Q3 2020 Earnings Call
Ladies and gentlemen, as the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed them musicals. Thank you very patient.
Good day and welcome to the logic Tech third quarter fiscal 2020 financial results Conference call. At this time all participants are in listen only mode. The it'll be conducting a question and answer session and instructions will follow at that time, if at any time during the conference you need to reach an operator. Please press star followed by zero there.
Call is being recorded for replay purposes, and may not be reproduced in whole or in part without written authorization from larger tech I'd like to introduce your host for today's call Mr. Benjamin lose head of Investor Relations.
Thanks, Matt welcome to the lots Tech conference call to discuss the Companys financial results for the third quarter fiscal year 2020, the press release, our prepared remarks and slides as well as a live webcast of this call our available online at the Investor Relations page of our website IR got lots Tech dotcom. During the course of this call. We may make forward looking statements, including with respect to future.
The results that are made under the Safe Harbor up the Securities Litigation Reform Act of Nineteensix Nineteenone pop the forward looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with that you see the company undertakes no obligation to update or revise any forward looking statements as a result, you developments or otherwise.
Please note that today's calls will include results reported on a non-GAAP basis non-GAAP financial results have inherent limitations are not meant to be considered in isolation from west to substitute for or superior to GAAP results. My press release and slide provides 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, our year over year and in constant currency.
This call is being recorded and will be available for replay on to lots Tech website, joining us today, our bracken, Darrell President and Chief Executive Officer, and eight homes that Chief Financial Officer, I'll now turn the call over to bracket. Thanks for that stimulating opening bid.
First of all thanks, all of you for joining us.
Were delivered a strong quarter in Q3, despite the macroeconomic issues facing the world.
Got it tariffs Brexit volatile currencies, because the new normal.
But as the macro environment keeps churning out news, we keep turning out strong quarters behind secular trends that have nothing to do with the macro been somewhat world and everything to do with our performance.
The rise of video conferencing to every room the expansion of computer gaming to the largest set of sports in the world and perhaps the biggest trendable, which we haven't talked about too much yet the unstoppable phenomenon of cotton creation by virtually every personal the planet.
These will deliver our growth for a long long time become regardless of the macro environment.
We execute well were driven by powerhouse secular trends.
And we have a portfolio of existing product categories and new ones in creation.
The combination of our execution.
At our portfolio Brett creates sturdy growth.
What is that portfolio.
Comprises three major growth areas, each a collection of product categories video collaboration gaming and creativity and productivity.
And then also contains other categories that are either under construction as future strategic growth areas or optimized for profit contribution to enable us to invest more in the growth engines, we have.
We've got a good thing going here.
Regionally you can see a different story occurring in each of the three regions the world.
Just as each of our reported categories is made up a group of product categories. Each of our regions is made up of or group of clusters of countries.
And aim in EMEA, where revamping our go to market engine to shift real pool approach for a push approach to a pool.
Invested more in marketing and lessen pricing.
The net effect is a fifth strong quarter in a row.
Every clusters performing well virtually every country.
In Asia Pacific, We grew only 3% as local issues in Hong Kong with protests.
Continued slower China than we've seen in the past few years out a few markets with execution issues continue to hold back our growth from the double digit growth who come to expect from that part of the world.
The majority of our cut clusters had solid growth.
Probably the slight decline in the M. our regions driven by a couple of factors first let me say we had growth in all the places you'd expect PC gaming in CMP.
Well, we constrained ourselves in several categories as we reduced the depth and breadth of promotions during the holiday quarter to try to steer clear of over promotion.
And as you know, we also tariffs with price increases in the Americas.
This combination of price increases and reduce promotions help protect the impressive gross margin progress we've made over the past few years.
In fact, our overall company gross margin was down minimally despite the tariff impacts.
We probably could have delivered a higher sales number for the Americas.
Do we go too far with our pricing discipline in the quarter.
You know I'm, a long term person. So I believe the answer is no. We're here to build long term sustainable franchises not just quarters.
By category mobile speakers and audio Wearables really accounted for all of our decline.
Mobile speakers remained a tough market over the holidays not too different from recent trends in the Americas for that category.
In the Americas performance for audio Wearables was the primary reason Maher audio wearables globally were down 16% in Q3.
