Thank you, everyone, for joining Logitech's Q1 Fiscal 2022 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 sales are net sales. This call is being recorded and will be available for replay on our website. With that, I will turn it over to Bracken. First, Bracken, I will have to apologize that I did not get to wrap the safe harbor provision statement that I had promised you, so I apologize, and I hope to still be able to do that one day.
Thank you, Ben. Thanks, everybody, for joining us. Nate and I and Ben and Vincent before Nate had a bet that one day, you would wrap the safe harbor provisions. I guarantee you, if you had, people would've listened more carefully to those safe harbor provisions, so it'd be good from an SEC standpoint. 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 is going into, and his new company's going to announce that soon, so we won't jump the gun. Ben, I really want to thank you on behalf of all of Logitech and all of 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.
Okay
Nate, and the team.
Absolutely. Well, thank you, and thanks again. Congratulations. Now, let's move on. I spent last week in New York City. Today, I'm in L.A. In New York City, or just outside of the city, I was walking my daughter down the aisle at her wedding. 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. As I talk to people, I know many are having an experience 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, five days a week. We won't waste the 10-20 hours a week. That's 10%-20% of our non-sleeping, non-working time. Think about that. We won't waste the 10-20 hours a week just getting to and from the place we work. Gone will be the lost days of flying to Tokyo or Shanghai or London or Paris for one- or two-hour meetings. 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. Our employees, customers, and friends are looking for a new and better way to return to work. Every conversation I have, I'll bet you have, too, recently 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. Their variety 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 common in 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 Chin, 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 had had to move to California with her family on the East Coast. We might have lost Vincent Borel, who also doesn't know that I just mentioned him. We might have lost Vincent Burrell at some point. That's who she reports to. Vincent runs that group, but he moved to Florida to pursue his son's passion for water skiing, and secretly his own, too.
Meridith Rojas, who works for Erin, so we're covering the whole reporting structure here, develops influencer and celebrity partnerships for our Streamers & Creators team. She surely would not have joined us if she'd had to move from L.A., 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. For most people, and like for many on this call, working from home two to three days a week will become the new normal. 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'll be a place to plug their laptop into a monitor.
In both cases, they'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. Larger companies will standardize on good equipment so the conference call and employee productivity are optimized. Natasha Ligai, 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 two 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. Samantha Harnett, our Chief Legal Officer, who is no doubt listening right now, lives a commutable distance.
Like Natasha, it's not an easy daily commute, and like Natasha and 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 that 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 this 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. 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 one-on-one. Everyone will need a good webcam there, too. That new hybrid world 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. It's gone 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. One of our clear strengths in the past nine 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.
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 one 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. 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 workspaces. This is early days for the standardization, but it's happening. The conference room 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 Superlight 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&P business, which is mostly mice and keyboards, had a super strong quarter. This is a reflection of great vision, strategy, and execution.
We're running the play from our Analyst Day in FY 2020. You can 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 and have so much upside in C&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, and difficulty detaching from the workday that just never seems to stop as their homes became their offices.
I think everyone needs a break, and this summer, we're encouraging everyone to take one. Let me turn the call over to Nate to go deeper into the quarter. Nate?
Okay. 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 Bracken 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 two years.
Sales of our ergonomic split keyboard, the K860, which retails for $129, more than doubled in the quarter. 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.
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. Tablet sales increased 66%, with strong growth in both our retail and education categories. As we noted on past earning 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 three primary reasons. First, we expect our promotional spending will continue to trend toward more historical levels. Second, we will invest in retail point-of-sale marketing, which was significantly curtailed last year due to store closures. Last, industry-wide component cost increases. Our non-GAAP operating expenses increased 76% in Q1 to $340 million, 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 million, and operating margins were 17.9%, up 310 basis points versus the prior year period. Let me talk briefly about our cash flow. Cash flow from operations was negative $115 million in Q1. Historically, our Q1 cash flows tend to be around break even. This quarter we dipped below this level as we made tactical inventory investments and we made an annual income tax payment of $120 million, which would typically be paid in quarterly installments. We expect to resume our normal payment schedule in FY 2022. Excluding this one-time change in payment timing, our Q1 cash flow would have been approximately flat. In line with normal seasonal patterns, I still expect the vast majority of our full-year cash flows to come from the H2 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 one and two of the quarter compared to last year. 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 cost amidst a tightened global supply chain outlook. Wrapping up significant uses of cash, we spent $55 million 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 2022 outlook of flat sales growth and constant currency, ±5%, and maintaining our fiscal year 2022 non-GAAP operating income outlook of $800 million-$850 million. This outlook reflects continued investments in the business and is consistent with our focus on driving long-term growth. With that, I'm going to hand things back to Bracken.
