Logitech Stock

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for this quarter. Joining us today are Hanneke Faber, our CEO; and Matteo Anversa, our CFO. During this call, we will 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're making these statements based on our views only as of today. Our actual results could differ materially. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP financial results. You can find a reconciliation between GAAP and non-GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward-looking statements in our press release and in our filings with the SEC. These materials as well as the shareholder letter and a webcast of this call are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, references to net sales growth are in constant currency and comparisons between periods are year-over-year. This call is being recorded and will be available for a replay on our website. I'll now turn the call over to Hanneke.

Thank you, Nate, and welcome, everyone. Q1 was a strong start to the fiscal year with net sales growing 5% in constant currency. -- marking our tenth consecutive quarter of growth. The business performed well despite tight component sourcing, elevated component and shipping costs and the ongoing conflict in the Middle East. We were particularly pleased to see an acceleration of growth in gaming and in North America and continued strong growth in video collaboration and pointing devices.

Our strong operational performance was driven by our strategic priorities. First, superior products and innovation. The MX Master for mouse and the Pro X2 Super strike gaming mouse have scaled at an exceptional clip. The super-premium products with unique technologies are both big hits. Just a few quarters from launch, they now both rank amongst the company's absolute top-selling products, helping professionals work more productively and enabling gamers to win.

This quarter, we also added 4 new releases to our product portfolio. The Mobi fold ultra portable mouse, the G 512x gaming keyboard, the spotlight 2 advanced presenter and have really fund limited edition soccer Alto keys bundle.

Our elevated marketing efforts are supporting the success of our products. In gaming, our partnerships with iconic brands like NASCAR, McClaren, Call of Duty and a range of top Pro gaming teams helped accelerate growth this quarter. And on the work side, we are investing more in creators and social commerce, anchored by a fast-growing roster of influencers. We will continue to deliver superior innovation at pace. And the incremental growth investments we outlined entering fiscal '27 are now underway, laying the groundwork to fuel a unique product innovation pipeline for the years ahead. A second driver of growth in the quarter, doubling down on B2B. Video Collaboration net sales grew 9% in constant currency this quarter, extending momentum built over the past year. Logitech's video conferencing solutions are now used by more than 70% of Fortune 500 companies, putting us on a very short list of preferred suppliers as organizations refresh and expand their meeting spaces. Third, excellence across geographies.

This quarter, our geographic diversity really paid off. allowing us to balance tough spots like the Middle East with terrific demand-led growth in the Americas as well as continued strength in China. And in Europe, where the broader market was soft, our teams gained significant market share. Finally, operational excellence once again drove results. This quarter once again demonstrated the power and the consistency of our operational teams. -- even in a volatile and uncertain macroeconomic environment. While tariff refunds positively impacted our reported numbers, we delivered excellent operating income growth, excluding the refunds to thanks to the discipline and the precision of our teams. All in all, our Q1 results reinforce our commitment to operational rigor and our belief in our ability to execute on our strategic pillars and positioning us well for long-term success.

Now as we look ahead, we expect the demand momentum we are creating to continue. But as you may have just seen a new serious incident at 1 of our suppliers, which we're working hard to mitigate is likely to temporarily impact our ability to fully meet demand. Let me hand over to Matteo to provide more details on both our performance and the outlook. Matteo, over to you.

Okay. Thank you, Hanneke, and thank you all for joining us today. So as Hanneke mentioned, our teams navigated a difficult operational backdrop throughout the quarter and delivered very strong results. In addition to delivering a strong quarter, we received EUR 61 million in tariff refunds. And as a result, non-GAAP operating income was $290 million, up 44% year-over-year. If we exclude the tariff refund, non-GAAP operating income was $229 million, up 14% year-over-year, reflecting strong execution from the team.

Now let me walk you through the quarter in a little bit more detail. So starting with net sales. Net sales were up EUR 1.2 billion, up 7% in U.S. dollars and 5% in constant currency. Pointed devices, video collaboration and gaming were the key growth drivers in the quarter. More specifically, Pointing Devices net sales grew 14% year-over-year fueled by the continued success of the MX Master 4. Marking our fifth consecutive quarter of growth, Video collaboration net sales increased 9% year-over-year as a result of sustained corporate investment in our workplace solutions. And gaming net sales grew 9% year-over-year, driven by double-digit growth in AMR.

Conversely, both webcams and headsets were down, driven by soft end markets in EMEA. At the regional level, AMR led the way, up 11%, with gaming, pointing devices in keyboard and combos all growing double digits. Asia Pacific grew 5% and with China ahead of the broader region and EMEA net sales declined 4% due to the Middle East conflict, which impacted the region's net sales by approximately 400 basis points. Now it is important to note that in Europe, we gained share in a subdued market.

Turning now to profitability. Our reported non-GAAP gross margin rate including the $61 million tariff refunds was 49.8%. Excluding the impact of the tariff reimbursement, our gross margin rate was 44.8% and expanding approximately 270 basis points year-over-year.

We have now posted gross margins greater than 43% in the last 4 consecutive quarters. And this year-over-year gross margin rate expansion was driven by favorable currency exchange rates, product mix and product cost reduction. Now product mix played a prominent role in the quarter as we drove double-digit growth on the premium product lines and categories, including the sustained momentum in video collaboration. Now this gross margin tailwinds were partially offset by higher promotional spend, particularly in EMEA.

Now looking at operating expenses. Non-GAAP operating expenses were $320 million or 26.1% of net sales, up about 150 basis points year-over-year. This increase was driven primarily by higher investments in sales and marketing and R&D. G&A was flat as a percentage of sales at 2.8% as we continue to remain diligent in our G&A spending. As a result, excluding the tariff reimbursement, non-GAAP operating income was $229 million, up 14% year-over-year. And non-GAAP operating income rate was 18.7%, up 110 basis points year-over-year. Our profitability continues to translate into exceptional cash generation. Cash flow from operations increased more than 30% year-over-year, and we ended the quarter with a cash balance of $1.75 billion, while we returned approximately $150 million of cash back to shareholders in the form of share repurchases.

Now as we look forward, we expect the demand momentum from the first quarter to carry into the second quarter despite the geopolitical and macroeconomic challenges. However, in late June, 1 of our suppliers of semiconductor components experienced a serious incident in their manufacturing facility, which led to its closure. The facility remains closed today, impacting our ability to effectively meet demand.

And the supplier has not yet provided a definitive date for the facility to reopen. Now our team is working through several mitigation plans. And in the near term, our robust balance sheet allows us to maintain a sufficient level of inventory precisely to mitigate this type of supply chain disruptions.

And as a result, we are able to significantly reduce the impact of this incident in the second quarter. And more specifically, we expect second quarter revenue to grow 0 to 3% in constant currency with a gross margin rate of approximately 44%. This outlook contemplates a net sales impact of approximately $20 million due to the supplier incident. We expect non-GAAP operating income to be between $185 million and $210 million, down year-over-year, driven by the continued investments in R&D and sales marketing as well as our prior year austerity measures.

Now looking ahead for the full year of fiscal year 2027, absent the disruption caused by our supplier we expect top line momentum to continue at roughly the first quarter rates throughout the remainder of the year. However, based on our limited information to date, we are estimating the negative impact of our supplier incident to be up to $200 million in revenue in the third quarter. And for the fourth quarter, we estimate the supplier incident to be largely resolved, which would mean little to no impact to our fourth quarter results. On profitability, we expect full year non-GAAP operating margin to continue to track near the high end of our 15% to 18% long-term target range, helped by the strong underlying operating performance of the business and this quarter's tariff refunds. With that, I will turn it over to Q&A.

Thank you, Matteo. We will now move to the Q&A portion of the call. To ask a question, please click on the raise hand icon at the bottom of your screen. Please be sure to unmute and ensure your camera is on before asking your question. Our first question comes from Jorn Iffert from UBS.

I will start with 2 questions, okay, and then I go back in the queue. The first 1 is -- can you tell us more about the risk of pull forward demand what you have potentially seen in Q1? You had a very strong sales through double digits. And if you exclude the EUR 20 million sales impact from the semi supplier issue, you would give an outlook of 1.5% to 4.5% sales growth for Q2, there was quite a material slowdown? Or is this pulled forward demand you've seen in Q1? Or what -- how do you explain the slowdown?

And the second question would be, please, when we look on the full year outlook and you're still saying you're coming up at the 18% or close to including this EUR 61 million tariff fee fund, which would be then if you export around 17%, it's a 200 basis point drop versus last year almost. I mean, how do you explain this is really only SG&A as gross profit margin seems to bode up quite well? Or do you also pencil in some additional cost for the CD component sourcing here?

Yes. Jorn, let me take the first question, and then I'll let Matteo answer the second question. So -- we think there was very little to no pull forward in the first quarter. Why do I say that? Pull forward would particularly happen in video conferencing where the memory shortages are well known. -- and we took pricing. But we took pricing in May. So if there was any pull forward on the absolute price increase, it would have happened in April, i.e., in the quarter, -- and in fact, what happens when you take price increases in B2B, you actually continue to honor the old price for a little bit because you've got deals that are in progress.

So in the quarter, the actual impact of the price increase was not very high. We'll see the positive impact of the price increase starting from the next quarter. there was no reason for our customers to pull forward in the quarter. So -- and certainly, on the consumer side of the business, we tend to really ship to demand. So there's not a lot of pull forward there. So we continue to be optimistic ex the supplier. I think your math is right on what we would have guided for the second quarter.

We're always looking at kind of the high end and the low end. On the high end, we meet North America to continue to perform as well as it has in the high single or double digits. On the more conservative side, that might come down a little bit. So that's where the original guide came from what your numbers are about correct.

Yes, Jorn, sorry, if you adjust for the $20 million of the supplier incident for -- as it pertains to the second quarter, we would have -- the outlook would have been something between 2% to 5% and -- we closed the first quarter between 4.5% and 5%.

So I think we are in the zone -- and obviously, there is, as Hanneke said, a bit of uncertainty in the macroeconomic world today. So overall, the number is closely to what we have achieved in the first quarter. As far as the second question, so the -- if you recall, last quarter, we mentioned that on the backdrop of a very strong fiscal year 2026, where we almost reached 19% of operating income rate -- we wanted to take some of these outsized gains in profitability, particularly out of a very strong gross margin and reinvest this towards the growth -- or the future growth of the company.

This is really what we are planning to do and notwithstanding the supplier incident that we just described, where we can talk more about it later. So that's the driver. So I would not expect G&A to increase is really the focus on investment for the future growth of the company, which would be sales and marketing and R&D. And we have -- to your point on the gross margin, I think, is valid. We are very happy on where the gross margin rate has been now for several quarters, and we expect the gross margin to continue to be strong.

If you allow me to zoom into 1 thing, when we adjust now for the EUR 61 million [ terror ] fee fund, your underlying non-GAAP EBIT would be more around EUR 800 million, EUR 850 million. Is this a new starting point you should look at how you can grow them in '28, '29 -- or is this then -- okay, look, I mean, you're using the EUR 61 million, you're already investing in next year, you will play down the investments again. Just have a little bit of feeling on where we can start to model the company for the midterm.

I think it's a little premature to talk about fiscal year '28 and '29, -- but right now, we are committed to the to the range that we provided at Investor Day, and that's the commitment of the company, which you can expect the company to deliver.

Our next question comes from Asiya Merchant with Citi.

Just if you can highlight how you guys are thinking about channel inventory here? How is that performing relative to -- the sell-through was obviously pretty strong here. How should we think about perhaps some buildup of inventory if there was any? And then if I may, just the supplier incident that you talked about, it seems like you have pretty good line of sight to it getting resolved in 4Q and then sort of your revenue growth rate probably accelerating back to what you saw in 1Q. So just if you could peel that up a little bit, why do you feel so confident that, that supplier relationship or that supplier issue could be mitigated if there's alternatives there that you're looking at?

Yes. Maybe let me start from that 1 and we'll go back to inventory with Matteo. So I was expecting quite a few questions. So things, Asiya, on this incident. And I got to say, we will share transparently what we know because we still have, I would say, limited info, and we also need to protect competitively sensitive information. So I'll do my best to give you a bit more color on that.

But at the very end of June, 1 of our many semiconductor suppliers had a serious incident in its manufacturing site, that resulted in a temporary shutdown, and that facility is still shut down. And we are now in the early stages of receiving information about the impact of the event. We are confident that the fab will reopen and will be open again certainly in the fourth quarter. but the supplier has not yet confirmed definitively when it's going to reopen. So in the meantime, we are working very hard, obviously, on a set of mitigation plans.

We do have secondary suppliers for most components, including semiconductors including this one. But as you will know better than most people, the general supply situation for semiconductors is unusually tight across the industry at the moment, which means that getting significantly more supply at a time where we need a lot ahead of the holidays, particularly challenging. So hence, what we told you in Q2, we -- the midpoint of the outlook still shows growth, 0% to 3% despite the fact that we'll think we'll be short about EUR 20 million because of this incident. And that's because in the quarter, we can leverage some of our regular inventory that we have, and Nate can give you a bit more detail on that.

In Q3, it gets a little trickier. And again, based on the limited info we have today, the negative impact could be up to $200 million in net sales because of the incident. And it's going to depend when does the fab reopen, how much supply can we get from our secondary suppliers and other plans that we have in progress. By Q4, we are confident that this will be resolved. And again, this is a temporary supply issue. We're confident that the demand is going to remain strong, and that will resolve this by Q4.

So Asiya, let me address the first question. So yes, the sell-through now going back to the first quarter, was strong. You remember though, that the sell-through is a gross number, so it does not include Obviously, it's not in constant currency, so it includes any FX movement. And it does not include the promotions. So the -- if we spend more dollar year-over-year on promotional activity.

So -- if you take the 11% of growth in sell-through and you try to walk it back to the 5% on net sales, really, you have 2 components. One is the FX, which is about 2 points. And the second 1 was primarily higher promotional spend. So the channel inventory was actually in good shape. Nothing happened abnormal in the channel. But we promoted a little bit more than last year, particularly in Europe. We saw the market at the beginning of the quarter being pretty subdued, as we said in our prepared remarks. And quite frankly, we took an opportunity to gain share, and we are pretty happy with the outcome because as we -- as Hannake alluded in her prepared remarks, we gained a few points of share on the majority of the power lines in Europe. So we are happy with the outcome.

But that's how you bridge from the sell-through to the net sales in constant currency. As far as the -- maybe last 1 comment on the channel back to the impact of the second quarter on -- of the supplier incident. We -- the beauty is that we have a strong balance sheet. And this is what allows us to maintain a healthy level of inventory of this type of components exactly to withstand this kind of situation that sometimes happen like we are experiencing today with the supplier.

So thanks to the inventory that we have on hand and the finished products that we have in the channel we will be able to serve our customers for the vast majority of the second quarter. And that's why, to Hank's point, you see that the impact on the second quarter financials is limited. It will continue to grow. It's about EUR 20 million.

Obviously, the situation for the third quarter to Hannake's point, is a little bit more challenging. But we are happy where the channel sits and is healthy and in the range in terms of weak on hand that we want it to be.

Our next question comes from Alicia Reese with Wedbush.

I wanted to start with just an overall question on the impact of the supply chain incident. I assume that, that impacts predominantly the video conferencing, but wanted to just double check that there is nothing within gaming and the other segments that is particularly impacted

No. So thank you for asking that, and. But the impact is actually on a portion of both our gaming and our PWS portfolios. So these are not memory chips.

Okay. All right. And you did call out share gains in the Americas and EMEA. I believe that's from the super strike predominantly if there were any other categories or products that drove some of those share games, if you could call that out. And you did also call out that Asia Pacific growth was led by giving, but there were no share gain call-outs there. Can you talk about the overall strategy there or if there's any particular products that are leading that growth in China, that would be helpful.

Yes, sure. So in terms of shares, actually, the biggest share growth, fantastic share growth was in personal workspace -- so we gained about 220 basis points of share in the quarter across personal workspace, which is giant. And that included gains in the Americas, in Europe and in Asia Pacific. So and including in China there. So PW is really an outstanding performance. Gaming also strong share gains in both the U.S. and in Europe. In Asia Pacific, shares were flattish. But on the premium end of our lineup in gaming, again, thanks to what you already alluded to the super strike mouse, we also saw share gains. So and then video conferencing also strong share gains in the quarter. So really strong performance across the board that we're really, really pleased with.

Our next question comes from Alex Valero with Loop Capital.

My first question is on gross margins. So your gross margin, excluding the refunds was 44.8%, which is above 43% to 44% structural range. which piece of that is durable, the mix, FX or cost reduction?

Sure. So Alek, the overall, we are obviously extremely pleased with the gross margin results now for quite several quarters, as I alluded in my prepared remarks, we have been printing pretty good gross margin well above 43%. If you look at the year-on-year walk, so if you go from last year in the first quarter, we were about 42%. So we expanded about 270 basis points, excluding the tariff reimbursement.

There were a couple of drivers. Obviously, 1 is foreign exchange, like year when you look at the year-over-year because last year, the euro was pretty weak. The -- so that's accounted for about 240, 250 basis points of the margin lift. When you look at it operationally, I would highlight a couple of components. One, is the overall premiumization of the portfolio, so the positive mix. If you look at the high-end product lines, right, look at all the MX Ergo, pro simulation. They all grew double digit and really solid double digit, okay?

And then also videoconferencing in total, as you know, we are doubling down on B2B. So as with the conference in outpaces the growth rate of the company that is good for mix. So it's good for margin. That was another big component. So when you combine a little bit of price and this premiumization of the positive mix, it's about 100 basis point lift year-over-year. And then the continuous tremendous work of cost reductions.

Then Sri and the team continue to do notwithstanding the environment where we are of higher commodity costs, higher freight costs in the first quarter. product cost reduction helped us about 100 basis points. In all these positives, as I alluded in my prepared remarks, were offset partially by higher promotional spend. So of these categories that I just mentioned, if you look at at least the short term, call it, the next quarter. Probably the number that will be more challenged is going to be the product cost reduction. We see freight rates increasing and this is going to be a little bit of a less of a help.

When you look at the second quarter compared to the first. But overall, you heard in the prepared remarks, we're still going to be around 44% of gross margin rate, so still a good number.

Got it. Just a quick follow-up, just changing it up a bit. What are your B2B customers telling you about their AI budgets right now?

Obviously, everyone is investing in tokens. So their people are spending on tokens. But at the same time, we're seeing a really healthy market for video collaboration. Why is that? I'm sure you guys are all using either Microsoft or Google in your video or Zoom in your video conferencing meetings with their AI notetakers, AI assistance, et cetera. So to use AI properly, you need to enable your people with video conferencing in all of your meeting rooms.

And I've said this many times before, but globally, Less than 25% of meeting rooms are video conferencing enabled. So there's so much white space in that market. And you see that in the market growth. AI is a tailwind for video conferencing. And beyond the white space, video conferencing equipment tends to last between 5 and 7 years. We're now about 6 years post the beginnings of COVID when many companies put in video conferencing for the first time. So that's another tailwind. So all in all, a really healthy market for video conferencing equipment that we're taking advantage of.

Our next question comes from Torsten Sauter with Kepler Cheuvreaux.

I guess, I didn't have a question actually. I mean -- sorry, I think there was a misunderstanding here because my question just.

I just see you anyway.

But yes, I'll go back to the queue, but I'll -- yes, sorry, I don't want to have it here.

No worries.

Our next question comes from Tim Long with Barclays.

Yes. Great. Maybe just to follow up on the B2B question. You covered the video conference side. Just curious, last quarter, you talked about just the overall B2B doing better than B2C, and it's a real focus for the company. So maybe you could just talk more broadly about that. And then second question, at the beginning of the call, you mentioned some new releases. Just curious kind of feedback there and how you think those will go into the portfolio, particularly on the gaming and the pointing device side?

Yes. Definitely. So maybe starting from B2B, yes, again, we continue to see a healthy B2B market also beyond video conferencing. And about half of our business in the B2B channel is video conferencing about half is personal workspace, but robust markets, good performance in the first quarter across -- and I'd say there's a number of trends. There is clearly the video conferencing trends that I just talked about, which is a lot of white space in terms of meeting rooms and a refresh now post COVID. But hybrid work, in general, is also good for the rest of our business. there's a real increase in people working from anywhere. Most companies have decided on some sort of hybrid arrangements. And so for some companies, it's 4 days a week in the office, some 3, something else. But the fact remains that versus pre-COVID, people are working more often in places that are not the office.

And that then makes companies want to make sure that their employees don't only have a great mouse or a great webcam in the office but also in the other places that they're working at. And then AI is another tailwind for our business portfolio, as I just mentioned. So B2B, we continue to be pretty bullish and we're going to continue to double down a lot of growth in the years ahead in B2B. In terms of the new products for the quarter, first of all, again, the super strike and the MX Master 4 are the gift that keep on giving. It's really rare that we see new products -- within a couple of quarters from launch, end up amongst our absolute top sellers.

And -- these 2 products are really big and are a huge hit. So that's great to see. And then we have our regular pace. We launched between 30 or 40 to 40 new products every year. In the past quarter, we highlighted in -- maybe I'll talk a little bit. There is the new Mobi mouse, which is a foldable mouse. I should have it here, so I can show you, but it's really a super cool product. It's the first time we launched something exclusively first on TikTok shop. And that was really successful, became the #1 seller in the overall electronics category on TikTok shop before we then expanded it to our full distribution off to a really promising start also a premium product that sells at $79. So we're excited about that. Then we launched the G 512x new gaming keyboard, that is a fabulous gaming keyboard that really has all the bells and whistles you can imagine, and that's off to a really strong start as well.

And then there was a couple of other fun things. The remote presenter for meetings, that had not been refreshed and got knows how many years -- a lot of years. But we've come out with a really slick new presenter which leverages the haptic feedback that you -- the technology, which is unique to us, and actually lets you breathe before your presentations. -- which is pretty cool.

And then finally, my personal favorite for the soccer frenzy this summer, and we had a special edition soccer keyboard and mouse pad, which are really, really cool. You can see it on the top of the shareholder letter, and that's sold out in 10 days.

Our next question comes from Maya Newman with Morgan Stanley.

Thank you. Maybe just to start, I think the biggest debate in the market right now is that risk associated with PC shipments declining by low double digits this year. If these projections from industry analysts are correct, mid-single-digit revenue growth for Logitech would imply like an attach per PC shipment growing over 20% this year and reaching over $14 of attach. That's versus like $10 to $11 for the past 5 years. What initiatives do you guys currently have in place that would drive such a material uplift in that attach per PC shipment? And then I have a follow-up.

Yes. Sure. Thanks, Maia. Good to see you. Obviously, we're well aware of the debate and PC units, in fact, in Q1 were down about 5% in the quarter. yet our categories and our business were tracking very well. The MICE market or pointing device market was actually up 5% globally. And Logitech pointing devices were up 14%. So I think that means that we continue to see that our growth is driven by the installed base not just new PC shipments. And in terms of initiatives, there's nothing new.

We will keep doing what we've always done, which is on the installed base, attaching to that because less than 50% of PC users, people already have a PC use a mouse and less than 30% use a keyboard. And we've had a great track record over the last decade to add about 1 percentage point to those numbers every year. So that's number one. Number two is, of course, driving share growth, which you've seen us do very effectively in the first quarter, and that's part of that growth algorithm. And the third one is ASP growth. Again, the super strike is $180. The MX Master 4 is $130. Some of our other new innovation is also premium. That is very important in order to deliver the growth in peripherals. And again, this is all about the attached base. It is not about the number of new PCs sold.

Got it. And then maybe just on video conferencing. Could you give us a bit more detail on what's driving that strength and how sustainable it is. So how much of that is pricing actions versus refresh opportunity. And then as you think about kind of the impact of the significant inflation we're seeing across the tech portfolio, is videoconferencing at risk of seeing a delayed refresh or elongated replacement cycles going forward? Or I guess, what are you hearing currently from customers?

Yes. So the market, again, in video conferencing is growing very robustly, and that's driven by new offices. A lot of companies, both Fortune 500 companies, but also smaller companies updating their workspaces their new ways of working. So new offices is one. low category penetration. Again, I've talked about it many times, less than 25% of global meeting rooms VC enabled in the age of AI, you need video conferencing in every meeting room, then a COVID era refresh. So this is a really good neighborhood. I think for many years to come. These are not one-off quarterly events. -- these are long-term trends that we believe will continue to be there.

Now in the quarter, we also took pricing to reflect the increased cost of memory. So we took 13% in May. You don't see the effect of that yet because, again, we honor previous prices of deals that are in progress, but you'll start seeing it from the next quarter. But the 9% that you saw in Q1 did not have a pricing benefit yet in it that was material.

Maybe just to add, the -- so B2B, we said some time -- a few times, tends to be lumpy, but we have been growing video conferencing pretty nicely now for a few quarters. And you alluded a little bit in memory supply. I think Sri and the team continue to do a fantastic job in securing memory components for video conferencing. At this point, we are pretty much secured throughout the full fiscal year 2027. And obviously, if -- as we just did, to mitigate the impact of the cost increase, we just raised prices, as Hannake just mentioned. So we're pretty pleased on where the VC team is right now.

Our next question comes from Lucas Glemser with Berenberg.

I've just got 2 questions. So starting with the pointing devices, which had a very strong quarter. What drove the acceleration of growth here versus Q4? Is it essentially still all from the MX Master 4? Is it from something else? And then also looking forward over the next few quarters, how sustainable is that or is double-digit growth over the next few quarters? And then the second question is, could you talk a little bit about the partnership with Core Duty as well as some of the others that you mentioned. What are the economics here? And what is the goal here in terms of how you expect that could translate into numbers?

Great. Thank you. Yes, indeed pointing devices, again, a very good quarter, market growth of 5% globally, and we grew 14% globally. So that's very healthy. The growth is driven by premium innovation as well as marketing. So premium innovation, the mixmaster for just continues to go from strength to strength.

And then we added the Mobi that I just talked about, which is another premium product foldable, our first foldable mouse, and that's done very well. marketing is supporting both those new products as well as our existing product range. And I'm super excited by what the personal workspace team is doing. We're really stepping up on social media and social commerce. I talked about the TikTok shop, our first ever launch that was exclusive on TikTok shop, which went very, very well. And we're really stepping up on our roster of creators.

So we now have more than 400 creators on the global roster for personal workspace. And we're creating better content and content that really converts. So -- these are not 1 quarter pieces. We'll continue to innovate. We'll continue to elevate our marketing quality and quantity. So that's on mice. Partnerships are another important part of our business, both -- really across all 3 business groups. But since you specifically refer to gaming, there's some really exciting partnerships there.

NASCAR is one, obviously, U.S. Specific we had some great events at the San Diego NASCAR race in the quarter. McLaren is a fantastic global partnership, which, of course, makes a lot of sense. We are a long-term partner of McLaren -- their drivers practice with our simulation gear at their facility in England. We develop products together. That is a wonderful, wonderful long-term partnership.

And then, of course, in games. So Call of Duty Modern Warfare 4. We have a partnership with them as well. And I think what you'll see from us increasingly is working to make sure that we work with game developers to elevate the experience of a new game when it comes out. So that, for example, in driving games with our TrueForce technology, which is unique to us, you really feel it when you get into the new Fort game or another new driving game. You feel those turns, you feel the skids, you feel it all.

And you can think of other ways in which we offer immersion through our products in new games that you wouldn't have with someone else's products. So that's what those collaborations with games are about, and we're excited about the new Call of Duty and other things in the pipeline.

Our next question comes from Torsten Sauter with Kepler Cheuvreux.

Yes. Second, Try, I actually do have a follow-up question, but a little less share shop now. Can I get back quickly on this supplier situation? Are you aware if the specific supplier of yours that has run into problems is also serving some of your friendly competitors in gaming and and maybe more generally speaking, can you remind me of your supply chain strategy after the implementation of this China plus 5 strategy, getting tighter? Or are you able to implement your sourcing everywhere?

