Logitech International S.A. (LOGI) on Q1 2022 Results - Earnings Call Transcript
Ben Lu: Thank you, everyone for joining Logitech's Q1 Fiscal '22 Earnings call. During this call, we may make forward-looking statements including with respect to future operating results and business outlook under the Safe Harbor of the Private Securities Litigation Reform Act of 1995. We are making these statements based on our views only as of today. Our actual results could differ materially due to a number of risks and uncertainties including those mentioned in our earnings materials and SEC filings. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results. You can find a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures in our press release and in our filing with the SEC, including our most recent annual report. These materials as well as our prepared remarks and slides and 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 and in constant currency and sales are net sales. This call is being recorded and will be available for replay on our website. Bracken Darrell: Thank you, Ben. And thanks, everybody for joining us. I mean late had a bet that one day you would wrap the Safe Harbor provisions and I guarantee you if you had people would have listened more carefully to those Safe Harbors. So if you could from an SEC standpoint. So maybe in your next company one day you will do that I will be listening for it Ben. Okay, well, this is officially Ben's last earnings call and Nate and I couldn't be more excited about Ben's new role as a CFO, which he is going into and his new company is going to announce that soon. So we won't jump the gun. But Ben I really want to thank you on behalf of all Logitech, all these investors and analysts on the call today. Yes, I know you've added tremendous value. I've learned a lot from you. And I'll keep watching you from afar and cheering for you. Ben Lu: Thank you, Bracken. Thanks so much, to you, to Nate and the team. Bracken Darrell: Absolutely. Well, thank you. Thanks again. Congratulations. And now let's move on. I spent last week in New York City. Today I'm in LA, and in New York City or just outside of the city. I was walking my daughter down the aisle at her wedding, and as a proud father and one who really adores his daughter and all, both all three of my kids and my new son in law. I can't tell you what an amazing experience it was. It was really wonderful to enjoy this long awaited celebration and gathering with my friends and family. And as I talked to people I know many are having experiences like that feel more like pre pandemic life. One experiences like this may feel like a return to the old normal. In many ways our work life is forever changed. In many places around the world, we won't commute into an office every day, five days a week, we won't waste the 10 to 20 hours a week, that's 10% to 20% of our non sleeping non working time. Think about that. We won't waste the 10 to 20 hours a week just getting to and from the place we work. Gone will be the last days of flying to Tokyo or Shanghai or London or Paris for one or two hour meetings. And the reason they'll be gone isn't because of the pandemic is because that way of working was fading even before we really realized it. The virus has been terrible and yet it's pulled in a future that might otherwise have taken 20 years to get to Ebor. Autopilot has been turned off. And our employees, customers and friends are looking for a new and better way to return to work. Every conversation I have and I bet you have to recently seems to evolve to a high discussion of hybrid in some way. The new normal will not be the same for every person in every part of the world, or in every company. Their variety will be as diverse as you could possibly imagine. I'm sure that to start a lot more people will simply work from home all the time, like many of us are now. That was a practice previously most common in startups and for some salespeople. Nate Olmstead: Thanks Bracken and thank you Ben for your outstanding work, we're going to miss you. As Bracken said we delivered an excellent Q1 with strong revenue growth, margin expansion, strategic investments to improve our business and share gains. Net sales grew 58% in constant currency, profits doubled versus last year. And we remain on track to deliver to the increased four year outlook we gave in April. Similar to last year, our operations and sales teams continue to execute well and results were strong across our categories and regions. Our PC peripherals categories continue their strong momentum in the quarter with 49% growth in Q1 driven by better availability and a broad portfolio of differentiated products like Bracken mention. Bracken Darrell : Thanks, Ben. Thanks, Nate. Sorry. We already miss you, Ben. We had a very good start to our fiscal year. Our performance this year, this quarter demonstrates the strength of our capabilities, our excellent operational execution. But our ability to capitalize on long term trends like gaming, streaming and creating, hybrid work, and video everywhere. The same underlying trends that drove our business pre-COVID, significantly accelerated during COVID have become much more pervasive and sustainable as we look to life after the sheltered home period of COVID ends all over the world. We have an exciting long term growth potential ahead from this bigger base. Now Nate and I are ready for your questions. Ben, can you queue them up for the last time for Question-and-Answer Session Ben Lu: Sure. Thank you Bracken. As a reminder, you can chat me if you want to ask a question. The first question is Asiya Merchant. Your line is now open Bracken Darrell : Hello, Asiya again. Asiya Merchant: Hey, congratulations on a great quarter. Just a couple of quick questions. Just on video collaboration. You mentioned a little bit of softness in EMEA. You know, as you kind of look at, and I know there was a great sell in the prior quarter. So you know, people re-evaluating some of that. But as you look forward, some of the guidance that you provided at your analyst date, but different segments, specifically as it relates to video collaboration of growth being double digits up to 10% to 25% or 25% to 30%. How should we kind of think about that video collaboration segment now for this year, given