Good day and welcome to the Logitech Fourth Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. We will be conducting a question-and-answer session and instructions will follow at that time. This call is being recorded for replay purposes and may not be reproduced in whole or in part without the authorization from Logitech. I would like to introduce your host for today's call, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech.

Welcome to the Logitech conference call to discuss the company's financial results for the fourth quarter ended March 31, 2015. The press release, our prepared remarks and slides as well as a live webcast of this call are available online at logitech.com. As noted in our press release, we published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments today and they will not be read on this call. During the course of this call we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech’s Annual Report on Form 10-K dated November 13, 2014, and subsequent filings, which are available online on the SEC EDGAR database and in the final paragraphs of the press release and prepared remarks from Logitech reporting fourth quarter financial results for fiscal 2015. The forward-looking statements made during this call represent management’s outlook only as of today and the company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. Please note that today’s call will include results reported on both a GAAP and a non-GAAP basis. Non-GAAP reporting is provided to help you better understand our business. However, non-GAAP financial results are not meant to be considered in isolation or as a substitute for or superior to GAAP results. Non-GAAP measures have inherent limitations and should be used only in conjunction with Logitech’s consolidated financial statements prepared in accordance with GAAP. Our press release includes a table detailing the non-GAAP measures, together with the corresponding GAAP numbers and a reconciliation to GAAP. This information is also posted on our Investor Relations website. The slides that accompany this call include both GAAP and non-GAAP measures and are also available on our Investor Relations website. We encourage listeners to review these items. This call is being recorded and will be available for replay on the Logitech website. Joining us today from Zurich are Bracken Darrell, President and Chief Executive Officer; and Vincent Pilette, Chief Financial Officer. I’d now like to turn the call over to Bracken.

Thanks, Joe and thanks all of you for joining us. Fiscal year 2015 was a very strong year. In two years we've tripled our profits, we've delivered the highest earnings per share this year in seven years and we've transitioned the company into growth mode. Now let me give a brief overview and I'll also give you a few telling facts that will show you our business model is working well. As you know, our basic business model is two key things, optimize profit and PC peripherals and build new categories that will become sustainable growth engines. It is that simple. So how are we doing optimizing process? Not only did we deliver our three-year goal in year two, we also over-delivered virtually every line item of our profit improvement goal, gross margin, overhead or OpEx, and operating income. In short, we crashed this goal. This year's operating income is not only the best since 2008, but we tripled profit between fiscal year 2013 and fiscal year 2015 and actually delivered the second strongest EPS in the last seven years, all that even though the PC market was down. The iPad market was down even more and the dollar strengthened radically. As our founder would often say, we didn’t miss because of market, we missed a currency upheaval. We delivered in spite of it. So I think you'll agree our profit optimization strategy is working well. But as I said at our Analyst Investor Day, our transition to becoming a growth company is also working very well. Looking at our business from a distance, one might say, how can you claim that the growth story is working very well Bracken, when you reported net sales in FY '15 were flat? Well the answer is that it is clear once you…

Thank you Bracken, and good afternoon everyone. I'm also very pleased by our Q4 and full year performance. For the second year in a row, we finished our fiscal year with better than expected results and this time despite a significant headwind from the stronger U.S. dollar. Our underlying growth drivers are improving significantly as Bracken highlighted with our Retail Strategic sales up by 6% in constant currency in fiscal year 2015. We improved our gross margin for the second year in a row and delivered a record gross margin in FY '15. We reduced operating expenses in absolute terms for the second straight year and achieved the lowest level of spend in the last five years and as a result we delivered our highest EPS in the last seven years. And we continue to general strong cash from operations achieving record cash conversion cycle in FY '15. Also we have a lot of work in front of us to capture our full market opportunity and navigate through the changes of global currency headwinds we are very excited by the momentum we have exiting the fiscal year 2015. As I come back on a few numbers let's start with our operating profit. For fiscal year 2015, we delivered non-GAAP operating profit of $191 million well above our initial turnaround target highlighted here in Zurich about two years ago. The strings 9% operating profit margin achieved in FY '15 compares to 6.5% profit margin a year ago and 3.1% two years ago. The accelerated profit improvement was driven by our higher gross margins and disciplined spending combined with improvements to the fundamental growth drivers such as innovation, product design and distribution effects. Our FY '15 non-GAAP gross margins improved by 190 basis points to a record 36.8%, while our gross margin…

