Logitech International S.A.

Thank you, everyone, for joining Logitech's Q1 fiscal 22 earnings call. During this call, we may make forward-looking statements, including with respect to future operating results and business outlook under the safe harbor of the Private Securities Litigation Reform Act of 1995. We're making these statements based on our views only as of today. Our actual results could differ materially due to a number of risks and uncertainties, including those mentioned in our earnings materials and SEC filings. We undertake no obligation to update or revise any of these statements. We will also discuss non gap financial results, you will find a reconciliation between non gap and gap results and information about our use of non gap measures in our press release, and in our filings with the SEC, including our most annual recent annual report. These materials as well as our prepared results and slides and a webcast of this call are all available at the investors relations page of our website. We encourage you to review these materials carefully, and unless noted otherwise, comparisons between periods are year-over-year and in constant currency, and sales are net sales. This call is being recorded and will be available for a replay on our website. And with that, I will turn it over to Bracken. But first, Bracken, I will have to apologize that I did not get to wrap the Safe Harbor provision statement that I have promised you. So I apologize, and I hope to still be able to do that one day.

Thank you, Ben, and thanks, everybody, for joining us. Nate and I and Ben and Vincent before Nate had a bet that one day you would wrap the safe harbor provisions. And I guarantee you, if you had, people would have listened more carefully to those safe harbor provisions. So it would be good from an SEC standpoint. So maybe in your next company, one day, you will do that. I will be listening for it, Ben. Okay, well, this is officially Ben's last learning call, and Nate and I couldn't be more excited about Ben's new role as a CFO, which he is going into, and his new company is going to announce that soon, so we won't jump the gun. But Ben, I really want to thank you on behalf of all of Logitech, all of these investors and analysts on the call today. I know you've added tremendous value. I've learned a lot from you, and I'll keep watching you from afar and cheering for you.

Thank you, Bracken. Thanks so much to you, Nate, and the team.

Absolutely. Well, thank you. Thanks again. Congratulations. And now let's move on. I spent last week in New York City. Today I'm in L.A. and in New York City or just outside of the city. uh i was walking my daughter down the aisle uh at her wedding and as a proud father and one who really adores his daughter and all of both all three of my kids and my new son-in-law i can't tell you what an amazing experience it was it was really wonderful to enjoy this long-awaited celebration and gathering with my friends and family and as i talk to people i now i know many are having experience like like that feel more like pre-pandemic life While experiences like this may feel like a return to the old normal, in many ways, our work life is forever changed. In many places around the world, we won't commute into an office every day, five days a week. We won't waste the 10 to 20 hours a week. That's 10 to 20% of our non-sleeping, non-working time. Think about that. We won't waste the 10 to 20 hours a week just getting to and from the place we work. Gone will be the lost days of flying to Tokyo or Shanghai or London or Paris for one or two hour meetings. And the reason they'll be gone isn't because of the pandemic. It's because that way of working was fading even before we really realized it. The virus has been terrible. And yet it's pulled in a future that might otherwise have taken 20 years to get to or more. Autopilot has been turned off. And our employees, customers, and friends are looking for a new and better way to return to work. Every conversation I have, and I bet you have too, recently seems to evolve to a discussion of hybrid in some way. The new normal will not be the same for every person in every part of the world or in every company. Their variety will be as diverse as you could possibly imagine. I'm sure that to start, a lot more people will simply work from home all the time, like many of us are now. That was a practice previously most common in startups and for some salespeople. Even at Logitech, a predominantly in-the-office culture prior to the pandemic, we're going to have a lot more people working full-time remotely. This new approach to work also unlocks talent. We couldn't have access before in jobs that are far more oriented to remote work than we realized. Erin Chin, who doesn't know I'm mentioning her today, runs marketing for our streamers and creators products out of New York. We just struggled to attract her from PepsiCo, where she was in marketing for Mountain Dew, if she had had to move to California with her family on the East Coast. We might have lost Vincent Burrell, who also doesn't know that I just mentioned him. We might have lost Vincent Burrell at some point. That's who she reports to. That's what runs that group. But he moved to Florida to pursue his son's passion for water skiing and secretly his own too. Meredith Rojas, who works for Aaron. So we're covering the whole reporting structure here. develops influencer and celebrity partnerships for our streamers and creators team. And she surely would not have joined us if she'd had to move from LA, which is the epicenter of the world that she's worked in for the last decade, the entertainment world. In short, remote work is growing within Logitech. But for most people, and like for many on this call, working from home two to three days a week will become the new normal. Those people will need spaces and equipment to work in both places. For some, that will be a fully replicated workspace in each spot. For others, it'll be a place to plug their laptop into a monitor. In both cases, they'll need a mouse, a keyboard, and other peripherals so you can look directly at the screen, sit back comfortably, not get a terrible video angle, and be healthy ergonomically. Most of us will want duplicates of our tools in both places, at work and at home. And larger companies will standardize on good equipment so the conference call and employee productivity are optimized. Natasha Lagai, who some of you know, runs our strategy team, and she's eager to get back into the office a few days a week. She has an important and high-profile job for us, as well as two adorable kids who want her all the time. She likes the idea of working sometimes in the office, both for meetings and also just to quietly focus. Sam Harnett, our general counsel, who is no doubt listening right now, lives a commutable distance. But like Natasha, it's not easy. It's not an easy daily commute. And like Natasha Vincent, I've gotten to know Sam's daughter a little better thanks to all our video calls. I gave you specific names because I want to note that people have, they're real people. They have real lives with passions that aren't fully served by a world where you burn up 20% of your time commuting. Yet they often do want and need some time in the office with their co-workers who are also their friends. Despite that, there will be some in most companies in parts of the world who return to work full time to an office a lot like we did before. There are jobs where these can't be avoided. Places where commutes are almost effortless and organizations that just aren't ready to make the shift. There are places where homes just don't work as well, where living spaces are too small to work comfortably. But even their work lives will never be the same. The rise of video meetings means they will feel awkward in the office on audio-only calls. They'll often discover customers and business partners who don't want to come to meetings, who request video meetings. Video will simply overwhelm the old audio calls, including in the office one-on-one. Everyone will need a good webcam there too. But that new hybrid world is not, or is in a wide range of stages now. Some places are reopening quickly, while others are back in more protected levels, including Los Angeles, where I happen to be today, that's gone back to masks. The countries in EMEA have had starts and stops and reversals. And while much of Asia Pacific has been much better, some parts like Taiwan and Australia have moved back into defensive mode or even in the most severe lockdown since the pandemic started. In a word, it's choppy. It's choppy around the world. It will stay highly uneven for some time. While the pandemic has been a huge change event, the cultural and technological trends underlying the change started well before the pandemic, as you know. And one of our clear strengths in the past nine years has been our ability to select trends to follow and quickly address those trends. This approach has worked. After selecting the right categories and developing innovative products, we've become the market leaders in well over half of our categories today. Yet we weren't even present or barely present in over half of those categories a decade ago. And we have not let up looking for new categories. While we continue to innovate in the businesses we've entered across all the categories you know, we also continue to quietly work on new categories all the time. Not all of our new category efforts turn into something. We've shelved many products before you saw them. We've redistributed teams across the company from one seed team to another. And we've launched categories you saw that we subsequently shut down. Logitech is dynamic. We continue to test and learn our way into new things. That's been a hallmark and a key to our growth and innovation. Now let's look ahead within our existing categories. We had strong growth across our businesses this quarter. Our video business is well positioned in a category with tremendous growth potential. Customers are digesting the need for more video, more webcams, and more standardization of equipment in homework spaces. This is early days for the standardization, but it's happening. The conference room video growth is also still early days. Many feared gaming would slow down dramatically as we exited this year, but our new products are fantastic and are growing quickly. In fact, our latest gaming products, like our Super Light Mouse, are already among our biggest in the company. That's a shift. We're just getting our innovation and marketing engines refined here, and I'm super excited about the future of gaming. Our C&P business, which is mostly mice and keyboards, had a super strong quarter. This is a reflection of great vision, strategy, and execution. We're running the play from our analyst investor day in fiscal year 2020, and you can see it. Our lifestyle products are fun and in line with cultural trends. Our ergonomic products are needed, but still have low awareness. In fact, the crazy good experience provided by many of our best products is still unknown to most who would love it. We're just firing on all cylinders and have so much upside in C&P through our awareness and new products. Our pipeline is also really exciting. Our key categories grew double digits this quarter. That's despite chip shortages and an incredible workload and stress created by COVID on our people. Like most companies, our employees have been challenged during COVID from the stress of uncertainty, from fear, from long hours and had difficulty detaching from the workday that just never seems to stop as their homes became their offices. I think everyone needs a break. And this summer, we're encouraging everyone to take one. Now, let me turn the call over to Nate to go deeper into the quarter. Nate?

