羅技 (LOGI) 2014 Q2 法說會逐字稿

Good day and welcome to the Logitech second-quarter financial results conference call.

(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. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech.

Welcome to the Logitech conference call to discuss the Company's financial results for the second quarter, ended September 30, 2013.

The press release, our prepared remarks and slides, as well as the live webcast of this call, are all available online at logitech.com.

As noted in our press release, we published our prepared remarks on our website in advance of this call.

Those remarks are intended to serve in place of extended formal comments today and they will not be read on this call.

During the course of this call we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995.

The forward-looking statements involve risks and uncertainties that could actual results to differ materially from those anticipated in the statements.

Factors that could cause actual results to differ materially include those set forth in Logitech's annual report on Form 10-K, dated May 30, 2013, and subsequent filings, which are available online on the SEC EDGAR database, and in the final paragraph of the press release and prepared remarks from Logitech, reporting second-quarter financial results for fiscal 2014.

The forward-looking statements made during this call represent management's outlook only as of today and the Company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

Please note that today's call will include results reported on both a GAAP and a non-GAAP basis.

Non-GAAP reporting is provided to help you better understand our business.

However, non-GAAP financial results are not meant to be considered in isolation or as a substitute for, or superior to, GAAP results.

You should be aware that non-GAAP measures have inherent limitations and should be used only in conjunction with Logitech's consolidated financial statements prepared in accordance with GAAP.

Our press release includes a table detailing the non-GAAP measures, together with the corresponding GAAP numbers and a reconciliation to GAAP.

You can also find this information posted on our investor relations website.

The slides that accompany this call include both GAAP and non-GAAP measures and are also available on our investor relations website.

We encourage listeners to review these items.

This call is being recorded and will be available for replay on the Logitech website.

Joining us for the call today are Bracken Darrel, President and Chief Executive Officer, and Vincent Pilette, Senior Vice President Finance and Chief Financial Officer.

I'd now like to turn the call over to Bracken.

Thanks, Joe, and thanks to all of you for joining us.

With two quarters behind us we are on track in our turnaround.

We've significantly increased operating profitability and the signs generally look good inside our growth businesses.

Total sales declined by 3% in Q2 and by 1% on a year-to-date basis, better in both cases than expectations at the start of the year.

Our operating income doubled on a non-GAAP basis in the first half.

We are ahead of our own expectations so far this year, but it's still early in our first turnaround year.

A few comments before we open for questions.

The sales growth of our tablet accessories slowed in Q2, but don't confuse that with the slowing in our underlying business at the consumer level.

We are looking very strong in market share around the world in tablet accessories.

As I mentioned could be the case during last quarter's call, our sales don't reflect this growth because of the timing of our new product launches.

Back in Q1 we launched a number of new tablet accessories.

We held back in Q2 while we waited for what we expected would be a late-quarter release of the next-generation iPad.

When the iPad launch moved to Q3 so did our launches.

Meanwhile, we launched our first folios for Samsung tablets.

I'm very pleased with the improvements we've made to accelerate our time to market in the tablet accessories category.

And the benefits from those improvements will soon become visible.

We'll be in the market faster than we've ever been and I suspect you will find our products around the world surprisingly soon.

I'm also very pleased with the sales of our wireless speakers, which more than doubled in the first half of fiscal 2014 compared to the prior year.

Our star performer has been the UE Boom, which continues to generate strong demand.

Earlier this month we launched the UE Mini Boom, which strengthens our portfolio of mobile speakers.

Our gaming category also delivered double-digit sales growth through the first half of the year, with solid growth in the Americas and Asia Pacific.

Our results in the category in EMEA were the only disappointment in our Q2, driven by sales executions in Germany, our largest market in the region.

While I believe it will take us several quarters to fully implement the improvements, we understand what needs to be done and we have begun to make progress.

The pointing device and keyboard and desktop categories both delivered sales growth through the first half of the year, performing better than we had anticipated when the year began.

I'm very pleased with these results, but we are not planning for a sustained momentum in the coming quarters, given our expectation for a declining PC market.

While the first-half performance of our LifeSize business has been a disappointment, we moved quickly and decisively to improve the situation.

In Q2 we replaced the leader and brought back LifeSize's founder, Craig Malloy.

In the past two months he implemented an aggressive restructuring which included a broad-based reduction in staffing levels, a rationalization of the product portfolio and a refocusing of the development of priorities.

We took these actions with the primary goal of achieving sustainable profitability this fiscal year, and I believe we'll get there.

