Earnings Call: Q2 2018

Oct 24, 2017

Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Logitech Second Quarter Fiscal 2018 Conference Call. All lines have been based on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Ben Liu, Head of Investor Relations, you may begin your conference. Thanks, Aaron. Welcome to the Logitech conference call to discuss the company's financial results for the Q2 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. 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 both a GAAP and a non GAAP basis. 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 Web site. Joining us today 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. This quarter, we grew our sales and operating profits double digits with the first and the first half sales and profits were up 12%. I have to say there were so many areas for improvement that we could have gotten much more from our performance, but to some extent that's always true. Overall, as we've been doing for the past few years, we're simply executing our strategy, investing in existing categories and capabilities and systematically expanding into new ones, most recently in console gaming headsets. You heard me say many times that we're going to build a multi category, multi brand design company, and it's still early on that road. Vincent and I spent our 1st couple of years here rightsizing cost structure, improving our operational discipline and creating a foothold in new product categories like Bluetooth speakers and video collaboration. We redistributed our engineering resources and reduced unnecessary overhead as we focused on better and different products. Today, I am far more excited about all the market opportunities that we can capture ahead of us than ever. Whether it's the structural growth in gaming, the widening innovation we're driving in music or the opportunities generated by new platforms in cloud platforms in the home and elsewhere. It's just an amazing time. This quarter, we introduced a stream of cool products across our categories. I hope everyone saw our announcement last week of the Ultimate Ear Blast and Mega Blast. These are the 2 newest additions to our family of portable speakers. They build on the success of Boom and Mega Boom by adding Wi Fi and integrating native Alexa voice control. Not only can they double as home Wi Fi speakers, but they're also mobile, so you can continue to listening to your music on the go. And with far field mics built in, you can play your music simply by saying, Alexa, play some band Morrison. That was for you, Rory and Kirsty. As well as asking Alexa to check the weather and a host of other cool things. There really is no other speaker in the market like it today, which has Wi Fi, Bluetooth and Alexa built in. Now let me talk about one of the newest members of our family, Jaybird. I am super excited about the portfolio of products we're building now. Freedom 2 is really an outstanding upgrade to the original version. X3 is our best seller. And we just introduced RUN, our first truly wireless product, and it's awesome. Run is so good that I know if you try it, you'll love it like I do. In my book, there is no better fit and comfort. The acoustics are very good and all that in a small size. Jaybird Run might just inspire you to get out and run, and we are just beginning to hit our stride with what we're doing in Jaybird. And if you look at our original core, there's still important and cool innovations we can do there that can affect the way we create, work and live. We introduced the best and most advanced keyboard in the company's history this quarter, our new flagship Logitech Craft. This has become my personal keyboard and I am addicted. It replaced the K780, which was my previous favorite. Craft includes a creative dial that offers a whole new way to work. You just turn the dial and adjust image brightness, contrast or saturation in Adobe Photoshop or and I know a lot of you finance folks will like this, you can create and adjust charts in Excel just by turning the dial. It's made for creativity and productivity, and it's an entirely new experience used in Harmony with the mouse. As a company, we institutionally love products. And because it's what we've done for 35 plus years, we also love the users who especially love a product. Nowhere has that been more true than the trackball, that odd pointing device with a little ball on top. We've been wanting to do something special for those Trackball loyal users for years. And this quarter, we released our 1st wireless Trackball in almost a decade, the MX Ergo. Users love it. In fact, Ben, I'm looking across the table at is a huge fan and he's smiling as I'm talking about the trackball. And the reviews from customers beyond Ben have also been very good and journalists have given excellent reviews as well. So it's off to a terrific start. Now let me give you a quick rundown on each product category. Our gaming business continued to deliver strong momentum as we've had in the past several quarters. Sales rose 42% in this quarter with a strong performance from all three regions and across all the different gaming product lines. Our strong performance here is driven of course by great products and innovations like PowerPlay. PowerPlay is the