Logitech International S.A. (LOGI) Q1 2024 Earnings Call Transcript

Good morning and good afternoon. Welcome to Logitech’s Video Call to discuss our Financial Results for the First Quarter of Fiscal Year 2024. Joining us today are Guy Gecht, our Interim CEO; and Chuck Boynton, our CFO. During this call, we will make forward-looking statements, including with respect to future operating results 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. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results and you can find a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward-looking statements in our press release and our filings with the SEC. These materials, as well as the slides and a 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 net sales. This call is being recorded and will be available for a replay on our website. I will now turn the call over to Guy.

Thanks, Nate, and thank you all for joining us. It is a pleasure to speak with you today. Before we jump into our first quarter achievements, let me provide some context regarding my role and the Board’s search process for Logitech’s next CEO. I am both honored and excited to guide this iconic brand company in the near-term. During my four years on the Board of Logitech, I have become very familiar with the company as I had the opportunity to serve as the Chair of Logitech Technology and Innovation Committee of the Board and to serve as a member of the Audit Committee. I view my role as Interim CEO as providing the consistent and steady hand to the many wonderful experienced teams working hard across Logitech. I am singularly focused on making progress and ensuring we do not lose any time in our ongoing execution. Our strategy remains unchanged as do the business plans that are in place. All teams are focused on executing their proven playbook and my focus is to remove obstacles, facilitate decision-making and ensure we lose no time. Now a few words on the search. As we previously announced, the Board is conducting a global CEO search, including internal and external candidates. It is progressing well. There has been a lot of interest in the opportunity and we are pleased with the strong caliber of the candidates we are seeing. Needless to say, the Board views this decision with the utmost seriousness it deserves and is working diligently reviewing and interviewing candidates. Given the confidential nature of the search, I will not be able to add more color today, but rest assured that we will update you when we have news to share. Before I turn it over to Chuck to review the team’s progress on many important points, let me provide a few of the non-financial highlights of this quarter. Assuming Logitech is a global leader in design and innovation, we were awarded the industry’s most prestigious Red Dot Design Team of the Year Award previously awarded to companies such as Apple, Ferrari and others renowned for their design. We introduced four new products in the quarter, including Rally Bar Huddle, the newest addition to Logitech’s family of conference cameras that turn small meeting rooms into collaboration spaces. And design for Esport athletes, our newest Logitech G PRO X gaming headset feature GRAPHENE drivers for those that require precision audio technology. In addition to the products launched last quarter, we are just about to start shipping Logitech Sight, a tabletop camera with 315-degree view capabilities that deliver a truly unique Video Conferencing experience. At the heart of this new system is an AI director-like technology that decides which participants should be highlighted on the screen and from which angle—close or far. This benefits both people in the conference room and especially remote participants who otherwise may feel they are not fully involved in the meeting because they are not seated around the table. Our sales teams closed a number of meaningful customer deals in Q1, including Honda, Kroger, TD Synnex and the Proximus Group, as well as the European Commission. These wins represent multiple industries in both the public and private sectors. And finally, last week, we announced the acquisition of Loupedeck, a small tuck-in deal that is adding differentiated technology initially in Gaming and streaming, and later in other areas. We will continue to screen for more deals that will help us accelerate the execution of our strategy, as well as bring our unique technology to new sets of users. These were just some of the recent highlights; although most importantly for today, is that we started our fiscal year with an encouraging set of results and an updated outlook. As we move through the remainder of the fiscal year and head toward our expected return to growth, you should expect to see unwavering commitment to the principles and capabilities that have become the hallmark of Logitech, innovation to capitalize on the growth trends that fuel our business, which is video everywhere, hybrid work, Gaming and digital content creation, design-led engineering and product innovation. A maniacal focus on lean manufacturing and operations and a capital allocation strategy focused on M&A, paying a dividend and share buyback. And we do all of that with continued commitment to our values. As an example, this week, we released our Annual Impact Report where you can read about the progress our teams have been making in the areas of sustainability and social impact. With that, I will turn it to Chuck to provide the financial details of our first quarter and to review the outlook for the remainder of the year.