Before wrapping up my comments I'd like to let our new CFO, Vince Pilette, provide a short introduction.

I interviewed many candidates and Vincent brought the perfect combination of big-company experience and a small-company action mindset.

Vincent?

Thank you, Bracken.

I'm very excited to be part of this turnaround.

In the first half of this fiscal year we delivered better-than-expected non-GAAP gross margin of 36%, driven by product mix.

We took the right steps to lower our cost structure across all functions, reducing our first-half non-GAAP operating expenses as a percent of sales by 120 basis points, creating operating leverage.

As a result, we doubled our first-half non-GAAP operating profit margin to 4.9% of sales, with a 7% operating profit margin, in Q2.

We are making good progress, but more work lies ahead, as we are still in the early stages of our three-year turnaround plan.

I'm looking forward to working with the Logitech team and with all of you within the shareholder community.

Thanks, Vincent.

We are re-confirming our fiscal 2014 outlook of approximately $2b in sales and GAAP operating income of $50m, which now includes $13m of costs related to restructuring that were not anticipated when we first provided the full-year outlook.

Our outlook is based on the prudent assumption that the sales performance of our PC peripherals will not be sustainable in the face of a double-digit PC market decline.

On a non-GAAP basis our operating income is expected to be approximately $100m, an increase of $13m compared to the previously-expected non-GAAP operating income.

As I mentioned at the start I'm pleased with the progress we've achieved through the first half of fiscal 2014, both in transforming our P&L and in transforming Logitech as a company.

Although we have more work in front of us I'm confident that we are shaping a faster and more profitable Logitech, as demonstrated by the increase in our outlook for fiscal-year 2014 profitability.

I'm confident we'll first turn the Company's profitability and growth around, and then turn this into a great company again.

Vincent and I are now available to take your questions.

Please follow the instructions of the operator.

(Operator Instructions).

[Alex Rah], Exane.

Hi.

Hi, good morning.

I just wanted to ask about how you feel about your inventory level going into the current quarter, considering a significant product transition at Apple, for instance.

That would be one.

And, second, also you've commented in the past that you wanted to make Logitech more nimble and faster to react to new product introduction.

How long do you think you may need to put together new keyboards for new recently-announced tablets?

That would be extremely helpful, thank you.

Okay, thanks, Alex.

First, in terms of inventory level I feel good about where we are as we go from Q2 to Q3.

We are -- we normally would have an inventory build going into Q3 ahead of the holiday season and I think we are in very good shape across the board.

We could go through it by region, but I don't think there's probably a need to do that.

Suffice to say I feel good about where we are.

I do think we continue to have room in inventory to continue to get more efficient, but we'll look at that over time.

On the iPad I'm -- we're not announcing anything today, but stay tuned.

Don't confuse PR with real performance.

We will be in the market surprisingly soon and I'll leave it at that.

All right.

It's -- does this mean before Christmas by any chance, or that's the target at least?

I think it's safe to say we'll be in the market very soon and --

Okay, yes.

-- certainly ought to be before Christmas.

Got you, thank you very much.

Paul Coster, JPMorgan.

Yes, thanks for taking my question.

Bracken -- excuse me.

I may be a little picky here, but in your prepared remarks you talked about the first turnaround year.

What does that mean and when do you expect to return to growth?

I don't think you're being picky.

I think the -- it's a fair comment.

When we described first turnaround year we are really referring to the analyst and investor day of our three-year view of what we are trying to accomplish financially.

And we're really anchored.

We [really] talked about the first year, which was this year, and the third year, which was 2016.

And then the fiscal-year 2015 was just a placeholder in between.

So this is our first year and you can look at those -- look at that set of projections as what we are trying to accomplish from a turnaround.

Got it.

The tablet accessories are not a major portion of your business at the moment, so the concentration risk maybe is not that great with respect to Apple.

But maybe it will increase in time if you are successful.

Can you talk to us a little bit about how you stay close to Apple and mitigate the risks of missing out on a product cycle or misunderstanding their product?

Our IQ has gone up exponentially since we started into this about a year -- a little over a year and a half ago.

First, Apple shares no information directly with us.

They are as secretive as you hear and we respect that.

And I think it creates a very fair and level playing field for all the competitors in the market that create tablet accessories.

But we are working very hard to understand and predict what Apple will try to do with their next generation of products based on what they've done with the last one.

And I would say our IQ has proven to be better and better and better.

This is probably the best on yet.