wireless charging pad that gives infinite battery life for your wireless gaming mouse while you play. I just can't think of a better application of wireless charging. It's for the gamer who requires complete freedom of movement, but zero risk of battery dying. No trade offs. We're not the only ones impressed. Just this week, Popular Science named it one of the best innovations of the year along with the Nintendo Switch. They called it the magically charging mouse. I'm also so excited to have ASTRO now as part of the gaming family. We just announced our latest mainstream console gaming headset, the A20 for $149 This builds on the more affordable A10 headset that ASTRO launched back in June. We aren't just expanding ASTRO's portfolio though, we're also expanding its global distribution. And I'm looking forward to the additional opportunities that ASTRO is going to bring ahead. Video Collaboration had another very impressive quarter with sales up 59% to a record quarterly high of $46,000,000 We continue to invest in our go to market capabilities here and create great products like Meetup. It took us over 3 years to reach the $100,000,000 annual sales run rate milestone back in December 2015. And just a year and a half later, our annual sales run rate is approaching $200,000,000 Stay tuned. Our Smart Home Group delivered another strong performance. We've benefited from the integration of Alexa here too and Google Assistant in the Harmony Hub line of products. And we view the Smart Home market as a set of long term opportunities for us. We're still early in the rollout of our latest Circle 2 secondurity camera, but remain excited about the long term prospects for this nascent market as well. Mobile speakers fell 8% this quarter as we prepared for the ramp for our new lineup as mentioned earlier. At the same time, our pint sized Wonderboom entered the market powerfully. It's an unqualified hit and I can't wait to see what Blast and Mega Blast do. Audio PC and wearable sales were flat in Q2. As we stated last quarter, we're positioning the Jaybird portfolio for long term growth. And as a runner myself, I am super excited about where we're going. Our PC peripheral products performed consistently well, taking advantage of the large and stable PC installed base. Sales were up 1% overall, pointing devices and keyboards and combos were flattish, while PC webcams grew 12%. Tablets and other accessories sales were up 50%, making the 2nd quarter in a row a very strong double digit growth. Is this a new trend? Still too early to say. What I do know is that when we come out with innovative new tablet keyboard offerings, we deliver growth. Now I'll pass the call over to Vincent. Thanks, Bakken. We posted another consistent quarter of double digit growth, better than expected, with net sales up 11% constant currency and non GAAP operating income up 12%. ASTRO, which was fully integrated in September, only marginally contributed to our sales growth this quarter less than a point. With Astro now fully integrated and a range of great new products across almost all of our categories, we have the best portfolio we've ever had to deliver on our growth ambitions. As you know, our long term financial model is based on high single digit top line growth with gross margin in the range of 35% to 37%. In Q2, our non GAAP gross margin reached 36.6 percent, down 40 basis points year over year, but still near the high end of our target range. Currency was somewhat neutral in the quarter, while product cost savings allowed us to invest in promotions and other costs related to numerous new products across all of our categories. Gross margin was also impacted by the transition to a new third party distribution center in the Americas to support our growth. We experienced significant challenges in the transition operating procedures and in ramping fulfillment in Q2 and early Q3. The challenges at this 3rd party distribution center are adding additional cost in these periods. Looking ahead, we are fully committed to managing the business within our annual gross margin range of 35% to 37%, while investing into our operational capabilities and investing for sustainable growth opportunities, whether they are OpEx or gross margin related. In Q2, our non GAAP operating expenses rose 11% to $159,000,000 and were 25% of sales, in line with our midterm target of OpEx to sales ratio of 25%. Excluding ASTRO, gaming, our operating expenses would have increased 9%. Our sales and marketing and R and D expenses increased 14% 10% respectively, while at the same time we continue to drive leverage in our G and A spending down 40 basis points to 3.4% of sales. Cash flow from operations was $68,000,000 in Q2 as we invested in our working capital ahead of the holiday season. As we had mentioned last quarter, our cash flow seasonality this year is very similar to what we saw back in fiscal year 2016. You should expect to see our second half cash flow from operations improve compared to the first half, such that our full year cash flows should be approximately one time our non GAAP operating income. As a reminder, our first priority for the use of cash is investing in our business, which also comes in the form of tucking acquisitions, followed by a growing dividend and finally