Q4 2024 Logitech International SA Earnings Call

Nate: We are making these statements based on our views only as of today. Our actual results could differ materially, and we undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results. You can find a reconciliation between GAAP and non-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.

Benign size, we're making these statements based on our views only as of today, our actual results could differ materially and we undertake no obligation to update or revise any of these statements we.

We will also discuss non-GAAP financial results you can find a reconciliation between GAAP and non-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.

Nate: These materials, as well as the shareholder letter and a webcast of this call, are all available on the investor relations page of our website. We encourage you to review these materials carefully. 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 replay on our website. I will now turn the call over to Hanneke.

These materials as well as the shareholder letter 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 over year in constant currency net sales. This call's being recorded and will be available for replay on our website I will now turn the call over to Hanukkah.

Hanneke: Thank you, Nate, and welcome, everyone. On today's call, we're going to cover three items, all of which are detailed in the shareholder letter that we released with our earnings materials. First, Chuck will provide the highlights of our fourth quarter and our full year results. I'll then briefly touch on my view of our current assets, the secular trends driving the business, and strategic decisions that were implemented. And I'm going to close with our financial outlook.

Hanukkah: Thank you Nate and welcome everyone.

Hanukkah: In today's call, we're going to cover three items all of which are detailed in the shareholder letter that we released with our earnings materials.

Hanukkah: Chuck will provide the highlights of our fourth quarter and our full year results.

Hanukkah: Then briefly touch on my view of our current assets the secular trends driving the business and strategic decisions that we're implementing.

Speaker Change: And I'm going to close with our financial outlook.

Hanneke: Let me start, though, by saying how pleased I am about the execution of our teams in the fourth quarter. We return to top-line growth. We executed at a very high level, with both gross and operating margins up year over year. And before Chuck dives into the numbers, I want to thank him for an impactful tenure here at Logitech. He's built a highly capable finance team, and he has helped drive the consistent progress we've seen in the business over the last year. He's going to be missed, and we wish him all the best. And now, Chuck, over to you. Well, thank you.

Let me start, though by saying how pleased I am about the execution of our teams in the fourth supporting.

Speaker Change: When he returned to topline growth.

Speaker Change: We executed at a very high level with both gross and operating margins up year over year.

Speaker Change: And before I jump down into the numbers I want to thank him for an impactful tenure here at Logitech.

Speaker Change: He's built a highly capable finance team and he has helped drive the consistent progress we've seen in the business over the last year.

Gonna be missed and we wish him all the best.

Speaker Change: And I'll check over to you.

Chuck: Well, thank you, Hanneke. And thank you all for joining us on the call today. I am so proud of the way our employees finished the year. In addition to further enhancing the value chain, we continued our cost reductions and promotional discipline. These factors all drove better than expected fourth-quarter results. The detailed financial results can be found in the press release and in the shareholder letter, but I'd like to call your attention to three metrics.

Speaker Change: Thank you Hanukkah.

Speaker Change: And thank you all for joining us on the call today I am so proud of the way our employees finished the year. In addition to further enhancing the value chain. We continued our cost reductions and promotional discipline. These factors all drove better than expected fourth quarter results.

Speaker Change: The detailed financial results can be found in the press release and in the shareholder letter, but I'd like to call your attention to three metrics.

Chuck: First, we are pleased to see Q4 revenue return to growth at plus 5%. However, please note the channel inventory reduction in Q4 was lower than last year's reduction. When normalized from the change in channel inventory, net sales growth was closer to plus 3%.

Speaker Change: First we were pleased to see Q4 revenue returned to growth at plus 5%. However, please note the channel inventory reduction in Q4 was lower than last year's reduction when normalized for the change in channel inventory net sales growth was closer to plus 3%.

Chuck: Second, our Q4 non-GAAP gross margin of 43.6% was better than expected due to lower product costs, lower inventory reserves, and reduced promotional activity. For the year, we achieved a non-GAC gross margin of 41.8%, a tremendous accomplishment by the team and comfortably within the range of our operating model. And finally, the business continues to generate impressive cash flow. In Q4, we delivered $239 million of operating cash flow, totaling over $1.1 billion for the year. We returned almost $700 million to our shareholders and ended the year with a fortress balance sheet.

Speaker Change: Second our Q4 non-GAAP gross margin of 43, 6% was better than expected due to lower product costs lower inventory reserves and reduced promotional activities for the year, we achieved non-GAAP gross margin of 41, 8% a tremendous accomplishment.

Speaker Change: You meant by the team and comfortably within the range of our operating model.

Speaker Change: And finally, the business continues to generate impressive cash flow in Q4, we delivered 239 million of operating cash flow totaling over $1 1 billion for the year.

Speaker Change: Returned almost $700 million to our shareholders and ended the year with a fortress balance sheet.

Hanneke: Thank you Hanneke, and thank you Logitech for the opportunity to serve. It's been a real pleasure, and I will miss everyone. With that, I'll turn it back over to Hanneke. Hanneke? Thanks, Chuck.

Thank you Hanukkah and thank you watch it set for the opportunity to serve its been a real pleasure and I will miss everyone with that I'll turn it back over to Hanukkah Hanukkah.

Hanukkah: Thanks Chuck.

Hanneke: So in my first 100 days, I've met with hundreds of employees, customers, partners, and shareholders, and their passion and excitement about Logitech's future, as well as their healthy dissatisfaction with the levels of top-line growth of the last two years, were palpable. And these interactions have been super helpful as I shape the plans for Logitech's future. Everything starts with our mission.

Hanukkah: So my first hundred days I've met with hundreds of employees customers partners and shareholders.

Hanukkah: And their passion and excitement about logistics future.

Hanukkah: As long as they're healthy dissatisfaction with the levels of topline growth over the last two years, where palpable and these interactions have been super helpful. As I shape, the plans for logistics future.

Hanukkah: Everything starts with our mission.

Hanneke: Logitech extends human potential in work and play. Extending human potential is exciting. It means helping people be more productive, perform better, win that game, and connect more easily, all in ways that are more sustainable and more equitable.

Hanukkah: Logitech extend human potential.

Hanukkah: And work and play.

Hanukkah: Extending human potentials excited it means helping people be more productive performed better wind down game and connect more easily all in ways that are more sustainable and more equitable.

Hanukkah: We will pursue this mission with a terrific set of existing assets that we built for them.

Hanneke: We will pursue this mission with a terrific set of existing assets that we built. We have world-class design and engineering expertise. We have a strong brand with high levels of brand awareness and leading market share positions in key product categories. We have truly global go-to-market capabilities in more than 100 countries, and we're an operations powerhouse with a relentless focus on cost, inventory, quality, and customer service. Now, as we look forward, we see five external trends that we believe will affect our business. These include new ways of working or splitting time between working at the office, home, and on the go.

Hanukkah: We have world class design and engineering expertise.

Hanukkah: We have a strong brand with high levels of brand awareness and leading market share positions in key product categories.

Hanukkah: We have truly global go to market capabilities and more than 100 countries.

Hanukkah: And we're in operations powerhouse with a relentless focus on cost inventory quality and customer service.

Hanukkah: Now as we look forward, we see five external trends that we believe will affect our business.

Hanukkah: First new ways of working or splitting time between working at the office at home and on the go.

Hanneke: It's here to stay, highlighting the need for multiple workspaces and the need for more video collaboration. Second, gaming has gone mainstream. Nearly every age, gender, and demographic is gaming today, providing an opportunity for us to provide more tools to a wider community of gamers. Third, we're in the early innings of a major AI transformation. And Logitech will be, and already is, an important part of the emerging AI ecosystem. Climate change is impacting every country, every business, and every society.

Hanukkah: It's here to stay highlighting the need for multiple workspaces and the need for more of video collaboration.

Hanukkah: Second gaming has gone mainstream.

Hanukkah: Every age gender and demographic, it's gaming today, providing an opportunity for us to provide more tools to a wider community of gamers.

Hanukkah: Third we're in the early innings of a major AI transformation and.

And launch date will be and already is an important part of the emerging AI ecosystem.

Hanukkah: For its climate change is impacting every country every business in every society.

Hanneke: Logitech intends to continue to be a leader for sustainability in tech. And the final trend is the increasing importance of trust. In a world where trust in government, the media, science, and business is at an all-time low, Logitech delivers trusted experiences.

Hanukkah: Logitech intends to continue to be a leader for sustainability and tech.

Hanukkah: And the final trend is the increasing importance of trust and.

Hanukkah: In a world, where trusting government the media science and business is at an all time low logitech delivers trusted experiences.

Hanneke: With assets like our well-established Swiss brand and high privacy and security standards, we are very well positioned. I've come to really like this combination of strong assets and secular tailwinds. To take advantage of them, we're in the process of implementing a number of new strategic decisions to accelerate profitable growth, where to play and how to win choices, if you will. Let me share those briefly with you.

