Q2 2024 Logitech International SA Earnings Call

October 24, 2023

Speaker 1: and check point in a CFO .

Nate Melihercik: CEO, and Chuck Boynton, our CSO. During this call, we will make forward-looking statements, including with respect to future operating results, one of the state harbor of the private security's litigation reform act of 1995, for making these statements based on our views only as of today, and our actual results could differ materially. We undertake no obligation to update or revise any of these statements. We will also discuss non-gap financial results, and you can find a reconciliation between non-gap and gap results, and information about our use of non-gap measures and factors that could impact our financial results, and forward-looking statements in our press release, and in our filings with the SEC.

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 Reform Act of 1095, we're making these statements based on our views only as of today and 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.

Speaker 1: During this call, we will make forward looking statements, including with respect to future operating results, another state partner of the Private Security's litigation reform act of 1995.

Speaker 1: for making these statements based on our views only as of today and our actual results could differ materially. We undertake no obligation to update or revise any of these statements. We also discuss non- GAAP financial results and you can find a reconciliation between non-gap and gap results. And information about our use of non- GAAP measures and factors that could impact our financial results. And for looking statements in our press release and in our filings of the SEC.

And you can find a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward looking statements in our press release and in our filings with the SEC. These materials as well as the 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: These materials as well as the 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.

Nate Melihercik: These materials, as well as the 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. Unless noted otherwise, comparisons between periods are year-to-year and in constant currency and net sales. This call is being recorded and will be available for a replay on our website.

Speaker 1: Unless noted otherwise, comparisons between periods are year over year and in constant currency and net sales. This call is being recorded and will be available for a replay on our website.

Unless noted otherwise comparisons between periods are year over year and in constant currency net sales. This call is being recorded and will be available for a replay on our website.

Speaker 1: One brief note before we move on to the quarterly results. Next quarter, we will plan to update and modernize our earnings materials. The totality of the information we provide today will not-

One brief note before we move onto the quarterly results next quarter, we will plan to update and modernize our earnings materials. The totality of the information we provide today will not change I'll now turn the call over to Guy Guy. Thank you Nate.

Nate Melihercik: One brief note before we move on to the quarterly results. Next quarter, we will plan to update and modernize our earnings materials. The totality of the information we provide today will not change.

Speaker 2: I'll now turn the call over to Guy. Guy, thank you Nate, and thank you all for joining us today.

Guy Gecht: I'll now turn the call over to Guy. Guy? Thank you, Nate, and thank you all for joining us today. I'm very proud of the Logitech's team performance and execution of the squadron, providing better and expected results despite configured challenges, especially in Asia. Our new products, combined with sales execution, led to a significant progress toward the return to growth. And we did it while delivering record operating and growth margins, exceeding any time in our history outside of the peak pandemic period, along with OPEX control coming in slightly better than our 25% targets.

And thank you all for joining us today.

Speaker 3: I'm very proud of the large extent performance and execution of the score. Briding better than expected results despite continued challenges.

I am very proud of the logistics team performance and execution of this quarter, but I think better than expected results. Despite continued challenges, especially in Asia.

Speaker 3: Our new products, combined with sales execution, led to significant progress toward a return to go.

Our new products combined with sales execution led to a significant progress toward the return to growth.

Speaker 3: And we did it while delivering record operating and gross margins exceeding any time in our history outside of the big pandemic periods, along with OPEX control coming in slightly better than our 25% target.

And we did this while delivering record operating and gross margins exceeding anytime in our history outside of the big pandemic periods, along with Opex control coming in slightly better than our 25% targets.

Speaker 3: While we pause to congratulate the team, and indeed they deserve a huge thank you for the results, you will not find here any complacency, especially not before we return to health.

While we pose to congratulate the team and indeed, they deserve a huge thank you for the results you will not find any complacency, especially not before we return to healthy growth.

Guy Gecht: While we pause to congratulate the team, and indeed they deserve a huge thank you for the results, you will not find here any complacency, especially not before we return to healthy growth. That may take time as we work through pandemic pull forward demand, but we are actively working toward it. Looking longer term, I'm confident about Logitech's positioning. I'll portfolio lines with durable, secular trends and hybrid work, video conferencing, gaming and content creation that will continue playing out. And we see no reason to why we will not maintain the number one positioning. Logitech currently holds in the majority of our growth categories.

Speaker 3: That may take time as we work through pandemic pull forward demand, but we are actively working towards.

That may take time, as we work through pandemic portfolio demand, but we are actively working towards it.

Speaker 3: Looking longer, I'm confident about the larger text positioning. I'll perform your lines with durable, secular trends in hybrid work, video conferencing, gaming and content creation that will continue playing up.

Looking longer term I am confident about logistics positioning.

Folio lines with doable secular trends in hybrid work video conferencing gaming and content creation that will continue playing out.

Speaker 3: And we see no reason to why we will not maintain the number one positioning, largely the currently holds in the majority of our growth cards.

And we see no reason why we will not maintain the number one positioning logic that currently holds in the majority of our growth categories.

Speaker 3: Now let me briefly comment about the state of the business in this golf category. And then Chak will give you a lot more color on our performance in the quarter.

Guy Gecht: Now let me briefly comment about the state of the business in this growth categories, and then Chuck will give you a lot more color on our performance in the quarter. I'm going to jump right into the video collaboration where our results are sequentially moving, but still far from where we wanted them to be. We're still facing market related challenges, where some customers are taking a measure of the board to equipping conference rooms, focusing first on hybrid work enablement by getting their workflow back into the office.

Now, let me briefly comment about the state of the business in this Gulf categories, and then Chuck will give you a lot more colo on our performance in the quarter.

Speaker 3: I'm going to jump right into the video collaboration where our results are sequentially improving, but still far from where we wanted them.

I'm going to jump right into the video collaboration will our results are sequentially, improving but still far from where we wanted them to be we're still facing market related challenges, where some customers are taking a measured approach to equipping conference rooms, focusing first on hybrid work enablement by getting the workflow.

Speaker 3: We're still facing market related challenges, where some customers are taking a measure of the porch to equipping conference rooms, focusing first on hybrid work enablement by getting their workflow back into the office. But the need for equitable video and audio is only increasing. And our new site, Table Talk Camera, Ship the Squatter, uniquely provides the best experience for hybrid.

Into the office, but the need for equitable video and audio is only increasing and our new site tabletop camila shipped this quarter.

Guy Gecht: But the need for equitable video and audio is only increasing. And our new site, tabletop camera, ship the squatter uniquely provides the best experience for hybrid meeting. We expect to continue to see gradual improvement in this business, and we'll be back in government. Our solutions for personal work spaces, like keyboard and mice, are on the verge of growth again, mobile accessories and ourselves into the enterprise, our areas of the specific strengths this quarter.

Equally provides the vast experience of a hybrid meeting.

Speaker 3: We expect to continue to see gradual improvement in this business. And we'll be back and go.

We expect to continue to see gradual improvement in this business and we'll be back in growth mode.

Speaker 3: Our solutions for personal workspaces, like keyboard and mice, are on the verge of growth again, mobile accessories and ourselves into the enterprise, our areas of the specific strengths of the squirtle. Between business interest and new consumer products, we see this category well-positioned for the early days.

Our solutions for personal Workspaces like keyboards, and mice are on the verge of growth again mobile accessories, and our sales into the enterprise.

Areas of specific strength this quarter between business interest and new consumer products, we see this category well positions for the holiday season.

Guy Gecht: Between business interest and new consumer products, we see this category well positions for the early days. Pithy Gaming reports sequentially, and the EU Overrear Declines are moderating. Simulation and constant gaming remain challenged as we work through unfavorable comms that should be in F-25. Current and upcoming products refreshes of course are gaming portfolio in the next several quarters with further boosts in this industry that improving but still not back to growth.

Speaker 3: PC gaming improves sequentially and the use of little declines are moderating. Simulation and console gaming remain challenged as we work through unfavorable comms. The 2D is in FY20.

PC gaming are both sequentially and year over year declines are moderating simulation and console gaming remained challenged as we work through unfavorable golf comps that should these in FY 'twenty five.

Speaker 3: current and upcoming products with thresholds. Of course, our gaming portfolio in the next several quarters will further boost us in this industry that improving but still not back.

Current and upcoming products with thresholds and of course, our gaming portfolio in the next several quarters with further boost us in this industry that improving but still not back to growth.

Our design led innovation was on full display this quarter with 16, new products, we expanded the pulse series gaming portfolio with a light speed keyboard and Super like two months, we launched Logitech G. Littler beam line and two yet the microphones. We also launched the first product in a new category for Logitech the cost of pulp.

Speaker 3: Our design led innovation was on full display this year. With 16 new ports, we expanded the boss series, Gaming Corfolio with the light speed keyboard and Super Light 2.

Guy Gecht: Our design led innovation was on full display this quarter. With 16 new products we expanded the both series gaming portfolio with the light speed keyboard and super light 2 miles. We launched a Logitech G, Literal Beam Light, and two yet new microphones. We also launched the first product in a new category for Logitech, the Casar Popup Desk, which is an all-in-one ergonomics set up. We also continue to introduce new AI-powered products, like a zone wireless two headsets.

