enterprise headsets, which began in early March in continues today.
On the other hand as businesses around the world vacated their offices.
We saw what we believed to be somewhat temporary shift.
From audio and video solutions that require onsite personnel.
From an operational perspective.
Our in house manufacturing facility in Mexico has resumed production after the factory was reconfigured.
To implement cobot 19 safety protocols.
To provide a bit more color the increase in headset demand was so strong in March and April that it depleted both the on hand inventory and the channel inventory of some of our most popular headsets.
Our operations team is working aggressively with our key suppliers and contract manufacturers manufacturers to fulfill the backlog as quickly as possible.
For example, we've expanded our dual sourcing of high volume headsets.
Purchased additional tooling.
Secured additional capacity at our contract manufacturers.
These steps will allow us to increase the global production of specific headsets dealt beat the current demand.
However, even with these actions we expect to exit the June quarter with an elevated backlog.
I'd also like you mentioned that while certain headsets are in short supply. Our teams are taking steps to prioritize orders received from first responders governments and health care organizations to ensure they have the necessary tools to be safe and productive.
For example, our headsets are connecting over 350000, dispatchers and 911 emergency call centers.
Our video solutions are connecting world leaders around the globe.
Voice and video endpoints are supporting both Tele medicine remote education at many of the leading hospitals universities around the world.
We have a long history of creating collaboration tools for remote work. It is part been part of our DNA for the past 60 years and our employees have always been strong into internal users of our technology.
As a result, our employees were able to easily transition to well work from home.
Moving on I would like to take a few minutes to discuss the overall business.
In the past several months, we've taken actions to resolve the go to market issues, we experienced late last year.
While we still have a lot of work to do we're beginning to see some early signs of improvement.
Our sales organization is gaining traction in specific markets, even as we adjust to the new sales motion due to the pandemic.
We've improved our communication with partners and customers, which has led to additional opportunities.
With increased demand for our headsets, we are capturing customers are brought across a broad market.
Working and we're working very hard to keep them.
We've made progress with but have more work to do and we'll continue to focus in these areas.
Our strategic Alliance partners are working closely with us to offer a combined portfolio that meets customers needs.
We are starting to see new opportunities emerge that our direct result of are aligned strategy.
In particular with Microsoft and Zoo.
Where we have the broadest portfolio of certified and supported devices.
At the same time, we're strengthening our relationship with Nike service providers like Ringcentral eight by eight.
Like me in Google Voice advantage.
Another key focus for the company has been our channel partners, where we continue to improve our systems and processes.
Our new partner program brings every went together under one global program with the goal of simplifying the interactions.
At all levels.
We are making it easier for our partners to sell our portfolio.
The new program rewards partners for the marketing and selling of our solutions.
As well as for training and enablement.
Finally last month, we launched or new corporate website web site, which includes new partner portal to provide them with quick and easy access to product detailed technical information and local resources.
On the product front, our design teams remain busy bringing new products to the market.
While many of those solutions are designed for the office, we have a broad range of endpoints that support remote work as well.
Our work from any work for anywhere portfolio includes the broadest range of enterprise headsets, both wired and wireless personal speaker phones high quality cameras and industry, leading video bars.
As market conditions and customer demands evolve our product teams are continuing to innovate solutions to market with relevant features.
And technology.
We have an aggressive roadmap for fiscal 21 with new products scheduled to be launched each quarter in each of our product categories.
In conclusion, we have strong cash position and industry, leading product portfolio addressing a large and growing market.
Our customer.
Our large customer base and strong strategic alliances are further evidence of our leadership role in this market.
We continue to see elevated demand for our enterprise headsets and expect the global returned to the office to improved demand for our phone in video solutions.
In the past few months, we've seen a profound change in a way business is conducted around the world.
As we continue our CEO search I'm proud of the poly team as we work together to provide our customers with collaboration they end points they need today and to capitalize on the market opportunities that work from anywhere presents tomorrow.
I'll now turn the call over to Chuck to discuss our financial results.
Thanks, Bob I'd like to begin by reminding everyone of the business update we provided an April 15th and that communication, we discuss the steps, we're taking to maximise financial flexibility and liquidity, including deferring a voluntary Q4 debt prepayment suspending the dividend and aggressively managing.
