Logitech International S.A. (LOGI) Q3 2020 Earnings Call Transcript

Good day, and welcome to the Logitech Third Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session and instructions will follow at that time. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I would like to introduce your host for today's call Mr. Benjamin Lu, Head of Investor Relations.

Thanks, Erin. Welcome to the Logitech conference call to discuss the company's financial results for the third quarter of fiscal year 2020. The press release, our prepared remarks and slides as well as the live webcast of this call are available online at the Investor Relations page of our website ir.logitech.com. During the course of this call, we may make forward-looking statements including with respect to future operating results that are made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. Please note that today's call will include results reported on a non-GAAP basis. Non-GAAP financial results have inherent limitations and are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our IR website. We encourage listeners to review these items. Unless noted otherwise, comparisons between periods are year-over-year and in constant currency. This call is being recorded and will be available for replay on the Logitech website. Joining us today are Bracken Darrell, President and Chief Executive Officer; and Nate Olmstead Chief Financial Officer. I'll now turn the call over to Bracken.

Thank you for the engaging introduction, Ben. I appreciate everyone joining us. We had a strong quarter in Q3 despite global macroeconomic challenges. China tariffs, Brexit, and currency fluctuations have become standard. While the macro environment continues to generate news, our solid performance is driven by trends that are independent of these events. The increasing ubiquity of video conferencing, the growth of computer gaming as a major sport, and the rapid rise of content creation among individuals worldwide are key drivers of our long-term growth, irrespective of the macro climate. We execute effectively, are propelled by significant trends, and boast a diverse portfolio of existing and developing products. This combination contributes to robust growth. Our portfolio includes three primary growth areas: Video Collaboration, Gaming, and Creativity & Productivity, alongside other categories being developed for future growth or optimized for profitability, allowing for reinvestment in our key growth areas. We're on a promising trajectory. Regionally, each of the three global regions presents a unique story. Each of our reported categories includes various product categories, and similarly, our regions consist of clusters of countries. In EMEA, we're enhancing our market strategy by transitioning from a push to a pull approach, increasing marketing investment while reducing pricing. This adjustment has led to five consecutive strong quarters, with nearly every cluster performing well. In Asia-Pacific, our growth was a mere 3% due to local challenges such as protests in Hong Kong, a slower-than-expected China, and some execution issues impacting our growth potential. However, most clusters maintained solid performance. The slight downtrend in the AMR region stems from several factors. We did experience growth in expected areas like PC, Gaming, and Creativity & Productivity, but we limited our depth and breadth of promotions during the holiday quarter to avoid over-promotion. As you know, we managed tariff impacts with price increases in the Americas. This strategy of raising prices while reducing promotions helped us maintain the significant gross margin progress we've achieved recently. In fact, our overall company gross margin saw only a minimal decrease despite tariff challenges. We likely could have reported higher sales in the Americas. Did we apply too much pricing discipline this quarter? I believe the answer is no, as I'm focused on building sustainable long-term franchises rather than short-term gains. Mobile Speakers and Audio & Wearables were responsible for our decline. The Mobile Speakers market remained challenging over the holiday season, mirroring recent trends in the Americas. The performance of Audio & Wearables in the Americas was the primary cause of a global 16% decline in this category for Q3. Blue Microphones also faced a downturn due to the discontinuation of certain limited-edition Yeti mics sold last holiday season. This comparison challenge was intensified by supply constraints as we transitioned our supply chain to new partners. We're optimistic about returning Blue Microphones to growth by leveraging long-term streaming opportunities. I want to highlight some of our longstanding yet quietly pursued efforts in sustainability at Logitech. Until now, we have only discussed sustainability in our annual report, but we're now prepared to take a leadership role in this area. We've made a public commitment to ambitious sustainability goals for the entire company, supporting the Paris Agreement and aiming to exceed its commitments. We've pledged to limit our carbon footprint in line with a 1.5°C increase goal and commit to using only renewable electricity by 2030. We're also proud to announce that all Logitech Gaming products are now carbon-neutral certified, with third-party validation of our sustainability efforts. Recently, we were honored as one of the 37 companies recognized by World Finance magazine for our sustainability initiatives, the first year of these awards. We were the only consumer tech company to win. Turning to our specific categories, our Video Collaboration category continues strong with a 25% increase in Q3 sales. This follows the previous quarter's exceptional 60% growth, bringing the two quarters to a more typical performance. In the first nine months of the fiscal year, Video Collaboration sales rose 37%, with all regions achieving double-digit growth. Logitech aims to be a reliable partner for other companies, remaining neutral, as we work with major U.S. cloud providers and leading Chinese platforms like Alibaba. Over 600 companies have installed our Sync device management software since its availability, and we're eager to see how we can further assist companies in expanding video conferencing in their spaces. In the Gaming segment, we achieved double-digit growth this quarter, which we had anticipated. With upcoming easier comparables for Fortnite, Q3 sales rose 16%, with significant growth in PC Gaming sales excluding headsets, while the decline in gaming headset sales slowed. We expect more normalized comparisons as we finish the fiscal year. Our expanded distribution of the ASTRO PlayStation 4 controller and strong sales in our Gaming simulation products contributed to our performance, highlighted by the successful Logitech G Challenge grand finals held in Las Vegas, showcasing the convergence of virtual and real racing. Mobile Speakers sales remained steady, as we anticipated, although market conditions are still challenging, and we'll continue to evaluate this category closely. Our PC Peripherals segment had another solid quarter with 6% sales growth. Pointing Device sales rose by 5%, and our latest flagship mouse, the MX Master 3, saw sales more than double since its launch, earning recognition as a CES 2020 Innovation award honoree. Our successful premium products coexist with strong sales in the mass market segment, demonstrating our innovation and cost management capabilities. Keyboards & Combos grew by 10% in Q3, marking eight consecutive quarters of growth. The newly launched slim profile MX Keys has quickly become our top wireless keyboard, highlighting our innovative approach to this category. We are also committed to addressing consumer pain points with our ergonomic product line, including the recently announced Logitech ERGO K860, which improves wrist support and typing comfort significantly. Finally, our Tablet and Other Accessories experienced a 12% decline this quarter due to supply constraints on our iPad keyboards and competition from Apple entering the market. We anticipate that the supply constraint will be resolved in Q4. Now, I'll hand over the call to Nate to discuss some financial metrics.

