Good morning. Welcome to Logitech's first video call to discuss our financial results for the fourth quarter and full year 2020. Joining us today, and sheltering in place as everyone else, are Bracken Darrell, our President and CEO, and Nate Olmstead, our CFO. During this call, we may make forward-looking statements, including with respect to future operating results under the safe harbor of the Private Securities Litigation Reform Act of 1995. We're making these statements based on our views as of today, May 12th, 2020. Our actual results could differ materially, and we undertake no obligation to update or revise any of these statements. During today's call, we will discuss non-GAAP financial results.
You can find a reconciliation between non-GAAP and GAAP measures, as well as more information about our use of non-GAAP measures and factors that could impact our financial results in our press release and our filing with the SEC, including our most recent annual report and subsequent filings. These materials, as well as the prepared remarks and slides and a webcast of this call, will be available at the investor relations page of our website, ir.logitech.com. We encourage you to review these materials carefully. Unless noted otherwise, comparisons between periods are year-over-year and in constant currency. This call is being recorded and will be available for replay on our website. I will now turn the call over to Bracken. Bracken, your line is now open.
Thank you, Ben, and thanks to all of you for joining us in the first video call we've had. After eight years at Logitech, this is my 33rd analyst call. Given the exceptional moment, I'm going to start this one a little different from the other 32. On behalf of all of us at Logitech, I want to recognize several groups who deserve our attention in any discussion during this COVID-19 period. The medical professionals in the middle of this pandemic go to work every day knowing they have a much higher probability of contracting the deadly disease than we do. Banksy, the mysterious and famous graffiti artist in the U.K., some of you might know, recently painted a young boy who put down Batman and Superman toys and was holding a nurse up in the air as his new superhero.
A friend of mine is a nurse who's been on the front line for months managing a nursing staff and performing as a nurse herself. She's experienced constant stress that one of her team might contract the disease and the fear of contracting it herself. Now three of her staff are sick. She's sick, too, all diagnosed with COVID-19, and their primary goal is to get through their days of being sick, to get back into the hospital, because there aren't enough nurses available. Real courage is putting yourself in harm's way for the sake of others. These medical professionals are courageous and are indeed heroes. Teachers around the world changed their approach literally over a weekend. I came from a family of educators, including my mother, who taught first grade, which is seven-year-olds, six and seven-year-olds, for 35 years.
I have some understanding of what it's like to be a teacher, at least to be around one a lot. I can't even imagine how one can connect with and teach 30 seven-year-olds or eight-year-olds or teenagers over a computer screen. Teachers didn't choose a profession that's remote. Teachers aren't adequately trained for remote teaching. The tools haven't been developed with them in mind. Distance teaching came as an uninvited guest, and it's completely changed educators' jobs. Teachers around the world are evolving their approaches, experimenting, and starting to make it work. My mom would be very proud of her peers. Many parents suddenly find themselves working at a kitchen table that's half schoolroom and half home office. I had a video call with a fellow CEO who has two very young children.
She was exhausted as she and her husband shoulder not only new work from home realities, but also teach at home realities simultaneously. Parents aren't trained for this. There are no rules for this. She and a billion people around the world are learning to make it work. I could go on and on about the heroic efforts of medical professionals, teachers, distribution center and manufacturing workers, grocery store clerks, delivery drivers, and so many other essential workers who are risking their lives to keep ours more normal. There's a lot more to say about the challenges so many people, including many of you, have. While many of you, like my CEO friend, are also juggling the remote work reality with children at home, others are overseeing aging parents at your home, or worse, far away, where you can't visit them in person.
Many are sheltering at home completely alone, and perhaps not on this call, too many are now living with the anxiety of unemployment. Even if you feel frustrated, challenged, and even if you feel like you're failing at times, you're making it work. In these times, that's heroic, too. What can Logitech do to help with these new realities, even if it's just in our own little way? A lot. In this unprecedented, unpredictable, and uncertain moment, Logitech, our little company, your little company, has never been more relevant. Before I get into what we do, though, let me start with who's doing it, our people, the most important thing in our business. The health and safety of our people has always been our top priority and continues to be, and everyone is healthy right now. Our supply chain is also getting healthy.
In January and February, as many of you know, our manufacturing sites, as well as those of our suppliers, came to a complete standstill, like so many others. Thanks to outstanding leadership and the dedication of our local teams, we've recovered very quickly from the shutdown of three straight weeks. It took us to the end of the quarter to get almost back to our old production levels, and now we're back at full throttle. We're in catch up on some categories that sold out during the late March timeframe, but our supply chain is working well now. Our people are working pretty well from home, too. Of course, like everyone else, most of our office workers suddenly began working full time from home the second week in March.
Our own culture is one based on intensive video calling. We began three or four years ago to sponsor Work From Anywhere Week, first a day, and then a week, to encourage companies like us to let their people start to work from home or at least try it. This has made the transition much easier for our people on the work front than for many other companies. Of course, it still isn't perfect. There are aspects that are actually better. The environmental impact, for example. There are things we all miss. Our people are making it work. Our products have never been so relevant. Logitech's contribution, just one second, in these difficult times is that many of our products play a small but essential role in helping everyone stay engaged and connected.
Whether that's coworkers collaborating from home or teachers providing remote instruction to students, or kids playing and watching games in lieu of physical contact. The long-term secular trends that will drive sustainable growth in our three large businesses continue. While other companies are suffering drops in interest in their categories, this global crisis may have accelerated the trends underlying our big businesses. Companies are moving faster to adopt video-centered cultures. Esports and gaming are becoming an even bigger part of our lives. Working from home, including creating and streaming content for many of us, is settling in to stay. Companies are setting up business continuity plans that involve a more distributed workforce, and they need a desktop set up, including a mouse and a keyboard and more.
