Q4 2023 Logitech International SA Earnings Call

And full year of fiscal 2023.

Speaker 1: for the fourth quarter and full year of fiscal 2023.

Speaker 1: Joining us today are Bracket Darrell, our president and CEO and Chuck Boyton RCFO.

Speaker 1: As a reminder, during this call we will make forward-looking statements, including with respect to future operating results, under the Safe Harbor of the Private Security Litigation Reform Act of 1995.

Speaker 1: We're making these statements based on our views only as of today. Our actual results could differ materially. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results. You can find a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures and factors.

Speaker 1: that could impact our financial results and forward-looking statements in our press release and in our filings with the SEC.

Speaker 1: 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 encourage you to review these materials carefully.

Speaker 1: Unless noted otherwise comparisons between periods are you ever year and in constant currency and net sales

Speaker 2: This call is being recorded and will be available for a replay on our website. I will now turn the call over to Bracken. Bracken. Thank you, Nate. Thanks all of you for joining us. Today I am joining you from New York. This really is a hybrid call. I think Chuck is in, I know Chuck's in California and Nate, I believe you're in Dallas. So we're really all over. About 60 days ago, we provided an overview of our business and our outlook for the coming fiscal year and check a little cover of the details. But big picture we ended this year.

Speaker 2: within our latest outlook and the outlook for the first half of fiscal year 24 remains unchanged.

Speaker 2: Most of the macroeconomic and geopolitical issues that impacted our fiscal year 23 results continue. Center banks are raising rates to combat inflation, consumer confidence remains lower, and overall demand from enterprises remains tepid.

Speaker 2: As I look at factors that are more directly impacting our businesses to mix back, their positive signs, the dollars weakening, thankfully, shipping rates, lead times, and our reliance on expedited shipping are nearing pre-pandemic levels, promotional levels are normalizing, and supply chains appear to be a problem in the past.

Speaker 2: However, industry layoffs continue. The wake up book companies handle return to the office continues to be uncertain. And we're not yet seeing refresh cycles kick in for price that we're in high demand during the pandemic.

Speaker 2: As we said last quarter, these conflicting economic signals create an environment with low visibility and a bias towards managing our business conservatively.

Speaker 2: Adjusting our business to meet the market opportunity is something that is not new to us. We adapted throughout the pandemic when we face supply chain, logistics, and manufacturing challenges. And we're adapting now to reshape our organization for more nimble decision making faster product design cycles.

Speaker 2: meeting evolving customers needs quickly and fluidly and improving our speed to market.

Speaker 2: So while acknowledging the macro headrons we ended Q4 in a solid position.

Speaker 2: Our sales teams closed a number of meaningful customer deals.

Speaker 2: We closed them on Snowflake, for example, and representing multiple industries, as well as education and government contracts.

Speaker 2: We released 52 new products in fiscal year 23. While it takes time to scale these launches, it demonstrates a commitment to product innovation. We want a record number of design awards, the latest numbers over 160 for the full year, 82 in the fourth quarter alone. Innovation is the key engine of this business and it's firing on all cylinders.

Speaker 2: Our commitment to sustainability is absolutely unwavering. In fact, we now have nearly 45% of our products with carbon labels.

Speaker 2: I believe there's no other company of our size or bigger near this level.

Speaker 2: We quickly reduced operating expenses to match the revenue reality. Revenue to client and op-ex reductions are down equally on a percentage basis for the year.

Speaker 2: As I indicated last quarter in our analyst and investor day, our 5023 results were disappointing.

Speaker 2: But as I always say to myself, it's time to draw a line behind our heels, learn from the past but move forward. And that's exactly what we're doing.

Speaker 2: We remain committed to the long-term growth trends, markets, strategy, and business model we have in place. So looking ahead, you should expect us to operate the business in a disciplined manner consistent with what we've demonstrated over the last few quarters.

Speaker 2: We will continue to adjust our expenses in line with the market.

Speaker 2: We'll continue to invest in product development. We have plans to introduce a whole series of new products across gaming, video collaboration and keyboards and mice in the quarter of the come.

