Q4 2022 Logitech International SA Earnings Call
And with our product line.
Got up early.
Yeah.
Okay.
Alright, good morning, good afternoon, everyone and welcome to Logitech video call to discuss our financial results for the fourth quarter and full fiscal year of 2022.
Joining us today on the call are Bracken, Darrell, our president and CEO and need all that our CFO .
During this call we will make forward looking statements, including with respect to future operating results under the Safe Harbor of the private Securities litigation reacted with 1995, we're making these.
Statements based on our views only as of today actual results could differ materially and we undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results and you can find a reconciliation between these non-GAAP and GAAP results and information about our use of non-GAAP measure.
<unk> and factors that could impact our financial results in our press release and in our filings with the SEC, including our most recent annual and quarterly reports and subsequent filings.
These materials as well as our prepared remarks and slides and a webcast of this call are all available at the Investor Relations page of our website. We do encourage you to review these materials carefully and unless otherwise noted comparisons between periods are year over year and in constant currency.
Sales our net sales.
Finally, this call is being recorded and will be available for a replay on our website.
With that I will now turn the call over to Bracken. Good morning bracket, good morning, Nate and good morning.
Nate and move in.
Thanks to all of you for joining us.
I am so excited about the year that logistic as lab and our team's strong performance. Despite a backdrop, perhaps best defined is unpredictable, but certainly challenging.
While it was headwind wins, our teams delivered an outstanding fourth quarter and overall a tremendous fiscal year 2022.
Coming off a 74% net sales growth of the previous year, we challenged ourselves to continue the momentum.
We did it.
Posted our ninth consecutive year of growth delivered strong growth in key categories like CDP and gaming.
Our market share gains across our portfolio and geographies and continued to invest in the future using our strong gross profits to invest in key strategic areas like marketing and product development.
Now I'll go deeper into the financial details for the fourth quarter for the fiscal year in just a minute.
But I wanted to start offering a bit of perspective on the macroeconomic environment world events and overall state of the global business as we head into our new fiscal year.
As I talk to other Ceos, we generally agree that there is some uncertainty about the U S and global economies will perform well.
But we'll leave the predictions about that out of this call.
But what is the backdrop of our thinking.
I see a certain set of conditions that most are you'll be familiar with inflation more.
Or in the Ukraine, Covid Lockdowns changes to monetary policy supply chain disruptions. These.
These changes these challenged their modules possibilities of course they are happening.
No business leadership team operating globally from disposable.
We had logitech talk about possible Blackberry level and the truth is that all businesses, including ours operate in this environment with the understanding that we can't influence the outcome of each of these challenges, but we all can adapt change and ultimately adjust.
That's exactly what we've done at logistics through the last decade.
The dynamic nature of Logitech, and we've got more dynamic as we've drawn makes me proud we have continually found ways to solve old and new challenges, while ultimately serving and delighting customers.
We've adjusted adapted so many times over the past decade.
So what does next year were quiet well.
Although this may not be the most satisfying answer the hard truth is that we just don't know exactly how and when this particular set of challenges due to play out.
But I do know we have years of experience operating in challenging environments. We.
We changed the way we source components, we've diversified our shipping strategy, we've automated our factories, we built a very diverse portfolio.
Change the way, we price our products, we've strengthened our balance sheet intentionally pursuing this strategy avoiding higher levels of debt. The list goes on.
All to ensure we can operate with excellence discipline and a focus on the future during unpredictable times.
So I prefer to look beyond the near term and make sure. We're operating in growing categories staking out long term leadership positions in those categories.
And investing in product design and engineering, the absolute lifeblood of our business.
And as we discussed in our analyst day in March we are doing exactly that.
But what's been true over the last few years is still true today.
I would work or the idea that we used to call work from anywhere continues to thrive.
Sales and upgrade opportunities exist right now across more than 1 billion Workspaces, all driven by hybrid working and learning.
What an incredible opportunity.
Everything is moving to video included in this call.
Work is here to stay and most meetings will be a mix of onsite and virtual and video helps spurring more meeting equity to all participants.
Gaming will continue to expand the long term momentum is unstoppable like most long term high growth markets, there will be strong growth quarters lower once the best shouldn't confuse anyone gaming is a juggernaut and it's evolving and adding new engines of growth take the meta versus for example, the tools needed to experience and create the mid <unk>.
So expanding in a volatile, but big picture ask yourselves, what about the fundamental premise of gaming as a cultural phenomenon has changed the answer nothing in.
And a streaming and content creation trend hasnt changed but continues to grow rapidly.
In other words, while we're very clear eyed and measured in our approach to the near term challenges and events were equally invest in and excited about the durable longer term trends driving our largest categories.
Our company is solid performance reflects the broad strength of our capabilities, including the product development engine that continues to introduce new products on a global scale.
It also reflects our diverse portfolio and its leading position in growing markets.
Our focus on operational execution and the ability to adapt quickly continues to help us navigate industry wide supply chain challenges and disruptions.
And that's why I'm, so incredibly excited about the future logitech.
With that let me briefly step into our categories.
Creativity and productivity and creativity productivity, we have a really strong year and finished the fiscal year 2022 with good momentum.
<unk> continued to drive this category was another year of creative product development driving growth.
There is no debate over the sustainability of hybrid work hybrid is here for now and in the future and CMP is set up to enhance workspaces around the globe you've heard me say this before but it remains true.