Speaker 3: We launch a Logitech G Literal Beam Lite and two yeti mic...

Speaker 3: We also launched the first product in a new category for large tech, the Casar Popap Desk, which is an all-in-one ergonomics desk set.

This which is all in one economics that setup.

Speaker 3: We also continue to introduce new AI-powered products, like our Zone Wireless 2.0.

We also continue to introduce new AI powered products like our zone wireless headsets.

Speaker 3: This asset use AI for far end noise suppression, resulting in a unique two-way noise-free canceling experience. Products like this demonstrate how AI can improve the user experience. More broadly, Logitech's CAI has a major strategic opportunity to improve the user experience.

Guy Gecht: This headset uses AI for far-end noise suppression resulting in a unique two-way noise-free canceling experience. Products like this demonstrate how AI can improve the user experience. More broadly, Logitech CAI has a major strategic opportunity. Just as we have enabled people to be productive by accessing PC and cloud capabilities, we envision Logitech providing the interface tools people need to access and benefit from AI. As our professional intelligence transform how people work and leave, we plan for Logitech to be a default one, delivering the solutions that seamlessly bridge human emissions.

It uses AI fulfilled and noise suppression, resulting in a unique way noise fleet canceling experience.

Products like this demonstrate how AI can improve the user experience mobile idly logitech see AI is a major strategic opportunity.

Speaker 3: Just as we have enabled people to be productive by accessing PC and cloud capabilities, we envision Logitech providing the interface tools people need to access and benefit from it.

<unk> says we have enabled people to be productive by accessing PCM cloud capabilities, we envision logitech, providing the interface tools people need to access and benefit from AI.

Speaker 3: As our deficient intelligence transform how people work and leave, we plan for Logitech to be at the forefront, delivering the solutions that seamlessly bridge human and

As artificial intelligence transform how people work and leave we plan for logitech to be at the forefront delivering the solutions that seamlessly bleach human emissions. This is an exciting new frontier for us that you will hear more about in coming quarters.

Speaker 3: This is an exciting new frontier for us that you will hear more about in coming course.

Guy Gecht: This is an exciting new frontier for us that you will hear more about in coming course. This quarter, it wasn't just our innovation of full display but also our commitment to climate action and equity within our recent impact report. We align with two major private sector initiatives for the UN Sustainable Development Goals. We firmly believe businesses play a critical role driving progress on these goals and we are proud to foster alignment across companies. As our chief operating officer, Pocash said during climate week in New York City, when it's come to the environment, we need progress, not just pledges.

Speaker 3: This quarter, it wasn't just our innovation for this day, but also our commitment to climate action and equity within our recent impact report. We aligned with two major private sector initiatives for the UN Sustainable Development Goals.

This quarter. It wasn't just all innovation on full display, but also our commitment to climate action and equity within a recent impact report, we aligned with two major private sector initiatives for the UN sustainable development goals we.

Speaker 3: We firmly believe businesses play a critical role driving progress on these goals. And we are proud to foster alignment across companies. As our chief operating officer, Pocash said during climate week in New York City, when it's come to the environment, we need progress not just pled-

We firmly believe businesses play a critical role driving progress on this dose and we are proud to foster alignment across companies as our Chief operating officer Potash said doing climate week in New York City. When it comes to the environment, we need progress not just pledges.

Speaker 3: Let me close with an update on how to see your search. Over the last four months, the boat has been conducting its global CEO search including internal and external candidates across industries and jihadists.

Let me close with an update on our CEO search over the last 12 months. The board has been conducting a global CEO search, including internal and external candidates across industries and geographies.

Guy Gecht: Let me close with an update on our CEO search. Over the last four months, the board has been conducting global CEO search, including internal and external candidates across industries and geographies. From the first days of the search, there was a tremendous interest in the opportunity that afforded the board the chance to meet with incredibly strong diverse and experienced candidates.

From the first days of the search there was a tremendous interest in the opportunity that the further the board the chance to meet with incredibly strong diverse and experienced candidates. Our board masterfully led by chairperson Wendy Beck of there's also real credit for the work.

Guy Gecht: Our board, masterfully led by chairperson Wendy Becker, deserves real credit for the work. You might sense from my update that we are getting closer to finalizing a decision, and indeed we are.

Guy Gecht: You might sense from my update that we are getting closer to finalizing a decision, and indeed we are. Until then, I hope you understand I would not be able to add more color to this topic. In summary, this quarter, we have made real progress but aren't satisfied. We want consistent goals and consistent financial performance and we are very focused on delivering that. Thank you again, and let me tell you something, Chuck. Thank you, guys.

For my update that we're getting closer to finalizing a decision and indeed, we are until then I hope you understand I would not be able to add more color to this topic in.

Guy Gecht: Until then, I hope you understand I would not be able to add more color to this topic. In summary, this quarter, we have made real progress but aren't satisfied. We want consistent goals and consistent financial performance and we are very focused on delivering that. Thank you again, and let me tell you something, Chuck. Thank you, guys.

Speaker 3: In summary, this quarter we have made real progress, but aren't such

In summary, this quarter, we have made real progress, but Alan satisfied.

We want consistent growth and consistent financial performance and we are very focused on delivering that.

Again, let me turn it to Chuck discussed numbers Chuck Thank you guys.

Thank you all for joining us on the call today I'd like to Echo <unk> comments about the great focus and execution of our employees throughout the quarter their commitment to the customer is certainly reflective in our 16 product launches ahead of the holiday season, while also demonstrating a disciplined to operate the business and our response.

Chuck Boynton: Thank you all for joining us in the call today. I would like to echo, guys, comments about the great focus and execution of our employees throughout the quarter. Their commitment to the customer is certainly reflective in our 16 product launches ahead of the holiday season while also demonstrating the discipline to operate the business in a responsible way and generating strong operating cash flows. Tremendous work by everyone.

Unknown Executive: Thank you all for joining us in the call today.

Unknown Executive: One.

Chuck Boynton: I would like to echo, guys, comments about the great focus and execution of our employees throughout the quarter. Their commitment to the customer is certainly reflective in our 16 product launches ahead of the holiday season while also demonstrating the discipline to operate the business in a responsible way and generating strong operating cash flows. Tremendous work by everyone.

Homeaway and generating strong operating cash flows tremendous work by everyone.

Chuck Boynton: One. Now moving on to the business result of the second quarter, net sales and constant currency declined by 9% to 1.06 billion. Overall our Europe team had a very strong quarter with both sequential and year-over-year top-line growth in US dollars. In constant currency we were down mildly from the fire year. Both Americas and Asia Pacific were down year-over-year but showed sequential growth. Our personal workplace solutions had a really great quarter, while gaining market share in keyboards and combos, pointing devices and webcams.

Chuck Boynton: Now moving on to the business result of the second quarter, net sales and constant currency declined by 9% to 1.06 billion.

Now moving onto the business results for the second quarter.

Net sales in constant currency declined by 9% to one point over $6 billion.

Speaker 4: Overall, our Europe team had a very strong quarter with both sequential and year-over-year top-line growth in U.S. dollars. In constant currency, we were down mildly from the fire year. Both Americas and Asia Pacific were down year-over-year, but showed sequential growth.

Overall, our Europe team had a very strong quarter with both sequential and year over year top line growth in U S dollars and constant currency, we were down mildly from the prior year.

Chuck Boynton: Overall our Europe team had a very strong quarter with both sequential and year-over-year top-line growth in US dollars. In constant currency we were down mildly from the fire year. Both Americas and Asia Pacific were down year-over-year but showed sequential growth.

Americas and Asia Pacific were down year over year, but showed sequential growth our personal workplace solutions had a really great quarter, while gaining market share in keyboards, and combos pointing devices and webcams are video and lodging business still had pressure versus more difficult comps last year.

Chuck Boynton: Our personal workplace solutions had a really great quarter, while gaining market share in keyboards and combos, pointing devices and webcams. Our video and LaGigi business still had pressure versus more difficult counts last year. We have been talking on our earnings calls and our investor day about the benefits of lean on hand and channel inventory. This quarter we continued our progress in leaning out the supply chain. In fact, our sales out was stronger than expected.

Chuck Boynton: Our video and LaGigi business still had pressure versus more difficult counts last year. We have been talking on our earnings calls and our investor day about the benefits of lean on hand and channel inventory. This quarter we continued our progress in leaning out the supply chain. In fact, our sales out was stronger than expected. We are currently shifting at a fast pace, getting ready for the peak holiday season. We expect to reduce channel inventory in the March quarter to align with the seasonally lower revenue we see in Q4, as well as Q1 and Q2.

Speaker 4: Our personal workplace solutions had a really great quarter while gaining market share in keyboards and combos, pointing devices and web...

Speaker 4: Our video and Logi G business still had pressure versus more difficult comps last year.

Speaker 4: We have been talking on our earnings calls and at our investor day about the benefits of lean on hand and channel inventory. This quarter, we continued our progress in leaning out the supply.

We've been talking on our earnings calls and at our Investor day about the benefits of lean on hand, and channel inventory. This quarter, we continued our progress and leaning out the supply chain in fact, our sales out with stronger than expected, which not only led us to over performing in the top line, but also.

Speaker 4: In fact, our stills out was stronger than expected, which not only led us to overperforming in the top line, but also reducing channel inventory. We are currently shipping at a fast pace, getting ready for the peak holidays.

