Q2 2025 Logitech International SA Earnings Call

October 22, 2024

Webcast of this call are all available in 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 net sales. This call is being recorded and will be available for replay on our website.

Speaker Change: I will now turn the call over to Hanukkah arnica.

Thanks, Dave and welcome everyone to our second quarter earnings call.

Speaker Change: First.

Speaker Change: It is my pleasure to introduce your turnkey financial model.

Speaker Change: This season's public company, CFO, Matteo skill and experience really well suited to logitech.

His background in engineering, and industrial technology diverse fee to be experiences his global perspective, it doesn't explain them.

Speaker Change: Okay.

Speaker Change: Okay, Okay. Okay. Okay.

Speaker Change: Good day and welcome to your first logic Tech earnings call.

Speaker Change: Two quick.

Speaker Change: Therefore, there we said what we said we would take.

We closed out the first half of our 2025 vessel with strong results.

Can you give us confidence looking forward.

Speaker Change: Let me touch on three highlights.

Speaker Change: First we delivered high quality growth.

Speaker Change: The growth was driven by demand.

Speaker Change: And it was very profitable.

Speaker Change: Above our long term operating model for both gross and operating margin.

Speaker Change: Growth was broad based across product categories and regions, including another standout quarter anemia.

Speaker Change: And we grew the business responsibly and with operational discipline.

Speaker Change: Channel inventories remained well Linda healthy range in which we operated for the last several quarters.

Speaker Change: Second we achieved these results as we executed effectively against our strategic priorities.

We're doubling down on B to B.

Speaker Change: In Q2 enterprise demand modestly outpaced consumer demand.

Speaker Change: Video collaboration showed sustained and profitable growth.

Speaker Change: And we saw strong growth in our personal workspace product in the enterprise channel.

Speaker Change: We continue to build the logistic brand.

Speaker Change: And we were delighted that our brand building efforts were recognized by time magazine, who named Logitech one of the world's best brands of 'twenty 'twenty four just last week.

And most importantly, Q2 was it.

Speaker Change: Okay.

Speaker Change: And is it fair.

Speaker Change: It does.

Speaker Change: And we launched a terrific series of new products at the holidays.

Speaker Change: In gaming, we introduced 18 new products.

Speaker Change: Clearly the proactive relate to mouth.

Speaker Change: <unk> rapid gaming keyboard.

Speaker Change: The G 915 gaming keyboards and.

Speaker Change: All new racing simulation series X.

Speaker Change: Exciting collaborations.

Speaker Change: Against any packed with momo.

Speaker Change: Video conferencing relaunched has also enabled solution called smart switches.

Speaker Change: Which utilizes AI to choose the best view between decide camera on the table and the rally bar camera in front them debate.

And in personal workspace, we continued to drive the successful combo touch for the new iPad.

Speaker Change: Very strategic category.

Speaker Change: And to help users work more efficiently, we launched two products into entirely new categories.

Speaker Change: <unk>, Inc. Is the first mixed reality stylus for nomadic quest headset.

Speaker Change: The amex creative console integrates with popular Adobe applications to streamline creative workflows.

To drive awareness and generate momentum for all of these products heading into the holiday season, we held global logic play and largely work events for the first time ever last month.

Speaker Change: These events were hosted live from Paris, Shanghai and over 20 other global locations.

Speaker Change: You play also streamed for over four hours on Twitch.

These events served as a celebration of gaming and new ways of working.

Speaker Change: They were a fantastic launch pad for new products and partnerships.

Speaker Change: They facilitated great interaction with customers partners and Influencers.

Speaker Change: And they were followed by a period of impactful in store activation.

Speaker Change: The excitement was palpable around the world and it's part of why I am so excited for the future of Logitech.

Speaker Change: In a few minutes, we'll share a short video for you to experience largely play for yourself.

Speaker Change: And finally, well results and strategy are really important great people and culture are critical for the execution of any strategy.

That is why in addition to these high quality results I am, especially proud of the culture here at Logitech.

Speaker Change: We actively nurture.

And it's gratifying to see that we were recognized by Forbes last week as one of the world's best employers.

Speaker Change: In a global survey of 300000 employees of 850 global companies, we ranked 20th a.

Speaker Change: A remarkable result for a company our size.

Speaker Change: So let me thank all of our employees around the world for everything they do and the culture They champion.

Speaker Change: In summary, this quarter's high quality results, our progress versus our strategy and our talented people give us confidence for the holiday quarter ever to remainder of our fiscal year.

Speaker Change: With that let me turn the call over to Matteo.

Speaker Change: Okay.

Matteo: You Arnica and thank you all for joining the call today.

Matteo: I am incredibly energized and motivated by the opportunities ahead and excited to be part of the next chapter of Logitech.

The team delivered.

Matteo: Quarter.

Matteo: Beautiful.

Matteo: Profitable growth.

Matteo: Detailed financial results can be found.

Speaker Change: Please Andrew.

