Q3 2022 Poly Earnings Call

Speaker 1: and uncertainties related to such statements are detailed in our most recent 10Q, 10K, and today's presentation and press release.

Such statements are detailed in our most recent 10- Q1 0-K and today's presentation and press release.

Speaker 1: You should also refer to the materials we provide today for an explanation of the non-GAAP financial measures discussed on this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and previously reported results and as a basis for planning and forecasting future periods.

You should also refer to the materials, we provide today for an explanation of the non-GAAP financial measures discussed on this call along with a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and previously reported results.

And as a basis for planning and forecasting future periods.

Speaker 1: All of our earnings materials are posted on our investor relations website at investor.poly.com. With that, I will now turn the call over to Dave.

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.

Speaker 2: Good morning from California and thanks for joining us from wherever you are.

Good morning from California, and thanks for joining us from wherever you work in.

Speaker 2: In the context of continued supply chain pressures, Poly delivered solid financial results.

In the context of continued supply chain pressures poly delivered solid financial results.

Speaker 2: The headline numbers are gap revenues of $410 million. While the demand for poly products remains...

Headline numbers are GAAP revenues of $410 million.

While the demand for polished products remains incredibly strong.

Speaker 2: Recall that last quarter, our backlog increased $60 million sequentially.

Recall that last quarter, our backlog increased $60 million sequentially.

Speaker 2: During this third quarter, Backlog grew an additional $59 million with increases across each of our main product categories. I will talk more about the specific demand trends and supply chain constraints we see shortly.

During this third quarter backlog grew an additional $59 million with.

<unk> across each of our main product categories I will talk more about the specific demand trends and supply chain constraints, we see shortly.

Speaker 2: Adjusted EBITDA was $47 million and non-GAAP EPS was $0.57.

Adjusted EBITDA was $47 million and non-GAAP EPS was <unk> 57.

Speaker 2: Gross margins were 44.5% and would have been in excess of our long-term target of 50%. But a combination of product mix and continuing supply chain pressures, in particular inflated component and freight costs, continues to create temporary pressures.

Gross margins were 44, 5% and would have been in excess of our long term target of 50%, but a combination of product mix and continuing supply chain pressures in particular inflated component and freight costs continued to create temporary pressure.

Speaker 2: As we look forward to the year ahead, despite ongoing and challenging supply chain issues, it's hard not to be excited about the opportunity in front of us.

As we look forward to the year ahead, despite ongoing and challenging supply chain issues, it's hard not to be excited about the opportunity in front of us.

Speaker 2: From our perspective, the pandemic essentially created a three-phase demand.

From our perspective, the pandemic essentially created a three phased demand cycle.

Speaker 2: Phase one, which many of you will remember, meant everyone stole their kids' headsets and ran to the local retailer to buy whatever webcam they could find.

Phase one, which many of you will remember everyone's still have their kids headsets and ran to the local retailer to buy whatever webcam they could find.

Speaker 2: This phase benefited a certain kind of company. Those companies making commoditized gear with already established retail and retail distribution channels. That's not poly.

This phase benefited a certain kind of company those companies, making commoditize gear with already established retail and E tail distribution channels, that's not poly phase.

Speaker 2: Phase two, which I have personal experience with, saw us come to fully appreciate that working from home sounds like a luxury until your dog sees a squirrel and starts barking like crazy during your board meeting. During this phase, we realized we needed tools, not toys, to do our jobs. High quality products, noise blocking, acoustic fencing, and pro grade lipids for toxic

Phase, two which I have personal experience with SaaS come to fully appreciate that working from home sounds like a luxury until youre dogs sees a squirrel and starts barking like crazy during your board meeting during this phase we realize we needed tools not toys to do our jobs high quality products noise blocking acoustic <unk>.

<unk> and pro grade optics.

Speaker 2: Holley makes professional gear and during this phase we saw robust sales of headsets and personal video solutions.

<unk> makes professional gear and during this phase we saw robust sales of headsets and personal video solutions.

Speaker 2: Phase three is where we are now, and it's where Pauli excels. Phase three is the permanent entrenchment of hybrid work, a return to office that must simultaneously anticipate and accommodate remote participation in every meeting, conversation, and decision.

Phase three is where we are now and it's where poly excels phase III as the permanent entrenchment of hybrid work our return to office that must simultaneously anticipate and accommodate remote participation in every meeting conversation and decision.

Speaker 2: Poly's core value derives from the expansion of hybrid work. As more organizations reincorporate office time back into their operations, Poly will increase the number of people

<unk> core value derived from the expansion of hybrid work as more organizations Reincorporate office time back into their operations poly will increasingly benefit.

Speaker 2: That's because if the pandemic created a set of temporary pressures, it also set in stone a permanent change in the way we were.

That is because if the pandemic created a set of temporary pressures. It also set in stone a permanent change in the way we work.

Speaker 2: Importantly, we don't think the future of work is binary, a choice between fully remote workforces versus everyone back in the office. The future of work is hybrid, which is to say for any given workforce, some percentage of folks will be remote, some percentage of the time, while the balance will be in the office.

Importantly, we don't think the future of work is binary choice between fully remote workforces versus everyone back in the office. The future of work is hybrid which is to say for any given workforce.

Percentage of folks will be remote some percentage of the time, while the balance will be in the office.

Speaker 2: These percentages can and will shift, but the simple truth is that the future of work will almost always involve at least one person out of the meeting room and one person in.

These percentages can and will shift, but the simple truth is that the future of work will almost always involved at least one person out of the meeting room and one person in it.

Speaker 2: At the same time, the pandemic accelerated and amplified two trends in communications and collaboration that Pauli had already identified as key secular shifts.

At the same time, the pandemic accelerated and amplified to trends in communications and collaboration that policy had already identified as key secular shifts first every company will move communications to the cloud and second every meeting will move to video.

Speaker 2: First, every company will move communications to the cloud, and second, every meeting will move to video.

Speaker 2: The demand implications are huge because it represents a massive generational shift in collaboration and communication spending. It is what I have characterized internally at Poly as a demand super cycle.

The demand implications are huge because it represents a massive generational shift and collaboration and communication spending. It is what I have characterized internally of poly as the demand Super cycle.

Speaker 2: The reality is that return to the hybrid office means a long-term, durable shift in the demand profile for Poly's products and services.

The reality is that return to the hybrid office means a long term durable shift in the demand profile for polished products and services.

Speaker 2: The world's biggest banks, healthcare systems, manufacturers, professional services firms, and governments need to completely overhaul their legacy communications infrastructure. They know they need to be ready for hybrid work, taking place inside and outside the office, using modern cloud-based collaboration solutions capable of operating on multiple platforms.

The world's biggest banks health care systems manufacturers professional services firms and governments need to completely overhaul their legacy communications infrastructure. They know they need to be ready for hybrid work, taking place inside and outside the office using modern cloud based <unk>.