Very few people have the optimal workspace setup either at home or at work, even I continued to experiment all the time to try to find a better way I am excited about what youll see in the coming quarters from this group.
Gaming grew double digits in fiscal year 2022 on top of an exceptional revenue growth last year gain.
<unk> continues to be adopted by an increasing number of people is both a competitive esport and has a more casual way to hang out with friends.
And we're in the very early innings of what the <unk> can do to enhance the enjoyment experience of gamers gaming is a market that demands innovation and we're doing just that with more wireless peripherals and higher performing keyboards and mice.
So confident about the long term potential of this category.
And video collaboration we continue to see pockets of increased activity with more certainty and office re openings and high reward planning.
But planning and purchase timing differ by region.
And so as I said earlier, there will be near term unpredictability and an overall choppy environment, but long term growth web canvas decline versus our lofty mid pandemic peaked with a need for webcams is strong and the demand is steady and more than three times, what it was two years ago.
And our long term strategy of enabling meeting space with high quality video systems and solutions supported by an enhanced sales and support team around the globe remains well on track.
Consistent with our mission to develop video collaboration tools that could make remote participants feel they can participate equally or even better than those gathered in person in the room, we launched right site to an AI based software solution that helps bridge the gap between in meeting participants and those joining remotely is such a smart solution and <unk>.
We are much more in the works.
And supporting all of our products as our defy logic marketing campaign, where increasingly we're raising awareness of the brand and bring logistics amazing products to the top of every consumer's consideration list more to come in this area, but we really like the results we're seeing.
Finally, it's such a fundamental part of our purpose that we focus on environmental sustainability at the core of our business. We were just recognized by the financial times as the European climate leader based on our carbon intensity improvement score.
It's nice to be recognized like this but the truth is with this score only covers things that happened in our offices and factories.
Hardware companies like us release, much more carbon beyond our four walls and in them as we buy components and products transport them and consumers like us use them.
The rest of our stores. So far is that we are carbon neutral and scopes, one two and three which includes all of those carbon impacts and we're committed to being carbon negative for climate positive business Paul beyond 2030.
And on top of that earlier this quarter, we announced that we had exceeded our initial commitment to incorporate post consumer recycled plastic into our products reducing.
Reducing our carbon impact and increasingly circularity of consumer product materials ingredients.
During the last calendar year, one of every three large tech product shift use recycled materials and thats pointing up into the right.
We believe this is the right thing to do for the planet, but we also believe that a growing share of businesses and consumers will favor our products as a result of this industry leading approach.
Now, let me turn the call over to made for further comments on our financial performance this quarter.
Thanks Bracken.
We delivered solid financial results in Q4 and for fiscal year, 'twenty, two and an environment that was often quite challenging I'll spend a few minutes on the quarter and then provide some context and texture to our full year results.
Q4 was our toughest compare for the year as we grew 108% one year ago.
In Q4 this year net sales were down 17% to about $1 $2 billion. Although impressively. We saw continued growth in pointing devices keyboards, and combos and gaming.
Gross margins were essentially flat sequentially, despite ongoing cost pressures and incremental currency headwinds we remain.
Disciplined with promotions, while still gaining share in many categories and we work to reduce our reliance on airfreight.
Looking ahead to the first half of fiscal year 'twenty three margins could come down further due to ongoing cost increases unfavorable currency rates and higher levels of air freight as we expedite to recover from.
Supply disruptions due to the China Covid Lockdowns.
Profit was down for the quarter as was cash flow from operations both as expected.
For fiscal year 'twenty two.
We turned in our ninth consecutive year of growth with net sales.
Constant currency up 4%.
As mentioned earlier, CMP and gaming performed particularly well over the course of the year.
Overall gross margin was 41, 7% within our long term guidance of 39% to 44%.
In fiscal year 'twenty, one we experienced an unusually low level of promotional and in store marketing investment and as expected and planned for an increase.
And we expected and planned for an increase in such spend this year higher promotional and retail marketing investment and increased logistics and component costs proved out and margin headwinds.
For example, the cost of Ocean freight.
It's up about five times versus fiscal year 'twenty.
Operating profit was $904 million well above our annual guidance provided at the beginning of the fiscal year. We delivered this incremental profit while continuing to invest to improve our capabilities with an emphasis on marketing product design and engineering.
And we returned over one half of $1 billion to shareholders through our share repurchase and dividends.
Moving into our categories and creativity and productivity keyboards, and combos grew 8% in Q4 and 22% for the fiscal year.
Pointing devices were up 14% for the year is a strong portfolio excellent marketing execution and continued demand from hybrid work trends drove strong performance in these categories.
Gaming delivered 1% growth in Q4, and 17% for fiscal year 'twenty two.
Delivering double digit growth off of a record year last year was impressive.
While we experienced pressure in our console gaming and PC gaming headset categories. We have an excellent lineup of innovative products, our leadership position and expanding categories like wireless nice in steering wheels and are beginning to gain traction with the social gaming segment.
Q4 video collaboration sales declined 35% after growing more than 200% in Q4 last year.
For the year video collaboration was down 4% after growing more than 180% last year.
Conference room cameras and systems grew double digits for the year and continue to lead the category performance behind our refreshed and expanded product portfolio.