Hanukkah: With assets like our well established Swiss brand and high privacy and security standards, we are very well positioned.

Hanukkah: I've come to really like this combination of strong assets and long term secular tailwind.

Hanukkah: To take advantage of them, we're in the process of implementing a number of new strategic decisions to accelerate profitable growth.

Hanukkah: Where to play and how to win choices if you will.

Speaker Change: Let me share those briefly with you.

Speaker Change: First work and play.

Hanneke: First, work and play. We will continue to innovate and grow in the core categories that we compete in today, personal workspace, video collaboration, and gaming. But there is more room to grow. Today, in work, we're focused on office work. But most people in the world don't sit in offices every day.

Speaker Change: We will continue to innovate and grow in the core categories that we compete in today personal workspace video collaboration and gaming.

Speaker Change: But there is more room to grow.

Speaker Change: And work, we're focused on office workers.

Most people in the World don't sit in offices every day.

Hanneke: They work in retail, in education, in healthcare, in manufacturing, in construction, and other places. And in play, we are mainly focused on PC gaming today. But there are other play opportunities, console and mobile, and even beyond in what I call active play. Expanding our definitions of work and play significantly broadens our total addressable markets. We will create a competitive advantage through a focus on design-led, software-enabled hardware.

Speaker Change: They work in retail and education and health care in manufacturing and construction and other places.

Speaker Change: And in play we are mainly focused on PC gaming today.

Speaker Change: There are other play opportunities console and mobile and even beyond and what I would call active play.

Speaker Change: Expanding our definitions of work and play significantly broadens, our totally out of total addressable markets.

Speaker Change: Second we will create competitive advantage through a focus on design led software enabled hardware.

Speaker Change: Those words are carefully chosen.

Hanneke: We differentiate our hardware with world-class design and advanced software. Third, we will double down on B2B, the business-to-business channel. Our B2B business is twice as big as it was in 2019, but I would still call us relatively young in this channel. Further strengthening our B2B capabilities and domain expertise offers significant opportunities for future growth. Fourth, we will build out our already strong global presence. We will reapply best practices to drive a more consistent share of wallet across our developed markets and further extend our presence in emerging markets.

Speaker Change: We differentiate our hardware with World class design and with advanced software inside.

Speaker Change: Third we will double down on the beat or meet the business to business channel.

Speaker Change: Our <unk> business is twice as big as it was in 2019, but I would still call us relatively young in this channel.

Speaker Change: Further strengthening our BTB capabilities and domain expertise offer significant opportunities for future growth.

Speaker Change: Fourth we will build out our already strong global presence.

Speaker Change: We will reapply best practices to drive a more consistent share of wallet across our developed markets and further extend our presence in emerging markets.

Hanneke: Combined, these geographic opportunities represent more than $1 billion of incremental growth. And fifth, we will focus on building the Logitech brands and take them from good to truly iconic, that single Logitech brand. That's where we play.

Speaker Change: Combined these geographic opportunities, which represent more than $1 billion of incremental growth.

Speaker Change: And fifth we will focus on building a logistic brands and take it from good to truly iconic that single Logitech brand.

Speaker Change: That's where to play now how will we win.

Hanneke: Now, how will we win? We will relentlessly drive product superiority through innovation. To build on our reputation for operational excellence and discipline, and we will continue our industry-leading work to reduce carbon emissions across our value chain. Now let me turn to the outlook and what this set of choices means for the near-term and longer-term profile of our business. Our first priority is to return to business to annualized growth in fiscal 25.

Speaker Change: We will relentlessly drive product superiority through innovation.

Speaker Change: We will build on our reputation for operational excellence and discipline.

Speaker Change: And we will continue our industry, leading work to reduce carbon emissions across our value chain.

Speaker Change: Now, let me turn to the outlook and what this set of choices means for the near term and longer term profile of our business.

Speaker Change: Our first priority is to return to business to annualized growth in fiscal 'twenty five.

Hanneke: We're targeting low single-digit growth with strong operating margins. Our goal in the midterm is to return organic growth to mid-single digits. Potential acquisitions would be incremental to that. We believe this growth, supported by non-GAAP growth margins in the 39 to 44% range and non-GAAP operating margins of 14 to 17%, represents an attractive investment profile. In summary, the path ahead builds on Logitech's impressive set of strengths, takes advantage of secular trends, and makes a number of clear strategic choices going forward. With that combination, I'm confident that Logitech's future is bright, and its best days are still ahead.

Speaker Change: We're targeting low single digit growth with strong operating margins.

Speaker Change: Our goal in the midterm is to return organic growth to mid single digits.

Speaker Change: Potential acquisitions would be incremental to that.

Speaker Change: We believe this growth supported by non-GAAP gross margins in the 39% to 44% range and non-GAAP operating margins of 14% to 17% represents an attractive investment profile.

Speaker Change: In summary, the path ahead builds on logistics impressive set of strengths takes advantage of secular trends and makes a number of clear strategic choices going forward.

Speaker Change: With that combination and confident that logistics future's bright and its best days are still ahead.

Hanneke: Before we now move to Q&A, one final administrative comment. We spoke last quarter about our plans to host an Analyst and Investor Day in May. With Chuck moving on to a new opportunity, we thought it prudent to modify our plan. We will host a more traditional AID later in the year with the exact timing to follow. And with that, Nate, we will move to Q&A.

Speaker Change: Thank you.

Speaker Change: Before we now move to Q&A, one final administrative comment.

Speaker Change: We spoke last quarter about our plans to host an analyst and Investor day in May.

Speaker Change: But chuck moving onto a new opportunity, we thought it prudent to modify our plans.

Speaker Change: We'll host a more traditional AAV later in the year with the exact timing to follow.

Speaker Change: And with that let's move to Q&A.

Speaker Change: Great.

Speaker Change: For everyone on the call with you did raise your hand, if you are interested in asking a question and we will call on you. Our first question today will be from Alex Duval at Goldman Sachs.

Nate: For everyone on the call, please raise your hand if you are interested in asking a question, and we will call on you. Our first question today will be from Alex Duval at Goldman Sachs.

Alexander Duval: Yes, many thanks for question and many thanks, Chuck for everything are greatly appreciated.

Alexander Duval: Yes, many thanks for the question. And many thanks, Chuck, for everything; it is greatly appreciated.

Alexander Duval: My first question is just on gross margin. Obviously, you had a very strong gross margin in the quarter. I wondered if you could talk about how sustainable that is. And also, to what degree was lower promotional spend because of a stronger demand environment? In recent holiday windows, consumers preferred to shop during promotional days.

Alexander Duval: My first question is just on gross margin. Obviously, you had a very strong gross margin in the quarter I wondered if you could talk about how sustainable that is.

Alexander Duval: And also to what degree was lower promotional spend because of the strong demand environment.

Alexander Duval: In recent holiday windows consumers prefer to shop during the promotional days. So just curious how the trend was there and secondly on video collaboration we saw slight year on year growth I wondered if that really signals the start of a recovery here in crossing in the cycle, which is obviously something we've been waiting for for a number of.

Alexander Duval: So I was just curious how the trend was there. And secondly, on video collaboration, we saw slight year-on-year growth. I wondered if that really signals the start of a recovery here and a trough in the cycle, which is obviously something we've been waiting for for a number of quarters. I'm curious about your view there and how sustainable the growth can be and whether you'll be investing behind that in terms of boosting the channel. Many thanks.

Cortes.

Curious on your view, there and how sustainable the growth can be and whether you'll be investing behind that in terms of.

Alexander Duval: The tunnel many things.

Hanneke: Why don't I take the B2B route, and you start off with gross margins?

Speaker Change: I hate to beat a band you start off with gross margin Chuck.

Chuck: That's 780 gross margins. Sure, sure. Hey Alex, thanks for the question.

Chuck: Yeah, So Nathan gross margins Yeah sure Adam.

Chuck: Hey, Alex Thanks for the question. So a couple of things on the gross margin.

Chuck: So, a couple things on gross margin. We were about four points ahead of where we had talked about the quarter landing last quarter, and so those gains were equally across four different areas. One, we had talked about potential pressure in the Suez Canal. Teams did a great job operating. There wasn't that pressure. It didn't manifest itself.

Adam: About four points ahead of where we had talked about the quarter landing last quarter and so those gains were equally across four different areas. One we had talked about potential pressure in the Suez Canal teams did a great job of operating their wasn't that pressure it didnt manifest itself.

Chuck: So that was a tailwind. You also mentioned promos. Promos were a part of it as well. Going from the holiday quarter to the last holiday quarter, there were promotional tailwinds. Costs continued to kick in. So that would be the third of the four.

Adam: So that was a tailwind you also mentioned promos promos was a part of it as well going from the holiday quarter to the last holiday quarter, then there's promotional tailwind costs continuing to kick in so that would be the third of the four.