AMEA softness? And do you expect that to reaccelerate given some of the channel to draw down this quarter? Bracken Darrell: I'll jump in -- or you go ahead, Nate. I can see . Nate Olmstead: Just to clarify on the outlook we gave at the analyst date, it was 10% to 25% growth. Asiya Merchant: 10% to 25%. Nate Olmstead: I still think that's the right way to think about it as a double digit grower. And listen, again, the sell through nearly doubled this quarter. So, I think we've seen in the past, sometimes the sell in timing can be a little different from one quarter to another, especially as you talk about an enterprise business where you have large deals that fall on one side or another of a fiscal period. But we still feel great, of course about the video collaboration business both this year and over the long term. Bracken Darrell: Yes, we're just super optimistic about that business. It's a great business for us, we have great products out there and we have great products coming, so. Asiya Merchant: And then because of the inventory that you guys have built up, the buffer, as well as supply demand balance that you mentioned, will you broadly share gainers across many of the categories? Because all I've heard from some of your peers was continued supply chain bottlenecks, logistics, nightmares, component constraints and different ICs, et cetera. So, is it fair to assume that you guys gained share across several of your categories where you havepretty decent competition? Bracken Darrell: Yes, it is. We gained share in the most categories. In fact, the vast majority of our categories -- and I do think part of it was just having supply availability. But we've got a great product lineup right now. We were gaining share pre-pandemic, we're gaining share during the pandemic and we're gaining share as we kind of see the light at the end of the tunnel. So yes, we did. Asiya Merchant: Okay. All right. Thank you. Nate Olmstead: And I think on the inventory, just because you brought it up, I think it's an important point because I think it just highlights again, the way we think about our business strategically, and financially, and operationally, and keeping those things aligned and with a strong balance sheet, we think this is the right time and it's good opportunity for us to use that to secure components where we can. It's a tough environment, but secure components where we can, build up those buffer stocks and as Brad have said, be ready to deliver on opportunities globally. So, we've got good availability now and I think that will be a competitive advantage for us. We'll see how it plays out. Asiya Merchant: Is most of the inventory in the warehouse as finished product? Or is it mostly ICs and components that you've kind of put together? Nate Olmstead: It's really a mix, but I think a lot of it is in the distribution centers and it's out regionally, ready to be shipped. It's not out in the channel. It's in our distribution centers. Some of it is in components as well. Asiya Merchant: Okay. All right, thank you. Bracken Darrell: Thank you, Asiya. Ben Lu: Our next question is from Paul Chung from J.P. Morgan. Your line is now open. Bracken Darrell: How are you doing, Paul? Nate Olmstead: Hey, Paul. Paul Chung: Hey. Nice to see you guys. Bracken Darrell: You, too. Paul Chung: First up, on gaming, very nice momentum there. Can you kind of expand on the product mix where you saw relative strength in the portfolio? And as we start to lap these tough comps, where do you see kind of momentum extending? And given the strong start to the year, do you think the fat flattish outlook in gaming is on the conservative side? And I have a follow up. Bracken Darrell: I'm really excited. Where do we see strengths within the gaming business? We've got four or five segments you can really point to and really all of them. I can honestly say I'm excited about our gaming business, because we just had growth in every single segment and we're growing market share across, too and we have a fantastic portfolio. One of the things I said in the opening was that the nature of the innovation we've been doing in gaming has also been changing. It shifted from a lot of small products to fewer bigger ones. It's a testament to our team. And then the other thing that's happened is our marketing engine in gaming is probably the best we've had. They've really created Logitech G over the last five to seven years and they're just getting stronger and stronger. So yes, I would say overall, I just feel very, very good about gaming. We're not reopening the discussion around each individual category right now as an outlook. We confer the outlook for the year that we just raised back two months ago. But I'm super excited about gaming, Paul. Nate Olmstead: Yes and I think, Paul, on the outlook, too, just one thing to keep in mind is gaming does have a big holiday period and that's still ahead of us. So, I think it's been a good start to the year, good strong first quarter, but typically we do almost 80% of our revenue over the next three quarters, and a lot of that comes in the holidays. So, I think with gaming, we'll need to see how that plays out. But as Bracken said, we go into that period with a great lineup. Headsets, we mentioned last quarter and I think just continues to perform well with some really cool new products. Paul Chung: Okay, great. And then just on the ramp and reinvestments in the business. Though it's up like 70% this quarter year-on-year, the percent of sales is pretty much in-line with previous years. This is the right way to think about it longer term and as we think about that spend, are you tracking that return on investment there? And given the step up in R&D? Should we expect, kind of more frequent cadence of new product releases moving forward? Thank you. Bracken Darrell: Paul, let me answer a couple of parts of that question and I'll let Nate take the one on t basically the business model question, what percentage of our spending . I think in terms of the cadence of product launches, I wouldn't necessarily relate increased investment to more new products launched. I would say the increased investment will just enable us to do better, bigger and in the places that really matter. We see lots of opportunities for innovation and we're not holding back on making sure