We feel like we really understood where this was going but, honestly, they can always come in with a surprise.

So there are no guarantees in this world.

We are just going to keep trying to raise all the intelligence we have about what Apple and -- as well as other tablet accessory makers are -- or tablet makers are doing.

And I think we'll continue to improve there and, therefore, become faster and faster to market.

Okay.

And the last question is what was the problem in Germany.

Is there a broader lesson regarding the rest of the regions?

In Germany -- I'm not sure there's a broader lesson for the other regions.

We just mis-executed on our gaming approach and we really took a good strong hit in terms of, overall, our distribution levels, our levels of promotions were too low etc.

So we've rectified that.

We're -- as we go into Q3 I think we've got the right kind of plans in place and we are doing other things to make sure that we are in a position in Germany to get our gaming business back to where it really ought to be.

Okay, got it.

Thank you.

Thank you.

Youssef Essaegh, Barclays.

Hi, thank you for taking my question.

Actually, it's two of them.

The first one is regarding the tablet business.

So you were boosted in the first quarter by the introduction of the new [keyboard-less] accessories, but sales were up just 3% year on year -- sorry, I meant fiscal second quarter.

This quarter will benefit from the launch of the new iPads on Christmas, hopefully, but the -- my worry is actually about the speed at which these cycles start and end.

It seems like in just a single quarter you are going to be launching a product and then you will be selling a lot of it, and then it's going to die by the end of the quarter.

So how do you expect the inventory management to be to these regards going forward?

And my second question is regarding the restructuring charges, given now you try and give more numbers with and without all the non-cash expenses.

If you can help us with a little bit of guidance for [this source the] second half of 2014.

Thank you.

I'm going to take the first one and I'm going to let Vincent handle the second question.

First of all, in terms of inventory management in what is unquestionably a much faster-cycle business in tablets than the ones we're used to, I would say if you'd asked that question a year and a half ago the answer was we are treating this business like our -- the rest of our business, where we're -- the tablets are on a fast cycle, but we're not.

So that doesn't work very well long term and, therefore, we've changed ourselves inside dramatically.

Now, as we go through and look at what we think is a much faster cycle, what I can tell you is I don't think it's a quarterly cycle.

I think it's a six-month cycle.

I also don't think every tablet will completely change shape and form every six months.

If it gets to that we'll deal with it, but I doubt it.

So it's not quite as accelerated as what you described.

What I can say is we're -- we've learned a tremendous amount about how to transition in the context of this business both in terms of phasing out the old and, maybe more important, in terms of bring out the new fast and broad.

And so I feel quite good right now about what we've got to and I don't -- I'm not worried by the transition process that comes with the tablet accessory business.

Hi, Youssef, this is Vincent.

I will follow up on the GAAP/non-GAAP guidance.

So we've confirmed our GAAP operating income guidance of $50m, which now includes $13m of restructuring charges that were not planned when we initially re-confirmed our guidance back in the spring.

And then on a non-GAAP basis we have raised our full-year operating income guidance 15%, to $100m.

And the delta between GAAP and non-GAAP, as you know, excludes stock-based comp, amortization of intangibles and year-to-date restructuring.

Thanks.

Specifically for the restructuring can you give a little bit more detail, or --?

So most --

And I'm fine if you prefer not to.

Yes.

No, absolutely.

Most of the restructuring is linked to what Bracken mentioned around LifeSize.

Craig Malloy took quick actions to reduce the overall cost structure, re-position the portfolio and $11m of that $13m is linked to the LifeSize activities to re-position the business.

I like to think of what Craig did at LifeSize is very similar to what we did here several quarters ago, which was to really shrink the overall size of the G&A, or the overhead, to the size of the business.

And I think he's done a great job and I think they are in a much better position right now.

Thank you.

Tavis McCourt, Raymond James.

(Operator Instructions).

Thanks.

Thanks very much for taking my questions.

Actually, I had three of them.

Bracken, I wonder if you could differentiate this year's audio launches from last year's.

So we had a bunch of audio launches last year and then they petered out towards the back half of the fiscal year.

What kind of sell-through trends would give you confidence today that that doesn't repeat itself?

Secondly, I wonder if you could share any tablet keyboard share data.

It certainly appears that whatever impending competition had been out there seems to be getting less relevant.

But I wanted to know if you had any share data related to that.

And then finally, Vincent, as working capital appears to be a focus here, remind us of what you believe the cash position of the Company needs to be and at what point does it start to make sense talking about re-deploying some of the free cash flow beyond the current dividend payment?

