Plantronics, Inc.

Good day and thank you for standing by and welcome to Poly Q1 fiscal year 2022 conference call. At this time, all participants line are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the call over to your speaker today, Mr. Mike Iberg, Head of Investor Relations.

Welcome to Polly's Financial Results Conference call for the first quarter of fiscal year 2022. My name is Mike Iberg, Head of Investor Relations, and joining me today are Dave Schull, Polly President and CEO, and Chuck Boynton, Executive Vice President and CFO. The information presented and discussed today includes forward-looking statements which are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our most recent 10-Q, 10-K, and today's press release and earnings presentation. You should also refer to the materials provided today for an explanation of the non-GAAP financial measures discussed on this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and previously reported results, and as a basis for planning and forecasting future periods. All of our earnings materials are posted on our investor relations website at investor.poly.com. With that, I will now turn the call over to Dave.

Thanks, Mike. Good afternoon from California, and thanks for joining us from wherever you work. Today, Chuck and I are calling in from our Santa Cruz office. Polly delivered strong financial results for the quarter. Chuck will provide more detail, but the headline numbers are as follows. Gap revenues of $431 million were above our guidance range of $410 to $430 million and up 21% year over year. Adjusted EBITDA of $61 million and non-gap EPS of $0.60 were also above the guidance ranges and represent year over year growth of 29%, and 82% respectively. Gross margins of 44.8% reflect temporary pressures created by global supply chain issues that we spoke about at length during our investor day, including volatile component supply and transportation costs. Polly moderated these issues with quick action managing both OPEX and investment spend during the quarter. Finally, as part of our strategic transformation, we recognized a one-time restructuring charge of $29 million. We are minimizing G&A costs, investing in sales and marketing, and reallocating R&D to areas of growth. On the product side, our launch of the Voyager Focus 2 headset at the very beginning of the quarter has been a huge success, shipping roughly 50,000 units. And we sold our 30 millionth Blackwire headset in the quarter. a product Frosted Sullivan recognized with their 2021 Global Product Leadership Award, citing unmatched audio quality and innovation that addresses customer needs. In July, Microsoft named Polly one of three finalists for the Device Partner of the Year Award due to our excellence in innovation and implementation of customer solutions for Teams. Finally, we entered into an OEM relationship with one of the top three global PC manufacturers to supply our high-quality professional headsets, making it even easier for end users to access our pro-grade communications gear and moving us one step closer to our goal of reclaiming the number one position in the headset market, all of which is to say we've been busy. But there is much more to do. We had said at the beginning of the year that anyone looking for a, quote, return to normal would be disappointed because there is no normal to return to. And so far, we've been spot on. First, the transformative shifts we see in enterprise communications, for example, every meeting moving to video, and the increasing complexities of managing communications infrastructure are intact and accelerating. Second, the aftershocks of the pandemic are still with us. as our customers grapple each day to manage highly distributed workforces, even as new uncertainties present themselves. Right now, for example, the worldwide surge in Delta variant cases continues to disrupt countries and economies. These uncertainties mean that more than ever, Poly is a critical partner for any business navigating the current environment, something that is reflected in each of our business segments and across all of our geographies. Remember that long term, we actually benefit from the return to the office. At the same time, as we detailed during our investor day, Polly's challenge as a business, a challenge shared by every company in the world that makes and ships products, is how to manage volatile global supply chain factors so that ultimately our customers get the gear they need. First, let's talk about the demand side of our business. Looking at our product lines, we again had strong growth in video. We saw a 94% increase in sales year over year, and that number would have been even bigger without supply chain pressures. We're pretty certain that we're taking share in the category. We're now the number one single codec provider in the world, measured by units, and according to research by Synergy, we gained 13 points of revenue market share year over year in USB conference cameras. the largest video category. And we think it still keeps growing. I can't think of a single company I've met with, large or small, that doesn't recognize the shift to video as inevitable. It's not just businesses. Our results this quarter were also boosted by strong sales in government and education. Voice delivered strong results this quarter with a 34% year-over-year gain and a slight sequential decline down 5% as a function of supply chain impact. As businesses around the world continue to transition to the cloud, it creates an opportunity for IT service providers to deliver upgraded equipment to their customers. Poly partners closely with many ITSPs to ensure our gear ends up on the desktop. In addition, businesses are preparing for return to office and we're seeing increased demand for conference room phones. Sales during the quarter were constrained by supply and we see continued growth thanks to the ongoing upgrade cycle. As we make progress managing supply shortages, we'll