Logitech International S.A. (LOGI) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to Logitech's Third Quarter 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. [Operator Instructions] Thank you. Ben Lu, Head of Investor Relations at Logitech, you may begin your conference.

Thank you, Kelly. Welcome to the Logitech conference call to discuss the company's financial results for the third 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 Web site, 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. The 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 a non-GAAP basis, except as otherwise noted. 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 Web site. We encourage listeners to review these 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 Web site. Now, joining us today from Lausanne are Bracken Darrell, President and Chief Executive Officer; and Vincent Palette, Chief Financial Officer. I'll now turn the call over to Bracken.

Thanks, Ben. And thanks to all of you for joining us. You've all seen that we delivered a powerful quarter of sales growth, our biggest sales ever, up 18%. Demand for our products in Q2 was very strong, significantly stronger than we anticipated. All our product categories delivered double-digit growth, except for PC peripherals, and even in those sell-through remains stable. Two of our three regions, America and Asia Pacific, grew over 20%. EMEA sales were only up 2% against the tough compare, but underlying sell-through was also strong, in line with normal seasonality. Our operating income growth was also just as strong, up 18%. We delivered that net sales and profit growth despite a drag on our ability to execute. During our Q2 earnings call, we mentioned the difficulties we'd experienced transitioning to a new logistics supplier in the Americas. We had to run two distribution centers instead of one, as well as significantly increasing our air shipments largely because the one we were exclusively move to just didn't execute. The two DC [ph] backup plan, coupled with our determination to fulfill the demand from our customers placed a drag in our gross margin of about 150 basis points in the quarter. This is largely resolved now, and will be fully resolved as we exit the fiscal year. So, let me be crystal-clear, yes we had a supplier who didn't deliver, but we hold ourselves 100% accountable. Investors should be able to rely on us to pick the right players and make sure they execute. Now to [ph] growth look by category. As I mentioned, we grew double digits across almost all of our categories. Let me highlight each one. Last quarter, you'll remember our roll of speakers went through a product transition, ahead of our new Ultimate Ears BLAST and MEGABLAST, and in time for our holiday quarter. This quarter, our Mobile Speakers grew 34%. We sold in our Alexa-enabled BLAST and MEGABLAST, but we also grew strongly in other products. From our large MEGABOOM to our pint-sized WONDERBOOM, it's doing well beyond our expectations. I don't expect that level of growth to continue in the next quarter, but sell-out was also very strong. Audio PC & Wearables sales grew 21% in Q3. Jaybird posted strong growth this holiday quarter, with good contribution from Jaybird Run, our first true wireless earphone, and from our other product lines, like the X3 and FREEDOM 2. Wireless earphone penetration is still very low, and there's a long runway for growth here as we will carve out space and continue to innovate. As a runner, I absolutely love and use our Jaybird Run product. Our Gaming group delivered its 10th consecutive quarter of double-digit growth, with sales up 57%. We've completed the integration of ASTRO Gaming, and that business grew powerfully in the quarter too, representing 4% of our overall sales. I'd point out that ASTRO is heavily skewed to the December quarter, and for the full-year we still expect ASTRO to contribute about two points to our overall growth. Even excluding ASTRO, our Gaming business grew as strongly as it has in the past several quarters. In Q3, our steering wheels business was particularly strong, and we captured share as several major racing game titles launched. We also continue to see tremendous acceptance of our wireless gaming products across both mice and keyboards. You heard me talk last quarter about POWERPLAY, and I had trouble to stop talking about it. Our wireless charging pad gives infinite battery life for your wireless gaming mouse while you play. Well, I can tell you the demand for POWERPLAY far exceeded our supply. We're the leader in wireless PC gaming peripherals, and you can be sure that we'll continue to innovate and drive greater wireless adoption across our gaming portfolio, similar to what you've seen us do in traditional PC peripherals. Video Collaboration reported sales growth of 25%, reaching an annual run rate of approximately $200 million or almost $200 million. While the net sales growth was slower than last quarter, the underlying sell-through was much stronger, stronger than the 25%. The fundamental need for low-cost cloud-based video collaboration solutions remains extremely robust, and we'll continue to invest into this business to capture the growth opportunities. Our Smart Home group continued the strong momentum that we've seen in the past few quarters. Sale in Q3 grossed 41%, driven by both our Harmony Hub family of products as well as the solid contribution of Circle 2, our home security camera solution. Finally, PC Peripheral sales were down 4% this quarter, yet sell-through, as I mentioned, remained very stable and consistent with our recent trends. Our latest products, including our new flagship keyboard, the MX CRAFT and our new trackball MX ERGO are off to a great start and contributed nicely our results. Tablets and other accessory sales grew 5% in Q3, marking the third consecutive quarter of growth. We will likely end this fiscal year with double digit growth. We have the first full year of positive growth in the category since fiscal 2014 coinciding with the return to growth in Apple's iPad units. Now I'll pass the call over to Vincent.

