Earnings Call: Q3 2018

Jan 23, 2018

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Logitech Third Quarter 2018 Conference Call. Thank you. Ben Liu, Head of Investor Relations at Logitech, you may begin your conference. Thank you, Kelly. Welcome to the Logitech conference call to discuss the company's financial results for the Q3 of fiscal year 2018. 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, logitech.com. During the course of this call, we may make forward looking statements, including forward looking statements with respect to future operating results that are being 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 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 and 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 and are posted on our Investor Relations 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. Now joining us today from Lausanne are Bracken Darryl, President and Chief Executive Officer and Vincent Pilette, Chief Financial Officer. I'll now turn the call over to Bracken. Thanks, Ben, and thanks to all of you for joining us. You've all seen we delivered a powerful quarter of sales growth, our biggest sales ever, up 18%. Demand for our products in Q3 was very strong, significantly stronger than we anticipated. All our product categories delivered double digit growth except for PC peripherals and even in those sell through remains stable. 2 of our 3 regions, American and Asia Pacific grew over 20%. EMEA sales were only up 2% against the tough compare, but underlying sell through was also strong in line with normal seasonality. Our operating income growth was also just as strong, up 18%. We delivered that net sales and profit growth despite a drag on our ability to execute. During our Q2 earnings call, we mentioned the difficulties we experienced transitioning to a new logistics supplier in the Americas. We had to run 2 distribution centers instead of 1, as well as significantly increasing our air shipments, largely because the one we were trying to exclusively move to just didn't execute. The 2 DC backup plan coupled with our determination to fulfill the demand from our customers placed a drag in our gross margin of about 150 basis points in the quarter. This is largely resolved now and it will be fully resolved as we exit the fiscal year. Now let me be crystal clear. Yes, we had a supplier who didn't deliver. We hold ourselves 100% accountable. Investors should be able to rely on us to pick the right players and make sure they execute. How did the growth look by category? As I mentioned, we grew double digits across almost all of our categories. Let me highlight each one. Last quarter, you'll remember our mobile speakers went through a product transition ahead of our new Ultimate Ears Blast and Mega Blast and in time for a holiday quarter. This quarter our Mobile Speakers Group grew 34%. We sold in our Alexa enabled Blast and Mega Blast, but we also grew strongly in other products from our large Megaboom to our pint sized Wonderboom that's doing well beyond our expectations. I don't expect that level of growth to continue in the next quarter, but sellout was also very strong. Audio PC and wearables sales grew 21% in Q3. Jaybird posted strong growth this holiday quarter with good contribution from Jaybird Run, our first true wireless earphone and from our other product lines like the X3 and Freedom 2. Wireless earphone penetration is still very low. There's a long runway for growth here as we will carve out space and continue to innovate. As a runner, I absolutely love and use our Jaybird Run product. Our gaming group delivered its 10th consecutive quarter of double digit growth with sales of 57%. We've completed the integration of ASTRO Gaming and that business grew powerfully in the quarter too, representing 4% of our overall sales. I'd point out that ASTRO is heavily skewed to the December quarter and for the full year, we still expect ASTRO to contribute about 2 points to our overall growth. Even excluding ASTRO, our gaming business grew as strongly as it has in the past several quarters. In Q3, our steering wheels business was particularly strong and we captured share at several major racing game titles launched. We also continued to see tremendous acceptance of our wireless gaming products across both mice and keyboards. You heard me talk last quarter about PowerPlay and I had trouble stop talking about it. Our wireless charging pad that gives infinite battery life for your wireless gaming mouse while you play. Well, I can tell you that demand for power play far exceeded our supply. We're the leader in wireless PC game peripherals and you can be sure that we'll continue to innovate and drive greater wireless adoption across our gaming portfolio similar to what you've seen us do in traditional PC peripherals. Video collaboration reported sales growth of 25 percent reaching an annual run rate of approximately $200,000,000 or almost $200,000,000 While the net sales growth was slower than last quarter, the underlying sell through was much stronger than the 25%. The fundamental need for low cost cloud based video collaboration solutions remains extremely robust and we'll continue to invest into this business to capture the growth opportunities. Our Smart Home Group continued the strong momentum that we've seen in the past few quarters. Sales in Q3 grows 41%, driven by both our Harmony Hub family, our products as well as the solid contribution of Circle 