Thanks, Bracken. And thank you, Ben, for your outstanding work. We're going to miss you. As Bracken said, we delivered an excellent Q1 with strong revenue growth, margin expansion, strategic investments to improve our business and share gains. Net sales grew 58% in constant currency, profits doubled versus last year, and we remain on track to deliver to the increased full-year outlook we gave in April. Similar to last year, our operations and sales teams continued to execute well, and results were strong across our categories and regions. Our PC peripherals categories continue their strong momentum in the quarter with 49% growth in Q1 driven by better availability and a broad portfolio of differentiated products like Bracken mentioned. Several of our flagship offerings like the MX Master 3 mouse and MX Keys keyboard continue to set new sales records even after being in the market for two years. And sales of our ergonomic split keyboard, the K860, which retails for $129, more than doubled in the quarter. But that impressive performance was not just in the high end. In fact, each of our top 10 mice and keyboard products with prices that range from $12.99 to over $100 delivered strong double digit growth and in some areas, triple digit growth. While webcam growth has started to moderate after more than tripling last year, sales still grew 73% in the quarter and we have regained some of the share we lost last year due to supply shortages. Our priority remains driving greater awareness of the better user experience provided by an external webcam to increase our attach rates to the large and growing installed base of monitors and PCs. Q1 video collaboration sales increased 72%, similar to the 81% growth rate in the prior year. Sell-through in the quarter was even stronger and nearly doubled versus last year. On a sequential basis, sales in the Americas and Asia Pacific remained strong, while sales in EMEA declined double digits compared to a record Q4 due to a lower opening backlog and softer demand as businesses evaluated reopening timelines. Gaming had another strong quarter, with Q1 sales up 76%, continuing the fast pace of growth from last year. We deliver double-digit growth in all our gaming categories across gaming mice, keyboards, headsets, console, and simulation. Gaming continues to become an integral part of many people's lives, whether for entertainment, socializing with friends, or to showcase their skills on platforms like Twitch. Tablet sales increased 66% with strong growth in both our retail and education categories. As we noted on past earning calls, however, sales of our education tablet products could decline this year due to the one-time benefit from a large education order in Japan last year. Our audio and wearable sales rose 57% in Q1 with double-digit growth in all products, while mobile speakers fell 5% in Q1 in line with our expectations as we reallocated resources and prioritized our investments to faster-growing categories. Our Q1 non-GAAP gross margin was 43.8% up 460 basis points from last year. Gross margin was down as expected from a record level in Q4, but it remained at the high end of our target range. As we look out to the rest of the fiscal year, we continue to expect gross margins to be within our range, but lower than current levels for three primary reasons. First, we expect our promotional spending will continue to trend toward more historical levels. Second, we will invest in retail point of sale marketing, which was significantly curtailed last year due to store closures. And last, industry-wide component cost increases. Our non-GAAP operating expenses increased 76% in Q1 to $340 million, largely driven by increased investment in marketing, sales coverage, and product development. In the quarter, we expanded our Defy Logic brand campaign into parts of Europe as we look to drive greater Logitech brand awareness and consideration globally. In addition to marketing, we continued our investments to develop more innovative and environmentally friendly products. Wrapping up the income statement, our Q1 operating profit doubled year over year to $235 million and operating margins were 17.9%, up 310 basis points versus the prior year period. Now let me talk briefly about our cash flow. Cash flow from operations was negative $115 million in Q1. Historically, our Q1 cash flows tend to be around breakeven. While this quarter we dipped below this level as we made tactical inventory investments and we made an annual income tax payment of $120 million, which would typically be paid in quarterly installments. We expect to resume our normal payment schedule in FY22. Excluding this one-time change in payment timing, our Q1 cash flow would have been approximately flat. And in line with normal seasonal patterns, I still expect the vast majority of our full-year cash flows to come from the second half of this fiscal year. Our Q1 cash conversion cycle was 45 days, up from 27 days last year, but down from Q1 levels a couple years ago. DSO improved by 20 days versus last year, driven by a greater percentage of our sales occurring in months one and two of the quarter compared to last year. And our days of inventory increased by 44 days to 94 as we rebuilt buffers, began migrating more of our shipments to slower but less expensive ocean freight, and strategically invested in supply to ensure availability and favorable costs amidst a tightened global supply chain outlook. Wrapping up significant uses of cash, we spent $55 million on share repurchases in the quarter. Finally, in terms of guidance, with a strong first quarter in the books, but with the majority of the year still ahead of us, we are confirming our fiscal year 22 outlook of flat sales growth in constant currency, plus or minus 5%, and maintaining our fiscal year 22 non-GAAP operating income outlook of $800 to $850 million. This outlook reflects continued investments in the business and is consistent with our focus on driving long-term growth. With that, let me hand things back to Bracken.

