Q1 2020 Earnings Call
At this time I would like to welcome everyone to the Poly earnings Conference call.
Oh, I should've been facing mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question. Please press the pound key thank you.
It's now my pleasure to turn to each program over to Mr., Mike I ever Sir the floor is yours.
Thank you Jack.
Welcome to publish financial results conference call for the first quarter fiscal year 2020.
My name is Mike I Berg head of Investor Relations.
Joining me today are Joe Burton, President and CEO , and Chuck Boynton Executive Vice President and CFO .
The information presented and discussed today includes forward looking statements, which are made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
The risks and uncertainties related to such statements are detailed in our most recent 10- Q1 0-K and today's press release and earnings presentation.
Unless otherwise noted all comparisons discussed today will be to the same quarter in the prior year.
Throughout todays remarks, we will make reference to specific slides from our Q1 <unk> earnings presentation.
You should also refer to the materials, we provided today for an explanation of the non-GAAP financial measures discussed during the call.
Along with the reconciliation of those measures to the nearest applicable GAAP measure.
These materials are posted on our Investor Relations website.
At Investor.
Poly Dot com.
With that I will now turn the call over to Joe.
Thanks, Mike and thank you everyone for joining us today, probably delivered strong bottom line results in Q1, driven by synergy execution and cost discipline as we completed our two year hundreds in 5 million cost synergy target several quarters ahead of schedule.
We've also identified additional cost savings that underpin our reiterated full year guidance.
And our long term financial model in the quarter as we disclosed in June we experienced several revenue challenges that were either macro or transitory in nature.
At the macro level.
We have.
At the macro level, we were impacted by trade tensions in China, a weaker gaming market and foreign currency headwinds all of which Chuck will address in more detail.
Regarding transitory issues as we completed our integration sales channel and systems issues have impacted the quarter, However, with our systems and partners now in place. We've seen positive results. In addition, while we have Microsoft teams products in the markets today, the acceleration of the Skype to teams transition is putting focus on the need for team solutions, we expect to fully participate in this opportunity when new products are launched in the back half of the year.
As we move forward the company is focused on the following three areas.
First increasing profitability and cash flow to achieve our de levering targets, well, achieving our full year profitability guidance.
Second delivering our next generation product roadmap.
And third leveraging the newly implemented go to market model to improve sales execution customer focus and ease of doing business.
Moving to the highlights of the quarter you see headsets continue to grow at double digit rates would with 12% growth in the quarter, leading to a 4% growth in our headset category, while desktop phones had a solid quarter growing 7%.
Probably studio revenues more than doubled sequentially as we continued to see strong market adoption of our first huddle room product.
With the huddle room category.
Oh, he was recognized by synergy research for quickly establishing itself as a top vendor in the U.S.B. conferencing market.
And expanding further on our opportunity in the huddle room, probably studio was recently certified for zoom rooms, Xoom continues to see tremendous success and the huddle room space. We are incredibly pleased to expand our relationship with zoom and help them deliver the best experience for their customers by leveraging probably solutions.
For the medium and large conference rooms, we also announced the probably G 7500 content sharing and bid video conferencing solution. The first product built on our next generation video architecture.
Looking forward, we have an exciting lineup of new products leveraging this new architecture in the pipeline with that I'll turn the call over to Chuck to discuss the financial results in more detail.
Thanks, Joe as I walk through the financials I'll be referencing the specific page numbers in the earnings presentation deck, where you can find the details along with additional information.
As Joe outlined we experienced lower than expected non-GAAP revenue this quarter of 460 million up 108% on an as reported basis, but down 8% on a combined comparative basis.
Slide 18 shows the breakdown by product and geography.
Consumer was lower than expected driven by the upcoming console gaming refresh cycle.
The strategic review of the consumer business is progressing well well, we can't guarantee a sale will happen. We believe that if we consummate a transaction it will close before the end of the calendar year.
As Joe mentioned, we also experienced a topline FX impact, which was directly offset by a benefit to operating expenses and neutral to the bottom line.
