Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to Logitech’s second quarter fiscal 2018 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you’d like to ask a question during this time, simply press star then the number one on your telephone keypad. If you’d like to withdraw your question, press the pound key. Thank you. Ben Lu, Head of Investor Relations, you may begin your conference.

Thanks Sharon. Welcome to the Logitech conference call to discuss the company’s financial results for the second quarter of fiscal year 2018. The press release, our prepared remarks and slides, as well as a live webcast of this call are available online at the Investor Relations page of our website, Logitech.com. 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. Forward-looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with the SEC. 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 from 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 and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our Investor Relations website. We encourage listeners to review this items. Unless noted otherwise, comparisons between periods are year-over-year and in constant currency. This call is being recorded and will be available for replay on the Investor Relations page of the Logitech website. Joining us today are Bracken Darrell, President and Chief Executive Officer, and Vincent Pilette, Chief Financial Officer. I will now turn the call over to Bracken.

Thanks Ben, and thanks to all of you for joining us. This quarter, we grew our sales and operating profits double digits, and the first half sales and profits were up 12%. I have to say there were so many areas for improvement that we could have gotten much more from our performance, but to some extent that’s always true. Overall, as we’ve been doing for the past few years, we’re simply executing our strategy, investing in existing categories and capabilities and systematically expanding into new ones, most recently in console gaming headsets. You’ve heard me say many times that we’re going to build a multi-category, multi-brand design company, and it’s still early on that road. Vincent and I spent our first couple of years here right-sizing cost structure, improving our operational discipline, and creating a foothold in new product categories like Bluetooth speakers and video collaboration. We redistributed our engineering resources and reduced unnecessary overhead as we focused on better and different products. Today, I am far more excited about all of the market opportunities that we can capture ahead of us than ever. Whether it’s the structural growth in gaming, the widening innovation we’re driving in music, or the opportunities generated by new cloud platforms in the home and elsewhere, it’s just an amazing time. This quarter, we introduced a stream of cool products across our categories. I hope everyone saw our announcement last week of the Ultimate Ears BLAST and MEGABLAST. These are the two newest additions to our family of portable speakers. They build on the success of BOOM and MEGABOOM by adding Wi-Fi and integrating native Alexa voice control. Not only can they double as home Wi-Fi speakers but they're also mobile, so you can continue listening to your music on the go. With far-field…

Thanks Bracken. We posted another consistent quarter of double digit growth, better than expected, with net sales up 11% in constant currency and non-GAAP operating income up 12%. Astro, which was fully integrated in September, only marginally contributed to our sales growth this quarter, less than a point. With Astro now fully integrated and a range of great new products across almost all of our categories, we have the best portfolio we’ve ever had to deliver on that growth ambition. As you know, our long term financial model is based on high-single digit top line growth with gross margin in the range of 35% to 37%. In Q2, our non-GAAP gross margin reached 36.6%, down 40 basis points year-over-year, but still near the high end of our target range. Currency was somewhat neutral in the quarter, while product cost savings allowed us to invest in promotions and other costs related to numerous new products across all of our categories. Gross margin was also impacted by the transition to a new third party distribution center in the Americas to support our growth. We experienced significant challenges in the transition operating procedures and in ramping fulfillment in Q2 and early Q3. The challenges at this third party distribution center are adding additional costs in these periods. Looking ahead, we are fully committed to managing the business within our annual gross margin range of 35% to 37% while investing into operational capabilities and investing for sustainable growth opportunities, whether they are opex or gross margin related. In Q2, our non-GAAP operating expenses rose 11% to $159 million and were 25% of sales, in line with our midterm target of opex to sales ratio of 25%. Excluding Astro Gaming, our operating expenses would have increased 9%. Our sales and marketing and R&D expenses increased 14% and 10% respectively while at the same time, we continued to drive leverage in our G&A spending, down 40 basis points to 3.4% of sales. Cash flow from operations was $68 million in Q2 as we invested in our working capital ahead of the holiday season. As we had mentioned last quarter, our cash flow seasonality this year is very similar to what we saw back in fiscal year 2016. You should expect to see our second half cash flow from operations improve compared to the first half, such that our full year cash flows should be approximately one time our non-GAAP operating income. As a reminder, our first priority for the use of cash is investing in our business, which also comes in the form of tuck-in acquisitions followed by a growing dividend and finally opportunistic buybacks. In the quarter, we spent $85 million to acquire Astro Gaming, we paid out $104 million in dividends, up from the $93 million that we paid last fiscal year, and we repurchased $10 million worth of stock. With those details, Bracken, I’ll turn it back to you.