Andrew: Let me briefly share with you what are we.

Speaker Change: Do you like about a quarter.

Andrew: So first net sales were up 6% year over year, and importantly demand accounted for roughly four points of that growth.

Andrew: The dynamic would be to sell himself through played out as we anticipated.

Andrew: Channel inventory levels ended the quarter loading our targeted range pushing us very well for two days.

Speaker Change: Shannon is arnica mentioned our growth was broad based we grew net sales year over year across all regions in nearly all the diverse product lines and grew demand in both the consumer and the business channels.

Speaker Change: Additionally, our growth was highly profitable.

Speaker Change: Gross margin rate was 44, 1% up 210 basis points year over year.

Speaker Change: Okay.

Speaker Change: Execution.

Speaker Change: Hmm.

Speaker Change: But we will continue part of cost reductions and higher demand allowed us to scale.

Speaker Change: You may work.

Speaker Change: This is the fifth consecutive core of year over year gross margin rate expansion, a testament to the durability of our cost reduction initiatives and commitment to overall operational excellence.

Speaker Change: Looking ahead, we expect the gross margin rate for this fiscal year be in the range of 42% to 43%.

Speaker Change: Please keep in mind that our dirt work is typically more consumer focused.

Speaker Change: We slightly higher promotional things.

Speaker Change: And how your freight costs are expected to pressure gross margin rates in the next couple of quarters.

Speaker Change: Second quarter operating expenses will be higher end of our annual range of 24, 6%.

Speaker Change: We continue to invest in our organic growth.

Speaker Change: Through initiatives that is largely play in larger awards.

Speaker Change: And finally, our cash generation remains robust.

Speaker Change: Contributing to our healthy cash position of nearly $1 4 billion.

Speaker Change: In addition, we returned 340 million back to shareholders, we repurchased $132 million of shares in the quarter.

Speaker Change: As part of our ongoing $1 billion buyback program. Additionally.

Additionally, our shareholders approved a 10% increase in Swiss francs to our dividend, which resulted in a 208 million dividend payment in September.

Speaker Change: In summary, our second quarter results continue to demonstrate our teams ability to drive sustained profitable growth in.

Speaker Change: In spite of an inconsistent and often volatile global economic environment.

Speaker Change: And based on our strong results in the first half we are raising our fiscal year 2025 outlook, both in revenue and profit.

Speaker Change: And we need at this stage to largely play as we prepare for the Q&A. So Nate if you can please roll the video.

Speaker Change: [music] today across the globe, we're celebrating play.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Pro X to Y two facts Morris truck wheel and Rs realm.

Speaker Change: Gen five approaching licenses.

Speaker Change: Okay.

Rs shifts around the house.

Speaker Change: <unk>.

Speaker Change: [noise] play.

Speaker Change: [noise] ultimately use and inspires us.

Speaker Change: So as we like to say at Logitech keep playing.

Speaker Change: Time, if he would like to ask a question. Please click on the raise hand button, which can be found on the black bar at the bottom of your screen.

Speaker Change: They remove yourself from the queue at any time by lowering your hand.

Speaker Change: It is your turn you will hear your name called and receive a message on your screen asking to be promoted to a panelist. Please accept wait a moment and once you have been promoted you may on mute your video and audio and ask your question.

Speaker Change: We will wait one moment to allow the acute form.

Speaker Change: Our first question will come from.

Asia Merchant: Asia merchant with Citi.

Asia Merchant: You May now on your video and audio and ask your question. Please.

Asia Merchant: Please begin speaking when do you see the logitech team on your screen.

Asia Merchant: Hi.

Asia Merchant: Assuming you can hear me now yes.

Speaker Change: Good morning, guys.

Speaker Change: Good morning, Thank you.

Speaker Change: Just wanted to ask a little bit about gross margins.

Speaker Change: How sustainable are these going forward and if you can just walk us through what were the key drivers that have affected gross margins here sequentially I understand that the product costs and inventory reserves are doing better and there was some higher promotional spending, but if you could walk us through.

Speaker Change: Sequentially, what drove the higher margins.

Speaker Change: That would be great and I think the commentary around 42% to 43% for the year. How are we how should we think about that.

Speaker Change: Steve I believe there was any mix shift that you would like to call out as well. Thank you.

Speaker Change: Yeah, Let me let me take this one so.

Speaker Change: First of all we are extremely pleased where the gross margin came in the quarter.

Speaker Change: I have to say the team has done a fantastic job that you put in EP and continuously driving.

Speaker Change: Credit cost reduction through activities like value engineering, and really continue to deliver consistent strong gross margin.

Speaker Change: On a year over year basis, as I mentioned in the prepared remarks.

Speaker Change: We expanded about 200 to under 10 basis points.

Speaker Change: <unk>.

A couple of things product cost reductions so value engineering activities accounted for about 200 basis points of expansion.

Speaker Change: I mentioned in my prepared remarks. The other team also has done a fantastic job in.