opportunistic buyback. In the quarter, we spent $85,000,000 to acquire ASTRO Gaming. We paid out $104,000,000 in dividend, up from the $93,000,000 that we paid last fiscal year and we repurchased $10,000,000 worth of stock. And with those details, Bakken, I'll turn it back to you. Thank you, Vincent. Through the first half, we are operating at the high end of our range for the year, which gives me the strong confidence in our ability to deliver our previous guidance. Our biggest seasonal quarter is right ahead of us, and we have a good lineup and good momentum. I'm proud of what our teams created, both in terms of innovative new products and enhanced capabilities. We're maintaining our fiscal year 2018 sales guidance growth of 10% to 12% in constant currency and non GAAP operating income of $260,000,000 to $270,000,000 And with that, Vincent and I are now ready for your questions. Operator, please queue them up. Your first question comes from Joran Ackford from UBS. Your line is open. Hi, Joran. Hi, May I quickly start with sell through in Americas? It was plus 3%, I think one of the weakest sell through we have seen in the last couple of quarters, if I remember correctly. Would you name any particular product range here, which was contributing to this weakness? Second question would be on gross profit margin. Can you please specify what was the impact from the 3rd party distribution center setup? And what are you expecting on the gross profit margin for the second half versus the first half? Because if I remember correctly, in July, you said, I mean, there will be investment front loaded in fiscal year 2018. That would be very good to know what is roughly the gross profit margin direction going into the second half. And last question is on Wiley Speaker. I understand there was some cleanup, but could you share with us the sell through data for Q2 2018? Thanks a lot. Okay. So let me take an attempt at the first few questions. I'm sure Bracken will complement some of the data I'm going to give you. So yes, sell through for those who have looked at our slides on our website in Americas is up 3% versus our sell in up 10%. Some of the selling data includes some of the education channel that is not comprising to the sell through. Sell through is the best proxy we have for sell out. It was marginally impacted by the transition of the distribution center and how the products move through our channel 2 tier channels. Overall, we feel pretty good about going into the holiday season. When we manage the business, we mainly manage on weeks on hand and where we're positioned versus the demand. And our overall channel feels right in the middle of our target range compared to the demand we see going into Q3. So we feel reasonably confident from that position. Remember also we give that data as an indicator. There is not always an exactly match between sell in and sell through depending on the size and timing of the product moving into the channel. Overall for the company, we are up 11% sell in, up 13% in sell out and feel good also on a global position as well as Q1. That's for sell through. On the gross margin side, definitely the gross margin was impacted by 2 things as we mentioned, the higher level of promotion as we transition to new product cycle and then the incremental cost from the distribution center. I'm not going to size any one of those events. There's plenty of different dimension impacting gross margin. Seasonally going into the second half as you know, Jan, Q3s are normally a declining quarter over quarter gross margin quarter. So Q3 being a lower gross margin quarter, but we will be within our range, target range of 35% to 37%. We normally do not guide by either quarter or at the gross margin level, but within the range feels a right indicator. And then there was another comment around mobile speaker, I think. And overall, part of the sell through, of course, data that you saw was part of promoting our mobile So Good. So may I ask then sell through of the wireless speaker was also negative in Q2 2018? Yes, it was also CELTA was also negative in Americas and EMEA. It was positive in AP. And as you know, we launched both MegaBLAST and BLAST mainly in the U. S. And then in a few countries in Europe. Exactly. All right. Thanks very much. Thank you, Joreen. Your next question comes from A. C. Merchant from Citigroup. Your line is open. Hi, Kraken. Hi, Vincent. How are you? Great. Can you just talk a little bit now that your actual acquisition is complete and gaming is already doing so well, kind of what our expectations are for the second half? I know you guys have a great lineup, but relative to expectations that were set at your Analyst Day earlier in the year, how should we think about the gaming segment going forward? And I just have a follow-up question on gross margin. Okay. Well, of course, we don't guide by category by quarter. But I would say overall, we continue to feel very, very good about gaming. Every segment had strong growth and it's really just a strong market and we're performing well within that market across the board and around the world. I would say in the second half, we expect more of the same. And I think I wouldn't give exact numbers, but I would be surprised if we didn't have good strong