Logitech International S.A. (LOGI) Q4 2018 Earnings Report, Transcript and Summary

Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Logitech Fourth 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, you may begin your conference.

Thank you. Welcome to the Logitech conference call to discuss the company’s financial results for the fourth quarter and full 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. 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 website. 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 website. Joining us today from California 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. Logitech delivered another great year with sales up 13% and profits up 14%. We grew across all 3 regions and all 5 of our markets. That’s our second straight year of solidly double-digit growth. You’ll remember last year we were up 15%. This performance demonstrates the power and the resilience of the diverse portfolio we’ve built. It also reflects our continued investments in our capabilities, capabilities to create that exciting, multi-brand, multi-category model. Just to remind you briefly what those capabilities are: engineering, we’re starting to see our software product work flow through in more categories all the time and we’re not letting up on hardware engineering; design, this year we broke every record for design awards we’ve had and won more than any peer per sales dollar by 70%-plus; go to market, we keep expanding our go-to-market channels, especially in Video Collaboration, and our online ratio continues to grow rapidly; marketing, we’re building especially online and with influencers; and operations, which we would call manufacturing and procurement operations, leveraging our inside/outside manufacturing model. So, yes, the financial results were very good. That surely means our view of fiscal year 2018 was a very good year, and it probably was from most people’s perspective, but not from our perspective. We don’t aspire to be just good. We simply made too many mistakes. We didn’t execute well on our distribution center move in the Americas, for example, and it cost us a lot, especially in Q3. We launched 3 new products this year, and we’re a product company, in visible spaces that shipped at lower standards of user experience than we’re accustomed to. Of course, since their launches, we’ve brought them back up to our standards. And though these products were technically challenging and new technologies to us, that’s simply no excuse. I hate launching less than great. The bottom line is that we left a lot on the table. While it was a great year by the standards of most people, it was not by our own standards. We can be and we are better than that, and I pledge that we’ll do better in the future. Now, let me go through our results. First, let me highlight two especially exciting businesses, Gaming and Video Collaboration. We delivered another year of exciting growth in Gaming, growing fiscal year 2018 sales by 52% to $0.5 billion, gaining market share and improving profitability. Gaming actually became larger than the original mouse business this past year. Growth in Gaming was broad-based, with all 3 regions and all product lines delivering powerful results. The secular rise of computer gaming in general, and eSports specifically, continues unabated. This must be what it was like – and I apologize to you Europeans, but I grew up here in the U.S., although I’ve lived a lot in Europe – this must be what it was like in the early 1960s as the NFL was rising or the 1970s as the MBA was. And as if that weren’t enough, new blockbuster games like Fortnite and PUBG are bringing new gamers into the market and driving upgrades to gaming-dedicated peripherals. Our newest acquisition, ASTRO Gaming, was a strong contributor to our results and represented approximately 2 points of our overall sales growth and 17 points of our gaming sales growth. Video Collaboration sales grew 39% in fiscal year 2018. We reached our highest-ever quarterly sales in Q4, with an annualized run rate above $200 million for the first time ever. This business has come a long way from virtually nothing 5 years ago, and the potential here is tremendous. Companies around the world are increasingly embracing open office floor plans. Video meetings are on the rise, and companies simply want lower-cost, cloud-based solutions. The world’s moving to video, and we’ll help drive that adoption. PC peripherals sales grew 1% with all 3 product lines, pointing devices, keyboards and webcams, delivering another year of stable growth with an accelerating Q4. While this group should progressively be a smaller part of our portfolio going forward, this does not mean that we’re going to stop innovating aggressively. Quite the opposite. We’re more excited than ever about what we can do here to innovate. Whether it’s in our premium MX family of mice and trackballs or our latest flagship MX Craft keyboard, we see a solid outlook for this business that not only provides stable profits and cash flows to fund our other opportunities, but also gives us the technical and go-to-market capabilities to leverage across the other markets. I’m also excited about initiatives coming later this year and next in these categories. Tablet & Other Accessories were exciting 4 years ago during my first few years here, and they’ve gotten exciting again. Sales grew 38% this year to over $100 million. The growth has come from our new, innovative tablet products, new channels, like the education market, and the recovery of the iPad tablet market. Moving to Mobile Speakers, sales were up 2% for the full year, but were down 67% in Q4. We’d expected this reset in Q4 as we suggested at our Analyst and Investor Day in March. If you recall, our Q3 Mobile Speaker sales were up 34%, coinciding with the holiday launch of our 2 new voice-enabled BLAST and MEGABLAST speakers. Some of you will remember that this reset was similar to the one we experienced back in Q3 and Q4 of fiscal year 2016. That year, after a strong Q3, we drove our Q4 sales in down 37% in anticipation of the slower market growth. Today, we’re facing similar dynamics. We launched our voice-enabled BLAST and MEGABLAST speakers over the holidays, but the market for third-party, voice-enabled speakers has not yet gained traction. We expect the overall global market for mobile speakers to continue to grow about 5% over the next few years, but we also believe there’s a place for Wi-Fi, personal assistant-enabled speakers beyond the big player zone. But we’re cautious about over relying on that. The Q4 decline includes a channel inventory and price realignment of BLAST and MEGABLAST to hit the market sweet spot. Though we aren’t counting on a big year in third-party, personal assistant-enabled speakers, we are releasing cool new features on BLAST and MEGABLAST regularly now, like our recent announcements of Spotify-over-voice support and our much awaited multi-speaker groupings that will be coming very soon. We’ll continue to prepare for the market to take off if it happens, but in Q4 and continuing in Q1, we took and are taking the opportunity to realign our channel inventory. Audio, PC & Wearable sales were flat for the year, with double-digit growth in Jaybird offsetting the continued decline in our desktop speaker business. We remain excited about the opportunities in the wireless earbud market and will further innovate here and carve out our own niche. Our Smart Home group posted robust full year sales growth of 33%, owing largely to the integration of Alexa and Google Assistant into our Harmony Hub family of products that offsets a decline in our legacy universal remote business. And with that, let me turn the call over to Vincent to walk you through our key financial metrics.

