On this episode of the Making Markets Podcast, host Daniel Newman welcomes Poly CEO, Dave Shull for a conversation on the outlook on the company’s short to mid-term growth prospects as markets return to normal, mobility climbs, and offices open. Daniel and Dave take a brief look at:
- the company’s recent earnings
- the impact of supply chain gaps on its revenue numbers
- the secular trends that will underpin the company’s next wave of growth and innovation
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Daniel Newman: COVID-19 drove explosive adoption of remote work and video and voice collaboration were without question, a big beneficiary of the unfortunate COVID-19 pandemic. As we found ourselves out of the office longer, and with less face to face, technology that powered remote work had become critical and stays increasingly critical today. Poly, which is comprised of Polycom and Plantronics, has built a world class portfolio for remote work hybrid and office collaboration. What does its growth look like? Today, Poly CEO, Dave Shull, joins us to talk about the company’s recent earnings and the trajectory of the business. Join us now for Making Markets.
Announcer: This is the Making Markets podcast. Brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies. Bridging the gap between strategy, markets, innovation, and the company’s featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, principal analyst, and founding partner of Futurum Research, Daniel Newman.
Daniel Newman: Dave Schull, CEO of Poly, welcome to Making Markets.
Dave Shull: Thanks. Great to be here. Appreciate it.
Daniel Newman: It is good to have you. You’ve been on a few of my shows in the past. Definitely not the first time we’ve had the chance to have a conversation, but first time here on Making Markets. It is really good to have you here. It did take a little while after earnings. You were really busy. I had to get overseas, but I had you prioritize a perfect type of company here for the Making Market show. We love to get deep, in between the lines, help people better understand companies. Especially companies that aren’t part of Fang and don’t get 80, 90% of the time, but are doing….
Dave Shull: Put an M on the beginning, add a P on the end to be perfect. You know?
Daniel Newman: Oh my gosh, right? What did Jim Kramer recently change it to? Mama? Now we got Meta, not Facebook.
Dave Shull: Mama!
Daniel Newman: Companies are doing really interesting things and are attached to really important secular trends. Poly is attached to one of the most important secular trends right now, which is all about what work is going to look like.
Dave Shull: That’s right.
Daniel Newman: Now that, this past week, we’ve got the Pfizer COVID pill. I know at risk of sounding maybe a little bit provocative, Dave. If this pill works as well as I say it is, we may act… COVID may be over. It may be over in the sense of you’ve got a therapeutic with 90% efficacy to keep people out of the hospital. I think that’s from the beginning, what everybody was looking for. Let’s not… I won’t make you answer that. I don’t want have to make you have a position. I’ll leave you safe there, but you had a recent quarter earnings result and it looked pretty good.
Dave Shull: Yeah.
Daniel Newman: Give me the quick highlights. What were some of the big, exciting results?
Dave Shull: Well, let me hit that COVID issue.
Daniel Newman: Do you want to do it?
Dave Shull: Sure, why not?
Daniel Newman: Okay. I’ll do it.
Dave Shull: It’s more fun that way.
Daniel Newman: All right.
Dave Shull: I think a couple things will change. One. First of all, I’ve got two kids, so I would be absolutely thrilled if COVID were over and I have aging parents. Right? For all sorts of human reasons, we all wanted to be over. I think something more fundamentally has shifted than just COVID, which is where now used to flexibility and working. With, or without COVID, there’s always going to be something disrupting our lives, unfortunately. I would say we’ve all kind of rediscovered how much fun it can be to spend time with our families, right? I travel constantly, still. We all do, but having a little bit more flexibility on the work schedule has been priceless. I don’t think that that changes.
Certainly, when I look at Poly survey of our employees, well over 50%, I think will be hybrid. They’ll be in the office a couple days a week and then they’ll be working from home or somewhere else the rest of the time. I don’t think that changes. I think we’ve all made a decision. You know what? Life’s too short. Literally in some cases and so we want to seize the day and we want to make sure we have that flexibility. As employers, it works, we can make it work. It’s not easy. There’s times when we miss hanging out together in person, but we can definitely make it work.
Daniel Newman: Yeah. I promise I’m going to let you talk about that more. Some of my questions that I do plan to fire your way, will really look at supporting the back to work. I like that you said that. Look, when I was structurally talking about it over, I’m just talking about the fact that we now have a medical response that is much higher efficacy, both on the front end and the back end. That’s been what we’ve been waiting for. For some extent, Apple announced recently that they were going to remove mask mandates in their stores. Again, some people will always wear masks. It’s just the future. Now this has fundamentally changed the way people live, work, their mobility, the way they travel, the way they think about health.
Dave Shull: That’s right.
