Earnings Call: Q4 2019

Apr 30, 2019

Good day, and welcome to the Logitech Fourth Quarter Fiscal 2019 Financial Results Conference Call. At this time, all participants are in a listen only mode. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I'd now like to introduce your host for today's call, Ben Liu, Head of Investor Relations. Please go ahead. Thank you, James. Welcome to the Logitech conference call to discuss the company's financial results for the Q4 of fiscal year 2019. The press release, our prepared remarks and slides as well as a 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 update or revise any forward looking statements as a result of new developments or otherwise. Please note that today's call will include results reported on a non GAAP basis except as otherwise noted. Non GAAP reporting is provided to help you better understand our business. However, non GAAP financial results are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Non GAAP measures have inherent limitations, should be used only in conjunction with Logitech's consolidated financial results prepared in accordance with GAAP. 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 Investor Relations page of the Logitech website. Joining us today from California are Bracken Darryl, President and CEO and Vincent Plett, CFO. I'll now turn the call over to Bracken. Thank you, Ben, and thanks all of you for joining us. Launch Tech delivered another great year with fiscal year 2019 sales and profits up double digits for the 3rd year in a row. Sales were up 10% and profits were up 23%. Our 3 growth businesses and it's kind of fun to call this first one a growth business, creativity and productivity, video collaboration and gaming all performed well and will continue to drive growth through this year as well. I'm excited about the secular trends underpinning growth in these large categories. There are 3 major global trends driving these businesses and they're just a few of the many reasons why we're so excited and where we about being the Laurel's leading cloud peripherals player. First, the first trend, if you're under 30 or have kids who are, you know that there are only 2 kinds of calls you make. Audio calls when you're moving and video calls when you're stationary. But when you look at your offices, you will probably see that most rooms are not video enabled. The cloud is changing this by making it accessible, affordable and easy. And we're in the very, very early stages as today only a low single digit percentage of those rooms are video equipped. I believe in the not so distant future, every single closed space will be designed for video. And that's why we're so excited about the growth opportunities ahead of us in our video collaboration business. Just look at the recent successful IPO of our cloud video partner Zoom. We're ready to outfit all those cloud video enabled rooms with our best in class solutions. The second trend is one that you've heard me talk about time and time again. PC gameplay is destined to become one of the biggest, if not the biggest, sport or pastime, if you prefer to call it that, in the world. It's not just a fad. It's a full blown secular tidal wave. And like VC, the roots of this 2nd massive trend are fueled by the cloud and the social experiences it creates. And the social nature not only drives viral adoption by gamers, it also drives viral viewership and casual gamers. Today, more people are watching others play video games than almost any other sporting event. And that viewership is concentrated, concentrated under 30. Imagine as this generation grows up, with leading technology and a broad portfolio of peripherals that deliver fantastic gaming experience, we've delivered 6 consecutive years of double digit gaming sales growth. And we're not expecting that secular momentum to slow anytime soon. The 3rd trend is the explosion of content creators. Today, more people are watching content created by other people than any time in human history, and it's hard to imagine this trend slowing. While we all watch and love big budget movies like Avengers: Endgame or shows on Netflix, there's an ever growing library of content that people are creating and that audiences are watching. The democratization and instant availability of this content is surging, thanks to Instagram, YouTube, Twitch, Facebook and LinkedIn and others. Content is being created by someone in a bedroom, in a living room, in a dorm room, in an open office, in a Starbucks or outdoors right now all the time all over the world. An employee recently told me his 5 year old niece is infatuated with watching this 7 year old boy named Ryan unbox and play with toys. Here's a little known fact, that 7 year old boy, YouTube Ryan's show is called ToysReview and was the highest worldwide earner on YouTube last year, pulling in $22,000,000 according to Forbes. No, I'm not kidding. Content creators edit stage and format at a desk using a PC, using a keyboard, a mouse, a webcam and sometimes a microphone. And this is one of the reasons why our PC peripherals business has consistently been growing ever since fiscal year 2015. And frankly, we've not been specifically designing for that user. And while new PC shipments may lag or even decline, we expect continued low single digit growth for this large business going forward. 