Blue microphones was down as we made the decision to discontinue several special special edition Yeti Mikes there were sold during the holidays last year.
This call challenge was exacerbated by supply constraints as we've made final steps to move our supply base to a new set of companies.
This is behind US now so we feel good that weaker returned blue microphones to product category growth as we capitalize on the long terms of street, but long term big streaming opportunities.
I want to take a moment southwest something we've been quietly focused on inside Lodge tech for many years.
We've not talked about sustainability, that's the topic.
Except in our annual sustainability report as I didn't want to come forward publicly until we're ready to wear until we're really leading our peer group and even among the leading companies in the world and our actions.
This quarter, we stepped out to talk.
Sustainability really has been a focus for logitech for many years this quarter, we committed to leadership in the bell to avert dangerous climate change for the first time logistic public committed to ambitious sustainability goals for the entire company.
Specifically, we unveiled our support for the Paris agreement and to go beyond the level of commitment made there.
We pledged to limit our carbon footprint to support the aggressive one of the half degree Celsius increase goal and to be powered exclusively by renewable electricity by 2030.
We also announced that we're carbon neutral certified in all Logitech gaming products.
And at the same quarter, a third party validated our strong results and steps and sustainability.
We were pleasantly surprised two weeks ago to be named one of the 37 companies in the world honored by World Pronounce magazine for our sustainability efforts. This was the first year of these awards and we're the only consumer Tech company to win.
And despite all this news on sustainability I promise you we have much more exciting work underway.
You are going to hear from us regular on this part of this topic.
Now, let me discuss how would you have more specifically in our categories.
Momentum in our video collaboration category continues to be strong with sales up 25% in Q3.
Sell through was much stronger than that too.
Of course this came on the heels of last quarter's unusually strong 60% net sales growth. So two quarters combined or more normal I would say.
In the first nine months the of the of the fiscal year operative glamorous relation sales grew 37%.
On top of this all three regions, we achieved double digit growth.
Logistics goal has always been to be humble capable and neutral partner for other companies we are Swiss after all.
And VC is no different would only working with made the major U.S. cloud providers like zoom, Microsoft Google and others were also closely pot of money. We're also closely partnering with the leading platforms in China like Alibaba.
As we announced the general availability of our sink device management software a couple of months ago over 600 companies have installed and are trying to platform. It's still early days, but we're excited to see what more we can do support companies expansion of video to a larger share of their rooms.
Slowly, but surely rebuilding out b to b capability to and it's exciting.
Now on to gaming.
We returned to double digit growth and gaming this quarter as we predicted.
As we manage before as we mentioned before we're beginning to see easier fortnight comps as we headed in the end of the fiscal year.
Q3 sales were up 16%, but with PC gaming sales growth, excluding headsets remaining well into double digit range, while the decline in our gaming headset sales moderated significantly.
I would expect to see more normalized gaming headset compares as we exit the fiscal year.
During the quarter. We also Bennett from benefited from the expanded distribution outside of U.S. that'd be Astro Playstation four controller as well as strong performance in our great gaming simulation products.
In fact, we held the logic GE challenge Grand finals in Las Vegas about two months ago.
We had over 11000 drivers racing through a mix of online qualifiers and in person wildcard competitions.
We're just beginning to see the world a virtual racing and real racing converge.
Very exciting times, if you love fast cars and driving them from us, especially from a say spot behind one of our steering wheels.
We closed the steam stream labs acquisition I'm more excited than ever about having this team this business and this brand in our portfolio stay tuned on that one.
Mobile speakers sales were essentially flattish this quarter as we'd anticipated, but underlying market conditions remained soft.
We will continue to closely assess the situation and as we do with all categories in our portfolio will adjust our investment accordingly.
Our PC peripherals business delivered another solid quarter of 6% sales growth. This is one of our strongest quarters in years and indicative of how I feel about this business.
Pointing devices that one device sales grew 5% this quarter last quarter, we announced the release of our news flagship mouse. The MX Master three which has been my mouse for the last three or four months.
Sales more than doubled sequentially in the MX Masters three is now our best selling mouse.
I'm also proud to say that was named one of our CES 2020 Innovation Award honorees.
I won't while we're in we're executing well with our premium MX line of pointing devices, where MX master sells for $100. We're doing just as well in the mass market category, where where silver our products retail for as little $13.
