Q2 2020 Earnings Call

Good day and welcome to the larger Tech second quarter fiscal 2020 financial results Conference call. At this time all participants are no listen only mode. We will be conducting a question and answer session and instructions will follow at that time.

If at any time during the conference you needed to reach out to an operator. Please press star followed by zero.

This call is being recorded for replay purposes, and may not be reproduced in whole or in part with <unk> written authorization from Logitech I'd now like to introduce your host for today's call Mr., Ben Lu head of Investor Relations.

Thanks, Jack welcome to the lot Tech conference call to discuss the Companys financial results for the second quarter fiscal year 2020, the press release, our prepared remarks and slides as well as that live webcast of this call our available online at the Investor Relations page of our website IR that lots Tech dotcom.

During the course of this call we may make forward looking statements, including with respect to future operating results that are made under the safe Harbor of the Securities Litigation Reform Act of 990 spot and forward looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with SEC. The company undertakes no obligation to update or revise any forward looking statements as a result of needed.

Elements or otherwise. Please note that today's call will include results reported on a non-GAAP basis non-GAAP financial results have inherent limitations that are not meant to be considered in isolation from whereas the substitute for or superior to GAAP results. Our press release in slides provide a reconciliation between GAAP and non-GAAP numbers that are posted on our IR website.

We encourage listeners to review these items unless noted otherwise comparisons between periods a year over year and in constant currency. This call is being recorded and will be available for replay on the Latek website, joining us today from California, and Bracken, Darrell President and Chief Executive Officer, and eight Olmstead Chief Financial Officer, I'll now turn the call over to bracket. Thank you Ben.

And thanks, all of you for joining us.

We delivered a solid Q2 with strong execution in what is obviously a volatile time in the world.

The U.S. trying to trade wars volatile currencies and Brexit.

Those activities are so newsworthy, so noisy that you can temporarily temporarily lose sight of the more relevant proportionally bigger long term trends affecting us.

Your merchant of content creation as a lifestyle at a career choice by hundreds of millions of people and maybe one day billions.

We established front of gaming as a new supersport.

Virtually all over the world that will eclipse traditional sports in most dimensions, if not all.

And the explosion of video communication floor larger rooms to small groups from phones to homes. We're moving from video calls with the exception to video everywhere in our lives.

We have consistently managed our business well in this quarter is no different.

We delivered 6% constant currency growth despite putting through the first widespread use price increases in more than a decade.

We improved our gross margins, despite tariffs and currency exchange rate headwinds.

In fact, we achieved record operating profits for September quarter. Despite these factors and we generated 25% more operating cash flows in the same quarter last year.

Performing at this level in a market with it that much turmoil it could be seen is very good.

That's a trade wars began we've managed through tens of millions of dollars of impact to our business.

That's what you've come to expect from US, it's what we expect of ourselves.

Going forward, we will see the impact of new tariffs permitted in September and more projected in December .

But again these types of macroeconomic challenges are part of why you invest in us.

The recession resistant portfolio of categories and countries.

And the practice of no excuses.

So I wouldn't say its excel at quarter, where we managed our business and operations well despite the challenges.

The macro environment is not getting any easier.

But like we have done many times in the past we expect we've managed through all this and deliver our targets.

Now, let's dig into the performance of our different categories, many of which tap into these trends.

We do collaborations sales grew 60% in Q2, two another record quarter.

Our recent innovations rally a camera system for large copper troops and tap a one touch controller that enables easy and fast access to meetings are both delivering incremental sales on top of the continued growth we're seeing from our hotel room meet up product.

Now because the enterprise nature of our business our quarterly sales growth can be uneven at times. So I wouldn't expect the 60% growth rate. We just saw this past quarter to continue.

Just like we said in prior quarter that the 28% growth rate in Q1 was unusually slow due to the sell in versus psyllid dynamic of the business.

This past quarter strong growth is a clear testament to the tremendous market opportunity ahead of us to a video enable all the conference rooms in the world.