Aberration solutions capable of operating on multiple platforms for.

Speaker 2: For decades, traditional on-premises competitors had a stranglehold on the world's biggest accounts as these customers were effectively held hostage to a single hardware architecture supporting the single proprietary communications platform. Almost overnight, all that legacy equipment went from being a competitive moat to being a mill...

For decades traditional on premises competitors had a stranglehold on the world's biggest accounts as these customers were effectively held hostage to a single hardware architecture supporting a single proprietary communications platform almost overnight all of that legacy equipment went from being a competitive moat.

To be in the Millstone and the Ceo's CIO and CTO is that these companies are calling us because they need to replace it theyre throwing it all out.

Speaker 2: And the CEOs, CIOs and CTOs that these companies are calling us because they need to replace it. They're throwing it all out. They want modern cloud collaboration equipment that works every bit as well on teams as it does on Zoom or Google.

<unk> modern cloud collaboration equipment that works every bid as well and teams as it does on zoom or Google.

Speaker 2: Poly has the best enterprise grade platform agnostic solutions for any business seeking to ready itself for cloud collaboration and our customers know it.

<unk> has the best enterprise grade platform agnostic solutions for any business seeking to ready itself for cloud collaboration and our customers know it.

Speaker 2: So right now, when I talk about the hundreds of millions of dollars currently in our back,

So right now when I talk about the hundreds of millions of dollars currently in our backlog that.

Speaker 2: That's exciting, but it doesn't begin to capture the magnitude of the opportunity. These big accounts, what we call franchise accounts, are currently ordering poly solutions for hundreds of conference rooms and proof of cons of exercises. But this is just the start. They have thousands of rooms that need to be built out.

That's exciting but it doesn't begin to capture the magnitude of the opportunity. These big accounts, what we call franchise accounts are currently already in poly solutions for hundreds of conference rooms, and proof of concept exercises, but this is just the start they have thousands of rooms that need to be built out.

Speaker 2: These enterprise accounts don't want to buy just off the shelf webcams. They want complete solutions and a support system, including monitoring and room insights, which we provide through our PolyLens platform. And a service is offering such as PolyPlus that wraps all the installation, maintenance, and upgrade support they need into one simple pack.

These enterprise accounts don't want to buy just off the shelf webcams, they want complete solutions and a support system, including monitoring and room insights, which we provide through our <unk> platform and a services offering such as poly plus that wraps all the installation maintenance and upgrade support.

They need into one simple package.

Speaker 2: For the first time in years, Poly is set to win these franchise accounts. We have dedicated enterprise account executives who have sold into the Global 2000 for decades, a worldwide services team, and we have the product features and quality to win these accounts. This demand super cycle!

For the first time in years Poly is set to win these franchise accounts. We have dedicated enterprise account executives, who are sold into the global 2000 for decades, a worldwide services team and we have the product features and quality to win these accounts.

This demand Super cycle is a global phenomenon.

Speaker 2: We are seeing it as we engage with our own customers and through the massive reach of our key partners, like Microsoft and Zoom, with whom we go to market to provide integrated communications and collaboration solutions.

We are seeing it as we engage with our own customers and through the massive reach of our key partners like Microsoft and zoom with whom we go to market to provide integrated communications and collaboration solutions. We continue to make progress in forging. These valuable partnerships in markets that we believe will make a significant contribution to our growth in <unk>.

Speaker 2: We continue to make progress in forging these valuable partnerships in markets that we believe will make a significant contribution to our growth and profitability.

Speaker 2: One major initiative I'll highlight is our relationship with Tencent as we seek to expand our presence in China.

Stability.

Major initiative I'll highlight is our relationship with Tencent as we seek to expand our presence in China.

Speaker 2: For context, years ago, China was a strong market for poly, one in which we had tremendous revenue growth and significant market share. A combination of trade pressures and a focus on local vendors served to cut that share in half over the past five years.

For context years ago, China was a strong market for poly one in which we had tremendous revenue growth and significant market share the combination of trade pressures and a focus on local vendors certainly cut that share and have over the past five years. However.

Speaker 2: However, as with the demand drivers we see in other markets, businesses and government agencies in China are now starting to make investments in upgrading their communications infrastructure to cloud-ready videos.

However, as with the demand drivers, we see in other markets businesses and government agencies in China are now starting to make investments in upgrading their communications infrastructure to cloud ready video <unk>.

Speaker 2: Tencent is leading the shift to cloud-based communications and collaboration in the Chinese market. And our partnership with them, starting with certification, and ultimately leading to an integrated go-to-market strategy, will make Polly an organic part of Tencent's communication ecosystem. This partnership is still young, but has every opportunity to deliver meaningful growth for Polly as it develops.

<unk> is leading the shift to cloud based communications and collaboration in the Chinese market and our partnership with them starting with certification and ultimately leading to an integrated go to market strategy will make Polly an organic part of <unk> communications ecosystem. This partnership is still young but has every opportunity.

Fortuity to deliver meaningful growth for poly as it develops.

Speaker 2: As strong as the demand side of the equation is at the same time, it's no secret that businesses everywhere remain challenged by supply chain constraints and disruptions. Our backlog tells the story. While we're excited to see so much demand growth, we are frustrated because we want to fill our customers orders sooner than we currently can.

As strong as the demand side of the equation is at the same time, it's no secret that businesses everywhere remained challenged by supply chain constraints and disruptions. Our backlog tells the story, while we're excited to see so much demand growth. We are frustrated because we want to fill our customers' orders sooner than we currently can.

Speaker 2: Our Supply Chain team is doing extraordinary work to deliver improvement.

Our supply chain team is doing extraordinary work to deliver improvements. Examples include product design to ensure that from inception, our new products can be built efficiently with readily available and modern components.

Product Redesigns, we discussed last quarter are on track with most of them scheduled for completion this spring and summer.

Our recycling and refurbishing the initiative is also working.

We've already taken in approximately 15000 devices from customers and are in the process of refurbishing and redistributing them to customers in need.

Those that can't be refurbished are recycled a win for our customers for us and for our ESG initiatives.

Speaker 2: We've been as transparent as possible about our business and our challenges with investors on this front and will continue to be. The number of suppliers where we have challenges has decreased substantially to just a handful.

We've been as transparent as possible about our business and our challenges with investors on this front and we will continue to be.

The number of suppliers, where we have challenges has decreased substantially to just a handful.

Speaker 2: The potential benefit from improvements with these suppliers is spring loaded. Remarkably, in some cases, just a few hundred thousand dollars of components will unleash tens of millions of dollars in revenue.

The potential benefits from improvements with the suppliers is spring loaded remarkably in some cases, just a few hundred thousand dollars of components will unleash tens of millions of dollars in revenue.