Chuck: That helped. And then we had a little bit of a regional mix. Europe did a little bit better, and China a little bit worse.

Adam: That helps and then we had a little bit of regional mix Europe did a little bit better shine a little bit worse. So that provided some tailwind as well so that kind of helps you bridge I think from where we thought maybe the quarter would be and where it ended obviously a tremendous border from a gross margin perspective, really really happy with the performance.

Chuck: So that provided some tailwinds as well. So that kind of helps you bridge, I think, from where we thought maybe the quarter would be and where it ended. Obviously, a tremendous quarter from a gross margin perspective. So we're really, really happy with the performance on that front. Anything to add there, Jeff?

Adam: On that side.

Speaker Change: Yeah, I would just add on your question Alex.

Chuck: Is it sustainable? And the answer is yes. Our target operating model is 39 to 44. We finished Q4 at the high end of that model. What a great quarter. Next year, if you look at the prepared materials, we outlined an approximate 41% target for next year. It could be a little higher, or it could be a little lower.

Speaker Change: Is it sustainable and the answer is yes, our target operating model is 39% to 44. We finished Q4 at the high end of that model, what a great quarter and next year. If you look at the prepared materials, we outlined an approximate 41% a target for next year could be a little higher could be a little lower.

Chuck: But it is sustainable. And it's really driven on the heels of amazing cost reduction. Our operations team has just crushed it, bringing product costs down. So thank you, Prakash, and Sri. That whole team has crushed it.

Speaker Change: But it is sustainable and it's really driven on the heels of amazing cost reduction our operations team has just crushed it bringing product cost downs are thank you Prakash three that whole team is crushed it and then our go to market team has done an amazing job of being more disciplined on channel inventory and how.

Chuck: And then our go-to-market team has done an amazing job of being more disciplined on channel inventory and how we promote. So I do think that's sustainable in the long term. Some years might be higher, closer to the high end of that model. Some could be a little lower. And we could talk about those factors later if you'd like. But thank you, Alex. And Hanka, do you want to talk about B2B and video? Yes.

Speaker Change: We promote so I do think that is sustainable in the long term some years might be above that closer to the high end of that model some could be a little lower and we could talk about those factors later, if you'd like but thank you. Alex is that the haka do you want to talk about <unk> and video.

Hanneke: Yeah, so B2B and video are obviously really important to our future, and I was super pleased to see growth for the first time in many, many quarters in that segment in Q4. And I would say underneath that 2% growth, there are a number of other green shoots for our business. We continue to lead the market in VC, so hold the number one share, and slightly grew that in the quarter as well. PWS also grew really well in the channel, close to double digits, actually, which was great to see.

Alexander Duval: Yes, it would be to be Nvidia, obviously really important to our future and I'm Super pleased to see growth for the first time in many many quarters in that segment in Q4.

Alexander Duval: I would say underneath that 2% growth, there's a number of other green shoots for business and we continue to lead the market in D. C. So hold the number one share slightly grew that in the quarter as well.

Alexander Duval: Dws, both as grew really well in the channel are close to a double digit actually which is great to see and we had record services sales and as I said earlier, you know, we're a little young and be the beef as services are relatively new to us, but they're growing fast. So I think our performance in the channel has been.

Hanneke: And as I said earlier, we're a little young in B2B, so services are relatively new to us, but they're growing fast. So, I think our performance in the channel has been very good and will continue to improve. But as we look at the market beyond our own execution, I think, you know, it hasn't picked up tremendously, and that's because office vacancies are still high, because IT budgets continue to be a little stretched, or probably flat corporate IT budgets from what we can see, and within that, IT teams are having to prioritize AI spend. So, the market isn't quite back. But our performance in the channel is very, very strong. When that market snaps back, we'll be really ready to take advantage of that.

Very good and we will continue to improve.

Alexander Duval: And as we look at the market beyond our own execution.

Alexander Duval: Thank you know did it hasn't picked up tremendously and that's because office vacancies are still high because I T budgets continue to be a little stretched or probably flat corporate I T budgets from what we can see.

Alexander Duval: And within that I T teams are having to prioritize AI spend so the market isn't quite back our performance into channels very very strong when that market snaps back will be really ready to take advantage of that.

Speaker Change: Hey, Thanks I appreciate it.

Asiya Merchant: Great. Our next question is from Assia emergent at Citi.

Assia: Great I Hope you guys can hear me good morning, and thank you again Chuck.

Hanneke: Many thanks; I appreciate it.

Assia: For a great partnership and for all the help over the last few quarters.

Asiya Merchant: Great. Our next question is from Asiya Merchant at Citi. Okay, Asiya?

Assia: A quick question Hanukkah you outlined you know several great Tam opportunities to grow your expandable market.

Asiya Merchant: Great, I hope you guys can hear me. Good morning, and thank you again Chuck for a great partnership and for all the help over the last few quarters. Just a quick question Hanneke, you outlined several great We've got it on gross margins, 39 to 44, and on operating margins, 14 to 17. I think OPEX won't be super far from the 25, but I think it's right to not box us in necessarily.

Assia: Cautious guide I understand you know perhaps related to temporary budget spending but.

Assia: Given you know great margins here do you think you would need to invest with higher levels of Opex here in the near term to drive perhaps the organic growth a little bit higher or do you think the model year is right sized thank you yeah.

Assia: Going forward, we guided on our midterm model, we've got it on gross margins 39 to 44 and an operating margin 14 to 17.

Assia: Think opex won't be super far from to 25, but I think it's right to not boxes isn't necessarily we should always be prioritizing investment in both R&D and brand building. So you may see quarters, where that's a little higher than the 25 and that's okay. If we're spending it on good cholesterol that drives growth.

Asiya Merchant: We should always be prioritizing investment in both R&D and brand building. So you may see quarters where that's a little higher than the 25, and that's okay if we're spending it on good cholesterol that drives growth. What's important is, again, that top line, low single digits, accelerating to high single digits, and then those gross margins and those operating income margins. Great. And then just if I may, near term, given all the details in the shareholder letter that you guys sent me, wasn't clear to me, you know, given the growth rates that you're guiding for this next fiscal year, if VC is growing here or declining, given your flattish or plus 1% growth expectations, but then seems to be a little bit lower on that bar on that bar.

Assia: What's important is again that top line low single digits accelerating to high single digits and then those gross margins in those operating income margins.

Speaker Change: Great and then just if I may and near term given all the details in the shareholder letter that you guys wasn't clear to me you know given the growth rates that youre guiding for this next fiscal year. If we see is growing here or declining I'm, giving you flattish or plus 1% growth.

Speaker Change: Expectation, but then yeah, he seems to be a little bit lower on that bar on that bar.

Hanneke: Yeah, so what I was really pleased about in Q4 was that the growth was broad-based, so every region grew, and every key segment, every key category grew, including VC. I think going forward, that's what we'll be aiming for, and we're not guiding you on the exact growth rates of any of the specific categories, but I think it will and can be broad-based. Yeah, I'll ask you about that

Speaker Change: Yeah. So what I was really pleased about in Q4 is that the growth was broad based so every region grew in every key segment every key category grew including D. C. I think going forward, that's what we'll be aiming for them and we're not guiding here the exact growth rates of any of the specifics.

Speaker Change: Degrees, but I think it will and can be broad based yes.

Speaker Change: Yes akshay.

Chuck: Yeah, Asiya, in the short letter, we outlined and ranked the kind of high-margin to lower-margin, higher-growth to lower-growth in VCs in kind of that middle range, which would indicate that our view, based on industry research, you know, the industry prognosticators, are calling sort of a flat-ish to slightly growing market. But we're being cautious because of the items that I do think this is one that when interest rates normalize, and office vacancy normalizes, this is a great category that should outsize growth for the company overall in the long term. I think next year we're being a little cautious.

Speaker Change: And the shearwater, we outlined and are ranked.

Speaker Change: What kind of high margin to lower margin higher growth to lower growth in vcs in kind of that middle range, which would indicate that our view based on industry research and let you know that.

Industry, Prognosticators are calling sort of flattish to slightly growing market.

Speaker Change: We're being cautious because of the items at Hanak I mentioned I do think this is one that when interest rates normalize office vacancy normalizes. This is a great category that sure the outsize growth for the company overall the long term.

Speaker Change: I think next year, we're being a little cautious.

Speaker Change: Thank you.

Asiya Merchant: Thanks, Asiya. Next up from Deutsche Bank is George Brown. Good afternoon, George.

Speaker Change: Thanks, Assia next up from Deutsche Bank is George Brown George.

George Brown: Afternoon, guys. Thanks for taking my questions I have two if I may so firstly in terms of your sales outlook for next year, if we take the midpoint and usual expectations on seasonality.