Independent of the companies, employees are increasingly setting up their own personal home office, whether that's in a dedicated workspace or at their kitchen counter. A growing number of companies and employees are realizing that working from home can work, so to speak, and they will duplicate their office and then upgrade it as time goes on. We will see less business travel, more video, and more virtual collaboration. Esports, whether it's Fortnite or e-racing tournaments, have record viewership as real-life sports have been replaced by virtual sports for now, such as NASCAR turning to virtual e-racing. Twitch set record highs in viewership, while Microsoft saw all-time record engagements for Xbox Live. Traditional sports will return, but the rise of esports will continue to happen, perhaps even faster than I originally envisioned.
Streaming, broadcast, and content creation are increasingly becoming not only a form of entertainment, but also a source of income for more and more people. You must see this happening in real time on your Instagram, LinkedIn, YouTube, and Facebook feeds. Of course, this global crisis has led an even greater focus on remote work and learning. Home offices are doubling as schools. Things won't pop back to the old way when this is over. Much of this is the new normal. More home offices to create and upgrade, more video everywhere, more gaming, and more broadcasting. Those are exactly the secular trends we've built our future around. Logitech delivered another great year with fiscal year 2020 sales up 9% and operating income up 10%.
We almost grew double digits again in spite of all the China tariff headwinds, in spite of the negative currency, and in spite of, most recently, the COVID-19 supply constraints. Of course, as the shelter at home policies went into place, we saw a rare event, acceleration immediately. One of the biggest beneficiaries that we have seen in the recent acceleration in work from home is our PC peripherals category, which grew 6% from fiscal year 2020 to an all-time high. In Q4, PC peripherals achieved double-digit growth. On top of that, our sell-through in the quarter was even stronger. Our highest gross profit in PC peripherals this past quarter was our webcams, which were up 34%, with double-digit growth in all three regions. It shouldn't be a surprise that video is an essential part of many home office and remote learning setups.
With our lion's share of the webcam industry, we experienced a sudden spike in demand starting in March that led to supply constraints that we're working hard to alleviate this quarter. We haven't caught up yet. Will we see growth in the future for PC peripherals at the double-digit sell-out rates we saw for Q4? Most likely not at double digits. At the same time, the momentum toward remote work and distance learning will continue as we emerge from this crisis. More and more people will work permanently from home, and an even larger percentage have found that they're comfortable working at home at least part of the time. That's a lot of home offices to establish, and as I said, a lot of them to upgrade later.
Companies are already getting on this bandwagon of more work from home when it's over. Our video collaboration category also benefited from the same work from home trend, with fiscal 2020 sales up 43%, and with an acceleration, both sales and sell-through in Q4 to 60%. As the world is transitioning to remote learning and work, we've seen a clear trend toward turning on video to connect with friends, coworkers, teachers, students, doctors, and patients, as we all practice social distancing. Video for work became essential. Video for social became a surprisingly good experience for a lot of people. While our gaming sales grew 8% in fiscal 2020, sell-through grew in the 15%-20% range. The gap was driven by supply constraints. Our gaming sell-through growth was further accelerated in the month of April, as gaming provided many families a sense of escape and a way to connect with friends.
Even the World Health Organization teamed up with the gaming industry to recommend people hashtag play a part together. Tablet and other accessories grew for a third straight year, up 7%. As Apple launched their latest iPadOS that brought trackpad support to the iPad, we saw strong initial sales of our Combo Touch, a keyboard case with an integrated touchpad, as well as our newest Slim Folio Pro for the 11-inch and 13-inch iPad Pro. In addition, we delivered a second consecutive year of robust iPad keyboard sales into the education channel. I'm really excited about the potential for education, particularly as each child needs a computing device now. Mobile speakers were down 2% for the full year, in line with our expectations and slightly outperforming the broader market. The mobile speaker market has experienced a significant impact from COVID-19, as retailers' brick-and-mortar stores around the world closed.
The market itself fell strong double digits in the month of March. We expect further deterioration in the Bluetooth speaker market near term. We've always thought it's important to adjust with flexibility and speed to new market opportunities and away from markets that no longer look promising. We've reallocated some resources from Bluetooth speakers to several growth initiatives to accelerate their performance. Two other products that saw a major uptick in sell-through in March were headsets and Blue Microphones. Headset sell-through increased over 50%, while Blue more than doubled, with Blue's growth further accelerating in the month of April. As concerts, tours, music performances canceled, many musicians started to live stream their performances online, and oftentimes with a Blue Yeti mic. Blue is also the voice of video bloggers, which are also on the rise.
The bottom line is that the long-term trends that favor 85% or more of our business accelerated in March. Now let me turn the call over to Nate to walk you through our key financial metrics in the past year.
Thanks, Bracken. We finished a very good year with a very strong fourth quarter, and we head into our next fiscal year excited about the growth potential, but at the same time, realistic about the macro challenges we face. Our focus on operational execution and financial discipline remains constant and critical during these unusual times. This consistency was on display throughout fiscal 2020, and we executed well, although I believe we can do even better. The short period between our analyst and investor day on March 3rd and the end of our quarter was particularly volatile, with significant new global challenges as we closed out the quarter. Retail partners closed stores, logistics connections were disrupted, and run rate processes needed to be quickly adapted to manage large swings in demand. Despite all of these challenges, we closed out another year of strong financial performance.
