Greg Klaben - Vice President of Investor Relations S. Kenneth Kannappan - Chief Executive Officer, President and Executive Director Pamela J. Strayer - Chief Financial Officer and Senior Vice President

Tavis C. McCourt - Raymond James & Associates, Inc., Research Division Rohit N. Chopra - Wedbush Securities Inc., Research Division John F. Bright - Avondale Partners, LLC, Research Division David M. King - Roth Capital Partners, LLC, Research Division

Good afternoon. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Fiscal Year 2013 Financial Results Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Greg Klaben, you may begin your conference.

Thanks, Jessica. Good afternoon, everyone, and thanks for joining us for our second quarter fiscal year 2013 financial results. Joining me today are Ken Kannappan, Plantronics President and CEO; and Pam Strayer, our Senior Vice President and CFO. I'd like to remind you that during the course of today's conference call, we may make certain forward-looking statements that are subject to risks and uncertainties as outlined in today's press release. As we've highlighted before, the risk factors in our press release and SEC filings are not standard boilerplate. We update these risk factors every quarter for significant changes, adding and dropping language and changing the order, depending upon the timing and potential impact of the concerns that we foresee. We believe forecasting our results of operations is difficult, and we ask you to focus particular attention on these risk factors that could cause actual results to differ materially from those anticipated by any such statements. For further information, please refer to the company's Forms 10-Q, 10-K, today's press release and other SEC filings. Plantronics' second quarter fiscal 2013 net revenues were $179.3 million compared with $176.8 million in the prior year quarter and compared to guidance provided on August 6, 2012, of $175 million to $180 million. Plantronics' GAAP diluted earnings per share was $0.61 compared with $0.60 in the same quarter of the prior year and guidance of $0.54 to $0.59. Non-GAAP diluted earnings per share for the first quarter of fiscal 2013 was $0.70 compared with $0.67 in the prior year quarter and guidance of $0.63 to $0.68. The difference between GAAP and non-GAAP EPS for the second quarter consists of stock-based compensation charges and accelerated depreciation, both net of the associated tax impact. For the remainder of today's call, we will be providing only non-GAAP metrics related to gross margin, operating expenses, operating income, net income and EPS. We reconciled these measures in our earnings press release and in our quarterly analyst metric sheet, both of which are available on the Plantronics website on the Investor Relations page. Unless stated otherwise, all comparisons of the second fiscal quarter of fiscal 2013 financial results are to the same quarter in the prior year. With that, I'll turn the call over to Ken. S. Kenneth Kannappan: Thank you, Greg. There are 3 points I'd like to highlight. The first is that the global economic environment remains challenging. Geographically, we experienced revenue declines in Asia Pacific and Europe and Africa, which were offset by strength in the Americas. Overall, our revenue grew just over 1% from the September quarter last year with a 2% decline in Office and Contact Center, or OCC, revenue despite 35% growth in Unified Communications, or UC, revenue. We attribute the decline in OCC revenue to fewer sales of replacement headsets as a result of lower levels of voluntary turnover and an uncertain job market. Given the weak environment, we've been careful in managing expenses. Second, we are continuing to leverage our leadership in using contextual intelligence to deliver solutions that are easier for people to use and improve productivity. For example, this past quarter at salesforce.com's conference, Dreamforce, our partner ThreeWill demonstrated an application that uses our contextual intelligence between mobile callers and a notebook or tablet. If the customer calls a salesperson on their mobile, the customer is recognized and the appropriate records are automatically and instantly brought up on the PC during the call. It takes about 2 minutes to do this without this application, wasting precious time for a salesperson trying to talk to a customer about an issue. Third, while we are innovating in advanced applications, we continue to extend our lead in our core headset platforms. For example, we recently introduced the Voyager Legend, the next generation of our already strong Voyager product family. It has a breakthrough level of improvement in audio performance. You can talk in a bar or a car with the radio so loud you could not hear the person next to you, yet the person you're speaking to you can hear you clearly. A dramatic improvement in wind noise performance allows you to talk with the top down on your convertible. We also use this special process to create another first for headsets, a 2-molecule thick layer, which stops water but allows air to get to the microphone and to come from the speaker, carrying sound and electrons that [ph] flow to charging circuits. Essentially, this makes our products virtually waterproof and sweatproof. At the same time, basic voice commands have been improved for conversations, pairing it [ph] for battery life and connection status. Before you deciding to answer, we let you know who is calling so you don't have to look at your phone if you're driving. We continue to believe that the