Speaker 2: We're working very closely with these suppliers to understand their fab plans, alternative component qualification options, and so on. We've been as transparent as possible about our business and our challenges with investors on this front. And we'll continue to.

We're working very closely with the suppliers to understand their fab plants alternative component qualification options and so on.

We've been as transparent as possible about our business and our challenges with investors on this front and we will continue to be.

Speaker 2: I'm confident what resolve these issues. It's only a question of when.

I am confident.

Will resolve these issues, it's only a question of when as.

Speaker 2: As we look forward to the year ahead, we see improvements both in the supply chain and from our responses to it that make us confident we can deliver growth.

As we look forward to the year ahead, we see improvements both in the supply chain and from our responses to it that makes us confident we can deliver growth well.

Speaker 2: We'll offer formal annual guidance next quarter. However, we see a realistic path to mid single digits, applying growth next year.

Offer formal annual guidance next quarter. However, we see a realistic path to mid single digit top line growth next year.

Speaker 2: We expect supply constraints to continue to impact the first half of fiscal 23 with accelerating revenue in the back half driven by product redesign, demand tailwinds and significant back.

We expect supply constraints to continue to impact the first half of fiscal 'twenty three with accelerating revenue in the back half driven by product redesign demand tailwind and significant backlog.

Speaker 2: for our partners, customers, suppliers, and everyone at Poly. There's a lot to look forward.

For our partners customers suppliers and everyone at poly Theres a lot to look forward to.

Speaker 2: Thank you for your time. And now let me turn to Chuck to review our financials in more detail.

For your time and now let me turn to Chuck to review our financials in more detail.

Speaker 2: Thanks, Dave. As mentioned at the top of the call, we are seeing a wave of demand that we expect to last for several years.

Thanks, Dave as mentioned at the top of the call. We are seeing a wave of demand that we expect to last for several years.

Speaker 2: Our original business model, pre-pandemic, was focused on capitalizing on the move to the cloud, providing solutions and services that integrated and complemented our cloud-based alliance partners.

Our original business model pre pandemic was focused on capitalizing on the move to the cloud providing solutions and services that integrated and complemented our cloud based alliance partners.

Speaker 2: The slope of that demand curve dramatically steepened when the pandemic struck, significantly increasing sales of our headsets and personal video solutions.

Slope of that demand curve dramatically steepened, when the pandemic struck significantly increasing sales of our headsets and personal video solutions.

Speaker 2: Today, using Dave's terminology, we are entering the third phase of demand with a shift toward return to office and hybrid work.

Today, using Dave's terminology, we are entering the third phase of demand with a shift towards return to office and hybrid work.

Speaker 2: This is a once in a generation shift. It's similar to mobile phones or VoIP adopts.

This is a once in a generation shift, it's similar to mobile phones or Voip adoption.

Speaker 2: Our confidence in this demand cycle is based on the growth we've seen in both our backlog and sales engaging.

Our confidence in this demand cycle is based on the growth we've seen in both our backlog and sales engagements on.

Speaker 2: Unfortunately demand across many product lines far outstrips our current supply, but this will improve.

Unfortunately demand across many product lines far out strips, our current supply, but this will improve.

Speaker 2: As we said last quarter, we don't know precisely when these supply constraints will ease, but we have high conviction they're temporary and will either be resolved by increased supply or our product redesigns, which are well underway.

As we said last quarter, we don't know precisely when these supply constraints will ease, but we have high conviction. There are temporary and will either be resolved by increased supply or our product redesigns, which are well underway.

Speaker 2: As a result, we continue to balance strategic investments with profitability to ensure that when supply chain issues abate, we are in a strong position to win. Now onto the numbers.

As a result, we continue to balance strategic investments with profitability to ensure that when the supply chain issues abate. We are in a strong position to win now onto the numbers.

Speaker 2: Our gap revenue was $410 million, a year-over-year decline of 15% primarily due to component shortages on Studio X video bars, desktop phones, and wireless headsets.

Our GAAP revenue was $410 million a year over year decline of 15%, primarily due to component shortages and studio X video bars desktop phones and wireless headsets.

Speaker 2: Similar to last quarter, the net result was a significant increase in backlog at quarter ****** Maserade ********************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************

Similar to last quarter. The net result was a significant increase in backlog at quarter end.

Speaker 2: Each of our major product categories to client year over year, primarily due to supply constraints, which also impacted services revenue.

Each of our major product categories declined year over year, primarily due to supply constraints, which also impacted services revenue.

Speaker 2: Service contracts also sit on the sidelines, waiting for the products to shift before we can begin recognizing revenue. As a result, we expect the decline in service revenue to moderate as we work down the backlog.

Service contracts also sit on the sidelines waiting for the products to ship before we can begin recognizing revenue as a result, we expect a decline in service revenue to moderate as we work down the backlog.

Speaker 2: As expected, gross margins declined sequentially, driven by product mix, increased logistics costs, and higher prices for spot market purchases.

As expected gross margins declined sequentially, driven by product mix increased logistics costs and higher prices for spot market purchases.

Speaker 2: Given the current supply and logistic situation, including inflationary pressures, we have implemented a price increase across many of our product lines.

Given the current supply and logistics situation, including inflationary pressures, we have implemented a price increase across many of our product lines.

Speaker 2: This price increase will help offset the continued margin pressure we've seen over the past several quarters.

This price increase will help offset the continued margin pressure, we have seen over the past several quarters.

Speaker 2: Although the full effect of this increase won't be realized until the September quarter, because we are protecting our customers who have current orders and backlog, we felt it was necessary to make these adjustments in order to protect our profitability going forward.

Although the full effect of this increase won't be realized until the September quarter, because we are protecting our customers who have current orders in backlog. We felt it was necessary to make these adjustments in order to protect our profitability going forward.

Speaker 2: In addition, we continue to rely heavily on air freight, and according to the Baltic Exchange Air Freight Index, rates on many routes out of Asia are up over 50 percent in the last six months and continue to climb.

In addition, we continue to rely heavily on airfreight and according to the Baltic Exchange Air freight index rates on many routes out of Asia are up over 50% in the last six months and continue to decline.

Although we don't know when air freight rates will ease as the supply situation improves we will look for opportunities to move more product on the water. This should improve our gross margins over time.

Speaker 1: My last comment on gross margins is that we still see a path to 50% plus gross margin.

My last comment on gross margins is that we still see a path to 50% plus gross margins.

Speaker 1: As freight normalizes, component supply improves, and product re-spins are completed, we expect to move back up into the low 50s where we were pre-pandemic.

As freight normalizes components supply improves and product re spins are completed we expect to move back up into the low <unk>, where we were pre pandemic.

Speaker 1: In fact, this quarter, without the temporary cost increases, margins would have been over 50 percent. And the recently announced price increases reinforces our conviction.

