Logitech International S.A.

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for the second 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 discussions of our outlook, strategy, and guidance. We're making these statements based on our views only as of today. Our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC's website and the investor relations section of our website. We undertake no obligation to update or revise any of these forward-looking statements except as required by law. We will also discuss non-GAAP financial results. 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 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.

Thank you, Nate, and welcome, everyone. We delivered a strong second quarter to close out the first half of fiscal year 2026. Our teams executed with excellence, delivering good top line growth and outstanding profitability. We executed well across all regions and delivered strong growth across both B2B and consumer channels. To achieve these results in the current environment underscores Logitech's discipline and resilience. In Q2, we remained focused on our long-term strategic priorities, and they drove our results. First, of course, superior products and innovation, which are so integral to our DNA. This quarter, we announced 60 new products. Some of the highlights included the much-anticipated MX Master 4, a new generation of our flagship premium mouse. This new product is the first in the MX line to provide advanced users with tactile haptic feedback, and it is off to a record-breaking start. We also unveiled a wide array of exciting new gaming products, including the new Pro X2 Super Strike Mouse, which blends inductive analog sensing and real-time haptic feedback for the most competitive of gamers. We also launched the McLaren Racing Collection, a premium lineup of sim racing gear inspired by McLaren's iconic racing brand and technology. And for those of us in the business world on calls like this one, we introduced the new Zone Wireless 2 ES and Zone Wired 2 headsets with AI-powered dual noise-canceling microphones and adaptive hybrid active noise cancellation. Many of these new products were announced at our Logitech-owned flagship events, LogiWork and LogiPlay, in September. These coveted live events took place in more than 30 cities around the world, attracting thousands of media, influencers, content creators, partners, and thought leaders. The Logiplay global live stream on the day drove more than 12 million views. And within a month, the Logiplay social media and creator activations reached approximately 200 million people. This underscores the growing strength of our global brand. We also continued to double down on B2B with good momentum behind our investments in new products and capabilities. Logitech for Business demand was strong across video collaboration, personal workspace solutions, and the education vertical. Time Magazine recognized their new office environmental sensor, the Logitech Spot, as one of the best inventions of 2025. This is the second year in a row we have received this prestigious recognition for a new product. Logitech's global scale remains a key advantage, and in Q2, we executed very well across geographies. EMEA posted solid growth. Once again, Asia Pacific had an excellent quarter, supported by our China for China investments. Their strengths helped offset a modest sales decline in the Americas as we proactively managed tariffs. Importantly, demand trends in the U.S. improved as the quarter progressed. Finally, our Q2 performance underscores Logitech's capabilities as an operational powerhouse. Our cost discipline and manufacturing diversification were important factors in driving excellent gross margins and double-digit growth in non-GAAP operating income. We are on track to reduce our share of US products originating from China to 10% by the end of this calendar year. We're able to do this thanks to our long-established diversified manufacturing capabilities in five other countries, while our Chinese manufacturing side continue to serve China and the rest of the world. Now, looking ahead to Q3, we believe we will see continued strong momentum in our business. but we also see some market uncertainty. The North American consumer market, especially in gaming, was softer in Q2. We're cautiously optimistic that this will improve for the holiday season, but that is, of course, yet to be confirmed. The macros also remain uncertain, with tariffs, export restrictions, persistent inflation, just some of the dynamics. In this context, we believe our Q3 outlook reflects a pragmatic balance between the strong momentum of our business and the litany of uncertainties within the global economy. Our approach to deliver the holiday quarter and beyond remains unchanged. We'll focus on our long-term strategic priorities while being guided by the three in-year principles of playing offense, cost discipline, and agility. In terms of playing offense, we will continue to invest in R&D and demand generation to gain share, both in the short and the long term. As for rigorous cost discipline, we'll continue to focus on product cost optimization, tariff mitigation, and disciplined G&A spend. And of course, we will continue to be agile and move fast. In closing, we entered a holiday quarter in a dynamic global environment with a strong first half under our belts and with a unique set of assets that underpin our resilience. Our extraordinary capacity for superior products and innovation. Our global reach with two thirds of sales generated outside the US. Our diversified manufacturing footprint or China plus five. our strong and growing brand, our pristine balance sheet, and our experienced high-performing team. I believe these assets combined with our clear strategic priorities position as well to continue to deliver strong results. And before I hand over to Matteo, let me say a big thank you to our teams around the world. Our people are driving this strong performance and a unique culture. And I was super proud that that was recognized by Forbes this quarter when they ranked Logitech out of 900 global companies as number 25 on their list of the world's best employers.