Thank you, Bracken. In Q3, we delivered our seventh consecutive quarter of double digit growth. We delivered not just another quarter of consistent top-line growth, but as Bracken mentioned, and it's worth repeating it, we gained share in our key markets, we launched products into adjacent categories, BLAST, MEGABLAST, [indiscernible], and we successfully accelerated the performance of acquisitions. We delivered on every one of our growth levers, playing in growing market, growing our market share and adding and timing these -- market opportunities that is our playbook including acquisitions. Q3 was the first full quarter of ASTRO which gained great market share in this highly seasonal business and made up 4% of our total sales in this past quarter. We are investing in our capabilities to take advantage of the many market opportunities. And Q3 growth of 18% demonstrated the progress we are making towards our long-term objectives. Now growth sometimes comes with growing pain. As we mentioned last October, the third party distribution center that we had hired in the Americas to support our growth experienced significant changes in the transition, operating procedures, and ramp up of our volumes at the end of Q2 and early Q3. As a result of this, we had to bring back online our prior VC partner, increase temporary labor and rely on air freight much more heavily. Our priority was to support the 30% increase in demand that we saw in the Americas. The one time incremental cost of solving this operation issue amounted to about 1.5 points of gross margin. Now with Q3 behind us, we will exit this fiscal year back to just one third party distribution center in the Americas. And so, our non-GAAP gross margin was 34.4% in the quarter, down 300 basis points year-over-year. Excluding the one-time cost of VC transition, gross would have around the midpoint of our long term gross margin range of 35 to 37%. It remains very healthy in what is normally a seasonally lower gross margin quarter impacted by mix and holiday promotions. In Q3, our non-GAAP operating expenses increased 8% to $162 million, [indiscernible] 20% of sales, down 250 basis points year-over-year. Excluding ASTRO, our operating expenses would have risen only 4%. This modest OpEx growth demonstrates our discipline in balancing our near-term spend with gross margin. Our sales and marketing expense increased 14% to support a solid top line growth we delivered this quarter while R&D spending grew 5%. On the other hand, we continue to drive our G&A expenses lower as efficiently as we can. Our G&A spending as a percent of sales fell to the lowest level ever at 2.2% of sales though these ratio, of course, benefit from the strong seasonal pickup in revenues. So if you step back, Q3 sales was 18% in constant currency while non-GAAP operating income also grew 18% despite the onetime operational charge of our distributional center in Americas. Excluding this, our operating profits could have grown by 30%. A strong quarter and what we expect will become a very strong year will not be meaningful without strong cash flows. On that front, we generated $189 million in cash from operations this quarter. It is the highest quarter level we ever achieved. And this compares to 149 million of cash flows in Q3 of last year. You will remember that we had said we would consume working capital during our first half as we built up new products and prepare for a strong holiday season. With our new product successfully launched and our sales achieving a record level in Q3, we reduced our inventory around 50 million sequentially. And we achieved inventory turns of 7.7 times, the highest level since I have joined. In the past four years, our December quarter inventory turns had averaged 6.6 times. And in this quarter, our cash conversion cycle remained very healthy at 14 days. As a reminder, our cash conversion cycle is typically the lowest in the December quarter due to seasonality. On a full-year basis we still expect our cash conversion cycle to be within our targeted annual range of 20 to 25 days. One last thing I would like to add, and that's around the GAAP profitability. As most of you are aware, the U.S. passed new tax laws at the end of December that reduced the U.S. corporate income tax rate as of January 1st. And as a result, we are required to record a one-time $60 million net tax expense in the December quarter, which is our Q3, related to the implementation of the U.S. federal tax reforms, including the necessary remeasurement of our U.S. deferred tax asset at a lower corporate tax rate. In summary, Q3 marked another strong quarter of growth, profitability, and strong cash conversion. And the most exciting for me, as the CFO, is that we still have plenty of room to execute better and continue to grow and expand. And what that, Bracken, I'll pass it back to you.

