Logitech International S.A.

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for this quarter. 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. We undertake no obligation to update or revise any of these statements. 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'll now turn the call over to Hanneke.

Thank you, Nate, and welcome everyone. Q1 was a strong start to the fiscal year, with net sales growing 5% in constant currency, marking our 10th consecutive quarter of growth. The business performed well despite tight component sourcing, elevated component and shipping costs, and the ongoing conflict in the Middle East. We were particularly pleased to see an acceleration of growth in gaming and in North America, and continued strong growth in video collaboration and pointing devices. A strong operational performance was driven by our strategic priorities. First, superior products and innovation. The MX Master 4 mouse and the Pro X2 Super Strike gaming mouse have scaled at an exceptional click. These super premium products with unique technologies are both big hits. Just a few quarters from launch, they now both rank amongst the company's absolute top-selling products. This quarter, we also added four new releases to our product portfolio. The Mobi Fold Ultra Portable Mouse, the G512X Gaming Keyboard, the Spotlight 2 Advanced Presenter, and a really fun limited edition Soccer Alto Keys Bundle. Our elevated marketing efforts are supporting the success of our products. In gaming, Our partnerships with iconic brands like NASCAR, McLaren, Call of Duty, and a range of top pro gaming teams helped accelerate growth this quarter. And on the work side, we are investing more in creators and social commerce, anchored by a fast-growing roster of influencers. We will continue to deliver superior innovation at pace. And the incremental growth investments we outlined entering fiscal 27 are now underway, laying the groundwork to fuel a unique product innovation pipeline 40 years ahead. A second driver of growth in the quarter, doubling down on B2B. Video collaboration net sales grew 9% in constant currency this quarter, extending momentum built over the past year. Logitech's video conferencing solutions are now used by more than 70% of Fortune 500 companies. Putting us on a very short list of preferred suppliers as organizations refresh and expand their meeting spaces. Third, excellence across geographies. This quarter, our geographic diversity really paid off, allowing us to balance tough spots like the Middle East with terrific demand-led growth in the Americas, as well as continued strength in China. and in Europe, where the broader market was soft, our teams gained significant market share. Finally, operational excellence once again drove results. This quarter once again demonstrated the power and the consistency of our operational teams, even in a volatile and uncertain macroeconomic environment. While tariff refunds positively impacted our reported numbers, we delivered excellent operating income growth Thanks to the discipline and the precision of our teams. All in all, our Q1 results reinforce our commitment to operational rigor and our belief in our ability to execute on our strategic pillars and position as well for long-term success. Now, as we look ahead, we expect the demand momentum we are creating to continue. But as you may have just seen, A new serious incident at one of our suppliers, which we're working hard to mitigate, is likely to temporarily impact our ability to fully meet demand. Let me hand over to Matteo to provide more details on both our performance and the outlook.

Matteo, over to you. Okay. Thank you, Annika, and thank you all for joining us today. So as Annika mentioned, our teams navigated a difficult operational backdrop. throughout the quarter and delivered very strong results. In addition to delivering a strong quarter, we received 61 million in tariff refunds, and as a result, non-GAAP operating income was 290 million, up 44% year-over-year. If we exclude the tariff refund, non-GAAP operating income was 229 million, up 14% year-over-year, reflecting strong execution from the team. Now let me walk you through the quarter in a little bit more detail. So starting with net sales, net sales were up 1.2 billion, up 7% in U.S. dollars and 5% in constant currency. Pointed devices, video collaboration, and gaming were the key growth drivers in the quarter. More specifically, Pointing devices net sales grew 14% year-over-year, fueled by the continued success of the AMX Master 4. Marking our fifth consecutive quarter of growth, video collaboration net sales increased 9% year-over-year as a result of sustained corporate investment in our workplace solutions. And gaming net sales grew 9% year-over-year, driven by double-digit growth in AMO. Conversely, both webcams and headsets were down, driven by soft end markets in EMEA. At the regional level, AMR led the way, up 11%, with gaming, pointing devices, and keyboard and combos all growing double digits. Asia-Pacific grew 5%, with China ahead of the broader region, and EMEA net sales declined 4%, Due to the Middle East conflict, which impacted the region's net sales by approximately 400 basis points. Now, it is important to note that in Europe, we gained share in a subdued market. Turning now to profitability, our reported non-GAAP gross margin rate, including the 61 million tariff refunds, was 49.8%. Thank you very much. and product cost reduction. Now, product mix played a prominent role in the quarter as we drove double-digit growth on the premium product lines and categories, including the sustained momentum in video collaboration. Now, this growth's margin tailwinds were partially offset by higher promotional spend, particularly in EMEA. Now, looking at operating expenses, Non-GAAP operating expenses were $320 million, or 26.1% of net sales, up about 150 basis points year-over-year. This increase was driven primarily by higher investments in sales and marketing and R&D. G&A was flat as a percentage of sales at 2.8%, as we continue to remain diligent in our G&A spending. As a result, excluding the tariff reimbursement, non-GAAP operating income was $229 million, up 14% year-over-year, and non-GAAP operating income rate was 18.7%, up 110 basis points year-over-year. Our profitability continues to translate into exceptional cash generation, Cash flow from operations increased more than 30% year-over-year, and we ended the quarter with a cash balance of $1.75 billion, while we returned approximately $115 million of cash back to shareholders in the form of share repurchases. Now, as we look forward, we expect the demand momentum from the first quarter to carry into the second quarter Despite the geopolitical and macroeconomic challenges. However, in late June, one of our suppliers of semiconductor components experienced a serious incident in their manufacturing facility, which led to its closure. The facility remains closed today, impacting our ability to effectively meet demand. and the supplier has not yet provided a definitive date for the facility to reopen. Now, our team is working through several mitigation plans and in the near term, our robust balance sheet allows us to maintain a sufficient level of inventory precisely to mitigate this type of supply chain disruptions and as a result, We are able to significantly reduce the impact of this incident in the second quarter. More specifically, we expect second quarter revenue to grow 0-3% in constant currency with a gross margin rate of approximately 44%. This outlook contemplates a net sales impact of approximately 20 million due to the supplier We expect non-GAAP operating income to be between 185 and 210 million down year-over-year, driven by the continued investments in R&D and sales and marketing, as well as prior year austerity measures. Looking ahead for the full year of fiscal year 2027, absent the disruption caused by our supplier, We expect top-line momentum to continue at roughly the first quarter rates throughout the remainder of the year. However, based on our limited information to date, we are estimating the negative impact of our supplier incident to be up to $200 million in revenue in the third quarter, and for the fourth quarter, we estimate the supplier incident to be largely resolved which would mean little to no impact to our fourth quarter results. On profitability, we expect full-year non-gap operating margin to continue to track near the high end of our 15% to 18% long-term target range, helped by the strong underlying operating performance of the business and this quarter's tariff refund. With that, we'll turn it over to Q&A.