2, our home security camera solution. Finally, PC peripherals sales were down 4% this quarter. Yes, sell through as I mentioned remained very stable and consistent with our recent trends. Our latest products including our new flagship keyboard MX Craft and our new trackball MX Ergo are off to a great start and contributed nicely to our results. Tablets and other accessories sales grew 5% in Q3, marking the 3rd consecutive quarter of growth. We'll likely end this fiscal year with double digit growth there, the 1st full year of positive growth in the category since fiscal 2014, coinciding with the return to growth in Apple's iPad units. Now I'll pass the call over to Vincent. Thanks, Bracken. In Q3, we delivered our 7th consecutive quarter of double digit growth. We delivered not just another quarter of consistent top line growth, but as Bracken mentioned, and it's worth repeating it, we gained share in our key markets, we launched products into adjacent categories, Blast, Mega Blast or Run, and we successfully accelerated the performance of our acquisitions. We delivered on every one of our growth levers, playing in growing markets, growing our market share and adding entirely new market opportunities. That is our playbook, including acquisitions. Q3 was the 1st full quarter of Astro, which gained great market share in this highly seasonal business and made up 4% of our total sales in this past quarter. We are investing in our capabilities to take advantage of the many market opportunities and Q3 growth of 18% demonstrates the progress we are making towards our long term objectives. Now growth sometimes comes with growing pains. As we mentioned last October, the 3rd party distribution center that we had hired in the Americas to support our growth experienced significant challenges in the transition, operating procedures and ramp up of our volumes at the end of Q2 and early Q3. As a result of this, we had to bring back online our prior DC partner, increase temporary labor and rely on airfreight much more heavily. Our priority was to support the 30% increase in demand that we saw in the Americas. The onetime incremental costs of solving this operational issue amounted to about 1.5 points of gross margin. Now with Q3 behind us, we will exit this fiscal year back to just 1 third party distribution center in the Americas. And so our non GAAP gross margin was 34.4 percent in the quarter, down 300 basis points year over year. Excluding the onetime cost of our DC transition, gross margin would have been around the midpoint of our long term gross margin range of 35% to 37%. It remained very healthy in what is normally a seasonally lower gross margin quarter impacted by mix and holiday promotions. In Q3, our non GAAP operating expenses increased 8% to $162,000,000 and were 20% of sales, down 2 50 basis points year over year. Excluding ASTRO, our operating expenses would have risen only 4%. This modest OpEx growth demonstrates our discipline in balancing our near term spend with gross margin. Our sales and marketing expense increased 14% support the solid top line growth we delivered this quarter, while R and D spending grew 5%. On the other hand, we continue to drive our G and A expenses lower as efficiently as we can. Our G and A spending as a percent of sales fell to the lowest level ever at 2.2 percent of sales, though this ratio, of course, benefits from the strong seasonal pickup in revenues. So if you step back, Q3 sales rose 18% in constant currency, while non GAAP operating income also grew 18% despite the onetime operational challenge of our distribution center in Americas. Excluding this, our operating profits could have grown by 30%. A strong quarter and what we expect will become a very strong year would not be meaningful without strong cash flows. On that front, we generated $189,000,000 in cash from operations this quarter. It is the highest quarterly level we ever achieved and this compares to $149,000,000 of cash flows in Q3 of last year. You will remember that we had said we would consume working capital during our first half as we built up new products and prepared for a strong holiday season. With our new products successfully launched and our sales achieving a record level in Q3, we reduced our inventory around $50,000,000 sequentially and we achieved inventory turns of 7.7 times, the highest level since I've joined. In the past 4 years, our December quarter inventory turns had averaged 6.6 times. And in this quarter, our cash conversion cycle remained very healthy at 14 days. As a reminder, our cash conversion cycle is typically the lowest in the December quarter due to seasonality. On a full year basis, we still expect our cash conversion cycle to be within our targeted annual range of 20 to 25 days. One last thing I would like to add and that's around the GAAP profitability. As most of you are aware, the U. S. Passed new tax laws at the end of December that reduced the U. S. Corporate income tax rate as of January 1. And as a result, we are required to record a one time $16,000,000 net expense in the December quarter, which is our Q3, related to the implementation of the U. S. Federal tax reforms, including the necessary remeasurement of our U. S. Deferred tax asset at a lower corporate tax rate. In summary, Q3 marks another strong quarter of growth, profitability and strong cash conversion. And the most exciting for me as the CFO is that we still have plenty of room to execute better