Q2 2022 Plantronics Inc Earnings Call
Good day and thank you for standing by welcome to the Poly Q2 fiscal year 2020, Q conference call at this time all parties.
<unk> are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any food assistance first star zero.
I turn the conference over to your Speaker today, Mr. Mike Hybrid. Please go ahead.
Thanks, Operator, welcome to Poly's financial results conference call for the second quarter of fiscal year 2022. My name is Mike <unk> head of Investor Relations and joining me today are Dave Shull, President and CEO Grant Hoffman Executive Vice President and Chief supply chain.
Officer, and Chuck Boynton, Executive Vice President and CFO the.
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 1095, the risks and uncertainties related to such statements are detailed in our most recent 10-Q10-K and today's press release and earnings presentation.
It 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. Those 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 all of our earnings materials are posted on our Investor Relations website at Investor Poly Dot com with that I will now turn the call over to Dave.
Thanks, Mike.
From California, and thanks for joining us from wherever you work today, Chuck and I are joined by Grant Hoffman here in our Santa Cruz Office.
We delivered another quarter of solid financial results, Chuck will provide more detail, but the headline numbers are as follows.
GAAP revenues of $419 million were up 2% year over year.
Adjusted EBITDA of 62 million and non-GAAP EPS of <unk> 77.
Above the guidance ranges.
Present, a year over year decline of 11% and 17% respectively.
Gross margins of 47, 2% represent a 240 basis point sequential improvement and reflects a favorable product mix offset by the temporary but ongoing pressures created by global supply chain issues, primarily volatile component prices and transportation costs.
Demand remains strong and poly gained significant market share from our competitors in key video markets.
Stepping back I should first day than everyone that Paul has done a tremendous job, helping our business and our customers navigate one of the most difficult and uncertain business environment in memory.
Second what is encouraging is that from our perspective, the demand side of our business remains fully intact.
At the beginning of the pandemic, we've said that the way businesses and people communicate and the gear infrastructure and services they need to work productively and effectively has changed permanently.
Demand for poly gear is up substantially our sales pipeline has increased 64% year over year, mainly due to increasing demand for video collaboration solutions as companies prepare to return to office.
This pipeline is also converting to tangible demand our order backlog increased by $60 million quarter over quarter.
Based on conversations with dozens of our customers over the past couple of months I am convinced that as companies return to the office they are going to aggressively build out their meeting spaces.
The large boardrooms or small personal focus rooms with video and audio collaboration solutions.
Our recent survey of over 7000 hybrid workers from half a dozen European countries and the United Arab Emirates confirms the strong demand.
82% of respondents intend to spend at least one day a week working from home in the future with 54% planning to split their time evenly between office and home.
One of the drivers for this shift is the emergence of anytime working.
Whereby employees, a greater autonomy over when they do their work according to our research more than two thirds of employees say the quote normal nine to five day has been replaced by anytime working.
Research from Accenture published earlier this year shows that 83% of employees prefer a hybrid work model looking to work remotely between 25% to 75% of the time.
This return to the office is beginning now according to independent research from castle since the start of the pandemic office occupancy rates in the top 10 U S Metro area markets have more than doubled since their pandemic loads in March of last year and currently stand at roughly 37%.
But what does this all mean employers need to prepare their workplace communications for an increasing return to the office and they need to be prepared to manage more hybrid video meetings than ever.
When it comes to on premises infrastructure. The majority of our customers are first focused on refreshing meeting spaces, especially large rooms as they return to the office.
And most are considering building out all of their spaces to ensure that they create the best hybrid median experiences available because of the quote two truths that I've talked about before number. One every meeting is moving to video number to at least one person in every medium will be remote.
I have been meeting regularly with our customers both individually and in groups and they have been clear they understand that poly intends to own hybrid work and the return to office and Theyre looking for our guidance and expertise as they prepare their own businesses for the future of work.
That's an advantage for us because as a company poly has always existed to serve the enterprise. We have sales teams and service pros in place that has spent years, helping sulfur the largest and most demanding communications and collaboration applications in the world banking health care and government just to name a few.
Our ability to provide insights and advice is a key differentiator and puts us in a position of strength I believe it's one of the key factors and poly taking market share.
Demand is strong for poly.
But right now it's about as complicated a time to operate in as there has ever been.
Two months knows that globally supply chain pressures continued to have a disruptive impact for.
For some time now we've been direct and detailed about the supply chain challenges, we face as well as the initiatives that we put in place to help manage them.
And I can tell you that every single day I'm on the phone with our chief supply chain Officer Grant Hoffman.
Well I'm sure that grant wouldn't mind break I will say that after these calls I have renewed confidence that our supply modernization strategy. Both in the near and long term is working and.