Our costs.
These steps along with our quarter ending cash position of 226 million give us confidence while navigating the current economic environment.
Turning to our preliminary unaudited March quarter results as Bob mentioned it was a strong finish to our fiscal 20 year demand for headsets drove our revenue above the guidance range reduced on hand inventory reduced channel inventory improved our cash flow from operations and allowed us to enter.
For April was six weeks of backlog.
As headset order flow continues to be strong we will likely exit fiscal Q1, with an elevated backlog, but should be back to standard delivery times for most products in fiscal Q2.
Our focused on cost discipline. This past year became a real benefit as we worked our way through the macro challenges of fiscal Q4.
Page 19 provides revenue by category and geography as you can see headsets and voice sales remained strong in Q4, while our video business was inline with our expectations. Our new video bars were supply constrained as we were ramping production through the quarter and our large legacy video systems.
Slowed as office is closed due to the pandemic.
Geographically, both AMEA and Americas saw a dramatic increase in headset demand related to shelter in place mandates. However, our Asia Pac revenues were negatively impacted by cobot 19 as shelter in place policies were implemented earlier.
As expected we closed the sale of our gaming assets in March and we continue to streamline the business the balance of our consumer portfolio.
I'd also like to mention that historically, we reported the Mano premium product line in our consumer category with today's earnings presentation. We have moved our product line into the enterprise headset category, which we feel is a better fit this was reflected on the current page and we also provided the restated.
Eight quarter trend on page 30.
Turning to page 20, gross margins were impacted by factory Underutilization in tariffs and we also saw an increase in freight costs related to supply chain disruption during the quarter.
Factory under utilization will continue to be a factor holding down gross margins next quarter as our overall volumes are just now getting back to prior levels.
We have been aggressively managing operating expenses as the cobot 19, economic impact unfolds, our March quarter saw a significant reduction in variable compensation hiring and travel.
For the full year fiscal 20, we reduced non-GAAP operating expenses over 11% on a combined comparative basis.
We continue working to keep our cost structure aligned to revenue expectations to that end and our June quarter, We expect to book a restructuring charge of 25 to 35 million that will cover office closures and head count reductions however, even with the latest cost reductions, we expect our opex over fish.
School 21 to be roughly consistent with the expense levels in our fiscal Q4 reported today.
EBITDA was 60 million in the quarter and we had earnings per share of 30 cents both above our forecast.
Regarding our non-GAAP tax rate, we read domiciled, our intellectual property during the quarter, which affected the tax rate pushing it up to 53% for the quarter and 19% for the full year fiscal 20.
As we discussed in our business update the company's preliminary financial results, including noncash impairment charge currently estimated to be $180 million related to the company's intangible assets and property plant and equipment in the voice business as well as a noncash impairment charge currently estimated to be for.
Hundred 68 million to goodwill related to an overall decline in the company's earnings and a sustained decrease in its share price.
Due to the complexity of the analysis, resulting from the economic uncertainty of Cobot 19. The company is still a process of finalizing the impairment assessment, including the design in operation of internal controls. So actual results may differ materially from the preliminary unaudited results provided today.
The company expects to complete the impairment analysis and finalize the amount of the impairment charges in connection with its filing of the company's form 10-K, which is currently expected to be filed on or around June threerd.
Turning to page 23.
A significant reduction in working capital primarily inventory contributed to strong operating cash flow in the quarter of $62 million.
This is the highest cash flow the comp for the company's since the Polycom acquisition.
In addition, the deferral of debt prepayment helped push our quarter end cash balance to the highest level and over a year.
We have not yet decided in a prepayment in the June quarter, but on balance we prefer to maintain significant liquidity given the current market environment.
Trailing 12 months EBITDA was $293 million as a fiscal yearend and our net debt position was 1.4 billion. We currently have significant headroom and the covenants related to our Undrawn revolver.
As we have stays in the past, we don't expect to have any covenant issues in fiscal 21. However, if for some reason we have covenant constraints, we can terminate the revolver and the financial covenants go away.
Turning to guidance on page 25, before I walk through the numbers I'd like to offer some context for our fiscal Q1 guidance.
We entered April with very low headset inventory, we then experienced additional disruptions across our supply chain due to the pandemic today, our factory and suppliers are generally running at normal capacity. However, we remain supply constrained <unk> specific products. In addition, our other product categories our input.
