Earnings Call: Q3 2019

Jan 22, 2019

Good day, and welcome to the Logitech Third Quarter Fiscal 2019 Financial Results Conference Call. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I would like to introduce your host for today's call, Mr. Ben Liu, Head of Investor Relations. Thank you, Sharon. Welcome to the Logitech conference call to discuss the company's financial results for the Q3 of fiscal year 2019. 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 about 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 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 statements prepared in accordance with GAAP. Our press release and slides provide a reconciliation between GAAP and non GAAP numbers in our posted on our IR website. We encourage listeners to view these items. Unless otherwise noted, comparisons between periods are year over year and in constant currency. This call is being recorded and will be available for replay in the Investor Relations page on the Logitech website. Joining us today from California are Bracken Darryl, President and Chief Executive Officer and Vincent Platt, Chief Financial Officer. I will now turn the call over to Brackett. Well done, Ben. Thank you, Ben, and thanks all of you for joining us. We all know that we're operating in 2 overlapping worlds, the long term world and the short term world. In the long term world, we all know there will be global secular growth. In the short term world, uncertainties created by economic cycles and increasingly political issues threaten to dent the smooth trajectory of that long term secular rise. Logitech's strategy answers well to both the long and the short term. Our cloud peripheral strategy clearly harnesses the long term secular growth. We grow by riding the strong waves of new cloud services. But at the same time, the increasing number and character of our categories creates more diversity and resilience in the short term. Like any portfolio, in the face of short term uncertainty, a portfolio buffers volatility. Our fortunes won't be driven by a single category or single brand, but by the aggregation of a growing number of categories and brands. For most of them, we are or we nearly are the leader. So our portfolio offers long term growth and short term diversity and resilience. And our model delivers something else, both growth and strong profit. Q3 demonstrates our business model's inherent growth and profit power. Our overall Q3 sales grew 8% to our highest ever against a really strong comparison period a year ago when we grew 18%. That growth story results from what we've now and what have now become our 3 largest businesses on a run rate basis: creativity and productivity, no surprise, gaming and video collaboration. In fact, those 3 now comprise 75% of our net sales. While our top line growth was strong, our profitability was just as impressive. Our operating profit grew significantly better than expected 22% to $143,000,000 The backbone of our strong performance is our ability to consistently execute operationally, but the heart of our business is our innovation engine. That innovation engine drove impressive double digit growth in all three of our largest businesses this quarter. Let's dig into our categories a little deeper. First, video collaboration grew 64% in Q3. While I don't expect the growth ahead to be that strong, we continue to be excited about our opportunity there as you know. We're expanding our product portfolio to address conference rooms of all sizes. We started this business with products that targeted huddle rooms and small sized conference rooms with an average product ASP of just a few $100 Our integrated video and audio camera meet up that we launched last year or a year and a half ago quickly became our top selling video collaboration product and sales have more than doubled versus last year this quarter. Now our latest Rally family of video collaboration products extends our award winning audio and video solutions to midsize and even large sized conference rooms. This not only expands our addressable market, but it also expands the number of the price points. You can expect us to serially innovate and explore new products, both hardware and software to capture the cloud based video collaboration market opportunity. But great products don't get much attention without a good go to market approach. And here we continue to invest in building out our direct sales our direct enterprise sales force. We've talked a lot about gaming and it's getting more and more exciting. Sales in gaming grew 25% with all three regions delivering double digit growth. Within our gaming business, we have 3 groups. Our core PC gaming, if you think of as mice and keyboards and headsets, ASTRO, which has historically been console gaming headsets, but soon we will extend into console controllers. And finally, our simulation products, a niche category that is comprised of racing wheels and flight simulation controllers and joysticks. In Q3, our PC gaming sales growth actually accelerated versus the prior quarter. At the same time, ASTRO continued to deliver strong double digit growth despite very strong comparison from last year. And simulation, which is more cyclically tied to gaming title launches, declined as expected, often especially tough comparison when several racing game title launches last year at the same time Gran Turismo, Forces, Forza and Need for Speed last year. So as you can see, the underlying growth trajectory we're seeing in gaming outside of niche racing wheels is really strong. Even in China, we achieved very consistent growth momentum this past quarter despite some worries of the China gaming market slowing down due to government and game approval delays. As we look into our future, the gaming will continue