Speaker Change: Selling some previously reserved inventory, which accounted for about 100 basis points of the of the margin lift year over year.

Speaker Change: And these effects were partially offset by slightly negative mix a little bit more promotional.

Speaker Change: Activity in India in the quarter.

Speaker Change: And then we continue to see a little bit of a higher freight cost.

Speaker Change: So I think the.

Speaker Change: Compared to where we were expecting the gross margin to come in in the prior earnings call. We came in a little better and the fundamentally the.

Speaker Change: The key reasons is the ability to sell these previous really zero inventory, which we were not expecting to happen to that extent.

Speaker Change: As well as a little better.

You know in the prior cost reduction by the team and that social what drives the sequential.

Speaker Change: Sequential increase in the margin.

Speaker Change: To the second part of your question, which is.

Speaker Change: What we are expecting moving forward.

Speaker Change: So we're expecting the gross margin rate for the second half to be about between 41 and 42%.

Speaker Change: And so we're expecting a slight sequential decrease in the gross margin rate.

Speaker Change: That's driven by fundamentally a couple of things one we are not expecting to be able to continue to sell these previously reserved inventory to the same extent that we have done in the first half of the year and that's about almost 100 basis points of the sequential decrease in the gross margin rate.

Speaker Change: Then we have seen continued pressure on not coming from freight cost.

Speaker Change: Keep kicking up a little bit on some of the lanes that we operate.

Speaker Change: And then obviously the.

Speaker Change: The fact that we are entering a holiday season, and before particularly in the third quarter instead of third quarter tends to be much more consumer oriented and therefore more a little bit more promoted and before we are expecting a slight increase in promotion. So that's a little bit the dynamic that we're seeing for the rest of the year.

Speaker Change: And is that reasonable to assume I mean going forward like I understand the seasonality in the second half.

Speaker Change: Yes.

Speaker Change: Oh, okay.

Speaker Change: Okay.

Speaker Change: The reduction seem like they are pretty sustainable.

Speaker Change: The freight costs, which it obviously outside.

Speaker Change:

Speaker Change: The other thing is.

Speaker Change: Pardon.

Speaker Change: That is helpful.

Speaker Change: Especially as you ramp up your beta yet first should we be expecting better margin profile going forward. Thank you look I think the way I would.

Speaker Change: Scribe it as is.

Speaker Change: As I said, we are very pleased with where we are yes, I agree with your statement.

Speaker Change: <unk> has done a fantastic job.

Speaker Change: The actions that will be taking around value engineering, taking cost out of the bill of materials.

Speaker Change: Is it is sustainable I think it's a little.

Speaker Change: Premature to talk a very long term, but I think for the year, we are expecting gross margin rate to be between 42, and 43%, which is actually if you look at where we closed last year is almost 100 basis points improvement year over year. When you take the total year and the cost reduction at TVT.

Speaker Change: The team.

Speaker Change: Has implemented the key reason why the gross margin expense.

Speaker Change: Great. Thank you very much for the color.

Speaker Change: Our next question comes from Sonic Chatterji of J P. Morgan.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Again speaking when you see the logitech team on your screen.

Speaker Change: Sure.

Thank you Anne.

Speaker Change: Thanks for taking the questions.

Speaker Change: Thanks.

Speaker Change: Visa is a strong set of results.

Speaker Change: But this is all of it.

Speaker Change: Consecutive quarter, we've seen she is.

Speaker Change: B demand.

Speaker Change: You have with.

Speaker Change: With some level of inventory.

Speaker Change: As you go into the holiday.

Speaker Change: Should we be expecting some level of promotions in terms of the inventory will be.

Speaker Change: Brian My question has to do retailers have your customers start to prepare a bit earlier than normal in terms of their preparation for the holiday period, and then is the inventory build that you have I know you mentioned it.

Speaker Change: Do we expect to see some.

Speaker Change: Okay.

Thanks.

Speaker Change: Yeah.

Speaker Change: A limited.

Speaker Change:

Speaker Change: I mean, there's a lot of detail, but just to remind everyone.

Speaker Change: Saying all along that sell in in the first half would be higher than the sell out and that will normalize.

Speaker Change: You're absolutely right.

Speaker Change: Okay.

Speaker Change: We're running tight inventory towards the back end of last fiscal year at outflows leading to the stock out.

Speaker Change: So we have been selling in a bit more than fill out here in the first half and that's positioned really well for the holiday and weak lately.

Speaker Change: That dynamic will reverse in the second half.

Speaker Change: What I would add we're really pleased on how.

Speaker Change: The core came in and you can see the dynamic between selling and sell through.

Speaker Change: That is very balanced and.

Speaker Change: In line with what we would expect these total and was up.

Speaker Change: Sitting with the the demand adult four points from the six points increasing net sales.

Speaker Change: And so the two things just.

Speaker Change: <unk> narrowed themselves are pretty much in the second quarter and then the dynamic because I expect that to your point to reverse in the second half where we're seeing sell through.

