Earnings Call: Q1 2022

Jul 27, 2021

Thank you, everyone, for joining Logitech's Q1 fiscal 'twenty two earnings call. During this call, we may make forward looking statements, including with respect to future operating results and business outlook 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 due to a number of risks and uncertainties, including those mentioned in our earnings materials and SEC filings. We undertake no obligation to update or revise any of these statements. We will also discuss non GAAP financial results. You will find a reconciliation between non GAAP and GAAP results and information about our use of non GAAP measures in our press release and in our filings with the SEC, including our most recent annual report. These materials as well as our prepared results and slides 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, comparisons between periods are year over year and in constant currency and net sales and sales and net sales. This call is being recorded and will be available for replay on our website. And with that, I will turn it over to Bracken. But first, Bracken, I will have I apologize that I did not get to wrap the Safe Harbor provision statement that I have promised you. So I apologize, and I hope to still be able to do that one day. Thank you, Ben, and thanks, everybody, for joining us. Nate and I and Ben and Vincent before Had a bet that one day, one day, you would wrap the safe harbor provisions. And I guarantee if you had, People would have listened more carefully to those safe harbor provisions, so it'd be good from an SEC standpoint. So maybe in your next company, one day, you will do that. I will be listening for it, Ben. Okay. Well, this is officially Ben's last earnings call. And Nate and I couldn't be more excited about Ben's new role as a CFO, which he He is going into it and his new company is going to announce that soon, so we won't jump the gun. But Ben, I really want to thank you on behalf of all All these investors and analysts on the call today, I know you've added tremendous value. I've learned a lot from you, and I'll keep watching you from afar and cheering for you. Thank you, Bracken. Thanks so much to you, Nate and the team. Absolutely. Well, thank you, and thanks again. Congratulations. And now let's move on. I spent last week in New York City. Today, I'm in LA. And in New York City or just outside of the city, I was walking my daughter down the aisle at her wedding. And as a proud father and one who really adores his daughter and all three of my kids And my new son-in-law, I can't tell you what an amazing experience it was. It was really wonderful to enjoy this long awaited celebration and gathering with My friends and family, and as I talk to people, I know many are having experience like that feel more like pre pandemic life. While experiences like this may feel like a return to the old normal, in many ways, our work life is forever changed. In many places around the world, we won't commute into an office every day, 5 days a week. We won't waste the 10 to 20 hours a week. That's 10% to 20% of our nonsleeping, non working time. Think about that. We won't waste the 10 to 20 hours a week just getting to and from the place we work. Gone will be the lost days flying to Tokyo or Shanghai or London or Paris for 1 or 2 hour meetings. And the reason they'll be gone isn't because of the pandemic. It's because that way of working was fading even before we really realized it. The virus has been terrible, and yet it's pulled in a future that might otherwise have taken 20 years to get to or more. Autopilot has been turned off, And our employees, customers and friends are looking for a new and better way to return to work. Every conversation I have, and I bet you have too, Recently, it seems to evolve to a discussion of hybrid in some way. The new normal will not be the same for every person in every part of the world or in every company. There are a variety that will be as diverse as you could possibly imagine. I'm sure that, To start, a lot more people will simply work from home all the time, like many of us are now. That was a practice previously Most confident startups and for some salespeople. Even at Logitech, a predominantly in the office culture prior to the pandemic, We're going to have a lot more people working full time remotely. This new approach to work also unlocks talent we couldn't have accessed before in jobs that are far more oriented to remote work than we realized. Erin Shin, who doesn't know I'm mentioning her today, runs marketing for our streamers and creators products out of New York. We'd have struggled to attract her from PepsiCo, where she was in marketing for Mountain Dew, If she'd had to move to California with her family on the East Coast, we might have lost Vincent Barrell, who also doesn't know that I just mentioned him. That's we might have lost Vincent Barrell at some point. That's who she reports to. That's who runs that group. But he moved to Florida to pursue his son's passion for water skiing And secretly his own too. Meredith Roxas, who works for Aaron, so we're covering the whole reporting structure here, develops influencer and celebrity partnerships for our streamers and creators team. And she surely would not have joined us If she'd had to move from LA, which is the epicenter of the world that she's worked in for the last decade, the entertainment world. In short, Remote work is growing within Logitech. But for most people, and like for many on this call, working from home 2 to 3 days a week will become the new Those people will need spaces and equipment to work in both places. For some, that will be a fully replicated workspace in each spot. For others, it will be a place to plug their laptop into a monitor. In both cases, you'll need a mouse, a keyboard and other peripherals so you can look directly at the screen, sit back comfortably, not get a terrible video angle and be healthy ergonomically. Most of us will want duplicates of our tools in both places, at work and at home. And larger companies We'll standardize on good equipment, so the conference call and employee productivity are optimized. Natasha Legai, who some of you know, runs our strategy team, and she's eager to get back into the office a few days a week. She has an important and high profile job for us as well as 2 adorable kids who want her all the time. She likes the idea of working sometimes in the office, both for meetings and also just to quietly focus. Sam Harnett, our general counsel, who is no doubt listening right now, lives a commutable distance. But like Natasha, it's not easy. It's not an easy daily And like Natasha Vincent, I've gotten to know Sam's daughter a little better, thanks to all our video calls. I gave you specific names because I want to note The people have they're real people. They have real lives with passions that aren't fully served by a world where you burn up 20% of your time Commuting, yet they often do want and need some time in the office with their coworkers, who are also their friends. Despite that, there will be some in most companies in parts of the world who return to work full time to an office a lot like we did before. There are jobs where these can't be avoided, places where commutes are almost effortless and organizations that just aren't ready to make the shift. There are places where homes just don't work as well, where living spaces are too small to work comfortably. But even their work lives will never be the same. The rise of video meetings means they will feel awkward in the office on audio only calls. They'll often discover customers and business partners