and continue to grow and expand. And with that, Barkin, I'll pass it back to you. Thanks, Vincent. We finished our biggest quarter of the year with very strong top line growth and strong profitability and cash flow, as Vincent said. We're continuing to build on our new on our multi category, multi brand strategy. And finally, as Vincent mentioned, you can see completely transparently all three of our growth drivers in action this quarter: market growth, share growth within the market and new adjacencies. And I think you see from the level of growth of the power of this strategy applied to our markets that we have lots of opportunity here. Based on our results, we're raising our fiscal year guidance. We now expect fiscal year 2018 sales growth to be 12% to 14% in constant currency and non GAAP operating income to be $270,000,000 to $280,000,000 And with that, Vincent and I are now ready to take your questions. Operator, can you queue up the questions? Our first question comes from John Isert from UBS. Please go ahead. Your line is open. Hi, gentlemen, and thanks for taking my questions. The first one would be please on the product pipeline you have ahead for the next 12 months. Can you give us an indication in which categories innovation rates will be the highest? And also what is roughly the number of new products introduced in fiscal year 2019 versus fiscal year 2018? Just to give a rough indication would be helpful. The second question would be the currencies are developing favorable for you. I mean is the new euro, U. S. Dollar exchange rate the key reason for the non GAAP EBIT increase? 3rd question would be on EMEA and sell in plus 2%. Can you give us some more indications and what is happening in the channel here? And the last question would be please on the gross profit margin development. I mean, FX becomes supportive. You still have to design the cost program in place. How shall we think about gross profit momentum going forward here for the next couple of quarters? Thanks very much. Okay. Thank you very much. Vincent will split these up. He'll take the currency gross profit questions. I'll take your first and last question. On innovation pipeline, we're an organic innovation company. We do acquisitions where we're fundamentally an organic innovation company. So we're in a constant state of creating new products all the time. When we launch one product, you probably could guess that we're already underway on a second product. So in terms of the absolute number of products we launch every year and in which categories those go into. In terms of the absolute number, year over year, launch numbers probably are relatively comparable, but we don't look at it that way. We really look at making sure that we continue to evolve our product lines and enter new spaces where they should be. And so without I couldn't be more specific than that, and I apologize for that. But we have certainly plan to have a great pipeline of innovation ahead. In terms of the specific areas, we generally innovate as you can see in every area that we're in. So we break our company into small teams and each of those small teams wakes up in the morning goes to bed at night trying to figure out how to build a bigger business and create and design better products for consumers. So you're going to see innovation as you have in the past across everything. The second question on EMEA, yes, we had 2% sell in. And as we said, the underlying sales out or sell through was significantly higher than that. And we've said that the last couple of quarters. They are adjusting to a lower growth rate. They had very high growth rates in a year ago, as you know, in the 18% to 21% range over the past 3 or 4 quarters. And you see that adjustment happening. It did take inventory out of the channel to adjust for that lower sales rate, including in this quarter. And I think we'll see that adjustment really be completed as we finish the year. Hey, Ewan. On currency, as you mentioned, the U. S. Dollar conversion rate is moving favorably to us. What's always changing is when we have volatility within 1 quarter. As you know, we do hedging on the 4 months rolling forecast where we discussed it many times on the call. And we also buy our inventory a few months in advance, right? So this quarter, if you take as an example, we had a euro USD change of about 6% to 7% year on year. That created about 80 basis points favorable in the P and L, 0.5 point was hedging costs neutralizing that benefit. And so we have the same going into Q4 at this point in time. If the exchange rates for the euro USD stays at 122, we have another move of 6%, 7% and hedging costs will be absorbing over half of that impact. In the long run, though, you're correct that if currency stay where it is, it will be favorable on our gross margin. So talking about that gross margin, excluding the DC issue, we delivered 18% top line growth for 36% rounding, 35.9%, but 36% gross margin. We will always balance as you know investment versus dropping everything to the bottom line and really prioritizing our focus on growing our businesses that have growth opportunities. At this point in time, we're not guiding next year. As you know, that will be during the AID event in March. But we stick with our range, 35% to 37%. And our goal is to try to generate the highest gross margin like last year in FY 2017 over 37% to be able to continue to invest into our businesses. All right. Thanks very much. Thank