Thanks.

Okay, let me -- those are interesting questions.

So, first, in terms of audio launch differences one thing that -- one of the most valuable things you can do in a company is make sure you are learning aggressively from what you did before.

And we learned so much last year from the way we executed [the] strategy we had in the music business.

You know that what we did last year was we launched across a whole -- a very wide array of music products, from headphones to speakers.

And we had a lot of different items in them.

And what we learned was, boy, it's very difficult to win a war on so many fronts at the same time, especially when you are trying to invent a business there.

So we took our lumps last year, honestly, and we learned.

And we've really focused and we are really focused on Bluetooth speakers this year.

And so far -- you asked about the underlying consumption trends -- consumer trends -- they look very good.

We are -- we have very, very strong growth there in real sell-out consumption, where consumers are walking out, so comparable or better than what we said we would do at the analyst and investor day on a year-in year-out.

So I feel quite good about that.

On the tablet keyboard share data, without being too specific, although we could be -- it's broadly available.

The tablet keyboard shares are starting to look a lot like our shares of some many of our other categories where we're really moving into strong leadership positions.

And it varies by market around the world, but generally speaking it's -- we have very strong shares and we feel very good about them so far.

Now Vincent.

Yes.

So in terms of working capital first I would like to talk about what we did in the quarter.

We definitely continued to improve our overall collection.

You've seen in the prepared remarks that DSO went down 3 days to 44 days, an improvement in our AR position.

Similarly, we've optimized our inventory position and continue to make it more efficient.

Inventory in turns increased to 4.8 turns.

And then the last piece is we've de-risked a little bit our position on DPO, which on the high end, to give us a little bit more working capital flexibility as we'll continue to move forward.

The Company has a good cash position and has always been a very good cash generator from an operations perspective.

We delivered $15m of cash from ops this quarter.

And on an annual basis we're trending pretty much in line with non-GAAP operating profit.

When in terms of the working capital needed I just want to remind the strategy, so the overall strategy is to keep somewhat around 15% to 20% of cash for -- of sales for cash for just working capital.

Secondly, the Company continues to look for M&A opportunities, [taxing] opportunity into our overall strategy and accelerate our move towards mobility.

And then third, as you know from the past, the Board has used almost all tools to return cash to shareholders.

In the past they had a buyback program.

Last quarter we just paid $36m dividend.

And I think on the on-going basis the Board will look at the overall cash balance, the overall strategy and what needs or could be returned to shareholders.

Okay, thanks very much.

John Bright, Avondale Partners.

Thank you.

Bracken, relative to PC units your mice sales have performed well.

Is this due to increased purchases by businesses versus consumers?

And, if that's the case, do you have a particular channel or channels that maybe are focused on the business consumer that are doing better for mice sales?

John, there's no magic to this number right now.

At the end of the day our mice sales so far have been pretty correlated with PC sales.

And PC sales have been weak and, therefore, as we look into the back half of the year we don't expect that we'll continue to have this kind of sales growth in our sales performance in mice.

The PC market right now is down 11% and we expect that our -- the overall PC platform products will not perform like they did in the first half.

Now that said, to answer your question very specifically, the -- no, there's no specific channel that's into the business channel that's outperformed the consumer market.

Certainly, it's done a little bit better, but I think overall we're certainly pleased with what we saw in the first half, particularly given the weakness of the PC platform, but we definitely don't expect that to continue in the second half.

My second question is regarding LifeSize.

You've made some changes, you brought back the founder, when should we expect profitability at LifeSize?

Well, as I mentioned earlier, our goal is to expect profitability.

Outside of the amortization that came with buying the -- with us buying the company [we'd] expect them to get back to breakeven or profitability as we exit the year.

Final question, can you -- and this one's a bit difficult.

But can you talk about ideas within your new product pipeline for the tablet accessories as well as smartphones?

Everyone's seen the leak of the Gameboy-type device that you had in place or that's out there for a smartphone.

Are there other types of ideas that you could share with us for those two market segments?

Naturally, as you'd expect, John, it's hard to share upstream ideas because that's a great way to communicate directly with other people who might like them too who might want to introduce them.

But we're always looking at new things both in -- in all the segments that we're in.

We call it mobility for a reason, because mobility is -- today mobility for us is just tablets and speaker -- and mobile speakers, Bluetooth speakers.

But we're always looking for other things and we'll continue to look for them.

