Logitech International S.A.

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for the first quarter of our fiscal year 2026. Joining us today are Hanukkah Faber, our CEO, and Matteo Anversa, 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. 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 a 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. 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. I will now turn the call over to Hanukkah. Hanukkah?

Thanks, Nate, and welcome everyone. The first quarter of fiscal year 2026 was an encouraging start to the year for Logitech. Amidst plenty of uncertainty, our team delivered good top-line growth and improved profitability, demonstrating Logitech's resilience in a challenging environment. During the quarter, we continued to focus on our long-term strategies and overlaid three principles. First, we played offense. We continued to invest in research and development, which represented 6% of sales this quarter. That investment underscores our long-term commitment to superior products and innovation. We also continue to focus on driving growth. Net sales grew 5%, and we grew net sales in all key categories. Demand also grew mid-single digits, closely marrying net sales and ensuring a healthy channel inventory position. Second, we exercised disciplined cost controls. We reduced operating expenses by 2% year over year, including an 8% reduction in general and administrative expenses. As a result, the quarter's OPEX as a percent of sales was down 200 basis points versus last year. And despite tariffs, we delivered a solid gross margin of 42.1% in the quarter, driven by our ability to mitigate the tariff impact through product cost reductions, manufacturing diversification, as well as pricing. As we move forward, rigorous cost discipline is going to remain a cornerstone of our plans. Third, agility. We are moving fast. As we previously shared, we expect to reduce the share of US products originating from China from 40% in April to just 10% by the end of this calendar year. And we are well on track to do so. These three guiding principles, playing offense, cost discipline, and agility drove our success in Q1. But just as importantly, so did our long-term strategic priorities. Superior products and innovation are always at the heart of our strategy. This quarter, we launched nine new products. We introduced the G522 wireless gaming headset, a sleek, comfortable gaming headset designed for full immersion in the game. We launched a flip folio for iPad, a really stylish magnetic keyboard case for on-the-go users. We introduced a slim wired combo for business with customizable AI launch keys. And we announced the Logitech Muse for the Apple Vision Pro, a groundbreaking digital pencil designed to support collaboration in virtual reality. In recognition of all of our team's innovative design and engineering work, Logitech was named one of Fortune's most innovative European companies for 2025 in the quarter. Doubling down on B2B is another important strategic pillar. Logitech for Business Demand outpaced our consumer business demand this quarter, led by double-digit net sales growth in video conferencing. Logitech for Business Progress reflects the strength of our portfolio of simpler, smarter, more sustainable enterprise solutions and the opportunities in services and new verticals. Finally, we drove very strong execution around the world. In Q1, APAC results particularly stood out. We're seeing meaningful progress from our China for China investments. Our China team achieved a significant milestone in May when they returned to growing share in the very fast-growing Chinese gaming market. As we look ahead to the second quarter and beyond, we expect continued uncertainty when it comes to tariff policy, to inflation, and customer sentiment. But Logitech has proven time and time again that we are uniquely built to thrive in times like these. Our business is globally balanced with about two thirds of sales generated outside the US. Our diversified manufacturing footprint spans six countries and gives us flexibility and resilience. Our strong brand provides loyalty and pricing power. Our pristine balance sheet offers financial flexibility. And most importantly, our experienced team continues to execute at the highest level. So in Q2, we're going to continue to play offense to drive growth and market share gains. We will maintain rigorous cost discipline and we will act with agility to respond to evolving market conditions. The fundamentals of our business are strong and our strategy positions us very well to navigate uncertainty and deliver attractive results. Mateo, with that, I'll turn it over to you.

All right, thank you, Haneke, and thank you all for joining us on the call today. I want to, first of all, extend my gratitude to our teams around the globe for the strong execution during the quarter. Our teams demonstrated they can operate under challenging market conditions, operating with agility while making solid progress towards our overall goals. And as you have seen from the financials that we published earlier today, We began fiscal year 26 with strong execution and focus. Net sales were up 5% year-over-year in constant currency, supported by continued robust demand across both the consumer and B2B. Despite significant external headwinds, we increased our profitability and generated strong operating cash flow. And as expected, this fiscal year started with selling in line with sell-through, and we delivered another strong year-over-year growth across all our key product categories. Now, a couple of highlights to mention. Video collaboration delivered 13% year-over-year growth, driven by strong North American demand. Personal workspace grew 6% year-over-year, fueled by double-digit growth in webcams and tablet accessories. And this marks the fifth consecutive quarter of growth in tablet accessories. And on a regional level, Asia Pacific grew 15% year-over-year, led by sustained double-digit growth in China, EMEA grew 9%, driven by strong demand across all product categories, while North America declined 4%, primarily the result of a pause in some product shipments during price negotiations, which are now largely complete. Non-GAAP gross margin rate for the quarter was 42.1%, and this reflects a 120 basis points decline from the first quarter of last year due to the negative impacts from tariffs, higher promotional spend, and a release in inventory reserves recorded in the prior year period. These were partially offset by price increases in the US and the continued momentum from cost reductions. Operating expenses declined 2% year over year and were 24.5% of net sales, down from 26.5% in the first quarter of last year. This decrease was driven by operating leverage and a reduction in G&A as a result of the measures that we implemented to mitigate the impact of tariffs. Cashflow was also strong. We generated 125 million in cash from operations and ended the quarter with a cash balance of one and a half billion. We returned 122 million to shareholders through share repurchases, which is consistent with our capital allocation priorities. So overall, this quarter brought continued macroeconomic operational challenges notably an approximately 100 basis points negative impact from the US tariffs. And in response, we diligently followed the strategy that we outlined in the last earnings call, which allowed us to increase profitability for the company by 80 basis points in non-GAAP operating income. Now, more specifically, first, we implemented price increases in North America. The execution of this price increase is now largely complete and we expect the full benefit to be recorded in the second quarter. Second, we executed cost saving actions, mostly in G&A around controllable expenses. And third, we continue to leverage the strength of our balance sheet and accelerated the acquisition of inventory in advance of tariffs going into effect. Now, looking ahead to the second quarter, we are expecting net sales to grow 1% to 5% year-over-year in constant currency, gross margin rate to be between 41% and 42%, and non-GAAP operating income between $180 and $200 million. We are expecting the negative impact of tariffs in the second quarter to be between 200 and 300 basis points, which will be partially offset by 200 basis points of positive price as a result of the price increase that we executed in the first quarter. So in summary, we delivered sorted results in the first quarter. I want to thank all our teams around the globe for dedication and flexibility. So with that, let's open the call for questions.