Sales in our tablet and other accessories accessories category declined 39% in Q4 and 17% for the year as a reminder, last year, we saw a surge in sales through our education iPad keyboards, driven by Japan's government sponsored Giga program, which expired at the end of March 2021.
Excluding sales through the Giga program last year fiscal year 'twenty two sales in this category grew double digits and we gained more than three points of share in retail keyboards, driven by strong product launches and in store marketing execution.
Our mobile speaker sales declined 12% in Q4 and 15% for the full year as noted previously we continue to reallocate our resources to faster growing market opportunities.
Our audio <unk> Wearables sales decreased 35% in Q4 and 15% for the year as expected. Despite these declines sales were up more than 40% versus two years ago, due primarily to expanded market opportunities for retail headsets and blue microphones.
Looking regionally for fiscal year 'twenty two.
Our sales were sustained or grew in all three regions.
Much like the diversification of our category portfolios, our geographic diversification helps us manage risk for example, hedging against regional softness in demand geopolitical issues or economic disruptions.
Turning to expenses in.
In the quarter, we executed our plan to strategically invest to grow our business over the long term.
While our Q4 non-GAAP operating expenses decreased by 13% to $342 million, our fiscal year 'twenty two non-GAAP operating expenses were up 27% to $1 4 billion.
As we stated before this is reflective of continued investment in marketing sales coverage product development and operational improvements before.
For example, we increased the level of automation in our factory by more than 50% over the last year, which helps us reduce our costs improve quality and reduces our exposure to labor disruptions.
And finally Q4 cash flow from operations was positive $100 million and we ended the year with a cash balance of approximately $1 3 billion.
Our cash balance ended this fiscal year about $400 million lower than the end of last year, as we returned $571 million to shareholders through dividends and share repurchases this fiscal year.
For the year are <unk>.
Conversion cycle, our cash conversion cycle increased to 77 days. This increase was primarily driven by higher inventory days due to industry wide supply chain disruptions and demand forecast fluctuations for some of our products.
We also continue to leverage our balance sheet to strategically purchase hard to find and long lead time components to help ensure supply availability and maintain competitive advantage.
Finally, I'll spend a minute on fiscal year 'twenty three guidance.
At our analyst day in March we guided fiscal year 'twenty three revenue to be up mid single digits, and non-GAAP operating income of $900 million to $950 million and.
And noted that full year revenue from Russia, and Ukraine was about 2% of our net sales and was included in our outlook.
At that time, the Russian invasion of Ukraine was in its first days.
As of now this war is ongoing with no sign of resolution in the near term and we do not expect sales in Russia, and Ukraine for the full fiscal year.
We continue to monitor the Russia, Ukraine situation and broader potentially challenging market conditions.
Given this we now expect full year revenue to grow between 2% and 4% and full year non-GAAP operating income is expected to be between 875 and $925 million.
With that I will hand over to <unk> for some closing remarks bracken.
Thank you.
In closing this year, we sustained our scale delivered record sales on top of last year's 74% of sales growth.
We delivered many accomplishments our ninth consecutive year of growth strong growth in key categories of market share gains across the portfolio. We also beat our original profit target by over 100 billion.
Despite strong year over year results. Our focus is on the long term, we're writing secular growth trends in hybrid work video collaboration esports and digital content creation.
We will continue to deliver against those with agility operational excellence and a diverse innovative portfolio of super excited for the future.
Before I open the call to Q&A I want to thank all of our employees and partners for continuing to deliver terrific results.
Navigating a really dynamic and at times challenging market environment.
Your hard work continues to pay off and Im really proud of both Q4 and the entire fiscal year 'twenty two.
Thanks to you all.
We can open the line for questions.
Great. Thanks, Bracken, Thanks, Nate I will start the Q&A portion of the call now for our first question, let's go with Alex Duval from Goldman Sachs Alberto.
Hey, Alex.
Yes, hi, everyone and congrats on strong results for the quarter just had a couple of quick questions. Firstly just to clarify on your updated guidance. It looks like <unk> geopolitical events in Europe is the reasons to change just wanted to see clarify if that's the only reason our is there any sort of big underlying.
In terms of the drivers that you will see for example, if we think about the COVID-19 situation in China and Lockdowns that.
And secondly, some investors have been asking about how important the PC data is which perhaps indicates a little bit less growth in current periods than in prior periods and what that means for logic tax. So for example to what extent do you think yearly PC unit growth is actually directly relevant.
Your company given that today, you sort of beat expectations on keyboards and pointing devices.
How should we be thinking about that many times let.
Let me, let me take the second one and then.
Excellent.
How relevant is PC growth.
I think we've disconnected from the PC market.
Seven six or seven years ago, and so we really stopped considering a key driver of our business I guess over the long term it would be but we're really focused on the installed base in the installed base expanded dramatically during COVID-19 and so we've got a lot of workspaces to upgrade and to enable so we don't see it is particularly relevant.
Okay.
Yes, I think on the guidance, let me just.
Highlighting how I was thinking about this Alex I think there's always many things to consider.
Some are very objective and easier to quantify and others.
Probably more subjective and harder to quantify and I think thats. The case right now as well direct sales in Russia, and Ukraine are certainly easier to quantify although the follow on effects that this conflict could have on European demand oil prices logistics things like that are certainly less certain than the direct sales, which is kind of.
