羅技 (LOGI) 2018 Q2 法說會逐字稿

Good morning, my name is Sharon and I will be your conference operator today.

At this time, I would like to welcome everyone to the Logitech Second Quarter Fiscal 2018 Conference Call.

(Operator Instructions).

Ben Lu, Head of Investor Relations, you may begin your conference.

Thanks, Sharon.

Welcome to the Logitech conference call to discuss the company's financial results for the second quarter of fiscal year 2018.

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

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

The forward-looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with the SEC.

The company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

Please note that today's call will include results reported on 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 and should be used only in conjunction with Logitech's consolidated financial statements prepared in accordance with GAAP.

Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our Investor Relations website; we encourage listeners to review these items.

Unless noted otherwise, comparison between periods are year-over-year and in constant currency.

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

Joining us today are Bracken Darrell, President and Chief Executive Officer, and Vincent Pilette, Chief Financial Officer.

I'll now turn the call over to Bracken.

Thanks Ben and thanks to all of you for joining us.

This quarter, we grew our sales and operating profits double digits, with the first -- and the first half sales and profits were up 12%.

I have to say, there were so many areas for improvement that we could have gotten much more from our performance, but to some extent that's always true.

Overall, as we've been doing for the past few years, we're simply executing our strategy, investing in existing categories and capabilities and systematically expanding into new ones, most recently in console gaming headsets.

You've heard me say many times that we're going to build a multi-category, multi-brand design company and it's still early on that road.

Vincent and I spent our first couple of years here right-sizing cost structure, improving our operational discipline and creating a foothold in new product categories like Bluetooth speakers and Video Collaboration.

We redistributed our engineering resources and reduced unnecessary overhead as we focused on better and different products.

Today, I'm far more excited about all the market opportunities that we can capture ahead of us than ever.

Whether it's the structural growth in gaming, the widening innovation we're driving in music or the opportunities generated by new platforms -- in cloud platforms in the home and elsewhere; it's just an amazing time.

This quarter, we introduced a stream of cool products across our categories.

I hope everyone saw our announcement last week of the Ultimate Ears BLAST and MEGABLAST.

These are the 2 newest additions to our family of portable speakers.

They build on the success of BOOM and MEGABOOM by adding WiFi and integrating native Alexa voice control.

Not only can they double as home WiFi speakers, but they're also mobile, so you can continue to listening to your music on-the-go.

And with far-field mics built in, you can play your music simply by saying Alexa, play some Van Morrison.

That was for you Roy and Kirsty.

As well as asking Alexa to check the weather and a host of other cool things.

There really is no other speaker in the market like it today which has WiFi, Bluetooth and Alexa built in.

Now let me talk about one of the newest members of our family, Jaybird.

I'm super excited about the portfolio of products we're building now.

Freedom 2 is really an outstanding upgrade of the original version, X3 is our best seller.

And we just introduced RUN, our first truly wireless product and it's awesome.

RUN is so good that I know if you try it you'll love it like I do.

In my book, there is no better fit and comfort.

The acoustics are very good and all of that in a small size.

Jaybird RUN might just inspire you to get out and run.

And we are just beginning to hit our stride with what we're doing in Jaybird.

And if you look at our original core, there's still important and cool innovations we can do there that can affect the way we create, work and live.

We introduced the best and most advanced keyboard in the company's history this quarter, our new flagship, Logitech CRAFT.

This has become my personal keyboard and I am addicted.

It replaced the K780, which was my previous favorite.

CRAFT includes a creative dial that offers a whole new way to work.

You just turn the dial and adjust image brightness, contrast or saturation in Adobe Photoshop.

Or, and I know a lot of you finance folks will like this, you can create and adjust charts in Excel just by turning the dial.

It's made for creativity and productivity and it's an entirely new experience used in harmony with the mouse.

As a company, we institutionally love products.

And because it's what we've done for 35-plus years, we also love the users who especially love a product.

Nowhere has that been more true than the trackball, that odd pointing device with a little ball on top.

We've been wanting to do something special for those trackball loyal users for years.

And this quarter, we released our first wireless trackball in almost a decade, the MX Ergo; users love it.

In fact Ben I'm looking across the table at is a huge fan and he is smiling as I'm talking about the trackball.

And the reviews from customers beyond Ben have also been very good and journalists have given excellent reviews as well, so it's off to a terrific start.

Now, let me give you a quick rundown on each product category.

Our gaming business continued to deliver strong momentum, as we've had in the past several quarters.

Sales rose 42% this quarter with a strong performance from all 3 regions and across all the different gaming product lines.

Our strong performance here is driven of course by great products and innovations, like POWERPLAY.

POWERPLAY is the wireless charging pad that gives infinite battery life for your wireless gaming mouse, while you play.

I just can't think of a better application of wireless charging.

It's for the gamer who requires complete freedom of movement, but 0 risk of battery dying, no trade-offs.

We're not the only ones impressed.

Just this week, Popular Science named it one of the best innovations of the year along with the Nintendo Switch.

They called it, the magically charging mouse.

I'm also so excited to have ASTRO now as part of the gaming family.

We just announced our latest mainstream console gaming headset, the A20, for $149.

This builds on the more affordable A10 headset that ASTRO launched back in June.

We aren't just expanding ASTRO's portfolio though, we're also expanding its global distribution.

And I'm looking forward to the additional opportunities that ASTRO is going to bring ahead.