America's results were up sequentially and roughly in line year over year.
Hey, APAC results were directly impacted by trade tensions in China.
Given that China. This quarter was approximately 15 million of product sales, we see minimal incremental downside to the market.
I will cover supply side issues shortly.
Finally, while all geographies were affected by the channel and sales consolidation issues that Joe mentioned earlier, the largest impact was in Europe .
Turning to slide 19.
Gross margins were up 230 basis points to 55.8% as lower consumer and China revenues provided a positive mix shift and Cogs synergies benefited our margin profile.
Operating expenses were down 25 million, primarily due to cost synergies of 16 million favorable FX rates of 5 million and a 4 million dollar benefit from nonrecurring items.
We expect run rate operating expenses to be slightly above the results. We saw this quarter, but as a percent of sales should continue to decline.
Jumping ahead for a moment to slide 25, as Joe mentioned, we have executed plans that will yield the entire two year cost synergy target of 105 million significantly ahead of schedule.
In today's results, we realized $20 million of actual savings and the piano and expect actual savings to increase to 27 million per quarter by fiscal Q4.
Now that we've completed the integration these strategic advantage of bringing these two companies together is more apparent than ever.
Having executed on the original two year synergy plan, we have now identified an additional 40 million of incremental cost saving opportunities, allowing us to reiterate fiscal year 20 earnings guidance and our long term financial model.
As a result of the improvements in gross margin and operating expenses operating income COVID-19% to 86 million and operating margins improved 420 basis points from 18.6% from 14.4%.
Moving to slide 20, adjusted EBITDA was 98 million in the quarter up 14%, which brings our trailing 12 months adjusted EBITDA of 413 million a record for the company.
Earnings per share was $1.32 above the midpoint of the guidance range due to improved profitability and a favorable non-GAAP tax rate.
Moving to slide 21, we ended the quarter with 206 million in cash and investments roughly right on our corporate target of 300 million of liquidity, which includes our $100 million Undrawn revolver.
Cash flow from operations was 8 million in the quarter and as expected to continue to be significantly impacted by integration and restructuring outflows, which were 41 million.
In addition, working capital continues to impact cash flow inventory levels have increased due to lower than forecasted revenues and a temporary increase in inventory as we continue to optimize our supply chain.
As you can see on slide 10, our upstream organization has a flexible manufacturing platform that provides us with a unique ability to shift production capacity quickly.
We believe we can leverage our flexible manufacturing strategy to mitigate the recently announced tariffs on August Onest and do not expect immaterial financial impact.
We see cash generation, improving as integration and restructuring payments taper off and working capital stabilizes.
In addition, the pending sale of our consumer business may generate additional cash proceeds.
We therefore continue to review our capital allocation strategy and while we do not see the dividend as a critical element of our strategy. We believe it is appropriate to maintain it at this time.
As outlined previously we plan to direct access cash to de lever and are confident we can achieve three turns of leverage by the end of this fiscal year.
However, with the current stock price dislocation, we may opportunistically repurchase shares using the 1.4 million shares currently authorized.
Moving to guidance on slide 24 for Q2.
We expect GAAP revenues of 456 to 496 million.
We expect non-GAAP revenues of 465 to 505 million.
Adjusted EBITDA is expected to be in the range of 94 to 110 million.
And non-GAAP EPS is expected to be in the range of $1.20 to $1.50.
Looking at fiscal year 2020, we are lowering revenue guidance, while reiterating our earnings and cash outlook.
We expect GAAP revenues of 1.87 to 1.97 billion.
non-GAAP revenue of 1.9 to 2 billion.
We reiterate adjusted EBITDA of 410 to 460 million and non-GAAP EPS of $5.35 to $6.35.
With that I will turn the call back over to Joe Joe.
Before we open the call to Cuba, Nay I'd like to speak to the four key industry trends, we expect to drive long term revenue growth for the company.
First the transition from proprietary PBX systems to cloud based platforms is driving demand for next generation endpoints. This transition is in its early stages and will generate increased demand for many years as the cloud wins poly wins too.