Acted by our customers not having staff in the office to receive shipments with that context, our Q1 guidance is as follows.
We expect GAAP net revenues of 330 to 365 million and our non-GAAP net revenues of 335 to 370 million.
Total adjusted EBITDA is expected to be in the range of 25 to 45 million.
Non-GAAP EPS is expected to be in the range of a loss of 18 cents per share to a gain of 22 cents per share.
Finally, I'd like to mention that these guidance ranges include our estimates of the impact of factory overhead under utilization due to lower production volumes incremental freight due to supply chain challenges and the cost of factory reconfiguration.
With that I'll turn the call over to the operator to begin the Q in a operator.
Certainly at this time I'd like to remind everyone in order to ask a question. Please press star one your telephone keypad.
Let's turn them to compile the kuni roster.
My first question comes the line that's not a Marshall from Morgan Stanley. Your line is open.
Great. Thank you.
I wanted to see if you could talk a little bit more about some of the improvements on the enterprise headset channel and just some of the the work to reconnect with some of kind of the previous Plantronics channel and then maybe secondly on inventory you know.
Is that something where you feel as if you work through a lot of the Skype for business or kind of older product inventory or just should we think of that as a source of cash over the next couple of quarters as well. Thank you.
So this is Bob and let me cover at least at the high level some of the things that we we addressed.
So.
Coming into the quarter are coming into the company I Didnt in early February.
We did find that we had.
To do some things around coverage and specifically in the headset business. So.
We've been working hard to bring on some specific I'm calm overlay sales people to focus just on the headset business.
We did have issues with visibility around our up our point of sale information and that has been cleaned up and.
We were we we have shifted generally from.
Being able to do a mix of how sales gets paid to primarily focusing sales on sales out.
Who do you have specific questions about channels.
But let me let me shifted over to Chuck to give you some more color and then I go over some of the more specific questions yet.
Yeah, I mean, it so specifically we had a really really strong quarter on headsets and generally sold out of the high runners.
Both the channel and our on hand inventory you know our legacy or contact Center headsets, you know increased from 50 million in Q3 to 66 million in Q4, and the you see headset business went from 76 million to 90 million and that's our revenue and so that the channel had already.
We've already taken channel inventory down and so we found ourselves with effectively six weeks of backlog, which the company never really had before as we sit here today.
Where we are definitely focused on a on keeping inventory levels down, but we need to increase the supply of our headset business. So our our factories in Mexico are running at you know mostly full speed today.
We did you know we were down for a couple of weeks.
And we are focused on selling you know the all the products that we have on hand, but the certainly the short term demand.
The increase has been around headsets secondarily around the video the new video collaboration tools. The studio X series F. 30, next 50, which just started shipping last quarter.
But the rest of the products and a desk phones and whatnot had been a little bit more challenging. These people are not in the office to receive those those products.
Got it.
I guess I'd, just trying to get a sense out you know.
Obviously, I would expect kinda headsets to be sold out right now just given kind of current situation, but just like going forward do you feel like all of those investments needed an overlay sales people work kind of reconnecting with channel partners has been Don or is that work to be done just disagreements sounds on kind of some of the previous this reversal.
Clearly an environment, but very very conducive right now.
Well I think it gives us some great cover because we're able to see all the customers that we have had and then go find some new customers a new channels because the demand is quite high so I think that.
It's been a it's been it's been actually I quite a good opportunity for us to touch base with all those channels. This always shifting changes and shifting demand and changes in the marketplace is depending on what reason you're in and how things are ebbing and flowing but I can say that you know the work is never done and but I'd say, we're substantially through the.
The the difficult part of making those transitions and were fundamentally on the right road and when we see improvement from here.
I appreciate the answers.
Thanks meta operator next question.
Your next question comes for Greg Burns from Sidoti and company. Your line is open.
Yeah, just a follow up on the the channel inventories. So can you quantify how how much like you took a 60 million charge or reduction in channel inventory quarter or two ago now that channel inventories than depleted can you quantify what that is and do we see that need to be replenished in Q2.
Q3.
So we don't sort of I disclose the channel inventories generally, but they channel inventories were down fairly significantly in Q4.