Thank you, Vincent. Through the first half, we are operating at the high end of our range for the year, which gives me the strong confidence in our ability to deliver our previous guidance. Our biggest seasonal quarter is right ahead of us and we have a good line-up and good momentum. I’m proud of what our team has created both in terms of innovative new products and enhanced capabilities. We’re maintaining our fiscal year 2018 sales guidance growth of 10% to 12% in constant currency and non-GAAP operating income of $260 million to $270 million. With that, Vincent and I are now ready for your questions. Operator, please queue them up.

[Operator instructions] Your first question comes from Joern Iffert from UBS. Your line is open.

Hi, and thanks for taking my questions. May I quickly start with sell-through in Americas? It was plus-3%, I think one of the weakest sell-throughs we have seen in the last couple of quarters, if I remember correctly. Would you name any particular product range here which was contributing to this weakness? Second question would be on gross profit margin. Can you please specify what was the impact from the third party distribution center set-up, and what are you expecting on the gross profit margin for the second half versus the first half, because if I remember correctly, in July said there will be investment front-loaded in fiscal year 2018, so it would be very good to know what is roughly the gross profit margin reaction going into the second half. Last question is on wireless speakers. I understand there was some clean-up, but could you share with us the sell-through data for Q2 2018? Thanks a lot.

Okay, so let me take an attempt at the first few questions. I’m sure Bracken can comment on some of the data I’m going to give you. Yes, sell-through, for those who have looked at our slides on our website, in Americas is up 3% versus selling up 10%. Some of the selling data includes some of the education channel that is not comprising to the sell-through. Sell-through is the best proxy we have for sell-out. It was marginally impacted by the transition of the distribution center and how the products moved through our channel, two tier channels. Overall, we feel pretty good about going into the holiday season. When we manage the business, we mainly manage on weeks on hand and where we’re positioned versus the demand, and our overall channel feels right in the middle of our target range compared to the demand we see going into Q3, so we feel reasonably confident from that position. Remember also, we give that data as an indicator. There is not always an exact match between selling and sell through, depending on the size and timing of the product moving into the channel. Overall for the company, we are up 11% selling, up 13% in sell-out, and feel good also on a global position as well (indiscernible). That’s for sell through. On the gross margin side, definitely the gross margin was impacted by two things, as we mentioned - the higher level of promotion as we transition to a new product cycle, and then the incremental costs from the distribution center. I’m not going to size any one of those events - there’s plenty of different dimensions impacting gross margin. Seasonally, going into the second half, as you know, Joern, Q3 is normally a declining quarter over quarter gross margin quarter, so Q3 being a lower gross margin quarter, but we will be within our target range of 35 to 37%. We normally do not guide by either quarter or at the gross margin level, but within the range feels a right indicator. Then there was another comment around mobile speakers, I think, and overall part of the sell-through of course data that you saw was part of promoting our mobile Bluetooth speaker as we prepare for new products, and so the ASP was impacted by the higher level of promotion you saw.

So may I ask then, sell through of the wireless speaker was also negative in Q2 of 2018?

Yes, it was also--sell-through was also negative in Americas and EMEA. It was positive in AP, and as you know, we launched both MEGABLAST and BLAST mainly in the U.S. and then in a few countries in Europe.

All right, thanks very much.

Thank you, Joern.

Your next question comes from Asiya Merchant from Citigroup. Your line is open.

Hi Bracken, hi Vincent. How are you?

Hello there, terrific.

Great. Can you just talk a little bit, now that your Astro acquisition is complete and gaming is already doing so well, kind of what our expectations are for the second half? I know you guys have a great line-up, but relative to expectations that were set at your analyst day earlier in the year, how should we think about the gaming segment going forward? And I have a follow-up question on gross margin.

