Logitech International S.A. Q4 FY2026 Earnings Call

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for this quarter and fiscal year end. Joining us today are Hanukkah Faber, our CEO, and Mateo Inversa, 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're 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 those statements. We will also discuss non-GAAP financial results, and you can find a reconciliation between GAAP and non-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 in our filings with the SEC. These materials, as well as the shareholder letter, 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, references to net sales growth are in constant currency and comparisons between periods are year over year. This call is being recorded and will be available for a replay on our website.

I'll now turn the call over to Hanukkah. Thank you, Nate, and welcome everyone. It's great to be here in Switzerland in Lausanne tonight. As I reflect on my second full year as Logitech CEO, I'm grateful for the progress we've made and also energized by the opportunities still ahead. Fiscal year 26 proved what our model is capable of in any environment. Successful innovation, best-in-class execution, and real earnings expansion. Before we look ahead, let's review our fiscal year 26 and our Q4 performance. As we do so, it's worth returning to the operating principles we declared last April. At the start of our fiscal, we faced a rapidly shifting global landscape. At the time, we set out to lean into opportunities with an offensive mindset, to apply rigorous cost discipline, and to leverage our global manufacturing footprint for real-time agility. I'm pleased to share that we delivered on all three of those objectives last year. First and foremost, we played offense. As a result, we captured significant new market share in key segments and geographies, and we delivered 6% net sales growth in U.S. dollars and 4% in constant currency through a balanced mix of volume and price. Simultaneously, we kept a very firm hand on costs and operating expenses, and we strategically diversified our global manufacturing base. And as a result of that, we delivered exceptional profitability with non-GAAP gross margins of 43.6% and an operating margin of 18.8% ahead of our long-term model and a record high outside of the COVID years. Operating income grew 18% to $911 million. We then translated this structural profitability into outstanding cash generation. Cash flow from operations exceeded a billion dollars for the fiscal year, well above 100% of operating income. And we were pleased to be able to return $768 million of cash back to shareholders in the form of share repurchases and dividends. Looking back at just the fourth quarter, we closed out the fiscal year strong. In Q4, we again drove significant global market share growth with 140 basis points increase in personal workspace, a highlight. We returned the Americas to solid growth led by the United States. We accelerated global gaming to high single-digit growth. And we delivered superb margins and a 25% increase in non-GAAP operating income versus last year. I am proud of our teams for balancing bold action with deep operational rigor in fiscal year 26. Now, as we transition into fiscal 27, we're amplifying our focus on future growth. We can do so because we are starting the year from a position of outstanding financial strength. And we should do so because their rapid advancements in AI will make the next 12 to 18 months a unique period for a technology company like ours to innovate and invest for a future in which both work and play will look very different. Thus, in the year ahead, we will up the tempo on the offense. With structurally strong growth margins and a pristine balance sheet, we'll invest into business to accelerate future growth. At the same time, we will continue to apply our signature cost discipline and agility, with a focus on maintaining operating margins at the high end of our long-term targets and driving healthy operating cash flow. Our investments will be focused on three strategic areas of growth. First, R&D and product innovation. We will leverage AI as a catalyst for innovation. We'll do so by enhancing superiority in existing categories, and our new Rally AI video conferencing cameras, which are shipping this summer, are a great example. We will also innovate into new spaces, with products designed to help people be more productive and perform better with AI across work and play. And we'll leverage AI for speed. AI is already helping us deliver our annual suite of new products faster than ever. The Pro-X SuperStrike gaming mouse, which shipped in February and went from prototype to a hugely successful launch in under a year, is a great example. Second, we'll invest in Logitech for business. We're deepening our presence in B2B markets by building enterprise-grade commercial capabilities and penetrating new verticals, prioritizing education, government, and healthcare. We're in the early innings of this plan, but the investments are working. In fiscal year 26, B2B demand outpaced B2C demand, and video collaboration net sales were up 10% in U.S. dollars and 8% in constant currency. we believe logitech for business still holds significant untapped potential and third we'll invest in building an iconic brand we will use proven high row s marketing to generate more trial and awareness of logitech especially of our premium offerings the high-end mx master 4 which was supported by strong global marketing campaigns in fiscal 26 is a great example. At $120 price tag, it generated nearly $100 million in net sales within its first six months, making it one of the fastest adopted products in Logitech's history. All in all, these targeted investments are designed to capture market share, expand addressable markets, and support organic top-line growth. I'm super excited about the plans for the year ahead. We believe fiscal 27 will keep us tracking towards our long-term model of mid-to-high single-digit organic top-line growth while maintaining operating margins at the high end of that model. Let me close by extending my sincere gratitude to the Logitech team around the world for their dedication and their fabulous work throughout fiscal 26. And with that, over to Mateo to cover