In their true low quite frankly and sold out and headset. So we definitely want to replenish that inventory.
That will take a while as we said in his prepared remarks, even through Q2. Some of the high runners you know may not be fully caught up.
There are other areas, though that against geographic it's by channel and.
By customer, they're all little bit different, but I'd say the aggregate numbers, probably on a lower side of where it should be so it may come up a little bit but its you know where we went through a lot of pain and hard work last year to get channel inventories to the right level, because we believe fundamentally the by reducing channel inventory by reducing our on inventory that's a better financial.
Equation for all of us and the across the a the supply chain.
Reduces and invested capital and will make everyone a better off and so we're not going to we're focused on keeping channel inventories are probably the appropriate level based on the product and the low in the geography.
Okay relative to your revenue guidance can you maybe give us a little color bye bye.
Hi segment on how you're thinking I get to those ranges.
Certainly so it's a fairly simple equation here we are with.
Call it five or six weeks fighting five weeks to go in there in the quarter and our our main factory in Mexico was offline for two weeks to reconfigure for health and safety and so to make it a safer place for all of our people to work and we're proud of the work that team did they did a phenomenal job we also.
We had supply disruptions in our with our some of our CMS and Oems and so the guidance effectively takes into account the supply constraints that we have and how much.
I, how much we can build ourselves and how much we can receive from our channel partners are our CMDS.
The real constraint right now is on the high runners think of those as our our professional web cams the eagleeye the eagleeye many of them all.
Vast majority of our headset lines. These are in very high demand and so you know those we can sell as many as we can make.
Desk phones and video or we have plenty of inventory and we're actively selling those and so it's really a fairly simple equation of what orders do we have placed what trends do we expect from a sales standpoint, and what are the supply constraints. So the guidance really the real impact is the supply constraints that we're seeing.
For our high runner products.
Okay, but can you maybe give us a little bit of color on.
But what growth here in bed growth assumptions are embedded for.
Enterprise headsets voice and video.
We're not breaking that out for Q1, because obviously, we're supply constrained and so we're selling whatever we can make and so the real I think for the year. It's a little more uncertain what is going to happen with as people return back to the office place.
I think there's it's more uncertain for the year for both certainly for Q1, it's really a supply constraint equation and then for the balance of the year, It's really geographic and what the returned to the workplace looks like and that is is somewhat uncertain for us right now.
Okay. Thank you.
Thanks, Greg.
Operator next question.
Your next question comes to mind, David Ellis from Wells Fargo. Your line is open.
Hey, Good afternoon, guys also had a couple of questions on the headsets I'm curious to hear a little bit more about what's going on the headset market. If you could talk about the courted legacy business, maybe what you're seeing from contact centers and Mike If theres been a big boost in demand there that you've kind of already met like a surge need or what.
Other that you know should continue throughout the year and then also on the you see business can you talk about just the compatibility of your product set for work from home employee who maybe just the using.
Its owner and Android instead of US an open set phone or a video IP service.
Yes, certainly so I'll start and Bob can add some some color as well on the contact center you know we have seen a a pretty strong increase in demand. It's hard to see the long term trends I think or are things like contact centers will no longer be sharing.
Headsets still have their own headsets, they won't be re purposing them for a new employees. So I think it bodes well long term for the for the contact center business, but.
And I think this the increase in demand is also people are working from home veteran contact centers doing remote work you know the bigger increases spending that you see side as people work from home and they're using a assume color or teams call with our computer and it picks up all the background and.
We had noise of a household whereas if they have one of our are great. You see products that will has things like active noise cancellation sound fencing provides a professional environment as you work from home more on the coffee shop and those are interoperable with a you know.
Bluetooth standard there we have deck, there's a there's a whole series of technologies and this is why you know historically, we've had such great success. My headset business is it just provides a way better user experience.
And there aren't any really constraints in terms of of the platform, you're using and certainly the proliferation of teams and zoom and those I think are increasing the demand profile for that for the you see headsets as people returned to the office.
We think that will actually continue and possibly increase even more as people see the benefits of those better of that better experience.
Got it just to put into context I'll go ahead.
Tied just just a little more context on one of the things I think that we need to understand is that.
The work from home is here for quite a while and I think it migrates to a hybrid where people will work both from home at or remotely and in the office and so I think the facilitation.