Okay, well of course we don’t guide by category by quarter, but I would say overall we continue to feel very, very good about gaming. Every segment had strong growth and it’s really just a strong market and we’re performing well within that market across the board and around the world. I would say in the second half we expect more of the same, and I think--I wouldn’t give exact numbers, but I would be surprised if we didn’t have good strong growth in gaming through the back half.

And Asiya, just to give you a little bit more color, so we talked about at analyst day in gaming, and actually across all of our categories, of the three ways to grow - positioning our product on structurally growing markets, gaining share in those markets, and then adding adjacencies. You can see that perfect framework in gaming when all three levers are delivering and maybe out-delivering versus our expectations.

That’s great. Then on the gross margin, Vincent, I guess--you know, we talked at the analyst day, you guys talked about your design for cost initiatives and how that’s going to--while it’s in the range, kind of the implication was that we should be seeing positive margins, that obviously you guys invest in the business. Can you talk a little bit about where you’ve been able to further expand your design for cost initiatives relative to what you guys talked about at the analyst day - which products have now been impacted, how much more runway is there, and if you’re confident about the gross margin ranges that you guys are guiding for?

Yes, well I wouldn’t be really specific, and Vincent, you can add anything you want here. While I wouldn’t be really specific on individual products, if you zoom out a second, every time we launch a new product, our goal is to have equal or better gross margins roughly 80% of the time, and this year 80% of those, that’s exactly what we’re doing, which would be up versus the past for sure. New categories that we’re launching, we have the same principle about the company average, and we’re doing that very consistently now. I think we’ll continue to do that going forward.

Okay, thank you.

Thank you.

Your next question comes from Tavis McCourt from Raymond James. Your line is open.

Hi Tavis.

Hey, how you doing, Bracken?

Terrific.

A couple questions. I guess you don’t want to talk about the exact cost impact, but qualitatively, can you tell us what exactly you’re doing with this distribution center in the U.S.? Is that kind of an extra layer of inventory, was it your DC, or was it your third party was just moving physical locations? Just give us some sense of how temporary this may be. Then on the cash flow, Vincent, from your guidance I suspect you expect inventory turns and DSOs to kind of return to normal by the end of the year. I think that would still get cash flow from operations this year below where it was in ’17. Should we think of this as kind of a good run rate, or was last year a better run rate for the business? I haven’t had a chance to look at all the puts and takes on working capital changes. Then Bracken, a product question for you. In the Home segment, it feels like--I know you guys don’t want to call one or two quarters a trend, but it feels like it’s getting some momentum, and I think this was a category a few years ago you had potentially looked to exit. So I’m wondering, within there, I think you’ve got the Harmony brand, the Circle brand, what else are you--are there other products within there, and kind of what are your growth ambitions with that Home segment, the Smart Home segment specifically?

Okay.

Good, let me take quickly the financial questions, and Bracken will answer the product questions. So on the distribution center, it’s really a response to our growth. As you know, we’ve been on an accelerating path of growth in the U.S. for the last four years, and we needed to have a bigger facility. It’s a third party logistic provider and it’s basically moving into more flexible and bigger facilities. The extra layer of cost came in many different areas. The first one, of course, is we kept the old distribution in parallel to manage the transition time frame. It also came in the form of logistics, and we were handing and had some operational challenge in the transition. We had to (indiscernible) more than our overall budget. We continue this process as we go into Q3, which is the biggest quarter as you know, so for Q2 and Q3, those incremental costs would be in the P&L. I would expect that to regulate going into Q4, so it’s kind of a one-time item over two quarters. In terms of the cash flow, those are approximate numbers. We don’t really guide cash flow but we give a directional think. As you know, our inventory, as we mentioned, has been growing here ahead of the holidays. More than half of the growth is really product linked to the new products we’ve introduced on a year-over-year basis, so this has been incremental in terms of overall going into the holidays. I would expect that, of course, to sell through as we said, and so working capital and days of inventory to regulate post-Q3. The only one-time item in cash flow that we have is linked to the fact that this year at the beginning of Q1, and we mentioned it in the Q1 call, we paid last year annual compensation plan which moved from a six month view to an annual view, so there was a one-time catch-up where higher cash flow in Q1, because we moved to an annual plan paying for last fiscal year. That is the only item that changes year-over-year, and so we feel confident to say approximately one time non-GAAP operating income is a good proxy for cash flow.