growth in gaming through the back half. And, Vijay, just to give you a little more color, right, so we talk Analyst Day in gaming and actually across all of our categories of the 3 ways to grow, right? Positioning our product on structurally growing markets, gaining share in those markets and then adding adjacencies. You can see that perfect framework in gaming when all three levers are delivering and maybe out delivering versus our expectation. That's great. And then on the gross margins, Vincent, I guess, we talked at the Analyst Day, you guys talked about your design for cost initiatives and how that's going to while it's in the range, kind of the implication was that we should be seeing positive margins that obviously you guys invest in the business. So can you talk a little bit about where you've been able to further expand your design for cost initiatives relative to what you guys talked about at the Analyst Day, which products have now been impacted, how much more runway is there and to feel confident about the gross margin range that you guys are guiding for? Yes. Well, I wouldn't be really specific and Vincent you can add anything you want. Well, I wouldn't be really specific on the individual products. But if you zoom out a second, every time we launch a new product, our goal is to have equal or better gross margins. Roughly 80% of the time, and this year 80% of those were that's exactly what we're doing, which would be up versus the past for sure. New categories that we're launching, we have the same principle above the company average and we're doing that very consistently now. And I think we can we'll continue to do that going forward. Okay. Thank you. Thank you. Your next question comes from Tavis Makort from Raymond James. Your line is open. Hi, Tavis. Hey, guys. Hey, how are you doing, Bracken? Perfect. Couple of questions. I guess, you don't want to talk about the exact cost impact. But I guess qualitatively, can you tell us what exactly you're doing with this distribution center in the U. S? Is that kind of an extra layer of inventory? Is it your DC or is it your 3rd party who was just moving physical locations? Just give us some sense of how temporary this may be. And then on the cash flow, Vincent, from your guidance, I suspect you expect inventory turns and DSOs to kind of return to normal by the end of the year. I think that would still get cash flow from operations this year below where it was in 2017. Should we think of this year as kind of a good run rate? Was or was last year kind of a better run rate for the business? I haven't had chance to look at all the puts and takes on working capital changes. And then, Bracken, a product question for you. Sorry, Vincent. I'll hop off. Sure. No, go ahead. So in the Home segment, it feels like I know you guys don't want to call 1 or 2 quarters a trend, but it feels like it's getting some momentum. And I think this is a category a few years ago you had potentially looked to exit. And so I'm wondering, within there, I think you've got the Harmony brand, the Circle brand. What else are you are there other products within there? And kind of what are your growth ambitions with that home segment, the smart home segment specifically? Okay. Good. Let me take quickly the financial questions and Bragan will answer the product question. So on the distribution center, it's really a response to our growth. As you know, we've been on an accelerating path of growth in the U. S. For the last 4 years and we needed to have a bigger facility. It's a 3rd party logistic provider and it's basically moving into more flexible and bigger facilities. The extra layer of cost came in many different areas. The first one, of course, is we kept the old distribution in parallel to manage the transition time frame. It also came in the form of logistics. We were handling and had some operational challenge in the transition. We had to air freight more than our overall budget. We continue this process as we go into Q3, which is the biggest quarter as you know. So for Q2 and Q3, those incremental costs would be in the P and L. I would expect that to regulate going into Q4. So it's kind of a one time item over 2 quarters. In terms of the cash flow, those are approximate number. We don't really don't guide cash flow, but we give a directional thing. As you know, our inventory, as we mentioned, has been growing here ahead of the holidays. More than half of the growth is really product linked to the new product we've introduced on a year over year basis. So definitely incremental in term of overall going into the holidays. I would expect that, of course, to sell through, as we said. And so working capital and days of inventory to regulate post Q3. The only one time item in cash flow that we have is linked to the fact that this year at the beginning of Q1, we mentioned it in Q1 calls, we paid last year annual compensation plan, which moved from a 6 months view to an annual view. So there was a one time catch up with higher cash flow in Q1 because we moved to an annual plan paying for last fiscal year. That's the only item that changes year over year. And so we feel confident to see approximately one time non GAAP operating income is a good proxy for cash flow. And to answer your question about