So reducing channel inventory, we are currently shipping at a fast pace getting ready for the peak holiday season, we expect to reduce channel inventory in the March quarter to align with the seasonally lower revenue, we see in Q4 as well as Q1 and Q2.

We are currently shifting at a fast pace, getting ready for the peak holiday season. We expect to reduce channel inventory in the March quarter to align with the seasonally lower revenue we see in Q4, as well as Q1 and Q2. Please note this will create a negative year-rear comparison for Q4. For the sixth consecutive quarter we reduced on-hand inventory significantly, with our inventory turns improving from 3.Q to 4.6 year-over-year. We are getting close to our target operating model of five turns or better.

Speaker 4: We expect to reduce channel inventory in the March quarter to align with the seasonally lower revenue we see in Q4 as well as Q1 and Q2.

Speaker 4: Please note, this will create a negative year-over-year comparison for Q4.

Please note this will create a negative year over year comparison for Q4.

Chuck Boynton: Please note this will create a negative year-rear comparison for Q4. For the sixth consecutive quarter we reduced on-hand inventory significantly, with our inventory turns improving from 3.Q to 4.6 year-over-year. We are getting close to our target operating model of five turns or better. Lastly, it's important to know that similar last quarter the reduction in channel inventory and on-hand inventory had a one-time positive impact on gross margins. In Q2, gross margins expanded quarter to quarter to 42 percent, better than anticipated and in the upper range of our long-term financial model.

For the sixth consecutive quarter, we reduced on hand inventory significantly with our inventory turns improving from three two to $4 six year over year, we are getting close to our target operating model of five turns or better lastly, it's important to know that similar to last quarter the reduction in <unk>.

Panel inventory and on hand inventory had a onetime positive impact on gross margins.

In Q2, gross margins expanded quarter over quarter to 42% better than anticipated and in the upper range of our long term financial model year over year increases were driven by cost improvement, including Western Alliance and expedited shipping along with lower promotions, partially offset by <unk>.

Chuck Boynton: Your year increases were driven by cost improvement, including less reliance and expedited shipping, along with lower promotions, partially offset by unfavorable product mix. Comparing sequentially, increases were driven by cost improvements, favorable mix, as well as leverage and scale. Though we are encouraged by the gross margin improvement, Q3 gross margins are typically pressured by promotions and mix, and discounting typically increases during the holiday season, and our sales are more consumer-led than enterprise.

Unfavorable product mix.

Comparing sequentially increases were driven by cost improvements.

<unk> mix as well as leverage and scale.

But we are encouraged by the gross margin improvement Q3 gross margins are typically pressured by promotions and mix and discounting typically increases during the holiday season, and our sales are more consumer led than enterprise.

Chuck Boynton: We expect these had wins to be partially offset by overhead absorption. In the back half of the year, we expect gross margins to be approximately 38 or 39 percent, based on the previously mentioned one-time benefits in Q2 and sequential headwinds. Looking further ahead, with our slightly larger scale cost reduction and lower promotions, we believe the business is positioned to structurally attain the 39 to 44 percent gross margin target on average, although there will be quarters where we will be below our long-term target due to various factors such as seasonality, mix, or promotions.

We expect these headwinds to be partially offset by overhead absorption.

In the back half of the year, we expect gross margins to be approximately 38 or 39% based on the previously mentioned onetime benefits in Q2 and sequential headwinds looks.

Looking further ahead with our slightly larger scale cost reduction and lower promotions. We believe the business is positioned to structurally obtained a 39% to 44% gross margin target on average, although there will be quarters, where we will be below our long term target due to various factors such as seasonality.

Mix our promotions.

Operating expenses were $261 million in the quarter in line with revenue declines down 9% year over year.

Chuck Boynton: Operating expenses were 261 million in the quarter, in line with revenue declines down 9 percent year over year. I continue to be pleased with the team's cost-focus and ability to quickly dial up or dial down affects based on business performance. Our long-term model is to maintain operating expenses at around 25% or less of revenue. Note that we expect affects to rise mildly in Q3 due to seasonality in certain one-time costs. Operating income was 183 million in Q2 and better than our expectations due to improved demand, strong gross margins and cost discipline.

I continue to be pleased with the team's cost focus and ability to quickly dial up or dial down opex based on business performance.

Our long term model is to maintain operating expenses at around 25% or less of revenue.

Note that we expect the opex to rise mildly in Q3 due to seasonality and certain one time cost.

Operating income was $183 million in Q2 and better than our expectations due to improved demand strong gross margins and cost discipline.

Chuck Boynton: Following up on a record Q1 for cash generation, the team delivered strong Q2 cash flow of operations at 223 million, leading to a cash balance of approximately 1.2 billion. Q2 is also reflective of our consistent capital allocation strategy, particularly our commitment to returning capital to shareholders was total approximately 276 million in Q2. In September, our shareholders approved an increase to our dividend and we returned 182 million to shareholders. We started our new $1 billion three-year share repurchase program that was approved in June.

Following up on our on our record Q1 for cash generation. The team delivered strong Q2 cash flow from operations at 223 million, leading to a cash balance of approximately $1 2 billion.

Q2 was also reflective of our consistent capital allocation strategy, particularly our commitment to returning capital to shareholders, which total approximately $276 million in Q2.

In September our shareholders approved an increase to our dividend and we returned $182 million to shareholders and we started a new $1 billion three year share repurchase program that was approved in June and the second quarter, we repurchased nearly one 9 million shares for a total consideration of one <unk>.

Chuck Boynton: In the second quarter, we repurchased nearly 1.9 million shares for a total consideration of 124 million. Actual cash outflow was 94 million in the quarter with the remaining balance to be paid in Q3. Please note, the shares repurchased were under both the 2020 and 2023 program. Moving on to our outlook, we exceeded our first half outlook on both the top and bottom lines during my stronger than anticipated demand, lower promotional intensity and more aggressive cost reductions. Although uncertainty still exists, we remain cautiously optimistic that our business will continue to slow our rate of decline and eventually get back to growth.

Third $24 million.

Actual cash outflow was $94 million in the quarter with the remaining balance to be paid in Q3.

Please note the shares repurchased were under both the 2020 and 2023 program.

Moving on to our outlook, we exceeded our first half outlook on both the top and bottom lines driven by stronger than anticipated demand lower promotional intensity and more aggressive cost reductions.

Although uncertainty still exists we remain cautiously optimistic that our business will continue to slow our rate of decline and eventually get back to growth.

Chuck Boynton: Therefore, we're raising the full-year outlook for fiscal year 2024. We are now expecting revenue of 4 to 4.15 billion. Our corresponding operating income is expected to be between 525 and 575 million.

Therefore, we're raising the full year outlook for fiscal year 2024, we are now expecting revenue of four to $4. One 5 billion. Our corresponding operating income is expected to be between 525 and $575 million.

Nate Melihercik: Before we start Q&A, we're going to show a short video highlighting our pro-line gaming products. Nate rolled the video and now we can take Q&A.

Before we start Q&A, we're going to show a short video highlighting our pro line gaming products Nate roll the video and then we can take Q&A.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Thanks.

Yes.

Okay.

Thank you.

Yes.

Sure.

Our first question today comes from George Wang at Barclays.

George Brown: Our first question today comes from George Wang at Barclays. Oh, hey guys, thanks for taking my question. I have two quick ones. Firstly, just to kind of see if you can reconcile the fiscal to age, you know, just based on the implied guide is still kind of below seasonal and kind of from to age to age, kind of flourish, you know, versus the historical, you know, sort of a trend for kind of, you know, up kind of 15 to 20 cents sequentially from to age to age.

Oh, Hey, guys. Thanks for taking my question I have.

Quick one so firstly just to kind of.

If you can reconcile the fiscal <unk>.

Based on the private guys are still kind of below seasonal and then kind of from <unk> kind of flattish.

Versus the historical.

Are they trying to kind of.

Kind of 15% to 20% sequentially from <unk> to H, just curious how much visibility you have and kind of try to reconcile you talked about improving demand sequentially. Yet you are guiding kind of below seasonal for the back half just curious if any color on that.

George Brown: Just curious, you know, how much visibility you have and kind of try to reconcile. You talk about improving demand is sequentially yet you are guiding kind of, you know, below seasonal for the back half, just curious if any comment on that. Certainly, George. Thank you for the question. So if you think about the math, we are in the rate, the rate of change, the negative is slowing down. So it's the rate of changing Q1 versus year ago was worse than Q2.

Certainly George Thank you for that.

The question. So if you think about the math.

We're in the rate the rate of change the negative is slowing down so.

The rate of change in Q1.

Versus year ago was was worse than Q2, and we are projecting Q3, and Q4 to be slightly better than Q2.

George Brown: And we're projecting Q3 and Q4 to be slightly better than Q2. And so if you look at absolute dollars because it's a the rate of change is slowing that the haves might look somewhat comparable, but we're, we're sort of cautiously optimistic that the back half of the year. And we'll be it's still probably going to be negative still down year over year, but should be down, you know, a little bit in line with Q2, a little bit better than Q1 and that rate of change were sort of confident that are optimistic that we're in an improving state.

George Brown: Okay, great.

