Logitech International S.A. (LOGI) on Q3 2021 Results - Earnings Call Transcript
Ben Lu: Okay, thanks everyone. Welcome to Logitech video call to discuss our financial results for the third quarter of fiscal year 2021. Joining us today are Bracken Darrell, our President and CEO, and Nate Olmstead, our CFO. During this call, we may make forward-looking statements including with respect to future operating results 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 and we undertake no obligation to update or revise any of these statements. Bracken Darrell : Thank you, Ben. And thanks for joining us. Q3 was our biggest quarter in company history. And this would clearly be the biggest year in Logitech's history. Last quarter, we predicted that as the world opened up, few companies would opt for a full work from home or a full work from the office approach. In short, most companies, we said, are likely to adopt a hybrid model, with many of us working a few days a week in the office and a few days a week at home. With another quarter behind us, I have greater conviction that most companies will move to a hybrid at work/at home model. I had a meeting with almost 60 other CEOs this week, and while we didn't take a poll, I would guess the vast majority of them will adopt hybrid work as the new norm. Logitech is well positioned to serve customers moving to hybrid work. We can upgrade and improve workspaces at home and in the office. And the explosive growth of video calling drives the need for high quality video at home and office workspaces and in meeting rooms. For Logitech, that simply means growth. The global trend propelling gaming toward becoming the largest collection of spectator and participant sports in the world continues. Over a billion people watched some part of the League of Legends final last quarter, a billion people. Over 100 million people watched the final live, the same number as the Super Bowl last year. Streaming and creating is poised for long-term growth as well. There are now 1.8 million podcasts to listen to, and untold Tik Tokers, Instagramers and streamers to watch. These are examples of the democratization of digital content that we've talked about for some time. And this trend grew into the pandemic, during the pandemic and will surely grow after the pandemic. Nate Olmstead: Thanks, Bracken. We delivered another excellent quarter of financial results on the strength of our diverse product portfolio, the global reach of our sales and marketing capabilities and the execution of our operations team. Our results were strong across nearly all dimensions. We grew revenue significantly and gained share across our categories, expanded gross margins, invested significantly in our strategic priorities and brand, and delivered more than $500 million of free cash flow. Gross margin increased 760 basis points to 45.2% in the quarter. The gross margin improvement was the result of very strong sales volume, reduced levels of sales promotion, favorable product mix and some tailwinds from currency exchange rates. While our recent gross margin has been above our target range, I do expect margins will come down from these highs in the quarters ahead. As supply normalizes and retail stores continue to reopen, we plan to actively pursue opportunities to invest in joint marketing and appropriate levels of promotion to drive continued growth. We have always said that we are focused on delivering sustainable and long-term growth, while keeping margins at levels that we believe strike the right balance of profitability and investment. And so, it is with this philosophy in mind that we will continue to manage the business going forward. Non-GAAP operating expenses increased nearly 50% to $278 million, and yet OpEx reached a record low of 16.7% of sales. As we discussed last quarter, we ramped up the pace of investments in sales and marketing and R&D, and will do so strongly again in Q4. Our sales and marketing spending increased over 50% year-over-year as we deployed investments against various marketing priorities, including a global brand awareness campaign and local country and category-specific marketing activations. We utilized new marketing platforms and bolstered our influencer marketing campaigns. Go-to-market investments also included the continued expansion of our sales coverage for video collaboration, education, and the overall B2B channel. All these activities will continue in the March quarter as we leverage the strength and investment capacity from our current demand to improve our potential growth over the longer term. R&D spending increased 23%, a growth similar to the prior quarter, as we continue to reallocate engineering resources from mature and declining categories to faster growing opportunities. I'm pleased with our pace of innovation. And we announced several significant new products including the conference camera solutions Bracken mentioned, exciting gaming peripherals and refreshed mice and keyboards over the recent months. And we have a strong roadmap of new products teed up for FY 2022 and FY 2023. Bracken