you, sir. Next question? Your next question comes from Messiah Merchant from Citigroup. Congratulations. Quick question, if you can just talk about seasonal trends going into the fiscal 4Q and which product categories do you feel very comfortable about in terms of seasonal trends? Gaming obviously was a blowout quarter for you this particular quarter that you just reported. So how should we think about the March quarter? And then I had a follow-up on cash per share, pretty high at this level. How should how is management thinking about deploying that cash, whether it's capital return or should we be expecting again some more seasonal some more acquisitions in looking into your fiscal 2019, fiscal 2020 and any particular product categories that you're looking to fill up on? Thank you. Okay. I'll quickly take the seasonal trend question and then Vincent will take the cash question. On seasonal trends, our Q4 is always obviously a big step down from Q3 and it will be this year, completely normal and we expect it to be. The all the categories tend to step down as you go from Q3 to Q4, except for video collaboration, which generally has pretty steady progression all the way through the year. Maybe it's hit a little bit by the end of the year close of the cycle of budgets or something within companies, but generally it's pretty consistent. Tablets have a little bit stronger skew in the Q in the look is a little bit stronger skew in the Q4 period because of their education business. So but anyway, bottom line is, I think overall without getting too specific, I'd say our seasonal trends should look this year in Q4 like they did last year kind of relative to Q3, Q2 and Q1. And gaming, you mentioned specifically, gaming does have a very strong Q4 SKU, made even stronger by the fact that we're now in all the key segments of gaming, including those really giftable, like steering wheels and things. So I would expect that that seasonal skew will be pretty dramatic, but it always has been. If I can add a few things on seasonal, Normally, sequentially going into Q4, our sales dropped 25% to 30% Q on Q. The guidance we've given for the year, considering there's only 1 quarter to leave, kind of implies about historical linearity going into Q4, so nothing unusual on that side. I agree with Brag and the gaming trends, structural growth there would continue. And then on mobile speaker, I would not expect a repeat of the Q3 deliverable and we continue to grow the category trying to gain share. But obviously, we're not guiding a full year at 34% growth for that category. That gives you a little bit more quantitative data as well. And then you asked about capital allocation. We have a framework. 1st, we, of course, we invest in our business. As you've seen now, it's the 7th quarter of double digit organic growth, and we have plenty of opportunity continuing to invest on that side. We'll include into the growth investment small and medium sized acquisition as we continue to see them. We're very pleased about the acquisition we've made and we continue to build up those business as they are integrated into the overall Logitech portfolio. And then with the last two leg of the tool, if you want, is growing our dividend or dividend that's growing on an annual basis. You'll continue to see that. Obviously, that's a board review and discussion we have every year, and we'll have that as well. And then we have a buyback program open for $250,000,000 out of which we've consumed $20,000,000 So we still have plenty of power there to continue to return cash to shareholders. Great. Thank you. Thank you. Our next question comes from Ananda Barra from Loop Capital. Please go ahead. Your line is open. Okay. Hey, good morning guys. Congratulations. Can you guys hear me okay? Hey, you're welcome. Yes. Hey, Vincent. Yes, just a few from me, if I could. With regards to the very balanced and punchy demand, are you guys able to discern or distinct between the various drivers, market versus share? And then in the share context, could you sort of peel back kind of both of you guys what's leading to the share, if you can distinct between things like innovation, marketing campaigns, new channels, geos like that? And then I have a follow-up or 2. Thanks. Sure. Yes, I'll step into that one. I'd say overall, we're gaining share across most of our markets. And there are certainly cases where we're not, but there tend to be regional, country based, etcetera. So overall, our markets are growing. You know the general profile of the markets we're in. And I would say the profile really hasn't changed very much if we step through the various pieces. The video collaboration market continues to be strong and we continue to do well within it from a share standpoint. Gaming is now multi markets. I would say we are gaining share in most of the segments of gaming. The markets themselves continue to be very robust. If you looked at music, the music business is very dynamic, as you know, and this is the rise of the personal assistant is actually fueling a strong growth in speakers across both Wi Fi in home and to some extent even out of home. So the overall speaker market grew and we actually had a good market from a share a good quarter from a share standpoint there too. We want to wait and see how speakers continue to evolve, but we're excited about the innovations available now in speakers and we're going to really be after that aggressively. If you go into