Second the open office increases.
Opportunities as companies tear down walls, and re purpose private offices in favor of communal desks and collaborative spaces.
In the process employees are experiencing greater and more numerous distractions. This creates fast growing markets like the huddle room, but also drives long term growth in existing markets like you see headsets, where we offer the broadest portfolio of enterprise headsets equipped with noise cancellation.
Third.
Companies have a more distributed and flexible work force than ever before creating a need for audio and video solutions that.
Enable actors collaboration between remote workers.
Which drives incremental endpoint demand.
Finally analytics and remote management continued to be Differentiators for us customers are demanding intelligent endpoints that can do more than simply connect their meetings.
How many products and services allow customers to leverage data to improve communications and generate key insights into their business processes.
Our end markets remain healthy next generation product families, such as Voyager and black wire headsets, VX desk phones, and probably studio continued to grow rapidly and our key partners continue to recommend our products to their growing number of customers.
Our cost and capital discipline, coupled with our innovative pipeline positions us to create long term value for our shareholders.
Thank you all for taking the time to attend todays earnings call.
With that I'll ask the operator to open the call for Q1 day.
Jay.
At this time.
Sorry, I have to ask a question. Please press Star then the number one on your telephone keypad again that star one on your telephone keypad, we'll pause for a moment to compile the Q enable roster.
Oh.
Your first question comes from the line.
Amit Daryanani from Evercore ISI your line is open.
Hi, Good afternoon, guys. Thanks for taking my question I have a couple of <unk> first one I was hoping if you guys could just maybe elaborate a little bit on the transitory issues that you guys called out in terms of the revenue headwinds, what's giving you that confidence that these issues are behind you end up being fully resolved or what's the timing to get them resolved or maybe you could just talk with us transitory issues and then how much of the revenue a curtailment for the full year of five 600 basis. One did you guys are doing is related to dodd versus macro.
Yeah, Hi, Matt. This is Joe all getting started on that and Chuck can chime in here and there as well on the product side really what we were talking about was primarily the Microsoft Skype for business teams transition. So at a poly of course, we have products that work natively wasn't with Microsoft teams are and with Microsoft Skype for business, we have been a great partner for theirs for years today, our products tend to be native with Skype for business Skype for business is Microsoft's current generation platform they've had out for several years they sell Skype for business, we sell the headsets the phones in the video conferencing endpoints at work with that.
Microsoft announced a year or so they were transitioning from Skype for business to a new collaboration platform called Microsoft teams.
Microsoft teams has a different user experience and while our older products are compatible with Microsoft teams.
They don't fully support the native interface that Microsoft is going to have going forward. So frankly, we've seen a little bit of a drop off in revenues related to that transition until we come out with our native teams products later in the year so to be real clear headsets are already fully compatible and natively support both Skype for business and teams on the phone and video sides, where we have seen this little air pocket, we have native products coming out over the next couple of quarters and we expect this tailwind actually.
Make sense.
Yeah, No that's really helpful and I guess you know just a couple more from me in terms of the incremental 40 million in savings, perhaps I missed this but what's the split between Opex horses Cogs for the new 40 million of savings and when when do you expect to fully realize that.
I mean, hey, it's Chuck Thanks for the question, we haven't outlined the exact split between Cogs and Opex. It so probably a little more balanced to Cogs versus opex and that will get those savings over the next call. It 18 months.
And so that helps us bring our opex down just in terms of the of the overall run rate as I mentioned in the prepared remarks, opex will be a little bit higher than it was this quarter due to some one timers.
Perfect I'll step back in the queue. Thank you.
Thank you next summit next question.
Your next question comes from the line.
Burns from Sidoti Your line is.
Hi can you just.
Give us a little bit more color on that dynamic.
In Europe around your sales and channel reorganization kind of.
How that impacted.
The quarter from a revenue perspective and your outlook.
Sir.
Maybe the headwind from that transition over the next few quarters. Thank you.
