Logitech International S.A.

Good morning and good afternoon. Welcome to Logitech's video call to discuss our financial results for the second quarter of fiscal year 2025. Joining us today are Hanukkah Favor, our CEO, and Mateo Inversa, our CFO. During this call, we will make forward-looking statements, including with respect to future operating results 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, and our actual results could differ materially. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results, and you can find a reconciliation between GAAP and non-GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward-looking statements in our press release and in our filings with the SEC. These materials, as well as the shareholder letter and a webcast of this call, are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. And less noted otherwise, comparisons between periods are year over year and in constant currency and net sales. This call is being recorded and will be available for a replay on our website. I will now turn the call over to Hanukkah. Hanukkah.

Thanks, Nate. And welcome, everyone, to our second quarter earnings call. First. It is my pleasure to introduce you to our new Chief Financial Officer, Matteo Anversa. As a seasoned public company CFO, Matteo brings skills and experience really well suited to Logitech. His background in engineering and industrial technology, his diverse B2B experiences, and his global perspective as an Italian-American who has lived and worked around the world make him a terrific addition to our leadership team. Matteo, welcome to your first Logitech earnings call. Now to the quarter. This quarter, we did what we said we would do. We closed out the first half of our 2025 fiscal with strong results, which give us confidence looking forward. Let me touch on three highlights. First, we delivered high quality growth. This growth was driven by demand and it was very profitable above our long-term operating model for both gross and operating margins. The growth was broad-based across product categories and regions, including another standout quarter from EMEA. And we grew the business responsibly and with operational discipline. Channel inventories remained well within the healthy range in which we've operated for the last several quarters. Second, we achieved these results as we executed effectively against our strategic priorities. We're doubling down on B2B. In Q2, enterprise demand modestly outpaced consumer demand. Video collaborations showed sustained and profitable growth. And we saw strong growth of our personal workspace product in the enterprise channel. We continued to build the Logitech brand, and we were delighted that our brand building efforts were recognized by Time Magazine, who named Logitech one of the world's best brands of 2024 just last week. And most importantly, Q2 was an excellent quarter for innovation. Innovation is at the very heart of what Logitech does, and we launched a terrific series of new products ahead of the holidays. In gaming, we introduced 18 new products, including the Pro X Superlight 2 mouse, the Pro X TKL Rapid Gaming Keyboard, the G915 Gaming Keyboard, an all-new racing simulation series, and exciting collaborations with Genshin Impact and with Momo. In video conferencing, we launched a software-enabled solution called Smart Switching, which utilizes AI to choose the best view between the side camera on the table and the rally bar camera in front of the room. And in personal workspace, we continue to drive the successful Combo Touch for the new iPad, a very strategic category. And to help users work more efficiently, we launched two products in two entirely new categories. The MX Ink is the first mixed reality stylus for the MetaQuest headset. And the MX Creative Console integrates with popular Adobe applications to streamline creative workflows. To drive awareness and generate momentum for all of these products heading into the holiday season, we held global Lodgy Play and Lodgy Work events for the first time ever last month. These events were hosted live from Paris, Shanghai, and over 20 other global locations. Lodgy Play also streamed for over four hours on Twitch. These events served as a celebration of gaming and of new ways of working. They were a fantastic launchpad for new products and partnerships. They facilitated great interaction with customers, partners, and influencers. And they were followed by a period of impactful in-store activation. The excitement was palpable around the world, and it's part of why I am so excited for the future of Logitech. In a few minutes, we'll share a short video for you to experience LogiPlay for yourself. And finally, while results and strategy are really important, great people and culture are critical for the execution of any strategy. That is why in addition to these high quality results, I am especially proud of the culture here at Logitech. It's something we actively nurture, and it's gratifying to see that we were recognized by Forbes last week as one of the world's best employers. In a global survey of 300,000 employees of 850 global companies, we ranked 20th, a remarkable result for a company our size. So let me thank all of our employees around the world for everything they do and the culture they champion. In summary, this quarter's high-quality results, our progress versus our strategy, and our talented people give us confidence for the holiday quarter and for the remainder of our fiscal year. With that, let me turn the call over to Matteo.

Okay. Thank you, Annika, and thank you all for joining the call today. I am incredibly energized and motivated by the opportunities ahead and excited to be part of the next chapter of Logitech. The team delivered another robust quarter with continued focus on driving sustained profitable growth. The detailed financial results can be found in the press release and shareholder letter. But let me briefly share with you what I really liked about the quarter. So first, net sales were up 6% year over year, and importantly, demand accounted for roughly four points of that growth. The dynamic between sell-in and sell-through played out as we anticipated. Channel inventory levels ended the quarter well within our targeted range, positioning us very well for the holiday season. Second, as Anneke mentioned, our growth was broad based. We grew net sales year over year across all regions in nearly all the diverse product lines and grew demand in both the consumer and the business channels. Additionally, our growth was highly profitable. The gross margin rate was 44.1% up 210 basis points year over year. Continuous trunks execution by our operating team drove continued product cost reduction and higher demand allowed us to sell previously reserved inventory. This is the fifth consecutive quarter of year-over-year gross margin rate expansion, a testament to the durability of our cost reduction initiatives and commitment to overall operational excellence. Looking ahead, we expect the gross margin rate for this fiscal year to be in the range of 42 to 43%. Please keep in mind that our third quarter is typically more consumer focused with slightly higher promotional intensity and higher freight costs are expected to pressure gross margin rate in the next couple of quarters. Second quarter operating expenses were on the higher end of our annualized range of 24% to 26% as we continue to invest in our organic growth through initiatives such as LogiPlay and LogiWork. And finally, our cash generation remains robust, contributing to a healthy cash position of nearly $1.4 billion. In addition, we returned $340 million back to shareholders. We repurchased 132 million of shares in the quarter as part of our ongoing $1 billion buyback program. Additionally, our shareholders approved a $0.10 increase in Swiss francs to our dividend, which resulted in a $208 million dividend payment in September. In summary, our second quarter results continue to demonstrate our team's ability to drive sustained profitable growth in spite of an inconsistent and often volatile global economic environment. And based on our strong results in the first half, we are raising our fiscal year 2025 outlook, both in revenue and in profit. And with that, let's take you to Logiplay as we prepare for the Q&A. So, Nate, if you can please roll the video.