be able to catch up on our existing backlog. Finally, we see stable heads of demand as the tension between work from home and return to the office continues to be unresolved. Sales were roughly flat year over year, and the sequential drop of 16% suggests to us that, in part, buyers are pausing in anticipation of return to office. We see growing demands in our Bluetooth headsets, including the new Voyager Focus 2 and recently announced Voyager 4300. But looking ahead, we expect seasonal weakness for our USB-connected Blackwire headsets in Europe that will likely net out against demand upticks in the Americas and APAC. So let's take a look at our regions. In the Americas, we continue to see strong demand across all product categories. Every customer I talk to says the same thing. Every meeting is moving to video, and every meeting will always have at least one remote participant. Demand for video in the Americas is up 70% year-on-year in the market. We are also seeing strong demand for voice products as businesses prepare for a return to the office, and headset demand remains stable as professionals continue to make sure they are prepared for long-term hybrid work. Our expectation is that all these demand drivers will remain in place for the balance of the year and well into the future. Europe continues to be hampered by uneven vaccination rates, a fragmented and still evolving response to the COVID Delta variant, and general uncertainty surrounding when workforces will return to the office and what that return will look like. While our sales pipeline is growing, we see this caution reflected in delayed deployments for video even as its ultimate importance to communications is clear. Voice demand is strong in Europe, but component shortages are affecting Poly's ability to supply products. Headset demand is stabilizing, as last year's work-from-home surge has largely been satisfied. Near term, we're heading into a seasonally soft summer demand period in Europe, which right now is being compounded by jumps in the Delta variant clouding return-to-office plans. In Asia Pacific, we are seeing particularly strong demand in Australia, New Zealand, and China. While there have been some return to office delays, in general, APAC has returned, remained in the office more than in other regions. As a result, our video pipeline in Asia has been increasing rapidly with strong demand for pro-grade headsets and, to a lesser extent, phones as well. Taken together, all the demand drivers for PolyAnne are intact. and will be for some time to come. This is encouraging because it means the long-term growth targets we set for ourselves are achievable. Demand is strong, so let me now turn to our supply chain. Our current issues won't come as a surprise because first, we cataloged them in May, and second, they're being experienced by companies everywhere. Our front page news in the national press and even caught the attention of the president. Just two weeks ago, the Washington Post ran a front page story headlined, Biden targets high shipping costs as pandemic ravages global supply chains. Now, ravages is a pretty hyperbolic word. That said, our margins were pressured this quarter by price volatility in the spot market for certain components. As highlighted in the Washington Post article, shipping availability and costs are also both challenging. I'll repeat what I said last quarter about the supply chain issues. Our view is that these challenges are temporary. Right now, we think the right thing to do is to be conservative and assume that supply chain conditions will be unsettled for the balance of calendar year 2021. We've also made the decision to insulate our customers from these pressures rather than to increase the cost to them. That's necessarily going to create margin pressure, but that, again, represents a near-term, short-term strategic decision we have made. I will also say that we're seeing signs of stabilization with increasing commercial air traffic, and more space is opening up in air freight channels. In addition, Grant Hoffman, who runs our supply chain, has been able to move a number of our product lines to water, all of which will show up as cost savings. To be clear, we want to be able to build and ship more gear at a lower cost than we are doing today. As we detailed during investor day, we've been working not only to improve the whole of our supply chain, but also directly with our customers so we can help them manage order timing and deployments. Near term, like many, we're looking at a pretty significant collection of variables. Shipping and component costs and availabilities, uneven recovery from COVID, and the global spike in the Delta variant and related economic closures. We get new information every day. But as we look forward, we are encouraged. First, demand is strong. Chuck will provide more details, but we expect to have sequential quarter-over-quarter revenue growth. Second, the broad secular trends that support Polly's growth are intact. we still believe there is strong, underlined, double-digit growth in our markets. Third, we're working tirelessly on our supply chain. This means we expect to be able to deliver sequential revenue growth for our investors, even as, in the near term, our margins will continue to be under pressure. Last, before I turn the call over to Chuck so he can go through the numbers and give you a sense of how we're setting up for the second quarter, I do want to point out that over the course of the past few quarters, Chuck and his team have transformed our balance sheet. Our borrowing costs are down and leverage is decreasing. We're carefully managing our resources and investments, and at the same time, we remain committed to our long-term growth goals for our revenues and our margins. Yes, these goals are ambitious, but we believe we can attain them. We have the right gear, the right people, and the right technology to get there. Chuck, now over to you. Thanks, Dave.

