Plantronics Reports First Quarter Fiscal Year 2008 Results

SANTA CRUZ, Calif., July 24 /PRNewswire-FirstCall/ -- Plantronics, Inc., today announced first quarter fiscal 2008 net revenues of $206.5 million compared with $195.1 million in the first quarter of fiscal 2007. Revenues were within our guidance of $205 to $210 million. Plantronics' GAAP diluted earnings per share increased 24% to $0.31 in the first quarter compared with $0.25 in the first quarter of fiscal 2007. Non-GAAP diluted earnings per share were $0.37 compared with $0.28 in the first quarter of fiscal 2007. Earnings per share exceeded previously provided GAAP guidance of $0.20 to $0.23 and non-GAAP guidance of $0.26 to $0.29. The difference between GAAP and non-GAAP earnings per share for the current period is the cost of equity-based compensation.

"Our revenue performance during the first quarter of fiscal 2008 was driven by growth in our headset business, especially for office and contact center products. Enterprise demand remained healthy and our new product offerings have been well received. We also introduced a number of new mobile and consumer products targeting emerging opportunities such as music phones. Our operating margin grew as a result of a better product mix and improved efficiencies throughout the Company," stated Ken Kannappan, President & CEO of Plantronics.

"Our focus areas for fiscal 2008 and fiscal 2009 are to increase penetration in the office, upgrade existing customers with compelling new products, grow our Bluetooth market share while improving profitability, achieve a turnaround of the Audio Entertainment Group, and improve the overall profitability of the Company," concluded Kannappan.

Audio Communications Group (ACG) Non-GAAP Results (Office & Contact Center, Mobile, Computer, Clarity)

First quarter net revenues of $185.6 million were up 13.3% compared with $163.7 million in the year-ago quarter. Revenue growth compared to the year- ago quarter was driven by demand for wireless products, with office wireless up over 20% from a year ago and mobile Bluetooth up 27% from the same period. This growth was partially offset by slight declines in sales of computer and Clarity products.

Gross margin in Q1 FY08 was 46.6% compared with 43.3% in the year-ago quarter. Among the factors contributing to a higher gross margin compared to Q1 FY07 were an improved product mix, higher production levels and better absorption of fixed costs which includes increased utilization of our China manufacturing plant, and cost reduction on our Bluetooth mobile and office wireless products. Operating margin in Q1 FY08 was 17.7% compared with 13.7% in the year-ago quarter because gross margins were higher in Q1FY08 and operating expenses grew more slowly than revenues.

Audio Entertainment Group (AEG) Non-GAAP Results (Altec Lansing)

First quarter net revenues of $20.9 million were down 33% from $31.3 million in the year-ago quarter. This business is in a turnaround and requires a significant product refresh to be competitive. We believe this will occur near the end of the next 18 months. Some positive signs for AEG in Q1FY08 included initial sales of the iM600 for docking audio and announcements of the Upgrader Series of headphones and the PT Series of wireless digital surround sound speakers designed for flat panel TV's.

Given the early stage of the product transition, the division's gross margins declined as a result of product margin erosion among the older products as well as provisions for excess and obsolete inventory and lower revenues. The gross margin in Q1 FY08 was negative 10.6% compared with 17.7% in the year-ago quarter.

Non-GAAP operating loss was $10.8 million in the quarter compared with an operating loss of $5.6 million in the same quarter of the prior year.

"Despite these results, we believe that a successful turnaround of the business is possible when we refresh the product offering and establish systems to introduce successful new AEG products thereafter at regular intervals. We expect sales to rebound and the targeted range of profitability to be restored within the next two years," stated Kannappan.

Business Outlook

The following statements are based on current expectations. Many of these statements are forward-looking, and actual results may differ materially.

We have a "book and ship" business model whereby we ship most orders to our customers within 48 hours of our receipt of those orders, and we thus cannot rely on the level of backlog to provide visibility into potential future revenues. The September quarter tends to be characterized by a slowdown in incoming purchase orders during July which intensifies in August, but historically picks up strongly after Labor Day. This pattern tends to be particularly true in our highest margin office and contact center business. This trend has begun to manifest itself in the current quarter, and we need the historical pick up in September to recur to achieve the revenue levels we are forecasting. Our business is inherently difficult to forecast, and there can be no assurance that the incoming orders we expect to receive over the balance of the quarter will materialize.

