Good day and welcome to the Logitech First Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session and instructions will follow at that time. [Operator Instructions]. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech. I would like to introduce your host for today's call, Mr. Ben Lu, Head of Investor Relations.

Thank you, Sharon. Welcome to the Logitech conference call to discuss the company's financial results for the first quarter of fiscal year 2020. 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, ir.logitech.com. During the course of this call, we may make forward-looking statements including with respect to future operating results that are 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 SEC. The company undertake 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. Non-GAAP measures have inherent limitations and are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our IR 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 Logitech Web site. Joining us today from California are Bracken Darrell, President and Chief Executive Officer; and Nate Olmstead, Chief Financial Officer. I’ll now turn the call over to Bracken.

Thanks, Ben, and thanks all of you for joining us. We had a good Q1 and a strong start to the year. We delivered total sales growth of 9% in constant currency at the high end of our full year sales guidance of mid to high-single digit growth. All of you deal in investment portfolios in one or another. An investment portfolio with only one stock is usually more volatile than one that’s more diversified. Nearly focused consumer hardware businesses are the same. They suffer the ups and downs of their single category with no offsets. Quarter-in and quarter-out, some categories will do better while others will do worse. Logitech differs from many other hardware companies because of our portfolio diversity. This diversity is tended to smooth short-term category specific fluctuations and provide stable funding for our investment priorities. That consistent funding approach is critical to our objective of long-term sustainable growth. But the key aim of our multi-brand, multi-category company is to deliver amazing customer experiences in many categories, a growing number where we can lead long term. We delivered category leadership across our broad-based portfolio through our strong capabilities in design, engineering, go-to-market, marketing and operations. That is the recipe. That is the recipe that’s allowed us to consistently deliver ahead of our peers on both the top and the bottom line, and Q1 is no different. You’ve heard us talk about the secular trends driving our business; the growth of video communication, the rise of eGaming as a sport and the democratization content creation. Those three major global trends continue to drive our business now and will drive it long term. We’re excited about being the world’s leading peripherals player bringing video to everybody, equipping and supporting gamers and enabling content creators. Now let’s dig into the…

All right. Thanks, Bracken. Q1 results were strong with balanced performance across all our financial metrics thanks to solid execution and strong financial discipline. We grew sales at the high end of our full year guidance, gained share in our key categories, invested wisely in our strategic priorities and expanded both gross and operating margins despite tariff and currency headwinds. Sales grew 9% in constant currency to 644 million and non-GAAP operating profit grew 11% to 67 million. Our Q1 non-GAAP gross margin increased 40 basis points to 37.8% in the middle of our recently revised target margin range of 36% to 40%. We continue to see the benefit from mix shifts in our portfolio and our teams did a nice job taking operational actions to mitigate cost headwinds from China tariffs and unfavorable currency exchange rates. We continue to proactively and aggressively take steps to reduce the impact of tariffs, including further diversifying our manufacturing locations and recently informing our U.S. partners of price increases for select products. We have implemented price increases many times over the past seven or eight years and price sensitivity is never completely predictable. But we feel good about our approach for the year and are confident in our full year guidance. Our non-GAAP operating expenses increased 6% to 176 million or up 3% excluding Blue. Our sales and marketing and R&D spend were both up 7% as we continue to invest in our portfolio, brand, demand generation and coverage. At the same time we continue to keep our G&A spending flattish at around 20 million per quarter. So with a disciplined approach to managing and balancing costs, we delivered another strong profit quarter. Now let me talk briefly about our cash flows. Cash flow from operations was 37 million in Q1, a nice increase from 12 million in Q1 last year. Our full year cash flows tend to be heavily skewed towards the second half and we are still targeting full year operating cash flow to roughly equal our full year non-GAAP operating profit. In summary, Q1 was another quarter where we demonstrated the resilience of our diversified product portfolio. As Bracken said earlier, this is a key strength of our business model. We will continue to invest in adding new categories and capabilities so that we can consistently deliver top and bottom line growth over the long term. Now, I’ll turn it back to Bracken.

Thanks a lot, Nate. We just wrapped up Q1 and delivered a strong start to the year as we said, so today we’re confirming sales growth of mid to high-single digits in constant currency and non-GAAP operating income of $375 million to $385 million. And with that, Nate and I are ready for your questions.

[Operator Instructions]. Your first question comes from the line of Asiya Merchant with Citigroup.