Such momentum puts us well on track to achieve the $1 billion BC sales potential that we laid out back in our analyst day in March.

Last quarter, we announced sink beta our device management platform, we've had great momentum with close to 100 companies testing and giving US feedback we're headed a general availability by the end of the year. So stay tuned on that one.

We love the video conferencing business, it's got all the things we love it cloud floor platform cloud platforms, we can enable the need for regular innovation and great design and the breadth taking market opportunity in this case, the 100 million rooms plus.

Our PC peripherals business delivered a solid quarter of 6% growth.

Morning devices grew 5% with contributions from both existing and new products are IMX vertical wells that was released over a year ago continued to grow double digit all our pebbled valves.

Continues to have great sales in China.

It's doing so well that we're ramping up distribution of it across the rest of Asia and even into EMEA.

Our recently introduced MX Master three is a redesigned version of our flagship premium mouse.

Fit one major blog or the major blog diverge described as making the best smells even better.

I Love that line in fact, there was even a tear down to the inner workings. The MX Master something you don't see often for just a humble mouse, but something this common for devices like the iPhone.

This speaks to the technical and engineering prowess that our team has been able to achieve and put into our products.

Keyboards, and combo sales increased 7% in Q2, representing the seventh consecutive quarter of growth.

And with growth from all three regions.

Our new Slimak are slim profile Amex keys wireless keyboard has received great reviews with PC world, giving it Editor's choice award and calling it easily one of the best wireless keyboards.

We also saw great contributions from several other new keyboards that were more limited their distribution, let me touch upon this for a moment, where the important benefits of our diversified product portfolio and our global go to market capability is our ability to rollout new products in the limited way to see how they do.

If they resonate well with consumers like pebble when it was first launch exclusively in China. They we will expand distribution to other countries the product doesn't do as well as expected. They look we'll keep them and limited distribution.

This is one of the ways, we can manage the risk of our portfolio.

Turning to gaming Q2 sales were up only 2% symbol of the trends we saw last quarter with continued tough compares and headsets offset by double digit growth in all our other gaming products.

The hensick appearances remained tough, but we do get but do get easier as we head into first half of calendar 2020, So I expect the growth momentum in gaming to improve with more normalize compares as we exit this fiscal year.

Well, it's easy to Miss the Big picture here and that's what the underlying gaming market is thriving and sales of several our new products are too.

So ex headset with Blue voice.

Our G 815, and jet Jeannine 15, wired and Lightspeed wireless gaming keyboards are all off to a great start.

Talbot another accessories declined 6% this quarter, we maintained strong growth in our education channel offset by decline in our traditional retail.

As we'd anticipated last quarter mobile speakers were down 24% in Q2, largely due to the timing of when we launched boom three in Mega moved three in Q2 of last year.

While the overall mobile speaker market remains soft continues or conditions appear to be stabilizing somewhat.

Getting incrementally neither worse or better this provides a more favorable environment for us to continue to innovate across new experiences and products as well as expand into new channels.

Overall, we expect our mobile speaker sales to be in line with the forecast we provided at our analyst day, which called for a slight decline this fiscal year.

Audio and Wearables were up 12% with blue microphones growing double digits and jaybird flattish in the quarter.

Now, let me turn the call over to Nate to walk you through our financial mix metrics.

Thanks Bracken.

I'm pleased with our overall execution and the financial results. We delivered we grew sales, 6% to $720 million and non-GAAP operating profits grew 6% to $89 million.

Drilling down further we grew sales across all regions gain sharing key segments and improved gross and operating margins, while investing in our strategic priorities.

With regards to our topline performance in Q2 overall growth was unfavorably impacted by approximately one point as certain us customers took time to adjust to our recently implemented price increases.

We saw pockets of delayed orders in a few product categories. As a result of our relatively modest pricing actions.

Those increases did however, help offset some of the tariff costs.

Moving to margins, our Q2 non-GAAP gross margin improved by 80 basis points to 38.4% the highest we've achieved since Q4 fiscal 17.