Darrell: Thank you, Nate. Nice job. This morning, we announced an increase in our fiscal year 221 outlook, which implies that, for the final quarter of the year, our Q4 sales to grow 40% to 50% and our non-GAAP operating income will increase about 30%. This means that our revised fiscal year 2021 outlook will be for sales growth of 57% to 60% and our non-GAAP operating income to be approximately $1.05 billion. This is up from our prior annual outlook of 35% to 40% sales growth for the year and a range of $700 million to $725 million in non-GAAP operating income. A - Ben Lu: Joern from UBS, your line is now open. Joern Iffert: Three questions, please. The first one is, taking out a view of fiscal year 2022, do you see the risk that there are pulled forward demand in the gaming end market and also new collaboration where corporates are doing the homework, preparing when employees are coming back to the office? Second question will be, please, on the gross profit margin. Just from a technical point of view, why was it not higher quarter-on-quarter, given the higher scale benefits and the higher FX benefits? And also, on point number three, can you elaborate a little bit more on your incremental marketing spend of $50 million quarter-on-quarter? Was this headcount related? And what exactly is this global brand campaign you are rolling out at the moment? Thanks a lot. Bracken Darrell: I'll jump in, and then, Nate, you and I can go back and forth. Are we experiencing pull forward demand in gaming and VC? The demand for gaming has been so long term and so strong for many, many, many years, and I think – well, it's certainly the case that people are playing a lot of games during the pandemic. A lot of what drives the growth of gaming is really the games themselves. You remember the Fortnite effect a few years ago. And before that, I would say League of Legends is probably the big phenomenon. And there will be more. So, I'm really optimistic that gaming is just going to keep chugging along and growing long term. We're not going to guide anything today for next year. That will come in the next few weeks. But I'm really optimistic about gaming long term. I would say I am just as optimistic, if not more optimistic about VC. VC, if you look at just the personal video enablement, the typical person has a webcam. It's not very good. And if you look at the number of webcams we sell relative to the number of monitors and the number of PCs out there, 600 million monitors, 1.4 billion PCs, it's just a drop in the bucket. It's up to us to figure out how to unlock the demand that ought to be out there for webcams long term because you get such a better experience. Many of you right now are looking off in the distance, instead of looking right in the camera, for example, or the quality of your picture is not very good and you're looking at yourself now four or five times a day – four or five times a minute instead of four or five times a day. I think we have opportunities. And then, in the office, the VC, the video enablement of office is just – it's barely even started. If you think about what's going to happen when people go back into these hybrid work environments, I can't believe you're not going to see a very strong growth of video conferencing long term. So, I'm really optimistic about it. I'll let you take the gross margin point in just a second, although I'll give you the shortcut to the answer, which is – well, I won't. I'll let you do it. Incremental marketing spending, it's a combination. And Nate Mitch mentioned it in his script. us. We try to be very aggressive and risk managed. So, a lot of the spending we're putting in is variable. So, we're always ready to – if it's working, we'll double down on it. If it looks like it's not as effective as we'd like, we'll pull it back. But we also are making long-term fixed investments. We have so many opportunities right now around the world. So, we're going to keep making those. You want to add anything to any of those, Nate? Bracken Darrell: Just on the gross margin question, Joern. The primary difference sequentially, I think, Joern, would be mix of products, in that, in q3, we mentioned we had a very strong edu quarter, which tends to be a little bit lower gross margin than other parts of the portfolio, still very good business for us. So, that's the primary reason why I suppose you could say gross margins were not higher, although they were quite strong. And then as Bracken said, on the marketing side, frankly, we couldn't add that much headcount in one quarter to drive that kind of cost increase. So, most of that was variable on the marketing side. And as Bracken said, I think it could become a long-term investment for us. We'll judge the effectiveness of it. But as we've been saying, so many of these trends, we really firmly believe are long-term multi=-year growth drivers for us. And when we have confidence in that, we'll make fixed cost investments to support those. It simply wouldn't make any sense, even if there were a quarter where demand pulled back, if we believed in the long