the financials in more detail. Thank you, Annika. Thank you all for joining us on the call today. The team delivered a very strong close to the year, characterized by solid demand, exceptional profitability, and cash generation. The detailed financial results can be found in the press release and shareholder letter. But let me briefly share with you some of the key financial highlights. So starting with the fourth quarter, net sales were $1.086 billion, an increase of 7% in U.S. dollars and 3% in constant currency. It is important to note that the impact of the war in the Middle East in the fourth quarter was approximately 5 million or 50 basis points. Overall, we saw excellent demand across both our B2B and B2C channels and across all regions. Looking at our net sales performance in constant currency, we grew across most of our key product categories. Gaming net sales increased by 7%, with year-over-year growth in all three regions, including double-digit growth in EMEA and in Asia Pacific. Video collaboration net sales increased by 8%, driven by continuous strong growth in EMEA and AMR. And personal workspace net sales increased by 1%, with double-digit growth in tablet accessories and mid-single-digit growth in pointing devices. Moving to our regional performance, in the Americas, net sales increased 3%. This represents the second consecutive quarter of year-over-year growth following the price increase that we implemented last April. Growth was broad-based across all our product categories, most notably video collaboration, which grew double digits. In Asia-Pacific, net sales increased 8%, marking our ninth consecutive quarter of solid year-over-year growth, driven by double-digit growth in gaming and personal workspace. Net sales declined 1% in EMEA, primarily due to the impact of the Middle East conflict, and if we exclude this impact, net sales would have been slightly positive. And it is also important to note that EMEA still delivered solid growth for the full fiscal year, despite an uneven macroeconomic backdrop, underscoring the strong and resilient execution of our teams. Now, turning to profitability, our non-GAAP gross margin rate was exceptionally strong at 44.8%, up 130 basis points year over year. The positive impact of the U.S. price actions and favorable foreign exchange more than offset the impact of tariffs and higher promotions. Total non-GAAP operating expenses for the quarter were $320 million, corresponding to 29.5% of net sales, down 80 basis points year over year. We invested in sales and marketing and R&D while reducing G&A by more than 10% year-over-year. This gross margin resilience, combined with our disciplined cost management, drove an outstanding operating leverage. And as a result, fourth quarter non-GAAP operating income reached $167 million, up 25% year-over-year, with our non-GAAP operating margin rate expanding to 110 basis points to 15.3%. Now, let me briefly touch on the full fiscal year 26, where we delivered $4.8 billion in net sales, an increase of 6% year-over-year or 4% in constant currency. Non-GAAP gross margin rate closed at 43.6%, slightly higher year-over-year, as the impact of our manufacturing diversification actions, combined with the price increase in the U.S., more than offset the negative impact of tariffs. Total non-GAAP operating expenses as a percentage of revenue were 24.8% down 170 basis points compared to the prior year, primarily driven by disciplined spending underscored by a 10% reduction in G&A. This resulted in an 18% year-over-year increase in our full-year non-GAAP operating income to 911 million and an increase in non-GAAP operating income rate of 180 basis points to 18.8%. This is the highest level of profitability in the history of the company outside of the COVID peak. The profitability level achieved is also well ahead of the top end of our long-term margin target range of 15% to 18%. Our structural profitability continues to translate in very strong cash generation, coming in above 100% of our operating income. Cash flow from operation exceeded a billion in fiscal year 2026, and we ended the year with a cash balance of approximately $1.7 billion while returning over $765 million of cash back to shareholders in the form of share repurchases and dividends. Now, looking ahead to the first quarter of fiscal year 27, we have provided our financial outlook in today's shareholder letter, which calls for continued top-line growth and strong operating income. We are expecting net sales to grow 2% to 4% in constant currency and this amount includes approximately 150 basis points of negative impact from the Middle East conflict. Non-GAAP operating income is expected to be between $195 million and $215 million. Our recent results confirm that we are a company for all seasons. We successfully navigated a dynamic environment last year to deliver high-quality earnings and cash flow and we enter next year with the foundational strength to do it again. Once again, I would like to thank our teams for an exceptional fiscal year 2026. And with that, let's turn it to Q&A.