I'm not going to comment on the competitive piece because that's competitively sensitive information. So unfortunately, I can't do that. In terms of China plus 5, that is a little different from this incident. So this incident is at a component supplier. Not at 1 of our China plus 5 manufacturing partners. So we manufacture in China, and we manufacture in 5 other places. Our components come from all over the world. So this is -- and there's hundreds of them, not just 6. So this is at a component supplier, not at 1 of our own manufacturing sites or contract manufacturing partners.

Just to maybe read a couple of comments that were made earlier. The -- obviously, we do have multiple sources for this type of critical components, right? We really consider this as a way a rare and unique incident because it happened obviously at an unfortunate time. If you look at all the supply ecosystem around this type of semiconductor components, the ecosystem is very tight. So obviously, we are working on a multitude of mitigating plants, which includes, obviously, parallel paths and includes also working with our diversified supply base. But we have obviously a diversified supply base for this type of components.

Our final question comes from Martin Jungfleisch with BNP Paribas.

Yes. Just 2 quick ones. First 1 was really on gaming. Gaming was really strong. And is that sort of growth that you're seeing now kind of steady state and sustainable. And then with GTA 6 now being released in November for the console, -- would you already expect some increase in demand growth, maybe even potentially towards the double digits also as resellers and distributors are stocking up on tools, that's the first question.

Yes. Yes, you're absolutely right, Martin. It's good to see you. But you're absolutely right. In gaming, the markets were strong, and we outperformed the market globally accelerated to high single-digit growth, but that's faster than in previous quarters. And that is before the launch of GTA 6.

So we see a good trend in terms of market growth. And in the markets, we're really pleased to see the U.S. back to mid-single-digit growth, which is also a pretty significant acceleration from where that market had been. So that's all great to see.

And then what we were obviously even more pleased with is that we outperformed that market with 9% net sales growth, really driven by our premium innovation, the super strike, first and foremost, but also that new gaming keyboard, the G512X. The growth, again, the North America market was a piece of news, but our growth was super broad-based. Again, demand North America, double-digit EU, high single digit, China double digit. So again, a good neighborhood driven by premium innovation on our side. And we think there is much more of that great momentum to come in the quarters ahead.

That's great. And then just a follow-up on the Middle East. I think you mentioned or you expected 150 bps in the quarter? I think you said you had 400 bps now in Europe, which I think is probably equivalent to the 150 for the group. I'm not sure if you mentioned it, but what is the expectation for the calendar Q3 on Middle East?

So yes, Mari, your math is correct. So it was 400 basis points for the EMEA region, which translated to about 100 basis points for the company. We are -- right now, our assumption is that in the second quarter, the impact will be very similar.

This concludes the Q&A portion of the call. Back to you, Hannake.

Thank you, guys. Thanks for being here. I wish you a great rest of the summer, and we'll see you next quarter.

Hey, everyone. Thank you for joining us today. For our last session, we have the CEO of Logitech, Hanneke Faber. Thank you, Hanneke, for joining us today. I appreciate your time.

With pleasure.

So maybe I want to start with a more open-ended question. You're entering your third year as the CEO. Maybe can I ask you to reflect back on your prior 2 years. Specifically, what has taken you the most surprised or taken you by the most surprise at the helm? And how is that kind of shaping your strategic vision going forward, particularly just given kind of the geopolitical environment, AI, et cetera?

Yes. There's a lot of questions in one. I would say, overall, my top line would be, I feel proud of what the team has accomplished in the last 2 years. But I'm also feel a great sense of urgency about what we now need to do. So proud because when I came in 2.5 years ago, the business was declining. China was in a really poor shape for us. Now when I look at the results we just delivered for our fiscal, we've had 8 quarters of growth. We have had fantastic earnings expansion, operating income margins at 18.8%, well above our long-term model last year, great balance sheet.

China is our star. So our execution has been very, very strong. So I'm proud of that. But at the same time, I feel a huge sense of urgency because AI is changing the way people work and play and that provides fantastic opportunities for us going forward. So we will lean in on top line growth going forward while continuing to execute really well, having the cost discipline you know us for, but there's more room for growth at Logitech.

So maybe that's a good transition plan because the next question I was going to ask you is about you exited or you -- on the last earnings call, you talked about upping the tempo on offense in fiscal '27. So maybe just talk to investors, why is this the right time? And just relative to the areas you outlined, should investors view this as a trade-off between top line growth and margins? Or is that an oversimplification?

Yes. I think it's a little bit of an oversimplification. But why is this the right time? We can invest and we should invest at this time. So we can because our financial foundation is in excellent shape. So we have the firepower. Our margins are -- both gross margins and op income margins are at record levels. Our balance sheet is super clean, $1.7 billion in cash, no debt. So we can invest. We start from a position of strength. And we should invest because of all of the opportunities that AI provides for us, both in existing categories that we can make them smarter and more superior and in new categories and spaces. So hence, we've said we'll lean in on investing in 3 areas. One is R&D innovation. Two is B2B sales. We're doubling down on B2B and the investments in additional sales capabilities there are providing good ROI.

And finally, in marketing, which has traditionally been low at Logitech, but where we're also seeing great ROIs. So those are the 3 areas. Now we'll invest, but we'll also apply our cost discipline that you know us for. You've seen OpEx leverage last year, 170 basis points from just being disciplined, especially in G&A, helped by AI application internally. We'll continue to do that. And with all of that combined, I think I'm comfortable that our margins will remain at the high end of our long-term model of 15% to 18%.

No, got it. And maybe one of those proof points recently in terms of product investments was the success with the MX Master 4. So maybe from your advantage, what drove this product to become one of the fastest adopting across Logitech's history? And then like how replicable is that formula going forward?

Yes, I don't see enough of them. I'm just looking at people.

I [ have mine ] upstairs.

Do you? Okay, thank you. But if you're in finance, and you're not using an MX Master 4, you're not as productive as you could be. Anyway, a really great, great product. It launched last October. We've already had revenues of more than $100 million of just that single mouse. And that's actually our fastest adoption of any new product we've ever done at Logitech. It's also helped us grow 140 basis points of market share worldwide in those 9 months. And it's really delighting finance people and tech pros like yourselves. So that's great. So your question, though, is there a formula? I think the formula is one, really designed for a specific audience. This is designed for what we call advanced users, but these are finance people, software engineers, designers, architects, people are in Excel or in complicated programs all day. That's one.

The second is superior benefits and features that people can see and feel and touch. So you really are 30% faster, more accurate, more productive when you use the MX Master 4. And you can feel it with unique haptic feedback with the action ring where you can put shortcuts. So users love that. And then finally, the third area is marketing, again, high ROI marketing in a very targeted way to those users has really helped that launch. And I think those elements specific target group, superior benefits and features and targeted marketing apply across more of our range. So we see that on the Pro gaming line. We see that on our SIM racing line. We see it on our ergonomic line. So yes, definitely a reapplicable model. I don't promise everything will be $100 million after 9 months, but the model itself definitely is replicable.

So maybe I can take one of the comments you made there in terms of going after a more targeted audience across the portfolio and combine that with, I think, even recently with the PRO X SUPERSTRIKE series, you talked about a faster innovation cadence there, bringing it to market much faster. How should we combine those 2 in terms of your ability to maybe accelerate the annual product introduction cadence each year? I think you mentioned on the last call, like 35, 40 products per year. Like should we expect that increases? And then how do you juggle that if you're targeting more individual market segments?

Yes. I think 35 to 40 products a year is about right. In addition to that, by the way, there's 5 to 10 that are China-for-China. So that already adds a bit more. I think that's about right. I don't think it's that we would want more quantity. I think what we try to do is make each of those individual innovations bigger. And again, in the age of AI, that's possible. We can also bring them to market faster. And that's what we saw in the SUPERSTRIKE, which is another -- that's our latest gaming mouse, huge success. That came -- went from prototype to launch in 10 months, which in hardware unheard of, but was really enabled by AI.

No, got it. And you mentioned the China-for-China innovation strategy, which you've obviously seen success and it's showing in the quarterly results. But you've also mentioned that some of these products are now transferring over to the global market. Maybe can you help investors view if this is more of a structural R&D advantage? Or is there a bit of a headache in the sense that how are you maintaining kind of this organizational complexity of maintaining both a global product as well as China-for-China that's also now seeping into the global product?

Yes. I absolutely believe it's a structural advantage to do China-for-China for 2 reasons. One, obviously, China is the biggest gaming market in the world. Winning in China is really important for us. And if it stopped there, it would already pay out, and it has. But second, China is also the most sophisticated gaming market in the world. So what we learn there can be reapplied. And the things that work there, my other countries are like, "Oh, I want it too." So we had a fabulous China-for-China mechanical customizable keyboard called the Alto Keys. We launched it in the U.S. last fall, too, and it's working very well. So that's kind of a bonus to this China-for-China approach that the things we launch and that we learn there can then be reapplied in the West because that market is so sophisticated, so competitive and so large things that work there often can work in other places, too.

Got it. And then maybe just over the past couple of months, you've been teasing innovation into new spaces and categories as well as products designed to help customers be more productive, particularly leveraging AI. Can you elaborate any further on this? And if not, perhaps maybe help us understand how you're thinking about the quality of innovation Logitech can bring to markets and TAM implications of that?

Yes, yes. Yes. So maybe I step back on this innovation in the age of AI, what does it mean for us? What are we going to bring to market? Logitech is 45 years old this year. It's kind of old for a tech company. But the one thing that's been consistent since the start is we connect humans and technology. So we started with the technology was the very first PCs, these clunky things. And we connected the human to that with the very first mice, which also were quite clunky. And then over the years, new tech came, laptops came, tablets came, mobile phones. And we've continued to connect with all kinds of new products, new mice, but keyboards, headsets, speakers, gaming peripherals, cameras, webcams, video conference.

So you name it, we always connect the human and the technology. Now today, the technology is AI, and there are so many exciting ways that we can connect to that. We're looking at that strategically in 2 ways. One is make our existing product categories smarter. So one example would be the new Rally AI video conferencing cameras. Those are so much smarter than anything you've ever seen in terms of a video conferencing camera. They work in small rooms, large rooms, and they really produce your meeting like Steven Spielberg is in the back producing our meeting, smart switching, smart framing, digital cocoons, summarizing your meeting, you name it. So that's one way that we create superior products in categories that we're already in, and we believe that will accelerate growth.

Second is new ways to connect the human and the tech. And I'll give you -- again, we're working on lots of new things with lots of big partners, but maybe 2 things that are already out there that are completely new. One is the Spot AI sensor. It's a sensor, you just stick it on the wall of a meeting room or on a table. And it sees occupancy. So it helps CIOs and workplace services managers optimize their meeting room space, but it also takes in temperature and CO2 in the room and optimizes the environment of rooms. So it's a smart sensor to optimize all your meeting spaces. A second new form factor is the stylus that we've launched because gesture is another new modality that's going to be big in the age of AI. Stylus for the Google, for the Meta Quest headset and for the Apple Vision Pro, and you can imagine there's going to be other form factors where Stylus will be important.

So these are just 2 examples. More is coming. Voice is obviously a really important modality that we're working on and that's exciting and that will come. So between our existing categories and new form factors, just a lot of growth to be had in the years ahead.

No. Great. And I wanted to hit on one of the products you just mentioned. So the Rally AI video conferencing camera, I believe it's supposed to ship this summer. Maybe you can talk to us about how you're thinking about the opportunity as it relates to replacement versus refresh of -- or sorry, replacement or refresh of the existing installed base versus greenfield expansion, just given kind of all the capabilities you just talked about, which do you expect to be kind of the bigger growth driver for the product?

Yes. Both are big growth macro -- both are big macro growth drivers. Maybe one is more immediate, one is a bit more -- will take more time. So the immediate one is the video conferencing refresh. So every company on the planet during COVID put in video conferencing. Those things last 6 to 7 years. So we're in the early innings of a VC refresh. As a market leader, we have a lot of rooms to refresh ourselves, but we also know who has competitive rooms, and we're obviously looking at those as well. That's hundreds of thousands of meeting rooms that are needing to be refreshed in the 1 to 3 years ahead.

Second, only less than 25% of meeting rooms globally is video conference-enabled at all, which is hard to believe in this day and age. And again, especially with AI, AI needs video inputs and audio inputs. It's not just text. So there's a huge opportunity over the next decade to enable many more meeting rooms in offices, in education rooms, in hospital rooms with video conferencing. So those 2 things combined, the refresh of what's already there and equipping new rooms gives us a lot of confidence that video conferencing will be a great space for us going forward.

And so maybe as a natural follow-up to that, can you discuss the services attached opportunity as you think about all this opportunity ahead of yourself, like, where are you seeing and building that opportunity? And how much of this can be actually recurring? And how material could this be over the next 3 to 5 years?

Yes. Yes. So it's relatively small because we -- again, we weren't really a B2B company. So we weren't charging for services until a couple of years ago, which, of course, everyone else is. So we are now -- it's a fast-growing business for us. And it's really a win-win. It's great margins for us. It's growing fast. Both the attach and the revenue are growing double digits, but it also drives much better NPS for our customers. Our customers really have much higher satisfaction when they use our services. So it's a nice part of the business. We don't break it out. I wouldn't say it's material yet, but it's growing fast. So it adds some nice revenue and gross margin.

And maybe for those who are not familiar, like what services are you actually providing?

So you guys all know it. You go into a meeting room and the thing doesn't work. So instead of calling your local IT guy, you call us basically, and we help you fix it. And it allows IT managers of big companies to manage thousands of meeting rooms basically by one guy.

Got it. And then maybe just as another follow-up there about taking a step back, can you remind us where B2B mix stands today? And given the current pace of the B2B outperformance, what's a realistic time line for you to reach your target of 50%? And what do you see as the biggest bottlenecks there?

Yes. I don't really manage this as a target because -- well, first of all, so our business historically has been more B2C. That's where we come from. B2B is a big opportunity. It's about 40% of our business now, but we're doubling down on it and it has been outgrowing B2C. But I don't really say 50% is a target because I could get there by just tanking B2C, which obviously we don't want to do. So we like it when B2B outgrows B2C, which it did last fiscal, high single-digit demand growth on B2B, a little bit lower on B2C and that got us 6% dollar growth.

So I don't know. I don't set a time for when it has to be 50%. But if we continue in this direction, we'll get closer to 50% of our business being in B2B. And the way to do that is continuing to invest, obviously, in great products in video collaboration, but also in all the other things, businesses need mice, keyboards, headsets, microphones, you name it. And then in go-to-market skills and things as simple as salespeople, which we didn't have a lot of, but that we're adding quarter-on-quarter. We're measuring very tightly on whether those are paying out and adding more when they do or taking away when they do.

So maybe let me try to ask the question in a different way. When we think about, for example, the investments that you're making in B2B, whether that's sales force, you talked about the product introduction. Like is there any way to kind of extrapolate what's B2B today in terms of those investments in sales count versus or even product introductions on an annual basis relative to what they were historically and show -- is that mix shift actually much greater than where the revenue mix is today? Or is it still more biased towards B2C?

No. I'd say the investments -- so on the R&D and the product side, with the exception of video conferencing, which really is only a B2B business, but it's less than 20% of our total business. The 80% of the R&D investment goes across, which is great. It really has scale. We sell similar products in B2B and B2C, and that scale is an advantage. When it goes to go-to-market, 2 areas that we're leaning in on investment in. One is B2B sales capabilities, which is people but also systems. And the other one is brand-building and marketing, which benefits the entire business. So yes, a little bit more on the B2B side, if you add it all up, but the vast majority of the investments benefits us all.

Got it. Makes sense. Maybe kind of switching gears a little bit, but LogiQ platform. You announced that recently, Logitech was essentially customer 0. Maybe one, can you just provide a brief description of what that is for the audience in case they don't know what it is? And then maybe just help us understand what's the competitive mode of this platform and how you're thinking about initial productivity gains internally and how that can extrapolate going to customers.

Yes. So this isn't really -- LogiQ is not meant to go outside. So that's really our internal platform to leverage AI with. So it's a platform that connects all our 45 years of knowledge, data, documents, insights, all our proprietary stuff with all the LLMs so that people can use the LLMs in a secure space and accelerate. So 80% of our employees use it regularly. With regularly, we mean daily. So it has very high uses. What do they use it for? Obviously, just access to data and new insights on that data, but also very much to build AI agents and assistance. So we've built more than 3,000 now agents and assistance in the last 18 months. And those -- I would say, some of those are huge home runs, massive productivity increases.

Most of those are in engineering, both software and hardware. Some of them are complete duds, and we're no longer using them, probably 1,000 of the 3,000, you know fine. We tried, we learned, no use. And then there's about 2,000 of them that are -- that give incremental benefits. But when you have 2,000 agents that give incremental productivity benefits, it starts adding up, and you see that in our OpEx as a percent of sales. So for last fiscal, we had 170 basis points improvement in productivity. And LogiQ and the AI ways of working are definitely contributing to that.

So maybe like as a follow-up there and taking it a step back from LogiQ. But as we think about -- and just curious to hear your thoughts, but I'm sure I can ask this without any CEO or CFO. But as we think about AI and driving productivity increases, how are you thinking about reinvesting those productivity increases versus them being as net savings from -- on the OpEx line or even on COGS, et cetera. So just curious how you're thinking about that? And is there a rule of thumb that you're thinking about as you start to see those savings and reinvesting some of them?

Yes. So my rule of thumb has been I think we are about the right size in terms of people. So the 7,000 people we employ is about right, but we have an opportunity to grow faster with those people. So that's -- and it doesn't mean those 7,000 exact people will stay in the company because you obviously have people going in and out and skills you need versus skills you may no longer need. But it's probably about right but we have an opportunity to accelerate sales growth. And that's what we said at AID, mid- to high single digits is what we've got to deliver every quarter in the midterm. So -- and I think we can do that without adding people, thanks to AI.

Got it. Interesting. So maybe just shifting gears to gaming. GTA 6. Maybe we should hold our breath -- maybe -- but maybe just taking a step back there, can you remind us of the typical behavior you'd expect around a title release of this magnitude? And specifically, how do you think about the duration and breadth of potential gaming peripheral upgrade cycles associated with it?

Yes. It's been a long time since there was such a blockbuster. I think Fortnite in 2017 might have been the last time. So it's a little hard to say what's typical but there's definitely excitement about that. Now for Logitech, our business does not depend on one game or another. I mean at a SUPERSTRIKE Pro. So we launched in February is a massive success unrelated to any new game. So we don't have that in our forecast, but what I will say is there will be excitement in the gaming market. So GTA 6 is supposed to launch now in November for console with PC following sometime in the calendar year after.

When I talk to gamers, which I do a lot, people are saying, I'm going to take a month off to play GTA 6. I even heard one guy say he's planning his paternity leave around GTA 6, which, I don't know, slightly questionable. But there will be excitement in the market around this launch and many other game publishers have been holding back releases because I don't want to overlap. So I think into next calendar year, there will be more exciting game releases and all of that should be good for the gaming market.

Got it. Let me just pause there and see if there's any questions in the room. I see one upfront. Just wait for the mic, please.

In B2B area, you -- I've heard you say a few things today. One is that -- I mean when you were talking about even just a mouse that has an ability to drive what I think you said a 20% or 30% productivity gain. And then you talked about services, and I know the video conferencing is a big play for you. Are you trying to become more than a product provider just inside of the B2B space and be more of a productivity play. And I'm trying to figure out what the laneway there is because the consumer business, unfortunately, is more of a product play, hey, we sell on retail spaces. Here, it seems like it's a different play and a different type of left brain, right brain, how you have to think about running the organization.

Yes. No, absolutely. Thanks for your question. So our mission, our stated mission as a company is to extend human potential in work and play. And what does that mean? That means making humans a bit more productive making humans to perform better, and that's mainly in gaming and connect better. So that's what we try to do across our business. And in B2B, certainly, productivity is top of mind for any buyer in a company. So we have some pretty precise claims around not just video conferencing and how you connect better, but also on our personal workspace products on how they truly drive productivity. Another thing that's on the mind of B2B buyers is people being out of work for different reasons, but sickness and discomfort are another thing that does happen to people at work.

So our ergonomic line is also very popular with businesses because it's proven that you have fewer sick days. If people are comfortable at work, especially these kind of RSI type issues. So that's how -- when we go to market with B2B, I'll give you one example. I was with a Canadian pension fund, a big customer, a couple of months ago. And we talked in depth with the CIO about her 2 like target employees in her company that she's buying for. The one is people like yourselves, her advanced users, her investors, or rainmakers, or the pension fund. And she's like "They can have everything they want." So we had a big MX sale there.

And then she had her customer service reps who sit on the phone talking to retired teachers in Winnipeg for 3 hours at a time, and who need comfort. So a big sale of ergonomic headsets and ergonomic mice and keyboards. So we really -- again, a bit like your question earlier, we really try to go deep on the audiences and then the benefits for both the user and what we call the chooser.

And last year, you and I actually talked about this in the side about ambient computing. And it sounds like -- is that a play that's going to take off, do you think, with artificial intelligence and your use of software and your knowledge of connectivity?

Probably. Yes. And we'll stay really close to it. We want to attach to whatever takes off.

The question is, is can you monetize that? Or is it something that's going to become a table stakes play because you see a lot of people just talking to ChatGPT or talking to Claude now and I'm just trying to figure out, can you actually monetize that?

Yes. So voice definitely is a modality that's on the rise. So -- and I -- we love additional modalities at Logitech. Software engineers and coders are on the cutting edge of that, and we see it in our own business. Some of my coders are just talking to their Mini Mac all day rather than using their keyboard. Now when you're talking all day, you still need hardware. So what are they using? Headsets, microphones, even gaming pedals for fast input through their multiple agents. Now who's the leader in headsets, in microphones, in gaming pedals, it also happens to be us. So I think we're really well positioned for a future with voice. And I think it will be additive to the other inputs for the rest of us. So again, this comes back to this is an exciting time where there's just more opportunities than ever before for us to grow.

Actually, let me just check. Any other questions in the room? No, I don't see anything. So maybe just piggybacking off of that question. Last summer, you hired a new Head of M&A. This year, you're coming into the year with a very healthy balance sheet. I guess first part of that question is help us think through how you're evaluating potential targets? And then maybe second part of that, has there been any shift in strategy there, just given the new Head that was brought in?

Yes. So indeed, $1.7 billion in cash. We have the firepower, and no debt. We have the firepower to do M&A. We brought in a new Head of M&A. We have slightly broadened the space in line with our strategy. So doubling down on B2B and within that, the verticals of health care, education and government, has given us a little bit of a broader pool to look for M&A targets. The long list now is longer than it's ever been. I also -- I said this earlier, but I've kissed a lot of frogs in the last year, but no prince yet. Again, when the right thing comes along, we won't hesitate to act on it, but it has to make the boat go faster, and we have so many organic growth opportunities that acquiring something that is so, so just doesn't interest me very much.

And is there like a particular focus between hardware and software there just because you were just talking about voice being a new modality. Is there an investment that you need to make on the hardware side to essentially enable these new modalities that are popping up in the world of AI? Or is it really more of a focus on the software side? Because obviously, I can bring up examples around that as well.

Yes, yes. Ideally, we acquire in the space that we're good at, which we describe as design-led software-enabled hardware. That's what we're really good at. Pure software is not something that we have a great track record of unless it goes into some of our hardware. So ideally, targets would be software-enabled hardware rather than just software.

Okay. That makes sense. And maybe just wanted to switch gears here. One of the key pillars that you brought up on the earnings call was an iconic brand, which is a little bit abstract for us as investors, right? So maybe can you just talk to what are key areas of investments that are needed to make -- to be made to achieve that? And then I have a follow-up.

Yes. No, absolutely. And I -- yes, a great brand is a moat. And honestly, we've seen that in China, where our business was soft, soft, soft in the years before I got here and kept getting softer, but it didn't disappear, thank God, because we were the #1 brand, and that protected us even though for a while, we did not have the innovation, we did not have the go-to-market that we should have had. And we've turned that around, but it's kind of an example of how the brand provided a moat and some protection. If you go -- so our brand is really good with good awareness. We've got good attributes. People like our quality, they trust us, and that's true around the world, which is good. Do they really love us? I would say, an iconic brand is really loved. Not quite yet.

Gamers, there's gamers who really love us. I've never been as popular with 15-year-old boys as I have since I took this job. But across the business, we have more work to do. How do we do that? That starts from superior innovation, which we talked about. That's the foundation of any great brand. And then second, a really well-rounded marketing plan, which for us, there's 4 things we do in marketing, and we know they all have great ROI. First one is look like a leader in store and online. If you go into Best Buy, you see that we're the leader. It's really a great presence. And the same should be true on Amazon.

Second, search, you got to be visible online, and that's both traditional search and what's now called AEO, which is visibility in the large language models. Third, social. And again, China leads the way in social media. We work with thousands of influencers there. We've got hundreds of thousands of pieces of content there out. And then finally, in real life events, and those are unique events like Logi PLAY and Logi WORK, where we bring people together in real life gamers where we launch innovation, where we create fantastic live streams to millions and millions of users. So those are the 4 things, look like a leader in store search, social and in real-life events. And we then really measure the effectiveness of that. And we do that, obviously, through market share, but also through brand heat, which is measured through share of search. And finally, through marketing ROAS. And I'm happy to say all 3 of those are on the up and up behind these marketing plans.

So maybe in the last couple or last 40 seconds here, as us investors, how do we know that you've achieved it? Like what does an iconic brand look like to you 2 or 3 years down the line and should be a milestone that investors are looking for?

Yes. I don't think there's going to be 1 day where we say now we are iconic. Sorry. It's a matter of just getting better every day. But you know an iconic brand when you see it. You know that Apple or Nike or Chanel is iconic. And again, maybe with gamers, we're really getting there. If any of you has 15-year-old boys, ask them about Logitech, tell them you saw the CEO today, they're going to be excited, which is funny. But in the rest of the business, we've got a little bit of a ways to go. But the way we measure that is really getting better every day on those key metrics.

Got it. I think we're out of time. Thank you, Hanneke. Thank you, investors.

Thank you. Appreciate it.

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for this quarter and fiscal year-end. Joining us today are Hanneke Faber, our CEO; and Matteo Anversa, our CFO.

During this call, we will 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're making these statements based on our views only as of today. Our actual results could differ materially. We undertake no obligation to update or revise any of these statements.

We will also discuss non-GAAP financial results, and you can find a reconciliation between GAAP and non-GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward-looking statements in our press release and in our filings with the SEC.

These materials as well as the shareholder letter and a webcast of this call are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, references to net sales growth are in constant currency and comparisons between periods are year-over-year. This call is being recorded and will be available for a replay on our website.

I'll now turn the call over to Hanneke.

Thank you, Nate, and welcome, everyone. It's great to be here in Switzerland in Lausanne tonight. As I reflect on my second full year as Logitech's CEO, I'm grateful for the progress we've made and also energized by the opportunities still ahead. Fiscal year '26 proved what our model is capable of in any environment, successful innovation, best-in-class execution and real earnings expansion.

Before we look ahead, let's review our fiscal year '26 and our Q4 performance. As we do so, it's worth returning to the operating principles we declared last April. At the start of our fiscal, we faced a rapidly shifting global landscape. At the time, we set out to lean into opportunities with an offensive mindset to apply rigorous cost discipline and to leverage our global manufacturing footprint for real-time agility.

I'm pleased to share that we delivered on all 3 of those objectives last year. First and foremost, we played offense. As a result, we captured significant new market share in key segments and geographies, and we delivered 6% net sales growth in U.S. dollars and 4% in constant currency through a balanced mix of volume and price. Simultaneously, we kept a very firm hand on cost and operating expenses, and we strategically diversified our global manufacturing base.