And so if you look at absolute dollars because it's the rate of change is slowing.

Halves might look somewhat comparable but where we are.

Sort of cautiously optimistic that the back half of the year.

We'll be it's still probably going to be negative still down year over year, but should be down.

Little bit.

In line with Q2, a little bit better than Q1 and that rate of change, we're sort of confident or optimistic that we're in an improving state.

Okay great.

Chuck Boynton: If I can squeezing a certain question quickly, just any color on the, you know, kind of refresh cycle kind of, you know, the upgrade cycle across gaming, especially because, you know, intuitively gaming has much faster refresh cycle versus traditional PC related to peripherals and the B2B site. So just curious whether, you know, you are already seeing a kind of, you know, rebounding the refresh cycle kind of after, you know, last cycle kind of coding the COVID.

I can squeezing a second question quickly just.

Any color on the kind of refresh cycle kind of the the.

The upgrade cycle across gaming, especially because intuitively gaming has much faster refresh cycle versus kind of traditional PC related on peripheral.

In the <unk> side. So just curious whether you already see in a kind of rebounding the reverse cycle kind of after last cycle kind of according to Covid.

Certainly I can take this and guy can jump in.

Chuck Boynton: Certainly, I can take this and guy can jump in, you know, we have a handful of new NPI that we've launched this quarter, just in time for our peak December quarter in the gaming area. We're really excited about the pro line, you saw commercial there, the pro line mice and keyboards to new Yeti microphones, the new lighting system. So I think we're in a really good place with with the category. We do have a couple NPI is coming right after the December quarter to address console gaming headsets.

A handful of new Ntis that we've launched this quarter just in time for our peak December quarter in the gaming area. We're really excited about the pro wine you saw commercial there the pro line mice and keyboards.

Two new yeti microphones that new lighting system. So I think we're in a really good place with with the category. We do have a couple of NPI is coming right. After the December quarter.

To address console gaming headsets, but the line is being updated and refreshed. The product teams are working very hard to accelerate the time to market for new products Guy do you want to so first of all exactly that we need to give people a reason to refresh and buy new things.

Chuck Boynton: But, you know, the line is being updated and refresh the product teams are working, you know, very hard to accelerate the time to market for new products guide you want to. So first of all, exactly that we need to give people the reason to refresh and buy new things and be working on this, continue to release new products. I'll go back is pretty exciting. You know, in gaming, as I mentioned, the three categories, the PC gaming, it's the biggest spot.

Working on this continuing to release new products roadmap.

<unk>, that's pretty exciting.

Gaming as I mentioned, the three categories. The PC gaming, it's the biggest Bob I think we're starting to see people moving and updating what they have there is another kind of go we have console and simulation. Those are two categories, where people heavily pulled forward doing COVID-19 and I think that might take a little longer than the PC gaming, but definitely at some.

Chuck Boynton: I think we started to see people moving and upgrading what they have. There's another kind of going of console and simulation. Those are two categories where people have really pulled forward doing COVID. And I think that might take a little longer than PC gaming, but definitely at some point people like to upgrade and we give them pretty good reason to upgrade.

People, who like to upgrade and we gave them pretty good reason to update.

Okay, Great. Congrats again I'll call I'll go back to the queue.

George Brown: Okay, great, congrats again, I'll go back to the queue. Thank you, George.

Thank you George.

As a reminder for those in Q. Please feel free to turn your video on when you ask questions and our next question is from IC a merchant at Citi.

Asiya Merchant: As a reminder for those in Q please feel free to turn your video on when you ask questions, and our next question is from Asiya Merchant at City. Hey, good morning, I'm trying to turn on my review, but I think Nate disabled. But anyway, but to see you guys, Guy and Chuck, there I am.

Good morning, and thank you.

But anyway.

Thank you Steve.

You guys Guy and Chuck.

<unk>.

Hey, Ryan.

Yes, Mark.

Asiya Merchant: Oh, that's not margin. Yes, Nate enabled me finally. All right, just on margins, if I may, you mentioned there were some one-time benefits that, you know, certainly resulted in margins, which were better than what you'd think had guided, which was down sequentially for the September quarter. Can you walk us through some of those margin benefits that impacted this quarter and why we shouldn't expect that to continue in the second half? I understand there's new products that take a little bit off, you know, just given the new product launches, but what's there that shouldn't help you in the second half of this year?

Oh, yes.

Yes.

It enables a refinery.

Alright.

Just on margins if I may and you mentioned there were some one time benefits that.

Secondly resulted in margins, which were better thing, but you guided down sequentially for the September quarter.

You walk us through some of those margin benefit.

That.

In fact in this quarter and why we shouldn't expect that to continue in the second half I understand there is new products that takes a little bit off.

Just given the new product launches, but whats that.

That should help you in the second half of this.

This year certainly asked yet.

Chuck Boynton: Certainly, Asiya, great question. So first, you know, we over-delivered revenue in Q2, and when you over-deliver revenue, you get more fixed cost absorption, so there was leverage and scale that helped in the quarter versus expectations. We also had communicated that we expected channel inventory to be flat, quarter over quarter, and it came down. And when channel inventory comes down, then gross to net tends to improve. We also all decreased on-hand inventory again, which had a corresponding benefit as well, one-time benefit to inventory reserves.

Yeah, Great question. So first we over delivered revenue in Q2, and when you're over deliver revenue youll get more fixed cost absorption. So there was leverage and scale that helped in the quarter versus expectations. We also had communicated that we expected channel inventory to be flat quarter over quarter, and it came down and when channel.

Tori comes down then gross and that tends to improve.

We also decreased on hand inventory again, which had a corresponding benefit as well one time benefit.

Inventory reserves, so those were those.

Chuck Boynton: So those two are probably not going to repeat in the third quarter, maybe in the fourth quarter, they will. And then structurally, we did a really good job on cost reduction. We drove down product costs. That had a meaningful impact both year over year and a little bit quarter over quarter. Certainly, freight and logistics costs year over year were a huge improvement, not so much quarter over quarter. And then there were some mixed benefits quarter over quarter, but tailwinds year over year.

Two are probably not going to repeat in the third quarter, maybe maybe in the fourth quarter. They will and then structurally we did a really good job on cost reduction we drove down product costs that had a meaningful impact.

<unk> year over year, and a little bit quarter over quarter.

Certainly freight and logistics costs year over year were a huge improvement not so much quarter over quarter, and then there were some mix benefits quarter over quarter, but but tailwind year over year. So a lot in there, but I do think overall, we're in a better place now than we were primarily our.

Chuck Boynton: So a lot in there, but I do think overall we're in a better place now than we were. Primarily, our operations team has driven lower product costs and our commercial organization has improved linearity and has reduced discounting, which has been helpful to gross margins. Now a word of caution, though, for Q3, it is our biggest quarter. It's more consumer oriented. And therefore, it tends to be more promoted. So we do see margin pressure in Q3.

<unk> team has driven lower product costs and our commercial organization has improved linearity and has reduced discounting which has been helpful to gross margins now a word of caution though for Q3. It is our biggest quarter, it's more consumer oriented and therefore, it tends to be more promoted so.

Do see margin pressure.

And in Q3, and then as I mentioned in the prepared remarks in Q4.

Chuck Boynton: And then as I mentioned, and the prepared remarks in Q4, we intend to bring down channel inventory. So you'll have the, you know, less leverage and scale in Q4, given it's typically seasonally our lowest quarter. Okay. Is it the guiding side that the December quarter could be more in line with seasonal? Uh, December quarter will be more in line with seasonal. And then I think Q4 will be a little lower because of the year over year reduction in channel inventory.

We intend to bring down channel inventories youll have less leverage and scale in Q4, given its typically seasonally our lowest quarter.

Okay.

Brian .

Every quarter it could be more in line with the teams now.

December quarter will be more in line with seasonal and then I think Q4 will be a little lower because of the year over year reduction in channel inventory.

Yeah.

Okay great.

If I may one more I think some of you I think specifically in the prepared remarks, you mentioned share gains across your three other products you didn't make it.

Chuck Boynton: I think some of you specifically in a prepared remark you mentioned sharegain across your three other products, you didn't mention it. Is that still a function of the fact that, you know, are you losing share in PC gaming, or is it just because you're seeing tough cons and consul and simulation that the gaming looks a little bit, maybe obviously these birds and some of the other competitors have talked about. It's about gaming, you know, getting to growth by the point of your end, a calendar year end.

The fact that I used.

You're losing share in PC gaming or is it just because you are seeing tough comps and constantly stimulation and the gaming looks a little bit.

Maybe optical group.

Your competitors have talked about gaming.

Both by the quarter.

Calendar year end.

So there has been some share shifts and different categories gains and losses in gaming the important thing in gaming console gaming.

Chuck Boynton: There's been some share shifts in different categories, gains and losses in gaming. The important thing in gaming, console gaming is a really important category to us. One, the margins are higher. It's the heritage of Logitech. We have number one market share and mice of really important category for us in the keyboard space. We have number two market share in both those categories. I think the NPI's will help gain some share back.

As a really important category to us one the margins are higher is the heritage of Logitech, we have number one market share in mice, a really important category for us.

And the keyboard space, we have number two market share in both those categories I think the <unk> will help.

