Awesome. So, let's get started. Happy day four of the TMT Conference. My name is Erik Woodring. I lead the hardware coverage here at Morgan Stanley. Before I introduce our speaker, let me just read my disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So I'm very pleased to be joined this morning by Matteo Anversa, CFO of Logitech. First timer at the conference. Been to our Euro TMT Conference, but Matteo joined the company in September of last year. Came from the autos world. Has a kind of auto tech background. And so, thank you for joining us today.
Erik, thank you so much. It's great to be here. Again, thanks for also joining us yesterday at our Investor Day.
No, of course. Again, big week for you guys. Had your 2025 Analyst Day yesterday. Kind of honored that we can do like a post-mortem the day after. Thank you for that opportunity. Maybe to start at a very high level for those of you that weren't there and didn't get a chance to listen in, maybe let's just start very high level. Kind of the key messages that you and Hanneke kind of communicated yesterday. Quantitative, qualitative. We'll go from there.
Absolutely. So a couple of things I think that I would like to resonate out of the discussion yesterday. Number one is that we are a $4 billion-$4.5 billion company, and we are playing in spaces that are in total have an addressable market of about $24 billion.
Mm-hmm.
So really, we are super excited about the organic growth opportunity across all of our spaces that we play in. And when I look at the $24 billion, it's basically around $10 billion is the Logitech for Business or the B2B space. $6.5 billion is gaming, which for us is another great, great space where we play in, as you know, and the rest is the personal workspace, excluding the portion that goes into the enterprise channel. So number one, great opportunity to grow particularly organically. We can talk more during the session.
Mm-hmm.
The second aspect is we are a technology company. So for us, really continued focus on driving innovation. Innovation is at the core, is the heart of what the company really does. And in addition to that, not only we have a great position today in market leadership in the spaces where we play in, but in all the AI is a phenomenal tailwind for us. I hope it came across yesterday. And we see it in fundamentally in a couple of ways. Edge AI, so the artificial intelligence that we put in our products. Latest example in the video conferencing is Sight. This new AI-driven switch feature where if you are not in the room, and I am still splitting my time, half in Michigan with the family and half here in Silicon Valley. So I have several meetings with my team where I'm still stuck at home.
You're really feeling you're part of the team in the room. That's all AI-driven.
Mm-hmm.
It's almost having like a producer inside the room. Then we have agentic AI, where you know we really use and develop AI agents that can help you in gaming as you are playing a game, or competing with some of your gamers' competitors, or can help you create content, and then multimodality. So AI for us is a huge, huge tailwind. We have an operational powerhouse, and we continue to drive execution around cost control, and we can talk more about you know how we are dealing with the news of the days on Thursday later. I'm sure it's gonna come up.
Yes.
Overall, we're very proud of the plan that we outlined yesterday, which is an acceleration of our growth to 7%-10% on the top line. And an increase in profitability compared to what the original, the old plan was, to 15%-18% operating margin rate. We are a very disciplined, financially disciplined company. We like to have a strong, investor-grade balance sheet. And since we have a good $1.5 billion of cash in the balance sheet, that gives us the proper flexibility. But at the same time, allowed us yesterday to announce an accelerated share repurchase plan that we can talk more about. So.
Perfect.
I think these are the top three, four messages that hopefully resonated.
No, that's great.
At the Investor Day, yeah.
We'll get into each one of them. Kind of the way I'm gonna work it is chronologically. Let's kind of start with now, work into fiscal 2026, and then long term. You reiterated your fiscal 2025 guidance. It ends in, you know, 25 days. You know, just characterize first kind of the demand environment today and kind of if you could parse that between the consumer side and commercial.
Sure.
And how that translates then into how you're thinking about 2026.
Yes. So no, no big difference from what we discussed at the earnings call in January, at the end of our third fiscal quarter. We continue to see strong demand on the consumer side. So if I look at our business group, that would be fundamentally gaming, which remains very strong, and the personal workspace.