Speaker 2: and we will continue to improve and refine our global go-to-market capabilities.

Speaker 2: I'm confident that the big, durable trends we've been highlighting, video everywhere, hybrid work, and the explosion of gaming and content creation will drive growth.

Speaker 2: challenging times always sharpen your focus and at fiscal year 23

Speaker 2: and the fiscal year 23 definitely sharpened ours, we quickly resized in a prudent, methodical fashion while remaining committed to the keystone of our business, product innovation, or as I think of it, design-led engineering.

Speaker 2: We are a constant that we've taken the appropriate steps to spring load our categories for growth as we exit this economic cycle and move ahead.

Speaker 2: One final point before I turn it over to Chuck. I've said a little this before, but it's worth repeating. I said earlier that 45% of our products now include carbon labeling. This is a huge deal for Logitech, but it can be an even bigger deal for the world. I'd like to point out that we're not trying to create competitive advantage here. We'd love the chance to help others, including competitors to advance carbon labeling. So please, for those of you listening.

Speaker 2: consumers, investors, analysts, and our competitors.

Speaker 2: You can have an impact, a big one. I'd ask that next time you're interacting with any company, including your own, ask them about their approach to carbon labelling. We can move this ahead so much faster. For the betterment of our customers and for the world, carbon labels on all our products can be the new calorie, and that will drive competition and bring down carbon levels.

Speaker 2: But that I'll hand it over to Jack to provide some additional color on Q4 and fiscal year 23 results. Check and check. I want to know I want you to notice that I wore my jacket. I felt so much pressure from you You said until we have growth you have to wear a jacket to the earnings goals and I don't like wearing a jacket So I hope it's not long. Well, you look great braking

Speaker 3: Thank you and I appreciate you all joining our call today. Our Silicon Valley site is being relocated, some calling in from my house today using a 4K Brio webcam, the Logi doc in our MX Series mouse and keyboard. Next quarter we should be in our new office in San Jose. Now let me delve into the fourth quarter and full year in greater detail.

Speaker 3: billion. Examining our category performance results were in line with expectations with continued pressure and video collaboration down 25% and gaming down 22% due to a slowdown in simulation.

Speaker 3: while our creativity and productivity categories either held steady or improved sequentially.

Speaker 3: And Q4 gross margins were in line with our expectations decreasing year over year to 36.3%.

Speaker 3: For the year-gross margins were 38.3 percent down 340 basis points compared to fiscal year 22

Speaker 3: Margins were pressured throughout the year to unfavorable currency movements.

Speaker 3: inflation-driven cost increases, and product mix.

Speaker 3: As we transition to fiscal year 24, we anticipate the weakening US dollar Euro exchange rate and lower manufacturing costs to contribute to improved gross margins.

Speaker 3: Would you just recently reduced operating expenses over the year while continuing to invest in our product innovation initiatives and enterprise selling capabilities?

Speaker 3: Operating income was 82 million in Q4 and 589 million for the full year. Operating income in both the quarter and the year reflected lower demand and gross margin pressure, partially offset by reductions in operating expenses. Cash flow from operations was 217 million dollars in Q4.

Speaker 3: and March we outlined our intentions to quickly address two opportunities. One, improve our cash conversion cycle by reducing on-hand inventory and optimizing channel inventory.

Speaker 3: and two, reduce the operating expenses to a run rate of $1 billion.

Speaker 3: I'm pleased to report that our on-hand inventory was down for the fourth consecutive quarter with Q4 seeing the biggest reduction of the year. Our goal over the next year or so is to continuously improve inventory turns to five or better. Furthermore, we plan to keep reducing channel inventory in the first half of the year before the normal build to the December quarter. As we mentioned during analyst day, we believe lower channel and on-hand inventory provide better economics for us and our partners in the value chain.

Speaker 3: Expecting H1 fiscal year 24 revenue of 1.8 to 1.9 billion down approximately 22 to 18% compared to the prior year in US dollars.

Speaker 3: Our corresponding operating income is expected to be between 160 million and 190 million down approximately 47 to 37%.

Speaker 3: Nate, we can now open the line for questions.