So our strong performance important device.
Good point devices ranges from the high end.
At the low end.
And unusual done dynamic for any consumer products company.
<unk> product brand and a testament to our continued innovation and cost management.
Keith keyboards, and combo sales increased 10% in Q3 representatives, the eighth consecutive quarter of growth.
As with mice, our premium amex product, our newest slim profile IMX keys.
My news keyboard as of three months ago is now our number one wireless keyboard just a few months after its launch.
That speaks to the innovation excitement that we can drive into what somebody to viewed as the sleepy category and it's clearly resonating with consumers.
But our innovation engine didn't stop there we continued to build out of line of products for the segment could consumers who have pain at work.
Lastly, we now we just announced our latest addition to our ergonomic portfolio of the Logitech Ergo, K Eightsixty and I've replaced like MX keys with that keyboard and I'm looking at it on my desk through the glass window at our conference room.
This is our first wireless keyboard that addresses consumers literal pain points and improves risk support by over 50% and reduces risk spending by 25%.
All of which greatly improves typing comfort and reduces muscle strength.
PC World said that logistics Casey Eightsixty has done the unprecedented it's maybe adopt a split keyboard as Mike.
Daily My daily keyboard.
We now have a complete argonaut portfolio with Ergo, Kate 60 keyboard complementing the nicely.
I only know complementing nicely, our IMX ergo, trackball, and our MX vertical mouse enough switch the MX vertical milestones here and I'm getting hook.
I personally using that the keyboard and I said, the mouse or not in a and I'm excited about what about the effect I'm, having actually have a little bit of arthritis, and my phone like still up too much basketball.
Tablet another accessory sales declined 12% this quarter, partly because we were supply constrained our seventh generation aka keyboards, and partly because apple entered with their own keyboard and price points, where they hadn't been before this category always has had its ups and downs, but it's super strategic.
By the way we have resolved the supply constrained should be fully distributed in Q4.
Now, let me turn the call over to date to walk you through some financial metrics.
Okay. Thanks Bracken.
We delivered a strong PML for our holiday quarter with sales up 5% to 903 million.
The first time, our quarterly sales have ever exceeded $900 million at the same time, we delivered operating leverage with non-GAAP operating profits up 6% to $152 million also a record high.
As Bracken said, despite currency headwinds incremental China tariffs and price increases across a wide range of our products, we delivered strong performance.
As expected and forecasted in our last earnings call. Our Q3, non-GAAP gross margin declined both year over year and sequentially due to unfavorable currency exchange rates and a full quarter impact of lift for a China tariffs in spite of all these factors are non-GAAP gross margin of 37.6% came.
In only a half a point below last year.
Margins were supported by cost reductions and as Bracken highlighted earlier, we made choices to limit the depth of our promotions and protect the long term value of our brands and innovations.
I'm pleased with the margin results and the discipline, we exhibited during the holiday quarter.
One thing I would like to point out is that while we are glad that the China tariffs did not escalate further with list for B.
The decrease of list for a tariff rates from 15% to 7.5% will not have a material impact on our Q4 gross margin.
That's because the actual date of implementation for this reduced tariff rate is not until mid February and much of our us inventory for this quarter will be brought into the country before the chairs are before the tariffs are decreased.
In addition, I want to remind you that the list Corby tariffs were never included in our full year guidance and therefore, there cancellation does not impact our outlook.
In Q3, we prudently managed our spending with non-GAAP operating expenses up 1% to $188 million, we essentially kept sales and marketing spend flattish, while we increased R&D spend by 6% and reduced our DNA costs.
Of course, we invested strongly again in building out our video collaboration sales team, we actually accelerated investments versus last quarter, but we offset these increases with the lower DNA and a shift of spending toward our faster growing categories.
This is the discipline that you've come to expect from us.
So despite the product cost headwinds in gross margin pressures in the quarter, we still delivered operating profit growth growth of 6%, which was faster than our U.S. dollar sales growth of 4% and we remain on track to our full year operating profit outlook.
Keep in mind that since issuing these targets last March we've absorbed not only the tariff increases, but also well over a point of margin headwind from currency.
And at the same time, we've maintained or even increased our strategic investments in the business.