Yes, I mean, thanks, Greg very shortly.
As we put the two companies together, we of course had a set of distributors that distributed plantronics.
In some cases, a different set of distributors that distributed polycom.
And what we really needed to do was rationalize come to a single distribution incentive channel partners that could sell headsets phones and video in on a single contract to make it very very easy to do business with customers as we were rationalizing the distributors rewriting contracts and putting the salesforce together frankly, we have a lot of lot of systems issues that we went through and we did have a little bit of a pocket where it was slow to take orders slowed a process orders and get that going.
This particular quarter, we actually thought that that impacted this somewhere in the 10 or 11 million dollar range, we think thats broadly behind us may impact us.
A couple of million Bucks over the next quarter or so and then we'll be really positioned to rock and roll going forward.
So mostly already behind us.
Okay, and the the dynamic in China.
How do you see that over the remainder of the year I mean is this just a function of.
Domestic company is not not buying American what's what's driving the decline in China, specifically thank you.
Well I think there's certainly that the trade tensions in the political environment. It's been tough I think for a lot of American companies.
We have great products in China built in China for China and were bullish on the street in the long term.
Value prop in China for our company, but this past quarter, we were off approximately $10 million in China.
Yes, we did sort of hit maybe a low point as our product sales in China were about 15 million. So.
We think that there's you know things should get better from here, but it's hard to predict what will happen given the trade tensions.
Okay, and then I just wanted to go back to the.
Teams transition was this something that accelerated or caught you off guard or just move faster than your product development roadmap.
Was.
Progressing I just wanted to kind of understand.
Why.
This has become.
And as you know.
You bet.
Combining combination of two of the things that you that you said, Greg. So first of all the Skype to teams to transition somewhat to Microsoft's credit has actually gone faster and larger than many of us in the market predicted. So if you would have asked me when I would have expected that to really hit the mainstream I would have said early next calendar year and thats actually pulled in by about six months people are really making making the switch.
Microsoft also announced very recently that Skype for business is moving towards the end of sale that happened a little quicker than I think a lot of people in the market market had thought so the transitions happening a quarter or two quicker than we thought also the decision was made by poly column free.
Pre integration that they were really going to take their time and do their teams products right. They took a a.
Strategy of maybe not being first to market that being best in market. When they got there. We stayed on that strategy, we have fantastic products coming out over the next quarter or two and we think we're going to have some really nice growth in the team's area when that happens but were out of sequence by by a quarter or so.
Okay. Thank you.
Yep Thanks, Greg.
Your next question comes from the line.
Paul Silverstein from Cowen and co.
Your line is open.
Thanks for taking the question go ahead.
Two or three questions first off.
And I apologize and work remotely so I'm going to just run the numbers yet.
But your change we've undergone some reiterated EPS guidance for the year.
Is that all from then.
The reiteration of PS with the lower revenue that you all to Opex.
Are you also expecting some incremental margin upside.
In order to maintain that appeals to the lower revenue.
So Paul it's Chuck Thanks for the question.
So basically for the year, we've taken from midpoint to midpoint revenue down $140 million.
Of that consumer is 40 in China is in the neighborhood of 25 to 30.
Because China and consumer have lower margin there is a mix benefit that's helping us to effectively reiterate our earnings and cash guidance.
In addition to that we've pulled in the cost savings that we announced earlier $105 million, we pulled those in by a couple of quarters and that's been a benefit to US and then in addition, we've identified additional cost savings as we finished the first round and have found areas to have additional savings. So when you put all those together with a mixed shift additional cost reduction.
Were able to maintain bottom line.
All right, but the summer that is both.
Reduction in some gross margin upside I appreciate the details, but it's coming from both.
That's why you sense currency deals.
All right secondly.
You are entitled to make whatever assumptions, you want I'm, sorry, I'm not sure why not allowing for the possibility of trying to go to zero given the nature of this trade war with the simple question is.
In your guidance or you are not assuming sort of goes to zero.