Gained some share back.

Chuck Boynton: I would say when I try to where we're gaining and losing, it's normally where we have a product to be in the market for too long, the competitors will make a little improvement. When we have new products, normally we have big fans of products are great. And our job is just to make sure we accelerate and get to the market, the new gesture exactly that obviously gaming is definitely on it.

I would say when I drive to where are we gaining and losing its normally where we have a product of being in the market too long. The competitors also make again low.

Improvement when we have new products normally we have big fans of <unk> and our job is just to make sure we accelerate and it gets to the market and you're just executive but obviously gaming is definitely on that so a lot more good products to come.

Chuck Boynton: So a lot more good products to come. Thank you.

Great. Thank you.

Thank you.

Our next question is from Erik Woodring at Morgan Stanley Good morning, Eric.

Eric Woodring: Our next question is from Eric Woodring at Morgan Stanley morning Eric. Good morning guys.

Hey, good morning, guys.

Eric Woodring: Sorry, you're going to have to unvideo me, but I'll start my questions anyway. So maybe to start just one clarification question on the top line. Historically, again, we see revenue grow about 25% sequentially in the December quarter and then decline about 25% sequentially in the March quarter. If we assume that we do get to call it three point or excuse me, 4.3 ish billion of revenue for the year. So clearly above the high end of your guidance range.

<unk>.

Sorry.

On video, maybe but I'll I'll stop my questions anyway.

Yes.

So.

So maybe to start just one clarification question on the topline.

Chuck for you.

Historically again, we see revenue grow about 25% sequentially in the December quarter, and then decline about 25% sequentially in the March quarter. If we assume that we do get to call. It three excuse me $4 three ish billion of revenue for the year. So clearly above the high end of your guidance range I would I would love if you could.

Eric Woodring: I would love if you could maybe just double click on the comment that you just made to us here about December being more in line with seasonal before cubing below seasonal. Is that how we should be thinking about seasonality and kind of why the guide would imply something below normal seasonality. And why would that be after such a strong for a second quarter? If you just tease that out a little bit, that'll be helpful.

Maybe just double click on my comment that you just wanted to ask you about December being more in line with seasonal but <unk> being below seasonal is that how we should be thinking about seasonality and kind of why the guide would imply something below normal seasonality and why would that be after such a strong second quarter. If you could just tease that out a little bit that'd be helpful.

And then I have a follow up thanks.

Eric Good question I think ultimately.

Chuck Boynton: And then I have a final thanks. Eric, good question. I think ultimately because we're still in a year over your declining environment that the seasonality needs to be adjusted for that slope of decline. And therefore, if you compare, you know, historical Q1 and Q2 to Q3 and Q4. Or if you adjust for that slope of decline, I think you'll get back into the outlook that we see. The other issue that we mentioned in the prepare remarks is that we intend to reduce channel inventory in Q4.

Because we're still in a year over year declining environment.

The seasonality needs to be adjusted for that slope of decline and therefore, if you compare historical Q1, and Q2 to Q3 and Q4.

You adjust for that slope of decline I think you'll get back into the outlook that we see.

The other.

Issue that we mentioned in the prepared remarks is that we intend to reduce channel inventory in Q4, and so year over year that will be down more than it was historically to bring channel inventory to the appropriate levels for Q4, and Q1 and Q2.

Chuck Boynton: And so year over year, that will be down more than it was historically to bring channel inventory to the appropriate levels for Q4 and Q1 and Q2. Right now, we're building channel inventory, obviously, for the prime selling season. I think you're a little high on the revenue numbers based on our outlook. Historical seasonality, we did this at Ananda State, we talked about it. If you looked at the last five years and you take out the peak COVID years, it generally was, and stills in and stills up, can be a little different, but demand typically was 24, 24, 30% in Q3 and 22% in Q4.

Right now we're building channel inventory, obviously for the prime selling season.

So I think you're a little high on the revenue numbers based on our outlook. The historical seasonality. We did this at analyst day, we talked about it.

If you looked at the last five years and you take out the peak.

Over the years.

Generally was in sales in and sales out can be a little different but demand typically was.

$24 24, 30% in Q3 and 22% in Q4 that was kind of three out of the four or four out of the five years had been the kind of the average pacing and if you layer on top of that.

Chuck Boynton: That was kind of three out of the four or four out of the five years, had been the kind of the average pacing. And if you layer on top of that, the rate of decline, of course it's flowing, we're getting, you know, not quite back to neutral, we're still in a declining environment, and then it will, it'll bring down that back half of the year, relative to the first half of the year. So we're kind of seeing, you know, the back half being somewhat similar to the first half of the year, maybe slightly better, but roughly in line with the first half of the year in total revenue.

The rate of decline of course, it's slowing we are getting no not not quite back to neutral we're still in a declining environment and then it will it will bring down that back half of the year relative to the first half of the year. So we're kind of seeing the back half being somewhat similar to the first half of the year, maybe slightly better but roughly in line with the first half of the year in <unk>.

Total revenue.

Okay. That's helpful. Thank you. Thank you for that and then.

Chuck Boynton: Okay, that's helpful. Thank you. Thank you for that. And then, you know, follow up, again, on a question I was kind of previously asked, because gross margins were so strong this quarter, you know, really nice improvement. And you talked about kind of sustainability to a degree, and structurally you think you can attain this, this, you know, 30, 39 to 44% range. Can you just tease that common out a little bit? Because I feel like it's a bit of a shift from what we heard last quarter, which was, you know, it'll take four to six quarters before we get back to that 40% level.

I can follow up again on <unk>.

Question I was kind of frequently asked because gross margins were so strong this quarter really nice improvement.

And in fact again, you talked about kind of sustainability to a degree and structurally do you think you can obtain this.

It is 39% to 44% range can you just comment on a little bit because I feel like it's a bit of a shift from what we heard last quarter, which was you know it will take four to six quarters before we get back to that 40% level. So it took less than one quarter to get back to that level. So has something changed in your view structurally where you have.

Chuck Boynton: So you, you know, it took you less than one quarter to get back to that level. So has something changed in your view structurally where you have a lower cost profile such that you're more comfortable being kind of up towards that 40% range? I realize not for the second half, but overall, is that 40% plus level now more attainable in your view than it was three months ago?

Our lower cost profile, such that youre more comfortable being kind of up towards that 40% range I realize not for the second half, but overall is that 40% plus level now more attainable in your view than it was three months ago. It is a little bit and there's two key factors that give us a little more confidence now than a quarter ago.

Chuck Boynton: Thanks. It is a little bit. Now, there's two key factors that give us a little more confidence now than a quarter ago. The first is scale and leverage. You know, we over delivered in the top line, and that was a positive surprise for us. That gives you leverage and scale. That was a real positive. The other two, you know, maybe it's combined, but better margins driven by lower cost and less promotion.

The first is scale and leverage.

We over delivered on the top line and that was a positive surprise for us that gives you leverage and scale that was a real positive.

The other two.

Maybe it's a combined but.

Better margins, driven by lower cost and less promotion and I think the I'll give credit to our teams are.

Chuck Boynton: And I think the, I'll give credit to our teams are, you know, Quinn, our head of the GCO, the Global Commercial Organization, and Prakash, our COO, has done a really, really good job driving lower promotions and lower material costs that have helped us. Now, we can't really predict a mix. And we know in Q3, we're going to have, you know, more promotions, more consumer. And we know in Q4, we're going to have a reduction in channel inventory.

<unk>, our head of <unk>.

The global commercial organization and Prakash our COO has done a really really good job driving lower promotions and lower material costs that have helped US now we can't really predict mix and we know in Q3.

We're going to have more promotions more consumer and we know in Q4, we're going to have a reduction in channel inventory and Thats, our low watermark quarter typically for the year. So I think theres a little bit of headwind in Q3, and Q4 on the margin side, but structurally I think we're in that zone.

Chuck Boynton: And that's our low water mark quarter, typically for the year. So I think there's a little bit of headwind in Q3 and Q4 on the margins side. But structurally, I think we're in that zone of, you know, 39 to 44. Of course, a lot of things can happen. But as we sit here today, Guy and I are just really pleased with how the team is executed, and where we sit and the read proof to the future is I think better now than it was a quarter ago.

<unk> 39 to 44 of course, a lot of things can happen, but as we sit here today Guy and I are just really pleased with how the team has executed and where we sit in the read through to the future is I think better now than it was a quarter ago Guy do you want to add to that having perfectly said I think the theme kind of accelerate the arrival of the.

Chuck Boynton: Guy, do you want to add to that? Having perfectly said, I think the team kind of accelerate the arrival of the future business model, and they deserve tons of credit. Obviously, we'll continue to work hard to maintain and push harder on post-ability.

Future business model and they deserve tons of credit then obviously, we will continue to work hard to maintain and push harder on profitability.

Awesome. Thank you guys. Congrats thank you very much.

Unknown Executive: Awesome, thank you guys for congrats. Thank you very much, Elegant.

Okay.

Jürgen Wagner: Our next question will be from Jürgen Wagner as people. Yeah, good afternoon or good morning. Thank you for letting on. Question on your market positioning in your PC peripheral business, you mentioned you are getting share. Now Dell has recently, CME, they showed a slide that they want to go back into the peripheral business. Is that now a new trend?

