PLANTRONICS, INC. CERTAIN FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements relating to our intentions, beliefs, projections, outlook, analyses
or current expectations that are subject to many risks and uncertainties. All of
our forward-looking statements are subject to risks and uncertainties relating
to our pending merger (the "Merger") with HP Inc. ("HP") and Prism Subsidiary
Corp. pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
March 25, 2022 , and corresponding impacts on our business, including (i) that
the consummation of the Merger with HP is contingent upon the satisfaction of a
number of conditions, including regulatory approvals, that may be outside of our
or HP's control and that we and HP may be unable to satisfy or obtain or that
may delay the consummation of the Merger or cause the parties to abandon the
Merger; (ii) while the Merger is pending, we are subject to business
uncertainties and contractual restrictions that could harm our financial
condition, operating results, and business; (iii) uncertainty about the Merger
may adversely affect relationships with our customers, suppliers and employees,
whether or not the Merger is completed; (iv) as a result of the Merger, our
current and prospective employees could experience uncertainty about their
future with us, which may result in key employees departing because of issues
relating to such uncertainty or a desire not to remain with HP following the
completion of the Merger; and (v) the ability to complete the Merger is subject
to the receipt of consents and approvals from government entities, which may
impose conditions that could have an adverse effect on us or could cause us
and/or HP to abandon the Merger. Additionally, such forward-looking statements
and the associated risks and uncertainties include, but are not limited to: (i)
our beliefs with respect to the length and severity of the COVID-19 pandemic,
and its impact across our businesses, our operations and global supply chain,
including, our expectations that the virus has caused, and will continue to
cause, a shift to a hybrid work environment and that the elevated demand we have
experienced in certain product lines, including our Video and Voice devices,
will continue over the long term; (ii) risks related to global supply chain
disruptions, including continued uncertainty and potential impact on future
quarters relating to a shortage of adequate component supply, including
integrated circuits and manufacturing capacity, long lead times for raw
materials and components, increased costs to us and increased pass-through costs
to our customers, increased purchase commitments and a delay in our ability to
fulfill orders, including as a result of Russia's conflict with Ukraine , all of
which has had, and may continue to have, an adverse impact on our business and
operating results and which could continue to negatively affect our
profitability and/or market share; (iii) expectations related to our ability to
manage profitability and improve margins in light of supply chain challenges,
including our efforts to implement productivity improvements in our Tijuana
manufacturing facility, while making investments for long-term growth, including
investments in strategic alliances and/or acquisitions, in light of the supply
chain challenges; (iv) our expectations regarding growth objectives related to
our strategic initiatives designed to expand our product and service offerings,
including our expectations related to increased demand for our solutions to
facilitate hybrid working in and out of offices for our enterprise customers, as
well as our expectations related to building strategic alliances and key
partnerships with providers of collaboration tools and platforms to drive
revenue growth and market share, including expectations related to our expansion
of our presence in China ; (v) our belief that we will continue to experience
increased customer and partner demand in collaboration endpoints, and that we
will be able to design new product offerings to meet changes in demand due to a
global hybrid work environment; (vi) expectations related to our ability to
fulfill the backlog generated by supply constraints and to timely supply the
number of products to fulfill current and future customer demand in a timely
manner to satisfy perishable demand; (vii) risks associated with our dependence
on manufacturing operations conducted in our own facility in Tijuana, Mexico and
through contract manufacturers, original design manufacturers, and suppliers to
manufacture our products, to timely obtain sufficient quantities of materials
and/or finished products of acceptable quality, at acceptable prices, and in the
quantities necessary for us to meet critical schedules for the delivery of our
own products and services and fulfill our anticipated customer demand; (viii)
risks associated with our ability to secure critical components from sole source
suppliers or identify alternative suppliers and/or buy component parts on the
open market or completed goods in quantities sufficient to meet our requirements
on a timely basis, affecting our ability to deliver products and services to our