term strength of that trend, you'd want to continue to invest through that potential slowdown to make sure that you're competitive over the longer term. Ben Lu: Paul from J.P. Morgan, your line is now open. Paul Chung: Great quarter. First up, can you talk about the pricing dynamics across segments? Given your elevated demand, did you raise or are you raising prices in any segments? Or is the gross margin benefit mostly product mix and scale with some FX in there? And I have a follow-up? Bracken Darrell: The answer is no. We have not raised prices. And we are doing a lot less promotion. You see our promotion numbers now on the gross/net, we've really pulled way back on the promotion levels. And we've stayed back. I hope we can keep at least some of that benefit coming out, although I'm sure some promotion will go back. I'm sure it's had an effect on our average pricing. But most of our pricing benefit is really – as you said, it's mix, mixed within category and mix across category. Bracken Darrell: I think, Paul, maybe to where you're going is, the sustainability of these gross margin levels, as I mentioned in my comments earlier, do expect gross margins will come back down towards probably the high end of our prior range. There's some things in there that are probably more sustainable, like some of the mix benefits with growth in VC. It's a nice category from that standpoint. But I think we're going to need to move back to more reasonable levels of promotion as supply and demand normalize. And so that, again, is included in our outlook and something I would expect to see in the near term and in quarters ahead. Paul Chung: On VC, more and more enterprises are looking to switch to Zoom-enabled rooms. Is your market share kind of accelerating in the larger conference rooms now? What's been the kind of initial feedback on the RoomMate product? Thanks. Bracken Darrell: More and more companies are going to Zoom, to Microsoft and to Google. So, there's all the kind of plug and play solutions that are cloud based, are all growing really well. You asked about our market share in large conference rooms. It's a little hard to judge that exactly. I would say, first of all, large rooms are a really small percentage of the total. But we've now got phenomenal products for large rooms. And I think we're definitely growing in larger rooms. We'll see. But overall, as you see, our growth has been extremely strong. And we're super optimistic about our – all of our product portfolio, including the newest reset that I mentioned early in the call. Not reset, new introductions. I think we've really raised the bar on the industry. You asked about feedback we're getting from beta customers, and it's been very, very strong. Very strong. Nate Olmstead: I think our performance in those larger rooms has been very good. As you can see, the conference cameras continued to grow quite well. I think there's a lot more room for us there, Paul. We've been adding capacity, selling capacity, more coverage into large accounts, and we've had some really nice large wins. But I think there's a lot of room for us to continue to grow in those spaces. Ben Lu: Alex from Goldman Sachs, your line is now open. Alex Duval: Congrats on the robust results. Two very quick questions. Firstly, just on the guidance for the next quarter, you seem to be implying seasonality, which is meaningfully below what we'd see normally. And just given that, obviously, we continue in many countries to be in a lockdown scenario in the current fiscal quarter, I just wondered what plays into that in terms of that sort of sub seasonal forecast? And then secondly, it's very interesting. You talked about governmental spend, particularly in Japan. We've seen a few news articles also in terms of other regions talking about home education and peripherals required for that. And I wondered if you could talk about what you're seeing on a global basis and if that could go beyond the current quarter, which you obviously reference? Bracken Darrell: I'd say on the education front, there are a lot of governments around the world that are investing now in education and technology for education. And I don't think that's going to let up. And we see it as a lot more than a one quarter trend. We think it's a long-term trend. We're excited about the education space. Nate Olmstead: Alex, on the guidance and the seasonality sequentially, honestly, I do like to look at our business in terms of typical seasonality. This year has sort of not been typical. And you saw that, in fact, in Q3 where we grew sequentially about 33%, which was pretty well above our typical seasonality. Q2 was above typical seasonality. So, you're correct. Our outlook for Q4 does imply a sharper slowdown than what we have seen in recent times Q3 to Q4. But I think it's appropriate. Just again, given the strength that we had this quarter and some of this increased promotional spend, which we expect to reactivate, that will also put a little bit of pressure on revenue sequentially. So, nonetheless, it still implies 40% to 50% growth year-over-year into a