Thanks, Bracken. We delivered a strong financial performance for fiscal year 2018. Sales grew 17% in constant currency, 16% on a U.S. dollar basis, to a record level of $2.6 billion. The growth was broad-based across our regions, across our product categories, and now acquired businesses, Jaybird, Saitek and ASTRO, all grew double digits in the year. On top of strong sales growth numbers, our fiscal year 2018 non-GAAP operating income was better than expected and increased 14% to $287 million. Non-GAAP EPS reached $1.60 in fiscal year 2018, well on track to our long-term plan. Finally, cash flow from operations reached $346 million, up 20%. In Q4, our gross margin recovered to 26.4% as expected, and for the fiscal year, gross margin was 35.9%, essentially at the midpoint of our target range of 35% to 37%. As Bracken mentioned, we resolved our distribution center issues that materially impacted our prior quarter results and impacted the full year gross margin by approximately 60 basis points. The whole process was changing, and we’ve definitely walked away from that experience with valuable learnings. In Q4, we also adjusted our pricing of mobile speakers to better position the line of BLAST voice-enabled speakers as well as our BOOM Bluetooth speakers ahead of fiscal 2019’s new products and upgrades. As we shared with you in the past, gross margin is the number one metric that we internally manage to assess the health of our business. When it comes to gross margin, we will continue to balance headwinds such as portfolio and pricing readjustments, with benefits coming from cost-saving programs, economies of scale and even currency. I’m very confident in our opportunity to drive the business over time towards the high end of our long-term gross margin range and free up investment capacity. Our non-GAAP operating expenses increased 10% in fiscal year 2018 to $635 million, 8% excluding ASTRO, compared to sales growth of 16% in U.S. dollars. This demonstrates our discipline in driving operating leverage through balancing our spend with both top line and gross profit increases while continuing to invest to capture the growth opportunities we want to pursue. Our approach is pretty simple: we continuously look to optimize infrastructure spend, improve our execution to invest more in creating and selling products. Our sales and marketing expense increased 14% to support the strong top line growth in the year, while our R&D spending was up 9%. On the other hand, our G&A spending was down 6% as we drove G&A as percent of sales to a record low of 3.1% on an annual basis. We achieved better than expected Q4 and full year operating profit, EPS grew 13% to $1.60 and more excitingly, going into fiscal year 2019, we delivered that profit growth while investing for the future and absorbing the cost of our learnings. Internally, I keep reminding our team that it’s not about sales or profit growth. It’s about sales and profit growth. But to be more accurate, I should say it is sales, profit and cash from ops all growing. And on that front, we delivered another strong year. We achieved improved working capital metrics for the full year after having invested in our working capital in the first half ahead of several major product introductions. We generated the highest level of cash flows in eight years at $346 million, up 20% from the prior year. Our cash conversion cycle was 22 days for the year, down from 24 days last year, as we achieved the best inventory turns since we started our transformation. During the year, we returned $135 million to shareholders in the form of dividend and buyback, and we exited the year with a very strong balance sheet including $642 million in cash. In summary, we feel very good about the momentum exiting FY 2018, and we are confident we are going to have another great year in fiscal year 2019. We are well on track to our target of $2 EPS by FY 2020. And with that, Bracken, I’ll pass it back to you.