Thank you, Matteo. We will now move to the Q&A portion of the call. To ask a question, please click the raised hand icon at the bottom of your screen. Please be sure to unmute and ensure your camera is on before asking your question. Our first question will come from Alicia Reese with Wedbush.

For taking my question and congrats on the results today. I'm wondering if you could dig into gaming a little bit. The results from China for China have been strong for some time now, and I assume that that's a positive margin profile relative to the other regions. As that strength shifts back to the U.S. domestically over the coming year, presumably, how will that impact and to what degree, whether you say quantitatively or qualitatively, how do you expect that to impact gross margin over the coming year?

I think the impact on the gross margin will actually be quite minimal because the difference in the Chinese versus the U.S. margins are not material. um what's been driving and thanks for asking about gaming because we're i'm super excited actually about the results in gaming in the last quarter um much stronger end to the fiscal year is where we went in seven percent up in q4 and you'll remember in q3 we were only at plus two so a real acceleration there and the interesting thing is the drivers are broad based across the world so the real driver was a super strike um our latest uh new mouse 180 dollars really unique technology called hits um haptic induction trigger system um this one is for competitive gamers and and you know this well alicia because you know the space so well but competitive gamers do not change their gear it's like you know when you're going to run the olympic marathon you're not going to change your shoes the day before the race that's that's the same is true for competitive gamers but with this mouse almost immediately after we started shipping in february um it started being adopted in tournaments um and that then led to enormous demand um from you know non pro gamers as well so that's been a big driver in the quarter um we're super excited about that honestly we couldn't make enough of it so um that should be that momentum should continue and then separately premium gaming in general has really been outperforming the rest of our business so um both pro and sim the whole pro range and the sim race range were up um very comfortably in double digits and again that is true around the world so those dynamics have not been um specific to one region or another um but really good to see around the world

Matteo? I agree. The margin comment.

And as a follow-up, the Super Strike, did that do well globally, or were there certain regions that did particularly well?

So that has done well everywhere, and I think it's kudos to our team. It was developed with pro-gaming teams from every region, so with Korean teams, Japanese teams, Chinese teams, American teams, European teams. And after launch, again, it has really been a huge hit everywhere.