to offer multiple paths for growth. Further market share gains outside of our outside of MICE, our shares are good, but they can be a lot better. The ever rising popularity of esports, which is destined to be the world's biggest spectator sport and adjacent market expansion such as ASTRO's new PlayStation 4 controller. By now the consistent performance in our PC peripherals group should not be surprising anyone. It's secular. This quarter sales growth was 13%, especially strong. Despite choppiness in new PC shipments, we've always said that as long as we innovate on how consumers engage with their PCs, this is the very strong consumer reception to our MX vertical mouse, we can drive continued peripheral refreshes against the very large PC installed base. And there's actually something else going on here, the growth of content creation or broadcasting, whether that's through gaming streaming, social media generation or video blogging has simply reenergized PC peripherals for content creation, much as eSports reenergized them for gaming. You can see that this quarter as pointing devices, keyboards and webcams all contributed to the strong growth in Q3. That said, I wouldn't encourage anyone to expect us to continue to deliver double digit growth in PC server. Last year's compare was easier than usual as well, but we've consistently planned for low single digit growth in this category and we should be able to do at least that. We'll keep innovating to outperform the broader market. Our Tablets and Other Accessories Group delivered its 4th consecutive quarter of double digit growth with sales up 36%. In fact, we're on track to deliver back to back years of double digit growth in this category. New products like crayon, our first digital pencil for the 9.7 inches iPad as well as the existing products like our slim portfolio drove the performance in Q3. In fact that Slim Folio is now the best selling tablet we've had ever tablet product we've had ever. Now let me update everyone on our recent Blue microphones acquisition. Blue contributed approximately 3 percentage points to our overall Q3 sales growth. The acquisition has been off to a great start and we've already introduced 2 new products since acquisition. The YETI Nano, a $99 compact version of its flagship YETI mic and the Blue Ember XLR mic that brings professional recording features to a more consumer friendly price point. It's still early days, but I can't wait to see all the exciting opportunities that Blue will bring to our Logitech family. In mobile speaker sales were down steeply again this quarter. While creativity and productivity performed well against a weaker quarter compared a year ago, Bluetooth speakers were transitioning against a really strong compare a year ago. Last year, we grew 35% globally and 50% in the Americas. Despite the lower sell in, we made good progress in transitioning out our older products to our newest ones, Boom 3 and Mega Boom 3. But the softer market for Bluetooth speakers has made this transition longer than we would have liked. The overall mobile speaker market remains soft, which is why we've taken actions to better align our investments and resources against this reduced market outlook. But this doesn't mean we'll stop innovating. This really demonstrates the power of our portfolio. When one category faces challenges in the market or an execution, we can continue to adjust and innovate for the future long term, while other categories can continue to drive growth and overall results shorter term. Audio and wearable sales increased 18% in Q3. As I mentioned earlier, blue microphones contributed roughly 3 percentage points to our overall Q3 sales growth and offset declines in desktop speakers and Jaybird. As we said before, we refocused the Jaybird business on product innovation and a laser focus on reaching runners. And TerraPro, one of our latest products is the best product yet for runners from any company I believe. It's a testament to where we're heading. We still have a long way to go, but we are super excited about the path we're on and for what's ahead. And with that, let me turn the call over to Vincent to walk through our financial metrics. Thanks, Bakken, and good morning, everyone. We delivered a strong and record P and L for our holiday quarter with sales up 8% and operating profit up 22%. I read this morning that the growth of 8% might not be as strong as some may have expected. While some categories are better than expected, actually most of them and others are lower, I would like to remind everyone that last year Q3 sales grew an exceptional 18%. The comparison is particularly tough when you consider that the Americas grew 30% year over year in Q3 last year. And so for this quarter, it might make sense also to keep in mind the sequential growth when analyzing the results. This quarter, we grew sequentially 25%, 5 points above our last 5 year average and that is slightly better than expected. Asia Pacific continued its strong performance despite choppiness in China's macroeconomic trends. EMEA returned to high single digit growth as the team there continues to improve efficiency around our promotional spend. And in the Americas, stable quarter, partly due to that tough comparison against the 30% growth last year. Sequentially, Americas sales were up 36%, better than our past 5 year seasonality. These results demonstrate once again the robustness and the breadth of our portfolio and the ability to overcome weaknesses in some categories with the strength of our 3 main businesses. After 5 quarters of strong growth in ASTRO, we clearly have a winner here. Blue is off to a strong start as well and will be another successful acquisition and integration. We have now done many acquisitions over the past few years and with