Speaker Change: Excellent.

Speaker Change: And the two amicus point the dynamic that we have been expecting now for quite some time so in terms of.

Speaker Change:

Speaker Change: Split in revenue maybe in the prior years of being tended to be a little bit more 48%, 52% between the first and the second half and as we indicated in prior calls this year is probably going to be more around the 50 50 due to the dynamic that the hanukkah just described.

Speaker Change: Got it.

Speaker Change: And for my follow up I guess, it's more of a clinic.

Speaker Change: In the shareholder letter you outline the areas, where you're gaining share.

Speaker Change: No.

Speaker Change: And just to ask they said one.

Speaker Change: How are you thinking about getting back to gaining share in video collaboration and also similarly, what are you seeing in terms of market share in China, and what actions you might be taking to plan for more share gains there as well. Thank you.

Speaker Change: Yeah, great. Thank you.

Speaker Change: N V C.

Speaker Change: The market is actually fairly robust so were happy to see that you know up low single digits.

Sure, it's flattish to slightly down.

Speaker Change: That is obviously not something we want to continue but there is a whole bunch of things that are actually.

Speaker Change: It really guides in video conferencing, we remain number one in units in video conferencing. Our service bookings were up almost two acts in the quarter, which is so important for that segment and as I've said before we were kind of new to services, but that's really on a roll the launch of smart switching in the quarter.

Speaker Change: Takes our product superiority a step forward and we're excited about that and then of course.

Speaker Change: There is still such big opportunities to go to market and video conferencing less than 30% of global meeting rooms are video enabled.

Speaker Change: And we've only started to play in some of these new verticals beyond enterprise and we're seeing really good results in education.

Speaker Change: <unk> up more than 20% in the quarter closer to 30.

Speaker Change: So all of those things give us a lot of confidence going forward in D C.

Speaker Change: It's an exciting segment for us highly profitable as well.

Speaker Change: China I'm also a few green shoots with be my my headline on China.

Speaker Change: The gaming market there remains extremely robust that's different from many other Chinese markets, but the gaming market is extremely robust arent demand grew mid single digits in the quarter and we continue to perform very well at the premium end of our ranges.

Speaker Change: In gaming mice.

Speaker Change: Our brand remains very strong in China.

Speaker Change: The competitive environment, there is intense and we can do better.

Speaker Change: Then those results. So we've started to make some targeted R&D and marketing investments in China to strengthen our local team and our local capabilities.

Speaker Change: It's going to take some time, because our share problems in China.

Speaker Change: Our not from yesterday, but we are starting to see some encouraging results in the first dedicated China initiatives hit the market this past quarter.

Speaker Change: The Alto key keyboard very well received.

Speaker Change: As long as the N 96 mouse both of that was very well received and doing well and we're starting to see share gains in the key channel of social ecommerce. So that's been duo duo and do in or kicked off.

Speaker Change: And we're starting to see share gains there. So early green shots its going to take a while to turn that China sure around.

Speaker Change: But such an important gaming market, where so much happens and we're very committed to that market happy to see the green shoots.

Speaker Change: Alright. Thank you thanks for taking my questions.

Speaker Change: Yeah.

Speaker Change: Our next question comes from George Wang with Barclays.

Speaker Change: You may now on mute your video and audio and ask your question.

Speaker Change: Please begin speaking when do you see the logitech team on your screen.

Speaker Change: Hey can you hear me.

Speaker Change: Can you hear me.

Speaker Change: Yes George.

George Wang: Just a quick question on Europe, obviously.

George Wang: EMEA Europe has stood out in the quarter.

George Wang: Especially you kind of a growth from tablets console gaming. So just curious kind of any you know you can double click on Europe, especially.

George Wang: Just a particular category.

George Wang: Alright.

George Wang: Yeah.

George Wang: Thanks.

George Wang: For the next couple of quarters.

George Wang: Yeah.

Speaker Change: Thanks, George Great questions and you are.

Speaker Change: Outstanding execution across the board you know them.

Speaker Change: That's flattish we way outperformed the markets there and <unk>.

Speaker Change: <unk> they inspire the whole play and let them work events, they've actually done regionally.

Speaker Change: Jared this year took them globally and again Europe Apple for both.

Speaker Change: Good morning.

Speaker Change: <unk>.

Speaker Change: Clustered <unk>.

Speaker Change: Activation that happens afterwards, I was there a couple of weeks ago. I mean, if you went into media markt or knock the execution that our European team is delivering is just simply outstanding and the same goes for our own.

Speaker Change: Okay.

Speaker Change: Hum.

Speaker Change: Oh.

Speaker Change: But in Europe, It was really broad based.

Speaker Change: Across categories, but in terms of the we mentioned probably worth pausing on for a moment.

Speaker Change: So tablets.

Speaker Change: Actually both on tablets and gaming headsets the team has completely changed.

