I'm gonna start. Thank you everyone for joining Logitech's Q3 fiscal 2022 earnings call. This call includes 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 to GAAP results and information about our use of non-GAAP measures in our press release and in our SEC filings. These materials, as well as our prepared remarks and slides accompanying these, are all available on the IR page of our website.
We encourage you to review these materials carefully. Unless otherwise noted, 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'll turn the call over to Bracken.
Thank you so much, Nicole. I am excited about this quarter's strong performance and our ability to raise our full-year outlook on top of last year's exceptional revenue growth. We have a strong foundation heading into next fiscal year. We also continued to gain share in the majority of our categories this quarter, reinforcing that we've got an innovation engine that is really working well. The company's performance reflects the broad strength of our capabilities, especially that innovation engine, but also reflects our diverse portfolio and leading positions in growing markets. Our focus on operational execution continues to help us navigate the industry-wide supply chain challenges, and our investments in design and go-to-market are setting us up for the next chapters of growth in the coming years.
I've always said that picking good markets is a key to success, so I wanna speak just a moment about the market trends. We've always focused on identifying fast-growing categories where we can develop a leadership position, leveraging our set of powerful capabilities. Today, and over the last few years, Logitech has focused our design-centered innovation engine on some of the world's most exciting secular trends. Video everywhere, gaming as a social phenomenon, hybrid work, and the explosion of creators on all digital platforms. We are well-positioned with each of these macro trends to keep growing strongly as they grow and evolve over the next decade. I said up front, we have an innovation engine that's mature and continues to strengthen. Our design-led innovation capability is powerful, delivering diverse product offerings and a robust pipeline for the future. We've been methodical.
We've segmented our markets, we've understood customer needs, and we've reorganized our teams to create new products. More recently, we've increased our marketing efforts to drive preference for our brand. With this consistent approach, we've established leadership positions in most of our key categories, and as we have for years, continued to grow market share. Now, let me briefly step into those categories. In creativity and productivity, we had our biggest quarter ever, driven by another strong performance in mice and keyboards. Hybrid work is driving and even accelerating demand for these products. We're the market leaders in these categories, and we're innovating as a leader should, developing upgrade opportunities that offer more value and have higher price points, unlocking new dimensions of advantage that cater to today's consumers, like sustainability and lifestyle, and always staying ahead of what's happening in the category.
I'm so excited about the reception of our newest offerings, from the latest MX portfolio to the sexy POP Keys lineup. There's really something for everyone. Yet only a small percentage of people have the optimal workplace setup. Let me repeat that. Few people have the optimal products set at their desks. In fact, even our market penetration in our oldest category, mice, is still an opportunity. Imagine how many don't have ergonomic mice or keyboards, but actually need them. How many people don't have a cool keyboard and don't yet even know that POP Keys exists? How many of even those of you on this call don't yet have the amazing MX Master and MX Keys on your home desk and office, and probably would love it?
We continue to expand our product offerings to address underserved customer segments, like the recently announced M650 wireless mouse that has a left-handed mouse option. We continued our strong momentum in gaming, even after having exceptional revenue growth last year. We've been telling you that gaming is no longer a fringe hobby for a small group of customers for a long time. According to Newzoo, there are now 3 billion gamers worldwide, and whether you game for fun or competitively, our peripherals improve your experience. As the number of gamers grows, we see more and more opportunities for customer segmentation and product innovation to meet a broader set of market needs. Our gaming motto is that life is more fun when you play, and we believe this applies across the gaming community from pro to social gamers.
As one example of our continued innovation, our recently launched G435 gaming headset was certainly designed with competitive gamers in mind. It's also good for any gamer who just wants to connect with other players. It's extremely lightweight with an ultra-fast connection, and it's made of recycled plastic. In video collaboration, we're starting to see some increased activity in our office reopenings and hybrid work planning. Video collaboration sales improved this quarter, nearly equaling last year's high levels that were when sales more than tripled. We delivered 24% quarter-over-quarter growth. The conference cams grew double digits year-over-year. Video has become the de facto tool for replacing in-person meetings and audio-only conference calls. Smaller conference rooms are more vital than ever, but in fact, all meeting spaces will need video.
Our mission is to develop video collaboration tools that can make remote participants feel like they can participate equally or even better than those in the room. This year has been another year when operations has been tested for many companies globally. Our operations team continued their strong execution in the face of ongoing industry-wide supply chain challenges. As we mentioned last quarter, we continue to be impacted by higher logistics costs and prolonged delays and challenges with component availability. However, our active supply chain management, long-term supplier relationships, and our wholly owned production facility continue to help us remain competitive. With an eye on the future, it's really important for us that we continue our focus on sustainability at the heart of our business. We're very pleased that we were recognized for the second consecutive year for leadership on the Dow Jones Sustainability Europe Index, or DJSI.
We were ranked number 12 worldwide in the computer peripherals and office electronics industry for ESG. We're taking strong action, including going carbon neutral, which we achieved in 2021, and setting us on a direct path to be climate positive beyond 2030 by capturing more carbon than we create. We are carbon labeling our products with the amount of carbon created by their production, distribution, use, and end of life, the so-called Scopes 1, 2, and 3. We're including everything. In addition, we're moving to recycled plastics throughout our products, which are now in 65% of our mice and keyboard product lines. Now, let me turn the call over to Nate for further comments on our performance this quarter. Nate, good morning.
Hey, good morning, Bracken. Thank you. We delivered solid financial results in Q3 with record sales in key categories as we navigated a challenging supply chain environment. As Bracken mentioned, we gained share in the majority of our categories while investing for long-term growth. Our total company top line declined 2% in constant currency, with impressive double-digit growth in keyboards and combos, strong single-digit growth in pointing devices and gaming, and double-digit sequential growth in video collaboration. While I'm pleased with our top-line results and we had supply to fulfill most of the demand in the quarter, we had insufficient stock for some products, including keyboards and gaming wheels. Industry-wide supply availability, logistics disruptions, and cost increases negatively impacted our Q3 top-line growth by about 3-4 points and gross margins by approximately 2 percentage points.