3 big secular trends driving our business. Now let's talk about the track record we built driving into these trends. We delivered another year of exciting growth in gaming with fiscal 2019 sales up 33%, gaining market share and improving profitability. Our core PC gaming group grew double digits across all three regions, while ASTRO Gaming expanded our presence into the console headset space and most recently in the console controllers. This offset an expected decline in our simulation group, mainly racing wheels, since most of the major racing titles were updated fall 2017. Gaming and particularly the simulation part of the business is seasonal and title driven. What's most impressive though is that our gaming business still managed to grow double digits in Q4 despite being well into the tough Fortnite growth comparisons from last year. That said, growth in ASTRO in fiscal year 2020 will be tough to predict given the unprecedented growth we saw last year. And that's why we expect 15% to 20% growth in total gaming sales for fiscal year 2020 versus the 33% we just posted. While growth in gaming will sometimes be more lumpy, especially by product line, we expect this Esports phenomenon to continue to fuel the long term growth of our gaming business for many years to come. Video Collaboration sales grew 44% in fiscal year 2019. Sales in this category were practically 0, a mere 6 years ago. Since then, our VC sales have put up a 6 year sales compound CAGR compound average growth rate of over 50%. While we're looking for VC sales growth of 25% to 30% for this coming year, you can be sure that I'm pushing the team to outperform that. As you heard us say before, we're continuing to grow and invest in our direct sales force. And on top of that, we're also innovating in our product portfolio. Sales of our huddle room meetup product more than doubled year over year. And we showed at our March Analyst Day, our VC product portfolio can now address both small huddle rooms and all the way up to large conference rooms. What's that mean? It means that our previous average customer hardware price point of around $1,000 for Meetup can now potentially go to $2,000 or $3,000 using our new rally camera system, all the while expanding our addressable market in those larger rooms. In fact, Rally has shown early signs of success after its initial launch this past quarter. And one of our newest products, the Universal Meeting Rooms Control Panel TAP has already created a lot of excitement with customers and will be shipping shortly. And I strongly encourage you to go see the commercial for that. It's incredibly good and funny. It's still early days for companies to adopt lower cost cloud based video collaboration solutions and we see years of strong runway ahead of us. PC peripherals sales increased 7% in fiscal year 2019, representing the 4th consecutive year of growth. With all three product lines, pointing devices, keyboards and webcams delivering growth. We've demonstrated that as long as we keep innovating for all different use cases, whether you're a creative designer, a social content creator, a student, an investment analyst or somebody else, we can achieve consistent growth. Our MX vertical has become a hit and it's not only taking share in the vertical mouse market, but it's also actually dramatically expanded the size of that market. Our China team also developed the slim inexpensive pebble mouse that strongly resonated with millennials in China and it's off to a great start. Staying close to users and using design to unlock the power of our engineering has been one of our hallmark capabilities the last 5 or 6 years and we're not letting up. Tablet and other accessories sales sorry, tablet and other accessories sales grew for the 2nd straight year, up 20%. While we saw a decline in Q4, this is due to the timing of our introduction of a new Slim Folio for the latest generation of the iPad Pro, which just launched this month. As long as the iPad market remains healthy, we'll continue to introduce new products and drive growth. Mobile speakers were down 26% for the full year with Q4 sales up 81%. Don't get too excited about our strong Q4 growth. We had a very weak Q4 for mobile speakers last year. So I wouldn't view this Q4 performance as a trend. And as we have stated before, the overall mobile speaker market remains soft. And so we've taken measures to better align our investments, our resources and our channel inventory. But we'll continue to innovate and come out with new products and experiences. Audio and wearable sales were up 11% for the year, due largely to our recent acquisition of Blue, which contributed roughly 2 percentage points to our overall growth in 2019. We love Blue and we love the Blue team, which delivered another strong double digit quarter. Excluding Blue, audio and wearables was down single digits. We remain excited about the opportunities in the wireless earbud market. Jaybird is taking a disciplined approach to carving out its own unique niche, building out