each we are learning how to better select our targets, integrate faster and leverage and accelerate the innovation and growth of these assets with Logitech's core capabilities. We view this as another key strategic differentiator. In Q3, our non GAAP gross margin improved by 3 70 basis points to 38.1%. I would remind everyone that approximately 150 basis points of that increase was due to gross margin in Q3 last year being impacted by temporary duplicate distribution cost center cost in the Americas. The core margin improvement come from better product mix and greater cost reductions than we had anticipated. And finally, favorable impact of ASC 606 more than offset incremental China tariff costs this quarter. Nevertheless, gross margin did indeed come in higher than expected. While quarterly gross margins may fluctuate from time to time, above or even below our range, we remain committed to our long term annual gross margin range of 35% to 37% with a pronounced focus on delivering at the high end of that range and reinvesting a portion of the excess gross profit to build our portfolio of products and brands and drive sustainable top line growth. As for China tariffs, we had mentioned last quarter that we are deploying multiple levers to minimize the impact of the new tariffs. As you all know, the incremental increase in the tariff rate to 25% has been delayed until end of February, but we are continuing to develop and deploy our mitigation actions. By around mid expect that the impact on our gross margin from the new tariffs imposed last summer as well as those expected for March should become immaterial. Our non GAAP operating expenses increased 15% this past quarter, partially driven by the Blue Microphone acquisition, business investments and variable compensation tied to the strong profit performance. R and D investments increased 18% and sales and marketing expenses rose 14%, both to support the expected strong top line growth in the year and in the long term. G and A spend was around the prior quarter's run rate of about $20,000,000 absorbing our volume growth. The one thing you can continue to expect from us is a very disciplined approach to spending, creating efficiencies, but also investing in resources to support long term growth opportunities, which are funded by gross margin expansion. The better than expected gross margin combined with disciplined spending drove an increase of over 20% in our non GAAP operating income and EPS to $143,000,000 $0.79 respectively. In the quarter, we generated 176 $1,000,000 cash from operations with year to date cash from operations at $273,000,000 up $17,000,000 from the same period last year. Net cash generation improvement versus last year was in spite of our planned inventory increase of about $60,000,000 compared to last year to enable strategic inventory pull in in anticipation of tariffs, inventory builds for the holiday period and the addition of Blue My Tiguan. In the quarter, we also spent $3,000,000 for stock repurchases, leading to a total cash and short term investment balance of $586,000,000 at the end of December compared to $565,000,000 at the end of Q3 last year. We have a lot of work and many opportunities in front of us, but how we finish this biggest quarter of the year sets us up to finish fiscal year 2019 on a very strong note. And with that, Bakken, I'll pass it back to you. Thank you very much, sir. On the back of those strong Q3 results, we're raising our outlook for fiscal year 2019 non GAAP operating income $340,000,000 to $345,000,000 on sales growth of 9% to 11% in constant currency. As we look to the last stretch of our fiscal year, we're getting super excited about next year. So with that, we will open it up for questions. Vincent and I are as always very available for absolutely anything. Fire away. Your first question comes from Asia Merchant with Citigroup. Your line is open. Hi, there. Hi. Good morning, everyone. Congratulations. Yes, I wish I was named after a continent, but very quickly, so you guys have gross margin expansion, which is driven by favorable product mix, some one time cost improvement that you've talked about previously at your Analyst Day. And I understand you continue to invest to grow your market opportunities here. How should we think about sorry, offsetting that you have like you like Bracken mentioned some short term political uncertainties, etcetera. So how should we think about going into fiscal 2020 or even towards the end of fiscal 2019 and then into fiscal 2020 kind of that high single digit growth rate on the top line as you continue to invest given that you have strong margin expansion? And then the other question that I fielded from some investors, if you could dig a little bit more into the mobile speakers market, why that continues to underwhelm? I understand there are some product mixes that you're trying to transition to the new products. But just if you could kind of talk about how you look at the mobile speakers market going forward as Thank you. Yes, let me jump into part of that and then Vincent I'll ping pong this one back and forth. First, I really enjoyed Vincent's opening because he was almost apologetic for our high gross margin. So thank you for raising the point so I can rid him a little bit. In terms of yes, I mean our whole, our view of the world which is if we have higher gross margin our principle is we want to invest that back because we want higher growth. And then you're raising the right point. Question is okay, if you're investing that higher gross margin, higher growth, you're going to get higher growth than you normally expect. It's a little too early for us to talk about next year. I mean we save that for our Analyst and Investor Day. But it is it's really great when you do have extra