Earnings Call: Q3 2020

Jan 21, 2020

Good day, and welcome to the Logitech Third Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in listen only mode. We will be conducting a question and answer session and instructions will follow at that time. This call is being recorded for replay purposes and may not reproduced in whole or in part without written authorization from Logitech. I would like to introduce your host for today's call, Mr. Benjamin Luz, Head of Investor Relations. Thanks, Sharon. Welcome to the Logitech conference call to discuss the company's financial results for the Q3 fiscal year 2020. The press release, our prepared remarks and slides as well as the live webcast of this call are available online at the Investor Relations page of our website, ir. Logitech.com. During the course of this call, we may make forward looking statements, including with respect to future operating results that are made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward looking statements involve risks and uncertainties, and actual results could differ materially as noted in our quarterly and other filings with the SEC. The company undertakes no obligation to update or revise any forward looking statements as a result of new developments or otherwise. Please note that today's calls will include results reported on a non GAAP basis. Non GAAP financial results have inherent limitations and are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Our press release and slides provide a reconciliation between GAAP and non GAAP numbers and are posted on our IR website. We encourage listeners to review these items. 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 the Logitech website. Joining us today are Bracken Darryl, President and Chief Executive Officer and Nate Olmstead, Chief Financial Officer. I'll now turn the call over to Bracken. Thanks for that stimulating opening, Ben. First of all, thanks to all of you for joining us. We delivered a strong quarter in Q3 despite the macroeconomic issues facing the world. China tariffs, Brexit, volatile currencies have become the new normal. But as the macro environment keeps churning out news, we keep churning out strong quarters. Behind secular trends that have nothing to do with the macro events in the world and everything to do with our performance. The rise of video conferencing to every room, the expansion of computer gaming to the largest set of sports in the world and perhaps the biggest trend of all, which we haven't talked about too much yet, the unstoppable phenomenon of content creation by virtually every person on the planet. These will deliver our growth for a long, long time to come regardless of the macro environment. We execute well. We're driven by powerhouse secular trends and we have a portfolio of existing product categories and new ones in creation. The combination of our execution and our portfolio breadth creates sturdy growth. What is that portfolio? It comprises 3 major growth areas, each a collection of product categories, video collaboration, gaming and creativity and productivity. And it also contains other categories that are either under construction as future strategic growth areas or optimized for profit contribution to enable us to invest more in the growth engines we have. We've got a good thing going here. Regionally, you can see a different story occurring in each of the 3 regions of the world. Just as each of our reported categories is made up of a group of product categories, Each of our regions is made up of a group of clusters of countries. In EMEA, we're revamping our go to market engine to shift from a pull approach or from a push approach to a pull, invested more in marketing and less in pricing. The net effect is a 5th strong quarter in a row. Every cluster is performing well, virtually every country. In Asia Pacific, we grew only 3% as local issues in Hong Kong with protests, a continued slower China than we've seen in the past few years. And a few markets with execution issues continued to hold back our growth from the double digit growth we've come to expect from that part of the world. The majority of our clusters had solid growth. Finally, the slight decline in the AMR region is driven by a couple of factors. First, let me say we had growth in all the places you'd expect, VC, gaming and C and P. But we constrained ourselves in several categories as we reduced the depth and breadth of promotions during the holiday quarter to try to steer clear of over promotion. And as you know, we offset tariffs with price increases in the Americas. This combination of price increases and reduced promotions help protect the impressive gross margin progress we've made over the past few years. In fact, our overall company gross margin was down minimally despite the tariff impacts. We probably could have delivered a higher sales number for the Americas. Did we go too far with our pricing discipline in the quarter? You know I'm a long term person, so I believe the answer is no. We're here to build long term sustainable franchises, not just quarters. By category, mobile speakers and audio and wearables really accounted for all of our