Great. And what products do you expect to lean into as you head into the new season with GTA

this coming year? Whenever that comes. November, hopefully. Yeah, certainly we've got great momentum in gaming on both the pro line, not just on the Superstrike, but across the entire pro line, including keyboards and headsets um also great momentum on sim racing um and again those happen to be the most premium parts of our portfolio um we also have great innovation coming actually in the new year on our three and five series which are more affordable um which also i think is important so that we serve every every piece of the gaming market um but if i you know the first penny goes to the premium side of the business. Great. Thanks so much for answering my questions

today. Your next question will come from Jörn Affert with UBS. Hello, good evening. Many thanks

for taking my questions. It's two pieces which are related to each other. The first one is just also for modeling purposes. Your statement focused on growth makes a lot of sense. You're already above your midterm margin targets, but what does it mean really? I mean, does it mean you're targeting the mid to highs in digital organic growth for fiscal year 27 and margins I mean coming down 50 basis points or 100 basis points and this would be my first question and then the second question is related to this one you said there's a I mean AI world is changing rapidly you want to adjust you want to invest where exactly what do you want to place your investments what are you doing in R&D what are you doing in marketing what is different here versus the last 12 to 18 months. Thanks a lot.

Yes, Joran, hi. I'll take the first one. So in terms of outlook for fiscal year 27, I would just, I think, if you look at what we outlined in the Sharona letter, I think on the back of the strong momentum that we had in the fourth quarter, we will continue to see growth in the first, And that's why we outlined the net sales growth in constant currency between 2% to 4%. I think making statements right now beyond the first quarter due to the visibility in the current world conditions that we live in, I would say is a bit premature. But we are happy with the growth, particularly back to Anika's point that we have seen in gaming, AMR actually clearly picking up the pace in the fourth quarter compared to the beginning of the year of fiscal year 26. So these are all positive. In terms of profitability, the way I would kind of describe our thinking is you will see that we will invest a bit more, to Hanneke's point, in sales and marketing and R&D. But overall, OPEX will remain within the framework that we have been talking now for quite some time of 24 to 26 percent. So no big change in that. You can count on us to continue to be meticulously careful in how we spend our money in G&A, but really invest more in R&D and sales and marketing compared to what we have done in fiscal year 26. But notwithstanding all of this, including these investments that Hanneke mentioned, we still feel very comfortable that we will be comfortably on the high end of the range of OI percentage that we provided at Investor Day.

Yeah, thanks. And thanks, Jörn, for hanging in there with us late at night here in Switzerland. We feel your pain. That's good. um ai ai in product and ai in marketing it's it's a great question so in products um we are well beyond um you know proofs of concepts and experiments when it comes to ai enabled products and um we're shipping them globally we're shipping them at scale so examples um some have been in market for a while now but very successful the the site video conferencing camera the zone two wireless headsets um devices like the spot sensor um for room management um and then shipping this summer which we're very excited about in video collaboration the rally ai camera um which is really another level of superiority in video conferencing um and then we're also innovating into new spaces new categories that don't exist yet today and i can tell you but i'd have to kill you. But it's exciting what's going on. The last thing I'll say on products is, of course, you know, we make software-enabled hardware. So even sometimes with the same hardware, there's software upgrades that we're implementing almost monthly, sometimes weekly. Things like the digital cocoon in video conferencing, AI noise suppression in headphones, smart switching and SWART framing in our webcams and VC products. All of those were not possible the way they're possible now, even six months ago. So things are moving fast and it is critical that we stay ahead because AI just gives so many more new opportunities and that's exciting. In marketing too, we've learned a lot from our China team. So our China team really modernized marketing for us. They needed to and they have, and that's part of our China for China success. But what we're seeing in China and around the world is marketing is, you know, search and social. That's where you start your marketing today. In social, we have thousands of creators that we work with around the world. They create every month hundreds of thousands of pieces of content that come by your feed on TikTok and on Instagram. It is not possible for a human to keep track of that content and to put more money behind content that works and no money behind content that doesn't work and shift that money into the right retail partners, platforms, etc. That's just not possible. What we've learned in China is to build an AI-enabled marketing ops model to really get the most bang for the buck on that whole new marketing platform framework, I don't know what to call it, and that's doing very well in China. We just had a digital marketing summit for our top 120 or so marketeers around the world in Shanghai last week so that we can take those learnings from China and implement them back into the rest of the world. And I think that will be a big advantage for us versus some others.