Favorable product mix and cost savings initiatives more than offset the unfavorable year over year impact from tariffs and currency exchange rates.

Now as we look into the back half of our fiscal year, we will see incremental tariff pressures on our gross margins as list for a tariffs were just implemented on September onest today did not have a material effect on our Q2 financials.

I expect about one point of margin impact sequentially in Q3 from these new tariffs net of our ongoing mitigation efforts.

Our non-GAAP operating expenses increased 7% to $187 million with sales and marketing up 9% and R&D spend up 6% as we continued to reinvest gross profit growth back into our business to capture as long term growth opportunities.

At the same time, we maintained our DNA spending at around $20 million again this quarter.

So with a disciplined investment strategy funded by topline growth combined with favorable product mix, we delivered another quarter of operating margin expansion, while marching toward our long term potential as a company.

Now, let me talk briefly about our cash flows.

Cash flow from operations was $107 million in Q2, and nice 22 million dollar increase versus the prior year quarter and helped by strong inventory management.

Despite our typical inventory build into the holidays, our overall inventory balance declined $20 million versus last year.

And our inventory turns a 5.3 times improved 4.9 times a year ago.

Our full year cash flows tend to be heavily skewed toward the second half and we're still targeting full year operating cash flow to roughly equal our full year non-GAAP operating profit.

In terms of capital allocation.

Paid out $124 million in the quarter for our annual dividend up roughly 10% versus last year.

And with that I'll turn it back to back Thank you Nate.

We just wrapped up a solid first half and are optimistic about the second half of the year as we head into holidays. So today, we are confirming sales growth of mid to high single digits in constant currency and non-GAAP operating income of 375 million to $385 million.

Our guidance includes the tariffs that have been implemented to date.

And with that Nate and I are very ready for your questions.

Certainly at this time, if you'd like to ask your question. Please press star one on your telephone keypad to withdraw your question press the pound cake.

Hi, a merchant with Citigroup your line is open.

Hi, good morning, gentlemen.

Rationalization, John Plueger, given how the volatility that bracket.

Oh, maybe talk a little bit about you know as you look in the second half the call I think it easier, but then you talked about all the volatility.

Let me think price increases until.

The parents that are going as well if you could maybe help understand give some quick full pay as you look in the second half full year comp against all that.

Macrilen, Karen how you guys, you're thinking about it and which category you feel most confident about.

I think thats on the back half.

Yeah.

Yeah I'll jump in first let me that I think you know in terms of our of comps I think the the comp we haven't gaming is probably the one that's going to moderate, especially as we enter next fiscal year.

We expect to continue to have good performance in our VC business solid performance in our CMP business and I think the gaming business will be strong, especially.

When you net out the effective the Florida effect from last year, you I think the key story as we enter the back half year as we're going to continue to manage against the currency and tariff impacts and.

We're seeing more terra as you know more tariffs will be showing up as we exit this fiscal year.

That's not assuming yet that the four be tariffs come through in late December So we'll see on those.

And currencies I, we don't expect any big changing so yeah I think the eyes as we go through Q3 in Q4, you know every quarter is different but I do expect the story to be dramatically different what do you anything you want to add there Nick no I think I think you're right I mean, obviously, we're continue to invest in our VC salesforce.

We have some great new product launches this last quarter and gaming and we're seeing continued good performance outside of headset.

But I think you laid it out correctly. So I think the back half of the year is it really comes down to again, just strong execution and focus on on the plans that we have and.

And delivering on those they're here.

And then the tariff.

Packaging luncheon meat on the gross margin you can help maybe clarify that loss you expecting one point negative impact net.

And that is again, a favorable product mix, so continuing into the back half.

Yes, so if you look sequentially Q2 to Q3.

I expect about one point of headwind and that sequential compare Q2 Q2 to Q3 from from the tariffs that were implemented in September those really didnt have an impact on us in Q2, because they occurred later in the quarter. So well see some increased pressure there sequentially Q Q2 to Q3.