Some of those both the in office and the the home are going to continue for awhile and so that is also upward pressure on on demand and I think that this is.
Two things are going on one it's obviously, a safety and health issue today, but what kind of enterprises are finding is that it is also a cost savings and and as they have to distance.
We're spacious spaces in their physical plant.
This becomes a way to two facilities that and then and that puts more depending on not only.
Headsets, but there will be folks who bring home a voice over IP phone and there will be offices that are you going to need cameras and some are holding products in in some cases using using them for people have to be on conferences quite a bit.
[noise] craze and then could you also just remind us of the positioning of your hopes up so like where the majority of your portfolio falls in terms of value price versus mid range versus high end.
You know, maybe if you could comment on whether business customers are primarily opting for kind of value priced subs in the midst of a belt tightening or maybe whether you know a lot of those models are sold out in there been forced them to higher price points due to stock outs and back orders.
Yeah, I mean, I think we're I think AOS and in the competitive landscape, we're all seeing.
Strong increase in demand and in many markets are buying whatever they can get their hands on.
You know our positioning.
Is a you know there's really.
Two main players we're one of the top two players in this category, we have products that address the entire spectrum of headsets and so we've got everything from the high end to the more value priced and I don't think the headsets or is as price sensitive because these are energy.
Rise products as other categories one of the reasons we.
Got out of a gaming businesses is very price sensitive in AR headsets enjoy high margins and they're less price sensitive it's more about quality and feature and functionality and we have a suite of products that address.
Up and down the stack and so I.
I think that what you're seeing as people are buying whatever they can in certain markets.
People are sold out and is the is the normal cycle Replenishes I think you'll see us and better market participant at the top end, having again most of the of the share in this market.
Okay and then.
I hope you could give a little bit more color you kind of touched on your goal which is I.
Like us maintain cash balances you know I guess higher.
It doesn't sound like you're committing to near term debt pay down and then you talked about covenants become an issue you can terminate a terminate the revolver to deal with.
You know any covenant issues, but I mean, that's a strategy.
Obviously comes with some risk so could you talk us through you know, maybe how you might to your own folder.
I guess that are probably more of a backup scenario.
Yeah, well I mean before we talked about you know we needed a minimum of $100 million of cash to run the business and we're sitting here of to 25 or to 26.
So we had not voluntarily prepaid the debt to maintain more flexibility.
The revolver is currently Undrawn and we're sitting on the highest cash position, we've had and I think over a year and had our best operating cash flow quarter in over a year.
And so while you know our pre cobot plan was to aggressively de lever, we would've been paying down you know 70 $500 million and already and so I think you know we don't have a new heat, we want X amount of cash as our new target I would still say the minimum we need is 100 million.
And.
We don't really we don't see a covenant issues that doesn't really way honest I just want to you know again we.
Communicate that we don't have a covenant issue and if we did we could just terminate the revolver and it goes away just too.
You know assuage any concerns.
You know, we expect to continue to drive material free cash flow throughout the year. So we think that we can generate.
Significant amount of free cash and then we will pay down debt. We're just not committing right now as to when and how much to give ourselves a more flexibility.
That's very helpful. Thank you for taking the questions I'll hop back in queue. Thank you David Thanks, David.
Next question.
Your next question comes from like Mike Latimore from Northland Capital. Your line is open.
Okay, great. Thanks, a lot.
Can you talk a little bit about you know that I think that headset demand was elevated starting in mid March remains elevated what have you seen in terms of the voice and video demand patterns kind of mid March to the data to the drop a little bit in a stable because or is it sort of been stable or maybe just talk about the demand for those two areas since mid March.
Well, certainly I think I'd first say that we had a strong.
Very strong desk phones quarter for Q4 are just going business went from 48 million in Q3 to 68 million in Q4, sweeter I really really strong Q4, and we have I think the leading desk phone thats team certified to CCX line as a really awesome phone and I think when people are back in the office yield.
See continued proliferation of the desk phones remember, there's still 400 million PBX connected phones out there that will get.
Replaced at some point with either a headset or a cellphone on the video side. You know, we're we're supply constrained on the new X series launch and we knew we would be that that was a little more challenging quarter were went from 70 million to 62 million of revenue overall.