great products targeted at athletes. Now let me talk about the news we announced regarding Vincent Pilette, our CFO and my partner. He and I are actually much to your surprise both wearing our jackets today in honor of his last earnings call with Logitech. I can't end this call without thanking Vincent. For the last 6 years, he's dedicated to Logitech as our CFO and is one of my closest partners. He was here in the early stages of Logitech's turnaround as were many of you and played a critical role driving the company's transformation, which is the Logitech you know today, the multi category, multi brand design company, the growth company. But more important than the work Vincent did in helping us get back to a growth company is the team he built and the rigor he's brought to the way we work. We now have a strong seasoned finance team across every area and that's the most important legacy he'll leave. We've named Nate Olmstead, who's sitting down the table from me, as our interim CFO while we search for the new CFO. Nate joined us earlier this year from Hewlett Packard Enterprise and brings over 16 years of deep financial management expertise, most recently as the Vice President of Finance for Global Operations at HP. Vincent and Nate will spend the coming weeks together working on a transition plan and meeting with each of you. Now let me turn the call over to Vincent to walk you through our financial metrics. Thanks, Bracken. For the record, I'm wearing a jacket, but no tie. Me too. As Bracken mentioned, we delivered another year of strong financial performance, the 6th one to be exact. Fiscal year 2019 sales reached $2,800,000,000 up 10% in constant currency, while our non GAAP operating profit rose 23% to $352,000,000 better than we expected. Non GAAP EPS was $2.01 a significant milestone for us because 3 years ago, we had laid out the roadmap towards doubling EPS to $2 and we did it a year earlier. From here, we will focus on driving continued top line growth, diversifying the portfolio and delivering operating leverage as we recently raised our long term operating margin target to 14% on the high end of our range versus 12.6% in fiscal 2019. Our fiscal 2019 gross margin reached 37.8%, up 190 basis points at the midpoint of our recently raised long term range of 36% to 40%. As you recall from our recent analyst in Zurich, we took up the high end of our gross margin target range to 40% and that is due to 3 factors. 1 is normal cost structure improvements, which we will continue to drive for. And as you can tell from our margin increases in the past few years, we have a pretty good track record of reducing cost faster than natural product price decline. The second factor is better product mix as we shift more into video collaboration, gaming and PC peripherals, which all generally have better gross margin than the other categories. Finally, the third factor is our desire to transition the business model to more branding and marketing led activities for more promo led demand generation that we have mainly used in the past. In essence, we will be balancing how much we spend in gross to net promotions versus what we will spend on marketing OpEx. As we continue to build our multi brand, multi category portfolio, you can be sure that we will look to expand our capabilities around marketing and branding. Our non GAAP operating expenses increased 10% in fiscal 2019 to just over $700,000,000 or up about 8% excluding Blue. This demonstrates our continued discipline in driving operating leverage through balancing our spend with both top line growth and gross margin expansion, while continuing to invest to capture our best growth opportunities. Our approach is pretty simple. We continuously look to optimize infrastructure spend to invest more in building and selling great products. Our sales and marketing and R and D spend were both up 12% for the year to support the strong top line growth, while we kept our G and A spending flat for the year at a record low 2.9% of sales. And as a result, we delivered better than expected profits for both Q4 and fiscal 2019. Now let me talk briefly about our cash flows. Cash flow from operations was $305,000,000 for the full year, down from $346,000,000 in fiscal 2018. Although cash flow continues to be very strong for the company, the decline in cash flows year over year was mainly a result of the strategic pulling of inventory ahead of tariffs and a more back end loaded sales in Q4. Overall though, we continue to expect our cash flow from operation to generally approximate onetime non GAAP operating income as shown by the average of the last 5 years. In summary, we feel very good about this past year and the business is well positioned to deliver another great year in fiscal year 2020. Finally, as Bracken mentioned, I've decided to leave Logitech full of mixed emotions of course, but with tremendous optimism for Logitech and its future. We've just delivered our 6th year of growth. The company is well positioned to deliver on the long term model we laid out in March. And so there was no better timing for me to pass the CFO's responsibilities to Nate and pursue a new challenge. I was a shareholder