we're investing there. Nate, you want to talk about the business model question a little bit? Nate Olmstead: Sure. And just to confirm, you're looking at the numbers the same way I am, Paul. Our OpEx as a percent of sales this quarter was actually lower than where it was in Q1 in FY 2020 and it was basically the same level as what it was for the full year in FY 2020. So, I think some people look at the growth rate of OpEx and and maybe have questions about it, but again, the business model or the structure of our P&L actually looks very consistent historically. Now, our strategy as you know is to move to a more marketing-led, rather than promotion-led company. And so that's exactly what you see us executing this quarter and you'll see it in future quarters, is taking some of the incremental profits we're generating, the gross profits we're generating and reinvesting that into marketing, to build the brand, to build awareness and to drive the brand preference over the long term, which creates a virtuous cycle of higher margin products and faster growth. So, you're seeing us execute what we've been talking about for some time and that's what you should expect to see in the future. In terms of the percent of sales, I think something around like what you saw this quarter is probably the right way to think about it. But it's not something I would put too fine a point on. It might be a little higher than this in some quarters, might be a little bit lower, but it's going to be the same strategy that we talked about. Paul Chung: Okay, great. Thanks. Bracken Darrell: Thanks, Paul. Ben Lu: Thank you, Paul. Now, the next question comes from Joern Iffert from UBS. Joern, your line is now open. Bracken Darrell: Hello, Joern. Joern Iffert: Hi, Bracken, hi, Nate, Hi, Ben. Nate Olmstead: Hey, Joern. Joern Iffert: Ben, all the best to you and yes, we'll miss you. Ben Lu: Thank you. Joern Iffert: Maybe starting this two to three questions if I may. The first one is on your implied outlook for the next nine months. The midpoint implies sales, maybe down 12%, 13%, 14%, but you're not getting EBITDA on around 40% to 50%. Your cross profit margin assumptions as Nate stated is maybe in the around 40%, if I understood this correctly for the current year. But if I consider the cross profit margin we're standing already in Fiscal Year 2020 and now you have better ethics benefits, it's falling back to the same level like Fiscal Year 2020, despite you having pricing power to offset rising component costs, despite you have invested in your strategy. So, why are you exactly so cautious on the cross profit, if I may ask? This would be the first question. Bracken Darrell: Okay, let's stop you there. Let's take it one at a time. You just unloaded a lot. Joern Iffert: Yes. Sorry. Thanks. Bracken Darrell: You sound like my Bard or me talking to my team. Nate, I'll let you take that one. There's a lot in that. Nate Olmstead: Listen, Joern, the given range as 39% to 44%. I think we'll be in that range this year. There are several factors on why I think gross margins as I mentioned in my opening remarks, were I think they're going to come down from current levels. They're going to remain in that range, whether they're at 39%, 40%, 41%, 42%, 43%. We'll just have to see it. It depends on a lot of things like mix and so forth, but certainly we have some headwinds as we talked about sequentially here with just -- we're going to have to increase promotion as the market stabilizes, normalizes back towards more historic levels. I think mix is always going to be one thing that changes from quarter-to-quarter. I think over the long term, our mix trends are favorable with growth and some higher margin categories. We'll justt have to see how logistics plays out. Certainly, we spent a lot on air freight last year, I think we'll spend less on air freight this year, but rates continue to be higher than their historic levels. In fact just recently, the ocean rates have been increasing on the spot market 40% to 50%, just in a very short period of time. So, while ocean is still a lot more attractive than air, those rates have gone up from their historic levels, too. So, there are some near term things here we'll have to fight through. I think over the long term, we've given a range that's got some room for margin expansion off of those FY 2020 levels you mentioned and that's our focus, is adding new categories that have that more attractive margin profile, maybe some more software into the mix and things like that. But in the near term, there's clearly some margin pressures, but I feel comfortable we'll be in the middle of that range or somewhere around there. Bracken Darrell: And Joern, I agree with you on the pricing power. We haven't raised any prices yet, though. We don't have immediate plans to -- we're gonna keep an eye on the market. We feel like you have some of these shortages. Some of these cost-driven shortages are really temporary. So we'll see. Joern Iffert: Yes, thank you, I got the message. And second question is please, on product positioning for videoconferencing and webcams. We can likely expect that all the notebook providers are significantly upgrading the camera systems over the next two to three years. Apple was starting with the iPad Pro, for example, they're improving camera system. To what extent can this affect your videoconferencing and webcam business from your point of view? Bracken Darrell: I think the installed base is so big. You got 1.4 billion PCs installed, so the transition, no matter what people do to the existing market, it just won't put a big dent in that market for years. So, we think the opportunity there is very significant and we're gonna keep investing. And even after they do, their advantage is do a remote webcam that are really, really exciting. We're excited about the webcam business. We've been in that business a long time and we will keep innovating in it to make sure that we've got products that are compelling. But we're 35 different categories now, so we don't live or die on any one category. Nate Olmstead: I'll add one thing to that one, Joern. On kind of the bullish side of that opportunity is anything that drives increased awareness for webcam, increased awareness for video calling. So, if someone's going to communicate the quality of their