As Bracken said, fiscal year 2020 sales were just shy of $3 billion, up 9% in constant currency at the very high end of our guidance. That's our fifth year in a row of nearly double-digit growth. We also delivered non-GAAP operating profit growth of 10% to $387 million, higher than the revised guidance that we provided at our March analyst day, and in fact, we also exceeded our original guidance of $375 million-$385 million. Our fiscal 2020 gross margin reached a record 38.4%, up 60 basis points in spite of roughly 200 basis points of China tariff and currency headwinds. We're driving cost savings and efficiency improvements across all parts of our business, from our own manufacturing plant to our global supply chain and logistics network, and in our go-to-market strategies.
You've heard us talk about our transition to a more demand pull and marketing-led business model, and this was particularly evident during Q4, where we reduced our price promotions and invested more into our marketing OpEx spend. You can expect us to continue this transition from push to pull demand generation over the next several years. On top of this, our gross margins also benefited from better product mix led by PC peripherals, video collaboration, and gaming, as well as profit improvement initiatives across several other categories. Our non-GAAP operating expenses increased 8% in fiscal 2020 to $755 million, or up 7% excluding Streamlabs. This demonstrates our continued discipline in driving operating leverage by balancing our spend with both top-line growth and gross margin expansion while continuing to invest to capture our most attractive growth opportunities.
Our sales and marketing and R&D spend were up 8% and 9% respectively to support strong top-line growth this year and in the future, while we keep our G&A spending flat for the year at a record low 2.7% of sales. In Q4 specifically, we reinvested the strong sales and gross profit dollar growth into various marketing initiatives, into our video collaboration sales force and into multiple R&D projects to support future product introductions and innovations. The net result of these business dynamics and operating decisions was strong profit growth and operating margin expansion for both Q4 and fiscal 2020. Let me briefly talk about our cash flow. We delivered an all-time record cash flow from operations of $425 million for the full year, up significantly from $305 million in fiscal 2019.
In addition to strong earnings growth, our cash flow was helped by a 13-day decrease in our Q4 cash conversion cycle versus the prior year. The main drivers of this improvement were faster inventory turns and better collections performance. Working capital management is an emphasis across our company, and I'm pleased that we were able to achieve these strong results even while transforming our operations and supply chain to offset cost pressures from China tariffs. Looking forward, I would like to remind everyone that the first half is typically our lowest cash flow period of the year as we build inventory for the holiday season, and this upcoming first half will be further impacted by our need to replenish distribution center stock following the demand surge and supply constraints in Q4.
Therefore, while I still expect our full year cash flow to approximately equal our full year non-GAAP operating income, our first half cash flow may be weaker than our normal seasonality. Before I make my final comments, I want to highlight three material, but non-cash and one-time items that impacted our GAAP results in Q4 and created a wider than normal spread between our GAAP and non-GAAP earnings. I won't go into each one in detail now, but we have more information about each item in our press release. First, we booked a $23 million GAAP expense as an estimate of the Streamlabs earnout and reflecting good growth in this business. This expense unfavorably impacted GAAP operating profit.
Second, we recognized a $40 million gain in other income and expense due to the sale of our minority stake in Lifesize, a company we divested in 2016, but in which we retained a small investment. This gain increased GAAP net income. We recognized a $152 million income tax benefit related to the Q4 enactment of the Swiss Tax Reform. This also increased our GAAP net income. I realize some of you may find these three items confusing, but let me just reiterate that they are all one-time and non-cash events. In summary, we closed out a very good fiscal year in spite of the various cost headwinds and macro challenges that we had not anticipated when we started the year.
Looking forward, our upcoming fiscal year has many unknowns as well, particularly around the depth of COVID-related macroeconomic declines and the pace of any recovery, as well as logistics disruptions and cost increases or potential changes in customer purchasing behaviors. As one example, the cost of the incremental air freight we will use in our first quarter of fiscal year 2021 to fulfill sellout demand and replenish stock will negatively impact our Q1 gross and operating margins by two to three points versus the prior year. In fact, we have already spent nearly as much on air freight in Q1 as we normally do in a full year, and we have factored this incremental cost into our profit guidance.
Even though our margins may be temporarily pressured by logistics cost increases and we cannot be certain if the recent pace of sales growth will continue, we feel confident that our products and offerings, as Bracken said, are becoming even more relevant, and we believe this positions us well to deliver against both our FY 2021 targets and longer-term objectives. With that, let me pass it back to Bracken.
Thank you, Nate. We just gave our outlook for fiscal year 2021 in March, and today we're confirming sales growth of mid-single digits in constant currency and maintaining our non-GAAP operating income of $380 million-$400 million. No doubt, this is more stretching to guide to today than it was a month ago. We feel that, as Nate said, that the strength of the trends in our favor should enable us to still deliver our original guidance. With that, Nate and I are ready to take your questions.
Great. Thank you, guys. Let me queue up the questions. Alex, you are now open.
Hi, Alex.
Oh, hi there. Congrats on the strong quarter. A couple of quick ones from me. First of all, just given the various countries and regions are coming out of lockdowns at varying rates, I wondered if you could share any color about what you've seen in the last two or three weeks. Any key learnings would be appreciated as we can start to compare places like China versus other Asian economies and, for example, Europe and the U.S. Secondly, obviously, video conferencing is going very strongly, and you've talked about the momentum that you see there. Investors, in some cases, are asking about the extent to which you could see new competition, maybe from startups or from larger tech companies.
I wonder to what extent you are seeing new entrants coming in there, to what extent you can protect your position and how you're factoring that into your guidance for this year and future years.