Our next question will be from Uruguay Wagner at Stifel.

Yeah. Good afternoon. Good morning, Thank you for letting me on.

Guy Gecht: So do you see that as a threat or maybe do you consider going back into the OEM business at some point and then question video from today's perspective when would you see that reversing or turning into growth again? Thank you. I would say what we find and it's really reassuring is the strength of the brand and we see indication of pricing power and you can see that some of it in our PNL.

Question on your market positioning in your PC peripherals business. You mentioned you are gaining share now del <unk>.

<unk> they wanted to go back into.

Peripheral business is that now a new trend or so do you see that as a threat or maybe.

Do you consider going back into the.

OEM business at some point and then a question on video.

From today's perspective, when would you see that reversing or turning into growth again. Thank you.

Thank you.

I would say what we finding.

Really as we are showing is the strength of the brand and.

And we're seeing indications of pricing power and you can see that some of it then they'll P&L.

Guy Gecht: We like to sell people, we like to sell product with a large brand that has definitely a promise of quality of innovation. People like that we see, I mentioned the large tech business. We're seeing more and more enterprise thing. You know what we're going to buy that. We know that that will work for our users, both at home and in the office. Our IT tools will manage that as well, not just the video conferencing but the peripherals.

We like to sell.

So politically luxury brand that has definitely a promise of quality of innovation people like that we're seeing I mentioned logitech for business, we're seeing more and more enterprise, saying you know what we have been a buy that youre going to just.

No that that will work for all users both the enrollment in the office.

Towards would manage that as well not just the videoconferencing, but the peripheral.

Guy Gecht: We're very comfortable where we are. We always had competition. We just need to continue on our game and we did in the last many years. We need to continue to do faster better and I think we have great opportunities.

We're very comfortable where we are we always had competition.

We just need to continue on our game and what we did in the last many years, we need to continue to do faster better and I think we have great opportunity there.

Okay.

So you wouldn't see.

Guy Gecht: So you wouldn't see OEM business as an opportunity again for you? We never say never again. We love partnerships. It's something we make financial sense. Obviously it would be up to the next CEO to decide but I think we're very comfortable with people picking premium products with a large tech brand and getting great returns. Del can be a partner as well. We do sell some of our products on their website and they are a good partner and there will be a affordable competitor but I think with our quality, engineering, design, brand and number one market share, I like the position that we set in.

OEM business, that's an opportunity again for you.

Yes.

As I say never again, we love partnerships.

If something would make financial sense, obviously, it will be up to the next CEO to decide.

But I think we are very comfortable with people picking and premium product for logistic brand and getting great.

Sounds good.

Okay.

Dell can be a partner as well.

We do sell some of our products on their website and they are a good partner and there'll be a formidable competitor, but I think with our quality engineering design brand.

Number one market share I like the position that we sit in.

And on video.

Guy Gecht: Okay. And on video, any thought when this could turn again? That's the right question of when, not whether. It's talking to customers. The people that deal with the video conference and the enterprise are often the same people that get the man that let's bring the team back to the office and right now they have two conflicting kind of topics, not completely conflicting but they try to get people to come back and then they try to arrange for them great environment, productive environment to work with the people who work from home or the customers and video conferencing.

Any thought venue.

This could turn again.

Thanks, guys. Thank you.

So that question of when not windows.

Okay.

Talking to customers the people that dealing with the video conference and the enterprise are often the same people that get the mandate, let's bring that team back to the office.

Now they have two conflicting kind of stopping not completely completely but they try to get people to come back and then they try to arrange for them gates environment productive environment to work with the people with some of the customers and videoconferencing. So I have no doubt that we're going to see mobile as being equipped with video conferencing. That's what people tell me they do the homework.

Guy Gecht: So I have no doubt that we're going to see more rooms being equipped with video conferencing. That's what people tell me. They do their homework over that. I see customers making a decision to essentially standardize on large tech. I know they are going to place POs, the squad and exporter and more and more. If you do it at the same time, they take a post. They want to get their workforce back to the office so that it will be used for those customers.

So with that.

Customers, making a decision to essentially standardized on logitech I know they are going to place <unk> discipline in export and in more and more efficient but at the same time, they take a pause they want to get the workforce back to the office. So that will be used for those pump his troops.

Guy Gecht: And I would say generally, you know, video grew this quarter, substantially. The year of your comms are still a little bit difficult, but, you know, we saw a video growth this quarter. And so I think we're, we're feeling that our products are great and the market is there. It's just a matter of when, not if exactly. And we can't predict that, but I like our position there.

But I would say generally video grew this quarter sequentially, but year over year comps are still a little bit difficult, but we saw a video growth this quarter.

And so I think we're feeling that our products are great and the market is there. It's just a matter of when not if exactly and we can't predict that but.

Our position there.

Okay. Good.

Thank you.

Our next question is from Ananda Brown at loop capital.

Unknown Executive: Okay. Good. Thank you. [inaudible] Yeah, that was a very helpful chat. I'm sorry, go ahead, sorry.

Yeah, Hey, thanks, guys. Thanks for taking the question.

Hey, guys.

Right.

Okay, Thanks, and just say I appreciate that.

Yep.

There's a show that.

So I guess.

Better demand you guys saw any any view on what the drivers of the stronger demand throughout the quarter.

Couple of key things the consumer is still quite strong.

The consumers really held us through the soft part on the enterprise, but we are seeing the enterprise come back. We just mentioned on the last question, we saw video grow quarter over quarter.

And the enterprise selling.

Mice keyboards webcams has been quite strong so the enterprise maybe has some signs of life, but the consumer has really been incredible year over year growth in pointing devices primarily mice.

That's one of the one of the few categories that we've seen year over year growth overall, 9% decline topline, but growth in mice and if you look at Europe Europe has been quite strong.

European market is really that team and that market has been a really important point of strength for us this quarter.

U S market. So so Asia is still lagging behind.

But I would say a couple of categories in couple of regions have really.

It really delivered a great quarter for us.

And Europe is Europe in both consumer and enterprise.

Yes, yes.

Interesting interesting.

Like I guess as you guys think through the rest of the fiscal year.

And look even more broadly kind of calendar 'twenty four if you're willing what do you see as the most important yes.

I don't know like like pension points in either direction for your business that could swing things.

Well, let me just ask it that way open like what do you see as the most important attention points for your business.

It sounds like kind of inventory channel inventory youre going to lean on a little bit more but maybe in addition to that we should be thinking.

Well I think the two I would say is.

How the how Q3 and both from a promo and volume standpoint, it's our biggest quarter of the year. This will really be a telltale sign for.

For the company and the second would be the return of a video in a more meaningful way.

I just cant tell if thats, one quarter five quarters or when that inflection point will be but overall.

But those are the two things I would point to is inflection points.

Yes, that's helpful. I'm, sorry go ahead sorry.

Guy Gecht: No, I just add to the just geographically. I think Europe is essentially on the verge of growth. We want to see that and we have high hopes for the Americas to come back to this. We like to see stabilization in Asia. China is our second largest market. So hopefully that will start to bottom and go back. So if we start to get all of that, there's definitely things that we're playing well for us.

Add to that just geographically I think Youll hope is essentially on the verge of growth we want to see that and we have high hopes for the Americas to come back to this we'd like to see stabilization in Asia, China is our second largest market. So hopefully that will start to bottom and go back. So if we start to get all of that definitely things.

We played well for us.

And.

Unknown Executive: [inaudible] Thank you. That's really helpful guys. I appreciate it. Thanks a lot. Thanks Ananda.

Chuck well and.

And guy as well.

The dynamic with video conferencing.

Guy you would talk to them and Chuck just mentioned it is really the decision like everybody sort of it sounds like everybody is.

Not everybody it sounds like those are largely onboard that theres going to be some hybrid work model, but it also seems like it's unclear.

Now what that will look like and so is that really kind of a sticking point for folks decided which rooms. They wanted to video enable.

And enterprise is that really what were waiting for is it something other than that.

Say the people I made quite a few customers in the last 90 days.

Where they wanted the video enabled and then most of it I would say he has a lot to that kind of a leaving lobs. We have almost I believe all video enabled and it's often come into play we will go to a meeting and says okay, let's being disbursed on working from home today and let's go this customer and let's say that a few minutes and get them on the video what you used to do on the cell phone.

Becoming a quick video conferencing.

So that is happening and people planning for this.

You just see the same people also at the same time, saying, Hey, I need to get my workforce, yes, we.

The policy of two or three days in the office whatever the policies now we need to see people do that and use those rooms, we're not standing still by the way we can expand our portfolio you're going to hear more about actually enabling those companies to do a great job in attracting making this very attractive place for people to come and collaborate inside the corporate and outside.

The corporate so stay tuned on that.

And I think it's just the metals time, when they come back and says Okay. Now that by all of these back let's get the video enabled modernize all of those video conferencing.

I would add to that I think that's super well said guy.

Backdrop is quite interesting we sold this past quarter of $152 million worth of video conferencing solutions, that's not a small number we have number one market share.

None of the players are really.

Doing better or a lot worse than we are the market is this kind of sideways in the backdrop and the why.

As companies are being cautious global conditions are unsettled interest rates are high.