In fact, this quarter without the temporary cost increases margins would've been over 50% and the recently announced price increases.

Enforces our conviction.

Speaker 1: Operating expenses of $144 million were down 8% year over year, primarily driven by lower variable compensation and cost savings from restructuring.

Operating expenses of $144 million were down 8% year over year, primarily driven by lower variable compensation and cost savings from restructuring.

Speaker 1: Operating income was $38 million and adjusted EBITDA was $47 million.

Operating income was $38 million and adjusted EBITDA was $47 million.

Speaker 1: non-GAAP EPS was 57 cents and benefited from a true-up of the expected full-year tax liability, which created a negative tax rate and favorable EPS impact.

non-GAAP EPS was 57.

And benefited from a true up of the expected full year tax liability, which created a negative tax rate and favorable EPS impact.

Speaker 1: As we expected, we had a large number of shipments in the 13th week of the quarter.

As we expected we had a large number of shipments and the 13th week of the quarter.

Speaker 1: When adjusting for in transit inventory that had not yet reached our channel partners, channel inventory sequentially declined as demand continues to outstrip supply across most of the portfolio.

When adjusting for in transit inventory that had not yet reached our channel partners channel inventory sequentially declined as demand continues to outstrip supply across most of the portfolio.

Speaker 1: our liquidity position is strong. We recently amended the undrawn revolver to give us more cushion in our leverage ratio as we work through the supply chain dislocation.

Our liquidity position is strong we recently amended the undrawn revolver to give us more cushion in our leverage ratio as we work through the supply chain dislocation.

Speaker 1: Operating cash flow was flat this quarter due to an increase in working capital.

Operating cash flow was flat this quarter due to an increase in working capital.

Speaker 1: With 200 million of cash and short-term investments, our undrawn revolver and no near-term debt maturities, we are comfortable with our liquidity.

With $200 million of cash and short term investments, our undrawn revolver and no near term debt maturities, we are comfortable with our liquidity.

Turning to guidance.

Speaker 1: As you may recall last quarter we moved away from quarterly guidance and instead provided guidance for the full fiscal year of 22.

As you May recall last quarter, we moved away from quarterly guidance and instead provided guidance for the full fiscal year 'twenty two.

Speaker 1: Today, we are tightening the ranges on our full year outlook for fiscal 22. We expect gap revenue to be within the range of 1.675 to 1.7 billion.

Today, we are tightening the ranges on our full year outlook for fiscal 'twenty two.

We expect GAAP revenue to be within the range of $1 675 to $1 7 billion.

Speaker 1: Adjust the EBITDA to be within the range of 220 million to 230 million.

Adjusted EBITDA to be within the range of 220 million to $230 million.

Speaker 1: non-gap diluted EPS to be within the range of $2.45 to $2.65.

non-GAAP diluted EPS to be within the range of $2 45.

To $2 65.

Speaker 1: We expect an effective non-GAAP tax rate of 7 to 9% and 44 million shares outstanding.

We expect an effective non-GAAP tax rate of 7% to 9% and 44 million shares outstanding.

Speaker 1: We will provide formal guidance for fiscal 23, including margins and profitability on our next call. I'll now turn the call over to the operator to begin Q and a. Operator.

We will provide formal guidance for fiscal 'twenty, three including margins and profitability on our next call.

I'll now turn the call over to the operator to begin Q&A operator.

Speaker 3: Thank you. And as a reminder, if you'd like to ask a question, please press star then one on your telephone keypad. Our first question is from Matta Marshall with Morgan Stanley . Your line is...

Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.

Our first question is from meta Marshall with Morgan Stanley . Your line is open.

Speaker 4: Great, thanks. Maybe a couple of questions for me. One, you noted some of the services revenue.

Great. Thanks.

Maybe.

Couple of questions from me one.

And then you noted some of the services revenue.

Hi.

Speaker 4: you weren't able to recognize because of lack of availability of new products. And I guess I just assumed a lot of that services revenue is attributable to kind of the old polycom business. So just any sense of kind of when we look at that services business, how much we should think is attributable to new versus runoff products. And then maybe second question.

Could you just werent able to recognize because of kind of a lack of availability of new products and I guess I just assumed a lot of that services revenue was attributable to kind of the old Polycom business. So just any sense of kind of when we look at that services business. How much we should think of attributable to new versus one off products.

And then maybe a second question.

Speaker 4: In just any context for backlog and how much of that is cancelsable versus non-cancable, thanks.

Just any.

Contacts for backlog and how much of that is cancelled all versus noncancelable.

Speaker 1: Thanks, good to hear from you on the backlog. Generally, all of our contracts are non cancelable. There's some rotation allowed. So I wouldn't say 100%, but for the most part backlog is booked and non cancelable on the services revenue side.

Thanks, Matt good to hear from you.

The backlog generally all of our contracts are noncancelable theres. Some rotation allowed so I wouldn't say, 100%, but for the most part.

Backlog is booked in noncancelable.

On the services revenue side.

Speaker 1: You know, there's still, we haven't disclosed the exact percentage, but there's still, you know, a reasonable portion of backlog from the legacy video gear. Now, that legacy video gear is being upgraded to our new in-room video systems, X30, X50, X70, G7500.

There is still we haven't disclosed the exact percentage, but there is still.

A reasonable portion of backlog from the legacy video.

Here now that legacy video gear is being upgraded to our new in room video systems X $30 50, <unk> 70, <unk> 7500.

The issue that we're seeing on the maintenance side and support side is that the backlog is so high that we can't ship the products from the product ship them, we'll get the service attach for a lot of those products and that will help in our services revenue last quarter, we outlined about a.

Speaker 1: and that will help in the services revenue. Last quarter we outlined about a four to six quarter window where we thought services would start to asymptote into the client and then start to grow again.

4% to six quarter window of where we thought services would start to asymptote and the decline and then start to grow again, I think thats, probably still holds today, maybe it's a year.

Speaker 1: I think that's probably still holds today. Maybe it's a year.

So we should see a small reduction, but we need to clear the backlog to get the new products out in the field to start generating service revenue.

Okay, great. Thanks.

Thank you thanks, David.

Speaker 3: Our next question is from Amit Daryunani with Evercore, your line is up.

Our next question is from Amit <unk> with Evercore. Your line is open.

Speaker 5: Thanks for asking my question. Good morning, everyone. I have two as well, I guess. First off, on the gross margins, I look at it, you see about 44 and a half of the gross margins. You both have talked about 50% plus potential. Is there a way to think about the 550 basic ones that Delta call in over here? How much of that was driven by mixed issues versus supply chain dynamics in the corner view?

Thanks, a lot for taking my question good morning, everyone.

Talk to us while I guess wholesale on the gross margin if I look at it.