Thanks, Ben. Thanks, Nate. Sorry. I already miss you, Ben. We had a very good start to our fiscal year. Our performance this quarter demonstrates the strength of our capabilities, our excellent operational execution, and our ability to capitalize on long-term trends like gaming, streaming and creating, hybrid work, and video everywhere. The same underlying trends that drove our business pre-COVID significantly accelerated during COVID and have become much more pervasive and sustainable as we look to life after the shelter-at-home period of COVID ends all over the world. We have an exciting long-term growth potential ahead from this bigger base. Now Nate and I are ready for your questions. Ben, can you queue them up for the last time for you?

Sure. Thank you, Bracken. As a reminder, you can chat me if you want to ask a question. The first question is Asya Merchan. Your line is now open.

Hello, Asya, again.

Hey, congratulations on a great quarter. Just a couple of quick questions just on video collaboration. You mentioned a little bit of softness in EMEA. You know, as you kind of look at, and I know there was a great selling the prior quarter. So, you know, people were re-evaluating some of that. But as you look forward, you know, some of the guidance that you provided at your analyst state for different segments, specifically as it relates to video collaboration of growth, you know, being double digits up to a 10 to 25%, if I'm not mistaken, or 25 to 30%. How should we kind of think about that video collaboration segment now for this year, given EMEA softness? And do you expect that to re-accelerate, given some of the channel fill drawdown this quarter?

I'll jump in and let you go ahead. I can see you want to talk.

Yeah, just just to clarify on the outlook we gave it the analyst day, it was 10 to 25 percent growth. I still think that's the right way to think about it as a double double digit grower. And listen, I mean, again, the sell through nearly doubled this quarter. So, you know, I think we've seen in the past sometimes the. The sell-in timing can be a little different from one quarter to another, especially as you talk about an enterprise business where you have large deals that fall on one side or another of a fiscal period. But yeah, we still feel great, of course, about the video collaboration business, both this year and over the long term.

Yeah, I mean, we're just super optimistic about that business. It's a great business for us. We have great products out there and we have great products coming, so.

And then because of the inventory that you guys have built up the buffer, as well as supply demand balance that you mentioned, you know, where you like broadly share gainers across many of the categories, because all I've heard from some of your peers. was continued supply chain bottlenecks, logistics, nightmares, component constraints, and different ICs, et cetera. So is it fair to assume that you guys gain share across several of your categories where you have pretty decent competition?

Yeah, it is. I mean, we gain share in most categories. In fact, the vast majority of our categories. And I do think part of it was just having supply availability. But we also, you know, we've got a great product lineup right now. I mean, we've been gaining share. We were gaining share pre-pandemic. We were gaining share during the pandemic. And we're gaining share as we kind of see the light at the end of the tunnel. So, yeah, we did though.

Okay. All right. Thank you.

I think on the inventory, just because you brought it up, I think it's an important point because I think it just highlights again, you know, the way we think about our business strategically and financially and operationally and keeping those things aligned and, you know, with a strong balance sheet, we think this is the right time and it's a good opportunity for us to use that. to secure components where we can. And it's a tough environment, but secure components where we can build up those buffer stocks. And as Bracket said, be ready to deliver on opportunities globally. So we've got good availability now. And I think that will be a competitive advantage for us. We'll see how it plays out.

Is most of the inventory in the warehouse as finished product, or is it mostly ICs and components that you've kind of put together?

It's really a mix, but I think a lot of it's in the distribution centers, and it's out regionally, ready to be shipped. It's not out in the channel, right? It's in our distribution centers. Some of it is in components as well.

Okay. All right. Thank you.

Thank you, Asya.

Our next question is from Paul Chung from JP Morgan. Your line is now open.

Hi again, Paul. Hey, Paul.

Hey.

Nice to see you guys. So first up on gaming, you know, very nice momentum there. Can you kind of expand on the product mix, you know, where you saw relative strength in the portfolio? And as we start to, you know, lap these tough comps, where do you see kind of momentum extending? And given the strong start to the year, do you think, you know, the flat-ish outlook in gaming is on the conservative side? I have a follow-up.