Now, let me talk briefly about our cash flow.
Cash flow from operations was $181 million in Q3 up from 176 million in the same quarter last year.
Cash flow benefited from a 10% reduction in our inventory and a nice improvement in our inventory turns which which ended at 7.4 times.
Excluding the impact of tariffs are inventory turns would have matched our prior record high and in fact, we achieved record inventory turns in EMEA and HP.
Our global operations and supply chain teams continued to do a nice job supporting business growth, while delivering cost savings and working capital efficiencies.
I would point out however that as is typical with our business seasonality. Our fiscal Q3 is the single largest quarter for cash flow. So you should expect to see the normal lower lower levels next quarter.
For the full year, we continue to expect our cash flow to approximately equal or our full year non-GAAP operating profit.
With that I will turn it back to Bracken. Thank you Dave.
We just finished good holiday quarter with record sales and profits.
<unk> reiterating our sales growth of mid to high single digits in constant currency and non-GAAP operating income of 375 million to 385 million.
Despite the tariff impacts and currency that we've seen.
With underlying secular growth trends across the vast majority of our business content creation video in all rooms gaming, we're really excited about how we're positioned to capture these opportunities.
We will provide our fiscal year 2021 outlook could our upcoming analyst and Investor Day, which I'm sure you will all join in New York City on Tuesday March Threerd.
And we look forward to sharing more of our plans and strategies then.
With that Nate and I are ready for questions.
If you would like to ask a question at this time. Please press Star then the number one on your telephone keypad.
We'd like to withdraw your question first about your first question comes from Asia merchants with Citi Group. Please go ahead.
Hi, good Hey.
Good morning, everyone. Thank you good morning.
Let me correct.
Yes.
Thank you.
Good question, Jamie It seems like third line trends.
Thank you talked about Bracken.
Yes, those agent growth seems to be coming back the fortnight comp so getting easier as we look into calendar 2020, with you know console new console hardware as planned.
As I was just the underlying trends should we now back to gaming just sort of come back to kind of the growth rate that you typically talk about at your Investor event. The chart I think wrecking the 15 to 20 percents range just given the underlying drivers.
And then I've a question from old as well.
Okay, Great. Yeah, you know a we'll we'll give our guidance through next year by category in March So March 3rd as I, just mentioned bizarre our next dose Investor day, I think the underlying secular trends and gaming the at least the way I look at the underlying secular trend and gaming really Didnt change, we just had that that big fortnight effect and the similar effect.
In China. So you had some things going on there.
And I'll come back and reiterate the guidance for or reiterate will give the guidance. The long term guidance, but yeah. I think you I think or at least we expect long term good solid growth in or gaming business across the board.
Hesitating to given number out now because we just haven't put together our materials for next year for the March a bit, but but I think as you know somewhere in that direction makes sense.
Okay. That's great and then maybe you briefly alluded to gross margin for the fourth quarter, not really benefiting from the terrorists roll out from the clerical back on this for a but typically I think in the March quarter do you guys see a little bit up and down here.
So is that what something we should expect given how you guys performed in the December quarter with your.
You know what Justin good discipline that you're talking about.
No I wouldn't say there is a really consistent trend Q3 to queue for some years, it's up some years, it's down sequentially, obviously, a lot of it depends on product mix.
We.
Like I said I was pleased with the with the margins in Q3 and could teams worked very hard to find some efficiencies to help offset some of those new pressures and well have to continue to do those things in Q4, where where we sit right now with currency. It doesn't look like we're going to get any benefit from that so.
I think we're just gonna have to battle, a bunch of different a bunch of different things and continue to a good job executing on on our offsets. So I said no no real consistent trend that I can point to historically some of your steps some years it's down.
Okay, Alright, Thanks, and then just the cash I mean, you know I know you guys did a acquisitions can you guys made an acquisition this quarter.
Oh, Thank you still sitting on a lotta cash there was no share buyback during the quarter any particular reason for now.
We were Oh, we had the stream labs acquisition, which impacted our ability to.
To do any share repurchases.
That was really the only reason why.
I think we'll we'll be in the market as as we normally our and look for opportunities the cash.
Had strong cash flow again, this quarter, it's up $51 million a year to date.
So it's good to see that obviously sign of a healthy business and gives us continued opportunities to do things, we've talked about before around M&A dividends and share repurchases.