Who don't want to come to meetings, who request video meetings. Video will simply overwhelm the old audio calls, including in the office 1 on 1. Everyone will need a good webcam there too. But that new hybrid world is not or is in a wide range of stages now. Some places are reopening quickly, while others are back in more protected levels, including Los Angeles, Where I happen to be today that's going back to masks. The countries in EMEA have had starts and stops and reversals. And while much of Asia Pacific has been much better, some parts like Taiwan and Australia have moved back into defensive mode or even in the most severe lockdown since the pandemic started. In a word, it's choppy. It's choppy around the world. It will stay highly uneven for some time. While the pandemic has been a huge change event, the cultural and technological trends underlying the change Started well before the pandemic, as you know. And one of our clear strengths in the past 9 years has been our ability to select trends to follow and quickly address those trends. This approach has worked. After selecting the right categories and developing innovative products, We've become the market leaders in well over half of our categories today, yet we weren't even present or barely present in over half of those categories a decade ago. And we have not let up looking for new categories. While we continue to innovate in the businesses we've entered across all the categories you know, We also continue to quietly work on new categories all the time. Not all of our new category efforts turn into something. We've shelved many products before you saw them. We've redistributed teams across the company from 1 seed team to another. And we've launched categories you saw that we subsequently shut down. Logitech is dynamic. We continue to test and learn our way into new things. That's been a hallmark and a key to our growth and innovation. Now let's look ahead within our existing categories. We had strong growth across our businesses this quarter. Our video business is well positioned in a category with tremendous growth potential. Customers are digesting the need for more video, more webcams and more standardization of equipment in home workspace. This is early days for the standardization, but it's happening. The coverage in video growth is also still early days. Many feared gaming would slow down dramatically as we exited this year, but our new products are fantastic and are growing quickly. In fact, our latest gaming products, like our super light mouse are already among our biggest in the company. That's a shift. We're just getting our innovation and marketing engines refined here, and I'm Super excited about the future of gaming. Our C and P business, which is mostly mice and keyboards, had a super strong quarter. This is a reflection of great vision, strategy and execution. We are running the play from our Analyst and Investor Day in fiscal year 2020, and you could see it. Our lifestyle products are fun and in line with cultural trends. Our ergonomic products are needed but still have low awareness. In fact, the crazy good experience provided by many of our best products is still unknown to most who would love it. We're just firing on all cylinders that have so much upside in C and P through our awareness and new products. Our pipeline is also really exciting. Our key categories grew double digits this quarter. That's despite chip shortages and an incredible workload and stress created by COVID on our people. Like most companies, our employees have been challenged during COVID from the stress of uncertainty, from fear, from long hours I had difficulty detaching for the workday that just never seems to stop as their home became their offices. I think everyone needs a break, And this summer, we're encouraging everyone to take 1. Now let me turn the call over to Nate to go deeper into the quarter. Nate? Thanks, Bracken, and thank you, Ben, for your outstanding work. We're going to miss you. As Bracken said, we delivered an excellent Q1 with strong revenue growth, Margin expansion, strategic investments to improve our business and share gains. Net sales grew 58% in constant currency. Profits doubled versus last year, and we remain on track to deliver to the increased full year outlook we gave in April. Similar to last year, our operations and sales teams continued to execute well and results were strong across our categories and regions. Our PC peripherals categories continued their strong momentum in the quarter with 49% growth in Q1 driven by better availability and a broad portfolio of differentiated products like Rakin mentioned. Several of our flagship offerings like the MX Master 3 mouse And MX Keys keyboard continued to set new sales records even after being in the market for 2 years. And sales of our ergonomic But that impressive performance was not just in the high end. In fact, each of our top 10 mice and keyboard products with prices that range from $12.99 to over $100 Delivered strong double digit growth and in some areas triple digit growth. While webcam growth has started to moderate After more than tripling last year, sales still grew 73% in the quarter, and we have regained some of the share we lost last year due to supply shortages. Our priority remains driving greater awareness of the better user experience provided by an external webcam to increase our attach rates to the large and growing installed base of monitors and PCs. Q1 video collaboration sales increased 72%, Similar to the 81% growth, priority remains driving greater awareness of the better user experience provided by an external webcam to increase our attach rates to the large and growing installed base of monitors and PCs. Q1 Video Collaboration sales increased 72%, similar to the 81% growth rate in the prior year. Sell through in the quarter was even stronger and nearly doubled versus last year. On a sequential basis, sales in the Americas and Asia Pacific remained strong, while sales in EMEA declined double digits compared to a record Q4 due to a lower opening backlog and softer demand as businesses evaluated reopening timelines. Gaming had another strong quarter With Q1 sales up 76%, continuing the fast pace of growth from last year. We delivered double digit growth in all our gaming categories across gaming mice, keyboards, headsets, console and simulation. Gaming continues to become an integral part of many people's lives whether for entertainment, socializing with friends or to showcase their skills on platforms like Twitch. Tablets sales increased 66% with strong growth in both our retail and education categories. As we noted on past earnings calls, however, sales of our education tablet products could decline this year due to the one time benefit from a large education order in Japan last year. Our audio and wearable sales rose 57% in Q1 with double digit growth in all products, while mobile speakers fell 5% in Q1, in line with our expectations as we reallocated resources and prioritized our investments to faster growing categories. Our Q1 non GAAP gross margin was 43.8%, up 460 basis points from last year. Gross margin was down as expected from a record level in Q4, but it remained at the high end of our target range. As we look out to the rest of the fiscal year, we continue to expect gross margins to be within our range, but lower than current levels for 3 primary reasons. First, we expect our promotional spending will continue to trend toward more historical levels. 