customers; (ix) risks related to increased cost of goods sold, including
increased freight and other costs associated with expediting shipment and
delivery of high-demand products to key markets in order to meet customer
demand; (x) risks associated with passing on increased costs through price
increases to customers; (xi) the impact if global or regional economic
conditions deteriorate further, on our customers and/or partners, including
increased demand for pricing accommodations, delayed payments, delayed
deployment plans, insolvency or other issues which may increase credit losses;
(xii) risks associated with significant and/or abrupt changes in product demand
which increases the complexity of management's evaluation of potential excess or
obsolete inventory; (xiii) expectations related to our Services reportable
segment revenues, particularly as we introduce next-generation, less complex,
product solutions, or as companies shift from on premises to work from home
options for their workforce, which have resulted and may continue to result in
decreased demand for our professional, installation and/or managed service
offerings; (xiv) expectations related to our efforts to drive sales and
sustainable profitable revenue growth, to improve our profitability and cash
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flow, and accelerate debt reduction and de-levering; (xv) risks associated with
forecasting sales and procurement demands, which are inherently difficult,
particularly with continuing uncertainty in regional and global economic
conditions; (xvi) our expectations regarding our ability to control costs,
streamline operations and successfully implement our various cost-reduction
activities and realize anticipated cost savings under such cost-reduction
initiatives; (xvii) expectations relating to our financial projections,
particularly as economic uncertainty, including, without limitation, uncertainty
related to the continued impact of COVID-19, the current constraints in our
ability to source key components for our products, continued uncertainty in the
macro-economic climate and other external factors, puts further pressure on
management judgments used to develop prospective financial information; (xviii)
expectations related to U.S. GAAP and non-GAAP financial results for the full
Fiscal Year 2022, including total net revenues, adjusted earnings before
interest, tax, depreciation, and amortization (EBITDA), tax rates, intangibles
amortization, diluted weighted average shares outstanding, and diluted earnings
per share (EPS); (xix) our forecast and estimates with respect to tax matters,
including expectations with respect to the valuation of our intellectual
property or expectations regarding utilization of our deferred tax assets; and
(xx) our expectations regarding pending and potential future litigation, in
addition to other matters discussed in this Quarterly Report on Form 10-Q that
are not purely historical data. Such forward-looking statements are based on
current expectations and assumptions and are subject to risks and uncertainties
that may cause actual results to differ materially from the forward-looking
statements. Factors that could cause actual results and events to differ
materially from such forward-looking statements are included, but not limited
to, those discussed in this Quarterly Report on Form 10-Q; in Part I, "Item 1A.
Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended April
2, 2022 , filed with the SEC on May 27, 2022 ; and other documents we have filed
with the SEC . We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by applicable law. Given these risks
and uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.
OVERVIEW
Poly is a leading global communications technology company that designs,
manufactures, and markets integrated communications and collaboration solutions
for professionals. We offer a comprehensive selection of premium audio and video
products designed to work in an era where work is no longer a place and
enterprise work forces are increasingly distributed. Our products and services
are designed and engineered to connect people with high fidelity and incredible
clarity. They are professional-grade, easy to use, and work seamlessly with
major video and audio-conferencing platforms.
Our major product categories are Headsets, Voice, Video, and Services. Headsets
include wired and wireless communication headsets; Voice includes open Session
Initiation Protocol ("SIP") and native ecosystem desktop phones, as well as
conference room phones and speakerphones; Video includes conferencing solutions
and peripherals, such as cameras, speakers, and microphones; Services includes a
broad portfolio of offerings including video interoperability, maintenance and
troubleshooting support for our solutions, as well as professional, hosted, and
managed services that are grounded in our deep expertise aimed at helping our
customers achieve their collaboration goals. Additionally, our cloud management
and analytics software enable Information Technology ("IT") administrators to
configure and update firmware, monitor device usage, troubleshoot, and gain a
deep understanding of user behavior.