Congratulations everyone. Strong quarter given the backdrop that we’ve been hearing about throughout the quarter. I have a couple of questions; one, gaming. I know you addressed that head on, Bracken, about gaming headsets versus gaming keyboards and other peripherals within gaming. But how should we think about the rest of the year unfolding? I know first quarter was step prompt, but as we see the comps easing in the back half; September, December quarter, relative to the expectations like mid to high-teens growth, how should we think about the gaming category unfolding for the rest of the year?

As I said in my opening, the growth outside of the headset business was actually stronger than it was last quarter, so quite strong. That included our new controller in ASTRO and of course all of our existing businesses, a strong mouse performance. We’re going to wait and see how the headset category develops over the rest of the year, but I feel really good about the gaming business overall. And I think our expectations will deliver somewhere in the range we gave earlier.

Okay, that’s good to know. And then the 4% year-on-year sell-through, that seemed relative to the sell-in that you guys reported, it seemed a little weaker. Maybe you can talk a little bit about the diversions between the sell-through versus the sell-in?

Yes, sure. This is Nate. I’ll take that one. So I think if you look at it on a dollar-to-dollar basis, the gap really wasn’t quite as large. Our U.S. dollar revenue growth was 6% and we reported the sell-through of 4%. So pretty close on those two. The widest gap you probably saw was in EMEA where similar to prior quarters as we’ve mentioned, we made some strategic decisions about how we think about demand generation investments and shipping some of those and majority of the spread between our U.S. dollar selling growth at 12% and the sell-through growth at 5%.

Okay, all right. Thank you very much.

Thank you very much, Asiya.

Your next question comes from Joern Iffert with UBS.

Hi, Joern.

Hi. Thanks for taking my question. Do you see tighter competition here already and also to this product category, can you give us some more clarity what is your current headcount on direct sales force and what you’re planning here for the next 12 months? And second question would be please going into Q2, we have a couple of companies streaming services. Do you see potential for cooperation here on the hardware side or is this independent or do you see as we’ve going into the peripheral space in gaming? Thanks very much.

Okay. So you asked a lot of questions really fast. Let me go through them one at a time. So competitive entries into video conferencing. Yes, we expected them, we’re getting them, there will be more. And competition makes you better, so we will be better. We’re already better than we were six months ago. And so far I don’t think it’s had any impact on our business, but we’re going to rise to the occasion. And the other good thing about that is I think as Guerrino De Luca, our current Chairman, said to me a long time ago, Man, oh man you don’t want to be in a category with no competition because then there’s no growth. So I think that really growth in this category will accelerate as we get more people out there talking about the benefits and the cost saving opportunities and more of Video Collaboration. So I love good competition and we’ve got good competitors. Direct sales numbers, we – well, I don’t think we’ve quoted externally our direct sales numbers. Probably I’m not going to do it now, but what I can tell you is that we’re accelerating rapidly the number we have around the world where each region in the world is hiring and we’re trying to hire wisely. We’ve all been through the hiring surges that end up being a surge and then you lose half the people because they were the wrong ones. So we’re hiring very aggressively around the world. Q2 your comment about is there a story over in China on the weaker market. I think China’s had such a period of long strong growth, for us too by the way. If you look at the last couple of years, we’ve been up 20% in China, I think 19% or 20%, 21%, 22%, 23%. And no, I don’t expect it to stay like that and we didn’t see that this quarter or even last quarter. It was lower. But I don’t see anything in our categories that suggest China is in for a big slowdown, but I do think it’s going to continue to be solid. And then finally Google and Apple entering the streaming business and others, no, I don’t see that as a downside at all. I see it as pure upside. A lot of this streaming entry really is going to enable people to get into the gaming experience at a much lower cost for the PC, et cetera, and I think that’s a great thing for us because they still need peripherals and I can’t imagine those people will ever see peripherals in gaming as a strategic category. So this is our place. We love it.

Thanks, Bracken. But coming back to the streaming services and I think you have cooperation with Apple on the tablet and keyboard. Do you also see room for cooperation here with Google or with Apple or will this remain independent?

We never share anything we’re doing with any partner on the outside before we do it. And what I would just say is I think we’ve always been a harmless capable partner for these big players trying to enable their experiences and that’s what we’re going to continue to be. And if I sound too modest there, I do feel like we’re really capable but we’re not a threat to anybody like that. We’re just trying to help them realize their goals just like we’re trying to realize our own.

Good. Thanks very much.

Thanks, Joern.