decline. Mobile speakers remained a tough market over the holidays, not too different from recent trends in the Americas for that category. The Americas performance for audio and wearables was the primary reason why our audio wearables globally were down 16% in Q3. Blue microphones was down as we made the decision to discontinue several special edition YETI mics that were sold during the holidays last year. This comp challenge was exacerbated by supply constraints as we've made final steps to move our supply base to a new set of companies. This is behind us now, but we feel good that we can return Blue Microphones to product category to growth as we capitalize on the long term of the long term big streaming opportunities. I want to take a moment to talk about something we've been quietly focused on inside Logitech for many years. We've not talked about sustainability, that's the topic, except in our annual sustainability report as I didn't want to come forward publicly until we were ready to until we were really leading our peer group and even among the leading companies in the world in our actions. This quarter, we stepped out to talk. Sustainability really has been a focus for Logitech for many years. This quarter, we committed to leadership in the battle to avert dangerous climate change. For the first time, Logitech public committed to ambitious sustainability goals for the entire company. Specifically, we unveiled our support for the Paris agreement and to go beyond the level of commitment made there. We pledged to limit our carbon footprint to support the aggressive 1.5 degree Celsius increase goal and to be powered exclusively by renewable electricity by 2,030. We also announced that we are carbon neutral certified in all Logitech Gaming products. And in the same quarter, a third party validated our strong results and steps in sustainability. We were pleasantly surprised weeks ago to be named 1 of the 37 Companies in the World Honored by World Finance Magazine for our sustainability efforts. This is the 1st year of these awards and we were the only consumer tech company to win. And despite all this news on sustainability, I promise you we have much more exciting work underway. You're going to hear from us regularly on this topic. Now let me discuss how we did more specifically in our categories. Momentum in our video collaboration category continues to be strong with sales up 25% in Q3. Sell through was much stronger than that too. Of course, this came on the heels of last quarter's unusually strong 60% net sales growth. So the 2 quarters combined are more normal, I would say. In the 1st 9 months of the fiscal year, our video collaboration sales grew 37%. On top of this, all three regions achieved double digit growth. Logistics' goal has always been to be a humble, capable and neutral partner for other companies. We are Swiss after all. And VC is no different. We're not only working with the major U. S. Cloud providers like Zoom, Microsoft, Google and others, we're also closely partnering with the leading platforms in China like Alibaba. Since we announced the general availability of our Sync device management software a couple of months ago, over 600 companies have installed and are trying the platform. It's still early days, but we're excited to see what more we can do to support companies expansion of video to a larger share of their rooms. Slowly but surely, we're building out B2B capability too and it's exciting. Now on to gaming. We returned to double digit growth in gaming this quarter as we predicted. As we managed before as we've mentioned before, we're beginning to see easier Fortnite comps as we head into the end of the fiscal year. Q3 sales were up 16% with PC gaming sales growth excluding headsets remaining well in the double digit range, while the decline in our gaming headset sales moderated significantly. I would expect to see more normalized gaming headset compares as we exit the fiscal year. And during the quarter, we also benefited from the expanded distribution outside of the U. S. Of the Astro PlayStation 4 controller, as well as strong performance in our gaming simulation products. In fact, we held the Logitech G Challenge Grand Finals in Las Vegas about 2 months ago. We had over 11 1,000 drivers racing through a mix of online qualifiers and in person wildcard competitions. We're just beginning to see the world of virtual racing and real racing converge. Very exciting times if you love fast cars and driving them from especially from a safe spot behind one of our steering wheels. We closed the Streamlabs acquisition. I'm more excited than ever about having this team, this business and this brand in our portfolio. Stay tuned on that one. Mobile speaker sales were essentially flattish this quarter as we had anticipated, but underlying market conditions remain soft. We'll continue to closely assess the situation and as we do with all categories in our portfolio, we'll adjust our investment accordingly. Our PC peripherals business delivered another solid quarter of 6% sales growth. This is one of our strongest quarters in years and indicative of how I feel about this business. Pointing