Greg Klaben - VP, IR Ken Kannappan - Director, CEO, and President Pamela Strayer - SVP and CFO

Dave King - Roth Capital Partners Paul Coster - JPMorgan Gregory Burns - Sidoti & Company Tavis McCourt - Raymond James Mike Latimore - Northland Capital Management

Good morning, my name is Joanne, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q4 Fiscal Year 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Greg Klaben, you may begin your conference.

Thanks very much, Joanne. And welcome, everyone, to Plantronics' fourth quarter and fiscal year 2015 financial results conference call. Joining me today are Ken Kannappan, Plantronics' President and CEO; and Pam Strayer, Plantronics' Senior 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 and 10-K and today's press release. 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 have reconciled these measures in our earnings press release and in our quarterly analyst metric sheet, both of which are available on the Investor Relations page of our website. We have also reconciled constant currency in the Investor Presentation. After the conclusion of today's call, a recording of the call will be available on our website as well. Unless stated otherwise, all comparisons of the fourth quarter financial results are to the same quarter in the prior year. Plantronics' fourth quarter net revenues were $200.8 million. Our GAAP diluted earnings per share was $0.61 compared with $0.65 in the prior year. Non-GAAP diluted earnings per share for the fourth quarter was $0.72 compared with $0.74 in the prior year. The difference between GAAP and non-GAAP EPS for the fourth quarter consists of charges for stock-based compensation and purchase accounting amortization. Both net of the associated tax impact and tax benefits were the release of tax reserves. Please refer to the full reconciliation of GAAP to non-GAAP in our earnings release. With that, I'll turn the call over to Ken.