George Brown: Afternoon, guys. Thanks for taking my questions. I have two, if I may. So firstly, in terms of your sales outlook for next year, if we take the midpoint and use your expectations for seasonality, this implies growth of roughly 5% in the first half, but a decline of 2% in the second half. I understand that this divergence is partly driven by improving growth trends and fiscal stimulus.

George Brown: This implies growth of roughly 5% in the first half.

George Brown: But a decline of 2% in the second half I understand that this solid growth is partly driven by improving growth trends in fiscal year 'twenty four but is there any other reasons for the decline in the second half of the year.

Hanneke: I'll do the first part, Hanneke, if you want to do the second part. Yeah, absolutely. Okay.

George Brown: And then secondly.

George Brown: And as you saw in your shareholder letter about you reiterated your long term targets on profitability, but.

Chuck: So, thank you, George, for the quick math. And we wanted to provide the seasonality because it's a little different than historical. The primary driver is that we have done a really good job of leaning out channel inventory. And so now, when you compare to history, it's going to look a little different. Going forward, this should be a more normalized profile.

But you didn't mention anything about your long term growth target of 8% to 10% I'm just wondering how we should interpret this thanks guys.

Speaker Change: I'll do the first part on the kit if you will do the second part of your absolutely okay.

Speaker Change: So thank you George for the quick math and we wanted to provide this seasonality because it's a little different than historical the primary driver is we have done a really good job of leaning out channel inventory and so now when you compare to history, it's going to look a little different going forward.

George Brown: Word this should be the more normalized profile and what that means is theres going be a little more sell in in Q1, the quarter run right now the June quarter.

Chuck: And what that means is there's going to be a little more sell-in in Q1, the quarter we're in right now, the June quarter. Then you'll see a little more sell-in in Q2, followed by more sale-out in Q3 and Q4. And so the real kind of way to think about this is the right operating model is weeks on hand. How much channel inventory should we have for weeks on hand?

George Brown: And Youll see a little more sell in in Q2, followed by more sale out in Q3, and Q4 and so the real kind of way to think about this is the right operating model is weeks on hand, how much channel inventory should we have more weeks on hand.

Chuck: And when you compare that to last year, where we were still leaning out the channel throughout the year, the year-on-year growth is going to look really strong for Q1. So, when you do the math, we're going to have a really strong Q1 compared to last year, but it's based on the right target operating model. Now, what does that mean for the full year? Could Q3 and Q4 be higher? Of course

George Brown: And when you compare that to last year, when we were still leaning out the channel throughout the year. The year on year growth is going to look really strong for Q1. So when you do the math, we're going to we're going to have a really strong Q1 compared to prior year, but it's based on the right target operating model now what does that mean for the full year could Q3 and Q4.

George Brown: Be higher of course, you know that's a long ways off you know the December quarters, our biggest quarter.

Chuck: You know, that's a long ways off. You know, the December quarter is our biggest quarter. But you're going to see a pretty strong Q1, and a pretty strong Q2. We have really done a good job of having the business be more linear. What we sell each month now is more similar, and that should translate into better margins and a new kind of seasonal model based on weeks on hand. So, don't read into it a lot with that seasonality other than we're running a leaner supply chain, and this is reflective of putting the right product in the channel for the weeks on hand on a forward-looking basis.

But where you're going to see a pretty strong Q1, a pretty strong Q2.

George Brown: We have really done a good job of having the business be more linear what we sell in each month now is more similar.

George Brown: And then that should translate into better margins and an it and a new kind of seasonal model based on weeks on hand, so don't read into a lot with that seasonality other than we're running a leaner supply chain and this is reflective of putting the right product in the channel for the weeks on hand on a forward looking basis yeah.

Hanneke: Super. And I'm glad, George, that you're asking the question on 8 to 10, because that's obviously a really important one. What we're doing here is clarifying the organic growth piece of that, which is what we can control. And I think we owe that to you guys to be a little more specific on organic. So what you've seen is our outlook for next year on organic is low single digits. Beyond that, we will accelerate as soon as we humanly can to mid-single digits. And why do I believe that is true?

Speaker Change: Super and I'm glad I know George that you're asking the question on eight to 10, because that's obviously a really important one what we're doing here is clarifying the organic growth piece of that which is what we can control and I think we owe that to you guys to be a little more specific on organic so what you've seen is our outlook for next year on the organic is low single digit.

Speaker Change: Beyond that we will accelerate as soon as we humanly can to mid single digits and why do I believe that is true.

Hanneke: We believe our markets, thanks to those tailwinds of new ways of working, gaming, and AI, will be GDP plus. If you combine that with modest share growth, you get to those mid-single digit rates. That's also what the company did pre COVID. So if you look at the seven year pre COVID CAGR, it was 5%. If you look at the five years before COVID, the CAGR was 7%.

Speaker Change: We believe our markets. Thanks to this tailwind the new ways of working shaming and AI, We believer Americans will be J D plus GDP plus.

Combine that with modest share growth you get to those mid single digit rates.

Speaker Change: That's also what the company did pre Covid. So when you look at the seven year Covid pre pre Covid CAGR. It was 5%. If you look at that five years pre Covid CAGR. It was 7%. So again mid single digits. It's what our track record was and we believe we can do that going forward.

Hanneke: So again, mid single digits. It's what our track record was, and we believe we can do that going forward. Any M&A would come on top of that, but it's harder to predict. So, and I would say it can be huge, can be small, it can be a mountain or a molehill. And I would hate to artificially cap the size of M&A. I would also hate to over promise on the size of M&A. We'll be thoughtful; we'll be deliberate and strategic in M&A. But I think it's important that we provide that clarity on the organic growth rate, which is what our priority right now.

Any M&A would come on top of that but it's harder to predict and so and and I would say it can you know can be huge can be small it can be a mountain or a molehill and and I would hate to artificially cap the size of M&A I would also hate to over promise on this.

Speaker Change: Size of M&A, we'll be thoughtful we'll be deliberate and strategic on M&A, but I think it's important that we provide that clarity on the organic growth rate, which is what is our priority right now.

Didier Scamana: Perfect. Thank you, guys. Thanks, George. Next up, let's go to the Bank of America, Didier Scamana.

Speaker Change: Thank you guys.

Thanks, George next let's go to Bank of America did hear some.

Speaker Change: Yeah.

Speaker Change: And are you there.

Speaker Change: Yes, obviously, thank you and I, just do not know how to mute.

Didier Scamana: Yes, obviously, tech analysts do not know how to unmute. Apologies. Good morning, everyone.

Speaker Change: Apologies good morning, everyone.

Hanneke: A question for Hanneke. I'm a bit surprised you have lowered your long-term growth target, not because I don't understand it, but because, effectively, you just told us that you're going to invest a bit more to increase your growth by about a billion dollars. So I would have expected, at the very least, the organic growth to have been the same as it was, but now you're telling us that, effectively, some of your core categories are going to decelerate, if not shrink. Is that the right way to understand it? And I'm going to follow up. Thank you.

Speaker Change: A question for Anika I'm, a bit surprised you have lowered your lumpier.

Anika: The long term growth target because I don't understand it but because Thanksgiving you just told US that you are going to invest a bit more to increase your tam by about $1 billion.

Anika: So I would have expected or does there need to build any growth to be in the same as it was but now you're telling us that effectively some of your core categories are going to decelerate. It's not shrink is that the right way to understand it and I'm gonna photo that I wouldn't say that again, I think well I know the previous eight to 10, which has been around for a long time always.

Hanneke: I wouldn't say so, Didier. I think, well, I know the previous 8 to 10, which have been around for a long time, always included M&A, which made it rather obtuse. Because, again, M&A can be huge. It can be small.

Anika: M&A, which made I'd, rather obtuse I'm, because again M&A can be huge it can be small its hard to predict when they will come. So I think it's important that we give you some guidance on what we think this business can do organically mm for next year, that's low single digits and then from there we'll take that to mid single.

Hanneke: It's hard to predict when it will come, so I think it's important that we give you some guidance on what we think this business can do organically. For next year, that's low single digits. And then from there, we'll take that to mid-single digits. That's by no means a deceleration of where we've been. That's where we were pre-COVID. In the last two years, obviously, we were down across our category, so we look forward to accelerating that business.

Anika: Digits, that's by no means a deceleration of where we've been that's where we were pre COVID-19.

Anika: The last few years, obviously, we were down across our categories. So we look forward to accelerating that business and I'm very optimistic about our ability to do that.

Hanneke: And I'm very optimistic about our ability to do that. Excellent. I think your long-term gross margin model hasn't changed, but should we understand from your commentary that you expect to operate towards the upper end of that range and that you're going to invest effectively what's on top of that in RMV to accelerate your top line, maybe in the longer term?

Anika: Excellent.

Speaker Change: Thank you your long term gross margin model Hasnt changed but should we understand from your commentary that you expect to operate towards let's say the upper end of that range and that you're going to invest effectively.

