September 11, 2018, Santa Cruz, CA – Plantronics today provided additional information regarding its long-term financial outlook and recently completed Polycom acquisition, including increased synergy targets and enhanced strategic benefits.
“This is an exciting time for Plantronics as we continue on our journey to transform the UC&C industry by creating a comprehensive set of intelligent communications endpoints and analytics solutions to address the market’s evolving needs,” said Joe Burton, President and Chief Executive Officer. “Our customers and partners around the world have shared their enthusiasm for our transaction with Polycom and look forward to realizing the many compelling benefits of the combination. Today’s updated financial guidance and synergy targets reflect the strength of our combined business and our belief that Plantronics is well-positioned to enhance its long-term profitability and cash generation, while accelerating revenue growth over time.”
Together, Plantronics and Polycom have become the premier, comprehensive unified communications and collaboration (UC&C) experience provider, offering a broad portfolio of intelligent solutions that span audio, video, and content collaboration, through headsets, desktop phones, and audio and video conferencing, all enhanced by analytics, software, and services. The acquisition expands Plantronics market opportunity from the $1.4 billion1 professional headset market in 2017 to $5.3 billion1 across multiple growing endpoint markets today. Combined, these markets are expected to grow to $7.0 billion1 by 2022, a 7% compound annual growth rate. The increased diversity of UC&C platforms creates a critical need for one endpoint provider who can offer a consistent user experience with the same ease and comfort customers have with their personal devices. Plantronics and Polycom’s combined solutions provide seamless integration across the UC&C ecosystem, while remaining completely agnostic to platform or environment.
Updated Long-Term Financial Targets
The addition of Polycom expands Plantronics total addressable market from $1.4 billion1 in 2017 to $7.0 billion1 in 2022 and accelerates its vision to be the preferred communications and collaboration touch point. As a result, Plantronics is providing the following updated long-term financial targets, reflecting post-acquisition opportunities to improve operating margins:
- Revenue growth of 5 – 8%, on a year-over-year basis
- Non-GAAP gross margins of 52 – 54%2, an increase of 200 bps over the prior Plantronics stand-alone long-term target of 50 – 52%
- Non-GAAP operating margins of 21 – 24%2, an increase of 100 bps over the prior Plantronics stand-alone long-term target of 20 – 23%
Updated Cost Synergy Targets
The integration of the two companies is well underway, and further cost saving opportunities in both cost of goods sold (COGS) and operating expense (OpEx) have been identified. COGS savings are expected to be primarily driven by lower component costs through consolidated volume contracts and through leveraging in-house manufacturing for high volume product sets. OpEx savings are expected to be driven by optimizing existing overlaps in investments, channel partners, customers and programs, as well as additional efficiencies across the combined business. Based on the above, our updated synergy targets are:
- $85 million in run-rate annualized cost synergies within year one (~$38M COGS, ~$47M OpEx)
° Exceeds previously stated target of $75 million
- $105 million in steady-state run-rate annualized cost synergies within two years (~$45-60M COGS, ~$50-55M OpEx)
The Company reiterated its capital allocation priorities, including an ongoing commitment to:
- Maintaining a strong balance sheet;
- Targeting a reduction in leverage to 3X gross leverage within the next two years;
- Continuing its $0.15 per share quarterly dividend; and
- Evaluating potential share repurchases opportunistically once target leverage levels are reached.
In addition to these commitments, the Company will continue to explore potential tuck-in M&A opportunities with a focus on enhancing its competitive positioning and expanding its technological capabilities.
Plantronics also reiterated its fiscal year 2019 Q2 guidance provided on August 7, 2018, with non-GAAP revenue of $500 million to $530 million, non-GAAP operating income of $74 million to $86 million, non-GAAP tax rate of 19.0%, and non-GAAP earnings per share of $1.00 to $1.25.