the home, I think we now have really three things, 3 significant things happening in the home. We've got Harmony, as you mentioned, which is now integrated not only with Alexa, but with Google Home. We've got Circle 2, which we just launched last quarter, so it's still ramping. And then we've and as of last week, we'll have Bluetooth speakers that can operate not only on the go, but also as Wi Fi speakers inside the home. So we have those 3 different products that position us interestingly for the home. And going forward, we're always looking at new things to have us. We never stop experimenting. We've already experimented with some products in the home. I would say overall, if I step back and maybe many of you will agree with this, I think the home as a marketplace has actually grown slower than I think most people thought. We've been a little careful not to go too crazy there. But we continue to be developing, experimenting in a lot of different places in the home and we're going to try to participate in every place that makes sense for us. So yes, I am optimistic about the home going forward. No, I wasn't 4 years ago when I tried to sell Harmony. But I'm excited about it now and I think it's a good long term play for us. Great. Thanks very much for the details. Thank you. Your next question comes from Ananda Baruah from Loop Capital. Your line is open. Hey, Ananda. Hey, guys. Good morning. How are you? Good. Awesome. Yes, congrats on a solid quarter, kind of pretty much all around. A few for me if I could. Bracken, you sound like you have a lot of enthusiasm across the board on the portfolio. And you've spoken pretty energetically about sort of new product offering that have recently come to market. You talked pretty energetically about mobile speaker refresh that's upcoming. And the way that it's landing with me is you're actually well, it sounds like you're excited about, this is my term, incremental momentum across your growth businesses. So is that an accurate, I guess the first thing is that an accurate interpretation on my part? And then as we think about and I know you're not going to give guidance and that's totally, totally, totally fine. But as we think about heading into just 2018, the different aspects of your business that you think will be the more important drivers, Could you sort of walk at least give us some context there and however you're comfortable doing that? And then I have a follow-up. Thanks. Okay. Why don't I take it? Thanks, Matt. Why don't I take a reverse order? Yes, I really do feel like we have the best product lineup since I've been here and we've been continually fueling that. The cool thing about the lineup now is we've got really exciting new launches that have happened within the last two quarters across really every category. So it's a super exciting time. The incremental momentum, which I'll put in quotation marks, I'm not sure how to react to that exactly except to say we have very good momentum now. So if you look at our video collaboration business, it grew almost 60% this quarter and gaming grew 42%. Those are 2 of our growth categories. And we just launched our new Bluetooth speakers that are not only Bluetooth speakers, but they're also Wi Fi and they have Alexa built in. So we have a lot of cool things going on right now. I mean, I don't know how to gauge that relative to last year or the year before or something like that. But all I know is we're taking on more difficult challenges from a product standpoint. We're consistently executing, I think, very strong product in the products in the marketplace. And it does position us really well, not just for this year, but for the long term. And you can bet we're going to do the same thing next year. And if I can just add, Ananda, on the momentum thing. I don't know about our incremental momentum, but I can tell you and I shared that at the Analyst Day, we definitely have incremental set of opportunities as we progress into the different markets we are in. And at this point in time, it's more difficult to decide which project not to do than which project to do. We definitely feel really, really good about the opportunities the company faces in the long term. That's awesome. That's super helpful context guys. And then as a follow-up, just with regards to the distribution center, Vincent, it sounds like you're saying kind of March quarter is the quarter where this is my term, but say just net headwind or net drag sort of resolves itself. Are there will there be cost and revenue opportunities when you get through that? It sounds like there's definitely some sort of cost opportunities, but will you get a rev benefit from that as well? It sounds like maybe it might. Yes. I think the impact the reason I mentioned it is because there's the incremental cost. We've had some operational issues and it's much more in terms of moving product through the channel on time. We feel pretty good of where we finish Q2 if you want not leaving much more revenue on the table from a selling perspective. Now as Johan mentioned sell through was a little bit lower in the U. S. And there was some impact through that progression of the products to the channels. So that's the main reason I mentioned it is because it will be incremental cost in there's been