Daniel Newman: How many times they wash their hands a day? Gosh, there’s a lot of people that probably never wash their hands after the bathroom, that now wash their hands 50 times a day.
Dave Shull: Thank god, they’re washing their hands.
Daniel Newman: We look for good change. We found a good change out of this more people wash their hands.
Dave Shull: You asked me about the quarter. Let me tell you.
Daniel Newman: Yeah. Tell me about it.
Dave Shull: Yeah. Revenue is up about one percent year over year. What we did is we really kind of were pretty clear with investors. Demand is up massively. We gave a couple metrics out to help people really quantify what that means. Our backlog is in the hundreds of millions of dollars right now. That is an all time high for us. It’s up 60 million dollars. Backlog for us is sort of non cancelable orders. This is real demand, real tangible demand. If we had been able to deliver on that demand, we would’ve been north of half a billion dollars per quarter. Which we think is a phenomenal growth rate and is much more representative of where this company should be. We also shared that our pipeline, which is a little bit softer, but our pipeline is up 64% year over year.
Within that, that’s across all three businesses. That’s headsets, that’s phones, and that’s video. Within that, what’s really exciting for me when we look at return to office, is the video pipeline is up 88%. People have said, “listen, we know that we have to be able to work by a video when we go back to the office.” We’re always expecting some of our colleagues to be working from out of the office. Whether it’s Teams, Zoom, RingCentral or whatever else, Google, we want to make sure that we have that video capability. The pipeline is up very strong on the video side.
Daniel Newman: Yeah. I was going to say you also had a pretty strong growth number on video for the quarter, right?
Dave Shull: Yeah, we did. Yeah. I think video could have been much stronger, but we’re up 20% year over year.
Daniel Newman: Okay.
Dave Shull: Again, I think the demand… If you just factor in what I said from an 88% pipeline point of view and think about the backlog, the demand is much higher than that.
Daniel Newman: Yeah. If you could somehow invoice it all and accrue it and then book it, you would’ve probably been able to show a much more significant number. It seems like you guys fell into the same challenge that a number of ITOEMs did, some of the PC makers did, where all the CEOs are kind of getting on their earnings call and saying, “hey, this isn’t a… The reason our numbers and our year over year growth didn’t look better wasn’t because people didn’t want to buy our products. It was because there are still complexities in the supply chain.” By the way, these are probably going to last a little while. Now that we are starting to see some levels of normalization, better understanding return to work, it does allow for better planning. Better planning means better partnering with your semiconductor partners that are holding up and your other materials partners. Things do get better.
Dave Shull: That’s why we’ve seen a little bit of disparity up the supply chain. With chip makers that have done better is because as they’ve gotten a better handle, they’ve been able to forecast better, and as that then starts to trickle down to the OEMs and the suppliers. I’ll be watching for some better numbers, Dave, and I’m sure you will be too. Let’s talk about what kind of challenges you’re looking to address right now. You kind of started setting this up in the earlier question that I hit you up on COVID. What do you see right now as the biggest and most important challenges you guys need to be able to execute on addressing.
There’s the short term and then are, sort of what I call, medium long term. Short term is supply chain without a doubt. We addressed this early on. We were one of the first companies, I think, to really be crystal clear in our public commenting to our investors, which is supply is an issue. I’ve also said that we’ve changed out the vast majority of our supply chain management team. I think we’re definitely not wasting a good crisis. We’re doing a tremendous amount of work to overall haul our relationships with our suppliers, our forecasting systems, we’re placing orders out well beyond 52 weeks if we need to. Then we’re also doing some redesign on a few products, about 12 products. We’re looking more broadly across the silicon strategy saying, “okay, what is actually going to become more prevalent from a semiconductor chip set point of view.” We want to make sure that our products are built around those platforms.
There’s a lot of immediate supply chain work going on that, I think, as this starts to loosen up over the next several quarters, it’s not going to be overnight, we’ll be in a much better position as a company and much better suited for sort of long term growth. Then when I talk to the customers from a demand point of view, they’re all about return to office. Return to office is happening now. Everyone’s trying to figure out what changes do I need to make in my facilities, am I going to have hoteling in terms of where people sit, is it going to be two days a week, three days a week? How’s this going to work? Then from a audio video point of view, they’re very focused on how do I make the experience in the conference room the same as what we’re all used to on Zoom or Teams or whatever else, right?
Where everyone is sort of unequal democratic basis. Everyone is feeling they’re able to be heard and raise their hands, et cetera. We’re doing a tremendous amount of work with our camera teams. There’s some really interesting AI that we’re implementing that allow us to sort of capture a much more natural conversation from within the conference room. We were the first supplier to put out support for Zoom Smart Gallery, doing the same sort of thing with Microsoft. I think there’s a lot further we can take this. We’re working very closely with our partners like that, to make sure that it feels like a natural conversation’s happening. Then when you’re the remote participant you can read the body language, participate, understand where the dialogues going, which is what we all want.