Speaker 1: Great, thanks Chuck, thanks Bracken, thanks everyone for joining. As a reminder, please raise your hand if you're interested in participating in Q&A and come off of video when selected. Thank you. First question comes from Paul Chung at JP Morgan. Morning, Paul. Hello, Paul.

Speaker 1: Morning, so good to see you guys. Good to see you, and your first city. Yeah, so first up, Bunkrose margins, you know, for four key would have thought there would be, you know, better improvement and kind of easing supply chain headwinds. What kind of the pressure is there? I know VC and gaming mix has come down a bit, which may have driven some impact there.

Speaker 3: We did, the operations team did a phenomenal job reducing costs, but with inventory turns, we won't see the benefit of that cost reduction until next quarter as it flows through. Q4, you know, kind of compared to Q3, we did have some minor inventory charges. The mixed issue is identified in the prepared remarks. And looking forward, we see tailwinds with FX, you know, lower costs. And obviously note not the same inventory charges in longer term, we expect to be in that long-term operating model of, you know, 39 to, you know, low 40s over time.

Speaker 1: Okay, great. And then second, on VC, in your prepared remarks, you kind of mentioned

Speaker 1: kind of typical ASP per room has been increasing, which is great.

Speaker 1: Can you help us size both the opportunity to expand conference rooms? Where do you think that ASP can go when volume comes back? And which peripherals you're seeing the most success in the conference rooms? Thanks.

Speaker 2: Yeah, so I think the cool thing about our business model is there's just a lot of room to continue to increase the SP per room. If you think about it, we announced something called site, which most of you've seen, which is just about, it's soon going to be out. And it's another peripheral basically for the room. You get a rally bar, rally bar, many you add that in the middle of the table and suddenly you've got an equitable meeting. So, you know, that's an example. You've also got whiteboards, which are $1,000 a unit. You can drop in.

Speaker 2: Yeah, we're a good example. We're closing one office, we're opening another office, and then the new office, we know exactly what we're doing from video enable at standpoint, but a lot of other people are lagging us. They're either. They really haven't completely decided what to do with the current office, they're doing the minimum.

Speaker 2: or they're saving money because they're going through the second I'm a cycle to. Or they're going to do it but it's going to come later so I'm not hearing anybody say you got you know video enable my room is bad idea it's just timing. And I would just add bracket you know the market sizing that we talked about at analyst day is roughly 50 million conference rooms of approximately 10%

Speaker 2: is they re-outfit their rooms over time. So, we're bullish on video long-term, and it's a great category in these new products. I think we'll provide additional fuel for growth long-term. You know, one other thing we didn't mention Paul was service. It's a really small business for us today, but it's going to keep growing. And it's growing rapidly. And every time you buy a room, you really ought to be getting the service that goes with it.

Speaker 2: and our service package is called Select, and it's growing, like I said, it's growing very rapidly, and I think one day, that'll be a pretty decent chunk of our revenue.

Speaker 2: Great, thank you. Thank you. Next up is Alex Vovol from Goldman Sachs.

Speaker 2: Thank you. Thank you. That is Alex Evol from Goldman Sachs. Hey Alex, how you doing?

Speaker 4: Hi everyone, thanks very much for the questions. Just wanted to ask firstly on OPEX, I've done a very strong job controlling that. I just wondered how much more OPEX control you think can be done. Should we expect further cost reductions this fiscal year versus this 2023 or is fiscal fourth quarter indicative of a new run rate going forward. And secondly, some investors have been asking about PC suppliers which...

Speaker 2: we've been super clear that we want to get to a billion dollar run rate on our OPEX as we get past this first happen in the latter half of the year and that's where we're headed. So no, our current run rate's not quite where we want to be yet but we'll get there. On your second question, we've been pretty clear that we think the PC

The PC category is kind of not linked as a driver of our peripherals business. However, it is probably indicative of what's happening in one way, which is that, you know, if a, especially in the B2B business, you know, if people are, are, are cutting spending on PCs, they're probably also cutting spending on peripherals. So yeah, I think there's some relationship. We'll see what happens. You know, we're not getting back after the year yet. We're at least.