Very helpful. Thanks a lot.

Sure. Our next question will come from Asia Merchant with Citi.

Hi, good morning. Good evening. here from New York. Sorry, I'm in a hotel, so my video doesn't work here with this broadband here. But just wanted to ask, you know, there's been obviously a lot of concern. There's pull forward in demand here, maybe more on the consumer device side, especially as it relates to PCs. How are you looking at, I know you guys are only guiding here for fiscal one cube, but seem pretty confident in that growth rate. What's your view on pull forward here? And then if I can squeeze in just a little bit on structural gross margins, I think I heard Hanukkah talk about that as well as Matteo, on structurally gross margins being higher here. Can you just help us understand like, you know, the upside that you guys have relative to your guidance here for both fiscal 4Q and you expect that goodness to continue, sort of how we should think about the various factors that drive those gross margins and what are some puts and takes to

that as you progress through fiscal 27. Thank you. Yeah. Thanks, Asia. And I'll let Mateo go deep on the gross margin. I think in terms of your first question on, you know, pull forwards, we certainly didn't see that on our businesses, neither on the consumer side nor on the B2B side in Q4. Our global market, so if you take the total categories that we play in globally, The market was pretty resilient, low single digit growth. And that was certainly resilient with enterprise customers. Businesses in general are doing well. We've gone through earnings season and we've seen it, but businesses are performing. So they're investing in technology, they're investing in new offices, and we're gaining share, both in video conferencing and in PWS. um so that's been good and and not dependent on pull forward of any kind and on the consumer i would say we're seeing kind of what we have been seeing which is the consumer is resilient but choiceful um he is looking for quality and recognizes when there's great innovation but maybe a bit more choiceful when there isn't um and again in that context our share performance has been very, very strong. So that's why we guided the way we guided for Q1. But as Matteo said, we also believe quarterly guides are appropriate in this environment. It's just challenging to get longer-term visibility on the state of the consumer or the customer.

So on the gross margin question, so let me maybe start by unpacking for you the fourth quarter. We are obviously very pleased with the work that the team has done. This is a record quarter for us if you exclude the COVID peak here. So we improved the gross margin rate in the fourth quarter by about 130 basis points year over year. It's a combination of the positive impact of the pricing actions that we executed in April of 2025. It's obviously effects was a bit of a tailwind with the euro traded during the quarter. And this more than offset tariffs and promotions, they came in in line with what we were expecting. So basically, if you dissect the 130 basis points, the easy way to think about it, you have 150 basis points of price, 150 positive effects, offset above 70 basis points negative of tariffs, and then 100 basis points higher promo for the quarter. But overall, very, very strong performance by the team in the way we closed the year. So now to the second part of your question, if you look back now to the last few quarters and also what we outlined for the first quarter of 2027, structurally, we are a 43 to 44 percent gross margin rate company with the current effects rates. So then when we look at longer term, obviously there are different items that impact the gross margin rate to the positive, to the negatives, right? So on the positive side, as we continue to focus on doubling down on B2B, video collaboration portfolio is positive, is accretive to the margin rate of the company. So as we continue to focus on that, that definitely will continue to help the gross margin rate. The premiumization of our portfolio now for several quarters, including the fourth one, all the high premium lines, so the MX, the Ergo, the Pro, Simulation, have been growing tremendously well for us. Double digit growth, some of them more than 20 percent in terms of demand growth. So that's also a positive, a tailwind. The continuous work that we always do around product cost reduction through value engineering is now really, thanks to Sri's teamwork, is becoming the way the company operates every day. And this helps us to mitigate some of the pressures that we are seeing, the inflationary pressure that we are seeing in some of the material we purchase. So these are all the positive. And then obviously, there is the promotional aspect, which is really a function of the competitive landscape that can change quarter over quarter. But overall, at the current FX rates, I think we are a 43% to 44% rate company. And the idea is really to leverage, back to Hanneke's point earlier, the strength that we have on the gross margin rate and reinvest some of this money into the future growth of the company in sales and marketing R&D, as Hanneke outlined in the earlier question.