What we talked about being about 2% of the overall company I think more broadly, though we've got we have other challenges that we have to consider as well and monitor and track just like we do every year I mean, right now Bracken talked about those in his prepared remarks things like currency logistics disruptions cost inflation, you mentioned, the China Covid shut.
Down and I think these are some really good examples of things that frankly are just harder to quantify.
But we have to monitor and track really closely and that's what we do I think it's also.
Interesting, we don't know sometimes how some of these things will play out how they are intertwined if I if I use as an example at the start of Covid little over two years ago.
Our initial perception of that was where we haven't.
Supply challenge.
Our factory was shut down.
And a lot of our planning was around how do we recover from a from that and then quickly it turned into why we have a lot of the demand coming in as a result of this have you had to adapt to that so I think today's environment really is very similar to that there are a number of factors that we consider.
And like I said, some are easier to quantify than others, but I think the reality is you just have to track the business regularly which of course, we do as Bracken said adapt change and operate and compete so.
That's kind of how I think about guidance every time and I think this year is no different.
Many thanks.
<unk>.
Thanks, Alex.
Paul Chung from Jpmorgan, Please hey, Paul Hi, Paul Hey, guys, How's it going great. So.
I guess I guess first of all we see.
As we look forward.
After a very strong unit 21.
Lapping a tough comp here in <unk> 'twenty, three but should we still expect that 5%.
15% growth.
And how do you see kind of product mix evolving or are you seeing you know more video solutions.
And are you having more success in the larger conference room, and how do you see.
Competition evolving with HPE now and then getting into the mixture and then a follow up.
When we started all of the OSV joke.
The latter half of this will be first of all we're still super bullish about D C.
The underlying demand for conference Cams was was really strong and we grew double digits. This year throughout the year and it looks good around the world.
We just love our product portfolio, we think we've got Super cool things coming in.
Peripheral is around that Theyre also doing well offer sort of offer services that are super early days. So we feel really really good just in general I mean, it's hard to imagine.
Companies going back into a hybrid environment I was just in one yesterday.
It's hard and they're all the way back and it's hard to imagine those offices without upgrading and putting video more video in a different video and so it's coming.
So in terms of our growth expectations, you know I think.
We moderated our growth expectations for the year or is it just.
And that certainly has some impact on D C. But I think the thing that I would really highlight is that were because of the diversity of our portfolio. It's always played with us.
We've been lucky to have this diverse portfolio that range from consumer direct consumer experience like gaming all the way into.
Now more and more in the Opex and I think whatever direction, we end up taking whether it's whether it gets even stronger in BC, which I think is possible or its a little bit weaker than the 515%. You mentioned are kind of confident that our portfolio will play in are in our favor here you want to add anything.
Yes.
To highlight just I guess the strength of the performance in FY 'twenty, two and conference Cam I mean, it grew double digit.
Net sales sell through grew double digits. It actually grew sequentially throughout the year as well.
In Americas was particularly strong and consistent in that sense. So like reconcile we're very.
Have different demand trends, sometimes in the timing of those trends can be a little bit different by region. It takes some time to build the pipeline into closed deals but.
<unk>.
Again, I think just looking out on a longer horizon, which is the way, we think about planning the business and investing in and feel very good about it.
Okay, Great and then.
On free cash flow do you still expect that one times on a pro forma operating profit for.
For the year and when.
Do you expect to see our working capital investments have come down some more harvesting.
Casey buyback accelerated this year.
Should we expect kind of a similar pace in two three maybe see the bulk of free cash flow dividends and buybacks and then lastly, your inorganic opportunities it's been a while since you've done quite a material acquisition. So just any thoughts there. Thanks.
Okay, Let me try to take those so I think that's it.
Okay.
Yes.
You lost me again on the first question as I was when I was starting with.
Yes.
Operator.
Yes, so just just to clarify the one times as an operating cash flow not on free cash flow small adjustment there you're going to net out the capex I still think thats the right way to think about it.
Cash.
A lot of it's about timing and linearity within a quarter and how you end the year and things like that but I think that's the right way to think about it this year working capital.
We've been very thoughtful and strategic about the use of the balance sheet in terms of supporting the business with working capital investments and I think that's played out well for us and we'll continue to do that because it is it's not really the time to be.
Managing to Justin just in time inventory there is enough uncertainty, where it's helpful to be a little bit long in some in some areas and that's what we've done whether it's on the component side as lead times have gotten longer and there's been some shortages.
While we have categories like the one you mentioned video collaboration strong margins.
The cost of a stock out there is pretty high and these are products that have long life cycles, and so it's made sense for us to make sure that we're invested in.
And carrying appropriate levels of inventory. So that we can we can move quickly as demand changes.
That said Theres, obviously, some things to that or.
Leading to some.
Higher levels of inventory relative to pre pandemic for example, port delays and just overall supply chain disruptions.
And so until those things resolve themselves I don't really see us moving quickly to reduce inventory in our distribution centers are in manufacturing.
Again, I think it's to our benefit just to be running a little bit higher than what we did before but.
Think towards the end of the year, we'll probably see working capital levels come down a bit but.
Like so many things right now Paul it's a little bit hard to see that far out.
And we'll just we'll manage it as such but I like I like our position with the inventory I think it's a good use of the balance sheet.
On other uses of cash I mean, probably similar strategies that we've always talked about right. We actually do prioritize M&A, we received deals that makes sense for us.