Okay. Thanks, Bracken. We delivered a strong P&L for our holiday quarter with sales up 5% to $903 million. The first time our quarterly sales have ever exceeded $900 million. At the same time, we delivered operating leverage with non-GAAP operating profits up 6% to $152 million also a record high. As Bracken said, despite currency headwinds, incremental China tariffs and price increases across a wide range of our products, we delivered a strong performance. As expected and forecasted in our last earnings call, our Q3 non-GAAP gross margin declined both year-over-year and sequentially due to unfavorable currency exchange rates and the full quarter impact of List 4A China tariffs. In spite of all these factors, our non-GAAP gross margin of 37.6% came in only 0.5 point below last year. Margins were supported by cost reductions and as Bracken highlighted earlier, we made choices to limit the depth of our promotions and protect the long-term value of our brands and innovations. I'm pleased with the margin results and the discipline we exhibited during the holiday quarter. One thing I would like to point out is that while we are glad that the China tariffs did not escalate further with List 4B, the decrease of List 4A tariff rates from 15% to 7.5% will not have a material impact on our Q4 gross margin. That's because the actual date of implementation for this reduced tariff rate is not until mid-February and much of our U.S. inventory for this quarter will be brought into the country before the tariffs are decreased. In addition, I want to remind you that the List 4B tariffs were never included in our full year guidance, and therefore, their cancellation does not impact our outlook. In Q3, we prudently managed our spending with non-GAAP operating expenses up 1% to $188 million. We essentially kept sales and marketing spend flattish, while we increased R&D spend by 6% and reduced our G&A costs. Of course, we invested strongly again in building out our Video Collaboration sales team. We actually accelerated investments versus last quarter, but we offset these increases with the lower G&A and a shift of spending toward our faster-growing categories. This is the discipline that you've come to expect from us. So, despite the product cost headwinds and gross margin pressures in the quarter, we still delivered operating profit growth of 6%, which was faster than our U.S. dollar sales growth of 4%, and we remain on track to our full year operating profit outlook. Keep in mind that since issuing these targets last March, we've absorbed not only the tariff increases but also well over one point of margin headwind from currency. At the same time, we've maintained or even increased our strategic investments in the business. Now let me talk briefly about our cash flow. Cash flow from operations was $181 million in Q3, up from $176 million in the same quarter last year. Cash flow benefited from a 10% reduction in our inventory and a nice improvement in our inventory turns, which ended at 7.4 times. Excluding the impact of tariffs, our inventory turns would have matched our prior record high. In fact, we achieved record inventory turns in EMEA and AP. Our global operations and supply chain teams continue to do a nice job supporting business growth, while delivering cost savings and working capital efficiencies. I would point out, however, that as is typical with our business seasonality, our fiscal Q3 is the single largest quarter for cash flow. So you should expect to see the normal lower levels next quarter. For the full year, we continue to expect our cash flow to approximately equal our full year non-GAAP operating profit. And with that, I will turn it back to Bracken.

