Logitech International S.A. Q1 FY2022 Earnings Call

Thank you, everyone for joining Logitech's Q1 Fiscal '22 Earnings call. During this call, we may make forward-looking statements including with respect to future operating results and business outlook under the Safe Harbor of the Private Securities Litigation Reform Act of 1995. We are making these statements based on our views only as of today. Our actual results could differ materially due to a number of risks and uncertainties including those mentioned in our earnings materials and SEC filings. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results. You can find a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures in our press release and in our filing with the SEC, including our most recent annual report. These materials as well as our prepared remarks and slides and webcast of this call are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, comparisons between periods are year-over-year and in constant currency and sales are net sales. This call is being recorded and will be available for replay on our website. And with that, I'll turn it over to Bracken. But first Bracken I apologize that I did not get to wrap the Safe Harbor provision statement that I promised you, so I apologize. And I hope to still be able to do that one day.

Thank you, Ben. And thanks, everybody for joining us late; I mean, late night. I had a bet that one day you would wrap the Safe Harbor provisions and I guarantee you if you had, people would have listened more carefully to those Safe Harbors. So if you could from an SEC standpoint. So maybe in your next company one day you will do that; I will be listening for it, Ben. Okay, well, this is officially Ben's last earnings call and Nate and I couldn't be more excited about Ben's new role as a CFO, which he is going into and his new company is going to announce that soon. So, we won't jump the gun. But Ben I really want to thank you on behalf of all Logitech, all these investors and analysts on the call today. Yes, I know you've added tremendous value. I've learned a lot from you. And I'll keep watching you from afar and cheering for you. Absolutely. Well, thank you. Thanks again. Congratulations. And now let's move on. I spent last week in New York City. Today I'm in LA, and in New York City or just outside of the city. I was walking my daughter down the aisle at her wedding, and as a proud father and one who really adores his daughter and all, both all three of my kids and my new son-in-law. I can't tell you what an amazing experience it was. It was really wonderful to enjoy this long awaited celebration and gathering with my friends and family. And as I talked to people I know many are having experiences like that feel more like pre-pandemic life. One experiences like this may feel like a return to the old normal. In many ways our work life is forever changed. In many places around the world, we won't commute into an office every day, five days a week, we won't waste the 10 to 20 hours a week, that's 10% to 20% of our non-sleeping non-working time. Think about that. We won't waste the 10 to 20 hours a week just getting to and from the place we work. Gone will be the last days of flying to Tokyo or Shanghai or London or Paris for one or two hour meetings. And the reason they'll be gone isn't because of the pandemic; it’s because that way of working was fading even before we really realized it. The virus has been terrible and yet it's pulled in a future that might otherwise have taken 20 years to get to. Autopilot has been turned off. Our employees, customers and friends are looking for a new and better way to return to work. Every conversation I have and I bet you have too recently seems to evolve into a high discussion of hybrid in some way. The new normal will not be the same for every person in every part of the world, or in every company. Their variety will be as diverse as you could possibly imagine. I'm sure that to start a lot more people will simply work from home all the time, like many of us are now. That was a practice previously most common in startups and for some salespeople. Even at Logitech, a predominantly in-the-office culture, part of the pandemic, we're going to have a lot more people working full time remotely. This new approach to work also unlocks talent we couldn't have accessed before, in jobs that are far more oriented to remote work than we realized.

Thank you, Bracken. Thanks so much to you, to Nate and the team.

Even at Logitech, a predominantly in-the-office culture, part of the pandemic, we're going to have a lot more people working full-time remotely. This new approach to work also unlocks talent we couldn't have accessed before, in jobs that are far more oriented to remote work than we realized. Aaron Chen, who doesn't know I'm mentioning her today, runs marketing for our streamers and creators products out in New York. We have struggled to attract her from PepsiCo where she was in marketing for Mountain Dew. If she'd had to move to California with her family on the East Coast, we might have lost Vincent Borough, who also doesn't know that I mentioned him. So we might have lost Vincent Borough at some point, that's who she reports to. That runs that group, but he moved to Florida to pursue his son's passion for waterskiing and secretly his own too. Meredith Rojas, who works for Aaron. So we're covering the whole reporting structure here develops influencer and celebrity partnerships for our streamers and creators team. And she surely would not have joined us if she'd had to move from LA, which is the epicenter of the world that she's worked in for the last decade, the entertainment world. In short remote work is growing within Logitech. But for most people, and like for me on this call, working from home two to three days a week will become the new normal. Those people who need spaces and equipment to work in both places are some that will be a fully replicated workspace in each spot. For others, it'll be a place to plug their laptop into a monitor. In both cases, they'll need a mouse, a keyboard and other peripherals. So you can look directly at the screen, sit back comfortably, not get a terrible video angle, and be healthy ergonomically. Most of us will want duplicates of our tools in both places, at work and at home. The strategies that have begun to emerge from this shift are going to enhance both productivity and quality of life for the employees, and I think we have a lot to be excited about. Most of us will want duplicates of our tools in both places that work into home. And larger companies will standardize on good equipment. So the conference call and employee productivity are optimized.

