羅技 (LOGI) 2017 Q1 法說會逐字稿

Good day. And welcome to the Logitech first-quarter fiscal 2017 financial results conference call. (Operator Instructions) The conference 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 to your host for today's call, Mr. Benjamin Lu, Vice President of Investor Relations. Please go ahead.

Welcome to the Logitech conference call to discuss the Company's financial results for the first quarter of fiscal-year 2017. The press release, our prepared remarks, and slides, as well as the live webcast of this call are available online at logitech.com.

As noted in our press release, we published our prepared remarks on our website in advance of this call. These 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 made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause 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 filed with the SEC on May 23rd and subsequent filings. The Company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

Please note that today's call will include results reported on both a GAAP and a non-GAAP basis. Non-GAAP reporting is provided to help you better understand our business. However, non-GAAP financial results are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Non-GAAP measures have inherent limitations, 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. This information along with slides that accompany this call are posted on our website. We encourage listeners to review these items.

Unless noted otherwise, comparisons between periods are year over year and in constant currency and all reported results and updated outlook are focused on continuing operations and do not include the performance of Lifesize, which is reported under discontinued operations. This call is being recorded and will be available for replay on our website.

Joining us today from Newark is Bracken Darrell, President and Chief Executive Officer, and from Lausanne, Vincent Pilette, Chief Financial Officer.

I'll now turn the call over to Bracken.

First, thanks Ben and thanks all of you for joining us. First I will say it's rare for Vincent and me to be separated during this call. I had knee surgery last Wednesday so I decided to stay here instead of going to Lausanne.

Q1 was a broad-based powerful start to fiscal-year 2017. Our growth accelerated. In fact we grew 13%, that's faster than any quarter in over five years. Virtually all of our product categories grew. All of our regions also grew with EMEA and Asia Pacific both posting strong double-digit gains.

For those of you who attended our Analyst and Investor Day this past March, you will remember that we outlined our broad market opportunities and there were five of them, creativity and productivity, think PC (inaudible) peripherals, music, gaming, video collaboration and smart home. And as we said on those five growth, our market opportunities, we said we have three different ways to grow, general market growth in most of those categories, the ones we're already in; market share growth in every category and entry into adjacent categories, three ways to grow. While we're taking advantage of all three dimensions of our strong growth opportunities and that approach is working, we are more than just growing our top line. We are also improving our profit model.

As we promised, this quarter we improved our gross margin substantially and delivered that improvement earlier than expected. We delivered gross margins above 35%, three to six months ahead of what we had forecasted at the beginning of the fiscal year. I am really proud of our team's execution and I feel confident about the rest of this year.

Now let me comment on our product categories. Our PC peripheral products collectively grew in Q1. That might continue to surprise some given PC sales continued to decline. We explained at our last Analyst and Investor Day that our PC peripherals categories are more linked to the PC install base than to new PC shipments. This makes a lot of sense, because they are aftermarket products, those bought after you own a PC.

The PC isn't really declining in the number of desks and tables it inhabits. In fact the installed base is relatively stable. And our results today highlight that consumers are willing to upgrade those ageing PCs as long as we innovate with products like the new K780 multi-device wireless keyboard. In fact, keyboards and combos rose 12% and PC webcams increased 17%, while mice were flat. Innovation is the key for us in every category and it continues to be in PC peripherals, expect more to come.

Webcams is a category that's begun to show momentum. In Q4, sales increased 27% and this quarter they grew 17%. While we are not forecasting continued double-digit gains for this category going forward, we believe there are unique opportunities available now that weren't visible few years ago.

More and more people use our best-of-breed webcams to live stream various activities, from gamers on Twitch to video bloggers on various sites. And we plan to capture these exciting opportunities by leveraging our technology capability and brand leadership in this category.

In Q1 our tablet and other accessories were the only category were sales declined, but I believe even our only declining category this quarter actually has an important future for us. But we don't necessarily expect growth in our tablet keyboards in near future, we will continue to innovative as tablet peripherals are strategically important. We believe that longer term the line between PCs and tablets will blur further.

Our recently introduced CREATE keyboard case for the large iPad Pro continues to do really well and our Logi BASE smart connector charging standard for that same Pro or any iPad Pro also had strong momentum. Shortly we will be announcing our newest keyboard cover for the smaller iPad Pro.