As Dave mentioned, it was another strong quarter based on year-over-year revenue trends, but as we expected, down from last quarter. In spite of the global supply chain challenges, we were able to secure additional components and capacity to deliver revenue above the top end of our estimates. While we were able to satisfy additional customer demand, the offset to that was increased freight and costs associated with spot market purchases. Non-GAAP revenue was $432 million, a 20% increase from the prior year, driven primarily by video and voice, which were up 94% and 34% respectively. We spoke about accelerating demand for desktop phones last quarter, which continues unabated, and we are now seeing stronger demand for conference room phones growing 23% sequentially and 33% year over year. We view this, along with strong video demand, as a clear indication of building momentum around return to office. It seems that return to office changes as the news changes. While we've benefited from work from home, we expect our business to be stronger when there is a more substantial return to the office. This is proven out as our sales pipeline has expanded globally as companies prepare to return to the office. Service revenue was $61 million, as expected, down 12% year-over-year due to service contracts on legacy systems being replaced with lower-cost and disruptive next-gen video gear. We expect this trend to continue over time and eventually change direction and start to grow again in the future. Last quarter, we highlighted our expectation that supply chain challenges would impact gross margins by several hundred basis points sequentially. And as expected, gross margins declined 360 basis points from the prior quarter. Our current expectations are that spot market purchases and continued elevated freight, coupled with a mixed shift towards desktop phones, will continue to negatively impact gross margins in the near term. Operating expenses were down slightly year-over-year at $142 million, and operating income of $52 million was up 42%. As Dave mentioned, the demand environment for poly products remained strong despite supply chain challenges. Our next-gen video solutions continue to gain traction, and although sell-through is impacted by supply shortages and shipment linearity, Sales out of the channel were up 245% year over year, even though we shipped over 25% of our new video units in the last week of the quarter. Backlog remains elevated and is shifted to video and voice as enterprise customers prepare to return to the office. Lastly, channel inventory was up slightly compared to the prior quarter, due to a significant amount of shipments late in the quarter. Turning to cash, operating cash flow is impacted by the overlapping interest on the 2023 and 2029 bonds, and the payout of variable compensation from fiscal 21 resulting in slightly positive operating cash flow for the quarter. We ended the quarter with $213 million of cash in short-term investments. With the 2023 bonds now retired and a new interest rate hedge in place, we expect interest expense to be approximately $16 million per quarter going forward. Turning to guidance, the demand environment remains strong and under ordinary circumstances would support significantly higher revenue in fiscal Q2. As we said in our last earnings call and at Investor Day, we are clearly targeting sequential revenue growth in Q2. However, as we continue to experience challenges associated with the global semiconductor chip shortage, the situation remains fluid. As a result, we are providing guidance largely similar to what we provided in Q1. Our long-term views on Poly's financial model have not changed, but we continue to see near-term pressure on gross margins due to freight, spot market purchases, and absorption of factory costs. These impacts on margins may be more pronounced in Q2. Based on our current view of components, supplier commitments, and impacts of COVID-19 in this variance, we expect to deliver financial results for fiscal Q2 within the following ranges. Gap revenue, $420 to $440 million. Adjusted EBITDA, $50 to $60 million. Non-gap earnings per share, $0.50 to $0.70 cents. Our non-GAAP tax rate is expected to be 14% to 16%, and the share's outstanding should be approximately $44 million. Regarding our tax rate, a one-time benefit impacted the fiscal Q1 non-GAAP tax rate. However, we still expect a full-year non-GAAP rate of 14% to 16%. There are several discrete tax items that may be resolved this quarter, potentially creating a significant favorable impact to our results. Since it's difficult to predict the timing and magnitude, the tax rate we are providing excludes this impact. The model we outlined in Investor Day remains intact, and we're optimistic regarding our ability to deliver long-term value to our shareholders through revenue growth and continued improvement in our net leverage. I'll now turn the call over to the operator to begin the Q&A. Operator?

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw a question, press the pound key. And please stand by while we compile the Q&A roster. Once again, to ask a question, please press star 1 on your telephone. Your first question is from Amit Daryanani of Evercore. Your line is now open.