Thanks Bracken and thank you Ben for your outstanding work, we're going to miss you. As Bracken said we delivered an excellent Q1 with strong revenue growth, margin expansion, strategic investments to improve our business and share gains. Net sales grew 58% in constant currency, profits doubled versus last year. And we remain on track to deliver to the increased four-year outlook we gave in April. Similar to last year, our operations and sales teams continue to execute well and results were strong across our categories and regions. Our PC peripherals categories continue their strong momentum in the quarter with 49% growth in Q1 driven by better availability and a broad portfolio of differentiated products like Bracken mentioned. Several of our flagship offerings like the MX Master 3 mouse and MX keys keyboard continued to set new sales records even after being in the market for two years. With that impressive performance was not just in the high end. In fact, each of our top 10 mice and keyboard products with prices that range from $12.99 to over $100 delivered strong double-digit growth and in some areas triple-digit growth. While webcam growth has started to moderate after more than tripling last year, sales still grew 73% in the quarter, and we have regained some of the share we lost last year due to supply shortages. Our priority remains driving greater awareness of the better user experience provided by an external webcam to increase our tax rates to the large and growing installed base of monitors and PCs. Q1 video collaboration sales increased 72%, similar to the 81% growth rate in the prior year. Sell-through in the quarter was even stronger and nearly doubled versus last year. On a sequential basis, sales in the Americas and Asia Pacific remained strong, while sales in EMEA declined double digits compared to a record Q4 due to a lower opening backlog and softer demand as businesses evaluated reopening timelines. Gaming had another strong quarter with Q1 sales up 76%, continuing the fast pace of growth from last year. We delivered double-digit growth in all our gaming categories across gaming mice, keyboards, headsets, console and simulation. Gaming continues to become an integral part of many people's lives whether for entertainment, socializing with friends, or to showcase their skills on platforms like Twitch. Tablet sales increased 66% with strong growth in both our retail and education categories. As we noted on past earnings calls, however, sales of our education tablet products could decline this year due to the one-time benefit from a large education order in Japan last year. Our audio and wearable sales rose 57% in Q1 with double-digit growth in all products, while mobile speakers fell 5% in Q1 in line with our expectations as we reallocated resources and prioritized our investments to faster growing categories. Our Q1 non-GAAP gross margin was 43.8%, up 460 basis points from last year. Gross Margin was down as expected from a record level in Q4, but it remained at the high end of our target range. Excluding this one-time change and payment timing, our Q1 cash flow would have been approximately flat and in line with normal seasonal patterns, I still expect the vast majority of our full-year cash flows to come from the second half of this fiscal year. Our Q1 cash conversion cycle was 45 days up from 27 days last year, but down from Q1 levels a couple of years ago. DSL improved by 20 days versus last year driven by a greater percentage of our sales occurring in months one and two of the quarter compared to last year. And our days of inventory increased by 44 days to 94 as we rebuilt buffers, began migrating more of our shipments to slower but less expensive ocean freight and strategically invested in supply to ensure availability and favorable costs in a tightened global supply chain outlook. Wrapping up significant uses of cash, we spent $55 million on share repurchases in the quarter. Finally, in terms of guidance, with a strong first quarter in the books, but with the majority of the year still ahead of us, we are confirming our fiscal year ‘22 outlook of flat sales growth in constant currency, plus or minus 5% and maintaining our fiscal year ‘22 non-GAAP operating income outlook of $800 million to $850 million. This outlook reflects continued investments in the business and is consistent with our focus on driving long-term growth. With that, let me hand things back to Bracken.

Thanks, Ben. Thanks, Nate. Sorry. We already miss you, Ben. We had a very good start to our fiscal year. Our performance this year, this quarter demonstrates the strength of our capabilities, our excellent operational execution. But our ability to capitalize on long-term trends like gaming, streaming and creating, hybrid work, and video everywhere. The same underlying trends that drove our business pre-COVID, significantly accelerated during COVID have become much more pervasive and sustainable as we look to life after the sheltered home period of COVID ends all over the world. We have exciting long-term growth potential ahead from this bigger base. Now Nate and I are ready for your questions. Ben, can you queue them up for the last time for you?

Sure. Thank you, Bracken. As a reminder, you can chat me if you want to ask a question. The first question is Asiya Merchant. Your line is now open.