Front from those September tariffs, we have plans, obviously to to try to mitigate those things, but Dan.

I do expect to see some of that pressure flow through into the PNNT all in in Q3.

And I think retailers.

How retailers responding to the price increases and he's taking aren't they kind of moderating their inventory.

And that's awesome. Thank you yeah, I'd say, so far the wells, our first round or price increase in the U.S. and over a decade, we saw what what you would expect some of the some of the retailers initially balked at taking in more inventory that affect us little bit this quarter, but then in the end as the as the market generally accepted.

The price increases those those retailers bought and in the business starts to come back and I think thats kind of normal in a rising price environment.

Yes, okay. Thank you.

Thank you very much less yet.

Your next chart with U.S. Your line is open.

Hey, or another.

Hi, Thanks for taking my questions Am first one is police and on your guidance.

Well, then Eunice, Ontario is taking place from December and it's just not reflect your guidance do you have then to reassess your guidance. If you see yourselves to shield movies in January this would be the first question. Second question is please if I look on you all organic sales growth it seems small.

Everything is coming from and B C. Now do you expect us to become more balanced over the next 12 to 18 months and also yeah more medium term question. If I look on your historic growth trial, just like it balls tap less than optimal by speaker, and then plus gaming and now its D.C., but actually seeing slowdown.

At some point in times of what makes you confident you really can maintain you a high single digit organic growth guidance and the next Obama to U.S. here.

And Oh, absolutely these would be the first questions. Please thanks.

Okay, well that's a good list. There you are nice job. So let me jump into the the organic sales growth of about you know I think you yeah. We have a we have a portfolio, we love, having a kind of a broad portfolio because both of of businesses and also geographies. So we're one of the most globally. This first couple.

Companies in the World. We're also one of the most.

We also have a really great balanced portfolio across different regions. So when one categories going through strong growth others might slow down but they come back that pattern has repeated itself you know over and over again across the seven almost eight years I've been here and so yes, do I think it will become more balanced over time, yes, I do yarn I think as you go through and look quarter after quarter to quarter I think you'll see more.

Balance in our growth it will spread out we still we had really nice growth in the CMP business. This quarter up 6% right in line with the total business and I think reflects that war that that business continues to be very strong and as you said BC was super strong gaming's little softer now that will come back again, especially as you go into next year when the fortnight affect us over so.

As you as you look out a little further you know the the tablet mobile speaker dynamic.

As we've seen this before you know so that we've seen different category slowdown other categories pick up steam we're always looking at new categories were both organic and inorganic. So this is all contemplated in our long term targets of upper single digit growth or do I expect to bill to continue to deliver that yes I do.

In terms of the the list for the tariffs that you talked about December we never incorporate those in until they're they're officially confirmed so they're not reflect without our guidance. Our job is to go in and really try to figure out how can we offset any of those things and we're certainly looking at Yale looking out Dallas say okay.

What's the day growth how might we do that.

Pricing relocations straight cost reductions so so far there not in but we'll certainly be afterward, if they do get implemented.

Yes, I agree bracken and since they're being implemented it if they were implemented as I guess currently.

Uh huh.

Communicated in middle of December would not have an impact really on our Q3 P.M. now we may look to pull in some inventory ahead of that if it.

To try to offset cost increases so we may see a little bit of inventory build ahead of that but otherwise really know piano impact expected in a in Q3.

Okay. Many thanks, and maybe just last question on M&A and is it likely they'd be maybe see a median you cross category.

You potentially Cindy will acquire.

Which can be a similarity to kind of PC gaming in its early yes.

Yeah, you're and we're always looking at that M&A and we're always also always working organically on new categories. So we've got five to 10 seeds at a time in development internally that most of which you don't know about it we don't share publicly in many of which don't get out the door and you know over six to 12 month timeframe. So is that.

Thats why we don't show up and then M&A. We're always looking so we've always got targets out there you know and Oh I'm completely dodging. Your question. So there you go [laughter]. Thank you you are okay. Thanks.