Thanks, Vincent. We finished our biggest quarter of the year with very strong top line growth and strong profitability and cash flow, as Vincent said. We're continuing to build on our multi-category multi-brand strategy. And finally, as Vincent mentioned, you can see completely transparently all three of our growth drivers in action this quarter, market growth, share growth within the market, and [indiscernible]. And I think you see from the level of growth of the [indiscernible] strategy applied to our markets, we have lots of opportunity here. Based on our result, we're raising our fiscal year guidance. We now expect fiscal year 2018 sales growth to be 12% to 14% in constant currency, and non-GAAP operating income to be $270 million to $280 million. And with that, Vincent and I are now ready to take your questions. Operator, can you queue up the questions.

Certainly [Operator Instructions] Joern Iffert from UBS. Please go ahead, your line is open.

Hi, gentlemen, and thanks for taking my questions. The first one would be, please, on the product pipeline you have had for the next 12 months. Can you give us an indication which category's innovation rates will be the highest, and also what is roughly the number of new products introduced in fiscal year '19 versus fiscal year '18? Just to give a rough indication would be helpful. The second question would be the currencies are developing favorably for you. I mean is the new euro/U.S. dollar exchange rate the key reason for the non-GAAP EBIT increase? Third question would be on EMEA, and sell-in plus-2%. Can you give us some more indications what is happening in the channel here. And the last question would be, please, on the gross profit margin and development. I mean, FX becomes supportive, you still have [indiscernible] program in place, who shall we think about gross profit margin interim [ph] going forward here for the next couple of quarters. Thanks very much.

Okay, thank you very much. Vincent and I will spit these up. He'll take the currency gross profit questions; I'll take your first and last question. On innovation pipeline, we're an organic innovation company. We do acquisitions; we're a fundamental organic innovation company, so we're in a constant state of creating new products all the time. When we launch one product you probably could guess that we're already underway on a second product. So in terms of the absolute number of products we launch every year, and in which categories those go into. In terms of the absolute number, year-over-year our launch number is probably relatively comparable, but we don't look at it that way. We really look at making sure that we continue to evolve our product lines and enter new spaces where they should be. So without -- I couldn't be more specific than that, and I apologize for that. But we certainly plan to have a great pipeline of innovation ahead. In terms of the specific areas, we generally innovate, as you can see, in every area that we're in. So we break our company into small teams, and each of those small teams wakes up in the morning and goes to bed at night trying to figure out how to build a bigger business and design better products for consumers. So you're going to see innovation, as you have in the past, across everything. The second question, on EMEA, yes, we had 2% sell-in, and as we said, the underlying sales out or our sell-through, was significantly higher than that, and we've said that the last couple of quarters. Yes, they are adjusting to a lower growth rate, and very high growth rates in the year ago, as you know, in the 18% to 21% range over the past three or four quarters. And you see that adjustment happening. It did take inventory out of the channel to adjust for that lower sales rate, including in this quarter. And I think we'll see that adjustment really be completed as we finish the year.

Hi, Joern. On currency, as you mentioned, the U.S. dollar's conversion rate is moving favorably to us. Whatever is changing it's when we have volatility within one quarter. As you know, we do hedging on the four months [inaudible 00:05:00] discussed it many times on the call. And we also buy our inventory a few months in advance, right. So this quarter, if you take as an example, we had a Euro/USD change of about 6% to 7% year-on-year. That created about 80 basis point favorable in the P&L, half a point was hedging costs neutralizing that benefit. And so you have the same going into Q4, at this point in time if the change rates for the Euro/USD stays at 1.22 we have another move of 6%-7%, and hedging cost will be absorbing over half of that impact. In the long-run, though, you're correct, that if currencies stay where it is it will be favorable on our gross margin. So, talking about that gross margin, excluding the D.C. issue, we delivered 18% top line growth for 36%, rounding 35.9%, but 36% gross margin. We will always balance, as you know, investment versus dropping everything to the bottom line, and really prioritizing our focus on growing our businesses that have growth opportunities. At this point in time we're not guiding next year's, that will be during the AID event, in March. But we stick with our range, 35% to 37%, and our goal is to try to generate the highest gross margin, like last year, in FY '17, over 37%, to be able to continue to invest into our businesses.