Well, I'm, I'm, I'm really excited. You know, where, where did we see strength in, within the gaming business? You've got, you know, four or five segments you could really point to and really all of them, you know, I can, I can, uh, I mean, I can honestly say I'm excited about our gaming business because we just had growth in every single segment and we're growing market share across them too. And we have a fantastic portfolio. And one of the things I said in the opening was that, you know, the nature of the innovation we've been doing in gaming has also been changing. And it's shifted from a lot of small products to fewer bigger ones and And it's a testament to our team. And then the other thing that's happened is our marketing engine in gaming is probably the best we've had. I mean, they've really created Logitech G over the last five to seven years. And they're just getting stronger and stronger. So, yeah, I would say overall, I just feel very, very good about gaming. You know, we're not reopening the discussion around each individual category right now as an outlook. You know, we confirmed the outlook for the year that we just announced.

raised back two months ago but but i'm super excited about gaming paul yeah i think paul on the outlook too just one thing to keep in mind is gaming does have a big holiday period and that's still ahead of us so i think you know it's been a good start to the year good strong first quarter but typically we do almost 80 of our revenue over the next three quarters and a lot of that comes in the holidays so i think with gaming we'll need to see how that plays out but as bracken said we go into that period with a great lineup and headsets, as we mentioned last quarter, and I think just continues to perform well with some really cool new products.

Okay, great. And then just on the ramp in reinvestments in the business, though it's up like 70% this quarter year on year, the percent of sales is pretty much in line with previous years. Is this the kind of right way to think about it longer term? And as we think about that spend, How are you tracking that return on investment there? And given the step up in R&D, should we expect kind of more frequent cadence of new product releases moving forward? Thank you.

Let me answer a couple of parts of that question. I'll let Nate take the one on basically the business model question, what percentage of our spending should we be spending on OPEC? I think in terms of the cadence of new product launches, I wouldn't necessarily relate increased investment to more new products launched. I would say the increased investment will just enable us to do better, bigger, and in the places that really matter. And we see lots of opportunities for innovation, and we're not holding back on making sure we're investing there. Nate, you want to talk about the business model question a little bit?

Sure. And just to confirm it, you're looking at the numbers the same way I am, Paul. Our OPEX as a percent of sales this quarter was actually lower than where it was in Q1 and FY20. And it was basically the same level as what it was for the full year in FY20. So I think some people look at the growth rate of OPEX and maybe have questions about it. But again, the business model or the structure of our P&L actually looks very consistent historically. Now, our strategy, as you know, is to move to a more marketing-led, rather than promotion-led company. And so that's exactly what you see us executing this quarter and you'll see it in future quarters is taking some of the incremental profits we're generating, the gross profits we're generating and reinvesting that into marketing to build the brand, to build awareness and to drive that product, excuse me, the brand preference over the long term, which creates a virtuous cycle of higher margin products and faster growth. So you're seeing us execute what we've been talking about for some time. And that's what you should expect to see in the future. In terms of the percent of sales, I think something around like what you saw this quarter is probably the right way to think about it. But it's not something I would put too fine a point on. It might be a little higher than this in some quarters, might be a little bit lower. But it's going to be the same strategy that we talked about.

Okay, great. Thanks. Thanks, Paul.

Thank you, Paul. Now, the next question comes from Jorn Efer from UBS. Jorn, your line is now open.

Hello, Jorn. Hi, Bracken. Hi, Nate. Hi, Ben. Ben, all the best to you. And yeah, we will miss you. Thank you. Maybe starting with two to three questions, if I may. The first one is on your implied outlook for the next nine months. The midpoint implies sales may be down 12%, 13%, 14%, but your non-GAAP EBIT down around 40% to 50%. Your cross-profit margin assumptions, as Nate stated, is maybe in the around 40%, if I understood this correctly for the current year. But if I consider your cross-profit margin was standing already in fiscal year 20, and now you have better ethics benefits, it's falling back to the same level like fiscal year 20, despite you having pricing power to offset rising component costs, despite you have invested in your premiumization strategy. So why are you exactly so cautious on the cross-profit, if I may ask? This would be the first question.

Okay, let's stop you there. Let's take a moment of time since you just unloaded a lot. Sure, thank you. You sound like my board or me talking to my team. Nate, I'll let you take that one. Okay, yeah, I mean, listen, your Mageva range is, you know, 39 to 44%.

I think we'll be in that range this year. there's several factors on why I think gross margins, as I mentioned in my opening remarks, where I think they're going to come down from current levels, they're going to remain in that range, whether they're at 39, 40, 41, 42, 43. You know, we'll just have to see. It depends on a lot of things like mix and so forth. But certainly we have some headwinds, as we've talked about sequentially here, with just we're going to have to increase promotion as the market stabilizes and normalizes back towards more historic levels. You know, I think mix is always going to be one thing that changes from quarter to quarter. I think over the long term, our mixed trends are favorable with with growth and some higher margin categories. You also have to see how logistics plays out. You know, certainly we spent a lot on air freight last year. I think we'll spend less on air freight this year, but rates continue to be higher than their historic levels. In fact, just recently, The ocean rates have been increasing on the spot market 40 to 50 percent just in a very short period of time. So while ocean is still a lot more attractive than air, those rates have gone up from their historic levels, too. So there's some near term things here we'll have to fight through. I think over the long term, you know, we've given a range that's got some room for margin expansion off of those FY20 levels you mentioned. And, you know, that's our focus is adding new categories that have that more attractive margin profile, maybe some more software into the mix and things like that. But, you know, in the near term, there's clearly some margin pressures, but I feel comfortable we'll be in the middle of that range or, you know, somewhere around there.

And you and I agree with you on the pricing power. We haven't raised any prices yet, though. We don't have immediate plans to, you know, we're going to keep an eye on the market. We feel like, you know, some of these shortages, some of these cost driven shortages are really temporary. So we'll see.

Yeah, thank you. I got the message. Second question is, please, on product positioning for view conferencing and webcams. I mean, we can likely expect that all the Notebook providers are significantly upgrading the camera systems over the next two to three years. I mean, Apple was starting with the iPad Pro, for example, which is an improving camera system. To what extent can this affect your view conferencing and webcam business from your point of view?