And we expect that it will pay significant dividends going forward in terms of efficiencies and profit margins.
Rather than speak for grant, we're going to have them speak directly with you, which I think we will offer valuable insights into how poly is managing and adapting to components and logistics challenges and how we will be positioned once these temporary pressures ease grant over to you.
Thanks, Dave it's been a few months since our Investor day in May when I had my first chance to speak directly with poly shareholders.
You may recall I've been on the job for 100 days at that point and it was not only managing 100 year supply chain storm in terms of a global pandemic transportation disruptions and the complete lack of semiconductors and electronic components.
But I was also responsible for transforming our supply chain operations to ensure that for poly a world class supply chain would be a permanent competitive advantage.
Since then a lot has happened and I wanted to give you a readout on our progress.
Let's talk about what's in the headlines.
Every day, they're shifting speculation by companies and governments alike about when supply chain issues will be resolved.
There remain without question issues with visibility regarding the supply of electronic components for anyone who makes hardware equally.
Equally as it relates to logistics there are cost issues. For example, the price of shipping container has roughly tripled and that hurts anyone who's moving product on the water.
Because of this uncertainty our Java poly is to be as responsive as possible to the unpredictable environment everyday my team, including recently on boarded industry experts and procurement supply chain strategy digital transformation and new product introduction are in the trenches fighting to make sure that at minimum.
We are receiving allocation and have the best possible information about supply chain pressures and that we minimize surprises.
The result of this effort with at this point represents thousands of hours of announced up work is that from an operational point of view the number of potential supply chain issues, we're facing is reducing.
At the same time the severity of the remaining issues remained stubbornly high not just for poly for businesses around the world.
What this means is that we continue to face the same issues, we talked about in detail earlier this year.
One important initiative, we've undertaken to respond to these problems is to attack them with updated designs. We have intensified our R&D efforts so that across our products. We are designing our components that today are causing problems and we think will create ongoing sourcing issues looking to either qualified alternate.
Components with greater availability or moved to entirely new designs.
The result is that with every month that goes by poly is in an improved position to capitalize on components with greater availability.
Which is to say my team and our engineers are taking the approach that if we can see light at the end of the tunnel, we're going to create light at the end of the tunnel.
But as I said during Investor day, the most important thing for our shareholders to understand is that while the issues. We face right now are temporary if painful.
Factors poly supply chain represents the single most underappreciated opportunity for a company to outperform in the years ahead.
This is because we expect that the work we're doing and investments, we're making now will translate into margin expansion that will benefit poly over the long term.
In May I reported I had completed a comprehensive end to end review of our supply chain with a view to up level every aspect of the process.
Since then we've made significant progress and I'd like to update you on our progress.
I talk about logistics opportunities given our model was based on global distribution centers that then feed products into our sales channel in particular I noted some of our products trebled over 10000 miles before arriving at a customer's dock.
As of right now we've cut the number of units traveling that distance by about half.
I talked about our need to build a stronger relationship with our key suppliers and we have we have forged closer relationships with key suppliers and aligned our long term product and design strategies and they are as excited as we are about the opportunities ahead.
We are extending our relationships with suppliers executing long term strategic buys where appropriate and refining our planning and sourcing strategies.
And I should say our suppliers are excited not only about the product roadmap.
Our vision of what the future of work looks like we have their attention and that matters.
I talked about design for manufacturing changes and capturing cost savings during the earliest phases of product development by incorporating advanced design for manufacturing concepts into our development cycles and factory operations. We're doing that we're accelerating the migration of multiple product lines to newer technologies and in partnership.
Chip with Poly's highly experienced engineering organization have developed a silicon strategy to guide us as we respond to changes in technology.
I talked about opportunities for digital transformation and modernization within our operational systems and structures.
We have completed our detailed supply chain transformation requirements with a heavy focus on improving supply planning and customer satisfaction.
The investment consisted of thousands of hours and multiple key hires so that we can extract and analyze the data requirements at every node in our supply chain from real time customer order information to available to buy data.
We'll have better information more control and a greater capacity to continuously improve.
Every one of my team is excited because in the near future Poly will have tools and technology necessary to drive operational excellence.
As both David and Chuck know, if Theres, one thing supply chain people don't like it surprised us.
Everyone in my organization spent everyday all day, making sure we're facing incrementally fewer surprises.
We still face hurdles, but again there is no question in my mind. These problems are temporary.
At the same time my team and I are making sure that the structural transformation of poly supply chain to global operationally excellent it's permanent.
In summary that means world class sourcing capabilities are robust digital supply chain and it infrastructure optimized to support our global customer base.