quarter, where, as , Q4 of last year, we started to see some pretty strong pickup in demand. So, I think the guidance looks pretty reasonable. Ben Lu: Erik from Morgan Stanley, your line is now open. Erik Woodring: Two questions on my end. First, congrats on the quarter. So, for the second consecutive quarter, we kind of saw sell-in meaningfully outpace sell-through. So, just wanted to understand kind of the dynamic there, why that has been the case and whether you think that has to reverse in coming quarters. And I have a follow? Nate Olmstead: Yeah, it's a good point. There's really two drivers of this primarily. The first is that sell-through is reported on a gross basis, meaning those numbers do not reflect promotions. It's before promotions. And so, as we've talked about, we got some benefit from the reduced promotions. And so, you see that in net sales. You don't see that in the gross sales or in the sell-through numbers. So, that's the first reason why you'd have some difference. The other would be channel inventory. So, sell-in to replenish channel inventory is still at very reasonable levels, and in fact, still short in some categories, like last quarter. So, that's really the two drivers there, would be the difference in the calculation because one is before promotion and one is after, and then the other would be channel fill. But, again, channel inventories at very appropriate levels and feel good about where we're – how we look going into the March quarter. Erik Woodring: Maybe if I just turn to the balance sheet, it's kind of a two-part question. So, one on the cash balance. Obviously, you have more than $1 billion of cash. So, just wondering if you're looking to be more aggressive in deploying that cash and how you would do that. And then, the second part is just again, your inventory levels are nearly double what they were at the end of last year. So, is that a sign you're holding on to more inventory for perhaps direct-to-consumer purposes? Is that going to be worked down over the coming quarters? Just any color on both of those line items? Bracken Darrell: Let me pick the first one. No, we have the same approach with our cash that we had before. We're obviously paying a dividend. We'll surely increase the dividend. I can't speak for the board, but we normally do in September, but kind of a normal level. The second thing is we'll keep doing stock buybacks. And I'm sure we'll want to keep doing that. But again, I can't speak for the board, but – the rest of the board, but I expect that. In terms of M&A, that's the key. We continue to look hard for great strategic opportunities, and they are out there. Now, will they be large enough to take that kind of cash? We're always looking at small, medium and large. The stars have to really align to find something large. So, we're going to stay after it. It is a lot of cash. We're generating a lot of cash. But we'd love to put it to use strategically. We have so much organic opportunity too. We're certainly going to keep plowing into that. And you might want to add to that too, Nate? Nate Olmstead: I think the other thing that's been important, and we've mentioned this couple of times, is just the use of that cash to invest in working capital, which really gets to your second question on inventory. Yes, obviously, the inventory balance has increased, but we're supporting much higher volume. So, if you look at days of inventory that's continued to come down, we had our actually best inventory turns in history this quarter. And again, I'd want to point out about. I think our operations team has done such a nice job. Not only have they helped scale the business to capture the incremental volume that we've had, but they've also continued to drive operational improvements at the same time. So, this hasn't just been an environment where we're chasing supply. We're actually trying to stay on path with our structural improvements, whether that's manufacturing diversification into other countries, whether that's efficiencies in our supply chain, cost reductions, things that benefit us over the longer term. And in fact, some of that is what's driving the improved inventory performance that we see right now. So, I think we're getting some benefit on inventory from the higher sales velocity. But we're also making efforts to improve things structurally, so that we can continue to be more efficient on working capital going forward. But no concerns for me on the inventory. Again, it's all appropriate given the increases in volumes. It's all fresh. It's on fast moving products. So, feel very good about where we're at. Ben Lu: Our next question comes from Asiya Merchant from Citigroup. Asiya Merchant: A couple of quick questions. On promo spending, you guys talked a little bit about resumption in promo spending at some point. Are we looking at that in the March quarter? Or do you think just given still all the COVID lockdowns, et cetera, this is likely going to be a fiscal 2022 event? If you can parse out the impact of lower promo spending in any way on margins year-to-date or even in third