You know, I think the installed base is so big, you know, you got 1.4 billion PCs installed, you know, so the transition, no matter what people do to the existing market, it just won't put a big dent in that market for years. So we think the opportunity there is very significant and we're going to keep investing. And even after they do. There are advantages to a remote webcam that, you know, you really, they're really exciting. And so we're going to, we're excited about the webcam business. I think it's, we've been in that business a long time, you know, and we will keep innovating in it to make sure that we've got products that are compelling. But we're also, you know, we're 35 different categories now, so we don't live or die on any one category. Absolutely.

I'll add one thing to that one, Jorn, on kind of the bullish side of that opportunity is anything that drives increased awareness for webcam. increased awareness for video calling. If someone's going to communicate the quality of their webcam or the importance of having a web camera, I think that we'll see some benefit from that just in the overall market opportunity. We're going to have to compete for it. We're going to have to come out and innovate with great features and products and a compelling value proposition for why an external web camera is a better experience. I think the opportunity on notebooks and laptops is huge. Because I don't think we've really communicated, frankly, a lot of what the benefits are. And I think as people move towards a, I've got two monitors here in front of me at home. Obviously, a lot of people may not have that. But I think as people move to kind of a monitor setup, maybe they've got peripherals. My PC remains docked next to me the whole time. I never interact with it at all. I'm only interacting with my peripherals. And so I think depending on someone's setup, I think there's clear advantages for an external web camera. And I think that's a big opportunity for us to communicate.

Thanks for this. And the last question, just a superficial one. Seasonality, I mean, respect to school. Now over the summer, can we expect that Q2 is on higher revenues versus Q1?

It's a good question. I mean, typically we would see higher revenues in Q2 versus Q1. But as I said before, I think typical seasonality is kind of out the window right now. There's so many other factors that are sort of atypical. Back to school was very strong last year. And as you see with the inventory, we're prepared for a good back to school. But I think we'll have to wait and see how that plays out again compared to prior years. I'm not really counting on typical seasonality for a lot of things. Certainly some of the promo days and things like that, we would expect to see a pickup or the holiday period. We would expect to be stronger, but we'll have to wait and see.

Thanks a lot. Thank you.

Thank you. Ananda Barua from loop capital. Your line is now open.

Hey guys. Good morning. Appreciate you guys taking the question and, Ben, congrats. You'll do awesome. And it's been, uh, been great working with you both at Logie, but you know, for years and years before that as well. So, uh, uh, look forward to absolutely staying in touch. And so I guess a couple of questions, the seasonality I'd like to just touch on as well. That was one of my kind of more prominent ones. So. you know, seasonality notwithstanding, it does seem like there could be some conservatism. I guess I just want to get your thoughts on this and the revenue, because I'm sort of playing around. And if I do, you know, just flat revenue for September and then soft side of seasonality, you know, for December and March, I get double digit revenue growth for the year. So any context you could provide, you know, on, you know, sort of, I guess, you know, sort of connecting, Those kinds of dots with the flattish forecast, like what are the puts and takes there? Then I have a quick follow-up.

I'll start and then you can jump in later. I think, you know, we guided at the beginning of the year, you know, this flattest revenue for the full year, up five, down five. And then we raised the number because we finished so strong in Q4, even after our analyst day, which was the early March. We basically raised the equivalent of seven points, six or seven points in revenue. So we've done one raise already. And, you know, as you go in the back half of the year, obviously the compares get stronger. So the seasonality, as Nate said, you're probably going to repeat yourself again on this or not, it's really hard to call seasonality this year.

Just to put a little finer point on those compares, the second half of the year last year, we basically grew 100%. So that's a – I'm not one to use this excuse, I would say, and I certainly wouldn't say it too much internally, but that's a tough compare. So – You know, our visibility and not, as you know, is not nine to 12 months out. I mean, we have pretty good visibility in the short term. And some businesses like video collaboration, we build pipelines and we see things further out. But we're staying with the same strategy. We're going to remain nimble. We're going to have inventory available to grow faster if the opportunity is there. And we're going to pull back hard if things slow down. And I think, as Bracken mentioned in his prepared remarks, it's a little choppy, right? Europe looked like it was on path to reopen strongly, and unfortunately, it's had to take a pause. And I think even in parts of the United States, we now see that as well. So it's hard to make long-term prediction. I would say six-month predictions. Long-term-wise, I think we make very comfortable predictions about what the long-term trends are in these businesses, and we invest for those. frankly, some of the shorter periods within this fiscal year, we're just going to have to remain nimble and prepared. And that's what we're doing.

Very well said. That's really useful context. And I guess just a quick follow-up. Bracken, we'd love to get your thoughts with regards to M&A up here. You guys obviously

You're kind of breaking up, Ananda, but I think you were asking what Bracken served at the wedding. So, Bracken, do you want to?

I think he was talking about Eminem. Yeah, there you go.

Once you go off video. Would this be a good time to subsize?

I think I got that, Ananda. You might have to jump off video to keep your audio. If I understood you correctly, though, can you talk a little bit about Eminem?

Yeah, yeah.

Yeah, so the answer is, as you know, we don't usually go into too much detail on what we're looking at, but we are always looking at things. And the vast majority of things we've done have been small, and so it'll probably stay that way. But we're always looking at medium-sized and even larger things. So M&A has been a surprisingly, and I say surprising because most companies don't do it very well, surprising strength for us. We've really delivered strongly when we've done M&A. I mean, I think we've done, I don't know how many acquisitions now since I've been here and We've almost all of them have met or beaten our expectations. So I think it means we really have an engine there. We can keep driving and we're going to keep fueling it. And we're on the hunt all the time. That's great. Thank you. Thank you.

Thanks. Thank you, Ananda. Michael Fulf from Vontobel, your line is now open.

Hi, Michael.