Thanks for your time and attention and now I'll turn the call over to Chuck.
Thank you grant for bolt this overview and all the work you and the team are doing to address these supply chain issues.
As Dave said at the top of the call the demand side of our business is robust and customer interest across multiple product lines far outstrips our available supply.
We came in just below the low end of our guidance on revenue. We clearly would have had a different quarter. If we were able to convert the nearly $60 million in additional backlog that was added to our already elevated backlog from the prior quarter.
And as grant said, we don't know precisely when these pressures will ease, but we have high conviction they're temporary.
We also have high conviction that the long term demand drivers benefiting our business are durable and intact. Thus poly continues to make strategic investments in sales marketing and innovative product lines. So when the supply chain issues abate, we are in a strong position to execute and win.
In transition.
Now onto the numbers.
Our GAAP revenue of $419 million landed just below the bottom end of the guidance range and was impacted by components supply on our studio X video bars, most bvs in Ccs desktop phones, and bolt deck and Bluetooth headsets.
The net result was backlog at quarter end increased significantly from the prior quarter to unprecedented levels.
In spite of the backlog increase granted team has made significant progress resolving specific component issues.
As a result, we are generally no longer supply constrained on certain corded headsets studio USB video bars P series personal video devices and sync speaker phones.
We clearly have more work to do but we're making demonstrable progress on the supply chain.
Non-GAAP revenue was $420 million, a 1% increase from the prior year, driven primarily by voice and video, which were up 36% and 15% respectively.
Momentum around return to office continues to build and so does demand for our solutions excluding.
Excluding services and discontinued consumer headsets products revenue was up 6% year over year.
Service revenue was $59 million as expected down 12% due to service contracts on legacy video systems being replaced with lower cost contracts on our next Gen portfolio as I mentioned last quarter. We expect this trend to continue over time, and eventually change direction and start to grow again.
And in the future.
Gross margins rebounded sequentially, driven by favorable product mix selling more wireless headsets and higher end video solutions. However, we saw no material improvement in logistics costs, our spot market purchases and with desktop phones being an oversized portion of the backlog we expect gross.
Margins to trend lower over the next couple of quarters as we catch up on phone demand.
Although gross margins may trend lower in the near term, we still expect significant margin expansion with both logistics costs in spot market prices normalize over time.
Operating expenses were up slightly year over year at $145 million.
Given the robust demand environment, we would expect operating expenses to increase modestly in the back half of the year to roughly $150 million per quarter as we continue to invest in areas of growth.
Operating income of $53 million was down 11% year over year.
Our GAAP earnings per share was $2 21.
As we mentioned last quarter, we expected a significant onetime tax benefit in our September quarter. The tax benefit of approximately $2 50 per share is due to the intra entity IP transfer enabled by our New Ireland R&D Center of excellence in Galway.
This new entity and team creates more certainty in our global tax structure and will remove some of the variability and international taxes going forward.
Non-GAAP EPS was <unk> 77.
It was not impacted by the onetime tax benefit.
As I mentioned backlog has grown significantly and is now more evenly split between voice video and headsets.
Lastly, despite significant week 13 shipments channel inventory declined compared to the prior quarter due to demand outstripping supply across many of our products.
Turning to cash.
Operating cash flow was impacted by changes in working capital cash payments for restructuring and reduced profitability, resulting in slightly negative operating cash flow for the quarter looking forward, we expect positive cash flow for the back half of fiscal 'twenty, two but it seems likely that supply constraints will keep us from reaching our operating.
Cash flow goals of $150 million this fiscal year.
With $208 million of cash and short term investments and no near term debt maturities, we are comfortable with our cash position.
Turning to guidance.
After careful consideration and in light of the current supply uncertainty, we've decided to move away from quarterly guidance and instead provide guidance for the full year of fiscal 'twenty two.
Regarding the back half of the year guidance, we are assuming the second half of the year looks a lot like the first half in terms of supply of components.
If the global supply demonstration improves we would expect our results to improve as well.
We expect GAAP revenues for the full fiscal year to be within the range of $1 $6 75 to $1 75 billion.
Adjusted EBITDA for the full fiscal year to be within the range of $220 million to $240 million.
Non-GAAP diluted EPS for the full fiscal year to be within the range of $2 30 to $2 70.
Regarding seasonality Q3 is typically our biggest quarter of the year. However, similar to Q1 and Q2, we have significant supply arriving at the end of the quarter and with our last week of the quarter being a holiday week. We expect some of these revenue shipments to slip into January.
Into our fiscal Q4.
We therefore expect Q4 revenue to be stronger than Q3.
Lastly, we expect an effective non-GAAP tax rate of 7% to 9% and 44 million shares outstanding.