All of our solutions are designed to integrate seamlessly with a wide range of
We sell our products through a well-developed global network of distributors and channel partners, including value-added resellers, integrators, direct marketing resellers, and service providers, as well as through both traditional and online retailers, office supply distributors, and e-commerce channels. We have well-established distribution channels in theAmericas ,Europe ,Middle East ,Africa , andAsia Pacific , where use of our products is widespread. Our fiscal year ends on the Saturday closest to the last day of March. The years endedApril 1, 2023 ("Fiscal Year 2023") andApril 2, 2022 ("Fiscal Year 2022") have 52 weeks. The three months endedJuly 2, 2022 ("first quarter Fiscal Year 2023") andJuly 3, 2021 ("first quarter Fiscal Year 2022") each have 13 weeks. 28 -------------------------------------------------------------------------------- Table of Contents Acquisition by HP Inc. OnMarch 25, 2022 , the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with HP Inc. ("HP") andPrism Subsidiary Corp. ("Merger Sub"), a wholly owned subsidiary of HP, providing for Poly's acquisition by HP in an all-cash transaction for$40.00 per share by way of a merger of Merger Sub with and into Poly (the "Merger"), with Poly continuing as a wholly owned subsidiary of HP. OnJune 23, 2022 , Poly stockholders voted to adopt the Merger Agreement. The Merger is expected to close, subject to receipt of required regulatory clearances and the satisfaction of other customary closing conditions, in calendar year 2022.
Impact of the Current Environment, Supply Chain Disruptions, and COVID-19 on Our Business
We have experienced and continue to monitor limited supply and longer lead times for certain key components, such as semiconductor chips, necessary to complete production and meet customer demand, including fulfillment of our backlog. We do not manufacture these component parts and currently purchase certain parts, including semiconductor chips and sub-assemblies that require semiconductor chips, from single or limited sources. Additionally, constrained supply has resulted in price inflation for certain components, including semiconductor chips, increased spot market prices and purchases, increased transportation costs, inefficiencies at our owned manufacturing facility inTijuana, Mexico , entry into multi-year commitments at increased cost to secure supply, and inability to fulfill backlog for certain products timely. For certain of our products, our additional supply increases our exposure to risks associated with significant and/or abrupt changes in product demand, which could result in potential excess of obsolete inventory. Additionally, to the extent we pass through increased costs to our customers, this may result in reduced demand. These factors, among others, are affecting and are expected to continue to affect total net revenue and gross margin rates. We continue to monitor our supply chain and are taking action to mitigate future disruption including outreach to critical suppliers, migration of multiple product lines to newer technologies, and incorporating supply chain design concepts into the earliest phases of product development. In addition, COVID-19 has continued to spread globally and continues to add uncertainty and influence global economic activity, the global supply chain, and financial markets. The impact of the pandemic on our operations has varied by local conditions, government mandates, and business limitations, including travel bans, remote work, and other restrictions. The COVID-19 pandemic led to a massive increase in remote and hybrid work driving elevated demand for certain of our products and solutions. However, the impact of COVID-19 is fluid and uncertain, and it has caused, and may continue to cause, various negative effects as we continue to experience constraints in our supply chain, specifically the sourcing of certain components and raw materials, and increased logistics costs to meet customer demand, which, in turn, adversely impacts our gross margins. As a result, the impact of COVID-19 to date has had mixed effects on our results of operations. The full extent and duration of the impact of the COVID-19 pandemic on our business continues to be uncertain and difficult to predict and will depend on many factors outside of our control, including the extent and duration of the pandemic, mutations, and variants of the virus, the development and availability of effective treatments, including the availability of vaccines for our global workforce, mandates of protective public safety measures, and the impact of the pandemic on the global economy, global supply chains, and demand for our products. It is not possible at this time to foresee whether or when the outbreak of COVID-19 or other events beyond our control will be effectively contained, nor can we estimate the entirety of the impact that COVID-19 or such other pandemics or natural or man-made disaster will have on the global economy, our business, customers, suppliers, or other business partners. As such, impacts from such events on Poly are highly uncertain and we will continue to assess the impact from such events on our condensed consolidated financial statements.