Paul Chung with JP Morgan Your line is open if they fall Oh, Hey, guys.

Thanks for taking my questions. So first thing on.

On video collaboration you know it looks like you're seeing pretty nice return on your expanding your sales team. So where are we in that kind of expansion of your sales force and how should we think about kind of the pace of Opex spending there and then secondly, or you are you starting see a better traction for.

Sure.

Higher HP products and how are you kind of gaining share from your existing players there and then I have a follow up.

Yeah, I'd say a in terms of the what's the what's our investment in us So our salesforce where are we.

I would do that as a work in progress we're going to keep investing and keep building and we're we're certainly nowhere near finished but we have as you said, we've we've made a lot of progress. So we feel good about the investments we're making in there they're getting we're going to keep investing.

At how to how to put a have a point in time on that you I'd say.

It's it'd be hard to say, we're certain percentage done because we're certainly we view. This is a long term investment trend over to keep going.

In terms of traction right high Res PE products, you know we could do you see no rally for example had a really strong quarter sorted tap both of which are pretty high speed products and those are medium size to large huddle rooms, and meet up continues do super will too so I'd say broadly.

And by the way all those are really high ASP products for little Logitech, who who sells allowed by so so we love the whole <unk>.

It certainly within that subcategory video collaboration with the higher end products are doing well.

I think on top of that to I'd add just look at some of their customer metrics that we're now able to track related to that BC business. We are seeing deeper penetration into some of our installed base accounts, we're able to expand and and you know work strategically with them to add some of those higher end products in those those larger solution. So very nice favorable trends in that respect as well.

Yeah.

Okay, Great and then.

My last questions on stream labs. So I know you you mentioned, it's not going to be material in fiscal year 20, I would I read somewhere they have around 1.6 million users.

480, Kenny mobile users, but can you just help us kind of frame the opportunity here and the rationale behind the acquisition.

And then sure you know how how can you kind of scale that existing user base or what's the kind of rather than revenue potential.

And margin impact and then.

You know what are your kind of expectations are kind of cross selling some of the your existing products.

And then lastly is there is there kind of shifting your and your acquisition strategy is there a preference now it's kind of find smaller software tuck ins are potentially more credence to gross margins. Thank you.

Thanks, Paul So that's a great when thank you for offering that question because we wanted to talk about yeah. We're super excited about stream lies at the first sizable acquisition. We've done that is there really has no hardware component at all.

And and I think yeah.

If you say you know how does that strategically fit into what we're doing it's really a direct hit you know if you look at what we're doing from a broadcasting and streaming perspective, we make the web cams. We now have the microphones, we even keyboards and mice that are used by streamers to put themselves out there and what this is this is the the layer that sits between the streamer.

Or between the pod caster and twitch lower or any of the other platforms that people are using so it's a really really cool addition to arc our business in a way of up for us to expand into services and as you said there are millions of people using this platform. So it's very it was really a great opportunity in terms of a cross selling it.

Cetera, you know early days, we haven't even closed the acquisition yet I hope that happens in the next few days. So we're just about their but we'll see you know I think the key is to make sure that business successful and I think the the way that business is successful, but is by enabling people to either have that lifestyle experience of streaming or to actually.

Generate some in cover revenue or even a bit a job out of it and that's what those guys are doing today, we want to keep enabling them and their their their geographic dispersion continues to be an opportunity. We think as does just the sheer number of people doing them in and even it even though that we see other growth growth opportunities, where I won't get into here. So I'm optimistic about I'm excited.

But it's hard for us to Mitchell as you mentioned that yes. The gross margins there are significantly higher than our core business. So that's pretty cool too.

And I think you'll hear more about more from us overtime on this this business that others like it.

Okay great.

Thank you Paul Thanks, Paul.

Oregon, Wagner with making first bank your line is open.

Hey, Oregon Aaron.