Thank you, Greg. Although the fourth quarter was a slow down, in fiscal 2015 we achieved record revenues, operating income and earnings per share. Revenues grew by 6% to $865 million, operating income grew by 7% to $178 million and earnings per share grew by 7% to $3.04. With that backdrop, I'd like to highlight three major items from fiscal 2015 in our fourth quarter. First, our market position and product differentiation in all product groups remains outstanding and our pace and innovation is unequal. We have focused on our innovation and development, on simplicity, enhancing productivity and improving intelligence for our customers. We've approved these as innovation waves. The first innovation wave we are focused on is what we call taming the communication chaos. As technology proliferates, a number of devices and tools we use for communications grows, the complexity grows exponentially. People have a rapidly growing number of capabilities with the simplicity with which they can used as a challenge. Our customers need to seamlessly and easily connect to a growing variety of devices and applications, and we are working to meet the expectation that everything just works, automatically and intuitively where you want, when you want. By providing better integration, smarter devices and management tools, we are already at the forefront of this opportunity. Many of our enterprise and consumer solutions already include sensors to automatically answer calls, to seamlessly transfer calls based on your movements. This year we will expand on these efforts to broaden the integration capabilities and make them more uniform. Second innovation wave is to enhance productivity and we call it in the zone. We all know what it feels like to be at peak productivity, what is commonly refereed to as the zone. You can feel this at anytime in any activity, where you feel good about what you're doing and know where you’re going, when you’re in conversation, exercising or engaging the project did work. People report feeling as optimal productivity only about 20% of the time when they are at work. We’re working to actively enhance the productivity of workers and say change environments or is the environment around them changes. At work when people are pulled out of the zone there is an economic cost for the company. For example if as our employees focus on a task as interrupted, it takes an average of six minutes to get back to the task, when it is simple and up to a half an hour, they're engaged in innovation. Plantronics is able to help people perform feel and be at their best and whatever they’re doing. We'll give you a specific example. The pioneering technology we created for sound masking will be incorporated into our products allowing people to lessen interruptions as they work in the increasingly common open plan environments. We will also use our acoustics expertise to offer more holistic solutions, modeled on our own smarter working environments to help organizations to solve noise and productivity issues throughout their work spaces. This represents a major growth opportunity that extends our current reach while also supporting our core business. The third innovation wave is driving smarter customer interactions. It is made possible through the unique and proprietary intelligence of our products. The demand for better intelligence is driven by the need to drive customer loyalty and differentiate their services from those that competition. We are using our deep background in contextual intelligence to help businesses drive customer interactions in sophisticated and measurable ways. For example, the context in our needs deliver a great customer experience while being cost effective. We can improve both the cost effectiveness in contact centers as well as the customer experience. Our new portfolio of digital adapters is being integrated with technology from industry leaders like Interactive Intelligence like Avaya for their new contact center platforms. We have unique ability to help contact centers, improve their efficiency and the customer experience they deliver by understanding when agents go on mute, when there is extensive crosstalk, where an agent and a customer might be speaking at the same time and with sales representatives to log in, loud calls and track assets. On delivery of some of these new products has been delayed, in the longer term our highly differentiated and superior product line will place us in an extraordinary position of leadership and delivering value to our customers. The innovation waves incapslated solutions portfolio with the qualities of simplicity, performance, flexibility and contextual intelligence, capabilities our customers tell us they need and value. The second item I would like to emphasize is that we have enhanced our capital allocation policy to return more cash to our shareholders to both stock repurchases and dividends. On March 4, we announced our new policy in addition to an expanded repurchase program increasing a then existing 1 million share authorization of 4 million shares. Through the past fiscal year we've repurchased 2.2 million shares. We have a consistent history of returning cash to shareholders, and returned over 90% of our growing free cash flow over the past ten years. I’ll recap quickly the updated capital allocation policy. Our Board of Directors approved a new return of capital policy that will return more cash to shareholders, balance cash return between regular dividends and consistent stock buybacks and utilize a prudent amount of leverage to enhance shareholder returns. Our new policy targets return on 60% of total free cash flow defined as total operating cash flow, less capital expenditures. We also routine our cash distributions targets of two-thirds in the form of stock repurchases and one-third in the form of quarterly cash dividends. However the actual percentage returned in a given quarter may be significantly more or less than the long term goal. Plantronics Board of Directors intense to regularly reevaluate return of capital policy and updated when appropriate based on business performance in domestic and foreign tax policies. In particular there is a material change in a geographic distribution of Plantronics' cash flows or a change in relative tax rates between jurisdictions, Plantronics' may increase or decrease its return of capital targets. Third, we expect our total addressable market to grow by double-digit compounded annual rate over the next five years and we expect to keep pace with that level of growth. Unified Communications continues to represent our largest revenue and profit opportunity and our leadership in the categories as strong as ever. UC revenues grew by 18% during fiscal 2015 and represented 23% of total company revenues for the year. The long-term UC outlook remains significant and we continue to believe we’re in the very early days of this opportunity. With that, I’m going to turn the call over to Pam.