the home, I think the home is going to continue to grow across every segment. We have good growth in both of our businesses that are home based businesses, the security camera business and the Harmony business, which is now integrated with personal assistance. So I would say just generally and then of course there's the earphone business and earphones for us is a brand new business. It's the completely wireless version, so it's just the early days and we're really excited about that space too. So opportunities across the PC peripherals on the other hand, the PC business has been in a secular decline for a while, not steep, but steady. We have been disturbed by that because we feel like really an installed base business there. It started to turn a little bit, we've been a little bit positive last quarter too. And we're I think we continue to expect to either hold or gain share in that segment too. This quarter is really think more of an anomaly we're actually down 4%. The trends underneath that look pretty stable from a sell out standpoint. Awesome. And Vincent, with regards to, I guess, gross margin usage from the 150 basis points from decided? And just as we get our sort of get our heads around sort of the next couple of quarters, when do you like potential use, when do you decide or how do you decide whether you pass give some back to yourselves or given the rev performance, you just can put it back into investment of the business? Yes, I understand. And to be fair, the issue started in September and deciding what to do Maybe people have not understood. So the question is around the gross margin impact of a onetime 150 basis points from the distribution center issue in the Americas. And the question is, what have we decided and by when will we be out of it basically. And the decision was easy. Our decision, as we explained in the last call, was to run 2 DCs in order to not put at risk the demand we saw into Q3. And when I look back at the results and the demand that floated on the orders that came in, we made the right decision. Then the solution, if you want, is to go back to 1 DC. Internally, we made all the choices and now is early January, at the end of December early January, we started to deploy that solution. We may still have a little bit of residual cost in January as a result of that, but we will be out of it now as we speak. Every impact of that DC, of course, has been built into our overall guidance we've raised for the year. Okay. Got it. Got it. So we shouldn't necessarily think of you getting 150 basis points back over the next couple of quarters and that floating back into the gross margin percentage that you guys reported? Yes. Yes, 100%. Yes. It may still take few weeks in this quarter, it will not take 2 quarters. Great. Okay. And then just quickly, last one for me. What when will you make comments about what your tax rate could be as a result of tax reform, your ongoing tax rate? And then just if sort of what might you do with deployment of tax savings and repatriation of these? Yes. So just quickly, the tax rate, I'll give on an annual basis. Of course, it depends on the mix of sales by product line and region since every country has different tax rate. At this point in time, we've lowered our annual tax rate on a non GAAP basis to 7% for FY 2018 and then we'll give more color at the AID meeting in March. Okay. Great. And then any use of repatriated cash? We didn't have any repatriation cash. We're a Swiss company and our cash is in Switzerland. Yes. It makes all sense. Okay. Thanks, guys. Congrats. All right. Thank you. Take care, Ananda. Your next question comes from Jerger Wachsner from MainFirst Bank. Please go ahead. Your line is open. Hi, Eamon. Hi. Thank you for taking my question. Actually, I have 2. First on PC peripherals that was down a bit. How should we model this business going forward? I think you mentioned like stable or is that the trend we should look at over, yes, more also the midterm? And then on Europe, you have this chart on Page 13 that shows that reported in constant currency, Europe is or keeps underperforming to now flattish. Is that underperformance due to one country or is it across the board? Thank you. Okay. I'll take both of those. So in terms of the first one, PC peripherals, I'm not sure exactly how I would model them with you if I were you, but I'll tell you how I thought about how I always think about them. I always think of our PC approvals business is relatively flat, could be slightly up. And I think that's underneath the sell in numbers, I think that's pretty much what we saw in terms of really sell through. I think I suspect that will continue. I don't see any fundamental changes in the market that suggests can be different from that yet. And I don't see any I can't imagine what it would be. Now in terms of Europe, as I mentioned earlier, we've had a I think one of the things that happens when you have a great year 1 year and a lighter year the next year, you often do have adjustments got to take place and the adjustments take place in steps. And I think you're seeing that in Europe. I've had this a couple of times in my career where it's kind of staged in as the realization comes through and the sales really need to be pulled back. And that adjustment ends up being reflected quarter over quarter over quarter. Until you hit the end of that, you really then you finally start to come back up again. And I think that's what's going to