Thanks Vincent. I want to close on how we'll continue to build a great design company in the years ahead, an innovation company with strong sustainable growth. Before I do, let me add a comment to Vincent's about the strong dollar. While this creates some short term pain, we are assuming the strong dollar is here to stay and we're playing offence, going on the attack, by treating this as an opportunity to accelerate our transformation to strong growth. We're doing things right now that we might have done more gradually had the dollar appreciation never happened. Let me share some of these key actions with you. First we're focusing our entire company on our Strategic Retail business growth. In that regard, we're actually increasing our investment in growth categories, so-called plants and seeds. We continue to approach future growth categories or seeds with small startups to our teams. Remember, growing from seeds to strong growth businesses is not new to us, as I mentioned earlier. In fiscal year 2015 we generated $380 million in sales from Mobile Speakers, Tablet Accessories and Video Collaboration, all businesses that started as seeds within the last few years. One consequence of our focus on our retail business going forward is that we've begun the process to exit the OEM business. It will be gradual or fiscal year 2016 as we'll honor our commitments to customers we'll extent over varying periods of time. We're working through the operational details of this transition with our customers and we'll share more with you over the coming months. This business gave birth to Logitech and our final exit permit is now the real symbol of just how far we've come from to small offices, one in Apples, Switzerland and another on the top of a bicycle shop…

[Operator Instructions] Our first question comes from Youssef Essaegh with Barclays.

Thank you for giving me the opportunity to speak first here. I wanted to ask you about the OEM business, it still represents about 6% of your sales and now you have decided to run down this business. So I was just wondering, if this was taking into account when you first guided for 2015, sorry 2016, a few weeks ago or that wasn’t the case and this is a new decision and if so would you think it’s going to replace the OEM revenue in your guidance? Thank you.

Youssef, thanks for question. Yes it was not considered in the guidance we gave before but we’re very comfortable that – you’ll notice we are really guiding on strategic retail and we’re assuming that we’re going to exit the OEM business over the rest of the year. The combination of OEM and Lifesize our assumption here and we’re going to manage it that way is that will breakeven essentially on those businesses, so they won’t affect the bottom line.

Okay. So in that case in the rest of the businesses where are you seeing the upside, is it in mobile seekers or what else otherwise?

You just have to be very clear in the guidance. We’re guiding on retail strategic same than a few weeks ago, 7% in constant currency spot. We’re not guiding on a full year total company level for revenue because we’re still working the plan with our customer with regard to OEM and understand the full impact on topline. As Bracken mentioned, we know all the levers in our P&L, those two businesses combined run at breakeven and we confirm the bottom line guidance of $150 million despite that the currency headwind.

Okay, sorry I missed the revenue guidance is not there anymore, okay thank you. So sorry about that. Thank you.

Our next question comes from Andrew Humphrey with Morgan Stanley.

Hi thanks for taking my question. Just on the gross margin mix if I may, you had a stronger performance in growth categories this quarter certainly weaker in profit maximization which is good for topline I think but on the gross margin side of things I think typically you said margin for the profit maximization category is higher. I wonder can you talk about your full year gross margin guidance in that context, I mean that kind of just over 35% figure that you’ve given at kind of a $1.12. How does mix affect that given where you’re seeing this quarter?

Yes. Andrew this is Vincent. So in Q4, Q4 is always a lower gross margin, we have two impacts, a higher E&O write offs as we prepare to exit the OEM business that is about counting for about a point and we have a currency impact now that start to show up, partially offset still by hedge but of 1.6 percentage point. If you add those two that gives you the kind of operational trend that we’ve been Q4 always lower but somewhat in line with the rest of the year. Moving forward we did consider the currency impact, we have pricing actions, we did consider cost reduction and we still maintain an over gross margin of around 35%.

Great. Thank you very much.

Our next question comes from Joem Iffer with UBS.

Thanks for taking my questions and first one would be on the average selling price hikes and has this already happened to distributors and retailers or is this still in process and what is the acceptance level here among the customer sides and do you also – competitor doing this or waiting before marketing a lot changed doing this and update would be appreciated. Next one please on the restructuring cost of $15 million to $20 million what is your cash, what is non-cash and can you give us some more details on the benefits here reduced headcounts or roughly could be the percentage and other structural savings and if you are stating that you reinvest this is growth, does it mean your growth for the future is becoming more (capital intensive). And the last question would be please on momentum starting into Q1 2016 if you are on similar run rate like you have exited Q4 2015. Thanks very much.