Mm-hmm.
On the enterprise side, I would say the waters are a little bit more choppy right now. Fundamentally, driven by, we think, by some of the uncertainties.
Mm-hmm.
That we are seeing in the market and in the macroeconomic environment, but overall, when you take everything into you add everything together, no difference from what we said at the earnings call, so we are confirming our outlook of growth about 6%-7% at constant currency for the year, and our OI of between $755 million and $770 million, so really things are progressing as I would say as we outlined and we were expecting.
Okay.
Earlier in the quarter.
Okay. And then turning to fiscal 2026, you guided to about 1% growth, revenue growth at the midpoint. You also guided to $750 million of operating income. You know, I know it was kind of a unique time for you guys to be able to guide, not necessarily a ton of visibility a year from now. But, you talked about kind of the prudence that you tried to embed. So can you maybe talk to us about, maybe how you approached the guide, some of the underlying factors that you contemplated or kind of embedded?
Sure.
As you thought about that guide.
The way we look at it is almost two different factors. One is what we can control.
Mm-hmm.
And then the external environment. So let me start with the first one. What we know is that, if I walk through the income statement line, right? So starting from the top line, we continue to see good demand as I mentioned earlier. And actually this pace even further accelerated during the current fiscal year. So that's good.
Mm-hmm.
It's a good tailwind as we enter 2026. We will continue to be extremely diligent on the promotional activities and pricing as we have done now for the past several quarters. We will continue to work on cost management and cost control on the supply chain side. You had a feeling yesterday. Sree presented an example of what we call the value engineering activities that we have always ongoing with our supply chain team. That really means taking cost out of the bill of material, so all this will continue, as well as the accelerated diversification of our manufacturing footprint, which will help us, you know, weather the storm of the tariffs that we will face in 2026, and then continued strong diligence on OpEx, right? And on OpEx, as you know, Erik, we are obviously prioritizing all the development, all the innovation.
But at the same time, we are really maniacal on how we drive efficiency on the G&A. So that's what we control.
Mm-hmm.
That's all factored in. Then, you know, we had to layer on top of it the reality that we are facing on the macroeconomic. And for us, it's a couple of things. It's the sticky inflation and how this may impact the sentiment both on the consumer and in the enterprise side. Then we have the volatility of the exchange rate. And for us, primarily is how the U.S. dollar behaves compared to the euro. That's the primary driver. Then we have obviously the unpredictability of tariffs. So when you layer all this together, right, this is how we came up with our framework and outlook for 2026 of growth 1%-5% in constant currency year -over -year on the top line. And this $720 million-$780 million range on the bottom line, which is a little larger.
Mm-hmm.
Than what we would normally do. But it really factors in all the broad range of all these variables that I just mentioned, that we had to factor in due to the macroeconomic condition. So all in all, we are very pleased that notwithstanding all these challenges that I just mentioned, we will still grow the business.
Mm-hmm.
And we'll still grow it profitably, right? So when you look at the range on the OI, we're still talking about a 16%-17% operating margin rate, which is pretty much in the middle of the 15%-18% range that we gave from the long term.
Right.
I think it's a testament to the resiliency of the business, of the model, and of our teams that tend to thrive under turbulent times.
Yep.
As we are facing today.
So, you mentioned the unpredictability of tariffs. I think you were maybe of all the companies that I covered, probably the most direct about how you're incorporating that into your guide. And so, again, for the benefit of those who weren't there yesterday and couldn't listen in, you know, just can you talk about how you are embedding that tariff impact into your fiscal 2026 outlook?
Absolutely, so first of all, I think I have to give immense credit to our supply chain team, Sree and Prakash, on how all the work they have done now since, you know, 2018 in diversifying the supply chain.
Mm-hmm.