Let me start with your second question, Alex. I think I've said this, I think every time I get a question about competition, I've always had the same reaction, and I have that to your question right now. I think we're in competitive markets all the time, with growth comes more competition. The stronger the growth, the more interest in the category. I think growth makes you better. I think we would not have been the company we are without strong competition over time in all of our categories. If we have, and surely we will have more competition in some of our video categories, it'll require us to step it up in both innovation and go to market and cost. We're certainly playing as if we're going to have that. The most important thing for us is to focus on the customer.
The better we do a job of understanding inside and out what makes the customer more effective, more efficient, more engaged, the better off we're going to be. That's where we're putting 95% of our effort. Look, I'm optimistic in any scenario that we're going to have a great video collaboration business. In terms of the question you asked about how the world is opening up in different places, it's a little too early to say what there is to learn from that. I think we're all sort of experiencing this one small step at a time, and China certainly opened up fastest within that part of the world. Taiwan never closed. I think we've learned a lot from our Hsinchu office, where we never closed the office. We never sheltered in place.
Within a few days of realizing what was happening, we pulled chairs out between people. We started checking temperatures when people walked in the door. We realized that this is a kind of a petri dish for us to reapply into the rest of the world. I think as China started to open up, we're seeing things return somewhat back to a more normalized level, and I expect that's going to happen now in Switzerland and parts of Europe and later in the U.S. and the rest of Asia. I'd say too early to say exactly what we can learn, but I'm an optimist, but I'm practical. I think it's going to take time, and as these things slowly open up, we'll reapply learnings from the different parts of the world to make sure that every successive step is more effective for us.
Yeah. I maybe add to that, Alex. It's really about adapting. Things that we're doing in our own lives, we're also doing in the company. I mentioned run rate processes, having to adapt within our company. We've had to meet more frequently in some cases. It's about sharing those learnings and those insights. Many times the countries are different for reasons. They may have different go-to-market models, more online versus offline, different logistics situations. As Bracken said, it's a little bit early to make generalizations, but I think the key point is that we have to adapt and continue to learn and communicate internally about what we're seeing.
Many thanks.
Thanks, Alex.
Thank you.
Okay, Tom, your line is now open.
Hi, Tom.
Hope everyone's staying well, and thanks for taking my question.
Thanks, Tom.
I want to take the opportunity to ask the question I get most often from investors, and that question is: When we think about your efforts in video collaboration and gaming, what gives you confidence that we're not seeing a pull forward in demand or a one-time surge versus sustainability in both of those categories?
Yeah, I guess it's a couple things. One is that the long-term secular trends that are really happening have been happening in both gaming and video collaboration are consistent and measured, and you could look at them two years ago and three years ago and last year and two months ago. This sudden hit that came in the month of March feels very dramatic. The truth is underneath that, the same set of decisions and interests that people had are what's driving that. If you step into each one of those categories, it's really interesting.
If you look into video and you say, "Gosh, we had a big surge in demand, and so many people bought our webcams or tried to buy our webcams that couldn't." If you do the math on how many people are now working from home and how many of those will continue to work from home on some level, either full-time or part of the time, it's really a small fraction of the number of people that have actually adopted a webcam from us or a mouse or a keyboard within the last month. Could there be some pull forward? Absolutely. Will there be a long-term trend to continue to bring those in and then to upgrade the ones they have? I really believe that. It remains to be seen how much of each of those is the case.
On the gaming front, I think gaming is just a freight train that won't stop, and I don't think we will see a really significant change in the gaming business until it's as big as conventional sports. I think we'll have varying growth rates. Sometimes it'll be stronger, then sometimes weaker, but gaming's here to stay, and the growth is too.
Thank you, Bracken. Stay well.
Thanks, Tom. Okay.
Thanks, Tom.
Paul, your line is now open.
All right, Paul.
Hey, thanks for taking my question. In VC, you mentioned telemedicine, teachers, workers kind of setting up home offices in your prepared remarks as kind of nice drivers. Can you help us better understand the decision to buy a VC solution kind of relative to a PC webcam for the home? Is that decision kind of being made at the enterprise level and distributed to employees? Are consumers kind of buying the products themselves? How do you see the VC kind of versus webcam purchase evolve over the course of the year as it kind of looks like work from home is here to stay for a while?
Yeah. Thanks, Paul. First, I think the decision to buy a webcam for your home, whether it's done by the individual or done by the companies, is all over the place. I think we have companies that are ordering in bulk. We have individuals that are buying through all the different ways you can get equipment today, including reaching out to me personally where they couldn't find one. I think you've got a whole range of things happening, and I guess you're going to have more and more people, companies buying webcams to distribute to their workforce, as many of the banks that are on this call have done that actually, or are working on that right now. You mentioned it as a webcam versus VC. I don't think that's really what's happening. I think it's really webcams and VC equipment.
The offices around the world are going to continue to video enable. In fact, I suspect that while we may have a lull in the action of installing equipment into offices just because people can't get in there or because they're preoccupied with all their team that's working from home, the truth is, once you get into this video world, you don't go back. All those enclosed spaces that aren't video enabled are going to need to be, just like they were before. I don't think it'll be a choice of either/or. I think it'll be and.
My follow-up is, we're starting to see some firms kind of change channel strategy, reducing kind of retail footprint and then pushing more products to online channels, particularly on company websites. I assume your online mix from both the website and e-commerce is probably up considerably. Is there any kind of change in future strategy to kind of possibly capture more gross margin upside on more shift to online sales over time? Thank you.