To answer your question about the Home, I think we now have really three things, three significant things happening in the Home. We’ve got Harmony, as you mentioned, which is now integrated not only with Alexa but with Google Home. We’ve got Circle 2, which we just launched last quarter so it’s still ramping, and as of last week we’ll have Bluetooth speakers that can operate not only on the go but also as Wi-Fi speakers inside the home, so we have those three different products that position us interestingly for the home. Going forward, we’re always looking at new things, Tavis. We never stop experimenting. We’ve already experimented with some products in the Home. I would say overall, if I step back and maybe many of you will agree with this, I think the Home as a marketplace has actually grown slower than I think most people thought. We’ve been a little careful not to go too crazy there, but we continue to be developing and experimenting in a lot of different places in the Home and we’re going to try to participate in every place that makes sense for us. So yes, I am optimistic about the Home going forward. No, I wasn’t four years ago when I tried to sell Harmony, but I’m excited about it now and I think it’s a good long-term play for us.

Great, thanks very much for the details.

Thank you.

Your next question comes from Ananda Baruah from Loop Capital. Your line is open.

Hey Ananda.

Hey guys, good morning. How are you?

Good.

Awesome. Congrats on a solid quarter kind of pretty much all around. A few for me, if I could. Bracken, you sound like you have a lot of enthusiasm across the board on the portfolio, and you’ve spoken pretty energetically about the product offerings that have recently come to market. You’ve talked pretty energetically about mobile speaker refresh that’s upcoming, and the way that it’s landing with me is you’re actually--well, it sounds like you’re excited about - this is my term - incremental momentum across your growth businesses. So I guess the first thing, is that an accurate interpretation on my part, and then as we think about--and I know you’re not going to guide, and that’s totally fine, but as we think about heading into just ’18, the different aspects of your business that you think will be the more important drivers, could you sort of walk--at least give us some context there in however you’re comfortable doing that, and then I have a follow-up. Thanks.

Okay, thanks Ananda. Why do I take them in reverse order? Yes, I really do feel like we have the best product line-up since I’ve been here, and we’ve been continually fueling that. The cool thing about the line-up now is we’ve got really exciting new launches that have happened within the last two quarters across really every category, so it’s a super-exciting time. You know, the incremental momentum, I’ll put it in quotation marks, I’m not sure how to react to that exactly except to say that we have very good momentum now, so if we look at our video collaboration business, it grew almost 60% this quarter and gaming grew 42% - those are two of our growth categories, and we just launched our new Bluetooth speakers that are not only Bluetooth speakers but they're also Wi-Fi and they have Alexa built in. So we have a lot of cool things going right now. I don’t know how to gauge that relative to last year or the year before or something like that, but all I know is we’re taking on more difficult challenges from a product standpoint, we’re consistently executing, I think, very strong products in the marketplace, and it does position us really well not just for this year but for the long term, and you can bet we’re going to do the same thing next year.

If I can just add, Ananda, on the momentum thing, I don’t know about incremental momentum but I can tell you, and I shared that at the analyst day, we definitely have incremental set of opportunities as we progress into the different markets we are in. At this point in time, it’s more difficult to decide which projects not to do than which projects to do. We definitely feel really, really good about the opportunities that the company faces in the long term.

That’s awesome. That’s super helpful context, guys. Then as a follow-up, just with regard to the distribution center, Vincent, it sounds like you’re saying March quarter is the quarter where--this is my term, but say just net headwind or net drag sort of resolves itself. Will there be cost and revenue opportunities when you get through that? It sounds like there’s definitely some sort of cost opportunities, but will you have rev benefit from that as well? It sounds like maybe you might.

Yes, I think the impact, the reason I mention it is because there is an incremental cost. We’ve had some operational issues and it’s much more in terms of moving product through the channel on time. We feel pretty good of where we finished Q2 (indiscernible), not leaving much more revenue on the table from a selling perspective. Now as Joern mentioned, sell through was a little bit lower in the U.S. and there was some impact through that progression of the products through the channels, so that’s--the main reason I mentioned it is because it will be incremental cost that’s been in Q2, and then it will be in Q3 as we run two distribution centers in parallel to address the demand in Q3.