The next question comes from Paul Chung with JPMorgan.

Hi, Paul.

Hi, Bracken. Thanks for taking my question.

Thank you. You know Paul is my Starbucks name because if I use Bracken it takes me forever to get for them to figure out what I’m saying, so my middle name is Paul.

Nice. So first up on VC, how good is your visibility into the full year? Does your enterprise channel kind of provide you better visibility into demand relative to some of your more consumer-oriented products? And then on seasonality, have you kind of been able to determine any patterns for this business or are we kind of still early days? I did notice that F1Q has been a typical low point for the year, so do you see enterprise buying patterns kind of accelerate more so in the second half of the fiscal year.

Well, first of all on visibility, I would say yes and no. I think anything – the sales cycles are longer in Video Collaboration than they are in our consumer business. And we use Salesforce.com, et cetera, like everybody else does. So we do probably have better visibility to the customer base, potential sales. On the other hand, it doesn’t mean we have – we can’t tell you exactly what the sales are going to be next quarter for this quarter. This isn’t quite like some B2B businesses where you really have very clear picture of exactly what’s going to sell next quarter and the quarter after that and then you’re working on the third. So I would say it’s in between there, but it certainly is better. We’re going to have growth all year long and we’re excited about it. From a seasonality standpoint, sell-in or DCS is more stable this quarter. It looks a lot like last quarter, so it’s very stable. But to Nate’s point, it doesn’t sell-in. It wobbles up and down.

Okay. Thank you for that. And then next question’s on pointing devices and keyboards. So you’ve mentioned the benefits of kind of addressing a large aging kind of PC installed base and you continue to post growth in these more mature categories. But now PC shipments are actually squeezing out some growth near term, right, so we did notice some positive correlation with your mice and keyboard sales relative to kind of PC shipments over the years. So should we see some incremental benefit in these segments near term? So why didn’t we see any benefit this quarter particularly in pointing devices?

Yes, I think first of all, the install base is so much bigger than the PC shipments that I’m not sure that going forward you’re going to see a lot of correlation between PC shipments and our business or even our categories, because the truth is we’ve sort of disconnected our selling from a PC shipment sale. So one of the reasons why it used to be more highly correlated with first of all the install base was lower and then also we had programs where we’re really aggressively trying to upgrade. If somebody bought a new PC, we would on the spot if we were lucky have one of our retailers or even etailers trying to upgrade the mouse that they bought, because we’d say, well, that mouse is pretty low end but if you buy higher, then you have better experience when you get home with the PC. That’s a much smaller story now. So I don’t think you see a high correlation. On the other hand, I think the opportunity we have – the thing that really drives our business now is our NPIs, our new product introductions. I think if our new product introduction cycles, if they hit this quarter, we intend to have a better quarter if they hit the next quarter. So I think that’s probably a lot more of a driver for us going long term than PC shipments are. And I think as we go through the rest of the year, you’ll see us do some cool things. We’ve got good innovation coming.

Perfect. Thank you so much.

Thank you, Paul.

The next question comes from Andreas Mueller with ZKB. Please go ahead.

Hi, Andreas.

Hi, everybody. Thanks for taking my question. Two questions also in pointing devices. Can you explain there the declining sales outside of the cordless mice category? And I assume cordless mice is still growing, but then you mentioned I think trackballs and pointers. Is that such – are these such large categories to move the needle? What’s happening there? That’s the first question.

Sure. Yes, I don’t think there’s a big story to be told on mice. We’ve had negative quarters off and on for as long as I’ve been here on the mouse business and I do think it’s much more a function as I said earlier of when do we launch, what’s the traction on the latest thing we’ve launched, what’s coming up next, are we selling in? A lot of that’s what’s happening there. No, I don’t think – by the way, I think you’re right or I know you’re right. Our cordless mice continue to be strong. The kind of let’s call it more niche products in the mouse category can be very attractive and I think we’re going to continue to do those things, like the vertical mouse we launched last upgraded. You mentioned the trackball; we upgraded our trackball about a year ago. So the growth curve on that’s probably faded out a little, but we’ve got more stuff coming. So I wouldn’t over think this quarter on mice. I think it’s just part of the wobble that’s happened in that business for as long as we’ve had it. And if you look at all of our PC peripherals business, it looks fine, up 2%. If we’re up low-single digits, that’s good.