Okay, I will take the first and the third one. And then I will hand up the middle one to Vincent. So in terms of pricing, yes the pricing actions are communicated they are underway and virtually everywhere where – raising price around the world which is most of the - most of the markets that are non-U.S. or U.S. dollar based. The communications happened, you’ll start to show up with customer sometime in the late April through the end of May, I think we will start to see it in – I think it will be start to be effective in Q1. I can’t speak for competitors obviously on what they’re doing for a pricing standpoint, what I can say is when you look at the computer industry as a whole or the electronics industry at whole, you’re just hearing price increases every day. I mean they are going across and even when I meet with customers they almost seem as I have - customers they seem not only not surprised but sort of waiting for us to raise price. So, I’m optimistic that the pricing will go through as planned. It’s little too early to say how where we’ll end up on that but we have certainly been aggressive on the pricing side. On the momentum coming out of the quarters really too early to say. This is a very beginning of our quarter, so it will be very premature for me to give you any glance on that. But I feel very good about the momentum coming out of Q4. We finished the back half of the year, the entire back half of the year with 7% constant currency, strategic retail growth and that’s strongest half year period we have had yet and I’m optimistic we’re going to deliver the guidance for this year on strategic retail.

Joem this is Vincent on restructuring, most of the restructuring cost will be cash items in term of impact, the majority of the impact is for OEM and Lifesize and then the third dimension as Bracken mentioned is the realignment of our infrastructure functions to their and state business model, these – the savings coming from the third action will either be used to offset, stronger currency headwinds if that is the case or used to invest in new capabilities like R&D and software or new funding if you want to see for future new categories. It’s not really that it is more capital extensive is that we creating the OpEx room in our P&L to be able to fund the future mid-term and long term growth. Going into Q1, Bracken give you the, the momentum on the top line in term of impact on spend, you should see an OpEx that slightly flat to declining moving into Q1 and obviously the big unknown we’re still working through all the detail of our customers is the length of the transition of the OEM business as we exit that business. And that is why we chose to focus our guidance on retail strategic but confirming to investors that we feel very confident in our overall operating guidance of $150 million for the full year.

And thanks very much, just please one very quick follow-up on your guidance on the 7% organic growth in strategic retail taking into account I read the price actually 10% to 15% are that mean that volumes should be flattish for fiscal year 2016 in your guidance? Is that fair to assume?

That’s a very good question, right we have lot of debate as you know it is never an easy thing to increase price and we see many dynamics in the market who will not be a loan and currencies forcing all companies to look at that. We do not want to plan for a 100% success and we do some kind of a trade-off between volume and price or price per unit, our goal really when we do those price increases to protect our gross margin or gross profit of the business.

Thank you very much.

I would add. I think as you know we have a very strong market shares in most of our categories 40%, 50% and that puts us in a good position as we take this pricing.

All right. Thanks.

Our next question comes from with Tavis McCourt with Raymond James.

Hey thanks. A couple of questions first Bracken on the pricing, I think you raised prices on some of the matured products a couple of years ago or maybe throughout the last couple of years. Aside from that you have any history of raising prices by this much have any evidence of what the elasticity of demand maybe?

Yes we have had over the past we had periods in specific markets where we have raised price before. And so when currency issues have happened in individual markets in Asia et cetera we raise price, I don’t think – I think it’s very safe to say we never raised price just dramatically in Europe and I think that’s the big one. The good news on that is that and I’m sure you are hearing this elsewhere because of the incredible debt of the change in the currency and the timeframe, it has really put the whole industry in a position I think where there is a lot of gross margin paying if you don’t do something apprising. So we will see, we can only speak for ourselves, we are out there we are raising our prices and we’re confident that we’re going to make it work.

And then a couple of follow-ups on the non-strategic businesses, so the rationale for the OEM business historically was it gave you a lot of volume I think covered overhead. What are the impacts of losing the scale from a manufacturing standpoint and its potential impact on the mouse and keyboard retail businesses?

You can bet that we really did our homework on that tablets because that was one of the big question. As we really drilled into that, we found we are well above kind of machine minimum order quantities and minimum efficient scale in all the components that we use both in our in house mouse as well as the once we are building for OEM. So we’re convinced with the big margin of theirs as this is a good move from a profitability standpoint over the medium term. So we’re not, we didn’t find any issues there at all.