Thanks Ken. First an overview of our results. As a reminder unless stated otherwise, all comparisons of our Q4 fiscal year 2015 financial results are to Q4 of fiscal year 2014. Given the significant movement and foreign currency exchange rates, I’ll be covering some constant currency comparisons. Constant currency results show what Q4 fiscal year 2015 results would be, had last year's Q4 exchange rates still been in effect. Hedging gains taken in Q4 2015 are excluded in order to reflect the FX mutual trends. It should be noted that these constant currency results can only address a quantifiable impact on how foreign currency denominated business gets reported in our U.S. dollar financial reports. What these metrics don't capture is the impact we have from additional pricing pressure discounting our loss business in locations where U.S. dollar denominated pricing negatively impacts buying decisions. Fourth quarter net revenues were $200.8 million representing a 4% decrease. On a constant currency basis our fourth quarter revenues were $205.1million, a decrease of 2% from Q4 of the prior year. Breaking down the currency impact on our revenues, FX movement decreased our revenues by $7.9 million. However, our hedging program protected us against $3.6 million of this loss for a net negative impact of $4.3 million. Non-GAAP operating income of $40.4 million is a decrease of $1.3 million or 3.1%. Currency movements reduced our operating expenses year-over-year by $5.1 million. On a constant currency basis, our non-GAAP operating income is lower than what we report in U.S. dollars. Although this is not intuitive to FX benefit that we recorded in operating expenses exceeded the net negative impact recorded to revenue due to our hedging gains. Therefore, we have a small increase in operating income from our hedging program. Constant currency, operating income therefore is $39.5 million, which represents a decrease of 5.3%. Non-GAAP EPS of $0.72 per share is $0.02 lower than the prior year, a decrease of approximately 3%. On a constant currency basis, our EPS would have been $0.75 per share, an increase of approximately 1%. I want to highlight a few key points in our financial results for the quarter. First we experienced a slow down in our enterprise business this quarter for several reasons. Our delayed introduction of two of our new EncorePro headset had a negative but unquantifiable impact on our enterprise revenues during the quarter. We had a decline in Russia, where we hold a large share of the enterprise market. We also believe that layoffs and massive reductions in capital spending in the energy sector, just one of larger vertical markets had a negative impact on our results. Finally we believe an upcoming launch of Microsoft's new UC Platform Skype for business may have postponed UC deployments in headset purchases temporarily. Second, our operating margins remain in our target range with solid operating income and EPS despite the increasingly negative impact from the strengthening dollar during the quarter. Our EPS came in within our guidance range despite revenues being lower than guidance due to favorable FX impacts on operating expenses a lower tax rate and favorable gross margins due to product mix. Third, we will remain focused on the long-term growth of the company over near-term profitability targets, although we believe we will end the year with an operating margin above 19%. Currency movements may constrain our ability to do this without making spending cuts that would impact our competitiveness. Now I’ll cover revenue in more detail. Total net revenues for the fourth quarter of $200.8 million were down $8.3 million or 4%, compared to the fourth quarter last year substantially all of which was driven by a 6% decline in our Americas revenues, which was driven by a decline in consumer. Revenues in our Europe and Africa region were flat versus a year ago that grew by 6% on a constant currency basis and revenues were down 3% in our Asia Pac region that grew 2% on a constant currency basis. The following are key product line comparisons to Q4 last year. Enterprise net revenues of $148.7 million were down roughly $1.8 million and 1% on a constant currency basis, enterprise revenues grew by 1% over the prior year. Core enterprise decreased by $4 million and 4% on a constant currency basis. Core OCC revenues decreased by $2 million and 2%. UC revenues were $45.8 million, up 5% compared to the prior year quarter. On a constant currency basis, UC revenues grew by 8%. Consumer net revenues were down 11% and down 9% on a constant currency basis. This decrease was driven largely by a decline in the U.S. Mono Bluetooth market of over 20%. However, we continue to achieve share gains in this market. The decline in Mono Bluetooth was greater than expected and being driven in part by smaller shelf space allocated to the category in favor of the faster growing stereo Bluetooth category. In addition, Radio Shack's restructuring eliminated an important retail channel outlet faster than we had anticipated. While we are pleased with our growth in Stereo Bluetooth category, the growth could not sufficiently offset the lower revenues in Mono Bluetooth. We have a strong pipeline of new mono and stereo products and are confident in maintaining a strong position in Mono Bluetooth, believe we have the opportunity to gain share in Stereo Bluetooth. Non-GAAP gross margin was better than expected at 54.7% up 120 basis points compared with last year's 53.5%. The primary driver of the improved gross margin is product mix offset by some negative currency impacts. Non-GAAP operating expenses were $69.5 million down $0.5 million compared to Q4 of last year due primarily to lower variable compensation on lower revenue and the positive impact of the currency movements. These decreases were offset by higher headcount and related costs. As a percentage of revenue, operating expenses were 34.6%, up 110 basis points from the prior year of 33.5% due to decline in revenue. Our non-GAAP operating margin was 20.1%, up from 20% in the prior year and within our long-term operating model range of 20% to 23% even though our revenue fell below expectations. When you exclude GN litigation expenses of $1.4 million, and exclude the unusual litigation gains we recorded this quarter, the operating margin would have been 20.4%. Below the operating income line we had foreign currency losses recorded in other income and expense that did not occur in the prior year. We recorded a loss of $2.4 million net of gains recorded from our hedging program. The majority of this loss was a loss on the Brazilian Real which is unhedged but had significant movements during the quarter. Our non-GAAP profit before tax decreased 10.4% over the prior year. Our effective non-GAAP tax rate for the quarter was 19.9%, a tax rate has declined to 25.5% for the full year on a non-GAAP basis. The decrease was due primarily to higher foreign earnings. As a result of all these items, our Q4 non-GAAP net income of $30.6 million was 4% lower than a year ago, yielding non-GAAP EPS of $0.72 down $0.02 from last year’s Q4 result. A few notes on our hedging program. I described our hedging program on the call last quarter, however I would like to provide a few updates and clarifications. For the balance sheet hedges, we changed our approach and are hedging these exposures fully at 100% for currencies we hedged. We hedged balances in Euro, British Pound, and Australian Dollars. Our losses recorded in Q4 was entirely to non-hedged currencies. Now on to the P&L. As we discussed last quarter we enter into Costcos colors each month which settle 12 months in the future. We hedge between 50% to 70% of the revenue exposure and all gains and losses are recorded into revenue. We believe our overall hedging program combined with the natural offset from expenses in local currencies effectively protects our net income from a significant amount of volatility when that changes in our major currencies. In addition, they effectively provide a floor for downside risk or continued decline in foreign currencies. Now on the balance sheet and cash flow highlights. We finished the quarter with $482 million in cash and investments on our balance sheet and generated over $54 million in cash flow from operations during the period. Of the $482 million in cash and investments at quarter end, $16 million was domestic. We used $85.5 million to repurchase shares during the quarter and drew down on our line of credit by $34.5 million. DSO was 61 days up from 60 days at the end of Q4 the prior year. Net inventories were flat versus the year ago, inventory terms are 6.5 compared to 6.9 in Q4 of last year primarily due to lower revenues than expected offset by improvements in our inventory management practices, specifically the introduction of lean manufacturing for a couple of key product lines. Turning to our capital expenditures. Our Q4 investment was $2.7 million or 1.3% of net revenues. Large expenditures included cost related to the construction of a new smarter working office at our European headquarters site in the Netherlands and investment in manufacturing execution system for our Mexican plant and equipment and tooling for our operations. Total CapEx for fiscal year 2016 is expected to be approximately $30 million up from $22 million we spent in fiscal year 2015. Roughly $9 million of the FY16 forecast is related to our new headquarters facility in the Netherlands. Depreciation expense on a GAAP basis for Q4 was $4.7 million, up about $1 million from the prior year. Turning to outlook. We believe total net revenues for the first fiscal quarter ending in June will be in the range of $202 million to $212 million. This forecast assumes gross margins to be in the range of 52% to 53%, lower than the current quarter margins due to products mix impact of higher consumer revenues compared to Q4. On a constant currency basis with Q1 of fiscal year 2015, this range would be roughly $210 million to 220 million and at the mid point would represent a decrease of 1% in the prior year. At today's spot rates on the Euro and British pounds, we would expect the negative currency impact to revenue of roughly $12 million offset by hedging gains of approximately $4 million for a negative net impact of $8 million. Depending on revenue mix and other factors, we believe our operating - our GAAP operating income will be approximately $26 million to $31million and non-GAAP operating income of approximately $34 million to $39 million. The GAAP reconciling items we expect in the first quarter include approximately $8 million and stock-based compensation expense and purchase accounting amortization before tax. Although this results in a non-GAAP operating margin which is below 19%, we expect to improve profitability through revenue growth in the second half of the year and to end above 19%. Our guidance expects we will spent approximately $1 million on GN litigation in Q1. The GN lawsuit is still on discovery phase and the impact to operating income from an associated legal expenses is particularly difficult to forecast. Actual expenses can vary significantly from our forecast. On a constant currency basis with Q1 of FY15, we expect the positive impact to our expenses of roughly $6 million. Therefore currency rate do not change significantly, the positive OpEx impacts combined with the negative impact on the revenue line of $8 million means our hedging program will protect us from all but about $2 million in negative impacts to operating income. Our non-GAAP tax rate for the quarter is expected to be 26% and we're anticipating a full year tax rate of 26%. Based on all of the above and the first quarter, we expect GAAP EPS of $0.48 to $0.57 per share and non-GAAP EPS to be $0.62 to $0.71 per share on average diluted shares outstanding of approximately $40 million. With that, I’ll turn it back to Greg, who will cover the long term market model and update for the year.