Good afternoon, everyone. And thanks for taking my question. I have two, I guess. First off, Chuck, I was just hoping if you could quantify the supply chain impact you had on your P&L for both June and what do you think it's going to be for September? I think June, we talked about 60 million top line, 300 basis points on the margin, just an update on that and how does that headwind translate into September would be helpful.

Certainly, Amit. Thank you for the question. You know, the June impact and the September impact, we're cautious about September. You know, the situation has not really changed that much. We have gotten additional supply, and it drove to a pretty strong end of quarter for us. We're proud of our team. They worked incredibly hard and had really strong shipments. But, you know, the products came in late in the quarter. And as a result, we're cautious about margins in Q2, partially because the component spot purchases didn't have a full impact in Q1, so we're cautious there. Although we're optimistic on getting additional supply for Q1, so we're targeting revenue growth in Q2, the margin impact is pretty straightforward. At Investor Day, we outlined a model that we think is north of 50% gross margins. And I think that would have been the case in both Q1 and Q2, if not for the supply chain challenges. And we have a very detailed chart, as you'll remember from Analyst Day, that sort of breaks that out. And so I think it's pretty clear that, you know, if not for these disruptions, revenue would be significantly higher and margins would be north of 50%.

Got it. That's really helpful. And then, you know, can I just follow up on the video side of the equation? You continue to see some really impressive growth over here. But, you know, I think your comparison started to get difficult in the back half of your fiscal year. So I'd love to understand, how do you think of video growing or what does that look like in the fiscal year for you? And then how should I think about the puts and takes as, you know, maybe you return to work, gets paused or pushed out a little bit for the video market specifically?

This is Dave. Let me take that one and Chuck can provide color commentary afterwards if he wants. So the demand for video remains very, very strong. It is tied actually to return to office. And so my commentary on the Delta COVID variant in Europe specifically is they've had some delays on the return to the office with Delta. And so I think that has driven out some of the projects to later in the year. The pipeline on video is the healthiest I've ever seen. And so the pipeline continues to grow. So the demand is massive. I guess what I would say is there's been real supply constraints on the video products as well, tied to both imaging sensors but also some of the chips. But we remain very, very optimistic about on the demand for this fiscal year for video and also on our ability to continue to take market share uh the way we have been with with our video products perfect thank you very much thanks next question your next question is from matt marshall of morgan stanley your line is now open

Hi, team. This is Eric on for me to thanks for taking our question. Maybe if I could go back to the course margin step down, understand, you know, things could look worse in September. But you've also talked about some mitigation efforts you're putting through someone during just as we think through the rest of the year and into next year you know how should we think about the cadence to potentially start improving some of the impacts you're coming is it or you're seeing is it purely um the broader macro issues starting to improve or is there anything you can that your efforts can do to start you know driving improvement aside from that

Let me hit the efforts, and then Chuck can talk about the macro issues. The simple answer is absolutely. We put some pretty significant cost targets on our team in terms of more efficiency. There's factory utilization tied to that, of course, which is probably driven by our throughput. But the team is doing design to value kind of all over the place, and there's some pretty substantial targets on the supply chain team to get us there. The far bigger factor, though, is the macro issues that Chuck has mentioned, which is the price premiums that we're paying for in components and the freight issues. I don't know if Chuck wants to talk about that more.

Yeah, Eric. So, as you think about sort of drivers, you know, purchase price variance where you're buying spot market purchases and whatnot, I don't know when those will go away entirely. They will, but I'm not sure when they fully abate. We're getting commitments for additional supply from the suppliers where we can buy direct versus on the spot market, and that will help. But it will take a quarter to flow through inventory. So I think that will be a good guy in the back half of the year. Dave talked about freight a little bit, and we've seen more airline traffic, which should drive down freight costs. Of course, the December quarter can be challenging because of Christmas and all the buying, but I think the water shipment routes are getting better. There is a container shortage right now, and so we're starting to put some of the products that are not supply-constrained on the water. So that should help as well in the back half of the year. But I guess the good news is Grant Hoffman and the work he's been doing, he's been here now for two quarters. He's put a new team in place. and they are working really hard to secure significant additional supply in the back half of the year. So while we can't forecast with precision the back half of the year, I think Dave and I are quite optimistic that we will see really strong revenue quarters in the back half of the year and see year-over-year revenue growth.