Hey, congratulations on a great quarter. Just a couple of quick questions. Just on video collaboration. You mentioned a little bit of softness in EMEA. You know, as you kind of look at, and I know there was a great sell in the prior quarter. So you know, people re-evaluating some of that. But as you look forward, some of the guidance that you provided at your analyst date, but different segments, specifically as it relates to video collaboration of growth being double digits up to 10% to 25% or 25% to 30%. How should we kind of think about that video collaboration segment now for this year, given EMEA softness? And do you expect that to reaccelerate given some of the channel to draw down this quarter?

I'll jump in, or you can go ahead, Nate. I can see what it's all.

Sure. Yes, just to clarify on the outlook we gave at the analyst date, it was 10% to 25% growth. I still think that's the right way to think about it as a double-digit grower. And listen, again, the sell-through nearly doubled this quarter. So, I think we've seen in the past, sometimes the sell-in timing can be a little different from one quarter to another, especially as you talk about an enterprise business where you have large deals that fall on one side or another of a fiscal period. But we still feel great, of course, about the video collaboration business both this year and over the long term.

Yes, we're just super optimistic about that business. It's a great business for us. We have great products out there and we have great products coming.

And then because of the inventory that you guys have built up, the buffer, as well as supply-demand balance that you mentioned, will you broadly share gainers across many of the categories? Because all I've heard from some of your peers was continued supply chain bottlenecks, logistics, nightmares, component constraints and different ICs, et cetera. So, is it fair to assume that you guys gained share across several of your categories where you have pretty decent competition?

Yes, we did. We gained share in most categories. The majority of our categories benefited from having supply availability. Our product lineup is strong right now. We were gaining share before the pandemic, continued to gain share during it, and are still gaining share as we start to see improvement.

Okay. All right. Thank you.

And I think on the inventory, just because you brought it up, I think it's an important point because I think it just highlights again, the way we think about our business strategically and financially, and operationally, and keeping those things aligned and with a strong balance sheet, we think this is the right time and it's good opportunity for us to use that to secure components where we can. It's a tough environment, but secure components where we can, build up those buffer stocks and as Brad have said, be ready to deliver on opportunities globally. So, we've got good availability now and I think that will be a competitive advantage for us. We'll see how it plays out.

Is most of the inventory in the warehouse as finished product? Or is it mostly ICs and components that you've kind of put together?

It's really a mix, but I think a lot of it is in the distribution centers and it's out regionally, ready to be shipped. It's not out in the channel. It's in our distribution centers. Some of it is in components as well.

Okay. All right, thank you.

Thank you, Asiya.

Our next question is from Paul Chung from J.P. Morgan. Your line is now open.

How are you doing, Paul?

Hey, Paul.

Hey. Nice to see you guys.

You, too.

First up, on gaming, very nice momentum there. Can you kind of expand on the product mix where you saw relative strength in the portfolio? And as we start to lap these tough comps, where do you see kind of momentum extending? And given the strong start to the year, do you think the flattish outlook in gaming is on the conservative side? And I have a follow up.

I'm really excited. Where do we see strengths within the gaming business? We've got four or five segments you can really point to and really all of them. I can honestly say I'm excited about our gaming business, because we just had growth in every single segment and we're growing market share across, too and we have a fantastic portfolio. One of the things I said in the opening was that the nature of the innovation we've been doing in gaming has also been changing. It shifted from a lot of small products to fewer bigger ones. It's a testament to our team. And then the other thing that's happened is our marketing engine in gaming is probably the best we've had. They've really created Logitech G over the last five to seven years and they're just getting stronger and stronger. So yes, I would say overall, I just feel very, very good about gaming.

Yes and I think, Paul, on the outlook, too, just one thing to keep in mind is gaming does have a big holiday period and that's still ahead of us. So, I think it's been a good start to the year, good strong first quarter, but typically we do almost 80% of our revenue over the next three quarters, and a lot of that comes in the holidays.

Okay, great. And then just on the ramp and reinvestments in the business. Though it's up like 70% this quarter year-on-year, the percent of sales is pretty much in-line with previous years. This is the right way to think about it longer term and as we think about that spend, are you tracking that return on investment there? And given the step up in R&D? Should we expect, kind of more frequent cadence of new product releases moving forward? Thank you.

Let me address a couple of aspects of that question, and then I’ll let Nate explain the business model question regarding what percentage of our spending matures; we are making significant investments there. Regarding the timing of product launches, I wouldn’t directly link increased investment to more new products being launched. Instead, this larger investment will allow us to improve our efforts, focusing on key areas that truly matter. We see numerous opportunities for innovation and are committed to investing in them.