webcam or the importance of having a web camera, I think that we'll see some benefit from that just in the overall market opportunity. We're gonna have to compete for it. We're gonna have to come out and innovate with great features and products and a compelling value proposition for why an external webcam is a better experience. And I think the opportunity on notebooks and laptops is huge because I don't think we really communicated, frankly, a lot of what the benefits are. I think as people move towards -- I've got two monitors here in front of me at home. Obviously, a lot of people may not have that, but I think as people move to kind of a monitor setup, maybe they've got peripherals -- my PC remains docked next to me the whole time. I never interacted with it at all. I'm only interacting with my peripherals. And so I think, depending on someone's setup, I think there's clear advantages for an external webcam. And I think that's a big opportunity for us to communicate. Joern Iffert: Thanks for this. And the last question and just a superficial one, seasonality with back-to-school, now over the summer, can we expect that Q2 is on higher revenues versus Q1? Nate Olmstead: It's a good question. Typically, we would see higher revenues in Q2 versus Q1. But as I said before, I think typical seasonality is kind of out the window right now, Joern. There are so many other factors that they're sort of atypical. Back-to-school is very strong last year and as you see what the inventory, we're prepared for a good back-to-school, but I think we'll have to wait and see how that plays out. Again, compared to prior years, I'm not really counting on typical seasonality for a lot of things. Certainly, some of the promo days and things like that, we would expect to see a pickup or the holiday period, we would expect to be stronger. But we'll have to wait and see. Joern Iffert: Thanks a lot. Bracken Darrell: Thank you, Joern. Ben Lu: Thank you, Joern. Ananda Baruah from Loop Capital. Your line is now open. Bracken Darrell: Hello, Ananda. Ananda Baruah: Hey, guys, good morning. Appreciate you guys taking the question. Ben, congrats. It'll be awesome and it's been been great working with you both at Lo G, but for years and years before that as well. So, look forward to absolutely staying in touch. And so I guess a couple questions. The seasonality I'd like to just touch on as well, that was one of my more prominent ones. Seasonality notwithstanding, it does seem like there could be some conservatives and I guess I just want to get your thoughts on this and the revenue because I'm sort of playing around. And if do, just flat revenue for September. And then soft side of seasonality for December and March, I get double-digit revenue growth for the year. So, any concept you could provide on sort of connecting for those kinds of dots with the flattish forecast. Like what are the puts and takes there? Then I have a quick follow up, Bracken Darrell: I'll start that. Nate Olmstead: Go ahead. Bracken Darrell: Then you can jump in, Nate. I think we guided at the beginning of the year this flattish revenue for the full year upper five, down five. And then we raised the number because we finished so strong in Q4, even after our our Analyst Day, which was the early March. We raised the equivalent of seven points -- six or seven points in revenue. So, we've done one raise already and as you go in the back half the year, obviously, the comparison gets stronger. So, the seasonality as Nate said -- I'll let Nate -- you're probably going to repeat yourself again on this. It's really hard to call seasonality this year. Nate? Nate Olmstead: Just to put a little finer point on those comparisons. The second half of the year last year, we basically grew 100%. I'm not one to use this excuse, I would say, and I certainly wouldn't say too much internally, but that's a tough compare. Our visibility, Ananda, as you know is not 9 to 12 months out. We have pretty good visibility in the short term and some businesses like video collaboration, we build pipelines and we see things further out, but we're staying with the same strategy. We're gonna remain nimble, we're gonna have inventory available to grow faster if the opportunity is there and we're gonna pull back hard if things slow down. And I think as Bracken mentioned at his prepared remarks, it's a little choppy. Europe looked like it was on path to reopen strongly and unfortunately, it had to take a pause. And I think even in parts of the United States, we now see that as well. So, it's hard to make long term prediction, I would say, six-month predictions. Long term wise, I think we make very comfortable predictions about what the long term trends are in these businesses and we invest for those. But frankly, some of the shorter periods within this fiscal year, we're just going to have to remain nimble and prepared. And that's what we're doing. Bracken Darrell: Very well said. Ananda Baruah: That's really useful context. And I guess just quick follow up, Bracken, we'd love to get your thoughts with regards to . You guys . Ben Lu: You're kind of breaking up, Ananda, but I think you were asking what Bracken served at the wedding. So, Bracken, do you want to... Bracken Darrell: I think he's talking maybe . Ananda Baruah: ...times and size? Bracken Darrell: I think I got that, Ananda. You might have to jump off video to keep your audio. If I understood you correctly, though. Can I talk a little bit with the size? Ananda Baruah: Yes, yes. Bracken Darrell: So the answer is as you know, we don't usually go into too much detail on what we're looking at, but we are always looking at things and the vast majority things we've done have been just small. So, it will probably stay that way. But we're always looking at medium sized, even larger things. M&A has been surprisingly -- and I say surprising because most companies don't do very well -- surprising strength for us. We've really delivered strongly when we've done M&A. I don't know how many acquisitions now since I've been here and almost all of them are or been there. They're our expectation. So, I think it means we really have an engine there we can keep driving and we're gonna keep fueling it and we're on the hunt all the time. Ananda Baruah: That's great. Thank you. Bracken Darrell: Thank you. Nate