You got about 44, 5% gross margins off the board talked about 50% plus.

Potential.

Is the way to think about the 550 basis points of Delta call. It over here how much of <unk> was driven by mix issues versus supply chain dynamics in the quarter for you.

Speaker 1: Well, as Dave mentioned, I think I covered it as well. And I'm pro-formist side for the quarter.

Well.

As Dave mentioned, I think I covered it as well.

On a pro forma side for the quarter.

Speaker 1: If not for freight and PPV and whatnot, we would have been over 50% this quarter. So the entire delta below where we posted and 50% is during by these transitory costs. And so we have to price increase that will certainly help going forward because some other costs are increasing, but.

If not for freight and PPV and whatnot, we would have been over 50%. This quarter. So the entire delta below where we posted 50% is driven by these transitory costs and so.

We announced the price increase that will certainly help going forward because some other costs are increasing but the.

Speaker 1: The mix definitely had an impact. You'll note video.

The mix definitely had an impact Youll note video.

Speaker 1: shipments were down significantly because the chip shortage and a lot of that is the new video gear that has very very high margins So when the chip supply of baits will ship a lot more video that will help mix up gross margins

Shipments were down significantly because the chip shortage and a lot of that is the new video gear that is very very high margins. So when that ship supply abates, we'll ship a lot more video that will help mix up gross margins and certainly freight and PPV will abate over time and so we're very confident that we'll be in that low to mid fifties over.

Speaker 2: and certainly freight and PPV will abate over time. And so we're very competent that will be in that load of mid 50s over time. So I'm at a very, very out of this today, at a very, very high level. I think about sort of the seven points of Delta versus art targets right now. I'm gonna be a little bit less precise, perhaps, and chuck my B.

Time amid at a very very high this is David a very very high level I think about sort of the seven points of delta versus our targets right now and will be a little bit less precise, perhaps and Chuck might be but I think roughly 3% of that is tied to three 3% is tied to purchase price variances and maybe 1% is tied to sort of factory loading so thats kind of in my mind.

Speaker 2: But I think roughly 3% of that is tied to freight, 3% is tied to purchase price variances, and maybe 1% is tied to sort of factory loading. So that's kind of in my mind sort of the rough 7% Delta that we have between where we're at and where we should be at in terms of targets here.

The rough 7% Delta that we have between where we're at and where we should be at in terms of targets here.

Speaker 5: Perfect, that is really helpful. You know, if you're just being followed from this dynamic a bit more up, can you quantify the pricing increases you're implementing? And could that alone, are you provided as good stickiness that I just be, get you back to the 50% kind of runway?

Perfect that is really helpful.

<unk>.

Just a follow up on this dynamic a bit more up can you quantify the price increases implemented and could that alone provided the stickiness of that obviously gets you back to a 50% kind of run rate.

Speaker 1: Well, it's not going to close the gap from where we are today. We'll need to have, you know, freight, you know, move products back to the water, etc.

Well.

I expect them to close the gap from where we are today.

We'll need to have a freight move products back to the water et cetera.

Speaker 1: We have not quantified the price increase. We did not increase prices on all products. We're very focused on gaining share in key markets and key products. And we're extremely focused on regaining loss share and gaining new share. And so in some of those products, we have really good margins. And so it's not every product in every market, but it's pretty broad-based pricing.

We have not quantified the the.

The price increase we did not increase prices on all products were very focused on gaining share in key markets and key products and we're extremely focused on regaining lost share and gaining new share.

And so in some of those products, we have really good margins and so it's not every product in every market, but it's pretty broad base price increase.

Speaker 5: A final one if I could squeeze in, Dave, you talked about missing list growth for next year, I believe. Could you perhaps stack that up a little bit in terms of what you're going to see across the different product categories? And very specifically, you talk a little bit about media that would be helpful for the next year.

A final one if I could squeeze in Dave you talked about mid single digit growth for next year I believe.

Could you, perhaps stack that up a little bit in terms of what you're going to see across the different product categories.

Specifically, you can talk a little bit of a immediate it'd be helpful for the next year.

Speaker 2: I'm sorry, I missed the last part of the question there, specifically in terms of video.

I'm, sorry, I missed the last the last part of the question specifically in terms of.

What are you seeing on the.

Speaker 2: Yeah, yeah, I think I think video is definitely the growth engine for the company. I mean, to be clear from a backlog point of view, all three categories are voice, video, and headsets. But in terms of what, where I see the biggest demand is really on the video side and it's tied to sort of the...

Okay. Thank you.

Yes, I think I think video is definitely the growth engine for the company.

Be clear from a backlog point of view all three categories are up voice video and headsets.

But in terms in terms of what were I see the biggest demand is really on the video side and it's tied to sort of the tip of the iceberg concept that I outlined where people are doing these proof of concepts and they're excited to roll it out to thousands of rooms, but what's in the backlog today is 100 200 rooms as sort of a proof of concept and so I think that's a fairly long term durable.

Speaker 2: the tip of the iceberg concept that I outlined where people are doing these proof of concepts and they're excited to roll out the thousands of rooms, but what's in the backlog today is 100, 200 rooms as sort of a proof of concept. And so I think that's a fairly long-term durable trend on the video side and it's really supply constrained, which is frustrating, those are good margin products, the X30, X50, X70 and in a very high demand.

Trend on the video side, and it's really supply constrained, which is which is frustrating those are good margin products the X $30 $50 70.

And in very high demand.

Speaker 6: On the voice side, we're seeing a remarkable resurgence on the phone bounce back. We talked about this in the past, really tied to, I would say sort of SMBs going back, wanting to throw out their old PSTN lines. You'll see that voice is down this quarter on a quarter or over quarter basis. It looks like about 10, 11%, that is purely supply constraint. There is a very, very significant uptick on the voice phone side.

On the voice side, we're seeing a remarkable resurgence on the phone bounce back we've talked about this in the past.

Really tied to I would say sort of SMB is going back wanting to throw out their old PSTN lines.

You will see that voices down this quarter on a quarter over quarter basis, it looks like about 10, 11%.

That is purely supply constrained there is a very very significant uptick on the voice phone side.

Speaker 6: longer term, I think I said this before in the past, I don't think it goes back to where it was pre-pandemic, which is about $90 billion a quarter, but I do think it bounces back pretty substantially between where we're at today, if it's between million back, between here and 90 million.

Longer term I think I've said this before in the past I don't think it goes back to where it was pre pandemic, which is about $90 billion a quarter, but I do think it bounces back pretty substantially between where we're at today $53 million back between here and $90 million.

Speaker 6: And then on the headsets side, we're at 195 for this quarter in terms of overall headsets. And we've talked about that run rate, 190, 200 being a fairly good run rate for the business. I think that remains the case. We are seeing a fair amount of uptick and heads of demand in places like Asia PAC.