Our video collaboration category continue to grow double-digit with revenues up 13%. That's more modest than in the last few quarters as we expected in Q1. While our sales into our customers grew 13%, our sell-through to the customers who use them continue to be just strong as the past few quarters. Our sales performance compared to Q1 last year when we started to sell the Logitech ConferenceCam CONNECT was the key. More and more customers are adopting cloud-based video conferencing in more and more rooms. Video is becoming the primary way for more and more businesses to communicate. We look forward to strong double-digit growth in this year, throughout the year in this category.

Our mobile speaker sales were expected to grow nicely this quarter and they did with revenues up 42%. As you may recall, last quarter we had aligned our sales run rate for mobile speakers with expectations of 10% to 15% overall market growth for this fiscal year.

Towards the end of Q1, we gave another reason to buy the UE BOOM 2 and MEGABOOM by offering a cool new feature, the ability to voice activate your speaker through Siri and Google Now. We are pleased with the performance of Jaybird in its first quarter as part of Logitech. In May, we introduced the latest Jaybird wireless earphones, Freedom, in the US. Jaybird Freedom is a super small wireless earphone with super high quality sound, the housings are premium metal and they offer on-the-go charging that doubles the four-hour battery life to eight hours. I love this product.

Gaming delivered another strong double-digit quarter of growth with sales up 29%. While we grew in all regions, Asia Pacific was especially strong. We again saw robust traction from our superb G900 wireless gaming mouse that offers performance that's faster than any other mouse wired or wireless. We also expanded distribution for our latest mechanical gaming keyboards, the G610 and G810.

Now I would like to pass it off to Vincent who will go with the details of our performance this quarter.

Thanks. As Bracken said, we are excited about our start to the year. Q1 results exceeded our expectation significantly with retail sales growth of 13%, non-GAAP operating profit of $38 million and non-GAAP EPS Of $0.20, all up. Jaybird contributed approximately 3 points to our growth this quarter, but even without Jaybird we grew double-digit and across the board.

We had previously said that we expected to recover all of the currency impact to our gross margins that we saw in fiscal-year 2015 by the second half of this fiscal year. I am very pleased that we delivered on that target earlier than expected thanks to disciplined cost management, higher volumes and improved product mix, including the exit of the OEM business.

Our Q1 non-GAAP gross margins came in at 35.6%, up 20 basis points over the prior year and up 250 basis points versus the prior quarter. We remain committed to the long-term business model of non-GAAP gross margin of approximately 35% or higher.

In Q1, our non-GAAP operating expenses reached $133 million, up 9%. Half of the increase in our OpEx came from the on-boarding of Jaybird. We have also said that as our gross margins improve, we will look at reinvest some of those profits to capture the tremendous opportunities in all of our product categories. But at the same time, we will remain disciplined and prudent with how we spend our resources to most efficiently deliver top-line growth.

As such, R&D and sales and marketing was 14% and 9% respectively, while we kept G&A flat. The long-term plan is to drive OpEx leverage until operating expenses increase less than gross profit as we march towards our long-term target of non-GAAP OpEx to sales ratio of 25% and non-GAAP operating profit margin of 10% to 12%. And we are on track to that long-term plan.

As for cash flows, we generated $14 million in cash in the quarter, this included the negative impact of the $7.5 million settlement payment that we made to the SEC in the quarter, and you remember that we accrued this last year. Overall, cash flows were improvement from a year ago where we had a negative cash flows of $26 million. This improvement comes from efficiencies in our working capital with all metrics improving year over year as we had planned.

Cash conversion cycle was 23 days versus 35 days a year ago and was in line with our annual target of 20 to 25 days. We exited the June quarter with $440 million in cash and cash equivalents. Our strong cash position combined with our consistent cash flow generation continues to represent the foundation of our capital allocation strategy.

Our first priority for cash is small [token] acquisitions that enabled us to improve our performance in existing categories, accelerate our entry into new categories that we are working on or improve our technology in either new or existing categories. As an example, Jaybird which we acquired this quarter enables us to both improve and accelerate our entry into the bluetooth earphones. It leverages a combined audio engineering and design capabilities as well as takes advantage of our global distribution footprint.

After this, our next focus on capital return is annual dividends and share buybacks. As you saw recently, we raised our annual dividend for fiscal year 2016 to approximately CHF0.56 per share, representing an increase of about 10% from the prior year. And we also used $24 million to buy back shares in the quarter. This is all part of our commitment to return up to $500 million in cash to shareholders over a three year period in the form of dividends and share repurchases.

And with that, Bracken, I will turn it back to you.