quarter, that would be great. And then, I just have a follow-up for Bracken as well on Streamlabs. He mentioned that obviously, that's going well for you. Any anecdotes you can share there on how that's driving higher user engagement/higher use of your peripherals? And when do you see that services or subscription really showing up as maybe meaningful driver of revenues across your portfolio? Thank you. Nate Olmstead: On promo, I'll be a little bit careful on this one, obviously, because this can be something that's important for competitive reasons. But I'll just reiterate. I don't think the current levels of promotion are sustainable. I think it's healthy for us to have some promotion to continue to drive growth and invest in our categories. So, actually, I would expect to start seeing that promotion turn on again in the March quarter, but we'll see how things look. It's something that we can do quickly and we can manage dynamically. In terms of the impact on the margins themselves, it was the largest – lower promotions were the largest driver of the year-over-year improvement in gross margins. It's a bit of an unusual year. So, I'll step maybe away. Normally, we wouldn't talk too much about size of impact, but it's been kind of an unusual year in that respect, so I think it's good to share. It was probably about a 5 to 6 point impact in our gross margins favorably year-over-year from lower promotions, similar to what we saw last quarter. So, it's important to keep that in mind as we look forward. Again, we've benefited from it. I think we're managing it wisely. But that's something that we're going to have to continue to evaluate in the future. Bracken Darrell: On your question about services in general and Streamlabs, in particular, Streamlabs, a little bit of color on that. We're offering a subscription service now, and that subscription service is doing really well. The team has done an extremely good job of mining that subscription service opportunity, and so it's growing really well. I'd say the more important part of that is not per se the exact service we're selling today, or even the size of that business, it's the learning. So, we're really learning hard on this because we're also offering services quietly in our video conferencing business. We've got things in the works in gaming. We've got some things in the works in C&P. I wouldn't expect any of that, individually or collectively, to become a really big number next year or even the year after that. But I think I'll predict what's going to happen with our services business is, over time, we're going to be working, working, working, you're going to hear a little bit about, and then one day, it's going to really pick up because we're in the learning mode. And we want to have a stickier relationship with our customers across every business. So, stay tuned. It's a long-term play. I'm super excited about it. I'm reminded of when I first joined Logitech. I went down to meet with a bunch of – a lot of venture capitalists and get kind of advice on what Logitech should do. At the time, so many of them were investing deeply into hardware, hardware-enabled service businesses. And I kind of got from some of them kind of a pat on the head and said, you guys probably should – you ought to try to find another job because we're coming for you. And I walked out thinking, gosh, we've got a turnaround to do and that's easier said than done. I think I'll just focus on what we're doing and do it well. And hardware, eight years later, we're worth a lot more than 10 times what we were then and a lot of those investors have gotten out of hardware. But they're right that services are going – it's just a question of timing. Services are going to be a really critical part of so many experiences you buy and we know that. And so, we've been investing. We're going to keep investing. We're going to build that. So, I'm excited about the future that involves services, but it's config time as you have to develop. Ben Lu: Our next question is from Serge from Credit Suisse. Serge Rotzer: Congrats, guys, to your great results. I have several questions. At least two I would like to ask now. You already mentioned that this order from Japan has been a one-off, at least in the press release. Before you mentioned, though, you could expect more to come of that. So, I'm wondering, can you give me a size of this contract? Well, not in detail, but that we get a feeling what this means. And do you see other such one-time orders in mice, keyboards or VC and are they coming also from corporate and not only from government to give some color here? Bracken Darrell: Yeah, I don't think we've disclosed nor do I think we should probably disclose the size of that order in Japan. But what I would say is, we do see very sizable orders coming from corporates. I still think it's kind of early days for that. We've had some bulk buying in mice and keyboards that are just really exciting. But I don't think those are kind of temporary things. I think you're going to see some of that will come as people are outfitting their