While we have seen the on Prem a systems and APAC, we're still fairly strong in Q4 as we sit here today and the demand environment I think were a bit more cautious on Q1 in Q2, because people aren't in the office, they're not buying and receiving a the goods I thought.
That that the trends don't really change in fact, we're training a whole new generation of people to do video conferencing I think this bodes well long term for the video solution and people realize that doing assumed call over your PC is sub optimal and having a video bar like an ex 30 or a studio you SB are as a way about.
Koreans, but I think it's.
Just unclear of you know when that demand will will return to normal based on you know people working remotely.
Great and just can you give the desk phone number again quarter to quarter.
The desk phone number was 48 million in Q3 and 68 million in Q4.
Hi, Thanks.
And then you've launched a lot of new products, including you know team zoom certifications that sort of thing there are way to break out you know what percent of the fourth quarter and the pipeline is kind of coming from these new products.
We haven't done that yet we've considered breaking out revenue from new products, but given the sort of pandemic, we shifted our approach because just things just changed so quickly that.
We have not I will say that earlier in the year, we'd outlined that we thought the video business. The studio line would be material to our results by Q4 of this year and we had quite a quite strong Q4 that we generated 40, sorry $20 million of revenue.
The studio line in Q4, which is a material number two our results and so we're proud of that number it could be higher if we had more supply it's hard to say that what will happen in Q1 in Q2, given that people are working from home.
Okay, and just last one what tax rate should we should we view the for fiscal 21.
I would continue to use the kind of 18, 19% rate range.
Okay.
Thanks, a lot.
Thanks, Mike.
Operator next question.
Your next question comes the line of Paul Silverstein from Cowen Your line is open.
Thanks, Paul, but soccer, partially offsetting the questions and I apologize to you and everybody else on the call. This is repetitive reorder TMT conference today. So I missed part of this call I do apologize, but I didnt hear quite a number of the questions I want to try to tie together.
I think I heard in particular, if I've got the numbers right your voice and video inputs business is about $200 billion this quarter.
Your headsets I think were about $183 million plus all the numbers correctly. So they're about roughly the same size, but took voice and video and points together relative to headsets and taken sit back and thinking about the current ongoing crisis.
Looking downstream how it impacts.
We work in play over the next many years the thought arises that many organizations consistent with what Weve announcements report.
From various organizations are going to ship workforce to want to sooner another two home and it's obviously not binder when you're most will go back through offices, but my question to you is given that like we ship to home.
It hopes I would think it would help your enterprise headset business at the same time and once you got your new video endpoints in the marketing sounds like there are plenty ramp the aggressively.
That's true into work from home I Trust is not going to be favorable trend for you and other companies for your products that are sold into enterprises for employees are working on from.
There will be relatively fewer employees on top of the fact that unfortunately due to the trouble economic cost of this crisis. There are few organizations that are going to be the p. could help just the opposite those those organizations that survived. This obviously demand is less the number of employees or fewer.
General proposition demand for on premise infrastructure, we're talking about campus switching or in your case video endpoints and the desk phones that are typically I understand that some of US I don't know homes will use those for better experience, but I would think.
Most of US who worked at home, we're not going to be buying from you or anybody else organizations, we're not going to be buying from you or anybody else, who is video endpoints and those deaths that phones on the other hit I would think it'll be very good.
Your enterprise business.
I'm, hoping you could unpack that told me were wrong the thought process.
Look.
I recognize you're a lot of variables things are as clear as much today in terms of the pandemic and how this is unfolding, but if you consider insight for how you think this on holds for your enterprise heads.
That's a phone in video with points business relative to that shrink where do I have it all.
Well I think Paul I mean, I think your general theme is not is not that far off I mean, so yes, generally I think you're you're correct. The headset business is about half of the product revenue and the other half would be a video desk phones conference funds, that's not not too far off course services.
As an important component.
We're still seeing you know good bookings in Asia for our legacy video Soc solutions and that obviously has a nice maintenance stream attached to it the desk phone market in the conference phone market I think you're right is going to be.
Down and if you saw our impairment discussion earlier that business has been took the brunt of the impairment or took all the impairment.
And so I think that you're right on that sort of thesis that.