2nd, we will invest in retail point of sale marketing, which was significantly curtailed last year due to store closures. And last, industry wide component cost increases. Our non GAAP operating expenses increased 76% in Q1 to $340,000,000 largely driven by increased investment in marketing, sales coverage and product development. In the quarter, we expanded our Defy Logic brand campaign into parts of Europe as we look to drive Greater Logitech brand awareness and consideration globally. In addition to marketing, we continued our investments to develop more innovative and environmentally friendly products. Wrapping up the income statement, our Q1 operating profit doubled year over year to $235,000,000 and operating margins for 17.9%, up 3 10 basis points versus the prior year period. Now let me talk briefly about our cash flow. Cash flow from operations was negative $115,000,000 in Q1. Historically, our Q1 cash flows tend to be around breakeven, while this quarter we dipped below this level as we made tactical inventory investments and we made an annual income tax payment of $120,000,000 which would typically be paid in quarterly installments. We expect to resume our normal payment schedule in FY Excluding this one time change in payment timing, our Q1 cash flow would have been approximately flat. And in line with normal Seasonal patterns, I still expect the vast majority of our full year cash flows to come from the second half of this fiscal year. Our Q1 cash conversion cycle was 45 days, up from 27 days last year, but down from Q1 levels a couple of years ago. DSO improved by 20 days versus last year, driven by a greater percentage of our sales occurring in months 12 of the quarter compared to last year. And our days of inventory increased by 44 days to 94 as we rebuilt buffers, began migrating more of our shipments to slower but less expensive ocean freight and strategically invested in supply to ensure availability and favorable costs amidst a tightened global supply chain outlook. Wrapping up significant uses of cash, we spent $55,000,000 on share repurchases in the quarter. Finally, in terms of guidance, with a strong Q1 in the books but with the majority of the year still ahead of us, we are confirming our fiscal year 'twenty two outlook of Flat sales growth in constant currency, plus or minus 5 percent and maintaining our fiscal year 'twenty two non GAAP operating income outlook of $800,000,000 to $850,000,000 This outlook reflects continued investments in the business and is consistent with our focus on driving long term growth. With that, let me hand things back to Bracken. Thanks, Ben. Thanks, Nate, sorry. I already missed you, Ben. We had a very good start to our fiscal year. Our performance this quarter demonstrates the strength of our capabilities, our excellent operational execution And our ability to capitalize on long term trends like gaming, streaming and creating, hybrid work and video everywhere. The same underlying trends that drove our business pre COVID significantly accelerated during COVID and have become much more pervasive and sustainable as we look to life after the shelter at home period of COVID ends all over the world. We have an exciting long term growth potential ahead from this bigger base. Now Nate and I are ready for your questions. Ben, can you queue them up for the last time for you? Sure. Thank you, Bracken. The first question is, Asiya Merchant, your line is now open. Hello, Asia, again. Hey, congratulations on a great quarter. Thank you. Just a couple of quick questions. Just Some video collaboration, you mentioned a little bit of softness in EMEA. As you kind of look at and I know there was a great Sell in the prior quarter, so people are reevaluating some of that. But as you look forward, some of the guidance that you provided at your analyst date for different segments, specifically as it relates to video collaboration of growth being double digits up to 10% to 25%, if I'm not or 25% to 30%. How should we kind of think about that video collaboration Segment now for this year given EMEA softness, and do you expect that to reaccelerate, given some of the channel fill drawdown this quarter? I'll jump in, Nate. You go ahead, Nate. I can see you want to talk. Sure. Yes, just to clarify on the outlook we gave at the Analyst It was 10% to 25% growth. 10% to 25%. And I still think that's the right way to think about it as a double digit grower. And listen, I mean, again, the sell through nearly doubled this quarter. So, you know, I think we've seen in the past sometimes The sell in timing can be a little different from 1 quarter to another, especially as you talk about an enterprise business where you have large deals that fall on one side or another of a fiscal period. We still feel great, of course, about the video collaboration business, both this year and over the long term. Yes, I mean, we're just super optimistic about that business. It's a great business for us. We have great products out there, and we have great products coming. And then because of the inventory that you guys have built up, The buffer as well as supply demand balance that you mentioned, were you like broadly share gainers across many of the categories? Because all I've heard from some of your peers Was continued supply chain bottlenecks, logistics, nightmares, component constraints and different ICs, etcetera. So Is it fair to assume that you guys gain share across several of your categories where you have pretty decent competition? Yes, it is. I mean, we gained share in most categories, in fact, the vast majority of our categories. And I do think part of it was just having supply availability. But we also we've got a great product lineup right now. I mean, we've been gaining share. We were gaining share pre pandemic. We were gaining share during the pandemic, and we're gaining share We kind of see the light at the end of the tunnel. So yes, we did though. Okay. All right. Thank you. I think on the inventory, just because you brought it up, I think it's Important point because I think it just highlights again the way we think about our business strategically and financially and operationally and keeping those things aligned. And with a strong balance sheet, We think this is the right time and it's a good opportunity for us to use that to secure components where we can and it's a tough environment, but Secure components where we can build up those buffer stocks and as Bracken said, be ready to deliver on opportunities globally. So we've We've got good availability now, and I think that will be a competitive advantage for us. We'll see how it plays out. Is most of the inventory In the warehouse as finished product or is it mostly ICs and components that you've kind of put together? It's really a mix, But I think a lot of it's in the distribution centers and it's out regionally ready to be shipped. It's not out in the channel, right? It's in our distribution centers. Some of it is in components as well. Okay. All right. Thank you. Thank you, Atsu. Our next question is from Paul Chung from JPMorgan. Your line is now open. Hi, good, Paul. Hey, Paul. Hey, nice to see you guys. So, first up, on gaming, very nice momentum there. Can you kind of Expand on the product mix, where you saw relative strength in the portfolio. And as we start to lap these Tough comps, where do you see kind of momentum extending? And given the strong start to the year, do you think the flattish outlook in gaming Is on the conservative side? I have a follow-up. Well, I'm really excited. Where do we see strength in within the gaming business? You've got 4 or 5 segments you could And really all of them. I can honestly say I'm excited about our gaming business because We just had growth in every single segment, and we're growing