We are currently expecting revenues for AEG to increase sequentially and for the operating losses to be somewhat lower than the first quarter, but higher than Q2 last year. Subject to the foregoing, we are currently expecting the following financial results for the second quarter of fiscal 2008:

- Net revenues for the second quarter of fiscal 2008 to be in the range of $206 - $212 million; - Non-GAAP consolidated tax rate to be approximately 24%; - The EPS cost of equity compensation pursuant to FAS 123R to be approximately $0.05 - $0.06; - Non-GAAP earnings per share for the second quarter of fiscal 2008 to be in the range of $0.30 - $0.35; and - GAAP earnings per share of approximately $0.25 to $0.29.

Plantronics does not intend to update these targets during the quarter or to report on its progress toward these targets. Plantronics will not comment on these targets to analysts or investors except by its next press release announcing its second quarter fiscal year 2008 results or by other public disclosure. Any statements by persons outside Plantronics speculating on the progress of the second quarter of the fiscal year will not be based on internal Company information and should be assessed accordingly by investors. The statements do not reflect the potential impact of any mergers or acquisitions that may be completed after the date of this release.

Conference Call Scheduled to Discuss Financial Results

Plantronics has scheduled a conference call to discuss the contents of this release. The conference call will take place today, Tuesday, July 24 at 2:00 PM (PDT). All interested investors and potential investors in Plantronics stock are invited to participate. To listen to the call, please dial in five to ten minutes prior to the scheduled starting time and refer to the "Plantronics Conference Call." Participants from North America should call (888) 301-8736 and other participants should call (706) 634-7260.

A replay of the call with the conference ID #2594540 will be available for 72 hours at (800) 642-1687 for callers from North America and at (706) 645-9291 for all other callers. The conference call will also be simultaneously web cast at http://www.plantronics.com/ under Investor Relations.

Use of Non-GAAP Financial Information

Plantronics excludes stock-based compensation related to stock options and employee stock purchases from: non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP operating margin and non- GAAP effective tax rate. Plantronics excludes these expenses from its non- GAAP measures primarily because they are non-cash expenses that Plantronics does not believe are reflective of ongoing operating results. The Company believes that the use of non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance and when planning, forecasting and analyzing future periods.

SAFE HARBOR

This release contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward- looking statements include our belief that a successful turnaround of our AEG business can be achieved with a refreshed product offering within the next 18 months, including a rebound in sales with a goal of approaching the range of AEG's target operating model within the next two years, and our estimates of net revenues, margins, operating expenses, tax rate and earnings for the second quarter of fiscal 2008. These forward-looking statements involve a number of risks and uncertainties, and are based on current information and management judgment.

Among the factors that could cause actual results to differ materially from those projected are:

- Our operating results are difficult to predict; - The ability to achieve the turnaround of AEG is uncertain because: - it is dependent upon our ability to more effectively research and implement features in our AEG products that consumers want and are willing to purchase; - we must be able to meet the market windows for these products; - we must be able to retain or obtain the shelf space for these products in our sales channel; and - we must retain or improve the brand recognition associated with the Altec Lansing brand during the turnaround; - Failure to achieve any of these objectives may adversely affect our financial results; - We have significant intangible assets and goodwill recorded on our balance sheet. If the carrying value of our intangible assets and goodwill is not recoverable, an impairment loss must be recognized which would adversely affect our financial results; - The market for our products is characterized by rapidly changing technology, short product life cycles, and frequent new product introductions, and we may not be able to develop, manufacture or market new products in response to changing customer requirements and new technologies; - The actions of existing and/or new competitors, especially with regard to pricing and promotional programs; - Product mix is difficult to estimate and standard margin varies considerably by product; - Failure to match production to demand given long lead times and the difficulty of forecasting unit volumes and acquiring the component parts to meet demand without having excess inventory or incurring cancellation charges; - The inability to successfully develop, manufacture and market new products and achieve volume shipment schedules to meet demand; - A softening of the level of market demand for our products; - Variations in sales and profits in higher tax, as compared to lower tax, jurisdictions; - Fluctuations in foreign exchange rates; - Class action lawsuits are being brought against us and other Bluetooth headset manufacturers claiming "noise induced hearing loss". While we believe these suits are without merit, the costs to defend against them could be high and the results of litigation are not predictable in any event; - Changes in the regulatory environment either as to headsets directly or as to the products, such as mobile phones, with which our products are used; - Additional risk factors include: changes in the timing and size of orders from our customers, price erosion, increased requirements from retail customers for marketing and advertising funding, interruption in the supply of sole-sourced critical components, continuity of component supply at costs consistent with our plans, failure of our distribution channels to operate as we expect, failure to develop products that keep pace with technological changes, the inherent risks of our substantial foreign operations, problems which might affect our manufacturing facilities in Mexico or in China, and the loss of the services of key executives and employees.