Thanks, Vincent. Since I became CEO three years ago we've been reinventing Logitech, our products, our portfolio and our capabilities. We reignited our product design, we rationalized our portfolio, including the exit of OEM and the divestiture of Lifesize, and we are actively expanding our capabilities well beyond hardware. We aren't finished yet. Our mission is a Logitech that enters categories and becomes a leader in them over time. A Company whose products people trust and love.

Now, let me talk about our revised outlook for fiscal-year 2017 for a minute. Those of you who've gotten to know us over the past few years know that we rarely change our guidance in the first half of the year. This year we are already raising our outlook based on the strength of our base business performance and our assessment of the underlying strength of our portfolio. We started the year targeting mid-single-digit retail sales growth in constant currency and non-GAAP operating income of $185 million to $200 million. With a better-than-expected Q1 performance we are raising our fiscal-year 2017 retail sales growth outlook to 8% to 10% in constant currency and we are increasing our non-GAAP operating income outlook to $195 million to $205 million for fiscal-year 2017.

The funny thing about today is that as I sit here right now the list of opportunities we had to make this quarter even better are almost as long as the list of our Q1 accomplishments. We have come so far and yet we have so much more that we can do to be faster, smarter and better. And imagine the kind of performance we can deliver as we keep improving.

I am proud of our team and I am so excited about all the fantastic market opportunities that lie ahead. We are confident that we can become an exciting growth company in the opportunity expanding world. And believe me when I say we are just getting started.

Now with that, Vincent and I are ready to take your questions. Operator, please queue up the questions.

(Operator Instructions) Joern Iffert, UBS.

First one would be can you please tell us what was the negative FX impact from the revaluation of inventory on the gross profit margin in Q1? And what is the underlying assumption now you have for the full year, are we approaching 36%? This would be number one.

Number two, Jaybird, can you tell us what you are assuming here in terms of revenue contribution for the full year?

And third question on the wireless speaker side with your voice capabilities, is there a close cooperation then with Amazon or Google or are you, continue to act independently? Thank you.

Okay, I'm going to let Vincent handle the first two.

Yes, let me start with the gross margin, Joern. So as you remember last year we had a big benefit from hedging when the euro dropped, and that raised the gross margin a year ago pretty significantly, so creating an unfavorable year-over-year comparison as we had discussed. In terms of reevaluating the current inventory for the euro that sits at around 113 for the quarter versus 110 last quarter, it is less than half a point.

In terms of gross margin moving forward, if you look at our guidance we don't guide by gross margin versus OpEx but we had always said that in FY 2017 we will deliver a gross margin at or above 35% and that is how we'll manage it. If we see gross margin upside, keep in mind that we will either invest a portion in accelerating the growth either in the field, which may impact negatively the gross margin, or in OpEx for long-term R&D development. So that is also something on how we manage the gross margin between investment and benefit from lower cost product line.

Okay. And on the other two questions, yes, your question on Jaybird. As we said, it was under three points this quarter and I think we're expecting, as I think Vincent mentioned, couple of points for the rest of the year of the total impact on growth.

And on your question on wireless speakers, we launched earlier this or last quarter, we launched the ability to use Google Now and Siri to activate through the app your bluetooth speaker. And you asked about the level of cooperation with either Google or Apple or Amazon which we never -- we will never comment on in an effort to make sure all of our relationship with other companies are kept relatively private.

All right. And thanks for the clarification. Maybe if I may ask a last one. Of around 10% organic growth in Q1, can you just help me to better understand the contributions here? How much, for example, [e-Leverage] is commenting that you're selling more in the Best Buy channels and how much is coming, for example, you have new distribution channels via telecom shops for example?

We don't give details, we normally don't give growth details by channel or by customer. But I would say the growth is very broad-based. We are expanding our distribution to some telco especially in Europe, that is certainly part of the impact. But I wouldn't overstate that, I mean I think our overall growth across all of our channels has been very-very strong.

Andrew Humphrey, Morgan Stanley.

Just a couple, if I may. Maybe kind of drilling down into a bit more detail on speakers. Could you talk a bit more about how the comps look for the rest of this year? Obviously you have performed significantly better than your sort of full year estimate for the market this year. So just kind of interested how that plays out over the remainder of the year, if there is much of a difference in geographies or if you see competitors responding in any way?