Speaker Change: Margin profile of those two segments.

Speaker Change: We don't disclose the exact numbers, but think about 10 percentage points better than last sure. Thanks, Julianne nation in tablets, and five percentage points better on gaming headsets, which make those too much more attractive for us to grow.

Speaker Change: And they are strategic tablets, because they take us beyond the P. C. A lot of our business is a PC peripheral it's important for us to play beyond the P C as well.

And tablets are well suited to some of those need to be to be vertical they're extremely strategic for us education first and foremost.

Speaker Change: Headsets are also gaming headsets are also very strategic within gaming gaming headsets are a larger segment than both gaming mice and gaming keyboards.

Speaker Change: And we've had a lower share in gaming headsets, even though our technology is absolutely superior and I'm. So excited that with the a 50 acts in the 90 850.

Speaker Change: We are playing very strongly in the console gaming headset space that just expands the market for us growth our growth our share and again with those completely change gross margins. These are two attractive and strategic segments for us.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question comes from George Brown.

Speaker Change: With Deutsche Bank.

Speaker Change: You may now on mute your video and audio and ask a question. Please begin speaking when you see the logitech team on your screen.

George Brown: Hey, guys can you hear me.

Speaker Change: Yeah.

Yes.

Speaker Change: Thank you for taking my questions I have two to find me.

Speaker Change: Just firstly on China.

Speaker Change: Coming election in the U S.

Speaker Change: How do you feel about the potential of tariffs on your business given <unk> are you there.

Speaker Change: Yes can you hear me.

Speaker Change: Hello.

Speaker Change: Perhaps we'll move onto the next question and we'll get back to you George.

Speaker Change: Our next question will be from.

Speaker Change: Okay.

Speaker Change: Perfect.

Speaker Change: Great.

Speaker Change: You may now.

Speaker Change: Okay.

Speaker Change: Ask your question. Please speaking when you.

Speaker Change: On your screen.

Speaker Change: Good morning, guys can you hear me okay.

Speaker Change: Hey, good morning. Thank you so much for taking my questions.

Speaker Change: Maybe if we just start hot.

Speaker Change: Nice to see two consecutive quarters of out performance.

Speaker Change: And year over year growth.

Speaker Change: For the full year forecast is in thinking about 2% year over year revenue declines and something like 12% operating income declines in the second half of the year.

Speaker Change: Can you maybe help us just juxtapose kind of worsening.

Speaker Change: Hum comments, you're making on demand and having a bit better than you expected to help us to understand why we should expect things to get worse in the second half is that all kind of selling versus sell through dynamics.

Speaker Change: Just maybe if you double click on that that'd be super helpful and I have a follow up thanks, Yeah, absolutely I'll, let me do the operating income side of that but on the sales. So indeed, if you do the math and that's certainly the second half would be about flat that is that sell in sell out dynamic. So we're actually pretty comfortable on demand.

Speaker Change: Coming in about as strong as it has come in the first half.

Speaker Change: And I say that with quite a bit.

Speaker Change: Because of the inventory dynamic net sales will be lower than that.

Terry you want to come in the I'll tell you, Brian So Eric on the print side without a couple of dynamics.

Speaker Change: Compared to second half 'twenty.

Speaker Change: <unk> hundred $85 six and half of.

Speaker Change: 2024.

Speaker Change: First of all on them.

Speaker Change: <unk>.

Speaker Change: To the question was asked earlier.

Speaker Change: Product cost and awards that the team has been doing and will continue to even year over year basis, when you compare to second half.

Speaker Change: Last year. This year, we continued to deliver gross margin expansion however on the upside.

Speaker Change: The some of the work that we were able to continue in the first half.

Speaker Change: Around all this year around selling producers.

Speaker Change: <unk> reserved inventory last year actually happened later in the year. So it creates.

Speaker Change: Comparison challenged that's about 100 basis points of margin.

Speaker Change: Margin reduction when you compare the second half of the two years.

Speaker Change: And then we continue to see freight costs, though I talked about it and we are expecting freight costs. When you compare compared to second half to be higher year over year, and then a little bit more promotional activity. So it really is the gross margin.

Speaker Change: Dynamic and we spend a little bit more of an opex year over year as we are investing.

Speaker Change: <unk> says that on the good cholesterol, so really to grow the business so around.

Speaker Change: Sales and marketing around the product development, so you'll see a little bit of that too, but it's fundamentally is there is the gross margin then goes from about 43% in the second half of last year, which was a little elevated down to the 41 to 2% to 42% that I mentioned earlier.

Speaker Change: Okay, that's fair.

Very helpful. Thank you Matteo for that Sir.

Speaker Change: And then obviously looking forward to working together, if I didn't want to follow up and maybe double click on that comment that you just made in terms of Opex I'd love to know if there is maybe a different approach now from a.

Management team that has finally kind of cohesive in whole.