homes. But it's also going to start down from the office. We never had a direct relationship with a lot of the largest companies in the world because we just didn't have the scale or hadn't made the decision to have scale with sales force selling into the enterprise, for example, and moving past education for a minute. And the same thing was true of education. And because of VC – this is one of the synergies we're creating now for the future. Because the VC, we now have a direct conversation with the largest companies in the world. And that enables us to talk about things like our workspace or desktop business, mice and keyboards and webcams, in a way we never could before. So, our market shares were underdeveloped in the enterprise business and B2B in general. And we are completely committed to changing that going forward. So, I think that's one of the growth opportunities we have ahead. In education, most people who are involved in education around the world will tell you this. While students at home all the time is probably not going to change, remote work and more technology-enabled work is the future. And so, I think the investments are going in now in education in Japan exemplify what's going to happen, what's starting to happen around the world in places like Germany and other countries that will invest and keep investing in education technology. And we're going to be part of that. So, we're putting ourselves in position for that. Serge Rotzer: A follow-up question is, you mentioned that you still have some supply constraints, mainly in webcams? Is this for enterprise webcams or only the consumer webcams? And do you have any other product categories where you're short? And when do you believe that you're coming out of the situation? Bracken Darrell: It's really in both. We also have some shortages in microphones, a few other places. In terms of when we think we come out of it, I'm almost embarrassed to predict that now. I think I've predicted every quarter, we're going to be out of it in a quarter two, and I've been wrong. The demand has been stronger than we thought in each case and continues to be very, very strong. We are expanding our capacity both in assembly, our making, as well as in the components we need. I would guess sometime next year, we'll see really get to full capacity on webcams. Serge Rotzer: Next year, fiscal or calendar? Bracken Darrell: Fiscal. Serge Rotzer: Fiscal. Sorry, again, the last question, Where is the main bottleneck? Is it in components or is in production? Bracken Darrell: Right now, it's moved a little bit. I'd say we're now in a pretty good place on assembly, we think, really now, so we have everything. So, it's components now. Ben Lu: Our next question is from Tom from D.A. Davidson. Tom Forte: Congrats on an outstanding quarter. So, two questions for me. The first one is, how should we think about the influence of the new gaming platforms for Sony and Xbox on the gaming industry's ability to grow on top of the pandemic in general and Logitech in particular? Bracken Darrell: I apologize. I missed the first part of that comment because one of my personal assistants started to talk to me. Tom Forte: How should we think about the new gaming platforms, Sony and Xbox, and that enabling the gaming industry in general and Logitech in particular to generate growth this year on top of the pandemic led sales and gaming. Bracken Darrell: I think the new gaming platforms from those two plus other companies are all drivers of long-term growth in gaming. And we're excited about cloud-based gaming in general. And those two platforms here, if you look at our ASTRO business, it's done really well this year. And we expected to continue to do really, really well. It has been a banner year – an amazing period for the new consoles. And I think the new consoles are starting to spill over into PC gaming, and there's an interaction between them. And we're excited about – I think gaming business has never been more exciting. And I don't see how that will let up. Tom Forte: Excellent. And then, my second question is, can you give us your current thoughts on the long-term opportunity for Logitech in virtual reality, especially in gaming? Bracken Darrell: So, we’ve been working in virtual reality now for about four or five years – four years, I think. We've had a dedicated team on it located in couple of different places in the world. Our goal there is really to try to be in the early stage of – as augmented reality becomes more accessible for productivity, creativity in gaming, but also in virtual reality. There's obviously going to be virtual reality play in gaming. We've got a couple of things we can't talk about right now. But I think as that continues to grow, we're going to stay in the mix. We've got a product out now that is not a gaming product. It's called Ink Edition. It's a stylus that you can draw and create in three dimensions. We've got a couple of large companies using that to create design things. It's not a big product for us, but it's another opportunity for us to learn. I love the team we have