Speaker Change: What's on top of that in R&D to accelerate our top line maybe in the longer term.

Hanneke: Yeah, so within the optics, definitely, what I would like to do is shift more to the S rather than the G and the A, which is marketing and R&D, because that's what drives our gross margins in the end and our ability to premium price our products. So, yes, on gross margins, I wouldn't we're guiding a range of 39 to 44 for the longer term for next year. We think we can be around 41%, which is great. But should that change going forward? We'll let you know, but a broad range, given the uncertainties in the environment, I think it's prudent for now. I would just add Didier De Beers.

Speaker Change: Yeah, so within the Opex definitely what I would like to do is shift more to D. S. Rather than the G into a which is marketing in R&D, because that's what drives Indiana, our gross margins and our ability to premium price our products and so yes on that on gross.

Speaker Change: Jens I wouldn't you know, where we are guiding a range 39 to 44 for the longer term for next year. We can we think we can be around 41% which is great.

Speaker Change: Should that change going forward, we'll let you know, but a broad range given the uncertainties in the environment I think it's prudent for now.

Speaker Change: I would just I'll also add to that.

Chuck: I would also add, Didier, that it's an important kind of philosophy that Logitech has, and this is broader than Hanneke and I, this is kind of in the business groups, and the go-to-market is that we are not going to give up share in the mainstream and lower end. We will fight the margin game at the lower end. Why?

Speaker Change: The.

Speaker Change: It's an important kind of philosophy that logitech has.

Speaker Change: Is broader than hanukkah and I. This is kind of in the business groups and the go to market is we are not going to give up share in the mainstream and lower and we will fight the margin game at the low end why we make our money in mid tier to high end.

Chuck: We make our money in the mid-tier to high-end, and so you will see periods where we're more aggressively promoting to defend our share of the shelf at broad scale e-comm and retail. And so there will be periods where we're fighting more to maintain or grow share. The long-term model, 39 to 44, makes perfect sense. This year, as we see it today, 41 is a really good planning number. But understand that I wouldn't encourage you to go to the high end of the model permanently because competition can be fierce, and we will defend our turf.

Speaker Change: And so you will see periods, where we're more aggressively promoting to defend our share of shelf.

Speaker Change: At broad scale on E com and retail and so there will be periods, where we're fighting more to maintain share or grow share.

Speaker Change: The long term model for end of 44 makes perfect sense. This year as we see it today 41 is a really good planning number but understand that I wouldn't encourage you to go to the high end of the model permanently because you know competition can be it can be fierce and we will defend our turf.

Speaker Change: Thanks, so much.

George Wang: Great. Let's go to George Wang at Barclays.

Speaker Change: Great, Let's go to George Wang Barclays.

George Wang: Oh, hey, guys. Thanks for taking my question. Just two quick ones. In the prepared remarks, you talked about some AI tailwinds. You know, most people don't necessarily associate Logitech with AI, at least in the near term. Maybe you could pass on some of the kind of drivers, kind of, and when do you think we could possibly see some, you know, tailwinds on the P&L side?

George Wang: Oh, Hey, guys. Thanks for taking my question just two quick ones in the prepared remarks, you talked about some AI <unk>.

George Wang: Most people don't associated necessarily.

George Wang: Tied with AI at least the near term maybe you can parse out some of the kind of drivers are kind of the pool and the.

George Wang: When do you think.

George Wang: We could possibly see some.

George Wang: Tailwind on the P&L side.

Speaker Change: Yeah, great. Thanks for the question, so logitech already as part of that he AI ecosystem and we look at it in three ways. The first way of course is to drive in house productivity like every other company on the planet. So I won't talk about that the other two ways. We look at AI is really to drive growth.

Hanneke: Great, thanks for the question. Logitech is already part of that AI ecosystem, and we look at it in three ways. The first way, of course, is to drive in-house productivity like every other company on the planet. But I won't talk about that.

Hanneke: The other two ways we look at AI are really to drive growth. First, that is in our software. And a good example of this is what we launched on April 17, a couple weeks ago, the Longy AI Prompt Builder. That sits on, I was going to grab my mouse, I'm so used to having my mouse here, but it sits on all our mice and keyboards.

Speaker Change: First that is in our software and a good example of this is what we launched on April 17, a couple of weeks ago. The laundry AI prompt builder that fits in I was gonna grabbed my math and say you've done the math here, but [laughter] sits in all our mice and keyboards.

Hanneke: And it's basically a productivity enhancer. I don't know if you guys use it, if you use ChatGPT a lot, but if you use it a lot for summarizing, for rephrasing, for translating, you have to go out of the work that you're doing and go into ChatGPT, copy paste, and come back in. So one of the consumer needs we identified early on was to make that faster and more fluent. So the software, the Longy AI Prompt Builder, which is now free, by the way, across all our products, lets you stay in the flow. That's pretty cool. We have had half a million active usage occasions already in less than two weeks. People really like it.

Speaker Change: And it's basically a productivity enhancer I didn't know if you guys used if you used to charge a P. T. A lot, but if you use it a lot for summarizing for rephrasing for translating yet to go out of the work that you're doing and go into chat GBT copy paste come back in so wanted to consumer needs. We identified early on was to make that faster and more fluent so.

Speaker Change: What the software the Lucky I pronged building, that's now for free by the way across all our products less you stay in the flow.

Speaker Change: And that's pretty cool when a half million are active usage occasions already in less than two weeks people really like it that's the way to make our products better and we firmly believe when you have superior products you will grow faster. So that's the one way and working with the chart G. P Tees up the world.

Hanneke: That's the way to make our products better, and we firmly believe that when you have superior products, you will grow faster. So that's one way, working with the ChatGPTs of the world to help people enhance their productivity. The other way is probably even more fundamental, which is improving audio and video based on machine learning and large language models with our own data models. I talked about this a little bit at our last call, but products like the Logitech Sight video conferencing tool are outstanding.

Speaker Change: To help people enhance their productivity.

Speaker Change: Other way, it's probably even more fundamental which is improving audio and video based on machine learning and large language models with our own data models.

Speaker Change: I talked about this a little bit at our last call, but products like the Logitech site video conferencing mm tool or.

Speaker Change: Our outstanding we used machine learning settle the data in what happens in a big conference room normally you know there's 10 of you on one side one of you on the other side the person on the other side can't see who is speaking just seems little heads.

Hanneke: We used machine learning, and settled the data in. What happens in a big conference room, normally, you know, there's 10 of you on one side, one of you on the other side; the person on the other side can't see who's speaking, just sees little heads. It's not a great experience.

Speaker Change: It's not a great experience with the logistics site. It recognizes he was speaking, but thanks to the AI underneath it all soon enough knows who's speaking, but it knows when you're opening a packet of crisps that it shouldn't focus on U sleep, having a really intelligent producer inside of the product famous tray for audio where.

Hanneke: With the Logitech site, it recognizes who's speaking, but thanks to the AI underneath, it also does not know who's speaking, but it knows when you're opening a packet of crisps that it shouldn't focus on you. It's like having a really intelligent producer inside of the product. Same is true for audio, where in our headsets, we've implemented, again, the same machine learning to get perfect two-way noise cancellation. So lots of ways in which we're using machine learning and large data models to make our products more superior. And again, the more we can grow that superiority delta and delight our consumers, I think the faster we grow. That's why we see this as a tailor.

Speaker Change: In our headsets, we've implemented again, the same machine learning to get perfect two way noise cancellation.

Speaker Change: So lots of way in which we're using machine learning and large data models to make our products more superior and again the more we can grow that superiority delta and delight our consumers I think the faster we grow that's why we see this as a tailwind.

Chuck: There's one other angle too I would I just add and that is if you're if you're tracking you know Dell or Lenovo or even HP in some cases they're talking about a pretty significant chip refresh and their fleet of PCs and while we've talked about there's not a huge correlation between PC shipments and the sell of our gear there is a correlation so as you see that PC refresh cycle happening with chips AI chips going more local in the machine that we think will have an attach rate that will be a tailwind to us over time as you see a large PC refresh happening

Speaker Change: There's one other angle too I would I would just add and that is if you're if you're tracking you know Dell lenovo or even H P. In some cases theyre talking about a pretty significant ship refresh and their fleet of Pcs and while we've talked about there's not a huge correlation between.

Speaker Change: In PC shipments in the sale of our gear. There is a correlation so where you see that PC refresh cycle happening with God shifts AI chips going more local in the machine that we think will have an attach rate that will be a tailwind to us over time as you see a large.

Speaker Change: PC refresh happening.

George Wang: Gotcha, just a quick follow up, if I can just in terms of China, you guys called out some continued weakness in China, especially on the gaming side, you guys mentioned some, you know, competitive intensity and some potential share loss. I'm just curious kind of whether you see that as a more, you know, sort of a continuous sort of a, you know, pressure in the next few quarters. And then maybe you can provide a bit more color on that, especially the gaming side of China. Yeah, absolutely. So.

