Welcome. Thank you, everyone, for taking the time to join our fireside chat. I'm Chuck Boynton, the Chief Financial Officer of Logitech. We're calling in here, or we're meeting today at our corporate headquarters in Lausanne, Switzerland, on the beautiful campus of EPFL. I'm super excited to introduce you to our new CEO, our long-awaited new CEO, Hanneke Faber. Hanneke, welcome. It's so great to have you.
Thank you so much. It's great to be here.
Great. We're gonna spend 20-30 minutes to get to know Hanneke. We're not gonna do any live Q&A. I'll just be, Hanneke and I will have a conversation, and the goal is really to get a chance for you to meet her because we go into quiet period next week, and so investors can't talk with Hanneke and I during quiet period. We'll release earnings, Nate, somewhere at the end of January, and we'll have a chance to do a lot of discussion, Q&A, following earnings, and then go meet with a lot of investors, and Hanneke will get a chance to meet with many of you. So we're just super excited. Hanneke, welcome. How is the move going, and have you spent much time in Switzerland?
Yeah, the move is underway, but we're super excited, my husband and I, to come back to Switzerland. So we lived here for 10 years, actually, in Geneva, when I was working for Procter & Gamble from 2000 to 2010. So we're really excited to come back. We love Switzerland. It's obviously a really beautiful area, Suisse Romande, and you know, it'll be fun to reconnect with some old friends and make some new ones.
Well, I don't want to embarrass you, but I heard a story that... I've always said you're like a corporate athlete, but I understand that you were actually a real athlete and spent time in Switzerland. Tell us this story.
Yeah.
This is super funny.
Yeah. Yeah, yeah. So my first time ever coming to Switzerland, I was a springboard diver as a teenager, plongeon. And my very first time coming to Switzerland was in 1985. I'm aging myself, dating myself now, but I was 15, and it was the European Junior Diving, Swimming and Diving Championships in the Piscine des Vernets in Geneva. So a lot of nostalgia when I come here.
That's so cool. We're in an Olympic city here in Lausanne.
That's right.
That's so, so cool.
Yeah.
So you're joining Logitech with 30 years of real corporate experience, and-
Mm.
I've always told our investors that we're a design-led engineering company, and, but we keep the customer in front of everything that we do. I'm curious about your... How, how do you think about customer centricity and, and that sort of, the world that we live in?
Yeah. I think everything starts from the consumer, he or she who uses our products every day. And that was drilled into me really from my very early days at Procter & Gamble. So I spent 20 years at Procter & Gamble. P&G is really a marketing school, I would say, where you learn about putting that consumer first. So, I'll tell you one little story about a brand that is really near and dear to my heart, a P&G brand, Head & Shoulders. I hope many of you know the brand. It's a shampoo. I worked on it for 12 years, on and off.
When I first went to work on the brand, it was the year 2000, and it was a big brand, about EUR 1 billion in sales, dollars in sales, but it only had about a 5% share, and we started looking at the consumer, and 50% of people have dandruff, and this is an anti-dandruff shampoo, right? But it only had a 5% share. So we really dug deep, both quantitatively and qualitatively, on why is that, if 50% of people have dandruff? And by the way, we really had very little competition. Why aren't we much bigger? So we found out three things. First of all, people thought it smelled really bad.
Second, they thought it was bad for your hair to use Head & Shoulders, it may take care of your dandruff, but it was just bad for your hair. And the third area is really interesting, it's quite emotional, and no one wanted to put Head & Shoulders in their shopping cart in the grocery store because it kind of made you look like a loser, right? I have dandruff. So we put in place a really consumer-focused strategy that said, "Okay, we got to make it smell better." So we launched Citrus and Ocean Fresh and Apple Fresh and lots of different fragrances over the years. We made sure it was actually really good for your hair with new sensitive variants, with collaborations with partner hairdressers.
I think probably the most important thing we did is we started working with brand ambassadors who were cool. We started with Manny Pacquiao, boxer in the Philippines.
Oh.