Thank you, Guy. I also appreciate everyone joining us on the call today. First and foremost, I want to thank all of our employees for their strong execution and teamwork in the quarter. It really shows in our results, especially our strong operating cash flows. Before we get into the details on our financial performance, let me spend a minute on some reporting changes we have made to our product category classifications. Our slide presentation and quarterly fact sheet provide additional information, as well as a five-year set of comparables. Many of you have asked for these updates over the last several quarters, so we hope that these changes provide a simpler and clearer view of our business. These reclassifications do not impact our previously reported financial statements. Moving on to the business results for the first quarter. Net sales in constant currency declined by 15% to $974 million. Sales out was quite strong, particularly for Headsets, Tablet Accessories and Gaming. As we discussed at the Analyst Day and on the last earnings call, we believe in the benefits of lean on-hand and channel inventory. For the fifth consecutive quarter, we reduced on-hand inventory significantly with our inventory turns improving to 4.2. We remain committed to our goal of improving to 5 turns or better over the next year or two. Likewise, channel inventory was also reduced in the quarter, and I am proud of the team for hitting the targets we set. This has improved linearity and predictability. We plan to keep reducing channel inventory during the seasonally soft months of July and August, and then replenish the channel in September, October, and November as part of a normal build for the December quarter. Net-net, we expect channel inventory to be roughly the same at the end of Q2 as it was at the beginning. In Q1, gross margins expanded quarter-over-quarter to 39% and slightly better than anticipated as significant reductions in our on-hand inventory drove some one-time benefits in the quarter. On a year-over-year basis, margins were pressured by FX and mix but partially offset by cost improvement and less reliance on expedited shipping. Again, thank you to our operations team for such amazing execution. Sequentially in Q2, we anticipate gross margins to be pressured, and as a reminder, gross margins in our December quarter have both headwinds and tailwinds. We have the seasonally higher consumer sales and holiday promotions, but those are somewhat offset by overhead absorption. While there will be quarter-to-quarter fluctuations, we feel our business is structurally positioned to generate 40% gross margins in the next four to six quarters. Operating expenses were $271 million in the quarter, up slightly versus our internal expectations. A portion of our operating expenses was attributable to some one-time administrative expenses and the weakening U.S. dollar in the quarter. I continue to be pleased with the team’s cost focus and ability to quickly dial up or dial down OpEx based on business performance. Our long-term model is to maintain operating expenses at around 25% or less of revenue. Operating income was $109 million in Q1 and better than our internal expectations due to improved demand and strong gross margins. One big highlight for the quarter was our working capital execution. Cash flow from operations was $240 million, a first-quarter record for the company, leading to a cash balance of $1.25 billion. Our capital allocation strategy remains consistent: evaluate M&A opportunities, pay an increasing annual dividend, and return excess capital to our shareholders through share repurchases. We are making progress on all three fronts. As Guy mentioned, we announced the acquisition of Loupedeck. They provide valuable technology for Logitech G and while modest, the acquisition price reflects our consistent and disciplined approach to M&A. In May, we announced a 0.10 euro-frank increase in our dividend, which will be voted on by our shareholders at our September Annual General Meeting. Just last month, our Board of Directors approved a new $1 billion three-year share repurchase program. Our existing buyback program expires at the end of July, and in total, we will have returned more than $1.1 billion to our shareholders as part of this program. Our new program will replace the expiring program upon its approval by the Swiss Takeover Board. Moving on to our outlook. We are raising the first half outlook we confirmed in May, expecting first half 2024 revenue of $1.875 billion to $1.975 billion. Our corresponding operating income is expected to be between $180 million and $220 million. In our last earnings call, we said we plan to revert to full year estimates either this quarter or next quarter. Today, we are updating the first half and have provided full year estimates based on the progress we made in Q1. There is uncertainty with many factors like FX inflation, the state of the consumer, and then in the December quarter, which is typically our largest quarter, and so forth. However, now with one quarter behind us, we are providing a full fiscal year 2024 outlook. We are expecting revenue of $3.8 billion to $4 billion. Our corresponding operating income is expected to be between $400 million and $500 million. I will close with where I started. Thank you. Thank you to all of our employees for driving such strong execution this quarter, and with strong market share and some great new products launching, we are cautiously optimistic. We are going to show a short video on one of our new products, Sight. Nate, roll the video and then we will take Q&A.