And then on the headset side, we're at 195 for.

For this quarter in terms of overall headsets and we've talked about that run rate 190, 200 being a fairly good run rate for the business I think that remains the case, we are seeing a fair amount of uptick and hence the demand in places like Asia Pac.

Speaker 6: because of some of the delays of returning to the office, but I think the 195-200 range on the heads of sites feels pretty good, but we are seeing a pretty significant shift mix within the headset category, which is there's a lot of backlog tied to our Bluetooth and deck headset.

Because of some of the delays of returning to the office, but I think the 195 to 200 range on the headset side feels pretty good but we are seeing a pretty significant shift mix within the headset category, which is theres a lot of backlog tied to our Bluetooth and decked headsets.

Speaker 6: And that goes back to sort of the three phases of demand that I talked about, where there's really a premiumization sort of happening on the headset side, which is good from a margin point of view. Does that address the demand questions?

And that goes back to sort of the three phases of demand that I talked about where there is really a premium amortization sort of happening on the headset side, which is good from a margin point of view.

Does that address the demand.

<unk> questions.

Yes.

Very helpful. Thank you.

Speaker 3: Our next question is from Paul Silverstein with Callan. Your line is open.

Our next question is from Paul Silverstein with Cowen Your line is open.

Speaker 7: Yeah, guys I'm a little bit confused by some of the previous responses. Specifically, you're talking about video as if the man hadn't been strong and now you're seeing an upcheck. Maybe I wasn't paying careful enough attention previously, but that was not the messaging that I thought I had heard throughout the past many quarters. Brian if

Yes, Gus I'm little bit confused by some of the previous responses specifically.

Youre talking about video.

And hadn't been strong and now youre seeing an up tick and maybe I wasn't paying careful attention previously, but that was not the messaging that I thought I had heard.

Throughout the past many quarters, rather I thought the messaging was demand was very strong.

Speaker 7: was the man was very strong but the supply wasn't there to satisfy that man. Again, I sure you think something different today that you're seeing this newfound uptick and I just want to make sure I understand and along the same line.

<unk> was there to satisfy that demand again.

Here, you're seeing something different today that youre seeing this newfound uptick and I just wanted to make sure I understand and along the same lines.

Speaker 7: Can you offer us, can you quantify orders, backlogs specifically to send videos to the key driver as it has been as it will be going forward and what's that change?

Can you offer us can you quantify orders backlog specifically.

<unk> is the key driver as it has been.

It will be going forward and once that's changed.

Speaker 7: What was the growth in backlogs of video? What was the growth in your orderable for video? And finally, again, I apologize if it's in the order of an issue, but for two or three quarters, you had cited specific challenges in Europe . Is that now a thing of the past? Can you update us on what's transpired, what's going on in Europe now and going forward? Are those problems fully rectified? I'm gonna pick out one final question.

What was the growth in backlog from video what was the growth in your order book for video.

Finally.

Again I apologize if this is no longer an issue books with two and three quarters you had cited specific challenges in Europe .

Is that now a thing of the past can you update us on what's transpired, what's going on in Europe , now and going forward or those problems fully work to slides I've got one final question.

Speaker 6: Follow us today. Let me let me hit some of them and then check me follow on with some additional color here. So first one the Europe question Europe's up 19% quarter over quarter. I would say we're seeing a rebound in Europe and it's really across the board and all three product categories, which is which is encouraging to us.

While this is Dave let me, let me add some of them in the check me follow on with some additional color here. So first of all on the Europe question, Europe's up 19% quarter over quarter I would say, we're seeing a rebound in Europe , and it's really across the board in all three product categories, which is which is encouraging to us.

Speaker 2: Um, you know, they, as with the rest of the world are trying to figure out sort of the time and a return to office tied to Omicron. Um, but we are seeing a demand uptake and we're also seeing a healthy pipeline tied to that for the next couple of quarters as well. So I would say. To answer your question directly, we're encouraged by what's happening in Europe to specifically address the question on video.

Yes.

As with the rest of the World, we're trying to figure out sort of the timing of return to office tied to omicron.

But we are seeing a demand uptick and we're also seeing a healthy pipeline tied to that for the next couple of quarters as well. So I would say to answer your question directly we're encouraged by what's happening in Europe to specifically address the question on video.

Speaker 6: I guess what I would characterize is demand is accelerating. So therefore it's been good and it's getting higher. We don't see any sort of reduction in the pace of demand on videos, probably the mostiac-rosely at the primarily the highest faced system in humans.

I guess, what I would characterize is demand is accelerating so therefore, it's been good.

<unk> higher.

We don't see we don't see any sort of reduction in the pace of demand on video is probably the most accurate way to address that.

Speaker 6: Does that make sense? So yes, it's been good for a while and it's not slowing down at all. If anything it continues to accelerate.

That makes sense. So yes, it's been good for a while and it's not slowing down at all if anything it continues to accelerate.

Speaker 7: And Dave again, can you all share with us any quantification of the order book and video backlog, any metrics that speak to that acceleration?

Dave again can you share with us any quantification of the order book on video backlog any metrics that speak to that acceleration.

Speaker 1: Sure, so basically if you think about, you know, backlog.

Sure. So basically if you think about <unk>.

Backlog.

Speaker 1: It had about $69 a growth quarter over quarter. And we don't want it to grow to be clear. Backlog is way higher than what the normalized rate should be.

It had about $60 million of growth quarter over quarter, and we don't want it to grow to be clear backlog is way higher than what the normalized rate should be.

Speaker 1: Typically, in the backlog, you have the deal business. Video is a little more than a third of our overall backlog. Head sets are...

Typically in the backlog you have.

The deal business video is a little more than a third.

Of our overall backlog.

<unk> sets are a little higher.

Speaker 1: and descones are a little lower. But if you look at the ratio of revenue to backlog, descones are way way too high. And that's because of the chip shortage. So the video backlog grew faster, I think, than the overall backlog grew. So we saw pretty strong expansion of video backlog.

And desk phones are a little lower but if you look at the ratio of revenue to backlog.

Desk phones are way way too high.

And that's because of the chip shortage. So the video backlog grew faster I think than the overall backlog grew so we saw pretty strong expansion of video backlog.

Speaker 1: And it's, you know, beyond that what Dave mentioned is we're doing these proof of concepts, we're winning deals and then there are orders going out and it's not, you know, the entire company's not booking all of their, if they have 10,000 rooms all at one time, they're booking, you know, 100 rooms.

And it's.

Beyond that what Dave mentioned as we're doing these proof of concepts we're winning.

Deals and then there are orders going out and it's not the entire company's not booking all of Verity of 10000 rooms. All at one time. They are booking 100 rooms. So these franchise wins is really the critical part now I know your next question is as order as demand perishable I don't believe.

Speaker 1: So these franchise wins is really the critical part now.