And regarding any leak that came out I'm not going to reply to or respond to it right now.

More optimistic or less optimistic on the new product portfolio as you look into next year?

As I look into next year?

I'm more optimistic about what we're doing overall.

And I feel really good about the transitions we've made in innovation and in product design.

So as I look into next year I feel very good about it.

I feel as good about it as I did when I stood up at analyst and investor day in May and I expect to feel better and better about it over time.

Thank you.

Andrew Humphrey, Morgan Stanley.

Hi, thanks for taking my question.

You've mentioned that you don't view the out-performance that you've seen in mice and, to some extent, keyboards this quarter as sustainable, given secular declines in the PC market.

I can understand a level of caution there, but can you maybe go into a bit more detail on to what extent you expect to continue outperforming that market and maybe some of the factors led -- that led to that out-performance this quarter?

The out-performance we've had has been largely driven by very nice share gains.

As you look around the world we have a very strong share performance.

There's a point where you can't expect that to continue and so as we look into the back half we think it's prudent to assume that our PC platform will be proportional to the decline in the PC market.

And the PC market continues on a strong decline.

Okay, thank you.

Michael Foeth, Bank Vontobel.

Yes, hi, I have just one question.

Basically, you're increasing your underlying operating profit guidance for this year and I was trying to understand what the impact of restructuring, and also the guidance increase, what kind of impact that has on your 2015 and 2016 targets, which you shared with us at the investor day.

Are you sticking to those $90m and $150m targets, or is there any change to that on the back of this year's increase?

Yes, we're not changing anything about our targets going forward right now.

We're sticking to them.

And remember it's really a 2016 -- we really anchored this in 2016 and we called 2015 a bridge year and I continue to say that.

So, yes, I wouldn't expect anything to change there right now.

(Technical difficulty) anticipated earlier this year is not having any incremental positive impact on what you were expecting at the time?

We missed the first part of your question there for some reason.

Yes, the question is basically the restructuring, you had not planned that restructuring six months ago, and now you're implementing that and so as far as I see there is no incremental benefit in the future from that restructuring.

Okay, Michael, this is Vincent, right?

So we were able to raise our underlying, as you mentioned, operating income by 15% to $100m for this year.

At this point we're only going to guide the FY '14 and then at the next analyst day probably at that point in time will be time to refresh the overall model, but for now we stick to our three-year plan.

It's great that we are able to raise and are a little bit ahead, but we would not want to run before we get really comfortable.

Remember the restructuring is really to get LifeSize profitable by the end of this fiscal year and let's first deliver that before we do anything for future years.

Okay, that's fair enough.

I totally appreciate.

Thanks and congrats for the good results.

Thank you.

Thank you.

Andy Hargreaves, Pacific Crest.

[Okay], just a couple of questions, one on gross margin.

I'm not asking you to give us a target, but just wondering -- and maybe this is for Vincent.

Are you targeting an actual margin percentage as you think about the business, or are you just going after overall gross profit dollars?

And then my second question is just on the tablet peripherals.

Can you give us any sense for -- obviously, I'm assuming attachments to iOS are pretty high.

But can you give us any more granularity on how much the -- variance there is in your attach rate by price band?

Let me first start with the first question and then Bracken will address the second one.

So on a gross margin GAAP basis last quarter we delivered 35.2% and in this quarter 34.5%, which includes some restructuring.

In the first half on a GAAP basis we delivered about 35%.

In the back half of the year, here in the second half, we are going to go back to our normal overall target margin, which is around 34%, and that's really coming from a mix perspective.

As Bracken mentioned, it's prudent not to assume that we're going to continue to have an over-performance in the light of a double-digit decline in the PC market.

And then obviously we're going to double down on the mobility part of the portfolio.

That will bring the margin at around approximately that 34%.

But to answer your question, we're really focusing on the bottom line, creating operating leverage across the whole P&L and delivering the $100m non-GAAP operating profit that we now guided to.

Related to your second question on attach rates by price band, yes, I think maybe the easier way to think about it is attach rates for small versus big iPads.

And right now the attach rate for the small iPad is significantly lower than the attach rate for the large iPad, but growing.

So it's a good attach rate already and it continues to grow, but there's a long way to grow ahead of it.

And it really depends on how much consumers decide they want to use that for productivity, but more and more seem to be choosing to do that.

Okay, thank you.

(Operator Instructions).

Joem Iffert, UBS.

Hello, thanks for taking my questions.

The first one would be how successful are you with your peripherals for Android?