Thanks, Vincent. After five years of progressive – and I put this in quotation marks – "success" in the eyes of many, the biggest risk we can take is to stay the course, especially since times seem to be good. As I’ve said in the past, we’re just getting started, and this time, we’re just getting started with a fresh look on the next five years, so expect change. We’re objectively reviewing how to drive the growth opportunities ahead of us, reallocating, realigning and rethinking across the entire business. Expect us to play offense. Expect us to transform again. We just gave our outlook for fiscal year 2019 in March, and today, we’re confirming sales growth of high single digits in constant currency and non-GAAP operating income of $310 million to $320 million. And with that, Vincent and I are happy to take questions.

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

’s : I mean, just curious if you still are satisfied with the strategy and the growth opportunities going into 2019, 2020. And the third question would be on productivity. I mean, there was an impressive increase on sales per employee in the last seven or eight years of around 40%. As you’re getting bigger and bigger, do you think that these productivity increases are over now or do you still see room for significant sales increases per employee, if you benchmark your company? Thanks very much.

Okay. Let me take the Video Collaboration question next and then Vince and I will kind of share the next two. So first of all, yes, we are investing systematically in more sales resources out in the markets. We’re also investing systematically in more engineering resources inside. We’ve got some of our – we’ve got some exciting innovation underway. And so far, the returns on those investment resources to – as you call it, direct selling is really making sure we have the right salespeople on the ground, whether they’re interacting directly with potential people – users of the product or the distribution networks that we use to get to the market; it’s kind of a mixture of both – the returns on those look very good, and we’re going to keep investing. I’m not sure what you meant by whether we’re not getting a return. Our growth rate was 39% this quarter. We just topped the $200 million mark for the first time, and so our growth continues to be very strong, and we’re expanding that around the world. So we feel very good about our growth rate, our growth approach and the investment in resources we’re making.

Quickly to clarify on sell- through for mobile speakers. Overall on global basis, it was positive mid-single digits. It was slightly negative in EMR, positive high single-digit and double-digit in Europe and AP. This situation you see mobile speakers is very similar to what we faced in Q4 2016 where we prepared our business and exited the year with a market in front of us that expected to be lower growth, also still mid single-digit growth, but lower growth, and we want to be as prepared for that as we can. And then we’ll obviously try to drive, in FY 2019, as much market share gain as we can in that lower-growth market.

And last one was…

And then you had a question on productivity, I think, for the company probably around efficiency?

Productivity per employee. Yes.

Yes, if I understand correctly. So look, Joern, we continue to look at experimenting, taking new risks. We talk about investment in many different areas, and so I see productivity as a continuous process, if you want. We constantly try to adjust to our market dynamics to be more efficient in our infrastructure from a spend perspective, and you’ve seen as an example – it’s not the only one – but G&A dropping now to a record low 3.1%. I think we can do better, meaning absorbing the growth without growing our top line here. And then we reinvest a lot of those efficiencies into R&D or sales and marketing, but, even there, I think we continue to drive, in R&D, better reviews of our program, trying to get the bigger ROI and output, so I think it’s a constant effort, if you want.

Well, I think you make an – you’re asking an interesting question, and I think we are going to keep experimenting on the what’s the right mix of investments in OpEx to make sure we realize the potential growth here.

All right. Thanks for this. And maybe just a follow-up on this one. What’s roughly the number headcount increase you’re planning for fiscal year 2019 versus fiscal year 2018?

We don’t normally share headcount increase targets or –

No, we’re not going to forecast. And also, headcount is an interesting metric, but in some areas, we’re moving from one location to the other. We may have more headcount or less headcount. We also manage the spend. So there’s many different things that go into that. In fiscal year – in this year, we’ve increased our headcount in line with our OpEx increase.

Yes, and what I would say is we’re going to be responsible on OpEx as we’ve been in the past. I think we’ve been very disciplined in the past, and regardless of where we – what we would publicly say or not about headcount, you can expect us to continue to be very responsible and disciplined.