Olmstead: Thanks. Ben Lu: Thank you, Ananda. Michael Foeth from Vontobel. Your line is now open. Bracken Darrell: Hi, Michael. Michael Foeth: Yes, thank you. Hi, Bracken, hi, Nate, and thanks a lot, Ben. Good luck to you. A couple from my side. Maybe just starting with streaming business. Can you maybe comment on how that is developing? How much of the growth that you've seen in gaming is coming from that and how you can leverage their business to maybe to other categories or applications if there's anything you can share with us on that front? And the second one is sort of a curiosity. Do you have any statistics or insights on the age distribution of people buying your creativity, productivity products and does it correlate in any way with your Defy Logic campaigns? Anything you can you can share with us. Thank you. Bracken Darrell: Okay. Why don't I answer that one first. The answer is we skew a little older on our creativity and productivity business. But we see a lot of opportunity younger too, we also skew more male, and we only think there's an opportunity female. So you'll see a lot of things we're doing are with those two thoughts in mind. And the defy logic campaign does appeal more strongly. It's very strong appeal and appeal generally. But it's even stronger against that younger target audience. So yes, we think there's an opportunity there, and we're excited about it. What was the first question was the first question was, remind me again. Michael Foeth: It's regarding your streaming business and how it contributes to growth? Bracken Darrell: Yes, the streaming business has just been a really strong grower underneath these numbers, you know, it's really kind of lives in different places in our different categories. But generally speaking, you know, if you look at Blue microphones over the past year, it's really just grown tremendously. And we think long term there is very, very strong. And stream labs is also super exciting. And it's, it's been all the expectations we had for it in terms of growth. And we're very optimistic ahead, and we're learning so much from it about service businesses, you know, it's a pure service place. So, and then we've got, we're also slowly quietly entering new categories, you know, we sort of this is starting to get out. And we're excited about the potential to really be a real player in enabling people to stream and create content for everybody else. And there's a lot of room to grow there. So the growth is in it. So far, it's been very good. And I think the long term is much, much more exciting. Michael Foeth: So can we expect more subscription like, offerings from Logitech going forward? Bracken Darrell: We already have that, obviously, in a couple places, we've got a very small starting business and services on the video collaboration piece. And of course, stream labs, and stream labs has a couple of things within it. So yes, I think you can expect more, I don't know whether you could expect to see it be significant the next year or so. But it's we're certainly going to keep adding. Nate Olmstead: Sorry, just to be clear on. I think you were asking the stream labs sort of impact on gaming, it's really not material. I mean, the growth you see is really driven by the hardware. As Bracken said, stream labs has done very well. And it's a very innovative organization I would say that's doing a lot of testing and so forth. But it's not driving the gaming results. So that's still driven by the hardware business. Bracken Darrell: Okay, the gaming results across every segment. Michael Foeth: Okay, thanks. And then, maybe just the last one on component shortages. I mean, for Nate, maybe with inventory levels that you have now. Do you think you're covered for the demand that you will see in the in the next quarter? Or are there any areas where shortage might sort of constrain you to not be able to deliver on demand? Nate Olmstead: I think broadly, for the next quarter, I feel good about coverage. You know, we'll see. I don't think this is a one quarter challenge for us. I think our team's been working on it for a while and will continue. You know, in some days, we bought days of components, or weeks of finished goods, or maybe a month of finished goods here or there. But I think broadly, we feel good about the coverage here for the next quarter. But there'll be things that pop up for sure. I mean, it's a daily challenge if you're in operations and supply chain. Michael Foeth: Right. Thanks a lot. Ben Lu: Great. Thank you, Michael. Eric Woodring from Morgan Stanley. Your line is now open. Eric Woodring: Hey, good morning, guys. Thank you. Thank you for taking the call. Ben, just want to reiterate what everyone's saying been a pleasure to work with you. Best of luck. In the future look forward to following your success. You know, I kind of want to start on porting devices, keyboards and combos are obviously very strong, I'd say most particularly strong. And there's this fear in the market, that there is a slowdown in the PC market, broadly speaking from consumers and call it the education sector. So the question is one, was there anything one time in nature this quarter, like Prime Day or the 618 festival that outwardly contributed to growth in these segments? And then the second part is, what are you seeing from enterprises in these segments, as people are now returning to the office? Are they coming into the market more so than they particularly were in the past? And then I have a follow up? Bracken Darrell: Yes, I would say, there is, we did have Prime Day this quarter, this last quarter, certainly in the numbers, but it still would have been an extremely strong growth quarter. In terms of really what do we see ahead from enterprise et cetera. And what about the overall view of the category? I think the coolest thing about this businesses, it's our oldest business, and it has probably, it's got an incredibly strong innovation engine and we've done a nice job of segmenting our teams. Our team has done nice job segmenting the market into the different places, and then really delivering big time against that. And still, the awareness is relatively low for the products that we have. So I feel like we really control our own destiny to a large extent here not completely, you know, obviously, anything can