And then on a balance sheet question, really, you have a buyback in place, I think, authorized from March 2014 for $250 million. I know the intention at that time was to complete that within three years maybe there have been complications with regard to not being able to execute that for some of that time. I just wonder, does that buyback expire? I guess it would be March 2017. How should we be thinking about your intentions? I know you said you will be opportunistic but I'm trying to work out what should be modeling that?

Andrew, I'm going to let Vincent take that second question.

On your first one, I think our outlook for the year we don't --as you know, we don't guide for categories, but we did have a very strong Q1 in music after a very low Q1 or really adjusting our sales rate in Q4 of last year. I think at the end of the day this category is slowing down and you can expect, and I wouldn't expect with the kind of growth rate we saw in Q1 the rest of the year, we do think we'll grow double-digit, 10% to 15%, but I would be stretching it if I said I could guide that really well. I think it's really difficult to say.

I feel really good about our portfolio. We have been gaining share pretty consistently. You can never guarantee because you don't know what our competitors are doing. You asked about the competition, it's extremely strong in this particular category, it certainly made us better and keeps us right on the very tips of our toes. And you can bet we're going to keep innovating through this year and into next year because of that.

And I will let Vincent answer your question (multiple speakers)

Yes, I just wanted to remind you, Andrew, that of course timing of new product introduction is very important in term of the compares, last year in Q2 we introduced the UE ROLL, we introduced the BOOM2 and so on the quarter-by-quarter basis you will see some fluctuations but we feel very confident in the guidance we had given during the March update of 10% to 15%.

Last year music grew plus 78%, and obviously that will be a different compare as we continue to the year. In term of the buyback, as you mentioned right, we -- the Board approved the buyback $250 million opportunistic approach to that buyback. We got about a one-year period during which we were -- we couldn't buy because of the SEC investigation that is now closed. So we are little bit behind on that to be fair. We will continue to buy. We still believe when we look at the short-term and the long-term opportunity that the potential is here to really create a lot of value for the Company. How technically we will approach it, we don't know yet, and we'll review that with the Board at the right time.

Felix Remmers, Credit Suisse.

I actually have two smaller ones. One on the guidance upgrade, especially on the top line, I was wondering if that includes any sales coming from new product launches, meaning like on these [seed] investments you have or is that really with existing product portfolio you have.

And the second one would be on video collaboration, I mean in the statement you mentioned that this is $20 billion to $40 billion opportunity, I would like to understand a bit better what needs to be done in order to make that category even bigger so we have a bit more visibility on growth in that category?

On your question on seeds, that includes everything we are doing. So our upgraded guidance includes everything we are planning for the year, including the seeds we have launched and the seeds we might launch.

You second question on video collaboration, we have talked a lot about if you go back and start with what we said last year at Analyst and Investor Day, what's happening there as you know is just more and more rooms that are available to be video-enabled and in a video world -- if the 20th century was an audio world, the 21st century is a video world. And so in a video world you can have more and more companies using -- enabling more and more rooms. And the nice situation for us is we offer a low-cost solution to connect to all those cloud-based video conferencing companies out there. And so that's our game plan.

In terms of what we need to do to get a large share of that growth that's out there for the equipment going into those rooms, it's all about innovation. And right now I think we have innovated well so far, we are certainly just beginning on a path to continue to innovate down that, the various dimensions that will enable us to be a great hardware partner for video conferencing, cloud-based video conferencing companies, all cloud-based video conferencing companies in all those rooms that will be video enabled.

Without going too much further into that, I mean I think if you go back into that presentation we did, I think there is a lot in it. And I am really optimistic of what we're there and excited.

One quick follow-up on the video collaboration, so you would expect growth to be more gradual, so you wouldn't expect this growth to really accelerate at some point because of any strategic measure you do, I don't know, thinking about having new distributors or something like that?

We are always reviewing distribution and our distributors and we're certainly going to be doing that. Our whole go-to market is a continuous work in process I would say because we are trying to adapt to a world that's changing pretty quickly. But generally speaking as in most of our categories this is all about the products and so we are really, it's really about continuing to rollout products that makes sense for this space, that enable consumers sitting in rooms like we are right now to have great video experience especially when leveraging those cloud-based video conferencing options that are out there. So it's a lot more about that than any single distribution play.

(Multiple speakers) Felix, real quickly, your question about how much growth can you expect to have. I think we talked about 40%-ish growth, 45% growth, somewhere for the year. I think it's absolutely where we think we are going to be, but it's little hard to call it right now. We certainly think that the opportunity is big out there.