Now I'll turn the call over to the operator to begin Q&A.
Alright, so as a reminder to ask a question you will need to press star one on your telephone to resolve your question press the pound key key standby, while we compile the Q&A roster.
First question comes from the line of meta Marshall from Morgan Stanley. Your line is now open.
Hi team. This is Eric on for me too thanks for taking our questions.
Yes.
Congrats on navigating what obviously has been a challenging environment.
Maybe just on the video results you saw understand supply chain issue, but also there was a pretty meaningful sequential step down in revenue. There is that purely an element of supply chain is there some element of demand.
Customers in the enterprise side, taking longer to figure out return return to office decision I guess I'm, just trying to fully understand that.
Eric This is Dave Thanks for the question I guess, the way I would characterize it as we're seeing still rapidly increasing demand on the video side. So to be specific we gave our overall pipeline figure of 64% growth year over year within that 88% growth on the video side. So I think there is very very strong <unk>.
<unk> demand on video and based on my conversations with customers I think that continues for quite some time.
We've recently launched and what we think is going to be an amazing product for the larger comp insurance <unk> and we're seeing a lot of interest in that there had been some supply constraints on that and we also had some supply constraints on our <unk> products. So to answer your question directly it was supply related.
Got it and so just to kind of parse that too when we think about the incremental backlog increase was that more skewed to video.
We've seen we've seen an increase in video substantially and then also in phones and we've had some component issues on our <unk> loans are granted referenced we're seeing a lot of demand for teams phones and zoom phones and <unk>.
<unk> central phones as people return to the office and they want to have a soft phone solution as opposed to a PSTN line.
Alright, Okay that makes sense. Thank you very much.
Thanks for that question comes from.
Alright, so for the next question.
Greg Burns from Sidoti Your line is now open.
Okay.
Just to stick with the video.
Side of the business could you just talk about the market share gains you're seeing.
What is it one of those.
What data points are you looking at to give you confidence that you are gaining share and can you just give us maybe a little bit more color specifically.
What segments of the market Youre gaining Sharon.
Yes, So I think we're in primarily this is Dave again, Greg we're primarily gaining in the what we call. The single codec market. So this is this is really a devices intended for a conference room.
Small medium large conference room, it doesn't matter, but it's something that has an embedded codec device with it.
We have the we have our studio X series that fits directly into that space and that's where we're seeing a lot of enterprise demand as people return to the office, so I'm not characterizing it as so much on the personal products, where obviously some of our competitors had very strong sort of low end personal products and we're really focused on the enterprise space.
Okay great.
The Skype.
You saw that size.
The business I know last quarter.
You were talking about maybe some supply allocations on the Bluetooth side of the business, but the headset business was a little bit stronger than I was expecting up more sequentially.
Can you just talk about the.
Supply dynamics in that market and what youre seeing from a demand perspective.
Yeah. Let me this is Dave let me comment briefly and then Graham may kind of chime in a little bit on the supply side. So in general were up as you said a 10% on the heads of business. The vast majority of that increase is coming through office headsets. So contact center headsets remains pretty flat and we're seeing a pretty significant uptick in in sort of the office headsets the demand.
The unmet demand for the portion of the backlog.
That's tied to Hesitance is really driven by our higher end Bluetooth headsets.
There are people are saying, Hey, I had a wired USB device and now everybody want to upgrade to a high end Bluetooth device and that's that's where we do have some shortages. We also have some shortages on the deck as people go into a more dense office environment.
They are more inclined to have some sort of a high security capability and that is a big driver there and theres been some shortages on some of the debt chipsets as well. So demand is very strong there is a backlog build is really tied to the Bluetooth in that piece. So I'd also add Greg. It was it was a pleasant surprise that Europe actually recovered.
Pretty reasonable Q2 for headsets.
You recall last quarter, we talked about a little softening in Europe, and so this quarter. The team did a great job. The sales team. We saw a nice revenue increase U S led the way with the strongest increase in Asia was roughly flat, but clearly the supply issues are still holding us back from being able to realize our full potential there.
Okay, and then I guess video obviously.
More of a reopening back office trade in the headset business benefited.
During the pandemic with remote work. So how do you think about the headset business from a demand perspective going forward as we kind.
Kind of shift more to reopening and moving away from us.
As much remote work.
So it's been interesting. This is Dave again, it's been interesting talking to customers where.
And then walking through their office space, right, which we've all done our own space, but we walked through a bunch of different customers office spaces, you get another buyer for what's going on there and the vast majority of employees, maybe that 20% capacity now the vast majority of employees are positive away from pardon the pun into a small focus room, some short trying to find the privacy.