happen. In terms of, so we've got a great group of other products coming, and one that's already out there. In terms of what are we seeing from business, we are starting to see businesses, we believe that we have an opportunity really to move to more B2B business there. And we certainly are moving some resources there to make sure that happens. This of course growth, you can't see it, but was stronger in the B2B segment than it was elsewhere and that's exciting. It's small, but it's growing fast. And we think there's a big opportunity there. You want to add anything Nate? Nate Olmstead: Well, I mean, of course, I'm always going to be a little bit cautious about it. I think all those things are very true. And I think it, the lineup is as strong as it's ever been. But you know, Eric, you've got the data, as well, you know, this was our easiest compare for pointing devices, it only grew about 1%, last year in this quarter, because we did have some supply challenges with the factory being shut down due to COVID, and so forth, factories being shut down. So I certainly think the growth rate will moderate from where it has been here. But all the positive factors back and mentioned definitely agree with. And I think the key here is that this group, in particular, although I think it's true elsewhere, but this group in particular, I think that's a really excellent job with market segmentation and customer segmentation, understanding customer needs, and you see that in the product development, you see that in the execution. And I think that's the path to long term success. And so we'll execute that. Eric Woodring: Awesome, thank you. And then just on video collaboration, again, would love to get your take on what you're seeing from enterprises again, as people go back to the office. And what I mean by that is, you know, do you find that businesses are almost pulling forward demand as they say, we've created our return to work strategy, and now we can make these infrastructure investments, or are they're saying we've created our plan, but we're still kind of going to spread out our purchases over multiple whatever it may be quarters or years, as we somewhat reevaluate those plans within the next three to six to nine months. Again, you mentioned the choppy environment, just wondering how that choppy environment potentially impacts big purchases for video collaboration. Bracken Darrell: I mean, I think you can safely say it's a mixed bag. You've got companies that are really going all in now and getting ready. I'd say most are saying, you know, hey, we have a game plan, let's start to enable it, but they're not moving as fast as you know to basically snap their fingers and have everything ready to go right away, which I think is kind of expected, we sort of expected that. So I think it's going to unfold, I think the growth is going to really unfold over the next year, and two and three. And I think that probably plays right into our strengths, which is we've got a great portfolio out there a great one coming. And I think we've really got a Salesforce, now they can handle it. Do you want to add anything to that Nate? Nate Olmstead: Yes, do you think it's a mixed bag? And you know, you got to factor in deployment time on some of these things as well. So the decision may be made, but the deployment may take months and quarters, depending on what type of solution you're talking about. So I think that's a factor too Eric. And, again, I think the long term strategy here is to innovate and to build great sales organization, and we're doing those things and to increase our marketing to increase our awareness and brand preference, but it's an attractive market, one that is competitive. And we're looking forward to many years of success in video collaboration. Eric Woodring: Super, thank you guys very much. Ben Lu: Jürgen Wagner from Stiefel. Your line is now open. Jürgen Wagner: Thank you for letting me on. Actually a follow up to the previous question regarding enterprises. What percent of revenue, what was it last quarter and what do you think realistic number would be going forward? Second question, Bracken you said the pipeline is exciting. So what is it that makes you so exciting? And last question on visibility. You mentioned a near term, lack of visibility, but better, longer term or midterm. So do you think the next fiscal year would then be another growth year? Thank you. Bracken Darrell: It's a little too early for us to guide for next year, but I sure hope so. I expect it to be another growth year. In terms of what makes me excited about the innovation engine, you know, we just get stronger and stronger. I would say we've all suffered from having to spend a lot more time on supply challenges than we would have liked and so that's probably delayed a few of the things that we would have loved come out sooner, but it just means that we've got a good pipeline ahead of us. I mean, what you see today is not what we'll have two years from now a year from now, three years from now, in any of our businesses. So I'm excited about what's on the rise, we don't talk specific products until we get to the launch period. And, Nate, you want to add anything, or take the first. Nate Olmstead: Take on the enterprise revenue mix, you're going unfortunate, that's really not a figure that I'm going to really talk about here. I mean, we don't have that type of visibility to our end customers, unfortunately, you know, we sell through channels, and some of those are more business oriented than consumer oriented, so we have ways of thinking about it internally, but it's just not really a great external figure. But you can see with the growth in video collaboration, which clearly is a business type of product that mix is improving due to the growth in that category. And then I agree with Bracken on the next fiscal year, you know, I think one of the things I always say is that, sometimes the market trends down the line perfectly with our changes in fiscal quarters and years, so it's about building capabilities for the long term, the company we are today is a company we are tomorrow and if that happens to cross the fiscal period, March 31st to April 1st, so we just got to continue to build capabilities for the long term. Jürgen Wagner: Okay, understood. Thank you. Bracken Darrell: Bye. Ben Lu: Great, thank you. Serge Rotzer, Credit Suisse. Your line is now open. Bracken Darrell: Hi Serge. Serge Rotzer: Yes, hi, everybody and Ben Lu has been enjoying your life. But coming back to video coloration, you touched it several time, I have difficulties to understand why sequentially the sales was done $150 million, this is a big number, because I do not have expected that this could be seasonal, it is not. So please, can you explain me again where are these $150 million are going? One is the questions of the sales mix of the camps cams are sold in the past quite often to private people and what makes a positive, because you have to see some pre orders when enterprises will buy now or invest into this video coloration, so you should have much better visibility, which you probably could share with us. This will be the first question. Bracken Darrell: Yes, let me jump in, I'll start and then you can finish, I think in terms of why the big sequential difference, and I think really we had if you look at our q3 and q4, they were just super strong, especially in India where I think, and they were just lot of momentum and I think we mentioned last quarter that we had a big backlog that we really cleared, we were sitting on you know a very large backlog in q4 that we were able to clear almost all of and I think, really so that made this that sequential story choppy, but it doesn't change the momentum underneath and the momentum to be super strong. And in terms the Americas and AP, I think they look very similar to what you'd expect in terms of quarter-over-quarter, you would add anything Nate. Nate Olmstead: Yes, I mean, just again, finer point on the data. We grew about 350% in VC in Europe in q4, again I think as Bracken said we had a very strong backlog coming in, we were short of supply and we were able to fulfill that and get the channel back to a healthy level and I think early in the call, we talked about sort of maintain our outlook, I think our expectations, it's gonna be a good growth category this year and in future. Serge Rotzer: Okay, fair enough. Do you see any changes then in the gross profit margins instead of sales mix within video coloration and what's about the behavior of your peers like came up with a cam and you will see more cams coming up to the market? Do you expect gross profit margin declining? And how was it now in the last quarter? Bracken Darrell: Gross, gross margins are super strong in that business. We love that business and yes there it's certainly going to get more and more competitive. Great markets are always competitive, but we love our competitive position and do we think that we're gonna have gross margin compression within the video collaboration business? Could be, I don't know, we certainly have room, it's a great mix, it's a mix driver for us from a gross margin standpoint, so more growth is better even in lower gross margin, you would add anything to that Nate. Nate Olmstead: Maybe just, you know, our investment in R&D is, a lot of that is going into video collaboration category and the innovation that you see there, there's some new products actually just came out earlier this year, they really highlight that, I think the whiteboard camera I've got here with me, It's just a really cool product and so I think there's gonna be opportunities for us as we build up that installed base, if you get into these accounts, you've sold them a great video solution to sell around that as well and I think that's an important piece of that business will need to see expand out into the future with the growth in the installed base. So I think that's an important margin driver over the long term, but certainly it's an attractive market and there's a lot of competition and I think it's reflected in our outlook, I think our expectations around pricing, not only for VC, but for the market overall. Serge Rotzer: So, I understood that the momentum will increase again in . And if I didn't got you wrong night before, you mentioned that in mice and keyboards, the absolute level can remain stable, so this should all have a positive impact on the gross profit margin isn't it from the sales mix going into the next quarter so. Nate Olmstead: What was the comment about some remaining stable on. Serge Rotzer: Yes, you mentioned to one of my colleagues that every year you see declining numbers, but you see that q1 as the absolute level as quite firm or solid number to achieve also an exporters, did I got this wrong? Nate Olmstead: Again, I think you're talking about gross margin rate? Serge Rotzer: No, I'm sorry, on the absolute level of pointing devices and keyboard and combos, you know, because you said that last year q1 was weak, therefore we have seen high growth, but you see that this level can be sustainable in mice and keyboards. Nate Olmstead: Level of revenues we make? Serge Rotzer: Yes. Nate Olmstead: Got it. Again, I think we should probably be careful about talking too much about detailed forecast quarter-on-quarter for the different businesses, if that category, if mice and keyboard grew faster than the overall company, they wouldn't have some favorable mix impact. But I think there's lots of products within that category. So kind of a question I'll have to think about a little bit, but again, I would just think at the high level what I would expect as the gross margins still gonna come down a bit off of these levels we had here in q1 due to the larger factors I talked about more earlier in the call and I think over the long term, again, one of my focuses is we talk about M&A or we talk about new product introduction is to continue to try to build a portfolio of categories that give us a mixed benefit as we grow the company. It's not always going to be the case and sometimes that mix benefit is going to show up on the bottom line rather than on gross margin, meaning it's going to be a category that's got a lower profile or lower investment profile, but still accretive to the overall margin rate, but that's I think an important part of how we think about growing the business is to look for categories where we can differentiate, where we can gain a shared leadership position that gives us the ability to earn margins that are at or above the levels that we're at today. Serge Rotzer: Okay. Probably last one, if I may, you