All right, thanks very much.

Thank you, Joern. Next question.

Your next question comes from Asiya Merchant from Citigroup. Please go ahead, your line is open.

Great. Hi, congratulations.

Thanks.

Quick question, if you can just talk about seasonal trends going into the fiscal 4Q and which product categories do you feel very comfortable about in terms of seasonal trends. Gaming obviously was a blowout quarter for you this particular quarter that you just reported. So how should we think about the March quarter? And then I had a follow-up on cash per share, pretty high at this level. How is management thinking about deploying that cash, whether it's capital return or should we be expecting again some more seasonal -- some more acquisitions in looking into your fiscal '19, fiscal '20, and any particular product categories that you're looking to fill up on. Thank you.

Okay, I'll quickly take the seasonal trend question, and Vincent will take the cash question. On seasonal trends our Q4 is always obviously a big step-down from Q3, and it will be this year, completely normal, and we expect it to be. All the categories tend to step down as you go from Q3 to Q4, except for Video Collaboration which generally has kind of a steady progression all the way through the year. Maybe it's hit a little bit by the end-of-the-year close of the cyclone budgets or something within companies, but generally it's pretty consistent. Tablets have a little bit stronger skew in the Q4 period because they're an education business, so. But anyways, bottom line is I think, overall, without getting too specific, I'd say our seasonal trend should look this year, in Q4, like they did last year, kind of relative to Q3, Q2, and Q1. And gaming, you mentioned specifically. Gaming does have a very strong Q4 skew, made even stronger by the fact that we're now in all the key segments of gaming, so including those that are really giftable, like steering wheels and things. So I would expect that that seasonal skew will be pretty dramatic, but it always has been.

If I can, a few things on seasonal, normally sequentially going into Q4, our sales dropped 25% to 30% q-on-q, the guidance we've given for the year, considering there's only one quarter to leave, kind of implies about historic linearity going into Q4, so nothing unusual on that side. I agree with Bracken, the gaming trend, structural growth there would continue. And then on Mobile Speaker, I would not expect a repeat of the Q3 deliverable, and we continue to grow the category trying to gain share, but obviously we're not guiding a full year at 34% growth for that category. That gives you a little more quantitative data as well. And then you asked about capital allocation. We have a framework. First of all, of course, we invest in our business. As you've seen now, it's the seventh quarter of double-digit organic growth. And we have plenty of opportunity to continue to invest on that side. We'll include into the gross investment small and medium-sized acquisition as we are going to see them. We're very pleased about the acquisition we've made, and we continue to build up those businesses as they are integrating to the overall Logitech portfolio. And then with the last two leg of the tour, if you want, is growing a dividend or dividend that's growing on an annual basis. You will continue to see that. Obviously that's a board review and discussion we have every year, and we'll have that as well. And then we have a buyback program open for $250 million, out of which we've consumed $20 million, so we still have plenty of power there to continue to return cash to our shareholders.

Great, thank you.

Thank you.

Our next question comes from Ananda Baruah from Loop Capital. Please go ahead, your line is open.

Hi, good morning guys. Congratulations.

Thank you.

Can you guys hear me okay? Yes, you're welcome.

Yes, and hi Ananda.

Hi, Vincent. Yes, just a few for me if I could. Like with regards to the very balanced and punchy demand are you guys able to discern or distinct between the various drivers, market versus share? And then in the share context, could you sort of peel back, kind of both of you guys, what's leaning to the share, if you can distinct between things like innovation, marketing campaigns, new channels like that? And then I have a follow-up or two. Thanks.