Speaker Change: In that Opex was up 15% year over year in the quarter I think as a percentage of revenue for the September quarter. It was a 10 year high are you signaling maybe a change in the spending intensity of this company. Obviously you mentioned some investments in China, but would love to just maybe step back bigger picture unrelated to just the quarter or are we.

Speaker Change: Seeing a change in how you guys spend to drive growth, how you spend on sales and marketing or was what we saw in the September quarter, maybe maybe one off and not necessarily indicative of spending intensity as we go forward. Thanks, so much I'm, sorry, but yeah no. So for the full year will be in the range that we've always talked about 24 to <unk>.

Speaker Change: 86% of Opex.

Speaker Change: I am very intentional about.

Speaker Change: Shifting opex into that good cholesterol, which is R&D and sales and marketing and that's how we will grow the top line of this business, which is so important for our future.

And this quarter is it.

Speaker Change: Running a little high.

Speaker Change: Hey, guys.

Jamie: Hey, Jamie.

Speaker Change: Hey.

Speaker Change: Marketing.

Speaker Change: Both in the West and in China, That's important we do it.

Speaker Change: Alright.

Speaker Change: Gross margins came in a little higher than expected. So that's good but we will continue to operate with a lot of discipline on opex.

Speaker Change: I have much to add.

Got it.

Speaker Change: [laughter].

Speaker Change: Thank you Eric.

Speaker Change: Our next question comes from Erin if from UBS.

Speaker Change: UBS.

Speaker Change: You may now on mute your video and audio and ask your question. Please begin speaking when you see the logitech team on your screen.

Speaker Change: Thank you can you hear me.

Speaker Change: Hello.

Speaker Change: Hello can you hear me.

Speaker Change: Hello.

Speaker Change: Same fit.

Speaker Change: You can't hear me.

Speaker Change: Maybe we'll circle back to your and go to the next question.

Speaker Change: Our next question comes from George Brown with Deutsche Bank.

Speaker Change: You may now on mute your video and audio and ask your question. Please begin speaking when you see the larger tech team on your screen.

George Brown: Hey, guys just double checking can you hear me first.

Speaker Change: Hey, George.

George Brown: Yes, thanks for taking my questions I just have two.

George Brown: Two if I may just firstly on China on the upcoming election in the U S. How do you think about the potential impact of tariffs on your business given that most of your manufacturing is currently in China.

George Brown: And then just a quick second question in gaming.

Speaker Change: You mentioned that Youll stimulation business has grown double digits for three quarters now can you help us understand what's driving that thanks guys.

Yeah, Hey, George let me maybe take the first one.

Speaker Change: So I think the.

Speaker Change: The team has been doing a great job now for quite some time in driving the diversification of our supply chain. So today about if you look at the units that we ship out globally about 40%.

Speaker Change: Get shipped from outside China, So theyre not manufacturing in China.

Speaker Change: And we are targeting to.

Speaker Change: Increase this this percentage up to 50% in the in the near future.

Speaker Change: This has been really a concerted effort.

Speaker Change: Not only addresses I think Todd is concerned, but most importantly makes our all our supply chain and more resilient.

Speaker Change: Hey.

Speaker Change: So that's the.

Speaker Change: The answer to your first question, Yeah, and we have very deep experience in navigating different circumstances. When it comes to the supply chain really just a great team.

Speaker Change: So we're on a multi year journey to make our supply chain more resilient and more diversified we will continue to do that and we think we'll be prepared for whatever happens after the U S election.

Speaker Change: And maybe on gaming semi as a super exciting category for us that continues to do very very well, it's a combination of share gains and us growing that market wouldnt underestimate that.

Speaker Change: That piece is well how do we do that the superior products, that's where it all starts our wheels are outstanding.

Speaker Change: And then superior execution, especially in stores and I would again call out Europe here for a really outstanding execution in places like media Markt in block.

Speaker Change: We have our gaming rigs set up where we organized on weekend.

Speaker Change: Game days, where people can come and compete against each other families come in that just creates a lot of engagement and it creates a lot of trial.

Speaker Change: This is a category with still relatively low penetration.

Speaker Change: A lot of upside for years to come.

Speaker Change: Alright, thank you so much.

Speaker Change: Thanks, guys.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question comes from.

Speaker Change: Hi.

Michael Phelps: Michael Phelps.

Michael Phelps: With vontobel.

Speaker Change: You may now on your video and audio.

Michael Phelps: And ask your question.

Please begin speaking when you see the logitech team on your screen.

Speaker Change: Let's try Ananda Baruah of loop capital.

Michael Phelps: Okay.

Speaker Change: Hey, guys How's that.

Ananda Baruah: Hey, Ananda Hey, Thanks, a lot I appreciate it.

Ananda Baruah: Two if I could just I guess the question. The first question is.

Ananda Baruah: Do you guys believe that you are seeing an improving spending environment and some of the key categories.

Ananda Baruah: Like I guess the Genesis for the question as just eyeballing some of the results for the key segments relative to the compare is.