device sales grew 5% this quarter. Last quarter, we announced the release of our newest flagship mouse, the MX Master 3, which has been my mouse for the last 3 or 4 months. Sales more than doubled sequentially and the MX Master 3 is now our best selling mouse. I'm also proud to say that it was named one of our CES 2020 Innovation Award Honorees. While we're executing well with our premium MX line of pointing devices, where MX master sells for $100 we're doing just as well in the mass market category where several of our products retail for as little as $13 So our strong performance in Pointing Devices ranges from the high end to the low end, an unusual dynamic for any consumer product company or product brand and a testament to our continued innovation and cost management. Keyboards and combo sales increased 10% in Q3, representing the 8th consecutive quarter of growth. As with Mice, our premium MX product, our newest slim profile MX Keys, my newest keyboard as of 3 months ago, is now our number one wireless keyboard just a few months after its launch. That speaks to the innovation excitement that we can drive into what some might have viewed as a sleepy category and it's clearly resonating with consumers. But our innovation engine didn't stop there. We continue to build out a line of products for the segment consumers who have pain at work. Lastly, we just announced our latest addition to our Ergonaut portfolio, the Logitech Ergo K860 and I've replaced Mike MX Keys with that keyboard and I'm looking at it on my desk through the glass window in our conference room. This is our 1st wireless keyboard that addresses consumers literal pain points. It improves risk support by over 50% and reduces risk spending by 25%, well all of which greatly improves typing comfort and reduces muscle strain. PC World said that Logitech's K860 has done the unprecedented. It's made me adopt a split keyboard as my daily keyboard. We now have a complete ergonomic portfolio with Ergo K860 keyboard only not complementing nicely our MX Ergo trackball and our MX vertical mouse and I've switched the MX vertical mouse now too and I'm getting hooked. I'm personally using that the keyboard and I said the mouse and I'm excited about what about the effect I'm having. I actually have a little bit of arthritis in my thumb, thanks to a lot of too much basketball. Tablet and other accessories sales declined 12% this quarter, partly because we were supply constrained in our 7th generation iPad keyboards and partly because Apple entered with their own keyboard and price points where they haven't been before. This category always has had its ups and downs, but it's super strategic. By the way, we have resolved the supply constraint and should be fully distributed in Q4. Now let me turn the call over to Nate to walk you through some financial metrics. Okay. Thanks, Bracken. We delivered a strong P and L for our holiday quarter with sales up 5% to 903,000,000 dollars The first time our quarterly sales have ever exceeded $900,000,000 At the same time, we delivered operating leverage with non GAAP operating profits up 6% to $152,000,000 also a record high. As Bracken said, despite currency headwinds, incremental China tariffs and price increases across a wide range of our products, we delivered a strong performance. As expected and forecasted in our last earnings call, our Q3 non GAAP gross margin declined both year over year and sequentially due to unfavorable currency exchange rates and the full quarter impact of List 4A China tariffs. In spite of all these factors, our non GAAP gross margin of 37.6% came in only a half a point below last year. Margins were supported by cost reductions and as Bracken highlighted earlier, we made choices to limit the depth of our promotions and protect the long term value of our brands and innovations. I'm pleased with the margin results and the discipline we exhibited during the holiday quarter. One thing I would like to point out is that while we are glad that the China tariffs did not escalate further with List 4B, the decrease of List 4A tariff rates from 15% to 7.5% will not have a material impact on our Q4 gross margin. That's because the actual date of implementation for this reduced tariff rate is not until mid February and much of our U. S. Inventory for this quarter will be brought into the country before the tariffs are decreased. In addition, I want to remind you that the List 4B tariffs were never included in our full year guidance and therefore their cancellation does not impact our outlook. In Q3, we prudently managed our spending with non GAAP operating expenses up 1% to $188,000,000 We essentially kept sales and marketing spend flattish while we increased R and D spend by 6% and reduced our G and A costs. Of course, we invested strongly again in building out our video collaboration sales team. We actually accelerated investments versus last quarter, but we offset these increases with the lower G and A and a shift of spending toward our faster growing categories. This is the discipline that you've come to expect from us. So despite the product cost headwinds and gross margin pressures in the quarter, we