And so there are some headwinds on OpEx with FX, which is an overall benefit to the company, but a little bit of a headwind. But so the reductions are already mostly completed and we'll see the numbers come down, I think each and every quarter up until the middle part of the back half of the year.

It was very helpful, many kinds. Thank you. We could go from the Hossie Immersion at City. Morning, I have to ask you. Good morning, everyone. Hopefully you can hear me. So a quick question on Gross Margin. I think in the past, you guys have provided some, you know, a breakdown of how F-Batch...

The inventory is right sized and flow through of the lower manufacturing costs. What should we expect for, let's say, even the first half of the year? Should we expect those unwinds to happen that are headwinds in the first, throughout most of fiscal 23? That's my first question. And then secondly, I can let Dr. – Let me stop you there. Let's answer one more.

through, it's just coming through slowly and it as it would, you know, it has to work its way through our inventory which takes time. We've got a pretty long inventory cycle and we're and we were sitting on more inventory than we would have liked before. You want to add anything to that, Chuck? Yeah, I think that's good and yes, sequentially that's sort of a year-over-year view. Sequentially, you know, inventory charges were, you know, a couple hundred basis points in the mix.

people are trying to understand what the effect of promotions have been is their competitive that kind of goes into my second question the competitive dynamic you talked about gaming being soft we heard from you know GN I guess Jabra in Europe that they had done well in gaming.

So maybe you can talk a little bit about the competitive dynamics both on the gaming side and just broadly how it's affecting margins, whether there's been an increased competitive intensity here, and if you see that easing as the year progresses. First, let me, I don't know their earnings quite well enough to know, but I have a hunch that the difference between us and them is simply category difference. So.

do. So, you know, promotional activity, sort of went back to normal in Q4. That was a bit of a headwind in Q3. It was sort of back to normal in Q4. Competitive positioning. I think we feel great in gaming. Our business, our gaming business is very, very much larger than theirs is. So it's when you compare the categories.

We have different categories like simulation that they're not in. It's a great category with terrific margins. That was down quarter of a quarter given the kind of promotional bump from the December quarter.

And so just some things going forward, whether it's VC, with HP, whether it's gaming, are we seeing as the inventory digestion has happened?

competition is kind of going back to normal promo and so there isn't this excessive hunt to reduce inventory in the channel.

I don't yeah go ahead Chuck. The B2B side is not as price sensitive as the consumer side so I don't think the video category is very price sensitive. The margins are terrific and you know the industry participants have been behaving you know rationally and so that's really more I think just this kind of

a general issue around the economy and uncertainty that's happening with corporate buyers. But the overall large conference room, medium conference room business is kind of stable. It's not really taking off and growing, but it's not really going down either. So I think that's really more.

just the early indicators look good, but I think with the overall uncertainty that will come back. Other areas like webcams, I think you see more price sensitivity. Yeah, and we've always got, and we do now, areas where we feel like we really need to adjust pricing a little bit or bring pricing down a little heavier, but they tend to be surgical.

Without getting into specifics here, I think that's going to continue to happen. But overall, I feel like the promotion intensity is not, it doesn't scare me right now. I don't feel like there's a big wave of price competition coming through that's going to change the dynamics of our business.

Okay, great. Thank you. Thank you. Next on the live air, Woodland from Morgan Stanley . Hello Eric. Hey good morning guys. Thanks for taking my question. You know, Brad, and maybe if I could ask you a bigger picture question and that is, you know, I appreciate the fact that you're very clear and that visibility is more limited today.

Can you maybe just share some comments about why visibility is less limited today? Is it the channel? Is it spending patterns? Is it the impact and the uncertainty of the macro conditions? All of the above. If you could just double click on that to help us understand why perhaps today versus historical periods you just have less visibility into the business.

That's a great question. I like the way you phrase it's really not it's only the just the the economic environment we're in. It's a little hard to see you don't know you're gonna go up until you actually bounce you know and I think we've been down now for three or four quarters and I think. It's really hard for us to judge when that direction will change that we think it will change is just question when so.