Thank you, Nate. We just finished a good holiday quarter with record sales and profits. We're reiterating our sales growth of mid to high single-digits in constant currency and non-GAAP operating income of $375 million to $385 million, despite the tariff impacts and currency that we've seen. With underlying secular growth trends across the vast majority of our business content creation, video in all rooms, Gaming, we are really excited about how we're positioned to capture these opportunities. We'll provide our fiscal year 2021 outlook at our upcoming Analyst and Investor Day, which I'm sure you will all join in New York City on Tuesday, March 3. And we look forward to sharing more of our plans and strategies then. And with that, Nate and I are ready for questions.

Your first question comes from Asiya Merchant with Citigroup. Please go ahead.

Hi, Asiya.

Hey, good morning everyone.

Good morning, Asiya.

And thank you for pronouncing my name correctly. Great quarter.

Thank you.

Great quarter. Quick question on Gaming. It seems like those underlying trends that you talked about Bracken with the double-digit growth seems to be coming back, the Fortnite comps are getting easier. As we look into calendar 2020 with console, new console hardwares planned as well as just the underlying trend, should we now expect Gaming to sort of come back to kind of the growth rates that you typically talk about at your investor events which are I think roughly in the 15% to 20% range just given these underlying drivers? And then I have a question for Nate as well.

Okay. Great. We'll provide our guidance for next year by category in March. March 3 is our next Analyst Investor Day. I believe the fundamental trends in Gaming remain steady, although we experienced the significant impact of Fortnite and a similar situation in China. I will return to reaffirm our long-term guidance at that time, but I think Asiya is on the right track.

Okay. That's great. Nate, you mentioned that gross margins for the fourth quarter won't really benefit from the tariff rollback on List 4A, but typically in the March quarter, do you guys anticipate a slight dip? Should we expect that based on how you performed in the December quarter with the discipline you referred to?

I wouldn't say there's a consistent trend from Q3 to Q4. Some years it's higher, some years it's lower sequentially, and much of it depends on the product mix. I was pleased with the margins in Q3, as the teams worked hard to find efficiencies to help mitigate the new pressures, and we will need to continue this in Q4. Based on the current currency situation, it doesn’t appear we will gain any benefits from that. Therefore, we will need to manage various challenges and continue executing our strategies effectively. Overall, there isn't a clear historical trend to highlight, as some years it's up and some years it's down.

Okay. I understand you completed an acquisition this quarter, but you still have a significant amount of cash. There wasn't any share buyback during the quarter; is there a specific reason for that?

We had the Streamlabs acquisition, which affected our ability to conduct share repurchases. That was really the only reason. I believe we will be back in the market as usual and looking for opportunities. The cash we held and our strong cash flow this quarter, which increased by $51 million year-to-date, is encouraging. This is clearly a sign of a healthy business and provides us with ongoing opportunities for M&A, dividends, and share repurchases.

Okay. All right. Thank you.

Next question comes from Ananda Baruah with Loop Capital.

Hey Ananda.

Congratulations on the solid quarter.

Thank you.

Yes, thank you. I have a couple of questions. Bracken, I understand you prefer to wait until the Analyst Day to provide a new forecast. However, regarding the Gaming category, could you discuss some potential catalysts, beyond the general trends, that we might see this year? You mentioned the console refreshes, but it seems like backward compatibility may lessen their impact compared to previous years. Are there any other upcoming catalysts you can highlight, at least in a general manner? I also have a few follow-up questions.