UC market opportunity is significant and that the long-term opportunity is as promising as ever. We also believe that we're extremely well positioned to capitalize on the opportunity. We will continue to focus our efforts on both building our core technology and creating advanced products with significant product differentiation from our competition. At this point, I'd like to turn the call over to Pam to review the financial results. Pamela J. Strayer: Thanks, Ken. I'll start with an overview. Given some continued economic headwinds, we were pleased with our financial results for the quarter and our continued focus on cost control. Our net revenues were at the high end of our guidance, while operating income and EPS exceeded the high end of our guidance. We experienced good year-over-year revenue growth in the Americas region, offset by declines in the Europe and Africa and APAC regions. Our gross margin as a percentage of revenue remained above our long-term target range, and our operating margins were over 22%, below where we were in the prior year but up 200 basis points from the prior quarter. Our EPS was $0.70 per share and above our guidance range due to continued cost control and lower variable compensation. As we completed our quarter and gained more visibility into our expectations for fiscal -- Q3, we now believe that we will fall a little short of our internal operating plan for the year, resulting in lower variable compensation. In addition, we have been managing costs through actions such as delaying the addition of incremental headcount, resulting in lower employee cost for the quarter. Now turning to further details on our revenue results. Our second quarter net revenues were $179.3 million, up 1% from the prior year. Revenue grew 6% in the U.S. However, the Europe and Africa region declined by 8%, primarily due to the challenging economy. OCC net revenues of $133.1 million were down $3.3 million or 2% from a year ago. Net revenues from OCC products grew in the U.S., but that was more than offset by the declines in Europe and Africa region. Net revenues from UC products grew $7.8 million or 35% versus the prior year. All regions showed year-on-year growth in UC products, although the growth in the U.S. was much stronger than it was elsewhere in the world. Net revenues from mobile products were $33.3 million, up $5 million or 18% versus the year-ago quarter. All regions enjoyed healthy year-on-year growth from our mobile products with the U.S. contributing the most to this growth. Our reinvestment in this market is paying off, and our new products in this space continue to be well received. Geographically, our revenue mix in Q2 was 60% domestic and 40% international, a slightly heavier domestic mix than in the prior quarter or in the prior year, primarily a result of economic headwinds in Europe. Now moving to the rest of the P&L. Our gross margin was 54.7%. Although this is down from 56.3% in the prior year, it is an increase from 54.3% in the prior quarter. The prior year is a difficult compare due to the unusually high mix of revenue from OCC products in that quarter. Operating expenses were $58.1 million in the current quarter or 32.4% of net revenues. This is a decrease from prior year's percentage of 32.8%. Our operating margin was 22.3% in Q2, down from 23.5% in Q2 last year and up from 20.3% in the prior quarter. The decline in operating margin over prior year was a result of the unusually high gross margin percentage in the prior year that I mentioned earlier. Our Q2 net income, up $29.7 million, was down by $1 million or 3% compared to the prior year. However, our EPS of $0.70 is up by $0.03 or 4% from a year ago. It should be noted that the cumulative benefit of our stock repurchase programs over the past year contributed to a decrease in our weighted-average diluted share count of 7% compared to Q2 of the prior year. Now turning to the balance sheet and cash flow highlights. We finished the quarter with $399 million in cash and investments. This is after paying down the balance of our line of credit by $13 million, repurchasing $3.5 million of our common stock and investing approximately $5 million in capital expenditures. We generated $31.8 million in cash flow from operations in the second quarter and continue to have a strong financial position. Of the $399 million in cash and investments at quarter end, $11 million was domestic cash and investments. Our domestic borrowings were $29 million at the end of the quarter. DSO was 54 days, up from 52 days in Q2 of the prior year and flat sequentially. Net inventories were $61.6 million, up $0.9 million versus a year ago and $2.7 million from June. GAAP inventory turns of 5.3 are up from 5.1 a year ago and slowed from 5.7 in June. Turning to the outlook. Given the macro environment, we continue to remain somewhat cautious. The macroeconomic environment remains challenging, and we are seeing the impact of that in our core OCC business outside of the U.S. We believe total net revenues for the third quarter will be in the range of $183 million to $190 million, which reflects the small seasonal increase in revenue from mobile products. Depending on the revenue mix and other factors, we believe non-GAAP operating income will be approximately $37 million to $41 million. Based on all of the above, we currently expect non-GAAP EPS to be $0.63 to $0.70 on average diluted shares outstanding of approximately 42.9 million. For a full detail of reconciling items between our GAAP and non-GAAP financial results, please refer to our press release.