It's really just that. I was in an event this week where there were a bunch of mid-sized, smaller CEOs and some HR people, etc. It just reinforced my strong feeling and the data that we're seeing, which is that especially on the B2B side, it's not like companies are in trouble. They're okay.

they're just spending more conservatively. And I think that conservatism is pretty, when you spend conservatively, you tend to have the easiest control over your costs. And that's why a lot of PC companies are feeling it. We're feeling it.

So it's really just that Eric and it's really hard for me to say when it will turn but it will you know You could probably go back and look at economic cycles and try to do something But we decided just be more conservative and just just guide for six months and then wait and see quarter by quarter Okay, that's helpful And then I guess maybe the second question because you guys kind of Elaborated to it, but you called out some deals this quarter, which I feel like you don't necessarily do historically You mentioned snowflake Chuck. You mentioned another

you could share on the products and then whether they're incremental or not, that'll be helpful.

I'll jump in and Chuck you can add. I think we really just felt like, you know what, we should once in a while call out some of the customers. So you get a feel for the logos. There are a lot of big logos that we don't get permission to talk about publicly for whatever reason. It's not usually that they don't want us to, we just don't go ask them. We did mention stuff like this time, we talked about the food company, there are many others. I would say they're pretty much part of what we are overall being planned.

They're needle movers, but they're not needle movers relative to the expectations you've already set. You want to add anything in there, Chuck? Yeah, I do. Eric, the key thing is you want to win the company. Now, many companies use multiple vendors, so it's not like they're exclusive. But if you win the account, it tends to be a smaller deal up front.

and then they keep buying more and more and more over peer to years. So no one transaction is a needle mover for us, but they're really good signs that we've won the account that we can land and expand and ultimately that's what we're looking for. And I just want to call out our sales organization because they are just they've done a really really good job of building out this B2B capability.

So it's very small with us about two years ago. And now every single room they have has our stuff and it's an incredible office by the way. And you know, it's kind of our game plan where you just really want to land and expand.

If I can, sorry, just follow up with one last question, Chuck. This one's for you, just on Gross margins. If we look back over the last four years, we have seen sequential compression and gross margins from March into June . The comments I hear from you kind of seem to indicate they might go the other direction and expand from March to June . Can you just maybe help us give us a few minutes? Thank you.

sort of transitory state right now. You know, we brought channel inventory down significantly. So we brought channel inventory down. We're gonna continue to take that down in Q1 and Q2 before it builds into Q3. The overall seasonality of the company is such that, you know, Q1 and Q2, like we actually, we outlined this at our analyst day, if you go back and look, I think it was like 24.

percent Q1, 24 percent Q2, 30 percent Q3, and I think 22 of my math works for Q4. That overall profile, think about that. You're absorbing more overhead, as you have bigger quarters. And with taking channel inventory down and revenue being suppressed with reducing channel inventory.

you know the currency rates but that's been a real headwind over the last year or so it looks like it's getting better in turning but we just we can't be sure the inventory charges you know some of those items I do think those are our tailwind now. Super thank you for all the color guys. Thank you. Our next question is from Ananda at Luke. Good morning Ananda. Hey Ananda. Hey guys. Hey good morning. Yeah. Good to see you guys. Thank you. Taking the questions. Um.

A couple if I could, I mean I guess we could just stick right there Chuck with your comments around sort of seasonality. Do you think that the inventory that remains to be worked down could impact seasonality in September , December quarter meaningfully or is the inventory really in businesses where right now where the impact would be needed?

And then I have a quick follow up, thanks. Yeah, I mean, you know, overall, I feel comfortable with where inventory levels are. I just, our view is sort of a philosophy is that a lean supply chain is better for everyone. If you think about, you know, return invested capital is I think is the ultimate metric. If you have less on hand inventory, less channel inventory, it's better economics for everyone. So

While our weeks on hand are within the normal operating model, we'd like to get that a little bit leaner, because I think that will be better returns for us and the channel. But of course, you have to rebuild the channel inventory because of that seasonality for the December quarter, you know, Black Friday into the Christmas.

period. So that I believe will happen, you know, regardless, but overall, I were comfortable with where the levels are today, and even where they were in Q4, we just want to take them down because I think it's better unit economics.