Thanks, Paul. Yeah, our online sales are actually quite a small percentage of our total sales. We did see a significant increase as the last six weeks, eight weeks have transpired. I suspect that's going to stay higher. We really want to make sure that consumers can buy their products anywhere they want to, including directly from us. We don't like the idea of competing with our own channels. We certainly want to make sure that their products are available, and we can offer sometimes a wider variety of products than some of our partners or even e-tail and retail partners are. We're going to keep investing in our own website just to make sure that people can do the right research, and then if they want to buy directly from us, they can.
Our margin targets are achievable, and we're going to stay after them no matter where they're sold. I do think you're going to see a permanent increase in e-tail now. That's probably not a surprise to anybody. How big that is, what percentage of it is, I don't know yet, but it's certainly increased a lot over the last six weeks.
Thanks. Michael, your line is now open.
Hey, Michael.
Yeah. Hi, everyone. Good to see you live. I have actually three short questions. The first one is, you talked about penetration of video equipment in meeting rooms and also at desks, in general. My question is, how have your expectations as to how this penetration is going to develop in the next two to three years, how have those expectations changed over the last two months? By how much is it accelerating, if you have any way of sharing your thoughts on this? The second question would be-
Hey, Michael. Let me stop you after that question. Let me answer them one at a time, or Nate and I'll answer them one at a time. How have our expectations changed? Let me start with what hasn't changed. What hasn't changed is our belief that video rooms, that video enablement will happen across almost all, if not all, the enclosed spaces around the world over time. Over the next two to three years, I think that that's still going to happen at a very fast rate. The video equipment in the office side hasn't changed. You could have a lull in the action here as people are not in offices as much. I imagine those video enablement of enclosed spaces inside of companies is going to continue at much the same rate as it was.
What has changed is I think more people are going to have video equipment at home. That's an added plus. I think that was happening anyway, but I think because of what I mentioned in my opening, the kind of explosion of requirement of doing video to stay connected to your teammates and in your social life, has kind of pushed everyone forward in terms of getting on video. This call, for example, is video today, and it wasn't last quarter. I think that's accelerating the need to have video equipment at home. I think that is a change.
Okay. Thank you. The other question was, for Nate, maybe regarding the mix effect on the gross margin. Can you quantify how much uplift you got from mix in the quarter to the gross margin?
It was the most powerful benefit we got in the quarter, Michael. As you saw, the growth was particularly strong in some of our higher margin categories like video collaboration, like PC peripherals. That and just the incremental volume we were driving, which of course, gave us a little bit of operating leverage on some fixed costs that are up in manufacturing and places in logistics and things like that. Mix was very powerful and positive for us in the quarter. It's actually been a nice story for us all year. You've seen how we've been able to manage through some of the currency and tariff headwinds. One of the big factors there has been mix as well for the whole year.
It's probably more than 300 basis points, 400 basis points.
No, it wasn't that big. There's several factors in there. Mix in Q4, in particular, was the most positive one.
Okay, thanks a lot. I'll leave it at those two. Thank you.
Okay. Thanks, Michael.
Yes, hi. Here is Joern speaking from Credit Suisse.
Hi, Joern
Hi, two or three questions. The first one is on the.
Let's take them one at a time, Joern, so we can hear the statements.
Yes. Yeah, I think that's better.
Okay.
On the guidance, you are from mid-single digit guidance. Nate mentioned that we'll see much less promotion. This has been deductible so far from the top line. I'm wondering how much of this less promotion is in this mid-single digit guidance so that the organic growth, if you like, is then only 1%-2% or how should I understand this?
That's a good question, Joern. I don't think that's the level of detail we'll probably need to get into when we think about the guidance. I would just say overall, that's what we're driving our top line to grow at, and we have a number of levers on that. Shipment volume, promotion, many things that would go into it. I think in general, we have been working towards being less aggressive on promotion and investing more in OpEx for some time, and we're going to continue to do that in the future. FY 2021 is no exception to that. We're continuing to build the long-term strength of our brand through marketing investments. Again, one of the levers for funding that is reduced promotions in our gross sales.
Okay, got it. The next one, probably. You mentioned that some of the products has been sold out. First and second, we have seen high sell-through. I'm wondering whether you will see a pent-up demand in Q1 still or even in Q2. How do you all see that for this?
First of all, yeah, we do have some products, webcams in particular, that sold out and we're playing catch up. Kind of what we're shipping and it's selling right out. Is there a pent-up demand? Well, we did a reduction in channel inventories in several places. The question is, I'm not sure that we're going to let the channel inventories go back to where they were entirely. We're going to keep an eye on that. As we move more online, we may be able to reduce our channel inventories a little bit, or we may need to. Maybe it's the prudent thing to do. We're going to keep an eye on that and see. I'm sure there is some pent-up demand that you're going to see in the early part, and we've seen in the early part of Q1.
How long that keeps playing out, we'll have to keep an eye on.
Okay. Probably the next one on net working capital. Why are the DSO still at such a high level when I compare it to the past? It was on a half the size or half the days it is still today. The same is true then for the DPOs. They're on a very low level. Why are these DPOs not higher that you collect cash from your payables?
Yeah, let me take each of those. On the DSO, you really should just compare to last year, because in the prior years, we had different accounting treatment for how we accounted for accounts receivable and some of the rebates that go into accounts receivable. This was related to the 606 accounting change that we implemented in FY 2019. Actually, DSO came down five days Q4-to-Q4 here in FY 2020. We did a nice job on collections in Q4, which was one of the drivers of our strong operating cash flow for the year. On DPO, this is really just the math. You know how DPO is calculated. You've got a numerator and denominator.