And so we're seeing a lot of demand.
For employees, saying I got to go back to the office I got to be able to do video calls I no longer have a dedicated office I have to do it at an open desk I want to make sure I have a high quality comfortable headset to do that and I don't want to be wired to the desk necessarily because I wanted to stand up and move around a little bit and so that's really what's driving that certainly because of the density.
The issues, but also Bluetooth and so I think that's going to continue we have been a little bit pleasantly surprised by the phone uptick because we're kind of trying to balance okay. How much of the soft phone clients being sold at Microsoft Zoom are going to drive phones versus headsets, but there is clearly a macro demand where people are going to want a new audio devices as some type of as they come back in.
The office and the other.
Part.
Greg that's really I think we've talked about the steam last quarter.
During the pandemic.
Wired headsets, where the where the dominant high runner and that has really shifted to the office headsets. The wireless headsets, which is great for us for two reasons one the margins are better and to the Asps are higher and so unfortunate for the supply constraints are but it's a favorable profile for us going into the back half of the year.
Okay, great. Thank you.
Thanks, Greg.
Next question comes from the line of Amit <unk> from Evercore ISI. Your line is now open.
Hey, guys. This is Michael on for Amit.
Wanted to kind of get a sense.
To the extent that it's possible to kind of step back and say if we look at the quarterly EPS run rate, what do we need to see to get back to that kind of let's say $1 plus range.
Well I mean, I think that's relatively straightforward. If you just look at the quarters that we posted a year ago, even with some supply constraints, we were posting much much stronger quarters, and so to get back up north of a one dollar it doesn't take a lot of additional components I mean, it's not a <unk>.
Sales issue it truly is a supply issue of getting additional supply.
I think we're really encouraged by the video of the single codec video and the new products. We just released.
The last two quarters, we've seen a major supply constraints. These are brand new products.
Grant and his team are doing a wonderful job getting.
Supply for those and now with <unk> 70, and <unk> 70 in a very high ASP and a very attractive margin.
It won't take a lot of additional volume to really improve revenue and significantly improve EBITDA and EPS.
Okay that makes sense.
So if you could effectively and normal supply situation theres no constraints that prevent us from getting back.
Yes.
No absolutely not I mean, this is Dave absolutely not from my point of view it doesn't take a lot of movement on the revenue line, but more importantly, we talked about sort of 700 basis points of room on the gross margin line and we got that back as well at all obviously dropped some pretty darn quickly to the EPS line.
We think we're in a healthy spot from an Opex point of view Chuck talked about going from $1 45 to 150 to be clear. This is a very very targeted investment, we're making in sales and product. So I think we're being we're being careful and responsible in the opex lines.
Okay, and just one more on <unk>.
Analogy for the December quarter.
I mean should we think about that line kind of normal I know you said it will be worse than that.
I'm, just trying to get a sense of the magnitude of it.
Yes.
It's a little bit hard to tell because there's a lot of supply coming late in the quarter and our week 13 is that week between Christmas and new year's.
So I think we're being a little cautious in that I think our view is that.
Normally without supply constraints Q3 would be a peak quarter, and then Q4 would fall off a bit. However, we're seeing a different profile based on supply.
A little more confidence in supply in Q4 than Q3, but just out of an abundance of caution we're kind of thinking into the back half of the year. It looks a lot like the first half of the year with a little bit stronger Q4 than Q3.
Great. Thanks for taking my questions.
Thank you Michael.
Next question comes from the line of Paul Silverstein from Cowen. Your line is now open.
Hey, guys. So I apologize if you already answered this but.
Im hoping youll do it Chris.
Sure.
Can you quantify the impact from book margins and revenue in the quarter.
How much you would have been able to recognize some figure would have been able to recognize both for the supply constraint.
Margin would look like both of the supply constraint.
Sure.
But if I could ask you to rehash.
What are the key metrics in terms of.
Interval to rectify or a loose cannon.
To be able to better address the supply chain challenges, we faced some things in terms of reducing travel plans et cetera.
What are the two through Q things and how much of an impact can they have in what timeframe.
So let me take that question first and then I'll pass it to grant and then I think granted pass it to Chuck to answer your first question on the <unk>.
If you don't mind.
So from my point of view. This is Dave from my point of view, what grant has brought to the table is a couple of things number one is.
Consolidated view.
Of our demand signal to the suppliers.
And doing that at the CEO level with the major suppliers. So there is a comprehensive view of the upside that holiday presents to the suppliers, we haven't always done that in the past.
Number two he alluded to this a little bit has been some.