I think just on the promo rates, promotional aspect, you know, it seems like some of the traditional PC companies, you know, just dealing with component inflations here and trying to pass through the pricing. I mean, are you seeing an environment which is more promotional or probably less promotional here for some time?

Look, the last couple of quarters, promotion, if you look at every time I describe the gross margin rate, we have about generally a 50 to 100 basis points of gross margin rate pressure year over year on promotion. So it's a little higher, even in the outlook that we provided for the first quarter. We are always, you know, the bogey, the range is really depending on how much promotion we have to implement during the quarter. I think it varies by region. Remember, we had a sizable price increase in the United States, and we had to promote a little bit earlier in the year. But that's what I would say. There's nothing concerning. Things are coming in pretty much as expected. And as you can see from the gross margin rates that we have been printing now for the last few quarters.

Yeah, I think the key thing with promo is you got to just be all over it every day. And then know what's happening in the market and use them intentionally and strategically. And that's what we're doing. That's the reason our gross margins have been so strong. And in Q4, which I expect kind of to continue, the extra investment in promotion really was focused on our very largest B2C customers, especially in Europe, where we continue to see some influx from Chinese brands. And we'll defend that with our lives while keeping the gross margin strong.

Great. Thank you. Good set of numbers.

Thank you.

Your next question will come from Maya Newman with Morgan Stanley.

Awesome. Thank you. I have two questions for you guys today. Maybe to start, you know, could you just give us an update on channel inventory levels kind of across key regions and categories? And then really nice to see another quarter of gross margin outperformance. You know, looking forward, is there any degree of tariff refunds embedded? And if not, how should we think about the potential magnitude and timing of that?

Good question, particularly the second portion. So let me start with that, Maya. So in the fourth quarter, we have not factored in any collection of tariffs in our numbers. and we did not even include that in the outlook that we provided for the first quarter. We think right now the process and the timing of the reimbursement is a bit too uncertain and we decided to proceed this way. So I think we will have to keep all of you appraised on how things are going progressively during the years. But right now nothing was recorded in the fourth quarter and nothing is considered in the outlook that we provided for the first. In terms of the first question, channel inventory, maybe let me start and I'll let Anneke add anything that I missed. Overall, we are very happy where channel is. The weeks on hand across the channel globally is exactly where we want it to be, pretty much in line where they were last year. So I think we are entering the new fiscal year with a very healthy and healthy channel, pretty much across all the regions. Obviously, what you have seen in the fourth quarter, which is pretty common in the quarter which follows the holiday season quarter, we tend to take the channel inventory down a little bit. And we have done that consistently with the prior years, maybe a little bit more in Europe compared to some of the other regions. And but but overall, channel is healthy and we are happy on how we enter the new fiscal.

Nothing to add. Awesome. Thank you. Thanks, Maya. Thank you.

Our next question will come from Michael Foth with Fontabelle.

Yes. Hi. Can you hear me? We can hear you. Hi, Michael. Hi. Hi, Annika. Hi, Mathieu. Just two questions for me. The first one is on on on cash flow, a very strong cash flow performance. can you maybe give a bit more color on how you managed to to get there and i think it's consistently above the one times operating income level now how should we think about cash flow going into 2027 now the first one and the second one on the uh middle east disruptions where do we stand there is it from from from your logistics perspective is is the situation de-risked now or depending on how things drag out, could there be more effects in future quarters?