We had strong sales, so the denominator increased, cost of goods increased, and because of the supply constraints, as well as just efforts to reduce our inventory levels, we were not able to replenish and make those purchases, which would have offset. Some of the reduction, there's no change in our payment terms and things like that. This was all just the math and the linearity of the quarter.
You read that you still have a potential or a huge potential to improve.
I think it's important to look at all three of those metrics together and really focus on cash conversion cycle, because depending on how your quarter shakes out in terms if you have strong sales at the end of the quarter versus the beginning of the quarter, you can see movements in each one of those metrics. If you focus on cash conversion cycle, a lot of those timing differences will offset each other.
Okay. Probably last one. Given the circumstances, how is your shortlist look like for M&A? Can you give us some flavor here?
We never really share too much of our M&A targets, but there are always targets out there. We're looking at things all the time and we're looking at things now. It's an interesting time to be doing it. As I said in my opening, we have a lot of cash. I didn't say it, actually, I will now. We have a lot of cash. We have no debt. We are a great cash generator, and our top priority for cash is to look for smart accelerants or replacements for things we're doing internally in terms of M&A. We're looking.
But let me ask you-
I was advertising your question.
I can imagine that some of the companies are running out of cash, and so they're happy that they got a new model. They need cash.
No problem.
Okay. Thank you so much.
Okay. Thank you.
Thanks, Joern.
Thanks. Ananda, your line is now open.
Hi, Ananda. I just sent you a private message that wasn't intended for you, Ananda, but luckily it wasn't anything personal.
Ananda, you're still on mute.
Ananda, you're still on mute here. You want to go somewhere else and come back to Ananda then?
Yeah. Why don't we come back to him?
Okay. Andreas, your line is now open.
Hi, Andreas. We're learning, aren't we? Self-included.
Hello.
Hi, Andreas.
Again, my question. Hi, everybody. On the collection performance, which was good, going forward, do you envisage problems with some of your clients basically being cash-constrained, and how do you protect then basically your accounts receivable? Are there special measures in place for that?
Yeah. We watch that very closely in all environments, and I think even more so today. This is around having good relationships with those customers as well and being in frequent communication with them. As I mentioned again earlier, some of our processes, we need to adapt a little bit. This is one where we have strong processes in place, but I think now the frequency with which we review things and that we reach out to customers just accelerates a little bit just to make sure that we're really on top of it. Thus far, we have not experienced any issues, and like I said, I expect us to manage that well.
Okay, cool. On the air freight and all these additional costs you've got to get the products out of China. When do you think will that be normalized, these type of problems? Are you seeing already that the shipments by ships and so forth are going normal, or would you expect for a couple of months these higher costs going on?
We're looking at all forms of logistics. I think what you're really seeing here is, of course, we had the three-week kind of closure of our factory and of our partners' factories. We knew that we were going to be having to chase supply and replenishment with some air freight in Q1. Even since then, the rates have increased as well, as you probably know, across the industry for air cargo. We're looking at all forms of transportation. I certainly see this lasting through Q1. We'll probably see some of this cost pressure into Q2 as well. That's one of the things that we factored into our profit outlook for the year.
Yeah. Remember, the other side of air freight is that basically when it comes to air freight, the product goes underneath and the passengers are on the plane most of the time. If there are no passengers on the plane and the fleet is not flying, you have lower capacity. To get that air freight, you have to pay more. I think you can imagine that air freight's going to stay pretty high for a while. I think it will come down over time, but it probably won't come down for a while.
I think like the challenges that we've had in the past around tariffs and things, we're looking at a number of actions we can take to try to offset this, whether it's increasing capacity for certain products in the factories so that we can build up supply. Many measures that we'll take a look at.
Okay. Maybe my last question then. On the inventory level, which is low, and you said there are some constraints for certain products, but are you confident that these inventories are really filled then for the strong quarters going forward?
Yeah. The answer is yes. I'm confident that we're going to be okay from an inventory standpoint. I think we're going to have to watch demand, and our job is to match demand and supply. Right now, supply has been tricky to call and demand has been tricky to deliver. The good news is now the demand isn't tricky to deliver because we're back in full production in all of our factories and all of our supply chains are working well. That side of it's fixed. Now it's the demand side. We're still filling the demand for some of these products that really was super strong.
As we get more predictability around that, I think we'll be able to both be sure we have the right inventory and also drop the amount of express or air freight and fast boat that we're using now and bring that cost back down. I think this will moderate over the next quarter or two or three, probably over the next quarter. Let's see.
Mm-hmm. Okay. Thank you very much.
Okay.
Thanks, Andreas.
Thanks, Andreas.
Thanks, Ananda.
By the way, anybody notice my Blue Microphone? Are you impressed? It's actually, I'll bet you all are. Everybody wants one. We'll take orders after the call.
All right. Ananda, let's see if.
All right, Ananda.
Your line's open.
Oh, no.
Ananda, we still unfortunately can't hear you.
You can also write your message in on chat maybe, Ananda, and we'll go to someone else.
All right. Asiya Merchant, your line is now open.
Hello.
Hey, Asiya.
Hey. Hey.
Hello.
Good morning, everyone. Thank you for taking my questions. A couple of ones, maybe Bracken, Nate. Demand visibility into the next couple of quarters, like which segments do you have strong conviction in? I know there's the secular trends you talked about, Bracken, that's impacting everything, but just even in the near term, meaning a couple of quarters out, what products do you have a lot of conviction in terms of getting to your mid-single-digit growth rates for fiscal 2021? If you can take my next question too. Gaming, it kind of decelerated on a year-over-year growth rate into this quarter versus the prior quarter. I know in the past there were the tough compares with Fortnite, et cetera.