For more information concerning these and other possible risks, please refer to the Company's Annual Report on Form 10-K filed May 29, 2007, quarterly reports filed on Form 10-Q and other filings with the Securities and Exchange Commission as well as recent press releases. These filings can be accessed over the Internet at http://www.sec.gov/edgar/searchedgar/companysearch.html

Financial Summaries The following related charts are provided: - Summary Unaudited Condensed Consolidated Financial Statements - Summary Unaudited Condensed Statements of Operations by Segment - Unaudited GAAP to Non-GAAP Statements of Operations Reconciliation for Plantronics, Inc. - Unaudited GAAP to Non-GAAP Statements of Operations Reconciliations by Segment - Summary Unaudited Statements of Operations and Related Data About Plantronics

In 1969, a Plantronics headset carried the historic first words from the moon: "That's one small step for man, one giant leap for mankind." Since then, Plantronics has become the headset of choice for mission-critical applications such as air traffic control, 911 dispatch, and the New York Stock Exchange. Today, this history of Sound Innovation(R) is the basis for every product we build for the office, contact center, personal mobile, entertainment and residential markets. The Plantronics family of brands includes Plantronics, Altec Lansing, Clarity, and Volume Logic. For more information, go to http://www.plantronics.com/ or call (800) 544-4660.

Altec Lansing, Clarity, Plantronics, Sound Innovation, and Volume Logic are trademarks or registered trademarks of Plantronics, Inc. All other trademarks are the property of their respective owners.

