Logitech International S A : Q1 2022 Transcript (opens in new window)

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Company Name: Logitech International SA

Company Ticker: LOGN SW Equity

Date: 2021-07-27

Q1 2022 Earnings Call

Company Participants

Ben Lu, Vice President of Investor Relations

Bracken P. Darrell, President, Chief Executive Officer & Executive Director Nathan Olmstead, Chief Financial Officer

Unidentified Speaker

Other Participants

Analyst

Ananda Baruah

Asiya Merchant

Erik Woodrink

Joern Iffert

Jurgen Wagner

Paul Chung

Serge Rotzer

Tom Forte

Bloomberg Transcript

Presentation

Operator

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're 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 any of these statements.

We will also discuss non-GAAP financial results. You will find a reconciliation between non-GAAP to GAAP results and information about our use of non-GAAP measures in our press release and in our filings with the SEC including our most annual recent -- annual report. These materials as well as our prepared results and slides and a webcast for this call are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. And unless noted otherwise, comparisons between periods are year-over-year and in constant currency, and net sales -- and sales and net sales. This call is being recorded and will be available for replay on our website.

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FINAL

Company Name: Logitech International SA

Company Ticker: LOGN SW Equity

Date: 2021-07-27

And with that, I will turn it over to Bracken. But first Bracken, I will have to apologize that I did not get to wrap the safe harbor provision statement that I have promised you. So I apologize and I hope to still be able to do that one day.

Bracken P. Darrell {BIO 3403495 }

Thank you, Ben and thanks everybody for joining us. Nate and I and Ben had been in the business before they had. One day, you would wrap the safe harbor provisions, and I guarantee if you had, people would have listened more carefully those safe harbor provisions. So it'd be good for an SEC standpoint. So maybe in your next company, one day you will do that. I will be listening for 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, he's going to announce that soon. So we won't jump the gun. But then I really want to thank you on behalf of all Logitech all of these investors and analysts on the call today. Yeah, 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.

Bloomberg Transcript

Ben Lu {BIO 19785128 }

Thank you Bracken. Thanks so much to you, Nate and the team.

Bracken P. Darrell {BIO 3403495 }

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 I want to really adore his daughter and all of -- 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 experience like that feel more like pre- pandemic life. While experiences like this may feel like a return to the old normal, in many ways, our work life has 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-sleepingnon-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 lost days of flying to Tokyo or Shanghai or London or Paris for one or two our meetings.

And the reason they'll be gone is it because of the pandemic? It's 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 or more. Autopilot has been turned off, and our employees, customers and friends are looking for a new and better way to return to work.

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Bloomberg Transcript

Company Name: Logitech International SA

Company Ticker: LOGN SW Equity

Date: 2021-07-27

Every conversation I have and I bet you have too 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. There are a 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 startups and for some salespeople.

Even at Logitech, a predominantly in the office culture part of the pandemic, we're going to have a lot more people working full-time remotely. This new approach to work also unlocks talent we couldn't have access before in jobs that are far more oriented to remote work than we realized. Erin Chin, who doesn't know I'm mentioning her today, runs marketing for our streamers and creators products out of New York. We did struggle to attract her from PepsiCo where she was in marketing for Mountain Dew.

If she'd hadn't moved to California with her family on the East Coast, we might have lost Vincent Burrell, who also doesn't know that I just mentioned him, and so we might have lost this umbrella at some point. That's who she reports to. Basically runs that group. But he moved to Florida to pursue his son's passion for water skiing and secretly he's own too.

Meredith Rojas, who works for Erin, so we're talking about whole reporting structure here, develops influencer and celebrity partnerships for our streamers and creators team, and she surely would not have joined us if she'd had to move from LA, which is the epicenter of the world that she's worked in for the last decade, the entertainment world. In short, remote work is growing within Logitech. But for most people, and like for me on this call, working from home two to three days a week will become the new normal.

Those people will need spaces and equipment to work in both places. For some, that will be a fully replicated workspace in each spot. For others, it will be a place to plug their laptop into a monitor. In both cases, you'll need a mouse, a keyboard and other peripherals so you can look directly at the screen, sit back comfortably, not get a terrible video angle, and be healthy ergonomically. Most of us will want duplicates of our tools in both places at work and at home. And larger companies will standardize on good equipment. So the conference call and employee productivity are optimized.

Natasha Ligai who some of you know, runs our strategy team, and she's eager to get back into the office a few days a week. She has an important and high-profile job for us as well as two adorable kids who want her all the time. She likes the idea of working some times in the office both for meetings and also just to quietly focus. Sam Harnett, our General Counsel, who is no doubt listening right now, lives a commutable distance but like Natasha it's not easy. It's not an easy daily commute, and like Natasha and Vincent, I've got to know Sam's daughter a little better, thanks to all our video calls.