in Q2 and then there will be in Q3 as we run 2 distribution centers in parallel to address the demand in Q3. Got it. Got it. And then just a quick follow-up on the gross margin. So it sounds like you guys have absorbed some headwinds to gross margin. Gross margin is obviously strong. Is that accurate? So said another way, if you weren't doing some of the things you were doing with the gross margin, potentially have been even stronger. And I think you sort of beat Street expectations, my expectations as well this quarter. So thanks. So are you maybe pushing right up at the high end of the gross margin range already on an organic basis? I don't know. I can understand where you guys look at the result report. It looks all easy and now you're saying, oh, you're facing headwind. Every quarter, every day, every week, we face headwind and then we work our way through and say, okay, how do we continue to build better product cost through our overall structure, how we create room and how we compete, etcetera. We know we have a lot of levers in our gross margin. And I don't want to focus too much on Q2 specifically. We are operating at the high end of our range. We feel good about our long term range and where we are today within that range. Awesome. Appreciate it. Thanks a lot, guys. Congrats and good luck. Your next question comes from Jyrton Wagner from MainFirst Bank. Your line is open. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Hi, Jyrton. Actually on JV, you mentioned that you are positive on the positioning. What was the revenue run rate in the quarter? So we don't split overall jaybird by itself. It's, as you know, in the wearable category, and we posted all the numbers on our website. But we don't call out jibberd specifically. And second question, FX exposure, has that changed recently? And what is your hedging policy? Yes. So in the quarter it's a question I have not received yet, but I'm sure I will in 1 on 1. So the currency in the euro was beneficial or favorable to us if you want. Now that has to be balanced with the fact that other currencies were unfavorable. Chinese currency, Japanese currency, the pounds all moved the other way than the euro. All in one, when we hedge for 4 months looking forward, as you know, and mix and overall currency globally, the currency didn't have any material impact on the current quarter. Okay. Thank you. Thank you. Your next question comes from Paul Coster from JPMorgan. Your line is open. Yes, thanks for taking my question. We saw something of a surge in growth for keyboards device in late 2016 really and through the beginning of 2017. It now seems to have moderated to what I think many of us would have thought was the normal growth rate. Can you just maybe explain what's happened there and whether what we're now seeing in this sort of low single digit growth is what we should expect moving forward? Keyboard is an interesting category. People definitely haven't slowed down using keyboards. And so the our business, I think, has been more driven by the product that we've launched into that market than the market itself. If we innovate enough, I'm convinced we can continue to have growth in keyboards. And we just launched that craft keyboard, Paul, which I don't know if you've seen it yet, but it's really cool. And we're going to keep doing things in the keyboard market. We're even in a world where if I look out years from now, even in a world where you've got or AR in particular, I imagine keyboards will still be a pretty significant player. It's probably a few years out before you're going to see that. But so yes, I mean, I think the keyboard market is alive and well. And the installed base is really stable. So I think at the end of the day, as long as the installed base stays stable, I think we're going to have a stable, I think we're going to have a pretty good keyboard business and we're going to keep innovating in it. We've got cool things in the oven all the time. Well, maybe just a little bit deeper into that then. I mean, you saw double digit growth for a couple of quarters, 3 quarters last fiscal year in that category. Are you saying that that's just a function of the product cycle and that it's quite feasible you would come back to that kind of growth at some point in the future as well? I'd be so hesitant to ever say that we hit double digit growth in the keyboard market as an expectation set. But I do think we a lot of that growth was driven by an emphasis we put on multi device keyboards, more and more people are using multiple things in those keyboards and that was a really good innovation. I think we'll have good innovations going forward. Well, how much will we get out of that? How much growth we get out? It's really hard for me to say, but I think it's just structurally with a PC installed base that's very healthy and it doesn't look like it's trending downward or drastically at all or even much. I think our opportunity in keyboards will continue to be good. And Paul, if I can add a few things. So at the Analyst Day in March, we did tell everyone that in the keyboard, we saw double digit the year before. We probably will not see that this year. And depending on, as you mentioned, product cycle, product innovation, timing of those NPIs, some of those