Logitech International S.A.

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for the third quarter of our fiscal year 2026. Joining us today are Hanukkah Faber, our CEO, and Mateo 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. 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. During the third quarter, we delivered another period of very strong financial performance. With the exception of pandemic peaks, we drove record non-GAAP operating income and earnings per share. Very strong non-GAAP gross margins once again underscored the quality of our portfolio, the strength of our brand and innovation, and our unique operating discipline. And top-line growth of plus 6% in U.S. dollars and 4% in constant currency was broad-based across regions, channels, and categories. The strong third quarter results were driven by our strategic priorities. First, superior products and innovation. At the end of September, we launched the MX Master 4, the next generation of our flagship mouse. It is selling at record levels. It sold more units in the first month following launch than any other personal workspace mouse in Logitech's history. In gaming, we delivered winning news across price bands. The premium Pro X Super Lite 2 mouse was a top-performing new product in the quarter, boosting the Pro line. We also had strong demand for the new entry-level China for China G3116 gaming keyboard, which helped drive market share gains in China. And AI now plays a critical role when it comes to superior video and audio innovation. We are well beyond AI proofs of concepts and experiments. We are shipping AI products globally at scale. In the third quarter, those included both AI-powered devices like the RallyBoard 65, the Sight video conferencing camera and the Zone 2 wireless headsets, and AI-enabling devices like the SpotSensor. And just last week, we announced a Rally AI camera and a Rally AI Pro, our smart new video conferencing solutions for large rooms like boardrooms, auditoriums, and classrooms. None of those products are AI for the sake of AI. These are products that solve real user needs, and that shows in their popularity in the market. Our second strategic priority driving results was doubling down on B2B. Logitech for business demand significantly outpaced B2C demand in the third quarter, driven by strength in video collaboration and our education vertical. Third, we executed with excellence around the world. The December quarter was the first in fiscal year 26, with positive year-over-year net sales growth and increased demand across all three of our major geographies. Around the world, it was great to see our teams excel with great holiday in-store execution and terrific social-first digital brand-building campaigns. Finally, our performance underscores our unique operational excellence. Product cost reduction, targeted pricing actions, and FX offset tariff headwinds and strategic promotions, and drove a very strong non-GAAP gross margin of 43.5%. Importantly, we continue to drive manufacturing diversification. As we committed, we successfully reduced the percentage of U.S. products manufactured in China from 40% last April to less than 10% by the end of December 2025. And we maintained strong cost discipline across the company, highlighted by non-GAAP general and administrative expenses, which were down 7% in the absolute year over year. Now, looking ahead, we live in a dynamic world, but there is still so much opportunity for Logitech to grow. One of the opportunities I am excited about lies in leveraging the existing global PC footprint to drive continued growth. Consider that of the 1.5 billion plus PCs in use today around the world, less than half of those have a mouse attached, and less than 30% of existing PCs have an external keyboard. Taken together, that PC-installed base represents over 1.8 billion opportunities to add peripherals and upgrade users to enjoy vastly superior productivity and comfort. We warmly welcome, obviously, the tens of millions of new PCs that are sold each quarter, but we believe the existing base remains the far greater prize. So with that, Matteo, I'll hand it over to you to cover the financials in a bit more detail.

Okay, thank you, Annika, and thank you all for joining us on the call today. So the team delivered another solid quarter, demonstrating continued focus on profitability and growth. Non-GAAP operating income reached $312 million, reflecting a 17% year-over-year increase alongside a 220 basis point expansion in profitability. Our strong P&L performance, combined with disciplined management of working capital, resulted in an exceptional cash flow generation of approximately 500 million, a 30% year-over-year increase. Now let me walk you through the key financial highlights for the third quarter. So net sales were 1.4 billion, up 4% year-over-year in constant currency, And this growth was driven by strong demand and represents our eighth quarter of consecutive top-line growth. Now, more specifically, personal workspace net sales increased 7%, with 9% growth in point-in devices, fueled by the launch of our MX Master 4, as well as double-digit growth in tablet accessories. Video collaboration and sales grew 8% with a double-digit growth in EMEA and Asia-Pacific, driven by continuous sales strength of our AI-enabled RallyBoard 65. And as we indicated in the past, the B2B nature of this business tends to be lumpy quarter-to-quarter, but the long-term trajectory of the business has very strong momentum. Gaming net sales grew 2%, driven by double-digit growth in Asia-Pacific, while Americas and EMEA declined single digits due to the market contraction. Geographically, Asia-Pacific led the way with a 15% year-over-year growth, driven by double-digit growth in gaming, video collaboration, and tablet accessories. INEA grew 2% due to double-digit growth in video conferencing, as well as solid growth in keyboards and combos. And the Americas reversed the negative trend of the past couple of quarters, with the U.S. returning to modest growth, with point-in devices up double digits, offset by gaming. On the profitability side, our non-GAAP gross margin rate was 43.5%, up 30 basis points from the prior year. We were able to expand the gross margin rate despite a challenging tariff environment, and similar to last quarter, the negative impact of tariffs was entirely offset by our pricing actions and continued manufacturing diversification efforts. product cost reduction and favorable foreign exchange, more than offset increased promotional activity in the core. We also maintained strong operating expense discipline. Non-GAAP operating expense was $306 million, a decline of 2% year-over-year, and 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. Now, it is important to note that if we normalize for the bad debt expense we recorded in the prior year period, non-GAAP operating expenses would have increased approximately 2%, while delivering a 70 basis points of leverage. And finally, cash flow. Cash flow was extremely strong in the third quarter. We generated approximately $500 million of operating cash flow, one and a half times operating income, thanks to efficient inventory management, strong collections, and profitable growth. Our cash conversion cycle improved by 18%, down to a highly efficient 27 days. We maintained a very strong balance sheet, ending the quarter with a cash balance of $1.8 billion. Now, as we look ahead, we are closely monitoring external dynamics, including geopolitics, tariffs, and the consumer confidence. While the backdrop is mixed, we believe Logitech is exceptionally well positioned, and this confidence is reflected in the outlook that we are providing for the coming fiscal quarter. Net sales in the fourth quarter are expected to grow 3-5% year-over-year in constant currency, with a gross margin rate of approximately 43-44%, and non-GAAP operating income is expected to be between $155 and $165 million, up 20% year-over-year at the midpoint. As a result, We expect to close fiscal year 26 above the long-term model targets for non-GAAP gross margin and non-GAAP operating margin that we outlined at our Analyst and Investor Day last year. Our performance underscores the durability of our model and our consistent ability to convert profit into cash and generate companion returns on invested capital. As we transition into the new calendar year, we remain confident in our ability to execute at a high level as the environment evolves. I want to thank all our teams across the globe for their dedication and flexibility. And with that, we can open the call to questions.