on this. I hope they're listening. We've got super sophisticated people working on this, both hardware and software. And it's an exciting future. Maybe another call, we'll talk about where the future will be one day in offices and homes and how virtual reality may – and even more augmented reality will probably be played there. And we think we can really play a big role – a bigger role there. So, that's exciting. Ben Lu: Our next question is coming from Andreas from ZKB. Andreas Mueller: First question, can you give a bit more color into the investments into IT and customer care infrastructure, which brought up also the G&A line? What is that exactly? Nate Olmstead: Obviously, just as the business has grown, our needs to support our customers have grown as well. And so, we've just added scale and capacity into call centers and more enterprise-oriented support to support some of the VC growth that we've had. So, those types of areas. And on the IT side, some of it's projects that we had planned maybe over a longer-term, Andreas, that we simply have had to pull forward. The scale of the company that we had planned for has pulled forward. We've had to increase the scale of some of the IT investments that we have to support that growth. There's also some investments in G&A. As I mentioned in my prepared remarks, that the – that I expect it will wind down by the end of this year. So, I'm not expecting this level of G&A to be our new run rate. But it is one area where we've put some investment into it, and I think very appropriately, and that will remain. So, a portion of what you saw in G&A is variable, more probably for this year, and certainly a portion that is more fixed. Still variable over the longer term if volumes do not sustain at these levels, but we think it's certainly appropriate, given where we're at right now. And by the way, you still see G&A below 2% of sales. So, I don't think it's something that you should have real concern over. Andreas Mueller: When you think you will see a normalization in the supply chain to be able to bring it down this logistics costs, it's currently probably still high, but what needs to be in place to bring that down, the logistics costs? Bracken Darrell: It's true that our logistics and supply chains are – basically, our air freight and express, both have been super high. I think it will start to come down a little bit this quarter. I don't know how you feel, Nate. But I think maybe a little bit. And as we go into next year, we expect it to be more normalized. Nate Olmstead: Yeah, I think that's true. I think I'll also say, though, expedited freight is something that is a good option to have, especially as you start to address more business users and large deployments. That may continue to be something that we want to utilize. So, I agree with Bracken. I think it will come down as supply catches up again in some of these categories where we've been chasing all year. But I also would say that it's an option that is available to us if we want to just kind of manage potential mismatches in the future between demand/supply, mix/volume, some of these large deals, things like that. Ben Lu: Our next question is from Michael from Vontobel. Michael Foeth: Two questions, actually, from my side. First of all, on the use of cash, you already talked about your cash allocation strategy and you talked about organic opportunities. My question was here, should we expect you to see R&D step up more materially going forward? And where would the priorities be in R&D? And along the same lines, your CapEx plans? Last quarter, I think you announced an increase in your CapEx projections. Question would be here, if that guidance is still unchanged and were you expecting to invest CapEx going forward? And then I have a follow-up? Bracken Darrell: We are increasing our investments in R&D, and we'll keep increasing our investments. In terms of priorities, I wouldn't share too much for competitive reasons. But we're focused strongly on four broad areas, and you can bet that they all are potentially hungry for investment that we should make. And we will make. So, we're going to really keep investing. Engineering has been the lifeblood of this company long term. Design has unlocked the power of engineering, but it's really always been about – we have great engineering, and we're going to keep investing there. On the CapEx side, it's been an unusual year for CapEx because we've invested a lot more capacity than normal. It's still relatively low. I think we're at the very low end of what most companies our size will be doing from a CapEx standpoint. I don't know whether we'll need to spend that much CapEx in the future. You want to add anything, Nate? Nate Olmstead: I think that's right. Maybe just to be very precise, we're guiding for $75 million to $80 million of CapEx spend this year, Michael, which, again, as Bracken said, is not a significant amount when you look at the cash we're generating. And I think the return on it is very strong. In terms of R&D, just to put a little more color on that, year-to-date, R&D expense