market share across them too. And we have a fantastic portfolio. And one of the things I said in The opening was that the nature of the innovation we've been doing in gaming has also been changing. And It shifted from a lot of small products to fewer bigger ones, and it's a testament to our team. And then the other thing that's happened is Our marketing engine in gaming is probably the best we've had. I mean, they've really created Logitech g over the last 5 to 7 years, and they're just getting stronger and stronger. So Yes. I would say, overall, I just feel very, very good about gaming. We're not reopening the discussion around each individual category right now As an outlook, we confirm the outlook for the year that we just raised back 2 months ago. But I'm super excited about gaming, Paul. Yes. I mean, I think, Paul, on the outlook, too, just one thing to keep in mind is gaming does have a big holiday period, and that's still ahead of us. So I think it's been a good start to the year, a good strong Q1, but typically we do almost 80% of our revenue over the next 3 quarters, and a lot of that comes in the holidays. So I think With gaming, we'll need to see how that plays out. But as Bracken said, we go into that period with a great lineup. And You know, headsets, as we mentioned last quarter, I think, just continues to perform well with some really cool new products. Okay, great. And then just on the ramp in reinvestments in the business, though it's up like 70% this quarter year on year, The percent of sales is pretty much in line with previous years. This is the kind of right way to think about it longer term. And As we think about that spend, how are you tracking that return on investment there? And given the step up in R and D, should we that kind of more frequent cadence of new product releases moving forward. Thank you. Let me answer a couple of parts of that question. I'll let Nate Take the one on basically the business model question, what percentage of our spending should we be spending on OpEx? I think in terms of the cadence of new product launches, I wouldn't necessarily relate increased investment to more new products launched. I would say, the increased investment will just enable us to do better, bigger And in the places that really matter. And we see lots of opportunities for innovation, and we're not holding back on making sure we're investing there. Nate, you want to talk about the business model question a little bit? Sure. And just to confirm it, kind of you're looking at the numbers the same way I am, Paul. Our OpEx as a Percent of sales this quarter was actually lower than where it was in Q1 in FY 2020, and it was basically the same level as what it was for the full year in FY 2020. So I think some people look at the growth rate of OpEx and maybe have questions about it, but again, the business model or the structure of our P and L actually looks very consistent historically. Now our strategy, as you know, is to move to a more marketing led, rather than promotion led company. So that's exactly what you see us executing this quarter and you'll see it in future quarters is taking some of the incremental profits we're generating, the gross Profits we're generating and reinvesting that into marketing to build the brand, to build awareness and to drive to that product, excuse me, the brand Preference over the long term, which creates a virtuous cycle of higher margin products and faster growth. So you're seeing us execute what we've been talking about for sometime and that's what you should expect to see in the future. In terms of the percent of sales, I think something around like what you saw this Quarter is probably the right way to think about it, but it's not something I would put too fine a point on. It might be a little higher than this in some quarters, might be a little bit lower, but it's going to be the same strategy that we talked about. Okay, great. Thanks. Thanks, Paul. Thank you, Paul. Now the next question comes from Johan Evert from UBS. Johan, your line is now open. Hello, Greg. Hi, Nate. Hi, Ben. Ben, all the best to you and yes, we will miss you. Thank you. Maybe starting with 2 to 3 questions if I may. The first 1 is on your implied outlook for the next 9 months. The midpoint implies sales may be down 12%, 13%, fourteen But your non GAAP EBIT down around 40% to 50%. Your gross profit margin assumptions as Nate stated is maybe in the around 40%, If I understood this correctly for the current year, but if I consider your gross profit margin was standing already in fiscal year 2020 And now you have better FX benefits. It's falling back to the same level like fiscal year 2020 despite you having pricing power to offset rising component costs, despite you have invested in your premiumization strategy. So why are you exactly so cautious on the gross profit, if I may ask? This would be the first question. Okay. Let's stop you there. Let's take it one of the times. You just unloaded the lot. Thank you. You sound like my board or me talking to my team. I'll let Nate, I'll let you take that one, but that's there's a lot in there. Okay. Yes. I mean, listen, Jorg, we gave a range, as you know, 39% to 44%. I think we'll be in that range this year. There's several factors on why I think gross margins, as I mentioned in my opening remarks, I think they are going to come down from current levels. They are going to remain in that range, whether they are at 39, 40, 41, 42, 43. We We'll just have to see it. It depends on a lot of things like mix and so forth. But certainly, we have some headwinds, as we talked about sequentially here with just We're going to have to increase promotion as the market stabilizes and normalizes back towards more historic levels. Now I think mix is always going to be one thing that changes from quarter to quarter. I think over the long term, our mix trends are favorable with growth in some higher margin categories. We'll also have to see how logistics plays out. Certainly, we spent a lot on airfreight last year. I think we'll spend less on airfreight this year, but rates continue to be higher than their In fact, just recently, the ocean rates have been increasing on the spot market 40% to 50% just in a very short period of time. So While Ocean is still a lot more attractive than air, those rates have gone up from their historic levels too. So there's some near term things here we'll have to fight through. I think over the long term, We've given a range. It's got some room for margin expansion off of those FY 2020 levels you mentioned. And That's our focus is adding new categories that have that more attractive margin profile, maybe some more software into the mix and things like that. But in the near term, there's clearly some margin pressures, but I feel comfortable we'll be in the middle of that range or somewhere around there. And Yaron, I agree with you on the pricing power. We haven't raised any prices yet, though. We don't have immediate plans to. We're going to keep an eye on the market. We feel like Yes, some of these shortages, some of these cost driven shortages are really temporary. So we'll see. Yes, thank you. I got the message. And second question is please on product positioning for view conferencing and webcams. I mean we can likely expect that all the notebook and providers are significantly upgrading the camera systems over the next 2 to 3 years. I mean, Apple was starting with the iPad Pro, for example, which is improving camera system. To what extent can this affect your view conferencing and webcam business from your point of view? I think the installed base is so big. You got 1,400,000,000 