As we head into now fiscal 2021, what are some of the drivers that we should be looking at, especially with the new consoles coming on, and I think they're backward compatible. I have a question for Nate, just on the use of cash. Thank you.
Okay. Let's jump on that visibility first. I don't want to be too boring here. I'm going to repeat myself. I think, in terms of what, in quotation marks, "visibility," I would say, really these secular trends that are happening don't look like they're going away. Whether it's gaming video or streaming or just having your own desktop. We feel like we have a pretty good view that all those secular trends are going to continue. Exactly how they're going to continue beyond the next month or two depends. I mean, there's going to be a range around it. When you look out over a full year, we feel like those trends are strong. They're going to continue even in a deeply recessionary environment. We're going to have a lot of drive into all those categories. That's why we feel confident confirming our guidance.
In terms of the gaming space, I think if you looked underneath this, the real sell-out in gaming continued to be strong double digits, 15%-20%. Things still look very good. You talked about the console refresh cycle that's coming and forward compatibility. If I buy a product today, is it going to work on the new consoles? It looks like they will. That may not be totally reflected in the console market right now, and probably it'll take time for awareness to build and confidence to build among consumers. I think that's one of the drivers for why headsets still haven't quite sold as much as we would've thought or would've liked. After the Fortnite effect was over, I think there is still a pause going on. The next reason, which is that, well, wait, the new consoles are coming.
Are these really going to work there? I think that will get cured over time. There's never been forward compatibility before, as far as I know. There may be a little bit of a credibility question until you would get a little closer into it and there's more press around it. We'll see. I think overall, the gaming business continues to be a good, strong driver for us and will be in the quarters and year ahead.
Let me just jump in. I don't think I've heard Bracken call himself boring. He's called me boring all the time.
Only when you wear your Mr. Rogers sweater, which you didn't.
I think just to really reiterate what Bracken's saying, Asiya, when I look at investments, I'm looking for long-term trends. I'm looking for things that I have confidence are going to provide a long-term return. I haven't changed my philosophy around any of those investment areas over the last couple of months. Like Bracken said, if anything, they've only strengthened. Obviously I'm always focused on efficiency, always focused on cost and reinvesting our efficiency for growth. I think in this environment, those bets have almost become clearer for me into where we need to drive our investments and drive the company. Really no change. That sounds a little more exciting than boring.
Can I throw in one more exciting question?
Of course.
5G, AR, VR. Obviously these are some underlying trends that are 5G, maybe more near term as it comes to mobile devices. AR, VR may be a couple of years out or maybe a year out, especially given the new iPad launch by Apple that had some more interesting camera functionality. How are you guys thinking about that in terms of drivers for your own product portfolio? Thank you.
Yeah. 5G's a really difficult one to answer. I think 5G will probably be an accelerant for gaming as it becomes an alternative to Wi-Fi. It'll just give you shorter lag times and require you to have less equipment and things. I think that's really interesting, and you'll still need the equipment we make. In terms of VR and AR, we've been investing in VR and AR on the right kind of level for the last four years. We want to be there in the early days of exploring how AR especially is going to develop with interfaces and the tools you use to manipulate the things you're using or you're building or you're creating or playing with in AR. I have to say, we've learned so much over the last few years with all the different approaches that are happening, and I'm quite optimistic about it.
I don't think it's going to happen overnight, so I wouldn't put it as a line in your spreadsheet for part of our growth for the next year or two. It's going to come eventually, and I think when it does, we'll be there. We'll absolutely be there.
Okay. Thank you.
Thank you.
Thank you.
Hi, Jurgen. Your line is now open.
Oh, Jurgen.
Yeah. Thank you. Actually, you mentioned that certain products were sold out. What impact did that have on pricing last quarter, or is that to come now this quarter next or this year? Then you mentioned the earn-out for Streamlabs. How significant is that business, or was it in Q4, and what should we look at for this year? Thank you.
Those are two interesting questions. I'll take them and then, Nate, you can add-
Yeah. Sure.
to what I was saying. I'd say in terms of impact on pricing, we probably did a little less promotion than we normally would've, which is good. We don't really like to promote that much. As Nate indicated in his opening, we're working on the shift to a more pull-oriented marketing approach, which is healthier long term, but those things don't happen overnight. That's going to happen over the long term. We did have less promotion, especially in Q4, and I hope we can sustain that as we go forward. That's really the goal. We'll reinvest that back into marketing and really build the brand and build demand. You want to take the second question, Nate?
Yeah, on Streamlabs. I think Bracken alluded to this. We've seen some nice increase in the demand for streaming products, whether it's the Blue microphone or things like Streamlabs, as, again, musicians and others have been looking for ways to connect with their fans and with their communities. Streamlabs really, of course, was not material for us at all for the year. For the quarter, it added about one point of growth at the total company level. Again, the earn-out charge that we took in the quarter is just an indication that growth has improved from our outlook in the past quarter.
I will say, I love Streamlabs for a couple of reasons. One, it's a really cool business. Yeah. First, it's just a really cool business. It's fun to be in the business of really enabling streamers to do what they're excited about, whether they're new ones who are just streaming to 10 people or they're big-time ones really making a living doing it. We support everybody, and I'm learning about it. It's a really cool business. The second thing I love about it's a pure service business. It's really our first pure service business, so we're going to school on that, and we're trying to figure out how to reapply services back into the rest of our businesses. We have projects in the works right now, as I said at our analyst investor day, to try to do that over time. That's really fun.