I agree. The second question on cash conversion. The cash conversion cycle of these 50 days cash conversion, I mean if we hadn’t had Blue Microphones [ph], the tariffs sort of the normalized basis of course it’s then fluctuating between with seasonality. But how many days we would have been lower without the exception of tariffs?

Yes, I’ll take that one. So I think there’s a few days of cash conversion cycle tied up in those items you mentioned. I think primarily on the tariff side, obviously, we did pull in some inventories we’d done in past quarters when the tariff increases were announced, we tried to take proactive action there to help out on the cost side. So we did do that again this quarter. The other things in cash conversion cycle obviously is just the linearity of the business. Sequentially, cash conversion cycle improved seven days as the business had a little better linearity to it than it did in Q4. And then year-over-year was up. So it’s going to still move around. There’s some headwind in that number from Blue is they had a little bit longer cash conversion cycle and as we continue to integrate that business and bring them into our operations, we could see some improvement in that in the future.

Okay, great. Thanks.

Private equity has higher cash conversion cycle than we have, but we could definitely do better with Blue than that.

Okay. Thank you.

Thank you.

The next question comes from Thomas Forte with D.A. Davidson.

Hello, Thomas.

Great. Thanks for taking the questions. First off, I want to congratulate Nate for being named CFO. And then wanted to talk about two things; first on gross margins and then second on gaming. On the gross margin front I think it’s remarkable that you had a 40 basis point increase year-over-year despite the tariffs. Just want to know if you can give some more information on what you’re doing to mitigate the tariffs? And then on gaming, in particular I want to talk about new products and how you felt about your new premium console controller from ASTRO?

Great. Let me – I’ll take the second one first and then I’ll hand it off to Nate, although I do want to make a comment on the gross margin before I jump over to the gaming question. I also am very impressed that we had such a strong quarter in gross margin because we had 170 basis points of impact from currency. So we managed to offset that, which is great and still deliver kind of in the middle of the range of our long-term range. So I feel good about that. On the gaming side, the C40 is our first story but it’s a big category. There’s a lot of potential there and we’re optimistic about the long term. You want to go back to the --

Yes, on gross margin Bracken mentioned, there are really two significant headwinds this year; currency actually the larger of the two is actually about 120 basis points --

Yes, sorry.

…even out our hedging. And then tariffs added a little bit on top of that as well. In terms of tariffs, obviously, we’ve taken actions for some quarters now to diversify manufacturing locations. That’s probably the most important one as well as I mentioned pulling in some inventory ahead of the tariff increases to get you sort of a one-time benefit. So both of those were significant helps this quarter. Also on gross margin, just keep in mind, we’re continuing to see some benefits from the portfolio mix shift, things like VC which grew faster than the overall company again have relatively higher margins and so that helps as well. Looking forward, obviously, we only had a half of – so the tariffs increased kind of in the middle of the quarter, so we’ll have some additional tariff cost increases next quarter that we’re taking steps to mitigate. I mentioned we did notify some of our U.S. partners – all of our U.S. partners for some selected price increases. So that’s an additional new step that we’re taking in Q2. But that gives you a flavor of some of the things that we’re doing. Again, I’d give a lot of credit to the operations team for moving quickly and doing a really good job mitigating those costs.

Hear, hear.

Great. Thanks for taking my questions, Bracken and Nate.

Thanks, Tom.

Your next question comes from Jürgen Wagner with Mainfirst Bank.

Hi, Jürgen. Jürgen Wagner: Hi. Thank you for taking my question. Actually a follow up on the gross margin. Can you quantify the product mix impact on the gross margin? You mentioned Video Collaboration, so how much the benefit was? And on M&A --

They’re both really a wet blanket on all acquisitions, so expect us to do nothing. I’m kidding. Nate’s all in on our current approach. We’re an organic growth company that uses acquisitions to accelerate or differentiate what we’re doing and Nate, I’ll speak for you Nate because we’ve talked about a lot. He’s totally bought into that and we’re always looking at new stuff and potential M&A and our stars have to line up things to make them happen. But yes, I think you can expect more M&A.

Yes, I think on the product mix, I think I’ll reframe from probably getting into too much detail on that, but I would say there’s always puts and takes but that is one that I would expect some continued benefit for us just because again I think with some predictability we expect VC to grow faster. Another thing this quarter which was nice to see, obviously, we had good growth in mobile speakers and the products that did shift this quarter were higher margin than the same period in the prior year. So that was also a factor, sort of a mixed benefit within that category itself. Jürgen Wagner: And I thought mobile speakers would be rather lower gross margin product.