gross margin that you can and we're always looking we've got always got our list of new investment opportunities to go after. I'll let Vincent respond to that a little bit. I'll jump into the PC speaker the sorry, the Bluetooth speakers question real quickly. Yes, I mean, Bluetooth speakers market is softer than we would have liked. I mean, it is what it is. And we have kind of accepted that it is what it is for the last few quarters. We did we have had a longer transition as a result around the world getting out of our old product into our new one. I think by the time we get to the end of the next quarter it will be completely into the new product which is terrific and we're super excited about. But I think it's a good illustration of our portfolio. We're going to have you're going in a diverse portfolio you're going to have some categories that are growing really strongly like 64%. Others are going to be declining really strongly, plus the short term. And on and then in the near and that will certainly moderate out in Bluetooth speakers and overall we'll continue to deliver good strong growth. That's the whole concept of our model. Do you want to add anything Vincent? No, I just want to clarify Bracken's point. I'm not apologetic about gross margin. Just of not raising our long term target range and I think we've said it for a long time, we're building great product, good innovation, we're building brand and with that we should get also price premium and gross margin expansion. It's our goal to drive at the high end or higher if we can. Some quarter we will, some quarters we will not. And then to reinvest that into a strong growth focus because if gross margin is our definitely operationally our goal, as you know, we have so many opportunities that we're investing for growth is the goal. Now when we'll have our Analyst Investor Day, we'll talk about long term and other things that are shifting in our portfolio and we'll see you in March to discuss that Yes, by the way, we haven't announced yet, but I'm not going to give you a specific date now that we think we've locked in on it, but it will be in early March, the Analyst Investor Day will be in Zurich. Great. Thank you very much. Thank you very much. We'll call you by a different continent next time. Your next question comes from Joran Iser with UBS. Your line is open. Hi, Joran. How are you? Hi, I'm fine. Thanks. I hope all is well with you. Two to three questions, please. Number 1 is focusing on the Americas segment. If I look on the sell through, which was slowing down, and if I exclude Ploomicrophones, it seems that the Americas is negative on organic growth first times in 6 or 7 years. Can you elaborate on this? Why is this happening? Is it only due to mobile speakers or also other categories are impacted here? And how you see this to turn around? 2nd question would be on Europe. I think you made really progress on sell in. I know you changed the distribution set up, etcetera, but sales through at 1%. It's not looking like high single digits. And what you are potentially focusing for, can you help us to understand what should support Europe in the quarters to come? And the last question for Vincent on the gross profit margin, please. Vincent, can you please tell us what was the one off benefit? Is it 50 basis points, 100 basis points, just that we have a better picture here? Thanks very much. Yes, let me go after a couple of those and then Vincent you can add to it. First of all, on Europe, you're right. One of the things we've really done is we tried to actually in both EMEA and AMR, we tried to pull back on some of our Black Friday and promotional activities. So you're seeing you see a slightly lower sell out growth versus a year ago, but it's improved and it's actually reflected in our gross margin. The fact that we're promoting less and that same answer is kind of in the AMR thing, AMR story which is we did, we went much less deeply in some of our promotion activity at Black Friday, especially in Bluetooth speakers and Jaybird. And as a result, we you see our gross margin improvement. So I think that's what goes a strategic choice. And the nice thing about that is it's in our base for next year. So we like where we are there. And neither one of those regions do we see secular problems with growth. I think the opportunity for us is in both regions to have good strong secular growth. Yes. So on the EMEA, as Bracken mentioned, I think we talked on the call last quarter that we would see some improvement in EMEA. We knew the first steps to do this rebalancing between promotion and more marketing brand driven activities, we would manage promotion much tighter going into Q3. So you see the improvement in selling coming from that lower contra revenue. And that give us some room to invest. Somebody should go on mute, but it does give us some room to invest. Overall, we feel pretty good about where the overall China venture is. It's very flat with some hand year over year. And EMR, I would say the main driver between the gap is the tough compare last year, right? It was plus 30%, driven by a 50% growth in mobile speaker. If you look at PC peripheral, gaming and video collaboration, all are very strong in the Americas in line sell through versus selling. So, what would you say that Go ahead. No, I was going just to finish on your third question, Johan, which is one timer 606 versus China tariffs. We said last quarter China tariffs about 0.5 point, 606 is slightly more than a point. The whole thing is net to less than a point one time benefit this quarter. All right. Thanks for this. And on EMEA and Americas on the sales through, do you think or do you expect this to accelerate already in the next quarter that sales through is coming back to positive territory, in