First Quarter Fiscal Year 2023 Highlights
Total net revenues for the first quarter of Fiscal Year 2023 were$415.6 million , a decrease of$15.6 million or 3.6%, compared to the first quarter of Fiscal Year 2022, primarily driven by declines in our Video and Services product categories. Products gross margin rate for the first quarter of Fiscal Year 2023 decreased from 36.6% in the first quarter of Fiscal Year 2022 to 36.4%, primarily driven by increased component costs as well as transportation costs. We continued to experience the effects of the current supply environment including constrained supply and longer lead times for certain components, such as semiconductor chips. During the first quarter of Fiscal Year 2023, Poly continues to expand its portfolio of smart devices with the introduction of thePoly Studio R30 video bar, the Poly Sync 10 speakerphone, and enhancements to the Poly Lens platform. These pro-grade solutions, combined with developments to Poly DirectorAI smart camera technology help deliver meeting equity for hybrid and office workers alike. These products were available during the first quarter of Fiscal Year 2023 and did not have a material impact on total net revenues. 29
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RESULTS OF OPERATIONS
The Company's reportable segments are Products and Services. Our Products reportable segment includes the Headsets, Voice, and Video product lines. Our Services reportable segment includes maintenance support on hardware devices, as well as professional, managed, and cloud services and solutions.
Total Net Revenues
The following table sets forth total net revenues by reportable segment for the
three months ended
Three Months Ended
(in thousands, except percentages)
Change Products$ 364,208 $ 371,203 (1.9) % Services 51,351 59,969 (14.4) % Total net revenues$ 415,559 $ 431,172 (3.6) % Products Total product net revenues decreased in the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022, due to a decline in our Video product category primarily due to constrained supply of certain components, such as semiconductor chips. Services Total services net revenues decreased in the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022, primarily due to a mix shift within our Video product category away from legacy platforms to our recently launched video bars, which are less complex, less expensive, and easier to install and operate. 30 -------------------------------------------------------------------------------- Table of Contents Geographic Region
The following table sets forth total net revenues by geographic region for the
three months ended
Three Months Ended
(in thousands, except percentages)
Change United States$ 192,448 $ 198,728 (3.2) % International net revenues: Europe, Middle East, and Africa 119,990 126,121 (4.9) % Asia Pacific 70,430 76,758 (8.2) % Americas, excluding United States 32,691 29,565 10.6 % Total international net revenues 223,111 232,444 (4.0) % Total net revenues$ 415,559 $ 431,172 (3.6) % United States
International
International total net revenues decreased in the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022, primarily due to decreased net sales in Video and Services product categories, partially offset by increases in Voice and Headsets. During the first quarter of Fiscal Year 2023, changes in foreign exchange rates unfavorably impacted total net revenues by$6.3 million , net of the effects of hedging, compared to a$9.6 million favorable impact on revenue in the first quarter of Fiscal Year 2022. 31 -------------------------------------------------------------------------------- Table of Contents Cost of Revenues and Gross Profit Cost of revenues consists primarily of direct and contract manufacturing costs, amortization of acquired technology, freight, warranty, charges for excess and obsolete inventory, depreciation, duties, royalties, and overhead expenses. Three Months Ended (in thousands, except percentages) July 2, 2022 July 3, 2021 Change Products: Net revenues$ 364,208 $ 371,203 (1.9) % Cost of revenues 231,677 235,196 (1.5) % Gross profit$ 132,531 $ 136,007 (2.6) % Gross profit % 36.4 % 36.6 % Services: Net revenues $ 51,351 $ 59,969 (14.4) % Cost of revenues 15,841 20,787 (23.8) % Gross profit $ 35,510 $ 39,182 (9.4) % Gross profit % 69.2 % 65.3 % Total: Net revenues$ 415,559 $ 431,172 (3.6) % Cost of revenues 247,518 255,983 (3.3) % Gross profit$ 168,041 $ 175,189 (4.1) % Gross profit % 40.4 % 40.6 % Products Gross profit as a percentage of total product net revenues decreased in the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022, primarily due to increased component costs, unfavorable product mix, and increased transportation costs, partially offset by higher average selling price. The increase in component costs was primarily driven by increased spot market purchases of certain key components, such as semiconductor chips, due to global supply shortages. Transportation costs increased as a result of high global demand and limited capacity of air freight carriers and increased air freight usage to mitigate longer component lead times to meet our commitments to customers. Services Gross profit as a percentage of total services net revenues increased in the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022 due to lower support costs including compensation and other headcount related expenses. 32 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Operating expenses for the three months endedJuly 2, 2022 andJuly 3, 2021 were as follows: Three Months Ended (in thousands, except percentages) July 2, 2022 July 3, 2021 Change Research, development, and engineering$ 51,269 $ 45,466 12.8 % % of total net revenues 12.3 % 10.5 % Selling, general, and administrative 131,903 120,734 9.3 % % of total net revenues 31.7 % 28.0 % Restructuring and other related charges (49) 28,972 (100.2) % % of total net revenues - % 6.7 % Total operating expenses$ 183,123 $ 195,172 (6.2) % % of total net revenues 44.1 % 45.3 %
Research, Development, and Engineering
Research, development, and engineering costs are expensed as incurred and consist primarily of compensation costs, outside services, expensed materials, and overhead expenses. Research, development, and engineering expenses increased during the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022, primarily due to higher incentive compensation.