PCs installed. So the transition, no matter what people do to the existing market, it Just won't put a big dent in that market for years. So we think the opportunity there is very significant, and we're going to keep investing. And even after they do, There are advantages to a remote webcam that you really are really exciting. And so we're going to we're excited about the webcam business. I think It's we've been in that business a long time, and we'll keep innovating in it to make sure that we've got products that are compelling. But we're also we're 35 different categories now, so We don't live or die on any one category. Yes. I'll add one thing to that one, Jorn. On the kind of the bullish side of that opportunity is anything that drives increased awareness for webcam, increased awareness for video calling. So if someone's going to communicate the quality of their webcam or the importance of having a web camera, I think that we'll see some benefit from that just in the overall market opportunity. We're going to have to compete for it, Right. We're going to have to come out and innovate with great features and products and a compelling value proposition for why an external web camera is a better experience. And I think the opportunity on notebooks and laptops is huge, because I don't think we've really communicated, Frankly, a lot of what the benefits are. And and, you know, I think as people move towards a, I've got 2 monitors here in front of me at home, obviously, a lot of people May not have that, but I think as people move to kind of a monitor setup, maybe they've got peripherals, my PC remains docked next to me The whole time. I never interact with it at all. I'm only interacting with my peripherals. And so I think depending on someone's setup, I think there's clear advantages for an external web camera, and I think that's A big opportunity for us to communicate. Thanks for this. And the last question and just a superficial one, seasonality, I mean with respect to school Now over the summer, can we expect that Q2 is on higher revenues versus Q1? It's a good question. I mean, typically, we would see higher revenues in Q2 versus Q1. But as I said before, I think typical seasonality is kind of out the window right now, Jorn. There's so many other factors that are sort of atypical. Back to school was very strong last year. And as you see with the inventory, we're prepared for a good back to school. But I think we'll have to wait and see how that plays out. Again, compared to prior years, I'm not really counting on typical seasonality for a lot of things. Certainly, some of the promo days and things like that, we would expect to see a pickup or the holiday period, we would expect to be stronger. But We'll have to wait and see. Thanks a lot. Thank you, Arren. Thank you, Arren. Ananda Baruah from Loop Capital, your line is now open. Hey, guys. Good morning. I appreciate you guys taking the question. And Ben, congrats. You'll be awesome. And it's been great working with you both at Logee, but for years years before that as well. So, I look forward to absolutely staying in touch. And so I guess a couple of questions. The seasonality I'd like to just touch on as well. That was Well, one of my kind of more prominent ones. So, you know, seasonality notwithstanding, it does Seem like there could be some conservatism. I guess I just want to get your thoughts on this and the revenue because I'm sort of playing around and if I Just flat revenue for September and then soft side of seasonality You know, for December March, I get double digit revenue growth for the year. So any context you could provide, you know, on, you know, sort of, I guess sort of connecting those kinds of dots with the flattish forecast, like what are the puts and takes there? Then I have and a quick follow-up. I'll start, and then you can jump in later. I think we guided at the beginning of the year This flattish revenue for the full year, upper, up 5%, down 5%. And then we raised the number because we finished so strong in Q4 even after Our Analyst Day, which was the early March, we've basically raised the equivalent of 7 points, 6 or 7 points In revenue, so we've done one raise already. And as you go into the back half of the year, obviously, the compares get stronger. So The seasonality, as Nate said, I'll let Nate you probably got to repeat yourself again on this, but it's really hard to call seasonality this year. Just to put a little finer point on those compares, the second half of the year last year, we basically grew 100%. So that's a I'm not one to use this excuse, I would say, and I certainly wouldn't say it too much internally, but that's a tough compare. Our visibility, Anat, as you know, is not 9 to 12 months out. I mean, we have pretty good visibility in the short term. And in some businesses like Video Collaboration, we build pipelines and We see things further out, but we're staying with the same strategy. We're going to remain nimble. We're going to have inventory available to grow faster if the opportunity is there. And we're going to pull back hard if things slow down. And I think, as Bracken mentioned in his prepared remarks, there's it's a little choppy. Europe looked like it was on path to reopen strongly and unfortunately it's had to take a pause. And I think even in parts of the United States, we now see that as well. So It's hard to make long term prediction, I would say, 6 month predictions? Long term wise, I think we make very comfortable predictions about what the long term trends are in these businesses, and we invest for those. But And frankly, some of the shorter periods within this fiscal year, we're just going to have to remain nimble and prepared, and that's what we're doing. Very well said. That's really useful context. And I guess just a quick follow-up, Bracken, we'd love to get your thoughts with regards to M and A So Bracken, do you want to I think he's talking to Evan. Yeah. There you go. Why don't you go off Why don't this be a good time to subsize? I think I got that, Ananda. You might have to jump off video to just keep your audio. If I understood you correctly, though, can you talk a little can I talk a little bit about So the answer is, as you know, we don't usually go into too much detail on what we're looking at, but We are always looking at things? And the vast majority of things we've done have been small. And so it will probably stay that way. But we're always looking at medium sized and even larger things. So M and A has been a surprisingly, and I say surprising because most companies don't do it very well, surprising strength for us. We've been we've really delivered Strongly when we've done M and A. I mean, I think we've done I don't know how many acquisitions now since I've been here. And we've almost all of them have met or beaten They're our expectations. So I think it means we really have an engine there. We can keep driving, and we're going to keep fueling it. And we're on the hunt all the time. That's great. Thank you. Thank you. Thanks. Thank you, Ananda. Michael Pfolf from Vontobel, your line is now open. Hi, Michael. Yes, thank you. Hi, Frank. Hi, Nate, and thanks a lot, Ben. Good luck to you. A couple from my side. Maybe just starting with your streaming business. Can you maybe comment on how that is developing? How much of the growth that you have seen in gaming Is coming from that and how you can leverage that business to maybe to other categories or applications, if there is anything You can share with us on that front. And the second one is sort of a curiosity. Do you have any statistics or insights On the age distribution of people