before I joined and I will stay a passionate shareholder and a big supporter of the team moving forward. And before I get emotional, let me pass it back to Bracken. If you believe Vincent ever gets emotional, you don't know him well enough. Fiscal year 2019 marks another great year for us. We're well positioned to drive continued growth in fiscal year 2020 as we continue down our path of being the largest cloud peripherals player. I'm energized by our plans and I'm energized by our people. We just gave our outlook for fiscal year 2020 in March and today we're confirming that outlook. Sales of mid to high single digits in constant currency and non GAAP operating income of $375,000,000 to $385,000,000 And with that, Vincent and I are ready to take your questions. Ben, why don't you queue them up? Your first question comes from the line of Ananda Baruah from Loop Capital. Go ahead please. Your line is open. Hi, Ananda. Hi, good morning guys. And hey Vincent. Yes, so we'll miss working with you and congrats on a job well done. Thank you. Looking forward to seeing where you land and maybe with any luck we can make it 3 for 3. So would love to. Yes, so just with regards to the business, so congrats on solid top line, solid results. So look, this is a solid op margin beat. And so just sort of philosophically, are you guys starting fiscal year 2020 from perhaps a little bit of a higher sort of higher floor than you thought you might be at the Analyst Day? How should we think about that cadence in the context of the fiscal year 2020 guidance? And I have a couple of follow Thanks. Yes. Hey, Ananda. In terms of guidance at this point in time, it's way too early to change our guidance. I think the business overall is performing well. And as we always said, we're operating a little bit higher in our gross margin. We would like to have the capability to reinvest and continue to invest for the future. So I would say it's all built in. Going into fiscal 2020, we still have many variables like either tariffs or currency that we don't control. And so we like to have a lot of variability in our P and L to be able to always deliver on our commitment. Okay, okay, great. And then Bracken, on gaming, can you just point out if there's any specific catalysts for the year? Fortnite has been a really tremendous catalyst for a while now. So what do you see as being catalyst post Fortnite? And maybe that's not the right way to think about it, but whatever those dynamics are? Yes. And then secondarily, is Fortnite to what extent if any do you consider Fortnite to still be a catalyst? And then I have one more after that. Thanks. Okay. Yes, Fortnite, well, first of all, I think the primary catalyst is the and catalyst is maybe an interesting word to use for it, but is the underlying secular trend that's just happening. The growth of esports, the excitement around esports. And then as you said, the launch of new games is always going to be a big deal. But remember, the underlying continued growth of the existing games is still it continues to be really exciting. So I'm not sure I you could point at this point in the year to a single catalyst that will drive the short term. But the long term secular trend is seems kind of almost inevitable to me. And so new games are coming in all the time. The game publishers don't sit on their hands. When Fortnite came out and created such a wave, the Activision Blizzard and Electronic Arts and so many others have been doubling down on creating new games and you're starting to see them come out. So I think it's I think we'll have all kinds of surprises in the gaming business, but even if we don't, the second term will just continue. Okay, great. And just is it as we see more gaming services enter the market and some of them are also now sort of not surprisingly targeting increasingly sort of some of the larger phones from a couple of different service providers. Is there an opportunity long term or even the medium term for you guys to come out with product that might serve as an interesting alternative to just sort of the normal earbuds for folks for that market? Well, we try not to comment about specific categories and we might not be playing in. But what I would say is you referenced something else that I do want to jump on, which is the creation of new services like cloud based services that enable you to essentially have a mega PC experience without the PC on your desk are another growth enabler for us because you continue to need a headset, keyboard and a mouse. So this is a super exciting thing for us and we've seen this coming. It started with some startups and now it's going to Microsoft and Apple and others. So I think that's going to be exciting. In terms of mobile gaming in general, mobile gaming continues to be huge and growing and we certainly think there are interesting places to play in there. And obviously, headsets is one part of it. Some of our products are probably already used for some of the mobile gaming, but we haven't directly targeted that yet and it is an interesting area. Okay, great. That's helpful. And then last one for me. Video Collaboration, did I hear you accurately, Bracken? You said you