(Operator Instructions) Tavis McCourt, Raymond James & Associates, Inc.

I've got a couple of them so I'll rattle them off and then you guys can answer in whichever order you think is appropriate.

So in a lot of different consumer categories outside of consumer electronics it looks like the percentage of sales coming online has really accelerated for whatever reason in the last six, nine months. And I am wondering are you seeing that in your business as well or is it still more of a steady trend? And maybe an update on the percentage of your sales that happened at bricks and mortar retail versus online?

Secondly kind of an update on private company multiples, I mean obviously it looks like Jaybird was pretty decent one-time revenue or something type acquisition, I don't know if that was possible a year or two ago, and kind of an update on what the pipeline looks like for reasonably valued acquisitions out there?

And then final on some of the more mature product categories where when you say you made adjustment to -- for FX the euro collapsed last year. I suspect that it's code word for increasing prices in local currency terms. And as you have done that what have you learned about the product categories, have you seen competitors match or have you seen competitors stay or increase their price discount versus you but it hasn't had an impact on market share? Maybe some color around that will be helpful.

I'll take all three of those and then Vincent will add any color on top of that. So the percent online, it's -- as you said, we have also -- we have seen just a continued strong trend towards more and more online. I am sure at some point there will be an equilibrium but it's not probably any time soon. We have a great online capability and great online business everywhere, almost everywhere we are, and so we are seeing it too.

We don't normally talk about, disclose numbers, but I will throw out a few. In China we have probably seen a shift from when I got here of 10% to 15% online to 55% to 65% online, that's the most dramatic. But I think if you look anywhere in the world you would see a pretty strong shift over the last three or four years. And as you said, over last couple of years it's pretty much stronger.

The good thing is we really feel good about our online capability although we still have things we can certainly improve, but especially through partners. And those partners are not just pure retail but e-tail, retail combinations everybody is getting in the game online.

In terms of the acquisitions out there, I don't know if I would even be able to say there is a steady state on this at all. We certainly did see in the first couple of years though, Vincent and I working together lot of private companies just had -- we thought were really extraordinarily high multiples, those did come down really a quite a bit. Will they stay there? Does that open up more options for us to accelerate things we are doing, we'll see. I mean, we're working on new category opportunities and existing category opportunities with or without acquisition. But we obviously like the idea. If we can accelerate something we are already really interested in working on. And if those multiples do make sense then we'll certainly take advantage of it. And we're in discussions, you asked about a pipeline. As we have been for four years we are in discussions with -- in a lot of places all the time.

Let me pass over to Vincent for just a second and then I will come back to you last.

Yes, Tavis, what I wanted to say, as that as Bracken said we've been working pretty actively on that space, we knew that talking acquisition is part of our strategy. We also have a very rigorous framework and valuation is one dimension, the synergies we've explained them right, adding technology or capabilities to our portfolio, and then the culture of the team are all important factors.

And I can tell you today, I can find assets that have low valuations. Unfortunately they won't meet the other two criterias. And it's meeting all of the criterias then make us pull the trigger. And I think as you saw from the script is that we're very happy about the Jaybird acquisition and we'll continue our effort in this area to use our cash to build up our portfolio and grow the Company.

And your last question perhaps was about mature categories and pricing and what we did last year, and whether -- what impacts we saw, what we learned from it? And we did a big review of that during last year. Overall I would say we didn't see a lot of price matching, especially not upfront. Some of those prices probably adjusted over time. In some places we did see quick price matching, in other places we didn't. The good news is we're in such a leadership position in many of our categories that we feel like we are in a position where if we need to we will take pricing with or without our competitors and then we'll innovate right around it. And the best kind of price increase is to innovate great new products at a premium price, and that is our primary pricing strategy, always has been and certainly will be going forward.

But if there were a big change in currency again, like there is in the UK, we certainly have the opportunity to take a hard look at pricing and potential raise.

Andreas Mueller, ZKB.

Coming to prices, I was wondering what was the contribution from price increases this quarter?

It's pretty moderate. If you look at from a price increase perspective we started in Q1 of last year around May then became effective through the end of the quarter. So it's fairly small on the top-line. And then on the gross margin side, I really invite you to see the strong quarter-over-quarter gross margin increase. For three quarters we're running at around 33.5 with all price increase baked in. And so the improvement in FY 2017, as we have said and earlier than we had planned, is coming from a very strong cost discipline and then the mix.

So going forward you would rather think top-line is kind of slightly improving through price increases the next couple of quarters?