Yes, thank you. Hi, Bracken. Hi, Nate. And thanks a lot, Ben. Good luck to you. A couple from my side, maybe starting with your streaming business. Can you maybe comment on how that is developing? How much... the growth that you have seen in gaming is is is coming from that and um how you can leverage that business to um maybe to other categories or or applications if there is anything you you can share uh with us on that front and the the second one is sort of a curiosity do you have any statistics or insights um on the age distribution of people buying your creativity and productivity

um products and and does it correlate in any way with your defy logic campaigns anything you can you can share with us thank you okay uh why don't I answer that one first you know the the answer is we skew a little older on our creativity and productivity business but we see a lot of opportunity younger too we also skew more male and we skew we think there's an opportunity female so you know you'll see a lot of things we're doing are with those two thoughts in mind and the defy logic campaign does appeal more strongly it's it's it's very strong appeal in appeal generally but it's uh even stronger against that younger target audience um so yeah we we think there's an opportunity there and we're excited about it um what was the first question was remind me again it's regarding your streaming business and how it contributes to growth Yeah. And the streaming business has just been a really strong grower underneath these numbers. It's really kind of lives in different places in our different categories. But generally speaking, if you look at Blue Microphones over the past year, it's really just grown tremendously. And we think the long-term there is very, very strong. And Streamlabs is also super exciting. I mean, it's beaten all the expectations we had for it in terms of growth and And we're very optimistic ahead and we're learning so much from it about service businesses. You know, it's a pure, pure service play. So, you know, and then we've got, we're also slowly and quietly entering new categories. You know, we, some of this is starting to get out and, we're excited about the potential to really be a real player in this in enabling people to stream and create content for for everybody else and you know there's a lot of room to grow there so you know the growth within it so far has been very good and i think the long term is much much more exciting

So can we expect more subscription-like offerings from Logitech going forward?

You know, we already have that, obviously, in a couple of places. We've got a very small starting business and services on the video collaboration piece and, of course, Streamlabs. And Streamlabs has a couple of things within it. So, yeah, I think you can expect more. I don't know whether you could expect to see it be significant in the next year or so, but we're certainly going to keep adding.

Michael, just to be clear on, I think you were asking the Streamlabs sort of impact on gaming. It's really not material. I mean, the growth you see is really driven by the hardware. As Bracken said, Streamlabs has done very well. And it's a very innovative organization, I would say, that's doing a lot of testing and so forth. But it's not driving the gaming results. So that's still driven by the hardware business.

And the gaming results are across every segment.

Yeah. Okay, thanks. And then maybe just the last one on component shortages. I mean, for Nate, maybe with the inventory levels that you have now, do you think you're covered for the demand that you will see in the next quarter? Or are there any areas where a shortage might sort of constrain you to not be able to deliver on demand?

I think broadly for the next quarter, I feel good about coverage. You know, we'll see. I don't think this is a one quarter challenge for us. I think our team's been working on it for a while and we'll continue. You know, on some days we bought days of components or weeks of finished goods or maybe a month of finished goods here or there. But I think broadly we feel good about the coverage here for the next quarter. But there'll be things that pop up for sure. I mean, it's a daily challenge if you're in operations and supply chain.

Great. Thanks a lot. Thank you.

Great. Thank you, Michael. Eric Woodring from Morgan Stanley, your line is now open.

Hi, Eric.

Hey, good morning, guys. Thank you. Thank you for taking the call, Ben. Just want to reiterate what everyone's saying. Been a pleasure to work with you. Best of luck in the future. Look forward to following your success. You know, I kind of want to start on pointing devices. Keyboards and combos were obviously very strong, I'd say almost particularly strong. And there's this fear in the market that there is a slowdown in the PC market, broadly speaking, from consumers and call it the education sector. So the question is, one, was there anything one time in nature this quarter like Prime Day or the 618 Festival that outwardly contributed to growth in these segments? And then the second part is, what are you seeing from enterprises in these segments as people are now returning to the office? Are they coming into the market more so than they particularly were in the past? And then I have a follow-up.

Yeah, I would say, yeah, there is, you know, we did have Prime Day this quarter, this last quarter. So that's certainly in the numbers, but it still would have been an extremely strong growth quarter. In terms of, you know, really what do we see ahead from enterprise, et cetera? And what about the overall view of the category? I think the coolest thing about this business is it's our oldest business. and it has probably our it's it's got an incredibly strong innovation engine and we've done a nice job of segmenting our team has done a nice job of segmenting the market into the different places and then really delivering big time against that and still the awareness is relatively low for the products that we have so i feel like we really control our own destiny to a large extent here not completely you know obviously anything can happen So we've got a great portfolio of products coming and one that's already out there. In terms of what are we seeing from businesses, we are starting to see businesses, we believe that we have an opportunity really to move to more B2B business there. And we certainly are moving some resources there to make sure that happens. And this quarter's growth, you can't see it, but it was stronger in the B2B segment than it was elsewhere. And that's exciting. It's small, but it's growing fast. And we think there's a big opportunity there. You want to add anything, Nate?

Well, I mean, of course, I'm always going to be a little bit cautious about it. I mean, I think all those things are very true. And I think the lineup is as strong as it's ever been. But, you know, Eric, you've got the data as well. You know, this was our easiest compare for pointing devices. It only grew significantly. 1% last year in this quarter because we did have some supply challenges with the factory being shut down due to COVID and so forth, factories being shut down. So I certainly think the growth rate will moderate from where it has been here, but all the positive factors Bracken mentioned definitely agree with. And I think the key here is that this group In particular, although I think it's true elsewhere, but this group in particular I think does a really excellent job with market segmentation and customer segmentation understanding. customer needs and you see that in the product development, you see that in the execution and I think that's the path to long term success and so we'll execute that.

awesome Thank you and then just just on video collaboration. Again, would love to get your take on what you're seeing from enterprises, again, as people go back to the office. And what I mean by that is, you know, do you find that businesses are almost pulling forward demand as they say, we've created our return to work strategy and now we can make these infrastructure investments? Or are they're saying we've created our plan, but we're still, you know, kind of going to spread out our purchases over multiple, whatever it may be, quarters or years? as we somewhat reevaluate those plans within the next three to six to nine months. Again, you mentioned the choppy environment. Just wondering how that choppy environment potentially impacts big purchases for video collaboration. Thanks.