Selling, General, and Administrative
Selling, general, and administrative costs are expensed as incurred and consist primarily of compensation costs, marketing costs, travel expenses, professional service fees, and overhead expenses. Selling, general and administrative expenses increased during the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022, primarily due to higher incentive compensation, travel expenses and charges incurred in connection with the pending Merger with HP partially offset by lower advertising expense.
Restructuring and Other Related Charges
Restructuring and other related charges decreased during the first quarter of Fiscal Year 2023 compared to the first quarter of Fiscal Year 2022. During the three months endedJuly 3, 2021 we recorded restructuring and other related charges to reduce expenses and optimize our cost structure. These actions consisted of headcount reductions and office closures.
Interest Expense
Interest expense for the three months ended
Three Months Ended
(in thousands, except percentages) July 2, 2022 July 3, 2021 Change
Interest expense $ 16,121 $ 21,782 26.0 %
% of total net revenues 3.9 % 5.1 %
Interest expense decreased during the first quarter of Fiscal Year 2023 compared
to the first quarter of Fiscal Year 2022, primarily due to lower outstanding
balance of Senior Notes. During the first quarter of Fiscal Year 2022 we
incurred interest expense related to the 2025 Senior Notes as well as the
amortization of the remaining debt issuance costs upon their redemption in May
2021 .
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Other Non-Operating Expense (Income), Net
Other non-operating income, net for the three months ended July 2, 2022 and July
3, 2021 was as follows:
Three Months Ended
(in thousands, except percentages) July 2, 2022 July 3, 2021 Change
Other non-operating expense (income), net $ 2,922 $ (692) (522.3) %
% of total net revenues 0.7 % (0.2) %
Other non-operating expense, net increased during the first quarter of Fiscal
Year 2023 compared to the first quarter of Fiscal Year 2022, primarily due to
unrealized losses on the deferred compensation asset portfolio and higher
immaterial foreign exchange losses.
Income Tax Benefit
Three Months Ended
(in thousands except percentages) July 2, 2022 July 3, 2021 Change
Loss before income taxes $ (34,125) $ (41,073) 16.9 %
Income tax benefit (1,038) (4,262) 75.6 %
Net loss $ (33,087) $ (36,811) 10.1 %
Effective tax rate 3.0 % 10.4 %
The Company and its subsidiaries are subject to taxation in the U.S. and in
various foreign and state jurisdictions. The Company's income tax benefit is
determined using an estimated annual effective tax rate, adjusted for discrete
items arising during the period.
The difference between the effective tax rate and the U.S. federal statutory
rate primarily relates to the excess stock tax benefit, U.S. and foreign income
mix, and the valuation allowance on the U.S. federal and state DTAs that
continues to be maintained as of July 2, 2022 .