FOR INFORMATION, CONTACT: Greg Klaben Vice President, Investor Relations (831) 458-7533 PLANTRONICS, INC. SUMMARY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended June 30, June 30, 2006 2007 Net revenues $195,069 $206,495 Cost of revenues 119,470 122,949 Gross profit 75,599 83,546 Gross profit % 38.8% 40.5% Research, development and engineering 18,659 19,488 Selling, general and administrative 44,453 46,111 Gain on sale of land (2,637) -- Total operating expenses 60,475 65,599 Operating income 15,124 17,947 Operating income % 7.8% 8.7% Interest and other income (expense), net 985 1,334 Income before income taxes 16,109 19,281 Income tax expense 3,818 4,306 Net income $12,291 $14,975 % of net revenues 6.3% 7.3% Diluted earnings per common share $0.25 $0.31 Shares used in diluted per share calculations 48,268 48,681 Tax rate 23.7% 22.3% UNAUDITED CONSOLIDATED BALANCE SHEETS March 31, June 30, 2007 2007 ASSETS Cash and cash equivalents $94,131 $97,093 Short-term investments 9,234 13,334 Total cash, cash equivalents, and short-term investments 103,365 110,427 Accounts receivable, net 113,758 121,705 Inventory 126,605 136,253 Deferred income taxes 12,659 12,874 Other current assets 18,474 18,538 Total current assets 374,861 399,797 Property, plant and equipment, net 97,259 98,653 Intangibles, net 100,120 98,080 Goodwill 72,825 72,825 Other assets 6,239 5,923 $651,304 $675,278 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 49,956 46,922 Accrued liabilities 54,025 58,858 Income taxes payable 12,476 3,847 Total current liabilities 116,457 109,627 Deferred tax liability 37,344 34,746 Long-term liability 696 15,068 Total liabilities 154,497 159,441 Stockholders' equity 496,807 515,837 $651,304 $675,278 AUDIO COMMUNICATIONS GROUP SUMMARY CONDENSED FINANCIAL STATEMENTS (in thousands) UNAUDITED STATEMENTS OF OPERATIONS Three Months Ended June 30, June 30, 2006 2007 Net revenues $163,737 $185,572 Cost of revenues 93,664 99,796 Gross profit 70,073 85,776 Gross profit % 42.8% 46.2% Research, development and engineering 16,018 16,784 Selling, general and administrative 35,875 40,006 Gain on sale of land (2,637) -- Total operating expenses 49,256 56,790 Operating income $20,817 $28,986 Operating income % 12.7% 15.6% AUDIO ENTERTAINMENT GROUP SUMMARY CONDENSED FINANCIAL STATEMENTS (in thousands) UNAUDITED STATEMENTS OF OPERATIONS Three Months Ended June 30, June 30, 2006 2007 Net revenues $31,332 $20,923 Cost of revenues 25,806 23,153 Gross profit (loss) 5,526 (2,230) Gross profit (loss) % 17.6% (10.7)% Research, development and engineering 2,641 2,704 Selling, general and administrative 8,578 6,105 Total operating expenses 11,219 8,809 Operating loss $(5,693) $(11,039) Operating loss % (18.2)% (52.8)% PLANTRONICS, INC. UNAUDITED GAAP TO NON-GAAP RECONCILIATION (in thousands, except per share data) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Three Months Ended June 30, 2006 June 30, 2007 GAAP Excluded Non-GAAP GAAP Excluded Non-GAAP (1),(2) (1) Net revenues $195,069 $-- $195,069 $206,495 $-- $206,495 Cost of revenues 119,470 (789) 118,681 122,949 (641) 122,308 Gross profit 75,599 789 76,388 83,546 641 84,187 Gross profit % 38.8% 39.2% 40.5% 40.8% Research, development and engineering 18,659 (1,026) 17,633 19,488 (928) 18,560 Selling, general and administrative 44,453 (2,621) 41,832 46,111 (2,544) 43,567 Gain on sale of land (2,637) 2,637 -- -- -- -- Total operating expenses 60,475 (1,010) 59,465 65,599 (3,472) 62,127 Operating income 15,124 1,799 16,923 17,947 4,113 22,060 Operating income % 7.8% 8.7% 8.7% 10.7% Interest and other income (expense), net 985 -- 985 1,334 -- 1,334 Income before income taxes 16,109 1,799 17,908 19,281 4,113 23,394 Income tax expense 3,818 443 4,261 4,306 1,309 5,615 Net income $12,291 $1,356 $13,647 $14,975 $2,804 $17,779 % of net revenues 6.3% 7.0% 7.3% 8.6% Diluted earnings per common share $0.25 $0.03 $0.28 $0.31 $0.06 $0.37 Shares used in diluted per share calculations 48,268 48,268 48,268 48,681 48,681 48,681 AUDIO COMMUNICATIONS GROUP UNAUDITED GAAP TO NON-GAAP RECONCILIATION (in thousands) UNAUDITED STATEMENTS OF OPERATIONS Three Months Ended Three Months Ended June 30, 2006 June 30, 2007 GAAP Excluded Non-GAAP GAAP Excluded Non-GAAP (1),(2) (1) Net revenues $163,737 $-- $163,737 $185,572 $-- $185,572 Cost of revenues 93,664 (781) 92,883 99,796 (623) 99,173 Gross profit 70,073 781 70,854 85,776 623 86,399 Gross profit % 42.8% 43.3% 46.2% 46.6% Research, development and engineering 