happen here. I think we're probably another quarter away from being to the point where you'll start to see the underlying sell out look more like the sell in. And right now, the sell out is consistently stronger than the sell in. And that's really an adjustment that's happening in different stages of the distribution channel as they adjust to the new sell out. So I think you'll see it start to come back up as we enter next year. And in terms of individual countries, etcetera, it's fairly consistent across the board, but there are some differences cross country as usual. We're seeing a stronger performance now coming back out of the some of the markets that were really weak a year or 2 ago, actually 2 years ago, Russia, for example, started to come back a little bit for us, which is good. Turkey started to come back a little bit, which is good. So it's kind of it's generally speaking, I think you can think of it as pretty broad based. Okay. Thank you. Thank you. Your next question comes from Paul Coster from JPMorgan. Please go ahead. Your line is open. Hi, Paul. Hi. Hey, Bracken. Hi, this is Paul Chung on for Coster. Thanks for taking my question. So, great quarter guys. So just looks like gaming is on track to become your largest category possibly by mid fiscal year 2019. So how should we think about the growth trajectory in 2019 going up against healthy comp in 2018? And if you can expand on the primary growth drivers there, market share grab, higher ASPs, higher shipments or just a combination of everything? Yes, I would say to answer that last one, I think it's kind of a combination of everything. I think we're playing across a lot of different places in gaming now and it's continuing to expand and I imagine it will continue to expand. And I think it's we have had a good run. We've generally guided every ID kind of out 2 or 3 years, we'll probably save it for that. But we expect to do well in gaming going forward to be clear. Okay. Then on Vincent on the margin front, my understanding is that the gaming product margins are slightly above the corporate average. So as the product mix evolves, do you see a step up in longer term gross margin targets? Thanks. So if I can come back on gaming. Gaming is the perfect illustration of the 3 growth drivers we're talking about, right? There is a structural growth in the market going double digit, and we see that to continue for the years to come. There is definitely an opportunity to continue to grab more market share in the current product lines we are in and that's why we're focusing on through either new products, as you've seen all the new products we've launched, and we'll continue to do that going into FY 'nineteen or execution at the point of sales. And then the third one is there's plenty of small acquisitions that can continue to complete the portfolio and become a true gaming almost kind of company inside the company. And we're definitely doubling down on that gross opportunity. In terms of the margin, yes, it's slightly better than the corporate average when you take month to year averages. I don't see a major uplift from that perspective. I would say we continue to manage the overall portfolio in the 35% to 37% range. Gaming trending better gross margin. We may also invest more into marketing and the overall support of growth. So I think in all of our businesses, we're trying to continue to improve gross margin to then reinvest a portion of that into gross opportunities. By the way, Paul, I'll just make one other comment. Thank you for the quote because I'm going to feed that back to our the other business groups in our team, because I don't think they're going to sit there and wait for gaming to become the number one, no matter what the growth rate is. We've got plenty of other categories. They're super excited about the growth potential and PC peripherals is by no means going to see that easily. And when you add video collaboration and even the music business, I think there's opportunity in a lot of places to be bigger. That's right. And then my last question, so how should we think about the split between smart speakers versus Bluetooth speakers in the quarter and how that evolves over time? And what were kind of the primary growth drivers in this quarter? Was it a function of ASPs, higher sell through, combination of both, maybe some channel strategy? And then was there some pent up demand from 2Q? Thank you. Yes, I don't think there's any pent up demand from Q2, but I'd say in terms of the split, it's still the vast majority of Bluetooth speakers. We just launched our 1st Wi Fi personal system enabled speakers and it's way too early for us to really forecast where that's going to go. Just to say, it is a whole new dimension of opportunity for us to build into this market. So we're excited to see where that can go. In terms of what really drove the demand this quarter was both growth in units. We had very strong growth in our Wonderboom, new addition to the category and we still had strong growth in Megaboom. So it was really kind of strong across the board and I would say it was kind of a really balanced performance. We gained some market share. We had good ASPs and we had good growth overall. Thank you very much. Thank you. Your next question comes from Andreas Mueller from SKB. Please go One is on the G and A line, which dropped significantly. Can you give an indication what were the driver behind it, Don? And if it's going to be sustainable