Despite these headwinds, we are increasing our sales and profit outlook and now project to grow net sales for the full fiscal year. I'll cover our outlook in more detail later in the call. In our creativity and productivity categories, pointing devices grew 8% and keyboards and combos grew 29%, driven by continued demand from hybrid work trends. We also saw strong growth in our B2B channel and high-end MX product lines. Although webcam sales decreased by 12%, they are still triple where they were two years ago, and we grew market share by more than 10 points over the last three months. Q3 video collaboration sales declined 1% after growing more than 200% in Q3 last year, and quarter-over-quarter sales increased 24%.
Similar to the first half of the year, conference room cameras and systems led the category performance, growing double digits year-over-year. Gaming grew 8% off of our 73% growth last year, and with better supply in gaming wheels, the category would have grown double digits this quarter. It's been another excellent quarter for gaming, with strong growth and share gains primarily enabled by an innovative product lineup and solid marketing and execution. The tablet accessories category declined 37% in Q3. However, excluding Japan, where we had a large education order in the same period last year, tablet accessory sales grew 21%. Our tablet category is still more than double the size it was two years ago, and our strong product portfolio helped drive 5 points of share gain in the quarter.
Our music categories declined as expected in Q3, down 29%, including mobile speakers down 22%. We regularly review our portfolio and redirect resources to new opportunities, and along those lines, we've made the decision to cease future product launches under the Jaybird brand. We remain committed, however, to developing wireless audio products such as Logitech Zone Wireless and UE FITS. Q3 non-GAAP gross margin was 40.6%, down as anticipated from last year's elevated levels and remained within our target range. Higher freight costs reduced gross margin about 2 points year-over-year and quarter-over-quarter. We expect those headwinds to remain factors in Q4, and they are included in our profit outlook. Turning to expenses in the quarter, we executed our plan to strategically invest to grow our business over the long term. Our Q3 non-GAAP operating expenses increased 30% to $361 million.
The increase was largely driven by investment in marketing, sales coverage, and product development. Rounding out the P&L, our Q3 operating profit decreased 37% to $302 million, and operating margins were 18.5%, down about 10 points. Compared to two years ago, however, profits nearly doubled and margins are up 1.7 points. Q3 cash flow from operations was positive $377 million. We spent $116 million on share repurchases and ended the quarter with a cash balance of approximately $1.4 billion.
Our cash balance is flat with Q3 last year, even as we have returned $450 million to shareholders through dividends and share repurchases year-to-date, more than double the amount of the first three quarters last year. Our Q3 cash conversion cycle was 56 days, up from an exceptionally low 15 days last year. The primary driver of the change in our cash conversion cycle is higher inventory days impacted by industry-wide supply chain disruptions such as port delays, as well as demand forecast fluctuations for some of our products. We also continue to leverage our balance sheet to strategically purchase hard to find and long lead time components to assure supply availability and maintain competitive advantage.
Looking ahead, we are increasing our FY 2022 constant currency sales outlook to growth of 2%-5%, up from our prior outlook of flat sales growth in constant currency ±5%. We are also increasing our non-GAAP operating profit outlook to $850 million-$900 million, up from our prior outlook of $800 million-$850 million. With that, we can open the line for your questions.
The first question can come from Asiya from Citi. Asiya Merchant.
Hey, good morning, gentlemen and Nicole. Congratulations on a well-executed quarter. Some of the questions that we've heard from investors, you know, as you guys report these segments, and look across your portfolio, what gives you, like, some confidence about, you know, future years outlook and the fact that this wasn't just, you know, some ASP benefit that's benefiting, like for example, your creativity and productivity portfolio. Then I have a question on gross margins as well.
You know, at the end of the day, across all of our categories, you know, these are not new trends for us as we've talked about many times. We mentioned in the script again, you know, we've had, it's been very long-term growth. The secular trends underneath this are very, very strong. You know, I don't see any reason why any of these trends won't continue. You know, in mice and keyboards, you know, I said this in the opening of the call, it just continues to blow my mind that if I can guarantee you that if we took pictures of everybody's workspace on this call, and we didn't have to analyze them very carefully, we took a quick glance.
I'll bet there's maybe 20% of the people here have an optimal setup, and you follow us, so you know what we do. There's just opportunity across the board, Asiya.
Okay. On gross margins, Nate, you talked about the impact of higher freight costs that were impacting the second half margins. Are we to assume that 2% impact continues in the fourth quarter? When do you see any light at the end of the tunnel for these higher freight costs?
Yeah, I mean, yes. I think in Q4, I expect similar supply cost challenges, supply chain cost challenges. In terms of the timing of when those will release, it's a great question. You know, I think there's really two elements to this, Asiya. There's predictability, and there's also cost. The predictability of supply chain, really industry-wide has not been to normal levels. You're getting more delays as things come in, both on ocean and on air. That lower predictability is causing us to use more air freight, more expedited supply measure channels to try to improve the predictability, right? To make sure that things are in stock. You can see that demand has remained pretty resilient in a lot of these categories.
We've increased the use of air freight to try to overcome some of those predictability challenges that we see on the ocean. That's one reason why the costs are higher and why I think they'll remain higher in Q4. The other reason, of course, is industry-wide, just the rates being higher. They're up 3x-4 x year-over-year, both on ocean and air. You know, I think that we could see some relief on both predictability and cost in our next fiscal year, but probably not till the back half. We'll keep a close eye on that and update you as we go. I don't see any short-term release on those pressures. We're operating under that assumption that these are, you know, gonna be with us for a few quarters still.
Okay. Will that be offset? I mean, I think, you know, there were the supply chains, and then you guys were banking on your media spend that benefited you in fiscal 2021. Is the delta there just incremental media spend on a year-on-year basis?
You're talking about year-over-year gross margins?
Yes.
Yeah. The two biggest factors year-over-year would be the return to some level of promotion. We're still not back to levels that we were two years ago, but some increase in promotion as we've been talking about doing and then also the higher logistics costs. Those would be the two biggest drivers year-over-year.
Okay. Thank you.
Uh-huh.
Thanks, Asiya.