Still those 400 to 450 million desk phones out there will get replaced by cell phones, or headsets, and they're not going away, but I think you're right in the short term that's going to be more challenging on the other hand, we talked about headsets over and over I think that bodes well for headsets in video is really.
The one I think that I would challenge a little bit because we do have.
Great technology, our our web cams are are very very good technology and our video bars are basically can be definitely a work from home solution, especially for.
I think of as CFO attending an earnings conference or a a financial conference using a PC camera and microphones speakers is not a good solution and having a a nx 30, our new studio Xthirty video bar would be a way better experience both for the presenter and on the far.
For end of receiving end.
And I think this whole shift of training hundreds of millions of people to use zoom and teams and whatnot.
Bodes really well long term for video anywhere not just video and the huddle room or the boardroom, but video from home.
And so while I think that market is rapidly evolving and changing and I think it'll this will unfold over probably years, but that market I think is.
We'll be quite strong in the future and there's a real bull case on on the video side and so I think you're right on balance I think its net positive for video and headsets and in that negative for desk phones and conference phones.
Even if you already addressed as I do apologize to everybody else, but I was thinking your kids. If we will give them on March April now made three month of data in terms of how many of us of employees, who were obviously, we're all working from home or virtually all of us from home what do you see in terms of demand for.
Your video end points and for your enterprise guests say not headsets to death assets. What did you see in terms of demand up suggest to what extent, we're actually reporting.
Our normal workplace environment through a home workplace environment in one little Mike I. Appreciate that you find me have though.
Solutions, you find me how about a broader suite of video endpoints. So you can now access in a more meaningful way to sell so you have with a $24 million number that's growing and that's good to see what I Trust that makes to the question I just ask mix, a little bit challenge and since that you're going to have a nice ramp so hopefully from here.
As you ship those new platforms and so me.
Mask real end demand for that work from home, but but I apologize. If it was a request would be what did you see in recent months that would suggest to what extent.
Floors reporting or their employers reporting.
Fully workplace environment, so the home on the death that video imports.
Well the video I think it's too early to tell how that all unfolds and yeah. I just I think it's it's two new of a phenomenon to see how the video unfolds in the work from home certainly dramatic increase in headsets and our backlog is at a level that the highest.
I've ever seen in the company I've only been here for a year, but.
It's incredibly strong on the headset side.
I think it's too early to tell on video and desk phones at this point, Bob I don't know if you have any any color you want to share but.
Yeah, I think look this is this a trends that are undeniable.
The first thing is this this is hit pretty fast and pretty hard in the first thing people were reaching out to buy was headsets and that drove demand through the roof and we basically stocked out hey, we're running in backlog. So it's clear people working from home have to talk and there and they want to talk on headsets. So that demand is outside.
Drifted we have us we had a small business and in webcam things are going to top of monitors.
And that's sold out immediately too so it's pretty clear that things that are associated are traditionally associated with the desktop.
Aaron earn Super high demand right now.
Anecdotally when Asia came back to work and maybe that profile going to be different than than Europe, which might be different than the.
Northern America, and given Southern America, but.
But when they came back they switched the video I'll say another trend that's important to be thinking about.
And we've seen this multiple times in it lasts a fairly long period, maybe two years, maybe two and half years.
When these kind of things hit and whether it was 911 or financial crisis airline gets.
Decimated and it's currently decimated right now people are not wanting to get on airplanes.
We'll be people in offices, they will need to coordinate with people outside of offices and people are generally very because of this really used to doing video first as a communication tool.
So we believe specific specifically some of the new line products. We have we will be implemented are implemented will be continued to be implemented in the offices. So that people in offices and communicate out to those are remote and conferencing is going to be in normal and natural way to do business. That's it.
The trend on desktop phones, I think is TV I think that it will eventually come back around that people will install it will have hoteling desks made there will be regular decimated and they will put telephones on them.
That's been a that's been a longstanding event because when especially if your hotel you forgot your headset the phones right. There I think there's the utility to it it's undeniable and.
So I think that longer term desktops, we'll do it will do well I think in the near term. It's the office products that go to the desktop and we'll go home and to the Hoteling spaces and I think video will be implemented because you need to everything is going to be communicated with video as a primary, especially when you're communicating in office to remote workers.
And I think the reap the hybrid remote worker.