guys are targeting 25 percent to 30% growth for the year. And is this the first time you've disclosed that, if I heard that right, the fiscal year 2020 or was that actually a target or is that actually from the at the Analyst Day as well? No, we disclosed at the Analyst Investor Day. So that's not a new number. But we the real point I was making there was, it's really at this point in the year, it's a little hard to get too specific on it, but we're excited about video collaboration. It's just I think we're the only building I ever go into. This is video enabled as the future will be in every building. And your next question comes from By the way, by the way, Ananda, before you jump off, I went to this really cool company whose average age is probably 28 that has a lot of employees not too long ago. And I won't mention who it was. And it blew my mind that I walked through that building and there were so many enclosed spaces. I mean, they look like ours in that regard as an open office. And so few, in fact, I didn't see any video enabled spaces except the boardroom, which just or maybe 1 or 2 other large rooms. So the opportunity is so big. Thanks, Amanda. And your next question comes from the line of Asiya Merchant from Citigroup. Go ahead, please. Your line is open. Hi, good morning, everyone, and thank you. And Winston, we'll miss you as well, but good luck on your next venture. Quick question, now with probably the CFO search underway and I know you have an interim CFO here, how should we think about acquisitions? I mean in the past couple of years, you guys have done smaller acquisitions and they've obviously contributed to the top line. So should we assume there's a little bit of a step back from these little acquisitions that you might have considered prior to Vincent's departure? No, I wouldn't assume that at all. We're always looking and we'll keep looking. I think it'd be crazy for us to stop doing what we do well. Vince is leaving, but Vince has left a great team behind him and Nate is going to be terrific. And we're not letting up on anything at all. And if I can add, especially in acquisition, but it's actually true in every discipline, it's really a teamwork, right, between the business development team, the strategic team, Bracken's involvement, mine, the general managers. And so especially in M and A, it's really a broad effort. The CFO is definitely part of that, but not the only player. But I would say, we while we've done acquisitions, they get more focused for all the right reasons. We're really an organic growth company. I mean, we're 1st and foremost an organic growth company. If you look at VC and gaming and PC peripherals, really underneath all that is an innovation engine that is the key to this business, but we're going to continue to do acquisitions. Okay. And then just a couple of follow ups. Inter quarter, there was some commentary in the prepared remarks that there was some linearity in the intra quarter that suggests it was back end loaded. So what was the surprise there? And then as a follow-up to that, at your Analyst Day, you talked about mid to high single digits, keeping in mind some of the macro factors that were out there, perhaps the Fortnite factor as well. Has anything evolved from that time, anything that has surprised you to the upside or to the downside? Hey, Jack. Quickly on linearity. No, it was not a surprise since we talked last, which was at AID. If you remember, back in the last calendar quarter, Q4 Christmas quarter, there was a lot of volatility. And in January, the business of the quarter started slow and then ramp up faster than last year and finished strongly in March. And I think that caused some of the AR and cash collection to be delayed into the next quarter. That's what we were referencing to. Yes. In terms of is there anything we've seen since then? It's so early in the year. It's really hard. It's really too early for us to comment on it, the economic environment or any of that stuff. So it's just too early. We had 11 months to go. Okay, great. And cash conversion cycle, as we revert back to perhaps more linear quarters? And should we expect that to revert back to what has been a historic norm ex the ASC 606 impact? Yes, absolutely. Yes. Okay. All right. Thank you, gentlemen. Thank you, Asiya. Your next question comes from the line of Andreas Mueller from ZKB. Go ahead, please. Your line is open. Hi, Andreas. Hi, Andreas. Hello. Thanks for taking my question and good luck Vincent. We miss going to miss you. Question on the inventories. How do you see the progression of the inventories in the next quarter? So are we on the level now that is good enough to protect from the tariffs? Yes. I think as you know, we mentioned in our prepared remarks we've put in some inventories to protect against tariffs. It's not clear yet what tariffs will be in the future. But on the current assumptions, I think we are stabilized, if you want, and we'll burn all of that inventory that we're pulling in advance. It was the right economic decision using our balance sheet as a strength for that. Okay. Then on the operating cash flow, can you give us the absolute size of the operating cash