Dr. Assuming it turns out it was at this level.
Yes in our guidance, we have assumed that China is that where it is today roughly 15 million a quarter of product sales and growing a little bit we have some new products being released that are built in China made for China and so we've actually we think that those will have a decent market uptake and we have a pretty good services business that is in backlog in deferred and that we have good revenue visibility and so I think you're right. There is potential downside in China, but given the margin profile. We don't think it would have a material impact or a real adverse impact on our bottom line.
So let me push you on that sort of trying to do go to zero in a worst case scenario.
You don't think it would have a music lovers of approximately.
It would have a just depends on the definition of meaningful I think it would have an adverse impact we don't expect it to go to zero, so true pretty much a hypothetical but yes. It would have an impact, but we think that at this level, we can manage it.
Or.
Third if I could ask you all.
Broad product line.
Thank you for your business in terms of video.
Yes, so desktop phones.
What are you expecting for growth rates of those businesses, who will go through the year.
So effectively weve looked at industry growth and the industry growth rates for.
Headsets are going to be in the range of.
Low double digits and again, we break out legacy and you see you see we had really strong growth in Q1, we expect that strong growth to continue as it relates to our video business, we see that being a a couple of quarter of transition as Joe mentioned in having pretty strong growth in Q4 as the new products are out on the voice side, we've seen pretty strong desk phone growth and industry is growing at kind of 4% to 8%, 7%, we're growing sort of at industry rates on desktop and audio conferencing will sort of fall in between video and voice and so that gives you a broad level I know, Joe if you want to add any more color to the overall.
Profile that you know I think thats it what we're actually seeing out there in the out there in the market is probably.
Still a very very healthy business voice once again being mid to high single digits enterprise headsets blended between you see in legacy being being probably mid to high single digits videos really the interesting market in that we really see a tale of two videos. If you will so the high end kind of installed video that you might put in a board room is kind of a minus two to plus 2% grower depending on the quarter.
Coupled with the huddle room that is absolutely explosive so at the low end of the market. We're seeing we're seeing.
Market growth rates up in the 25% to 40% depending on the quarter were nascent in that business, but as we said in the opening remarks, we literally went from not in that market two quarters ago to releasing a.
Award, winning product that scrap 7% share in less than two quarters, we expect that to continue ramping with more products to come.
So, bringing all that together you get to a growth or video growth rate of kind of the low to mid.
Single digits.
Got it one more question, if I may and I apologize you already gave us the number given your commentary last quarter. Your commentary this quarter in the video.
You've now got your second product I think you said out of the market.
You said you were in the single digit millions last quarter on the first platform can you tell us where you are from a revenue standpoint with respect to the new huddle room platforms.
Yes, you want to cover its your room real quick and I'll talk a little more yes, we haven't provided exact details, but it was a low single digit millions in our first quarter doubled last quarter and we expect that growth to continue where it's meaningful in in Q4, and so we're not quite at double digit millions in revenue in our in this past first quarter.
I think what's exciting about video in general as we as we talk about this I'm extremely bullish on this market.
If we go back two quarters ago, we were not in the huddle room, and we had a well respected but perhaps aging product line.
At this point, we released our first entry level product into the huddle room, BREP, 7% market share in less than two quarters and continue to ramp rapidly.
On the other end of the video portfolio, we've released our new flagship product at the very high end. The G 7500 video and collaboration platform is the industry leading product for large installed video like would go into a board room, and we expect that to be to be.
Recognize pretty quickly now it's all about filling in between the book ends. So we started out with studio we got it in the market we certified it with Microsoft over the last couple of weeks. We certified it was zoom, we've got it certified and all the other countries. So that should really ramp now you will see other products built on the same architecture that we built our new high end platform on so we really believe will have a compelling end to end video story fully refreshed and rocking and rolling over the next quarter or so.
I'm going to pause as you and others on the call, but I'm, hoping you can indulge me one more question, which is given the breadth of the range on your guidance is a pretty broad range given the past quarter. You. Just reminder, not that we need a reminder, the forecast by definition is difficult in the best coupons, it that much more difficult and challenging times.