Thank you. The next question comes from Alex Duval.
Hey, Alex.
Yes, hi, everyone. Thank you so much for the question. Firstly, just wanted to clarify, some investors have been asking, obviously, you beat a consensus today by around $70 million on EBIT, but then implicitly, you've only upgraded your full year guide by around $50 million. People just wanting to understand, is that just prudence, given some of these moving parts you've just been talking about, or is there any sort of change in fundamentals? And then secondly, a more philosophical question. Obviously, we're in this period of very hard year-on-year comps, but as we start to move forward a few quarters, those comps will ease very materially, and we'll start to see comps in the single digits.
You've obviously articulated a model of 8%-10% constant FX growth in the longer term. Should we be expecting you to hit those kind of growth rates at that point in time? How should we be thinking about that transition as you get out of this period of very challenging comps? Nate, thanks.
Let me jump in on the second one, and then I'll hand the first one back to you, Nate.
Okay.
You know, on the second question, which is a good one, I invite you very cordially, all of you, to our Analyst & Investor Day. That's coming up on March 3rd and we'll be talking about exactly that topic. We'll be thrilled to have you there. Nate, you wanna talk a little bit about why we set the guidance where we did and kind of our general feeling about it?
Yeah, it's a good catch there, Alex. I mean, I think sequentially, if I look at the guidance, really the top line sort of indicates at the high end something a little bit better than typical seasonality. At the low end, something a little bit worse than typical seasonality. From a profit standpoint, as I just mentioned to Asiya's question, I think similar headwinds on gross margin pressure. I think currency could be a little bit more of a headwind sequentially than what we had here, you know, with interest rate volatility and of course, the volatility in the market overall right now. I think there's some potential for incremental cost pressure impacting margins.
Of course, as you get down to the lower end on the revenue guide, you've got some additional unfavorable operating leverage in the model as well, and so took that into account. You know, I just think we're in a period right now, you know, our business, like most, operates its best in a really predictable environment. We can get our supply chain in a predictable state. We can have great matching of supply and demand. I just don't think we're quite there yet across the industry and across all the markets. It's really encouraging to see some of the categories continuing to grow despite the tough comps. So feel great about that. You know, I think the underlying demand trends over the long term look really solid.
Nate, thanks. That's very helpful.
Thank you, Alex.
The next question comes from Loop Capital, Ananda.
Hey, Ananda.
Hey, yeah. Thanks, Nicole. Yeah, good morning, guys, and Happy New Year. Bracken, to your point, you guys look great. You look super crisp, and I'm doing this on an iPad, and I get to compare and contrast 'cause I'm staring at me and I'm staring at you, and I think I need to go out and get a new webcam.
Oh, actually you might need the new Litra Glow light that we just launched.
Oh, is that what you do? Like right behind you guys have this pro lighting situation going on.
No, no. It looks like a webcam, but it's a light. We just launched it, so it's available.
I'm actually gonna take a look at this.
For real. Yeah.
Thanks for the heads up on that. Yeah. A couple things if I could. With the strong revenue performance this quarter, you know, anything, any structural context that might be useful for us or interesting for us to be aware of? I guess I'll just start there and have a couple quick follow-ups.
I'll jump in on that, and then you can add anything you'd like. I think the most important structural comment I'd make is, you know, it's this is playing out about the way we thought it would. You know, we're really excited that at the end of the day, the growth in number of workspaces, the need for conference rooms with video, the incredible long-term growth of gaming and the equally or maybe more incredible long-term growth of streaming and creating, those structural secular trend moves are happening. They're, you know, as we go through the pandemic, they've continued to happen. Wherever you think we are in the pandemic now that you think that. It's exciting. I think it just validates our long-term thesis that these are great long-term trends to ride.
By the way, we're not gonna stop there. We're gonna keep launching new categories and getting behind other new trends over time.
That was actually one of my follow-ups. Maybe we'll just go there. Are there new categories that you guys, you know, are getting excited about, you know, or maybe already excited about?
Yeah, there are. I mean, I think, you know, just as an example. We're always working on new categories. You know, we, I mean, this concept of Cs, which we haven't talked about in the last few quarters because there's been so much demand in our existing products. You know, we're always working on them. You know, a lot of them don't make it out the door, and some make it out the door in a very quiet way, and we quietly pack them back away. So when one gets some publicity, it means we're really excited about them. I mentioned the Litra Glow lights as an example. I mean, I think being in the lighting business makes a lot of sense for us. This one, for example, is a super easy product to use. I'm excited about some new categories that'll be coming over time for sure.
Okay, awesome. I guess just last one for me, I'll save the floor. Are you seeing any, you know, legitimate impact yet from new competitors in any of the-
We've had new competitors in serially or continuously, you know, as long as I've been here. You know, I think in the webcam category, we had a lot of new competitors, and a lot of them have kind of, you know, kind of receded back out again, or at least they've reduced their efforts there. Others will stay. You know, Nate always says the same thing that I've always felt, which is, you know, great competition comes with great markets, and, you know, we're in great markets. I would say it really suggests we've picked the right places and we love our innovation engine. We've built a commercial engine now where we can deliver to both enterprises and consumers. We're super optimistic about for the future, and we feel we're very competitive.
You know, I'm probably gonna miss one, but off the top of my head, I think specifically of, you know, Microsoft and HP, and those are deep pocket folks, and they're new for them, so they're probably not quite as committed as you guys are. You know, it's a new category for those guys in a strategic sense. They do have, you know, deep pockets and so I think of those guys. I mean, Bracken, is that to say, like, you guys don't seem like you're really seeing material impact yet? Not necessarily the business, but like not really seeing them in the marketplace kind of structurally in the way that, you know, in the way that you guys operate.
You know, I think the competitors you mentioned, I mean, the other competitors have been in the market and they're gonna be in the market and we know they're gonna keep investing and we expect it, and so we're gonna keep investing and to keep driving and keep growing. All I can say is we're growing market share across all our key categories, vast majority. I feel good about the innovation engine, and we've got good stuff coming.
Awesome. Thank you, guys.
Thank you, Ananda.