Then we did Michael Schumacher, we did Michael Phelps, we did Troy Polamalu in the United States. Really cool guys who were using Head & Shoulders. That made everyone feel better about using Head & Shoulders. The brand grew double digits for 13 years in a row, just behind that simple, really consumer-focused strategy. So, obviously, we don't sell anti-dandruff shampoo here, but I think there are some parallels. Logitech also a fantastic, really big brand, with high penetration in some of the things we do, but actually really low penetration in some of the other areas we play in. And I really look forward to working with the team to understand that and to see, where there's more upside and how we get it.
Well, you sold me as a consumer 'cause I admit I use Head & Shoulders, but I was following, you know, Michael Schumacher's-
Oh, very good.
so I felt... Now, now I feel cool. So, thinking—let's shift gears a little bit and think about B2B. As you all know, we've made a huge investment in B2B. We, if you look back 10 years ago, we were pretty much just a consumer-based electronics company, made a huge move into the enterprise. Today, about a third of our revenue is enterprise-specific. It's video and personal workplace solutions.... This has been a very, very large material investment. It's now driving roughly a third of our revenue, and I understand you've had some B2B responsibilities over your career, and more specifically at Unilever.
Mm-hmm.
Can you tell a little bit about your experience and maybe compare and contrast B2B versus B2C in your thoughts?
Yeah, absolutely. So my last job, I worked at Unilever. I ran their $14 billion food business globally. And you may think of that as a consumer business, but actually, one-third of that business is B2B. So we sold to restaurants, to workplaces, to institutions, healthcare, education, actually, very similar B2B customer base as Logitech. The permanent challenge in B2B is there are so many places you can go, and you never have enough salespeople to cover them all. So that was restaurants for me at Unilever. That is meeting rooms at Logitech. I mean, there are so many meeting rooms, and they should all be video-enabled, and each and every conference room in the world should have one of ours, but you can never have an...
You know, you'd need every salesperson in the world to do that in the old-fashioned, traditional way. What we did at Unilever is we, we used COVID, actually, when many restaurants were closed, to really digitize our go-to-market approach. And we made it a hybrid approach of humans and digital, built a huge data lake with all of the information on every potential customer, that we let loose CRM, lead generation, e-fulfillment on that database. And as a result, if I take China as an example, pre-COVID, we served 100,000 restaurants in China with our Unilever food business. Thanks to that hybrid digital model of selling, we now, I was still there last week, we now serve 500,000 restaurants, and we have not added a single salesperson.
So that's the kind of go-to-market innovation that I think we will need at Logitech as well. I don't know exactly what that's gonna look like, but the opportunity is amazing, and I applaud you and Prakash and Quinn for the investments you've already made. But certainly, yeah, it feels like there's more upside for growth there.
It really does. The B2B business, I know really well.
Yeah.
I just feel like, like, it's hard to say when that inflection point will come, but we are in this position where the market, there's just so much unpenetrated market in video specifically-
Yeah
...and it just feels like such a great opportunity. And I feel like we're kind of at an inflection point right now, because if you look at, you know, COVID, we had unprecedented growth. I mean, we grew 70% in one year.
Yeah.
That's just no company in our industry does that, one year. And we've had a really tough run. You know, the couple of years afterwards, we've seen revenue declines. We're not calling a bottom yet, but, you know, if you look at the last few quarters, the rate of change has slowed-
Yeah
...and we're starting to see that bottom, and then now we're really focused about growth. And you think about, like, how do we position for growth? And I'm curious, kind of, your thoughts about how, what we could do to position ourselves for growth.
Yeah.
Maybe touch on your career and how you've seen, maybe changes in the past or things you've done to kind of turn the ship around.
Yeah. Well, first, let me say, I, you know, you've trained me well already. I think Logitech is nearing that inflection point, and over the next decade, there's still a lot of growth to be had for this company. How do we get it, of course, is the big question. If I use my Unilever experience there, the Unilever food business was not very exciting when I took it on, quite honestly, in 2019. It had literally been flat for 10 years. It had gone absolutely nowhere. Very profitable, but it had gone nowhere. So it needed some real changes. So we did three things. First, portfolio change. Over there, we really needed to get out of some lower growth segments and into some higher growth segments.