Thanks, Nate. Sorry. Wait, see, I already miss 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. Nate and I are ready for your questions. Ben, can you queue them up for the last time for you?
Sure. Thank you, Bracken. As a reminder, you can chat me if you want to ask a question. The first question is Asiya Merchant. Your line is now open.
Hello, Asiya, again.
Hey. Congratulations on a great quarter.
Thank you.
Just a couple of quick questions just on video collaboration. You mentioned a little bit the softness in EMEA. I know there was a great sell-in the prior quarter, so people were reevaluating some of that. As you look forward, some of the guidance that you provided at your Analyst Day for different segments, specifically as it relates to video collaboration of growth being double digits up to 10%-25%, if I'm not mistaken, or 25%-30%, how should we think about that video collaboration segment now for this year, given EMEA softness? Do you expect that to re-accelerate, given some of the channel fill drawdown this quarter?
I'll jump in, and Nate, Or you go ahead, Nate. I can see you want to talk.
Sure. Yeah. Just to clarify on the outlook we gave at the Analyst Day, it was 10%-25% growth.
10%-25%.
For video collaboration. I still think that's the right way to think about it, as a double-digit grower. Listen, again, the sell-through nearly doubled this quarter. I think we've seen in the past, sometimes the sell-in timing can be a little different from one 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. Yeah, we still feel great, of course, about the video collaboration business, both this year and over the long term.
Yeah, 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, so.
Because of the inventory that you guys have built up, the buffer, as well as supply-demand balance that you mentioned, were you 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 in different ICs, et cetera. Is it fair to assume that you guys gained share across several of your categories where you have pretty decent competition?
Yeah, it is. We gained share in most categories. In fact, the vast majority of our categories. I do think part of it was just having supply availability. We've got a great product lineup right now. We've been gaining share. We were gaining share pre-pandemic, we were gaining share during the pandemic, and we're gaining share as we kind of see the light at the end of the tunnel. Yeah, we did.
Okay. All right. Thank you.
I think on the inventory, just because you brought it up, I think it's an 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. 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. 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. 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, Asiya.
Our next question is from Paul Chung from JP Morgan. Your line is now open.
Hi again, Paul.
Hey, Paul.
Hey. Nice to see you guys. First up on gaming, very nice momentum there. Can you expand on the product mix? Where you saw relative strength in the portfolio? As we start to lap these tough comps, where do you see momentum extending? 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 did we see strengths within the gaming business? You've got four or five segments you could really point to, really all of them. I can honestly say I'm excited about our gaming business, because we just had growth in every single segment, we're growing market share across them, too. We have a fantastic portfolio. 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. It's shifted from a lot of small products to fewer, bigger ones, and it's a testament to our team. The other thing that's happened is our marketing engine in gaming is probably the best we've had. They've really created Logitech G over the last five to seven years, and they're just getting stronger and stronger.
Yeah, I would say overall, I just feel very good about gaming. We're not reopening the discussion around each individual category right now as an outlook. We confirmed the outlook for the year, that we just raised back two months ago. I'm super excited about gaming, Paul.
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. 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 three quarters, and a lot of that comes in the holidays. I think with gaming, we'll need to see how that plays out. As Bracken said, we go into that period with a great lineup, and headsets, as we mentioned last quarter, I think just continues to perform well with some really cool new products.
Okay, great. Just on the ramp in reinvestments in the business, though it's up like 70% this quarter year-over-year, the percent of sales is pretty much in line with previous years. Is this the right way to think about it longer term? As we think about that spend, how are you tracking that return on investment there? Given the step-up in R&D, should we expect 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. 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. Just to confirm it, 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. 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&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.
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 the brand preference over the long term, which creates a virtuous cycle of higher margin products and faster growth. You're seeing us execute what we've been talking about for some time, and that's what you should expect to see in the future. In terms of the percent of sales, I think something around 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. The next question comes from Joern Iffert from UBS. Joern, your line is now open.
Hello, Joern.
Hi, Bracken. Hi, Nate. Hi, Ben.
Hey, Joern.
Ben, all the best to you, and yeah, we will miss you.
Thank you.