Thanks a lot.
Thank you. Next question is from JP Morgan, Paul Chung. Paul?
Hey, Paul.
Hey, Paul.
Hey, good morning, guys.
Morning.
You know, nice quarter. First up on VC, you know, you called out strong video camera systems. I mean, anything you wanna call out by region or, you know, particular vertical? You know, how have initial trends been in the kind of the first month of the year as you know, starting to see more people return to the office?
You know, I would say, in terms of, within the video conference segment, you know, webcams have declined, but boy, they've declined off an incredibly high base. They're really high. Conference cams are growing double-digit. That's a great story. You know, and I think that's even though I would say probably most people on this call would agree, we're only in the beginning of the big thaw of the office. You know, as it starts to warm up again in there, and people actually do start to go back, I think the implementation plans for video conferencing are gonna grow a lot more. So I think I feel really good about that. You wanna add anything, Nate?
Yeah, I mean, I think regionally, Americas was, you know, kinda the strongest of the three regions, although EMEA actually had a much better quarter this quarter than it did last quarter, Paul. I think we mentioned last quarter that EMEA was a little bit soft, and so we've seen some increased activity out there. Then from a product standpoint, as Bracken said, you know, I think it's impressive when you look even at something like web cameras. We're pretty much selling the same number of units as we did a year ago. Some of the mix is a little bit lower.
This is more on the PC side than in the business, but we're selling kind of the equivalent number of units as we were a year ago, which is great because that means the install base is growing and, you know, creates this future opportunity there. So there's still a lot of interest in webcam, but last year it was such a hot category, and I think, you know, it's been a little bit more reasonable this year. But I also think that has good potential in the future. As offices reopen, I think we'll see more video at the desk, and I don't think we've quite seen that yet.
I would say, Nate, that we're good at driving mix within categories. We actually drove really good mix last year, but it wasn't us. It was the fact that we just couldn't make enough. We didn't have supply at the low end. I think.
Yeah.
Now that we've got, we're gonna have, you know, a period where the mix story will go the other way a little bit on webcams, but then we're set up to see what we can do with the category after that.
Gotcha. On competition, you know, given your cash and ability to find inventory, are you seeing some market share in that respect in VC, and I guess across other segments as well?
We
We gained share. Oh, go ahead, Bracken.
Yeah, I was gonna say, we continue to gain share in VC. I think having a great balance sheet is an advantage. We'll continue to try to make sure that we're well-positioned with components going forward. We still have, you know, we're not immune to what's happening out there, so we still have some component shortages. But I think generally speaking, we've got a much improved state now. I hope it stays that way.
Yeah. It's hard to know, Paul. I mean, we'll listen, as you will, to what our competitors say about their supply. I mean, the market share indicates that we did pretty well. You know, as I mentioned, there were some categories where we just didn't have enough supply. Gaming wheels has been a challenge for us to get back to the levels that we wanna be from a stock standpoint. I actually think we'll probably lose a little bit of share there just based on availability, kinda like what happened a year ago with web cameras, and then I think we can recover that share with better supply. But we'll listen to what others have to say. I think also, you know, several of the market trends are really playing to our favor.
Some strength in kind of the higher... If I look at gaming, there's been some strength in the higher price bands, which is, you know, a sweet spot for us. It's been a little bit weaker in the entry price bands where we also play a lot, but, you know, the market trend is towards wireless and where we're strong. I think that's been beneficial from a market share standpoint.
Thanks. Last question is, you know, the pace of OpEx is on track to be, you know, up pretty strong this year, you know, against a big step-up last year. As we think about the out years, should we assume kind of the pace of OpEx slows, or is it more kind of think about it in terms of, you know, percentage of sales in that 25%-26% range? Thanks.
Yeah, I mean, I think we won't be increasing OpEx same growth rates this year unless revenue grows at those rates. I think, you know, we'll probably see more alignment between revenue and OpEx in the future, Paul. This was really a year we had to catch up on some investments last year with 74% revenue growth, just far ahead of what our ability was to really invest wisely into the business. Taking the opportunity this year to do that, to set ourselves up, which we think for some good long-term growth opportunities. I would say out into the future, you're gonna see OpEx much more, you know, at a rate much closer to what you would expect relative to revenue.
Great. Thanks, guys.
Thank you. Thanks, Paul.
Thanks, Paul. Next question is from UBS. Joern, are you on the call?
Hi, Joern.
Yes. Hi.
Hi.
Good morning, Bracken. Good morning, Nate. Thanks for taking my questions. The first one would be, Bracken, on the statement you made at the beginning of the call that Logitech reorganized teams to drive innovation market prospects. What exactly was reorganized recently?
Well, we're constantly returning. You know, for example, in our C&P business, we reorganized a few years ago, actually, around a different segmentation approach, and I think that's been super effective. It's unlocked some openings for us, for example, in ergonomics and general lifestyle categories. I think we would partly attribute POP Keys and POP Mouse, you know, these new kind of lifestyle mice that include, they're mechanical, but they're beautiful and fun, really focused on Gen Z. We partly, you know, that's partly because the way we've organized now. We're not gonna stop. You know, continuing to stay really close to the customer and organize around that has been one of our, I'd say, strengths.
We've probably got two of our businesses right now that are gonna reorganize again as we go into the next year. We see opportunities. This is a very fluid market, lots of customer, you know, consumer insight and customer insight on the business side.
Right. Understand. Thanks. The next question would be, please, on your capacity planning, I mean with your production site in China and also with your third-party suppliers, I mean, what are your plans in terms of capacity expansion for the next one or two years? What are you reserving here to your suppliers? What are you doing in your own production site?
Yeah. Let me jump into that, Nate.
Yeah.
It's a little bit of a hard question to answer. We have lots of different production sites, and then we have lots of different component suppliers, of course, like everybody. The main focus we've had in our supply chain is really been location. We've tried to distribute our manufacturing into new places. We've moved. We have more production than ever in China, but we have a lot more production than ever out of China. We have production in Southeast Asia and multiple countries now. We really set that up for a couple of reasons. One was during the tariff period, but then we decided to really continue to ramp that up because we wanna make sure we're well positioned for whatever can happen down the road.