Overall, it is. But like I suggest, on a year-over-year basis the products that were strong this quarter were higher margins. So it’s still overall as a category below the company average, but the products that shipped this quarter and provided some of that growth were on the higher end. Jürgen Wagner: Okay. And then on M&A, Bracken, did you say is smaller acquisitions or did you just say acquisitions are part of your strategy?

No. Acquisitions are part of our strategy, so you can expect us to continue to be pursuing them as we’ve been in the past. A small, medium and it’s not impossible we could do something large, but as we’ve talked about before, the large stuff is really the stars all have to align to make that happen. But small and medium is certainly in the strike zone. Jürgen Wagner: Okay. Thank you.

The next question comes from Ananda Baruah with Loop Capital.

Hi, Ananda.

Hi. Good morning, Bracken and good morning, guys. Thanks for taking the questions. Congrats on the solid quarter and Nate congrats on the appointment. Look forward to working with you. So just to start at a higher level, do you still feel the same for this fiscal year Bracken about the key revenue segments? And if you don’t one way or another, could you just sort of highlight what we should know about the differences? And then I have a couple of follow ups. I appreciate it.

Okay. Look, we’ve got three businesses that are big for us; it’s Video Collaboration, it’s gaming and it’s CMP. And then we’ve got a growing number of other businesses that are contributors, including the M&A that we’ve done in the past. So I feel about the same about all of them that I did as we started the year. I think the one that was the most uncertain for us was gaming because we really didn’t know how big the Fortnite effect was. It was really hard to say. And so now that we’ve seen a quarter of that, which is probably the strongest year-over-year quarter in terms of the compare, now we have better visibility to it. So I would say generally speaking we feel good about our guidance that we started the year with based on that when we do the back of the envelope or the spreadsheet exercise, we feel good about that and pretty much the same geography of growth.

And would you say – do you feel that Fortnite is about as you as expected kind of to start the year or is it different from what you expected one way or another?

I’d say it was stronger than expected. I think the Fortnite effect was – it looked and felt strong at the time, but I think after looking at over a quarter, it looks and feels very strong there. The good thing about that is that strength also is probably a pretty good indicator of how many new people came into the gaming business because of Fortnite and mainly came into headsets. And since we have a big headset business now by virtue of the fact that having both ASTRO and Logitech G in the gaming business, we made a bet that we were going to emphasize trade-up opportunities off the low end as we did some of our new products. So our Pro headset is a perfect example there. It’s got the Blue VO!CE microphone built in. It’s a beautiful design. And so I hope that that is going to pay off and we’re going to be able to drive some trade-up through the year into next year.

That’s great.

Ananda, one comment on the headset growth. I went back and looked at the market data, so this is not Logitech specific, but for the market back in calendar Q4 a year ago, typically that market showed a decline of about 40% calendar Q4 to calendar Q1 and a year ago it actually grew 1% calendar Q4 to calendar Q1 just to highlight. So a 41 point swing and typical seasonality in the market in headsets a year ago just to kind of augment Bracken’s comments about the tough compare and really how powerful that headset growth was a year ago in the market.

All of the context is really helpful. I appreciate it. So just to make sure that I’m accurately understanding what you guys are saying, Bracken, the Fortnite headwind for start this year was perhaps a bit more pronounced that you originally envisioned it would be, but you’re still putting solid numbers in the non-headset business and you guys also feel that based on the amount of headsets that were purchased 12 months ago, there’s sort of a prove point there as to attractiveness to the headset market in sort of key segments of your gaming. Is that accurate?

Yes, I think that’s a pretty good summary. I think on your last comment I think we know the headset market is a great market and so we’re bringing out new things into that market. And the really interesting thing is going to be to see if we can upgrade some of those people who came in – the big kind of wave of people who came in, if we could upgrade them to higher end headsets because a lot of them bought the medium and low end.

That’s great context. Okay, cool. And then a follow up, if I could. Could you just sort of connect some of the dots for us on the interplay between what has been your ongoing OpEx investments and sort of the driving of incremental revenue growth and kind of how that plays into the key segments just so that we can kind of mental math that out for ourselves? And that’s it for me. Thanks.