Hi, Thank you for taking my questions and you gave us the gross margin hit from the addition of terrorists.

What what would the gross margin impact for the remainder of this fiscal year beef from FX. If the U.S. don't have as to euro stays where it is today and I'm just a follow up question on M&A and organic growth.

We've seen that assets with the larger focus on enterprise solutions have become a big <unk> over the last year or so.

At what point would you consider buying into the enterprise space to to Reaccelerate your organic growth that's coming down currently.

Thank you okay.

Let me, let me answer the first <unk>.

Although they dig into though.

The.

My question.

We we look at a very broad range of targets.

Categories. We're in today categories were not publicly in today.

And that that would include enterprise the enterprise space, We we love the enterprise space as you know I mean, it's pretty clear from our results over the last couple of years that it's an area. We believe in we're investing in and we're learning a little.

Go to market standpoint, so absolutely we would consider.

'cause Uber business, there are more and more space.

Got it is broadcasting and streaming so lets say two years ago and we're excited.

Oh, Yeah, sorry, yeah.

Impact for us it at current exchange rates.

And then Bruno.

Good morning, guys. Appreciate you guys running the question here.

Hey, good just a couple from me I'd just from a macro perspective.

Tracking or you guys.

Did you sound pretty confident about the 10th of the business are you often Nike just open the call ongoing macro haggling have you have you seen your extent you feel like you're experiencing anything incremental over the last 90 days as a guide for Macrilen pack.

And and and just in doing that calculation, it's seen that the queue of acute graft sequential revenue growth in September .

Was it wasn't as strong as the last couple of years and it sounds like is there anything to that.

Where is that yes, yeah <unk> business business.

Sort of mix dynamics like that as a couple of follow <unk>. Thanks.

Well go up and OLED they've responded the second one I would say in terms of the incremental back row, No I don't think Theres anything really significantly you don't know about EMEA, the little bit tariff the tariff changes or as you are kind of what you'd expect I don't think from macro economic environment, we see any real difference over the last 90 days.

That's very similar you know a lot of people are talking about recession recession recession, you know.

Where we view ourselves just kind of a recession resistant company you know because the fact that we really got products that are really relatively low prices are good escaped or or good that make you more productive at home or anywhere else you are or they are actually help you avoid needing to travel so much and and we can say if they if you're a cup.

Okay. So so.

I don't know, whether there will be recession at some point surely there will be but what were we feel really good about our business in that context, if it were to come.

Yeah, I think regarding the seasonality you know I think he got to come back to just six eminent product dynamics, you know with extremely strong gaming growth in the prior year and what that did it started disrupt what you might quote unquote called typical sequential growth right now.

New product introductions also again into your baseline. So you have some of those is intact.

I think this quarter was roughly in line with what we expected again other than the see probably just being a little bit stronger than what we had in our models, but again that was somewhat.

You know just offsetting Q1 being a little bit slower just because of the timing of sell in versus sell out in that business, but.

I didn't see anything really sequentially that look that was surprising to me.

Okay. That's that's great unhelpful contact.

I guess, just Oh don't and just really never to gaining real quick you Guy.

But I can just think of picky. He clearly sound as soon as TZ Astec Inc. as he said you haven't in the past about the market opportunity.

Ah, Yes first for her fiscal 20.

And yet you sound you know sort of its easy asking about second half in the ramping into fiscal 20 line.

Yes for fiscal 20 <unk>.

Do you feel that the market at the fortnight effect is having a greater intact. It's a greater have when dinni anticipated, where do you think that you get back up into that forecasted range or the least attached a little too you know as you go through the second half a year.

Yeah. The two years together it looks like a more normalized growth rate, but it certainly was a big effect and you know I'd say it was it was strong nobody really strong yeah. This is a good thing about that is Oh, we feel like you know I always love it when you have a.

A hard compared to go into fiscal 2020 I'm excited about.

I am really optimistic in end about the law.

This is a good news.

A few days either calls or letters or somebody is interested in putting their gaming program into a high school or into a universal studios are small college.