Sure. Yes, I'll step into that one. I'd say overall we're gaining share across most of our markets. And where there are certainly cases where we're not, but there tend to be reasonable country-base, et cetera. So overall our markets are growing. You know the general profile of the markets we're in, and I would say the profile really hasn't changed very much if we step through the various pieces. The video collaboration market continues to be strong, and we continue to do well within it from a share standpoint. Gaming is now multi-markets, and I would say we are gaining share in most of the segments of gaming. The markets themselves continue to be very robust. If you looked at music, the music business is very dynamic, as you know. And the rise of the personal assistant is actually fueling a strong growth in speakers across both Wi-Fi, in-home, and to some extent even out-of-home. So the overall speaker market grew, and we actually had a good quarter from a share standpoint there too. We'll have to wait and see how speakers continue to evolve, but we're excited about the innovations available now in speakers, and we're going to really be after that aggressively. If you go into the home, I think the home is going to continue to grow across every segment. We had good growth in both of our businesses that are home-based businesses, the security camera business and the Harmony business, which is now integrated with personal assistants. So I would say just generally. And then of course there's the earphone business, and earphones for us is a brand new business. It's the completely wireless version, so it's just the early days, and we're really excited about that space too, so opportunities across it. PC peripherals on the other hand, the PC business has been in a secular decline for a while, not steep but steady. We have been disturbed by that because we feel like we're really an installed base there. It's started to turn a little bit; we've been a little bit positive the last quarter too. And I think we continue to expect to either hold or gain share in that segment too. This quarter is really, I think, more of an anomaly. We're actually down 4%, the trends underneath that look pretty stable from a sellout standpoint.

rev:

Yes, I understand. And to be fair, the issue started in September. And deciding what to do…

Why don't you restate his question…

All right, maybe people have not understood. So the question is around the gross margin impact of a one-time 150 basis point from the distribution center issue in the Americas. And the question is what have we decided and by when will be out of it basically. And the decision was easy. Our decision, as we explained in the last call, was to run two DCs in order to not put at risk the demand we saw into Q3. And when I look back at the results and the demand that flowed in of the orders that came in, we made the right decision. And then the solution, if you want, is to go back to one DC. Internally we've made all the choices, and now -- early January at the end of December and early January we started to deploy that solution. We may still have a little bit of residual cost in January as a result of that, but we will be out of it now, as we speak. Every impact of that DC of course has been built into our overall guidance we're raised for the year.

Okay, got it. So we shouldn't necessarily think of you getting 150 basis points back over the next couple of quarters, and that's floating back into the gross margin percentage that you guys report?

Yes, 100%. Yes. You see, it may still take a few weeks in this quarter; we'll not take two quarters.

Right.

Okay, thanks. And then quickly, last one for me. When will you make comments about what your tax rate could be as a result of tax reform, your ongoing tax rate? And then just if, sort of, what might you do with deployment of tax savings and [indiscernible] of these?

Yes, so just quickly the tax rate, I'll give on an annual basis. It of course depends on the mix of sales by product line and regions since every country has different tax rate. At this point in time we've lowered our annual tax rate on a non-GAAP basis to 7% for FY '18. And then we'll give more color at the AID meeting, in March.

Okay, great. And then any use of repatriated cash?

We didn't have any repatriation cash. We're a Swiss company, and our cash is in Switzerland.

Yes, it makes sound sense. Okay, thanks guys. Congrats.

All right, thank you, Ananda.

Your next question comes from Jurgen Wagner from MainFirst Bank. Please go ahead, your line is open.

Hi.

Hi. Thank you for taking my question. Actually, I have two first on PC Peripherals, and they're just down a bit. How should we model this business going forward? I think you mentioned like stable or is that there the trend we should look at on a more -- also the midterm. And then on Europe, you have this chart on page 13 that shows that, reported in constant currency; Europe is -- well, keeps underperforming, to now flattish. Is that underperformance due to one country or is it across the board? Thank you.

Okay, I'll take both those. So in terms of first one, PC Peripherals, I'm not sure exactly how I would model then if I were you. But I'll tell how it's thought about, I'll always think about them. We think of our PC peripherals business as relatively flat, could be slightly up. And I think that's -- underneath the sell-in numbers, I think that's pretty much what we saw in terms of really sell-through. I think -- I suspect that will continue. I don't see any fundamental changes in the market to suggest it could be different from that yet. And I don't see any -- I can't imagine what they would be. Now, in terms of Europe, as I mentioned earlier, we've had -- I think one of the things to have is when you have a great year one year and a lighter year the next year you often do have -- an adjustment has got to take place. And the adjustment takes place in steps. And I think you're seeing that in Europe. I've had this a couple of times in my career where it's kind of staged in as the realization comes through and the sales really need to be pulled back. And that adjustment ends up being reflected quarter after quarter after quarter. And until you hit the end of that you really -- then you finally start to come back up again. And I think that's what going to happen here. I think we're probably another quarter away from being in the point where you'll start to see the underlying sellout look more like the sell-in. And right now the sellout is consistently stronger than the sell-in. And that's really an adjustment that's happening in the different stages of the distribution channel as they adjust to the new sellout. So I think you'll see it start to come back up as we enter next year. And in terms of individual countries, et cetera, it's fairly consistent across the board, but there are some differences across country as usual. We're seeing a stronger performance now coming back out of the -- some of the markets were really weak a year or two ago. Actually two years ago Russia, for example, started to come back a little bit for us, which is good. Turkey is starting to come back a little bit, which is good. So it's got a - generally speaking I think you can think of it as pretty broad based.