Okay alright, thank you.
Next question comes from an end up per hour with this capital.
Linda Hey, Hey, good morning, guys. Good morning regulations on the walk on the solid solid corridor.
Thank you.
Yeah, you welcome Yep, just just a couple from me.
Bracken understanding that you were kind of hold off on getting a given the pellet plants in the analyst day, but could you are right in the gaming category could you talk about some of the catalyst all cycling the secular trends that along that might be forthcoming.
This year they all the console refreshes, although I think you said the backward compatibility there.
Well that that may not have the impact was being long. This this time around oh, there any other sort of upcoming catalysts that you can you can point to at least in a general sense on I've a couple a couple of follow it smells, okay, yet no actually historically the console refresh cycle.
Well has slowed down the console headset business because there wasn't a forward compatibility. So you can buy an existing has so you had to kind of wait until the new and came out there is little bit confusion. The mark I can't think of use one of the old ones and the new the new and I might buy enough might not work on the new it we're hopeful that we're going to have it looks like we'll probably have forward compatibility but.
Not confirmed being on both of the cuts or refreshes, but we're hopeful and I think that would be a really good thing.
And that you know I don't I couldn't point to US a specific thing that will have an impact or a catalyst on the gaming business, but I I will go back to secular trend I think it's super strong.
Got it is going on unabated and I don't see anything that that suggest that's going to change.
Okay, Great and then on on video collaboration or sort of fiscal 20 guidance are you guys had to say 25% to 30%.
And over the last five quarters, and you referenced that you sort of bouncing between.
Mid twenties in high Fiftys and you touched on trending.
Yes, Dan good morning.
When sort of talking about blending together in the last couple of quarters, it's really been cycles and I think just my quick calculation, even three calls.
Hey, you sort of almost 40%.
Over the last five quarters <unk> Bill.
I know you're not going to getting the forecast until you still until we get will give an update but.
No. This deal like even kind of touching a little bit more than London. There. When we think about the potential does that momentum could watson sustainability.
Thank you sort of been at 40% over the last five quarters.
Your math is good because our sell our sell in and sell through of been about 37% foods thrown target.
Got it I'd I, obviously, I'm not able to as you sit today, we're not going to give a forecast into next year.
The it's hard to say you know, we're getting bigger and bigger number so really what we see that sustained or not I don't know you know I'm always hesitant to.
To stretch out too far in a number like that.
The bottom line is it is remarkable what a big opportunity. This video businesses and I I mean, I'm I'm kind of amaze I think theres something like you know.
90 million rooms out there that are supposed to be a video enabled mobile and only about 4% of those were as of a year ago, but this is frost <unk> Sullivan or somebody but Gartner has similar numbers in a lot of people are predicting that will triple over the next five years. So you can do your own.
Assets somewhere between 20, and 35% I don't know where it is but but I'm super excited about the business and I know you need to even though there are lot viewability models out there we are too, but but the if I step back you know I just think videos one of our single biggest opportunities and the company.
Let me sneak one more in here why well I had a record just on content creation or anything you can tell like on a higher level about what a long canyon content creation ecosystem.
Did you feel like is that equally.
And to what degree and like software content odd become clog, along the product portfolio.
Creation.
Well, there's hardware and software to content creation, you know the I said this in the opening you know I think one of the.
Well the quietly most amazing things to me as so many of US we're talking about stem fields, you know science technology engineering in math, especially if you ask you know that we need to improve our education, there because that's where all the jobs are well. The truth is there are more people doing content creation, which the creative exercise and there are still.
Infields by far and that's going to grow probably.
As as much or are more than the the stanfield. So this that and they need equipment and the equipment. They use stuff is a hardware and software.
So its product and services and you know our our goal is to play right in the middle of that we've been pulled into it with the mouse or keyboard, which is part of that.
Ecosystem now and then we've we step further into it with with course webcams. It was microphones and now with most recently with the stream labs acquisition. So I think.
I don't want to preempt anything we might say at the analyst Investor day, but I'm Super excited about the overall space I just think it's a great place for us to play and and and the users themselves have pulled us into the category and it's up to us to find new places to play beyond that that can expand the opportunity.