In terms of production planning, you know, the expansion of our ability to produce ourselves or in other people's factories has always been a strength for us. We've been able to ramp up and ramp down pretty quickly and move things in and out of our own factories. We're gonna keep that capability.
Mm-hmm. Thanks. The last question, please, on R&D spend. Can you give us some more clarity how much of the R&D is going proportionally in the existing segments Logi has, and how much of the R&D is going into new categories? Like do you have a rough idea?
Yeah. I well, I would say the vast majority goes to our existing businesses. You know, we've got big, strong, vibrant opportunities in all four of those kind of large secular trend areas. The super vast majority goes into that. We have a seed program where we're always investing in small teams to really create pilot programs against new categories. That's ongoing all the time. Super exciting. Always fun. I've got a couple of products on my desk from that. You know, Litra Glow came out of that. Sometimes it results in M&A, you know, where we figure out we learn enough about a category that we feel confident that we wanna be in it, and then we go out and look.
Sometimes it's organic, like, you know, our UE FITS. If you haven't seen that product, it's really amazing. You know, automatically fits and it auto-customizes to your ear in 59 seconds. I don't know if we've ever talked about that on this call, but it's a pretty amazing product, and it's in market now in a small way, selling direct to consumer as we continue to learn how to bring that thing to market. Yeah, we've always got products out there. We really measure our investment against the timeframe when it might come out. We try to fail early, fail fast, and in a small way so we can keep pivoting and understanding the customer need better until we get them right and then launch them like Litra Glow.
All right. Thank you very much.
Thank you.
Thanks.
Thanks, Joern.
Thank you. The next question comes from Erik Woodring from Morgan Stanley, please.
Hi, Erik.
Hey, Erik.
You guys, good morning.
Good to see you.
Congrats on your quarter here. Yeah. Here, sorry about that. Let me get my Logitech camera up and running. Maybe this is just a high level question, but, you know, we've seen a handful of companies that I think the market perhaps would have considered to be COVID beneficiaries, you know, see some challenges in the near term. Obviously, you're bucking that trend. You know, would just love your high level thoughts on why you think that is. Why Logitech has been able to do that relative to other, you know, preeminent companies, let's call it. I will follow up.
You know, without knowing exactly which companies you're referring to, I think our belief, you know, and I think it's turned out to be true. Our belief was that what COVID really did wasn't to drive a one-time surprise in our categories, but was to accelerate what was already happening. The cool thing about that is, you know, you know, let's just take our PC peripherals categories. You know, if you have more workspaces, especially workspaces that have more dimensions of mattering to you. Now, what does that mean?
Like, you know, when you have a product in the office and you have a mouse and a keyboard, you know, it looks like everybody else's mouse and keyboard, so you might not care as much as at home, where suddenly you have a mouse and a keyboard, and it's actually part of your home decor. I don't know about you, but believe it or not, I didn't even have a home office that had a permanent PC on it or Mac on it before. Now I do, and a lot of people do. Now, the interesting thing is that that's just an increase in the installed base because I've still got something in the office. On top of that, what I got for the home, and even me, was I scrambled.
You know, I got what was available nearby as I was walking out the door on March 6th or 7th or whenever it was. I think there are a lot of us out there like that. Then to take it to people who both work in this business, most people don't even know what's out there. The opportunity to continue to upgrade them is significant. I just think the biggest difference between us and most businesses is it's a gift that keeps on giving. You know, once you have it, you can upgrade it, and the experience really is better. We're focused on upgrading people over time. There's more spaces, and there's a constant opportunity for upgrading, especially as we keep innovating.
Yeah.
Awesome. Sorry, go ahead, Nate.
I mean, I think the way to maybe think about that too is just existing trends that got stronger versus some new trend that got created that maybe I wouldn't call it a fad, but you know, it might have just been more short-lived. I think in cases where something new has been created, it's sticky, right? We've been doing this now for two years. People's way of working has changed, their ways of learning have changed, their ways of communicating have changed. We've kind of gotten up the adoption curve on a number of trends that were already thinking a lot about, like, video.
You know, that was a trend before, but it's gotten a lot stronger, and we've gotten up the adoption curve where a lot more people have gotten comfortable with it, and they actually prefer it. I think, you know, that's what's perhaps different in many of our categories or really in all our categories, I think, is that they were existing trends before that had good growth, heuristics and all of those, I think have gotten stronger.
Okay. That's a truly helpful color. Maybe as a follow-up, this is more of a near-term comment, just be curious on your, you know, your general ability to procure supply in the December quarter, whether that, you know, surprised to the relative expectations. Really trying to get at, obviously it was amazing quarter, kind of what do you think led to that outperformance relative to perhaps prior expectations? Was that supply driven or was that something else?
Well, it was a strong quarter, I think actually we continue to be a little frustrated we couldn't get better supply. You know, as Nate said, we had some areas where we really just couldn't get as much as we needed from a component standpoint, and logistics continue to be a challenge. Actually it could have been even a little stronger. You want to add anything to that, Nate?
I mean, I think it was actually kind of as expected in a lot of ways.
Yeah.
I mean, you know, we went into the quarter knowing that we would be tight in some areas and, you know, it was really. I think we recovered well. We recovered kind of late in some places, too. The linearity in Europe, for example, was pretty back-end loaded, but I think we got there on time to be on shelf for most of it. That was a place where we probably had some more revenue if we could have supplied it.
Okay, super. Just last one, just channel inventory levels. I know you guys have commented on that in the past, just maybe relative to the end of the September quarter, where do you think there might be opportunities for channel fill? That's it for me. Thanks, guys.
I think the channel is in good shape, and I think we're light in some areas, but in general, I think our availability metrics have improved a lot. There's always places where we can do better. I think the channel is in a good, healthy place, and you know, we go into Q4. Again, it really matters down at the SKU level, Erik , and you know, where the demand is and where our supply is, not only in terms of products, but also by country and by region. You know, we're gonna do our best in Q4 to try to fill that, but I was happy with the strength of the demand in the categories.