Thanks Pam. At the beginning of every fiscal year we update our total adjustable market and growth expectations for the subsequent five years. Working with industry analyst firms Frost & Sullivan analytics, in addition to our own estimate, we've updated the average growth rate expected for our markets from calendar year 2014 to calendar year 2019. I’ll walk you through the total addressable market now and if you haven’t already seen the new IR Presentation with these slides, they are available on the IR section of our website. Overall as Ken mentioned, we’re expecting our total addressable market and our own growth to be in the double-digit rate over the next five years. We would expect the enterprise market to comprise of core enterprise, contact center and Unified Communications, which grow by an 11% CAGR through calendar 2019 and as we've discussed over the past year, we will be reporting enterprise revenues in aggregate going forward. We're anticipating a CAGR of approximately 8% in our consumer addressable market comprised of Mono and Stereo Bluetooth, gaming and clarity products. In Slide 27 in our IR presentation, we've sized the enterprise market at $1.2 billion in calendar year 2014 growing to $2 billion in calendar year 2019 and the consumer market growing from $1.5 billion in calendar year 2014 to $2.3 billion in calendar year 2019. Our five year CAGR for the consumer market is in line with last year's projection; however for the enterprise market, it’s significantly lower than the 17% to 18% CAGR we forecast last year. The current forecast incorporates recent growth rates in Unified Communications and a slight impact from the currency headwinds. Our longer term outlook for mass market adoption of Unified Communications is in no way diminished and we’re fully confident that the fundamentals of UC adoption and headsets to the device of choice are on track. Attach rates of headsets continue to be 60% or higher when Unified Communications Solutions with voice are deployed and desktop phones are taken away. Current attach rates for global knowledge workers using headsets are approximately 7% and are expected to grow to 15% in calendar year 2019. Our gross margins in UC remain in line with our long-term corporate model and we do not believe we have experienced any market share losses new entrants. However, selling prices in the market remain solid and we believe our product portfolio and overall solution set is significantly differentiated from the competition. I’d also like to note that we’re anticipating a modest growth rate for revenues for fiscal year 2016 as compared with the five year growth rate in our market model. With that I’d like to open the call for questions.