So, we sold our tea business, we sold our margarine business, two big, big disposals, and then we bought into functional nutrition, and plant-based meat, and into emerging markets. So, you know, a rising tide lifts all the ships. You got to make sure your portfolio is right and that you're focusing in growing spaces. We did that. Second is, again, we went back to the consumer, and we said: "What does that consumer want?" And in food, she wants taste, just like in peripherals, she wants performance and ease of use. But in food, the consumer also wants health these days. She wants that product to be healthier for her and healthier for the planet, and we had ignored that. And again, there are some parallels here.
I think, you know, the Logitech consumer absolutely wants performance and ease of use, but she's also worried about sustainability, especially for the planet. So at Unilever, we changed our products to make them healthier. Still great taste, and if I use Hellmann's mayonnaise as an example, it still tastes great, but now there's a vegan plant-based version. It's a lot better for the environment and for your health. And then finally, of course, it's always about building brands, and making big brands bigger, is absolutely possible. So again, if I use Hellmann's as an example, Hellmann's was EUR 1 billion in 2019.
It will be close to EUR 3 billion this year, with fantastic brand building, a campaign called Make Taste, Not Waste, which is against food waste, because all those leftovers in your fridge are better with mayonnaise. So again, it links taste and sustainability, and that works really well. So consumers, brands, and portfolio, I'm sure there will be some similarities, but some things will be wildly different, actually, at Logitech. So this is day five. I'm just finding that out, but I am certain that there's growth to be had.
That is so cool.
Yeah.
What a great story. If you think about Logitech, you know, we are a Silicon Valley technology company-
Yeah.
headquartered in Switzerland, but I feel like we're like Silicon Valley. We're here-
Mm-hmm
in jeans, and kind of like it's a cool company. It's such a cool brand.
Mm-hmm.
One of the things I love about Logitech is that we truly are a technology company. We spend, and I'm proud of this, we spend 6%-7% of our revenue, we reinvest that back into R&D and technology. And I'm just curious, kind of, what are your thoughts? And, obviously, R&D drives growth, but it also can maybe expand profitability. I'm curious, kind of your thoughts on R&D investments and, you know, do you think that's a good number? Too high, too low, about... You know-
Yeah.
What are your thoughts relative to the R&D investment in the technology?
Yeah. No, I applaud you for, you know, being at 6%-7% R&D. I think for a company where technology innovation product is so, so central, that is a really big priority. And not just because we have to stay ahead of the consumer and come up with the next technologies and great products, but it also drives gross margin. And that is really, really important for our future. So, well done, and you hopefully saw some of that investment just now on your tour. Definitely an area we don't want to make a change in.
Yeah, we're so proud.
Yeah.
This past quarter, we had such a great quarter, 42% gross margins. The quarter before that-
Yeah
39%, and we outlined a long-term financial model of 39-44%. So we feel really pleased that we're-
Yeah
in that range, the last two quarters.
Mm-hmm.
Sort of adjacent to technology is e-commerce.
Mm-hmm.
I think we're under indexed in what we call D2X or direct-to-consumer. It's a smaller portion of our business, and I think it actually could be a much bigger part. We do phenomenal with Amazon and the likes of the e-commerce business, but the direct side, I'm curious your thoughts on both e-commerce and direct-to-consumer, and maybe your experiences there.
Yeah. I really like the shape of the business with our customers. So, you know, we have a big business still in bricks-and-mortar retail, and I think we've all learned that's not dead. Still very big, and-
Yeah, that's great. That's a huge part.
Absolutely.
We're so good at that.
Yeah.
Yeah, we're really good.
I mean, and Logitech really looks like a leader there, and that's an important part of building our brand. And then we also have a, you know, very, very sizable e-commerce business, and not just with Amazon, with many commerce customers. I think you're right, the, the, the direct, the logitech.com still has opportunities, so we'll need to figure out how we make that bigger as well. Again, important both sales channel and brand building tool. Yeah, and I'm excited about that space. So I also had the privilege of working at Ahold Delhaize for four years, where I ran their e-commerce business, 2014 to 2018. When, you know, e-commerce was relatively new and super hot. When I came, it was less than EUR 1 billion.