Thanks very much.

Thank you.

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

Hi Asiya.

I think maybe you’re muted or at least we can’t hear you.

Am I muted? I can hear – can I hear you?

Ah, there you go. Yes, yes, yes. Now we can hear you. Perfect.

Oh, congratulations, I was saying. Great results.

Thank you.

Quickly on the use of cash. You’re sitting on significant cash flow generation. Obviously, your ending cash was pretty impressive, around 9%/10% of your current market cap. How should we think about share buyback into 2019? I mean, is there plans to execute on that remaining buyback through the year-end 2020? What’s kind of baked into your $2 EPS expectations from a share count perspective? And then I have a product follow-up.

Yes. Let me quickly address that. So just as a reminder, right? Capital allocation framework that we’ve shared with you and that’s supported and approved by our board is, first, to use our cash into acquisition. And you’ve seen the performance that we’ve shared – a little bit about the performance of Saitek, Jaybird or ASTRO, all growing double-digit, and we believe we have a good recipe year of ingredients and footprint that when we take an asset, we can then create value for that. So that’s our primary effort, and we’re very active in looking at targets, as you know, as we’ve always been. The second one is dividends, and we changed the policy into a growing dividend. So when we publish our proxy in June/July, then we’ll give indication for the next dividend, but growing dividend is the second strategy. And then the third one is the opportunistic buyback. We have a $250 million program open. We bought $31 million this year, so we have $219 million left. We do expect to continue to buy back. There is a certain run rate, and there and there is opportunistic, depending on what happens with the market, so you should expect us to continue to buy back. In terms of the assumption used for the $2 EPS, we assumed flat share count and the many different things that go into the share count, the buyback is one of them, of course, the share price, the dilution. There’s many, option exercise, many different dynamic, but the overall assumption is flat share count.

Okay. Great. And then on the product side, Bracken, I mean, you’re talking about expressing some disappointment with your product launches this year. So without, obviously, sharing news and stuff, how should we think about the product – cadence of product launches going into 2019? Is this more first half, second half loaded? Obviously, Gaming and Video Collaboration are areas of focus. So what about the other categories? Should we continue to expect recurring product launches there? If you can just kind of provide us with some – with how you’re thinking about portfolio, that would be great. Thank you.

Sure, sure. Sure, absolutely. So we’re very guarded on what we’re doing, when we’re doing it, and so we’re very hesitant to ever release early anything for all the reasons that you know. But you know one thing for sure: we’re a product company, and so we’re always working on the next generation of innovation that we can bring to market. And that’s basically what everybody who touches everything we’re doing right now on the product side is doing. And so we’ve got a – I think we’ve got a really cool set of products coming out this year throughout the year across our categories, and I’m super excited about it. But I’m afraid I can’t say more than that except to say I think the – kind of the cadence and level will be very similar to last year, but we keep upping our game.

And how would you balance that with kind of continued focus on OpEx reduction? Is that something that’s kind of baked into the guidance that you guys gave at your Analyst Day for $310 million to $320 million? You talked about a little bit of investment dollars that you had set aside. It’s about, I think, $15 million if my memory serves me correctly. So can I just – how do you expect to – is that the investment that you’re talking about that you would invest in new products or is that kind of acquisition integration or how should investors kind of think about that money set aside for investment dollars?

Well, let me answer that, and then I’m going to let Vincent chime in too because I can see he’s chomping at the bit. So we’re increasing our investment in engineering, in products and in the go-to-market side all the time, and so we’re going to keep doing that. And you can expect – it’s built into our assumptions, and it will continue to be. And where we see opportunities where we should really be investing more, we’re going to do it because, at the end of the day, the most important thing we have is – the most important thing we are is a product or an experience company, and so we’re going to keep investing. What we guided when we – in March, and what we’re guiding today, assumes we’re going to keep doing that, and we will. Vincent, do you want to add anything?

Yes. What I wanted to say in going back to what we said in March, right? There’s definitely specific areas we want to accelerate: our direct sales force for Video Collaboration, our capabilities in online selling, increasing more of the new R&D projects that we have. And we have a kind of a three-year roadmap going to FY 2020, and as we see room in FY 2019 or if we are able to accelerate gross margin increase, we will reinvest as we discussed in March to sustain the top line growth, so that’s our objective. That’s how we’ll go. At this point in time, when you look at the $2 EPS roadmap, since you referred to it, we definitely plan to increase gross margin and increase our investment as a result. But it’s a balancing act as we go.