Ours are somewhat discretionary spending and so I think companies are prioritizing other areas right now.

Things Guy mentioned when those settle out I think we're going to see this become a priority again once they have their model of back to work in hybrid settled out I think this is a to me. This is again, it's a when not enough.

But I think the backdrop is cautious corporate spending.

On these categories broadly we have number one market share we have great solutions and I think the pendulum will swing back, but it's still a great business today high margins $150 million a quarter I feel good about the fundamentals.

We're not seeing the growth rates that we'd like to see.

That's really helpful guys. Appreciate it thanks a lot. Thanks.

Our next.

Michael Foeth: Our next question is from Michael Foeth at Vanpeville. Is there a material cost inflation or is it something in the design of the products as well that is more structural that allows you to have low product costs? Yeah, Michael, it's both.

One is from Michael foot Advanta Bill.

Yes, hi, guys. Thank you thanks for taking the question.

Starting with a clarification on the gross margin you talked about lower cost driving the margin and I was wondering is that only.

Lower input costs lower material cost inflation or is it something in the design of the products as well that is more structural that allows you to have lower product costs.

Yeah, Michael it's both.

Chuck Boynton: And it depends on the comparison year year versus quarter to quarter. We have structural material cost reduction that our COO precaution has team had driven. It's both designed for manufacturing design for cost as well as procurement negotiated cost reductions. And then certainly everyone has been benefiting for year over year from lower freight costs in bound outbound air, water, modal, those all companies have benefited from where we've done it and especially good job as material cost reduction. Year over year, it's about 50, 50 cost reduction and expedite slash logistics.

And it depends on the comparison year over year versus quarter over quarter.

Structural material cost reduction.

That our COO per cash and his team have driven.

It's both designed for manufacturing design for cost as well as procurement negotiated cost reductions.

And then certainly everyone has been benefiting year over year from lower.

Freight costs inbound outbound air water modal.

All companies have benefited from where we've done an especially good job is material cost reduction year over year. It's about 50, 50 cost reduction and expedite slashed logistics and then quarter over quarter, it's primarily material cost reductions because freight has not changed a lot quarter over quarter.

Chuck Boynton: And then quarter to quarter is primarily material cost reductions because freight has not changed a lot quarter reported.

Sure.

Chuck Boynton: The second one on on on the strength in the workplace solutions business mice and keyboards. Can you be a bit more granular? Is it you talked about strong consumer but is it equally strong and enterprise? Is it what does it come from? Is it a segmentation of your of your line up? Is it more in the high end or the low end of the products? What's what's driving the strength there? I would say cost the boards geography.

The second one on <unk>.

On the strength in the workplace solutions.

Business mice and keyboards can you be a bit more granular you talked about strong consumer of it.

Sure.

Is it equally strong in enterprise is it what does it come from is it the segmentation of your of your mind.

Is it more on the high end or low end of the products, what's the what's driving the strength there.

I would say it goes to bolt geography, we talked about Europe .

Chuck Boynton: We talked about Europe much better at leading Asia, China, the little trailing selling to the enterprise and influencing enterprise is something that really lead you to Logitech. But it's working really well with partnering with enterprise and hey, we want to expand with you to Logitech in general companies like to do to work with your vendors, so that's really work well with that for us. The mobile type of solutions actually doing quite well too for us. And so, you know, we think strength we expect to be seen strength, but we think strength in all those personal workspace.

Much better leading.

Asia, China, a little trailing selling to the enterprise and influencing enterprise, it's something that's relatively new to logitech, but it's working really well with partnering with end it by saying Hey, we want to expand with Logitech in general companies like to do the work with fewer vendors. So that's really worked well through that for us the mobile side.

<unk> solution is actually doing quite well too.

For us.

So.

We're seeing strength, we expect to be seeing strengths, but we are seeing strength in all of those personal workspace I think now that some of the pull forward the stomach to go away.

Chuck Boynton: I think now that some of the poor forward the study to to go away. We see it back to normal demand and normal goal.

We are seeing is back to normal demand and normal growth.

You can see the past the normal bullshit.

Unknown Executive: Okay. We see the past to normal goal. Yeah, thank you.

Thank you then maybe just a very quick last one on financials you have.

Chuck Boynton: And maybe just just a very quick last one on financials. You have a pretty big cash file and interest rates are up. So I guess it's starting to earn some good money on that on that cash. I was just wondering where is the cash part and what sort of return. Are you are you expecting on the cash? We have a very conservative investment philosophy, so primarily in bank deposits and treasuries yields.

A pretty big cash pile and <unk>.

Interest rates are off so I guess, you're starting to earn some good money on that on that cash I was just wondering where is the cash part and what sort of return are you are you expecting on the cash.

We have a very conservative.

Investment philosophy, so primarily in bank deposits and treasuries yield.

Yields it's different in different countries, but.

Chuck Boynton: It's different in different countries, but you know, highest yields were earning are kind of just five percent ish. So we have a incredibly conservative model when it comes to managing our cash. We're really pleased this quarter we returned more cash to our shareholders than we generated that gives us the confidence and strength in our business. We paid our annual dividend executed buybacks, opened up a new $1 billion line for additional buybacks. And so I feel like we're our cap allocation model is working. It's executing. It's consistent and the the access cash that we have is earning a decent return.

Yields were earning or kind of just sub 5% ish.

Michael Foeth: Thanks. Thanks a lot.

So we have.

Incredibly conservative.

Model when it comes to managing our cash.

Unknown Executive: Thank you, Michael.

Really pleased this quarter, we returned more cash to our shareholders and we generated I think that gives us.

The confidence and strengthen our business, we paid our annual dividend executed.

We executed buybacks opened up a new $1 billion line.

Additional buybacks and so we feel like we're our capital allocation model is working it's executing it's consistent.

The excess cash that we have.

Is earning a decent return.

Thanks, Thanks, a lot.

Thank you Michael program.

Thank you. Our next question is from your <unk> at UBS.

Jrn Iffert: Our next question is from you, Orn, Iffert at UBS. Thanks, gentlemen, and good morning, and thanks for taking my questions.

Thanks, Angela and good morning, and thanks for taking my questions I'll take them one by one if it's okay.

Jrn Iffert: I would take them one by one if it's okay. And just the first question, when you get all the pre-orders already for the Christmas season, or a good chunk of the pre-order for the Christmas season, and if you exclude the B2B business, can you already assume that at least so far, the revenues are trending flatish? You today for the quarter, considering the pre-orders for the consumer business? So the way we look at this, Orn, is our global business has is different around the world, and the many accounts plan very far in advance, and many accounts order every two weeks.

Just the first question when you get all the preorders already for the Christmas season, a good chunk of the preorder for the Christmas season, and if you exclude the <unk> business can you already assume that at least so far the.

The revenues are trending flattish.

Year to date for the quarter, considering this preorder Saba.

Consumer business.

So the way we look at this yarn is.

Our global business has.

Is different around the world.

And the many accounts plan very far in advance and many accounts order every two weeks.

We don't disclose the level of detail of kind of book to Bill are ordering.

Jrn Iffert: We don't disclose the level of detail of kind of book to bill or ordering. I will tell you that our operations team is working fast and furious, delivering amazing amounts of product right now, getting ready for the big holiday promo. We're just super proud of the engagement with our key customers and partners, e-tail retail, and we're optimistic for a strong holiday season. B2B is trending nicely. There can be a budget plus.

I'll tell you that.

Our operations team is working fast and furious delivering amazing amounts of product right now getting ready for the big holiday promo.

We're just super proud of the engagement with our key.

Customers and partners E tail retail.

And we're optimistic for a strong holiday season.

<unk> is trending nicely there can be a budget flush we don't know what that's going to look like at year end, that's kind of a wait and see it tends to happen in the last couple of weeks of the quarter.

Jrn Iffert: We don't know what that's going to look like at year-end. That's kind of a wait and see. It tends to happen the last couple weeks of the quarter. So B2B and the business is trending as we would expect this time in the quarter. Of course, it's week three, so it's early.

Jrn Iffert: Okay. Thanks for this.

So it would be to be in the business is trending as we would expect this time in the quarter of course, its a week three so it's early.

Okay.

So this is the second question would be please on gaming and can you remind us how much of the gaming sales linked to console headsets and game controllers for example, and it seems that some console.

Guy Gecht: The second question would be please on gaming. Can you remind us how much of the gaming sales is linked to consoles? We have the headsets and game controllers, for example. And the team said some consoles are doubling these days and that you get a feeling to what extent gaming was benefiting from the strong console exposure. We don't break out gaming in that level of detail. Console has been a little more difficult for us because our product portfolio is aged.

Console sales doubling.

These days and then you get a feeling to react to what 10 gaming with benefiting from the strong console.

Exposure, we do.

Breakout gaming and that level of detail.

Console has been a little more difficult for us because our product portfolio has aged.

Our product team is launching we believe a revolutionary new product, it's going to come out just the tail end of the holiday buying season. So we're not going to get a huge amount of lift from it it's called the <unk> hundred 50, and it is a killer killer new product.

Guy Gecht: Our product team has was launching. We believe a revolutionary new product. It's going to come out just the tail end of the holiday buying season. So we're not going to get a huge amount of lift from it. It's called the A50 and it is a killer, killer new product. But this will primarily be a benefit more into next year. PC gaming, as you know, is our hallmark. We have number one market share in gaming mice.