Daniel Newman: Yeah. I think you guys, as far as I’ve heard, is through some of the brief things and conversations that we’ve had with your analyst relations team and some of your product leaders is a lot of this is being done within Poly’s organization itself. Which, serves as a great opportunity though, to sort of be a proving ground, to be a case study in many ways, drink your own champagne, eat your own dog food, you name it. That’s what we all do. Talk a little bit about what you are doing. I think what you’re doing internally is… Like I said, you really become a beta tester, an AB for being able to then go out to all these customers and partners that you’re so closely connected with and be able to make recommendations in terms of what transformation should look like in this post pandemic, remote hybrid, future of work space that we’re going to be in.
Dave Shull: By the way, someone in our bay area… You said, “eat your own dog food,” it was someone in our Spanish office who said, “drink your owning champagne.” I’m going with our Spanish team all the way. I think it’s a much better solution. We are kind of living the whole Poly approach. We have 60 offices worldwide. The first thing we do is what do… How do our people want to work? Going for how are our teammates going to work as we come out of the pandemic. There’s a series of personas that we look at and we say, “okay, this person is a road warrior, they’re a salesperson. They’re on the road constantly. This is an executive who’s in the office half the time, but has different video needs when they’re in the office. This person is a functional coordinator. They’re in the office a lot, but they need to have sort of a high use of audio and video gear.”
You look within a 50 mile radius, a hundred mile radius, of the office and say, “okay, what kind of employee base do we have for that office?” Then that really starts to dictate what sort of meeting archetypes, or meeting personas, for lack of a better term, do we need to build out in this office? We’ve categorized every single conference room space that we have within Poly. We have hundreds of them across those 60 offices, as you might imagine. We said, “okay, here’s the focus rooms. Here’s how we’re going to be using our small conference rooms, our large conference rooms, our board rooms, our training rooms,” and making sure that we’ve defined a persona and a meeting archetype for each of those rooms.
Then we’ve matched that. We’ve matched that against gear, of course, but also other solution components that we need to bring to the table. Whether it’s furniture or sound systems or out of room design for booking the rooms. I think that sort of comprehensive approach. When I talk to the CIOs, who are our customers, that’s what they’re looking for, which is Poly. You have decades of experience designing this audio and video gear. I need a solution that is relevant for the hybrid world and starts to solve those problems in a very detailed and informed way. Prescriptive is probably the wrong word, but it’s… Give me solutions. I think we’re set up to do that. We have a global services team, we have the technology, and we’re really drinking our own champagne. We think it’s a good solution for our customers as well.
Daniel Newman: Yeah, I tend to agree with you, although, I actually use both of those interchangeably. I do go with the dog food more often. For whatever reason. Maybe it’s… I’m an optimist by nature. Maybe I’m also… I guess that’s one that stuck with me when you talk about…
Dave Shull: It definitely catches your attention. When I heard the upgraded option, personally, I’d be a whiskey or wine or something else. Anyway, I’ll take the chance.
Daniel Newman: We’ll do that at some point. At some point maybe in person, Dave.
Dave Shull: That would be magical.
Daniel Newman: Is that still possible? It is. Like I said, you sort of started leaning into this. I’d love to wrap it up here.
Dave Shull: Yeah.
Daniel Newman: You kind of talked about how you’re taking what you’re doing to the customer. Let’s talk a little bit about kind of going forward.
Dave Shull: Sure.
Daniel Newman: I think there’s so much debate about what future of work is going to look like. There’s so much debate about how these applications are going to be put into place. You guys are clearly identifying technologies, democratizing, creating equity in the room spaces, insights, analytics.
Dave Shull: Yeah.
Daniel Newman: What are you leaning into as you, at your level, are having conversations with your customers and such out there. What are you kind of leaning into to really help them find their way to get to this right balance?
Dave Shull: I think there’s a big transition going on in the world, which is people are saying we’re dumping old on-premises gear. Whether it’s audio PSTM lines, or it’s video gear tied to on-premises legacy stuff that they have due to their network provider or whatever else. They’re shifting to Teams and Zoom model. That is a massive catalyst for change. We are aligned, of course, very closely with Microsoft, Zoom, Google, RingCentral, and others who are leading that sort of cloud-based transition. We think our ability to operate across all of those partners gives us a tremendous advantage. We’re always leading the charge to make sure that we have the most certified devices on Microsoft or Zoom or whatever else. That leaning in kind of puts us at the front end of innovation tied to it.