It’s a great question and I’m probably not going to be able to go deep enough to satisfy a spreadsheet exercise or a model that would suggest it. What I would say is if you look, for example, this quarter, we grew kind of equally certainly not in absolute value but in percentage terms both in R&D and sales and marketing costs. And if you really dug underneath that on the sales and marketing expenses, we’re really trying to increase the amount of real marketing spending we’re doing at the expense of promotion, as Nate said earlier. And I think that’s been a strategy of ours for a while, we’re going to keep it up. We sort of started this over in Asia Pacific and now we’re moving it into EMEA and beginning to move it into AMR. So that path feels like the right long-term path for a company that’s trying to build sustainable brands and a sustainable business. On the R&D side, we have really good choices right now and good opportunities to invest in R&D. So we’re going to keep doing that. That’s more broad based, but I would say we’re certainly doing it in gaming, we’re certainly doing it in VC and in other categories as well. And of course some of that is we also when we do an acquisition, that’s an add-on too.

Okay, got it. And you’ve been talking for the last year or so about sort of moving into real marketing versus promotions. So on the SG&A side, is it really that moving globally kind of East? And then in addition to that would assume that you guys also are doing sort of some Video Collaboration enterprise [ph] hiring. Would those be the big buckets?

Yes, you described it perfectly. That’s exactly right.

Awesome. Thanks a lot. I appreciate it.

All right. Thanks, Ananda.

Your next question comes from Nehal Chokshi with Maxim Group.

Hi, Nehal.

Yes. Hello and congratulations on continuing to deliver on the benefits of the diversification of business. That’s really great.

Thank you.

On the gaming side, did I hear you correct that excluding the headsets, gaming was up 20% year-over-year?

Yes, over 20.

Okay, exactly. And so what percent does the ASTRO and PC gaming represent overall gaming in the June quarter?

What percentage is ASTRO and PC game, we don’t actually break that out. But the vast majority of it is obviously our PC gaming business.

Okay.

And ASTRO had a great year of growth last year and now we’ve added the controller, so it’s growing there too.

Right. I guess what I’m trying to get at is that is the install base of active headsets greater than before the Fortnite phenomenon took over?

It almost has to be. Mathematically, it has to be. So yes, it is definitely bigger.

Any chance you can give a little bit of a quantification of how much bigger it might be?

No, I’m not even sure we have that. That’s a tricky number to give because you actually have to know real user. But you can kind of figure that it has to be because so many new gamers came into it. And that’s why as I mentioned earlier, we see upgrade potential now. Whether that upgrade potential happens this year or next year, it will happen I think because as you get into your first headset – I have experienced this one of our Pro headsets from someone yesterday and the difference in the Blue VO!CE, for example, and just the design is significant. So I think we will see upgrades, but we don’t know the exact number.

Understood. Can you just walk me through again why there was such a big differential between the EMEA year-over-year 12% and 5% sell through?

Yes, sure. Let me try again. So the U.S. dollar selling growth of 12% versus the sell-through growth of 5%, those are both U.S. dollar and the majority of that spread is caused by again the strategy of moving from transactional promotional spend down into OpEx. And the sell-through numbers are reported really on a gross basis versus the revenue selling numbers are on a net basis. And so the reduction in that promo spend means that the gross revenue or the sell-through translates into a higher net revenue number just because there’s really less discounting, which is the primary difference between the gross and the net.

Did you follow that?

Does that make sense?

I guess the headlines that I see here --

…for the last couple of quarters. Yes?

The headline I see here is channel inventory build, but you’re telling me no, that is not the case because the differential is no discounting actually. Is that correct? No promotional activity.

That’s right.

We’re reducing promotional activity which is coming out on the top line, so it’s not a channel inventory build. The channel inventories were relatively stable year-over-year.

Understood. Okay. And then that reduced promotional activity is that --?

10%. Asia Pacific is for us too. We have a bigger business in Asia Pacific relative to the size. It’s mostly Australia and New Zealand, but it’s also a good business. I think the mobile speakers business in Australia and New Zealand continues to be pretty good. It may have wobbles but I think it’s such an outdoor culture down there and it’s pretty seasonal but it’s a great business. We have a very large market share. I think we have a 40% market share down there.

All right.

[Operator Instructions]. And there appears to be no further questions at this time. I will turn the call back over to Mr. Darrell for closing remarks.

Well, as I always say to our team, a key to a good year is a good first quarter and we just had a good first quarter. So now we need to turn it into a good year. So thanks a lot for such an engaged call. I want to again congratulate my partner in crime, Nate and all of the rest of our team who I think did a good job this quarter and we’ll see you guys next quarter.

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