Maybe starting with two to three questions, if I may. The first one is on your implied outlook for the next nine months. The midpoint implies sales may be down 12%, 13%, 14%, your non-GAAP EBIT down around 40%-50%. Your gross-profit margin assumptions, as Nate stated, is maybe in the around 40%, if I understood this correctly, for the current year. If I consider your gross-profit margin was standing already in FY 2020, and now you have better OpEx benefits, it is falling back to the same level like FY 2020, despite you having pricing power to offset rising component costs, despite you have invested in your premiumization strategy. 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 them one at a time, since you just unloaded a lot.
Yeah. Sure. Thank you.
Joern, you sound like my board or me talking to my team. Nate, I'll let you take that one. There's a lot in there.
Yeah. Listen, Joern, we gave a range as 39%-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, where I think they're going to come down from current levels. They're going to remain in that range, whether they're at 39%, 40%, 41%, 42%, 43%. We'll just have to see. It depends on a lot of things, like mix and so forth. 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. 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 also have to see how logistics plays out. Certainly, we spent a lot on air freight last year. I think we'll spend less on air freight this year. Rates continue to be higher than their historic levels. In fact, just recently, the ocean rates have been increasing on the spot market 40%-50% just in a very short period of time. While ocean's still a lot more attractive than air, those rates have gone up from their historic levels, too. There's some near-term things here we'll have to fight through. I think over the long term, we've given a range that's got some room for margin expansion off of those FY 2020 levels you mentioned. 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.
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.
Joern, 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 some of these shortages, some of these cost-driven shortages, are really temporary. We'll see.
Yeah, thank you. I got the message. Second question is please on product positioning for video collaboration and webcams. We can likely expect that all the notebook providers are significantly upgrading the camera systems over the next two to three years. Apple was starting with the iPad Pro, for example, which are improving camera system. To what extent can this affect your video collaboration and webcam business from your point of view?
I think the installed base is so big. You got 1.4 billion PCs installed. The transition, no matter what people do to the existing market, it just won't put a big dent in that market for years. We think the opportunity there is very significant, and we're going to keep investing. Even after they do, there are advantages to a remote webcam that are really exciting. We're excited about the webcam business. I think 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. We're 35 different categories now, so we don't live or die on any one category.
I'll add one thing to that one, Joern. On the bullish side of that opportunity is anything that drives increased awareness for webcam, increased awareness for video calling. 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. 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. I think as people move towards I've got two monitors here in front of me at home.
A lot of people may not have that. I think as people move to 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. I think depending on someone's setup, I think there's clear advantages for an external web camera. I think that's a big opportunity for us to communicate.
Thanks for this. The last question, just a superficial one. Seasonality, respect to school now over the summer, can we expect that Q2 is on higher revenues versus Q1?
It's a good question. Typically, we would see higher revenues in Q2 versus Q1. As I said before, I think typical seasonality is out the window right now, Joern. There's so many other factors that are sort of atypical. Back to school was very strong last year. As you see with the inventory, we're prepared for a good back to school. 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. We'll have to wait and see.
Thanks a lot.
Thank you, Joern.
Thank you, Joern. Ananda Baruah from Loop Capital, your line is now open.
Hey, Ananda.
Hey, guys. Good morning. Appreciate you guys taking the question. Ben, congrats. You're really awesome, and it's been great working with you both at Logitech, but for years and years before that as well. Look forward to absolutely staying in touch. I guess a couple questions. The seasonality I'd like to just touch on as well. That was one of my more prominent ones. 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 do just flat revenue for September and soft side of seasonality for December and March, I get double-digit revenue growth for the year.
Any context you could provide on just sort of connecting t hose kinds of dots with the flattish forecast, like what are the puts and takes there? I have a quick follow-up.
I'll start, and then you can jump in, Nate.
Go ahead.
I think we guided at the beginning of the year, this flattish revenue for the full year, up five, down five. We raised the number because we finished so strong in Q4, even after our Analyst Day, which was the early March. We basically raised the equivalent of seven points, six or seven points in revenue. We've done one raise already, and as you go into the back half of the year, obviously the compares get stronger. The seasonality, as Nate said, and I'll let Nate, you're probably going to repeat yourself again on this or not. It's really hard to call seasonality this year. Nate?
Just to put a little finer point on those compares, the H2 of the year last year, we basically grew 100%. 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, Ananda, as you know, is not 9- 12 months out. We have pretty good visibility in the short term, and 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's there, and we're going to pull back hard if things slow down. I think, as Bracken mentioned in his prepared remarks, 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 U.S., we now see that as well. It's hard to make long-term prediction. I would say six-month predictions.