And as a result of that, we delivered exceptional profitability with non-GAAP gross margins of 43.6% and an operating margin of 18.8%, ahead of our long-term model and a record high outside of the COVID years. Operating income grew 18% to $911 million. We then translated this structural profitability into outstanding cash generation. Cash flow from operations exceeded $1 billion for the fiscal year, well above 100% of operating income. And we were pleased to be able to return $768 million of cash back to shareholders in the form of share repurchases and dividends.

Looking back at just the fourth quarter, we closed out the fiscal year strong. In Q4, we again drove significant global market share growth with a 140 basis point increase in personal workspace, a highlight. We returned the Americas to solid growth, led by the United States. We accelerated global gaming to high single-digit growth, and we delivered superb margins and a 25% increase in non-GAAP operating income versus last year. I am proud of our teams for balancing bold action with deep operational rigor in fiscal year '26.

Now as we transition into fiscal '27, we're amplifying our focus on future growth. We can do so because we are starting the year from a position of outstanding financial strength. And we should do so because the rapid advancements in AI will make the next 12 to 18 months a unique period for a technology company like ours to innovate and invest for a future in which both work and play will look very different. Thus, in the year ahead, we will up the tempo on the offense.

With structurally strong gross margins and a pristine balance sheet, we'll invest in the business to accelerate future growth. At the same time, we will continue to apply our signature cost discipline and agility with a focus on maintaining operating margins at the high end of our long-term targets and driving healthy operating cash flow.

Our investments will be focused on 3 strategic areas of growth. First, R&D and product innovation. We will leverage AI as a catalyst for innovation. We'll do so by enhancing superiority in existing categories and our new Rally AI video conferencing cameras, which are shipping this summer, are a great example. We will also innovate into new spaces with products designed to help people be more productive and perform better with AI across work and play. And we'll leverage AI for speed. AI is already helping us deliver our annual suite of new products faster than ever. The PRO X SUPERSTRIKE gaming mouse, which shipped in February and went from prototype to a hugely successful launch in under a year is a great example.

Second, we'll invest in Logitech for Business. We're deepening our presence in B2B markets by building enterprise-grade commercial capabilities and penetrating new verticals, prioritizing education, government and health care. We are in the early innings of this plan, but the investments are working. In fiscal year '26, B2B demand outpaced B2C demand and video collaboration net sales were up 10% in U.S. dollars and 8% in constant currency. We believe Logitech for Business still holds significant untapped potential.

And third, we'll invest in building an iconic brand. We will use proven high ROAS marketing to generate more trial and awareness of Logitech, especially of our premium offerings. The high-end MX Master 4, which was supported by strong global marketing campaigns in fiscal '26 is a great example. At $120 price tag, it generated nearly $100 million in net sales within its first 6 months, making it one of the fastest adopted products in Logitech's history.

All in all, these targeted investments are designed to capture market share, expand addressable markets and support organic top line growth. I'm super excited about the plans for the year ahead. We believe fiscal '27 will keep us tracking towards our long-term model of mid- to high single-digit organic top line growth while maintaining operating margins at the high end of that model.

Let me close by extending my sincere gratitude to the Logitech team around the world for their dedication and their fabulous work throughout fiscal '26. And with that, over to Matteo to cover the financials in more detail.

Thank you, Hanneke. Thank you all for joining us on the call today. The team delivered a very strong close to the year, characterized by solid demand, exceptional profitability and cash generation. The detailed financial results can be found in the press release and shareholder letter, but let me briefly share with you some of the key financial highlights.

So starting with the fourth quarter, net sales were $1.086 billion, an increase of 7% in U.S. dollars and 3% in constant currency. It is important to note that the impact of the war in the Middle East in the fourth quarter was approximately $5 million or 50 basis points. Overall, we saw excellent demand across both our B2B and B2C channels and across all regions.

Looking at our net sales performance in constant currency, we grew across most of our key product categories. Gaming net sales increased by 7% with year-over-year growth in all 3 regions, including double-digit growth in EMEA and in Asia Pacific. Video Collaboration net sales increased by 8%, driven by continued strong growth in EMEA and AMR. And Personal Workspace net sales increased by 1% with double-digit growth in Tablet Accessories and mid-single-digit growth in Pointing Devices.

Moving to our regional performance. In the Americas, net sales increased 3%. This represents the second consecutive quarter of year-over-year growth following the price increase that we implemented last April. Growth was broad-based across all our product categories, most notably Video Collaboration, which grew double digits. In Asia Pacific, net sales increased 8%, marking our ninth consecutive quarter of solid year-over-year growth, driven by double-digit growth in Gaming and Personal Workspace. Net sales declined 1% in EMEA, primarily due to the impact of the Middle East conflict. And if we exclude this impact, net sales would have been slightly positive. And it is also important to note that EMEA still delivered solid growth for the full fiscal year despite an uneven macroeconomic backdrop, underscoring the strong and resilient execution of our teams.

Now turning to profitability. Our non-GAAP gross margin rate was exceptionally strong at 44.8%, up 130 basis points year-over-year. The positive impact of the U.S. price actions and favorable foreign exchange more than offset the impact of tariffs and higher promotions. Total non-GAAP operating expenses for the quarter were $320 million, corresponding to 29.5% of net sales, down 80 basis points year-over-year. We invested in sales and marketing and R&D, while reducing G&A by more than 10% year-over-year. This gross margin resilience, combined with our disciplined cost management drove an outstanding operating leverage. And as a result, fourth quarter non-GAAP operating income reached $167 million, up 25% year-over-year with our non-GAAP operating margin rate expanding 210 basis points to 15.3%.

Now let me briefly touch on the full fiscal year '26, where we delivered $4.8 billion in net sales, an increase of 6% year-over-year or 4% in constant currency. Non-GAAP gross margin rate closed at 43.6%, slightly higher year-over-year as the impact of our manufacturing diversification actions, combined with the price increase in the U.S. more than offset the negative impact of tariffs. Total non-GAAP operating expenses as a percentage of revenue were 24.8%, down 170 basis points compared to the prior year, primarily driven by disciplined spending underscored by a 10% reduction in G&A. This resulted in an 18% year-over-year increase in our full year non-GAAP operating income to $911 million, and an increase in non-GAAP operating income rate of 180 basis points to 18.8%. This is the highest level of profitability in the history of the company outside of the COVID peak.

The profitability level achieved is also well ahead of the top end of our long-term margin target range of 15% to 18%. Our structural profitability continues to translate in very strong cash generation, coming in above 100% of our operating income. Cash flow from operations exceeded $1 billion in fiscal year 2026, and we ended the year with a cash balance of approximately $1.7 billion, while returning over $765 million of cash back to shareholders in the form of share repurchases and dividends.

Now looking ahead to the first quarter of fiscal year '27, we have provided our financial outlook in today's shareholder letter, which calls for continued top line growth and strong operating income. We are expecting net sales to grow 2% to 4% in constant currency, and this amount includes approximately 150 basis points of negative impact from the Middle East conflict. Non-GAAP operating income is expected to be between $195 million and $215 million. Our recent results confirm that we are a company for all seasons. We successfully navigated a dynamic environment last year to deliver high-quality earnings and cash flow, and we enter next year with a foundational strength to do it again.

Once again, I would like to thank our teams for an exceptional fiscal year 2026. And with that, let's turn it to Q&A.

[Operator Instructions] Our first question will come from Alicia Reese with Wedbush.

Congrats on the results today. I'm wondering if you could dig into Gaming a little bit. The results from China for China have been strong for some time now, and I assume that, that's a positive margin profile relative to the other regions. As that strength shifts back to the U.S. domestically over the coming year, presumably, how will that impact? And to what degree, whether you say quantitatively or qualitatively, how do you expect that to impact gross margin over the coming year?

I think the impact on the gross margin will actually be quite minimal because the difference in the Chinese versus the U.S. margins are not material. What's been driving -- and thanks for asking about Gaming because we're -- I'm super excited actually about the results in Gaming in the last quarter, much stronger end to the fiscal year is where we went in 7% up in Q4. And you'll remember in Q3, we were only at plus 2%. So a real acceleration there.

And the interesting thing is the drivers are broad-based across the world. So the real driver was the SUPERSTRIKE, our latest new mouse, $180, really unique technology called HITS, Haptic Inductive Trigger System. This one is for competitive gamers. And you know this well, Alicia, because you know the space so well. But competitive gamers do not change their gear. It's like when you're going to run the Olympic Marathon, you're not going to change your shoes the day before the race. That's -- the same is true for competitive gamers. But with this mouse, almost immediately after we started shipping in February, it started being adopted in tournaments, and that then led to enormous demand from non-pro gamers as well. So that's been a big driver in the quarter. We're super excited about that. Honestly, we couldn't make enough of it. So that should be -- that momentum should continue.

And then separately, premium gaming in general has really been outperforming the rest of our business. So both PRO and SIM, the whole PRO range and the SIM range were up very comfortably in double digits. And again, that is true around the world. So those dynamics have not been specific to one region or another, but really good to see around the world.

Matteo?

I agree with the margin comment.

And as a follow-up, the SUPERSTRIKE, did that do well globally? Or were there certain regions that did particularly well with that?

No, no. Absolutely. So that has done well everywhere. And I think it's kudos to our team. It was developed with pro-gaming teams from every region. So with Korean teams, Japanese teams, Chinese teams, American teams, European teams. And after launch, again, it has really been a huge hit everywhere.

Great. And what products do you expect to lean into as you head into the new season with GTA this coming year?

Whenever that comes.

November, hopefully.

Yes. Certainly, we've got great momentum in Gaming on both the PRO line, not just on the SUPERSTRIKE, but across the entire PRO line, including keyboards and headsets. Also great momentum on SIM racing. And again, those happen to be the most premium parts of our portfolio. We also have great innovation coming actually in the new year on our 3 and 5 series, which are more affordable, which also, I think, is important so that we serve every piece of the gaming market. But if I -- the first penny goes to the premium side of the business.

Your next question will come from Jörn Iffert with UBS.

It's two, please, which are related to each other. The first one is just also for modeling purposes, your statement focus on growth makes a lot of sense. You're already above your midterm margin target. But what does it mean really? I mean, does it mean you're targeting the mid- to high single-digit organic growth for fiscal year '27 and margins, I mean, coming down 50 basis points to 100 basis points? This would be my first question.

And then the second question is related to this one. You said there's -- I mean, AI world is changing rapidly. You want to adjust. You want to invest. Where exactly you want to place your investments? What are you doing in R&D? What are you doing in marketing? What is different here versus the last 12 to 18 months?

Do you want to take the first?

Yes, I'll take the first one. So in terms of outlook for fiscal year '27, I would just -- I think if you look at what we outlined in the shareholder letter, I think on the back of the strong momentum that we had in the fourth quarter, we will continue to see growth in the first, and that's why we outlined the net sales growth in constant currency between 2% to 4%. I think making statements right now beyond the first quarter due to the visibility of -- in the current world conditions that we live in, I would say it's a bit premature, but we are happy with the growth, particularly back to Hanneke's point that we are seeing in Gaming, AMR actually clearly picking up the pace in the fourth quarter compared to the beginning of the year of fiscal year '26. So these are all positive.

In terms of profitability, the way I would kind of describe our thinking is the -- you will see that we will invest a bit more to Hanneke's point in sales and marketing and R&D. But overall, OpEx will remain within the framework that we have been talking now for quite some time of 24% to 26%. So no big change in that. You can count on us to continue to be meticulously careful in how we spend our money in G&A, but really invest more in R&D and sales and marketing compared to what we have done in fiscal year '26. But notwithstanding all of this, including these investments that Hanneke mentioned, we still feel very comfortable that we will be comfortably on the high end of the range of OI percentage that we provided at Investor Day.

Yes. Thanks. And thanks, Jörn, for hanging in there with us late at night here in Switzerland. So we feel your pain. AI, AI in product and AI in marketing, it's a great question. So in products, we are well beyond proof of concept and experiments when it comes to AI-enabled products. And we're shipping them globally. We're shipping them at scale. So examples, some have been in market for a while now, but very successful, the Sight video conferencing camera, the Zone 2 wireless headsets, devices like the Spot sensor for room management and then shipping this summer, which we're very excited about in video collaboration, the Rally AI camera, which is really another level of superiority in video conferencing. And then we're also innovating into new spaces, new categories that don't exist yet today. And I can tell you, but I'd have to kill you, but it's exciting what's going on.

The last thing I'll say on product is, of course, we make software-enabled hardware. So even sometimes with the same hardware, there's software upgrades that we're implementing almost monthly, sometimes weekly, things like the digital cocoon in video conferencing, AI noise suppression in headphones, smart switching and smart framing in our webcams and VC products. All of those were not possible the way they're possible now, even 6 months ago. So things are moving fast, and it's critical that we stay ahead because AI just gives so many more new opportunities, and that's exciting.

In marketing, too, we've learned a lot from our China team. So our China team really modernized marketing for us. They needed to and they have, and that's part of our China for China success. But what we're seeing in China and around the world is marketing is search and social. That's where you start your marketing today.

In social, we have thousands of creators that we work with around the world. They create every month, hundreds of thousands of pieces of content that come by your feed on TikTok and on Instagram. It is not possible for a human to keep track of that content and to put more money behind content that works and no money behind content that doesn't work and shift that money into the right retail partners, platforms, et cetera. That's just not possible. What we've learned in China is to build an AI-enabled marketing ops model to really get the most bang for the buck on that whole new marketing platform framework, I don't know what to call it. And that's doing very well in China. We just had a digital marketing summit for our top 120 or so marketeers around the world in Shanghai last week so that we can take those learnings from China and implement them back into the rest of the world. And I think that will be a big advantage for us versus some others.

Our next question will come from Asiya Merchant with Citi.

Sorry, I'm in a hotel, so my video doesn't work here with this broadband here. But just wanted to ask, there's been obviously a lot of concern, there's pull forward in demand here, maybe more on the consumer device side, especially as it relates to PCs. How are you looking at -- I know you guys are only guiding here for fiscal 1Q, but seem pretty confident in that growth rate. What's your view on pull forward here? And then if I can squeeze in just a little bit on structural gross margins. I think I heard Hanneke talk about that as well as Matteo on structurally gross margins being higher here. Can you just help us understand like the upside that you guys have relative to your guidance here for both fiscal 4Q and you expect that goodness to continue, sort of how we should think about the various factors that drive those gross margins? And what are some puts and takes to that as you progress through fiscal '27?

Yes. Thanks, Asiya, and I'll let Matteo go deep on the gross margin. I think in terms of your first question on pull forwards, we certainly didn't see that on our businesses, neither on the consumer side nor on the B2B side in Q4. Our global markets, so if you take the total categories that we play in globally, the market was pretty resilient, low single-digit growth. And that was certainly resilient with enterprise customers. Businesses in general, are doing well. We've gone through earnings season, and we've seen it. But businesses are performing. So they're investing in technology. They're investing in new offices, and we're gaining share, both in video conferencing and in PWS. So that's been good and not dependent on pull forward of any kind.

And on the consumer, I would say we're seeing kind of what we have been seeing, which is the consumer is resilient, but choiceful. He is looking for quality and recognizes when there's great innovation, but maybe a bit more choiceful when there isn't. And again, in that context, our share performance has been very, very strong. So that's why we guided the way we guided for Q1. But as Matteo said, we also believe quarterly guides are appropriate in this environment. It's just challenging to get longer-term visibility on the state of the consumer or the customer.

So on the gross margin question, so let me maybe start by unpacking for you the fourth quarter. We are obviously very pleased with the work that the team has done. This is a record quarter for us if you exclude the COVID peak here. So we improved the gross margin rate in the fourth quarter by about 130 basis points year-over-year. It's a combination of the positive impact of the pricing actions that we executed in April of 2025. It's -- obviously, FX was a bit of a tailwind with where the euro traded during the quarter. And this more than offset tariffs and promotions. They came in, in line with what we were expecting. So basically, if you dissect the 130 basis points, the way -- the easy way to think about it, you have 150 basis points of price, 150 positive of FX, offset by about 70 basis points negative of tariffs and then 100 basis points higher promo for the quarter. But overall, very, very strong performance by the team in the way we closed the year.

So now to the second part of your question, if you look back now to the last few quarters and also what we outlined for the first quarter of 2027, structurally, we are a 43% to 44% gross margin rate company with -- at the current FX rates. So then when we look at longer term, obviously, there are different items that impact the gross margin rate to the positive, to the negatives, right? So on the positive side, as we continue to focus on doubling down on B2B, video collaboration portfolio is positive, it's accretive to the margin rate of the company. So as we continue to focus on that, that definitely will continue to help the gross margin rate.

The premiumization of our portfolio now for several quarters, including the fourth one, all the high premium lines, so the MX, the ERGO, the PRO, Simulation have been growing tremendously well for us, double-digit growth. Some of them more than 20% in terms of demand growth. So that's also a positive, a tailwind. The continuous work that we always do around product cost reduction through value engineering is now really thanks to Sree's teamwork is becoming the way the company operates every day. And this helps us to mitigate some of the pressures that we are seeing -- the inflationary pressure that we are seeing in some of the material we purchase. So these are all the positive.

And then obviously, there is the promotional aspect, which is really a function of the competitive landscape that can change quarter-over-quarter. But overall, at the current FX rates, I think we are a 43% to 44% rate company. And the idea is really to leverage back to Hanneke's point earlier, the strength that we have on the gross margin rate and reinvest some of this money into the future growth of the company in sales and marketing and R&D, as Hanneke outlined in the earlier question.

Okay. Just on the promo rates, promotional aspect, it seems like some of the traditional PC companies just dealing with component inflation here and trying to pass through the pricing. I mean, are you seeing an environment which is more promotional or probably less promotional here for some time?

Look, in the last couple of quarters, promotion, if you look at every time I describe the gross margin rate, we have about generally a 50 to 100 basis points of gross margin rate pressure year-over-year on promotions. So it's a little higher. Even in the outlook that we provided for the first quarter, we are always -- the bogey, the range is really dependent on how much promotion we have to implement during the quarter. I think it varies by region. Remember, we had a sizable price increase in the United States, and we had to promote a little bit earlier in the year. But that's what I would say. There's nothing concerning. Things are coming in pretty much as expected. And as you can see from the gross margin rates that we have been printing now for the last few quarters.

Yes. I think the key thing with promo is you guys just be all over it every day and then know what's happening in the market and use them intentionally and strategically. And that's what we're doing. That's the reason our gross margins have been so strong. And in Q4, which we -- I expect kind of to continue, the extra investment in promotion really was focused on our very largest B2C customers, especially in Europe, where we continue to see some influx from Chinese brands. And we'll defend that with our lives while keeping the gross margin strong.

Your next question will come from Maya Neuman with Morgan Stanley.

I have two questions for you guys today. Maybe to start, could you just give us an update on channel inventory levels kind of across key regions and categories? And then really nice to see another quarter of gross margin outperformance. Looking forward, is there any degree of tariff refunds embedded? And if not, how should we think about the potential magnitude and timing of that?

Good question, particularly the second portion. So let me start with that, Maya. So in the fourth quarter, we have not factored in any collection of tariffs in our numbers. And we did not even include that in the outlook that we provided for the first quarter. We think right now, the process and the timing of the reimbursement is a bit too uncertain, and we decided to proceed this way. So I think we will have to keep all of you appraised on how things are going progressively during the year. But right now, nothing was recorded in the fourth quarter and nothing is considered in the outlook that we provided for the first.

In terms of the first question on channel inventory, maybe let me start and I'll let Hanneke add anything that I missed. Overall, we are very happy where channel is. The weeks on hand across the channel globally is exactly where we want it to be, pretty much in line where they were last year. So I think we are entering the new fiscal year with a very healthy and healthy channel pretty much across all the regions. Obviously, what you have seen in the fourth quarter, which is pretty common in the quarter which follows the holiday season quarter, we tend to take the channel inventory down a little bit, and we have done that consistently with the prior years, maybe a little bit more in Europe compared to some of the other regions. And -- but overall, channel is healthy, and we are happy on how we enter the new fiscal.

Nothing to add.

Our next question will come from Michael Foeth with Vontobel.

Can you hear me?

We can hear you.

Just two questions for me. The first one is on cash flow. Very strong cash flow performance. Can you maybe give a bit more color on how you managed to get there? And I think it's consistently above the 1x operating income level now. How should we think about cash flow going into 2027? That would be the first one. And the second one on the Middle East disruptions, where do we stand there? Is it from your logistics perspective? Is the situation derisked now? Or depending on how things drag out, could there be more effects in future quarters?

Yes. Maybe, shall I take the Middle East and then we come back to the cash flow question with Matteo. So we definitely saw in Q4 negative top line growth impact from the Middle East war. And that wasn't so much that there was no demand for our products, but we really had some challenges in reaching all of our distribution partners from our Dubai distribution center, and that was true in the Middle East, but also in Africa, which gets served from that distribution center. We expect that, that will continue. So in our guide for the first quarter, there is a top line impact there of about 150 basis points from that in the quarter. Hopefully, but who knows, this situation will be resolved in the near future, and that will go away. But again, this is one of the reasons why it's very hard to guide beyond the first quarter because it is a significant impact.

But you still utilize the warehouse there.

Yes, the DC is operational. It's -- we have many distributors in the regions, Tier 1s and then Tier 2s, and getting stuff out in full perfectly is more challenging than usual at this point.

Michael, on your question on cash. So we are tremendously pleased with the performance of the team on cash flow. To your point, yes, we exceeded the operating income also this quarter. Operating cash flow was about $280 million in the quarter. The 2 key drivers here, this applies both for the fourth quarter, but also if you look at the total year. Number one, collections have been extremely strong. We have implemented very good operating mechanism on collections. We have a great collection team, and we have been performing very well. We have really record low level of past dues across the portfolio. So collection is one driver which drove the DSO lower throughout the year.

And the other one, big one is inventory. Sree and the team have done a spectacular job in really controlling inventory in spite of the fact that you may recall, particularly in conjunction with tariffs, we actually did some pull-ins of product ahead of new tariffs being put in place. And notwithstanding that, the inventory turns of the company improved by almost 0.5 point during the year. And that's really the second driver on top of, obviously, the net income, which also was a good lift during the year. So we are very pleased.

Can it continue? We'll do our best, but always don't expect this to be every quarter above 100%. One thing that I would highlight, we haven't spoken it yet on this call, but we talked in the past, memory, right? We are working to make sure that we get as much memory as possible to protect our video conference portfolio. So whatever we can get, we get it, and that may impact the inventory turns. So don't expect -- don't model greater than 100% every quarter in fiscal year '27. But I think the team did great.

Our next question will come from Didier Scemama with Bank of America.

Can you hear me? Yes, I think. I've got two. A quick one is first maybe to Hanneke. Can you just give us a sense of your perception of U.S. and European consumer behavior with the current Middle East conflict and impact to consumption, et cetera, from your gross margin and your mix, which is very premium, it feels like people are very much unbothered. Are you surprised by that? And how would you explain sort of this discrepancy?

Yes. As I said before, certainly on the consumer, we see that he is continuing and she is continuing to buy. So our markets were up low single digits and the consumer side demand was fine and even better than fine at the premium end. So in the U.S., we suspect there is some help there from the tax refunds that people are receiving. So that's helping a little bit at the moment. And in Europe, it also looks okay. But again, as I said earlier, this is why we really hesitated not to guide for the year because these things can change.

Yes. Sorry -- Matteo, do you want to add something?

No, no, go ahead. I was saying.

Sorry. Now for my follow-up, I wanted to ask you about these investments in AI you've been talking about. How is that going to come through? Is it in the form of software? Is it in terms of new capabilities in the form of new products? And what's the sort of payback time for those investments?

I think it's a mix of all, basically. I think you can already see some of the things that we are doing on problems, for example, right? We talked about in the past, site, the producer in the room is all AI software. The Rally Board 65 has been extremely successful. The digital cocoon, the cutoff, whoever is not in the conversation, that's AI software. The 2-way noise reduction system that we implemented on the new headsets, that's also AI. So for sure, there is a big component on the products that we launch.

Yes. Where does -- you're asking where does the cost sit? The cost sits in R&D. That's where we're spending. And you saw the spending there in R&D in our OpEx and our OpEx numbers are, I think, spectacular for the year. But in the second half, we were able to start spending back into R&D a bit more. Don't think of this as just incremental spend. These are agents that are doing -- humans with agents that are doing work that just humans were doing before, and they're doing more of it and they're doing it faster.

So we're managing that as part of our R&D spend. Token usage is obviously increasing, and it's increasing every month. But I think what also sets us apart is that unlike some others, we are leveraging our own in-house build LogiQ platform, which is an enterprise agent orchestrator that works across systems and that works with our own data. That is significantly more cost effective than SaaS alternatives. So all in all, even if token usage were to double or triple during the year, it will still comfortably fit into the R&D pocket that we are planning for, for the year.

Your next question will come from Joe Cardrosso with JPMorgan.

Maybe just two for me. First one is just on video collaboration. Obviously, you're exiting the year with strong momentum. Just wanted to touch on the sustainability of the trajectory here into fiscal '27, particularly just given this is one of the areas, I believe, on the last earnings call, you highlighted as potentially being exposed to kind of this memory phenomenon we're seeing in the broader market. And then maybe just on the latter part of that, are you actually seeing any issues on that front relative to the mitigation -- just given that you highlighted mitigation levers last quarter, are they largely working as intended? And are you expecting any impacts there just given kind of how things have trended since the last time we talked about it? And then I have a follow-up on the Gaming.

Yes. Maybe let me try and take VC on the market and feel free to add in, Matteo. I'd say the first thing on video conferencing is we're actually really pleased with the results, up 8% net sales constant currency for the year and for the quarter. So even though this business can be a little choppier quarter-by-quarter just because it's a B2B business, and there's a quarter with a huge deal and then that doesn't happen the next. It's actually been pretty consistent and pretty good. We're gaining share and the market is also growing 3%, 4%, 5%. So that then gives you that 8%.

Memory, we mentioned video conferencing is the only place in our portfolio that's affected by the memory that's really in short supply. We now feel we're fine in terms of availability through the end of the calendar year. So that's another quarter versus where we were last year. So that's good in terms of availability. We do see an impact on price of what are we able to buy that memory at, but we'll offset that by pricing. And we have announced a price increase on video conferencing globally, and that went into effect actually earlier this week on May 1. So we're offsetting that incremental cost on video with price, and we think the supply will be there.

So all of that said, while again, quarter-by-quarter, it may be a little bit like this. I think overall, we're quite bullish on video conferencing. Our premium solutions are doing very well, including those AI-enabled solutions. We're growing our services attach, which was something 2 years ago, we had almost nothing of. We're now, I would say, at competitive levels, and that's a super high gross margin part of the business. And we're continuing to build commercial go-to-market capabilities. We're adding top talent. We're adding systems and skills to sell better in B2B, which again was not our historical forte. But I would say every quarter, we get better. And that's one area where we'll continue to invest going forward.

Got it. Very useful. Maybe just on the follow-up is more on the Gaming side. And sorry if I missed this, but you talked about growing in all regions. Just curious, can you flesh that out a little bit in terms of how much the underlying markets improved across the Western regions just because I believe those were sluggish for past quarters? And how much was share gains? And then how are you thinking about that going forward, just given, I think this year, we're expecting somewhat of a recovery on the underlying markets in the Western regions? Just want to really touch on like how you guys thinking about your -- potentially Gaining share on top of that recovery?

Yes, it's a great question. And so even in Q4, that's the most obviously recent period, and we only have market and share numbers that are reliable through February. So it's a little bit old at this point. But the dynamic for the December through February period was not unlike what you just described. So China gaming, the market was still up quite a bit and the U.S. and Europe were down a little bit. Now I think the positive thing that I saw is that in February, the U.S. market actually was positive for the first time in a long time. So one swallow does not make summer, but that's better than what we've seen. And again, we're super pleased that we were able to grow 7% in the quarter, which is really outperforming the market. So things are looking like there's some more momentum certainly in our Gaming business.

This concludes the Q&A portion of the call. Back to you, Hanneke.