With that, we'd like to open the call for questions.

[Operator Instructions] And our first question comes from Tavis McCourt. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: This is Tavis. Nice managing through a tough economy. My question is on the UC business. Obviously, you had a nice sequential growth this quarter. There's, I guess, a new version of Microsoft Lync update coming in a month or 2 here. Do you expect that to continue? Or may we see kind of a flattish quarter during that transition like we did last time? S. Kenneth Kannappan: So, first, in all candor, we don't know 100% know, Tavis, as with any forecast. Let me kind of comment on the fact that this is a little bit different than the last one. First, the last one was a major change. People couldn't just transition from MOC to Lync. That was an entire change in the server architecture. This is more of additional features on the basic platform, and so there's no reason that people can't go on Lync and then decide that they want to upgrade to the next platform. It is always difficult to know how people are going to react to a new offering if people are aware that it's coming. The launch is, we believe, is scheduled for the beginning of December, technically. I mean, that's the release, but the major launch events will be the latter part of February. And therefore, any boost from the new version will probably occur after that. So could we get a little bit of a pause as people wait for the new version? We could, although there's not a reason that people have to wait for the new one just from an implementation standpoint. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Right. And a follow-up to that, it seems like as we're getting the upticks in UC, we're getting downticks in the non-UC business. And I wonder if you could review for us kind of how you allocate revenues between the UC and the non-UC and the degree to which maybe there are some customers who would have normally bought non-UC that are just buying the UC products even if they haven't deployed the UC system yet? S. Kenneth Kannappan: Sure. Well, first, how do we allocate it? I mean, basically, it's based upon the product. If the product has UC capability, then we consider that to be a UC solution. You are correct that people could buy UC products for non-UC applications, both because it gives them better integration better in terms of computer functionality, some -- better integration is also possible with their mobile. Having said that, they pay more money for the UC SKU. And of course, you could also do it to future-proof [ph]. And so I don't think people in general are doing that, but it's absolutely possible. We sell typically through distributors who sell to a reseller who sells to an end user, and we absolutely can't track all of that with certainty. In general, even if there is some of that, we don't think it's the larger part. We do think we know why our OCC business is being hurt in the traditional markets. We think that's largely, as I indicated, because the economy has actually gotten worse in some parts of the globe, in particular within Europe and Asia Pacific. We did see some weakening. And when the market is worse, people are reluctant to move jobs. And our products last a long time. They're primarily replaced due to hygienic reasons when you move from one company to another. So we do think that's the bigger factor there, and we do think that the UC adoption has moved forward and is a bigger factor. But we absolutely can't tell with a 100% precision by tracking our products.

And our next question comes from Rohit Chopra. Rohit N. Chopra - Wedbush Securities Inc., Research Division: I just wanted to ask, Pam, can you comment on the geo mix and maybe the impact that had on gross margin? You didn't mention that, but you did mention something else impacting gross margin. And also, would it have impacted taxes? And then I thought maybe, Ken, if you could just comment on maybe some of the deployments? As you went through this quarter, do you notice that they were shrinking, people delaying budgets. What's the actual impact overall that you're seeing? S. Kenneth Kannappan: Let me put the second question first, and then I'll let Pam come to the first. So actually, we saw relatively few deployments being delayed due to economic circumstances during the course of this quarter. And that's why we still believe the outlook is pretty positive for UC deployments going forward even, as noted, with one major vendor having a new product release coming up. That's not to say that there were no economic issues. We did hear of some in Europe in particular, less so in the U.S. where people were delaying due to economic factors. But you have to weigh that against that there were also some in prior periods that kind of came into this period due to economic factors. So I don't think that on a net basis, we were hurt due to the economy in terms of the pace of UC deployments. Pamela J. Strayer: So then on your other questions, I'll talk about the gross margin mix question first. You asked if there was an impact of geo revenues on gross margin. And I guess I would say that gross margins are more impacted by a mix of products rather than geographies. And since there is a significant difference in product margins between OCC revenues and consumer products, for instance, that would be a mix that would have an impact. I wouldn't look at geos for a mix on gross margin. On your other questions related to taxes, we're forecasting 27% tax rate for the rest of the year, and that's -- that remains the same from last quarter.