That really puts us in an advantageous position today. If I go back in 2018, we were pretty much all of our products were produced in China. Today, we are much more diversified. We are in five, six different countries. This really, you know, allows us to weather the storm. Now, the in the outlook that we provided yesterday that I just mentioned right now, we factored in what we knew as of yesterday morning, which is 20% of tariffs on the U.S. imports for the product coming from China and 25% on the U.S. imports from Mexico.
Mm-hmm.
So this on an unmitigated basis, right? This would translate to about, call it, call it a 200 basis points gross margin negative impact. Now, obviously, we have all these actions, the diversification that I just mentioned, commercial actions that we are taking that will help us mitigate a good chunk of this pressure. That's why notwithstanding this assumption on the tariffs, we're still able to maintain the OI rate between 16% and 17%. But that's fundamentally the assumption. And we'll see, you know, what happens. We will have a quarterly earnings call, and we'll keep you apprised. And hopefully, if things get, you know, more clear, then we'll narrow the range.
Right.
As we progress through. But I think ultimately, we think that the outlook that we provided, while I understand is wider than what, maybe we would like under normal circumstances, is a prudent and, you know, understandable, you know, framework, considering that we are more than 14 months, you know, out.
Yeah.
From the end of the next year.
From the end of the year. Right. One, one kind of end market I wanted to quickly ask on before we spend some time on the, the long term is, is China. Because China was challenged for a period of time. Last quarter, it was very strong for you guys. It's a, it's a very heavy gaming market. Just talk about the sustainability of what's happening in China with you guys, and, and maybe underlying that. What is kind of market versus Logitech specific?
Sure. We are overall a big believer in China. China, particularly for the gaming market, is a huge market. Let me start with, you know, some information, some data. You're right. The third quarter was very good. APAC grew a double-digit. We don't break out, you know, China specifically, but China was the key contributor of the double-digit growth year -over -year of APAC in the third quarter. I have to rewind a little bit the tape to about September, exactly when I joined. We decided to address some of the challenges that we faced in the China market by creating a China for China team, which basically we redirected some of our engineering resources to focus specifically on China and focusing on launching products for China at China speed.
Mm-hmm.
And with the intent not only to continue to grow our business in China, particularly on the personal workspace and gaming, but also then to take these innovations and then move them later to the other part of the world.
Mm-hmm.
Right? And so it's a little early, I would say, to you know, call victory.
Mm-hmm.
But the initial results that we had, particularly the one that you just mentioned in the third quarter, are positive. We are launching new products, particularly on some of the lower end of the market. And gaming remains a key space. To the latter part of your question, in the third quarter, we saw not only growth from Logitech, but fundamentally the gaming business in China has also been growing very strongly. It's a form of entertainment, gaming, that is really taking a lot of footing in China. In a way, it's since the economy maybe is a bit bumpier than in the past, gaming is a relatively cheap.
Mm-hmm.
Form of entertainment. This is cheaper than going to the movie and to the restaurant.
Mm-hmm.
More and more people are becoming gamers in China. Our products are exactly the sweet spot of that.
Okay. Good. So let's shift to long-term commentary and dig into a handful of those moving pieces. You know, when I heard you guys yesterday, the message didn't deviate a ton in terms of what is driving this business. The one thing that I thought that was incremental was you kind of digging into Logitech for Business.
Yeah.
As an opportunity, not just for growth, but for share, but for TAM expansion. Can you just kind of talk through the opportunities that you're seeing on the business side of your business, and then where that TAM expansion kind of comes from on the business side?
Sure. We are super thrilled about the opportunity in B2B, in Logitech for Business. Couple of reasons. First, let me start with where we are playing today, which is primarily in the areas of people like you and me that work in the office. And so not only if you look at the history and I compare what Logitech for Business is today to what it used to be pre-COVID, the business almost doubled.
Mm-hmm.
Right? So we are seeing a very nice tailwind. And, it's all organic. And the market didn't grow that fast either. So, we continue to see more and more demand for our products. So that's a big positive. The market is still, if I look at the office space, severely untapped in a way because there are about 28 million conference rooms in the world, and less than around 25% of these conference rooms are video enabled. So that gives you already an indication on how much is the untapped opportunity for us.