is up 21%. So, I think we've been investing in it consistently this year. Again, because that's more long term oriented. That is some more fixed costs. But again, it's fixed costs addressing longer-term growth opportunities. So, very consistent with that. The other thing within R&D, and we've mentioned this in the script, if you heard was shifting resources between product categories. And so, while it's 21% for the year of growth or 23% in the quarter growth, within that, we're reallocating resources. So, some of the priorities that Bracken mentioned are seeing growth well in excess of the 20% growth that you see at the company level because of that reallocation internally. Michael Foeth: My second question would be, in terms of your sustainability initiatives, two questions. What are your priorities going forward in fiscal 2021 in terms of sustainability? And where do you think you're making the best progress currently? Bracken Darrell: We're really excited about what we're doing with sustainability. We just got named to the Dow Jones Industrial Europe Sustainability Index where we signed up for the Paris Accord and we're on track to deliver our first year of commitment against that this year. It's the 1.5 degree rise – trying to keep the globe to a 1.5 degree rise in temperature. We announced this last quarter that we're going to be 50% of our mice and keyboards, which is a lot of volume, will contain consumer recycle – or recycled plastic. And by the time we get to – we haven't announced that publicly, but over the next year or two after that, we'll get to 60% and then 70% and higher. We announced that we're going to be carbon labeling, and we've got the first seven kind of product platforms done, carbon labeling every single product in our portfolio and trying to encourage all of our competitors and everyone in tech and beyond to do the same thing, so that we can try to get the part of the world that moves to making labeling carbon a little bit like labeling calories. So, once it's on the package, some consumers will look at it and it will put pressure on all of us to try to try to bring that down. We've moved to renewable energy everywhere we can so far, and we're aggressively going after that. We're investing in carbon offsets to offset whatever we can't do so far. And we're making big progress there. So, we have a big program going against sustainability. It's absolutely a value of the company and we're not going to let up. Ben Lu: Our last question is from Reto Huber from Research Partners. Reto Huber: Actually, I have two of them. First one, you already touched on it before, but I was wondering how much of your revenues were sold through your B2B channel in the quarter versus a B2C? And how much is your addressable market going to change or increase as a result of your investments into the B2B channel? Is it simply going to double or is that wrong thinking? And then, my second or third question would be, how did the education order from Japan impact your gross margin in the quarter? Because I believe – remember that margins in education are below the group's average gross margin, but maybe I'm wrong there. Bracken Darrell: Yeah, that's true. It is true that education is below our group margin. On the other hand, it also it's a bit lower OpEx so far by a long shot. So, it's pretty efficient and profitable. I would say in terms of B2B as a share of the quarter, we don't really break that out. And your other question around addressable market size increases, I think this is a good moment where I can invite you to our Analyst/Investor day, which will be coming up quite soon. We would love to have you join. And I think some of those questions, we'll be able to answer it a little more clearly rather than try to hustle through it at the end of an earnings call. I think it deserves more discussion than that. Yeah, I do think you're right, that our overall addressable market, our TAM, this year has dramatically increased and we're excited about that. And the real question is, how do we unlock the power of that? And I think that's the – I'm advertising for an AID, which will be sometime in the next several – not too far away. Ben Lu: And that concludes our Q&A session. I will turn it over to Bracken for his closing remarks. Bracken Darrell: It was obviously a super strong quarter. It's been a very strong year. But don't confuse that it's temporary. This is a long-term thing for us. We're completely committed. Most of the people in the company now are working on next year and the year after that, not this year. So, it's been extremely exciting. You guys have been really great, challenging and collaborative, investors and analysts, partners for us all year long. We appreciate it. Keep challenging us. I hope you will all come. We haven't announced the date here for our Analyst/Investor Day, but we will shortly, and I hope all of you will join. We're excited about this year, and we're really excited about next year. Thanks a lot. See you next quarter. Nate Olmstead: Thank you.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.