touched on emerging markets at your capital market, there's an important topic. Can you give us a quick update here do you see growth here and can these also the potential increasing over the next quarter or addition incremental growth, to see incremental growth to your guidance here? Bracken Darrell: Yes, I wouldn't say we see incremental growth in the current year; it's factored into our guidance for the year, but we are really excited about the emerging markets in general. You know, I wouldn't consider China an emerging market anymore; we still have a very strong growth in China and really if you look across Latin America, different places in the world, we see strong growth and very strong growth potential. So if anything, if I look at my tenure at Logitech, so we've undershot a lot of the emerging markets compared to their potential, I don't regret that, but I think now we have that opportunity sitting out there in front of us. Serge Rotzer: Okay, thank you so much. Bye-bye. Ben Lu: Great, thank you. Tom Forte , your line is now open. Bracken Darrell: Hi, Tom. Unidentified Analyst: Great. So Bracken, Nate and Ben, first the comment, then a question and a follow up. To the comment saying it's been a pleasure working with you and a best of luck for the future. First question before the follow up. So I think investors sometimes place too much emphasis on working and learning remotely and how that positively affects your business, but I would argue that two of the other secular shifts you're leveraging are accelerating, both gaming and self broadcasting. So can you talk about the notion that you're seeing acceleration in gaming and self broadcasting. Bracken Darrell: Yes. By the way I love your dog sleeping there in the background, it's really adorable. Yes, I mean, we'll start with self broadcasting. You know, it's hard to talk about acceleration when we've gotten so little of the potential it's already out there, but I agree that it probably is accelerating and more, you know anybody on this call is if you do anything, I'm sure you're just as an example, I'm sure you're seeing the wave of people entering the podcasting market or clubhouse, or all the places that people are bringing in audio or video equipment to stream or broadcast and they're just more and more of them, so, you know, I think my line has always been, I think we're gonna, we're entering a world, we're gonna listen and watch a lot more of each other than we are Netflix and all the companies are getting good a good attention for content, but it's actually dwarfed by the content that's created by each other. I think that's just going to continue, I know it's just going to continue. So, yes, I think that is going to grow for very long time and become enormous. And gaming, you know, we've been saying this from the beginning time, the gaming has been underestimated or was underestimated when we started, it was probably underestimated five years in, I think it's probably still underestimated now for its long term potential and I don't know if you've read this anywhere, but sort of as one example as the commercial power of gaming TSM sold its naming rights for $210 million. Those are NBA, NFL, Olympic numbers and that's an Esports team that most people here have never heard of. So this market is absolutely going to continue to be very strong grower. Unidentified Analyst: Great. And then from my follow up, Nate talks about this notion of moving promotion, spending and marketing. Can you talk about long term, how creative that could be your margin? Nate Olmstead: So how creative it could be at the margin? Bracken Darrell: Yes, pretty much. Unidentified Analyst: Yes. So long term if you trade promotion sending for marketing spending, I would think that could be something that could be a creative margin with long term. Nate Olmstead: Yes. It could be a creative to gross margin; I think it could be operating margin neutral. You don't really think about it as growth strategy, I think as well, it could lead to operating margin expansion we made reinvest that as well, I would think about it as a way to drive growth and then how that flows through time, I think is going to be dependent on a number of factors. Bracken, anything you'd add to that. Bracken Darrell: Yes, I would just say, you know, Tom, our goal here is to be a long, we got long term growth targets for 8% to 10%. You know, so obviously, we've got our eyes on double digits, long term double digits, that's our credo. And if we felt like reinvesting some of that gross margin opportunity back into even more marketing to drive more growth was a good investment where, I know that you get healthier growth when you have stronger brand equity and that's really underneath this and healthier growth can also be stronger growth for a given dollar spent. Unidentified Analyst: Great, thanks for taking my questions. Bracken Darrell: Thank you, Tom. Ben Lu: Thank you Tom, Bracken, and Nate. This concludes our Q&A. So I'll turn the call back over to you. Bracken Darrell: We just finished, I tell our teams all the time you know, the most important quarter of the year is really first one because it sets tone for the year and increase momentum and we're off to a great start. You know, I think we feel very, very good coming out of this first quarter, and we'll look forward to seeing you a quarter from now. Operator: Thanks, Ben.LOGI Ratings Summary
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Logitech Shares Climb 4% Following Q4 Beat
Logitech (NASDAQ:LOGI) saw its stock surge over 4% pre-market today after the company announced fourth-quarter earnings and revenue that surpassed consensus estimates. The company reported earnings per share (EPS) of $0.99, well above the expected $0.68. Quarterly revenue also exceeded expectations, coming in at $1.01 billion—a 5% increase from the previous year and higher than the projected $957.77 million.
The company's non-GAAP operating profit saw a significant jump of 93% to $159 million, and the gross margin improved substantially by 730 basis points to 43.6%.
For the upcoming 12 months, Logitech set a sales growth target of 0%-2%, aiming for total sales between $4.3 billion and $4.4 billion. Additionally, the company forecasts its non-GAAP operating income to range from $685 million to $715 million.