When I left in 2018, it was more than EUR 3 billion, so pretty wild ride. Logitech was actually one of our key customers. So one of the banners at Ahold was bol.com, which is a major customer of Logitech. So it was great to have worked on the other side, where Logitech was a supplier to me at bol.com. And it was, you know, it's fun to think back of the things that we wanted from Logitech at the time. Of course, profitability, of course, great service, but also working to grow that category of peripherals, which is really important because there's really no one like Logitech who understands that peripheral consumer so well and can help customers build the category and grow it.
So yeah, at the time, I had no idea that I would work here, but it's actually a great piece of experience to have been on the other side.
Well, I mean, it's interesting because you have this great career. I mean, three big companies, B2B, consumer, growth, and now you're coming from a job where you were at a business that's three times our size. I mean, so I'm curious to ask maybe the awkward question, why Logitech then? Because you came from this much bigger platform, and I'm just curious, why us?
Mm-hmm.
And we're so happy to have you, but I'm just curious-
Mm-hmm
... kinda, why, why Logitech?
Yeah. I'll be super honest. I've told this story to people in the company. So I didn't actually know Bracken, but, you know, when I saw online that he was retiring-
You both worked at P&G, right?
We both worked at P&G, so we did run in similar circles, but I didn't actually know him. But when I saw online that he was going, I said to my husband, I said: "I hope they call me for that job." They did, so lucky. But why? I am so impressed with what Logitech has done over the previous decade in terms of growth, value creation, especially. But it feels like the company is at a little bit of an inflection point coming out of COVID and figuring out what we do in the next decade, and I think that's a fantastic opportunity to figure out and to hopefully create, you know, just as much value as was created in the past decade.
This company will be 50 years old in 2031, and it's a real honor to work with the team to figure out how we'll be just as thriving, just as relevant by 2031. And then on top of that, of course, a company with exceptional products. That's important to me. A company with an exceptional brand, which is right in my wheelhouse. Company that's a leader, you like to say, I think we're market leader in 11 out of 15 categories. Awesome. So just a lot to like. And the final thing I will say is, you know, what's also important to me is culture and especially sustainability.
I think in the tech world, Logitech absolutely is a leader and a pioneer when it comes to sustainability, whether it's CO2 reduction, circularity, or diversity and inclusion. I think the people of Logitech, the people of Switzerland, should be really proud of a company that has combined such fantastic value creation with a culture of sustainability and diversity.
It is an amazing culture, and I'm curious a little bit, and I'm sure many employees will be listening to this. Maybe you could talk a little bit about your leadership style and, you know, how you view... You know, what traits do you gravitate towards or emulate?
Yeah. A couple of things I'll say. You know, my, my style business happens on the ground. It doesn't happen actually here at the headquarters. It happens with the consumer, out in the markets, with the customer. So I intend to be out there quite a bit, not very hierarchical at all. The people who are closest to the consumer and the customer and to technology, in this case, they know best. So, I'll be spending a lot of time with those people who know best. And then the second thing I really believe is that every organization is perfectly designed to get the results it gets.
Wow!
which means Logitech today is perfectly designed to get the results it got last quarter. We will want to change those results a little bit.
Yeah. Do you plan on-
Yeah
-making org changes?
I think every self-respecting company needs to make org changes over time because our environment is just moving way too fast. So yeah, there will be changes, and they'll be good changes.
How do you interact with employees, customers, investors?
Mm-hmm.
I mean, what's your style?
I'm Dutch, right? So, not hierarchical.
Direct.
Pretty direct. What you see is what you get. So, you know, you'll correct me when I'm overly Dutch.
Or you'll correct me, maybe.
We shall see.
For sure.
Mm.
I'm American, but I'm also super direct, so you and I will get along well.
Mm-hmm.
So, you know, day five, and it's been great working with you the first five days, I'll say.
Mm-hmm.
It's just been fantastic. What are your goals for the first kind of three months or so on the job? I mean, I know it's hard to probably put it all together, given it's, you know, day five-
Yeah
... but, like, what do you think about the first kind of few months, the first quarter or so on the job?