Great. Well, thanks, everyone, especially thanks to those in Switzerland who stayed with us really late. Excited to see you in the follow-ups to the call, and thanks for being here today. Have a great week.

Goodbye.

I think we'll get started here. Perfect. So, welcome to day 3 guys of the TMT Conference. My name is Erik Woodring. I lead the U.S. IT hardware coverage here. I am delighted to be joined by Hanneke Faber, CEO of Logitech. Hanneke join Logitech in late 2023. You came from a variety of roles in consumer, B2B, e-commerce, you're a President of a $14 billion business at Unilever. So we're lucky to have you today. Thank you for joining us.

Thanks. Thanks for having me.

Before we begin, I need to mention that important disclosures can be found at the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representatives.

So Hanneke, I'd love to maybe get -- start by getting your kind of overarching lay of the land. There's a lot going on, obviously, kind of speak through high-level consumer versus commercial? Anything notably geographically and kind of where the focus is as we soon enter fiscal '27.

Yes. Thanks, Erik. If I start very high over the macro trends that are tailwinds to our business are still in full force. So that's good. Gaming continues to be a really buoyant market around the world. Every younger cohort is gaming more. This is good.

The new ways of working continue to be a tailwind as well. Most companies in the world, and we serve 70% of the Fortune 500 have figured out how they now want to work. So is it 3 days a week, 4 days, a week, 5 days a week in office. They're refurbishing those offices and that's a tailwind for us as well.

And then finally, AI is allowing us to deliver superior smarter products, and those are no longer experiments or proof of concepts, we're shipping those at scale. So those three tailwinds of gaming, new ways of working in AI are still in place. I think against that backdrop, we're executing really well. We've now had 7 quarters of top line growth and we're growing operating income and EPS very, very robustly. So we feel good about that, which means that looking forward, we're going to stick with our strategy, which is deliver superior products and innovation, double down on B2B, which is outgrowing B2C for us, which is great, building an iconic brand and continuing to be an operations powerhouse.

So we'll stick to the strategy I'm sure you're wondering as well what could go wrong. I look forward really external pieces. So consumer confidence and strength around the world is a bit of a question mark, not something we can control, obviously. So we'll focus on growing share in whatever markets throw at us.

And second, geopolitics. And on that one, I do want to make a comment of what's just this last weekend in the Middle East war that's now happening. We will most likely see an impact on that in the current quarter. We have a big distribution center in Dubai that serves a large part of our EMEA region. That distribution center is only partly operational right now and is not receiving any inbound product for obvious reasons, because you can't get in there.

So for the current quarter, and this should be a temporary effect, but I think between $20 million and $30 million of net sales impact, no bottom line impact. But on the sales, we'll see a little bit of a temporary impact. And hopefully, this will end soon. It's too early to say exactly what it will be for obvious reasons. But that's just one example of the geo policies that impact our business.

Okay. So you answered my second question with the first question, that's perfect. Kill two birds with one stone there. I want to maybe dig a little more discretely into the demand environment and then just start on the consumer side. So a trend that you guys have highlighted for a few quarters now is your international markets really being the ballast for growth, especially the APAC region. Partially offset by some headwinds moving pieces in the United States. Just talk about the sustainability of international growth. And really where that is coming from when you think about kind of the market, share, pricing, all of that good stuff.

Yes. So 30% of our business is in North America, 70% is outside. So good to have growth internationally. Maybe allow me to just say on North America, certainly the beginning of our fiscal. So the middle of last year after liberation Day, we saw sales declines in North America, which were very clearly linked to our price increases. So when you do a price increase, the implementation of that just takes a while before BestBuy, Amazon and everyone accepts it and takes it. And then the first quarter when it actually implements is always a little hard. So the first -- the June quarter, the October quarter, we actually saw North America down. I'm glad to say we came through that.

It was expected, and we started to grow North America or the U.S. again in the holiday quarter. And we feel very confident that, that trend will continue. So that was a little bit of a blip in the U.S., but the trends are good.

The rest of the world has been very strong. Europe, very strong. I'm super proud of our European team because Europe after liberation, they did see a large influx of Asian competitors who went on Amazon to see if they could make up some of the lost business in the U.S., but we've defended there very, very well, and the business continued to grow. And then APAC has been the star, and our China-for-China strategic intervention has really worked.

And we'll get into China-for-China as well. And I just want to touch back on North America just because -- you've now had the chance to kind of see how the consumer responds. And you mentioned that there's a little kind of blip in the market at first, once you raise prices, there needs to be a time to adjust to it. But then we've kind of seen the trends smooth out a little bit. So maybe just what have you learned when it comes to pricing as a lever in this case, being forced to use pricing as a lever? But just pricing is a lever and demand elasticity as you think about the ability to leverage pricing in the future.

Yes. So we're really, as a company, quite good at premiumizing. Over the last decade, our ASPs on average, are up 50%. So we're very good at premiumizing, but we tend to do that through premium innovation. And we prefer that. You come out with a new product that is really significantly better than what it replaced or what comes next to and you charge a premium price for that. That's the way we premiumize, and we will continue to do that. That's a big part of our business model.

I don't really like to take line pricing on existing products, but last April, it was a responsible thing to do given the tariff impact. So we did it. What did we learn? The impact on a large part of the business was almost nothing. B2B, very little impact. Premium products, very little impact. Products where we have really large market shares, which is quite a big part of our portfolio, very little impact. Where you did see impact was on the more entry price products and where there's a lot of competition, which is particularly in gaming. So took us a little longer to get back to solid growth. But again, happy that in the holiday quarter, gaming also grew, and we grew market share. So it just took a little longer to get out of that.

And let's touch on B2B as well. Just 4% of total revenue, it is a clear initiative inside the frame, you laid that out effectively a year ago at your Analyst Day. What are you hearing from your customers, again, in the markets that you play and the customers that you work with about kind of spending plans? Where are they leaning into spend? Where are they pulling back on?

Yes. So I'm very up. I continue to be very up on B2B and on our B2B business. So it's 40% of our business today, it's growing. Every quarter, demand is ahead of the consumer demand. So that's good. What are we hearing again, business is good, it's driven by a number of things. First one, as I said before, companies have now figured out what they want to do in terms of return to office, which means the -- many of them are redoing their offices, they're moving, or they're changing, making more space, less space, that means they also are redoing their video conferencing equipment and rooms and still less than 25% of global meeting rooms are video conference enabled, which is crazy low because people expect that when you walk into a meeting room, there is good VC equipment. So the market has been pretty good for video conferencing. Thanks to that.

Second, also a driver of the market, but we're in the very early innings of the COVID refresh of video conferencing. We're about 5 years in. And so we're at the very beginning of big companies starting to redo their equipment. So that's helping. And then finally, we're helping ourselves. We're growing share with really great products that are simpler, smarter, more sustainable than competitors, like our new Rally AI cameras that just came out. and we're continuing to build go-to-market capability.

Okay. Cool. I'm going to kind of get the memory bank shock question out of the way.

Let's do it.

You knew it was coming. I had to ask it. So just -- in all services, the PC OEMs kind of continue to face the significant pricing increases. There, you see kind of industry analysts kind of continuing to lower their PC unit outlook for this year. You talked -- you hear the memory guys here and they're like supply is short for a while. So you've clearly outgrown the PC market over time. You've made that clear. The data makes that clear. Just -- what are the levers that you can pull to try to offset that? Because there is an attach obviously, to PC. So what are the levers that you guys have that you can pull to offset what is happening in the broader PC market? What is expected to happen in the broader piece?

Yes. No, thanks, Erik, and I appreciate your many musings on this topic. Let me try and lay out a few things for you on your question. So first of all, on memory, the primary effect of memory for us is modest. Less than 20% of our portfolio uses the chips that are -- that people are short on. So, that part, direct impact, not very large. We'll deal with it. We'll be good actually this quarter and the next 2 quarters, a bit too early to say what happens after, but we're not worried about it. The secondary impact, which you've outlined as less PCs means also an impact on peripherals. We don't actually believe that's true. And let me walk you through that.

So a Logitech product is in the vast majority of buying instances bought on its own. So when someone goes and buys a Logitech mouse, they're not doing that at the same time they're buying a PC. Why? You can see it, think of yourself as a consumer. You just spend $2,000 on a laptop. This is not the time where you're also going to dump $120 on a new MX Master 4. So in single-digit amount of cases are we bought at the same time? That means for us, the far bigger size of prize is attaching to the installed base of PCs, which is huge, 1.5 billion PCs around the world. And what we've been able to do over the last decade is to grow the attach rate to the existing base by about 8 percentage points. So close to a percentage point a year.

Still though, the attach rates are actually quite low. So less than half of installed PCs actually use the mouse and less than 30% use an external keyboard. So there's room to continue to grow attached to the installed base. Second, as the market attached grew, we've grown market share. So a decade ago, our market share was about 45%. It's now over 50%.

And finally, and you've pointed this out as well, we've grown ASP. So versus a decade ago, the ASP is 550% higher. So that's our model. It's focus on the installed base of PCs, drive market share and then drive ASPs. So -- and we believe we can do that. We welcome new PCs. That's great. But the number dwarfs in comparison to the installed base. So we're pretty bullish actually on growth going forward.

And maybe the final thing to say, you're right, again, over the last 10 years, on average, we've outgrown PCs by 300 to 500 basis points. But that's over the 10 years by quarter, by year, by week, there's no direct correlation. There have been years where PC sales were great, and we were a bit behind. There have also been years where PC sales were terrible, and we were good. So it's the law of large numbers. But again, think of the installed base, and that's where we will drive growth.

Okay. And maybe just a follow-up on that is, that point of improvement in attach per year that you're talking about. What are some of the initiatives that you have in place to make sure that, that continues and/or again, I'm being the optimistic, accelerates. Like how do you get that to continue or accelerate?

Yes, two things: innovation and marketing. So you've got to make people aware of it. But innovation, we launched 35 to 40 new products a year that drives desire. Because they're better. And then marketing is an area where we continue to have opportunities. So you saw in the last quarter, our marketing spend was up about 8%. That drives growth at great ROI. And I'll give you one example. I should have it in my hand, Nate, you don't have it with you?

But the new Super Strike gaming mouse that launched 2 weeks ago is a great example just of a superior product. So if you haven't yet seen it or experienced it, this is a mouse that's developed for pro gamers who are playing League of Legends or Valorant for a living. What's critically important to them is latency. It's got to be quick. You've got to kill. This one is 30 milliseconds faster, which is incredible, thanks to a technology we call HITS, Haptic Induction Trigger System completely new to the world.

What's happened? In the 2 weeks since it's become available, competitive gamers do not change their gears. It's like competitive runners before they do the Olympic Marathon, they're not going to change their shoes. In 2 weeks, more than 100 competitive gamers around the world in tournaments are playing with this mouse because it is so much better. And they're saying, it's like cheating. So now, of course, consumer demand, therefore, this thing is also insane, and we're trying to make enough. But that's one example of how do we do it, superior products and then marketing them with the right endorsers and influencers.

Okay. Let's move to gaming because, again, just kind of touched on gaming, but it's been like not a tale of two worlds, so to speak. You kind of touched on what has happened in the Americas, so to speak. But then broadly, if we look at like a market like Asia Pac and specifically China, very strong and those are gaming heavy or over-indexed gaming. So what's the outlook there? How do you think about the gaming end market? And what does that mean for your gaming business?

Yes. Definitely, the Chinese gaming market, which is the biggest gaming market in the world has outgrown as a market, the west. Part of that in the U.S. definitely in the last year have been those price increases, which wasn't just us, but various others in the market. So that's dampened demand a little bit. But I think the bigger factor has been that there's been a dearth of big game releases in the West. Whereas in China, their local ecosystem of game releases has been really, really robust. And the AAA titles that are now coming out in China create a lot of excitement.

And as we all know, in the West, we're still waiting for GTA 6. And it's not like we've been waiting for a while. It's now slated to come out in November, but it's not just GTA 6. It's -- everyone else is holding back game releases because I don't want to overlap with GTA 6. So I think there's pent-up demand. We talk to a lot of -- I go in home and spend time with gamers. I've had various gamers tell me they're going to take a whole month off to play GTA 6. We just saw on Reddit this morning, there's people -- okay, this is kind of shocking. They are planning paternity leaves around GTA 6.

You got my attention.

I would not be happy if my husband was doing that. But I'm well past that in any case. So -- but the GTA 6 launch should create new momentum, I think, in the gaming market in the West.

Okay. And then I want to go back to a point that you made earlier that I think is really important. We tend to think about things unit versus pricing. You outlined the premiumization, 50% growth over 10 years. I don't think people fully appreciate that, so to speak. Does that stop? Does that continue? Is that like -- just maybe outline, again, that's kind of looking backwards, looking forward. Any reason to think that, that doesn't continue, so to speak.

Yes, that's very much part of our strategy of superior products and innovation. Our primary focus there is on the top end of our portfolios. So that's the pro lining gaming, that's the MX and ERGO lines on the Workspace side. And then, of course, what's beautiful is once you invent something like the HITS technology, over time, you trickle it down to your entry-level price points. So 2 to 3 series in gaming or to our mainstream business on the work site. So that technology isn't only for the top. It will come down as well so that we serve a large swath of consumers.

Okay. Before we keep going, I do want to give you the opportunity to touch on China because it's been a very bright spot in the story. You've highlighted the China-for-China initiative several times. Is there any reason to suspect that we shouldn't expect China to remain in that sweet spot, right? Because it can be somewhat volatile. You lost share. Now you've regained that share back. Where do you think China goes from here for you guys?

Yes. So I'm really pleased with our China-for-China intervention. So 2 years ago, we were losing share hand over fist in China. We put a -- we reallocated resources to Shanghai, put a multifunctional team in place of engineers, designers, marketers, salespeople with two missions. One is to increase the innovation pace in China. So China takes our global innovation, but it needs more. It is such a sophisticated market. And they've done a great job innovating on top of the global ranges.

The Alto Keys, the G316, various other China-for-China products. The added benefit of that has been that, of course, all of this is online. American gamers are like, hey, we want the G316, too. So we bring it to the rest of the world as well. So it's worked well from an innovation point of view.

Second mission of our China-for-China team has been to modernize the sales and marketing, which was honestly a little bit stuck in a previous age. So we've now built a much bigger business on Duoyin, TikTok and PDD in China, social commerce, and we've really modernized our social-first marketing.

And just yesterday, I was with our team in China on video. But they showed me their latest AI-operated way to go to market on social media, and it is shockingly good. So, think about this. We target many segments of the Chinese gamers and the Chinese work population. We do that with many creators or influencers, thousands, in fact, that creates hundreds of thousands of pieces of content every day.

Even 3 months ago, that was a little bit of a crap shoot. You'd kind of wait to see what rose to the top, and then you do more with that. We now have a set of AI agents, look at the creators, look at the content in real time, and maximize what's working well to the right people, to the right platforms, including the commerce platforms 24/7 in real time. That's what you need to do to win today in China, and we're doing it.

Cool. I'm going to -- I want to touch on tariffs, I realize the pace of change and give you clarity on what's going on is dizzying to say the least. You guys have done an amazing job at kind of repositioning your global footprint out of China originally to avoid those IEPA tariffs, now here we are. Nevertheless, the question really is post Supreme Court ruling, how is the kind of tariff rate landscape, so to speak, change for you guys? Because seemingly, the rate should come down, but I know that there are uncertainties. And so I won't hold you to anything. It could change before we're done with this. But how do you think about tariffs and the impact that they're having now?

Yes. So for now, there's no material change. So for the next 150 days, we are at 10% -- maybe at 15%, that's not entirely clear, which is very close to the blended rate that we were already at. So I don't see a material change there. But of course, we're keeping a really close eye on it. And I think we're in a really good place to mitigate any impact going forward based on our manufacturing footprint and our ability to price if needed.

Yes. Right. And this is not necessarily something new anymore, obviously.

No. Yes.

Okay. I'd love your take on the competitive landscape. And I want to get an approach it from the Logitech perspective. You guys are kind of purposeful in this market, right? This is what you do. You do peripherals. You talked about 50% market share. I've heard for 10 years from the PC OEMs that this is a new initiative for them and they're going to become bigger and yet you continue to grow share. My question is, do you feel intensifying competitive pressures? If so, where, how do you combat them? It doesn't sound like it, but -- just if you could dig on the competitive landscape, what you're seeing and how you combat it if you have to?

Yes. Yes. So we respect all competitors I have to say the ones that we're most obsessed with are actually the Chinese competitors because there's -- in China, more than 500 manufacturers of mice, keyboards and cameras. They're very sophisticated. They come out with new stuff all the time, which is another reason why our China-for-China team on the ground is so important. Because it's a lot of inspiration as well that we take and that we leverage come up with great new products ourselves.

And that's where, by the way, a leading brand, a leading global brand really helps. So we're obsessed with them. there's other pockets of competition that are important. And one of them is the OEMs in peripherals, HP and Dell. I would say there -- our competitive advantages, our focus. We live and die by this. We wake up every day to innovate in peripherals and cameras. That's what we do. And I like always to use the example of the left-handed mouse, we have a left-hand of mouse. That's a $50 million mouse. For us, that's great. That's 1% growth. HP and Dell are not going to like wake up and say, let us do a left-handed mouse.

I frankly agree with you. Yes. Another one of my favorite topics, margins, gross margins for you guys specifically. It's a part of the model where you guys have kind of consistently driven upside surprises. I think the question here is, as you kind of laid out at your Analyst Day, I know you guided to -- you kind of kind of put a plus at the end of your gross margin guide, are we at the high end of where you think gross margins can go? Is there more room for gross margins to expand. Just curious what you think because you've done such a good job, right, your 43%, 44% -- high at the end of 43%. Really impressive. So where does that go, do you think? And I realize mix has an influence on that.

Yes. Yes. So we're also really pleased by how in a year with a lot of headwinds from tariffs and other things. We've been able to actually have really good gross margins at 43.5% give or take. Three things -- four things really driving that, of which three we think we can keep doing going forward. First one is the premiumization we talked about through innovation. So that's a big driver.

Is it fair to say price, higher margin. Is that a fair kind of general -- okay.

In general? Yes. So premiumization is the first one. The second one is cost reduction. So our team just does a great job of designing for value and constantly looking at where can we reduce cost. And we have a good track record, and we'll definitely be continuing to do that.

The third one is mix. When we sell more B2B and when we sell more video conferencing, that has a higher gross margin. So -- and again, that's a deliberate strategy, doubling down on B2B. So we expect that to continue. So those three parts of gross margin drivers I expect to continue.

The last one, we've had a little bit of FX help this year in the gross margin as well. I think around 100 basis points, keep me a little below 100 basis points, 80, give or take. That may not hold let's see what the dollar does.

Yes. Okay. Perfect. And then a lot of what we've talked about underlying. How do we catalyze certain sales or certain segments, you do bring up marketing spend. You've talked about how OpEx as a percentage of revenue should fall in this kind of 24% to 26% target range. One, does it stay there? Is there an opportunity to be more efficient? Just talk to us how you think about leaning into it versus finding efficiencies in that spend?

Yes. So I think that 24% to 26% is about right. But in the year, you've seen this. We're driving pretty significant efficiencies versus last year. Two areas that are driving that G&A is a big one, where we're just being very disciplined. And the second one is across the board AI. We we've built more than 1,500 internal AI agents. We have our own platform, LogiQ, which is a safe space where everyone uses all the models. 75% of our overall employees and 85% of our R&D and design people are now heavy users of AI. It's really embedded in their work processes and all of that does drive productivity. So that's great.

That said, we also have opportunities to invest a little more in R&D and Sales and Marketing to drive the top line a little faster. So I'm saying the 24% to 26% is about right. But within that, there will be some efficiencies, and there will also be some spend back to get the flywheel going a little faster.

Okay. I want to kind of end on a few longer-term questions. And the first one, just the long-term revenue growth target of 7% to 10%. You've kind of been right on the precipice of that over the last 2 years, right around 6%. And what needs to happen to go from where you have been to where you want to go to kind of sustainably get into that 7% to 10% range? And how long does it take to get there, you think? Give me the [indiscernible].

Yes. So what needs to happen? We laid out our growth algorithm, and that hasn't changed since AID. Mid-single-digit growth on our core, which it's really possible and is what we're doing today.

Then you have a point or 2 of growth from verticals and adjacencies, and that's where we're starting to accelerate. And then there's a point or 2 from M&A. And I'm sure you'll ask me about it, but we haven't done any yet. Yes, and that would get you to that high single digits. We call it a long term, but we're working towards it.

Okay. Perfect. So what topic should I talk about? Let's talk about M&A. Just talk about -- for -- I've known the company for the better part of 10 years. It hasn't necessarily been a huge initiative internally. But when I hear you, it clearly sounds like there's kind of a renewed sense of we can leverage this as a growth tool. So help me understand -- am I right on that, first of all? And then second, when you think about levering -- leveraging M&A, is it finding adjacencies? Is it finding technologies? Is it maybe delving into things like software services that kind of can complement hardware. Just talk to us about what you want to leverage M&A for?

Sure. So to your first question, we have a pristine balance sheet, $1.5 billion in cash, no debt. So our capital allocation priorities are pretty clear: Number one, invest in the core because there is a lot of organic growth opportunity there; number two, increase the dividend every year to $0.10 last year. We'll increase it again this year; number three is M&A; and then number four is share buybacks, and this is a good time to be buying back, and we're doing that hard. But we'll leave that to the side.

On M&A, what are we looking for? The headline is I have kissed a lot of frogs in the last 6 months or so, but no print yet. Because we're looking for something that really makes the boat go faster, Erik. It's got to grow that top line faster and I got to see a way to reasonable margins as well. We're looking for things that are either adjacencies or will help us in B2B and especially B2B verticals.

So adjacencies. What do I mean by that? Think about in gaming. The last good acquisition that Logitech did like a while ago now is Astro gaming headset. That worked well because it sits in gaming, but it was a subsegment of gaming that we didn't really play in. So we acquired it, we folded it in under the Logitech G brand, and that's been really good for us to be in headsets.

So think of adjacencies like that, that could work. And in verticals, think of things like companies that play in education, that play in health care, that play in government and can help us both with product but also very much with go-to-market. So that's what we're looking for. Again, lots of frogs, no princes yet, but we'll keep looking. And I'm choiceful. So if not, we'll grow the organic business a little harder. That's the idea.

And I think you've said this publicly before, too, which is there's not a desire to do anything transformational. We don't need to do that. We just want to be complementary if we can find that.

Highly likely to be tuck-in.

Okay. We've covered a lot today. We have just about a minute left. I want to kind of leave you with the final word here. And take it however you want, which is what are you most excited about? What are you most looking forward to? What is most underappreciated or misunderstood? However you want to answer that, but just kind of give us the final word for everyone here in the audience.

Yes. I would say underappreciated, in this crazy world, this is a company that can -- is a company for all seasons. Because we've got this balanced portfolio, three product categories that all have growth tailwinds from a category point of view and where we're winning a large geographic portfolio, which allows us to -- when one does well and the other doesn't, we can play that off each other, 150 countries.

And then the B2B and B2C is quite special. And again, we're aiming to get that to 50-50 by going B2B harder and really doubling down on that. There's few companies that really can operate in whatever environment, but I'm really proud of our team that we are.

That is a perfect place to end, Hanneke, thank you very much.

Thank you, sir.

Great. Well, I think we're ready to kick off. Hi, everyone. As a reminder, I'm Alex Duval, heading up the hardware team and research at Goldman Sachs in Europe. I'm delighted to be joined on stage by Matteo Anversa, CFO of Logitech. Matteo, thank you so much for joining.

Alex, thank you so much for having us. Great -- great venue.

Thanks so much again. And just to state that this conversation is not intended for the media and is off the record.

Great. So perhaps we can kick off with fiscal year '27 demand trends. It'd be great to get your sense on the latest dynamics across your various segments. And perhaps you could touch on some puts and takes that have been salient in terms of your demand in the past year. Maybe you could help us think about how to think about the consumer and enterprise demand trending in the coming year.

Yes, sure. So Alex, I think it's maybe a little early for me to comment in details around our fiscal year '27, which starts, as you know, in April. But overall, what we have seen also in the last quarter is -- let me start with the consumer side. I think we called it resilient, but choiceful, particularly in the U.S.

We saw really the consumer looking for quality products, but at the right price, particularly on the medium to low-end spectrum of the product portfolio. On the other side, the premium, so for us, the Pro line, the MX, the ERGO, we continue to see very, very strong demand.

They all grew double digit. Simulation was up in the high single digit. So the -- it translated back to your consumer question, the hardcore gamers, the individuals that are focused on ergonomics, on the efficiency, they continue to spend money pretty much unchanged compared to what we have seen in the past several quarters. So the demand continues to be very, very strong.

On the enterprise side, look, we had a great third quarter. Our VC sales were up about 8% year-over-year in constant currency. And we continue to see very strong demand of both us and our competitors of all the video conferencing products, and we can talk more later about the dynamics.

But overall, I think we -- on the B2B side, there's been different from the consumer. We have a pretty clear line of sight to where the deals that are coming up, and we feel pretty bullish about the trend.

Super helpful. And Matteo, I think you won't be shocked to hear that I'd like to know about memory shortages.

What a Surprise.

And specifically, maybe we could just touch on your ability to deliver products and to what degree that has an impact.

So in a way, we are lucky, right, as a company because the vast majority of our products do not use the memory that is in shortage today. Just a portion of our VC product uses this type of memory. And I have to say our operating team, Sree, as always, has been doing a fantastic job. They saw this coming. So a few quarters ago, we secured supply.

So we are pretty much protected through the end of the first half of fiscal year '27. And we are currently working with our sourcing partners through our supplier ecosystem to continue to improve the supply situation for us.

Obviously, we are seeing memory cost increases like everybody is. And right now, we think we can probably continue to mitigate the cost through our product cost reduction activities that we always do every year. But if that's not the case, then obviously, we are ready to take actions on the pricing front as we have seen -- starting to see some of our competitors doing.

And back to our pricing experience that we had in North America as a result of tariffs, we also saw pretty limited elasticity on the VC side. So I think we have room to act on that if the cost of memory continues to be inflated.

Very helpful. And obviously, the next part of the question would pertain to PC units, as we see some of these third parties talk about a low single-digit to mid-single-digit decline in calendar '26. So it would be great to get a sense of what that means to your growth aspirations.

I know sort of historically, I think you've talked about the 300 to 400 basis points outperformance versus the PC unit. So some people say, okay, let me take that, then I add that on to the high single-digit decline, and that must mean that Logitech will decline mid-single digits. So please, can you put into context how we should think about these...

You know the company very well. So the -- so a couple of things, I think, to put things into perspective. So first of all, in a way, our attach rate on new PC sales is about 10% to 11%. So we are kind of insulated in a way from what PC sales really does because the attach rate is pretty limited.

As we outlined in the last earnings call, the focus of the company historically and today is really on the installed base. And today, basically, of all the notebooks that have been sold, less than half have a separate mouse attached and less than 1/3 have a separate keyboard.

So this represents a huge opportunity for us, and that's where the focus has really been. So how we historically have been outpacing the trend on PC sales is really through a couple of things. So number one, we focused on the attach rate on the installed base.

And if you look at the last decade, our attach rate on the installed base grew by about 8 points, right? So roughly, call it, almost 1 point a year, a little shy of that. So that's action number one. So we have successfully proven that we can improve the attach rate on the installed base just because people realize how much more productive they can be with a separate mouse or how much better is the experience when you use a separate mouse and a keyboard versus what you buy with a laptop.

Second is share, right? We have been historically gaining share a little bit every year. And when you look at mice and keyboards on the personal workspace, in the last decade, share -- our share went from the mid-40s to above 50%, particularly in mice. So continued focus on product innovation that gave us share gain is aspect #2.