Got it, and then just a quick follow-up on the gross margin. So it sounds like you guys have absorbed some headwinds to gross margin, gross margin is obviously strong. Is that accurate? So said another way, if you weren’t doing some of the things you were doing, would the gross margin potentially have been even stronger, and I think you sort of beat street expectations, my expectations as well, this quarter (indiscernible). So are you maybe pushing right up at the high end of the gross margin range already on an organic basis?

I don’t know. I can understand when you guys look at the result report, it looks all easy, and now you’re saying oh, you’re facing headwinds. Every quarter, every day, every week we face headwinds and then we work our way through and say, okay, how do we continue to build better product costs through our overall structure, how we create room and how we compete, etc. We know we have a lot of levers in our gross margin, and I don’t want to focus too much on Q2 specifically. We are operating at the high end of our range. We feel good about our long term range and where we are today within that range.

Awesome, appreciate it. Thanks a lot guys. Congrats and good luck.

Thanks Ananda.

Your next question comes from Jurgen Wagner from Mainfirst Bank. Your line is open.

Hi there.

Yes, hi. Thank you for taking the question. On Jaybird, you mentioned that you are positive on the positioning. What was the revenue run rate in the quarter?

So we don’t speak overall Jaybird by itself. As you know, it’s in the wearable category and we posted all the numbers on our website, but we don’t call out Jaybird specifically.

A second question on FX exposure, has that changed recently, and what is your hedging policy?

Yes, so in the quarter, it’s a question I have not received yet but I’m sure I will in one-on-one, so the currency in the euro was beneficial or favorable to us, if you want. Now, that has to be balanced with the fact that other currencies were unfavorable - Chinese currency, Japanese currency, the pound all moved the other way than the euro. All in one, when we hedge for four months looking forward, as you know, and mix and overall currency globally, the currency didn’t have any material impact on the current quarter.

Okay, thank you.

Thank you.

Your next question comes from Paul Coster from JP Morgan. Your line is open.

Yes, thanks for taking the question. We saw something of a surge in growth for keyboards or device in late--in ’16, really, and through the beginning of ’17, and now seems to have moderated toward what I think many of us would have thought was the normal growth rate. Can you just maybe explain what’s happened there and whether what we’re now seeing in the low single digit growth is what we should expect moving forward?

You know, keyboards is an interesting category. People definitely haven’t slowed down using keyboards, and so our business, I think, has been more driven by the products that we’ve launched into that market than the market itself. If we innovate enough, I’m convinced we can continue to have growth in keyboards, and we just launched that Craft keyboard, Paul, which I don’t know if you’ve seen it yet, but it’s really cool, and we’re going to keep doing things in the keyboard market. Even in a world where--you know, if I look out years from now, even in a world where you’ve got AR in particular, I imagine keyboards will still be a pretty significant player. It’s probably a few years out before you’re going to see that, but--. So yes, I think the keyboard market is alive and well, and the install base is really stable, so I think at the end of the day as long as the install base stays stable, I think we’re going to have a pretty good keyboard business, and we’re going to keep innovating in it. We’ve got cool things in the oven all the time.

Maybe just a little bit deeper into that, then, you saw double digit growth for a couple of quarters, three quarters last fiscal year in that category. Are you saying that that’s just a function of the product cycle and that it’s quite feasible you would come back to that kind of growth at some point in the future as well?

You know, I’d be so hesitant to ever say that we’d hit double digit growth in the keyboard market as an expectation set, but I do think a lot of that growth is driven by an emphasis we put on multi-device keyboards. You know, more and more people are using multiple things in those keyboards, and that was a really good innovation. I think we’ll have good innovations going forward. How much will we get out of that, how much growth will we get out of that? It’s really hard for me to say, but I think just structurally for the PC install base, it’s very healthy and it doesn’t look like it’s trending downward drastically at all, or even much. I think our opportunities in keyboards will continue to be good.