Awesome. Thanks, guys.
Thank you, Eric.
The next question from Stifel, Jürgen Wagner.
Hi, Jürgen.
Hi. Thanks for letting me on. When I look at what your gaming competitors in the U.S. reported recently, you must have gained a lot of share or are still gaining. How should we model revenue growth based on that higher market share in gaming? You talked a lot about supply demand for you on your supply side, but also in your end markets. I mean, you said March still difficult, but further down calendar 2022, how would you see supply demand trending? Thank you.
If you like, let me answer first and then I'll follow through with you.
Okay.
Yeah. I think in the gaming business, we did gain share. We've been gaining share. We love our innovation engine, love our team in that business. You know, without getting into your modeling, I would just say, you know, we're excited about what we're doing. I mean, I think we feel like we've got a group of people and a team that's really working well, and we continue to see opportunities that are actually broadening the definition of gaming today. You know, I had an interview with Jon Fortt, who's a CNBC reporter and anchor, and he opened the call and really with a lot of insight. I think he said, "You know, my kids are now.
When I was growing up, I would sit and listen to music with my friends and talk." He said, "Now my kids are getting on playing games, putting the headphones on and talking to their friends." I think that's a really big difference from where even we started in gaming. We saw it as kind of social, but only among a narrow gamer set. Now it's broader. That broadening is a reflection of the market itself growing and expanding horizontally. That opens more and more categories, more and more different kinds of products for those people. Like that G435 headset I talked about that's light and colorful, beautiful, and you can wear it, you know, and it doesn't, you know. It looks like part of what you'd want to wear if you're a 17-year-old girl instead of the stereotype of a boy in a basement playing games.
Hey, Jürgen. I'd also add on share, you know, I don't want to overstate, you know, our focus on share. We want to get that share the right way, as Bracken said, with innovation, with marketing investment to drive awareness and preference for our brand. You know, I usually look at share over three-month trends rather than one month. As an example, you know, I think we lost some share in gaming, frankly, during the holiday season in probably December or a bit in November because we weren't as price competitive as some others. I think that was the right decision. You know, we want to manage these businesses for the longer term.
Over the three-month trend, again, we were gaining some share, but I can see in November and probably December that we lost some share maybe in the U.S. where we weren't as aggressive. You know, we're being very thoughtful about that as well. I think it's important to keep that in mind. Just as an example, you know, you're asking about gaming. I'll give you an example in traditional mice and keyboards, because Bracken mentioned the MX series. You know, those products, both the MX Keys and the MX Master 3 have 4.7 stars on Amazon, over 10,000 reviews each. 86% five-star reviews on both of those products, which is exceptionally high. Those are just an example. We really have examples like that in tablet accessories. We have examples like that in gaming.
It starts with having great innovation, great products. Obviously, we're investing more in the marketing capability to drive the awareness for those products because, you know, as I mentioned or as Bracken mentioned on this call, we still have a lot of opportunity with just increasing the awareness of how nice these products are and what a great experience it is. It starts with having the great products, and I think we're, you know, done a very good job of doing that, but we have a lot more to do to drive the awareness, and I think, you know, that's a big focus.
The supply chain?
Sorry?
The supply chain. How do you see-
Sorry, can you restate the question on that?
Yeah, we didn't quite get that.
Yeah, I mean, how do you see supply demand for your product shaping? You said we were still in short supply for-
Yeah.
Some of our mice and keyboards, but.
Mostly on keyboards, and also on gaming wheels were probably the biggest sore spots. I think a bit on mice maybe as well. You know, I think we did see good strength in the B2B channel, even though I think by and large, offices have not sort of reopened to capacity. I mean, I'm looking at your office there.
Mm-hmm.
It's probably been fuller at other times. So I think we've seen some pickup in demand on B2B, and that's put some pressure on certain products. You know, I think these are. We're still really kinda thinking about most of these headwinds as sort of being with us for a while. We're taking steps to try to secure supply for some of those things that have been tough to find, you know, using the balance sheet there, and battling through it. I don't know, Bracken, can you add anything on the supply situation?
No, I think, you know, look, we've still got tight spots, you know, on component availability, you know, and semiconductors in particular and
Right.
They're probably gonna stay with us for a while. We've decided we gotta live with that, and we're gonna do the best we can to work around it as we've done in the past. As we go into next year, I think that's we can expect that for a while.
Yeah. I think I'll come back to Jürgen 's question on that too, about R&D. You know, one of the things that we have been investing in R&D on is second sourcing.
Absolutely.
I think as Bracken laid out strategically how we think about where we want to invest in R&D, this year, we have invested more of our R&D spend into existing products and ensuring supply by second sourcing. I think positively, as availability improves in the industry on some of the semiconductors, we'll probably see an increase in our R&D productivity, just because we will be able to shift more resources towards new innovation rather than second sourcing.
Okay. Good. Thank you.
Thank you, Jürgen. Hope that office fills up soon.
Yeah, we'll see. Not soon, I guess.
Just a friendly reminder, send me a chat or raise your hand if you would like to ask a question. The next question comes from Serge at Credit Suisse, please.
Hi, Serge.
Yes. Good morning, everybody. Good morning, Nicole.
Mm.
Good morning, gentlemen. Well, I would have first a VC question. You mentioned that you have seen the less webcams, less headset sales in VC, but more room solution. Is this the start of the transition to the enterprise channel, or is it only that you have very limited in supply for more the consumer-oriented products in VC? Probably you can update here also on direct sales, on supply chain companies, where you are moving currently, and especially when I'm on the webcam, I see still some products are lagging, available 2022 or available soon, like the Logi Dock or other products. If you could give us more flavor here.
Let me start, Nate, you can finish.
Yeah.
You know, I think I wouldn't interpret the mix of sales, you know, the stronger sales in conference cams and the lower sales in webcams as anything more than they're both really strong. You know, the conference rooms, you know, I think we're seeing the early days of the thaw of the office. As I mentioned earlier, I think we're seeing the early days of the thaw of the office. You know, where people are starting to rethink their footprints and how many offices need, how many meeting rooms do you need? How much video do you need? Which we think is gonna be everywhere over time. Then, you know, even people restructuring offices. I think there'll be people closing offices and opening other ones. There's gonna be a lot of turmoil.