Ananda Baruah: And then sort of paired with the commentary it seems like the numbers could be suggesting that's the case.

Ananda Baruah: But it's not also perfectly clear so why do you just get your thoughts on that and then I have a quick follow up thanks.

Speaker Change: Yeah sure.

Speaker Change: Yeah, I think where we're seeing that the global consumer is pretty resilient.

Speaker Change: If I look at the demand landscape in the last quarter and look ahead, a little bit towards the holidays.

Speaker Change:

Speaker Change: We saw that the national retail Federation and the U S came out with its outlook.

Outlook for the holidays, and they're they're saying you know two and a half to three 5% growth in terms of holiday spend.

Speaker Change: I would say that's pretty in line with what we're expecting for our categories.

Speaker Change: Pwm's, probably a little bit less gaming a little bit more and that's not just for the U S. That's globally and what was great to see is that the U S. In Q2 went positive in our categories that they're in.

Speaker Change: The markets have been negative for a while but they were positive in Q2, so pretty resilient consumer in the U S and around the world.

Speaker Change: That's helpful.

Speaker Change: I guess the follow up would actually be.

Speaker Change: For Matteo.

Speaker Change: Is just just sort of circling back to well actually both both of you guys.

<unk> is well going back to the sort of the the lean in and invest conversation.

Speaker Change: <unk>.

Speaker Change: As we think about.

Speaker Change: Im thinking calendar 'twenty, five which is really your fiscal 'twenty six any share.

Speaker Change: From.

Speaker Change: Like the leverage part of the story that you guys.

Speaker Change: Have have had in place can we think any differently about that.

Any any any context, there would be helpful.

Speaker Change: You mean leverage in terms of the balance sheet.

Speaker Change: Sorry, operating leverage operating at and I'm asking it.

Speaker Change: I think I think part of whats been going just sort of a question today is.

Speaker Change: There was negative operating leverage Opex investment was higher in this quarter. The Rev growth and then there was some commentary about increased opex investment.

Speaker Change: Sort of the good good cholesterol leaning widows investment in key categories, and so hanukkah got it loud and clear that youre still youll be at the high end of the Opex envelope for fiscal year 'twenty five but I also think.

Speaker Change: I also think that part of what folks are wondering is like calendar 'twenty five.

Speaker Change: As you begin to go through fiscal.

Speaker Change: Fiscal 2000 and search.

Speaker Change: Does does any of the leverage story, the Opex and the op income leverage story.

Speaker Change: On the Opex line. Thanks.

Speaker Change: I think it's a little premature for me to talk about our fiscal year 'twenty six so I think we'll talk about the expectation for the next fiscal.

Fiscal year at the appropriate time, I think we are happy where the.

Speaker Change: The Opex is overall I think notwithstanding.

Speaker Change: The increase that we had in the quarter overall the framework that we gave in the past 24% to 26% is a good framework, we continue to invest in things that sustain and help us grow.

Speaker Change: The product development.

Speaker Change: Engineering issue MPI you so how many.

Speaker Change: <unk>, we launched we mentioned a few of them in the video and then continue to support the.

Speaker Change: Sales and marketing and go to market and that's how I would say it.

Speaker Change: Yeah, we will continue to operate with a lot of discipline and where we can shift resources to that good cholesterol first R&D and then sales and marketing.

Speaker Change: Thanks, a lot.

Speaker Change: You bet.

Speaker Change: Thanks, Nina Arnica lets say I think we have one more question in the queue go ahead.

Speaker Change: Our last question comes from PR efforts with UBS.

Speaker Change: EMEA on mute.

Speaker Change: Thank you is it not working can you hear me.

We thank you all right. Thanks, Thanks for taking my questions.

Speaker Change: Just two to three one the first one is please.

Speaker Change: On your growth going forward.

Speaker Change: Do you expect this to be more balanced between APAC, Europe, and North America in size through going into the holiday season.

Wow.

Speaker Change: Okay.

Speaker Change: Okay, Europe to North America to accelerate growth.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Thanks George.

Speaker Change:

Speaker Change: The U S market is now looking a little better.

Speaker Change: And as I've talked about before we are I have challenged our team to do a lighter in China. So overall, either only we'd hope that.

Speaker Change: We are starting to a little more balanced in the future.

Speaker Change: And we'll see how that plays out.

Speaker Change: But.

Speaker Change #100: Confident that that could well be the case, Andy one of the leavers are that is to reapply. Some of the fantastic execution will work from Europe into other places.

Speaker Change: Okay and.

Speaker Change #101: Then a follow up here on Europe on the Crows, which I think half of the Cros, if I'm Rafi correctly calculating is coming from tablets and handsets that you have incredible growth of 50% plus.

Speaker Change #102: Is this linked to new distribution channels on your regions.

Speaker Change #103: It's linked to innovation.

Speaker Change #104: So again the combo touch when it comes to tablets as well as the a 50 Act NDA 50, when it comes to gaming headsets are new.