I gave you specific names because I want to note, the people have --they're real people, they've realized with passions but aren't fully served by world where you burn up 20% of your time commuting. Yet they often do want in need some time in the office with their co-workers, who are also their friends. But despite that, there will be some in most

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Bloomberg Transcript

Company Name: Logitech International SA

Company Ticker: LOGN SW Equity

Date: 2021-07-27

companies in parts of the world, who returned to work full-time to an office. A lot like we did before.

There are jobs where these can't be avoided, places where commutes are almost effortless and organizations that just aren't ready to make the shift. There are places where homes just don't work as well, where living spaces are too small to work comfortably, but even their work lives will never be the same. The rise of video meetings means they will feel awkward in the office on audio-only calls. They'll often discover customers and business partners who don't want to come to meetings, who request video meetings.

Video will simply overwhelm the old audio calls including in the office one-on-one. Everyone will need a good webcam there too. But that new hybrid world is not or is in a wide range of stages now? Some places are reopening quickly while others are back in more protected levels including Los Angeles where I happen to be today. It's gone back to masks. Country's like India have had starts and stops and reversals. And while much of Asia Pacific has been much better, some parts like Taiwan and Australia have moved back into defensive mode or even in the most severe lockdown since the pandemic started.

In a word, it's choppy. It's choppy around the world. It will stay highly uneven for some time. While the pandemic has been a huge change event, the cultural and technological trends underlying the change started well before the pandemic as you know. One of our clear strengths in the past nine years has been our ability to select trends to follow. I'll quickly address those trends. This approach has worked. After selecting the right categories, developing innovative products, we've become the market leaders in well over half our categories today.

If we weren't even present or barely present in over half of those categories a decade ago then we have not let up looking for new categories. While we continue to innovate in the businesses we've entered across all the categories you know, we also continue to quietly work on new categories all the time. Not all of our new category efforts turn into something. We've shelved many products before you saw them. We've redistributed teams across the company from one seed team to another, and we've launched categories you saw that we subsequently shut down. Logitech is dynamic. We continue to test and learn our way into new things, that's been a hallmark and a key to our growth and innovation.

Now, let's look ahead within our existing categories. We had strong growth across our businesses this quarter. Our video business is well positioned in a category with tremendous growth potential. Customers are digesting the need for more video, more webcams and more standardization of equipment in homework spaces. This is early days for the standardization, but it's happening. The conference room video growth is also still early days.

Many feared gaming would slow down dramatically as we exited this year, but our new products are fantastic and are growing quickly. In fact, our latest gaming products like our Superlight mouse are already among our biggest of the company. That's a shift. We're just getting our innovation and marketing engines refine here, and I'm super excited about

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Bloomberg Transcript

Company Name: Logitech International SA

Company Ticker: LOGN SW Equity

Date: 2021-07-27

the future of gaming. Our CMP business which is mostly mice and keyboards had a super strong quarter. This is a reflection of great vision, strategy, and execution.

We're running the play from our analyst and investor day in fiscal year 2020, and you can see it. Our lifestyle products are fun and in line with cultural trends. Our ergonomic products are needed but still have low awareness. In fact, a crazy good experience provided by many of our best products is still unknown to most who would love it. We're just firing on all cylinders and have so much upside in CMP. There are awareness and new products.

Our pipeline is also really exciting. Our key categories grew double digits this quarter. That's despite chip shortages and an incredible work load and stress created by COVID on our people. Like most companies, our employees have been challenged during COVID from the stress of uncertainty, from fear, from long hours and difficulty detaching from the work day that just never seems to stop as their homes became their offices.

I think, everyone needs a break, and this summer we're encouraging everyone to take one. Now let me turn the call over to Nate to go deeper into the quarter, Nate?

Nathan 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 full year outlook we gave in April. Similar to last year, our operations and sales teams continued to execute well and results were strong across our categories and regions. Our PC peripherals categories continued their strong momentum in the quarter with 49% growth in Q1 driven by better availability and a broad portfolio of differentiated products like Bracken mentioned.

Several of our flagship offerings like the Mx Master 3 mouse and Mx Keys keyboard continued to set new sales records even after being in the market for two years. And sales of our Ergonomic Split keyboard, the K-860 which retails for $129 more than doubled in the quarter. But that impressive performance was not just in the high end. In fact, each of our top 10 mice and keyboard products with prices that range from $12.99 to over $100 delivered strong double digit growth. And in some areas triple digit growth.

While webcam growth has started to moderate after more than tripled in last year, sales still grew 73% in the quarter and we have regained some of the share we lost last year due to supply shortages. Our priority remains driving greater awareness of the better user experience provided by an external webcam to increase our attach rates to the large and growing installed base of monitors and PCs.

Q1 video collaboration sales increased 72% similar to the 81% growth rate in the prior year. Sell-through in the quarter was even stronger and nearly doubled versus last year. On a

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