still delivered operating profit growth of 6%, which was faster than our U. S. Dollar sales growth of 4%, and we remain on track to our full year operating profit outlook. Keep in mind that since issuing these targets last March, we've absorbed not only the tariff increases, but also well over a point of margin headwind from currency. And at the same time, we've maintained or even increased our strategic investments in the business. Now let me talk briefly about our cash flow. Cash flow from operations was $181,000,000 in Q3, up from $176,000,000 in the same quarter last year. Cash flow benefited from a 10% reduction in our inventory and a nice improvement in our inventory turns, which ended at 7.4 times. Excluding the impact of tariffs, our inventory turns would have matched our prior record high. And in fact, we achieved record inventory turns in EMEA and AP. Our global operations and supply chain teams continue to do a nice job supporting business growth, while delivering cost savings and working capital efficiencies. I would point out, however, that as is typical with our business seasonality, our fiscal Q3 is the single largest quarter for cash flow. So you should expect to see the normal lower levels next quarter. For the full year, we continue to expect our cash flow to approximately equal our full year non GAAP operating profit. And with that, I will turn it back to Bracken. Thank you, Dave. We just finished a good holiday quarter with record sales and profits. Reiterating our sales growth of mid to high single digits in constant currency and non GAAP operating income of $375,000,000 to 385,000,000 dollars despite the tariff impacts in currencies that we've seen. With underlying secular growth trends across the vast majority of our business, content creation, video in all rooms, gaming, we are really excited about how we're positioned to capture these opportunities. We'll provide our fiscal year 2021 outlook at our upcoming Analyst and Investor Day, which I'm sure you will all join in New York City on Tuesday, March 3. And we look forward to sharing more of our plans and strategies then. And with that, Nate and I are ready for questions. Your first question comes from Asia Merchant with Citigroup. Please go ahead. Hi, Asia. Hey, good morning, everyone, and thank you for pronouncing my name correctly. Great quarter. A quick question on gaming. It seems like those underlying trends that you talked about Bracken with the double digit growth seems to be coming back. The Fortnite comps are getting easier. As we look into calendar 2020 with console, new console hardware is planned, as well as just the underlying trends, should we now expect gaming to sort of come back to kind of the growth rates that you typically talk about at your investor events, which are, think, roughly in the 15% to 20% range, just given this underlying drivers? And then I have a question for Nate as well. Okay, great. Yes, we'll give our guidance there next year by category in March. So March 3rd, as I just mentioned, is our next Analyst Investor Day. I think the underlying secular trends in gaming, at least the way I look at it, the underlying secular trend in gaming really didn't change. We just had that big Fortnite effect and the similar effect in China. So you had some things going on there. And I will come back and reiterate the guidance for or reiterate, we'll give the guidance, the long term guidance. But I think you I think at least we expect long term good solid growth in our gaming business across the board. I'm hesitating to give a number out now because we just haven't put together our materials for next year for the March event. But I think, Gazzia, somewhere in that direction makes sense. Okay. That's great. And then Nate, you briefly alluded to gross margin for the Q4, not really benefiting from the tariff rollout from the tariff rollback on this 4A. But typically, I think in the March quarter, do you guys see a little bit of a dip here? So is that what something we should expect given how you guys performed in the December quarter with your just with the discipline that you talked about? I wouldn't say there's a really consistent trend Q3 to Q4. Some years it's up, some years it's down sequentially. Obviously, a lot of it depends on product mix. We like I said, I was pleased with the margins in Q3. I think the teams worked very hard to find some efficiencies to help offset some of those new pressures and we'll have to continue to do those things in Q4. Where we sit right now with currency, it doesn't look like we're going to get any benefit from that. So I think we're just going to have to battle a bunch of different things and continue to do a good job of executing on our offsets. So like I said, no real consistent trend that I can point to historically. Some years it's up, some years it's down. Okay. All right. Thank you. And then just the cash, I mean, I know you guys did acquisitions consummated an acquisition this quarter, but you're still sitting on a lot of cash. There was no share buyback during the quarter. Any particular reason for that? We were we had the Streamlabs acquisition, which impacted our