And I think that bodes well just says that the fundamental engine here the teams.

Okay, Great and I guess, let me ask a bigger picture one bracket. It sure. Yeah, you do you feel any differently or.

Without the gaming opportunity than you did at that started this year.

No.

No I really don't.

I feel exactly the same I think it's just a great opportunity for us for a lot of other companies.

Okay, Great I I have one lab bigger picture question, Oh really sort of stream labs is a part it fits into Nansen, just kind of brought a unified communications as a service Oh, you catch up so as distinct from Merck.

A bit distinct from what you know sort of.

Let took place it plantronics last year it.

Anyway, you can you give this context around with it the potential is the opportunity is to develop.

You know more and more of a service offerings aspects portfolios stream labs is a is it telling the water there.

But you know services like that could become an increasingly.

A very large again, if I can he <unk> you can obviously service service you know kind of bad oriented.

What's the appetite or are you kind of a dip into it at that time days you go for worried or whether its knows there or you know others did they not aware of yet he will evolve the model.

Yeah, you know I think the from the stream lives as a consumer service opportunity and sink that's why in see age is a b to B service opportunity they were.

Part of a b to B service opportunity really starting now where you could actually tracking well overstepped expectations I think we're gonna do the right pace as we build capabilities, both organically and Inorganically as you saw the stream labs, but I do think building service opportunity inside of our business.

But on the on the back for future and and you can expect more from us there.

Yeah.

Hi, Michael Foods with Fanta, though your line is open.

And the first one is food gardening, you'll Vichy a business again.

Can you I could be commenting on how you will visibilities.

On on understands develop Lyndon B.C. and how that differs from the rest of Newport for you and the second question would be maybe if you can give us a generally niche combinations and how do you see.

Channel inventory going into the holiday season.

Or how is it building up have you already seen involved I mean, I think that the.

Yeah, leading then sell through data that you're showing is not suggesting any significant.

Inventory building yet.

And then to certain final question would be you know regarding terrorists mitigation measures you have mentioned that price increase obviously, but are there any and other specific measures that is taking you are going to cool to that you can comment on.

Yes, It will go through those a a model that Uh huh.

Okay and will you I'll, let they talk about the trail inventory, but I think you've generally described it correctly I don't think is too big Big tried big impact there.

In terms of a terrific mitigation you know we yeah, we Mrs for within the quarter. We are relocating some manufacturing we continue to drive our costs very hard down I mean.

I've I've personally impressed by our Oh, usually are sold the back of public but I'm personally impressed by our ability to manage gross margins in the context of both currency and tear ups. So I think we've done a really nice job of and our team has done a really nice job of.

Relocating the right things are doing it quickly and doing it well so there's no hiccup in supply.

Well I think that's been good we as we said you know in July we enter improvement in Joel.

The U.S., we've done pricing.

Difficulty factor, though you know what we're doing.

The DC visibility you know they seem to be BC does have a little better visibility, but in our core business in a way because you know we use salesforce like everybody else.

And.

The channel or sort of approach.

And I think you'll see it will well.

Got it was we spend more years in this business and we're optimistic about that amount I think.

Future video inside of all companies, whose whose bright.

Where are those best opportunity.

Exactly.

Better visibility that we have in the past already.

And you can you maybe just quantify a you know how many months visibility do you have.

I wouldn't I'd be hesitant to do that you know we haven't talked about that in the past.

But I'd say that our visibility is getting better and better.

As you would expect with more timing, but the business.

All right.

[noise] Thomas Forte with D.A. Davidson your line is doing.

Hey, Thomas Thanks for the question.

Hi.

Why don't come back to the I gaming business can you talk about deep product product lifecycle and the gaming segment for headsets other segments in that category and how guarantees and any effect.

The gaming segments as the new consoles are expected to rollout in the back half of next year. Thank you.

Yeah, you know so so first of all I think the product lifecycle and gaming is faster than obviously isn't or city MP business. When we launched several good headsets just recently.