And that this trend, particularly here in the United States, where several companies are calling employees back into the office, but it's still a, you know, three days in the office, two days at home, that means that all your video conference, your conference rooms need to be video enabled in order to allow the people that are at home.
Mm-hmm.
To participate in a productive way, as the example that I mentioned earlier, at the beginning. So that for us is a huge opportunity. And the way we are going after it is really being simpler, smarter, and more sustainable. So simpler, meaning the product needs to be simple to install, simple to use. And every time you get into a conference room, you don't need to have an IT person with you to get the thing activated. And it needs to be a product like ours that interfaces well with any of the key, you know, video conferencing system like Teams, Zoom, or Google Meet. So that's one.
The more using the AI actually really allows our conferencing to be more specific around the people that talk, like the Sight example that I mentioned earlier. And then sustainability is something that our customer demand.
Mm-hmm.
Three of our products are actually using recycled material.
Mm-hmm.
And that's a big deal, particularly on the enterprise side. So that's where we are currently playing. Then yesterday we indicated that about 1%-2% of our growth will come from entering in new adjacencies for us in the Logitech for Business area, which is healthcare, education, and the public sector. These are three key areas for us, fundamentally almost. I would say largely untapped.
Mm-hmm. Mm-hmm.
We have a little bit of presence in healthcare and education already, where our products have a proven relevance, but we're right now very small.
Mm-hmm.
And that for us is a big opportunity because these are all large, growing, profitable markets. If I look at healthcare and education, for example, they are growing in the mid-teens CAGRs, and so here we have to do a little bit of investment.
Mm-hmm.
In the next few years, fundamentally in expanding our sales force, which is more boots on the ground, modernizing some of the tools that we are using as we sell into these three channels, and then a bit of product development to adjust and adapt our products to these three verticals, but fundamentally, our products are already basically there, and we think we have a fantastic opportunity in these three spaces, so that's why we are so bullish around Logitech for Business, is the combination that what we can do in the market that we serve already today and the proven presence that we can even further accelerate in these three verticals.
Okay. Something that stood out to me, and we'll get into the quantitative side of this stuff as the CFO, but something that stood out to me on the long-term guide was, you know, video collab and gaming both growing 4%-6% annually, excluding any of the market expansion. What was interesting is that, you know, VC has been in a bit of like a demand ingestion period post-COVID. Gaming has been very strong for you guys. And it's maybe a two-part question, but one, what gets VC to accelerate from where it is today? And, and maybe how long do we think about that taking? Are we past.
Yeah.
Demand ingestion and expansion in that market?
So VC is basically what I mentioned earlier, primarily on the B2B side. How long will it take? You know, Erik, the framework that we provided yesterday, and this not only applies to VC, applies to the entire company.
Mm-hmm.
Is 7%-10%, right? And which is, you know, higher than what the old framework was.
Right.
We purposely stayed away from putting a, I'm gonna call it, an artificial timeline on when we're gonna see the 7%-10%. But fundamentally, what I can tell you is, number one, our outlook factors all the steps that we have to take, to get to this 7%-10%, both organic and inorganic.
Mm-hmm.
And then all the investments that and it's not much as I indicated earlier but that are required to get us there are all well underway. So while we stayed away to put in a artificial timeline everybody is marching towards that direction and that's our goal. So that applies not only to VC but also to the rest of the business.
Okay. If we shift to PWS, kind of two questions in one as well. You know, there is clearly confidence, and we heard it this week from the OEMs about a PC refresh building, although their commentary is that's commercial-driven, not consumer-driven. I know you have exposure to each side. It's a little more over-indexed to the consumer. So my first question is kind of what does the PC refresh mean for your, you know, core.
Right.
Keyboards, mice, and combos business? And are attach rates changing again as we get past, like, the COVID refresh period or into the COVID refresh period?