With that big wind up when you looked out for this quarter and over the year.
What is the greatest downside risk.
That would cause your model to comment either at the low end or below the guidance you provided us.
So this is Chuck I'll go first and Joe can add some additional color.
Certainly there are some new products that are coming out but they are primarily in Q4, so downside risks could be that products come out a little bit later than planned, but given we have modest expectations in Q4, I think primarily that is.
Probably a lower downside risk.
There is the China question earlier I think.
It is a fair one, but I think given where the model is and where we are from a guidance standpoint, we feel very comfortable with our expectations.
So I think Thats right. Obviously, we we got hit with a couple of things this quarter from a product transition that happened a little quicker than we expected with the skikda teams.
There's not a another thing out there that.
That much of our revenue depends on that that is likely to transition in the next couple of quarters. It would truly be the China thing and I think weve appropriately modeled caution into that feel pretty good about about all this at this point.
Well I appreciate all possible. Thank you.
Thank you thanks Paul.
I guess next question please.
We have another question comes from the line.
Alan Your line is open.
Hi, good afternoon, thanks for taking the questions.
Chuck could you go back a second on the Opex comments you made you said it was lower this quarter, but you expect the run rate to be higher I think you said due to some one timers, where you're saying there were some benefits in this quarter that won't repeat or what exactly is kind of caused that to be higher on a go forward basis.
Yes, Thats right, we had a really strong opex quarter.
Our teams really perform well across.
I hear it poly.
We did have a.
4 million dollar onetime benefit that that helped our comparison.
We also.
I have had the traditional things like merit increases and some of those so I think ultimately I don't see it going up radically but if I had to give you a range I would say about 175 million a quarter would be you know.
A kind of leveling and then over time, we think that there'll be some costs. We can take out some costs that will add but I think you'll see in the next few quarters. It leveling in that kind of mid 175 range.
Got it and then you kind of talked about transitory issues from from trade tensions but.
As you talk to your customers.
What are you what are you hearing from them in terms of how thats going to affect our spending or deployment on kind of voice and audio equipment. I mean, I think as I think about the IP purchaser.
In their priorities, maybe maybe this equipment might fall.
Might be more somewhat discretionary so maybe can be pushed or delayed further to the year. So if you're hearing any of that from from your buyers.
That really poly is is based on the move from the proprietary PBX to the cloud.
In many many cases those parts proprietary pbxs are end of support end of life can't even get parts oram anymore.
So the move move to the cloud is is very real very broad and very deep. So we're seeing it mid market, we're seeing big customers.
No real back off on that because they don't have much of a choice.
Maybe many years into the future when we're at steady state in the cloud and they're looking at going from one platform to another maybe we'll see that but at the moment no no meaningful softness thankfully.
Okay and then.
Could you just talk broadly if you're seeing any impact from Brexit today, it or like what kind of preparations you're making there.
We have seen an impact certainly obviously FX rates, but that aside we have definitely seen some issues and UK as it relates to ordering and volumes.
We are hopeful that that's sort of at a moderate level, but UK is not a huge portion of our overall annual revenues. So it's probably not a material impact to the financials.
Okay, and then kind of last question from me Chuck.
I Didnt quite catch all of your comment on the dividend.
But it does sound like you do have some.
Thoughts there could you kind of give us a little bit more color on maybe your longer term strategy there.
Certainly I think the on one hand.
Not many investors own our stock for the dividend payment.
And given the current share price I guess I'd prefer to be buying back stock versus paying dividends.
But I think given kind of where the share prices and where we are as a company. We think it's appropriate to maintain the dividend for the foreseeable future and we thought long and hard about that and that's been a point of buying back stock.
We think would make more sense, but I think signaling a change right now is probably not appropriate.
So as we look at our capital allocation strategy, we think that we'll have a lot of free cash flow coming in the next few quarters and into the future and so our current priority is paying down debt, we're going to pay the dividend, it's not a very big number anyways, but then we may opportunistically buyback additional stock as well on top of paying down the debt again Thats just based on the current dislocation in our share price.