Eric, maybe I'll comment a little bit more on that to provide a bit more specificity, even though it wasn't directly your question, but I think it's an important comment, which is, In the past, we've made short-term buys, right, a quarter out, two quarters out at most. We knew we had to make some changes when we brought in Grant and a whole new team. We acknowledged those issues back in May. We're now making orders a year or more out on the long lead components, and we're being aggressive to match the demand that we see to the supply, and it's changing the dialogue in a very, very healthy way with our suppliers where they're excited about, the upside for our business, and there's still allocation issues. We're still battling with the likes of Apple and some big players. But the fact that we're willing to bet on the business a year plus out is encouraging to them and I think is what has given us optimism that we'll see sequential growth this quarter and for a few quarters to come here.

Obviously, I don't see it faster.

You know, but we're pushing as hard as we can here.

Appreciate the helpful caller.

Thank you.

Thanks, Eric.

Your next question is from Greg Birch of Sidoti and Company. Your line is open.

Yeah, I just want to talk about the professional headset business. I was a little bit surprised by the magnitude of the sequential decline. It's a year over year, but that was a depressed quarter, you know, kind of a COVID depressed quarter from a year ago. So we're back below, you know, back to like pre-COVID levels. So I just wanted to get a feeling for what's going on in that market. Are you losing market share? I know you've rolled out a handful of new products like speakerphones and other things that um you know we're probably gonna fill some product gaps for you and help help um help on the revenue front but if you can just maybe talk about what you're seeing in that market uh from a demand perspective as well as from a market share perspective yeah this is dave i'll provide some high level commentary and then you know again as always chuck can chime in with other points that he sees fit so the the contact center business continues to be very soft we're not seeing much of a return

by the call centers yet. We're monitoring that, but that business is down Q over Q almost 20%, and it's down year over year 37% still. So there's a substantial weakening there. I think what's probably more interesting to me is the dynamic around sort of our traditional USB-connected black wire headsets versus Bluetooth. And we are seeing some softness in Europe around the black wire headsets. We Don't believe we lost market share there, but we're watching that carefully, and obviously we're waiting for some of our competitors to share their results. We are seeing a general softening for those wired products in Europe. We are not seeing that in the Americas or APAC. We're seeing continued strong demand, which has given us comfort that I think we're going to see sequential growth in our headset business quarter over quarter. I'm also seeing a lot of demand for the Bluetooth products, so specifically the new Focus product that I mentioned and the 4300 Voyager products. We are constrained on some chips for those products, and so demand is outstripping supply specifically on the Bluetooth side. So to summarize, yes, the quarter was down. I do think you will see significant sequential growth, Q over Q for the headset business, driven by the factors that I just mentioned.

Okay, great. Thanks. In terms of OpEx, you did a great job managing that this quarter. It came in kind of well below what we were looking for and down pretty significantly sequentially. So how much of that is variable or temporary versus permanent? Like, how should we think about OpEx as the year progresses?

Thanks, Greg. It's Chuck. You know, we're trying really hard to protect our margins. You saw a restructuring charge this past quarter. And, you know, we're doing everything we can to drive efficiencies in G&A. We're investing in sales and marketing, actually. So we're putting more resources out in the field to drive revenue growth and capture this wave of demand. And then we're importantly reallocating engineering resources to future areas of growth. So that's certainly helped a little bit on the expense side as well as just the company. The employees have done a phenomenal job responding in a tough time where we're supply constrained with an abundance of demand. And with that, we pulled together and rallied and have been able to drive costs out. We plan to, you know, to continue to be cautious on spending while demand is, while supply is constrained. I would expect longer-term OPEX to grow above these levels as revenue returns and we have more supply. But I would sort of expect the numbers to be somewhat in line next quarter.

Okay, thanks. And in terms of the cash flow, do you have a target of, you know, like this quarter, for the reasons you outlined, but full year, do you have any generation?

Yeah, so we talked about it at Analyst Day, about $150 million of operating cash flow. That would still be our target for this year. Q1, we had some restructuring and sort of timing. Q2 will likely, just because the profile of revenue and shipments being somewhat back-end loaded, that Q2 will not be a great cash quarter, given the profile. But that will set us up for a strong Q3 and Q4 trend. and we would expect material operating cash flow in both Q3 and Q4, similar to last year, actually. That was a very similar profile to what we did last year, and we drove very, very strong both operating and free cash flow in Q3 and Q4 last year, and then that would obviously drive continued delevering.