Sure. And just to confirm, you're looking at the numbers the same way I am, Paul. Our OpEx as a percent of sales this quarter was actually lower than where it was in Q1 in FY 2020, and it was basically the same level as what it was for the full year in FY 2020. So, I think some people look at the growth rate of OpEx and maybe have questions about it, but again, the business model or the structure of our P&L actually looks very consistent historically. Now, our strategy as you know is to move to a more marketing-led, rather than promotion-led company. And so that's exactly what you see us executing this quarter and you'll see it in future quarters, is taking some of the incremental profits we're generating, the gross profits we're generating and reinvesting that into marketing, to build the brand, to build awareness and to drive the brand preference over the long term, which creates a virtuous cycle of higher margin products and faster growth.

Okay, great. Thanks.

Thanks, Paul.

Thank you, Paul. Now, the next question comes from Joern Iffert from UBS. Joern, your line is now open.

Hello, Joern.

Hi, Bracken, hi, Nate, hi, Ben.

Hey, Joern.

Ben, all the best to you and yes, we'll miss you.

Thank you.

Maybe starting with this two to three questions if I may. The first one is on your implied outlook for the next nine months. The midpoint implies sales, maybe down 12%, 13%, 14%, but you're not getting EBITDA on around 40% to 50%. Your gross profit margin assumptions as Nate stated is maybe in the around 40%, if I understood this correctly for the current year. But if I consider the gross profit margin we're standing already in Fiscal Year 2020 and now you have better economics benefits, it's falling back to the same level like Fiscal Year 2020, despite you having pricing power to offset rising component costs, despite you have invested in your premiumization strategy. So, why are you exactly so cautious on the gross profit, if I may ask? This would be the first question.

Okay, let's stop you there. Let's take it one at a time. You just unloaded a lot.

Yes, sorry. Thanks.

The given range is 39% to 44%. I believe we'll be within that range this year. There are several reasons I think gross margins, as I mentioned earlier, will decline from current levels but will still stay within that range, whether that’s 39%, 40%, 41%, 42%, or 43%. We'll have to wait and see, as it depends on various factors like mix and others. However, we do face some challenges, as we've discussed, including the need to increase promotions as the market stabilizes and returns to more historical levels. The mix will also continue to fluctuate from quarter to quarter.

I agree with you on the pricing power, Joern. We haven't raised any prices yet and don't have immediate plans to, but we will monitor the market closely. We believe that some of these cost-driven shortages are temporary, so we'll see how it evolves.

Yes, thank you, I got the message. And second question is please, on product positioning for video conferencing and webcams. We can likely expect that all the notebook providers are significantly upgrading the camera systems over the next two to three years. Apple was starting with the iPad Pro, for example, they're improving the camera system. To what extent can this affect your video conferencing and webcam business from your point of view?

I think the installed base is so big. You got 1.4 billion PCs installed, so the transition, no matter what people do to the existing market, it just won't put a big dent in that market for years. So, we think the opportunity there is very significant and we're going to keep investing. And even after they do, their advantage is do a remote webcam that are really, really exciting. We're excited about the webcam business. We've been in that business a long time and we will keep innovating in it to make sure that we've got products that are compelling. But we're in 35 different categories now, so we don't live or die on any one category.

I'll add one thing to that, Joern. On the positive side of this opportunity is anything that raises awareness for webcams and video calling. If someone communicates the quality of their webcam or the importance of having one, I believe we'll see benefits from that in the overall market. We'll need to compete for it and innovate with great features, products, and a strong value proposition for why an external webcam provides a superior experience. The opportunity in notebooks and laptops is significant because I don't think we've effectively communicated the benefits. As people transition towards monitor setups, many may not have multiple screens, but as more people use peripherals, my PC stays docked and I interact only with those peripherals. Depending on individual setups, there are clear advantages to using an external webcam, and I believe it's a major opportunity for us to communicate.

Thanks for this. And the last question and just a superficial one, seasonality with back-to-school now over the summer, can we expect that Q2 is on higher revenues versus Q1?

It's a good question. Typically, we would see higher revenues in Q2 versus Q1. But as I said before, I think typical seasonality is kind of out the window right now, Joern. There are so many other factors that they're sort of atypical. Back-to-school is very strong last year and as you see what the inventory, we're prepared for a good back-to-school, but I think we'll have to wait and see how that plays out. Again, compared to prior years, I'm not really counting on typical seasonality for a lot of things. Certainly, some of the promo days and things like that, we would expect to see a pickup or the holiday period, we would expect to be stronger. But we'll have to wait and see.

Thanks a lot.

Thank you, Joern.

Great. Thank you. Ananda Baruah from Loop Capital. Your line is now open.

Hello, Ananda.

Hey, guys, good morning. Appreciate you guys taking the question. Ben, congrats. It'll be awesome and it's been great working with you both at Logitech, but for years and years before that as well. So, look forward to absolutely staying in touch. And so I guess a couple questions. The seasonality I'd like to just touch on as well, that was one of my more prominent ones. Seasonality notwithstanding, it does seem like there could be some conservatives and I guess I just want to get your thoughts on this and the revenue because I'm sort of playing around. And if do, just flat revenue for September. And then soft side of seasonality for December and March, I get double-digit revenue growth for the year. So, any concept you could provide on sort of connecting for those kinds of dots with the flattish forecast. Like what are the puts and takes there? Then I have a quick follow-up.