Hello, everyone, and thank you for joining. I will start today with Asiya Merchant from Citi. Hey, Asiya.

Hey, good morning, everyone. Hopefully, you can hear me.

We can hear you well.

Thank you for the color, Chuck and Guy. Great view on video, Guy. Chuck, if you think and Chuck and Guy, actually this is for both of you. Can you all talk a little bit about seasonality? It seems like at least in the implied guide the September quarter or the calendar third quarter was typically up at least in the low double-digit seems to be kind of guided flattish, maybe slightly higher. Maybe you could talk about that and as you kind of look into the December quarter, if you can kind of talk to us about the visibility that you are seeing and which product segment we feel very strongly about. And then on gross margins, I think, Chuck, you mentioned there were some one-time benefits. Clearly, gross margins came in better than what we were expecting and in terms of hitting your 40% target, you can talk about some puts and takes to get there as the year progresses pretty fast? Thank you.

Yeah. Sounds great, Asiya. Thank you so much for the question. So first, on seasonality, we outlined last quarter as you will recall, that if you looked at the last kind of four years on average, the quarters were roughly 24% Q1, 24% Q2, 30% Q3, 22% Q4. And I am not sure that that’s going to be this year, our Q1 was better than we had expected. We performed better than our internal expectations. It was a strong quarter compared to where we expected, both topline and bottomline and we are cautiously optimistic on the back half of the year, but there are still uncertainties, foreign exchange, the various uncertainties in the environment. Last year, the December quarter had some margin pressure because of promotions. We don’t know what’s going to yet happen with our December quarter this year, a single biggest quarter. The read-through though, the June 18 holiday in China was quite strong. We don’t have the final results back from Prime Day, but it looks like it performed reasonably well. So I’d say we are cautiously optimistic, but we don’t want the first quarter here providing estimates for the full year. We want to make sure that we are appropriately providing an outlook that is manageable. The second question on margins. It was a great quarter, 39% is the low end of our long-term operating model. We feel good about that. However, there were some benefits, specifically when we brought our on-hand inventory levels down by over $100 million, that had a benefit to the overall inventory reserves that provided really a strong uplift for the quarter and we see a little bit of pressure going into Q2 on margins. For the back half of the year, we are again cautiously optimistic that we will be in that kind of that range that’s probably a little below 39% or in that range, but we are optimistic there are tailwinds. Freight costs have come down significantly, cost pressures on components, our operations team has done a great job doing cost reduction and improvement. What we don’t know is how the mix will impact. Now we have a couple of new products that are coming out that are going to provide we think a nice tailwind and could help on the margin side, but there is still uncertainty in the back half of the year.

Thank you. I appreciate the color.

Thank you so much.

Great. Next up we will go to Adam Angelov at Bank of America. He, Adam.

Thanks for taking the question. Firstly, regarding the inventory decline, it seems that was somewhat unexpected. Could you explain that further and discuss why it occurred?

Inventory, I would say it was not a surprise. Our operations team, we have targets. Our operating model, our goal is to operate with on inventory at about 5 turns. We hit 4.2, which is great progress considering where we have been. But it was not a surprise. It was strong execution. It was deliberate. The great news is that not only was on-hand inventory reduced, but channel inventory came down as well, significantly high single-digit decline in channel inventory. So if you couple that on inventory and channel inventory are down, we have leaned out the supply chain and that is great news for us and our channel partners. With lower inventory levels, we make more money, our channel makes more money and it’s good for everyone.