[Operator Instructions] Your first question comes from the line of Dave King with Roth Capital Partners. Your line is open.

Thanks. Good morning, everyone.

Good morning.

I guess first off I was -- I just wanted to dig into the revenue trends in the quarter a little bit more. First on UC it looks like that was up 8% or so in constant currency and then in some of the prepared remarks you guys touched on new link deployment as one of the issues and then I think some of the other stuff in terms of energy etcetera. But in terms of the new link deployment, our new link from Microsoft what’s the timing of that? How much do you think that weighed on the quarter, obviously it’s tough to be able to quantify but how should we be thinking about that both in terms of what impact it had during the quarter and then how to think about that in terms of subsequent quarters? And then also in terms of markets where currency didn’t necessarily have an impact, but there weaker demand, I understand that it would probably tough to quantify as well but could you maybe touch on what’s the exposure there? How much of UC revenue is tied to Russia and some of these other countries. Thanks.

All right. We’ll try. This is Ken, let me kind of start a little bit. So first of all it is difficult for us to actually know how much is due to the timing of scope for business, which is at this point in time is kind of formally launched next week I think at the Ignite Conference that Microsoft has. I think that it is normal for a lot of businesses to want to build with the latest technology if they’re going to implement it. So as you just start to get just before the major new product announcement seeing a little bit of slow down, it’s not a typical after you get the new product to test out a little bit decide you want to go with that is normally when you would expect a little bit of resumption. We’ve certainly seen that in the past. Well that is the case now, we don’t have the 20 hind side mirror out or not, but we have heard that. I would say that having said, the bigger issue in my mind link is then that many customers have taken link and have not yet used the voice clients. They're using the IM and the presence and they're not using the voice and so that represents a bigger opportunity fundamentally for people to move forward with these soft clients let’s see. Relative to some of your other questions, I do not think that -- so we had a fall off in Russia and we certainly do have a disproportionately high share of that business on the business side and it was -- having said that, it was not primarily UC centric. There is UC business in Russia absolutely, but it is not one of our higher adoption areas from UC. We actually had a bigger effect in the U.S. where the market overall has not been as heavily affected. I’m not sure I got all of your questions, because there were so many parts to it.