But this will primarily be a benefit more into next year.

PC gaming as you know is our hallmark, we have number one market share in gaming mice, and we just launched new NPI is to further build our lead from a technological advantage standpoint on the gaming side.

Guy Gecht: And we just launched new NPI to further build our lead from a technological advantage standpoint on the gaming side. So just a double check to spend we saw all the good console gaming data and you said your product portfolio was aged. So you're not yet fully benefiting from these strong growth which is happening on the street for console sales. That's right. We have more to benefit. There's also this is an area that has a significant forward doing COVID from our perspective.

So just to double check this than me. So all the good console gaming data and you said your product portfolio. Both with <unk>. So you are not yet fully benefiting from the strong growth that is happening on the street for console sales.

That's right we have multiple benefit. There's also this is an area that has a significant portfolio doing COVID-19 from our perspective, so people Bob I'll accessories still use it so the update let me push update us a little further than maybe the rest of the gaming.

Guy Gecht: So people bought our accessories and still use it. So the output, the refresh upgrade is a little further than maybe the rest of the gaming categories. But as Jack said, we're going to give our team is very innovative.

It goes but as Chuck said, we're going to give our team is very innovative we're going to give the user a really good reasons to update.

Guy Gecht: We're going to give Thanks.

Thanks, and then last question if I may on Europe .

Jrn Iffert: And the last question, if I may, on Europe, pretty good performance, absolutely in the quarter.

Good performance absolutely in the quarter.

And can you give us some more color, which regions and which products in particular that <unk> named the top three reasons why Europe also good Sam would be helpful. If you can share with us. The number one reason is our team and then I'll, let Chuck maybe take the fixed annuities.

Chuck Boynton: Can you give us some more color, which regions, and which product, in particular, if you must name the top three reasons my Europe was so good, would be helpful if you can share it with us. The number one reason is our team. And then I'll let Chuck maybe take the next two reasons. Yeah, we don't we don't break out that level of detail, but I would say our team in Europe. Lead by Yeltson is a really, really good team.

Yes, we don't break out that level of detail, but I would say our team in Europe led by Yeltsin is a really really good team.

We are unlocking value by reducing promotions, improving linearity driving engagement with the end customers with the tier two resellers.

Chuck Boynton: We are unlocking value by reducing promotions, improving linearity, a driving engagement with the end customers with the tier two resellers, doing a masterful job with our retail partners there. And so I think, honestly, this is an execution story in Europe for us. It truly is. The market is good, regaining share, but our team on the ground is just really executing across the board.

Doing a masterful job with our E tail partners there and.

So I think honestly this is an execution story in Europe for us. It truly is the market is good we are gaining share but our team on the ground is just really executing.

Across the board.

But just maybe to name one or two products in particular, well all regions.

Chuck Boynton: But does maybe the name one or two products that did in particular well or regions, gaming crushed it in Europe had a phenomenal quarter. My keyboards did well videos up. I mean, it's really across the board. And what's amazing in US dollars, it's up 5% year over year, while the whole business is down nine. I mean, so Europe did incredibly well and constant currency was down 2%. So, you know, and that's maybe the more relevant metrics that I'd call it flatish, the slightly down. But, you know, Europe had a really good quarter.

Gaming crushed it in Europe had a phenomenal quarter.

Mice keyboards did well videos up I mean, it's really across the board.

What's amazing and U S dollars, it's up 5% year over year, while the whole business is down nine.

So Europe did incredibly well in constant currency it was down 2% so.

That's maybe the more relevant metric so I would call it flattish to slightly down.

But Europe had a really good quarter and now we'll just have to see how the December quarter holds in there which is our single biggest quarter in Europe . So hopefully its a read through that Q2 Q3 will look like just a Q2 did but it's kind of a wait and see but we feel great about the progress and execution.

Chuck Boynton: And now we'll just have to see how how the December quarter holds in there, because it's our single biggest quarter in Europe. So, hopefully, it's a read through that, you know, Q2, it will, a Q3 look would like to say Q2 did, but it's kind of a wait and see. But we feel great about the progress and execution.

Thank you very much.

Andreas Müller: Thank you very much. Thank you.

Thank you.

And our final question today is from Andreas Mueller at <unk>.

Andreas Müller: And our final question today is from Andreas Mueller at ZKB. Yes, hello. Thanks for taking questions. Well done for the quarter. Congratulations.

Yes, Hello, Thanks for taking my questions.

<unk> went on for the quarter. Congratulations can you be a bit more explicit on.

Chuck Boynton: Can you be a bit more explicit on promotions for the December quarter? And what we're learning from last year's promotion and in the gross margin guidance, it seems implied that the promotions are far more broadly brought based on, is that right? Can you can you elaborate here a bit? Certainly, the, you know, last year, I think the, we, the, the promos came in more than we'd expected. This year, we've allocated budgets to the team, and we expect promo to be less than last year.

Promotions for the December quarter.

Chuck Boynton: But the mix will be a little negative because it's going to be more consumer, a little less than our prize. And so the mix shift will be a bit of a headwind as it overalls, we see gross margins for the quarter. So, I think it'll be less promo, but it's still our peak promo period. But the mix shift is going to be more to the consumer light item.

What do I come to earnings from last year's promotion.

In the gross margin guidance it seems to imply that the promotions how far more.

Broad based.

Is that right.

Can you can you elaborate here.

Chuck Boynton: Okay.

Yeah.

Certainly.

<unk>.

Last year I think the we the promo.

Promos came in more than we had expected.

This year, we've allocated budgets to the team and we expect promo to be less than last year, but the mix will be a little negative because it's going to be more consumer a little less enterprise and so the mix shift will be a bit of a headwind is over.

We see gross margins for the quarter. So I think it'll be less promo, but it's still our peak promo period.

But the mix shift is going to be more to the <unk>.

Consumer line items.

Okay.

And you see what has been the market adoption of the new side product.

Chuck Boynton: And then in this, what has been the market adoption of the new site product? Was it already a driver in the quarter? Do you see here something? Early days, single-digit millions of orders, we're still not at the full scale launch of site yet. It will likely happen. This quarter or next, you know, knocking wood, this quarter, but it's still very, very early, early days, but the reception so far has been strong.

I'll wrap your driver.

The quarter over.

Do you see he is counting.

Early days are single digit millions of.

Borders were still not at the full scale launch of site yet.

That will likely happen.

This quarter or next knock on wood this quarter.

But it's still very very early early days, but the reception. So far has been strong guy has been a lot of customers.

Chuck Boynton: Guy's been with a lot of customers. Yeah, I have to say I don't think I met a customer that didn't like it and wanted to use it. Normally in an enterprise, the IT won't pass the solution, a new type of solution before they deploy it. And then they have few rooms and then they have conclusion and they come to us. So this take a little longer for people to deploy it, but feedback is tremendous.

I have to say I don't think I met a customer that didnt like it and wanted to use it.

Normally in an enterprise the <unk> solution, a new type of solution before they deploy it and then they have few wounds and then they have conclusion and then they come to us. So it does take longer for people to deploy but feedback.

Feedback is tremendous.

Chuck Boynton: It's a game changer as far as being able from a remote location to come in and feel part of the room, not just the video or the audio. And so we feel really good about that. There's a lineup behind it. Obviously, it's not the last product that will have multiple cameras. That's big part of our roadmap. We feel really good about the initial response.

Game change as far as being able from a remote location to come in.

And part of the room.

Not just the video also the audio and so we feel really good about that Theres a lineup behind that obviously, it's not the last product that will have multiple combos that big part of <unk>.

Andreas Müller: Okay, thanks.

Matt we.

We feel really good about the initial response.

Okay. Thanks, and my last question what is in your opinion, a policy for time horizon for year on year growth overall.

Chuck Boynton: And my last question, what is in your opinion, a plausible time horizon for you and your growth overall. Obviously, it's beyond March 2024, but can you give some color when that could happen and say, yeah, I'm off the list, most likely. I think with a rate of change that we're seeing, it's, you know, mid end of next year would be my might put the current thinking based on the slope and rate of change.

Please fill in March 2024.

And you gave some color when that could happen.

Great.

Most likely.

I think what the rate of change that we're seeing it's.

Mid to end of next year would be my current thinking based on the slope and rate of change.

Okay. Thanks, Thank you very much.

Andreas Müller: Okay, thanks. Thank you very much. Thank you. Thanks, Andreas.

Thanks, Andreas and Guy that's our last question for today.

Nate Melihercik: And guys, that's our last question for today.

Nate Melihercik: Thank you Nate and thank you all for joining us today. I want to really extend my sincere thank you to the Logitech team. The food of their dedication and execution. I think we're saying in the numbers and give us a lot of confidence for the future. So thank you Logitech and thank you all for joining us today looking forward for talking to you in the future.

Thank you Nate and thank you all for joining us today.

I want to really extend my sincere. Thank you to the Logitech game.

Both of their dedication and execution I think we are seeing in the numbers and give us a lot of confidence for the future.

So 10-Q, Logitech and thank you all for joining us today looking forward for talking to you in the future.

Q2 2024 Logitech International SA Earnings Call

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