Okay. Got it. That makes sense. Thanks. And then just a quick one on Video Collaboration. So I think it declined again in the quarter. Maybe you could just touch on how you are feeling about that market in H2. Are you seeing sort of some stabilization from the enterprise customers or is it still a lot of uncertainty?

Yeah. First of all, not the numbers we want to see on the business side, but B2B Video Conferencing side. I would say in the last 30 days, I talked to customers in every region, met face-to-face in Asia and North America, going to Europe this afternoon. Our brand is strong and the wins are significant. What we are seeing is actually big companies decided to standardize on Logitech and they just deploy at some pace where budgets get opened, they deploy as a conference room. So that should play definitely better for the future. The second thing is if you look at the market, there is the high to the mid-range. We are actually doing quite well. We grew double-digit in that category. Where we have some pressure is kind of the lower mid-range to the bottom to the lower end, where we didn’t have a product for some time and we are about to launch a product, the Rally Bar Huddle. That’s a great product. It will play really well in this category, energize ourselves supposed to go in. So between this and the Sight that I talked about, this is going to be a really good way for us to come back to customers, try to push deployment, win some more big accounts; I feel very positive about the future of this business after talking to channel and customers. I think the opportunity there is significant and it’s, of course, the talking to the margin, this is the best margin category we have, so that will help a lot.

I would just add, we gained a couple of points of share in the quarter. So we feel good about our strength of our position. Sequentially, the video category was down $5 million, so relatively modest quarter-over-quarter. And then with these new products that Guy just mentioned, being launched, we are again cautiously optimistic about our execution in the back half of the year.

Got it. That’s right. Thank you.

Thank you.

Thanks, Adam.

Next question will be from George Wang at Barclays. Hey, George.

Hey, guys. Thanks again for the question. So, firstly, can you talk about Gaming in terms of our checks? We picked up some incremental improvement, especially kind of on the downstream, just not sure whether necessarily flow into the gaming peripherals. Just based on your guide for below seasonal sort of imply the Gaming to be down again on a year-over-year basis for the 4Q. Just curious whether you think that’s conservative or how much visibility you have on the Gaming side?

Well, we haven’t provided specific estimates for Gaming for the back half of the year, but clearly, the December quarter is the biggest quarter for Gaming. Our Gaming team has been operating incredibly well. We have some new products coming out that we think will help. Overall, it was a really good quarter for Gaming. The China team executed flawlessly for the June 18 promo, which is a really important event for us in that market, and overall, we have got strength in Japan and elsewhere. But I’d say the real test will be the December quarter for us. That’s the biggest quarter for Gaming.

Great. Great. Thank you. Just if I can squeeze in a follow-up. I guess, you guys are always looking to expand the new categories, right, just the adjacencies, that’s one of the kind of growth pillars. So in a high-level thought on, if largely to entering into any sort of brand new category, which area or which vertical do you think will be most likely in the next few years?

George, great question. I found great plans in the company to expand the TAM, expand into new use cases where we are going after a higher value application and use cases. It is too early for us to talk about it, but you will see in the coming quarters more discussion about this expansion.

Okay. Great. Thank you. I will go back to the queue.

Thank you, George.

Thanks, George. Our next question will be from Alexander Duval at Goldman Sachs.

Yes. Hi, everyone. Many thanks for the question. Just a couple. Firstly, on OpEx, it looks like you have made some good strides on cost control in the quarter. I wonder if you could talk a bit about how much further headroom there is for cost control going forward in the remaining quarters? And then I have a quick follow-up on FX, can you just remind us how much support we should expect to be seeing from FX in coming quarters? Many thanks.

Certainly. First, on the foreign exchange side, this quarter, we still have challenges with the year-over-year comparisons, but that will begin to change. Next quarter, the situation looks more balanced with the current rates. I believe we should achieve a year-over-year balance starting in the second quarter and continuing onward. The first question was about the foreign exchange support we can expect in the upcoming quarters.

Cost control.

Cost control…

Cost control.