buying your creativity and productivity products and does it correlate in any way with your Defy logic campaigns, anything you can share with us? Thank you. Okay. Why don't I answer that one first? The answer is we skew a little older on our creativity and productivity business, but we see a lot of opportunity younger too. We also skew more male, and we think there's an opportunity female. So you'll see a lot of things we're doing are with those two thoughts in mind. And The DefyLogic campaign does appeal more strongly. It's very strong appeal and appeal generally, But it's even stronger against that younger target audience. So, yeah, we think there's an opportunity there, and we're excited about it. What was the first question was? Remind me again. It's regarding your streaming business and how it contributes to growth. Yeah. And the streaming business has just been a really strong grower underneath these numbers. It's really kind of lives in different places in our different categories. But generally speaking, if you look at Blue Microphones over the past year, it's really just grown tremendously. And we think the long term there is very, very strong. And Streamlabs is also super exciting. I mean, it's beaten all the expectations we had for it in terms of growth, And we're very optimistic ahead, and we're learning so much from it about service businesses. It's a pure service play. And then we've got we're also slowly and quietly entering new categories. We some of this is starting to get out. And We're excited about the potential to really be a real player in this and enabling people to stream and create content for everybody else. And There's a lot of room to grow there. So the growth within it so far has been very good, and I think the long term is much, much more exciting. So can we expect more subscription like offerings from Logitech going forward? We already have that obviously in a couple Places, we've got a very small starting business and services on the video collaboration piece and of course, Streamlabs and Streamlabs has a couple of things within it. So yes, I think you can expect more. I don't know whether you could expect to see it be significant in the next year or so, but it's we're certainly going to keep adding. Hey, Michael, just to be clear on I think you were asking the Streamlabs sort of impact on gaming. It's really not I mean, the growth you see is really driven by the hardware. As Bracken said, Streamlabs has done very well. And it's a very innovative Organization, I would say, that's doing a lot of testing and so forth, but it's not driving the gaming results. So that's still driven by the hardware business. And the greater results across every segment. Okay. Thanks. And then maybe just the last one on component shortages. I mean, For Nate, maybe with the inventory levels that you have now, do you think you're covered for the demand that you will see in the next quarter? Or are there any areas where shortage might sort of constrain you to not be able to deliver on demand? I think broadly for the next quarter, I feel good about coverage. We'll see I don't think this is a 1 quarter Challenge for us, I think our team has been working on it for a while and will continue. You know, on some days we bought days of Components or weeks of finished goods or maybe a month of finished goods here or there. But I think broadly, we feel good about the coverage here for the this quarter, but there will be things that pop up for sure. I mean, it's a daily challenge if you're in operations and supply chain. Great. Thanks a lot. Thank you, Buck. Great. Thank you, Michael. Eric Woodring from Morgan Stanley, your line is now open. Hi, Eric. Eric? Hey, good morning, guys. Thank you for taking the call, Ben. Just want to reiterate what everyone's saying. Been a pleasure to work with you. Best of luck in the Future, look forward to following your success. I kind of want to start on pointing devices, keyboards and combos were obviously Very strong, I'd say almost particularly strong, and there's this fear in the market, that there is a slowdown in the PC market, broadly speaking, from consumers and call it the education sector. So, the question is, 1, was there anything one time in nature this quarter like Prime Day or the 6/18 festival that outwardly contributed to growth in these segments? And then the second part is, What are you seeing from enterprises in these segments as people are now returning to the office? Are they coming into the market more so than they particularly where in the past, and then I have a follow-up. Yes, I would say, yes, there is we did have Prime Day this quarter, this last quarter, so that's certainly in the numbers, But it still would have been an extremely strong growth quarter. In terms of really what do we see ahead from enterprise, etcetera, And what about the overall view of the category? I think the coolest thing about this business is it's our oldest business, And it has probably our it's got an incredibly strong innovation engine. And we've done a nice job of segmenting. Our team has done a nice job of segmenting the market into the different places And then really delivering big time against that. And still, the awareness is relatively low for the products that we have. So I feel like we really control our own destiny to a large extent here, not Completely. Obviously, anything can happen. In terms of so we've got a great portfolio of products coming and one that's already out there. In terms of what are we seeing from business, we are starting to see businesses, we believe that we have an opportunity really To move to more B2B business there, and we certainly are moving some resources there to make sure that happens. This quarter's growth, you can't See if it was stronger in the B2B segment than it was elsewhere, and that's exciting. It's small, but it's growing fast, and we think there's a big opportunity there. Would anything, Nate? Well, I mean, of course, I'm always going to be a little bit cautious about it. I mean, I think all those things are very true, and I think The lineup is as strong as it's ever been. But you know, Eric, you've got the data as well. This was our easiest compare for pointing devices. It only grew 1% last year in this quarter because we did have some supply challenges, with the factory being shut down due to COVID and so forth, factories being shut down. So I certainly think the growth rate will moderate from where it has been here, but, all the positive factors Bracken mentioned definitely agree with. And I think the key here is that this group in particular, although I think it's true elsewhere, but this group in particular, I think does a really excellent job with Segmentation and customer segmentation, understanding customer needs. And you see that in the product development. You see that in the execution. And I think that's the path to long term success. And so we'll execute that. Awesome. Thank you. And then just on video collaboration, Again, would love to get your take on what you're seeing from enterprises, again, as people go back to the office. And what I mean by that is, Do you find that businesses are almost pulling forward demand as they say we've created our return to work Strategy and now we can make these infrastructure investments? Or are they saying, we've created our plan, but we're still Kind of get to spread out our purchases over multiple, whatever it may be, quarters or years as we somewhat reevaluate those plans within the next 3 to 6 to 9 months. Again, you mentioned the choppy environment. Just wondering how that choppy environment potentially impacts big purchases