Paul, if I can add a few things, so at the analyst day in March, we did tell everyone that in the keyboards, we saw double digit the year before, and we probably will not see that this year. Depending on, as you mentioned, product cycle, product innovation, timing of those NPIs, some of those categories can move up and down. We always look at the Pc peripheral and initially where we positioned it when we came into the company, but so far we think we have kind of a low single digit growth rate opportunity in that category. Some categories can perform better - webcam, we’re up 12%. I would not advise you to model double digit growth rates forever in webcam, but you never know. We can always come up with new products and find those opportunities. Overall PC peripheral, low single digits, we’ve been pretty good around that target range.

It’s so nice, Paul, to have a question about keyboards on the call.

Your next question comes from Michael Foeth from Vontobel. Your line is open.

Hi Michael.

Hi Michael.

Yes, hi. How are you? Two questions from my side regarding Jaybird as well. In terms of last quarter, I thought that you were sort of disappointed in the U.S. with the performance, and my question is what have you done to reposition Jaybird not in terms, obviously we’ve seen new products, but in terms of distribution channels, and how long do you think will it take before this really takes off, because I think there is pretty high potential and everybody finds it a really cool product, but it doesn’t seem to be accelerating yet, so that would be the first question about the positioning of Jaybird and how you sell it. The second one is if you could give us an update on your Spotlight presenter. Any significant contribution in the quarter, and is it accelerating or has it sort of lost momentum again? Thank you.

Yes, so I’ll take a few (indiscernible) answers and then Bracken can also comment. On the Jaybird side, what we said on the call last quarter is that we are really re-evaluating the approach with Jaybird from both a product portfolio and a distribution perspective to position it for long term success, so it’s not an acquisition that we decided to say, hey, let’s go and launch it broadly in every mass distribution environment and push it through. We were really focusing on the brand, positioning the brand right and aligning all of the different value vectors along that brand, so we’re in the process of that. You saw Run launch and you can easily extrapolate how we’re positioning the brand and what we’re doing from product portfolio all the way to distribution. I don’t think we want to be much more specific than that. It’s a very exciting brand, very exciting set of products. I use the Run all the time too and I really love it, and I’m sure many of our customers do too.

Before we go onto the next one, I’ll add to that. I think when we bought Jaybird, we really saw an opportunity to do something different than was really being done in the market, with a platform that is really interesting. So we’re super excited about the long term potential there, and we’re holding ourselves back from trying to squeeze all the juice out of that lemon on a short-term basis and really build it structurally for long term growth. So no, I don’t think we’re done yet on thinking through and changing the distribution footprint and the product portfolio, so you’ll see more as we go ahead.

So in terms of Spotlight, it’s still my favorite present to my CFO colleagues to help them improve their presentation skills. It’s a fantastic product, as you know. It has software applications so that we can improve the functionality through software upgrades. I think it’s really showing our capabilities to take a small sub-category and continuing to evolve them and position them for growth. It grew double digits in the quarter and has been doing so since the launch.

Yes, and I think that’s one that--the nice thing about that, it’s a very small category, so we’re not going to go spend a tremendous amount of marketing money to advertise that or something, but the cool thing about it is every time you present it in a group of people, you just did the advertising, so it’s getting more and more traction in more and more places. We still think it’s the best thing out there for presenting, and it will keep growing.

Okay, thank you. Maybe if I can just add a question here. You’re very successful with the video conferencing product, and those sell, I guess, essentially to companies, right, to businesses. So how can you leverage that sort of sales to businesses and try to get more mice into the business world, get more of the Spotlight product into the business world, eventually also keyboards? I don’t know if I’m sitting in the only company which has super outdated mice and keyboards, but I guess I’m not, so can you leverage your video conferencing contacts to the other categories?

Potentially. I think we’re--you know, we already have, as you probably see, we already have a pretty decent share of mice and keyboards that go into companies, but we don’t have as big and strong a selling effort into those markets as we would have, say, on video collaboration, as you said. It’s a much more indirect sale for us. So maybe there’s a long term potential there to get our mice and keyboard offerings into businesses using video collaboration, but right now we’re just super excited about the video collaboration business. We think it has so much runway ahead of it, and we’d be making a mistake if we tried to put too many things on its back. It’s got big shoulders by itself to carry long term growth for us, and we’re going to really stay focused there.

Understood, thank you.

Thanks Michael.