particular, in the Americas? Yes. Just to be clear, even in America, sell through was in positive territory, growing low single digit and same for Yam, but less than the selling, which was your point. And yes, we definitely see some rebalancing. Also cautious investor to not overpay attention to that metrics. You need to look at trends in those. And as I said, there's a third thing, the China inventory weeks on hand is flat year over year, so feeling good about that. All right. Thanks very much. By the way, Jorgen, we're going to soon move to video call, so we can see exactly what's happening behind you, because we can certainly hear it, but we'd love to see it. I'm in a catch, I'm sorry, a catch of noise. I'm kidding, although I'm not kidding about the video call though. Thanks. Okay. Thank you. Your next question comes from Ananda Baru with Loop Capital. Your line is open. Hi, Amanda. Hey, good morning, guys. Congratulations on solid results. Hey, yes, so just a few for me, if I could. Hey, Brock, you mentioned just with regards to kind of strength in the traditional business, this is part of clarification. I believe I heard that it was or I believe that my interpretation was given in part by content creation, you kind of broadcasting, podcasting like that sort of all that stuff. Did I hear that accurately? And it seems like if I did, that's what you're communicating. If I recall, this is the first time, do you seem to be speaking to that as a new catalyst support for that business? Yes, you're perceptive and you picked right up on that. I think we've over the last couple of years, we've really continued to look carefully at what's at the impact of the 2 biggest secular trends for people under the age of 30 or 35. One of them is gaming and we've repositioned a lot of our business around gaming. And the second one is the fact that so many young people especially but even old people like me are video blogging and streaming and doing new things either mobile or at their desk in their home or in their office. And we think that's probably part of the impact of why it's appealing not only to buy a new webcam because your camera is often not good enough on your notebook, your PC and you want to sit back from it so that you can get some impact visually. But also if we can improve the experience of a keyboard and a mouse, we do think that's driving part of this. So more to come on that later. Okay. Do you think you'll only get data around that at some point that either sort of shed light on if that dynamic it had like due to the impact longer term? It's really hard to link that directly to the purchase of our products, but it's easy to look at the fundamental change that's happening in the world and there's plenty of data on how much especially people under the age of 30 or 35 are doing this. So I think that data exists and the implied outcome is really part of the impact on our business, certainly our webcam business. Got it. Got it. And then with regards to your enterprise sales build out comments, would love to get your thoughts on how high up sort of the priority list that is. And I'm thinking particularly with regards to video collaboration in huddle room, but it's in other areas that are as prominent as that kind of solicit on that as well. And I guess what I'm thinking about is I know you've kind of before that you're want to build out the enterprise sales force. One of the things that you would have gotten with Plantronics was what to make your own enterprise sales force. Do you think you can get to where you want to be going organically on enterprise sales force? And how do you think about sort of I'm going to use the term threat, but that someone could get huddle room and take some of the market you think is rightfully yours if you can't get the sales force to where you want it to be with the velocity you want it? Yes, let me yes, a couple of questions. First of all, yes, it's very high on our priority list to make sure we have the right sales staffing, not only for direct enterprise sales force, but also indirect. And so we're certainly that's right at the top of our priority list. We have one of our top three things all the time, has been for the last few years and won't go away. Can we do that organically? Yes, definitely. We've made a tremendous progress here. Will this be a great market for lots of people? Absolutely. Like most great growth markets like gaming, there are going to be lots of people who are going to get a lot of growth here and we have no misconceptions about that. But there is so much opportunity here for the long term that it's just an incredibly exciting market. I'm sitting in rooms all day long that are video enabled, but the vast majority of companies still have just a fraction that are video enabled. So it's a massive opportunity and we're going to be right there going after it aggressively and resourcing it appropriately. Okay, great. And then just one quick last one for me. It doesn't sound like you guys are suggesting that you feel like you saw any incremental impact from sort of macroeconomic dynamics, but I wanted to just check that with you. Economics in general, you mean macroeconomic? Macroeconomics, yes. Yes, I mean, obviously, every company, I guess, is somehow impacted by macroeconomics, but and overall, the global growth has been pretty good. But one of the points I tried to make in the opening, which I really believe strongly in is, we're kind of in a good spot because most of what we sell is at an affordable price point. Even the video conferencing stuff that we sell, actually, if there were macroeconomic slowdown or something like that in an area all over the world, it would help you avoid having to buy expensive plane tickets. So we're really not only diverse from a category