Okay. All right that's very helpful. Thank you.
Great. Thanks, David.
Your next question comes from the line.
Hi, Sean your line is.
Thank you for taking my question you noted that you had some favorable benefit to your bottom line from FX. So I was wondering if you could quantify it and also.
How much of the headwind to your revenue loss from FX and if you could quantify the other transitory headwinds what.
How much that contributed to the <unk>.
Do the revenue headwind in the quarter.
Certainly so I guess first on the FX side. It really was neutral so the bottom line. It was about a $5 million a reduction in revenue and a 5 million dollar reduction in opex approximately so it really didnt hurt or help the bottom line.
The other transitory issues that we outlined we're really.
Skype to teams, which is sort of a product transition and the integration of the two systems, where we had some sales and channel consolidation issues.
Those were in the 20 ish million dollar range together for the quarter.
Got it appreciate that.
Regarding the.
The transition to see.
If I'm not mistaken there has been a fundamental retooling.
Microsoft platform to use new protocols, which previously may not have been something that you were open to.
How much of a realistic time do you need in order to.
Update your platform in Europe .
Products to be fully compatible with the new team's experience and do you think it is realistic to expect that by fourth quarter.
For Q calendar for Q1 9, but most Sofia products will.
Corporate those.
That that full experience.
You know it's a great question, let me break that down a little farther without going all the way down into total engineering speak so you're absolutely right. The team's platform, which has a really great user experience.
Is fundamentally different than the Skype for business platform that.
That it replaces they speak different languages between the Microsoft product and the endpoint Thats provided by poly. So if we used to speak Spanish to talk back and forth to Skype for business, we got to speak Portuguese too.
To talk to teams now.
To do that retooling in a quarter and a half would not happen. The real key here is to understand that we got started working very closely with Microsoft on these new products well over a year ago. So this has been going on for a year and a half or so building. These products co, creating making sure that together, Microsoft plus poly would be able to deliver something really great. Those products have always been scheduled to deliver late Q3 by Q4 of this fiscal year. So we're right on target with our plan from the beginning the only reason we're seeing this little air pocket is because the transition.
On the customer side has happened a little quicker than we originally predicted but nothing has slipped no crash course to get this done early things are right on plan.
Appreciate the color and if I may just.
I had one more question regarding this new piece product what is the net upside opportunity for you to sell into the team given the new experience and the new platform.
Is there any potential upside if I were to compare Skype for business teams is that on an average.
I guess then value perspective, how much do you expect your customers ups.
Spend with you on teams.
Is that a potential up spend opportunity.
Yes, a couple of things there and I'm speaking strategically I don't know that we have numbers ready to throw around on a potential upside here, but a couple of things that we find very exciting.
First of all an individual endpoint. So if we sold a phone for Skype for business. If we sell a phone for Microsoft teams roughly the same price of prices aren't going up prices aren't going down. However, a few things number one the fact that customers are craving new native teams devices.
Number one.
Obviously implies a refresh cycle that could be quite significant number two looking at public Microsoft data, we see them announcing all the time teams is really taking off the adoption of this product is pretty quick pretty steep. So we see the opportunity to then voice and video enabled teams to be quite significant in the future so little bit of a headwind now turning into a very nice tailwind for us as we get into.
Q4, and then the next fiscal year.
Awesome. Thank you. The next question is whether or not but I'll take it offline. Thank you.
Thanks Rod.
Hi, again participants in order to ask a question. Please press Star then the number one on your telephone keypad, yes, sorry, and the number one on your.
Pat.
Thank you operator, if there are no further questions. We'll go ahead and wrap up the call.
I'd like to thank everyone for joining us this afternoon to review our fiscal Q1 financial results and we look forward to our next earnings call.
After our Q2 concludes thank you very much bye.
This concludes today's conference call. Thank you for your participation you may now disconnect.