Speaker Change: Got you and just a quick a follow up if I can just in terms of the China you called out some continued weakness in China, especially on the gaming side you guys made.

Speaker Change: Some.

Speaker Change: <unk>.

Speaker Change: Intensity and some potential share loss, just curious kind of whether you see that as a more so they.

Speaker Change: So the pressure in the next few quarters and then maybe you can provide a bit more color on that especially the gaming side in China.

Speaker Change: Yeah, absolutely. So there there is the business in China on the gaming side is a little softer than I would like for it to be and it's not all bad and when you look at the the premium mice were still doing well, we're still growing we're still number one.

Hanneke: Yeah, absolutely. The business in China on the gaming side is a little softer than I would like it to be, but it's not all bad.

Hanneke: When you look at the premium mice, we're still doing well, we're still growing, and we're still number one. And I think what's also reassuring is that the brand is still very strong. It has strong awareness, and a strong reputation. That continues to be super important because there are literally more than a thousand other brands and peripherals in China. So to have the strongest brand in the market is really, really key. That said, there is intense competition, and we need to do better, so I challenge my teams to come up with plans to compete more effectively in China. That's one of our top priorities for the months ahead, and I'm confident that we will turn that around.

Speaker Change: And I think what's also reassuring as the brand is still very strong has strong awareness is strong reputation that continues to be super important because there's literally more than a thousand other brands and peripherals in China. So to have the brands that is the strongest in the market is really really key.

Speaker Change: That said there is intense competition and we need to do better. So I've challenged my team to come up with plans to compete more effectively in China. That's one of our top priorities for the months ahead and I'm confident that we will turn that around.

Jrn Iffert: Great, let's go to Jorn Iffert at UBS. Hello Jorn.

Speaker Change: Okay. Thank you.

Speaker Change: Great, Let's go to your Ethernet UBS Hello yarn.

Jrn Iffert: Hi, good morning, thanks for taking my questions, and Chuck, all the best to you in the future. Thanks for all your help and support.

Speaker Change: Hi, good morning, Thanks for taking my questions.

Speaker Change: All the best to you in the future.

Speaker Change: Thanks for all your help and support.

Jrn Iffert: Three quick questions, please. The first one would be on gaming. Can you share with us how strong the growth in simulation devices was? Because I remember this can be cyclical. And also, why gaming is now dropping to the lower end of the cross-profit margin range, as indicated in the shareholder letter?

Ethernet UBS: Three quick questions. Please.

Speaker Change: The first one would be please on gaming.

Ethernet UBS: Can you share with us how strong the cros and stimulation device was because I remember this can be cyclical.

Ethernet UBS: And also why gaming is not dropping to the low end of the gross profit margin range.

Ethernet UBS: Am I sort of indicated in the shareholder letter.

Chuck: Sure, Jorn. Thank you for the kind words. Simulation is a great business, and our team is crushing it. The results, we don't break out the details for you, but simulation, margins are good, business is up, and we feel really good about the simulation business. So I think, you know, more to come on that one, and we do feel good about that in general.

Speaker Change: Sure. Thank you for the kind words.

Speaker Change: Simulation is a great business and our team is crushing it the results we don't break out the detail for you, but stimulation margins are good businesses up and we feel really good about the simulation business. So I think you know more to come on that one.

Speaker Change: And we do feel good about that in general in terms of margins dropping on gaming I wouldn't say that they're dropping on gaming margins have always been challenging on gaming.

Chuck: In terms of margins dropping on gaming, I wouldn't say that they're dropping on gaming. Margins have always been challenging on gaming. If you think about our overall portfolio, and in the showroom letter, we rank the different categories, but within gaming, which is one line, there are vastly different margins. Think of console headsets.

Speaker Change: If you think about our overall portfolio and then the sugar letter, we rank the different categories, but within gaming, which is one line. There are vastly different margins thinking of console headsets before our new product the $8 50 X, which is awesome and great margin and again, a killer new product in that.

Chuck: Before our new product, the A50X, which is awesome and a great margin and a killer new product in that category, console headset margins are terrible. They're bad for our competitors, and they're a very, very competitive space. We have changed the game by offering a really unique, innovative, different product that no one else has that we think will change the margin profile on console headsets. Gaming mice, we're the market leader; margins are quite good. Gaming keyboards are a little more competitive.

Speaker Change: Category console headset margins are terrible.

Speaker Change: Were bad for our competitors, they're very very competitive space, we have changed the game by offering a really unique innovative different product that no. One else has that we think will change the margin profile in console headsets gaming mice were the market leader margins are quite good gaming keyboards, a little more competitive.

Chuck: Simulation margins are quite good, and there are many other categories within gaming, but overall, it's a fairly competitive business, and therefore, it's a little lower margin than our flagship products like video, mice, keyboards, the B2B ones especially. But all the businesses are great, and the margins in gaming are up significantly year over year. So I will say thank you to Ugesh, the gaming team. They've done a great job of driving costs down, holding margin, holding promos, and doing great.

Speaker Change: Stimulation margins are quite good and there's many other categories within gaming, but overall, it's a fairly competitive business and therefore, it's a little lower margin than our flagship products like video you know mice keyboards, the area of the B to B once a special.

Speaker Change: So all.

Speaker Change: All the businesses are great and the margins in gaming are up significantly year over year. So I will say, thank you to you Josh the gaming team they've done a great job of driving costs down holding margin holding promo and doing great. One word of caution though for the models for Q1, there will be some margin pressure in Q.

Chuck: One word of caution, though, for the models, for Q1. It's the June 18 holiday, a big promotion window in China, and we're gonna win that holiday. We wanna come in strong; we'll be price competitive. It will bring margins for the company down a little bit, but we do intend to fight back, and Hanukkah has challenged the team to do better, and I think we can.

Speaker Change: One is the June 18 holiday big promo window in China, and we're going to win that holiday, we want to come in strong will be price competitive it will bring margins for the company down a little bit, but we do intend to fight back and Hanukkah. This test challenge the team to do better and I think we can.

Speaker Change: Okay. Thanks for this and the second question, please chronic or hanukkah, how are you changing internal processes, how its decision, making changing them as if you can give us some insights, but you have try to improve things I'll change things yeah, great question. Thanks.

Jrn Iffert: Okay, thanks for that. And the second question, please, to Hanneke. Hanneke, how are you changing internal processes? How is decision-making changing? So if you could give us some insights into where you have tried to improve things or change things.

Speaker Change: I think the first thing is setting out these clear strategic.

Speaker Change: Choices, because when you're unclear things tend to swirl inside the company and I want to avoid that at all costs going forward. So the choices of work and play that's where we will play well look at those markets in a larger way, but that's our space the choice of design.

Hanneke: Great question. Thanks.

Hanneke: I think the first thing is setting out these clear strategic goals. The choices of design-led, software-enabled hardware – again, very carefully chosen words. We are not gonna do adventures in pure software that's unrelated to our hardware. We're also not gonna play with plain hardware.

Speaker Change: <unk> led software enabled hardware again very carefully chosen words, we are not gonna do adventures in pure software. It is unrelated to our hardware. We're also not going to play with play hardware. Our hardware. He has software insight and leads with design.

Hanneke: Our hardware has software inside and leads with design. Those are important choices to put on a piece of paper because they've led to some chaos here in the past. The choice to double down on B2B will drive some of our resource investments when it comes to capabilities. The choice on geographic opportunities and making sure that everyone performs at the very highest level, and we don't have share of wallet differences between similar countries.

Speaker Change: Those are important choices to put on a piece of paper because they've leftism swirl here in the past the choice to double down on B to B will drive some of our resource investments when it comes to capabilities.

Speaker Change: The choices on geographic opportunities and making sure that everyone performs at the very highest level and we don't have the share of wallet differences between similar countries and finally the choice of one iconic brand is really important versus the multi brand a strategy of the past so I think.

Hanneke: And finally, the choice of 1 iconic brand is really important versus the multi-brand strategy of the past. So I think making those clear choices will help people know what to expect and will help us move faster. I also believe structure follows strategy. So we'll be adjusting the organization going forward to make sure we can drive those clear choices and drive really attractive profitable growth.

Speaker Change: Making those clear choices will help people know what to expect and will help us move faster.

Speaker Change: I also believe structure follows strategy. So we'll be adjusting the organization going forward to make sure. We can drive those clear choices and drive really attractive profitable growth going forward.

Hanneke: And the very last question, really a quick one, on the chief design officer position, can you just remind me who it is right now and if the other structure has changed? Yeah, no, no.

Speaker Change: Thank you and then very last question really a quick one on the Chief design Officer position can you just remind me who it is right now and if they are strong they've changed yeah. No no. So we we announced them earlier in the corner sometime in February and that modeling Leslie that's.