flow that was impacted by this back end loaded quarter? Overall, about $40,000,000 impact and about half of it from inventory pull in and half from linearity. Then my last question, can you dissect a bit the gross margin uplift of this 160 basis points into the fact that currency product mix, cost savings, China tariffs? And also could you indicate how these single sectors are going to progress into Q1? Yes. So no, Andreas, I'm not going to go into my long very detailed spreadsheet analysis here on the call to give all of the drivers. We always said we have multiple drivers on the gross margin. We've been trending above 37% for the full year and Q4 is slightly above that, but in line with everything we said there. And all three factors were favorable to gross margin, which was cost reduction, mix overall and the reduction of promo and more marketing expenses. Those trends will continue going into fiscal year 2020. You should expect the gross margin in the Q1 here to be a little bit weaker considering that there is more currency impact at this point in time with the euro being at around 1.12 in exchange rate. So that's but overall for the year, we'll be on a solid footing and the three factors I've mentioned will continue to drive gross margin up. Okay, great. Thanks a lot and good luck, Wouter. Thank you. Thanks, Andreas. Your next question comes from the line of Juergen Wagner from MainFirst Bank. Go ahead please. Your line is open. Hello, Jurgen. Yes. Hi. Hey, Jurgen. Thank you for taking my question. Actually, I have 2 sell through weakness in Europe. Is that going to reverse? You had some volatility in the past. Is it just normal fluctuation? And the second question would be, yes, you talked a lot about video in your prepared remarks. And now that the market is evolving and you are broadening your footprint, we hear from others that they might see growth there. So how do you see your positioning and the competitive environment developing going forward also because it's a high gross margin business for you? Is it staying amongst the highest gross margin product for you? Thank you. Yes. Let me take the last one first. I'll let Vincent take the first one last. So, yes, I think the video as I mentioned, I think the video opportunity is so big. It's really we're going to see strong growth in spite of what happens from a competitive standpoint. And from a gross margin standpoint, I don't think there's any reason to think that the gross margin will be impacted by the competitive environment. I think from what I can see, the gross margin profiles of the competitors we have look a lot like ours. So or at least in the same vein. So I doubt it. I think the opportunity is really, really big for many companies and competition is great. Competition drives growth. It will drive more awareness in the market. And I think you'll see those other 95% of rooms come into video faster. So I will address the China inventory and thanks for your question because there's a few analysts writing about that based on the report we had put on our website. So overall, the selling growth rate or the net sales growth rate as you know is 5% in U. S. Dollars. The sell through that you mentioned on a global basis is 4% excluding Blue and 6% including Blue. Overall, the business channel inventory is well positioned, slightly less than revenue growth, so we feel good and weeks on end slightly down. So well positioned going into the Q1 of the next fiscal year. As you have seen on the report, it's aligned in both Americas. It's actually even more favorable in Asia Pacific. And then in Europe, we have a little bit higher sales in than sell through. And the thing to consider is really this reduction of promotions into marketing effects that's impacting the net sales in, but not reflecting in the sell through. On a constant currency basis, sell through in Europe was around 6% to 7% growth and we feel pretty good about where we are in the channel there. Okay. Thank you. Thanks, Juergen. Your next question comes from the line of Paul Chung from JPMorgan. Go ahead please. Your line is open. Hi, Paul. Hey, Bracken. Thanks for taking my question. And thanks Vincent, you will be missed for sure. So first up on video collaboration, are you starting to see more competition on the huddle room side? And then secondly, how's your progress been on kind of attacking the larger conference rooms? Are you gaining share there? And what's your kind of go to market strategy? And then any sense of revenue potential there would be great. Okay. On the competition on the Heidelberg side, yes, absolutely. We're definitely seeing it. It's been out there and it's and we've got several really good competitors in the huddle room space now. And as I said, as I responded to Juergen's call, I think competition, I don't want to sound too Pollyanna here, but competition is good. I mean, if you don't have competition, you don't have nearly the market growth potential because the the more players in there is a good thing overall and it puts pressure on us to innovate and do and innovate well and that's what we're up to. So I'd say so far we continue to be excited about the potential there in line with