category can move up and down. We always look at the PC peripheral. And initially, you know where we position it when we came into the company. But so far, we think we have a kind of a low single digit growth rate opportunity in that category. Some categories can perform better. Webcam were up 12%. I would not advise you to model double digit growth rate forever in webcam. But you never know. We can always come up with new product and find those opportunities. Overall PC peripheral, low single digit, we've been pretty good around that target range. It's so nice, Paul, to have a question about keyboards on the call. Your next question comes from Michael Phelps from Vontobel. Your line is open. Hi, Michael. Hi, Michael. Yes. Hi, how are you? Two questions from my side. Regarding Jaybird as well, in terms of last quarter, I thought that you were sort of disappointed in the U. S. With the performance. And my question is, what have you done to reposition Jaybird, not in terms of obviously we've seen new products, but in terms of distribution channels and how long do you think will it take before this really takes off? Because I think there's pretty high potential and everybody finds it a really cool product, but it doesn't seem to be accelerating yet. So that will be the first question about the positioning of Jaybird and how you sell it. And the second one is, if you could give us an update on your spotlight presenter. Any significant contribution in the quarter? And is it accelerating? Or has it sort of lost momentum again? Thank you. Yes. So I'll take a few quantitative answers and then Draken can also comment. On the JV side, what we said on the call last quarter is that we are really reevaluating the approach with JBER from both a product portfolio and a distribution perspective to position it for long term success. So it's not an acquisition that we decided to say, hey, let's go and launch it broadly in every mass distribution environment and push it through. We're really focusing on the brand, positioning the brand right and aligning all of the different value vectors along that brand. So we're in the process of that and you saw run launch and you can easily extrapolate how we're positioning the brand and what we're doing from product portfolio all the way to distribution. I don't think we want to be much more specific than that. It's very exciting brands, very exciting set of products. I use the Run all the time to run and I really love it. And I'm sure many of our customers do too. And before we go to the next one, I'll add to that. I think when we bought Jaybird, we really saw an opportunity to do something different than what's really being done in the market with a platform that is really interesting. And so we're super excited about the long term potential there and we're holding ourselves back from trying to squeeze all the juice out of that lemon in a short term basis and really build it structurally for long term growth. And so, no, I don't think we're done yet on really thinking through and changing the distribution footprint and the product portfolio. So you'll see more as we go ahead. So in terms of spotlight, it's still my favorite presence to my CFO colleagues to help them improve their presentation skills. It's a fantastic product. As you know, it has software applications loaded and we can improve the functionality through software upgrades. I think it's really showing up capabilities to take small subcategories and continue to evolve them and position them for growth. It grew double digit in the quarter and has been doing so since the launch. Yes. And I think that's one that the nice thing about that, it's a very small category. So we're not going to go spend a tremendous amount of marketing money to advertise that or something. But the cool thing about it is every time you present it in a group of people, you just do the advertising. So it's getting more and more traction in more and more places. And we still think it's the best thing out there for presenting and it will keep growing. Okay. Maybe if I can just add a question here. I mean, you're very successful with the video conferencing product and those sell, I guess, essentially to companies, right, to businesses. So how can you leverage that sort of sales to businesses and try to get more MICE into the business world, get more of the spotlight products into the business world eventually, also keyboards. I don't know if I'm sitting in the only company which has like super outdated mice and keyboards, but I guess I'm not. So can you leverage your video conferencing contacts to the other categories? Potentially, I mean, I think we already have, as you probably see, we already have a pretty decent share of mice and keyboards that go into companies, but we don't have as big and strong a selling effort into that into those markets as we would have, say, on video collaboration, as you said. It's a much more indirect sale for us. So maybe there's a long term potential there to our mice and keyboard offerings into businesses using video collaboration. But right now, we're just super excited about the video collaboration business. We think it has so much runway ahead of it and we'd be making a mistake if we tried to put too many things on its back. It's