ability to do any share repurchases. That was really the only reason why. I think we'll be in the market as we normally are and look for opportunities. The cash, we had strong cash flow again this quarter. It's up $51,000,000 year to date. So it's good to see that obviously sign of a healthy business and it gives us continued opportunities to do the things we've talked about before around M and A, dividends and share repurchases. Okay. All right. Thank you. Next question comes from Ananda Baruah with Loop Capital. Hey, Ananda. Hey, good morning guys. Good morning. Congratulations on a solid quarter. Thank you. Yes, you're welcome. Yes, so just a couple for me. Bracken, understanding you want to kind of hold off on giving the forecast on the Analyst Day. But could you in the gaming category, could you talk about some of the catalysts aside from the secular trends that might be forthcoming this year? There's the console refreshes, although I think you said there's backward compatibility there that may not have the impact be as strong this time around. Are there any other sort of upcoming catalysts that you can point to at least in a general sense? And then I have a couple of follow ups. Thanks. Okay. Yes. No, actually historically the console refresh cycle has slowed down the console headset business because there wasn't forward compatibility. So you couldn't buy an existing headset. You had to kind of wait until the new one came out. There's a little bit of confusion in the market. I can use one of the old ones and the new one I might buy might not work on the new one. We're hopeful that we're going to have and it looks like we'll probably have forward compatibility, but it's not confirmed yet on both the console refreshes. But we're hopeful and I think that would be a really good thing. Beyond that, I don't I couldn't point to a specific thing that will have an impact or catalyst on the gaming business. But I will go back to the secular trend. I think it's super strong. It's gone on unabated and I don't see anything that suggests that's going to change. Okay, great. And then on video collaboration, for the fiscal 2020 guidance, you guys had 15 sorry, 25% to 30%. And over the last 5 quarters, and you referenced this, you've sort of bounced in between mid-20s and high-50s. And you used the term trending in the prepared remarks when sort of talking about blending together in the last couple of quarters. It's really been 5 quarters. And I think just my quick calculations, even pre call, so you've sort of been at 40% over the last 5 quarters. I know you're not going to give the forecast until we get to the Analyst Day, but does it feel like you've been kind of catching a little bit more momentum there? And can we think about potential that the momentum could have some sustainability to it since you've sort of been at 40% over the last 5 quarters? Your math is good because our sell in and sell through have been about 37%. So it's around target. Obviously, I'm not as you said today, we're not going to give a forecast in the next year. It's hard to say, we're getting bigger and bigger numbers. So will we see that sustained or not? I don't know. I'm always hesitant to stretch out too far in a number like that. The bottom line is, it is remarkable what a big opportunity this video business is. And I mean, I'm kind of amazed. I think there's something like 90,000,000 rooms out there that are supposed to be video enableable and only about 4% of those were as of a year ago by and so I think this is Frost and Sullivan or somebody, but Gartner has similar numbers. And a lot of people are predicting that will triple over the next 5 years. So you can do your own math that's somewhere between 20% 35%. I don't know where it is, but I'm super excited about the business. And I know you need to I know there are a lot of people building models out there and we are too. But if I step back, I just think video is one of our single biggest opportunities in the company. And let me sneak one more in here while I add you, Breckin. Just on content creation, anything you can tell us at a higher level about what a long term content creation ecosystem could feel like aesthetically? And to what degree might software content become part of the product portfolio in that creation? Well, there's hardware and software to content creation. I said this in the opening. I think one of the quietly most amazing things to me is that so many of us are talking about STEM fields, science, technology, engineering and math, especially in the U. S. That we need to improve our education there because that's where all the jobs are. While the truth is there are more people doing content creation, which is creative exercise and there are STEM fields by far and that's going to grow probably as much or more than the STEM fields. So this and they need equipment and the equipment they need is hardware and software. So it's product and services. And our goal is to play right in the middle of that. We've been pulled into it with the mouse and the keyboard, which is part of that ecosystem now. And then we've stepped further into it with, of course, webcams and with