In September 2021 , we transferred certain non-Americas intellectual property
("IP") rights between our wholly-owned subsidiaries ("IP transfer") to align
with our evolving business operations, resulting in the derecognition of a
deferred tax asset ("DTA") of $91.1 million and the recognition of a new DTA of
$204.5 million , which represents the book and tax basis difference in the IP and
was based on the fair value of the IP, in the respective subsidiaries. This
results in a net discrete deferred tax benefit of $113.4 million .
Management has concluded that an impairment for local statutory and tax
reporting to the aforementioned IP exists and the impairment loss is deductible
for local tax purposes. As such, a DTA related to net operating loss
carryforward of $48.0 million was recognized, offset by a corresponding decrease
in the DTA related to the intangible asset by the same amount as of April 2,
2022 . Because the IP intangible asset is the result of an intercompany transfer,
there is no intangible asset recognized in the consolidated balance sheets.
Accordingly, there is no net impact to the Company's consolidated statements of
operations, balance sheet, or cash flows.
Valuation allowances are established when necessary to reduce DTA's to the
amounts that are more-likely-than-not expected to be realized. Management
assesses the available positive and negative evidence to estimate whether
sufficient future taxable income will be generated to permit use of the existing
DTA's. Valuation allowances are established when necessary to reduce DTA's to
the amounts that are more-likely-than-not to be realized. On the basis of this
evaluation, as of July 2, 2022 , a valuation allowance against our U.S. federal
and state DTA's continues to be maintained.
A significant portion of the Company's DTAs relate to internal intellectual
property restructuring between wholly owned subsidiaries. At this time, based on
evidence currently available, the Company considers it more likely than not that
it will have sufficient taxable income in the future that will allow the Company
to realize the DTAs. The amount of the DTA's considered realizable, however,
could be adjusted if estimates of future taxable income increase or decrease, or
if objective negative evidence in the form of cumulative losses is no longer
present and additional weight is given to subjective evidence, such as our
future projections.
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The Company is subject to the examination of its income tax returns by the
Internal Revenue Service and other tax authorities. Significant judgment is
required in evaluating our uncertain tax positions and determining the Company's
provision for income taxes. During the three months ended July 2, 2022 , the
amount of gross unrecognized tax benefits decreased by $1.1 million . As of July
2, 2022 , the Company has $14.3 million of unrecognized tax benefits, all of
which could result in a reduction of the Company's effective tax rate if
recognized. The reduction in gross unrecognized tax benefits is primarily
attributable to the lapse of applicable statutes of limitations.
FINANCIAL CONDITION
Liquidity and Capital Resources
The following tables present selected financial information and statistics as ofJuly 2, 2022 andApril 2, 2022 and for the three months endedJuly 2, 2022 andJuly 3, 2021 (in thousands): July 2, 2022 April 3, 2021 Cash and cash equivalents and short-term investments $ 154,270$ 183,703 Property, plant, and equipment, net 124,052 127,021 Long-term debt, net 1,501,337 1,500,283 Working capital 274,845 271,691 Three Months Ended July 2, 2022 July 3, 2021
Cash (used in) provided by operating activities
$ 849
Cash used in investing activities (7,197)
(10,456)
Cash used in financing activities (14,233)
(490,905)
Our cash and cash equivalents as ofJuly 2, 2022 consisted of bank deposits with third-party financial institutions. As ofJuly 2, 2022 , of our$154.3 million of cash and cash equivalents and short-term investments,$59.6 million was held domestically while$94.7 million was held by foreign subsidiaries, and approximately 64% was based in USD-denominated instruments. As ofJuly 2, 2022 , our short-term investments were composed of mutual funds. An additional source of liquidity is$97.6 million of availability from our revolving credit facility, net of outstanding letters of credit. Historically, we use cash provided by operating activities as our primary source of liquidity. We expect that cash provided by operating activities will fluctuate in future periods, including the current quarter as a result of a number of factors, including fluctuations in our revenues, the timing of compensation-related payments, such as our annual bonus/variable compensation plan, interest payments on our long-term debt, product shipments, accounts receivable collections, inventory and supply chain management, and the timing and amount of tax and other payments. During the first quarter of Fiscal Year 2023, cash used in operating activities of$(3.0) million was a result of a$(33.1) million net loss,$(22.8) million of cash used in net working capital and$(2.9) million of cash payments for restructuring charges, partially offset by$55.8 