Strategic views of our Silicon strategy, which we also have been done in the past. So we're comprehensive looking at okay. What's going be available three years five years seven years from now from a silicon geometry point of view and are we making sure that we're designing that coherently into all of our products.
So I think those are those have been in sort of the two biggest immediate changes that he has put in place and then theres a ton of sort of other work around logistics optimization network optimization ODM optimization, but in terms of getting us back to the 50 plus percent on gross profit gross margin. Those are the two things that come to mind for me.
Hi, it's grant offerings, such as adding one of the major initiatives that we're undertaking here is moving to parts that have greater availability. So this is some products that are on some older technology nodes to newer nodes and so it's a big opportunity for us in conjunction with engineering and suppliers, who are very excited about our poor.
Folio about our future that are working together with us to make sure that we're on those newer nodes that have better availability, we do expect that coming next year.
So Paul on your question of what would have been I mean, there is if we cleared all the backlog.
It would be significantly higher than what we posted but I don't think we're in a position where the backlog is going to get.
Cleared in a quarter or two it's going to take multiple quarters. It.
It may even go up in the next couple of quarters.
So the hypothetical is.
The backlog as we said increased $60 million from an already very high elevated level and that's not normal or normal backlog is quite low because a lot of it is book and ship so.
If we cleared all the backlog it would have been our best quarter ever by a long shot and that's not going to happen, it's going to take a while to work through the backlog.
So im not going to give you an exact number but it would be materially higher than what we posted this quarter are posted in the last couple of years.
As far as.
The margin profile at Analyst day, we have went through the drivers of margin.
Freight purchase price variance and overhead absorption.
With the quarter, we posted we're proud of the margins, but there is still way below what they should be I think if this is a normalized quarter you would've seen a.
Low fifty's.
<unk> 15, 55% gross margin without the one timers or the logistics driven issues.
So I think the.
I feel like we're set up for a really good place when supply chain Abates, we don't know when that is but I feel like the operating model is in a good place, we just need a little bit of recovery on chip supply.
This is Dave let me let me.
So Paul let me be a little bit hyperbolic in just a minute here and then Chuck can kick me in kind of pulling me back down. So the backlog is hundreds of millions of dollars and so I feel very comfortable saying that we should be well north of $5 billion of revenue per quarter. At this point, we should be in the mid fifties. When it comes to gross margin and we should be running still at roughly one <unk>.
And $50 million of Opex. So you do the math on that and you're well, you're well above the hard Etfs and youre well above 20% on the EBITDA line.
I appreciate that comment if I heard I just want to assure you think.
Well over 500 million.
What was the Opex number.
Well into 2000, and the low Twenty's, yes, $150 million now now I think when we see the market opening more we will spend a bit more on opex, where we're constraining spend and focusing in those key areas. So I think when the market opens back up we'll spend a little more but we're intentionally keeping our bell.
A little tighter on some of the G&A spend and things that arent going to drive near term revenue or near term product development.
For leases.
Alright, coupled with of course.
We anticipated so.
Yes.
Better question I should have asked which is.
What would the second half of fiscal 'twenty. Two we're all fiscal 'twenty two would have looked like for supply chain constraints.
Question.
Correct me if I'm wrong.
So let me ask a related question if I recall, not so long ago before you took the reins as CEO, but not too long ago.
All he has done.
In refresh or virtually and refresh of all of its products.
And I recognize that you no one could have been anticipated extraordinary.
Find yourselves impossible to get there.
I wouldn't start as part of a product refresh that you would've had to dentistry.
New Skus to the point you made it through Skus would have we been through the viewer process node technology and would have been.
Bill ability relatively higher volume.
In.
Whether it would be logical passengers or.
Switching silicon whatever it may be that.
Thats of older vintage and improve.
MS Xun forces were volume.
Is that clearly that's not the case.
Talking about having to do to work through.
<unk>.
Shall we assume that you're just to the group production averages your products should be relatively well.
So this is Dave.
I hate to see.
Speaking of prior administrations.
But I think it's obviously a public record that I've made a lot of executive management changes and that was done for a reason.
I think in the past there wasn't upgrade on some of our products.
And kudos to the prior team a lot of them are bearing fruit here with the studio X series and studio P series and <unk>.
That was much more of the prior focus then looking holistically across the headset business for example.
And putting our silicon strategy in place and so I think I think one of the faults that.
We had in the past.
As we operated very much in a silo.
For individual products as opposed to thinking coherent Lee across the whole company and making sure that what was designed was designed not just for value to our customers. What was designed for the sake of manufacturing as well.
Yeah.
So can you guys, though.
Thousands.
Well.
Okay, Alright, I appreciate it thank you.
Thanks, Paul Thank you Paul.
Alright next one on the Q is Paul Chung from Jpmorgan. Your line is now open.