New pro wireless switches are really really well product and I think you're gonna see.

You're you're going to see.

A lot a lot more.

A lot more activity in that space and and I know, we'd expect that they can to you know who expect you'll continue to see a ramp in activity in the in all areas of gaming as time goes on but particularly in the hedges base in terms of the console cycle. You know I think it remains to be saying you know the the council refresh.

For the coming in the past the council refreshes came with.

No.

Yeah. So this time, though the since you've got.

First half of next year.

And our overall gaming business will improve.

Escape from those fortnight compares.

Great appreciate it.

Thank you.

Again, if you'd like to ask a question. Please press star one.

Oh Choksi with Maxim Group your line is open.

Oh yeah.

Hello, how are you doing thank you.

So.

A nice results and I was wondering.

Oh, yes constant currency growth that you're seeing.

How much of that was due to the price increases that you guys, we're able implement successfully.

I'm not sure that I wouldn't I would I would attribute anything really to the price increases per se.

But.

I'd say the a constant currency growth is really just almost purely organic and not related to price increases.

In fact as I mentioned.

Earlier, I actually stop at a one point unfavorable impact just to some of our customers did.

Delay, some purchases and sort of use it or existing channel inventories.

In the corner. So I think there was actually a little bit add went on but as Terry or is that as bracken mentioned and they could Frank the price increase actually went about as we expected and it did help offset some of the cost increase.

So oh, one point impact that you cite Nate that implies and apply slots to see lots of one point. It was then.

Yeah varied a lot by product I would say based on the magnitude of the price increase in by the different product, but by a customer but I'll jump in a as it was good news referring to was less Oh, let's see on pricing in more about channel impact. So you had yo Yo customers, who just don't.

Don't buy.

Like the look of the new pricing of it'd be getting happens every time, we do this anywhere in the world and then after a period of digestion, where the markets change that prices are started lift in the market than they come back here.

So it's not really elasticities questions more of a channel inventory temporary impact.

And and that's largely on its way to of mitigating right out I think also to just any uncertainty sometimes around this tariff spread that's in the news.

It off and as I think you gave some customers who may be willing to wait a little bit and see if maybe things I'll turn in their favor and then they can buy again it at that lower prices so lots of dynamics.

Right understood and presuming that the tariffs don't go away when how long does it usually takes for customers to accept new prices.

And say, Okay go ahead and order.

Yeah, I think most most take that right away. There are few that will will slow down or stop buying some products and then over the you know 30.

And then or can you.

Pieces to offset the tariffs.

You know, it's a because of the competitive environment, we're in I'm, a little hesitant to do that and in many level, but.

No we didn't fully reflect tariff pricing in here at all and but we put in <unk>. So.

Gaming's <unk> flat year over year, which as you know.

What does the installed base.

Oh, you know I I'm not sure what you can install.

Right.

Gaming.

He used to grow around the world 11 quite it's true.

We continue now the opportunity.

Big opportunity right now.

He is the fact that we sold in so many headsets, probably first time Gamer headsets last year.

There's the opportunity to upgrade those sets us over the next couple of years and that's why we launched premium headsets this year.

And and I think you'll start we'll start seeing those take hold as we go into that especially in the next year, but they're doing well right out of the gate and that's probably because there was an opportunity.

Right.

Finally, or do you do you see any signs that channel inventory is elevated on the gaming site.

Hi channel inventories are in good shape heading into the holiday Bracken mentioned, we had some sell in from a than you had said it was pretty modest so.

Everything everything looks claim.

Great. Thank you very much.

Thank you so much.

Thank you. It appears there are no further questions at this time I will turn the call back over to Mr., Dan for closing remarks.

Well, thanks, everybody for joining us it's a it's an interesting time of the world and it's an exciting time at large deck. We will see you in Q4 Q3. Thank you after Q.

This concludes the logic <unk> second quarter fiscal 2025 financial results conference call. Thank.

Thank you for your participation you may now disconnect.