And okay and two follow-ups for Vincent, Vincent that 7% constant currency growth guidance for retail in fiscal 2016, what would that be on a reported basis, I know OEM and Lifesize are going to be a bit of moving target this year but at least on a retail basis given where the currency is now?

You get in term of what the rate will be FY 2016 is a good as mine but if you use yesterday’s rate the Euro, USD at 106, we would lose about 6 percentage point on a reported basis so 7% constant currency growth rate would be equivalent on a 1% USD year-over-year using 106 in FY 2016.

Great and on Lifesize as you kind of focus on the Cloud business, some of those legacy product generated nice gross margin. Is that a business that will go into a loss making category for few quarters as you make this transition or will you cut off?

We are still working the transition point, I think in term of the plant that we book is you had a very successful launch in the first 10 months obviously as you know is Cloud, you build infrastructure and then you need the scale to be able to be more profitable. But we don’t see a big disconnect between the gross margin we had on the infrastructure business and the cloud gross margins slightly under today but moving towards that 65% that we’ve had. So from that perspective we are not too worried. The real thing for us is for both OEM and Lifesize is managing the transition, the OEM is exiting the business and for Lifesize is really doubling down on that Cloud which will shrink the overall revenue but accelerate the growth and the penetration in our customer space.

Okay thanks. And so Bracken.

Our next question comes from Michael Foeth with Bank of Vontobel.

Yes hello guys. One question on the OEM business exits again. Can you remind us how integrated the manufacturing of retail and OEM mice and would you eventually consider fully outsourcing or optimizing the production of both retail and OEM?

Yes the answer to your question is they are not very integrated. Surprisingly not integrated, might surprise some of you that most of our OEM mice were not made in our factory which makes us even more logical in fact our factory now makes this may also surprise you. Our factory also makes a lot of our growth products where we have IP and knowhow that we really don’t want to share broadly with other people at least as we launch these categories.

So you will simply stop producing OEM mice in…

We are going to stop selling OEM mice and most of those we didn’t produce.

Okay right. So is it in fact just it stays up or can you sell this business or the IP?

That’s a good question. We got that in the press conference we had today, I think it is a declining business, it is operating, it’s very low margin business, its hard to imagine that we’re going to sell that for a lot. So I wouldn’t assume much if you think that there is a possibility of selling it.

Our number one objective is really working with the customer and making sure we can live with that commitment and work a transition plan that would work first and foremost like us.

Okay. Thank you.

[Operator Instructions] Our next question comes from Paul Coster with JPMorgan.

Thanks for taking my questions. Regarding the OEM it seems to make sense just from – you are not losing some kind of intimacy regarding OEM intentions or even that?

Paul, you are exactly right. This is one of the arguments we made for staying saying in it to ourselves. I think as we go further end of that we realized lot of the benefit, maybe the rise in the beginning or even last decade is kind of dissipated, the kind of relationship we have ended up with the OEM we supply is great. While we think most of that relationship will be able to sustain what we need by going forward as the biggest mice player in the industry. So we don’t think we’re losing anything there.

Okay. And then on the growth category side, I think we have all seen categories that experience type of growth two, three years and then slow down pretty dramatically. It sounds like you got really good momentum on the mobile speaker side minimum and also on the conferencing side. Can you talk to us little bit about whether how long you see this type of growth stays lasting for those categories?

They’re both, I think there is still both very early stages, I am sure you want to see that kind of growth that you see at the very beginning but I think you’re going to see very strong growth over the next several years in both categories. Bigger collaboration for example there is something we would estimate, there are 20 million rooms and all will be video enabled right now but million of them are – 1 million. So there is a lot of room left, we always say for the cost of one room, one chair in a conference room you can video enable the room now. On the Bluetooth speaker side, the growth has just been extraordinary and I think we don’t see a real something that is going to really stop that undoubtedly it will start to crashed a little bit, but I think it’s going to still – for some time and I would also ask PC gaming is on a good structural growth curve and the consumer dynamics there don’t suggest there is any end of side there either. So those are three of the four growth businesses that we have where I feel really good about the fundamental category growth and we’re building more. So the new seed stuff is not in any of those categories and they are all either non-existing categories are very small as we think now exponential growth. I would add one other thing on music which I think is a really interesting Bluetooth speakers. If you look at the penetration of a Bluetooth speaker category relative to mobile phone it’s almost a small as that video collaboration, penetration of the rooms or video. So it’s very, very small and single being 2%, 3%, 4%, 5%. There is a lot of room left.

Thank you.

Our next question comes from Andreas Muller with Zurcher.