Hey, guys. Thanks for taking my question so.
Do you think about the video opportunity.
How large and your view is the installed base of kind of legacy <unk>.
Conference room is kind of a larger on the larger side primarily.
Some of your older equipment and Cisco.
So how do you think about that overall opportunity versus some of these smaller huddle room opportunities.
No our enterprises kind of continue.
Continuing to upgrade equipment. There is there kind of like an average revenue and margin contribution we can think about per conference term.
And then you mentioned some market share gains who you're taking share.
Sure from an <unk>.
Head to head wire customers choosing your solution.
So let me give you a couple stats that hopefully start to frame the conversation a little bit.
And I know you all have done some research in this space as well.
So Wayne House almost a report on October 11th that indicates there is $49 2 million conference rooms.
With eight 4% video penetration.
There was a fall in report actually our earlier reports from Frost <unk> Sullivan that indicates there is a $111 million conference rooms, and classrooms. So it's a little bit of a different metric there was 6% video penetration.
Theres not a lot of detailed research in terms of the breakout of large medium small, but even if you assume.
That only 10% of that base is large conference rooms, which I think thats conservative.
The numbers are pretty astonishing.
We look at our large conference room products, we're talking.
A few thousand dollars roughly $3000.
Room revenue opportunity you go down to the.
Smaller focused rooms in your in the.
Sub $600 range for <unk>.
So it gives you a sense for sort of the the P times Q in terms of the overall demand opportunity is pretty pretty massive.
I think it's I think it's interesting when you when we talk to our customers, yes, a lot more a larger percentage of the large conference rooms is built out and the overall base without a doubt.
That's consistent with some of the other research out there.
But the vast majority of the market share well north of 50% is held by a competitor of ours.
Hmm, who who is trying hard to maintain their market share, but I think there is such a preponderance of shifting going on with teams and zoom and Google and ring central that their ability to hang onto that market share is.
Diminishing rapidly based on the customers that we're seeing based on the pipeline that I just referenced.
Gotcha.
That's good.
No go ahead.
Specifically about the competition.
Yes.
When they're when they're thinking about the the solution tower, you kind of winning on a head to head.
Competition business.
So the first thing is really a partnership with with Microsoft and Zoom is really important as we go to market because the companies have already made a decision that they wanted to get off of their old on premises gear and the vast majority of their employee base right now is used to using teams or zoom or Google at this point.
As opposed to what was in the office before and so as soon as the CIO or in many cases at this point the CEO of Fortune 500 companies made the decision to shift it really becomes a question on how quickly are they going to shift and how much gear do they have to remove to make that transition possible and so that's far and away. The single biggest decision point that's happening.
We're one of the few companies that can provide video and voice and headsets completely certified on both teams and zoom and so that's a real competitive advantage and so drastically reduces the selection set in terms of the hardware that they might be considering as part of that.
Got you and then.
My follow up is as we kind of move on to fiscal year <unk>.
'twenty two guidance.
How good is your visibility there I know you mentioned the backlog and whatnot, but.
Our large video and enterprise purchases pretty well known in advance.
You've typically done kind of a book and ship business. So what kind of gives you the confidence in that fiscal year revenue estimate and is there some conservatism baked in there.
Well, we always strive to be conservative.
Right in terms of making sure that we put numbers out there that were sure. We can head we sometimes have surprises as we had this quarter, obviously and so to be clear our guidance philosophy. This is Dave speaking on behalf of trucking myself has not changed.
And so on and so I firmly believe that Thats, where were at and were continuing to narrow down the number of supply chain issues that we have we haven't solved them all but we are definitely narrowing down the number of them, which helps kind of give us more guidance.
On the confidence with regard to demand.
It's talking directly to dozens of customers and these are all fortune 500 companies and then being crystal clear on sort of their priorities. They are saying listen the first people into the office right now tend to be senior executives, there having meetings and large conference rooms, they're just desperate to get their hands on to some of these large conference room solutions that we have like the <unk>.
$70 70 that we just announced and just released and then the question becomes okay. What do I do how do I, how do I make sure that that boardroom is fully capable. So does it require multiple cameras or how do I structure together and so the smart gallery solution that we announced with zoom is very very powerful because it provides a much more sort of equal hybrid meeting experience.
And then once they sort out the large conference rooms.
That's really sort of the curve that we see for some of the smaller spaces overtime.
Paul I'll, just add on a bit.
When we referenced backlog.
Those are firm noncancelable orders.
Pipeline is a hope and a dream and customers that we're talking to.
Backlog is firm orders that they can't cancel.
And so those that the demand side, we have incredible confidence over the back half of the year.