I'll start that.

Go ahead.

At the beginning of the year, we indicated that revenue would be relatively flat, with an upper range of five percent growth and a lower range of five percent decline. However, we increased our forecast after a strong performance in the fourth quarter, even following our Analyst Day in early March, resulting in an increase of about six or seven percentage points in revenue. We've already made one upward adjustment, and as we move into the second half of the year, comparisons will become tougher. As Nate mentioned, it's quite challenging to predict seasonality this year.

Just to put a little finer point on those comparisons. The second half of the year last year, we basically grew 100%. I'm not one to use this excuse, I would say, and I certainly wouldn't say too much internally, but that's a tough compare. Our visibility, Ananda, as you know is not 9 to 12 months out. We have pretty good visibility in the short term and some businesses like video collaboration, we build pipelines and we see things further out, but we're staying with the same strategy. We're going to remain nimble, we're going to have inventory available to grow faster if the opportunity is there and we're going to pull back hard if things slow down. And I think as Bracken mentioned at his prepared remarks, it's a little choppy. Europe looked like it was on path to reopen strongly and unfortunately, it had to take a pause. And I think even in parts of the United States, we now see that as well. So, it's hard to make long-term predictions, I would say, six-month predictions. Long-term wise, I think we make very comfortable predictions about what the long-term trends are in these businesses and we invest for those. But frankly, some of the shorter periods within this fiscal year, we're just going to have to remain nimble and prepared. And that's what we're doing.

Very well said.

That's really useful context. And I guess just quick follow up, Bracken, we'd love to get your thoughts with regards to M&A. You guys obviously…

You're kind of breaking up, Ananda, but I think you were asking what Bracken served at the wedding.

I think he's talking maybe.

Will this be a good time since size?

We don't typically provide extensive details on our strategic focus, but we are continually evaluating opportunities. Most of our efforts have been relatively small, and that trend will likely continue. However, we are also open to exploring medium-sized and larger opportunities. Our experience with mergers and acquisitions has been unexpectedly strong, especially since many companies struggle in this area. Nearly all our acquisitions have surpassed our expectations, indicating we have a solid capability in this space that we can continue to develop. We are actively seeking new opportunities.

That's great. Thank you.

Thank you.

Thanks.

Great. Thank you. Michael Foeth from Vontobel. Your line is now open.

Hi, Michael.

Yes, thank you. Hi, Bracken, hi, Nate, and thanks a lot, Ben. Good luck to you. A couple from my side. Maybe just starting with streaming business. Can you maybe comment on how that is developing? How much of the growth that you've seen in gaming is coming from that and how you can leverage their business to maybe to other categories or applications if there's anything you can share with us on that front? And the second one is sort of a curiosity. Do you have any statistics or insights on the age distribution of people buying your creativity, productivity products and does it correlate in any way with your Defy Logic campaigns? Anything you can share with us. Thank you.

Okay. Why don't I answer that one first? The answer is we skew a little older on our creativity and productivity business. But we see a lot of opportunity younger too, we also skew more male, and we only think there's an opportunity for female. So you'll see a lot of things we're doing are with those two thoughts in mind. And the Defy Logic campaign does appeal more strongly. It's very strong appeal and appeal generally. But it's even stronger against that younger target audience. So yes, we think there's an opportunity there, and we're excited about it. What was the first question was the first question was, remind me again.

It's regarding your streaming business and how it contributes to growth?

Yes, the streaming business has just been a really strong grower underneath these numbers. You know, it's really kind of lives in different places in our different categories. But generally speaking, if you look at Blue microphones over the past year, it's really just grown tremendously. And we think long-term there is very, very strong. And Streamlabs is also super exciting, and it's been all the expectations we had for it in terms of growth. And we're very optimistic ahead, and we're learning so much from it about service businesses, you know, it's a pure service place. So, and then we've got, we're also slowly quietly entering new categories, you know, we sort of this is starting to get out. And we're excited about the potential to really be a real player in enabling people to stream and create content for everybody else. And there's a lot of room to grow there. So the growth is in it. So far, it's been very good. And I think the long-term is much, much more exciting.

So can we expect more subscription-like offerings from Logitech going forward?

We already have that, obviously, in a couple places, we've got a very small starting business and services on the video collaboration piece. And of course, Streamlabs, and Streamlabs has a couple of things within it. So yes, I think you can expect more, I don't know whether you could expect to see it be significant in the next year or so. But it's we're certainly going to keep adding.