And the third one is really the fact that through innovation, we have been focused on the premiumization of our portfolio. So if you look at our average net ASP, so the average selling price of the product, net of promotion, we saw a quite dramatic increase in the last decade.

Mice went up more than 20% and keyboards more than 50%. So that's really what allowed us to continuously outpace the PC sales. I would add another aspect. The number that you quoted, the 300 to 500 basis points is what you see of outperformance on average.

But the spread is pretty high, right? You have years where PC sales go significantly down and peripheral sales are growing low mid-single digit. And the reverse is also true. So you have years where PC sales grow high single digit or double digit, but peripheral sales remain pretty consistent into the low mid-single-digit growth.

So that's important to keep that in mind. And ultimately, it's very interesting for me when I come to these conferences because if I rewind the tape 1 year ago, I was getting asked, okay, with the PC refresh, your peripheral sales, you go through the roof and we say, well, not really because they're not really correlated to the new PC sales, and the same applies when PC sales go down. So it's pretty stable. That's why I'm not too concerned about what new PC sales really is going to do.

That's super helpful. And maybe just to clarify as well, you talked about innovation and sort of being able to increase that attach to the installed base. Is there anything that's changed or anything that you're seeing, which would suggest that can't be the case going forward?

Look, we had -- I'll give you just, Alex, a couple of examples. MX Master 4, the new mouse that we launched in September was the biggest mouse launch in the history of the company. And this is for the personal workspace case.

On gaming, if any of you in the room are hardcore gamers, we launched 2 weeks ago the SUPERSTRIKE that has this haptic technology that is perfect for FPS type of gamers that significantly reduces the latency of -- when you press the button and we click the button on an FPS game and has been extremely successful. And so the technology engine of the company is a key focus for us and is not going to go away.

Super helpful. And I guess if we also look back over the last sort of 5 or 6 years, obviously, during COVID, there was a big pull forward of demand. Obviously, some new TAMs opened up and then there was a normalization period. Fast forward to now, is there also an opportunity there that you may need to do some refresh of that installed base?

Very good question. So generally, the refresh cycle for our products is between 4 and 5 years, depending if you look at peripherals versus the video conferencing. So we are getting really into that space, right? If you bought something new during COVID, now it is due for a replacement.

So that's the general rule. But even more importantly, what we are seeing our customers do is they really buy peripherals almost independently from a new PC or a new game being launched. Is the new experience, is the new feature of the product then ultimately drives the replacement.

And that's why the focus on NPI and keeping always being ahead of our competition on the feature that we give into our products is not something that we negotiate is a key focus of the company, exactly to the point that you are making.

Super helpful color, Matteo. And I think one of the features of recent results has been the sort of geographical bifurcation. We obviously saw continued momentum in Asia Pacific. North America, it's been a slightly different picture. So I wondered if you could just help disaggregate the different dynamics that you're seeing.

Sure. So you said it right. If I look at -- let's take the third quarter, Asia Pacific grew in the mid-teens. And for us, AP is really China, right? That's our biggest market. The dynamic in China is the momentum is terrific, particularly in gaming. Hanneke and I actually were in China a couple of weeks ago.

I came home extremely energized and with a sense that really what is happening in gaming in China is unique. And I don't think there is a sign of slowdown in the gaming market in China for quite some time.

So I would expect the tailwind to continue. And indeed, also when we outlined the outlook for the fourth quarter, we said, look, AP, we think is going to continue to grow in the teens. Europe has been a good market for us. We continue to grow low single digit, and we are expecting that to continue also in the fourth quarter.

North America was, I think, an interesting dynamic. And what we have seen, particularly in the third quarter was a sizable decline of the gaming market, and we can talk more about the different reasons. And -- but on the other side, particularly towards the end of the third quarter, we saw an uptick, a recovery.

So sequentially, our AMR results in the third quarter improved compared to the prior couple of quarters. So we are overall cautiously optimistic. And when we described the outlook for the fourth quarter, we said, look, AP is going to be in line with the third quarter.

Europe is going to be in line with the third quarter. The real swing factor is going to be the AMR. And at the midpoint of range, we are expecting AMR to continue to be flattish. And on the higher end of the range is AMR continue the positive momentum that we have seen in the last part of the third quarter and grow into low mid-single digits. So that's -- we'll have to wait until we post the results, but that's our assumption right now.

Very helpful. And is there a way to sort of help quantify or give confidence in terms of the visibility you have in these different regions? That would be very helpful.

Obviously, we look at different data, right? The consumer behavior, consumer sentiment, what happens to the gaming market. what we hear from our sales force on the B2B, on the enterprise channel. So that's generally how we form our opinions. And based on the information that we collected, that's what we think the future is going to be, at least for the next quarter.

Super. And then double-clicking on North America. It sounds like some of this was to do with caution given the sort of cohorts of people who are spending on things like gaming. Is that how I should think about?

Yes. I think the -- if you look at North America, you go through our own product lines, we saw very strong growth in the personal workspace. Personal workspace was, I think, up 7%, 8% in AMR in the quarter. And for sure, the launch of the MX Master 4 that I mentioned earlier, also really supported the growth. Pointing Devices was up significantly.

And we also gained a few points of share in personal workspace across all the regions. VC continued to grow. The decline was in gaming. Share was consistent. So we basically declined in line with the market.

And our interpretation of what is happening in gaming in the U.S. is really a combination of a couple of things. Number one, as I said, the age of people that are really gamers between 25 and 40 are the age range of -- that are mostly concerned about the state of the economy and what's going to happen.

The fact that no big AAA titles have come out now for quite some time in the Western world and overall price of consoles remain pretty elevated. So that depressed demand. But at the same time, all these factors are ultimately temporary. So if there is a bright line on this thing is that we believe that gaming is not going to go away. Actually, people continue to grow.

Gamers continue to grow also in the U.S. It's just a matter of time. And as long as we remain focused on new products like the SUPERSTRIKE, the Superlight that we launched a few quarters ago, I think you will continue to see growth.

Very helpful. And perhaps also focusing on China, that's been fascinating how it's gone from being a drag on growth to actually delivering mid-teens growth. if we look out over the next year, could we assume similar growth rates?

Look, as I said, I was really impressed by 2 things out of my trip. Number one, the market. The gaming is a social phenomenon in China. And it's definitely a less mature market than what we have in the Western world. So that's one of the reasons. But the innovation is growing at a very, very fast pace. There are new trends like iCafes. We went to visit iCafes, and they're becoming a new trend where people book a room and with their friends and they game.

I remember when I was in China, I lived in China several years ago, KTV was the big thing. You go there and look at hoke, now it's ICafe, right? And this plays really in the sweet spot for us, right?

So I -- as I said earlier, I think the growth in gaming will continue for quite some time. So we have a natural tailwind of the market. But then on top of it, our China-for-China strategy that we instituted about 1.5 years ago, which is really centered around developing products in China for the Chinese market at China speed really helped us not only in gaming, but also on the personal workspace.

So we saw really good momentum on our share, particularly on mice and keyboard, both on the personal workspace and in gaming. So that also compounded on top of the natural market growth that we have seen in gaming. And then also a more -- maybe a smarter way of approaching marketing, particularly in China, where I think we -- a couple of years ago, we missed a little bit of boat. We went with the traditional Western way. China is much more social media.

So we diverted our dollar more to social media. That also paid -- was very helpful for us. So we're bullish on Asia Pacific. We're bullish on China. And I think we keep focused on China for China as our strategy is paying out to be correct.

Super helpful. And do you think there are sort of learnings that you could take from China and apply perhaps to some of the other developing markets and even developed markets?

Absolutely. Even developed, exactly. So if you take the Alto Keys, right, the mechanical keyboard that we launched in China because that's where really the new wave of mechanical keyboard started. This keyboard, we just started to sell it also in the U.S. and Europe is going very, very well.

So that's a perfect example of how we can develop a product for the Chinese market. And then if it works, we can transfer it to also the developing market. We have still, I think, headroom to do on the share side. I talked about I'm happy with the mice, keyboard.

I think we have a little bit more room to grow on headsets in China. And then we have emerging markets, which for us is still a huge opportunity where we can focus on. We had -- Hanneke and I went to Brazil in November of last year. The team is great. There are so much great opportunities for us to capitalize on.

And I think the experience of the modus operandi that we developed for the China-for-China strategy can be really applied also to some of the other regions, and that's where we're working on. So more to come.

Very clear. And you mentioned video collaboration before and how you're sort of really focused on the enterprise side of things, which I think historically has been very important in terms of gross margin.

Post COVID, there was some uncertainty about how people would particularly implement back-to-office policies and so on. How do you think about the demand environment right now and the sort of visibility? Have we sort of moved beyond that, that level of uncertainty? And perhaps related to that, there's so much enterprise spend that one might think will go towards AI. So how does that leave the sort of demand that you can benefit from?

Sure. So I -- look, we are very pleased with the results. We had a great first 3 quarters of the fiscal year '26. We were up, we see 8% in constant currency last quarter. I can't expect every quarter to have a double digit or high single digit, but because B2B tends to be a little lumpy.

But overall, we are very optimistic about the future of our B2B, first of all, because we are building a fantastic team. And second, because there is, I think, still a natural tailwind in the market. If you look at worldwide, you have a few dynamics happening.

Number one, if you look at the conference rooms, still only 30% of the conference room worldwide are video-enabled, right? So many companies that are going back to the office, both in Europe and in the U.S. are finding themselves with a pretty archaic and old office structure that requires an upgrade, particularly when you [indiscernible] which days people need to be in the office.

So inevitably, you're going to have a member of your team that is not going to be in the room with you that needs to join via video. So you need -- the companies need to upgrade their office space. And that's -- we play right in the sweet spot on that, right?

There is the refresh cycle that we talked about. So VC is about 5 years roughly. So some of the rooms that are video-enabled are due for a change. And then it's interesting, you mentioned AI. That's why B2B tends to be a little bumpy.

But overall, actually, AI, I consider AI a tailwind for VC. And here's why. Because the products that we are launching today that have AI feature, so really software feature, right, like the site, which is like the producer in the room that we talked about, right, then you use smart framing, which is an AI software type of feature.

The Rally Board 65, which is the portable video conferencing device that creates a cocoon. It's perfect for open spaces. So it cuts off anybody who's not part of the conversation. So all the products and use AI feature make the product much better than the earlier version or the experience that people used to have with the prior version of the product.

So that's why we think -- so these are really the top 2, 3 reasons why overall, we really want to double down on B2B. Obviously, selflessly speaking, being the finance person. And obviously, to your point, B2B has a higher gross margin rate compared to the average. So it's also good for the margin of the company.

But I think it's a great opportunity to rebalance a little bit more the split of the company from 60% consumer, 40% B2B to a more 50-50 split. That's really what we are aspiring.

Very clear. And can you just help us think about how the premiumization sort of dovetails with this aspiration to improve ASPs? I assume it's not purely about gaining volume share at this point.

It's really generally the product, particularly if they have software, which we feel is better than what our competition has, then we drive a premium on the average selling price, which then helps obviously the gross margin of the B2B team and the company. So...

Very clear. And I think you talked about gaming and how there have been some products, which may have been a bit delayed in terms of the actual games. If we think about the consoles, there have been some news items talking about delays there. To what degree do you think that will have an impact in the next year?

You're spot on. I think what happened in the third quarter, the console pricing being a little elevated also as a result of the tariff actions that many companies took, including us, that impacted demand.

The good news for us, and this is -- I have to compliment Ujesh and the gaming team. In a way, we built a gaming franchise, which is completely independent by -- from any titles being launched, right? We have our G family that we continue to evolve through our Logi PLAY events.

And that's our own community. And so that's why, look, if there are game -- new games, AAA title coming up, generally is a tailwind, but we never count on it. We learned, and this is really credit to Ujesh and the team to build our own community.

And that's why combined with the continuous product innovation, we -- I think that's all we can do, and that's what we continue to drive gaming growth. And in spite of being -- the gaming market down mid-single digit in Europe, high single digit in North -- in AMR last quarter, we still grew gaming in the low single digits. So that's a testament to the work innovation and this culture of the Logi family and gaming family that the team has built.

Very clear. And I think if we take a step back from a strategic perspective, you talked about doubling down on enterprise. I'd just be curious if you could talk a bit more about this strategic approach of going into new verticals. I think you talked about education, health care. So how do you think about the scale of the opportunity? And where are we in that journey?

So if I go back to what we said at Investor Day, right, we are expecting us expanding into these verticals to add 1 to 2 points of growth to the growth of the company, right, when we are all done with all our work. We identified these 3 verticals, you said it right, education, health care and the public sector.

And the reason why we focus on these 3 is because 2 primary reasons. Number one, these are areas where our products have already a proven relevance and superiority. B, these are fast-growing markets. Now we can't do all at once, right?

It requires a little bit of investment from the company, not too much on the product side, but more on the sales force. We need more boots on the ground. We need new tools. So last year, we implemented, for example, CPQ in North America. That made us going much faster in answering to requests for quotation and addressing request for quotation from our customers.

We did in North America last year. Now we are expanding this to Europe and then emerging markets. We're starting to build a dedicated sales force for these verticals. We are done in North America, a little bit more work to do in Europe, and we are in our infancy in emerging markets.

So that's where we are. But that's a key focus for us. Education, I'll give you an example. The demand in B2B, so the sell-through in B2B in the last quarter was up in the mid-teens. Education was the main driver of that because we already have good products, particularly in the K-12.

And so that's why this is a key focus for us and the company. So 1 to 2 points of growth, that's the expectation for the future. A little bit of work to do on the product and on the sales force. But I think the initial results that we had for the last few quarters, as you've seen from the numbers that we printed are very encouraging, and we are pretty happy where we are.

So an encouraging start...

Encouraging start, correct.

Characterize it. Super. I think maybe on pricing, if we could touch again on that. Clearly, you've had to navigate through the sort of tariff situation.

We did.

Moving a very significant amount of production to different geographies. And it seems like pricing and pricing power has been an important part of that. Are there any regions where sort of higher pricing has sort of created a headwind? And to what degree do you think you can maintain and perhaps even increase your pricing across the broader portfolio?

So I think overall, I think the team did a great job. We will close the year with about 43.5% roughly gross margin rate, which is going to be flat year-over-year. So we were able to offset entirely the impact of the tariffs through exactly, as you said, the pricing actions that we took in April.

The -- if I look back -- so first of all, just to remind everybody, we only increased prices in the U.S., right? And the -- when I look at the product portfolio, we saw very limited elasticity in the B2B side and on the premium side of the product lines and a little bit more elasticity on the low end and in gaming.

And that's where we used some of the promotional dollars also in the -- during the holiday quarter to make sure that demand was appropriate. But very limited elasticity on the VC. So back to where we started the conversation, that's why we feel that if memory cost stays elevated, I think we have room to take additional pricing actions on the VC side, particularly.

That's where the memory issue is prevalent for us. So that's our lesson learned on the pricing action post Liberation Day. And then I think the team did a great job, to your point, in making our supply chain very, very flexible. So we closed the calendar year '25 with less than 10% of the products that are sold in the U.S. coming from China.

I think we are very happy where we are. So we are now in a China+5 supply chain situation, and we really love the flexibility. As you've seen over the weekend, the tariff environment remains fluid. And I think having the supply chain flexibility that we created last year, it really puts us in a perfect spot.

Super helpful. And in terms of the change we've seen in the past week, to what degree does that have a meaningful impact?

Very limited, no impact for the fourth quarter. And based on what -- now there is 10% or 15%, the debate, as long as the exemptions remain in place, which is what we have today, the impact for fiscal year '27 is immaterial.

Great. I think we're coming into the last couple of minutes. I think we had a question from the floor.

Perfect. I'm curious about what's basically changed in China because if you go a couple of years back, the Chinese government put in place strict restrictions on.

You're absolutely right.

Time spent, et cetera, and releases of new games, right? So what has changed?

Yes. So maybe I don't know if -- let me repeat the question. The question is around what changed in China, right, in terms of the behavior of the government. It was 180 degree. My wife is Chinese. So I remember a couple of years ago at the dinner table, all the -- our friends were all talking about how they had to limit the time the kids had to spend on the social media, on the games and that created an issue.

This was completely changed. And for sure, that created a tailwind. These iCafes. I remember KTV were a big thing many years ago. Now iCafes are a big thing. And also the other thing to remember, the pace of AAA titles that are launched in China, specifically for the Chinese culture, Chinese game is a much faster pace than what we have seen in the Western world.

So it's a complete change of how the teams in China are behaving compared to 24 months ago. So for us is a great tailwind from the market, exactly as you state, plus our -- the effect of our China-for-China strategy that then helped us grow.

That they can change their minds again? Because I think the starting point was that we would like to spend less time in gaming, spend more time working and studying, which seems like a rational target.

We -- based on what we are talking to our teams on the ground literally a couple of weeks ago, I am not -- we are not seeing the growth in gaming in China being substantially reduced for the foreseeable future. Great question.

Time for one more question.

Just in terms of thinking about the balance sheet, when you think about cash returns, cash returns versus growth opportunities...

Yes. So the question is cash on the balance sheet, so more -- I'm paraphrasing capital allocation basically. So we are very happy with the cash that we have in the balance sheet. I think it's good to have a strong balance sheet, particularly when you have this uncertain world that we are living in.

Our capital allocation strategy is unchanged. So first priority for us is reinvest the cash that we generate into the organic growth of the company through NPI, as we discussed. Our return on investment capital is greater than 25%. So that's money really well spent.

Second, we want to continue to increase the dividend. So we did that now consistently for the last couple of years. The last one was in the last September. Third, M&A. So we put some very clear boundaries. We are not looking for large transformational deals because we are very confident about the organic growth of the company.

But we are more looking for tuck-in bolt-ons that can expand our product reach in the areas of work and play where we play in. And then fourth is returning cash to the shareholders in the form of share repurchases. And we are committed to the share repurchase plan that we announced last year at Investor Day, which is 2 billion in 3 years. So that's really the framework.

Great. Well, I think we're out of time. So Matteo, thank you so much.

Thank you so much.

Extremely interesting discussion, and thank you all for joining.

Thank you very much. Great questions.

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for the third quarter of our fiscal year 2026. Joining us today are Hanneke Faber, our CEO; and Matteo Anversa, our CFO.

During this call, we will make forward-looking statements, including discussions of our outlook strategy and guidance. We're making these statements based on our views only as of today. Our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K which you can find on the SEC's website and the Investor Relations section of our website.

We undertake no obligation to update or revise any of these forward-looking statements, except as required by law. We will also discuss non-GAAP financial results. You can find a reconciliation between GAAP and non-GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward-looking statements in our press release and in our filings with the SEC.

These materials as well as the shareholder letter and a webcast of this call are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, references to net sales growth are in constant currency and comparisons between periods are year-over-year.

This call is being recorded and will be available for a replay on our website. I will now turn the call over to Hanneke.

Thank you, Nate, and welcome, everyone. During the third quarter, we delivered another period of very strong financial performance. With the exception of pandemic peaks, we drove record non-GAAP operating income and earnings per share. Very strong non-GAAP gross margins once again underscore the quality of our portfolio, the strength of our brand and innovation and our unique operating discipline and top line growth of plus 6% in U.S. dollars and 4% in constant currency was broad-based across regions, channels and categories.

The strong third quarter results were driven by our strategic priorities. First, superior products and innovation. At the end of September, we launched the MX Master 4, the next generation of our flagship mouse. It is selling at record levels.

It sold more units in the first month following launch than any other personal workspace mouse in Logitech's history. In gaming, we delivered winning news across price bands. The premium Pro X Superlight 2 mouse was a top-performing new product in the quarter, boosting the Pro line.

We also had strong demand for the new entry-level, China-for-China G3116 gaming keyboard, which helped drive market share gains in China.

And AI now plays a pretty critical role when it comes to superior video and audio innovation. We are well beyond AI proofs of concepts and experiments. We are shipping AI products globally at scale.

In the third quarter, those included both AI-powered devices like the Rally Board 65, the site video conferencing camera and its own 2 wireless headsets and AI-enabling devices like the spot sensor.

And just last week, we announced a Rally AI camera and Rally AI Pro, our smart new video conferencing solutions for large rooms, like board rooms, auditoriums and classrooms.

None of those products are AI for the sake of AI. These are products that solve real user needs, and that shows in their popularity in the market. Our second strategic priority driving results was doubling down on B2B.

Logitech for business demand significantly outpaced B2C demand in the third quarter driven by strength in video collaboration and our education vertical. Third, we executed with excellence around the world. The December quarter was the first in fiscal year '26 with positive year-over-year net sales growth and increased demand across all 3 of our major geographies.

Around the world, it was great to see our teams [ excel ] with great holiday in-store execution and terrific social-first digital brand building campaigns. Finally, our performance underscores our unique operational excellence. Product cost reduction, targeted pricing actions and FX offset tariff headwinds and strategic promotions and drove a very strong non-GAAP gross margin of 43.5%.

Importantly, we continue to drive manufacturing diversification. As we committed, we successfully reduced the percentage of U.S. products manufactured in China from 40% last April to less than 10% by the end of December 2025.

And we maintained strong cost discipline across the company, highlighted by non-GAAP general and administrative expenses which were down 7% in the absolute year-over-year. Now looking ahead, we live in a dynamic world, but there is still so much opportunity for Logitech to grow.

One of the opportunities I am excited about lies in leveraging the existing global PC footprint to drive continued growth. Consider that of the 1.5 billion plus PCs in use today around the world, less than half of those have a mouse attached and less than 30% of existing PCs have an external keyboard.

Taken together, that PC installed base represents over 1.8 billion opportunities to add peripherals and upgrade users to enjoy vastly superior productivity and comfort. We warmly welcome obviously the tens of millions of new PCs that are sold each quarter but we believe the existing base remains the far greater price.

So with that, Matteo, I'll hand it over to you to cover the financials in a bit more detail.

Okay. Thank you, Hanneke, and thank you all for joining us on the call today. So the team delivered a another solid quarter, demonstrating continued focus on profitability and growth. Non-GAAP operating income reached $312 million, reflecting a 17% year-over-year increase alongside a 220 basis point expansion in profitability. .

Our strong P&L performance, combined with disciplined management of working capital, resulted in an exceptional cash flow generation of approximately $500 million a 30% year-over-year increase. Now let me walk you through the key financial highlights for the third quarter.

So net sales were $1.4 billion, up 4% year-over-year in constant currency, and this growth was driven by strong demand and represents our eighth quarter of consecutive top line growth.

Now more specifically, personal workspace net sales increased 7%, with 9% growth in pointing devices, fueled by the launch of our MX Master 4 as well as double-digit growth in tablet accessories.

Video collaboration net sales grew 8% with double-digit growth in EMEA and Asia Pacific driven by continued sales strength of our AI-enabled Rally Board 65. And as we indicated in the past, the B2B nature of this business tends to be lumpy quarter-to-quarter.

But the long-term trajectory of the business is very strong momentum. Gaming net sales grew 2%, driven by double-digit growth in Asia Pacific while Americas and EMEA declined single digits due to the market contraction.

Geographically, Asia Pacific led the way with a 15% year-over-year growth driven by double-digit growth in gaming, video collaboration and tablet accessories. EMEA grew 2% due to double-digit growth in video conferencing as well as solid growth in keyboards and combos. And the Americas reversed the negative trend of the past couple of quarters with the U.S. returning to modest growth with pointing devices up double digits, offset by gaming.

On the profitability side, our non-GAAP gross margin rate was 43.5% and up 30 basis points from the prior year. We were able to expand the gross margin rate despite a challenging tariff environment. And similar to last quarter, the negative impact of tariffs was entirely offset by our pricing actions and continued manufacturing diversification efforts.

Product cost reduction and favorable foreign exchange more than offset increased promotional activity in the quarter. We also maintained strong operating expense discipline. Non-GAAP operating expense was $306 million, a decline of 2% year-over-year, and this decrease was primarily driven by a reduction in G&A as a result of the measures that we implemented to mitigate the impact of tariffs.

Now it is important to note that if we normalize for the bad debt expense we recorded in the prior year period, non-GAAP operating expenses would have increased approximately 2% and while delivering 70 basis points of leverage.

And finally, cash flow. Cash flow was extremely strong in the third quarter. We generated approximately $500 million of operating cash flow 1.5x operating income, thanks to efficient inventory management, strong collections and profitable growth. Our cash conversion cycle improved by 18% down to a highly efficient 27 days.

We maintained a very strong balance sheet, ending the quarter with a cash balance of $1.8 billion.

Now as we look ahead, we are closely monitoring external dynamics, including geopolitics, tariffs and the consumer confidence. While the backdrop is mixed, we believe Logitech is exceptionally well positioned, and this confidence is reflected in the outlook that we are providing for the coming fiscal quarter.

Net sales in the fourth quarter are expected to grow 3% to 5% year-over-year in constant currency with a gross margin rate of approximately 43% to 44%, and non-GAAP operating income is expected to be between $155 million and $165 million, up 20% year-over-year at the midpoint.

As a result, we expect to close fiscal year '26 above the long-term model targets for non-GAAP gross margin and non-GAAP operating margin that we outlined at our Analyst and Investor Day last year.

Our performance underscores the durability of our model and our consistent ability to convert profit into cash and generate compelling returns on invested capital. As we transition into the new calendar year, we remain confident in our ability to execute at a high level as the environment evolves. I want to thank all our teams across the globe for their dedication and flexibility.

And with that, we can open the call to questions.

Thank you, Matteo. [Operator Instructions] Our first question comes from Asiya with Citi.

Great. Both well, there's just so much macro factors. I mean, obviously, memory affecting PC demand. Hanneke, you talked about the installed base. Just if you can walk us through what gives you this confidence relative to your long-term target model that you guys have laid out about the growth looking ahead, not just through March, but you're not approaching the end of fiscal '26 into fiscal '27. Just some commentary that you could share on that. And 1 for Matteo while I can.

Just on the gross margins, I mean, they just continue to upside representing really strong execution here. Just as you think ahead, given the macro backdrop and concerns around consumer spending, how should we think about gross margins going forward?

Yes. Thank you so much. Overall, it's too early to discuss fiscal '27. But I would say we're really encouraged by the momentum of the business around the world. This year, as Matteo said, we're going to deliver at the high end of our long-term model.

And we're expecting that our team will continue to deliver with excellence. This is a company for all seasons. A lot of things were thrown at us this year, we expect that we can continue to work well in the year ahead. Let's -- let us touch actually on memory and on PC potential.

So overall, what I would say is we don't believe we will be materially affected by both of those factors and let us unpeel that a little bit. In terms of memory availability, the vast majority of our portfolio is not impacted by the current tight memory availability. We simply don't use those chips in most of our portfolio.

Only our video conferencing products and only a portion of our video conferencing products are impacted by the memory availability issues. And we believe we are mitigating those impacts in fact. So from a supply point of view, we've seen this coming, and we've taken proactive steps to ensure supply.

So we don't foresee a supply impact in Q4 nor in the first half of our next fiscal year from the memory availability issues. There may be a modest cost impact. But as you've seen, we're really good at mitigating cost impacts through cost reductions and through targeted pricing if needed. So that's on memory.

On PCs, you've seen our great personal workspace results in this quarter, high single-digit growth. We grew share 120 basis points in PWS, and we believe our peripherals business, in general, continues to have excellent growth opportunities, whatever the environment. Our data shows that if you take out the 2 years of COVID, which were crazy. Over a 10-year period, we grow 300 to 500 basis points ahead of PC sales. And why is that?

It's because the peripheral market is relatively immature around the world on that big installed base of 1.5 billion PCs plus less than half of people use a mouse, less than 30% use an external keyboard.

And they're basically leaving productivity and comfort on the table. And so that installed base opportunity, combined with trading up, people who are in the category is a far bigger opportunity, like far bigger opportunity for us than just attaching to new PCs, which, of course, we'll continue to do, but our growth over the years has come from penetrating that installed base of PCs.