Thank you. My favorite topic. So we have done a phenomenal job lowering cost. OpEx for Q1 was a little higher than our internal targets. There were a couple of one-time administrative charges. So I think you will see sequential improvement on OpEx. Our long-term operating model is to have OpEx below 25% of revenue. We may or may not get to that level this year, but we will have to wait and see. But we are on that trajectory and we believe that by the end of the year, roughly, we should be kind of at a $1 billion run rate approximately, but the real long-term target is to be below 25% of revenue.

Thank you very much.

Thank you.

Thanks, Alex. Our next question is from Ananda at Loop Capital. Good morning, Ananda.

Hey, guys. Thanks for taking, sorry. No video, got it, Nate. Cool. Thanks for taking the question. Yes. So just two quick ones, if I could. Guy and Chuck as well, the decision to give the second half guide today and, as opposed to 90 days from now. Can you tell us just give some context around sort of visibility that gives you guys confidence in the ability to do that in the thought process around doing it? And then I just have a quick follow-up as well.

Well, on the guide, we deliberated it in what we had outlined last quarter that we would either provide it this quarter or next quarter and given the strong first quarter we had relative to expectations with one quarter behind us, we felt now was the right time. And is visibility better, in some areas, yes, inflation in the U.S. has come down a little bit. It’s higher in the U.K. and other markets, but the U.S. inflation has come down a little bit. FX is starting to stabilize a bit. But we just felt that with one quarter behind us that it was the right time to update our estimates for the full year and we are pleased to have done that one quarter kind of ahead of expectations.

Okay. That’s helpful context, Chuck. And I guess, just a bigger picture question, any thoughts and maybe you guys haven’t sort of reached this conclusion yet, but would love any context thoughts on sort of when you kind of renormalize the revenue base. I have just done some quick analysis. It seems like exiting fiscal 2024, you could be there, but just would love your thoughts on that, that would be helpful.

I will begin, Guy, and you can elaborate. When we examine the year-over-year and sequential changes, we see that things are beginning to stabilize. The year-over-year comparisons are not yet where we want them to be and we are not satisfied since they are still declining, but the rate of change is becoming more positive. I can’t predict when we will reach the bottom, but it seems like we are moving toward stabilization, which is reflected in our cautiously optimistic projections for the year.

I would say the last 42 days here as an Interim CEO, just reaffirm my conviction this is a growth company in a growth market with a growth trajectory. This will come. But let me tell you another thing, we are not just waiting for the market to improve. The team here is working really hard to push whatever we can, new products, obviously going to help, win some share and get to this point where we start to be plus in front of our number again. And just a matter of time, there is a clock in our head, we want to get there, obviously, it will take some time, but we will get there.

Guy, should we consider the company's projected normalized growth moving forward to be similar to the growth we experienced before COVID, or is there a different outlook, whether it’s optimistic or pessimistic?

We always strive for more and aim for higher growth. We will keep planning and exploring the right acquisitions and products that can help us accelerate. There is significant potential here, and we have a strong foundation to build on. Our company is robust, with solid innovation and design capabilities, and a strong leadership team. We have much to build upon, and our ambition will continue to show as we move forward. You will hear more from us, and we definitely aim to improve.

Awesome. Thanks a lot, guys. Appreciate it.

Thank you, Ananda.

Our next question will be from Erik Woodring at Morgan Stanley. Good morning, Erik.

Hey. Good morning, guys. Thank you for taking the question and Guy, good to see you again.

Thanks.

I wanted to revisit Asiya’s question about seasonality. I recognize there are uncertainties currently, but you're predicting the worst seasonality in at least a decade while also suggesting the channel is normalized. This seems to imply that demand may be declining, but I haven't really heard that reflected in your comments. Can you help clarify why we're expecting such a below seasonal September quarter? I have a follow-up after that. Thank you.

Overall, we have updated our expectations for seasonality or targets for December and the March quarter. If the December quarter performs really well, we might exceed estimates. However, if the December quarter is challenging due to rising interest rates, inflation, and global conflicts, that would change the outlook. We entered the year with stronger expectations for Q1 and believe we have a manageable plan in place, which puts us in a good position. We will have to wait and see how December unfolds and what follows in March, which is usually our weakest quarter. Generally, the March quarter accounts for about 22% of our annual performance, although it could be lower than that. We are feeling balanced about the situation. Guy, do you have a different perspective?