on an absolute level, the G and A line? Yes. So on the G and A line, non GAAP was around $18,000,000 past quarter with around $21,000,000 There's a few things in and out of some of the variable expenses in G and A. As Bracken mentioned, he's holding the team accountable for some of the gross margin metrics, and we have not hit all of our metrics. So some of the adjustment you see on a quality basis is adjustment to variable compensation for the executive team. On an ongoing basis, as you know, we have our G and A position at around 3% of sales. I hope we can do better. And I think that's what you will see us trending in that direction on an annual basis. Okay. And then probably back to the UE blast, the MEGABLAST. Can you indicate a bit what was the sell through relative to sell in and also for the new shapered products RUN and Freedom 2? Was it a big difference between sell in and sell out or should we think it's basically the same metrics there? Yes. Generally when we ship a new product, we'd have higher sell in and sell through and that's true on both those products. They both shipped. The sell especially in the blast and Megablast shipped midway through the quarter. So you'd have significantly higher sell in than sell through. So it's still very early days in that category. I think it's early days to the category of personal assistants that are not Amazon and Google. And so we're going to have to wait and see how that really develops over time and determine how we feel about the category in general and whether we've got the right price performance profile, etcetera. And we're watching it closely. On the JABR product, it's a little bit of a different story. We shipped a little earlier. We're a little constrained on demand. So I think the sell in and sell out profile probably looks a little more balanced at this point in the quarter, but because it shipped earlier. If you step back from that overall, I'd say our channel inventory picture looks quite good and we feel good about where we are. Okay. Thank you. Thank you. Your next question comes from Michael Fults from Vontagle. Please go ahead. Your line is open. Hi, Greg. Yes. Hi, Greg and hi, Vincent. Question on Jaybird as well. Can you maybe update us on the on sort of the repositioning of the product in eventually new channels as well and give us an idea of the geographic mix that was responsible for the strong growth. And then in terms of the rollout of the Blast speaker series, can you then give also some granularity with respect to which regions it was strongest in demand? Thank you. Sure. I mean, I thought that really quickly U. S. Really, if you look at where Yvette is an Alexa enabled speaker, so really Amazon and Alexa have led with the U. S. And then it's slowly spreading into different countries in Europe and it will spread elsewhere. So still early days, virtually everywhere outside the U. S. In terms of the repositioning of Jaybird, we're really as you know, we are really narrowing that position and we are shifting the distribution a little bit. Well, we haven't seen much of that yet, so that will come a little bit more over time. But I'd say we're on track. I'm super excited about the category and the brand. I think we've got something unique here and we've also been continuing to build out that team. And I'm really excited about that too. I hope they're listening. So you want to add anything to that, Vincent? No. Okay. Maybe on Jaybird as well, do you have any collaboration or cooperation with any sort of sports brand that you have already or you're looking into? Yes, we have several. I'm not kind of comfortable talking about with other with other sports brands and with sports athletes. And so we've got some really cool things that are underway there. And we're really dedicated to building a sports brand there. And we bought one that was already kind of born in the outdoors and we're committed to building it and it will certainly include collaborations with other sports players. Okay. Thank you. Thank you. Your next question comes from Gunther Halseter from Batterjeevi. Please go ahead. Your line is open. Hi, Gunther. Hi, Gunther. Hi, thanks. Just two follow-up questions. 1 again on the European performance. Does it make any sense to differentiate by product categories? Are there any major differences you want to mention here? No, I would say the PC peripherals business was weaker in Europe than elsewhere. Again, I think it was kind of balanced out by the other 2 categories. So, it's nothing particularly worrisome about that. I think that's pretty much natural trend. But other than that, I would say by category, there's not a big difference. Okay. Thanks. Follow-up on the currency tailwinds, the 80 basis points you were were you referring to the margin here or non operating margin? Yes. No, gross margin. Gross margin. All of which, as I mentioned, more than 0.5. Was hedging costs. So 80 basis point was a gross number, and then you offset that with hedging costs, which is a onetime cost. And if the currency is still weighted, then we would benefit from that 80 basis points. Okay. A last question on the share buyback. I mean, you're running right now I think like slightly above $20,000,000 compared to more than $60,000,000 after 9 months last year. Is the main impact from the acquisition? Or could you talk about the volumes right now and what you'll be able to catch up in the Q4? Yes. So at the end of last fiscal year, we closed