microphones and now with most recently with the Streamlabs acquisition. So I think I don't want to preempt anything we might say at the Analyst Investor Day, but I'm excited about the overall space. I just think it's a great place for us to play and the users themselves have pulled us into the category and it's up to us to find new places to play beyond that that can expand the opportunity well beyond where we are. So I don't want to go any further than that because Boyd is obviously a great space for us and you're going to hear more about it from us in the future. Okay. I appreciate it. Thanks a lot. Thanks, Amanda. Next question comes from Paul Chung with JPMorgan. Hey, Paul. Hey, guys. Thanks for taking my questions. So first up, can you just expand on the strength you're seeing in Europe? What's kind of driving that outperformance there? Any kind of channel expansion, particular products or some market share gains you want to highlight? What I would say is, first of all, the key driver that changes, we're just taking a different approach there. So I'm sitting next to our leader who was of Asia Pacific who took over EMEA about a year and a half ago. So and he brought a lot of the things we were doing at the time in China and the rest of Asia Pacific into Europe, which was really about being more focused on trying to generate demand rather than push demand, so pull versus push. And I also think he and the team over there have really led an effort to try to improve our market shares over there. We have higher market shares in the U. S. In most of our categories than we do in Europe and many of our categories. And I think that's a gap and it's an opportunity for us to close and we still have room there. So I would say those are probably the 2 biggest dynamics. I wouldn't point to a specific category 1 or the other. I mean across board obviously you have to be doing pretty well everywhere if you're going to grow 16%. And grow double digits for 4 or 5 quarters in a row is pretty impressive. But I think we have an opportunity to continue to improve our demand creation, our pull capability. And it's that doesn't happen overnight. And I think that's going to happen. We're going to keep bringing that around the world over the next 3 to 5 years. Okay, great. And then on the keyboard side, you had a tough comp from last year, but still pretty impressive growth. So where are you kind of seeing pockets of strength across regions and product lines? It sounds like your premium lines are raising your overall ASPs, if you could expand on that? And then I have a follow-up. Sure. Yes, keyboards have always been a good category for us. I think when I came in here 8 years ago, a lot of people thought people stop using keyboards, they'll just use their voice. Well, they didn't and they're not. And nobody has created yet something that's better than a keyboard when you're sitting at a desk and especially in an increasingly in a with increasing number of open offices where you really don't want to hear people talking next to you. So keyboards are here to stay. Our performance this quarter reflects I think how strong we are really at being able to innovate. I think the MX our MX Keys which is the high end of the line which we really never had a high end of the line I think could be wrong here, but I think we've never had a high end of the lines operated quite as strong as we do with this one right now. And then we just announced that we're coming out with an ergonomic keyboard, which is I mentioned in the opening, which is also really cool and a very different segment of people. So there's just lots of opportunity to innovate despite what everybody would think because these categories are so mature. There's lots of opportunities to innovate in these categories and we're getting them and we're going to pay more. That's great. And then last one is on VC. So are you starting to see some seasonal patterns? Or is it still kind of in growth mode, so it's still making this kind of difficult? And then given the nice momentum in this segment, are you starting to see more competition ramping? You mentioned some software upgrades there and sales force investments, but how else are you kind of protecting or even expanding your market share? Thank you. Sure. It's probably the least seasonal of our businesses, the video collaboration, because it is a it's much more like obviously it is a B2B enterprise business. If there's a seasonality to it maybe you would expect some heavier buying at the end of a fiscal year or something, but I wouldn't even say we've really noted that too much so far, although I keep expecting that to happen. And is competition coming? Absolutely, they're definitely coming. And as I really grew up playing competitive sports and competition just makes you better. So we've expected competition, they're here, they're out there and we're doubling tripling down on everything we're doing because we need to raise our game all the time. And as you said, we introduced Sinc last quarter, I said in the opening and it's really cool. What we're doing to keep our competitive edge, we need to keep building our sales force for sure. We need