And our next question comes from John Bright. John F. Bright - Avondale Partners, LLC, Research Division: Let me follow up on a couple of questions. First, Pam, the tax rate, 27% for the entire year? Pamela J. Strayer: Yes, that's correct. John F. Bright - Avondale Partners, LLC, Research Division: Okay. Next one, let me follow up as well. Ken, should we think about this as licenses sold versus rollout of UC? And if so, maybe characterize licenses sold versus delays, potentially, in rollout. S. Kenneth Kannappan: I'm afraid that I didn't quite understand what you said, John. John F. Bright - Avondale Partners, LLC, Research Division: So what I'm getting at is if you're going -- you have a large customer and they expect -- you expect to sell them a license for -- you win the business, you expect to sell them UC headsets and they tell you they're going to sell 100,000 headsets, yet -- and they give you a rollout plan of X, yet it ends up being Y. Are you still signing contracts, winning that business, yet maybe the rollout of UC is being delayed? S. Kenneth Kannappan: Well, so -- and again, I didn't hear just kind of a word you said in your initial question. But to respond to what you just said there, that is a phenomenon that we've seen but we did not see any, what I'd call, net change in that phenomenon this quarter. In other words, yes, there were some that may have been contracts we've won that are rolling out slowly, but we've kind of adjusted ourselves and are expecting the pattern of behavior that we're seeing. And again, we also got the benefit of some ones that were earlier that were rolling out in this period. So we think it was at a reasonable balance in terms of the amount of business that we're winning and the amount of rollout business that we're experiencing. John F. Bright - Avondale Partners, LLC, Research Division: Okay. And let me try a new question for the call. Maybe, Ken, you can give us an example of a UC customer that has come onboard that's not -- would not have not been a traditional OCC customer previously, excluding what we would know that you might be penetrating traditional OCC customers deeper if they deploy UC. Does that make sense? S. Kenneth Kannappan: Well, I'll give you 2 examples without giving customer names, at least not for now. But one was a large banking company in an emerging market that wanted to do UC as an overlay to their credit approval process. This is a company, as is typical in emerging markets, where headset usage was largely limited to the contact center. And we've sold incremental 50-plus thousand units to them for this application and expect to receive more. There's another example that I'll give you, also in an international country where in this case, again, the adoption of headsets was very, very low. In this case, it was not primarily headsets we were selling. Actually, it was primarily handsets that we were selling. But leaving that aside, due to the use of the UC application and the use of the soft client [ph], they needed to have audio endpoints. And so we went from very, very, again, nominal penetration to significant increase in penetration as a result. John F. Bright - Avondale Partners, LLC, Research Division: Not surprisingly, in the quarter, OCC remained weak in Europe and Asia Pac. But in these markets, what did the performance look like for UC versus traditional OCC? Or help us understand how that market looked, if you can. S. Kenneth Kannappan: Yes. No, I think we can. I think that in those markets, the greater hit was traditional OCC. And the -- I would say that the corded replacement market was the tougher part of that market. The cordless held up a little bit better. And the UC business, although it was affected a little bit by the slowdown, was the strongest part of the business. John F. Bright - Avondale Partners, LLC, Research Division: Lastly, Pam, PLT continues to operate above their long-term gross margin model target range. And you're within your operating income target model range. Really, kind of walk us through why that's happening, the dynamic right now, and really, what we should expect over the next short period. Pamela J. Strayer: Sure. So our long-term target range for the gross margin number really takes into account an expectation of significant growth in the UC market. So the product mix would change to include more UC products. That product margin on UC products supports that 50% to 52% gross margin number. On the operating margin side, our long-term target is 20% to 23%. We like to try to stay within that target. We expect, as UC revenues grow, and we start feeling -- if we start feeling a little pressure on the gross margin side, we will just scale where the OpEx numbers will probably come down, and we'll stay within that long-term range. John F. Bright - Avondale Partners, LLC, Research Division: Let me throw one last in. Ken, contextual intelligent, something you've been working on, spending a good bit of R&D dollars on, any feedback that you've gotten thus far of what it's meant to your product portfolio, your feedback from customers? S. Kenneth Kannappan: Yes. I mean, I think it's a huge deal and people are realizing it. There was a Gartner report out just last week, and they were talking about how the 2 most crucial things are that UC solutions be simple for end users and easy for IT to manage. And the 2 go hand in hand a little bit. I mean, people are used to using the phone, and they understand how to do it. It rings, you pick it up. It's very easy. People are not used to UC. It doesn't actually unify all your different communication systems, including your mobile and so forth, the way most companies implement it. And we've been able to achieve those things. We been able to give things that are very intuitive and easy for the end user just the way the phone is now. We've been able to give solutions that are really easy for IT to manage and to reduce the burden to them to support it. And those things, again, those were kind of top 2 for Gartner in this study, and those are things that IT is resonating with and understand how crucial those are. So I think we've been making a lot of progress with it. We've got hundreds of companies working on leveraging the contextual intelligence that we have and other applications. And mind you, they're not all UC applications. The one I mentioned today was simply another workflow application that people use, in this case salespeople. And they may be using it with a UC call or not. But it's something that we're getting growing awareness of and that we're -- have been a visionary and that we've been correct in this strategy we've implementing and people are now already appreciating the benefits of the execution that we've got, as well as the roadmap we've got coming.