what we were before. But I think the market will be interesting to watch over time. Terms of large rooms, it's a little too early. We just launched Rally. We've had something that you could use in a large room, but I'm sure we'll do better than we have been in those large rooms now that we have. And I wouldn't try to quantify exactly what that is. I think there's just opportunity across the board. Okay. And then on the zone wireless headset, it seems like a nice cross sell opportunity in the enterprise space. So, first, is this going to be classified in VCU or Audio Wearables? And then second, what's your strategy to gain market share there and kind of potential you see as well? Yes, that's going to be in Audio Wearables. And it's a first really attempt to get some experience into that marketplace. I don't want to overstate its potential. I think it's a terrific product, but it's a first and I would say really small step into exploring what it's like to be in that space. And we're going to see how it feels like we do with video conferencing 6 years ago. We got in the front door, it felt kind of warm inside and then we continue to walk inside and we're doing the same thing there. Okay. And then lastly, just want to get your sense on keyboards and pointing devices still remains $1,000,000,000 business itself. So you continue to exceed expectations in this segment pretty consistently. So it's pretty nice, low mid single digits there. Just can you expand on what's been driving your success there, whether it's ASPs, certain regions and kind of your longer term view of the segment would be very helpful? Thank you. Yes. It's really a global thing, just like the underlying secular driver of that is a global thing. And that underlying secular driver is the fact that so many people are using their PC for more than they used to in the past and they're using it for content creation. And so again that might seem like a difficult path to explain how those 2 are connected. But if you just think about the way a lot of people are creating content, they're not doing on their phones, they're doing it at a desk. If they're doing it on a desk, they're doing it with a PC. And therefore, it's an important part of their lives. And I think that's really what's happening. As long as we innovate, And there are different innovation vectors that we can go after there and we are. So the vertical mouse we launched 2 quarters ago or the end of the quarter before last is another interesting one where people are using continue to use their PC so much that they get competitive use injuries and healthy computing is a big deal. And it's a really big deal in the Nordics. It's becoming a big deal in Europe and it's starting to pick up steam here. So we've got different things that can drive and will drive and are driving that growth. And I think we continue to see that as we said, I can think of continue to see low single digit growth for the foreseeable future. Great. Thanks and good luck, Vincent. Thanks, Paul. Thanks, Paul. Your next question comes from the line of Joanne Essert from UBS. Go ahead please. Your line is open. Yes, hello, Vincent. Hi, Joanne. Hi, Joanne. Hi. Vincent, we will for sure meet you. Hopefully, a lot of seconds on missing you at some point in time. Quickly, following up on gaming, please. Your competitor, Turtle Beach, I think is guiding down their sales target by around 20% because they think there is lower demand on the headset side. Are you also seeing similar trends? Or if not, what is explaining the difference? And Brecht, when you said gaming can be sometimes a bit lumpy, does it mean that, for example, Q4 was plus 30% is kind of lumpy? Or can you also mention at some point in time in the quarter gaming is falling to flat as a plus 5% growth in the next 1 or 2 years? Well, I think you could see that in the quarter. I think, lumpy in terms of different categories grow at different rates, sometimes simulation will be down like it was this quarter and sometimes others will offset it. But yes, I think gaming could be lumpy like that. I think you could see a drop down and be flat or single digits or low double digits. But I think the and what Turtle Beach I think guided about, I didn't look closely at it, but I would guess they're referencing the Fortnite effect. Remember, they're completely in the Fortnite business and the headset business. So we're in a lot of other categories as well. So now will it decline 20%, will it be flat, will it grow 10% the headset business especially related to who knows. I mean at the end of the day, I think we've got enough tools in our arsenal that we're going to be able to drive good solid growth in spite of whatever that is. But I think the reality is whatever that happens with the Fortnite, the famous Fortnite effect, remember there are new games coming on that are look like they're on track to be as big as Fortnite. So there's a lot of stuff coming. I admire their conservatism and I think they're probably were right to do it if they're only in the headset business, but we're in mice and keyboards and headsets and simulation, a lot of categories. All right. Thanks. And would you say the gaming guide