Okay, great. Thank you. Thanks, Greg.

Your next question is from Paul Silverside of Cowan. Your line is now open. Paul, your line is now open.

Guys, can you hear me? Yeah. Yes. Sorry, I'm still learning how to work an iPhone. My apologies. On a serious note, I apologize if I'm asking you to repeat yourselves. I was passing through security in an approaching portion of this call. I do apologize. But to the extent you had strong results, somewhat disappointing guidance, albeit I'd argue net on balance positive, how much of the weakness you're looking at in the current quarter is due to supply constraints? How much of it is weak demand? And in connection with that question, I heard your comments about Europe. How much of your European business is headsets? What happened with your overall European business that would inform whether the headset issue is a competitive loss issue or something else?

So this is Dave. First of all, at a macro level, the issue is all supply. So I am very, very confident guiding people up on an unconstrained demand basis. In fact, I would have guided much, much higher. We had said before that on a pure demand basis, we sequentially would have been above the 478 for Q4. And I think that remains the case from a demand perspective. And so therefore, it's all about supply. Europe is up overall 33% year over year. It's down a little bit Q over Q, down 25% Q over Q. And that is on the video side, that is supply constraint. On the headset side, there's definitely a softening of demand in EMEA. But it's offset by growing strengths in Europe and Asia-Pac. So it is kind of a multiple series of stories that we're trying to interweave for you all so you can kind of get a macro sense. So at a macro level, I would say video growth through the roof, tons of demand, and we're flat out trying to make sure we solve the supply issue. Headsets stabilizing. I believe they're stabilizing somewhere between last quarter and this quarter. So to be specific, that's somewhere between 170 and 200. I do think you will see substantial increases this next quarter bouncing back, but mainly in the Bluetooth area. And then voice is growing, and we are very supply-constrained there, but we're seeing a lot of growth in voice that we'd like to be able to fulfill.

And, Paul, I would just add, you know, both Americas and APAC had sequential growth in headset revenue. So if you looked at, you know, Q4 to Q1, both APAC and Americas had growth. So the decline in headsets was 100% driven by Europe. and um mostly driven because of the shift from corded to cordless and so i i think the um you know we feel very good about the headset business globally uh but i think it's you know black wire in europe was was softer however we believe we actually uh probably increased market share though in europe all right then on the video business

How much of your video revenue is still the quote-unquote legacy, multi-tens of thousands of dollars or even $100,000 plus the old expensive room systems versus your other room systems? What's the split this quarter?

Let me get back to you here shortly. It's becoming a smaller and smaller piece. However, it's been pretty stable. I'll come back to you here shortly with a few.

precise answer on the percentage that'd be great but Chuck you're indicating that the legacy business you think the risk from here to the Senate been a drag on growth in previous quarters previous periods you're indicating that you think that drag is done

Well, it started to asymptote. The percentage may have increased in Q1 because of supply constraints in the new gear. But in terms of absolute dollars, you know, we had been expecting a faster fall off of the legacy group systems, group series. And they've actually been selling, you know, quite well, a lot of it internationally and federal space. And so it's been, you know, a pleasant surprise last year how it held in there while the new products were ramping significantly.

I've got one last question. Staying on video, I assume when you ship to a customer, you don't know, or maybe you do, where those systems are being deployed. The question I'm driving towards is you sent the huddle, these far lower price huddle room systems, the real opportunity is in dramatic market expansion going into rooms that you wouldn't put a $10,000, $50,000, $100,000 legacy system. Do you know how much of your huddle room systems are going into new rooms versus, I assume no one rips and replaces the old legacy systems. How much of it is

one versus the other market expansion versus swap outs this is dave i think most of it is market expansion paul but we don't know precisely to answer your question directly and the reason why i'm saying that is usually the the older stuff that we have is in larger rooms right very little bits in the huddle rooms and so this by definition when you put an x30 or an x50 in you're going into a different size of room which drives some expansion

I'll pass them on. I appreciate the response. Yeah, getting back to you. So the legacy systems are about 25% of revenue dollars and about less than 10% of units. I appreciate that. Thanks, guys.

Thanks, Paul.

No questions at this time. Please continue.

Great. Well, thank you all very much for taking the time to join us. And as always, I look forward to speaking with all of you again soon. Thank you.

This concludes today's conference call. Thank you for participating. You may now