for video collaboration. Thanks. I mean, I think you can safely say it's a mixed bag. You've got companies that are really going all in now and getting ready. I'd say most are saying, Hey, we're we have a game plan. Let's start to enable it. But they're not moving as fast as to basically snap their fingers and have everything ready to go right away, which I think is Kind of expected. We sort of expected that. So I think it's going to unfold. I think the growth is going to really unfold over the next year and 23. And I think that probably plays right into our strength, which is we've got a great portfolio out there, a great one coming. And I think we've really got a sales force now that can handle it. You want to add anything to that, Nate? Yes. I do think it's a mixed bag, and you got to factor in deployment time on some of these things as well. So the decision may be made, but the deployment may take months and quarters depending on what type of solution you're talking about. So I think that's a factor too, Eric. And again, I think the long term strategy here is to innovate and to build great sales A great sales organization and we're doing those things and to increase our marketing, to increase our awareness and brand preference. But it's It's an attractive market, one that is competitive, and we're looking forward to, I think many years of success in video collaboration. Super. Thank you guys very much. Thanks, Eric. Great. Thank you. Kirigan Wagner from Stifel, your line is now open. Yes. Hi. Thank you for letting me on. Hey, Jurgen. Hey, Jurgen. Hi. Hi. Actually, a follow-up to the previous Regarding enterprises, what percent of revenue, what was it last quarter? And what do you think a realistic Number would be going forward. Second question, Brecken, you said the pipeline is exciting. So what is it that makes you so exciting? And last question on visibility. You mentioned near term lack of visibility, but better longer term or midterm. So do you think the next fiscal year would then be another growth year? Thank you. It's a little too early for us to guide for next year, but I sure hope so. I expect it to be another growth year. Okay. In terms of what makes me excited about the innovation engine, We just get stronger and stronger. I would say we've all suffered from having to spend a lot more time on supply challenges than we would have liked, So that's probably delayed a few of the things that we would have loved to come out sooner, but it just means that we've got a good pipeline ahead of us. I mean, what you see today is not what we'll have 2 years from now, a year from now and 3 years from now, in any of our businesses. So I'm excited about what's on the horizon. We don't talk specific products until we get to the launch period. And Nate, you want to add anything or take the first one? I think on the enterprise revenue mix here, unfortunately, that's really not a figure that I'm going to Really talk about here. I mean, we don't have that type of visibility to our end customers. Unfortunately, we sell through channels and some of those are more business oriented Then consumer oriented, so we have ways of thinking about it internally, but it's just not really a great external figure. But you can see with the growth in video collaboration, which clearly is a business type of product. That mix is improving due to the growth in that category. And then I agree with Bracken on next fiscal year. I think one of the things I always say is that sometimes the market trends don't align perfectly with Our changes in fiscal quarters years, so it's about building capabilities for the long term. The company we are today is the company we are tomorrow. And if that happens across the fiscal Period, March 31, April 1, so be it. But we just got to continue to build capabilities for the long term. Okay. Yes, understood. Thank you. Thanks, Jorgen. Thank you. Great. Thank you. Serge Ratzer from Credit Suisse, your line is now open. Hi, sir. Yes. Hi, everybody. And, I've been enjoying your new life then. But coming back to video collaboration, you touched I have difficulties to understand why sequentially the sales was down by $150,000,000 This is a big number because I do not have expected that this could be seasonal and it is not. So please can you explain me again where are these SEK 150,000,000 are going? Point 1, Is it the questions of the sales mix of the BREO camp you sold in the past quite often to private people? And And what makes you positive because you have to see some preorders when enterprises will buy now or invest into this video So you should have much better visibility, which you probably could share with us. This will be the first question. Yes. Let me jump in. I'll start, And then you can finish. I think in terms of why the big sequential difference. And I think really, we had a if you look at our Q3 and Q4, they were just super strong, especially in EMEA, Where I think and there were just a lot of momentum. And I think we mentioned last quarter that we had a big backlog that we really cleared. We were sitting on Very large backlog in Q4 that we were able to clear almost all of. And I think we're really so that made this sequential story choppy. But it doesn't change the momentum underneath it. The momentum continues to be super strong. And in terms of the Americas and AP, I think they look very similar to what you'd expect in terms quarter over quarter. You want to add anything, Nate? Yes. I mean, just again, a finer point on the data. We grew about 3.50% in D. C. And Europe in Q4. Again, I think as Bracken said, we had a Very strong backlog coming in. We were short of supply and we were able to fulfill that and get the channel back to a healthy level. And I think early in the call, we talked about we still maintain our outlook. I think our expectation is going to be a good growth category this year and in the future. Okay, fair enough. Do you see any changes then in the gross profit margins? Is there a sales mix within video collaboration? And what's about the behavior of your peers like Jabra came up with a CAM and you will see more CAMs coming up to the market? Do you expect gross profit margin declining? And how was it now in the current or in the last quarter? Gross margins are super strong in that business. We love that business. And Yes, there is certainly going to get more and more competitive. Great markets are always competitive. But we love our competitive position. And do we think that we're going to have gross margin compression within the Video Collaboration business? Could be. I don't know. We certainly have room. It's a great mix. It's a mixed driver for us from a gross margin standpoint. So more growth is better even at lower gross margin. But so we'll see. You want to add anything to that, Nate? Maybe just our investment in R and D is a lot of that is going in the video collaboration category. And The innovation that you see there, there's some new products actually that just came out earlier this year that really highlight that. I think the whiteboard camera I've got here with me, it's just a really cool product. You know, and I said, I think there's going to be opportunities for us as we build up that installed base. If you get into these accounts, you've sold them a great video solution to sell around that as well. And I think that's an important piece of that business we'll need to see expand out into the future with the growth in the installed base. And I think that's an important Margin driver over the long term, but certainly it's an attractive market and there's a lot of competition. And I think it's reflected in our outlook, I