Yeah, absolutely. Really three things. The first one is, of course, we have to deliver this fiscal, and deliver on the results, that we've promised ourselves, promised the market. So, getting pretty operationally involved, even in the last few days. So that's number one. Number two is onboarding, meeting as many people as I humanly can, consumers, customers, partners. You know, a fun one I met yesterday, day before yesterday, it's all a blur, Professor Martin Vetterli, the president of EPFL, really important partner, in the ecosystem. So that was fantastic. There will be many more, that I'll be meeting over the next couple of months. And then the third priority is really to, work the strategy for the next...
Decade is a long time, but at least for the next 3-5 years.
We'll get to strategy in a minute, but-
Yeah
This is primarily an investor call. And so the first thing I wanna talk about is our capital allocation model. What I've always said, and I'm just curious your thoughts.
Mm.
I've always said that the primary goal of our capital allocation model is to protect the dividend, grow the dividend every year. Number two, allocate capital to growing the company, M&A, CapEx, invest to grow, and then finally return the excess capital back to our shareholders via buybacks. And we've had a good track record. I'm curious, do you think there's a change there, or how do you think about the capital allocation model?
No, I really admire what you and your predecessors have done. I think it's an extremely disciplined capital allocation model, exactly the way you just laid it out. And so dividend first.
I like that term, the word disciplined. That, that's-
Yeah. I know.
Yeah.
It has been very, very disciplined. So dividend and a growing dividend first, then investing in the business, and M&A will be a part of that going forward as well, assuming we can find the right ones. And then third, what's left, returning cash to shareholders off that pristine balance sheet that you also have.
Yeah, and you have it now.
That we have.
So speaking of... That's really great to hear.
Yeah.
Speaking of strategy, I'm just curious, you know, your thoughts on updating. Will you update the strategy? Will you change it? What are your thoughts on strategy? I know it's super early.
Mm.
You've got to learn a lot, but just thoughts on strategy.
Yeah. We will, we will update it. But there's a number of things where I'm pretty clear won't change. So the discipline in capital allocation isn't going to change. The focus on product technology, innovation is critical. That investment in R&D is critical. How we do it, we may adjust over time, but that we need to do it and is central to Logitech, is critical. A focus on the consumer and building that amazing Logitech brand, which may well be our, our most valuable asset, actually, will be another focus. So, yeah, it, the strategy will evolve, but there are some things that I don't think will change.
Yeah. We're gonna have an analyst day. Nate and I are working on the timing, likely late spring-
Mm.
-where we'll bring investors together. We're penciling in New York. It's not firm yet, but it'd be a great chance to kind of have a more updated thought on next year and the longer-term plans, so that'll be exciting.
Yeah.
Okay, so Hanneke, day 5, I know it's super early, but any kind of initial first impressions, things that you thought were, you know, good or bad, or surprised you, or different? Or what are your thoughts after 5 whole days on the job?
Yeah, maybe 3 things. I really strong people, really strong product and technology here, 'cause I've spent my 5 days here. And you've seen it, you've seen it this morning. The fact that we're here, part of that EPFL ecosystem, really allows us to get the very, very best engineers. I had never heard of an anechoic chamber, but I've now been in one. You need to get there. But putting, you know, that really top, top, top global talent in engineering together, with the right tools, technologies, resources, R&D spend, that's actually probably even more impressive than I thought it would be. And the final thing I would say is I actually love the feeling, the small company ethos that is still here.
This is now a sizable company, but you can feel the small company ethos. It's pretty fast, it's pretty agile. You feel it when you're around the office, and that's great, great, great to see, 'cause big bureaucracy is our enemy.
Well, we're running short on time-
Mm.
So we'll end with gratitude. Thank you, Hanneke, for joining the company. We're just so happy to have you.
Thank you.
Thank you to all of you for joining us virtually or here in person.
Mm.
We look forward to updating all of you in our Q3 earnings call at the end of January or so. So with that, Nate, thank you. Thank you all, and we'll talk to everyone in a month or two.
Thank you.