I wish I had a formula in finance person to give you. Unfortunately, I don't. So the only thing I can, and this is gonna sound a little wishy-washy, but the thing I can tell you is generally a wave of PC refresh is positive for us.
Mm-hmm.
Because you buy a new PC, and then people tend to buy a new peripheral.
Mm-hmm.
But I don't have a specific correlation to give you. So being the, you know, prudent finance person, we did not bake any, you know, massive tailwind coming from that in our outlook. You know, if the PC refresh, which we have been expecting now for quite some time, by the way, is, will happen, then it's gonna be for sure a positive. But I don't have a discrete formula to give you.
Okay. No, fair, fair. How about when we take that 7%-10% long-term guide, kind of normalized long-term guide, you know, if we were to kind of scenario and analyze that, what gets you to the low end of that? What gets you to the high end of that? How do we think about the various situations or factors that could, you know, 10% is different than 7%.
Exactly.
What gets me there versus 7%?
Okay. Perfect. Let me break down the pieces. The first block is 5%-6% of the range.
Mm-hmm.
Which is driven by two things, the market growth and market share gains.
Mm-hmm.
Our three business groups, the gaming, the B2B, VC and headsets, and the personal workspace all play in markets that are poised to grow into the mid to high single digits. That is a normal tailwind.
Mm-hmm.
That we will have, and it's a positive tailwind, then on top of that, we are expecting to gain one point of share in each of the business groups every year, and we do this through a couple of things: relentless focus on innovation across all our product lines. As I said earlier, we are maniacal on OpEx. If there is one area that we always fund, it is innovation.
Mm-hmm.
Two is building an iconic brand, and Hanneke has been talking about it for quite some time, which is really all our teams are very end-user-centric. We get the input from the end user. Think about gaming. Like, we develop some of the products with, in partnership with some of the top gamers or Formula One drivers, right?
Like you last night.
That's like you last night that I saw you. You couldn't get off the simulator. So that's in the DNA of the company. And then high ROI marketing as we've done in recent past. And then increasing the share of wallets in the geography that we play in. Then we have 1%-2% coming from the verticals that we just talked.
Mm-hmm.
The rest is M&A, and we can talk more on M&A. That's how we built the framework. That's how I see how I look at the range. Things can vary one way on one side to the other on the different components, but that's how we are thinking about it.
Okay. And then touching on the long-term operating and gross margin, so 40% + gross margins, 15%-18% operating margins, both kind of incrementally higher than the last guide. Has anything changed that gets you to a little bit higher, or is it just like, hey, you've been performing extremely well? You talk about cost downs and OpEx efficiency. That's how you get there.
I think it's the latter, so if I look at the, let's start with 2025, right? The outlook that we reconfirmed yesterday would indicate the gross margin rate, you know, is gonna close probably at the higher end of the 42%-43%, that we put out earlier in the year, as we said in the last earnings call, so we are starting with a natural good tailwind, and that's why we feel comfortable thanks to all the actions that we talked about and the work that Sri and the team have been doing on value engineering, supply chain diversification to say 40%+ on gross margin. And then on the OI rate, the continual focus on controlling OpEx.
Right.
And that will not change.
Okay, you mentioned M&A. Let's go to M&A. You know, your comment to me, it's not necessarily materially different. It's tuck-ins. It's bolt-ons. It's about one to two points of kind of growth. Where do you see these M&A opportunities? Is that adjacencies? Is that expanding kind of your core? And just high level, again, CFO, you know, what, how would you characterize kind of the deal environment today?
Now, look, we are very active.
Mm-hmm.
As I think I answered your question yesterday, you know, it's much easier to acquire a company than integrate it.
Mm-hmm.
