Logitech International S.A.

We're making these statements based on our views only as of today. Our actual results could differ materially, and 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 our investor relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, references to net sales growth are in constant currency and comparisons between periods are year over year. This call is being recorded and will be available for a replay on our website. With that, I will now turn the call over to Hanukkah. Hanukkah.

Thanks, Nate, and welcome everyone to the call. Fiscal year 2025 was a year of outstanding results for Logitech. We delivered strong, profitable growth driven by progress against our strategic priorities. Specifically for the year, we delivered 7% constant currency net sales growth. That growth was broad-based across geographies, product categories, and customers. We expanded market share in key product categories and remained the number one or number two player in 11 of the 13 categories that we compete in. We also expanded non-GAAP gross margins by 170 basis points and non-GAAP operating margins by 70 basis points, growing our operating income to $775 million. And we continue to generate a very healthy amount of cash. We generated about $840 million of cash from operations in fiscal 25, more than one times operating income. and we returned approximately $800 million to shareholders in the form of dividends and share repurchases. Now, our success in fiscal 25 can be attributed to four strategic drivers. First, superior products and innovation. Innovation is at the heart of Logitech's strategy and integral to our DNA. In fiscal 25, we launched 39 new products. Globally, bestsellers included the Combo Touch keyboard case for the new iPad, the Pro X Superlight wireless gaming mouse, and the A50 gaming headset family. In China, the new Alto Keys mechanical customizable keyboard became the country's best-selling personal workspace mechanical keyboard. These launches and the many design awards that we received for our innovation illustrate our ability to deliver design-led, software-enabled hardware innovation that delights users around the world. Second, we doubled down on B2B. Logitech for Business played an important role in Logitech's success this year. We saw healthy end-customer demand growth of about 7% in dollars. Investments in smarter products and go-to-market capabilities fueled growth. across video collaboration, headsets, and personal workspace products sold to enterprise customers. We're also seeing great expansion in our education vertical with double-digit year-over-year demand growth. And we're seeing double-digit growth in services revenue. Third, excellent execution across our geographies. We rapidly reapplied best practices and proven strategies from market to market to strengthen our global performance across the board. And finally, operational excellence. Our foundational strength as an operations powerhouse delivered record product cost reductions, driving the second highest annual non-GAAP gross margins in the last decade. Our fourth quarter reflected all of these same strategic factors, as well as disciplined execution by our teams. I want to extend my appreciation to all of our employees for delivering an excellent fiscal year 2025. Now, as we enter fiscal 26, we are faced with a wide range of potential outcomes when it comes to tariffs, consumer and customer confidence, and geopolitics. While acknowledging that uncertainty, we are confident heading into our fiscal year, Logitech was built to compete in good times and through uncertainty. That's because of a number of unique strengths that we built over the years. We have a balanced global customer base. We generate about two-thirds of our global sales outside the United States, which positions us well to manage market-specific risks. We invested in a broad, diversified manufacturing footprint across six countries Today, only about 40% of our products sold in the United States originate from China, with the rest coming from five other countries. We have more room for diversification, and we're able to rapidly shift production to optimize cost and mitigate tariff impacts. By the end of this calendar year, we're planning for only about 10% of U.S. products to be sourced from China. We also invested in a strong, globally recognized brand and superior products, which we believe provides brand loyalty and importantly, pricing power. We have a pristine balance sheet offering financial flexibility. And we invest in people. We have a very experienced operational and commercial team who build expertise through the tariffs of the two previous administrations, as well as through COVID-19. Their expertise, frankly, is unmatched in our industry. With this advantage start point, our approach for the year ahead will be based on three core principles. One, we're going to play offense. We aim to decisively expand market share at this time. We exited fiscal year 25 with great momentum, and we believe continued investments in R&D, marketing, and sales will help us drive lasting competitive advantage. Two, cost discipline will be critical, both when it comes to product cost and OPEX, especially G&A. And three, agility. We are moving very rapidly to leverage our broad manufacturing footprint and take the necessary commercial actions. We know things are fluid and we're acting fast. So as we look at the first quarter of fiscal 26, we expect a number of dynamics to shape performance. Not all of them certain at this point. Here's what we know. We know that the current set of tariffs and exemptions represent about a 200 basis point hit to global gross margins in the first quarter. That impact is mitigated in Q1 by the fact that we're still selling through inventory that we were able to proactively pull into the U.S. before April. Matteo will provide more details. We also know that we have announced a set of targeted price increases to customers in the United States, which are being implemented from mid-April. We don't necessarily like to raise prices, but the current context requires it. Our increases are intentionally tailored to select products rather than a one-size-fits-all approach. We've taken into account the role of each product, strategic price points, and how to best optimize value for our consumers and B2B customers. Some prices have remained unchanged, others have seen double-digit percentage increases, and some fall in between, reflecting a thoughtful, targeted approach. If needed, we believe we have more room for pricing later in the year. So that's what we know, but there's also much that we cannot yet know. Even in the current quarter, our final outcomes will depend on any changes that may be made to trade policy, including the scope of tariffs, the countries and the products affected, timings, and exemptions. The outcomes will also depend on macroeconomics and consumer as well as B2B customer sentiment and behavior. And finally, there may be geopolitical factors that will shape demand globally. Despite all that uncertainty, we are providing a financial outlook for the first quarter of our 2026 fiscal year. Mateo will provide the details in just a minute. But at the midpoint, the outlook calls for continued top-line growth, supported by healthy growth and operating income margins. The bookends of our outlook essentially contemplate what we believe are possible outcomes based on the known unknowns I just outlined. Trade policy, consumer and enterprise sentiment, and geopolitical factors. All of that said, what matters beyond the headlines is that the fundamentals of our business are strong. and that we operate from an advantage starting point. Across fiscal 26, we are going to play offense while exercising strong cost discipline and acting with agility. Logitech was built to compete at times like these, and that's what we plan to do in the year ahead. Matteo, over to you.