Matteo, over to you. Thank you, Haneke. And thank you all for joining us on the call today. I would like to start by thanking our teams around the globe for the continuous strong execution in the second quarter. While the external environment remains challenging, our execution centered on playing offense, discipline, cost control, and agility. And this focus drove a non-GAAP operating income of 230 million, up 19% year-over-year. The strong profitability was achieved in a quarter where we delivered mid single digit net sales growth year over year. So let me discuss some of the key aspects of our second quarter financials. Net sales were up 4% year over year in constant currency, supported by continued robust demand across both consumer and B2B. And actually B2B demand outpaced consumer in the quarter. Some key highlights to mention across our product categories. Personal workspace grew year over year, fueled by double digit growth in pointing devices and keyboards and combos. Gaming delivered 5% year over year growth in constant currency, driven by double digit growth in PC gaming. Video collaboration grew 3% in constant currency, driven by high growth in EMEA, while America's was relatively flat, due in part to the pull forward of sales that we highlighted in the first quarter. We executed well across our regions, and more specifically, Asia Pacific grew 19% year over year in constant currency, led by sustained double digit growth in China, EMEA grew 3% in constant currency, driven by strong growth in video collaboration and personal workspace. And conversely, Americas was down 4%, primarily due to the gaming market decline. And as Anneke just noted, we also experienced lower demand early in the quarter as a result of the pricing actions that we took to offset tariffs, which improved in the latter half. Moving to gross margin, our non-GAAP gross margin rate for the quarter was 43.8%, similar to the prior year. And it is important to note that the negative impact of tariffs was entirely offset by our price and manufacturing diversification actions. Additionally, product cost reductions offset investment in strategic promotions. We continue to be very disciplined in managing our costs. And as a result, operating expenses declined 3% year over year, and we're 24.4% of net sales down 240 basis points from the 26.9% in the second quarter of last year. And similarly to last quarter, this decrease was primarily driven by a reduction in GNA as a result of the measures that we implemented to mitigate the impact of tariffs. As I mentioned earlier, this focus drove a non-GAAP operating income of 230 million up 19% year over year and a non-GAAP operating income margin expansion of more than 200 basis points. Moving to cash, cash flow continues to be strong. We generated approximately 230 million in cash from operations, 100% of operating income, and ended the quarter with a cash balance of 1.4 billion. We returned 340 million to shareholders in the quarter through dividends and share repurchases consistent with our capital allocation priorities. Now, looking ahead, as Anneke pointed out, we are monitoring two pockets of uncertainty. The US consumer market, particularly in gaming, and the overall macro environment, particularly around tariffs, export restrictions, global trade dynamics, and inflation. Now, nonetheless, we are expecting the overall top line trend to continue to be positive and roughly in line with the performance year to date. Net sales in the third quarter are expected to grow one to 4% year over year in constant currency with gross margin rate between 42 and 43%. And non-GAAP operating income is expected to be between 270 million and 290 million. This outlook contemplates tariff levels for the third quarter to be unchanged from the current structure. And we anticipate, again, that our pricing actions and continued diversification efforts will offset the negative impacts of these tariffs. So while there is a level of uncertainty in the US market, We will continue to manage the business with diligence, generating strong levels of operating income and cash from operations. So I want to thank, once again, our teams across the globe for their dedication and flexibility. And now, David, I think we can open the call for questions.