So we are very, very diligent. The areas that we're looking at is fundamentally areas on work and play, which really fits our strategy. And we have a few overarching principles. So right now, we are not looking for a big transformational, you know, M&A action because we are very, very comfortable about the organic growth that we outlined yesterday. There will be tuck-in and bolt-ons in the area spaces of work and play that really can strengthen and further strengthen our product and allow us to enter into adjacent ones. And then being the finance person, it is important that the acquired targets are highly synergistic so they can quickly benefit from our operational strength, our global go-to-market, our brand. So these are the parameters that we are looking at, but we are very, very active. And stay tuned.
Good. Cool. You know, something we didn't necessarily talk a ton about yesterday that I think is fascinating, and you see it in the product demos that we did yesterday was a lot of software and services kind of embedded in the hardware. You talked about agentic AI. We saw kind of the gaming example yesterday. I know you get paid for that kind of by charging a premium on your products relative to some of your peers that compete on cost. Is there an opportunity at all to kind of directly monetize software and services at all? I know you do some services on the business side, but just talk about that opportunity as you see it.
To me, the big opportunity in service is on the B2B side.
Mm-hmm.
We have seen service growing nicely in the last, at least since I've been in the company, in the last couple of quarters. Big focus for us. Now, we are starting from a very small base. But, but that's a big, big opportunity that is part of the strategy that we are outlining and the growth that we are expecting on the B2B side that we talked yesterday.
Okay. Let's move to capital allocation. So, you know, company that has a lot of cash, no debt, good, good cash conversion, good cash generation. Yesterday you talked about kind of the four pillars of your capital allocation strategy. How do we think about the priorities that you guys have? And then maybe we'll get into some of the specifics there. But let's talk about priorities.
Sure.
If anything's changing really at all.
So number one, we invest in the organic growth of the business that our return on investment capital is greater than 25%. That's really money very well spent, as we have seen in the past. Number two is continue to increase the dividends.
Mm-hmm.
This is something that is important for us. It is important for our share owners. Number three is the M&A fit within the parameters that I mentioned earlier, and then the share repurchase, and yesterday we outlined a further acceleration on our share repurchase program, so we, you know, pointed out to the audience that we are on track to complete the $1 billion share repurchase program that we announced in the summer of 2023, a year ahead of time.
Mm-hmm.
This goes back to thanks fundamentally to the strong cash flow generation of the company, and we announced yesterday that we are targeting a further acceleration of the share buyback to $2 billion in three years, which is really the result of our confidence in the outlook, both the growth, accelerated growth, and accelerated profitability that we outlined yesterday during Investor Day, so that's the capital allocation strategy.
Okay.
It's as simple as that.
Great. So, we have just about a minute. What I'd love to do is give you the final word. And we talked about a lot, you know, fiscal 2025 ending strong, 2026 controlling what you can control amidst market volatility, kind of a stronger long-term outlook, cash flow generative, can return that capital to shareholders. I'm probably just giving you the answer that you're gonna give me.
Mm-hmm.
But I'd love to just what makes you so excited about the future? Obviously, you haven't been there at Logitech for more than a year, but you, you can hear it. It's palpable in your voice. What's exciting? And then maybe what's underappreciated from your perspective?
Sure. I see that the messages yesterday is, you know, I'm happy about that.
I was listening.
So, good. So, I have two things. So, first of all, I'm super thrilled to be part of the next chapter of Logitech. It's been great. I love the culture. I love it. You hopefully came across yesterday. We are a very energetic and, you know, we like the challenges, but we are also very humble and hungry.
Mm-hmm.
Culture. And I love that. I would say what excites me is the story, which is very simple. We are playing in key markets that are growing fast. We are in the sweet spot. We have a $24 billion serviceable addressable market, and we are 4 and a half today. Huge opportunity. We are very diligent on how we deploy the cash, extremely diligent on the balance sheet, and we are an operational powerhouse, and that's what allows us to thrive even in such a different and difficult environment. I think these are the top three, four messages that really excite me about the company.
Awesome. We're out of time.
I hope so.
Thank you so much, Matteo.
Thank you, Erik. It's great.
Thank you so much.