Once again, if you would like to ask a question, press star then the number one on your telephone keypad. Your next question comes from Guenther Hollfelder from Baader-Helvea. Your line is open.

Thank you, it’s Guenther Hollfelder, Baader-Helvea. Hello, hi. I have a follow-up on the currency impact. Looking at the second half, how should we expect a lighter two to three PP tailwind in terms of sales, and if you could comment also on the impact on profitability at the current exchange rates? Thanks.

Yes, so let me do that quickly. I don’t want to start to speculate where the currency will be for the remaining two quarters. As you know, we are definitely hedged on a four month rolling, so for Q2 we’ve been pretty good and then we’ll see where we are in Q4. We plan conservatively and we know all of the levers in the overall P&L. If you keep at current exchange rates and they would not move, you would expect a couple of points delta between overall sales in U.S. dollars versus constant currency, depending of course on the mix. As you know, EMEA is growing at mid single digits while China, for example, is growing double digits much more, and so the mix has a big role as well and I don’t want to start speculating on that. In terms of the flow through in the P&L, we are hedged for four months, so we kind of have the impact this quarter of the cost of hedging. If currency does not move, we should see some benefit going into Q3. If it moves, as it has done versus the average of the last quarter, then we will have another cost of hedging to offset that. In the long run, though, when you pass the volatility or the short term volatility, we definitely have a benefit into the P&L from a currency perspective if it stays where it is.

Okay, and then I had one question on your sales strategy approach going into the holiday season, in particular in the U.S. and also in Europe. Do you have--do you expect quite a significant change in terms of the share of online sales this holiday season compared to last year, and have you positioned yourselves accordingly?

Yes, we’ve consistently seen online sales like you’d expect. Online sales have grown every year. In the Americas, or in the U.S. for example, I think it’s grown about--I was looking at this with MPD the other day, across multiple categories it’s grown about a point a year for the last eight or 10 years, so now it’s up to--in our categories, it’d be up to between 32, 33, and 35%. In China, our online sales are bumping against 65 to 70%. In Europe, it would be lower than either one of those, but still coming up strongly and not too far away from the U.S. now. We expect that to continue, so we’re putting more and more emphasis on our online go-to-market, and that’s going to continue forever until they finally stabilize.

Okay, but the trend in the U.S. in terms of online sales, you would expect it’s pretty much in line, let’s say, with the growth compared to last year? There is no special impact or significant acceleration or anything?

No, I don’t think there’s a special acceleration, but it has been--you know, online has been outgrowing offline every year for as long as I’ve been here and before that, and that will continue.

Okay, great. Many thanks.

All right, thank you.

Your next question comes from Joern Iffert from UBS. Please go ahead.

Sorry that I am back. Just a follow up, if you please, on the gross profit margin. As Vincent already has indicated that usually Q3 is down versus Q2 on the gross profit margin, this hasn’t been the case, I think, in the last two years. Why exactly would be the case right now? I mean, you have some benefits coming from FX on top, the mix seems quite favorable with high gross profit margin, (indiscernible) growing strongly. So what exactly is the reason here why it should be down in Q3 versus Q2, as this has not been the case in the last two years. Is it just a statement to be conservative, or how should we read it?

No, I think you have a lot of new products here that have been introduced. There’s cost of new products, there is promotion of the old lines, you have the normal holidays and the holiday promotions, the effect of Black Friday in America not to have the same impact in Europe, so all of those dynamics, if you want, create normally a lower gross margin in Q3, and that is offset by the FX, if it stays where it is, which would be beneficial. Then of course as a third driver for us, we have this transition of the DC which may marginally impact margins in Q3 as well.

Okay, though it has been seen--

Sorry, Joern, just so other investors and analysts don’t take me wrong, overall we’re committed to manage within our range of 35 to 37%. It’s all built into our overall guidance and we feel very good about where we are going into the quarter.

All right, thank you.

Thank you.

At this time, I will turn the call over to the presenters.

Okay, well we’re halfway through the year. As Vincent and I’ve said it now a couple times in this call, I feel extremely good about the product line-up going into our biggest quarter of the year, so look forward to talking to you guys in January.

This concludes today’s conference call. You may now disconnect.