That's really helpful. Appreciate that. And then, Bracken, I guess for you, you mentioned...

sort of like kind of off the cuff in the beginning, prepare remarks, which are in the offices of certain refresh cycles, having kicked in yet.

Anything that you guys are seeing that has you think kind of the structural nature that underpins some of the key trends is altering at all and actually if you could just as a part of that just where are you seeing the refresh cycle is not yet kicking in when you think they eventually will kick in.

And that's it for me. Thanks. Yeah, thank you. On the refresh cycles, I think we're not yet seeing a personal workspace. We're not really seeing a kick in yet, which is the mice and keyboards and that kind of thing. And even for gaming, so I think that's probably ahead of us. Those cycles are three to five years, so we'll probably see it. Some of the categories are faster, some are a little longer.

on the structural nature of our opportunity. You don't really see anything that's changed. I mean, I think it's pretty much the same. We've just got such a, I'm sitting in an office now and the one I'm sitting in now does have video. But if I walk down the hallway, it's amazing to me how many of these offices do not have video.

I don't think the reality of gaming or streaming and creating has really changed at all. So I don't see anything really fundamentally structurally that's changed in our view of the category opportunities.

I like okay great that's helpful thank you

Next on the line is Adam Angelov from Bank of America. Thanks for letting me on. So firstly, just a very quick one for Chuck to follow up on what you just answered to previous question. Gross margins back to normal.

Did you mean back to the long-term guidance range? Just quickly on that. Yeah, it's possible we get there still this year. Q3 generally tends to be really strong gross margins because it is a peak quarter. I think it's very possible that Q3 is there just because it's such a big, big quarter due to seasonality. But if you think about run rates structurally annually at that 39-44%, my guess is it's probably into next year. But I can't really predict that. But certainly, I think if you look historically,

Q3 being our best quarter, we've been typically quite high margins in that Q3 just given the volume.

Got it, that's helpful thanks. So next I think just curious on what you saw in China in the quarter, was there any sequential improvement there and perhaps as you look into the rest of the year how you would expect that to develop?

I'm going to try that with Chuckie, you feel free to jump in. I think China is a little harder for me to judge right now to be honest. It's usually been just kind of consistently up and to the right. I think it's been choppy over the last.

You know kind of year it's it's it is highly competitive there It's opened up but not as much as you would like, you know So it's not quite where it backward used to be but but I feel very confident and sort of the longer term I think the dynamics in China are great, you know, you've got such a young population everybody's

moving into the workforce and moving up in the workforce, and there's more and more knowledge workers. It's become an environment where you can imagine a bigger, a healthier, more dynamic IT world in China. It's obvious to me and probably obvious to you. I'm really excited about long-term. We have a great brand there. I mean, a really great brand there, incredibly.

gets to where it's really got more gusto. But overall, I don't see anything but strength long-term in China. But it's really hard for me to call, just like it is for our visibility in the back half of the year for the company in general, for China particularly. I don't know. Yeah, I think as it relates to China, Q3 was a tough quarter. We were down 25% year over year in Q3.

Q4 though, we were down 3% year over year. So it looks like a recovery in China. As Bracken mentioned, our top skews, the best selling products in China are on the gaming side. I guess so there's just a huge opportunity on video, but that's a tough nut to crack, but that one.

The market is just enormous. And so I think we're in a good position with things stabilizing there as it relates to volumes year over year. We do partner differently in video in China than we do elsewhere because the same service players are not, I think big video conference players are not as big in China. They're much smaller. So I think we're in a good position.

Okay, that's right. And if I can just squeeze one more in. The behavior you're seeing from the enterprise customers, I think you touched on it briefly, but just curious to know, it sounds like it hasn't gotten worse, but equally hasn't improved. But maybe if you could just go into that in a little bit more detail.