of 15%, 20%, is this back end loaded in fiscal year 2020? No. It's pretty regular through the year. And I just want to just add on Bracken's comments, right? So the diversification of our entire portfolio has been definitely a strength for us, right? And we've been growing double digit for 3 years at almost every quarter we had the weakness in one specific category. Within gaming now, which became as we discussed like a pretty substantial business by itself, we have its own set of diversification. And any quarter a subcategory of the gaming business we have could be in a weaker position. And when Bracken mentioned choppiness or some variety, maybe we could see 1 quarter 5%. It's really talking about a quality basis. We're not managing on a quality basis. We're looking at long term trends. And in the guidance we gave at the March AID, we definitely were cautious on the Fortnite effect and post Fortnite effect. I won't exactly say what cautious means, but we were prudent going into the fiscal year 2020. Yes. I just want to echo a comment that you've just made about our portfolio. I think one of the it's really been such an event for us to be in so many different categories. I think by the way that I count them now, we're in either 26 or 27 different categories. Some of those are gaming, some of those are video. So it's a nice situation for us because and if you combine that with the fact that we're super, super global company with lots of market participation too, it does buffer us from the short term ups and downs of a single category like that. All right. Many thanks. Thank you. Thanks, Joe. Your next question comes from the line of Michael Fowth from Vontobel. Go ahead please. Your line is open. Hi, Michael. Hi, Michael. Yes. Hi. Thanks. Just one left for me actually. I was just wondering the sort of relative weakness in comparison to past quarters that you reported in Asia. And I think you pointed specifically to Australia. If you can explain again what that is related to, if it's really general trend or is it related to some particular product category? And then I'm not sure I understood exactly the difference between the in EMEA between the sell through and the reported sell in growth, if you can just explain that promotional driver there once again? Thank you. Let me take the first one and let Vince take the second one again. In Asia Pacific, yes, we referenced that Australia and New Zealand had a strong slowdown in Q4. And I think that's they tend to get a sort of a delayed effect on the rest of the world and some of the categories we're in. They're also very, very large in music. So they're a big music business for us. So I think you the combination of being a very large music business and then the delay in the slowdown in the market of Bluetooth speakers. So they sort of saw it this quarter. So that was the biggest driver. But I do think Asia Pacific will be slower growth than it's been in the past. We have this portfolio of regions too where we've been growing 20%, 19%, 20%, 21% in Asia Pacific. I think you'll see that come down for this year. We'll still I think be strong double digits, but it will I think it will come down. And I think that's sort of what we would expect. And but so the Asia thing was this quarter's issue, but and I think that will kind of flow through. But I think Asia Pacific in general will be lower as Europe comes up and hopefully AMR comes up. Michael, let me stay high level on sell through and then we can always follow-up in our 1 on 1. So when you look at sell through report we posted on our website versus net sale, there are 3 factors you need to keep in mind. The first one is the constant currency versus U. S. Dollars. Sell through that we reported and is reported to us is in U. S. Dollars, so you need to compare that to the right gross rate. The second one is that sell through does not include Blue yet as we have not fully integrated that business into that sell through report if you want coming from 3rd party. And then the 3rd driver is this reduction of contra revenue or gross to net and sell through is on the gross level and net sales is all inclusive. And then I'll be happy to follow on more technical answer when we have our 1 on 1. Sure. Thanks a lot. Thank you. Thanks, Michael. And there are no further questions at this time. I'd like to turn the call back over to our presenters. Okay. Well, I want to finish on 2 things. One is, we're we just finished a great year and we're starting a new one and that's always really exciting and we're excited about the year. I want to congratulate Nate. I think he's going to be he's been terrific and he happens to be sitting catty corner to me right now. We didn't put him on the hook today, but we will next quarter. And I want to again thank Vincent. It's rare to find a partner who shares your ambition as completely as Vincent did with me. And the good news is there are others here who do as well. And I don't think he's leaving anything but a company that's just so much stronger than when he arrived. And we continue and we will continue to double down on what we've already built into the future. So good luck, Vincent. Thanks everyone for the call.