the old plan and opened the new one, right, the new $250,000,000 We couldn't do anything in the Q1 because of the acquisition, as you mentioned. So we were prevented from that. And we now have established kind of a pattern, and we'll continue opportunistically. And also a small portion of the plan will be put in B5-1. Okay. Thank you. Thank you. Our next question comes from John Urshan from UBS. Please go ahead. Your line is open. Yes. Hi, and thanks again for taking my follow-up question. And maybe a little bit unfair question because you launched so many products with good reviews. But looking at a couple of launches and strongly growing end markets like the Megaplast, the JVET run or the Circle 2, the consumer review seems to be below Logitech's normal average. Can you maybe comment what are you doing, I mean, to improve the consumer experience here? Is there already something that you have done and we can expect a couple of upgrades and relaunches going forward? Just some more color would be appreciated. Thanks. Yes, I think it's a great point. And we do have the 3 the specific 3 you mentioned, the 3 that if somebody had asked me about it, I would have brought up. All 3 of them have pretty difficult technical challenges to them and they're relatively new markets. And or at least we're trying to do something that's pretty really challenging. If I go through each one, in each one of them, we've got aggressive upgrades that have already either happened or happening. And so I think you'll see those reviews come up. Jaybird Run was a tough product. We launched it. We actually needed one more firmware update after we launched the product. It's a phenomenal product. Now when it first launched, if you go and look at the reviews, you'll see some antenna issues where it was disconnecting. We made the change completely good, but those early reviews that came through without that update, we suffered from. I think we learned from that. Same thing was true with well, Circle of Camera is exactly the same story. We launched with it was the wired version is amazing. It gets right at the top of everything. The wireless version when we launched it had some difficulties in the beginning. We've largely, I think, fixed almost all those, if not all of those. And so that product is also awesome. But in the beginning, it was tough. And the third one is Blast and Megablast. With Blast and Megablast, we were really the first out of the gate with premium Wi Fi speaker that had Alexa enablement. And we were really penalized by the fact that there were some features that we just couldn't put in there that we expected to be able to and we had to sort of wait. And so those are coming or they've come, you'll see them over the next, Spotify for example is a big one. Pandora we just launched. So all three of those are I think good examples of our learning curve and learning how to be more than just a hardware company. And I think in every case, the product will come up to the standard that we're known for. I think 2 of the 3, if not 3 of the 3, we're already there. But it's a good experience for us. It's a good jump in the cold water to realize that our own internal development cycle might need a little extra time to make sure that we finish off the end of the software development cycle and prove to ourselves that we've got what we thought we did. Now obviously, we've been doing this for a long time, so we're pretty good at it. As you mentioned, our Amazon ratings, our Best Buy ratings, our ratings in general are quite good in our products. And I don't like having launching products that don't immediately hit those really good performance levels. And so you can imagine that we've had a lot of discussions internally about that. But it's good, because we're going to do more and more of these kinds of products. And we need to be able to always come out of the gate strong. All right. Thanks for the comments. Thank you. And there are no further questions at this time. I'll now turn the call back to Mr. Darryl for closing remarks. Okay. I think my last line of our Q2 call was that we're entering Q3 with the strongest lineup we've ever had leading into a holiday quarter. And I think I also said we just won more awards, more design awards, which really represent design, innovation and engineering than we've ever won before as a company, maybe more than any other company on a revenue per dollar basis, except a really small company. And I think you saw in the numbers that we just reported that we just had our highest sales ever. So this is all connected. We just have a lot of momentum. Now the best thing about this story and the thing that maybe in a weird kind of perverse way I'm most excited about is how much better we could have done. I think we underperformed what we were capable of this quarter despite having the highest sales quarter ever, despite having profit levels grow in line with sales. And the best thing about that is that virtually everything that we could have done better or most of those things were one time things we could fix. So I'm super excited about the future. I think we're on a really good track. I also want to let you know that we are going to be holding as usual an Analyst and Investor Day in Zurich this year. It's going to be Tuesday, March 6. You heard it here first. Put your reservations early. And we look forward to seeing you there. Thank you. This concludes today's conference call. You may now disconnect.