Historically, the console refresh cycle has slowed down the console headset business due to a lack of forward compatibility. This meant that customers couldn’t use existing headsets and had to wait for the new models to be released, leading to some confusion in the market about compatibility. We are hopeful about achieving forward compatibility in the upcoming console refreshes, but this hasn’t been confirmed yet. I believe that would be beneficial. Beyond that, I can't identify a specific factor that will impact or act as a catalyst for the Gaming business, but I want to emphasize the strong secular trend, which has remained robust, and I don't see any indications that this will change.

Okay. Great. Regarding Video collaboration, you had previously guided for fiscal 2020 growth of 25% to 30%. Over the past five quarters, as you've mentioned, you've fluctuated between the mid-20s and high-50s, and you referred to this trend in your prepared remarks about the blending over the last few quarters. My quick calculation shows you're averaging around 40% growth over that timeframe. I understand you won't provide a forecast until the Analyst Day, but do you feel like you're gaining some momentum in that area? Can we anticipate that this momentum might have some sustainability, given you've been around 40% for the past five quarters?

Your calculations are correct because our sell-in and sell-through rates have been approximately 37%, which aligns with our target. As you mentioned today, we won't be providing a forecast for the next year. It's challenging to predict as our numbers continue to grow, and it's uncertain whether this growth will be sustainable. I'm cautious about making long-term projections. Nonetheless, the potential in the video sector is impressive. I'm quite amazed that there are around 90 million rooms that can be equipped for video, yet only about 4% were enabled as of a year ago, according to research firms like Frost & Sullivan and Gartner. Many are forecasting that this will triple in the next five years, suggesting growth between 20% and 35%. While I can't pinpoint the exact figure, I'm very enthusiastic about this business. I understand that many are developing models for this market, and so are we, but stepping back, I see Video as one of our largest opportunities within the company.

And let me sneak one more in here while I have you Bracken just on content creation. Anything you can tell us at a higher level about what the long-term content creation ecosystem could feel like aesthetically? And to what degree might software content become part of the product portfolio in that creation?

There's hardware and software involved in content creation. One of the most remarkable observations is that while many of us emphasize the importance of STEM fields—science, technology, engineering, and math—in the U.S., which we need to enhance for job readiness, the reality is that there are currently more individuals engaged in content creation, which is inherently a creative pursuit, than there are in STEM. This trend is likely to continue growing, possibly at a rate equal to or greater than that of the STEM fields. This area requires specific equipment, including hardware and software, and our aim is to be central to that market. We've already been integrated into this ecosystem with our mouse and keyboard offerings and have expanded with webcams, microphones, and recently the Streamlabs acquisition. While I don’t want to preempt any discussions at the upcoming Analyst Investor Day, I am genuinely excited about the potential in this space. I believe it's an excellent area for us to be involved in, driven by users who've drawn us into it, and it's essential for us to explore new avenues to broaden our opportunities. It's clearly a promising area for us, and you can expect to hear more about it from us moving forward.

Okay. I appreciate it. Thanks a lot.

Thanks, Ananda.

Next question comes from Paul Chung with JPMorgan.

Hey, Paul.

Hi, Paul.

Hey, guys. Thanks for taking my question. So first off, can you just expand on the strength you're seeing in Europe? What's driving that outperformance there, or any kind of channel expansion, particular products or some market share gains you want to highlight?

The main reason for the change is that we're adopting a different approach. I'm sitting next to our leader who took over EMEA about a year and a half ago. He has introduced many strategies we were using in China and the broader Asia Pacific region into Europe, focusing on generating and pushing demand. We're making the transition from a push to a pull strategy. Additionally, he and his team have been working to enhance our market shares in Europe. Currently, we hold higher market shares in the U.S. across most categories compared to Europe, which presents a gap and an opportunity for us to bridge. Those are the two primary dynamics at play. I can't single out one specific category as the standout, but it's clear that performing well across the board is key to achieving a 16% growth, and maintaining double-digit growth for several quarters in a row is impressive. We have the potential to improve our demand creation and pull capabilities, which will take time, but I believe this will progress over the next three to five years.

Okay, great. And then on the keyboard side, you had a tough comp from last year but still pretty impressive growth. So where are you seeing pockets of strengths across regions and product lines? It sounds like your premium lines are raising your overall ASPs if you could expand on that? And then I have a follow-up.