got big shoulders by itself to carry long term growth for us. So we're going to really stay focused there. Understood. Thank you. Thanks, Michael. Your next question comes from Gunther Hohlfelder from Baader Helve. Your line is open. Thank you. It's Gunther Hohlfelder. Hello, hi. I had a follow-up on the currency impact. Looking at the second half, should we expect like a 2% to 3% pP tailwind in terms of sales? And if you could comment also on the impact on profitability at the current exchange rates? Thanks. Yes. So let me do that quickly. I don't want to start to speculate where the currency will be for the remaining two quarters as you know. We are definitely hedged on a 4 months rolling. So for Q2, it feels pretty good and then we'll see where we are in Q4. We plan conservatively and we know all of the levers in the overall P and L. If you keep at current exchange rate and they will not move, yes, you would expect a couple of points delta between overall sales in U. S. Dollars versus constant currency depending of course on the mix. As you know, EMEI is growing at mid single digit, while China, for example, is growing double digit much more. And so the mix has a big role as well. And I don't want to start speculating on that. In terms of the flow through in the P and L, we are hedged for 4 months. So we kind of have the impact this quarter of the cost of hedging. If currency does not move, we should see some benefit going to Q3. If it moves, as it has done versus the average of the last quarter, then we'll have another cost of hedging to offset that. In the long run though, when you pass the volatility or the short term volatility, we definitely have a benefit into the P and L from a currency perspective, if it stays where it is. Okay. And then I had one question on the on your sales strategy approach going to the holiday season and particularly in the U. S. And also in Europe. Do you have let's say, has do you expect quite a significant change in terms of the share of online sales this holiday season compared to last year? And have you positioned yourself accordingly? Yes. We've consistently seen online sales like you'd expect. Online sales have grown every year in the Americas or in the U. S, for example, I think it's grown about I was looking at this with MPD the other day across multiple categories. It's grown about 1 point a year for the last 8 or 10 years. So now it's up to in our categories, it would be up to between 32%, 33% 35%. In China, our online sales are bumping up against 65% to 70%. In Europe, it would be lower than either one of those, but still coming up strongly and not too far away from the U. S. Now. And we just continue we expect that to continue. So we're putting more and more emphasis on our online go to market and that's going to continue forever until they finally stabilize. Okay. But the trend in the U. S. In terms of online sales, you would expect it's pretty much in line, let's say, with the growth compared to last year's, there's no special impact or significant acceleration or anything? No, I don't think there's a special acceleration, but it has been. Online has been outgrowing offline for every year for the last for as long as I've been here and before that and that will continue. Okay, great. Many thanks. All right. Thank you. Next question comes from Joanne Efert from UBS. Please go ahead. Hi, Joanne. Sorry, gentlemen, that I am back here. Just a follow-up question, please, on the gross profit margin. As Vincent already has indicated that usually Q3 is down versus Q2 on the gross profit margin. And this hasn't been the case, I think, in the last 2 years. Why exactly this would be the case right now? I mean, you have some benefits coming from FX on top. The mix seems quite favorable with high gross profit margin media collaboration growing strongly. So what exactly is the reason why it should be down in Q3 versus Q2? It has not been the case in the last 2 years. Is it just a statement to be conservative? Or how shall we read it? No. I think you have a lot of new products here that have been introduced. There's cost of new products. There is promotion of the old lines. You have the normal holidays and the holiday promotions. The effect of Black Friday in America is not to have the same impact in Europe. So all of those dynamic if you want, create normally a lower gross margin in Q3. And that is offset by the FX, if it stays where it is, which would be beneficial. And then of course, as a third driver for us, we have this transition of the DC, which may marginally impact margin in Q2 as well. Okay. So it tends to be on Overall, you're sorry, Johan, just so other investors and analysts don't take me wrong. Overall, we're committed to manage within our range of 35% to 37%. It's all built into our overall guidance and we feel very good about where we are going into the quarter. All right. Thank you. Thank you. At this time, I will turn the call over to the presenters. Okay. Well, we're halfway through the year. As Vincent said, and I've said it now a couple of times in this call, I feel extremely good about the product lineup going into our biggest quarter of the year. So look forward to talking to you guys in January. This concludes today's conference call. You may now disconnect.