I think we're seeing the early days of that thaw, and that has a lot of video conference room enablement in it ahead of us, and we're super excited about that. You're starting to see that, you know, double-digit growth. On the other hand, on the webcam side, remember, while it's down versus a year ago, it's way, way up versus 2020. Those are pretty heady numbers, as Nate said. They're actually flat in units, so it's actually not down at all. I would say they both look pretty strong for the years, you know, years ahead in terms of the number of people really using video. I mean, this is just the future we're in. Nate, you wanna take the rest of that question?
Well, now I can't remember the rest of the question, Serge.
Yeah, what were you leading with? Yeah.
Well, on the enterprise channel. Yeah. Can you clarify again? [crosstalk]
Yeah, how are we doing in terms of the enablement of our sales force?
Yeah.
Procurement companies, in addition.
Yeah.
I mean, we're continuing to build out the enterprise sales capability, direct sales, inside sales, you know. Also, I think the cross-selling across the portfolio is another big area of focus for us. I think we're still kinda early days on some of these things, but we're starting to see, you know, better coverage, better pipeline metrics forming, you know, those types of things. I just think on Bracken's point, it's interesting on the webcams. You know, a year ago, we had quarters with 400%, 500% growth on webcams within VC.
Mm.
Huge. So, I think, again, I'll just make the point. I think video at the desk in the office is something that didn't really exist a lot pre-pandemic, and I think will exist in the future. Not, I'm not gonna say post-pandemic, but just in the future as people come back into the office, I think you'll have more video there. I don't think we've really seen all of that take off yet. Don't know when that'll happen, Serge. I think that it's a good opportunity for us in FY 2023 and 2024. But, you know, video everywhere, in the office and at home, good trend. Yeah, I don't really know that I have much more to add for you on the coverage. It's still. We're still making investments in it. You know, that's really a global investment. I don't know. Bracken, anything you'd add to that?
We've come a long way. You know, we're a different company than we were three years ago. We've really expanded our coverage directly into the largest enterprises. We still have a ways to go to where we feel like we're operating at 100%, but I feel very, very good about the trend line. We're on our way.
Yeah.
Okay. Probably in addition, I have noticed that you have launched Logitech Select. This is your service contracts one years and two years. Can you give us what's the success so far? Did you already sign the contract with the customers or-
Oh, yes.
What is happening there? What is incremental going forward? Give us some-
If we gave you growth.
Some numbers.
If we gave you growth rates quarter-over-quarter, you'd just be so excited, but they're on a very, very small base.
Of course.
It's nothing to see.
What does this mean for Logitech going forward?
No, I think it's very exciting. You know, it's part of a long-term game plan we have, which is, first of all, we wanna make sure that our users have everything they need. In that case, it's the customers in the office. You know, we think we can bring extra services to them that they aren't getting now when they buy our products, and then extend those services out over time. So the famous recurring revenue for us and a better experience for them. We're excited about it. It's early days. You know, I don't wanna overstate it where it is now, but I'm optimistic for the future. I think it's gonna be exciting. We'll talk more about that at Analyst & Investor Day, I have a feeling, in March.
I invite you, Serge, to come and hear more.
Happy to join, Bracken.
Yeah.
Probably last one. I had the impression that the promotional activities were quite low in the Christmas quarter, also because of availability, the peers didn't have enough products in the channel, so they were not even in a position to make any promos. What do you expect now going into January to March quarter? Because this is a typical promotional quarter, especially with all the vouchers and cash the kids get from Christmas, and then it's really the fight. Do you see more promotional activities now in the current quarter? What does this mean quarter-over-quarter?
You wanna take that one, or I mean.
Yeah. You know, I think Q3 promotional levels were kinda similar to Q2. You really have to go in and look by category. I think in gaming, we definitely did see some increased promotion from competitors during the holiday, but that's not atypical. I'm not sure what we've seen yet in January, Serge, but,
Yeah.
You know, for us, at the company level, it was not really a change Q2 to Q3. There wasn't really a margin impact from promotions changing at all there. Again, I think our strategy for the last few years, and continues to be, let's try to rely less on promotion to drive the top line, to drive the business, and let's invest in marketing and drive the awareness. I think that's a healthier way to grow over the long term. Both in the short term and the long term, that's our strategy.
Okay. Last one, thanks though . Microsoft wants to acquire Activision Blizzard. What does this mean for Logitech? As you have, for example, a Call of Duty line in the mice and keyboards, I believe. But still, is it an opportunity for you or more a threat or, what is the reach or the first impression you have from this acquisition?
Oh. Well, I certainly wouldn't say it's a threat. You know, that's the gaming content business, and that gaming content business drives our business. So, you know, the better and stronger the innovation is in gaming, the more content created that people are attracted to, the bigger our business will be over the long term. So I think Microsoft and Activision Blizzard have already been two big leaders in that, and it's super exciting to see them, you know, potentially coming together. Whether they do or they don't, gaming is gonna keep growing with great content. It's inevitable.
Okay. Bon voyage. Go for it. Thank you so much.
Thank you. Thanks so much. Thanks, Serge.
Welcome.
The next question from ZKB, from Andreas Müller, please.
Yeah. Hey, Andreas.
Hi, Andreas. We were missing you. We were wondering when you were gonna come on.
Yes. Hello. Just let me turn the video on. I've got a couple of questions. Hi.
Great.
One is, you know, if you have any figures or any experience about this Climate Pledge Friendly selection people can choose in e-shops such as Amazon. I mean, is that really driving demand here? Can you share a bit here?
Yeah.
What you see?
Let's take them one at a time. I'll answer that one. The answer is no, we don't have any data right now that would say that we have, we're getting big sales out of our climate policies and practices, which I think really are leading edge and leading in the industry. We're doing it because we think it's the right thing to do. We believe that that's gonna be a brand builder and a business builder over time. You know, there is a growing, certainly among younger people, you know, kind of Gen Z and also the Gen Y, you know. There's just a general interest in understanding that we need to do something about the climate now.