So that's what we will continue to do, and we're confident that we can continue to grow the peripheral business as we have. Sorry, it's a bit of a lengthy answer, but I know it's on many people's minds. So thanks for asking.

Maybe Asiya I will address your gross margin question. So first of all, let me say, I appreciate your comments also on behalf of the team because I really agree with you. I think the team has done a fantastic job.

If you take a step back and we use just the midpoint of the outlook that we provided today for the fourth quarter, that implies that we will close the year with a gross margin rate around 43.5%, which is pretty much flat to fiscal year '25.

And so the ability of the team to deliver this outstanding result in spite of all the tariff environment that we discussed throughout the fiscal year, I think it's pretty remarkable. And so I think the -- it's way too early to talk about fiscal year '27, but I think the foundation of this gross margin and our ability to maintain the gross margin to this level, I think the foundation is there.

And what I mean for foundation, really, I'm referring to a couple of key aspects. Number one, our fantastic brand and the pricing power that this gives us. Number two, the continuous work that the team has been doing on innovation. We'll talk a little bit in the prepared remarks, another tremendously successful launch with the MX Master 4, just as an example.

So that's really the engine of the company. And third, the continuous work that we are doing every year on product cost reduction through value engineering and supplier negotiation. So that's really, to me, is the foundation of what we are doing, and that's here to stay.

Now, with that being said, obviously, we are all seeing commodity prices going up. We are seeing cost of components going up. So we will have to factor all these components when we discuss in the next earnings call about '27, but I think the foundation and the execution of the team is there, and that's what you can count on us on deliver also next year.

Okay. Our next question comes from Yorn from UBS.

And hello, everybody. I would ask 2 questions if it's okay, and then I go back in the queue. The first one is, I mean, you elaborated on your resilience and more volatile PC markets. But do you have some data for the attachment rates on mice and keyboards, where this has stood 5 to 10 years ago? .

Just to compare a little bit the trend changes of rising attachment rates, which potentially was helpful for the PC unit outperformance?

And the second question would be, please, on gaming. Isn't this a little bit concerning that the U.S. and Europe is now seeing decline in gaming markets. Gaming is one of your key growth drivers. What are you doing against the strategic fee for the next 12 months to bring this back to growth and also, if you somewhat detailed was PC gaming down or all the manager [indiscernible] and headsets. So some more details here would be appreciated.

Let me take the gaming question first and then maybe you take the attach question Matteo, if that's okay. So on gaming, First of all, another quarter of good global Logitech Gaming growth, 2% up. Demand was higher than that. And as you saw, that's really driven by our outstanding performance in the world's biggest gaming market, China.

We gained past 3 months share across gaming mice and keyboards in China. That's the first time since I can remember and since I've been here. So that's great. We delivered strong double-digit gaming growth there in terms of net sales.

And I think what's important, and that's important for the rest of the world as well is we're winning at the top end with Pro and we're winning at the entry level. With the China-for-China innovation, the most important one that came out this quarter was the G316 keyboard, mechanical keyboard for gaming. That's doing very well as well.

So it's important that we cover both ends of the market. In the U.S. and Europe, we held share in a declining market indeed in the quarter. What's good to see there is that our U.S. share stabilize after a couple of quarters where share was a little soft as we took pricing, first implementing it and then getting the consumer to get used to it. So it's good to see it stabilize.

And the other good thing there is that we're seeing great growth on the top end of our business, so both Pro and SIM growing double digits in the U.S. and Europe. Now to your question on the gaming market, the markets in the U.S. and Europe have been pretty soft. We believe that's temporary and we can discuss the causes, but they're probably part economics part game release related.

And in that context, we think we've prepared ourselves really well for the year ahead. So when it comes to economics, there clearly is a bit of a K-shaped economy. When I meet gamers in the U.S. and Europe, they are a little more choiceful in terms of what they spend money on.

So what we've done for the year ahead is really thoughtfully designed our portfolio to win at the top end because there's a lot of gamers who do have money, but also to win at the entry level. Just like we've done in China already. So that is one.

And then second, in terms of gaming title releases, again, they've been a bit more muted in the West than they have been in China and gamers in the U.S. and Europe that I speak to are saying, well, I'll just wait and see a little bit till GTA 6 and some other new releases come out. So they're sitting on their money.

But fortunately, our business, again, doesn't depend on a single game alone. And for big existing games, whether it's Call of Duty or League of Legends or Valorant. You need the best gear. So we're excited. SUPERSTRIKE is coming out, start shipping here in a couple of weeks. That is a step change in competitive performance for FPS games, existing FPS games.

And again, I think that will position us really well to continue to gain share whatever the market does in gaming. Again, sorry, a bit lengthy, but I know it's on many people's minds.

So Yorn, the -- so let me start. Overall, if we look at take about 10 years' worth of data and you normalize for COVID, generally, the sale of our peripherals outpace PC sales by about 300 to 500 basis points on average.

So with that being said, though, I go back to Hanneke's point, the biggest opportunity for us is really on the installed base, where of all the PC out there, less than half have a mouse and less than 1/3 have a keyboard.

And that's really where in a way, the focus has been. And actually, if you go back in history. The vast majority of our sales really comes from the increase in the attach rate to the installed base versus new PCs to Hanneke's point in her prepared remarks, we also like, obviously, the new PC sales, but that's where the focus is.

And I think Jorn you were asking, do we know attach rates to new PCs in the past. We know what they are today. they're actually fairly low, somewhere between 9% and 14% depending on the type of master keyboards.

So they're relatively low. We don't have that historical data. But given how low they are, there was opportunity, obviously, going forward to go up, but they cannot have been that much lower in the past.

Okay. Our next question will come from Erik Woodring with Morgan Stanley. Erik?

Can you hear me okay?

Yes.

Just I wanted to circle back on just a PC question, Hanneke. The 300 to 500 basis points of outperformance versus PC sales. Just a clarification, is that versus PC revenue or PC units. And the only reason I ask is, if you look at, for example, IDC forecast, the variability between PC sales may be flattish versus PC units potentially down 5% to 10%.

What make you difference between -- again, if we use that kind of historical context. The business growing versus declining? So just a clarification on that point. And if it is attached to PC sales, just how do we think about the attach to revenue when we think about its kind of like an attached to the unit.

I just want to get a better understanding of that. And then just a quick follow-up for you Matteo.

Yes, sure. Erik, it's -- what we refer to is unit sales. So that's the way we think about it. So that's all I can tell you.

Okay. Totally fair. And then maybe Hanneke, just again, on the PC peripheral kind of attached to the PC base. So I think that makes a ton of sense. On one hand, I guess I would say, perhaps we can assume these devices might not have a peripheral for a reason. -- whatever that may be.

So how do you convince that user that's underpenetrated to get that mouse or to get that keyboard. What is it that Logitech will say or it can do, whether that's incentivization, promotions, et cetera, that gets that easier to say, you know what, I do need this. This is an awesome product I need to buy it. .

yes. What a great question. And it comes down to product superiority and real benefit for the user. So let me take the MX Master 4 as an example, which again is off to a fabulous start in terms of creating both new trial and up-trading existing mouse users. Why is that?

It's a very premium, it is $120 mouse is an expensive mouse. But consumers, including in the U.S. and Europe, where they're being more choiceful absolutely doesn't hesitate to go and buy one because, A, it clearly is superior versus what's out there in the market, the haptic feedback, the actions during the new software, the beautiful design the aesthetics, clearly superior.

It clearly answers the user need in terms of productivity. So -- we are -- when you use that MX Master 4, you're going to be faster, you're going to be more accurate and more productive. That's important both for users, by the way, and for B2B choosers. So the procurement people in businesses that are buying mice for their employees.

And then marketing, of course, plays an important role as well. We did up marketing in the quarter. We're measuring that very tightly. The return on investment there is excellent.

And I think we have a lot more opportunity to do more social first digital marketing for our top superior products to drive that penetration. So it all starts from the superior product that really answers the user needs in the case of MX, the user need is productivity.

In the case of gaming, it's performance, you're going to win that game. And in the case of a line like ERGO, it is comfort. You're not going to have that pain in your arm. So really important in any marketing. We're seeing really great results. There's opportunity there going forward.

Okay. Our next question comes from Ananda with Loop Capital. .

Two, if I could. So let me just ask another, this is a PC-related one. Do you think people are obviously interested in the PC, the PC attached because of the dynamics going on with memory in the PC market and the impacts we've already begun to see there. Do you think that this is one of those years where the company could see sort of growth above the average sort of few hundred basis points range that you guys typically have.

I know in past years, when you've seen amplified growth above the PC market, there are times you've been a thought process maybe people aren't buying a PC, but they can do something to make their PC experience more enjoyable dress up their PC experience. So I just want to ask that question. And then I have a quick follow-up as well.

Yes. So it's too early for me to speculate on the year ahead. But I think you're right, historically, again, this is a company for all seasons. We can win in any environment. And in an environment where I say gaming, the price of gaming PCs is definitely up.

But when I don't have money to get a faster CPU, I can buy a SUPERSTRIKE mouse and improve my gaming speed and performance that way. So we've definitely seen that in the past, and we're going to make a plan to do that going forward as well.

Maybe Ananda, for whatever is worth, too early to talk about next year, but if you look at the quarter we just printed, if you look at personal workspace, actually in its totality, the growth in personal workspace in constant currency outpaced the growth of the company. So it was faster.

Good context. And the follow-up, this might be more for Matteo. But although you guys don't have material exposure to some of the components that are -- that we're seeing the meaningful price increases in the memory chain is others as well.

Do you think you could have seen some pull-forward sales from folks who might not necessarily understand that you don't have material exposure to those components?

Not, I wouldn't -- if your question, Ananda, is on the video conferencing being up 8% year-over-year in the quarter, I would not attribute that to the hoarding or anticipated by due to the memory -- due to the memory situation. I think we're all deals that the team has been tracking for quite some time.

We are building the muscles as we discussed during Investor Day. And I think through the growth that we had in videoconferencing. By the way, the fact that overall, B2B outpaced, B2C in the quarter in terms of strength, thanks to education vertical that has been doing very well for us also this quarter.

I think it's really execution by the team.

Yes, I see a lot of customers. I didn't get a sense that they we're hoarding ahead of any memory shortages in our video conferencing portfolio. Videoconferencing because it's 100% B2B, basically is a little choppier net sales-wise, just because there's big deals one quarter that may not necessarily be in the next one.

So I would look at that business over a little longer period than just quarter-by-quarter, but this was a really good one. But take a little bit longer perspective on VC to really look at the health of it.

Okay. Our next question comes from Joe Cardoso with JPMorgan.

Maybe first one here, I just wanted to follow-up on the last comment and maybe just not specific to videoconferencing, but broad-based across the portfolio, just because we're hearing some maybe more downstream from a PC perspective, talking about pull forward of demand in the backdrop of kind of this rising memory cost environment.

Just curious as it relates to Logitech's portfolio, and once again, broad-based, maybe not specific to videoconferencing and maybe your attach here. Are you guys seeing any of the benefits from potential pull forward either this past quarter or the quarter that we're in itself? And then I have a follow-up.

No. I mean, again, about 60% of our business is B2C. So the consumer is definitely not pulling things forward. But also on the B2B side, where we're kind of half personal workspace half videoconferencing, we really -- I have not seen or heard of any pull forwards in our business.

Got it. Very clear. And then maybe just a follow-up. You talked about the reaching the 10% of U.S. products originating from China or less than 10%, I think, was the exact comments, which seems a bit better than what you guys were targeting.

So now that we've reached that point, maybe can you touch on whether there's further headroom to reduce that? And as we think about the combination of ramping those other manufacturing sites, those processes potentially maturing and the pricing actions you've already taken, any new thoughts on how you're thinking about the implications to margins from those actions?

Yes. So first part of your question, at this point, I think we are happy where we are. The team has done a fantastic job. Our target was to limit the import from China into the U.S. to 10% by the end of December.

And we are, as you correctly so pointed out a little better than that. At this point, I think we are happy with the current landscape. We also -- as always, want and cherish the flexibility because the tariff environment is pretty fluid. So we want to make sure that we have the appropriate flexibility to move things around, and that's the beauty of the [ China Plus 5 ] strategy that [ Sri ] and the team implemented now for quite some time.

I think on the gross margin side, if we look at what we have done in the second quarter, what we've done in the third and also the outlook that we indicated today for the fourth, we are really happy where things played out.

Basically, the positive impact of the price actions that we took in April in the U.S. combined with the diversification action that you just mentioned, we're able to allow us to offset entirely the tariff impact. And I think we're in a good spot. And then we'll see, we'll talk more once we close the year.

[Operator Instructions] And with that, our next question goes to Didier with Bank of America.

Yes. A couple of quick ones, if I may. So I think can you give us a sense of the components of the personal workspace organic growth. So how much of that is volume versus price? Because the reason why I'm asking is because I think the question has been asked multiple times in different ways. If you got a PC market next year, tablets down 10% because of higher memory prices, you're going to face like very tough comps, effectively having raised prices this year to offset the tariff impact.

So I guess the question is if we've got a very tough PC market outlook in terms of '27 big decline in volumes, would you be happy to just take down pricing? Or would you be happy to just keep pricing to maintain your margins and potentially lose share?

So we don't break out the exact units versus price versus mix for the company or for PWS. But what I am comfortable in telling you is that the great PWS growth that we saw in the quarter was a combination of all 3. So positive units, positive premiumization around the world, people trading up to the MX Master 4 and other premium products and U.S. pricing. So it was a combination of all 3.

And in terms of -- I'm never happy to lose share. So we're going to put the right plans in place to continue to grow and defend share. And I think you see that in the quarter as well. We're very intentional and strategic on when we need to promote on certain parts of the portfolio and very surgical. We're not just throwing promotions and deals across the market but there's places in the quarter where we need a little more, and we do that intentionally and strategically.

To this point, the -- if you look at where we closed the quarter in terms of gross margin rate versus what we were discussing 3 months ago, we are in the higher end of the range. And this is really thanks to the diligent and very surgical promotional approach that Queen and the commercial team around the world are having to Hanneke's point. So.

Okay. And that looks like our final question will come from Martin with BMP .

Yes. On my side. Just 2 follow-up is First one is can you just walk us through what the main strength factors for the Q3 constant currency guidance to reach the high end or the low end? Is that still mainly the U.S. consumer? Is there any on the China sustainability, is it gaming or the PC market slowdown.

And then maybe attached to that, the sell-through was pretty strong, but it's a sell-in, and that was primarily in APAC and EMEA. Was that difference mainly due to promotional activity? Or was there also some in terms of restocking in the channel? That was my 2 questions.

So let me take them then, Hanneke, so let me start with the first one, the fourth quarter outlook. So our outlook contemplates a couple of things. So if you look at the midpoint, right, pretty much performance is in line with what we've done in the third quarter.

And this applies in totality and this applies also by the 3 different regions. So AP -- we are expecting AP to continue to grow in the mid-teens like we did in the third quarter, low single-digit growth in EMEA, and flat to low single-digit growth in AMR. So that's the midpoint.

On the high end, pretty much AP, EMEA remains the same as we did in the third quarter. So the swing factor is, to your point, AMR. We have seen during the third quarter, an acceleration of the momentum, particularly in the United States and mostly towards the end of the third quarter.

So the high end assumes that this momentum continues into the fourth and AMR grows into the mid-single digit. So that's really the difference between the two.

On your question on the sell-through, sell-in. So -- you have to keep in mind that sell-through is a gross number, right? So it does not include the impact of foreign exchange, and it does not include the impact of promotion, right?

So when you look at the total company, sell-through was up 10% year-over-year in the third quarter. We have a couple of points of foreign exchange, so call it 8% in constant currency. And then you have a couple of points coming from higher -- slightly higher promotional spend as we anticipated getting into the holiday season, which is pretty normal.

And then a slightly negative mix coming particularly from the high sales on tablet accessories, which is tied to some of the work that we have done on the education vertical. But that's your walk.

Okay. Great. So there's no bigger inventory.

No big selling, sell through. Yes, correct. No. We're pretty happy at...

Yes, we're really happy with the inventory. So really healthy channel inventory levels as we exit the holiday season and excellent own inventory turns. So all of that looks pretty good. .

This concludes the Q&A portion of the call. I would now like to turn things back to Hanneke for closing remarks.

Great. Well, thank you all. It's great to see you. We look forward to seeing you in the follow-ups and thank you for being with us for today. Have a great week.

Hi, everyone. Thank you. My name is Francois-Xavier Bouvignies, Head of the tech hardware and semi team at UBS in Europe, and we are very happy to have Logitech's CEO, Hanneke Faber. Thank you very much for being with us.

So let me ask you first, you joined, I mean, Logitech in 2023. And the Logitech's story got a lot of momentum since then. So maybe can you summarize, what did you change to create this momentum? Because even the predecessor was a very successful person as well. So that's quite an impressive story.

Yes. No, thank you. I'm excited about the momentum we've created in the last 2 years. Clearly, after the high of COVID, Logitech went through a few difficult years. But coming in, I think what we did well is, we quickly created a strategy going forward. With a clear purpose, we're here to extend human potential in work and play. That's why we wake up every morning, it's to make people a little better. We're a tech company, but we're here to make people a little better, more productive, help you connect a little easier, win that game performance. So that's what we do.

And under that, we chose a number of strategic initiatives. And I'll mention 4. The first one, of course, is superior products and innovation. We have a very high pace of innovation. We launched about 35 new products a year. And we've continued that and there's been some really successful ones in the last couple of years. Second is doubling down on B2B, big opportunity for us, about 40% of the business with a lot of upside. Third is China for China. We were struggling in China mildly when that came in. We've created a China for China multifunctional team in Shanghai, and that's really growing the business. And finally, building an iconic brand. The Logitech is a great brand with great awareness around the world, but it has the potential to become truly iconic and we're working on that.

So those are the things we're doing. We're trying to be pretty consistent with that through all the ups and downs and funding games this year after a Liberation Day. And so far, it's working.

Okay. Let's unpack maybe all of that in the next 25 minutes. So can you elaborate more on your plans in B2B to focus, not only on the corporates, but also on hospitals and education end markets. How do you do that? And what is the tangible actions point supporting these inroads?

Yes. So if I just lift that up for a moment, we're about a $4.5 billion company. The addressable market for us is about $25 billion. So there's a lot of room for organic growth. Within that $25 billion, about $14 billion is B2B. And within that, about $9 billion is enterprise and $5 billion is what we call these verticals of education, health care and government.

In enterprise, we're the market leader in both video conferencing and peripherals. We're #1, but there's still a lot of room to grow because we think we estimate it only, well, less than 20% of all global conference rooms are actually video conference enabled, and that will not be the same 10 years from now. So a lot of growth there.

But in these verticals, we're almost nonexistent, even though they need the same type of products, video conferencing peripherals that enterprises need. We just haven't had the go-to-market capability necessarily to really penetrate those verticals. So that's what we're building. That's not a 1 quarter thing. This will take a number of years. But again, a $5 billion addressable market where we can play with our products and solutions is really exciting.

Certainly. And on the strategy on the B2C side, I mean PC peripherals and gaming are key contributor, obviously. But it's a B2C market in health care also something to look and or crowded for you?

Yes. I would say in health care, we'll focus on B2B on medical institutions, hospitals, where again, they need our regular products; mice, keyboard webcams. But also video conferencing, remote health care is an area of great growth. There simply aren't enough doctors and nurses in the world to treat everyone in person. So you can imagine with remote health care that the need for great video conferencing equipment is high, and that's where we come in.

You mentioned as well, of course, brand and your initiative strategic. So marketing is obviously very important for your business. So can you maybe elaborate what you made difference? What do you mean by that? Like again, like some concrete example as to how you manage this path.

Yes. Maybe I'll use China as an example because I think that's where we've made the most progress on the brand-building side. First of all, brand building marketing today is wildly different from even 2 or 3 years ago. You have to market social first. You don't create most of the content creators and influencers create most of your content. So in China, we made a real shift to working with a large number of creators and influencers both in the gaming space and in the workspace that are locally relevant and that we work with to get the right content out there. So social first really important.

Second, partnerships, great iconic brands have iconic friends. So we really drive great partnerships, McLaren is a great example. We just launched a McLaren simulation collection that we developed with McLaren that they use in their own sim racing facility. So Lando & Oscar used that during the week when they're training in the sim. And we love brand collaborations like that to drive the iconic nature of our brand.

And then finally, events are another big deal these days for brands and especially our own events. So in September, we had global Logi PLAY which is an event where we launch all our new products, but also where the gaming community comes together, came together in Shanghai and in Madrid in 16 other places, but also on a global live stream with millions and millions of people watching. That's the kind of marketing you need to do today to really penetrate the gaming community. And it was certainly a very exciting moment. So social first, partnerships, events, that's what we're focused on, and I'm excited about the progress we're making.

And you mentioned a lot of potential on the organic side, given this very significant time. But what about the inorganic way as well? I mean, M&A, you sit on, if I'm not mistaken, $1 billion net cash on your balance sheet. So is there an appetite here through inorganic? And if you do, do you want to diversify or strengthen existing business?

Yes. No, great question. And we actually sit on $1.5 billion in cash and no debt. So a pretty pristine balance sheet. If you look at our capital allocation priorities, the #1 priority is organic growth because, again, we're a $4.5 billion company. Our addressable market is $25 billion. So organic growth is our first -- first dollar will go there.

Second priority is the dividend. We increased it by $0.10 again this year, and we plan to do that to increase it going forward. Third priority is M&A. So I'll come to that. And then the fourth priority, if there's cash left over, and we do generate a lot of cash. We will buyback shares, and we're at the beginning of a 3-year $2 billion share buyback program.

But in terms of M&A, it won't be transformational M&A. I am interested in tuck-ins. We hired this summer, a new head of M&A who is very busy assessing all kinds of targets. They need to be strategic in work and play. We're not going to go and do wild other things. And importantly, they need to make the boat go faster. M&A can be a real distraction for organic growth. So when we buy something, we have to be sure that it makes the boat go faster. And what I mean by that is we're now a company that's grown mid-single digits or more 7 quarters in a row with really healthy margins. When we add something to the portfolio, it needs to have the potential to do a little better than that. And in our space, there's not so many targets that would do that. So I'm being -- well, I call it disciplined or picky. And it doesn't mean we're not looking at stuff, but we'll be really disciplined at making the costs.

Okay. Makes sense. And in B2C, I mean, we have tariff obviously taking place in China, U.S. So you increased your pricing by 10%, if I'm not mistaken, in the U.S. to pass this. So do you have any intelligence or insight into what your peers have done as well to fight this tariff? I mean, is the 10% -- how do you compare with this? And how do you see the supply chain reacting to mitigate this effect?

Yes. So we took pricing very early. I don't like taking pricing, but it was a responsible thing to do, so we went very early. We announced it on April 15 after Liberation Day on April 1. Our competitors, most of them have moved, we're seeing in the markets, but much later. So we'll see how that plays out. I'm actually glad we went early because it always takes a few months to get a price increase through with customers in B2C. And then for consumers should get used to the new pricing. So I feel we're in a great space now ahead of the holiday season, actually in the middle of the holiday season with the right pricing levels in place.

In terms of the supply chain -- oh my gosh, we've done so much between April and now. So in April, 40% of our U.S. products still came from China. We committed at the time to take that down to 10% by the end of the year, and we are there now. So we've moved a lot of manufacturing from China to 1 of our 5 other manufacturing countries. And that's a ton of work. That's literally moving lines in trucks across borders. But the team has done an amazing job, and that certainly helped us maintain really strong gross margins.

Interesting. So when you look at the demand side, when you increase your tariff -- the pricing, any impact on the end demand or how the demand is reacting to that pricing?

Yes. When you -- we don't actually do line price increases very often. So we didn't have a lot of history to go by, but I think it's kind of played out the way we thought it would. So in the first 6 to 8 weeks, so for us, that was the June quarter. You have some impact on sales, but it's not consumer demand. It's actually the customer negotiation impact. So some customers stop ordering for a while because the price have gone up, et cetera. So there is some impact from that.

Then in the next quarter, which for us was the September quarter, the prices are reflected on the shelf and the consumer needs to get adjusted. So there is some impact on units in that quarter. And we also saw that and you saw that in our Q2 results in North America.

I think now we should be at a place where we're pretty clean. We should be able to start growing share again. I think now the big question for the holiday quarter is the strength of the North America consumer market, well beyond our own performance, but the market as a whole. And if you look at our guide for the fourth quarter, the top of the guide assumes the market will be quite robust. The bottom of the guide assumes the North American market will be a little softer.

Okay. And are some PC peripheral exempted from tariffs?

Yes, yes. So although that sometimes changes and so we don't break out all the details, but some of our portfolio is exempt.

Okay. Interesting. So your gross margin of 43%, I mean, it was quite strong in the last quarter. Do you see any risk? I mean, should we -- how sustainable basically it is? I mean, you have the currency as well, maybe not in your favor, promotions as well might accelerate in the tight 2026 consumer market. So how should we think about the sustainability of your gross margin?

Yes. So we actually do believe that the gross margins are fairly sustainable. For the long term, we've said 40% plus. But for the quarter ahead, we said 42% to 43%. There's a number of things that are tailwinds that we'll continue to drive. The first one is cost savings. We have an excellent operational and procurement team who have consistently quarter-after-quarter driven cost savings in our business. So that's a help.

Second is premiumization and driving ASPs. We're very focused on driving and innovating at the top end of our ranges. The MX line in personal workspace, the MX Master 4 that we just launched this quarter is a beast, so fantastic. But also the PRO line in gaming, the ERGO line. We drive the top end of our portfolio to drive the average prices up.

And then -- so those are some other things we'll continue to do to drive gross margin. And then the last thing is mix. As we grow our video conferencing business, especially, that's higher gross margin than the average. So as that grows a little faster, it helps gross margin as well. Of course, there's headwinds as well. The main ones being tariffs, which we don't expect to go away anytime soon. And the other one is promotions. On promotions, so it's very important to do -- for us to do what's necessary. We're not going to instigate more promotions. But when competitors do, we will defend our business because when you buy one of our products, that's at least a 3- or 4-year purchase. So we're not going to lose that over $1 more or less promotion.

That makes sense. So you had the sell-through of plus 8% year-on-year in the recent quarter, which is quite strong again. But like we discussed, North America was down on volumes. So on that dynamic, and we briefly talked about it, do you see any change? You said it takes time to adjust. But any evidence or signals that this is picking up again?

Yes. So we did see it throughout the September quarter, things got better. So the trends were improving. So I'll tell you in January on this quarter, but too early to tell right now. What we do believe is that the strong trends in Asia Pacific and in EMEA will continue.

Okay. So you lost some market share before in China, but it seems to get better from what you described. So where do we stand here and what stimulated the turnaround in China? So if you can bring more details? You mentioned a few examples but if you can elaborate more would be great.

Yes. No. So very important. When I came, the business was in a tough spot in China. We were not growing sales. We were losing market share pretty significantly. So we made also a significant intervention by putting in place a China for China strategy and team. So we reallocated resources to put a large team in Shanghai, multifunctional R&D, design, marketing, sales to do 2 things. One is accelerate the innovation pace. China is incredibly competitive. So you just need to -- even though we launched 35 new products a year globally, we needed more in China to stay in lockstep with that market.

And the second thing is what I talked about in terms of marketing and go-to-market, our practices were just a bit outdated. So we needed to shake those up, start marketing on platforms like Douyin, TikTok, TikTok Shop as well as PDD, work with local creators and influencers, local pro gaming teams and go to 24/7 live streaming, which is a must in China. So we've done a lot things and it's exciting to see that that's working with some really great numbers in China on the top line and share stabilizing and starting to grow.

And what about the profitability in China? Because obviously, it's a very competitive market like you described. I mean we can go do analogy even across sectors and everything. You can always see a potential dilution from the China business because price pressure is quite common in that region. So how should we think about the mix and kind of the link to the gross margin element that I highlighted, if your China business gets back, is there any impact on your profitability?