Yeah, thanks. I think you captured it. It's pretty much kind of stable, I would say. It's about where it was, which doesn't really shock me. The layoff news continues and the layoffs, especially in tech, but it's also spread to some extent, as you know, in banking and you know, I think in some other sectors, you know, I think that news kind of, it seems like it maybe is almost all the way out.

from George Wang at Barclays. Hey, George. Hey, George. Hey, guys. Chuck, maybe you can give more color on the capital return kind of going forward, especially given better cash flow backdrop with some tailwinds coming back on the inventory kind of better cost of profiles. Just curious if you have any color just on buyback or kind of dividend going forward.

It's down year over year. And we ended last year at about 1.2 or 1.3, and we returned 577 million roughly to shareholders. So that has been great. Our primary objective though, as we've stated before, is growth. And so, to the extent we don't use cash to buy companies or expand, and then we plan to return that back to our shareholders.

share gains in the last few months? Across the year, you can see our share gains across most of our key categories. And those share gains were very widespread and consistent. And it's really a function of our innovation engine. It was in any single quarter of a few months. We'll have sometimes wobbles up and down. So I won't go through the individual.

That's for me.

All right, thank you. Our next question is from Serge Rutter at Credit Suisse. Hi Serge.

Hi, so now I'm ready. Good morning everybody. Well, two simple questions. The first question is you were down 22% in sales and also in gaming, 25%, 27% in video conferencing. Can you give me a feeling how much is price impact and how much is volume impact?

price impact due to promotions but also due to more competition in the enterprise business. Can you give me a flavor on that? Certainly. The year-over-year changes are primarily volume. We were promoting a little more than we'd expected in Q3. That has returned to normal.

tablets and accessories have been a bright spot. Certainly there's lots of different, we have many many SKUs, many products, many of them there are many that are growing but you know the secular trends that you're seeing are that our year-over-year comps. As we start to lap our Q4 and throughout this year I think we'll see easier.

and better comps as it relates to the year over year results. Okay, fair enough. Then probably I'll switch direct to the second question. At the capital market, you mentioned that, hey guys, look at the seasonality, you know, over quarters in sales. And it's 48% in sales you do the first six months and obviously 52% in the second six months or second now.

Now I'm wondering we also have a seasonality in EBIT, you know, in the past you did 40% of the EBIT in the first six months. So basically you have to do 60% a second off. And when I take your guidance and would sum this up for the full year, then we are at the level at the midpoint of 435 million, you know. This is clearly below con...

We're taking costs out and we're seeing some benefits that we think will manifest into gross margins. And so that profile that you're seeing in this transitional stage is putting more pressure on the near term. We're not providing outlook to the back half of the year because quite frankly, we just don't know.

We hope to do that. We plan to return to annual guidance over time. Certainly, we're optimistic that the December quarter, our biggest quarter, will be a strong quarter, but at this point sitting here in early May, it's just too early right now to provide color on Q3 and Q4.

But to be honest, to improve your margin, your AB contribution in a second of, you need success in VC. Is this correct because it's still the highest growth profit margin product? Well, certainly if video conference improves, that's an additional tailwind, the mix that we talked about.

It's really hard to predict what will happen with the mix. I will tell you generally, the B2B categories are less seasonal. I think you'll see the other parts of the business will mix up more in the Q3 quarter due to seasonality. But video does not have to return to get to our targets, but if it does, I think that's great and we expect it to. We're not providing guidance.

break out in a bit more detail the quarterly businesses. So in the video category, we have professional webcams and some other solutions in there and webcams across the board, business to business consumer.

those have seen some significant declines, and whereas the room solutions have been fairly stable, and that's what we're referring to. Okay, got it. This is very helpful. So bon voyage, thank you so much. Bye-bye. Thank you. I'm glad you said that Chuck, because I think that I can't wait till we do that realignment because I think it will clear up.

you at some point. You mentioned this correlation with PC sales of course is not that much strong, but from a product perspective that this operating system will help you in some ways with your product that.

some new innovations coming in. You know my experience with Windows upgrades is just kind of ignore them from a standpoint for the near term and then the long term they're good because they keep the PC industry vibrant. You know, so that's kind of the way we're thinking about it now, but I'm sure it will be a good thing overall, good for users and our products are always.

well integrated with the latest Windows updates upgrade. So we're going to be in good shape there, but I wouldn't expect anything significant to change because that.