Is here to stay I mean, I may is going to here to stay even after a vaccine because it's got to you real utility for enterprise.
One last question for me if I may on the positive side or the I think the the indisputable deposit side in terms of enterprise headsets, where it's a rising tide working from wrong, but it could you all had some supply chain disruption.
Connection when you all did the combination between poly and plantronics, which caused some share loss I don't know regain that those approved a loss, but more poorly looking forward.
I Trust the customer relationship because these are enterprise not the consumer sought your that's a business, which is de minimis now, but enterprise portion.
As long as your technical specs or good enough I Trust. These customer relationships are very sticky in.
And it's more the relationship that matters and exactly how you compare to your primary competitors that these are long relationships and your management that relationship in terms of delivering products and the timely way managing them its roots, such <unk>, where the Dom and factors. So as we look forward. The question is is now pretty soon.
Hold out where your market share is what it is annual ride the tide, assuming that demand goes up would work from home.
It's really matter that the degree of demand as opposed to gain you were losing share.
Well I think I guess the first part.
You mentioned, Paul the it wasn't a supply issue. It was it was a channel consolidation issue that we mentioned earlier it was not not a supply my policies that my bad that's what I do not want to make sure it was clear.
You know I don't think we're satisfied with the share loss that we that we took I think you know it was self inflected and we want to get that share back we've got a great Salesforce, we've got amazing products to an extent some of those are commoditized, but to another extent theyre not we've got leading technology, we've got great.
Employees, and we want to fight to get that share back.
In this environment I. Thank you know all companies are doing well, but if the normal market will return and we want to beat them on sales execution and technology and it's hard to sale that will play out, but I think we're not we're not satisfied with.
The what had happened last year.
So what's that.
Sorry, Chuck.
I would say one thing that we mentioned earlier I don't know if you run or not we are adding our headsets specialists back one of the things when the channel consolidation came with it was an assumption that anybody can sell everybody can sell everything and there is some specialty around headsets and we did.
Get rid of that and we're bringing it back and so this extraordinary demand situation allows us to go ahead and get that organize get people trained get on the slots. The good news is we had a bunch of people who were.
Also in the company that have been shifted to other roles. The other thing that.
We have some along legacy of selling multiple product. So one of the decisive if you are an enterprise we're really the only people look and deliver on headsets desktop phones video on the desktop video in the Hello room and video in large conference. So and we have strong alliances I think zoom and Microsoft and the long tail of other.
Yes.
All right I guess piece.
Partners like Ringcentral and eight by eight and lot me in.
Vonage, Google voice and and numbers of others all add to that.
I think with that.
Thanks, Good I think.
Thank you very much Paul I appreciate it we've got time I think for one more question.
Operator next question comes from the line as Amit Daryanani from Evercore. Your line is open.
Thanks. This is Michael Fisher on fair comment I, just wanted to dig into the inventory a little bit more I'm just wondering.
We're seeing this it's about 170 in the corner, so thats kind of getting towards the levels, we saw last year.
So I'm just wondering how much of this inventory drawdown. We saw was related to supply disruptions, where you couldn't build up a normal level of inventories versus sustainably managing inventory level.
Yeah. That's a good question Michael Thank you.
We think about this is we should be at six inventory turns and historically we were not we worked for and we were disappointed this past quarter, we got to five not still our target number and we got there primarily by selling out of enterprise headsets, but please recall back in early Q3.
We said that we're going to reduce channel inventory in Q3 and on inventory in Q4, we reduced at more than we had expected quite frankly because of the the pandemic really accelerated the sales of headsets and to an extent had supply constraints.
I think inventories could go up a little bit in Q1, as we're rebuilding some of those inventories and as the mix.
Moves, but our expectation is by the end of this year, but the end of fiscal 2001 will be at six turns and that would be our target.
We may hit eight again and that would be a best in class, but are you know I think on a short term, we're not going to get exactly to our target six but our goal would be would be to be at that level by the end of the year. So even at 165 or we ended the quarter, it's still above our target working capital model and although.
So a lot of huge improvement over over the prior quarter not quite to the level that we'd expected.
So I think with that will say, thank you to everyone for calling in we appreciate it and look forward to talking with all of you next quarter.
This concludes today's conference call you may now disconnect.