Yeah, maybe let's take the Middle East and then we come back to the cash flow question with Mateo. So we definitely saw in Q4 negative top line growth impact from the Middle East war. And that wasn't so much that there was no demand for our products, but we really had some challenges in reaching all of our distribution partners from our Dubai distribution center. And that was true in the Middle East, but also in Africa, which gets served from the distribution center. We expect that that will continue. So in our guide for the first quarter, there is a top line impact there of about 150 base points from that in the quarter. um hopefully but you know who knows um this situation will be resolved in the near future and that will go away but again this is one of the reasons why it's very hard to um to guide beyond the first quarter because it is a significant impact but you still utilize the the warehouse yeah the dc is operational it's you know we have many distributors in the regions tier ones, and then tier twos, and getting stuff out in full perfectly is more challenging than

usual at this point. Michael, on your question on cash, so we are tremendously pleased with the performance of the team on cash flow. To your point, yes, we exceeded the operating income. Also, this quarter, operating cash flow was about $280 million in the quarter. The two key drivers here, this applies both for the fourth quarter, but also if you look at the total year. Number one, collections have been extremely strong. We have implemented very good operating mechanism on collections. We have a great collection team, and we have been performing very well. We have really record low level of pastures across the portfolio. So collection is one driver which drove the DSO lower throughout the year. The other one, big one, is inventory. Sri and the team have done a spectacular job in really controlling inventory. In spite of the fact that you may recall, particularly in conjunction with tariffs, we actually did some pull-ins of product ahead of new tariffs being put in place. And now withstanding that, the inventory returns of the company improved by almost half a point during the year. And that's really the second driver on top of, obviously, the net income, which also was a good lift during the year. So we are very pleased. Can we continue? We'll do our best. but always don't expect this to be every quarter above 100%. One thing that I would highlight, we haven't spoken yet on this call but we talked in the past, memory, right? We are working to make sure that we get as much memory as possible to protect our video conference portfolio. So whatever we can get, we get it and that may impact the inventory returns. So don't expect, don't model greater than 100% every quarter in fiscal year 27. But I think the team did great.

Perfect. Thank you.

Our next question will come from Didier Semama with Bank of America.

Hi, Didier. Hi there. Can you hear me? Yes, thank you. Good afternoon. Thank you for taking my question. I've got two. The quick one is first maybe to Hanukkah. Can you just give us a sense of, you know, your perception of, you know, U.S. and European consumer behavior with the current Middle East conflict and, you know, impact consumption, et cetera, from your gross margin and, you know, your mix, which is very premium, it feels like, you know, people are very much unbothered. Are you surprised by that? And how would you explain sort of this discrepancy?

Yeah, as I said before, certainly on the consumer, we see that he is continuing and she is continuing to buy um so our markets were up low single digits um and the consumer side demand was fine and even better than fine at the premium end so um in the u.s we suspect there is some help there from the tax refunds that people are receiving um so that's that's helping a little bit at the moment um and in europe it also looks okay um but again as i said earlier this is why we really hesitated not to guide for the year because these things can change

yeah and and sorry no no sorry matthew do you want to do add something no no go ahead i was saying Sorry. Now, for my follow-up, I wanted to ask you about these investments in AI you've been talking about. How is that going to come through? Is it in the form of software? Is it in terms of new capabilities, in the form of new products? And what's the sort of payback time for those investments?

i think it's a mix of all basically uh i think you can already see some of the the things that we are doing on products for example right we talked about in the past site uh the producer in the room is all ai ai software uh the rally board 65 has been extremely successful the the digital cocoon the cut off whoever is not in the conversation that's ai software uh the uh two-way noise reduction system that we implemented on the new assets that there's also ai uh so i for sure there is a big component on the uh on the on the product that

that we launch yeah where do you're asking though where does the cost sit the cost sits in r&d um that's that's where we're spending and um you saw the spending there in r&d in our opics and our OPEX numbers are, I think, spectacular for the year. But in the second half, we were able to start spending back into R&D a bit more. Don't think of this as just incremental spend. These are agents that are doing the, you know, humans with agents that are doing work that just humans were doing before, and they're doing more of it, and they're doing it faster. So we're managing that as part of our R&D spend. Token usage is obviously increasing, and it's increasing every month. But I think what also sets us apart is that unlike some others, we are leveraging our own in-house build LogiQ platform, which is an enterprise agent orchestrator that works across systems and networks with our own data. That is significantly more cost-effective than SaaS alternatives. So all in all, even if token usage were to double or triple during the year, it will still comfortably fit into the R&D pocket that we are planning for for the year.