Hanneke: So, we announced earlier in the quarter, or at least sometime in February, that Malin Lesli, who's a fabulous Swedish designer who had been with Logitech for a little while, has been appointed our new chief design officer. She is off to a roaring start. We love what she's doing. The design team, just in the last couple of weeks, won ten super prestigious Red Dot Design Awards. So, the design team just keeps performing incredibly well under her leadership.

Speaker Change: Fabulous Swedish designer, who had been with Logitech for a little while has been appointed our new Chief design Officer. She is off to a roaring start we love what she's doing the design team just in the last couple of weeks, one tenant super prestigious Red Dot Design award so to design team just keeps performing incredibly.

Speaker Change: Well under her leadership.

Hanneke: Thank you, Jorn. Let's go to...

Speaker Change: Thank you.

Speaker Change: Thank you Yoram, let's go to Ananda Baruah loop and honor.

Erik William Richard Woodring: Yeah, thanks Nate, appreciate it, good morning guys. Yeah, and Chuck, it's been great working with you. Really, it's really been that way.

Ananda Prosad Baruah: Yeah, Thanks, and I appreciate it good morning, guys.

Ananda Prosad Baruah: Yes, and just been great working with you really it's really the value add the new proactive exactly negligible over the year. So really appreciate that.

Erik William Richard Woodring: It's really the value add. You're proactive with that.

Erik William Richard Woodring: over the years, so I really appreciate that. I guess just, you know, kind of clarification and then one quick question here. Hanneke, you had mentioned kind of when you're talking about mid-single digit, returning to mid-single digit growth in the intermediate term, my interpretation, you mentioned five percent and seven percent, and so do you relate to five to seven percent as mid-single digit growth, or were you just providing a framing?

Speaker Change: I guess just.

Ananda Prosad Baruah: Kind of clarification and then one quick question here a hanukkah you had mentioned kind of when you were talking about mid single digit returning to mid single digit growth in the intermediate term.

Speaker Change: My interpretation, you mentioned, 5% and 7% and so.

Speaker Change: Do you relate to 5% to 7% as mid single digit growth or will you just provided a lot of for instance, yeah well those were the growth rates pre COVID-19. So that's where for instance, there's a in my book mid single digits goes all the way from three to seven so I'm gonna that's the Guy who will provide.

Hanneke: Yeah, well, those were the growth rates pre-COVID, so those were just for instance. In my book, mid-single digits goes all the way from 3 to 7, so that's the guide we're providing.

Hanneke: Got it. And would high single-digit growth be an aspiration longer term for the company?

Speaker Change: Got it and.

Speaker Change: He is high with high single digit be an aspiration longer term for the company.

Hanneke: Again, I think what we're guiding that mid-single-digit score is organic. I would hope that with our balance sheet, we would be adding M&A to that. So, you know, then we can do the math, and we would do a little...

Speaker Change: Again, I think what we're guiding that that mid single digits for it is organic.

Speaker Change: With our balance sheet, and we would be adding M&A to that so you know then we can do the math and we would do a little more.

Hanneke: Is it too early to say, yes, if iSingleDigit Organic would be something that the company could go for long-term? It's too early to say.

Speaker Change: Is it too early.

Speaker Change: Hey, yes, I single digit organic.

Speaker Change: Would be something to the company could go for long too early to say.

Erik William Richard Woodring: I'll uh, that's it for me. I appreciate it. I'll get you guys on the call. Next up, we'll go to Morgan Stanley, Erik Woodring. Hey Erik.

Speaker Change: Well got it.

Speaker Change: That's it for me I appreciate it I guess you guys on the compound.

Speaker Change: The other side.

Speaker Change: Next we'll go to Morgan Stanley Erik Woodring, Hey, Eric.

Erik William Richard Woodring: Hey, guys. Good morning, Thank you for taking my questions.

Erik William Richard Woodring: Hey guys, good morning. Thank you for taking my questions. I have two, please.

Erik William Richard Woodring: Two please.

Erik William Richard Woodring: Maybe just the first one. If we just double-click on the channel inventory comments, I just want to gain a little bit of clarity there because sell-through in the March quarter was flat, and sell-in was up 5%, so that would imply you filled the channel. So I just want to make sure I'm thinking about that right, or if I'm not, what I'm missing there. And then beyond the March quarter, just to Chuck, to get to your comments, you know, I understand maybe your approach to filling and draining the channel might be different as we look forward.

Erik William Richard Woodring: Just the first one.

Erik William Richard Woodring: If we just double click on the channel inventory comments I, just wanted to gain a little bit of clarity there because.

Erik William Richard Woodring: Sell through in the March quarter was flat salad was up 5%. So that would imply you fill the channels. So I just wanted to make sure I'm thinking about that right or if I'm not what I'm missing there and then beyond the March quarter, just too tough to get to your comments.

Speaker Change: I understand maybe your approach to filling in draining the channel might be different as we look forward.

Erik William Richard Woodring: Great, Erik. Thank you. I'm trying to see if I can get all your questions remembered and articulated properly. I apologize.

Speaker Change: From my seat I guess, it just seems as though you're you're filling the channel at a different time as opposed to changing the underlying maybe fundamentals or visibility of the business and so can you maybe just help me understand how this maybe new approach to channel inventory.

Chuck: So, you may have to follow up if I don't exactly hit the nail on the head. So, first of all, sell-in was flat. It's in the shareholder letter.

Erik William Richard Woodring: Benefits Logitech outside of just timing related factors and then last question related to this I'm sorry for the Multipart question is just if selling news app.

Erik William Richard Woodring: <unk> up 2% in fiscal 'twenty five how should we think about sell through expectations for fiscal 'twenty five.

Chuck: Or, sorry, sell-through was flat year over year, but sell-in was up 5%. As I mentioned earlier, two points of that are simply comparing the channel inventory year over year. So, a year ago, we took channel inventory down more than it came down in Q4 of this year. So, really, the way to think about that is two points out of five: the channel inventory reduction this year was lower than the channel inventory reduction was a year ago.

Speaker Change: Great Eric Thank you.

Speaker Change: You get all your questions [laughter] remembered and articulate I apologize.

Speaker Change: As a follow up if I don't know exactly hit the nail on the head. So first of all sell in it was flat in the shareholder letter.

Speaker Change: Oh, sorry, its sell through was flat year over year.

Erik William Richard Woodring: Sell in was up 5% as I mentioned earlier.

Erik William Richard Woodring: Two points of that is simply comparing the channel inventory year over year. So a year ago, we took channel inventory down more than we had then it came down in Q4 of this year. So really the way to think about that as two points of the five is the children's wear a reduction this year was lower than the channel inventory.

Erik William Richard Woodring: <unk> was a year ago.

Chuck: The other three points of growth are really promotional effectiveness. Basically, we're selling the same number of units, but we have more profit per unit. Therefore, there's more revenue because of higher profitability and less promotional activity. We've seen that in other quarters as well as a more disciplined approach to how we do promos. So, that part should be fairly straightforward. If not, I can follow up if you ask another question.

Erik William Richard Woodring: The other three points of growth is really promotional effectiveness basically we're selling the same number of units, but we're going to have more profit per unit. Therefore, there theres more revenue because of our higher profitability and less promotional activity.

Erik William Richard Woodring: You've seen that in other quarters as well as more disciplined approach to to how we do promos.

Speaker Change: So that part should be fairly straightforward if not I can follow up.

Erik William Richard Woodring: If you asked another another question on the the zero to two.

Chuck: On the zero to two, I think your question was what sell-through should be. I would expect sell-through to also be roughly zero to two. Effectively, we should be ending the year about where we started from a channel inventory standpoint, and the operating model is really, for us, to have a linear business where we're selling every month, every day, every week. We're selling. That's how customers buy. B2B can be a little different. But generally, customers are buying every day, every month, every week. And we want our factories to run that way and ship that way,

Erik William Richard Woodring: I think your question was what should sell through B I would expect sell through to also be roughly zero to two effectively we should be ending the year about where we started from a channel inventory standpoint, and the operating model is really for US is have a linear business, where we're selling every month every day every week.

Erik William Richard Woodring: We're selling that's how customers buy <unk> it can be a little different but generally their customers are buying every day every month every week and we want us we want our factories to run that way and ship that way.

Chuck: And that matches how customers buy. Now, what's different is, for example, in China, there's a big promotion window on June 18. So, we tip the product into the field in advance of that. And that's this forward weeks on hand operating model. So, in China, we'll be shipping a lot more product this month, in April and May, to get ready for that promotion window. And then it will come down a little bit.

Erik William Richard Woodring: And that matches how customers buy now what's different is for example in China Theres, a big promo window June 18, so each of the product into the field in advance of that and that's this forward a weeks on hand, the operating model. So in China will be shipping a lot more product in this month in May April and May.