I mean, I think you can safely say it's a mixed bag. You've got companies that are really going all in now and getting ready. I'd say most are saying, hey, we have a game plan. Let's start to enable it. But they're not moving as fast as to basically snap their fingers and have everything ready to go right away, which I think is kind of expected. We sort of expected that. So I think it's going to unfold. I think the growth is going to really unfold over the next year and two and three. And I think that probably plays right into our strength, which is we've got a great portfolio out there, a great one coming. And You know, I think we've really got a Salesforce now that can handle it. You want to add anything to that, Nate?

i do think it's a mixed bag and you know you got to factor in deployment time on some of these things as well um so the decision may be made but the deployment may take months and quarters um depending on what type of solution you're talking about um so i think that's a factor too eric and um again i think the long-term strategy here is to innovate and to build you know great sales a great sales organization and we're doing those things and to increase our marketing to increase our awareness and brand preference. But it's an attractive market, one that is competitive. And we're looking forward to, I think, many years of success in video collaboration.

Super. Thank you guys very much. Thanks, Eric.

Great. Thank you. Here again, Wagner from Stifel. Your line is now open.

Yeah, hi. Thank you for letting me on. Hey, Juergen. Hey, Juergen. Hi. um actually a follow-up to the previous question regarding enterprises what in percent of revenue what was it last quarter and what do you think a realistic number would be going forward second question reckon you said the pipeline is exciting so what is it that makes you so exciting and last question on visibility you mentioned a near-term lack of visibility but better longer term or So do you think the next fiscal year would then be another growth year?

Thank you. It's a little too early for us to guide for next year, but I sure hope so. I expect it to be another growth year in terms of what makes me excited about the innovation engine. you know, we just get stronger and stronger. I would say we've, we've all suffered from having to spend a lot more time on supply challenges than we would have liked. And so that's probably delayed a few of the things that we would have, we would love to come out sooner, but it just means that we've got a good pipeline ahead of us. I mean, what you see today is not what we'll have two years from now, a year from now, three years from now in any of our businesses. So I'm excited about what's, what's on the horizon. We don't talk specific products until we get to the launch period and And, Nate, you want to add anything or take the first?

I think on the enterprise revenue mix here, unfortunately, that's really not a figure that I'm going to – really talk about here. I mean, we don't have that type of visibility to our end customers. Unfortunately, you know, we sell through channels and some of those are more business oriented than consumer oriented. So we have ways of thinking about it internally, but it's just not really a great external figure. But you can see with the growth in video collaboration, which clearly is a business type of product, that mix is improving due to the growth in that category. And then I agree with Bracken on next fiscal year. You know, I think one of the things I always say is that, you know, sometimes the market trends don't align perfectly with our changes in fiscal quarters and years, you know, so it's about building capabilities for the longterm. The company we are today is the company we are tomorrow. And if that happens to cross across, across the fiscal period, you know, March 31st, April 1st, so be it, but we just got to continue to build capabilities for the longterm.

Okay. Yeah. Understood. Thank you. Thanks. Thank you.

Great. Thank you. Serge Rotzer from Credit Suisse. Your line is now open.

Hi, Serge. Yes. Hi, everybody. And bon voyage. Enjoy your new life. But coming back to video collaboration, you touched it several times. I have difficulties to understand why sequentially the sales were stalled by 150 million. This is a big number because I do not have expected that this could be seasonal. It is not. So please, can you explain me again, where are these 150 million are going, point one? Is it the questions of the sales mix of the breeder camps you sold in the past, quite often to private people? And what makes you positive? Because you have to see some pre-orders when enterprises will buy now or invest into this with your coloration. So you should have much better visibility, which you probably could share with us. This would be the first question.

yeah let me let me jump in i'll start and then and then you can finish you know i think in terms of why the big sequential difference you know and i think really we had a if you look at our q3 and q4 they were just super strong especially in emia where i think uh you know we and they were there were just a lot a lot of momentum and i think we mentioned last quarter that we had a big backlog that we really cleared we were sitting on you know very large backlog in q4 that we were able to clear almost all of and i think you know we're really so that made this that made the sequential story choppy but it doesn't change the momentum underneath it the number of momentum continues to be super strong and uh in terms of the americas and ap i think they look very similar to what you'd expect in terms of quarter over quarter you want to add anything nate yeah i mean just again finer point on the data we grew about 350 percent in in bc in europe and q4 um

And again, I think, as Bracken said, we had a very strong backlog coming in. We were short of supply and we were able to fulfill that and get the channel back to a healthy level. And, you know, I think early in the call we talked about we still maintain our outlook. I think our expectation is going to be a good growth category this year and in the future.

Okay, fair enough. Do you see any changes then in the gross profit margins? Is there a sales mix within video collaboration? And what's about the behavior of your peers like Jabra came up with a cam and we'll see more cams coming up to the market. Do you expect gross profit margin declining? And how was it now in the current or in the last quarter?

Gross margins are super strong in that business. We love that business. And yeah, it's certainly going to get more and more competitive. Great markets are always competitive. But we love our competitive position. And do we think that we're going to have gross margin compression within the video collaboration business? Could be. I don't know. We certainly have room. It's a great mix. It's a mixed driver for us from a gross margin standpoint. So more growth is better, even at a lower gross margin. So we'll see. You want to add anything to that, Nate?

Maybe just, you know, our investment in R&D is, you know, a lot of that is going in the video collaboration category. And, you know, the innovation that you see there, there's some new products actually that just came out earlier this year. that really highlight that i think the whiteboard camera i've got here with me um just a really cool product um you know and so i think there's going to be opportunities for us as we build up that installed base if you get into these accounts you've sold them a great video solution to sell around that as well and i think that's an important piece of that business we'll need to see expand out into the future um with the growth in the install base. And I think that's an important margin driver over the long term. But certainly, it's an attractive market, and there's a lot of competition. And I think it's reflected in our outlook, I think, our expectations around pricing, not only for VC, but for the market overall.