Sorry, just to be clear on. I think you were asking the Streamlabs sort of impact on gaming, it's really not material. I mean, the growth you see is really driven by the hardware. As Bracken said, Streamlabs has done very well. And it's a very innovative organization I would say that's doing a lot of testing and so forth. But it's not driving the gaming results. So that's still driven by the hardware business.

Okay, the gaming results across every segment.

Okay, thanks. And then, maybe just the last one on component shortages. I mean, for Nate, maybe with inventory levels that you have now. Do you think you're covered for the demand that you will see in the next quarter? Or are there any areas where shortage might sort of constrain you to not be able to deliver on demand?

I think broadly, for the next quarter, I feel good about coverage. You know, we'll see. I don't think this is a one-quarter challenge for us. I think our team's been working on it for a while and will continue. You know, in some days, we bought days of components, or weeks of finished goods, or maybe a month of finished goods here or there. But I think broadly, we feel good about the coverage here for the next quarter. But there'll be things that pop up for sure. I mean, it's a daily challenge if you're in operations and supply chain.

Right. Thanks a lot.

Great. Thank you, Michael. Eric Woodring from Morgan Stanley. Your line is now open.

Hey, Eric.

Hey, good morning, guys. Thank you. Thank you for taking the call. Ben, just want to reiterate what everyone's saying been a pleasure to work with you. Best of luck in the future look forward to following your success. You know, I kind of want to start on pointing devices, keyboards and combos are obviously very strong, I'd say most particularly strong. And there's this fear in the market, that there is a slowdown in the PC market, broadly speaking from consumers and call it the education sector. So the question is one, was there anything one time in nature this quarter, like Prime Day or the 618 festival that outwardly contributed to growth in these segments? And then the second part is, what are you seeing from enterprises in these segments as people are now returning to the office? Are they coming into the market more so than they particularly were in the past? And then I have a follow-up?

Yes, I would say, we did have Prime Day this quarter, this last quarter, certainly in the numbers, but it still would have been an extremely strong growth quarter. In terms of really what do we see ahead from enterprise et cetera. And what about the overall view of the category? I think the coolest thing about this businesses, it's our oldest business, and it has probably, it's got an incredibly strong innovation engine and we've done a nice job of segmenting our teams. Our team has done a nice job segmenting the market into the different places, and then really delivering big time against that. And still, the awareness is relatively low for the products that we have. So I feel like we really control our own destiny to a large extent here not completely, you know, obviously, anything can happen. In terms of, so we've got a great group of other products coming, and one that's already out there. In terms of what are we seeing from business, we are starting to see businesses, we believe that we have an opportunity really to move to more B2B business there. And we certainly are moving some resources there to make sure that happens. This of course growth, you can't see it, but was stronger in the B2B segment than it was elsewhere and that's exciting. It's small, but it's growing fast. And we think there's a big opportunity there.

Well, I mean, of course, I'm always going to be a little bit cautious about it. I think all those things are very true. And I think it, the lineup is as strong as it's ever been. But you know, Eric, you've got the data, as well, you know, this was our easiest compare for pointing devices; it only grew about 1% last year in this quarter, because we did have some supply challenges with the factory being shut down due to COVID, and so forth, factories being shut down. So I certainly think the growth rate will moderate from where it has been here. But all the positive factors, Bracken mentioned are definitely agree with. And I think the key here is that this group, in particular, although I think it's true elsewhere, but this group in particular, I think that does a really excellent job with market segmentation and customer segmentation, understanding customer needs, and you see that in the product development, you see that in the execution. And I think that's the path to long-term success. And so we'll execute that.

Awesome, thank you. And then just on video collaboration, again, would love to get your take on what you're seeing from enterprises again, as people go back to the office. And what I mean by that is, you know, do you find that businesses are almost pulling forward demand as they say, we've created our return to work strategy, and now we can make these infrastructure investments, or are they're saying we've created our plan, but we're still kind of going to spread out our purchases over multiple, whatever it may be quarters or years, as we somewhat reevaluate those plans within the next three to six to nine months. Again, you mentioned the choppy environment, just wondering how that choppy environment potentially impacts big purchases for video collaboration.

I mean, I think you can safely say it's a mixed bag. You've got companies that are really going all in now and getting ready. I'd say most are saying, you know, hey, we have a game plan, let's start to enable it, but they're not moving as fast as you know to basically snap their fingers and have everything ready to go right away, which I think is kind of expected, we sort of expected that. So I think it's going to unfold; I think the growth is going to really unfold over the next year, and two and three. And I think that probably plays right into our strengths, which is we've got a great portfolio out there, a great one coming. And I think we've really got a Salesforce, now they can handle it.