Oh, well beyond where we are so you know I I don't want to I don't want to go many for the next of the you know its boy, it's obviously, a great space for us and you're going to hear more about it from us in the future.
Okay I appreciate it thanks a lot.
Thanks, and then.
Next question comes from Paul Cheng with JP Morgan.
Hey, Paul Paul Hey, guys. Thanks for taking my questions. So.
So first off can you just expand on the strength, you're you're seeing in Europe , what's kind of driving that outperformance. There you know any any kind of channel expansion.
Particular products or.
You know some market share gains you want to highlight.
No what I would say is a first of all the key driver that changes were just if you just taking a different approach there. So I'm sitting next to the [laughter] to our leader who have a specific he took over EEMEA about a year and a half ago. So.
Yeah, and he brought a lot of the things we're doing at the time in China in the rest of Asia Pacific into Europe , which was really about being more focus and trying to generate demand and push demand so pull versus push.
And I also think he you know he and the team over there have really led an effort to try to.
To improve our market shares over there.
We have you have higher market shares in the U.S. and most wear categories and we do in Europe and many of our categories will think Thats, a gap and it's an opportunity for us to close a week, we still have room. There. So I would say those are probably the two biggest dynamics I wouldn't point to a specific category one of the other I mean across the board. Obviously, you had to be doing pretty well everywhere, if you're going to grow 16%.
And weve and to grow double digits for four or five quarters and rose is is is pretty impressive but I think we have you know we have we have an opportunity continue to improve our demand creation our pool.
Capability and it's you know that doesn't happen overnight and I think that's going to happen where to keep bringing that around the world over the next three to five years.
Okay, Great and then.
On the keyboard side, you know you had a.
Tough comps from from last year, but still pretty impressive for us.
So where are you kind of seeing pockets of strength across regions and and product line sounds like your premium lines are raising your your overall ASP Q expand on that.
And then I have no follow.
Sure Yeah keyboards have always been a good category for US you know I think when.
It was whatever you know when I came in here three years ago lot of people thought Oh people stop using keyboards, those issues or will they didnt when they're not in the nobody is created yet something that's better than a keyboard when you're sitting in a desk and especially in an increasingly in a world with increasing number of open offices, where you really don't want to hear people talking there Steve So keywords are here to stay.
Right.
Our performance this quarter, you're reflects I think how strong we are really being able to innovate you know I think.
The mix of our MX keys, which is the high end of life, which are really never had a high until I think could be wrong here, but I think we've never had a higher lines operated quite as strong as we do with this one right now and then we just announced that we're coming out with a an ergonomic keyboard, which as I mentioned in the opening which is also really cool and a very different so.
Segment of people. So there's just lots of opportunity to innovate. Despite whatever we think you because as categories categories are so mature there's lots of opportunities to innovate in these categories. So we're getting them and work and we're going to bring more.
That's great and then last one is on.
On VC. So yes are you starting to see some seasonal patterns orders or is it still kind of in ingress mode. So it's still making this kind of difficult and then.
You know given the nice momentum.
In this segment are you starting to see more competition ramping.
You mentioned some software.
Upgrades, there and and Salesforce investments, but how loss or you kind of protecting or even expanding.
Your market share. Thank you.
Sure you know the it's probably the least Ses move our businesses you know the video collaboration because it is a it's much work, obviously abuse would be to be enterprise business, if theres a seasonality to it maybe maybe you would expect some heavier buying at the end of a fiscal year, something but but I wouldn't even said, we've really noted that too much so far although.
Actually that to happen.
And you know is competition coming absolutely there definitely coming in.
So as as I I really grew up.
Ah playing competitive sports and competition just makes you better so I, we've expected competition there here, they're out there and we're we're doubling tripling down on everything we're doing because we need to raise the raise our game all the time.
And the as you said here. We are we introduced think last quarter I said in the opening and it's really cool what are we doing to keep a keep our competitive edge, we need to keep building our salesforce for sure you keep building out our product portfolio and innovating a very.
Trued Lee and I think we're doing that we have a great portfolio right now.
And you know oil well we were a relentless so we just don't give up and we're going to keep brinkley stuff out.
Hey, Paul that Nate also on the VC and you know you saw that our R&D investments increased 6% a lot of that is going into VC to kind of support with bracken with saying around the.