Sure. Keyboards have consistently been a strong category for us. When I joined eight years ago, many believed that people would stop using keyboards and rely solely on voice. That hasn't happened, and it isn’t going to. No one has yet developed anything better than a keyboard for desk use, particularly in open office environments where privacy is a concern. Our performance this quarter showcases our ability to innovate. The MX Keys, which represent our high-end offering, has been performing exceptionally well, perhaps better than any previous high-end product we’ve had. We've also just announced a new ergonomic keyboard, which targets a different segment of users and presents exciting opportunities for innovation. Despite the perception that these categories are stagnant, we're actively engaging with them and planning to introduce more innovations.

That's great. And then last one is on VC. So are you starting to see some seasonal patterns? Or is it still in growth mode so it's still making this kind of difficult? And then given the nice momentum in this segment, are you starting to see more competition ramping? You mentioned some software upgrades there and sales force investments, but how else are you kind of protecting or even expanding your market share? Thank you.

The Video Collaboration segment is likely the least seasonal among our businesses as it is primarily a B2B enterprise model. If there is any seasonality, you might expect increased purchasing towards the end of a fiscal year, but so far we haven't observed that significantly, although I remain hopeful. Competition is definitely increasing, and as someone who grew up in competitive sports, I see competition as a way to improve. We're aware of our competitors and are increasing our efforts across the board because we want to elevate our performance continuously. We launched Sync last quarter, and it's quite impressive. To maintain our competitive advantage, we need to focus on expanding our sales force and enhancing our product portfolio through innovative strategies, and I believe we are achieving that. Our current portfolio is strong, and we are persistent in our efforts to introduce new offerings.

Hey Paul, it's Nate. Also on the VC, I mean, you saw that our R&D investments increased 6%. A lot of that is going into VC, to kind of support what Bracken was saying around the product development to continue to be a focus. And then, also Bracken mentioned, the partnerships that we have with people like Microsoft and Zoom and Google and others. It's very similar to our strategy elsewhere is that we're trying to be that great complementary partner with these very large players to support their business growth and business strategies as well. So we're making investments to be good partners with them and make sure that we're doing the right things to grow the overall VC ecosystem.

It's awesome. Thanks, guys.

Thanks, Paul.

Next question comes from Andreas Müller with ZKB. Please go ahead.

Hey, Andreas.

Yes. Hi. Hello and hello everybody. Good afternoon. I've got two questions. One is the release, actually on the tariff you mentioned in Q4, there won't be any relief to be seen. But kind of talk about next year, what the current phase one is providing you on the gross margin basis?

In Q4, we won't see any significant benefits from the reduction in the tariff rate on List 4A due to the timing of its implementation and our inventory management. We'll discuss this in more detail during the Analyst Day in March. The 4A will still affect us at a reduced rate, while List 3 remains at 25%. We have a few quarters ahead of us before we fully account for all these tariffs next year, which will continue to pose a challenge, particularly in the first half of the year.

Okay. The growth in marketing and sales is 1%. I understand how that works, but is that sufficient to maintain growth at the top line? Or do we expect to see some sort of reacceleration in that area again?

Yes. It'll move around. I think, it probably will increase again. Again, as I mentioned in my comments though, we actually accelerated our investments in VC. I mean, since the beginning of fiscal year 2019, we've more than doubled the number of dedicated VC headcount that we have and we're continuing to invest really aggressively there. Really it was around realigning some of our investments in that category. We did pull back in some businesses that have not been growing and we redirected those investments into other areas. So just think about that as portfolio management, no concern, I think, needs to be raised around that level of investment. But the number will move around from quarter to quarter.

Yes. I wouldn't count on a 1% growth for the next year or anything like that. No.

No. Yes.

Okay. Thank you.

Thank you. Thanks, Andreas.

Your next question comes from Thomas Forte with D.A. Davidson.

Hi. Thomas.

Great. Thank you for taking my question. So I had three questions that I thought were important. So congrats on getting the recognition on the sustainability.

Thank you.

How should we think about the margin impact of your efforts on sustainability to the extent that it may help you increase prices or affect your sourcing? And then, second, having just been at the Consumer Electronics Show, 5G was kind of the story of the show, how should we think about that as potentially serving as a catalyst for your video collaboration efforts? And then, lastly, as we start to gain distance on Fortnite, do you have any thoughts on the refresh rates? Fortnite brought new gamers into this space, are they buying that second headset at the same rate as the existing gamers were?