No, I am not sure I understood correctly, but basically the growth would be apple-to-apple from a price perspective.

So we don't expect broad price increases going forward.

Correct.

Then on mobile speakers, I was wondering, I mean with the integration of Siri and Google Now, does the voice control allow you to go beyond just controlling music content? For example, can you already ask for the weather forecast? And related to that was the inventory correction last quarter, basically in speakers that were not upgradable to this functionality.

I didn't quite catch the last part, but I think you said what about speakers that were not upgradable to this functionality which (multiple speakers).

Yes. I mean about what some of the -- okay, but -- all right. I was just wondering if you reduced inventories in the channel or your channel partners with -- EU from the first generation which haven't had the micro example built in to do that upgrade?

I see what you're saying. No, I don't think that was -- that's not a big impact on what we did last quarter or this quarter. Yes, we didn't have a channel inventory adjustment to try and get ready for the voice capability we put in. That voice capability we put in was really put in through the app and was done with existing categories. That was really very much focused on future products by the way, but is enabled in existing products in many cases as you said. But it wasn't a big driver of the inventory.

Did I answer your question?

Yes. And then the other question was, I mean, you can control of course the music content with the voice but can you go beyond that, basically what Siri and Google Now can do, could you do that also through your speakers?

First of all there is lots of functionality you can offer, you can get through Siri and Google Now. And today though UE speakers are focused on music and music capability. Undoubtedly over time as more options become available we'll make sure we enable some of those with those options. But our products are very focused on music and music wherever you go.

Paul Chung, JPMorgan.

So wanted to touch on keyboards and PC webcams. I know you mentioned the strength of the installed base, but can you give us a sense of any other variables driving the strength, will there be market share gains, expanding channel? And how is the channel sell-in versus sell-through? Just trying to get a sense of sustainability, how we should think about segments throughout the year?

Sure. I think generally speaking our sell-in and sell-through we don't usually talk too much about, was very balanced across the whole business, including this part of the business. So, yes, I'd say the drivers, the real drivers of the keyboard business is we just keep innovating against that space and we feel really good about it.

The category is growing, we're big enough that we are probably driving the category through innovation. And we certainly intend to keep investing in new innovation there.

In the webcam space, as I mentioned in the opening, it's really an interesting place because you've got so many people now broadcasting, live streaming, a lot of them live streaming, some of them kind of filming themselves and putting themselves up on to the various sites including Twitch and YouTube and others. So it's really an interesting moment there. And, yes, that's the driver of sales in both of those categories.

Okay. And then the margins most likely benefited from that product mix shift to keyboard and desktop. How should we think about margin dynamics throughout the year, should it be from those two categories driving close to 50% of sales?

So in terms of margins, year over year there was a big nix, really mainly driven by the exit of the OEM business that we've been driving through last year. When you look quarter over quarter, the main contributor is cost savings across the board not just in one specific category, and almost all categories contributed to that improvement.

Moving forward, I would suggest that you continue to model a gross margin at 35% or slightly higher as we discussed.

Okay. And then last one from me is the mobile speakers between the quarters, I know you mentioned 10% to 15% for the full year, should we expect similar sequential ramp in 2Q, similar level in 3Q and then a sequential drop, just trying to get a sense of how quarters play out? I know visibility is probably a little bit low on that.

Yes, I understand. So I think Vincent kind of highlighted that in next quarter, for example, we have really strong compare on the year-ago number, in Q4 we have a weaker compare. So I think it'll be a bit of a roller coaster through the year, but overall we feel good about where we are, we feel really good about the innovation profile for this year and next year from what we can see so far. And I think that 10% to 15% number, while it's really hard to pick a number like that this early in the year, we feel good about our overall kind of position in that. And I think we'll expect those kinds of numbers.

Thank you. It appears there are no further questions at this time. I will turn the conference back over to Mr. Darrell for closing remarks.

Okay. Well, it's really, as we said it's a really strong start to the year. We feel it's really fun to be able to raise guidance looking -- after the first quarter, and we wouldn't do it if we weren't really excited about the opportunities ahead of us. But I will just close by saying, there are so many things we could have done better this quarter than we did and we still had a pretty strong quarter and we're really excited about the next quarters ahead and next year. And the number of opportunities just keeps growing. So thanks a lot. We look forward to talking to you guys after Q2.

And ladies and gentlemen, that concludes our conference call for today. You may all now disconnect. Thank you.