And we've done several small deals which.
Granted may not be the news headlines that youre talking about but I think they are very strategic and important for us.
Whether it's the life that I'm using here at home or some of these other things they're nice.
<unk> to the portfolio and a good use of the balance sheet as well. So we'll continue to prioritize M&A, where it makes sense and then take a balanced approach I would say with share repurchases and dividends.
Let me add to that last one I think we're always on we're always in the market they throw them.
We've done you mentioned service modules another way the web kind of thinking about it is.
I think we've crossed the threshold here were are.
Our innovation engine is really strong we don't need to go buy new things to go to deliver our long term targets. We can do it without it we do sometimes feel like we could accelerate things by buying <unk>.
Small kind of ingredient plays that can help us really get off the ground faster on some innovation and thus the kind of thing we've been doing the last year and a half two years and you haven't seen them, but they are built into what we're doing.
But we're not going to stop looking at bigger things, if we see something that we think really makes sense, we'll do it.
Thanks, Paul as a reminder for those on the call. If you do if you would like to ask a question. Please raise your virtual hands and we'll work through that next step is assia merchant from Citi.
Hi, Good morning, Hey, good morning, everyone.
Thank you for the opportunity and great results for the quarter. So I'm just going to focus on the outlook a little bit.
You guys talk about.
You quantified the impact from Russia, and Ukraine. So just to clarify the guidance includes obviously no sales from that kind of what gives you confidence.
Here that could spread to other areas.
And then as a follow up the long term secular drivers that back then with Greg Kim.
Confident that the underlying demand remains solid I mean are there indicators that you're watching that suggests that okay. This is kind of more in Q4.
Focused at this point, but the drivers outside of.
That region remained pretty strong across the portfolio.
Gaming or keep working at Graco and then just a clarification on gross margins I think that they would come down in the first half airfreight was mentioned as one of them.
Our ocean freight I should say.
But there is high levels of inventory right now that you guys are holding so could that provide some offset to just the rising freight costs.
Thank you.
Let me jump into part of it I'll, let you answer that one.
Question on Russia, you frame I think that's a that's a.
Definable problem, but we feel like.
So the topic itself those borders.
So that makes it very easy for us to quantify everything else Thats, where every year. We go into we always have some.
What will happen with dot dot dot. This year there are more what will happen with that box the normal I would say <unk> got the <unk>.
Tail end of several things that are caused by closer to them.
Maybe you can link them all to go with but you also got inflation.
Currency swings and that kind of thing. So I think this is this feels a little bit like normal our normal year, except that maybe they are more of them, but we're getting we're used to doing that for 10 years. So we're pretty good at adjusting and we're going to try to be really good at adjusting where we need to.
So I think very appropriately it's amazing often things that start in one direction flip to the other.
I might start being bad news and end up being good news or start being good news bad news. So it's early in the year. We're super excited of our categories. You asked about the underlying things that give us confidence.
Really hard to look away I tried to make this appointment and the opening of it it's really hard to look away from any of our four categories I feel like Theres anything thats very very strong underlying dynamics long term those underlying dynamics, we don't see anything thats change though.
And.
While you can't really isolate detector.
You can't predict a real short term change the long term changes feel really really good with Walter trends feel really really good and if anything which is getting stronger so.
I guess.
So I would say that that you want to add anything.
I think I think I think you covered the first part I'll just clean up a little bit on the margin. So I think similar to what I said at AIG.
I think the first half margins will be lower than the second half.
The.
You mentioned the inventory I mean that is part of the inventory strategy right. As you want to buy ahead of cost increases so to the extent that costs have been rising I think holding a little bit more inventory has given us.
Advantage you know you can't buy a year's worth, but we're a little bit long in some areas and we'd probably avoided some cost increases are delayed some cost increases more appropriately.
But from what we can see right now.
Just with a little bit of pressure here from currency.
And some of the inflation that we're seeing I think the first half margins will be pressured a little bit. We're obviously doing our best to adapt to that and working our way around it whether it's with finding new suppliers.
Adjusting prices those types of things.
Just like Bracken said, we go into every year and.
Some things we have some visibility to and other things will change as the year goes along and we just have to keep operating and executing and we do a good job of that.
Okay. Thank you. Thank you Roger.
Great next up is Erik Woodring from Morgan Stanley Eric.
Awesome good morning Guy.
Good how are you guys good.
So maybe I'll start at the top and just to clarify obviously COVID-19 and the Lockdowns impacting China are having an impact across the board maybe just a clarification question when you talk about production.
<unk> disruptions is that your own factory is that just general sourcing of components has there been any change in April versus the March quarter, just trying to understand the pace at which maybe production in some of those bottlenecks might be loosening or becoming a tailwind for you. This quarter and then I have a follow up.
I'm happy to Eric.
Again very dynamic Eric.
I would say, we obviously as you know we have our own factory there that handles good portion of our production needs a lot of partners I think one of the things about our supply chain is a chain there are links all along.
And.
That's one of the things that makes it very challenging and very much day to day.
You just got to try to keep that whole chain strong.
So.
We will see how China plays out that is just one of those things we're going to have to monitor throughout the year. If this is.
Charges in recent days that Theres, some signs of Beijing as maybe taking some some.