to keep building our product portfolio and innovating very shrewdly and I think we're doing that. We have a great portfolio right now. And we're relentless. So we just don't give up and we're going to keep bringing this stuff up. Hey, Paul, it's Nate. Also on the VC, I mean, you saw that our R and D investments increased 6 percent. A lot of that is going into VC to kind of support what Bracken was saying around the product development, we continue to be a focus. And then also Bracken mentioned the partnerships that we have with people like Microsoft and very similar to our strategy elsewhere is that we're trying to be that great complementary partner with these very large players to support their business growth and business strategies as well. So we're making investments to be good partners with them and make sure that we're doing the right things to grow the overall VC ecosystem. Awesome. Thanks guys. Thanks Paul. Next question comes from Andreas Mueller with ZKB. Please go ahead. Hey, Andreas. Yes. Hey, hello. Hello, everybody. Good afternoon. I've got 2 questions. One is the relief actually on the tariff. You mentioned in Q4, there won't be any relief to be seen. But can you talk about next year what the current Phase 1 is providing you on the gross margin basis? Yes. I think you're right. So in Q4, nothing material no material benefit to us from the reduction in the tariff rate on List 4A just due to the timing of when that's The 4 The 4A is still going to be with us at a reduced rate and of course List 3 is still with us at 25%. So we still have a few quarters ahead of us until we annualize all of those tariffs in the next year. So it's still a bit of a headwind for us especially in the first half of next year, Andreas. Okay. And then the growth in marketing and sales, 1%. I mean, I understand the mechanics behind that. But still, I mean, is that enough to keep driving the growth on the top line? Or do you see there to some sort of reacceleration on line again? Yes, it will move around. I think it probably will increase again. Again, as I mentioned in my comments, though, we actually accelerated our investments in VC. I mean, since the beginning of fiscal And we're continuing to invest, like I said, very aggressively there. Really, it was around realigning some of our investments in that category. We did pull back in some businesses that have not been growing and we redirected those investments into other areas. So I just think about that as portfolio management. No concern, I think needs to be raised around that level of investment. But the number will move around from quarter to quarter. Yes, I wouldn't count on a 1% growth for the next year or anything like that. No. Yes. Okay. Thank you. Thank you. Thanks, Andres. Your next question comes from Thomas Forte with D. A. Davidson. Hey, Thomas. Great. Thank you for taking my questions. So I had 3 questions that I thought were important. So congrats on getting the recognition on the sustainability. How should we think about the margin impact of your efforts on sustainability to the extent that it may help you increase prices or affect your sourcing? And then second, having just been at the Consumer Electronics Show, 5 gs was kind of the story of the show. How should we think about that as potentially serving as a catalyst for your video collaboration efforts? And then lastly, as we start to gain distance on Fortnite, do you have any thoughts on the refresh rates? Fortnite brought new gamers into the space. Are they buying that second headset at the same rate as the existing gamers were? Okay. On the margin impact of sustainability, and I've had questions in both directions, is it going to make our products more expensive or is it going to give us the chance to increase our pricing or get higher margins because we're going to try to step out ahead of other people. The answer is we're not counting on any of that. I think the truth is it's kind of built into the fabric of how we're working now and you're going to hear more about what we're doing in the future. I'm really optimistic that being a good global citizen from a sustainability standpoint is going to help is going to be a catalyst to our business long term. I couldn't put a possibly put a number on that as you probably wouldn't either, but it's I'm excited about it. We do it anyway. It's the right thing to do, but I believe that companies that are really leading will be rewarded in the long term for this and we're going to be leading. On the 5 gs, too early to say on VC, I think there's a long way to go for 5 gs is really available broadly enough to have an impact on any of our businesses including VC. But it's like any of these other new technologies that come in and make things faster and better. I think it's going to be a catalyst for the consumer and business tech world. And I think Finally, on the console refresh rates or the refresh rates in general for C and P, I think it's hard for me to say how fast those are going to be. I mean, I think it probably the headset business has about a 2 year refresh rate from what we can see. And that's kind of what we're hearing in the marketplace. We started