Right, no I think that mainly covers it. I guess just to also follow on that, you maybe out for the UC just better understanding some of the revenue drivers I guess the other thing I was curious about in terms of EncorePro has that -- is that now -- are those now shipping and when do you expect to be I guess when do you expect to recouping that revenue or that loss revenue in the period? And then are you able to quantify the impact of the consumer business from Radio Shack?

All right, let me try to do this. So first of all, on EncorePro we do not expect to be able to ship until a considerable delay, by which I mean October. We certainly have lost revenue as a result of not having that product and we’ll lose revenue throughout the June and September quarters as a result of not having that product that’s incorporated into the -- obviously the results that we already have and the guidance that we had for the June quarter. It is very disappointing to us. In essence we really had to do almost a full redesign of one element of the product just to get it up to our standard level on that. Let me see in terms of Radio Shack, we've had customers go through bankruptcy and very often they are able to operate in bankruptcy in a diminished fashion that didn’t prove to be the case, we actually had kind of zero revenues from Radio Shack again unfortunately that was an account where we just had an extremely high share of their business. So it is an effect and perhaps a little bit of disproportionate effect for us. Are we disclosing the size or not? Okay, I’m not sure that we’re giving a specific size of these accounts but it certainly was a major retail consumer account for us.

Okay. That’s all very helpful Ken and then lastly maybe switching gears to Pam, in terms of gross margin it looks like that was up and you may have touched on it in your prepared remarks but I’ve missed it, it looks like that was up even more or so than I think what would be implied by mix, is there anything else specific you can kind of move call out there that maybe driving that?

Well mix was certainly the most significant impact, E&O expense exceeds excess and obsolete inventory charges for the quarter were so low, so that helped us as well. But really when you look at how low our consumer mix was for the quarter, it’s very lower than we’ve seen in probably eight quarters. So that was primary driver.

Okay, thanks. And good luck for rest of the year.

Thank you.

Thanks.

Your next question comes from Paul Coster with JPMorgan. Your line is open.

Thanks. Just quick questions, first with '16 outlook, initially it sounds like the growth rate is going to be slightly less than that implied by the overall markets with the sort of five year context that Greg was talking about, just I think it’s obvious, but perhaps you can just explain why it’s still little bit lower this year?

Well I think that we’ve seen slower adoption than we had earlier expected in the market. I think that all of the industry forecasters have kind of taken down their expectations just based on one I think macroeconomic people were expecting to have slightly better economic conditions than we have. Two, more particularly as it relates to UC again the actual adoption in use of some of the voice clients is just a little bit behind where people expect it and we’ve kind of extrapolated out the more recent results into our expectations.

Regarding the Microsoft link or the Scott business introduction will it be feature set on the Plantronics product line that will be exploiting that new platform and are new to the world?

Well there are new features in Skype for business, there are features that are particular to Plantronics integration with Skype, there is nothing that is specifically new to Skype for business from Plantronics with some more carry-over of our existing portfolio on to that new platform.

Okay. And then finally what was the underlying cause of the product delays for the EncorePro product?

Sure in essence without going into too much detail, we had a situation where a portion of products would not wind up having the kind of useful life that we normally expect. In essence we were using a brand new laser welding system, which turns out with some small fiber glass content in some of the pieces resulted in a little bit of work in essence. So we actually had to fundamentally change the design, it’s something we’ve done in the past, we were using some more advanced processes which should have some benefits but in this case it did create a lack of reliability and a portion of the products that people would have experienced over time and people buy a Plantronics product, they expect to get two or three Ex the useful years of our competition we have to deliver that.

