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Plantronics Reports Fourth Quarter and Fiscal Year 2008 Results

Fourth Quarter Revenue and Earnings Exceed Guidance; Fiscal 2008 Operating Income Grows 38%

Tuesday, April 29, 2008 5:08 am PDT

Dateline:

SANTA CRUZ, CA
"That’s one small step for man, one giant leap for mankind."

Plantronics, Inc., (NYSE: PLT) today announced fourth quarter net revenues of $208.7 million compared with $194.7 million in the fourth quarter of fiscal 2007. Plantronics’ GAAP earnings per share on a fully diluted basis were $0.36 for the fourth quarter compared with $0.21 in the fourth quarter of fiscal 2007. Non-GAAP earnings per share for the fourth quarter were $0.43 on a fully diluted basis. Our results exceeded our previously provided guidance for the fourth quarter which was for revenues of $195 to $205 million, GAAP earnings per share of $0.17 to $0.24 and non-GAAP earnings per share of $0.24 to $0.32. The difference between GAAP and non-GAAP earnings per share is primarily the cost of equity-based compensation.

Net revenues for fiscal year 2008 were $856.3 million, an increase of 7% compared with $800.2 million for fiscal year 2007. GAAP operating income grew to $79.4 million from $57.4 million. Non-GAAP operating income grew to $99.5 million from $72.5 million, an increase of 37%. GAAP diluted earnings per share were $1.39 for fiscal year 2008 compared with $1.04 in the prior fiscal year. Non-GAAP diluted earnings per share were $1.69 for fiscal year 2008 compared with $1.26 in the prior fiscal year.

“Our revenue, profitability and competitive position improved in fiscal 2008 as the result of a strong product portfolio and our focus on corporate efficiency,” stated Ken Kannappan, President & CEO of Plantronics. “Our improving results reflect the focus we’ve had on increasing profitability across the organization and that our concerns of economic weakness were not as great as we had anticipated in the fourth quarter. We ended the fiscal year on a strong note due to healthy demand from international markets, which offset the challenging economic conditions in the financial services sector in North America. We believe that we have the right products under development to continue to improve prospects for growth and profitability. In addition, we believe Unified Communications technologies are gaining momentum and will act as a catalyst to increase headset adoption,” he continued. “We expect profitability to improve modestly in fiscal 2009 despite a weak business climate. The markets we serve provide excellent prospects for growth especially when the US economy is stronger and our long term business model remains intact.”

Audio Communications Group (ACG) Non-GAAP Results

(Office & Contact Center, Mobile, Computer, Clarity)

Net revenues for our ACG segment of $185.4 million for the fourth quarter were up 7% compared with $173.2 million in the fourth quarter of 2007. For fiscal year 2008, revenues were up by 11% from $676.5 million to $747.9 million. This growth was driven by strong demand for Bluetooth headsets for the mobile market and increases in sales of office wireless, computer and gaming headsets, and the Clarity line of products. The growth in these products was partially offset by a decline in revenues from corded products for the Office & Contact Center and mobile markets.

Revenue from office wireless products was up 3% compared to the fourth quarter of 2007 and down slightly sequentially, while revenue from professional grade corded headset revenues was down 5% compared with the fourth quarter of 2007 and down 8% sequentially. Bluetooth headset sales for the fourth quarter were up by 40% from a year ago.

Gross margin in the fourth quarter was 45.5% compared with 45.1% in the fourth quarter of 2007. Among the factors driving gross margin higher from the fourth quarter of 2007 was the positive impact of reducing costs on our Bluetooth mobile and office wireless products. Fourth quarter operating margin was 15.8% compared with 14.5% in the fourth quarter of 2007 due to the higher gross margin and slower growth rate of expenses.

Audio Entertainment Group (AEG) Non-GAAP Results

(Altec Lansing)

Fourth quarter net revenues of $23.4 million were up 8.8% from $21.5 million in the year ago quarter, primarily as a result of new product introductions driving an improvement in the docking audio segment, offset by a decline in PC audio sales. Fiscal year 2008 revenues were $108.4 million, down from $123.6 million in the prior year.

Gross margin was 15.6% compared with -5.4% in the year-ago quarter and the segment’s operating loss for the fourth quarter of 2008 was $5.5 million compared with $10.5 million for the fourth quarter of 2007.

We believe we are on track to meet the milestones for the launch of new products in the third quarter of fiscal year 2009. The introduction of new products is a key component for AEG to at least reach break-even in the third quarter and for AEG to be on the path to return to profitability and ultimately achieve its target business model.