Can I add one other thing? And I think – especially on a call with analysts and investors and we’re all pretty numbers-oriented people – I think it’s easy to think about the level of innovation coming from the amount that you spend. It’s a logical thing. The truth is if you look at the innovation in the world right now, the most innovative things are coming from very small teams who are working in a very focused way to create something new built on a big insight and a lot of drive. And that’s exactly the way I feel about this company. We need to be operating – it’s not about how much money we spend on it. It’s about how much insight we have, how much understanding of the technology and how much drive we have with the teams that are working on these things. So we’re operating in a very distributed teams that are working on – each one is small and hungry and working on something that’s trying to make a difference.

Great. Thank you.

Thank you.

Your next question comes from Andreas Muller from ZKB. Your line is open

Hi, Andreas.

Yes, good morning. Hi everybody. Thanks for taking my question. I have a question on the inventories that are on a very low level at this point of the year, on a historic perspective at least. How comfortable are you to satisfy the current demand or a pickup in that demand?

So if you’re talking about our own inventory, I’m assuming that’s not what you’re talking about. If you’re talking about channel inventory, as you’ve seen, our sell-through was bigger than our sell-in, but overall I would say weeks on hand is within our target range and slightly down but somewhat flat on a year-over-year basis. So when it comes to channel inventory, it’s all a question and assumption on the future growth, so right now we feel well-positioned with our channel inventory for a year that’s projected at high single digits, and then we’ll monitor that as we go, by category, by region, all of that of course and adjust it.

I think he’s also referring to our own inventory.

If you refer to our own inventory, I think we are somewhat in line. Last year we finished $253 million. This year at $260 million. It’s definitely efficiency gains in that process, but we feel very comfortable with where we are on that front.

Okay. And in EMEA, could you confirm that the sell-ins are going to be more in line then with the sell-through this quarter? I think that was indicated in the last call that that’s going to be more kind of similar, sell-in and sell-through.

We don’t get it by quarter nor by region, but you’ve seen the correction of sell-through higher than sell-in in the EMEA, and we’ll drive the business the way we think it should be. I don’t want to start forecasting, if you want, that quarter, but, yes, at one point in time, that will level up, if you want, and align sell-through and sell-in as we progress through the year.

All right. And could you dissect a bit the gross margin development. What was the remaining impact from the distribution center in the U.S. and what was the gross and net currency impact this quarter?

Yes. So to be more precise, right, the currency and if the euro is the main one, but of course we have other currencies playing, we gain about half a point, 60 basis points of gross currency impact, somewhat slightly offset by hedging as currency moved up quarter-over-quarter, Q3 to Q4. So if you take the euro and move from $1.17 average last quarter to $1.23 this quarter, so there was a progressive impact, partially offset by hedging. In terms of the DC issue which impacted Q3, it immaterially impacted Q4, so we closed it in January and we were done. So from that perspective, nothing really in Q4. And then we have about 40 to 50 basis points of price realignment or price protection for our BLAST and MEGABLAST speakers, as I discussed, impacting our Q4 margin.

Okay. Thank you, very much.

Thank you.

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

Hi, guys. How are you? Thanks a lot for taking the questions, and congratulations on another solid quarter. Vincent, are you sure you don’t want another cut at that intermediate-term growth rate on the slide from the Analyst Day?

Sorry? I didn’t understand.

Are you sure you wouldn’t like a do over on the intermediate-term growth rate from the Analyst Day slides? Hey, a couple from me if I could. The first is just going back to the gaming, I think you put up sort of low 60% growth last quarter on a high-teens compare, and you just put up a 77% on, I think, a mid-20s compare. So it does seem like there’s – certainly momentum is building, but it’s also building off of sort of softer compares, and so what I’d love to know is what are you guys – what are you looking at – and the growth was broad across regions, across products – so what do you guys look at as the signposts for growth? That could be helpful for us as we try to sort of gauge what this momentum kind of gain continues to turn out as? And then I have a couple follow-ups. Thanks