I agree with you. Chuck and I were part of a very extensive review — operational review that we have done last week and informed us in the decision to issue the guidance for the full year. I would say, Erik, you are spot on, we are not anticipating demand to be worsening. That’s definitely not what we are seeing or hearing or planning on.

Awesome. Thank you for that color then. Maybe, Chuck, just a question for you to follow-up on one of your comments there. In terms of OpEx below 25% of revenue. I think last quarter we kind of talked about Logitech exiting the year at maybe like a $250 million quarterly run rate for OpEx. If you did do below 25%, you would get, call it, $8 million to $10 million below that. So just wondering if you are thinking you can cut OpEx beyond your prior expectations? And then secondarily, if you are growing next year, would you expect to keep cutting OpEx or would you kind of then lean into reinvestment and try to grow OpEx base alongside your revenue base? And that’s it for me. Thank you so much.

Our goal by the end of the year is to maintain an operating expense run rate of around $1 billion, which translates to about $250 million for the fourth quarter, give or take. We have significantly reduced costs and don't currently have a plan to further cut expenses or headcount. Our focus is on increasing revenue, aiming for a $4 billion total. If we achieve $4 billion in revenue, then a $1 billion operating expense would represent 25%. Even if we fall short of that $4 billion, we plan to maintain an operating expense run rate close to $1 billion. For Q4, we are looking at approximately $250 million if we are below $4 billion. As we begin to grow again, we would aim for our operating expenses to be below 25% of total revenue. This reflects our long-term operating model.

Right. So just to be clear, Erik, when we come back to growth we like the 25% and we take the extra investment in growth areas. There are plenty of opportunities to invest in. But 25% is we like it as a long-term focus for us.

Super. Thank you so much, guys.

Thank you, Erik.

Our next question is from Joern Iffert at UBS. Hello, Joern.

Thank you. Good morning, everybody. And two to three questions please from my side. I will take them one by one, if it’s okay. The first one is, can you please be kind and clarify again on gross profit margins? What exactly was the one-off benefit in Q1 and where you see gross profit margins trending to in Q2?

Sure. Looking at the year-over-year comparison, gross margins were 39%, down from 40% last year. The main reason for this change is foreign exchange impacts, along with other factors. Generally speaking, this represents about a 100 basis point difference. However, the quarter was strong due to a significant decrease in on-hand inventory. As we approach Q2, we anticipate some pressure since we do not expect to reduce inventory by another $110 million. There are many variables to consider, including product mix and foreign exchange rates, but overall, we see a positive trend in gross margins. There was a one-time benefit in Q1 that will likely add some pressure on results for Q1, but we expect that in the next four to six quarters, gross margins will improve structurally to around 40%. Our long-term target for gross margins ranges from 39% to 44%. Achieving the higher end will depend on factors such as changes in product mix and increased video-related offerings. In the next four to six quarters, we anticipate gross margins will be around 40%. What's your next question?

Yes. Exactly. So it means in four quarters to six quarters, you will reach the 40% gross profit margin run rate, not in the next four quarters to six quarters, just to be clear.

We may experience some quarters with gross margins above 40% and others below that percentage. However, we anticipate that on average, over the next four to six quarters, the business will be around 40% and continue to grow. Our long-term model indicates margins of 39% to 44%, though various factors, particularly mix, can significantly influence this. As mentioned earlier by Guy, we are introducing new products that could provide a positive impact. However, the short-term outcome remains uncertain. We are more confident that we can achieve our long-term operating model in the intermediate term.

Okay. Thanks. The second question would be please on Q2 on the revenue guide. I mean, usually, Q2 is significantly higher versus Q1 due to normal seasonality. What have you seen in July so far? I mean in the first weeks of July. Do you see a stable flattish development year-over-year? I was actually speaking about quarter-on-quarter, sorry, just to double check is what you see in the first weeks of July?