All right, thanks Ken.

Your next question comes from Greg Burns with Sidoti & Company. Your line is open.

Hi, in terms of your Bluetooth market what percent comes from mono versus stereo and then what is your market share differential between mono and stereo?

So for Plantronics, still a much larger portion of our business is coming from mono. Clearly the stereo business is rising pretty significantly. Let me talk for a second on market share, in mono we're the global leader in market share. We’ve consistently seen increases in that already strong position. In the U.S. through the March quarter and I frankly I didn’t think it could rise from where it was, we went up from 51% in last year to 56% in the March quarter. In Stereo, we're clearly a small player. We really are not targeting the broad stereo market right, now but we’re really doing is following our business customer into stereo markets and throughout that business customers day. So for example we're doing products for the business person when they are playing games, when they are listening music, when they are running, that type of thing. Our overall mix is about 70% mono, above 30% stereo right now.

Okay. Thank you. And in terms of the GN lawsuit, are you accruing anything in terms of that and what is your outlook for the completion of that litigation?

So I’ll let Pam talk to the accruals, but our look for the completion of litigation is that its still going to be sometime we believe. We believe that the case is going very well in terms of substance but that doesn’t mean that they’re not able to continue it for, quite sometime but which I mean at least for year maybe two.

Regarding the accrual, no we don’t haven't accrued anything for the GN litigation. We would only do that if we thought it was probable and we could estimate the loss, which we can't at this point in time.

Okay. Lastly what was the main driver for the lower tax rate this quarter and what to project the diluted share count to be for next quarter?

So the lower tax rate this quarter was driven by higher foreign earning and the share estimated at 40 million shares for Q1.

Okay. Thank you.

Your next question comes from Tavis McCourt with Raymond James. Your line is open.

Hey, guys. Thanks for taking my questions. Pam first a clarification, I think you said in the prepared comments that, the net revenue impact this quarter from currency was little over $4 million. What was the reference period there year-over-year or relative to December?

Yeah, that was a year-over-year reference.

Okay. And then Ken, can you talk about kind of the ultimate leverage goals for the business? I think in your press release in early March you commented a little bit about the amount of debt you’ll be willing to put on the business kind of, if you don’t have an exact number at least philosophically, what you’re thinking about?

Well sure, but I do want to say that we’ve made the comment there about the Board regularly reevaluate the structure and I want to talk for a second about our journey to this structure. When we look back five, six years back, we had a Bluetooth business where we have nowhere near the market share we do now. It was intensely competitive. Many people weren’t focused on making it profit. It's now matured and gotten more stable. We were entering the UC business. We didn’t know for sure, what the margins would turn out to be. We did not know for sure, what kind of industry position we would get. What kind of leadership. What kind of market share. Those have all turned out very, very favorably. We've been able to improve our working capital efficiency pretty dramatically. So all of these have given us greater confidence in the cash flow of the business and our positions, which has helped us decide that at least for right now of suitable capital structures puts us at least at the, what we would call kind of near investment grade level of debt or in another words debt does not come with constraining financial covenants on the business. We’re still a technology company. We still want to have considerable financial flexibility in case of the unexpected. So, is that helpful?

Well yes, I guess is there any indication you give on what that would mean in terms of a growth that EBITDA number or some other ratio that would be kind of helpful longer term?

Well that’s the problem when you said the longer term thing, because sometimes the credit markets themselves vary a little bit over time and we want to be a little bit cautious in making sure that we’re good for a period of time and at the same time our industry dynamic contains a little bit. I would suffice to say that for if you look at whether we want to call us kind of a relatively small technology company just short of a billion with the kind of a good market position that there are ratios that represent that kind of near investment grade level kind of strong BB, BB Plus type of rating if you think but public data course it can also be line of credit type of stuff that we would look at. But that’s kind of where we’re centered and then look at more than just EBITDA coverage in terms of the financial structure. So I’m not being very specific, but I’m hoping it’s still helpful to you.