Yes thanks for taking my question. I have a question on the inventory days, how many days would you say 17 days longer inventory days or structural basically changing from air freight to shipping and also holding more inventories on these growth categories?

Yes. So on the year-over-year basis, when you look at March 31 inventory, inventory days, you’re right, we have 17 days, if you look at a dollar basis we have $50 million. I would say about half of that growth would be that structural awards that we will keep into the inventory. The rest is coming from the port strike in the U.S. as I mentioned, so about half of it Andreas.

Okay thanks.

[Operator Instructions] Our next question comes from Felix Remmers with Credit Suisse.

Hi. Can you hear me?

Yes sir.

Perfect. Okay, thanks for taking my question. On OEM one last point not clear to me is the timeline, so how we should model the transition or the phase out here. So can we assume for fiscal year 2016 already zero sales in that category and on Lifesize what are the incremental steps you’re taking because the transition to the cloud is actually nothing new we’ve talked about at the couple of thoughts just now. So I was wondering what are the incremental steps you’re taking and I was wondering how much sales you’re generating already in the cloud here and then lastly the PC gaming appears to do on the line very well. So can you share some color on the trajectory at the moment? So last quarter you grew 24% if you adjust for everything, so is that number actually growing quarter-over-quarter?

Okay. I am going to take couple of these and just to divide it up or let Vincent take one or two. So on the OEM timeframe it's really hard for us to say right now. We’re planning, as Vincent said, our priority really is to make sure that the customers that we serve for many years have a good transition into other places. So we’re going to manage that. I don’t know how long that will take. I certainly don’t expect it to happen past fiscal year 2016. But we will at what quarter we're actually fully out. So we will just have to see how it takes.

If I can just add on that OEM Felix, we now have build a reputation of delivering on what we say right, and rather than throwing some numbers will it be three months or six months we just don’t know. And I think if it's possible to really build the model around retail strategic for the sales which will grow in 7% constant currency and understand that we will manage the decline of that business breakeven on the OEM side and deliver the $150 million for the full year. After that if you need to plug a number your guess is as good as mine. As soon as we have more information and an operational plan worked out with our customers then we will inform you on what it means for the full year.

Let me take the PC gaming if I can Vincent, so on PC gaming U.S. that we see momentum is the momentum headed in our direction on PC gaming. I think the answer is yes, We're starting -- we really had a very strong quarter and really strong year on improving our mouse line up and we really got strong line up right now. We're growing a lot of market share and we see a lot more room there. In keyboards we've launched some great keyboards. We've been constrained on demand. So you're going to see us unlock that demand supply, unlock that supply especially as we exit Q2 and into Q3 when the peak season hits and then there is heads up, which have been very, very strong and I think the momentum is going to get better and better we will see.

On Lifesize Felix, this is -- we launched the Cloud about 10 months ago. We told you that was the strategy for the asset to make more valuable shifting from the old to the new, but we’re managing a slow transition. We've seen two things. One is a very fast adoption of our cloud. Yes still small into the base. But by any SaaS business model if you want, we have a very fast start. At the same time, we’ve seen a faster decline of the infrastructure revenue and rather than trying to balance all of it, we thought we would take the opportunity now to refocus also all the sales organizations to be cloud based focused and then we still take orders for the old revenue but we are not going to sell it anymore actively and I think that is the next step if you want in the acceleration of the transformation.

That is installed to your knowhow here, but in case you’re not as familiar with when we say SaaS Software as a Service is what we're referring to.

Sure. Okay thank you very much.

Thank you.

There are no further questions at this time. I would like to turn the conference back over to Mr. Darrell for closing remarks.

Okay thank you very much. I'll just close with three or four things. First we’re really proud and excited about the year we just closed. This retail strategic which is obviously what we’re focused on in constant currency 6% for the full year, 7% in the back half of the year and then guiding up going into next year, I think we’re just in the right place on this. The second one is we're very proud of the earnings performance. It took a lot of work to get there and I think we've really got all the engines firing underneath the plumbing that's working to make sure that we have our earnings just continue to improve over time. The third one is you know it you heard it and we've it, we're really organizing this business including the exit of OEM to focus and double down on retail strategic. That's what Logitech is going to be going forward. And I think you will be excited about some of the surprises we have in store in that area in the next year. So with that I am going to close. Thank you all very, very much for attending and we're going to go out in the sun here Zurich.

That concludes our conference call for today. You may now disconnect. Thank you.