Speaker 1: And that your next question is, you know, is order is, you know, the demand perishable. I don't believe it is in the video. We need to.

It is in video we need to supply those to meet our customers' demands, but I think we feel quite good about.

Speaker 1: supply those to meet our customers demands, but I think we feel quite good about.

Speaker 1: You know what we're seeing in the response in the market. And I think the backlog is, it's not great we wish it was.

What we're seeing and the response from the market and.

I think the backlog is it's not great we wish it was.

Speaker 1: you know, 30% of what it is today, but it, you know, we're fighting through it.

<unk>.

30% of what it is today, but.

We're fighting through it.

Speaker 6: So Paula, let me give you one more metric which maybe helps to answer your questions specifically. So the $60 million increase in backlog, half of that came from video.

So Paul let me give you one more metric with maybe helps to answer your question, specifically, so the $60 million increase in backlog half of that came from video.

Speaker 6: portal reporter. So it represents about third of the total backlog and half of the increase came from video.

Quarter over quarter. So it represents about third of the total backlog in half of the increase came from video.

Speaker 7: Alright, I've preached to that. I'm going to take my last question off one.

Alright, I appreciate that I'm going to take my last question offline.

Sure.

Speaker 3: Our next question is from Greg Burns with Sedotti and Company. Your line is open.

Our next question is from Greg Burns with Sidoti <unk> Company. Your line is open.

Good morning.

Speaker 8: Just following up on the video a little bit further in terms of market share shifts have you seen any change in market share? Have you been had the supply constraints hurt you in any way in terms of market shares is kind of a broad-based industry-wide issue where kind of everyone's dealing with the same kind of supply constraints.

Just following up on the video a little bit further in terms of.

Market share shifts have you seen any change in market share.

Have you been.

The supply constraints hurt you in any way in terms of market share or is this kind of a broad based industry wide issue where.

Kind of everyone's dealing with the same kind of supply constraints.

Speaker 6: I think at a high level, you know, we, we, uh, for, for the various reasons that we've talked about in the past, I think we were hit, uh, pretty early on by supply constraints and, and we sort of articulated pretty transparently to see what was going on. We are starting to see more broad-based, uh, impact on our competitors as well.

I think at a high level.

For the various reasons that we've talked about in the past I think we were hit.

Pretty early on by supply constraints, and we sort of articulated a pretty transparently see what was going on we are starting to see more broad based impact on our competitors as well and so I think at this point, we're pretty confident in the video space, where we're maintaining market share.

Speaker 6: And so I think at this point, we're pretty confident in the video space we're maintaining market share.

Speaker 6: We're probably holding market share, but maybe not gaining on the headsets side.

We're probably holding market share, but maybe not gaining on the headset side.

Speaker 6: and we're flat to slightly exposed on the phone side because of some over-end competition.

And were flat to slightly exposed on the phone side.

Because of some lower end competition.

Speaker 8: And then on the head, in the head that business, I know you were up.

Okay.

And then on the.

In the headset business.

Okay.

I know you are upgrading or adding some some.

Speaker 8: new product lines like the speaker phones and I think maybe it was

New product lines like the speaker phones, and I think maybe there was.

Speaker 8: You know, some of your competitors have had success with some, you know, true wireless type of form factors. So where are we at in terms of kind of filling out your, your product portfolio on the headset side of the business?

Some of your competitors have had success with some.

True wireless type of form factors, so where are we at in terms of kind of filling out your.

Our product portfolio on the headset side of the business.

Speaker 6: Two separate products, the SYNC product is doing well. The SYNC 20, 40, SYNC 60, again, we think that's a couple hundred million dollar opportunity that our competition has been executing in. And so we're seeing some share gains there, which is great.

Two two separate products the <unk> product is doing well the <unk> 2040, 60 again, we think Thats a couple of hundred million dollars opportunity that our competition has been executing in and so we're seeing some share gains there which is great.

Speaker 6: And on the headset side, the over-the-ear Bluetooth and DECT, as I mentioned, are doing very, very well. They represent a pretty significant part of that headset backlog for both us and the competition. And then we're, we haven't yet announced anything specific on the true wireless side, but I think what we said publicly.

And on the headset side the over the year Bluetooth <unk> as I mentioned are doing very very well they represent a pretty significant part of that headset backlog for both us and the competition and then we're we haven't yet announced anything specific on the true wireless side, but I think what we've said publicly is we continue to explore it and whatever.

Speaker 6: to export and whatever we put in the market is definitely going to be differentiated and sort of winning in the enterprise space.

Whatever we put in the market is definitely going to be differentiated and sort of winning in the enterprise space.

Speaker 8: Okay, and then lastly, you mentioned enterprises shifting more of their communications to the cloud. And I know in the past...

Okay, and then lastly, you mentioned.

Enterprises shifting more of their communications to the cloud and I know in the past.

Speaker 8: You'd talk about, you know, maybe a device is a service offering. Is that still something you're looking at? And maybe you just give us an update on that initiative and if it's still something that you're considering.

You had talked about.

Maybe a device as a service offering is that still something you are looking at and maybe you can just give us an update on that initiative. If it is still something that youre considering.

Speaker 6: We're looking at it, we're doing it right now through a series of partners. So we do devices that service through Zoom and we have some volume there and then a couple of our distributors are also working with us and devices that service. I would say it's not our first priority, but it's definitely something we continue to monitor, but we're trying to do it as much as possible in a way that's not a distraction to the core, which is to make sure that we're really solving sort of this hybrid.

We're looking at it we're doing it right now through a series of partners. So we do devices as a service through zoom and we have some volume there and then a couple of our distributors are also working with us on device as a service I would say, it's not our first.

Priority, but it's definitely something we continue to monitor but we're trying to do it as much as possible in a way that's not.

A distraction to the core which is to make sure that we're really solving sort of this hybrid.

Speaker 6: meeting situation in large conference rooms, which is where we're seeing our enterprise customers want to go first.

Meeting situation in large conference rooms, which is where we're seeing our enterprise customers want to go first.

Okay alright, thank you.

Speaker 3: Our next question is from Paul Chong with JP Morgan, your line is open.

Our next question is from Paul Chung with Jpmorgan. Your line is open.

Speaker 9: Hi, thanks for taking my question. So just on the, you know, op-X levels, nice execution there, are there kind of cuts that are tempered, that come back as we think about 23? And then if you could expand on your, you know, your marketing approach, how it's evolving, you know, red bulls quite high profile there, how are you tracking and the return on investments there?

Hi, Thanks for taking my question so just on the Opex.

Nice execution, there are they're kind of cuts that are temporary that come back.

As we think about 'twenty three and then if you could expand on your your marketing approach, how it's evolving red Bulls quite high profile. There how are you tracking and the return on investments there.