Yeah.
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. 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. I guess just a quick follow-up. Bracken, would love to get your thoughts with regards to M&A up here.
You're kind of breaking up, Ananda, but I think you were asking what Bracken served at the wedding. Bracken.
I think he's talking about M&A.
Obviously.
Yeah, there you go. Why don't you go off video?
Would this be a good time to assess?
I think I got that, Ananda, but you might have to jump off video to just keep your audio. If I understood you correctly, though, can you talk a little about M&A size?
Yeah.
Yeah. 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. It'll probably stay that way, but we're always looking at medium-sized and even larger things. M&A has been a surprisingly, and I say surprising because most companies don't do it very well, surprising strength for us. We've really delivered strongly when we've done M&A. I think we've done, I don't know how many acquisitions now since I've been here, and almost all of them have met or beaten their expectations. I think it means we really have an engine there we can keep driving, and we're going to keep fueling it. We're on the hunt all the time.
That's great. Thank you.
Thank you.
Thank you, Ananda. Michael Foeth from Vontobel, your line is now open.
Hi, Michael.
Yes, thank you. Hi, Bracken. 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? 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. You'll see a lot of the things we're doing are with those two thoughts in mind, and the DEFY LOGIC campaign does appeal more strongly. It's very strong appeal in appeal generally, but it's even stronger against that younger target audience. Yeah, we think there's an opportunity there, and we're excited about it. What was the first question? Remind me again.
It's regarding your streaming business and how it contributes to growth.
Yeah. The streaming business has just been a really strong grower underneath these numbers. It really lives in different places in our different categories. 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. Streamlabs is also super exciting. 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. We're also slowly and quietly entering new categories. Some of this is starting to get out, and we're excited about the potential to really be a real player in enabling people to stream and create content for everybody else. There's a lot of room to grow there.
Yeah, the growth within it so far has been very good, and I think the long term is much, much more exciting.
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 in services on the video collaboration piece, and of course, Streamlabs, and Streamlabs has a couple of things within it. Yeah, 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 we're certainly going to keep adding.
Hey, Michael.
Okay, maybe just last one. Oh, sorry. Go ahead.
Michael, sorry, just to be clear on, I think you were asking the Streamlabs sort of impact on gaming. It's really not material. The growth you see is really driven by the hardware. As Bracken said, Streamlabs has done very well. It's a very innovative organization, I would say, that's doing a lot of testing and so forth. It's not driving the gaming results, so that's still driven by the hardware business.
Okay.
The gaming results are across every segment.
Okay, thanks. Then maybe just the last one on component shortages. 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? Are there any areas where a 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 will see. I don't think this is a one-quarter challenge for us. I think our team's been working on it for a while, and will continue. On some days, we bought days of components or weeks of finished goods or maybe a month of finished goods here or there. I think broadly, we feel good about the coverage here for the next quarter. There will be things that pop up for sure. It's a daily challenge if you're in operations and supply chain.
Great. Thanks a lot.
Thank you, Michael.
Thanks.
Great. Thank you, Michael. Erik Woodring from Morgan Stanley, your line is now open.
Hi, Erik.
Hey, Erik.
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. The question is, one, was there anything one-time in nature this quarter, like Prime Day or the 618 Festival, that outwardly contributed to growth in these segments? 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 were in the past?
I have a follow-up.
Yeah, I would say we did have Prime Day this last quarter. That's certainly in the numbers. It still would've been an extremely strong growth quarter. In terms of really what do we see ahead from enterprise, et cetera, and what about the overall view of the category, I think the coolest thing about this business is it's our oldest business. It's got an incredibly strong innovation engine. Our team has done a nice job of segmenting the market into the different places. Then really delivering big time against that. Still, the awareness is relatively low for the products that we have. I feel like we really control our own destiny to a large extent here. Not completely, obviously anything can happen. 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. We believe that we have an opportunity, really, to move to more B2B business there, we certainly are moving some resources there to make sure that happens. This quarter's growth, you can't see it, was stronger in the B2B segment than it was elsewhere, that's exciting. It's small, it's growing fast, we think there's a big opportunity there. You want to add anything, Nate?
Well, of course, I'm always going to be a little bit cautious about it. I think all those things are very true, and I think the lineup is as strong as it's ever been. Erik, 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. I certainly think the growth rate will moderate from where it has been here. All the positive factors Bracken mentioned, definitely agree with. 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 market segmentation and customer segmentation and understanding customer needs.