We have no questions about the demand side.
It's really on the supply side, and I think grant us a bit more optimistic than I am quite frankly in terms of what he can deliver but our view is.
There is so much media and noise on global supply chain issues and it just doesn't feel like it's getting better and so our view for back half guidance is it's not getting better now if it does thats upside, but our view is that we're in this.
Issue today, and I think grant is a lot more optimism around Q4 than I do but our view is until we start seeing additional commitments above and beyond what we're getting today, we want to be we think that we're kind of in this place until things Wattup.
Okay, Great Hey, Paul it's correct.
Paul It's grant so just to add onto what Chuck said about the optimism.
The suppliers that I talked to they are very excited about poly they understand all the questions that you guys have asked on the video and the opportunity there they want to be a part of our story they want to be a part of our long term plans. So that's where some of my optimism comes from as the suppliers of the discussions I've had.
Thanks, Matt.
Thanks, Paul.
Next one on the line is Sharon <unk> from Northland Capital markets. Your line is now open.
Hi, This is Shannon on behalf of Mike Latimore. My question is on regardless of prices.
How has the pricing been across your product line and the new EPC.
Please <unk> right on the second half with Goodyear.
Sharon This is Dave we're looking at that carefully sort of on a product by product basis, and obviously, we need to have both a shortage of supply from our competition and availability of supply on our side to be able to effectively get much out of the prices, but we are seeing some component increases clearly our customers are aware of that.
And.
We'll continue to sort of evaluate on a property by property basis, where we can and should be raising the prices.
In the short term our plan has been to discount less.
So we have a <unk>.
<unk> price.
<unk> by price.
And we have discounts for many products.
If you think about desk phones, which were significantly supply constrained we are not raising asps at this point, although we may.
But we have been discounting a lot less which has been helpful to us to increase our overall realized ASP versus street ASP.
Okay got it for my second question is.
On the new apartment product second BC has it gone five wilsonville teams yet.
And do you see a growing demand in the December quarter, given the holiday peak.
I definitely see a growing demand I don't know we've characterized what percentage of the business. It is yet Sharon, but I do see a growing demand.
From a holiday point of view, we're not targeting the E tail space as much. So a lot of the significant sales of those products are still going through our enterprise channels.
Okay. Thank you.
Thanks Sharon.
We've seen it go through the question.
Quick on this one.
You were just addressing pricing.
I Trust you are not seeing any meaningful latest bureaus and just the opposite.
Talking about raising prices given this environment.
When you're shipping a can.
Can you don't have enough supply, but pricing is not an issue in terms of competition loosen.
That's right I think so far the industry participants have behaved rationally and have not been lowering prices, we do Paul have none.
Number of categories, where we're not.
Supply constrained and in those markets. So far we everyone is behaving rationally.
Pricing and margins looked to be intact.
What are those categories, we're not supply constrained.
I mentioned in the prepared remarks.
But it would be some of our corded headsets.
<unk> USB.
And some of the P series of personal video products webcams and some of the personal video bars.
Response.
Can you remind me what are those as a percentage of revenue.
Collectively the personal video bars, a brand new category is very very exciting it's still very early in the lifecycle. So it's early.
So I'd say it's immaterial.
Cams are fairly immaterial.
Black wire is pretty material is a big it's a big part of our headset business.
And the studio studio USB as.
Is it reasonable size, it's not the dominant category I think the new X series and the <unk>.
Whatnot is.
Thats quite a bit bigger.
Alright, and one last question for me.
To get when you provided it but alas beyond backlog withdrawal.
Well times.
What are the orders look like in the quarter.
Bill.
We don't disclose book to Bill primarily because it is not a <unk>.
Relevant metric.
Normal part of our business this backlog issue.
He is incredibly frustrating.
We always have some backlog, but it's normally fairly minor.
And it's at a level that we've never seen before and that's not healthy our customers don't like it we don't like it we prefer that we have product available to ship when our customers want it.
So we don't provide book to Bill although it's.
Unfortunately, it's a very very tight right now.
In your order growth.
Well the order book effectively is what we've booked and sold and the cumulative backlog and so that obviously has a number quite a bit higher than what the current quarter results were.
Alright ill leave it at that thanks Bill.
Thank you Paul.
And there are no further question on acute I will now turn the call over back to the presenters.
Thank you all very much for the time and really appreciate the healthy questions. Here. It's good I remain very very excited about the growth prospects for poly very excited about the demand that's out there.
Cited about the customer reception to all the new technology that we're developing in that we've released.
And honestly I remain impressed by the dedication of the team by the commitment during the supply chain challenges and look forward to talking to you all soon with the rapidly improving results. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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