Yes, do you think it's a mixed bag? And you know, you got to factor in deployment time on some of these things as well. So the decision may be made, but the deployment may take months and quarters, depending on what type of solution you're talking about. So I think that's a factor too Eric. And, again, I think the long-term strategy here is to innovate and to build a great sales organization, and we're doing those things and to increase our marketing to increase our awareness and brand preference, but it's an attractive market, one that is competitive. And we're looking forward to many years of success in video collaboration.

Super, thank you guys very much.

Jürgen Wagner from Stifel. Your line is now open.

Thank you for letting me on. Actually a follow-up to the previous question regarding enterprises. What percent of revenue, what was it last quarter and what do you think realistic number would be going forward? Second question, Bracken you said the pipeline is exciting. So what is it that makes you so exciting? And last question on visibility. You mentioned a near-term lack of visibility, but better, longer-term or mid-term. So, do you think the next fiscal year would then be another growth year? Thank you. It's a little too early for us to guide for next year, but I sure hope so. I expect it to be another growth year. In terms of what makes me excited about the innovation engine, you know, we just get stronger and stronger. I would say we've all suffered from having to spend a lot more time on supply challenges than we would have liked and so that's probably delayed a few of the things that we would have loved come out sooner, but it just means that we've got a good pipeline ahead of us. I mean, what you see today is not what we'll have a year from now, or two years from now, or three years from now in any of our businesses. So, I'm excited about what's on the rise. We don't talk specific products until we get to the launch period. Nate, you want to add anything, or take the first one?

I think regarding the enterprise revenue mix, that's not something I'm going to discuss in detail here. We lack visibility into our end customers since we sell through channels, some of which focus more on business than consumer markets. We have internal methods for analyzing it, but it's not a reliable external figure. However, you can see that with the growth in video collaboration, which is clearly a business-oriented product, that mix is improving. I also agree with Bracken regarding the next fiscal year; market trends don't always align perfectly with our fiscal quarters and years. It's about developing long-term capabilities. The company we are today will be the same company tomorrow, and if that transition occurs between March 31 and April 1, that's fine. We just need to keep building our capabilities for the long term.

Okay. Understood. Thank you.

Thank you.

Thank you.

Serge Rotzer from Credit Suisse. Your line is now open.

Hi Serge.

Yes. Hi, everyone, and enjoy your new life, Ben. Regarding video collaboration, you mentioned it several times. I find it hard to understand why the sales dropped by $150 million sequentially. That’s a significant amount, and I didn't expect it to be seasonal, so please clarify where those $150 million went. Is it related to the sales mix of larger comps that were frequently sold to individuals in the past? What is contributing positively? We need to consider pre-orders and when enterprises will start investing in this video collaboration. You should have better visibility that you could share with us. That's my first question.

Yes. Let me start, and then Nate can add his thoughts. The significant sequential difference is evident when we compare Q3 to Q4, both of which performed exceptionally well, particularly in EMEA. There was a considerable amount of momentum, and as we mentioned last quarter, we had a substantial backlog that we successfully cleared. In Q4, we still had a large backlog that we were able to manage effectively. This resulted in some fluctuations in sequential storage, but the underlying momentum remains very strong. For the Americas and AP, the quarter-over-quarter performance looks pretty much as expected. Nate, would you like to add anything?

Yes, just again, finer point on the data. We grew about 350% in VC in Europe in Q4. Again, I think as Bracken said, we had a very strong backlog coming in, we were short of supply and we were able to fulfill that and get the channel back to a healthy level. I think early in the call, we talked about just to maintain our outlook. I think our expectation is it's going to be a good growth category this year and in the future.

Okay, fair enough. Do you see any changes then in the gross profit margins? Sales mix within video collaboration and what about the behavior of your peers like Jabra came up with cam and we will see more cams coming up to the market? Do you expect gross profit margin declining? And how was it now in the current or in the last quarter?

Gross margins are super-strong in that business. We love that business and yes, it's certainly going to get more and more competitive. Great markets are always competitive, but we love our competitive position. And do we think that we’re going to have gross margin compression within the video collaboration business? Could be. I don't know. We certainly have room. It's a mix driver for us from a gross margin standpoint, so more growth is better even in lower gross margin. So we'll see. You want to add anything to that, Nate?

Maybe just our investment in R&D, a lot of that is going to the video collaboration category and the innovation that you see there, some new products actually just came out earlier this year. They really highlight that. I think the Whiteboard Camera I've got here with me, just a really cool product. So, I think there's going to be opportunities for us as we build up that install base. If you get into these accounts, you've sold them a great video solution to sell around that as well and I think that's an important piece of that business we'll need to see expand out into the future with the growth in the install base. I think that's an important margin driver over the long term, but certainly it's an attractive market and there's a lot of competition. I think it's reflected in our outlook. I think our expectations around pricing, not only for VC, but for the market overall.