Okay, thank you.

Thank you.

Your next question comes from Paul Coster from J.P. Morgan. Please go ahead, your line is open.

Hi, Paul.

Hi, Bracken. Hi, this is Paul [indiscernible] for Coster. Thanks for taking my question. So, great quarter guys. So it just looks like gaming is on track to become your largest category possibly by mid fiscal year '19. So how should we think about the growth trajectory in '19 going up against the healthy comp in '18, and if can expand on the primary growth drivers there, market share growth, higher ASPs, higher shipments or just a combination of everything?

Yes, I would say, to answer the last one, I think it's kind of a combination of everything. I think we are playing across a lot of different places in gaming now, and it's continued to expand, and I'd imagine it'll continue to expand. And I think it's -- we have had a good run, and we generally guided everything ID kind of out two or three play saving for that, but we expect to do well in gaming going forward, to be clear.

Okay. Then Vincent, on the margin front, my understanding is that the gaming prog margins are slightly above the corporate average, so as the product mix evolve, do you step up in longer term gross margin targets? Thanks.

So, yes, we tuck-in come back on gaming, gaming is the perfect illustration of the three gross drivers we're talking about, right, there is a structural gross in the market, and market growing double-digit, and we see that to continue for the years to come. There is definitely an opportunity to continue to grab more market share in the current product plans we are in, and that's why we're focusing on through either new product as you've seen all the new parts we are launching will continue to do that going into a FY'19 or execution at the point of sale. And then the third one is there's plenty of small acquisitions that can continue to complete the portfolio and become a true gaming, almost kind of company inside the company, and we're definitely doubling down on that course opportunity. In term of the margin, yes, it's slightly better than the corporate average when you take multiyear averages. I don't see a major uplift from that perspective. I would say, we continue to manage the overall portfolio in the 35% to 37% range, gaming training better gross margin, we may also invest more into marketing and the overall support of growth. So I think in all of our businesses, we are trying to continue to improve gross margins because then we invest a portion of that into gross opportunities.

Just to make one of the comment, thank you for the quote because I'm going to free that to back to our -- the other business groups in our team, because I don't think they're going to sit there and wait for gaming to become the number one. No matter what the growth rate is. We've got plenty of other categories. We are super-excited potential about the growth potential, and PC peripherals is by no means going to see that easily. And when you add that to your collaboration and even the music business, I think there is opportunity in a lot of places to be bigger.

My last question, so how should we think about the split between smart speakers versus Bluetooth speakers in the quarter, and how that evolves over time? And what were kind of the primary growth drivers in this quarter? Was it a function of ASPs, higher sell-through, combination of both, may be some channel strategy? And then, was there some pent-up demand from 2Q? Thank you.

Yes. I don't think there is any pent-up demand from Q2, but I'd say the -- in terms of split, it's still the vast majority of Bluetooth speakers. We just launched our first Wi-Fi personnel system enabled speakers, and it's way too early for us to really focus whether it's going to go -- except to say, it's a new whole new dimension of opportunity for us to build into this market. So we're excited to see where they can go. In terms of what really grow the demand this quarter is both; growth in units, we have very strong growth in our WONDERBOOM, new addition to the category, and we still had strong growth in MEGABOOM. So it's really kind of strong across the board. And yes, I would say it was the kind of a really balanced performance. We gain some market share. We had good ASPs, and we had good growth overall.

Thank you very much.

Thank you.

Your next question comes from Andreas Mueller from ZKB. Please go ahead. Your line is open.

Hi, Andreas.

