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Poly Q1 Delivers Strong Margins Powered by Work From Home Strategy
by Daniel Newman | July 31, 2020

Analyst Note: This article includes contributions from Senior Analyst Olivier Blanchard

The News: Poly, aka as Plantronics, Inc. (NYSE: PLT) announced Q1 2021 results for the period ending June 27, 2020. Among the highlights, Poly reported $356M in GAAP net revenue ($361M non-GAAP) at 43.9% GAAP Gross Margin (50% non-GAAP), $1.85 diluted GAAP EPS ($0.33 non-GAAP), and an adjusted EBITDA of $48M. Poly ended fiscal Q1 with $263 million in cash and short-term investments.

Other points of note: Working from home at scale has kept headset demand high, and backlog at quarter-end was estimated to be roughly five weeks. Poly also announced completion of its Microsoft Teams certification for the Studio X30 and X50 video bars, recertification of 6 headsets (for a total of 16 Microsoft Teams certified headsets) as well as a new range of Microsoft Teams Rooms solutions. Poly’s Studio X30, Studio X50, and G7500, are also now Zoom-certified, and part of Zoom’s Hardware-as-a-Service offering. Lastly, the Studio X30 and X50 video bars are now also available in bundled solutions for LogMeIn’s GoToRoom.

Guidance for Q2, based in part on headset supply, voice demand, current supply forecasts for enterprise headsets, and an assumption of no significant supply chain issues, suggests a GAAP net revenue range of $346M to $386M (and $350M to $390M for non-GAAP net revenue). Total adjusted EBITDA range for Q2 is expected to fall somewhere between $45M and $65M, with non-GAAP EPS expected to be in the range of $0.25 to $0.65.

Santa Cruz, CA based Poly is a world leader in audio communications equipment for business and consumer applications like unified communications, mobile, music, and gaming.

Analyst Take: Outperforming on margin, Poly was able to successfully overcome COVID challenges this quarter with WFH solutions, Zoom and Microsoft Teams certifications, and GoToRoom HaaS. The company delivered revenue within guidance and exceeded on EPS. This is the starting point, but there is more going on here as the company pivots toward the future. Let’s break down this quarters performance a bit further.

With coronavirus disruptions are still impacting business operations worldwide, Work From Home is also driving demand for the types of solutions that Poly provides. I believe the company is therefore well positioned to adapt and continue its growth as companies invest in enterprise WFH solutions until they can safely return to a more traditional model of worker presence.

Poly’s successful pursuit of Zoom and Microsoft Teams certifications and of LogMeIn’s GoTo Rooms HaaS partnership speak to the speed with which Poly has not only understood where to position itself in the WFH economy but how quickly it needed to claim that beachhead. It will be good to see Poly further its ambitions in the space by successfully leveraging these partnerships and taking advantage of the strong growth seen by Zoom and Microsoft Teams.

For the foreseeable future, the enterprise renovation of the home, along with targeted partnerships with Teams, Zoom, and GoToRooms, will likely be a critical piece of Poly’s business. I expect to see more investment in smaller, more portable solutions that play well with Teams and Zoom in the next few quarters. In fact, Poly has indicated that more certifications are on the way for some of its solutions. The company did note that it expects its numbers to return to pre-COVID levels once workers begin to physically return to work, but until then, Poly seems to have buffered itself quite well.

Lastly, I feel additionally encouraged by Poly’s strong cash position, which I expect will be used to de-lever going forward. This should satisfy shareholders and lower operating expense pushing margins higher. A subtle, but meaningful action that was mentioned in the company’s earnings release following the quarter.

Overall Impressions of Poly Q1 Earnings Results 

Overall, Poly’s performance fell within expectations last quarter, coming in range for its revenue but, impressively, outperforming on margin. YoY softness in revenue can be mostly attributed to the elimination of large parts of its low margin consumer business. Headsets and small/portable cameras especially showed solid performance and growth. This is an area that I expect Poly to lean in to replace and/or augment some of the larger installed systems that have slowed amidst less work in offices and large training and presentation spaces.

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.

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Image Credit: Poly
Daniel Newman