standpoint, which gives us some room to kind of maneuver and improve one category dynamics as we grow another one like we did this quarter with Blue Goose Figures and Jaybird and have strong growth in other areas. But also in the event that there is an economic slowdown, I believe we'll be really well positioned because our products are relatively cheap. They tend to be affordable luxuries, let's say, or they really improve the productivity where you can actually spend less money on travel. Got it. Okay, great. I answered more than you asked, but I couldn't help myself. Yes, no, no. We'll take it all, all the context, more context than ever. Thanks a lot. Thank you. Your next question comes from Andreas Mueller with ZKD. Your line is open. Hi, Andreas. Hi, Andreas. Hi, everybody. Thanks for taking my questions. I've got a question on the progress on these tariff mitigation actions you mentioned last time. Can you just on, say, the individual actions sort of an update on the status, how far have you progressed? And I was expecting actually a bit extra cost from this implementation of these actions and haven't seen really that much. I mean, how costly is the whole kind of plan here to be prepared if the tariffs went up to 25 percent? Yes. So Andres, quickly last quarter, we said that the tariffs would have an impact of about half a quarter of margin, both Q3 and then again in Q4. And as we work our mitigation item, we had planned for the tariff to go to 25% in January. The three actions we've taken is, as I said, kind of classifications and bundling products together. The second one is really relocation of manufacturing. And then the third one at the high level is considering price increases. We've been working our plans all along and have adjusted it. We said that by the spring summer of this calendar 2019, we would feel the impact of those tariffs to be mainly mitigated or being immaturity to the gross margin. Outside of the push from January to end of February, nothing has changed in our plan. We did align pricing to end of February to align when we know more about the incremental tariffs, but otherwise we are on track to plan. In terms of incremental costs, we've kind of built that into the equation to say that by summer we will be somewhat immaturity impacted. Okay, great. And then on the pull in of inventory to mitigate tariffs, I mean, is that fully implemented out there? Or what's the kind of what can we expect of the inventory progression? Yes. So the pull in is at a high level, right, inventory increase of $63,000,000 to be exact then year over year and about a third is for the tariff porting, so a third for the Blue acquisition coming in with all of its inventory and then a third for the incremental new product introduction here in Q3. The tariffs pull in will be burned here going into Q4 or will be used if I can say, because new tariffs may be implemented in March, we may still have a little bit of impact in Q4 of extra inventory we would pull in to mitigate most of the short term impact. But by the end after Q4, I think you'll have a full go down to normal level. So you'll see already some correction in Q4 and by Q1 will be done in term of the pull in. Okay, great. And last question on the China progression, which seems to be still doing well, at least in the last quarter. Can you talk a bit maybe for the next 2 or 3 quarters what you expect from China in general, but also Asia, given the growth is currently relatively high? Yes. We don't guide by region, of course, but I'll give you some high level color. The Asia Pacific in general and China specifically have been really strong for us for the last couple of years. And I think they'll continue to be strong. Will they be as strong as they are now? Surely not. I mean it's hard to imagine that we'd be able to sustain that kind of growth. But the other reasons will pick up the pace. So I think overall we'll end up with the same kind of good growth story globally. And that's kind of the way it's always worked for us where when one region kind of stepped out another would step up. And I think you saw that over the last year with EMEA down for 3 or 4 quarters and then now AMR down for quarter or 2 or 1, I don't know what it will be. And then Asia Pacific has been very strong through. So who knows. I think overall, I just got back from China. I was in Asia for a week right after I went directly from CES. And I think there is concern about just generally I think in the macroeconomic over there from a lot of people, not in our company, but just generally. And I think that seems like it's for real. And then you just saw the latest GDP number that came out at 5.5%, the lowest since 1990. But the truth is this is a very high class problem. 5.5% is very strong growth. Remember, we don't sell cars, so we're not the categories we're in are not sort of hypersensitive to macroeconomic growth. So I'm really optimistic. I continue to be very optimistic about China and Asia in general. Okay. Many thanks. Bye bye. Thank you. Thanks, Andreas. Your next question comes from Michael Voess with Bonteville. Your line is open. Hi, Michael. Michael. Yes. Hi, gentlemen. Two questions from my side. Blue Micro, you mentioned it contributed around 3% to your total growth. My question is, what is the actual growth of that business currently? Can you give us an indication and so organically? And what sort of trajectory you're looking at? That will be the first one. And the second one is on Jaybird. Can you maybe tell us where you see yourself standing in that whole refocusing on running process and where do you stand in that transition and when do you expect sales to stabilize for Jaybird? Yes, let me take the Jaybird one and I'll hand the Blueweck over to Vince. I think Jaybird is a long term project