Stances towards locked down I have no idea, where the Chinese government's long term strategy is going to be on this and frankly on the short term I think this is one of the things. When you are part of an operations team.
Chase supply you work around it there has been some things that are that have been to the positive recently with some reopening some warehouses and some distribution.
Yes.
I think that's all I can really say is we're just monitoring it and closely tracking it and then China work our way around it but we will have to see how that plays out.
Certainly if I could just add.
We feel like our tailored theme too much but I'm so impressed.
Yes.
Our whole supply chain team in China.
I think we've really outperformed.
Kind of the competitive set.
Every single time.
And.
And I'd say, it's a little bit of magic to me, sometimes how the world we've done that but they continue to do so I don't know exactly what we'll face in there, but I'm pretty optimistic.
Optimistic about about not seeing a major major disruption of any guide.
But I'm sure that we'll manage it really well relative to everybody else.
No and I would agree with you on the on the outperformance versus peers. So I think I think you said that in the data so.
So definitely there and then maybe as a follow up.
How should we think about any let's call it potential pricing actions you might need to take an international markets just in light of a strengthening dollar.
Basically in order to help maintain profitability or ask maybe more broadly.
Logitech today thinking about managing its currency risk in light of this kind of challenging FX environment.
Yes.
I don't know if youre following us few years ago I can't remember what year. It was 2015 and 2016, when we saw a major currency swing.
Strength dramatically relative to Europe .
Bruce the remedies, but let's say.
And we had the price.
There's a delay in what you can do there, but you could.
One of the advantages we have been and we have an even bigger advantage. There now is that worth.
The market share leader in most of our categories and our market shares have grown since then dramatically so.
We like our position from a pricing standpoint to the extent that we feel like we need to do it we're not going to be kind.
Casual about that market.
Market share has its costs.
Short term and long term.
Pricing is possible short term long term.
Need to make sure youre always obstructing the level of value.
Good luck.
<unk>. So I think we've already put through some pricing and I would suspect that we'll put through more if the dynamics here looks like theyre going to stay the same and I think we're in a position to do that because of the size of our business within the categories. We're in.
I would also point out Eric to the importance of the marketing investments, we've been making to things like building up your brand raising awareness for the value of the products.
It goes hand in hand, with your with your pricing strategies of course as well so.
Again difficult to put a fine point and quantify that but directionally. It's.
Certainly helpful and that's consistent with our long term strategy about how we think about investment in marketing and how we think about its relationship with our pricing.
Alright, and maybe if I could just sneak in one last quick one with unit.
If we think about kind of the midpoint of your revenue guide and how you how you guided operating income.
To get to a scenario, where operating margins are down slightly year over year should we think about <unk>.
Gross margins, primarily driving that and do you still being able to invest or maybe just help me think about the trade off of kind of gross margins versus Opex. As you think about the next 12 months and Thats. It from me thanks guys.
I think theres going to be ranges on both Eric again, we're looking at over a full year. So we will manage those I mean I don't think this will this won't be a year.
I don't believe Youll see opex investment faster than revenue growth. This year like <unk> like you have.
Past couple of years or at least last year, we didn't actually two years ago.
But.
We'll see we'll see what happens with those pressures on the gross margin side like reconcile where it makes sense for us to be promotional where it doesn't.
How much we should be investing in marketing I think what's really important is we want our sustained investment in innovation and engineering things that are key to capturing the value of the long term opportunities that we have.
Great. Thank you guys.
I appreciate it Eric Thank you.
Next up a non a loop capital.
Right.
Hey, Yeah. Thanks, guys good morning.
Yes.
Good morning, good morning, good to see you guys.
Just two quick ones for me if I could.
Going back.
Fiscal 'twenty three outlook.
What what if anything with regards to the <unk>.
Collection of macro in supply chain and locked down.
That's right.
Would you guys consider to be incremental.
Over the last 60 days or so since you gave your initial forecast.
It goes into your fiscal <unk>.
By fiscal 'twenty outlook, so just sort of what dynamics you are incremental and we're thinking might be incremental from 60 days ago.
That you want to take that one and I'll come back.
I think the only thing that wasn't occurring 60 days ago, I guess would be China Covid lockdowns.
Threat of that I think was always out there and it could have been in China or anywhere and I think thats the environment were in.
Frankly, I don't know, we don't know I don't know what new variance may come out I mean, it certainly seems like things are kind of trending to the positive and I certainly hope that's the case, but.
It's just we just don't know, but I mean over the last 60 days I don't think theres been any.
No.
Learned more about each each impact that's out there and we've adapted to <unk> points started to adapt is but to <unk> point.
But probably China Covid lockdowns, the only one that's incremental.
Okay great.
That's super helpful actually.
So I guess that also has to say that you still feel like.
You still feel like everything else is dimension for inside of responsible balance with regards here your initial expectations.
But I wouldn't say nothing has changed I think thats important I think I just want to stress. This point again, there are many things to consider and we have to keep in track all of them.
We're giving an outlook for a year right. So it's a substantially long period of time that we're going to adapt markets theyre going to change based on the information that's contained in the trends in the business today, that's kind of what we've reflected in the in the outlook, but we will update as we as we always do you know how.
We see things each each quarter.
That's super helpful and I guess quick follow up.
Nate I think Ali it.
I think it may have been you who talked about.
In the prepared remarks.
Gaining some traction and social gaming.