Yes, hello. Thanks for taking my question. One is on the G&A line, which dropped significantly. Can you give an indication to what are the drivers behind it and if it's going to be sustainable on an absolute level in the G&A line?

Yes. So, on the G&A line, non-GAAP with around $18 million, last quarter with around 21, there is a few things in and out of some of the valuable expenses in G&A. As Bracken mentioned, he is holding the team accountable for some of the gross margin metrics. And we have marked all of our metrics. So, some of them just when you see on the core basis, are just meant to valuable compensation for the executive team. On the ongoing basis as you know, we have our G&A position up to around 3% of sales. I hope we can do better. And I think that's what you will see as turning in that direction on the annual basis.

Okay, thanks. And then, probably back to the UE BLAST and MEGABLAST, can you indicate what was the sell-through relative to sell in, and also for the new Jaybird products around and Freedom 2, was it a big difference between sell in and sell out, or should we think it's basically the same metrics there?

Generally when we ship a new product, we have a higher sell and sell-through, through both those products. They're both shipped. They sell -- the Blast MEGABLAST was shipped midway through the quarter, due to significantly higher sell in and sell through. So it's still very early in that category. I think it's early days to the category of personnel systems that are not Amazon and Google, and so, we're going to have to wait and see how that really develops over time and determine how we feel about the category in general, whether we got the right price performance, profile, etcetera, and we are watching it closely. On the Jaybird products, it's a little bit of different story. We shipped a little earlier, little constraint on demand, so we think to sell in and sell out profile probably looks a little more balanced at this appointment and core because this shift earlier. If you step back from that overall, there are general inventory picture looks quite good and we feel good about where we are.

Okay, thank you.

Thank you.

Your next question comes from Michael Foale from Vontobel. Please go ahead. Your line is open.

Hi, Mike.

Yes, hi, Brack. Hi, Vincent. And a question on Jaybird as well, can you may be update us on the, on sort of the repositioning of the product in eventually new channels as well, and give us an idea of the geographic mix that was responsible for the strong growth? And then in terms of the rollout of the BLAST speaker series, can you dig us also some granularity with respect to which regions it was strongest in demand? Thank you.

Sure. Yes, really if you look at where -- we are investing in Alexa-enabled speakers, so really Amazon and Alexa have lagged with the U.S. And then it's slowly spreading into different countries in Europe and it was spread elsewhere. So, still early days -- virtually everywhere outside the U.S. In terms of the repositioning of Jaybird, we really -- as you know, we are really narrowing that position, and we are shifting the distribution a little bit. Well, the AMC, much that, yes, that will come a little bit more over time, but I'd say we're on track; I'm super-excited about the category and the brand. I think we got something unique here. And we have also been -- you know, continuing to bill out that team, and I'm really excited about that too, and I hope that you're listening, so you want to add anything that, Vincent?

No.

Okay.

May be on Jaybird as well, do you have any collaborational cooperation with any sort of sports brand that you have already or looking into?

Yes, we have several. I'm not kind of comfortable talking about it. I am not sure exactly what we have and haven't disclosed, but I'm not comfortable giving too much detail there, but we do have collaborations with other sports brands and with the sport athletes. And so, we've got some really cool things that are underway there, and we're really dedicated to building a sports brand there. And we bought one that was already kind of bought in the outdoors and we're committed to building in. And we would certainly include collaborations with other sports players.

Okay, thank you.

Thank you.

Your next question comes from Guenther Hollfelder from Baader-Helvea. Please go ahead. Your line is open.

Hi, Guenther.

Yes, hi, thanks. Just two follow-up questions; one again on the European performance, does it make any sense to differentiate by product categories, are there any major differences you want to mention here?

No, I would say the PC peripheral business was weaker in Europe and elsewhere. Again, I think it was kind of balanced out by the other two categories. So there's nothing particularly worrisome about that. I think that's pretty much a natural trend, but other than that I would say by category there is not a big difference.

Okay, thanks. And a follow-up on the currency tailwinds, the 80 basis points you were -- were you referring to the gross margin Euro or non-GAAP operating margin?

Yes, no, gross margin.

Gross margin.

All that which as I mentioned, more than half a point to hedging cost, so 80 basis point was a gross number and then you offset that with hedging cost, which is a one-time cost and the currency stay waited, then we'd benefit from that 80 basis points.