million in net favorable non-cash adjustments. Cash used in investing activities of$(7.2) million consisted primarily of capital expenditures. Cash used in financing activities of$(14.2) million consisted of employees' tax withheld and paid for restricted stock units. During the first quarter of Fiscal Year 2022, cash provided by operating activities of$0.8 million was a result of non-cash adjustments to net loss of$66.3 million , partially offset by$(36.8) million of net loss and a decrease in the net change in operating assets and liabilities of$(28.7) million . Cash used in investing activities of($10.4) million consisted primarily of capital expenditures of($6.1) million and other investing activities of($4.0) million . Cash used in financing activities consisted primarily of($480.7) million of repayments of long-term debt and $($10.2) million of employees' tax withheld and paid for restricted stock and restricted stock units. 35 -------------------------------------------------------------------------------- Table of Contents Capital Expenditures We anticipate our current cash and cash flows from operating activities will be sufficient to fund our capital expenditures in Fiscal Year 2023, relating primarily to investments in our manufacturing capabilities, including tooling for new products, new IT investments, and facilities upgrades. We will continue to evaluate new business opportunities and new markets. As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth.
Debt
InJuly 2018 , in connection with the acquisition of Polycom, the Company entered into a Credit Agreement withWells Fargo Bank, National Association , as administrative agent, and the lenders party thereto and borrowed the full amount available under the term loan facility of$1.245 billion , net of approximately$30 million of discounts and issuance costs. During the first three months of Fiscal Year 2023, we did not repay any of our outstanding principal. As ofJuly 2, 2022 , we had$1.0 billion of principal outstanding. InDecember 2021 , the Company entered into an Amendment to the Credit Agreement in order to relax certain financial covenants on the revolving line of credit. The financial covenants under the Credit Agreement are for the benefit of the revolving credit lenders only and do not apply to any other debt of the Company. As ofJuly 2, 2022 , the Company has three outstanding letters of credit on the revolving credit facility for a total of$2.4 million and had$97.6 million available under the revolving credit facility. As ofJuly 2, 2022 , the Company was in compliance with the financial covenants. InJuly 2018 , the Company entered into a 4-year amortizing interest rate swap agreement withBank of America, N.A . The swap has an initial notional amount of$831 million and matures onJuly 31, 2022 . InJune 2021 , the Company entered into a three-year amortizing interest rate swap agreement withBank of America, N.A . The swap has an initial notional amount of$680 million and matures onJuly 31, 2024 . During the three months endedJuly 2, 2022 , the Company reclassified into interest expense$0.6 million and recorded a$28.3 million unrealized gain on its interest rate swaps derivatives designated as a cash flow hedge. InMarch 2021 , the Company issued$500.0 million aggregate principal amount of 4.75% Senior Notes. The 4.75% Senior Notes mature inMarch 2029 and bear interest at a rate of 4.75% per annum, payable semi-annually onMarch 1 andSeptember 1 of each year. A portion of the proceeds from the 4.75% Senior Notes was used to redeem the outstanding principal and accrued interest on the 5.50% Senior Notes of$493.9 million inMay 2021 . As ofJuly 2, 2022 ,$500 million of principal was outstanding. OnJuly 25, 2022 , the Company entered into a supplemental indenture to, among other changes, eliminate substantially all of the restrictive covenants with respect to certain change of control triggering events, effective no earlier than the closing date of the Merger with HP. See Note 7, Debt, of the accompanying notes to the condensed consolidated financial statements included within "Part I. Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. Our ability to make scheduled payments or to refinance our obligations with respect to the Senior Notes and our other indebtedness under our Credit Agreement will depend on our financial and operating performance, which, in turn, is subject to prevailing economic and industry conditions and other factors, including the availability of financing in the banking and capital markets, beyond our control. In addition, any refinancing of our indebtedness may be at higher interest rates, particularly in the current environment of rising interest rates, and may require us to comply with more onerous covenants, which could further restrict our operations. We may at any time and from time to time, depending on market conditions and prices, continue to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Under the terms of the Merger Agreement, from the date of the Merger Agreement to the termination or consummation of the Merger, we are restricted in our ability to drawdown or incur additional indebtedness, under certain conditions, without the prior written consent of HP. 