And like how incremental and how it can <unk> can you just give some context around that traction and how incremental could that be to the segment over time.
If you play it out.
Why don't I jump in there I think.
Very incremental I think.
It's sort of a natural outcome of if you went back in the United States to win.
The NFL was started and when football became really popular.
Football.
Our boys for kind of.
Mens.
Application.
Watched it.
Inc. If you roll forward to today in the U S. It's everybody's for others, maybe viewpoint approval in their room, playing a very big fiscal support for their remit, we're employing though even more true in gaming. So I think the natural evolution of what's happening in gaming as it's becoming.
For those who are the entity is becoming more and more popular and probably I don't know exactly but I'll bet the best growing segment.
Segment over dues is the casual I notice for us the casual gamer.
<unk> really comes in to connect with other people not just to go in and try to beat somebody else in.
We're super excited about that and I think those incremental I wouldn't say I.
I wouldn't say something.
We expect that to happen, but it's nice to see it happening as we launched products into those spaces, they're taken off which means we're really in the right place.
And when you guys.
Going back to your prepared remarks, you guys say say Sheila I think it was social platform gaming or something.
It might begin to language wrong, but something like that.
Like when you use that language social platform gaming like what specifically.
Let's specifically what specific instead of that gaming application.
You guys are describing when needs that language.
We certainly say social gamers and so got it.
A lot of platforms are playing out a lot of different games are playing on.
Even things like roadblocks I mean, I'll just give you an example, which isn't exactly David.
Just this weekend, we have the first.
This shows you how far away from gaming you can get core gamers. We just had the first we just created the first.
Big Awards event in <unk>, which was attended by over 6 billion people, so far and it's.
That just didn't exist before and.
And that's that's all occurring with.
<unk> performance was live by Lisa.
Different performers live.
In a video format.
Cartoon based format. So it's kind of remarkable to suit how far we've come in you can only imagine a part of this is going to go.
Best social experience, which is happening in game, where people were chatting I'm talking going there to median playing games or the games is completely secondary secondary to the social experience that you're referring to.
Appreciate that context.
Thanks.
Thank you Amanda.
Thanks, guys. Thanks.
Next up by yarn from UBS, you aren't going to see.
Hi, Brian .
<unk> good to see you and thanks for taking my questions. The.
The first one would be please on videoconferencing.
And the year.
Falling short of your expectations that corporate impact.
Now you also said maybe 50 attendees free we are could be below the 5% to 15%.
Despite some pent up demand and cover fixed and it seems to ease and also business slides I'd like to be kind of like Kansas City in Europe , and Asia, though the environment is.
Having much better.
So why should savi, thanks, Rolling three four years.
Thanks, Ralph on this revenue line and it's not really calling on on volumes, maybe in fiscal year 'twenty, two and 'twenty three.
And then second question if you allow me.
In gaming can you give us an update.
On the gaming mice and keyboard business in the U S. How this has developed in the last 345 months versus Europe . Thanks very much.
Let me take the first and they don't want to see if you could take the second one.
Okay.
The BC side.
Yes, it could be below it could be above so I don't think we meant to suggest that were social investments that we see.
We feel really good I'm, sorry, if I misled you.
My introductory remarks about our the answer one of the questions I think it's I think those things fall out I do expect to see lots of video going into offices and things around the world I think we're more we're more.
Clear eyed about whats happening working I was I think <unk> pretty stable, but they're not going to.
Predicting a big growth, but thats, a relatively relatively smaller part of our overall, we see business, but Congress chem market looks strong.
Yeah. Thanks for clarifying that Bracken I didn't mean to imply that either jordon certainly okay, yes think of it as possible to be outside of that range, but I think the distribution probably mostly fits within the range we gave.
Yes.
Your other question was on gaming most of the U S yogurt numbers off top of your head.
Gaming mice or was it price.
David any mice and keyboards.
Yes, and your question.
Brian versus Europe chocolate download transmission tariff.
With Europe .
You can also follow up later, maybe it's easier if we clean the app. We just follow up I have the data here I don't really does nothing jumps out at me, but we should say I'd say the trend is still kind of stronger on the wireless side, obviously than wired.
And that's kind of where we're.
Were particularly strong as on wireless so I think that's been to our benefit from a share standpoint, but in terms of market trends.
I mean, both EMEA and Americas have seen pullbacks in gaming over the last several months, we've talked about that previously Asia frankly remains very strong.
But also consider the comps that we're talking about as well and I think the 17% growth this year.
And even growing this quarter against the year that was up 108% a year ago I think.
As great and our share performance has been really strong with some discipline promo.
Thanks, and if you allow me one last question on the pricing.
Just across many industries average price increases we are observing right now between three 6%.
Im sorry, even higher.
I tried to make the math and you increase cost maybe it's two or three on that basis point that the total sales is this roughly if you put a deposit on that you should think about your price increase of that magnitude on average of three four percentage points in fiscal.
For these reasons the first stopping point.
Your question is our average price increased 3% to 4% for.
For fiscal 'twenty three is it fair to assume.
I don't actually I don't really think about it that way because it's really category specific as Bracken said.
We don't have sort of 111 number that we would apply everywhere, it's really different by category. So im sorry, I don't think I can really.
Confirm your estimates.
Sure.
Well, we don't do a lot of local.