for us. When we got in this category, we knew that you're in it's kind of exception to our rule, which is we're in a category, a really large category that is going to have really large players in it like some of the ones you know. And we don't really like to compete head to head with them. So I'll remind you that our strategy is to narrow our focus in the beginning super narrow into running itself and that was a change for the business. So it's a long term project and we view it as a long term project. I think where are we on that? I think we really just launched our the first product I think is at the level you could expect for us long term which is TerraPro. And TerraPro is a killer. It's the best product we're running that's ever been done. Okay, I'll just say it out there. If you haven't tried it, please do. It's every element of that product was made for a runner, and with a runner in mind, and I think the team has done an amazing job. But that's only the first one, so more will come. I think as you go into Q4 and into next year, I think we'll be pretty well in a position over the next several quarters to feel like, okay, now we've got the distribution tight enough and small enough that we can really exploit this running opportunity. We've probably been too broadly distributed up until now. So we're going to keep doing this till we get it right. It's a small business that we can afford it. And we want to make sure really get this thing nailed from a positioning standpoint for the runner. And then for Blue, if you consider what they did standalone then not in our base, but standalone, they grew double digit this quarter and it's really on the back of the 2 new products being introduced. We haven't really driven yet Bracken mentioned, the market itself, right, is prone for structural growth as more and more people are streaming and blogging, etcetera. So double digit structurally is as a category is Yes. We're not going to talk about overall long term growth by all of our product lines, but I would say the market definitely support what you just said. Okay, excellent. Thank you. All right, Michael. Thank you. Next question comes from Paul Chung with JPMorgan. Your line is open. Hi, Paul. Hey, Paul. Hey, guys. Thanks for taking my questions. So first question on keyboards. Can you just expand what's been the growth drivers there over the last 12 months? It's been pretty impressive. I know you mentioned the kind of easier comps and that helps, but if you could just expand on where the levers there, whether it's ASPs, market share, unit sell through, maybe some channel expansion? Yes, no, I don't think there's any channel expansion there. Keyboard has continued to do well. I've been here almost 7 years and the keyboards just continue to do well. I think part of that is that you really do still need keyboards and the keyboard can improve the experience dramatically. And we keep innovating in keyboards. Last year we launched Craft which was a really different kind of keyboard sold at $199 and that certainly was a good story. And we had a period there a couple of years ago where living room keyboards were really the answer and we've relaunched the living room keyboard. So we're just continuing to systematically innovate there. Now I think you can't, we can't fool ourselves. I think part of our keyboard business growth is probably gaming, because I imagine there are people buying keyboards, getting a better keyboard experience, not going all the way to mechanical keyboards, but using keyboards for gaming. And I wouldn't be surprised that's part of what is driving this long term secular growth. So I think it's a combination of things, but people definitely still get a great experience through keyboard. And I imagine everybody's call is still using theirs regularly, even though you've added a whole bunch of other ways to input digitally. The keyboard is still the best thing out there if you really want to compose something that's off. Got you. Okay. And then my next question is kind of on capital deployment. So you repurchased about $3,000,000 this quarter. I know your higher priorities are dividends and acquisitions underscored by Blue Microphone just recently. But given the stock weakness over the quarter, should we expect some more material buybacks in the near term? And did you do any in January? Thank you. So the answer is, yes, you're right in the priorities. 1st, invest in the business and alternatively also looking at acquisition, maintaining a growing dividend and then buyback. I think you may recall in November there was some rumor we had to confirm that blocked us from buying into the quarter. So those activities prevented us to buy and at the same time we saw the share price dropping to level that we think are very attractive for buyback. So you should expect us to continue to buy back in open windows. Thanks guys. Thank you, Paul. Take care. Your next question comes from Tom Ford with D. A. Davidson. Your line is open. Hey, Tom. Great. Thank you for taking my question. So I had 2 questions on different topics. Sure. The first question is, how should we think about the impact of the U. S. Government shutdown? You talked about the impact in sales, doesn't sound like too much of an impact, but we're hearing that there's been some disruption at the ports. So is it affecting your supply chain? And then the second question on gaming growth, I think you parsed it into 3 buckets and suggested that virtual accessories performed at a different level than, say, Astro in the 3rd bucket. Can you talk about, I guess, the level of variance? How much faster did the 2 other buckets grow versus the virtual accessories? Yes, you bet. Just real quick on the shutdown. No, we don't see any impact, I mean, on the from the port