Balance Sheet and Cash Flow

Our balance sheet is strong with $163.1 million in cash and cash equivalents as of the end of the fiscal year compared with $103.4 million at the end of last year.

Fourth quarter cash flow from operations was over $28 million and fiscal 2008 cash flow from operations was over $102 million with key metrics such as inventory turns flat at 3.8 compared with 3.8 in the fourth quarter of fiscal year 2007 and days sales outstanding at 57 days for the fourth quarter compared to 53 days in the fourth quarter of fiscal year 2007.

Business Outlook

The following statements are based on current expectations. As described in “Safe Harbor” below, many of these statements are forward-looking. Actual results are subject to a variety of risks and uncertainties and may differ materially from the forward-looking statements.

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. 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. With increasing economic uncertainty, our business is even more difficult to forecast than usual. We are currently expecting revenues for ACG to be somewhat flat and AEG to decrease sequentially in the first quarter. Subject to the foregoing, we are currently expecting the following financial results for the first quarter of fiscal 2009:

  • Net revenues for the first quarter of fiscal 2009 to be in the range of $205 - $210 million;
  • Non-GAAP consolidated tax rate to be approximately 23%;
  • Non-GAAP earnings per share for the first quarter of fiscal 2009 to be in the range of $0.33 - $0.36; and
  • The EPS cost of equity compensation pursuant to FAS 123(R) to be approximately $0.06, resulting in
  • GAAP earnings per share of $0.26 to $0.30.

Longer-term Business Model

During fiscal 2008, Plantronics achieved a non-GAAP operating margin of 11.6%, compared with an operating margin target range of 15 to 18%. The target non-GAAP operating margin range for ACG is 18 to 20% and for AEG is 5 to 10%. By reducing the losses in AEG, we expect to increase our overall operating margin in fiscal 2009 compared to fiscal 2008, but we do not expect to reach the target range. We do believe the business model remains intact and is achievable and that we can reach this range by fiscal 2011.

In fiscal 2009, we expect the economic environment in North America will be a challenge for our ACG segment, but we intend to continue to lower costs and work to improve our gross profit margin. We also intend to hold operating expenses fairly flat so that we can achieve some increase in operating profit even if revenue growth is weak.

In AEG, we expect to reduce our losses in fiscal 2009 from fiscal 2008. While we continue to believe that the right long-term target model is 5 to 10% operating margin for consumer audio businesses such as AEG, we do not expect to be within that range for fiscal 2009 and we do not expect to be profitable for the entire year. We aim to achieve the target range for AEG in fiscal 2011.

We believe the key drivers to achieve the longer-term business model include volume growth particularly as it relates to AEG, lower transformation costs, effective supply chain re-engineering and the utilization of common product platforms.

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, April 29 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 # 20285343 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 www.plantronics.com under Investor Relations, and the web cast of the conference call will remain available at the Plantronics Web site for thirty days.

A new corporate presentation is available on the investor relations section of the corporate website www.plantronics.com.

Use of Non-GAAP Financial Information

Plantronics excludes non-recurring transactions and non-cash expenses such as stock-based compensation related to stock options, awards 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 Plantronics does not believe they are reflective of ongoing operating results and are not part of its target operating model. Plantronics believes that the use of non-GAAP financial measures provides meaningful supplemental information regarding its performance and liquidity, and helps investors compare actual results to its long-term target operating model goals. Plantronics believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its 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 profitability target of December 2008 for our AEG business, and our estimates of net revenues, margins, operating expenses, tax rate and earnings for the first quarter of fiscal 2009; and our belief in meeting our long-term target operating model by fiscal year 2011. These forward-looking statements involve a number of risks and uncertainties, and are based on current information and management judgment. Plantronics does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

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

  • Our operating results are difficult to predict, particularly in light of the current economic conditions in both the domestic and international markets;
  • We do not know how the market for office wireless headsets and products from our other product groups may be affected in the event of a recession in the United Statesor global economy;
  • 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;
    • we must retain or improve the brand recognition associated with the Altec Lansing brand during the turnaround;
    • our ability to successfully complete the restructuring and consolidation activities and the financial impact that such actions may have is difficult to predict;
    • there is a risk that the consolidation of the AEG Asian operations may cost more than we currently expect. There is also a risk that the savings that we currently predict may not materialize and that the timing of costs and benefits may be different than what we currently expect. If the cost of consolidation is more than we currently anticipate or the savings that we currently anticipate from these activities do not materialize, our future financial results may be adversely affected;
    • 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; and
  • 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:

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® 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 www.plantronics.com or call (800) 544-4660.

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

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