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. 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. 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 going to spread out our purchases over multiple," whatever it may be, "quarters or years as we somewhat reevaluate those plans within the next three to six to nine months." Again, you mentioned the choppy environment. Just wondering how that choppy environment potentially impacts big purchases for video collaboration. Thanks.
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 have a game plan. Let's start to enable it." 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. I think it's going to unfold. I think the growth is going to really unfold over the next year and two and three. 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?
Yeah, I do think it's a mixed bag, and you got to factor in deployment time on some of these things as well. The decision may be made, but the deployment may take months and quarters, depending on what type of solution you're talking about. I think that's a factor, too, Erik. Again, I think the long-term strategy here is to innovate and to build a great sales organization, and we're doing those things, and to increase our marketing to increase our awareness and brand preference. 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, Erik.
Great. Thank you. Juergen Wagner from Stifel, your line is now open.
Yeah. Hi. Thank you for letting me on.
Hey, Juergen.
Hey, Juergen.
Hi. Actually a follow-up to the previous question regarding enterprises. What, in percent of revenue, what was it last quarter, and what do you think a realistic number would be going forward? Second question, Bracken, you said the pipeline is exciting, so what is it that makes you so exciting? Last question on visibility, you mentioned a near-term lack of visibility, but better longer term or midterm. 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've liked. That's probably delayed a few of the things that we would've loved to come out sooner. It just means that we've got a good pipeline ahead of us. What you see today is not what we'll have two years from now, and a year from now, and three years from now in any of our businesses. I'm excited about what's on the horizon. We don't talk specific products until we get to the launch period. Nate, you want to add anything or take the first crack?
I think on the enterprise revenue mix, Juergen, unfortunately, that's really not a figure that I'm going to really talk about here. 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 than consumer-oriented. We have ways of thinking about it internally, but it's just not really a great external figure. 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. I agree with Bracken on next fiscal year. One of the things I always say is that sometimes the market trends don't align perfectly with our changes in fiscal quarters and years. It's about building capabilities for the long term.
The company we are today is the company we are tomorrow, and if that happens to cross a fiscal period, March 31st to April 1st, so be it. We just got to continue to build capabilities for the long term.
Okay. Yeah, understood. Thank you.
Thanks, Juergen.
Thank you.
Great. Thank you. Serge Rotzer from Credit Suisse, your line is now open. Serge?
Hi, Serge.
Yes. Hi everybody, and bon voyage, Ben. Enjoy your new life then.
There you go.
Coming back to video collaboration, you touched it several time. I have difficulties to understand why sequentially the sales was down by $150 million. This is a big number, because I do not have expected that this could be seasonal, and it is not. Please, can you explain me again where are these $150 million are going, point one? Is it a questions of the sales mix, of the Brio cams you sold in the past quite often to private people? What makes you positive? Because you have to see some pre-orders when enterprises will buy now or invest into this video collaboration. You should have much better visibility, which you probably could share with us. This would be the first question.
Yeah, let me jump in. I'll start, Nate, you can finish. I think in terms of why the big sequential difference, and I think really if you look at our Q3 and Q4, they were just super strong, especially in EMEA, where I think there were just a lot of momentum. I think we mentioned last quarter that we had a big backlog that we really cleared. We were sitting on a very large backlog in Q4 that we were able to clear almost all of, and I think that made the sequential story choppy. It doesn't change the momentum underneath it. The momentum continues to be super strong. In terms of the Americas and AP, I think they look very similar to what you'd expect in terms of quarter-over-quarter. You want to add anything, Nate?
Yeah. Just again, finer point on the data. We grew about 350% in DACH 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. I think early in the call we talked about we still have maintained our outlook. I think our expectation is it's 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? What about the behavior of your peers, like Jabra came up with a cam, and we'll 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. Yeah, it's certainly going to get more and more competitive. Great markets are always competitive. We love our competitive position. 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 driver for us from a gross margins standpoint. More growth is better, even at a lower gross margin. We'll see. You want to add anything to that, Nate?
Maybe just our investment in R&D is a lot of that is going in the video collaboration category, and the innovation that you see 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. 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. 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 install base, I think that's an important margin driver over the long term. Certainly, it's an attractive market. There's a lot of competition. I think it's reflected in our outlook. I think our expectations around pricing, not only for VC, but for the market overall.