Okay. Last question on the share buyback, I mean you're running right now I think like a slightly above 20 million compared to more than 60 million after nine months last year. Is that a main impact from the acquisition, or could you talk about the volumes right now and what you're will be able to catch up in the fourth quarter?

Yes. So at the end of last fiscal year, we closed the old plan and opened a new one, right, a new $250 million. We couldn't do anything in the first quarter, because of the acquisition as you mentioned. So we're prevented from that. And we now established kind of apparent. And we'll continue opportunistically. And also a small portion of the plan will be to attend BFAS1 [ph].

Okay, thank you.

Thank you.

[Operator Instructions] Our next question comes from Joern Iffert from UBS. Please go ahead. Your line is open.

Yes, hi, and thanks again for taking my follow-up question. And may be a little bit unfair question because you launched so many products, this could reviews, but looking at a couple of launches in strong recurring end markets like the MEGABLAST, Jaybird Run, or the Circle 2, the consumer review seems to be below normal average. And can you maybe comment how you -- what are you doing, I mean, to improve the consumer experience here? Is there already something that you have done and we can expect a couple of uprights and re-launches going forward, and just some more color would be appreciated here? Thanks.

Yes, I think it's a great point. And we do have -- the three -- the specific three units -- the three that somebody asked me about, it was brought up; all three of them have pretty difficult technical challenges to them, and they're relatively new market, and -- or at least we're trying to do something that's pretty really challenging. If I go to each one, and each one of them are -- we got progressive upgrades that have already happened or happening. And so I think those to see those review comes up. Jaybird Run was a tough product, and when we launched we actually needed one more firmware update, after we launched the product we -- it's a phenomenal product. Now with the first launch, if you go and look at reviews, you'll see some internal issues where it was disconnecting. We made the change completely good, but those early reviews came through that update. We separate form. I think we learned from that. Same thing was true with -- Circle 2 was exactly the same story; we launched with -- it was -- the large version is amazing, it rose to the top and everything. The wireless version when we launched had some difficulties in the beginning. We have largely I think fixed almost all of those. And so that product is also awesome. But in the beginning, it was tough. And then the third one is BLAST and MEGABLAST. BLAST and MEGABLAST, we were really the first out with the premium Wi-Fi speakers that had Alexa-enablement. And we were really penalized by the fact that there were some features that we just couldn't put in there, and we expect it to be able to, and we were -- we had to sort of wait. And so, those are coming, or they have come, you'll see them over the next [indiscernible] for example, it's a big one; PENDORA, we just launched. So, all three of those, I think are good examples of our learning curve, and we are learning how to be more than just a hardware company. And I think in every case the product will come up to the standard we are known for. I think in two out of three, if not three out of three, we are already there. But it's a good experience for us. It's a good jump in the cold water to realize that our own internal development cycle might need a little extra time to make sure that we finish off the end of the software development cycle and prove to our sell we thought we did. Obviously, we have done this for a long time, so we are pretty good at it. As you mentioned, our Amazon ratings are best. Our ratings in general are quite good in our products. And I don't like having launching products that don't immediately hit those really good performance levels, and so, you can imagine that we had a lot of discussions internally about that. But it's good, because we're going to do more these kinds of products, and we need to be able to always come out of the gate strong.

All right, thanks for the comments.

Thank you.

And there are no further questions at this time. I'll now turn the call back to Mr. Darrell for closing remarks.

Okay. I think my last line of our Q2 call is that we're entering Q3 with the strongest line-up we've ever had leading into a highly quarter. And I think I also said we just won more awards, more design awards, which really represent design innovation and engineering that we've ever won before as a company; that may be more than any other company in a revenue per dollar basis, except we are really small company. And I think you saw on the numbers that we just reported that we just had a higher sales number, so this is all connected. We just have a lot of momentum. The best thing about the story, and the thing -- maybe you know, weird kind of pervasive, I'm most excited about is how much better we could have done. I think we underperformed we are capable of this quarter despite having the highest sales quarter ever, despite having profit levels grow in line with sales. And best thing about that is that virtually everything that we could have done better are most of things were one-time things we can fix. So I'm super-excited about the future. I think we are on really good track. I also want to let you know that we are going to be holding as usual in Analyst and Investor Day in Zurich this year. It's going to be Tuesday, March 6th. You are to be here first, plenty of reservations are there. And we look forward to seeing you there.

Yes.

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