So, I understood that the momentum will increase again in video collaboration and if I didn't got you wrong, Nate, before, you mentioned that in mice and keyboards, the absolute level can remain stable. So, this should all have a positive impact in the gross profit margin, isn't it? From the sales mix going into the next quarter...

Yes, I think we should probably be careful about talking too much about detailed forecast quarter-on-quarter for the different businesses. If that category, if mice and keyboard grew faster than the overall company, they wouldn't have some favorable mix impact. But I think there's lots of products within that category that you search. So, kind of a question I'll have to think about a little bit, but again, I would just think at the high level what I would expect, is the gross margins still going to come down a bit off of these levels we had here in Q1 due to the larger factors I talked about earlier in the call? And I think over the long term, again, one of my focus is as we talk about M&A or we talk about new product introduction is to continue to try to build a portfolio of categories that give us a mixed benefit as we grow the company. It's not always going to be the case and sometimes that mix benefit is going to show up on the bottom line rather than on gross margin. Meaning it's going to be a category that's got a lower OpEx profile or lower investment profile, but still accretive to the overall margin rate. That's I think an important part of how we think about growing the business, is to look for categories where we can differentiate, where we can get a share leadership position that gives us the ability to earn margins that are at or above the levels that we're at today.

Okay, probably last one, if I may. You touched emerging markets that your capital market, there's an important topic. Can you give us a quick update here? Do you see growth here and can this potential increasing over the next quarter or do you see incremental growth to your guidance here?

Yes. I will jump on, Nate. I wouldn't say we see incremental growth in the current year. It's factored into our guidance for the year, but we are really excited about the emerging markets in general. I wouldn't consider China an emerging market anymore. We still have a very strong growth in China and really, if you look across Latin America, different places to where we see strong growth and very strong growth potential. So, if anything, if I look at my tenure at Logitech, I'd say we've undershot a lot of the emerging markets compared to their potential. I don't regret that, but I think now we have that opportunity sitting out there in front of us.

Okay, thank you so much. Bye-bye.

Thank you. Next question.

Great. Thank you. Tom Forte, Your line is now open.

Hi, Tom.

Hey, Tom.

Great. So, Bracken, Nate, and Ben, first off, I want to say it's been a pleasure working with you, Ben, and best of luck for the future. My first question is about how investors sometimes place too much emphasis on remote work and learning and its positive impact on your business. I would argue that two other significant trends you're tapping into are gaming and self-broadcasting. Can you comment on the acceleration you’re experiencing in those areas?

Yes, I really enjoy seeing your dogs sleeping in the background; it's quite adorable. Let's begin with self-broadcasting. It's challenging to discuss acceleration since we have barely tapped into the existing potential, yet I believe it is indeed picking up speed. Anyone on this call has likely observed the influx of individuals entering the podcasting space, Clubhouse, and other platforms where people are using audio or video equipment to stream or broadcast. The numbers are increasing. I’ve always maintained that we are moving towards a reality where we will be listening to and watching each other far more than we will engage with Netflix and similar companies vying for attention through content. In fact, the content created by individuals is vast in comparison, and I am confident this trend will persist and grow significantly over time. Regarding gaming, we have consistently noted that it was underestimated from the start, likely during the first five years, and I believe it still remains undervalued in terms of its long-term potential. For example, TSM recently sold its naming rights for $210 million, which aligns with the commercial strength of gaming; these are figures similar to those associated with NBA, NFL, and Olympic teams, despite TSM being an esports team many may not recognize. Thus, this market is undoubtedly on a strong growth trajectory.

Great. And then for my follow-up. Nate, you talked about this notion of moving promotion, spending and marketing. Can you talk about long term, how accretive that could give your margin?

How accretive it could be to the margin?

Yes, pretty much.

Yes. It could be accretive to gross margin and I think it could be operating margin neutral. Really think about it as growth strategy, I think as well. It could lead to operating margin expansion we made, reinvest that as well. I would think about it as a way to drive growth and then how that flows through time, I think is going to be dependent on a number of factors. Bracken, anything you'd add to that?

Yes, I would just say, Tom, our goal here is to achieve a long-term growth target of 8% to 10%. Clearly, we are aiming for double-digit growth over the long term. That's our belief. If we determine that reinvesting some of that gross margin opportunity into further marketing to promote additional growth is a worthwhile investment, we will do so. I understand that stronger growth typically comes with a more robust brand equity, and that's the foundation of this approach. Also, healthier growth can lead to more significant growth for each dollar spent.

Great. Thanks for taking my questions.

Thanks, Tom.

Thank you, Tom.

We just finished the first quarter, which I always tell our teams is the most important quarter of the year because it sets the tone and creates momentum. We're off to a great start and feel very good coming out of this first quarter. We look forward to seeing you in a quarter from now.

Thanks, everybody.