Speaker 1: Certainly, I'll take the first one and Dave can take the red bull. OpEx is a little lower than run rate right now because of, you know, we're having some supply challenges. So variable comp, you know, commissions, bonuses, we're holding back on some of the discretionary spending.

Certainly I'll take the first one and Dave can take the of our goal.

So.

Opex is a little lower than run rate right now because of we are having.

Some supply challenges so variable comp.

Commissions bonuses.

We're holding back on.

Some of the discretionary spending as.

Speaker 1: As we as revenues go back up to the normalized rate, you know, a lot higher than where they are today. We'll see OpEx grow but not linear with revenue. That's the spring loaded model that we talked about

As we as revenues go back up to the normalized rate a lot higher than where they are today, we will see opex grow, but not linear with revenue and thats. The spring loaded model that we talked about.

Speaker 1: So I would expect, you know, next quarter, there'll be a little bit of an increase in our back just because like the Fiker reset and all the normal calendar year end things.

So I would expect.

Next quarter there'll be a little bit of an increase in opex, just because like the FICO reset and all the normal calendar year end things.

Speaker 1: And I would assume that, you know, OpEx is gonna go up to say 5 million ish, depending on, you know, how the quarter, if we get a lot of supply and we're really have a really strong higher quarter, it'd be a little higher, and if it's a tough quarter, it'd be a little lower. But I think that it's appropriate now for where the revenue is, and as revenue grows, OpEx will grow slower than revenue and margin will grow.

And I would assume that Opex is going to go up say $5 million ish, depending on how the quarter. If we if we get a lot of supply and we're really have a really strong a higher quarter it'd be a little higher than if it's a tougher quarter be a little lower but I.

I think that it is.

It's appropriate now for where the revenue is in as revenue grows opex will grow slower than revenue and margins will grow.

Speaker 6: On the marketing side, I'm really focused on sort of a two-pronged approach, right? My first target is the global 2000. And if there's five buyers for each of those accounts that really, really matter, write this 10,000 people that were really targeting. And so we were saying, how do we break through with thought leadership around hybrid meetings? I think there's huge demand at the CIO level.

So on the marketing side, I'm really focused on sort of a two pronged approach right.

My first target is the global 2000, and if theres five buyers for each of those accounts that really really matter read those 10000 people that were really targeting and so we were saying how do we breakthrough with thought leadership around hybrid meetings.

There is huge demand at the CIO level for us to have real solutions and comprehensive points of view on that and so we're making sure that we break through to that very very targeted audience and so red bull, especially outside the U S is very much in that mantra, it's cutting edge technology company innovative, they're winning which is phenomenal.

Speaker 6: for us to have real solutions and comprehensive points of view on that. And so we're making sure that we break through to that very, very targeted audience. And so Red Bull, especially outside the U.S., is very much.

Speaker 6: in that mantra. It's a cutting-edge technology company, innovative, they're winning, which is phenomenal. Yeah, drives a survive, right? I'm going to watch every single season of drives a survive. And so the awareness is growing within the U.S. as well. And I think it's kind of a good

Drive to survive right and I've watched every single season of drive to survive and so.

The awareness is growing within the U S as well and so I think it's kind of a good.

Speaker 6: way of sort of balancing the cost of marketing with reaching exactly that targeted audience. And then the second prong of the sort of the two pronged approach in marketing is sort of the professional grade gear that's been purchased directly by the employees. And there we're pushing very, very hard on the Italian and the high velocity channel. But it's sort of a secondary motion to make sure that we're first winning in the global 2000 because we think that pulls through on this franchise account space is really sort of pulls through volume on both sides of the equation.

Way of sort of balancing the cost of marketing with recent exactly that targeted audience and then the second prong of the sort of the two pronged approach and marketing sort of the.

Professional grade year, that's being purchased directly by the employees and there we're pushing very very hard on the E tailing into high velocity channel, but that's sort of a secondary motion to making sure that we're first winning in the global 2000, because we think that pulls through on this franchise account space is really sort of pull through volume on both sides of the equation.

Speaker 9: Gotcha. And then last question on the 10 cent partnership, one of the new logos on your partner slide. So, APACs are around 15% of sales today. How do you expect this to kind of evolve in the coming years and any margin differences you want to point out? Thank you.

Gotcha and then.

Last question on the Tencent partnership one of the new logos on your on your partner slide So.

Apacs around 15% of sales today, how do you expect this mix to it.

Evolve in the coming years and any margin differences you want to point out. Thank you.

Speaker 6: Yeah, I have been really encouraged actually by the early days with Tencent. I mean, we've sold a lot of our traditional on-premises gear into China over the years.

Yes, I have been really encouraged actually by the early days with Tencent I mean, we've sold a lot of our traditional on premises gear into China over the years.

Speaker 6: but to see it bouncing back so quickly as the government agencies and the businesses start to look at the cloud has been really encouraging. So I think it's too early to say how big it's gonna be, but the activity that we're seeing from a pipeline point of view is pretty remarkable. So that's why we're highlighting it here. It, you know, tends to, obviously, is a massive company, hugely successful in China. And we'll see how it develops. Pauli.

But to see it bouncing back so quickly as the government agencies in the businesses start to look at the cloud has been really encouraging. So I think it's too early to say, how big it's going to be but the activity that we're seeing from a pipeline point of view is pretty remarkable. So that's why we're highlighting it here.

Tencent, obviously is a massive company hugely successful in China.

And we'll see how it develops poly.

Speaker 6: especially Pauli Combe still has a very good reputation in China, that's sort of top end gear for the, you know, for the biggest Chinese insurance companies and gas youth buildings and so on. And so I think there's some really interesting opportunity. And we're starting to see Asia pack, uh, bounce back from a pipeline point of view, right? It's not yet, it's not yet shown up in some of the revenue numbers, but I would say the return to offices happening a bit more clean in some of the markets than in others. So.

Especially polycom still has a very good reputation in China, that's sort of top end gear for the for the biggest Chinese insurance companies and gas utilities, and so on and so I think there's some really interesting opportunity and we're starting to see Asia Pac.

Bounce back from a pipeline point of view right, it's not yet it's not yet showing up in some of the revenue numbers, but I would say the return to office is happening a bit more quickly than some of the markets than in others.

Great. Thank you.

Speaker 3: We have no further questions at this time. I'll turn the call back to the presenters for any closing remarks.

We have no further questions at this time I will turn the call back to the presenters for any closing remarks.

Speaker 6: Right, this is Dave. Really appreciate everyone taking the time to join us and look forward to talking to you all again soon and exciting times ahead. Thank you all

Brad This is Dave really appreciate everyone, taking the time to join US and look forward to talking to you all again soon and exciting times ahead. Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 3: This concludes today's conference call. Thank you for participating. You may now...

Okay.

Okay.

Yeah.