Well – excuse me. Well, Ananda, we’re pretty familiar with the gaming business because this is one that – this is not a new business. It was – I think it was about $140 million 6 years ago. Today it’s almost $500 million, so it’s growing. It’s growing very well, and so we’re pretty familiar with what’s going on here. There are several things we’re looking at. One is the – obviously, we get market data and market share data, so we’re very familiar with that, and we’re seeing really interesting growth rates all over the world. China, for example, has super- high growth rates and very exciting. And then, obviously, our market share and how we’re performing within each of those markets, and some places, we’re doing better than others, but overall, we’re doing pretty well. I guess the second thing is – and then if you look for more indirect measures, we keep an eye on what’s happening on Twitch and YouTube in terms of viewership. That’s a real clear sign of how many people are coming into these franchises, and that also continues to grow. And then finally, the most indirect measure, in a way, is what new games are coming online, what upgrades are happening. And you saw this year you had Fornite and PUBG, both relatively new games, one really new, that are having a big impact. But I think it just – it really does remind me, in the U.S., of when some of the big professional sports were forming, and I think they have a trickle-down effect on people playing and watching and wanting better equipment, and we’re seeing it.

And, Bracken, that would begin to suggest that it’s very early days. I mean, if you really, truly believe that that sort of analogy is applicable here, that it would suggest very early days potential-wise.

Well, I’m not a fortune teller, but I think – I don’t know. Maybe others on the call will – it’s not as obvious to you as it is to me. It is very early days. I mean, this is – the creation of the Overwatch League, which you could think of as either professional baseball or basketball or the ABA, depends on how you look at it, just formed last year, and you just had the buy-in of teams paying $20 million apiece to create – to buy a franchise. Last year, it was the restructuring and recreation of the League of Legends Global League, which is now the same thing. We’re at $10 million buy-ins, and now you’ve got permanent teams in place. You’ve now got feeder teams that are forming city by city around the U.S. There’s a thing called Super League, which is targeted at kids and adolescents and adults that are city-based teams. This is the churn and experimentation period that you saw in – for example, in the NBA and ABA and Continental Basketball League back in the 70s and 70s. It feels very early to me, and I don’t see anything except secular trends. I always draw a chart, and some of you have seen it, but it’s a chart that shows what percentage of people play video games age 80, 70 and 60 and 50 and 40 and 30, and when you get down to about 30, it starts to go almost to a flat line out to the right, meaning lots of people are playing, and those people are going to get older and younger people are going to come into games. So I think it’s super early.

That’s helpful. That’s helpful. Thanks. And then I guess sort of same question sort of same question with the pointing device and keyboard portfolio. The numbers are obviously very strong. The compares were healthy compares. And so could you just walk quickly through what you guys believe were the catalysts to the especially strong quarter coming off of pretty healthy compares? And then I have one more quick one. Thanks.

Well, I think it’s not a stretch, in this case, to say the ball is in our court to play. When we have good innovation and we have good execution, we can do well there. When we’re at a lull or are execution’s not as good, we’re not going to do as well. And so the number of – I’m looking out through a glass wall here at all the open office space that we have, and every single desk has a computer on it, so it’s up to us to create something that’s worth changing what you have for. This year, we launched the Ergo trackball. We launched the Craft keyboard. I said those were relatively niche products, and still we had a decent year. And as you said, we had better momentum in Q4, so it’s up to us to innovate. So I’d say, stay tuned. We’ve got to keep innovating.

Okay. Great. And then just the last one from me. You made mention in the prepared remarks that you’re starting to see the software kind of work flow through. Could you just maybe speak to some of the more prominent areas? I’m sure you went through this at the Analyst Day, but there was just so much to absorb at the Analyst Day, that now that you’re calling it out, that would be really helpful. And that’s it from me. Thanks.

I’m always so wary of sharing too much because it might imply where we’re going with things that we’d rather keep to ourselves until we launch, but what I would say is I can – we now have a head of software in every business group, so we’ve got somebody running it in all of them. We’ve got UX people and UI people working on the integration of that software and the creation of software in a way that it’s really easy for users to use, and you can see that in, for example, the Circle app or the Jaybird app. So we’re really doing a lot there, and we’re learning and we’re learning and we’re learning. And it’s really an exciting area. We still have a long way to go to realize what’s potentially out there, and so you can just expect more out of us. That’s all I can really say except it’s very broad. It’s not just one category or two.

That’s very helpful. Okay. Thanks a lot. I appreciate it. Congrats.

Thank you.

Next question comes from Michael Foeth with Vontobel. Please go ahead. Your line is open.

Okay. Thank you. So just an update on Jaybird. You mentioned double-digit growth for the year. I was just wondering if that trend is also valid for Q4. And then if you can maybe share with us what was driving the growth, what the geographic trends also are there, and how do you feel about sort of the repositioning or shift in distribution channels for Jaybird? Thank you.