We don't believe it will be material because on a product group to product group basis. So if you look at gaming or personal workspace, our margins in China are actually very similar to the rest of the world. The dynamic of growing ASPs and focusing on the high end of the portfolio for us is a very similar in China. The fastest-growing parts of our business in China are MX, ERGO and PRO in gaming. So those are expensive just like they are in the rest of the world.

What makes our overall margin in China, a little lower than the global average is the fact that we don't have much of a video conferencing business in China. Video conferencing in general, tends to lift gross margins. And that's a priority call. We have so much opportunity in video conferencing around the world that China isn't high on my priority list for video conferencing at the moment. But again, on an apples-to-apples basis, personal workspace and gaming, the margins are very similar in China for us as they are in the rest of the world.

And who are your competitors in China? I mean is it like mostly a lot that I can tell, but is it mostly like local or Western, I mean...

Local, local. But there's more than 500 manufacturers of mice and keyboards in China, and there's less than 10 in the entire rest of the world. So it is a really intense competitive environment. But honestly, we love it. It makes us better. You've got to move faster, you've got to be better. So it's very good for us to compete in China.

I heard someone from Volkswagen quoted the other day saying China is like a gym for them. Yes, that's very true. It's like a fitness center. And if you can win in China, in our industry, you can win anywhere.

Makes sense. Thank you. Moving to Europe. I mean, don't you see the risk in market will be flooded with this Chinese product because obviously, they can also go outside China as the U.S. access of these players are limited. So they will double down and they do that very well. So how do you see this threat?

Yes. No, well said, and it's not a risk, it's a reality. So clearly, U.S. market access has become more difficult for many of the Chinese players. So they've doubled down on Europe, especially on online in Europe, Amazon and other players. This is where we always have to walk and chew gum at the same time. We're focused on the high end of our portfolio to drive those ASPs and drive really great experiences for advanced users and advanced gamers. But at the same time, we're defending the entry level like there's no tomorrow. And so that is critical.

Then we -- every day, every hour, we're looking at, are we having the price level -- right price levels at the lower end of our portfolio. Unfortunately, we have the brand architecture to do that. We have -- if I use gaming as an example, we have a 3 series, a 5 series and 9 series and a PRO series with pricing that ranges across and we make sure we defend with the 3 into 5.

So finally, China is driving a lot of innovation across the board, basically. On the technology front, I mean, do you see anything headwind or tailwind currently? And for example, I would take the playing games via VR glasses might require no mice, no keyboards, so that would be a drag, but there may be some offset. So how do you see like maybe the technology threats and opportunities from here? I would say even like short term and long term.

Yes. So I'll take history as a guide here. The arbitrary for mice has been written many times. So when the first computers became the first laptops, people said, oh, no, the mouse is dead. When the laptops became mobile phones, people said, oh, now the mouse is dead. When there were iPads, the mouse is dead. What actually happened is they've been additive, and we've been able to innovate and create peripherals for each new generation.

I think that will be true for the new generation of computes as well. So whether that's the Quest, Meta Quest had said, Apple Vision Pro or Meta's glasses. We've already started to work with these players to create products that connect consumers using the headsets to that human. So we launched with Apple, a stylist for the Apple Vision Pro called the Muse. We've launched with Meta, a stylist for the Quest called the MX Ink. And while I can't tell you what's going to happen in the future, trust us, we'll -- we're very close to these developments, and I think they'll be additive to what we already have.

How do your team works with these companies in terms of visibility, road map and basically developing the products. I mean they work on what, on a 2, 3 years' view? I mean, what's your lead times on the innovation process when it comes to technology?

Yes. It really depends on the kind of project. But we're proud and honored that we worked with 6 of the Magnificent Seven on products and the fact that they trust us to be basically what they now call physical AI, I call it hardware -- yes, software enabled hardware. But the fact that they trust us to have close software integration and really making our products work with theirs is a real honor for us. And sometimes, it takes a number of years, the next generation of video conferencing with Microsoft, Zoom and Google, that takes a couple of years to get that really in place. Whereas maybe the next tablet keyboard for Apple that we did for the new iPads last year, it might be a little shorter, it might be 1 year or 1.5 years, so it depends.

And if I have to ask you what is the next big thing from Logitech, what would that be?

I could tell you, but I have to kill you.

I don't plan to give me your top 10, I'm asking like maybe 2, if you want, but...

So, of course, I can't tell you what we haven't announced. But the next big thing that we have announced, but will only ship in January is the PRO Mouse Superstrike. It is a gaming mouse. Think of us what Adidas and Nike are to running, we are to gaming, absolutely. And this new PRO mouse, the Superstrike is incredible. So if you play any first-person shooter games, we developed it with PRO gamers. Some of them have said to us, this is like cheating. It is so fast, the haptic feedback is so amazing and so novel. This is going to be a hit.

Good. On AI, I mean, you mentioned a bit of some opportunities for your customers, how it can play out. But a lot of discussion about internal as well. How do you use the AI in your company? Like how -- what's a tangible benefit you can get from? Is there any things standing out in terms of cost savings, in terms of anything can flag and how you can deliver it?

It's definitely -- I think the most tangible thing is our OpEx in Q2, which was down 200 basis points. AI played a big role in that. So since January, we've internally created more than 1,000 AI agents to help us across the company, and we're a company of engineers. So we're building these ourselves. And they're helping us really across the company from legal, finance, HR, into engineering and marketing. None of them have transformational productivity benefits. But 1,000 of them with an incremental benefit each are helping, and you're seeing that in our OpEx numbers, especially in our G&A. So I'm a big fan of AI agents, helping our people be more productive. And the way I hope it will play out for us is that we will grow faster with the same or slightly fewer people, not grow the same with a much less...

Operating leverage a bit more.

Yes, yes.

Okay. Thank you very much. I think that's it for me. That's all the question I have for you. So thank you very much for your time.

Thank you. It's a pleasure. Thank you.

It's a pleasure. Thank you.

Why don't we get started here? I want to just take out my pen. Perfect. Good afternoon, everyone. Welcome to the first day of the Euro TMT Conference. My name is Erik Woodring. I cover U.S. IT hardware based out in New York. Let me just quickly read the disclaimer. Morgan Stanley research disclosures can be found at the Morgan Stanley research disclosure website, www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

So I'm delighted to be joined today by Matteo Anversa, Logitech CFO. This is actually the first time we've been together at this conference, ever. And so a little over a year since you've been at the firm, obviously held a number of CFO positions previously across kind of tech and automotive, but excited to have you here. So thanks for joining us.

Well, Erik, thank you so much. You guys always do a great job. Thanks, it's a pleasure to be here.

Beautiful. So I figured what we'd do is maybe start short term, review the quarter, some of the dynamics there and then work longer term beyond that. And so maybe the most appropriate place to start is a quick overview of the September quarter, kind of highlights and how that quarter informs your view on the December quarter. And I would just ask any trends you'd call out, whether that's by customer, by segment, just as it relates to your December quarter?

Yes, sure. So let me just start at a high level. What I really liked about the second quarter is a couple of things. First of all, demand was extremely strong. For demand, I mean sell-through was very broad-based, both in terms of product, in terms of regions. So we saw the majority of our product lines having really double-digit growth in sell-through in the quarter, and the rest really was high single digits.

So very good broad-based strength in demand across all the product spectrum. And on a regional standpoint, sell-through was actually very good. Asia Pacific was up double digit. Europe was also up double digit. And North America was slightly up or flattish. We can talk more about that. But overall, demand was good. On how this translated into the net sales, there were a couple of, I think, important dynamics to call out.

And if I look at the regions, Asia Pacific continues to be a strong source of growth for us, up double digit, primarily driven by China, primarily driven by gaming. And gaming in China remains extremely, extremely strong. Europe did well and up in the low single digit, in line with market, driven by personal workspace and also video conferencing. North America, that's where we saw a slight net sales decline year-over-year.

And really, the dynamic that happened while video conferencing was good, we saw some softness on the consumer side, primarily in gaming, where we saw a, call it, roughly a mid-single-digit market decline in gaming in the quarter. With that being said, look, to the second part of your question, I think we are cautiously optimistic as we get into the holiday season for a couple of reasons.

The trend, particularly both in the consumer in general, in North America improved throughout the second quarter. So the latter part of the second quarter was a little better than the first part. So that's encouraging. Throughout the second quarter, we saw sell-through outpacing sell-in, which is generally a good indicator. So there is more room in the channel. We saw also some new releases of gaming, take Battlefield 6 is being doing pretty well, good comments from what we read.

And that really plays in the sweet spot for us for our gaming product. And then as we always do during this time of the year through our Logi-Work and Logi-Play event that happened in September, we have some fantastic products. So if you haven't tried it, you should. Both on the gaming side and on the personal workspace, new mice, Supertrike, more precise with Aptech feedback, the Superlight mouse, which is basically 50 grams also, so very light, a new set of wheels. So I think we are overall, I think, encouraged by the trend that we saw in the second half of the second quarter, and we are looking at the holiday season with cautiously optimistic. So that's, I think, the rundown.

Yes. Perfect. And you mentioned it, so I want to dig into it, which is just kind of the views on the U.S. consumer. And like maybe it's -- the question is almost about how you think about demand elasticity of the U.S. consumer because of tariffs and higher prices, how did they respond? How did you have to make changes through the quarter? Because you talked about that linearity improving. So was that pricing driven? Just kind of talk about all the factors as you think about the health of the U.S. consumer because that seems like a kind of swing factor relative to the market.

Yes, I can maybe to back up to your point, so for everybody to understand. The outlook that we provided for the third quarter has revenue up in constant currency, 1% to 4%, and we said gross margin rate between 42% and 43%. So the assumption underneath this outlook is -- so first of all, I think it's a pretty balanced construct taking into account on one side, the underlying strength of the business that we continue to see as we've seen in the first half of the year. But at the same time, also the litany of uncertainties that we are facing in the world today. So I think that's a pretty fair balance of the 2 components.

And really, we are expecting Asia Pacific to continue to do well and grow double digit year-over-year in constant currency in the third quarter. Europe continues to do what we saw in the first half of the year. So really, to your point, the bookend of our outlook are -- is centered around what happens in the U.S., right, with the consumer. So the low end of the outlook assumes that we continue to see North America trending slightly down year-over-year like we have seen in the first half of the year and that we have to promote a little bit more to stimulate demand.

So that's where the 42% gross margin rate comes into play. The high end of the outlook conversely assumes that we have a good holiday season. North America turns around, so flattish to slightly positive, and we have to promote a little less. So that's the 43% on the gross margin rate. So really, these are the bookends of the outlook. So in terms of -- to your question on elasticity, I'd say it's a little difficult to give you one number because it really varies by product line and price point.

But at a high level, as expected, what we have seen is really very limited elasticity in B2B and very limited elasticity on the mid- to high end of the pricing points of our products. On the other side, we've seen more elasticity impact at the low end and within the product categories in gaming. right? So that's kind of the point. I think overall, numbers came in as we were expecting, and this is really thanks to the very meticulous work that we have done basically since November, since the new administration was announced.

And when it was clear that tariffs were coming into play, we really looked at price points by price point, SKU by SKUs, and we tried to deliver a price increase that was in a way we thought swallowable by the consumer. So in aggregate, numbers came in as expected, but these are the kind of the different dynamics that I can tell.

Okay. And then maybe last one on the holidays is -- can you talk us through what you're hearing from retailers, whether that is willingness to take on new inventory, how they've thought through Prime Day 11/11 in China, channel inventory levels? Just any incremental color you can share just from that side of things?

So on the channel inventory, we're happy where we are. I think we entered the holiday season with the weeks on hand in the range where we wanted the weeks on hand to be. So overall, healthy. I think, as I said earlier, the fact that overall across the business, sell-through outpaced a little bit sell-in in the second quarter is generally good because it means that there is a little bit more room.

And 11/11 early to say because we'll see the results in a couple of weeks. But overall, we are pretty optimistic. We had 6/18, which was the prior big day in China, where we saw strong double-digit growth. We launched new products in China, thanks to our execution on the China for China strategy. So there is no reason to believe that we won't be equally successful. And for the rest, I think it's a little bit early to say. We'll have to see what happens with Black Friday and Christmas. So -- but I think we -- as I said, we are cautiously optimistic.

Okay. Let's touch first on international markets. So EMEA and especially APAC, it's been a real area of strength for Logitech. I guess the simple question is what's working for you in these international markets? And maybe the follow-up to that is just maybe compare and contrast that with the U.S. I'll ask about China separately because obviously, it's a unique market. But just compare and contrast what's working internationally and how does that compare to the U.S.

I think for the U.S., let me start maybe with a negative. I would call it more a market situation that we saw happening in the consumer side in the second quarter. So in terms of execution in Europe, you're absolutely right. Europe has been a bright spot for us now, at least since I joined the company, so almost 1.5 years ago. And it's really blocking and tackling and hard core execution by Yalcin, our leader in Europe and the team.

If you go to MediaMarkt, and there is a beautiful one here in Barcelona, you can clearly see it. We really -- Logitech looks like a leader. They've done a fantastic job with the e-tailers and retailers to make us look like a leader where people can go in, test the product, they can try it compared to competition and really have a sense of the entire Logitech portfolio. The displays are great. In the gaming side, a very similar story, right? You go in, we have play days where families can get in, try the simulators in conjunction with the big Formula 1 racing event.

So it's really a fantastic execution by the team. And I think that's why we keep growing pretty nicely in Europe. China, which is the other big international market for us. It's -- I think we are starting to see the positive impact of the China for China strategy that we launched exactly September of last year, if I recall correctly. So if you rewind the tape a little bit, as you may recall, Erik, we saw some share pressure in China in calendar year '24.

So we decided to create a cross-functional team, which is led by Quin, our commercial leader in China. And we -- the goal of the team was really to develop product for the Chinese market in China, for China, at the Chinese speed, right? Because you see it in our industry, I saw it in automotive, the speed in which the Chinese market operates is a step function of what we are used in our world. And so that's the goal of the team.

And I think they've done a fantastic job. We are launching and we launched new products. For example, upstairs, we have one of our products, mechanical keyboard with new lights, very bright, very colorful where the customers can replace the keys, right? That's a big trend. In China, quite frankly, we missed that. And so I think that's really what helped us stopping the decline in the share in gaming. And actually, we're starting to see now share gains in personal workspace, particularly on the higher end.

So that's really the execution of the China for China team. So really, Europe is commercial execution. China is the product and also marketing. We are much more marketing our product in social media, like TikTok and all these type of social media platforms. We are doing much more that today than before. So I think these are the 2, 3 things that we are doing differently.

And can you talk about just on China specifically, maybe how you ensure that the gains that you're benefiting from this year are sustainable, especially in a market that can be hypercompetitive? Like I think there's a different value proposition that Logitech offers.

Absolutely.

How do you make sure nobody encroaches on that value prop?

That was the entire intent, right? We saw primarily the -- the China for China strategy. We saw primarily share pressure on the low end. And our intent was, okay, we need to develop this product so that we can protect our turf a little bit on the low end with the ultimate objective to see -- not to see any negative impact on the mid to the high end where we play. And it's important to remember, Logitech is a fantastic player. We are -- our innovation, our quality, our brand that we try also to make even more iconic, right? This has been a hot topic for Hanneke since she joined the company a couple of years ago. That provides a natural shield in a way, also in China.

But having a product that we can fend off some of the low-end Chinese brand in China is very important. And it's not only important for China, but the intent then is we develop this product for China and then move them to other regions, for example, Europe, where we are starting to see also some low-end B brand, Chinese brand popping up since they cannot come to the U.S. due to the tariffs. And that's so equally important both for China as well as in Europe. And is there anyone...

The focus be Logitech, but is there anyone that's kind of coming for the higher end for you, right? Again, the value prop is so different than, hey, here's a $10 mouse, right? So we don't see it, but...

The majority of the pressure that we had in China and comment that I just made in Europe is primarily on the low end.

Okay. And then maybe last kind of near-term question. Just obviously, it's a pretty uncertain world, a lot of moving pieces. The guidance philosophy that you've taken of just kind of one quarter ahead, is that the new normal? Is that kind of how we should expect you can understand it because how are you going to forecast for demand 6 months from now? But just would love just an updated view.

So as you know, I used to give total annual, I gave it on March 5th, I think it was at Investor Day. And then a month later, the Liberation Day happened and we had to withdraw it for obvious reasons. I think for us -- in order for us to be able -- there are some complication aspect in our business, the third quarter with the holiday season is the biggest quarter of the year.

So it makes it -- the cyclicality, it makes it in a normal environment, already complicated to basically accurately look at a 12-month span, then the current environment makes it basically impossible. So that's why we decided to go and stay with 1 quarter at a time. I think we'll have to reassess what the situation is when we report the year-end financials in April, and we'll take a last shot over there. But for sure, there has to be a more economic stability in the environment in order for us to be able to go further ahead beyond 3 months.

Fair enough. Okay. So let's maybe take a step back. And one question that we get pretty often is just kind of the attachment or the tie that Logitech does or does not have to PC cycles, right? Because it's thought of you're attaching a number of products to kind of a core compute device and PCs. We've been through a number of very solid quarters in PC refresh. The market would have concerns about the PC market. I would argue Logitech has always outperformed the PC market. Just how do we think about PC refresh moving beyond Windows end of life, what that means for Logitech PWS business?

So for us, I really tried -- and we really tried as a team to look at data and see if we had a data-driven correlation between PC sales and our peripherals. I cannot stand here today and tell you, if X happens on PC, Y happens to us. But in general, so if you look at the data we looked at, spend 10, 15 years, normalized by COVID, roughly, you would expect peripherals to outpace PC sales, call it, by a couple of points. But let's take this with a grain of salt, okay?

So we don't count on the PC sales to the good or to the bad. When we do our models, we are not counting on it. But overall, I think it's natural to think that if there is a refresh due to Windows 11 or whatever, that should be a natural tailwind for our personal workspace. It's also, I think, dependent on how the retailers are placing the product, right? If your peripherals are sitting relatively close to the laptops, then I think there is a more natural trend for a person to go buy. If the peripherals are a couple of stands away, that's also more difficult. So that's why probably the data is very convoluted. But overall, I think a refresh should be a tailwind.

Okay. But then generally, again, not necessarily a hard guide, but generally think about...

Couple of points -- yes, Okay.

Okay. And then moving just to gaming. It's kind of a -- it's one that I think probably has the strongest long-term growth as we think about willingness to spend, number of gamers entering the market. I was amazed by how big Esports actually is globally. At the same time, I guess it can be fickle because it is very competitive, the market in general. So how do we think about the gaming market if we look out a number of years? And is there anything you're trying to do differently in gaming that you haven't done as we look out over that period?

I think -- so I agree with you. Gaming is -- everybody is gaming right now, like even my wife, who is most boring person ever. Hopefully, she's not going to replace, but like she's gaming so with a kid. And I think there is a -- that's a natural tailwind. Even in the U.S., the majority of the Americans, 45 or younger spend more time in gaming than going to restaurants and going to the movies. Gaming is a cheap form of entertainment.

We are looking at -- we are seeing this every day in China now for quite some time. I think what I -- in addition to the strength of the market, I think what Ujesh and the team, what they do so well is that we have products for the casual gamers like you and I and products for the more sophisticated professional gamers. They partner extremely well with other companies with, for example, NVIDIA, where we -- together with them, we launched this AI streamer, right, AI agent that streams the game live while you are gaming, if you're a professional gamer. We partnered with McLaren to develop some of the high-end wheels.

And we really develop particularly the high-end products with the professional gamers. So they are not only there in our stand, and you see their pictures, but they are really working with us on the product. So I think that's really what in my opinion, with the NPI and the new product that we obviously always introduce, that's a strength of our gaming team. So it's both execution by Ujesh and the team and a natural -- even in the second quarter, where we had this bumpy, call it, gaming performance in -- of the market in the U.S., we look at demand and market, gaming grew double digit.

Okay. And then just moving to the VC market. It's one I struggle with just big picture when I think about most return to office has happened. When I think about the prioritization of enterprises, where does VC spend come? Maybe talk me off the cliff and help me understand maybe what I'm not understanding because the VC business has been strong even if you kind of normalize the pricing.

Yes. So VC for us, first half was up -- net sales were up high single digit year-over-year. So very strong. I think the -- for us, 2 things I would point out. One is the fact that new ways of working are now part of the normal, right? The days of you as a worker having only one place like the office are well gone. We are seeing more and more companies calling back people into the office. And it's very interesting. I can't name the bank, but we had a few -- Nate and I were in London yesterday, we met with several investors, and we had really a case study.

So this group say, hey, we struggled internally. Do we call everybody back to the office every day. We decided to go hybrid. But now we find ourselves where we have to shrink the square footage because we don't need all the spaces that we had pre-COVID. And then we need to change the way our offices look with much more conference rooms that need to be enabled -- video enabled because in the meetings, 99% of the time, a portion of the team is not there. They are always traveling. So that's a natural tailwind for us, and it's happening everywhere, Europe, North America and Asia for us, B2B is pretty small. So let's leave that aside.

The second thing is for us is the fact that with the strategy of doubling down in B2B, we want to start penetrating some of the verticals where we have been pretty much not very focused in the past. So education, health care and the public sector. If you leave alone the public sector in the U.S. right now, the -- if you look at education and health care, these 2 verticals are in total, they make almost $4 billion of market size, growing mid-teen CAGRs. That's a huge opportunity for us where our product already has relevance. It requires some tweaks.

But really, it's more about getting the tools and the sales force to then get into these verticals. Since we started this focus on verticals, education has been great. Verticals have been growing double digit now for a few quarters. More to come. But I think these are the 2 key areas. So it is true what you're saying that the enterprise spend tends to be cyclical, tends to be lumpy. So don't expect every quarter for your modeling a high single-digit growth on VC because obviously, enterprises have to focus on AI, have to focus on cyber, digitization. But overall, over the long run, a, with our products; b, with the market and entering new verticals, that should be -- we're bullish, should be a tailwind for the company.

And it sounds like what you're saying is maybe more of a penetration story rather than a replacement story. Is that a fair...

I think it's both. Okay. What you said is true. There are still -- the vast majority of the conference rooms worldwide are not video-enabled. So that should be not a replacement, just us getting in into the door, right? And that's a tailwind for us and also for our competitors.

But then generally, these products companies replacing -- the replacement cycle is about 5 years. So now you're coming into a time post-COVID where the replacement is due, which also should give us a tailwind. And with the use of AI and how AI is embedded now in the software of the product that we develop, the new generation of products are so much better than the old generation as a customer experience.

Okay. So let's kind of bring that together. We touched on each of the major segments, PWS, gaming, VC. You've outlined kind of this path long term to 7% to 10% long-term growth. What's the time line to getting there? What's the right formula to think about? Like is there a certain type of mix we need to see for you to kind of sustain that level of growth? Obviously, there's a little M&A in there, and I'll touch on that. But just time line and kind of what we need to see to get there?

Yes. So in March, we said our long-term plan is to grow the company 7% to 10% and with OI between 15% and 18%. So profitability-wise, you may argue we are so far in the year, pretty good. And so we are happy, and we can talk about that in a separate question. On the top line, so if I exclude M&A, then organically, we said 6% to 8%. I think there are 3 factors to consider. One, personal workspace, video conferencing, so B2B and gaming play in 3 key markets where data is showing that these markets are poised to grow mid- to high single digits. So that already has a natural tailwind to the business.

Second, we are planning to continue to gain at least a point of share annually, right, through focus on innovation, which we do very well and really working on becoming an even more iconic brand than where we are today. Then the rest is entering the 3 verticals that I just said. That should give us, once we complete the work that we have to do, a natural 1 to 2 points incremental in the growth. So that's your math. That's how you get to the 6% to 8%. So we are well ahead where the work is well underway. Now Investor Day was in March. It looks like an eternity ago, but it was just like March. So -- but the work is well underway.

Good. Okay. Perfect. Let's turn to the cost side of things. And I would say, from my perspective, one of the most impressive, if not the most impressive part of your performance has been your gross margin performance. Year-to-date, your gross margins are stronger than any other period outside of the 2021 COVID crazy period.

So what has been that biggest source of gross margin as we think about multiple years, and maybe that starts before you got to the firm, but what is the biggest tailwind that you've been benefiting from if we were to think about the core underlying drivers there?

I think the credit really -- the biggest credit goes to Sree and the operating team, who have now for several quarters and a couple of years really have done a fantastic job in driving cost out of the product. And it's really in 2 key areas: supplier negotiation and value engineering. Value engineering is a complicated term, but basically, what this means, you take the product, you do it this way today, and now you think through how you can take cost out of your bill of material. What can you -- material substitution? What can you substitute of the product to make it more cost effective. So that's, I think, driver number one.

Then there are a couple of more high-level things that happened throughout the years. One is the mix, right? So even in the last quarter, when you look at the high-end products of our company, so the MX line, the ERGO line, wheels, the PRO Line in gaming, they all grew double digits, right? So that obviously drives the ASP, the selling price of the company higher and that also helps margins. So positive mix.

And then also business mix, depending on how far back you go. But pre-COVID, the B2B side, the DC side was probably like roughly 10% of the company, right? Today, we are at 40%. So split between consumer and enterprise is 60% consumer, 40% enterprise. Our stated target is over the long run, we would like to be a little bit more balanced to make the split maybe 50-50. And the margin on video conferencing equipment is accretive to the average of the company, right? So that really -- I think these are the 3 key factors.

Then obviously, if you look at the last couple of quarters with tariffs being implemented, the fact that the team did a great job in driving 150 basis points of positive price in the second quarter that also helped us offset the tariff impact. But I think if you forget the noise of the tariffs and you look at more longer term, I think operational, the work that Sree is doing, value engineering, supplier cost price negotiations, and the mix. That's the key reason.

And before I touch on tariffs quickly, just on the cost out, we hear it like -- maybe my question is, how much more of that is there to go? And I'd say it in the context of you guys have been very clear about how you want to spend on OpEx. You've kind of given us an operating margin target. So you can back into what you think gross margins are, and we're generally there, but you continue to see tailwinds from cost out. So the question is kind of how much more is there to go on cost takeouts? And is there anything to come after that?

Look, every year is a little different, and you are never done. This is almost like continuous improvement, right? So the way Sree and the team do it, every year, they come in basically at this time when we start thinking, okay, what's going to happen in the following fiscal year. And we have a hopper of projects that the team has to work on, to continue to drive the value engineering, so the product cost out -- the cost out of the product. You're never done. Every year is a new year.

We know what the hopper needs to be and how much needs to be in a way in the backlog of your savings every year to look at comfortably the following year, but you are never done. And I think -- and what is even more remarkable, I think, in the current environment is that the team that is doing this cost-out work is the same identical team that has been working on the manufacturing diversification, which I'm sure is going to come next.

And so -- and that's what actually, in a way, in the second quarter surprised me a little bit to the positive, right? The gross margin rate was a little higher than what we telegraphed the Street when we had the first quarter earnings call. Well, I was not really expecting them to do such a good job considering how much work they have to do concurrently on driving the diversification of the supply chain. So every year is a little different. But what you can count on us is every year, we have a hopper of projects, and we work relentlessly on it.

Okay. So let's talk about that. And I'm not going to touch on tariffs because there's so much uncertainty. It's not -- I can ask you your strategy tied to tariffs, but we kind of know that already. So the real question is the target is to get 90% of your U.S. product basically coming ex China by the end of this calendar year.

You know December.

And so maybe the question is just like where do we go from there? Can you make it 100%? Is that a goal? Or is that ambitious to think about it?

So a very good question. Let me start. First of all, the credit goes again to the supply chain team. And quite frankly, also our predecessors who started this process back in 2018. So that's what allowed us to be in a way, so fast, right? Because the process was really already underway. We just accelerated it, right, once the second Trump administration came into office.