The third thing is, I just love the team. There's such high energy there. They're located in two different places, and now they're located everywhere like we are. It's a great team of heavy software engineering and very creative, and they're always coming up with new ideas, so super fun business. I hope you'll hear more about Streamlabs over time because it's been a really good one for us, and I think it's really critical that we learn to play well in a service environment, and that we build great software products as well as hardware.
How big could it be, let's say, in three, four, five years out?
We're still hesitant to give answers like that.
We do and then say, rather than say and then do. I think it's really exciting, and I don't know yet, but we'll be sure to tell you when we do.
Okay.
All right, Torsten, your line is now open.
Torsten.
Yeah. Hi. Good morning, everybody.
Great.
Congratulations to dealing with the crisis so well, yeah. To be honest, I have two questions instead of a question here. First, maybe on distribution. I saw that in your distribution, you seem to offset the decline in brick-and-mortar channels pretty well with a move to online. Now, a few questions derived from this. Has this switch created any new cluster risk exposures towards certain bigger platforms?
Can you explain? What do you mean cluster risks to bigger platforms?
Amazon, for example, being a big player already, a big channel for you.
Oh.
I'm basically thinking about your midterm positioning as a player on those platforms, your capability to position your products well, set prices well.
Yeah.
These platforms are big, and the channel seems to be more consolidated to me than the brick-and-mortar channel.
Yeah.
More sophisticated as well.
Yeah. Well, let me answer that one quickly before you go to the next one. That will keep us steadily on the logic flow.
Yeah.
We've obviously done a lot more online this quarter, but this isn't new for us. We started this in China about five years ago when, I don't know how many of you know this, in China, the IT malls, as they were called, collapsed one day. Not exactly one day, closed. All that business moved online, and all that online business generated even more attention online. Suddenly, the China market went from about 13% online to 70% online. We became really good at marketing and executing online businesses, and we staffed differently, and Alibaba, JD.com, the whole thing. That's a thing that we learned, and we've actually been organizing ourselves internally, unbeknownst to you, because we don't really talk about this much, to take that same model into the rest of the world.
We're better and better, I would say, at managing online customers like Amazon or the marketplace. I feel really good about where we are. Their consolidation, is it good, bad, indifferent? I would say there's still a relatively small part of our overall universe, but they're an open playing field, and we like that. We think we can win in a fair fight. We like the growth of online sales, and I think we're going to do well in it.
Yep. I think we're still well-diversified in terms of our go-to-market channels, and there's strengths and weaknesses to each of them. I think as Bracken said, continuing to be a good partner with those customers. There's some great things that you can do online that are harder to do or much more expensive to do in stores. It's important for us to stay nimble and shift investments to capture those opportunities as they arise.
Okay. Very clear. Thanks. Maybe another one that really helps understanding, at least for me, to contextualize the situation around video collaboration. How do you see built-in video cameras that many laptops, for example, are already equipped with when they are sold, right? Look at me, I'm just calling in from my 2016 laptop. No additional equipment. I don't know how the quality is of voice and video and stuff, but do you really need all this stuff? How big is this unmet demand, really?
Yeah. There's a couple of things. First, you do get a higher quality video experience. I'm using one of our video cameras, and I hope I look okay. You really can do a side-by-side comparison from most built-in laptops. You'll see a significant difference. You do get a higher quality picture. You look better. Why is that? It's because a lot of I won't even go into why. The bottom line is it's usually the case. The second thing is, once your setup's kind of established, usually if you have a laptop, your laptop's kind of built in here, and then you've got a screen up there. Well, you end up looking either up like this, which is kind of weird, or you're constantly going back and forth. Once you're in there, your screen, and a lot of screens don't have built-in video cameras.
There's a need for webcams. I think there's going to be a need for webcams for the long term, for all the reasons and dynamics that this business has always generated a need for webcams. There will be all kinds of different solutions, and today we've got a really nice position in all of them, and we have a lot of scale, and we'll be investing.
Torsten, I would say too, I think there's room for both solutions. I don't have to use my external webcam exclusively, just like I don't need to use my laptop webcam exclusively. As Bracken said, I think as you set up a home office, maybe you've got a monitor because you're working at your desk for more than just 20 minutes doing email. It's definitely a better experience to have that external webcam.
Okay, got it. Thanks.
We're obviously pro webcams.
Thank you, Bracken. I think that ends all the Q&A for this call.
Okay. Well, in this rare moment, I'm actually going to say a few things here at the close, so I hope everyone doesn't hang up right away. We have never been, Logitech's never been so integral to what matters. Whether it's doctors and patients or students and teachers, or gamers to each other, or creators to their audiences, it's exciting to be playing this role right now where so many people need us and need help. These are exceptional times, and we have exceptional opportunities. The late Andy Grove of Intel fame, he was the very famous CEO of Intel for many years, as a quote says, "In a crisis, the weak fail, the good survive, and the great improve." I can assure you, we are going to improve. We've had five years of nearly double-digit growth or better.
We're worth eight times more today than we were eight years ago. We're the leader or among the leading few in virtually every category we're in. We're going to enter more as we further exploit the growth in these categories. I have never been as energized as I am now. Even if it's a dark macro period, the light is turned brightly on in Logitech. We can help so many people now in so many different ways. Stay tuned. It's going to be an exciting year. It's a dark period. I think we can really do a lot of good here. Thanks a lot for doing our first video call. Sorry for the glitches. We'll get better, I promise, like we are in everything we do. See you guys.