36 -------------------------------------------------------------------------------- Table of Contents In addition, our liquidity, capital resources, and results of operations in any period could be affected by repurchases of our common stock, the payment in the future of cash dividends if the Board determines to reinstate the dividend program, the exercise of outstanding stock options, restricted stock grants under stock plans, and the issuance of common stock under the Employee Stock Purchase Program ("ESPP"). We receive cash from the exercise of outstanding stock options under our stock plan and the issuance of shares under our ESPP. However, the resulting increase in the number of outstanding shares from these equity grants and issuances could affect our earnings per share. We cannot predict the timing or amount of proceeds from the sale or exercise of these securities or whether they will be exercised, forfeited, canceled, or will expire. For further information regarding our debt issuances and related hedging activity refer to Note 7, Debt, and Note 10, Derivatives, of the accompanying notes to the condensed consolidated financial statements included within "Part I. Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. We believe that our current cash and cash equivalents, short-term investments, cash provided by operations, and availability of additional funds under the Credit Agreement, as amended from time to time, will be sufficient to fund our operations for one year from the date of issuance of these financial statements; however, any projections of future financial needs and sources of working capital are subject to uncertainty, particularly in light of the uncertainty resulting from the impact of COVID-19 on our financial results. Readers are cautioned to review the risks, uncertainties, and assumptions set forth in this Quarterly Report on Form 10-Q, including the section entitled "Certain Forward-Looking Information" and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year endedApril 2, 2022 , filed with theSEC onMay 27, 2022 , and other periodic filings with theSEC , any of which could affect our estimates for future financial needs and sources of working capital.
OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides us with financing and liquidity support, market risk, or credit risk support.
Unconditional Purchase Obligations
The Company's off-balance sheet unconditional purchase obligations are comprised of third-party manufacturing, component purchases, and other general and administrative commitments.
We use several contract manufacturers to manufacture raw materials, components, and subassemblies for our products through our supply and demand information that can cover periods up to 78 weeks. The contract manufacturers use this information to acquire components and build products. We also obtain individual components for our products from a wide variety of individual suppliers using a combination of purchase orders, supplier contracts, including annual minimum purchase obligations, and open orders based on projected demand information. A substantial portion of the raw materials, components, and subassemblies used in our products are provided by our suppliers on a consignment basis. These consigned inventories are not recorded on our condensed consolidated balance sheets until we take title to the raw materials, components, and subassemblies, which occurs when they are consumed in the production process. Prior to consumption in the production process, our suppliers bear the risk of loss and retain title to the consigned inventory. The agreements allow us to return parts in excess of maximum order quantities to the suppliers at the supplier's expense. Returns for other reasons are negotiated with the suppliers on a case-by-case basis and to date have been immaterial. If our suppliers were to discontinue financing consigned inventory, it would require us to make cash outlays and we could incur expenses which, if material, could negatively affect our business and financial results. As ofJuly 2, 2022 , our unconditional purchase obligations were primarily comprised of third-party manufacturing and component purchase commitments, including$77.4 million of consigned inventories. We expect to consume unconditional purchase obligations in the normal course of business, net of an immaterial purchase commitments reserve. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs in partnering with our suppliers given the current environment.
Except as described above, there have been no material changes in our
contractual obligations as described in our Annual Report on Form 10-K for the
fiscal year ended
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CRITICAL ACCOUNTING ESTIMATES
For a complete description of what we believe to be the critical accounting
estimates used in the preparation of our condensed consolidated financial
statements, refer to our Annual Report on Form 10-K for the fiscal year
ended
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB did not and are not expected to have a material impact on the Company's financial position, results of operations, or cash flows.
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