think our expectations around pricing not only for VC, but for the market overall. So I understood that the momentum will increase again in vehicle ration. And if I didn't But you're wrong, Nate. Before you mentioned that in mice and keyboards, the absolute level can be can remain stable. So This should all have a positive impact on the gross profit margin, isn't it, from the sales mix going into the next quarter. So What was the comment about remaining stable on Yes. You mentioned to one of my colleagues that year over year, you see declining numbers, but you See that Q1 as an absolute level, as quite a firmer solid number to achieve also in the next quarters. Did I got this wrong? Yes. No, I think you're talking about gross margin rate? No, I'm no one sorry on the absolute level of pointing devices and keyboard and combos, Because you said that last year Q1 was weak, therefore, we have seen high growth. But you see that this level can be sustainable in The level of revenues you made? Yes. Got it. I I think we should probably be careful about talking too much about, you know, detailed forecast quarter on quarter for the different businesses. It is a If that category, if mice and keyboard grew faster than the overall company, it would have some favorable mix impact. But I think there's just there's lots of products within that category that we search. So kind of a question I'll have to think about a little bit. But again, I would just think At the high level, what I would expect is that gross margin is still going to come down a bit off of these the levels we had here in Q1 due to the larger factors that I talked about more earlier in the call. And I think over the long term, again, one of my focuses as we talk about M and A or we talk about new product introduction is to continue to try to build a portfolio of categories that give us a mixed benefit as we grow the company. It's not always going to be the case and sometimes that mix benefit is going to show up on the bottom line rather than on gross margin, meaning it's going to be a category that's got a lower OpEx profile or lower investment profile, It's still accretive to the overall margin rate. But that's, I think, an important part of how we think about growing the business is to look for categories where we can differentiate, where we can gain a shared leadership position that gives us the ability to earn margins that are at or above levels that we're at today. Okay. Probably last one, if I may. You touched emerging markets that your capital market is an important topic. Can you give us a quick update here? Do you see growth here? And can these also even Increased potential increasing over the next quarters or additional incremental growth. You see incremental growth to your guidance here. Yes, I'll jump on that, Amit. Yes, I wouldn't say we see incremental growth in the current year. It's factored into our guidance the year, but we are really excited about the emerging markets in general. I wouldn't consider China an emerging market anymore, but we still have very strong growth in China. And we have and really, if you look across Latin America and different places in the world, we see strong growth and very strong growth potential. So if anything, if I look at my tenure at Logitech, I'd say we've undershot a lot of the emerging markets compared to their potential. I don't regret that, but I think now we have that opportunity sitting out there in front of us. Okay. Thank you so much. Bye bye. Thanks, Chris. Great. Thank you. Tom Forte, your line is now open. Hi, Tom. Hey, Tom. Great. So, Bracken, Nate and Ben, first off, a comment, then a question and a follow-up. So the comments, Ben, it's been a pleasure working with you and best of luck for the future. The first question before the follow-up. So I think investors sometimes place too much emphasis on working and learning remotely and how that positively affects your business. But I would argue that 2 of the other secular shifts into leveraging are accelerating, both gaming and self broadcasting. So can you talk about the notion that you're seeing acceleration in gaming and self broadcasting? Yes. By the way, I love your dog sleeping there in the background. It's really adorable. Yeah, I mean, we'll start with self broadcasting. It's hard to talk about acceleration when we've gotten so little of the Potential, it's already out there, but I agree that it probably is accelerating. I mean, more anybody on this call is If you do anything, I'm sure you're just as an example, I'm sure you're seeing the wave of people entering the podcasting market or Clubhouse or All the places that people are bringing in audio or video equipment to stream or broadcast, and there's just more and more of them. So I think it's My line has always been, I think we're going to we're entering a world where we're going to listen and watch a lot more of each other than we are Netflix and all the companies that Get attention for content that it's actually dwarfed by the content that's created by each other, and I think that's just going to continue. I know it's just going to continue. So, yeah, I think that is going to grow For a very long time, they become enormous. In gaming, we've been saying this from the beginning, Tom, The gaming is was has been underestimated or was underestimated when we started. It was probably underestimated 5 years in. I think it's probably still underestimated now for its long term potential. And I don't know if you read this anywhere, but just as one example about the commercial power of gaming, TSM Sold its naming rights for $210,000,000 Those are NBA, NFL, Olympic numbers. And that's in the esports team that most people here have never heard of. So this market is absolutely going to continue to be very strong growing. Great. And then for my follow-up, Nate, you talked about this notion of moving promotion spending to marketing. Can you talk about long term, how accretive that could be to your margin? So how accretive it could be to the margin? Yes, operating margin. Yes. So long term, if you trade promotion spending for marketing spending, I would think that could be something that could be accretive to margins for the long term. Yes. It could be accretive To gross margin, I think it could be operating margin neutral. I'd really think about it as a growth strategy, I think, as well. It could lead to operating margin And we may reinvest that as well. I would think about it as a way to drive growth. And then how that flows through, Tom, I think is going to be dependent on a number of factors. Bracken, anything you'd add to that? Yes. I would just say, Tom, our goal here is to be a We guided long term growth targets of 8% to 10%. So obviously, we've got our eyes on double digits. We long term double digits, that's our credo. And If we felt like reinvesting some of that gross margin opportunity back into even more marketing to drive more growth, it was a good investment we would. I know that you get healthier growth when you have stronger brand equity, and that's really underneath this. And healthier growth can also be stronger growth for a given dollar spent. Yes. Great. Thanks for taking my questions. Thanks, Tom. Thanks, Tom. Thank you, Tom. And Bracken, Nate, this concludes our Q and A. So I'll turn the call back over to you. Well, we just finished I always I tell our teams all the time, the most The important quarter of the year is really the first one because it sets the tone for the year and creates momentum, and we're off to a great start. I think we feel very, very good coming out of this Q1, and we look forward to seeing you a quarter from now.