Well, Jaybird is our project because we really – it’s kind of a labor of both exciting potential and a labor of love. We all really believe in this category. We believe in the continued secular, strong rise of wireless earphones for everything, and we love this narrow positioning that we have now in Jaybird and the brand itself. I apologize. This is – I can’t help myself. We’ve now moved the headquarters from kind of an industrial park in Salt Lake City to a smaller space that I think might even be more affordable, but it’s much cooler, and it’s right on the side of a mountain where you walk out the back door, and people can run. We’ve got – Park City is also the home of the U.S. Olympic Team and a lot of training of distance and ultra-distance runners, and we’re building a performance lab in there for those people to go experience that, and for us to help them to train. So we’re in a long-term path here, and we’re really excited about it. And I think the potential here probably will take us a few years to really realize. I think the Jaybird brand is phenomenal. I love the team we have working on it. I mean, we’ve got – I won’t name companies, but exactly where you would think that you’d want to have them coming from are running this business now. And it’s going to – it’s early days, so it’s going to come. Q3 is a seasonally weak quarter for that business, and it was weaker for us for sure versus Q3, but it was really part of our overall plan, which is we’re systematically, brick by brick, or should I say step by step, going to build a great running brand there, and we’re excited about it. I’m super excited about the products that are coming too.

And geographically, just to give us an idea of what the adoption looks like.

Yes. We’re fairly limited in our geographic scope so far because we want to prove and expand rather than expand and try to prove. So it’s still mostly a U.S. business, and we’re in lots of European markets, the very top ones and, to a more limited extent, a couple of countries in Asia. We’re certainly in Australia. We’re in Japan. So we’ll slowly expand this step by step.

Okay, thanks a lot.

Next question comes from Tom Forte with D.A. Davidson. Please go ahead your line is open.

So I know you’ve talked a lot about gaming on this call, but I had two related questions. So how should we think about refresh rates on the gaming equipment? And then, in particular, how should we think about the ability of one title, such as Fortnite, to be a needle mover for Logitech?

Yes. We kind of expected somebody to ask this because you can’t be alive today and anywhere near gaming or a gamer and not be hearing about Fortnite. So first of all, I think the refresh rates are, in these categories – It might even be too early to talk about refresh rates because there’s so much – depending on how you think about refresh. If you’re talking about refresh meaning re-refresh our portfolio, I hate to think about it in terms of refreshment because we really like to drive more fundamental innovation and some innovations bigger than others, but we’re really trying to do things that are more fundamental than that all the time. So I don’t think we’re really in the refresh game. We’re really trying to constantly create a user experience that’s better, ideally significantly better. And I would say, across our portfolio, we have opportunities, and we have a very fast pace of innovation in the gaming business. I would say as fast as anywhere. On the potential of a single title to have a big impact, it’s big. It’s really big. I mean, if you look at the impact League of Legends had over years, there’s no doubt that they almost, in partnership with Valve and others, have now have kind of created the PC gaming phenomenon, at least from an eSports standpoint. And now the Activision/Blizzard and all the other big players are pouring it on, and you’ve got the new kind of independent players that are PUBG and Fortnite. And I think this is the, no pun intended, this is the game we’re in, which is if you create something that has magnetic appeal, like a Fortnite, and it’s fun to watch, like Fortnite, you have the potential to drive not only the existing players to move over, but even more important, new players to come in and new people to start watching. And we’re definitely seeing that with Fortnite. We saw it with PUBG. We saw it with League of Legends. You’re seeing it with Overwatch. So it’s very broad, and I think there will be more. There’ll be more. It’s going to come.

Great, thanks for taking my questions.

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

Hey, Bracken and Vincent. How are you doing? Well, doing well is my impression. Just a quick one going back to PC, keyboards and pointing devices again. So you seem to do very well both when no one’s buying PCs because there’s a huge installed base out there, and you also seem to do very well when people are buying PCs. And I’m wondering what we’ve learned from all of this over the last 2 or 3 years. Clearly Dell and HP are doing very well at the moment, and I’m just wondering how you associate those new sales with your success in those categories.