launching very premium headsets with that in mind and they've done very well. Our premium headset with the BlueMic in it has done really, really well this year. So we'll see. But I think at the end of the day, there's no doubt that the Fortnite brought in a lot of new young gamers. And I'm sure there's going to be a continuous inflow of that age group into the category. So I don't know whether it will come in quite as lumpy as it did with Fortnite, but I think you can expect a long term trend where people are going to come in and then trade up over time. 2 years seems like the right timeframe. Thank you, Bracken. Thank you very much. We have a question from Michael Fluitt with Vontobel. Please go ahead. Hey, Michael. Yes. Hi. Hi. Good afternoon. Two questions from my side. I was wondering if you've seen any sort of early pull in effect in the quarter already due to the fact that Chinese New Year is quite early? And my question is also in addition to that whether that could be a reason why you're being a little bit sort of conservative I would say on your guidance for the last quarter. And the second question would be, and again, I know it's early, but if you can make any additional comments on Streamlabs, how it's doing, how you're integrating that and any thoughts you can or want to share on how it's going to affect your business model? On Streamlabs, too early to say. I mean, I'm super excited about the team, the business, the brand. And I have to say, it's really great when you bring in a new business like that, especially an entrepreneurial driven business. And I thought we were fast until I saw Streamlabs in action. And I have to say, it's a real kick in the tail to move faster. Those guys are appropriately moving fast. They're in a software service driven world and they can move fast than they do. And it's a good it's exciting. It's something to learn from. On the so stay tuned. I think Streamlabs is really cool. We've got a lot of exciting things happening there. On the Chinese New Year timing, whether it's having and we don't obviously are going to talk about this quarter yet and how we think it's going or whatever. But I would say the only pull in effect that I can kind of point out from Chinese New Year is the fact that I needed to go over early this year because we go celebrate Chinese New Year with all our sites. And so I had to pull in my calendar. And it's really, really fun because we go to all our sites in China. This year was super, super fun and exciting. And it's the year of the mouse. So get ready, it's going to be a good year for mice, but the rat, but close enough. Okay. Thanks a lot. Thank you. We have a question from Andreas Mueller with ZKB. Please go ahead. Hey, Andreas. Hey, back again. Just one question on the growth in the Americas. Was that I mean, you explained it by product wise, but was there also an effect of the late Thanksgiving and how much was this effect? That is really hard to say. It's so hard to pin that down. Probably there was an effect. We were kind of hoping that there wouldn't be one. There might have been one. It was the shortest period you could possibly have I think between Thanksgiving and Christmas, so Thanksgiving and New Year. So yes, there's probably some effect. But I think the bigger effect is really the fact that we took price increases and we didn't go as deep on promotions this year. And then we had the Blue Mike effect and the ongoing challenge of so I think when you roll all that together, it's really what drove it. I doubt if a lot of it was Thanksgiving to Christmas distance. Yes. I mean, I think as Bracken I think what Bracken called out was really the drivers. It was really those specific categories and those decisions we made. I feel good about the decision to on the pricing in general. I just think I think you learn every by the time we get to this call, I'm kind of always this call is kind of very anticlimactic for me because we're so focused on what's coming and you're so focused on what happened to try to learn from it, which is great. And so one of the things that I think we learned this quarter is, wow, you know what, there was more room on pricing than we realized and there was more room on cost than we realized. And if it weren't for tariffs, we wouldn't have gotten there. So shame on us for not getting more out of that sooner. It's a good one. Okay. That's clear. Thanks. Thanks a lot. Thanks, Andrea. And at this time, I will turn the call over to the presenters. Great. Well, you know what, another good quarter, another good holiday. As I said, we're way, way, way, way into Q4 and we're already thinking hard and building plans for next year and the year beyond. And it's been super exciting and we've got these 3 big secular trends that are driving our biggest growth engines. But there's a whole other set that we're working on too and who knows maybe we'll bring one of those out soon. But thanks a lot for being on the call. I hope that many of you will make to New York on March 3rd. We'll be there. We'll be there with the whiteboard talking about what's next. Thank you very much. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.