16,018 (998) 15,020 16,784 (893) 15,891 Selling, general and administrative 35,875 (2,518) 33,357 40,006 (2,348) 37,658 Gain on sale of land (2,637) 2,637 -- -- -- -- Total operating expenses 49,256 1,639 48,377 56,790 (3,241) 53,549 Operating income $20,817 $(858) $22,477 $28,986 $3,864 $32,850 Operating income % 12.7% 13.7% 15.6% 17.7% AUDIO ENTERTAINMENT GROUP UNAUDITED GAAP TO NON-GAAP RECONCILIATION (in thousands) UNAUDITED STATEMENTS OF OPERATIONS Three Months Ended Three Months Ended June 30, 2006 June 30, 2007 GAAP Excluded Non-GAAP GAAP Excluded Non-GAAP (1) (1) Net revenues $31,332 $-- $31,332 $20,923 $-- $20,923 Cost of revenues 25,806 (8) 25,798 23,153 (18) 23,135 Gross profit (loss) 5,526 8 5,534 (2,230) 18 (2,212) Gross profit (loss) % 17.6% 17.7% (10.7)% (10.6)% Research, development and engineering 2,641 (28) 2,613 2,704 (35) 2,669 Selling, general and administrative 8,578 (103) 8,475 6,105 (196) 5,909 Total operating expenses 11,219 (131) 11,088 8,809 (231) 8,578 Operating loss $(5,693) $139 $(5,554) $(11,039) $249 $(10,790) Operating loss % (18.2)% (17.7)% (52.8)% (51.6)% (1) Excludes stock-based compensation. (2) Excludes gain on sale of land. Use of Non-GAAP Financial Information To supplement our consolidated financial statements presented on a GAAP basis, Plantronics uses non-GAAP measures of operating results, which are adjusted to exclude the impact of all stock-based compensation charges under FAS 123R, which Plantronics considers non-recurring transactions. At the segment level, we have presented non-GAAP statements that only show our results to the operating income line. On a consolidated basis, we have presented full non-GAAP statement of operations. The non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and the reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Summary of Unaudited Statements of Operations and Related Data (1) Q107 Q207 Q307 Net revenues $195,069 $194,934 $215,435 Cost of revenues 118,681 117,357 133,855 Gross profit 76,388 77,577 81,580 Gross profit % 39.2% 39.8% 37.9% Research, development and engineering 17,633 16,055 16,902 Selling, general and administrative 41,832 41,570 43,619 Operating expenses 59,465 57,625 60,521 Operating income 16,923 19,952 21,059 Operating income % 8.7% 10.2% 9.8% Income before income taxes 17,908 20,219 22,552 Income tax expense 4,261 5,049 4,479 Income tax expense as a percent of income before taxes 23.8% 25.0% 19.9% Net income $13,647 $15,170 $18,073 Diluted shares outstanding 48,268 47,626 47,922 EPS $0.28 $0.32 $0.38 Net revenues from unaffiliated customers: Audio Communication Group Office and Contact center $114,267 $115,813 $118,280 Mobile 35,806 33,199 43,080 Gaming and Computer 7,289 7,727 8,364 Other specialty products 6,375 6,294 6,787 Audio Entertainment Group 31,332 31,900 38,924 Net revenues by geographic area from unaffiliated customers: Domestic $126,900 $122,782 $126,178 International 68,169 72,152 89,257 Balance Sheet accounts and metrics: Accounts receivable, net $121,702 $118,646 $131,735 Days sales outstanding 56 55 55 Inventory, net $135,979 $139,426 $134,263 Inventory turns 3.5 3.4 4.0 (1) Non-GAAP. Summary of Unaudited Statements of Operations and Related Data (1) Q407 FY07 Q108 Net revenues $194,716 $800,154 $206,495 Cost of revenues 117,738 487,631 122,308 Gross profit 76,978 312,523 84,187 Gross profit % 39.5% 39.1% 40.8% Research, development and engineering 17,470 68,060 18,560 Selling, general and administrative 44,911 171,932 43,567 Operating expenses 62,381 239,992 62,127 Operating income 14,597 72,531 22,060 Operating income % 7.5% 9.1% 10.7% Income before income taxes 15,941 76,620 23,394 Income tax expense 2,507 16,296 5,615 Income tax expense as a percent of income before taxes 15.7% 21.3% 24.0% Net income $13,434 $60,324 $17,779 Diluted shares outstanding 48,218 48,020 48,681 EPS $0.28 $1.26 $0.37 Net revenues from unaffiliated customers: Audio Communication Group Office and Contact center $126,964 $475,324 $132,205 Mobile 34,774 146,859 41,238 Gaming and Computer 6,782 30,162 6,485 Other specialty products 4,713 24,169 5,644 Audio Entertainment Group 21,483 123,640 20,923 Net revenues by geographic area from unaffiliated customers: Domestic $115,846 $491,706 $131,295 International 78,870 308,448 75,200 Balance Sheet accounts and metrics: Accounts receivable, net $113,758 $113,758 $121,705 Days sales outstanding 53 53 Inventory, net $126,605 $126,605 $136,253 Inventory turns 3.8 3.6 (1) Non-GAAP.