You know product development, we continue to be a focus and then also bracken mentioned the partnerships that we have with.
You know people like Microsoft in June and Google and others.
That's very similar to our strategy elsewhere as it were trying to be that great complementary partner with these very large players to support their business growth in business strategies as well, so we're making investments to be good partners with them and make sure that we're doing that right. Thanks to grow the overall this ecosystem.
Awesome. Thanks, guys.
Thanks, Paul next question comes from Ngs Mueller with <unk> said Kb. Please go ahead.
Hey, Andrew.
Hey, Hello, Hello, everybody. Good afternoon, I've got two questions. One these are really essentially on the Terry If you mentioned in Q, Florida loans B.
Any relief to be seems that kinda talk about next year, you know what the current phase while on the east is providing you on the gross margin Macy's.
Yeah, I think you're right so.
Nothing material no material benefit to us from the reduction in the tariff rate on this for a just due to the timing of when that's implemented in the timing of when we bring in inventory next year, something again will cover in more detail when we get to the analyst day in March.
You know we the for a is still going to be with us at at a reduced rate and of course list. Three is is still with us at 25%. So we still have a few quarters are ahead of us until we annualize all of those those terrorists and next year. So it's still a bit of a headwind for us, especially in the first half of next year I address.
HM Okay.
And then the gross a in marketing and say is 1% I mean, I understand the mechanics behind that but still I mean east stat and off too to keep.
To keep driving to grows on the topline or do you see there to some some sort of fan.
Reacceleration on that that line again.
Yes, it will move around I think it probably will increase again I'd again as I mentioned my comments, so we actually accelerated our investments in VC I mean since the beginning of fiscal year 19, we more than doubled the number of dedicated VC head count that we have and we're continuing to invest like I said very aggressively there.
Really it was it was around realigning some of our investments in that category, we did pull back and some in some businesses that have not been growing and we redirected those investments into other areas. So I just think about that as portfolio management no concern.
I think needs to be raised around that level of investment <unk>. The number will will move around from quarter to quarter, Yeah, I wouldn't count of 1% growth for the next to you or anything like that.
Yeah HM Okay. Thank you.
Thank you. Thanks I'll address your next question comes from Thomas Forte with D.A. Davidson.
Hey, Tavis great. Thank you for taking my question. So I'd Threeq question that I thought were important so congrats on getting the recognition on the sustainability I'm, how should we think about the margin impact of your efforts on state ability to the extent that it may help you increased prices are affect your sourcing and then second having just been.
At the consumer Electronics show five GE was kind of the story of the show some how should we think about that as potentially serving as a catalyst fear video collaboration efforts and then lastly, as we start to gain distance on fortnight on do you have any thoughts on the refresh rates for day brought new gamers in this space I'm are they buying that second half.
Sit at the same rate as the existing gamers, where.
Okay on the on the margin impact of sustainability, if you know and I've had questions.
In both directions, as they're going to grow make our products more expensive or is it going to give us the chance to to increase our pricing or get higher margins. Because we're we're going to try to step out ahead of other people. The answer is we're not calling on any of that I think the truth is.
It's it's kind of built into the fabric of how we're working now you're going to hear more about we're doing future.
I'm really optimistic that that that you know the.
Being a good.
Global citizen from a sustainability standpoint is going to help is gonna be a catalyst to our business long term I wouldn't I couldn't put a possibly could that number on those you as you probably wouldn't either but it's I'm excited about it we do it anyway is the right thing to do but but I believe that companies that are really leading will be rewarded in the long term for this and we're going to.
The leading.
On the Fiveg to really to say LTC. It I think theres a long way to go for Fiveg is really available broadly enough to have an impact on any of our businesses, including BC, but I you know if it it's like any of the as these other new technology to come in and make things faster and better I think it's gonna have it's going to be a catalyst for the because the consumer and business Tech world and <unk> and Uh Huh.
Can't come soon enough finally on the console refresh rates or the refresh rates in general for.
For CNP, you know I think.
You know.
It's hard for me to say how fast those are going to be I mean, I think it probably at the headset business has about a two year refresh rate from what we can see.
And that's kind of what we're hearing in the marketplace.
We started launching very premium headsets with that in mind and they've done very well our our premium has so the blue bike and it has done really really well this year. So so we'll see but I think at the end of the day there there's no doubt that for the fortnight brought in a lot of new young gamers.
And I'm sure there's going to be a continuous inflows that have that age group into the category. So I don't know whether it will come in quite as lumpy as it did with fortnight, but I think you can expect a long term trend where people are going to come in and then trade up overtime to your seems like the right time frame.
Hey, good Bracken.
Thank you very much.
Once again, if you'd like to ask a question. Please press star one on your telephone keypad, we have a question for Microsulis with onto <unk>. Please go ahead.
Hey, Michael.
Yes, Hi, Hi, good afternoon, two questions from my side I was wondering if you've seen any sort of early pulling defects a in in the quota already due to the fact that Chinese new year is quite early.
And <unk> and and my question is also.
In addition to that whether that could be a reason why you being a little bit sort of.
On served if I would say on on your guidance.
Full for the last quarter.
And the second question would be and again I know, it's early but if you can make any additional comments on stream labs, how it's doing how you're integrating dad and any thoughts you can no one to share on how it's going to affect your business model.
Oh, the upstream labs or too early to say I mean, I'm Super excited about the team the business the brand and the.
I'd say you know, it's really great. When you bring in a new a new business like that especially an entrepreneurial lead driven business and I thought we were fast until I saw stream labs and action [laughter] to say, it's a real kick in the tail to move faster. Those those guys are are appropriately moving faster at a softer.
Service, driven world and they can move faster they do and it. It's a good it's exciting units is something we learn from.
On the so say too I think the extreme I was really cool we've got a lot so lot of exciting things happening there on the Chinese new year timing or whether it's helping and you know we don't obviously, we're going to talk about this quarter yet.
However, how we think it's going or whatever but but I would say the only pulling the fact that I can kind of playing out from Chinese new year's affected that I had to I needed to go over early this year, because we go celebrate Chinese new year with all our sites and and so I had to pull in my [laughter] high caliber and it was it's a really really fun because we go to <unk>.
Our sites in China. This year was super Super fun, and exciting and it's the euro the mouse so get ready, it's going to be a good year for life.
The graph, but [laughter] okay. Thanks, a lot. Thank you.
Have a question from address meal or was that Kb. Please go ahead. They address okay, Hey back again, just one question or grow seen the Americas was that I mean, you explained it by product lines, but the most sterile senestech dose escalate, that's Thanksgiving and how much was.
Okay.
So that is really hard to say you know so hard to pin that down probably there wasn't effect.
Yeah. We were we were kind of hoping that there would be one there might have been one you know it was a shortlist period, you could possibly have I think between Thanksgiving and Christmas So.
I think excuse me in here. So so yeah, there's probably some effect, but I think the bigger factor is really the fact that you know we should we took some price increases.
We didn't go as deep on promotions. This year and then we had the the blue bike effect and the ongoing you know geology.
So I think when you roll all that together, that's really what drove it I doubt if a lot of it was.
Thanksgiving to Christmas.
Distance, Yeah, I mean, I think as Bracken I think my Bracken called out we really the drivers it was really those specific categories and those decisions we made.
Oh I feel good about the decision to do too on the pricing and in general I. Just think I think you know you learn every every quarter you'll by the time, we get this call I'm kind of always this call is kind of very anticlimactic for me because we're so focused on what's coming and you are so focused on what happened to try to try to learn from it which is great and so you know one of the things that I think we learned.
This quarter as well you know what there was more room and pricing that we realized and there was more room on cost that we realized and.
If it were for tariffs, we wouldn't have gotten there so shame on us we're not getting more out of that sooner you know it's good.
HM.
Okay. That's clear thanks, Thanks, a lot.
Thanks Wonder and at this time ill turn the call over to the presenters.
Right well you know what another good quarter. Another good holiday as I said, we're way way way way way into Q4, and we're already thinking hard and and building plans for next year in the year beyond.
It's a it's been exciting and we've got these three.
Big secular trends that are driving our our biggest growth engines, but there's a whole lot that whole other set that we're working on two and you know who knows maybe we'll bring what those out soon.
But thanks, a lot for being on the call I hope that many of you will make it to New York on March 3rd will be there.
We will be there with the whiteboard.
Talking about what's next thank you very much. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.