The second question would be would you share with us your non-GAAP operating profit target for 2015, i.e., what would you see were the potential amortizations here?

And the last question would be would you also share with us what is your assumptions for the current quarter, as you did in the conference call for the Q1 results.

Can we expect something -- sales to be down between 5% to 10%?

Is this a fair assumption overall for the Group?

Thank you very much.

Let me start with the first one and I'm going to let Vincent handle the second and then I'll come back in on the third.

On the Android and how we're doing so far, it's a little too early to say.

We just launched something for Samsung.

It's just too early to draw any conclusions about it.

We feel really good about the product and everybody we show it to seems to love it, but I don't have any specific numbers I can share with you right now to tell you how we're doing.

I think one thing is for sure.

I really don't think anybody's done a great set of Android keyboard covers yet.

I think ours is very good and so we'll see.

It's -- the attach rate -- undoubtedly, attach rate for Android is lower than the attach rate for Apple products so far, including Samsung.

But I suspect that's going to change because the platform is the platform.

And I think we'll see over the time.

And there just haven't been products available.

I'm going to let you handle the next one, Vincent.

Yes, so in terms in guidance at this point in time we're only going to comment and re-guide, if you want, for the full fiscal year.

So we told you that the $50m initially assumed for this year on a non-GAAP basis meant $87m when you exclude stock-based comp and amortization of intangibles.

And we've now just raised this non-GAAP operating profit guidance 15% to $100m.

For modeling purposes you can easily take this year's stock-based comp and amortization together if you want and take that flat over next year.

Maybe stock-based comp will be a [little] bit higher depending on what stock price does.

And amortization will continue to trend slightly down.

(Multiple speakers).

Sorry, if I may quickly follow up on the 2015 amortizations, when will these amortizations be finished?

In three years, four years, just that we get a rough feeling here?

Yes, so -- yes, sorry.

So we won't give that level of details now and then at our next analyst day when we refresh our overall three-year model we'll give both GAAP and non-GAAP translation.

Okay, but these amortizations are not CapEx related, right?

No, no.

(Multiple speakers) relations contracts --

Correct.

Okay.

Yes.

They're related to acquisitions and, therefore, will disappear at one point in time.

I don't have the scale in front of me.

Thank you.

Related to your last -- excuse me.

Related to your last question, what guidance are we giving for Q3, we're not really giving guidance for Q3.

What I would say is, as we look into the back half I think we feel about the same now as we did as we went into Q2.

Our expectation is that this PC platform decline is steep enough and we don't see anything underlying that that's changing right now.

So we think it's prudent to assume that that's going to continue and we don't think it's prudent to assume that we're going to outperforming that at the level that we have in the past.

So if you -- you can do your own math there.

We held the guidance at the top-line level, which would say we would be down mid-single digits in the back half if that prudent assumption plays out.

Thank you very much.

(Operator Instructions).

Andreas Mueller, ZKB.

Yes, that's for taking my question.

Good afternoon gentlemen.

It's a question on what are the factors behind the sequential decline in marketing and selling expenses?

And can you discuss these factors also for this quarter we are in as well?

Yes.

So hi, Andreas, this is Vincent.

So overall, as we mentioned, [whether] OpEx as a percent of revenue will continue to trend down by function it's slightly different and the Company took some actions to reduce the overall staffing level a few quarters ago and, obviously, we benefit from that.

On the sales and marketing line there is a lot of variable costs.

This is linked to both product launches and overall sales level, so that will obviously move along with the product launch schedules and the overall sales.

But as a percent of revenue you'll continue to see Logitech becoming more and more efficient.

Okay, thank you.

Thank you.

I would now like to turn the conference back to Mr. Darrell for closing comments.

Well, thank you very much.

Let me just remind you of a few things.

You know that we had better-than-expected sales and operating income in the first half and we feel very good about that.

That's despite some pretty tough headwinds on the PC market and persistent tough market conditions in Europe.

We continue to expect net sales of $2b and we have raised our non-GAAP operating income expectation to $100m.

I'd just close by saying we're making good progress building a faster and more profitable Logitech.

As Vincent said, we're going to continue to optimize our operating expenses going forward.

We're driving profitability improvements and you can see them now as we look at our outlook for fiscal-year 2014 profitability.

And I'd guess I'd close on saying our improvements in time to market of these key product launches will become visible soon.

With that, I'll close and say thank you all very much.

That concludes our conference call for today.

You may now disconnect.

Thank you.