When I think about Poly’s place in all this… Our place is, of course, to make the transition easy for our customers. For better or for worse, CEOs tend to be fairly constrained when it comes to figuring out all the buttons that need to be pushed to launch a meeting. When I talk to our customers they say, “the last conversation I want to have with my CEO is about how to set up a meeting and how to make the work.” I also don’t necessarily have a dedicated IT expert for everyone in those meetings. Poly makes it easy. That challenge is becoming even more complex now. In a world where you really need three or four different camera setups to make sure that you’re capturing all the natural angles for a conversation. How do we take the complexity of the video capability, the AI processing capabilities that now sit at the edge in all of our gear, and make that a simple, seamless CEO level experience. Which, to me, is actually the hardest test.
If the CEO can use it, anyone can use it, right? That’s kind of a critical challenge that I’ve given to the team and I’m constantly breaking our gear. That’s actually why we are eating our own dog food, right? It’s not building out the conference rooms, but it’s making sure we have all of our latest gear. I am constantly giving feedback to the team, fix this. It has to be that CEO stupid, simple for it to really be compelling going forward. That’s, I think the macro change that we’re all going through is a cloud-based transition, tons of intelligent processing at the edge. It’s got to be really simple to use. That’s going to make a compelling experience that democratizes these meetings as some of us are in the office and some of us are out.
Daniel Newman: I want to ask you one more question. I love your point about make it easy for the CEO. It’s sad, but probably not. You’re probably not wrong. That actually is also a byproduct of how used to apps now, that we can just open up and use. We want that kind of ubiquity in every experience we have. Enterprise Tech has always been more cumbersome. It just has and we haven’t quite gotten to that point, but that’s what you’re working on, that’s what you’re building, but you’re on the right plane. You’re on the right altitude. You’re running alongside the secular trends that people care about. This whole future of work, hybrid work. Poly’s not a name that runs off the tongue for investors. It’s not a name that gets the fame board or the mama board.
Yet, you are so closely aligned Zoom and Microsoft. These are companies you’re aligned with every single day. You’re a very important supplier to… One of the reasons I started this pod though was, like I said, to get between those lines and have that story for the investor community that says, “what are they missing? Why should they be so excited?” To that audience that’s listening to the show right now, what do you think investors, that are looking at potentially different investment opportunities, with a company like Poly. What is it that you think is missed? What is the big opportunity? Why are you so encouraged about your future?
Dave Shull: I think… I came in September of 2020, so it’d been a little bit over a year. I think at the time people were characterizing us as a pandemic stock. We traded up a little bit when I first came in. I think people are missing that this is a return to office stock, especially in a hybrid world. Our leading video products are not necessarily the ones you use at home, although, I am using our video products at home, but it’s really the return to office video products. That’s what’s going to drive massive growth for us on the video site. We have a significant phone business. People still want to use a desktop phone. They don’t always want to use their wonderful iPhones, even though it’s a phenomenal product, because they want something that’s Team certified or Zoom certified. They want a button, they want to high quality speaker phone that cuts out the noise around them.
There’s massive uptick in demand on the phone side tied to return to office. Then finally headset. As much as I love my AirPods, we’re not a consumer headset company. We are a headset company that provides gears for people in the office, in the contact center, in a very dense environment where you want deck security. I think investors need to think of Poly as the return to office company. I think that’s what’s driving the pipeline increases that I mentioned up front. Which is we’re not a pandemic company. We need to be trading up as people come back into the offices. I’m actually very excited about that. I think there’s massive growth. We have decades of experience building amazing gear. At the CIO level, the simplicity that I talked about at the CEO level, that’s an opportunity for Poly to become a solution company, not just a hardware company.
Daniel Newman: There you go, there, you have it. Dave Schull, CEO Poly, thank you so much for [crosstalk] digging all the time. Thanks for digging into the meat, talking about the potatoes, thanks for all the metaphors, and the similes. We’ve got champagne, we’ve got dog food, we’ve got meat and potatoes, and of course now everybody understands. We are talking to a company that’s all about the return to work. Thanks for joining me. Let’s have you back, if not next quarter, over the next couple quarters. Let’s talk about progress and make sure that we continue to follow Poly’s up to here on Making Markets.
There you have it, everybody. Very interesting company. Not necessarily the name that’s on the tip of everyone’s tongue, but a company that’s really driving the way we are working and has the technology that you will be seeing if you are returning to the office. Of course, if you want to have those higher quality interactions at home, whether it is on the headset or on those homemade video systems, and of course driving all that analytic data that’s helping companies better understand their workers, their productivity, and so much more. Thanks again, Dave Schull. Thanks Poly for making the time for this week’s Making Market in this episode. We’re out of here, we’ll see you soon.
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Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio