Q1 2021 Logitech International SA Earnings Call

For the first quarter fiscal year 2021, joining us today, our bracken, Darrell, our president and CEO and Nate Olmstead, our CFO. During this call. We may make forward looking statements, including with respect to future operating results under the Safe Harbor of the Securities Litigation Reform Act of 1995, we're making these statements based on our views.

Only as of today July 20, Onest, our actual results could differ materially and we undertake no obligation to update or revise any of these statements. During today's call. We will discuss non-GAAP financial results you can find a reconciliation between GAAP and non-GAAP as well as more information about our use of non-GAAP measures and factors that impact of financial results in our press release.

In our filings with the FCC, including our most recent annual report and subsequent filings.

These materials as well as our prepared remarks and slides on a webcast of this call are all available on the Investor Relations page of our website IR Dot large tech dotcom.

We encourage you to view these materials carefully.

Unless noted otherwise comparisons between periods, our year over year and in constant currency and sales. Our net sales. This call is being recorded and will be available for replay on our website I will now turn the call over to Bracken.

Okay.

[noise] Bracken your line is now open.

Good. Thank you bill Thanks to all you.

Joining us it's nice to see somebody familiar faces.

As usual.

Early in my time with large Derek.

Well the analysts view on this call described or business as one of which we needed to continually cast the next wave.

Like we were surfing a series of waves of surfer at the beach.

Actually never like Dumbbells, you always Phil is suggested we see short term trends like the fashion business, we don't.

We make our investment decisions based on long term trends very long term trends. These long term trends. Unlike a surfers waves don't subside will enable us to travel to completely new era.

It was 19, it's repercussions have dramatically accelerated path to new era.

As if someone hit the hyper speed, but accelerating as to a point, where the secular trends that we focused on for many years have become a fundamental part of daily lives.

Video everywhere, whatever secular trends seem like a long way off when we started said a few years ago because of co with my team video calls now where most people have simply exploded.

And where most of them done at home.

Imagine when people return to the office.

The second trip Reefer business big secular trends work from anywhere, which was kind of a struggle even up to six months ago. We knew it was comedy most companies those coming but companies were stubbornly accepting work from home Fridays and remote remote workers on an exception basis.

As we sit on this call right now more than 1 billion people are working from home.

The offices, they left behind will surely be reconfigured overtime to be proportionately more meeting space and working space.

Companies will let most of their employees work some at home and some of the office.

Stephens announced just last week it would allow 140000 of its employees to work two or three days a week at home at their own discretion.

It's a lot of new desktops to be created improved and upgraded.

The third trend reports, everyone knew east fourth have become a thing a phenomenal for who would've guessed that will be the that they'd be the only sports we could watch or play for four straight months.

That's accelerated the growth of gaming in a way that not even fortnight could have done.

The World Economic Forum recorded the game hours during peak hours has now increased 75% postcode 19 compared to 20% increase in overall web traffic.

That's a lot of gaming.

And another huge phenomenon and then another huge secular trend seems like its hidden in plain site.

It's the explosion of creators online.

All this time at home so much uncertainty about things.

All of this turmoil, we need to express ourselves to entertain each other to stay connected.

This is taking the democratization of content creation to a whole new level.

Positions magicians makeup artists gamers comedians dancers thinkers public speakers podcasts. According to the June quarter. According to to the June quarter stream labs in stream hatch of industry report total streaming viewership almost doubled versus last year and grew 50, 55% from just the.

March quarter.

Online creation has taken off.

These people need tools and today, Leviathan overtime, and more and more will join them as this network effect grows.

In this moment, we're seeing an acceleration into a new standard new lever new levels for all of these trends.

And while Kobin shutdowns and related economic slowdown will likely create uncertainty in the quarters and perhaps even year to come.

We're at the doorstep of a new era and over the long term this era favors logitech.

Before I proceed I want to think two groups.

First I want to thank our employees for their resilience flexibility and patients.

As we add out and have been adapting to this new way of working.

I am so impressed with the quality and the commitment in the ingenuity our teams all over the world.

Second I want to thank our customers in many of your our customers though.

Past present and future.

The logistic I think we've never felt so a lot with purpose irrelevance, but we do matters now in ways and to agree to a degree it simply never has before.

These are surreal times with remote work in a row school offices closed brick and mortars distribution slowed.

Reopening of offices slowed or delayed.

Logic was 60 to 70, 60% to 70% brick and mortar around the world before the first of March.

So now let's talk about how our business did this quarter.

We had a very strong quarter.

Our Q1 sales grew 25% and non-GAAP operating income grew 75%.

Video adoption skyrocketed.

Video collaboration sales group one.

This call growth across cover two systems, but also in business centered web cams and headsets.

Sales of some products like a $109 breo webcam more than tripled.

VC equipment sales grew on par with what we've seen in the past few quarters. Despite the fact the vet the vast majority of offices were closed employees.

Well, we've seen cases, where companies pushed out their video deployments as the rethink their office layouts. Many others have accelerated video adoption as will equip rooms of more video to drive engagement and effectiveness for employees, who work in the office or will be.

And with so many people working creating and learning from home our PC peripherals category sales grew 19%.

The only product within PC peripherals negatively impacted was not surprisingly our presenter category, where sales declined 80% as life presentations and offices in at conferences temporarily disappear.

But that printers presenter decline was more than offset by growth in the rest of our categories as excluding presenters supporting devices sales grew 9% keyboards, and combos grew 15% and overall PC peripherals grew 24%.

PC web Cams continued the strong momentum exiting last quarter with Q1 sales more than doubling to the highest quarterly level in a decade.

Well, we ramped our supply webcast starting in March we are ramping our capacity to meet demand working to overcome component shortages as we do.

We expect Q2 supply to improve but still it's still could remain pretty tight throughout the quarter.

No doubt this underlying market tail and will continue for some time, but we expect the pace to moderate significantly as we head into back half, particularly as we faced tougher webcam sales comparisons in Q4.

Tablet and other accessories sales grew 22% with our education channel, particularly strong with sales increasing over 50%.

Schools around the world moved quickly to learn from home, but many are now adapting to a hybrid learning environment, where some students will take classes person others will attend virtually.

We're seeing substantial demand educators for our AIPAC tablet products, which offer a superior typing experience through a smart connector combined with a protective case perfect for younger students.

Gaming sales grew 38% this quarter.

Gaming accelerated as it became an ideal way to stay connected to friends and a community.

This quarter, the strongest growth growth strongest growth and gaming was actually our simulation products with our $399 G 29 wheel as the number one seller in gaming.

Stream labs continue to do well, adding roughly two percentage points overall company sales growth.

As expected recent physical retail store closures hurt mobile speaker sales more than other categories with sales declining over 40% in the quarter.

As we've said previously given given some of the near term headwinds and structural challenges of the of the mobile speaker market, we continue to reallocate resources toward other initiatives.

Similar to mobile speakers Jaybird total sales were also negatively impacted by sit by closures of brick and mortar stores, but we continue to transition R.J. portfolio toward true wireless where our jaybird Vista product had very strong double digit growth in Q1 to become over 80% of our total jaybird sales mix.

Two other products the benefit of benefited from stay at home orders for headsets and Blue microphones.

Collectively sales in these two categories increased 70% we.

We knew when we acquired Blue we were entering category with long term growth potential, but we didnt expect to see three XL through three times, the sell through versus year ago.

Supply for Blue Mikes will continue to be somewhat tight in Q2, we're working to source alternatives to meet the strong demand.

Now, let me turn the call over to make to walk you through the rest of our key financial metrics in Q1.

Thanks Bracken.

As Bracken just said we had another strong quarter, where performance came in better than we expected sales up 25%.

And non-GAAP operating profits up 75% to $117 million.

We accomplished this despite multiple challenges that we had to overcome in the quarter, including significantly higher airfreight costs supply constraints in multiple product skews and continued currency headwinds.

Bracken spoke at length about growth highlights, but gross margin resiliency was also particularly impressive this quarter.

Non-GAAP gross margin increased 140 basis points to 39.2%. Despite our initial view and gross margin could fall toward the lower end of our 36% to 40% target range.

We spent more on air freight this quarter than we spent in all of last year, but we were able to offset those high costs through lower promotional and marketing spending as well as favorable product mix.

Our sales and operations teams did a great job managing cost to deliver these strong results.

Looking ahead to Q2 and the second half of the year. There are few factors that will likely puts some downward pressure on gross margins, although we expect margins to remain in our target range.

First we expect logistics costs remain elevated due to our higher volumes, but especially from higher error rates across the industry.

We also anticipate that is supply catches up to demand in Q2 in more recent retail locations reopened our promotional and marketing spending will increase.

Finally, we are expecting strong sales of our education tablets as Bracken mentioned, which is a relatively lower margin category and that's will be unfavorable from a mix standpoint. Nonetheless, we had great margin results in Q1, and a great recovery by our operations team from the February factory closure.

Our non-GAAP operating expenses reached $193 million, which is a 10% increase versus last year, but was notably below our net sales growth rate.

While we maintained investments in our key priorities, we began the quarter cautiously as we weren't sure if the demand surge from March was sustainable.

As the quarter progress Favourably, However, we accelerated our investments and expect to accelerate our spend further in Q2 and for the remainder of the year.

We're prioritizing the same areas as before but moving faster to develop our brands increase our sales coverage and expand our hardware and software roadmaps.

Now, let me move to our cash flows and balance sheet.

We delivered another strong result in cash flow from operations, which ended at $119 million up 37 up from $37 million in Q1 last year.

This was due to profitable business growth and a significant improvement in our cash conversion cycle, which ended at a multi year low of 27 days, thanks, primarily to faster inventory turns.

We are fortunate to have a strong balance sheet and we will use this to our advantage by replenishing and increasing inventory buffers on key products in our own distribution centers.

While this may increase our cash conversion cycle. It will ensure we are better prepared for future demand spikes.

Let me wrap this up by saying that our strong Q1 results highlight the powerful combination of our multi category growth strategy, and our operational discipline and execution capabilities.

And as we look out to future quarters.

The recent strong demand may not sustain so we will remain nimble and be prepared for multiple scenarios.

Regardless of the topline dynamics, we will continue to execute well.

And invest for the long term because our goal is not to deliver a great quarter.

Great year to create value over the long run.

Now I'll turn the call back to Bracken for guidance and his closing remarks.

Thanks, David.

This morning, we're raising our fiscal year 21 sales growth or mid single digits between 10, and 13% or non-GAAP operating income from between three 380 in $40 million to between 410 million and $425 million.

While we don't specifically guide for quarters, we're experiencing double digit sales momentum again in Q2, which could wind up a strong as Q1.

Our tailwinds and there are headwinds in Q2, the tailwind customers our supply catching up with final end demand, while the headwind is a likely increase and promotion spending to more normalized levels to supply demand rebalanced.

Looking into the back half of the year. We believe we can see a moderation of demand as the current macroeconomic conditions play out into the holiday quarter.

That said and beyond that said our incredible operations team is working to increase supply in categories, where we are stressed so we can supply a range of scenarios as they put it including beyond our outlook.

Therefore, you could say we have one fit on the accelerator, assuming a good flow supply.

On the other had we're managing our business for the potential back half moderation of demand. So the other foot near the brick.

Regardless of the next few quarters performance, we're optimistic that the fundamental trends I described in the beginning will continue strongly ahead in the long term logic is uniquely positioned to grow across our product categories.

The trends are in our favor.

We've never had such strong capabilities.

It's up to us to execute.

And we continue to execute well as we did this quarter.

Looking ahead.

Ubiquitous video work from anywhere, especially home PC gaming as the biggest collection of sports in the world and a billion plus creators.

That era is coming.

That's what we've built our portfolio of businesses for.

We are on the doorstep without Logitech era.

And with that make now we're going to take your questions.

Good luck Cuba.

Thank you Bracken.

You are your line is now open for acuity.

Our youre, yes, brick and high end agent Hi, Ben and thanks for taking my questions. Thanks for.

The first and two questions more strategically and first of all many tsum announced two and two hospice services.

They did not announced you as a partner what's the rationale and behind the scenes from your side and second question is please on the cash pilots you accelerating every quarter and what is the kept at a pace is and now for the next biopsy CMS than smaller companies yields.

But I mean, you would be able to payouts, you'll see cash, though still having a very strong and.

And then seeds and so yeah why do we really has still this is high.

Cash tied in the balance sheets, and what does the strategy going forward from the last question is fees on the cross profit margin I understand that you again looking for a top it off and of headwinds, but yeah. I'll hand, you all that having some mixed benefits. So I really had I try to is on the standby the plus profit masters foot soldiers on the current that it needs.

Nine is 40% if you can provide us more clarity what is the impact you are seeing over the next one or two quarters of of course, your I'm going to let them or let native and let you take that last one but all of it.

Zoom Zoom, you announced hardware the service and they partner with several companies we were not named the companies. They named we're companies that offer all of them on products and so they have a PC integrated into the product as you probably know we have not yet announced that.

If we had we would have been part of their programs. We are we partner well very wells and with Microsoft and Google. So were in fact, we enable more rooms for for resume than anyone.

But if we were to have that all one product I'm quite sure we would be a partner.

On the cash pile.

You're right, we just keep generating more cash and were a record levels right now.

And from a capital allocation strategy. We continue to believe we have great options from an M&A standpoint. So we were looking at small medium and larger eminent as you know large M&A is really difficult because the stars really have to align but we see M&A targets out there we're going to keep pursuing them. So that will be our top priority of course, we are encouraged.

And right now and we'll continue to do stock buybacks.

You want to cover the gross margin piece churning Yep, So I think on gross margin yarn.

Hey, gross margins were stronger than we expected this quarter at just over 39%.

But as Bracken mentioned and as I mentioned, we had some favorable offsets to that higher airfreight costs that we were expecting so I think looking forward, we still expect some higher airfreight costs. The industry rates are pretty high right now and our volumes and we're still catching up on supply is forcing us to use more air freight. So we continue to see that headwind.

Continuing into Q2.

One of the Tailwinds, we had in Q1 was at this lower promotional spend because as we were.

Add supply was really short of demand, we just weren't promoting as much and with a retail locations closed down we weren't spending as much on in store marketing as we normally would so as that supply starts to normalize with demand in Q2, I think the promotional spending is going to rise back to more normal levels will also be spending more money on in store marketing.

Which is which is going to be less favorable for us and it wasn't Q1. So I think the combination of those things plus a little bit of that mix impact mix. As you mentioned was favorable year over year, probably still favorable year over year in Q2, as well, but much less so because we're gonna see an increase in some of these education products, which is a good business for us a good category, but it is lower margin.

And so I expect again, just some moderation of some of those favorable items in Q2. The net result is I think theres some compression on gross margin from the nice levels, we were out in Q1.

The recover everything youre.

Alright, Thank you Paul.

Oh and is now open.

Flow, Paul and Bracken undergone.

So just on Asia, what were the the big drivers of that.

Pretty outperformance there in that market and do you see those times kind of further accelerating in Europe in U.S. as the retail stores open up more.

A follow up yes, I mean, the trend the as your ears, as you're suggesting you know Asia, especially China.

Is ahead of us in terms of the code 19 reaction and Kevin.

Well you recall. This this is the stays the rents will probably one or two or three months ahead of us and we obviously, we had really strong growth there I think what you're seeing there as we had strong growth both on personal webcam personal collaboration side as well as in the office, we had strong growth in our PC peripherals business, we have strong.

Gaming business, so really across the board, we saw very strong growth them.

Super exciting to see because they are a little ahead of us relative the rest of world do we expect that to continue I think so you know the fundamental trends that drive our business continue and we're quite optimistic about.

Okay and then on.

VC can you give us a sense for kind of breakout between the high end Breo or webcam, you mentioned, a triple which is pretty impressive.

You know if you could expand also on kind of verticals, you're seeing some that demand ahead of the workers kind of heading back to the office and.

Do you see that 40% kind of annual growth, which you've seen for five years now kind of.

Extending you've got a nice start.

This year and then if you could also comment on that competition any thoughts on maybe some of that software providers kind of introducing hardware solutions. Thank you.

Sure.

Well I'll try to cover that I think overall the in terms of breakout.

We're now seeing tried to engines of growth in video collaboration we had had very strong conference can growth and then the personal collaboration growth was very limited.

Because very few people needed to hide welcome now we're seeing as you suggested strong growth in the product without using bridges breo very a 109 I don't work here, which I mentioned tripled as well as continued growth in the Conferencecam I think we're in the initial stages, we wondered will the but we have the same strong.

Conferencecam growth that we've had or will that move strongly in to two webcasts. We're actually seeing there were well I think is going to have or both.

Because people are eventually going to go back into offices, you I mentioned with Siemens announcements, which was last week, where they are doing people two or three days a week or 140000, there 350000 employees through through it as we talked at home and the the resins and they've been working the office, so they're going to need to different set up so they're still going to need lots of now both.

The other thing is happening is the other companies I won't name names or companies that are way behind in terms of video adoption, but just almost never did video calls now with Stephens fingers were older video calls all the time and from home for God's sake.

So when those employees go back we often they're going to expect video and companies are going to give a tool. So I think you're going to have video setups absolutely happened throughout the offices as we do start to go back in and we already are in China, but let me start to go back in bigger numbers of the offices and I think companies will set up for that but we'll still the video at home.

Which is.

Which is why this this brios such a cool product to help in terms of competition and so in that said we have great competitors in there. We're we're going to have great competitors, you can't being a good category not have great competitors.

It certainly makes you better and make.

And requires that you invest more and that you're you have a great product portfolio. So I feel very good about that in terms of the become software competitors a surface players you know.

You never know what they're going to do you know we grew up in an environment, where we always had the people we partnered with the PC market, making the products that we saw that was that's the model. We're used to we don't have the here and I think in some ways. It it might never happen because the other day, there's such an incredibly.

Important role to play in service piece in the hardware to supports that and that's really our sweet spot. So we do best if we do have competition direct competition from those players it looked more like RPC business that we're used to that we don't terrific. We'll we'll try to do our very best to make their experience better.

Hey, Ben if I can jump in real quick on the VC trends to little bit for Paul's, while Bracken talked about the web cams one of the things we sort of expected early on and we started to see is that we start seeing some companies, making sort of larger bulk orders of somebody's web cams as well as bracken set as they're really trying to help their employees be more productive from home. So that's a nice try.

And that we saw it may cause a little bit of a lumpiness as some of those large deals close one quarter and not another quarter, but it's it's a positive trend again that companies are looking to sort of standardized that webcam portfolio across our employee base, whereas before a lot of that may have been done through retail.

Thank you Nick Thanks.

Okay.

Oh, Yeah. Your line is helping.

Hi, great. Good morning, congratulations guys.

I had strong without a just a couple of questions just given all that panels and they kept supply constrained because I'm not your competitors this molecule retailers and partner adjusting to this what are some of the complementary that you're sharing our us in serving in the marketplace on your competition.

It all seems to be Olympic lot cautious in the back half of the calendar year I know you're you know, it's John White split suggest can be a little bit more conservative, but just what are you in serving that would suggest.

A lot of spending a lot of ratchet up.

Retailers are starting to demand while promotion centric and what are you in serving on your competitors.

Thanks.

We're seeing so big or competitors that are that are causing us to look in the back half as a moderation period, it's really more just as we look into it goes over the there's real uncertainty I think we've been living in a very uncertain period for a while now we're still in at some point things go one way or the other.

Look into the Q3 for example, we're going to have unemployment I don't want to be Doom and gloom, but youre going to have unemployment is going to drag on through Q3 at levels that we haven't seen a long time around the world.

The other have things are going to start to open up you know so you'll probably have movie theaters and restaurants and things that a lot of people in most many parts of rural haven't had the opportunity to do are going to open up so there could be reallocation of spending in some of those other discretionary things that away from things that that are that are required you know and then there might be some pull forward.

Especially in gaming from the holiday period into the Q1 in Q2, we look at the over all those things are tend to say gosh, we should we should really make sure that we we view the future as a possible moderation period of in Q3 in Q4, well the other hand, we're going to be Capacitized and set up to deliver.

Sure.

If it's that's not true we continue to have really strong growth.

Okay, and then just generally speaking like what they some of the business practices that just thank you kind of like Justin.

Exchanged with a large attack as a function of this Neil normal yeah.

There are things that you can point to that suggests this spring and fall large Chen.

Margin expansion within within your target range.

Well I, let I'll, let me comment directly on whether it's going to suggest that we can have a margin expansion.

But what I would say is in terms of some practices that we've learned and there are lot.

I would say there are few one is we've got probably a better better finger on the polls better finger on the pulse of this business that we've ever had and we're always pretty good execution, but we have for example, they might have a biweekly now is what the month of biweekly matching of our supply.

And demand because it's been so uncertain and that's given us the ability to really stay right on top of what's happening all the time.

That's exciting I'd say, that's one key change.

But there are many others NATO and she responds the gross margin count going to think Thats, probably really underneath your question as you.

Yeah, just just jumping on top of up Bracken just mentioned the two you know with our strong balance sheet like I mentioned in my prepared remarks really using that.

To our advantage here because as Bracken said, we've got to be ready for.

Demand surges and but we've also got to be prepare to things slow down. So we're having to manage a little wider range, which is fine. We're good at doing that but like Bracken said, we've had to increase the frequency of some of the things we do to check in and make sure that really staying on top of it.

In terms of margins again, I'll come back the little bit to what we've mentioned earlier the air freight rates right now in the industry with the reduction in consumer and travel.

Has taken a lot of capacity out in the industry, which is pushed up the rates and a lot of other companies aren't the same situation. We are in that you know they were shut down in February and they're still recovering some supply and so they're having to use more that airfreight capacity.

The long term drivers for our margin I'm really remain unchanged and that we're focused on mix, we're focused on bringing products to market that have higher margin contribution.

We added stream labs, which is still relatively small, but it's a nice margin profile as well. So I think the margin drivers for us long term really remain unchanged.

If we see continued demand at the levels. We've had certainly it's going to help us sustain it stronger margins, but again, that's not that's not the.

Outlook by which reason to manage our business.

I'd say on top of that though we are going to invest aggressively and I think our priorities haven't changed but where we're confident that the long term trends on on which we've built our business have just continued to come into sharper focus through this period, So I think our investment decisions.

And similarly have coming to sharper focus and that's something we expected can you continue doing in Q2 and into the second half.

Thanks.

Alex Your line is now open.

Hi, Thanks, Congrats on the net result, I'm just quick question SUS who'll just to come back to this point you only see beat consensus on EBIT around $50 million.

The quarter net Yankee rate consensus or rather the full year guidance, either all around health that much. So I just one gets you kids and talked more about the meat and so that all the key just as you get to macro uncertainty about certainly understandable, but Tim as you get down the piano what are the key components back mine.

Secondly, just curious.

We can you be needing more of your production out of China, and diversifying a little bit that I just wanted it comments on the latest stake play I attempt to your manufacturing footprint and your latest thinking in terms of ways to get key that sticky just given any as it gets cut he'd intensive because the situation.

Thanks, John Let me respond to your second question personal what makes that they took first I will take a few months.

In terms of our manufacturing footprint, Yeah, we have established manufacturing significant manufacturing outside of China.

And we now have I would say more distributed network I don't want overstate that was still manufacturing one in China.

I feel pretty good about where we are right now I think one of the things that one of the good things about the tariffs for US was it really accelerated its something that we feel like we did do anyway. It was which was to establish a few beach heads.

And in Southeast Asia outside of China, which we did so I think we're in a good spot now we're going to keep looking at that all the time and and we have a really good one of our strengths in manufacturing is our ability to move manufacturing in and out of different locations. We've always done that with with manufacturers in China into our factory in outerwear.

Factor into them. We're now doing the same thing into other parts of Asia. So I feel pretty good about our flexibility and our ability to manage that it's not like we can do things overnight, but we can do things very very fast now and I think the flexibility as the key Nate you want to take the other question.

Sure, Yes, I think when I when I think about the the change in the outlook, Alex we took up at the midpoint the revenue by about $200 million. Obviously some of that showed up in Q1. Some of it shows up in Q2 through Q4, but if you just look at the no changes to the outlook on the topline and.

Bottom line at the midpoint again, it's close to 200 million dollar revenue increase and we flowed that through at about 15% to the bottom line, which is kind of typical for our structure as I. Just mentioned, we're going to continue to invest we see this as a year for us to really.

Accelerate some of the priorities, we had to strengthen the hardware roadmap to strengthen the tougher roadmap make sure we're setting ourselves up for long term success.

Sure.

Great. Thanks.

Sorry.

Your line is now open.

Yes. Thank you Ben I Hope you can you mean.

I asked two or three questions. If I may add to source nice you mentioned that you have seen tremendous demand in Asia, although it wasn't phase one looks quite that way for cycle, MBS, Europe, and Youve U.S. I'm wondering whether you're kind of give us little bit more color what kind of products.

You just to reach and has been demanding deep covert had to change by stores reopening retail AC opening or M. Totally closer Internet can you give us a slave or what do you can expect well it's been going forward when that shops, the U.S. nandra reopen and but that's just mean for the online channel.

Because yes, sorry, guiding that will be to weaken marching to not only because the separation cost and promotions constitute the same sex my impression.

I wish I wish I could give you something more of the more of what you're looking for there's a problem which is that.

China, which as of the biggest part of our Asia Pacific number.

Actually doesn't look like the rest of the world is predominantly on lines with about 70% on line. So while the the brick and motor did open back up in China I don't think.

I don't have as relevant at a strong. So I don't think initially look if you step back though you look at the category that kind of mentioned this in the first question. We answered I think the categories look very similar to the rest of world, meaning we're still seeing very strong demand in and conference gaps and personal and in web cams.

Gaming continues to be Super strong.

And then the PC peripherals business is good and and I think could be even better you want to anything else to that name I.

I think I think you're right I think the dynamics between the regions were similar in terms of product demand, but they have different channels structures right summer like Bracken mentioned, China is more heavy on etail than elsewhere in the world, but I think from a product standpoint surge. It was it was pretty consistent.

Okay, and probably come out beyond promotion topic, and when I talk to the channels and the people tell me that logistic normally has these comments and 70%.

Okay surprise, so and now echelon told to the MSR didn't make any promotion during the last month. So do I asked expect that the underlying gross that's being 20% of 10% lower so that means that being said offense cheaper center would have been sports and 15%.

Okay, and can I expect them piece going forward, but that the growth will be.

Did you get touched on it.

You want to units again.

No they renewed create a good growth yeah, no I mean in general I think your comment is right in that ours. Our promotions came down our net sales grew faster than our our unit sales. If you are sell in revenues because we were able to hold on to more of the value of that selling through lower promotions.

[music].

Some of that again was was due to the fact, whether we had supply on a product or not.

And so you know.

In some cases, the the sell in as as I'll call. It was hindered on places like web cams or headsets are places, where we saw really sharp increase in demand we were constrained on supply, but you're right. The net sales growth was faster than the sell in growth.

In the corner.

Great. Thank you Amanda your line is now being kind of.

Hey, guys or how you doing congratulations on a strong performance like Hey, Yeah, you lock them I guess, just a couple of I could gaming and on the collaboration.

What's your.

You brackish, though to each of these things a little bit what's your best that well what do you look your best guess side.

Some of what you're seeing in gaming.

So the surveying is the fact that pull forward head of the console Lodge is at the ended the year at and then.

If if there isn't much pull forward on the console launches.

Add up do you think that those can also that can be sort of the catalyst as we get into the holiday season, and then seem to be getting quite a next year and then I have the follow up on the B and collaboration after that Okay are you know the Astro business. So is the primary business effective there which is the headset.

With console and historically as there's been a console launch as those things of Comex, we've had a slowdown in the council has us because there was a they weren't compatible with the future. What so you know people would slow down a way than they buy the new and other than later you have a delayed effect. So you have kind of is.

This more than a plateau, you kind of diff that would happen in the middle the difference. This time is that at least in particular, Microsoft for compatibility is already announced.

We're optimistic that that's also going to be true on the new Sony console. So we may or may not see that slowdown, but we're prepared to think that profitability.

Yes, so it sounds like you're not seeing it yet.

No we're not going anywhere in fact, we saw you know the console headset Calgary was quite strong and in fact, we couldn't meet all demand for that category.

Yeah, I mean, I would just add to that and on to brackens right to sell out was stronger than what we were able to sell and because we were a little short on supply again, because we have made the assumption that.

We probably see that normal slowdown going into the council refresh and that was but we made that decision prior to covert locked down and then as people were at home or that now that demand pickup.

If you think it's possible that you could see that demand.

When you get to the console is you don't actually seen the demand you typically see because this and pull forward because it is kinda they'd situation.

Yeah, I mentioned that.

I think as possible.

We don't.

Hard to predict did did a little bit of the holiday period could pull forward and pull forward into into Q1, and maybe also Q2. It could be so it's just really really hard to know where that's coming from.

Well, Thanks, and then on video collaboration you had mentioned Bracken.

Second as does get back into the office is going to be an increased demand for call enterprise video collaboration can you give us in more detail around some of the things that you're sort of hearing around I don't know, yes. There was like CIO, just see CNC of as its value from Michigan perspective.

Yes, anecdotally and doesn't sound to you I had is yes, because it's sad to you.

That whenever you guys were expecting like the pace and depth of that is being shifted deca is now people are really embracing begin collaboration and new way.

Well I think there's a there's a there's a whole series of discussions happening out there and a lot of anybody listings in the middle of is going to really relate to this around how do we come back in the office you know it's already started obviously in Europe. We're we have about 28 offices open.

But only moderately open.

In the U.S., we have no offs.

In China, we have all of our offices open it up but the rest of Asia, most ross's or close so we're really a mixed bag and I think Ceos and IP departments that are dealing with those with the.

And Chr rose really thinking about how do we set this up going forward are wrestling through this right now it's a lot of discussion I think I'll give you the range of topics that are being discussed theres no gushing to come back in the office do you need more video in more rooms, because you want people to be able to socially distance when they when they're on the call. So you.

Might even have to people in a video call than the actually want them different rooms.

So you might have them in two different video rooms, you didn't call somebody who is not in the office. So they're all in video that's a possibility I don't know how much that's going to happen as possible I think is more likely and from what I'm sensing, it's more likely you're going to people are going to say gosh, everybody. So used to video calling in that home they're doing video.

Hi, all the time and we're going to be a mixed group there should be more people at home. There were there were in the past that when we do it Paul it's going to be video. So we're going to need more video enablement and so I don't know exactly what that's going to due to the short term growth rates, but I do believe that theres going to be a lot of video deployments in the offices as we start to really get serious about what's the.

Future work looked like in the office home combination.

Great.

Thank you and on.

Tom Your line is now thing.

Great. Thanks, Ben Someone's question, one follow up tick through my.

First question Im how should we think about your ecommerce sales trends on Amazon direct and elsewhere.

Okay, well, you know probably won't surprise you ever number you see that looks good you can imagine that it looks even better if you look at the online. So we've really had no like most companies.

A really strong strong growth in E commerce, and even stronger on our own ecommerce our own dotcom websites. So.

It's a it's exciting.

The gratifying thing or the the more exciting part of that is that we were moving down a path.

It started in China for Us about four years ago in China became mostly online it just almost overnight over three or four month period, it flipped from being a brick and mortar.

Business for us kind of 10 or 15% was online to 70%.

Online.

And that gave us the model for what we're now taking into other parts of world terms of supporting online people like Amazon.

And others in our own for how to support those remarketing standpoints, we were already in the middle of deploying that model into Europe, and then we have or we just had just organize the whole world to do the same thing so the Americas as well so we're going to be set up pretty well. If we go forward for an online world and.

Optimistic we're going to do well in it.

Great. Thanks.

Hey, Tom Tom Tom just add on to that one real quick I mean, it's not only the the pure play Etail, where we saw the growth we actually had a lot of traditional brick and mortar partners did a really good job.

But to move their business online at least for our products. So I think that was one of the positives in the quarter and Im sure. The dollar they're looking at their business and trying to determine if thats a long term trend or it was something that they had to do it in the moment, yeah, I would echo that I'm Super impressed by how effectively a lot of these of.

What we would think of the brick and mortar players have gone to online they really don't well.

All right. So Nate So my second question then jump it. So the question I had there with on physical stores reopening in re closing.

How are you managing that and how is that impacting your business.

Good question I mean, we talked about a number of scenarios that we've got to be ready for and I think being nimble and I mean to me I think thats just to get description, it's really about being nimble I mean.

You know when when everything moves online they probably needs to be less inventory overall in the channel because you are filling out of central distribution for a lot of those orders as things move back to retail we've got to distribute more broadly and so it's a balanced for us between those two things and that's one of the reasons why and increasing the inventory buffers not buffers out in the channel, but in our own distribution.

And centers on our balance sheet, making sure that we have the inventory that's necessary to support our customers you know for these kind of changing market dynamics, they're dealing with.

Great. Thanks for taking my questions.

Correct.

Thank you Tom.

Andreas Your line is now open address yes, Hello. Thank you thanks for taking my questions.

Got the along on the mentoring if you know you asking now the for four or basically being at Topia low 50 days philanthropists you mentioned this value we create.

Meeting you I have a matching basically supply and demand now I was wondering I mean.

Of course, it goes up property in 93.

The next call up though.

He stays there any potential to be substantially below kind of.

What you had into in the last couple of years.

Basically that they can enter a sustainably coming down apart from transportation between the costs.

Let me, let me take though.

I think.

First the answer is can we is there is there potential to be substantially lowered inventory relative to last years I've always felt that I've said before on these calls I think there is.

I think we should be able to operate as lower inventory level on the other hand, I think if you look at the short term you're going to see the opposite because we have such uncertainty on what the demand is really going to look like out there in the back half of this year.

We don't want to get caught flat footed and not have enough inventory supply.

So short term I think you might see the opposite relative to run a day long term yeah, I think we should be able to operate and lower inventory level than we did years ago.

Now address I think about inventory family I think about operating expenses in that we need to find efficiencies to fund our growth. So as we find efficiencies and we drive those initiatives and inventory to get more efficient or to simplify our portfolio in some way so that we can be more effective.

We may take that efficiency and then reinvest it.

To go grow the business by having more products available you know the strategic products more more availability so.

I think brackens, absolutely right, we're continuing to find ways to be more efficient in our supply models, but you may not see that really show up in lower days of inventory because may decide to buffer up more which help us grow the business.

Okay.

The next question will be on the web Cams basically I told them I mean do you have for Ficos color basically how.

How the penetration is currently and tons lots a you know that.

The last potential going forward.

Well you know Weve has to do this because I don't want to I don't want to mislead you know there's a lot of people who use of webcam. It's built into a computer so you're into their no no no. The reality is that that's not the solution for a lot of people because if you have a.

Your laptop you docket, most screens don't have webcam, and though or if they do have a webcam, it's not good enough, especially if you're looking yourself all day long like we are now.

Having a really high quality working on gives you a better parents makes you feel better about yourself. So there's lot of reasons why webcams are attractive in general attractive as supplement what your what might be built into computer screen.

The the reality is well our webcam businesses really grown a lot you think about the number of people working from home remember students studying from all we're not talking about we might sold 5 million more webcam says here the last year. So going forward there on what the number is going to be but we're talking about 1 billion people.

Who were going to be working from home and maybe a billion people were studying at home. There's a lot of opportunity out there is that it's so it's so big that kind of not helpful. Right. So I don't know what the where this will where the Weekenders will go exactly but I do think theres, a really big opportunity for us to just keep keep capital as we've got keep improving ARPU.

So they they deliver extra benefits that you now need when you're on the on screen. So much of the time.

Okay. Thank you thanks.

Thanks Congrats.

Michael Your line is helping.

Yeah Michael.

Hey, Michael I think you're on mute here you guys hi, thanks.

Hi, everybody. Thanks for taking my question two questions actually first one on on stream labs.

Things first time that you did you give an indication on on the revenue contribution.

My question is can you maybe give a little bit more color on how how you're integrating stream. That's in your overall strategy in your gaming strategy and maybe also an indication of the growth trajectory of stream that's at least in the past.

And the second question would be on France in your prepared remarks, you mentioned that fronts sales were down because the damage So distribution center.

Was was closed temporarily.

Can you give us an indication of how.

Sales have trended after the reopening.

Just to understand if there's a if there was also an underlying demand problem at France or on the contrary if if if there was very strong pent up demand totaling two reopening.

Yeah, No Oh, that's the real quickly order stream of France is improve dramatically since the.

Reopening so I think there's not another I don't believe if underlying demand probably.

In terms of stream labs, you ask how we integrated with the gaming business actually we're not.

We're integrating it with our streaming business. So we see does much more than just a gaming play we do reported with gaming, but it's it's got it is it's mostly gamers coming on line downstream themselves playing games, but were really expanding beyond.

Gaming right now and and it's one of the one of the reasons. We bought the business. We really thought there was an opportunity to support all kinds of streamers, not just gamers and not just people who want to entertain gamers. So we're in the middle of that now we're quite optimistic there they're going to make a lot of headway there and they've got some cool things coming a cool things out there.

We love the team and we love business.

Any an anti don't be sort of gross that you see.

At least in the past quarter.

Yeah, it's been really strong now you know I think theres a we're also dealing like every business is a more than a year to old you know you got a mix within that business. So you get some things are going down so things are going up and the things that are going down we completely expected things are going up we get to but that team is very innovative so we're seeing really strong growth.

Exactly where we were hoping we're bringing more and more people into their prime offering which is you know I've I've been able to stream now through stream labs like and so immersion make money in the and I pay for that prime experience and and we're bringing more and more people into that really fun and it's a it's a really cool business so anyway.

It is it's great for visit standpoint, it's also just great for personal standpoint that you know that you're helping people.

To start to try to.

Liver Dream, you know is I cannot create a falling accurate following big enough that people would actually want to where am I assure you know a shirt with my name on it or my symbol.

So it's a cool business.

Alright, Thanks, a lot congrats thanks Michael.

Thank you Michael Bracken, we have no more questions. So I will turn to call over to you for your closing remarks.

Okay, Let me wrap it up by saying you know what stating the obvious we are really navigating some extraordinary times.

We're seeing a surge in the underlying secular trends that have been driving logistics growth over the past several years has been very consistent over the last several years at the same time early four months into this global pandemic, the changes and how people work and learn and play.

Are these going to be long term changes, we think so we believe the acceleration we saw starting in March as fundamentally reshape the trajectory of those trends in the markets we plan.

The same time, it's difficult to extrapolate the next year or two based on four months this strong performance.

We're prepared for the upsides, we're managing the business for potential downside as you know that's why we're taking a more measured approach than second half versus a strong growth, we're likely to see universe out.

Whether you're in investor invest and logistic for a quarter for 12 months or for multiple years. Please measure us against that commitment will sustain this commitment real sustainably grow high single digits or better over many years, that's been true for the past five years I expected to be true ahead in some years will grow faster and others.

We might grow slower, but what logistic investors have been able to count on and should appreciate in the years ahead is our dedication to consistent strong performance.

With that I'm going to close this call and get back to work that you get back to work too and we'll see you will see FQ two.

Thanks, everybody and that concludes our call.

Yeah.

Thanks Ben.

Thank you Ben.