So I understood that the momentum will increase again in vehicle ration. And if I didn't got you wrong, Nate, before, you mentioned that in mice and keyboards, the absolute level can remain stable. this should all have a positive impact on the gross profit margin, isn't it, from the sales mix going into the next quarter. So is this true?

What was the comment about remaining stable?

Yeah, you mentioned to one of my colleagues that year over year you see declining numbers, but you see that Q1 as an absolute level is quite a firm or solid number to achieve also in the next quarters. Did I got this wrong?

Yeah, no, I think you're talking about gross margin rate.

No, I'm not sorry on the absolute level of pointing devices and keyboard and combos, you know, because you said that last year Q1 was weak. Therefore, we have seen high growth. But you see that this level can be sustainable in mice and keyboard.

The level of revenues you mean?

Yes.

Got it. I think we should probably be careful about talking too much about, you know, detailed forecast quarter on quarter for the different businesses. It is a, if that category, if MySync Keyboard grew faster than the overall company, it would have some favorable mix impact. But I think there's just there's lots of products within that category that we search. So kind of a question I have to think about a little bit. But again, I would just think at the high level, what I would expect is that gross margins still going to come down a bit off of these levels we had here in Q1 due to the larger factors I talked about more earlier in the call. And I think over the long term, again, one of my focuses as we talk about M&A or we talk about new product introduction is to continue to try to build a portfolio of categories that give us a mixed benefit as we grow the company. It's not always going to be the case. And sometimes that mixed benefit is going to show up on the bottom line rather than on gross margin, meaning it's going to be a category that's got a lower OPEX profile or lower investment profile, but still accretive to the overall margin rate. But that's, I think, an important part of how we think about growing the business is to look for categories where we can differentiate, where we can gain a shared leadership position that gives us the ability to earn margins that are at or above the levels that we're at today.

Okay. Probably the last one, if I may. You touched emerging markets at your Capital Market Day as an important topic. Can you give us a quick update here? Do you see growth here? And can these also... even increased, it's a potential increasing over the next quarter or additional incremental growth. You see incremental growth to your guidance here.

Yeah, I'll jump in on that. Yeah, I wouldn't say we see incremental growth in the current year. It's factored into our guidance for the year, but we are really excited about the emerging markets in general. You know, I wouldn't consider China an emerging market anymore, but we still have very strong growth in China. And really, if you look across Latin America, very strong growth potential. So if anything, if I look at my tenure at Logitech, I'd say we've undershot a lot of the emerging markets compared to their potential. I don't regret that, but I think now we have that opportunity sitting out there in front of us.

Okay. Thank you so much. Bye-bye.

Great. Thank you. Tom Forte, your line is now open. Hi, Tom.

Hey, Tom. Great. So Greg and Nate and Ben, first off a comment, then a question and a follow up. So the comment, Ben, it's been a pleasure working with you and best of luck to the future. The first question before the follow up. So I think investors sometimes place too much emphasis on working and learning remotely and how that positively affects your business. But I would argue that two of the other secular shifts that you're leveraging are accelerating. both gaming and self-broadcasting. So can you talk about the notion that you're seeing acceleration in gaming and self-broadcasting?

Yeah, by the way, I love your dog sleeping there in the background. It's really adorable. Yeah, I mean, we'll start with self-broadcasting. It's hard to talk about acceleration when we've gotten so little of the potential that's already out there, but I agree that it probably is accelerating. Anybody on this call, if you do anything, just as an example, I'm sure you're seeing the wave of people entering the podcasting market. Or Clubhouse or all the places that people are bringing in audio or video equipment to stream or broadcast. And there's just more and more of them. So, you know, I think it's my line has always been, you know, I think we're going to we're entering a world we're going to listen and watch a lot more. of each other than we are Netflix and all the companies that get attention for content, that it's actually dwarfed by the content that's created by each other. And I think that's just going to continue. I know it's just going to continue. So yeah, I think that is going to grow for a very long time and become enormous. And gaming, you know, we've been saying this from the beginning, Tom, you know, that gaming has been underestimated or was underestimated when we started. It was probably underestimated five years in. I think it's probably still underestimated now for its long-term potential. And, you know, I don't know if you read this anywhere, but it was just as one example about the commercial power of gaming. TSM sold its naming rights for $210 million today. Those are NBA, NFL, you know, Olympic numbers. And that's an e-sports team that most people here have never heard of. So this market is absolutely going to continue to be very strong grower.

Great. And then for my follow up, Nate, you talked about this notion of moving promotion spending to marketing. Can you talk about long term how creative that could be to your margins?

So how accretive it could be to the margin? Yeah, operating margin.

Yeah, so long term, if you trade promotion spending for marketing spending, I would think that could be something that could be accretive to margins in the long term.

Tom Gregoire- yeah it could be accretive to to gross margin, I think it could be operating margin neutral, you know really think about it as growth strategy, I think, as well, it could it could lead to operating margin expansion, we may reinvest that as well, I would think about it as a. Tom Gregoire- As a way to drive growth. Tom Gregoire- And then, how that flows through Tom I think is going to be dependent on a number of factors bracken anything you'd add to that.

Yeah, I would just say, you know, Tom, our goal here is to be a long, you know, we guided long-term growth targets with 8% to 10%. You know, so obviously we've got our eyes on double digits. You know, long-term double digits, that's our credo. And if we felt like reinvesting some of that gross margin opportunity back into even more marketing to drive more growth, it was a good investment we would. I know that you get healthier growth when you have a stronger brand equity. And that's really underneath this and healthier growth can also be stronger growth for the, for the, for a given dollar spend.

Yeah. Great. Thank you for taking my question.

Great. Thank you, Tom. And Bracken, Nate, this concludes our Q and A. So I'll turn the call back over to you.

Well, we just finished, you know, I always tell our teams all the time, you know, the most important quarter of the year is really the first one because it sets the tone for the year and creates the momentum and we're off to very good coming out of this first quarter. And we'll look forward to seeing you a quarter from now.

Thanks, everybody.

Thanks, Ben.