<unk> business large companies do this we don't apply one price increase right across the board were very very specific we go for example, we will go to will grow 10% plus in some places and we will go to stay completely flat and others. We tend to be pretty we try to stay very aggressive on the low end because that tends to be the most price sensitive.
And then rule.
To more aggressively price of Ohio in the middle.
Yes.
Alright, Thanks, a lot. Thank you Victor and thanks, Thanks Joern.
Next up Rob Sanders Deutsche Bank, Hey, Rob.
Zero.
Hey, guys.
My first question is on China, I, just wanted to understand your factory and CJ, if you've had any disruption.
How would that affect you if there was an extended lockdown.
Given that last summer and then there was something like 50% of your manufacturing out of that facility and then I have a follow up thanks.
Okay.
So first of all we.
Have had disruptions from time to time to effect a very early days with cohort I think the sector is close to two weeks. So we obviously can recover from those it happens if it happens again, we'll recover from it it will be a timing problem more than anything else. We may lose some sales, but not as we speak.
So far we have not had a big issue there we've had some component shortages.
Of components that came out of the Shanghai area.
But in terms of the factory itself, it's done very very well, we've got a fantastic factory team. We also have a very very strong ability to move things in and out of our factory, which is not quite as dynamic as that within a two week period.
But I would say extraordinarily good and so it gives me a lot of confidence if we went into something that.
With more protracted we'd find a way to manage through the best possible outcome. So I feel pretty bullish about where we are for manufacturing center, where your numbers are about right, 340% to 50% of our of our products are made at our factory.
Yeah, I might just add a little bit to that Rob I think it's always a it's a lot of little things I mentioned in my prepared remarks, the increase in automation that we've done in our own factory.
So that's certainly not going to protect us completely but it does reduce our exposure a little bit to labor. So to the extent that labor gets disrupted in a situation like this I think that we could find ourselves competitively advantaged versus someone who hasnt made that investment in automation. So.
This is kind of the reason why I wanted to call that out.
It gives you a little bit of protection, depending on the severity of the Lockdowns and the length of the Lockdowns theres different impacts that we would have.
It's really around prioritizing too we have a broad portfolio and so if we get into a situation where we have to make some choices. We will make some choices will prioritize certain products, maybe even certain countries with supply.
We're not having to do that right now, but if we get to that point.
We have some experience doing that.
Okay, and just for my follow up.
A lot of the investment banks seem to have.
Sell through data from GSK and <unk> I'm, just wondering if you could just give an indication how April is looking.
By region, just said that we understand what the starting point.
Yes.
Im still not really clear whether you were assuming that the first half will be down in the second half will be up or something like that I just would like just to understand how youre thinking about the linearity of the year.
Thank you.
Yes.
Stepping back a little bit we often talk about typical seasonality in our business.
And I've been saying for a while it's equal seasonality kind of got thrown out the window and that's kind of been true for all of fiscal year 'twenty, one really starting in our fiscal Q4 'twenty when Covid began.
The Covid period began in the last couple of quarters have been more typical our Q3 was up 25% and our Q4 was down 25% sequentially, which isn't more in line with typical seasonality. So could be an indicator that things are settling down it's still a little balance sheet by category right not as predictable, but for a diversified portfolio like ours.
We're starting to see some of that seasonality reappear.
So this.
There's lots of ways again, it's a full year ahead, but I think thinking about our business kind of probably returning to more typical seasonality is a good way to think about modeling. It today and then we'll see how things evolve one adjustment to that certainly that we that we all need to make is just that there is no sales in Russia, and Ukraine, right now and I mentioned that earlier, so there'll be some adjusted.
In Q1, so that that seasonality as a result of that but then my assumption right. Now is based on current trends in the back half of the year kind of looks fairly typical with what we saw pre COVID-19.
Thanks, a lot.
Yes.
Thanks, Rob.
I think we've got time for one more question.
Adam Angela Bank of America.
Yes, thanks, guys.
One from me so I wanted to double check on your category assumptions for the year, you sort of touched on it already but just wanted to see if there's been any changes there.
And then secondly, if you could just update us on the channel inventory.
<unk> situation of your products.
Yes, I would probably say no real update on the categories.
All of them have some sales in Russia. So you might think about them all equally impacted by that from a direct sales standpoint.
And the channel inventories I would say like I like I mentioned back in A&D I think they are in good healthy shape, we're always a little bit short on something in a little bit long in something and I think that's kind of the way I would describe it now.
Areas are probably the most tightness are still on <unk> some of the mice and keyboards. We've got some component things that we're still trying to chase and clean up and the demand has been pretty healthy there.
But we're working through those things I would say the channels.
At typical levels.
Alright, thank you.
Sure.
Thanks, Adam I think we're at the bottom of the hour Bracken Nate appreciate.
Update breaking any final thoughts as we wrap here.
Thank you so much thanks for.
Everyone's questions you have engagements with terrific I know you do this for a living but it's really.
It's really the stimuli for us.
Let me say that.
So this debate.
Many times you I've always learned when I go out on the road and meet with investors or with you in a reform something about either about how people think about our business and what's going on in the world. So anyway. Thank you all for all support during the year. It was a terrific year.
Really excited about the next year on the years after that so look forward to a lot of more interesting and exciting calls a lot more learning thanks a lot.
Hugh.
Thanks, guys.
So you know.
Okay.