On the margin impact of sustainability, I’ve received questions about whether it will make our products more expensive or allow us to increase our pricing or achieve higher margins by positioning ourselves ahead of others. The truth is, we’re not relying on any of that. Sustainability is integrated into our operations, and you'll hear more about our future initiatives. I’m optimistic that being a responsible global citizen regarding sustainability will benefit our business in the long term. While I can't assign a specific value to it, I’m excited about this direction. It's the right choice, and I believe that companies leading in this area will be rewarded eventually. As for 5G, it’s still too early to assess its impact on video collaboration. There’s a significant way to go before 5G is widely accessible enough to influence any of our businesses, including video collaboration, but like other emerging technologies, it will enhance consumer and business tech. As for console refresh rates, it’s difficult to predict their speed. Our headset business seems to have about a two-year refresh cycle based on market signals. We have begun releasing high-end headsets with this in mind, and they’ve performed exceptionally well. Our premium headset with the Blue Mic has been particularly successful this year. Ultimately, Fortnite did attract a lot of new young gamers, and I anticipate a steady influx of that demographic into the market. While their entry might not be as staggered as it was with Fortnite, I expect a long-term trend of new players coming in and upgrading over time. Two years appears to be the appropriate timeframe.

Thank you, Bracken.

Thank you very much.

We have a question from Michael Foeth with Vontobel. Please go ahead.

Hey Michael.

Hey Michael.

Yes, good afternoon. I have two questions. Firstly, have you noticed any early pull-in effects this quarter due to the early timing of Chinese New Year? Could this be a reason for your cautious guidance for the last quarter? Secondly, although it’s early, can you provide any updates on Streamlabs? How is it performing, how are you integrating it, and what impact do you anticipate it will have on your business model?

On Streamlabs, it's too early to provide specific insights. I'm really excited about the team, the business, and the brand. It's fantastic to bring in a new entrepreneurial-led business like this. I thought we were moving quickly until I observed Streamlabs in action, and it has motivated us to accelerate our pace. They are effectively adapting to the demands of a service-driven software environment. This is a valuable experience for us. Regarding the timing of Chinese New Year, we're not discussing this quarter's performance yet. However, I can mention that the only influence from Chinese New Year has been my need to visit our sites early this year to celebrate. It was a really enjoyable experience, and this year was particularly exciting. It's the Year of the Mouse, so it looks promising ahead.

Okay. Thanks a lot. Thank you.

We have a question from Andreas Müller with ZKB. Please go ahead.

Hey Andreas.

Hey, I'm back again. I have one question about the growth in the Americas. You explained it by product lines, but was there also an effect from the late Thanksgiving, and if so, how significant was that effect?

That is really hard to say. It's so hard to pin that. Yes probably, there was an effect. Yes, we were kind of hoping that there wouldn't be one. There might have been one. It was the shortest period you could possibly have I think between Thanksgiving and Christmas, or Thanksgiving and New Year. So, yes there's probably some effect. I think the bigger effect is really the fact that we took some price increases and that we didn't go as deep on promotions this year. Then we had the Blue Mic effect and the ongoing challenge of the speakers. So, I think when you roll all that together, it's really what drove it. I doubt if a lot of it was Thanksgiving to Christmas distance.

Yes, I believe what Bracken pointed out were the main factors. It was those specific categories and the decisions we made that really influenced the outcome.

I feel positive about the decision on pricing overall. By the time we reach this call, I often find it somewhat anticlimactic because we're so focused on future developments while you're more concerned with past events to learn from, which is important. One insight we gained this quarter is that there was more flexibility in pricing and costs than we initially understood. Without tariffs, we might not have realized that potential. We missed an opportunity to capitalize on that sooner, but it's ultimately a beneficial takeaway.

Okay. That’s clear. Thanks a lot.

Thanks, Andreas.

And at this time, I'll turn the call over to the presenters.

Great. Well you know what, another good quarter, another good holiday. As I said, we're way, way, way into Q4 and we're already thinking hard and building plans for next year and the year beyond. It has been super exciting. We've got these three big secular trends that are driving our biggest growth engines. But there's a whole other set that we're working on too. Who knows, maybe we'll bring one of those out soon. But thanks a lot for being on the call. I hope that many of you will make it to New York on March 3, we'll be there with a white board talking about what's next. Thank you very much.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.