Yeah I didn’t expect exact numbers. That was helpful Ken, thanks. And then two other follow-up questions, I guess given the weakness in consumer in March quarter and some of the headwinds in enterprise, can you kind of help us on how we should think about the mix of business in June between enterprise and consumer? And then also you’re starting out the year Ken, it looks like well below kind of the low end of the operating margin goal obviously a lot of reasons for that. How do you expect the full year to trend on a margin basis assuming no dramatic change in currencies and economic trends from here?

So, let me try to answer both a little bit and Pam might help me out. But first in all honestly if we look back at the December quarter, it would have been a dime higher absent FX right. Clearly the March quarter would have been substantially higher clearly if we look forward at this fiscal year, we would have been in our minds having a pretty explosive earning story on this set of constant currency revenues. We have cut down our expenditures some as a result of this. But only to some degree, because ironically where this hurts us, this actually helps our competitors in terms of the FX rate. So we’re not able to cut back too much and so it is going to bring down the operating margin a little bit over where we would have been with a better FX environment. In terms of the June quarter I believe that the mix is going to be a little bit stronger again on the business side over on the consumer side. Pam, you want to add in that?

Well on gross margins, we’re not providing guidance on that number I guess what I would say is when you look back historically over the last five to seven years we’ve ranged typically between 52% and 53% and I’m not seeing anything that would dramatically drive us off of that.

I was referring to operating margins, I apologize.

Sorry on operating margin yes, so as I talked about earlier we expect it to be above 19%. We certainly will try and get to 20%, but with the currency headwinds that’s going to be a challenge.

I got you. Thanks.

[Operator Instructions] Your next question comes from Mike Latimore with Northland Capital Management. Your line is open.

Okay, thanks a lot yeah, on the Unified Communications business I guess are you seeing projects that were supposed to be implemented just the implementation timelines just get stretched out or are there deals that were -- you’re expecting to sort of come in, in the fall that have been delayed. Can you just give a little more color on kind of the UC patterns are?

So, we’ve seen both of those, but that’s not entirely new in that it’s been kind of a continuing phenomena of the market where there have been a number of companies that indicate they’re going to do things and the actual rollouts have been delayed. Perhaps there’s a little bit more so but nonetheless again it's not a new phenomena on either element. I think we’ve seen a little less customers come in and again that’s where we primarily think there’s a possibility, that it’s a delay for the new platform and then again the other big thing really is that we just have this big backlog of customers that have deployed and haven’t activated the voice license yet.

All right. And when they haven't deployed the voice, what are they telling you the main rationale?

Well in some cases, they’re getting all these licenses as a bundle and so they just elected to go ahead and get people familiar with the presence tool, with the IM tool, they think they’re happy enough with their existing telephone lines for whatever reasons. So they’re just using two different systems rather than unified systems.

Got it. Okay. And then I believe there was a delay in one of the consumer product but when do you expect that to start shipping?

I’m not familiar with the delay in consumer.

Okay. All right.

There was a delay in our business product the EncorePro, that's what you're thinking about?

Yes I was thinking about BackBeat FIT I believe.

Yes so that one we’re not unfortunately be shipping the EncorePro until what…

But I think Michael you’re referring to the allocation when we come off allocation?

That's different. That's not a delay. That's just a structural component shortage that we had for the BackBeat FIT and it's been a very long delay. We do expect that by August that will be alleviated significantly.

Got it. Okay thanks. And then just last what's your general thought on the year in terms of revenue? Do you think you can grow revenues this year in light of FX or how you think about kind of overall revenue growth this year?

So the way we see it is that in all honesty this year would have been a pretty decent year in constant currency. So we are going to in our minds grow, I want to kind of remind whatever disclosure risk we have on savings sorts of things. But we still expect to be able to grow kind of normally in constant currency. How it gets reported is going to be clearly impacted by FX but we think it will still end up being a positive number.

Okay. Thanks a lot.

There are no further questions at this time. I'll turn the call back over to the presenter.

Let me thank you all very much for joining our call. I recognize it's early and now it’s spilled over into the open market. If you have any further questions, we would be available. Thank you again.

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