[Operator Instructions] Our first (sic) question comes from Dave King. David M. King - Roth Capital Partners, LLC, Research Division: I guess just first off, as far as the revenue guidance for the third quarter of up 2% year-over-year, I guess how would you characterize that by segment? Any color you want to share on mobile, for example, heading into seasonally stronger period, all those kind of things? S. Kenneth Kannappan: Sure. Well, I mean, to your point, I mean, we would expect consumer to be up some in the December quarter. We had a bit of a surge already in the September quarter. So it'll probably be a little less of a further bump than you've sort of seen when we've come off a slightly lower level in September. I think we would expect regionally the Americas to be the strongest. We -- again, if we look around the global economies right now, U.S. is in positive GDP territory. And for that matter, most of the other Americas countries are in stronger shape. I think that there's continued concerns that we have about the European economy and how strong it will be in the December quarter. And likewise, some regions in Asia have also been affected. David M. King - Roth Capital Partners, LLC, Research Division: Okay. And maybe just a quick follow-up to that. On Asia, Ken, just, I mean, help us understand the weakness there. Is that -- just so I understand, is that more U.S. companies, international companies that have call centers, et cetera, that are experiencing weakness? Is it companies over there now that are experiencing weakness from a macro perspective? Is it -- can you see that? And do you have that kind of detail? S. Kenneth Kannappan: I mean, so I think that in general, the strongest part of the economy is the U.S. domestic economy. So the exporters are a little weaker in the U.S. than they were earlier, and those feeding domestic demand are a little bit stronger. So it's not so much the multinational companies, i.e., American companies overseas that are helping us. It's actually the domestic companies within those markets that are, and again it varies market by market, that are the bulk of our business and determine how well we do. I think that there's been quite a bit of reports about the slowdown that's occurred in India and in China and some of the unwinding of the resource strength that's been in Australia. It doesn't mean that, again, that all of those markets are weak. But it's, again, largely due to business within those countries that affect us. David M. King - Roth Capital Partners, LLC, Research Division: That's helpful. And then, Pam, maybe just a question on share count. It's slightly higher than you guys guided, and it looks like you're guiding that up sequentially. Is there anything we should read into that in terms of pace of buyback going forward? And just any color you want to share on the philosophy around that in general would be helpful. Pamela J. Strayer: Sure. So in terms of pace of buybacks, as you know, we repurchased 8 million shares in fiscal 2012. We won't be at that pace going forward. That has slowed down as we try and manage our domestic cash balance and our outstanding debt. So you will see a lower pace there, which accounts for the increase in share expectation for next quarter. S. Kenneth Kannappan: Yes. We had signaled at the last quarter call that we were going to be quite a bit slower with this repurchase. We wanted to, in an uncertain economic time, have a slightly more conservative policy.

And we have a question from Tavis McCourt. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Just a quick follow-up on the guidance, Pam. I think normal seasonality, you typically have a little more sales and marketing expense in December. But looking at last year's number, I think it came down pretty significantly, and I forget the exact reason to be honest. But I wonder, is that something we should expect for this year or something more close last year's trend? S. Kenneth Kannappan: So this is Ken. And just I'm going to cover a little bit of this because Pam wasn't actually here last year. So the truth is that we had some concerns about the outlook last year as well. You may recall that we were not yet out of the recession. And arguably, it's not clear that we are still out of the recession. And so we did take a pretty careful stance last December with what we thought was going to be the consumer environment in the quarter. And clearly, again, we're taking what I would call a reasonably cautious stance this quarter with respect to what we think broadly in the economy.

[Operator Instructions] We have no further questions at this time. S. Kenneth Kannappan: Okay. This is Ken. Let me just say thank you all very, very much for joining us on this call. If you have any further questions, please feel free to call or email myself, Pam or Greg. Thank you again.

This concludes today's conference call. You may now disconnect.