Okay. Thank you so much.

your next question will come from joe cardoso with jp morgan

hey good evening thanks for the question here um maybe just two for me first one's just on video collaboration obviously exiting the year with strong momentum just wanted to touch on the sustainability of the trajectory here into fiscal 27 particularly just given this is one of the areas i believe on the last earnings call you highlighted as potentially being exposed to kind of this memory phenomenon we're seeing in the broader market and then maybe just on the latter part of that are you actually seeing any issues on that front relative to the mitigation just given that you highlighted mitigation levers um last quarter are they largely working or as intended and are you expecting any impacts there just given kind of how things have trended since the last time we talked about it and then i have a follow-up on the gaming yeah maybe let me try and

take VC on the on the market and feel free to add in Mateo um I'd say the first thing on video conferencing is you know we're we're actually really pleased with the results up eight percent net sales constant currency for the year and for the quarter so um even though this business can be a little choppier quarter by quarter just because it's a b2b business and there's you know there's a quarter with a huge deal and then that doesn't happen to next it's actually been pretty consistent and pretty good um we're gaining share and the market is also growing you know three four or five percent so that that then gives you that eight percent um memory we mentioned um video conferencing is the only place in our portfolio it's affected by the memory that's really in short supply. We now feel we're fine in terms of availability through the end of the calendar year. So that's another quarter versus where we were last year. So that's good in terms of availability. We do see an impact on price of, you know, what are we able to buy that memory at? But we'll offset that by pricing. And we have announced a price increase on video conferencing globally, and that went into effect actually earlier this week on May 1st. So we're offsetting that incremental cost on video with price, and we think the supply will be there. So all of that said, you know, while again, quarter by quarter, maybe a little bit like this, I think overall, we're quite bullish on video conferencing. Our premium solutions are doing very well, including those um ai enabled solutions we're growing our services attached which was something two years ago we had almost nothing of we're now i would say at competitive levels and that's a super high gross margin part of the business and we're continuing to build commercial go-to-market capabilities um we're adding top talent we're adding systems and skills to sell better in b2b which again was not our historical forte, but I would say every quarter we get better. And that's one area where we'll continue to invest going forward.

Yep. Got it. Very, very useful. Maybe just on the follow-up is more on the gaming side, and sorry if I missed this, but you talked about growing in all regions. Just curious, can you flesh that out a little bit in terms of how much the underlying markets improved across the western regions just because i believe those were sluggish um for quarters and how much was share gains and then how are you thinking about that going forward just given i think this year we're expecting somewhat of a recovery on the underlying markets in the western regions just want to really touch on like how are you guys thinking about your market potentially gaining

share on top of that recovery yeah it's a it's a great question and so even in q4 that's the most obviously recent period and we only have market and share numbers that are reliable through february So it's a little bit old at this point. But the dynamic for the December through February period was not unlike what you just described. So China gaming, the market was still up quite a bit. And the US and Europe were down a little bit. Now, I think the positive thing that I saw is that in February, the U.S. market actually was positive for the first time in a long time. So one swallow does not make summer, but, you know, that's better than what we've seen. And again, we're super pleased that we were able to grow 7% in a quarter, which is really outperforming the market. So things are, you know, looking like there's some more momentum, certainly in our gaming business.

Got it. Thanks for the questions.

This concludes the Q&A portion of the call. Back to you, Hanukkah.

Great. Well, thanks, everyone, especially thanks to those in Switzerland who stayed with us really late. Excited to see you in the follow-ups to the call, and thanks for being here today. Have a great week.