We believe that it's not only the right thing to do, but it'll be the right thing to do for the business. I think that's gonna prove out over the next several years.
Further on, you have been able to pass on prices, I believe in the last, say, two quarters at least. If I remember right, I mean, that's also with the strategy. What do you expect going forward? Are the same kind of factors in place that you can still pass on price increases or would that be gone if, say, demand supply is more in line?
You know, I'll start with that, Nate, and then I'll hand it off to you. You know, I think the best way to increase prices is to lower promotion. Nate mentioned the promotion practices we've had the last several quarters, and we hope to continue those right through onward, and spend more of our time and investment in trying to drive demand the other way, which is to build our brand, which builds long-term expansion capability for the business more efficiently, I think. In terms of direct price increases or even decreases, you know, related to, you know, cost. You know, I think when there's a broad cost impact that hits the whole industry, you do eventually see price increases. That broad cost increase has only just begun.
Nate mentioned, and we've talked about in the last call, we've done some selective price increases now, and we'll keep an eye on that. You know, if inflation looks like it's here to stay, you know, we're pretty good at raising prices when we need to be. We have a history of doing that during inflationary periods or especially during currency changes in different parts of the world. I think we're prepared for that, and we're starting down that path. We'll see where it goes.
Maybe my last question is on Jaybird. How much revenue was that, say, in the last quarter, for example? And also, did you had some charges with ending this business, basically? Or would you see some charges going forward?
Yeah, I can take that one. Really the revenue was about $5 million a quarter, so it really was not material at all. In terms of the charges, we had some things that hit in cost of goods and also some things that hit in GAAP OpEx. In terms of cost of goods, we had about $8 million of component and other inventory write-offs related to products that we decided not to launch. That hit us this quarter, about $8 million in cost of goods. There's also about $8 million that hit down in OpEx, which is GAAP only for us this quarter, a little bit of restructuring, a little bit of contract cancellation, things like that.
Okay. Thank you very much.
Thank you, Eric.
The next question comes from D.A. Davidson, Tom Forte.
Hi, Tom.
Hi. Good morning, everyone. Thanks for letting me ask a couple questions here.
Yeah.
I have one product and one big picture question.
Okay.
Bracken, as you mentioned earlier, you recently introduced your POP Keys as part of your efforts to really capture a broader market. I was wondering what kind of traction are you getting there. Secondly, you know, with most headlines nowadays in gaming really revolving around this whole concept of the metaverse.
Yeah.
In some shape or form, is this a trend you'll be trying to capitalize on, perhaps on, you know, marketing materials or even some type of product introductions?
Yeah. POP Keys. Yeah, the traction's been good. I mean, I think people are super excited about that. We launched it first in China. It's done really well. I think as we're expanding that around the world, the reception's been very strong. It's not only the numbers are good, but also the anecdotes are good. You know, I always know when I have people reach out to me, especially people I don't even know, on a product that we've just announced and asking if they can get it's usually a very good sign, and that's a product we've had that. I'd also add Litra Glow. I brought it up a couple times on this call. It's the highest pre-orders we've ever had.
You know, after that one, I've had tons of people writing me about, so we'll see where we go with that. The metaverse is here, you know. I think it's gonna keep growing. You know, we've been working in the VR and AR space quietly for years, you know, for five years plus. It doesn't have to be VR and AR completely to be part of what most people are describing as the metaverse. The metaverse is gonna keep growing what we do online, what we do virtually. We're certainly gonna be in the middle of that action. We're very excited about it. I think it's a potential creator for us in every way.
Appreciate it. Thanks.
Products, marketing, everything.
Absolutely. Thanks.
Thanks, Tom.
The last question comes from Torsten at Kepler.
Torsten, hello.
Yes. Hello, everybody, and also congratulations from my side. Quite a nice surprise this morning. Now, just quickly, I see you want to close. You said that you want to, going forward, rely less on promotion, invest more in brand building, brand equity. Now, your DEFY LOGIC campaign has started, if I'm not mistaken, about a year ago. Has your marketing spend already led to any measurable improvements, say, on aided, unaided brand awareness, price perception, also relative positioning of your brands?
Yeah, we've KPIs we're measuring now, and so it's a little early for us to give too much insight into that. Yeah, probably if you ask us six months from now, we would give you a better answer. What we do have is a little more anecdotal, but somewhat data-driven and looks pretty promising. I mean, I would say our brand, the DEFY LOGIC campaign does seem to have a direct effect on brand awareness, especially among the younger consumer set, which we're really targeting. They're trying to bring them into the fold. We historically were under underdeveloped in kind of the sub-thirty group, and that looks like it really affects them dramatically, which is great in terms of awareness and possible positive view of the brand, which was our goal.
You know, it's not just the DEFY LOGIC campaign. We're spending a lot of marketing money on gaming. In the gaming business, we've our brand definitely has elevated significantly over the past few years. It looks like the ROI on that spending is very high and we're gonna keep investing there. Also the direct product category spending that we do. You know, whether it's digital, online, Internet spending, real kind of ongoing, almost like a sales engine activity that people call marketing, and it is marketing, it's classified as marketing. That is also, you know, very measurable with the return on ad spend ratios you may be familiar with, and we're seeing great pockets of investment there. Across the board, we see opportunity, and we're gonna keep monitoring, measuring it and making sure we're spending the right amount for what we're getting back.
Very clear. Thanks.
Thank you.
Thanks.
Thanks. That's the end of our questions. Thank you, everyone. Bracken, any final comments?
No, it's, you know, wonderful to be in 2022, and it feels like, you know, we really are probably at the beginning of the down slope of this pandemic. We just see so many opportunities ahead for Logitech and for the world. You know, it's like a really, I think it's gonna be an exciting time ahead as things start to thaw out. We're gonna be ready to innovate left, right, and center and grow right into all these long-term secular trends we've been part of. I think they're not gonna let up. Thanks so much. Thanks for all of you. Talk to you in a quarter.
Thank you.