I understood that the momentum will increase again in video collaboration, and if I didn't get you wrong, Nate, before you mentioned that in mice and keyboards, the absolute level can remain stable. This should all have a positive impact on the gross profit margin, isn't it, from the sales mix going into the next quarter? Is this true?
What was the comment about remaining stable?
Yeah, you mentioned to one of my colleagues that year-over-year, you see declining numbers, but you see that Q1 as an absolute level is quite a firmer, solid number to achieve also in the next quarters. Did I get this wrong?
No, I think you're talking about gross margin rate?
I'm now on the, sorry, on the absolute level of pointing devices and keyboard and combos. You said that last year, Q1 was weak, therefore we have seen high growth. You see that this level can be sustainable in mice and keyboards.
The level of revenues, you mean?
Yes.
Got it. I think we should probably be careful about talking too much about detailed forecast quarter-on-quarter for the different businesses. If that category, if mice and keyboard grew faster than the overall company, it would have some favorable mix impact. I think there's lots of products within that category that we search, kind of a question I'll have to think about a little bit. I would just think at the high level, what I would expect is the gross margin's still going to come down a bit off of the levels we had here in Q1 due to the larger factors that I talked about more earlier in the call.
I think over the long term, again, one of my focuses as we talk about M&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 mixed 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, but still accretive to the overall margin rate. 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 the levels that we're at today.
Okay. Probably last one, if I may. You touched emerging markets at your capital market day as an important topic. Can you give us a quick update here? Do you see growth here, and can this also even increase? Is the potential increasing over the next quarters or incremental growth to your guidance here?
Yeah, I'll jump in on that. Yeah, I wouldn't say we see incremental growth in the current year. It's factored into our guidance for 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. Really if you look across Latin America and different places in the world, we see strong growth and very strong growth potential. 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.
Great. Thank you. Tom Forte, your line is now open.
Hi, Tom.
Hey, Tom.
Great. Bracken, Nate, and Ben, first off, a comment, then a question, then a follow-up. The comment, Ben, it's been a pleasure working with you, and best of luck for the future. The first question before the follow-up. I think investors sometimes place too much emphasis on working and learning remotely and how that positively affects your business. I would argue that two of the other secular shifts that you're leveraging are accelerating, both gaming and self-broadcasting. Can you talk about the notion that you're seeing acceleration in gaming and self-broadcasting?
Yeah. By the way, I love your dog sleeping there in the background. It's really adorable. We'll start with self-broadcasting. It's hard to talk about acceleration when we've gotten so little of the potential that's already out there, but I agree that it probably is accelerating. Anybody on this call is, if you do anything, 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 are just more and more of them. My line has always been, I think we're entering a world, 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. Yeah, I think that is going to grow for a very long time and become enormous. In gaming, we've been saying this from the beginning, Tom Forte, the gaming has been underestimated or was underestimated when we started. It was probably underestimated five years in. I think it's probably still underestimated now for its long-term potential. 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 million. Those are NBA, NFL, Olympic numbers, and that's an esports team that most people here have never heard of. This market is absolutely going to continue to be very strong grower.
Great. 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?
How accretive it could be to the margin?
Yeah, operating margin.
Yeah. Long term, if you trade promotion spending for marketing spending, I would think that could be something that could be accretive to margin sort of long term.
Yeah. It could be accretive to gross margin, and I think it could be operating margin neutral. Really think about it as a growth strategy, I think as well. It could lead to operating margin expansion. We may reinvest that as well. I would think about it as a way to drive growth. How that flows through, Tom, I think is going to be dependent on a number of factors. Bracken, anything you'd add to that?
I would just say, Tom, we guided long-term growth targets of 8%-10%, obviously we've got our eyes on double digits. Long-term double digits, that's our credo. If we felt like reinvesting some of that gross margin opportunity back into even more marketing to drive more growth was a good investment, we would. I know that you get healthier growth when you have a stronger brand equity, and that's really underneath this. Healthier growth can also be stronger growth for a given dollar spent.
Yeah. Great. Thank you. Those are my questions.
Thanks, Tom.
Great. Thank you, Tom. Bracken, Nate, this concludes our Q&A, so I'll turn the call back over to you.
Well, I tell our teams all the time, the most important quarter of the year is really the first one, because it sets the tone for the year and creates the momentum, and we're off to a great start. I think we feel very good coming out of this Q1, and we'll look forward to seeing you a quarter from now.
Thanks, everybody.
Thanks, Ben.