Yes, it’s a great question. When I first started here, that was – all the discussion was around PC growth rates. And then a light went on for us pretty early on. I think we said, wait a minute. Why are we worried about PC growth rates? There’s a PC on almost every desk and they don’t seem to be moving, and the usage rates are actually pretty stable. So yes. So I think our business is really driven much more – because of that, I think our business is driven much more by the quality of innovation and our bringing that to market where people know about it than it is by the PC sales rate. That said, we’re probably not getting as much of a PCs sales growth – as much impact out of the PC sales growth rate as we might have 5 or 6 or 7 or 10 years ago because we’re probably not driving attach rates on new PCs as well as we could. So I would say that’s one of the areas we’re not executing well enough. And so I think we do have an opportunity, to your point, Paul, on both sides, but the installed base effect is much bigger really. In the end, no matter how big your PC sales are, they just will barely put a dent in the installed base.

And then one other question, which is a little unfair, but you’ve demonstrated excellent management of this company during good times. Talk to us a little bit about how the business model, do you think, would respond to a recession in the event that we see one in your next 5 years, which is, I think, your next planning horizon.

I’d say it’s always – as you said, it’s very hard to predict, but I don’t think it’s an unfair question. I think it’s the kind of thing we do need to think about. We’re in categories – if you think about our business, we’re actually in categories that – nothing’s recession proof – but that should do pretty well in the event that the economies are less good or or even bad. I mean, Video Collaboration is probably the poster child for that. Video collaboration – today, video collaboration is probably going in more and more because people want to have video communication, not audio communication. In a world where you had a recession, where a company said, boy, we’re going to cut our air travel; we’re going to do this. It’ll be a great alternative to air travel, and it’ll be an incredible value because the cost of one trip is more than what we would pay to video-enable a room. And so I think that is a really good one to invest in the event that the market goes bad and a good one to invest and if the market’s good. So I think we’ve got a few categories like that and most of our products – that’s our most expensive product, by the way, and actually, relative to a down economic environment, might be the most inexpensive product or best- returning thing you could buy if you’re a company. So I’d say that’s on the one side. On the other side, even though our average sales prices have gone up over the years because our mix of products has changed, we’re still selling stuff that’s pretty affordable, and they’re small indulgences. So you never know. It’s hard to predict, but I would think we’d do okay in a recession market.

I guess I was more interested in the business model. I mean, I sense this is really quite a variable cost model, and you can flex with circumstance, right?

Yes. I’ll finish up and then I know Vincent – I can look at Vincent and tell he’s ready to jump in here. I think we’re trying to be flexible and agile in everything we do, and you can tell that from the way that we maneuver quarter-over-quarter and year-over-year, I think. If you can’t, we can. We can always be more flexible and more agile, but we want to – one of the credos we have, Paul, and you and I have kind of talked about this before, is we want to operate much more like the small-company we started and not like the big company that, at one point, I think people thought we aimed to become. We don’t want to become that. So we want to be agile. We want to be flexible. We want to be able to scale up and scale down and move resources fast from one place to another one when we see opportunities, not willy-nilly, in a controlled way, but in a really smart and fast way. One of the things that drives me, personally, is China. Every time I go to China, I’m amazed by the speed of everything around me, and we have a big business in China, a very competitive business in China, and we’re winning in China. And that inspires me, and we’re trying to bring more China clock speed into the rest of the company and China flexibility.

Thank you.

[Operator Instructions] Your next question comes from Joern Iffert with UBS. Please go head your line is open.

Thanks for the question. And first a very quick one. Sorry if I was maybe a little bit confusing. Vincent, you said mobile speakers sell-through plus 5%. This was for Q4 2018, right?

Yes. Correct, mid-single digits.

Okay, okay. So just a dollar check, so that’s Okay. The second question is, is it fair to assume that half your sales growth, of organic sales growth, is coming from like-for-like and the other half from finding new distribution channels?

I don’t think so. I would say much more of our sales growth is coming from like-for-like. I don’t have an exact number, but I’d say new distribution channels would be a relatively small percentage of our sales growth, much less than that.

Alright, that’s helpful. Thanks very much.

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

Okay. Well, thank you. Thank you very much. And again, I’ll just repeat what I said earlier. I think a lot of people and a lot of you congratulated us on the call, and we thank you for that. And I’m not being false – this is not false modesty – we really feel like we could’ve done better this year. And I think as owners of the company and leaders of the company, you can count on us to try to really improve our game as we go into the next year. Some of the things we did this year shouldn’t have happened, and, as Vincent said, they’re great learning events, and we’re going to apply them right into what we’re doing next year. We’re super excited about this year. We’re super – even more excited about the long term here and never been more committed. So thanks a lot.

Thanks.

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