All right. Thank you, Annika. And thank you all for joining us on the call today. So the team delivered another good quarter with solid demand and high gross margins of 43.5%. The detailed financial results can be found in the press release and shareholder letter. But let me briefly share with you the key financial highlights. Now, the fourth quarter represented the fifth consecutive quarter of year-over-year net sales growth. For the quarter, sell-through outpaced the sell-in by approximately two points. as we aligned our channel inventory with demand following the holiday season. Channel inventory ended within our operating targets while owned inventory ended the quarter up approximately 20 million quarter over quarter as we proactively built our inventories in advance of the tariffs taking effect. Now within our product categories, keyboards and combos and pointing devices performed very well as the high end of our product lines, the MX and Ergo had record quarter sales in the quarter. Webcams delivered mid single digit net sales growth and end user demand remained strong across our gaming portfolio. So for the full fiscal year of 2025, Total net sales increased by 7%, in line with the outlook that we provided at our third quarter earnings call and during the investor day in March. Our top-line growth year-over-year was broad-based across all regions and across our key product lines, with the exception of webcams. However, webcams finished the year with strong momentum, and we remained the market leader in this key category. Our growth continues to be extremely profitable with non-GAAP gross margin rate of 43.5% for the full year of 2025. So for the fiscal year of 2025, non-GAAP gross margin rate increased by 170 basis points compared to the prior year, thanks to a reduction in our product cost, partially offset by higher promotions and the negative impact of foreign exchange. Operating expenses were approximately 1.2 billion for the year, corresponding to 26.5% of net sales. Now, this amount includes approximately 23 million of bed debt reserve recorded in sales and marketing expense due to the inability of our e-commerce payment provider, Digital River, to pay us. Now, of this amount, 40 million was recorded in third quarter, and the balance was recorded in the fourth quarter. So if we exclude the impact of this charge, our operating expenses as a percentage of net sales would have been 26%. So for fiscal year 25, non-GAAP operating income was $775 million, or 17% of net sales, up 70 basis points compared to the prior year as a result of the gross margin expansion that I just mentioned. Our cash generation continued to be extremely strong. We generated approximately 840 million of cash from operation, more than one time the operating income, of which approximately 800 million was returned to shareholders in the form of dividends and share repurchases. Our cash balance at the end of the year was 1.5 billion. I would like to congratulate the entire Logitech team for an outstanding fiscal year in 2025, we returned to high single-digit profitable growth, generated strong cash flow, and in the absence of M&A, we returned the cash that we generated back to our shareholders. Now, looking ahead to fiscal year 2026, we are not immune to the tariff uncertainty and the overall volatility in the current macroeconomic environment. Our ability to provide a long-term outlook is predicated upon a modicum of stability within the broader economy. And without this stability, it is virtually impossible to provide an outlook that looks beyond the next quarter. Hence why we withdrew our outlook for the fiscal year ahead. So today, we are providing a financial outlook for the first quarter of our fiscal 2026 year. Net sales in the quarter are expected to be between flat to plus 5% in constant currency compared to the prior year. Gross margins will be between 41% and 42%, and non-gap operating income between 155 and 185 million. Now, in the first quarter, the negative impact of the current tariffs on our global gross margin rates will be approximately 200 basis points. This impact is mitigated in the first quarter by the fact that we are still selling through the inventory that entered the United States before April. Otherwise, we estimate the impact would be approximately 500 basis points at a company level. The range of our outlook incorporates different outcomes on the variables that are currently unknown, such as the consumer and the enterprise sentiment, and the timing of the price realization in a quarter. So for sure, the environment is challenging, but as Hanke pointed out, Logitech is built for this. So with that, I think we can turn over to Q&A.