Speaker Change #105: And I said it before but what's important to remember there is that those innovations helped us completely change the gross margin profile of those two segments.

Speaker Change #105: So that's one big driver the other major driver is b to B, where Europe is doing extremely well.

Speaker Change #105: Helped by tablets and education, but also video conferencing looking strong.

Speaker Change #106: Uh huh.

Speaker Change #107: Thanks, and the last question if I may.

Circling back to your outlook on non-GAAP EBIT for the second half, but just down at the midpoint around 10%.

Speaker Change #108: Year over year, and you mentioned some promotions are likely returning or you want to invest via promotions is this something you are seeing already today.

Speaker Change #108: The hard fact is at Samsonite, you'll say look we want to be cautious with our guidance. After you undertake this too into account is this as potentially coming up to better read the cautiousness or even not cautiousness of your guide them on GAAP EBIT for the second half.

Speaker Change #108: So the yoga and what I would say starting from the App.

Speaker Change #109: Bob for a minute.

Speaker Change #108: Yes.

Speaker Change #110: Demand is arnica said, we're confident with where demand sits.

Speaker Change #110: And we continue to see.

Speaker Change #110: Strong demand.

Speaker Change #110: From the consumer in the second half of the here very similar to what we had in the first half.

Speaker Change #110: But what is happening in the second half is.

Speaker Change #110: The dynamic between selling and sell through which will reverse themselves as we indicated some of the prior questions.

Speaker Change #110: <unk>.

Speaker Change #110: And and then obviously revenue if you look at what we are expecting net sales, we're expecting net sales to be flat to slightly down depending if you take the mid <unk>.

Speaker Change #110: End of the range.

Speaker Change #110: The first couple of weeks are looking good I would say, but but that's really the assumptions that we made for the remainder of the year. So we would expect as I indicated earlier.

Speaker Change #110: Too early to have a little bit more promotional activity.

Speaker Change #110: In the in the in the second half compared to the first half of the nature of the consumer being the.

Speaker Change #110: Fundamentally where most of the revenue will be in the second half of the year yeah.

Speaker Change #110: And again, we know our promotional plans fairly well.

Speaker Change #110: Very well I would say, especially for the holiday quarter in the holiday quarter. It's completely normal that you promote it a little bit more to be competitive everyone does that order is a consumer quarter less than <unk> quarter. So I think our plans are pretty clear.

Speaker Change #110: Never say never but.

Speaker Change #110: And then.

Speaker Change #110: It's not unexpected that there is a modest increase in promotion spend in Q3.

Speaker Change #110: So it's small quarter on quarter and up year over year, that's a promotions accelerating right correctly.

Speaker Change #110: I think it's overall, it's fair, though year over year.

Speaker Change #110: As I mentioned to one of the questions that.

Speaker Change #110: We're asked earlier when you compare the gross margin rate.

Speaker Change #110: Half of last year versus second half of this year, there is a little bit more promotional activity.

Speaker Change #110: Okay.

Speaker Change #110: Thank you very much for this.

Speaker Change #110: We have another question from.

Speaker Change #110: Michael.

Speaker Change #110: Okay.

Speaker Change #110: Oh, sorry.

Speaker Change #111: Michael <unk> of Vontobel.

Michael Phelps: Hi can you hear me.

Speaker Change #112: Hey, Michael.

Speaker Change #111: Alright.

Speaker Change #111: Just one last from me.

Speaker Change #111: I was just wondering you were talking about opportunities and expanding your addressable market.

Speaker Change #111: Very successful in the education market. So I was wondering if.

You can make any comments on inroads that you're making the other end markets.

Speaker Change #111: Two to expand your opportunity or is that too early at this stage.

Speaker Change #113: Yeah. Thanks for the question is probably a little too early you know again that the Tam that we can play in on the work side of our business is much bigger than where we play today, mostly in enterprise.

Speaker Change #113: <unk> taken all the other places that people work in whether that's education or retail or healthcare or manufacturing the tam more than doubled. So this is more of a longer term strategic priority.

Speaker Change #113: Priority for us, but we'll take it step by step you know going into a new vertical requires new capabilities certainly from a go to market point of view. So education is the one that we're doing first we're seeing super encouraging results high Twenty's growth again in this past quarter and and maybe.

Speaker Change #113: At AIB will talk a little bit more about what might be next.

Speaker Change #114: Okay sounds good. Thank you. Thank you Michael.

Speaker Change #114: Thanks, Michael and Hanukkah, that's our last question for today.

Speaker Change #116: Super Thanks, Nate Thanks, everyone for joining us really appreciate seeing you for your interest in Logitech.

Speaker Change #116: And I just wanted to take the opportunity to say thank you once again to the logistics teams around the world for the excellent growth they delivered in the last quarter and for everything they do.

Speaker Change #116: We look forward to speaking with you next quarter take care everyone.

Okay.