Yeah. The data that we have so far is the first couple of weeks, and I would say we are cautiously optimistic about the results so far. We don’t have the final analysis in yet from Prime Day. So we still have a lot of wood to chop for the quarter and I think we feel like we are in a good position for the second quarter.

Okay. Thanks. And the last question then please on Video Conferencing, you said it’s around $5 million down, so we can assume it’s bottoming out here that Q2 in Video Conferencing and also Gaming should be up quarter-on-quarter, is this a fair assumption?

We haven’t provided that level of specificity. Has video bottomed out, I hope so. But I can’t guarantee that. It was fairly in line with last quarter, down a little bit, and with new products coming, I think, we have got tailwinds in Video.

All right. Thank you.

Thank you.

Thanks, Joern. Our next question is from Andreas Müller at ZKB.

Yes. Hello. Thanks for taking my questions. I have got a question about the difference of growth rate between Keyboards & Combos and my standalone, what was there the reason?

So Keyboards & Combos was down a bit, but better than our expectations. It was quite a strong quarter relative to our internal expectations. Pointing Devices also performed quite well with share gains. I don’t have a lot more to offer in terms of color. But generally, I would say, both categories were a little better than expectations and Pointing Devices being a hallmark of our company. We are just thrilled to see additional share gains.

Okay. And then the cash on the balance sheet, this is now really high, would you accelerate the buyback? I think it’s running a bit lower than $100 million, is there room to improve that?

There is definitely room for improvement. In the first quarter, we paid our annual dividend, which reduced our cash balance. We have implemented a new buyback plan following the previous $1.5 billion plan, under which we executed $1.1 billion in buybacks before it expired. The new plan will be presented for shareholder approval at the annual general meeting, and we have also announced an acquisition. I would say we are actively pursuing our capital allocation strategy focused on mergers and acquisitions for growth. The purchase price for Loupedeck is modest, but we are committed to targeting M&A for growth, paying dividends, increasing the dividend, and returning excess cash to shareholders. Overall, I believe we are staying true to our strategy.

Okay. Understood. Then last question on the administrative cost is one-timer. What was that exactly?

We don’t disclose the individual details, but it was a few million dollars. So it’s not a huge number either, but that was sort of a one-timer, so you should see a benefit in Q2.

Okay. Perfect. Thanks a lot.

Thanks, Andreas. Our next question is from Michael Foeth at Vontobel.

Michael, I think you are still on mute.

Michael, we will circle back. Let’s go to Samik Chatterjee at J.P. Morgan. Hi, Samik.

Hi. Can you hear me very well?

Good morning, Samik.

Yes.

Yes.

I apologize for joining late and missing some of the discussion. In our analysis of various PC companies, there are indications that we might see a seasonal boost in PC volumes in the second half of the year compared to the first half. As you project your momentum for the latter part of the year, are you factoring in any improvements related to the typical attach rate for PC volumes in your estimates? Or are you more inclined to consider that as potential upside, remaining cautious about a steady performance from one half to the other? I also have a brief follow-up, thank you.

We are closely monitoring PC shipments and attach rates as part of our analysis and reviews. From our perspective, there is positive news in the outlook we’re observing with some major PC providers. As Chuck mentioned, we are being cautious since this is just the first quarter. We are very satisfied with our other achievements. However, we are not basing our expectations on other companies that are sounding more optimistic about the second half.

Great. Okay. And for my follow-up, it was an interesting acquisition, Loupedeck to see sort of what you are doing there. But maybe if you can sort of highlight how you are thinking about what addressable market does that have, and as you look at your portfolio, what are the other sort of niche opportunities that you are thinking of in relation to M&A?