So you said it correctly, only 10% of the imports that will come into the United States after the end of the year will be coming from China. I think the -- once we reach that, and we are well on track to get that by the end of December, you're reaching a point where almost the juice is not worth the squeeze because what's left is lower volume product, number one. Then the other thing is China is a great place to be. If you exclude tariffs, our ticket tariffs out of the picture completely. China is still a great place to produce the product, right? So we want to be there, both with our manufacturing side, but also with our supplier partners because things may change.

And having this flexibility of China plus 5, we don't want to lose it. That's what really allowed us in the tariff environment to deliver the gross margin that you were mentioning earlier. So never say never. We have a very, I think, meticulous way of assessing where to go. There are a couple of things that need to happen. Number one, you need to have a good supplier ecosystem wherever you go. You need to have availability of labor, and then it needs to make sense cost-wise. And we apply the same 3 criteria no matter we go. That's the process that we follow.

And I guess in kind of combining the 2 answers to the last question is as you've moved out of China, we haven't seen gross margin degradation. And so one can assume that the cost of a product made in Malaysia, for example, is not materially different than China.

When you start something new, you always have a little bit of higher cost just for ramping up the production. But the beauty is that we know the majority of the partners that we use. They know us. We send some time our own teams in short-term assignment for a few months in the new sites to make sure that things are done with our quality standard, with our efficiency standard. So I agree with your statement. It's not easy. It's a lot of work.

Right, exactly.

But, yes, okay.

Quickly touching on OpEx before we do kind of capital allocation and whatnot, which is spending in '24 was a little elevated in '25, it's normalized. Where does this go? Are we -- is it right for us to think kind of OpEx is 25% of revenue, set it and forget it? Like is it that simplified?

I think longer term, 24% to 26% is the right range. You said it right. Last year was a little towards the higher end. This year is towards the lower end. What I really appreciated of the work that the team has done is that we proved that we are capable of flexing down cost or up cost, depending on the environment that we are playing in. That's what the team proved, I think, in the first 6 months of this fiscal year. All the cost actions and austerity measures were primarily in G&A with the intent of saving money in G&A and then reput the money back into the growth of the business, which is sales and marketing and R&D, right?

So the percentages, look R&D is 6% to 7% of sales, that's where we want to be. That's the heart of the company. So this is nonnegotiable. Sales and marketing, call it, between 15% and 16% and then G&A is the rest. Right now, G&A is between 2% and 3%. And I think overall, we are in the right space.

Okay. Perfect. So let's touch on capital allocation and really going back to that long-term growth question and touching on M&A. For the time that I've known Logitech, it just -- it hasn't been a major part of the story. So when we heard it at Investor Day, it sounded like a bit of a change, like a tone change in that we want to make it a real part of the long-term growth algorithm.

So the question is, 3 part. How big are you willing to go? And is this strengthening the core? Or is this looking to add on adjacencies? And is there anything nonproduct there, like software or services or subscription or anything like that?

Yes. So we put some very specific boundaries, right? So you're absolutely right. M&A is part of the core strategy of the company and of the capital allocation strategy, right? And what we are interested in is really bolt-on opportunities, tuck-ins and bolt-ons that can expand our reach in work and play. It can be a technological company that maybe something that we don't have that we can do organically. But if I buy someone we can do it faster, that would be a sweet spot for us.

So really not large, not transformational. We are very comfortable with the organic growth trajectory of the company. So we don't need a big transformational deal that are risky and they're always difficult. And also, the other aspect is we want a company that allows us to go faster, right? And since you asked this question during the earnings call, I think as Hanneke said, it's like they are not easy to find, right? So -- but we're not in a hurry. We like the flexibility of the balance sheet. When we find something that fits this criteria, then we will execute.

And is there a story that we -- that you'd be looking to tell in the future about monetizing Logitech's brand and kind of platform outside of product? Like is there a subscription or services or streaming angle that you think that can become bigger? Or is that just...

Look, service, we're already working on it on the B2B side. It is very small, but it's fantastic margin. It's not big enough yet to make the print of the pages at quarter end, but that's for sure, a key focus for us. More to come on the rest.

Okay. So we're about 2 minutes left. I just want to kind of ask you the last question. Just anything that I didn't hit on that I should hit on as it relates to the story short, medium, long term or any message that you want to leave all of us post touching on everything that we do.

Yes. Great question. So I tell you what I like of the company, and I think you and I spoke about it in the past. I like the simplicity of the story. We are a $4.5 billion, $5 billion company that plays in market that in aggregate is more than $20 billion. So the organic growth potential for the company is immense, right? We are a company that we are market leader in the products that we do.

And our continued focus on the 6% to 7% of net sales in R&D will allow us through our extremely strong engineering team to continue to really position the company to be even more market leader today than when we are. We have a team that I think we've laid out a credible path to the 7% to 10% growth and 15% to 18% margin as we discussed earlier. Obviously, we are not immune to the craziness that is happening around us, but we have a very experienced team that thrives as demonstrated during COVID and even today during tariffs, right, as we said during the meeting. And overall, we are a very financially responsible company. We like the flexibility of our balance sheet.

But at the same time, we're a very investor-friendly franchise, right? We continue to -- as part of the capital allocation strategy, we want to continue to increase the size of our dividend and then return money back to shareholders with share repurchases, as we said during Investor Day. So that's really the essence of the story, pretty simple story.

We'll leave it there. Thank you very much.

Erik, thank you so much.

Thank you always.

Thank you.

[Audio Gap]

China plus 5%. Our strong and growing brand, our pristine balance sheet and our experienced high-performing team. I believe these assets, combined with our clear strategic priorities position us well to continue to deliver strong results. And before I hand over to Matteo, let me say a big thank you to our teams around the world. Our people are driving this strong performance and a unique culture. And I was super proud that, that was recognized by Forbes this quarter. When they ranked Logitech out of 900 global companies as #25 on their list of the world's best employers. Matteo, over to you.

Thank you, Hanneke, and thank you all for joining us on the call today. I would like to start by thanking our teams around the globe for the continuous strong execution in the second quarter. While the external environment remains challenging, our execution centered on playing offense, disciplined cost control and agility. And this focus drove a non-GAAP operating income of $230 million up 19% year-over-year. The strong profitability was achieved in a quarter where we delivered mid-single-digit net sales growth year-over-year. So let me discuss some of the key aspects of our second quarter financials.

Net sales were up 4% year-over-year in constant currency, supported by continued robust demand across both consumer and B2B. And actually B2B demand outpaced consumer in the quarter. Some key highlights to mention across our product categories. Our personal workspace grew year-over-year fueled by double-digit growth in pointing devices and keyboards and combos. Gaming delivered 5% year-over-year growth in constant currency, driven by double-digit growth in PC gaming. Video Collaboration grew 3% in constant currency, driven by high growth in EMEA, while Americas was relatively flat due in part to the pull forward of sales that we highlighted in the first quarter. We executed well across our regions and more specifically, Asia Pacific grew 19% year-over-year in constant currency, led by sustained double-digit growth in China.

EMEA grew 3% in constant currency, driven by strong growth in video collaboration and personal workspace. And conversely, Americas was down 4%, primarily due to the gaming market decline. And as Hanneke just noted, we also experienced lower demand early in the quarter, as a result of the pricing actions that we took to offset tariffs, which improved in the latter half.

Moving to gross margin. Our non-GAAP gross margin rate for the quarter was 43.8%, similar to the prior year, and it is important to note that the negative impact of tariffs was entirely offset by our price and manufacturing diversification actions. Additionally, product cost reductions offset investment in strategic promotions. We continue to be very disciplined in managing our costs. And as a result, operating expenses declined 3% year-over-year and were 24.4% of net sales down 140 basis points from the 26.9% in the second quarter of last year. And similarly to last quarter, this decrease was primarily driven by a reduction in G&A as a result of the measures that we implemented to mitigate the impact of tariffs.

As I mentioned earlier, this focus drove a non-GAAP operating income of $230 million, up 19% year-over-year and a non-GAAP operating income margin expansion of more than 200 basis points.

Moving to cash. Cash flow continues to be strong. We generated approximately $230 million in cash from operations, 100% of operating income and ended the quarter with a cash balance of $1.4 billion. We returned $340 million to shareholders in the quarter through dividends and share repurchases, consistent with our capital allocation priorities.

Now looking ahead, as Hanneke pointed out, we are monitoring 2 pockets of uncertainty. The U.S. consumer market, particularly in gaming and the overall macro environment particularly around tariffs, export restrictions, global trade dynamics and inflation. Now nonetheless, we are expecting the overall top line trend to continue to be positive and roughly in line with the performance year-to-date. Net sales in the third quarter are expected to grow 1% to 4% year-over-year in constant currency, with gross margin rate between 42% and 43%, and non-GAAP operating income is expected to be between $270 million and $290 million.

This outlook contemplates tariff levels for the third quarter to be unchanged from the current structure, and we anticipate, again, that our pricing actions and continued diversification efforts will offset the negative impacts of these tariffs. So while there is a level of uncertainty in the U.S. market, we will continue to manage the business with diligence, generating strong levels of operating income and cash from operations. So I want to thank once again our teams across the globe for their dedication and flexibility.

And now, David, I think we can open the call for questions.

[Operator Instructions]

And now our first question is form Asiya Merchant from Citi.

Great I hope you may hear me?

Yes, Asiya.

Okay. All right. Wonderful. Wonderful. You can [indiscernible] double on US consumer uncertainty that you talked about specifically a literally a main -- what have we been -- has that been a function of any of the price increases that you put through? And when you talk about Americas improving as the quarter progressed, was that -- is gaming part of that if you can just double click on that. And then just given the fact that sell-through was so much better than sell-in, why should we have like more seasonal or maybe more like mid [indiscernible] kind of guide that you guys are talking about. .

Yes. Thanks, Asiya. So there's a couple of pieces in that question, I appreciate it. Maybe first on the markets overall. We saw continued strong markets around the world on the work side of our business. So video conferencing and personal workspace, really markets were strong and growing everywhere. In Europe and in APAC, the gaming market also continued to grow. But in the Americas, it was a little bit more mixed. Again, VC and PWS were really solid market-wise, but the gaming market in Q2 declined mid-single digits. And the reason for that decline can be debated, but I think what's more important is that we're cautiously optimistic that the gaming market will recover and be back to growth in the holiday quarter for a number of reasons.

First of all, we saw the trends improve as the quarter progressed in Q2. There have been some game releases early in Q3, notably Battlefield VI which is the type of game that really plays to our strengths and is off to a really good start. And then we have an excellent innovation bundle and some targeted promotions where needed to continue to grow the business. So I think, again, globally, market is actually quite strong. North America gaming a little softer. And by the way, in the global context, our competitive share performance in Q2 was also very strong. So all in all, good momentum and cautiously optimistic that, that spot of North American gaming will be better during the holidays.

I'm packing a bit the second portion of your question on the outlook. So the way I think I would describe it is we think it's a reasonably fair balance between the underlying strong performance that the business continues to have, as you've seen in the results that we posted earlier today, with some of the [indiscernible] of uncertainties that Hanneke talked about in our prepared remarks. So when you look at it by region, basically, we are expecting Asia Pacific to continue to perform extremely well with double-digit growth. China keeps doing extremely well. We have 11/11 coming up here in November. So we are expecting strong performance on gaming. So Asia Pacific will continue to perform in line with the last couple of quarters.

Similar thing for EMEA, we are expecting a low to mid-single-digit growth in constant currency in Europe as well. So the bookends of our outlook is really around the -- what's going to happen in North America with the U.S. consumer to Hanneke's point earlier. And here, if you look at the low end of the outlook, assumes a North America that continues to be slightly negative year-over-year in terms of net sales like we have seen in the first 6 months of the year, while the high end of the outlook assumes a strong holiday season, strong consumer and North America actually turning flat to slightly positive. So that's the bookends of the outlook that we provided today.

And was any of that an impact of prices that you put through price increases that you put through?

Yes. I think mostly our brand and our products, both of which are, we believe, quite superior protected us to a large extent from impacts of the pricing. I would say, in general, higher-priced premium products as well as our B2B portfolio, we saw very little to no impact of the price increases, where we did see some impact was on entry-priced products, -- and even there, probably a little bit more so on entry pricing gaming than in PWS, and we're actively managing that with targeted promotions.

Our next question comes from Erik with Morgan Stanley.

Maybe just following up on Asiya's question there. Just if you could maybe touch a little bit more on the consumer response to higher prices. And really, what I'm trying to get at is, you talked a little bit about B2B pull forward in the June quarter. What type of behavior did you see kind of prior and then after pricing increases in the U.S. that maybe informs you about the consumer. And how are you -- or what are the assumptions that you're making into the December quarter as it relates to pricing and kind of the elasticity of pricing? And then a quick follow-up, please.

Yes. So again, on the B2B side, very little impact with the exception maybe of some timing impact where again, we saw a little bit of pull forward in our Q1. But demand-wise, very little impact same thing on the premium end of the portfolio, very little impact. I think the U.S. consumer at the high end is in good shape, a little bit more impact on the lower end. That's not unexpected. And again, that got better during the quarter. So overall, we're really pleased by the fact that we took pricing early and you see what that does to our gross margins, where we were able to offset the entire impact of tariffs by pricing and cost reductions.

Okay. And then quickly as my follow-up. Hanneke maybe it's better for Matteo as well or maybe both of you is just, can you talk about how Logitech is thinking about M&A today? And if there's any difference from what you outlined at your Analyst Day back in March, I only asked we haven't seen -- I don't think anything has necessarily materialized over the last, let's call it, 6 or 7 months. And so is that just a function of better uses of cash? Is it a function of valuation? Is it a function of the opportunity set? Would just love your feedback there? And that's it for me.

Yes. Thanks, Erik. No change. I'm afraid versus AID. So our top priority for capital allocation is investing organically in the business, and that's definitely what we're doing. Second priority is making sure we grow the dividend every year. Third priority is M&A, and we are actively out in the market looking for the right targets, but they have to be strategic, and they have to make the boat go faster. And we're looking at lots of things, but I'm going to be very careful. I want things that make the boat go faster. And those are not so easy to come by. And then our last priority when it comes to capital allocation is share buybacks because we also don't want a lazy balance sheet. And you saw us returning a lot of cash to shareholders in the quarter, mostly through the dividend in Q2, but also through some buybacks.

Our next question comes from Alex Valero with Loop Capital.

[indiscernible] Fernanda. So just back to gaming in the Americas. Can you speak to how and when do you think the Americas, I believe you said, entry-level gaming can normalize the higher ASPs.

Yes. Again, we saw trends improving throughout the quarter. And in America, we haven't taken price increases in a long time. So we don't have a lot of history, but we have taken price increases in other markets around the world over the last -- in recent times. And you tend to see a bit of an impact in the first quarter after. So that is no surprise. And again, we were pleased to see in the impacted parts of the portfolio trends improving throughout the quarter. And as Matteo outlined, exactly when that will normalize is a little hard to tell, which is why we have a range for Q3 and the bookends of those assume either it normalizes faster or it takes a little bit longer. But overall, we're confident that it will normalize.

Awesome. Just a quick follow-up. I believe I recall you mentioned that the B2B is going to layer in over time. Can you speak to what the mix is today in terms of business to consumer and where does it go from here?

Yes. So Logitech for business, which includes VC headsets and personal workspace sold into the enterprise channel is about 40% of the business. And that's creeping up up very slowly over time as we doubled down on that. And we're pleased in Q2, it was again a strong quarter for Logic for business. You saw the VC sales were up with double-digit demand growth. And we like -- well, there's a lot of things we like about Q2 and Logitech for business. But I would say what I like particularly, we saw disproportionate growth in higher ASP or premium solutions, including the exciting new [ Rally ] board 65 videoconferencing mobile solution, which is proving to be very popular.

We continue to strengthen our go-to-market capabilities. We launched CPQ -- price quote in the quarter, which is really helping us quote faster and deliver better service to our customers. And the education vertical continue to be -- continue to do very well in the quarter. So I have lots to like there, and we'll continue our focus on Logitech for business.

Our next question comes from Samik Chatterjee with JPMorgan.

Let me check first. Can you hear me?

We can hear you.

Okay. Great. Maybe Hanneke and Matteo, what are you hearing from your distribution partners in terms of promotional activity that they want to really sort of ramp into the December quarter? I know you mentioned 11/11 as well in China. Just in relation to previous years, what are you seeing in terms of intentions from retailers for promotional activity? And maybe how does that influence the gross margin that you outlined for the next quarter, particularly when we compare to the slight moderation we have seen last quarter went from Q2 to Q3. So last year, I mean, sorry, and I have a follow-up.

Yes. I'll let Matteo comment on the gross margin guide for the next quarter. In terms of what we're hearing, I've been out in the market quite a bit here in the U.S. and in Canada in the last few weeks talking to customers, to consumers, to some of our partners. I would say they're also optimistic on the holidays. They want to be sure that our premium offerings look really great. And if you go into a Best Buy or in Europe into a media market, you'll see fabulous execution, I think, of the McLaren collection and the MX Master 4, which is up beast. They also want to be sure that we together offer great value on the low end of the portfolio. So both in Europe and the U.S. You've seen us in the past quarter do a little bit more promotion there.

And I would say that, that kind of mix of great visibility of the high end and targeted promo on the low end will continue into Q4. And that's important, not in Q3. Sorry, that's continuing -- that's important not just in the U.S. but also in Europe where we need to do a lot of blocking and tackling versus low-end Chinese competition, which for obvious reasons, is more active in Europe now than last year.

So Samik, let me unpack to you the gross margin a bit. I think the best way to think about the third quarter is almost looking back at the second as the story is actually pretty similar. We've been now for quite some time, pretty surgical on promotion and really to Hanneke's point, really spend the money very carefully where we think is needed. And that's exactly what happened in the second quarter, and that's what you can expect us to do also in the third. So if you look at the gross margin rate in the second, we're basically flattish year-over-year. As we said in our prepared remarks, our pricing actions completely offset the impact of tariffs.

Then we had the team -- the operating team did a marvelous job and continue to work on product cost reduction, while they were also concurrently working on the manufacturing diversification. And this gave us about 100 basis points of the margin expansion year-over-year, which was offset by slightly higher promotion to Hanneke's point that she just described. And then the last quarter, if you recall, last year, we had the release of inventory reserves, which was not occur this year that put about 100 basis points pressure year-over-year on the gross margin side, but this was offset by the positive effects due to the current exchange rate, primarily euro to USD.

So that's the breakdown of the second quarter. So if you look at the third quarter, actually, the story is going to be -- we are expecting this to be very, very similar. So we will continue to work on product cost reduction, so that should help us offset a little bit more of the promotional spend that you normally have in the third quarter being the holiday quarter. And then I will continue to offset the impact of tariffs. So that's how we layered out the outlook of 42% to 43% that we described today.

Okay. Okay. Got it. Maybe just for my follow-up. For the OpEx run rate that you're managing the business to fairly looks fairly disciplined and you're managing it with a lower OpEx envelope year-over-year. I mean, obviously, the business is still growing. So what are the areas you're sort of making those trade-offs on? And where are you finding those efficiencies to keep the OpEx envelope this tight at this point?

Sure. So starting at a high level with the numbers, right? We outlined even at the Investor Day that our objective is to have OpEx in the range of 24% to 26% of net revenue. right? Last year, you saw us maybe more on the higher end of this range. And this year, so far, we have been a bit on the lower end. And that's fundamentally driven by some of the measures that we took in light of tariffs to control some of the cost. And here, we need to be very clear that as we did also in the first quarter, most of these cost control actions were centered around G&A. So the typical, Samik, blocking and tackling that you would expect a company to do on G&A, control contractor cost, pausing hires of people that are not related to R&D or sales and marketing and travel control, this kind of stuff. And so that's really where the focus has been.

So really trying to curtail the cost on G&A but at the same time, take these savings on the G&A side and they are -- back into the growth of the business, which for us means R&D and then our sales and marketing. And that's what should expect -- you should expect us to continue to do in the next couple of quarters.

[Operator Instructions]

And with that, our next question goes to Didier with Bank of America.

I've got a couple. Maybe first, maybe for Matteo. I'm just wondering -- I think you touched on it a little bit, but -- how should we think about the marketing spend in the holiday season? Because I can think like some -- you've got some sort of tailwinds from FX. You've got also a sort of a difficult consumer environment or slightly more difficult consumer environment in the U.S. So you would want to use that FX tailwind maybe to invest in the U.S. At the same time, you also have a channel that is very lean. So I just wonder how you [indiscernible].

Yes. We feel good about inventories ahead of the holidays, both in the channel and our own inventory levels. So they're healthy. We have enough, we don't have too much. It's all good. The way -- if I look at overall OpEx, again, Matteo said it just now, we had a great quarter in terms of OpEx, 24.4%. That's, I think, 240 basis points down versus last year. So that's a really great discipline. That was focused on G&A, where we're super purposeful and just tight. R&D was virtually unchanged in Q2, and we're going to continue to invest there. That's our bread and butter.

And then to your point, marketing was also in Q2, close to last year. I think what's important to note there is that the effectiveness of our marketing spend globally continues to improve. We're shifting money from nonworking producing stuff to working, which is, in general, much better. And we're also strengthening our marketing capabilities. I've mentioned China before. But in China, we are really rocking it in marketing. And in fact, just last week, at China's big marketing ROI festival, there were 2,400 entries for best marketing ROI and we were 1 of only 11 gold award winners. So it just shows the strength of our marketing team and how we've modernized marketing, we're getting more -- for a buck in marketing.

And I expect that to continue in Q3, and we won't hesitate to lean into either R&D or sales and marketing spend if we think it can accelerate the top line.

For modeling purposes, the -- remember, the third quarter, the OpEx as a percentage of net sales tends to be a little lower just because it's the biggest quarter of the year. So that would imply a sequential increase to Hanneke's point, both the overall in OpEx and the increase will be primarily in R&D and sales and marketing. So that's what you can expect.

Perfect. And the quick follow-up is on the China for China strategy. I think I take last quarter, you sort of mentioned that there was a pivot in the competitive positioning of Logitech, you were starting to gain share after several quarters of difficult, let's say, competitive environment for the company. So maybe can you elaborate a little bit more on the products you've introduced, the price points you're hitting and where you've encountered the greatest success?

Yes. No, happy to do that. So again, China had a -- we don't break it out, but you've seen the APAC numbers and China was ahead of those APAC numbers. We continue to hold the #1 shares actually in Q2, PWS share now grew for the entire quarter, which I haven't seen since I've been at Logitech. So that was great to see. And gaming share for the quarter was still slightly down, but the trends are improving. So that's good to see. That's driven by the marketing I just mentioned, where the team is doing a great job versus even a year ago. and by innovation. So our global innovations are working well in China, but we've also invested in China for China innovation.

So the most exciting thing we launched in Q2 was a new gaming keyboard, the G 316 just for China, really cool and unique -- lighting retro vintage display and of course, all the cool performance stuff, 8 kilohertz, et cetera. That is doing very well. That's actually on the medium, I would say, lower medium end of the price range, which is an important part in China to really go big on, still great margins. The team has done a great job designing and building that in China. And you'll see that type of innovation more and more of it going forward. But super excited about the momentum we now have in China in a fast-growing market as well.

Okay. Our final question will come from Michael with Vontebel.

Yes. Good to see you all. You actually answered just all my questions on China just now, but I have 2 small follow-ups. One is on the channel inventories. You said channel inventories are quite lean. You're happy with inventories. Is that the same dynamic across all regions? Or are there any differences across the regions? And can you tie that also maybe with the numbers you showed on sell-in and sell-through? And the second question would be just on gaming. Could you give a bit more color on the different subsegments in gaming simulation console and PC gaming. I mean you mentioned PC gaming being very strong, but what about the other categories? .

Why don't I take the gaming and then you can comment on the inventory. So yes, we talked a lot about gaming in the U.S. But maybe if we zoom out gaming globally, again, continue to be really strong with net sales up 5% and demand up double digits. Driven by very strong, again, double-digit sales growth in our #1 market, which is China. When we look at the different parts of the business, Michael, we're seeing continued strong demand at the top end. So Pro was up more than 25%. SIM was up more than 10%. So that's really great. And again, we continue to block and tackle in the lower end of the portfolio, which is also important which also saw solid growth, but the kind of disproportionate growth is coming from the top end of the gaming business.

Again, excited for the short term on gaming with things like the Super strike and the Maclaren collection. I'm very excited about the mid- and long-term prospectus in gaming.

And Michael, on the -- on your question on the channel inventory, we feel the channel overall across all our regions is in a good spot. When we look at the weeks on hand, it's in the range that where we wanted this to be. It's important not to confuse, we had a little bit of a channel inventory dynamic in B2B in VC actually last quarter. That's why you saw in the first quarter the selling of BC outpaced the sell-through and now the reverse happened in the second quarter. But that's a dynamic that has been fixed here in the last 6 months.

So overall, we are pleased where the inventory is. And overall, if you look at AMR, that's where you have the biggest discrepancy the sell-out of pace the sell-in a bit, which is a positive sign as we enter into the third quarter and the early season.

Sorry, we do have one more question from Martin with BMP. Martin.

2 quick follow-ups. And the first 1 is really on the strength in keyboard and mice. Would you say that is Windows 10 refresh driven? Or is there more [indiscernible]? So Well, none of those 2? That's the first question. The second 1 is more from Matteo, I would say. Just on the tariff headwind, I think was that the 200 to 300 basis points that you were expecting that you saw in the third quarter? And then also going forward, as you exit the -- or slowly exited China to U.S. business, should we actually see that headwind ease over the next couple of quarters?

Yes. Maybe I'll take the PWS 1 first, and thanks for noticing that really great results in keyboards and combos and mice. Some people think those things can't grow. But as you can see, they can grow. What were the drivers? I'd say the first driver was, again, the premium end of our portfolio. So MX and Ergo are doing extremely well, both with double-digit growth in the quarter. And again, that MX Master 4, a lot of pent-up demand for it entirely separate. It's dedicated to it before launch, just a lot of excitement on that launch. Then we're seeing continued excellent execution in store and online on our core keyword and mice business.

And to your question, is this linked to the Windows 11 refresh? We've always said -- I don't think our growth -- we know our growth is not directly tied to any PC sales trends. And historically, peripherals have always grown a couple of hundred basis points ahead of PC sales but it can't hurt. And we're always very focused on attach programs in-store and online when you buy a new PC. We also hope you will attach 1 of our peripherals. And of course, with some of the excitement about the Windows 11 Refresh and the AI PCs, that gives us more attach opportunities I would say that's a mild tailwind, but the real growth comes from our premium portfolio.

So Michael, let me -- Martin, sorry, let me talk about the other question. So the -- if I would rewind the tape, right? So in the last earnings call, we said that we were expecting the tariff impact to be about 200 to 300 basis points offset by 200 basis points of price. So we were expecting the net impact all in, including the diversification action and price to be between 0 and 100 basis points negative for the gross margin for the quarter. What in reality happened is, as we mentioned in the prepared remarks, we were able to offset the entire impact of tariffs. It's about 150 basis points each. So -- the impact of tariff, net of diversification was 150 basis points pressure to the gross margin and price was a lift of 150 basis points.

So net-net, we were able to asset entirely. And really, that's driven by Three key things: number one, the continued work that our supply chain team is doing on manufacturing diversification, which is trending in line with plan. The price actions that we took in April and then supply chain management. Really, they are doing a fantastic job in managing inventory, and they were able, as we said in prior calls, to pull in some of the inventory, some of the purchases ahead of new tariffs being placed. So we were able to mitigate some of the impact of the tariffs.

So this 150 basis points dynamic, that's what I would expect also to happen in the third quarter. So 150 basis points impact on tariffs, offset by price, assuming obviously, the tariff structure stays as it is currently.

And now we have no further questions.

Great. Well, thank you all. It's great to see you all looking forward to seeing you in the follow-ups, and thanks for being with us today. Have a good week.