impact of the shutdown. Maybe we'll find out something later, but so far there's been absolutely no impact and we don't see anything coming. In terms of gaming, yes I broke them into 3 pieces. That simulation is the word that I use for that niche category that includes steering wheels and joysticks and that category declined. And just to give a little more color there and a pretty strong decline because what happens in that category is you have when the racing games come out, it's mostly wheels, by the way there's some really cool stuff happening there. When the racing games come out like Forza, they spike the business because when people go out and buy a game, that's when you're most likely to buy a wheel. We still have wheel sales that happen in between every year, but you have your biggest drive, biggest ramp up happens right as they come out over the next 3 to 6 to 9 months. And that's really what happened last year. So it's cyclical, it will happen again. And so that's the key story there. The other two parts of the business, which are ASTRO, which is console gaming and then our PC gaming, both look very similar and very good growth, quarter over quarter looks strong, no real change there. Great. Thanks Bracken. Thank you. And we have a question from Nehal Chokshi with Maxim. Your line is open. Hey there. Yes. Hi. Thank you. Thank you for taking my question. Congratulations on the strong bottom line results and demonstrated results in your portfolio. Congratulations on that. Thank you. Yes. So I do want to follow on Tom's question there, especially on the PC gaming. You did note in your introductory comments that you saw an acceleration in PC gaming. I forgot if you did define what was the driver of that acceleration though? I mean we didn't go into specifics, we just said basically the slight acceleration quarter from this quarter over last quarter. I would say the bottom line is we continue to see a very good PC gaming market around the world even in places like China where there was a lot of press around the government dampening controls on releases of new games. They kind of put their pulled their damper off a little bit. And I always think, gosh, the worst thing you can do if you want to try to stem the growth of something is to make it less legal or just try to discourage it as a government or a parent. And I think I don't think it had much impact on the interest in gaming in China. So overall, the PC gaming business continues to be quite strong. That's the bottom line around the world. If I can add to that, last year we had said, hey, in PC gaming or gaming general growing about 20% to 25%. Structurally, the market is growing double digit and we've been outgrowing our this year, our expectations of 20 to 25 in PC Gaming specifically. I wouldn't overpay attention to 1 quarter versus the other. Sometimes it will be a little bit above and that would under, but we've been structurally outgoing that market and growing pretty nicely. Okay. And I want to shift to mice and keyboards. You talked about you continue to expect that that business will grow low single digits despite the fact that's been growing much faster than that lately. And underpinning that, I think you talked about your Analyst Day that assumes a flat PC market. A, is that correct? And B, is that your outlook for calendar 2019 at this point in time? Yes, we've tried to start to disconnect our forecast or the guidance we're giving you on our PC peripherals, we're trying to increasingly just disconnect or suggest that you disconnect the PC market from that. I mean right now the PC market is growing and I think it's kind of choppy. It was growing for the 1st couple of months of the quarter and then last month it was. I would our view of it is, there's an installed base out there and the installed base is so big compared to new products that are shipped in. And this is a case where people aren't retiring PCs, the installed base is out there and it's not going anywhere. So somebody buys a new one, they just buy a new one and the installed base stays very similar in size. And because the installed base is so large and it is getting older, the opportunity to refresh it with a new mouse or keyboard or improve the experience of the webcam is significant and probably getting more significant and not significant in how much it costs to do it. And so we're taking advantage of that and innovating as aggressively as we possibly can in that space where we think there's still a big opportunity to improve your work life, whether it's working in the office or working at home. And I think that's the story. So it's not really I wouldn't spend too much time thinking about personally, is the PC market growing or not, what percentage is it growing, it's such a low impact on the overall installed base. Right. That's a fair point. And then finally, I didn't hear you guys mention whether or not you still are standing by that $2 per share EPS target for next year, next fiscal year? Hey, Neil. We this was like a 3 year plan that then we did confirm at our Analyst Day. Analyst Day is coming in March. But if you do the math, it's going to be very difficult not to achieve it. Okay. Thank you. And at this time, I will turn the call over to the presenters. Well, thank you all very much. It's a very engaged call, delightfully engaged. I promise that when we go to video, we'll give you a special price when you can buy your video cameras from us, so you can we can do a video analyst call. I've got Ben sweating bullets now because he thinks we're really going to do that next quarter which you probably won't. But thanks a lot. It was a good quarter. We're excited about the next and we're getting ready for next year. Thank you. This concludes today's conference call. You may now disconnect.