Yeah. So on the Loupedeck, it’s a small — relatively small team, but very important IP that will allow us to add very sophisticated capabilities to Keyboard and Mice in the future. We will use it first in for gamers and creators, but we are seeing the potential beyond that and I will leave it at that. We will talk about it when we get to this. As far as M&A, we review you the M&A funnel. We encourage the team to replenish it, look at that. We have the optionality. We are not desperate for M&A organically. I like our chances and the growth trajectory. But I think we can accelerate in certain areas, whether by small tuck-in or by something larger than that and we want to see — we, obviously, have to bring it to the Board for approval. If we have targets, we want to see what else is out there that can allow us to accelerate the — coming back to growth and growth beyond that.

Okay. Great. Thanks for taking my questions. Thank you.

Thank you, Samik.

Michael, I believe you are back.

Yeah.

Yes.

Thank you. I have a question regarding the change in your reporting structure for some categories. Are you planning to phase out any of these products, and will that affect your cautious guidance for the full year?

No. We are not discontinuing those products. The challenge I assigned to the General Manager of that group was to develop it as its own standalone category. We are simply evaluating it to ensure we don’t have a lot of small or unproductive categories. The goal is to consolidate them for better focus, and if they can thrive, we will establish a separate line for them. That is the challenge I posed to the General Manager, and he has accepted it.

Okay. So if you can talk maybe just a few words about UE BOOM and if there is any plan to reposition that for growth going forward?

It’s a great question. We actually - the company invested not much in this, but invested. We are actually expecting a couple of new products in the coming months to do, and I will remind you, we are here to ship, and hopefully, we will energize the category there, but it’s too early to say. And as Chuck just said, he told the GM wants to go out of other; we want to see good growth and we will get you out of other categories. But this point, to give you the best transparency on our product categories, we feel like it’s better suited than the others.

Okay. Perfect. Good to hear. Thank you.

Thank you.

Our final question for today is from Serge Rotzer at Credit Suisse. Hey, Serge.

Yes. Good morning, everybody. And basically, I had some of the question like Michael because of this other. I am wondering that you want to see growing these product categories. As in the past, you always said that you take out research and development cost and that you squeeze them down and we know that this product group has the lowest margin. So it gives no sense for me that you want to grow now again in these product groups as it will dilute your margins. So for me, it sounds more that you want to close these product categories at least on your old strategy?

Well, so clearly, we — our goal is to grow the company profitably and there’s a margin threshold. So the challenge for the team is to build great products and grow those with attractive margins that make sense for the company, and if they don’t meet our thresholds, then we will not seek to grow those. What we have been doing historically in those categories is kind of profit max, not investing necessarily, but harvesting the profits. I believe there’s a strategy that they can execute to do both. Now we will see. That’s why it’s in the other category. It’s small. It’s not worth you focusing on as an investor today, but the challenge for the internal team is to build great products with attractive margins, and if they can get to the level that it’s worthy, then it will create some standalone category.

Rest assured, there is no product development here aimed at a lower-margin category. Our R&D dollars are focused on higher-margin, higher-growth products.

Guy and I are aligned. It’s really portfolio management. How do you manage the portfolio for growth and profit, not either or?

And that’s probably a follow-up here, is there a significant goodwill position linked to these products? So Speakers, Cable, UE BOOM, can you give me any information here?

I don’t believe so. I think that any goodwill associated with those acquisitions would be fairly immaterial.

Okay. Good. And then the last one, you have increased slightly the CapEx from $90 million to $100 million. Is there any reason or do you start to capitalize some of the OpEx, although it’s a very small position I know?

Yeah. It’s tied to our new building here in Silicon Valley and we hope to have you all visit us here and host you; if you are in town, the Silicon Valley, we have got a really new office that we are just opening and that we are calling in from today using our great technology. So come visit us here and we will give you a tour of our new facility.

But still $10 million for a new building change quarter sequential change only three months, so?

Well, the accounting rules for leases have changed now. You capitalize operating leases. So I wouldn’t read into it too much.

Okay. Got it. Many thanks. Move on, Chuck, for the next quarter.

Thank you.

Thank you.

Thank you.

Thank you, everybody for joining us. Pleasure to be on the call with everybody and I also want to extend many thanks to the very hardworking Logitech team that allow us to deliver this overachievement and build for a great future. Thank you.

Thanks all.