Okay. I'm done. You're there. I wish we'd had one other thing. I think the bigger change we've made is our products work really well with Apple. You know, we're with the Mac and that's happened over the last year and we've seen, you know, really significant business improvement and potential out there because of that.

That's tied to the productivity categories or also? Yeah, that's right. Yeah, productivity categories.

Then next question, your cash rich company right now, and I was wondering, can you discuss if that is helpful or what that help all the time when financing by banks?

sort of for more conservative and towards clients and competitors. I mean, thus that change your position in some ways because I saw TPO's went up. Let me just try to briefly answer that now, like, check TPO. I'm not sure it really changed anything for us because we don't need it.

much support from banks. We do have great banking relationships and the event we ever needed it, but we don't really need much supply to change much. I will say it's kind of comforting not to be too dependent on leverage in tough times, but I think at the other day, as you said, we're a cash rich company, but we're also a very good cash generator.

generator and we're aggressively looking for strategic ways to really grow our business because growth is what it's all about and so we're going to keep doing that. Chuck, you want to add anything to that? Yeah, I agree. We have a very high bar for M&A. We've got a great history and a great track record and to the extent we find great opportunities then we'll deploy it otherwise we will return.

the capital, the shareholders as we've done. But I'm very comfortable with the cash balance that we have. It's similar to where it's been the last couple of years. And so I think it's sort of steady as she goes on the capital allocation model.

Okay, and the last question on you with for you Chuck, this 18 million resortering charge was that it now in this program or should we look for more going for? There will be more charges the accounting rules have kind of changed over the years where you used to just take all the charges up front.

And then you would spend against those reserves. The rules have changed a little bit, so there will be additional charges that we incur over the next few quarters, but largely the actions are all done internally. It's just more of a timing. Mm.

Okay, thank you very much. Thank you very much

Michael. Drake, Bracken, Chuck, our final question for the morning is from Michael at Vantavell. Hi Michael, it's biking season so you're probably back out. Okay I have one on sustainability. You mentioned that your carbon labeling is now I think 45%.

What holds you back from being fast and labeling the rest? And you know, is the process so complex? Is that maybe a reason why it's also holding back your peers from doing the same? Yes, there are two. Okay, I'll answer that. There are two things going on there. One is that it is a, you know, we don't want to just.

estimate, you know, give a really high level estimate of carbon impact because we're taking scopes one, two, and three, which means from the components that go into our products, transportation, in use, and end of life. So we're really taking the full period. We also need to have enough data to actually be able to draw conclusions that are accurate.

some of our products that are newer, we really have to give them a year before we have a good accurate assessment. So that's one of the drivers. The second one is it just takes a while to then implement those into individual products, product by product. So I'm really excited about how fast we've moved actually. And I think one of the reasons why you don't see it from other people is because it is.

tool that we can all use, governments can use, to drive the salt to compete with each other on carbon.

Okay, thank you. And then on your guidance for the first half of your fiscal year, what, which categories are you most confident in that will support that guidance and where, you know, do you have more uncertainty looking in the first six months? I will try to be anything except to stress.

that the gaming category will be solid. I think video collaboration, I kind of think that one, they say you enter a cycle earlier on consumer and you exited earlier and you enter a cycle later on B2B and you exit it later. So I would say if you had to ask me, you really pressed me. I would say my guess is that the mouse and keyboard business will be sturdier and more reliable than the others. But it's been a little hard to tell through this cycle. One of the reasons why we only got it six months is because it's really harder to tell right now.

internal metric that we track and it's so I would not expect us to publish long term outlook there.

I do love it. I do love that we're using it internally and I think it's a super important metric.

Do love that we're using it internally and I think it's a super important metric. Definitely.

Thanks. Thanks a lot. Thank you. Well, thanks to all of you. I'll jump in here, Nate. Just I really appreciate all the discussion. One quarter down. At a minute, we have more visibility. You can bet that we're strong visibility. We're going to go to the full year, as Chuck said. And so thanks. We'll see you in a quarter.