Erik William Richard Woodring: To get ready for that promo window, and then it will come down a little bit as we think about Amazon Prime days, we'll be selling in in advance of those days. So all we're doing now is matching.

Chuck: As we think about Amazon Prime days, we'll be selling in advance of those days. So, all we're doing now is matching how we fill the channel in advance of the promotional windows. The big one being, you know, Black Friday, the December quarter, the holiday window is the biggest quarter of the year for us, the December quarter. We'll start having that fill happening in late September, October, and early November. And then again, the channel will come out.

Erik William Richard Woodring: How we fill the channel in advance of the promotional window is the big one being you know black Friday.

Erik William Richard Woodring: The December quarter, the holiday window is the biggest quarter of the year for us in December quarter, we'll start having that fill happening in late September October early November and then again the channel will come out so all of the hard work that we've done a year ago now is going to pay fruit and that should mean.

Chuck: So, all the hard work that we did a year ago is going to bear fruit. And that should mean better margins and lower operating costs, which should translate into a very compelling gross margin of that 41-ish percent this year and in that range of 39 to 44 for the years to come.

Erik William Richard Woodring: Better margins and lower operating cost, which should translate into a very compelling gross margin of about 41 ish percent this year and in that range of 30% to 44 for the years to come.

Hanneke: Okay, very clear. And then maybe, just as my follow-up, Hanneke, just in terms of, you know, it's felt for a few months now that you've emphasized M&A a bit more than your predecessor. You know, Logitech hasn't really made a large acquisition in, I'd say, over a decade, at least one that would move the needle. And you have very clearly spent a lot on shareholder returns. And so, I guess, the big picture, you know, is it your view that you're going to lean more into what I would kind of call transformational M&A prior, more than prior executives?

Speaker Change: Okay very clear and then maybe just as my follow up.

Speaker Change: Just in terms of its felt for a few months now you you emphasize M&A a bit more than than your predecessor, Logitech hasn't really made a large acquisition and I'd say over a decade at least one that would move the needle.

Speaker Change: And you have very clearly.

Speaker Change: Spent a lot on shareholder returns and so I guess a big picture.

Erik William Richard Woodring: Is it your view, you're going to lean more into what would I, what I would kind of call. It transformational M&A prior more than prior executives you know is that kind of how the board is thinking about this is this how shareholders are.

Hanneke: You know, is that kind of how the board is thinking about this? Is this how shareholders are thinking about the future? And would that still be – still be incremental to your capital returns? Or would that capital, excuse me, cannibalize some of what you've been returning to shareholders? Obviously, a very strong balance sheet, but just how should we think about those different dynamics going forward? Thank you so much. Yeah, sure.

Speaker Change: Looking about the future and would that be still be incremental to your capital returns or would that capital excuse me cannibalize some of what you've been returning to shareholders. Obviously, a very nice very strong balance sheet, but just how should we think about those different dynamics going forward. Thank you. So much sure. Thanks, Eric I can speak for my predecessor to them.

Hanneke: I can't speak for my predecessor, but what I'm hoping to get across here is that our priority right now is organic growth. That's why we're guiding that low single-digit growth into mid-single digits.

Speaker Change: I I went I'm, hoping to get across here is that our priority right. Now is organic growth. That's why we're guiding to low single digits grow in the mid single digits. That's what's under our control now on top of that with our balance sheet, we do have opportunity for M&A.

Hanneke: That's what's under our control. Now, on top of that, with our balance sheet, we do have an opportunity for M&A. The key is that it is thoughtful, deliberate, and strategic. Size is a factor, but it's just one of many factors. What's more important is that we're really thoughtful because what I've learned over the years is doing the deal is really easy, but making it a success is much harder. So organic growth is our number one priority at the moment, but if there are good M&A opportunities, we won't hesitate to take them.

Speaker Change: The key is that that is thoughtful deliberate and strategic mm sizes that factor, but it's just one of many factors. What's more important is that we're really thoughtful because what I've learned over the years is doing the deal is really easy making it a success as much harder so organic growth is what is our number.

Speaker Change: One priority at the moment, but if there's good M&A opportunities, we won't hesitate to take advantage.

Erik William Richard Woodring: Super. Thank you so much, guys.

Speaker Change: Super Thank you so much guys.

Michael Foeth: Thanks, Erik. Our last question today is from Michael Foeth at Zantebel. Hello, Michael.

Speaker Change: Thanks, Eric our last question today is from Michael.

Speaker Change: Vaughan to though Hello, Michael.

Michael Foeth: Yes, hi, thank you. Two questions from my side. You mentioned the expansion of your sort of mice and keyboards or work business into or outside of the office. Can you maybe be a bit more specific about what sort of applications you have in mind there and how that should significantly increase your addressable market? And the second question is regarding your brand strategy. I was wondering how and when you plan to phase out those brands like, you know, UE and Logitech G, and you name them all the sub brands if you want.

Michael: Yes, hi, thank you.

Michael: Two questions from my side.

Speaker Change: Mentioned the expansion of.

Speaker Change: You're.

Speaker Change: Sort of mice, and keyboards or work business into or outside of the office.

Speaker Change: Can you maybe be a bit more specific in what sort of applications you have in mind, there and how that should significantly increase your addressable markets.

Speaker Change: The second question is regarding your brand strategy.

Speaker Change: I was wondering how are you how and when you plan to phase out those brands like.

Speaker Change: And lots of J D.

Speaker Change: You name them all the all the soft brand if you want.

Hanneke: Let me take that second one first, because I can be quite brief. We are not phasing out Logitech G. So Logitech G is Logitech, and the G stands for gaming, which makes sense. So if I insinuated that, I was not clear. So Logitech and Logitech G are very much part of the same mother brand, and we're going to do our darndest best to make them iconic. Ninety-seven percent of Logitech's revenue today is in Logitech and Logitech G. So the multi-brand strategy was a big talking point, but in reality, most of it is actually Logitech and Logitech G. So that's where our focus will be. Great question on work. So again, most people in the work world don't work in offices. So we are starting to put our toes in the water on some of these other spaces that I talked about.

Speaker Change: Great and let me take that second one first because I can be quite brief we are not facing a life Tech T cell Logitech G is its launch tech. So ended G gaming, which makes sense. So I'm if I.

Speaker Change: When you added that back I was not clear so logitech Logitech G are very much part of the same mother brand and we're going to do our darn assessed to make those iconic.

Speaker Change: 97% of logistics revenue today is in Logitech and Logitech G. So that the multi brand strategy and was a big talking point, but in reality most of it is actually logitech Logitech G. So that's where our focus will be.

Speaker Change: Great question on work so again those people into work World don't work in offices, and we are starting to put our toes into the water on some of these other spaces that I talked about education is a good example, I'm a very large work market and one where our.

Hanneke: Education is a good example, a very large market, and one where our existing product portfolio can be curated to play quite effectively. So we have started to sell into education. And we saw really good growth in the fourth quarter on that business.

Speaker Change: Existing product portfolio and can be curated to play quite effectively and so.

Speaker Change: So we and we have started to sell into education, we saw really good growth actually in the fourth quarter on that business.

Hanneke: One example is headsets, which are important in schools. We sell them. We have absolutely superior headset technology. What you need in elementary schools are smaller headsets and headsets that are more robust because kids throw their headsets around. So with relatively limited R&D adjustments, we make the very best headsets for education. We started to sell those again, with very encouraging results in a very large TAM. And what I personally like is some of the testing we've done with schools in America.

Speaker Change: One example is headsets, which are important in schools, we sell headsets, we have absolutely spirit headset technology, what you need in elementary schools is a smaller headsets and headsets that are more urban bus because kids there that sits around.

Speaker Change: So with relatively limited R&D adjustments, we make the very best headsets for education, we started to sell those again with very encouraging results in a very large tam and when I'm personally like as some of the testing we've done with schools in America.

Hanneke: Turns out that kids using our headsets have more peace and quiet and actually read 40% more books in class than before. So I love it when we really deliver on consumer and..., you know, family needs like that and grow the business incrementally.

Speaker Change: It turns out that kids using our headsets had more peace and quiet and actually read 40% more books in class than before so I love it when we really deliver on consumer and.

Speaker Change: Get a family needs like that and grow the business incrementally from it.

Michael Foeth: Thank you. Thank you. And thanks, Chuck, as well. Good luck. Thanks, Michael. And with that, Hanneke, that's our last question for today.

Speaker Change: Thank you. Thank you and thanks chocolate as well good luck. Thank you Mike.

Speaker Change: Thanks, Michael and with that Monica, that's our last question for today.

Hanneke: Great. Thanks, everyone. And again, yes, thanks, Chuck. His last hurray. It's been a real pleasure to work together, and I look forward to seeing you all again.

Monica: Great. Thanks, everyone and again, yes things check as last year as mineral pleasure to work together and I look forward to seeing you all again.