Video Collaboration had another very impressive quarter with sales up 59% to a record quarterly high of $46 million.

We continue to invest in our go-to-market capabilities here and create great products like MeetUp.

It took us over 3 years to reach the $100 million annual sales run rate milestone back in December 2015.

And just a year and a half later, our annual sales run rate is approaching $200 million, stay tuned.

Our Smart Home Group delivered another strong performance.

We've been [approved] for the integration of Alexa here too and Google Assistant in the Harmony Hub line of products.

And we view the Smart Home market as a set of long-term opportunities for us.

We're still early in the roll out of our latest Circle 2 security camera but remain excited about the long-term prospects for this nascent market as well.

Mobile Speakers fell 8% this quarter as we prepared for the ramp of our new lineup as mentioned earlier.

At the same time, our pint-sized WONDERBOOM entered the market powerfully.

It's an unqualified hit.

And I can't wait to see what BLAST and MEGABLAST do.

Audio-PC & Wearable sales were flat in Q2.

As we stated last quarter, we're positioning the Jaybird portfolio for long-term growth.

And as a runner myself, I'm super excited about where we're going.

Our PC peripheral products performed consistently well taking advantage of the large and stable PC installed base.

Sales were up 1% overall, pointing devices and keyboards and combos were flattish while PC webcams grew 12%.

Tablets & Other Accessories sales were up 50% making it the second quarter in a row of very strong double-digit growth.

Is this is a new trend?

Still too early to say.

What I do know is that when we come out with innovative new tablet keyboard offerings, we deliver growth.

Now, I'll pass the call over to Vincent.

Thanks, Bracken.

We posted another consistent quarter of double-digit growth, better than expected, with net sales up 11% in constant currency and non-GAAP operating income up 12%.

ASTRO, which was fully integrated in September, only marginally contributed to our sales growth this quarter, less than a point.

With ASTRO now fully integrated and a range of great new products across almost all of our categories, we have the best portfolio we've ever had to deliver on our growth ambitions.

As you know, our long-term financial model is based on high single-digit top line growth with gross margin in the range of 35% to 37%.

In Q2, our non-GAAP gross margin reached 36.6%, down 40 basis points year-over-year but still near the high end of our target range.

Currency was somewhat neutral in the quarter, while product cost savings allowed us to invest in promotions and other cost related to numerous new products across all of our categories.

Gross margin was also impacted by the transition to a new third-party distribution center in the Americas to support our growth.

We experienced significant challenges in the transition, operating procedures and in ramping fulfillment in Q2 and early Q3.

The challenge is that this third-party distribution center are adding additional cost in these periods.

Looking ahead, we are fully committed to managing the business within our annual gross margin range of 35% to 37% while investing into our operational capabilities and investing for sustainable growth opportunities, whether they are OpEx or gross margin related.

In Q2, our non-GAAP operating expenses rose 11% to $159 million and were 25% of sales, in line with our mid-term target of OpEx to sales ratio of 25%.

Excluding ASTRO Gaming, our operating expenses would have increased 9%.

Our sales and marketing and R&D expenses increased 14% and 10% respectively.

While at the same time, we continue to drive leverage in our G&A spending down 40 basis points to 3.4% of sales.

Cash flow from operations was $68 million in Q2, as we invested in our working capital, ahead of the holiday season.

As we had mentioned last quarter, our cash flow seasonality this year is very similar to what we saw back in fiscal year 2016.

You should expect to see our second half cash flow from operations improve compared to the first half such that our full year cash flows should be approximately one time our non-GAAP operating income.

As a reminder, our first priority for the use of cash is investing in our business which also comes in the form of tuck-in acquisitions followed by a growing dividend and finally opportunistic buyback.

In the quarter, we spent $85 million to acquire ASTRO Gaming.

We paid out $104 million in dividend up from the $93 million that we paid last fiscal year and we repurchased $10 million worth of stock.

And with those details, Bracken, I'll turn it back to you.

Thank you, Vincent.

Through the first half, we are operating at the high end of our range for the year, which gives me the strong confidence in our ability to deliver our previous guidance.

Our biggest seasonal quarter is right ahead of us and we have a good lineup and good momentum.

I'm proud of what our teams created both in terms of innovative new products, and enhanced capabilities.

We're maintaining our fiscal year 2018 sales guidance growth of 10% to 12% in constant currency and non-GAAP operating income of $260 million to $270 million.

And with that, Vincent and I are now ready for your questions.

Operator, please queue them up.

(Operator Instructions).

Your first question comes from Jörn Iffert from UBS.

Hi, Jörn.

Hi and thanks for taking my questions.

May I quickly start with sell-through in Americas?

It was plus 3%, I think one of the weakest sell-through we have seen in the last couple of quarters if I remember correctly.

Would you name any particular product range here which was contributing to this weakness?

Second question would be on gross profit margin.

Can you please specify what was the impact from the third-party distribution center setup?

And what are you expecting on the gross profit margin for the second half versus the first half?

Because if I remember correctly, in July, you said, I mean, there will be investment front-loaded in fiscal 2018.

It would be very good to know what is roughly the gross profit margin or action going into the second half.

And last question is on wireless speaker.

I understand there was some cleanup, but could you share with us the sell-through data for Q2, 2018?

Thanks a lot.

So let me take (inaudible) the first few questions, I'm sure Bracken will [comply] some of the data I am going to give you.

So yes, sell-through, for those who have looked at our slides on our website, in Americas is up 3% versus a sell-in of 10%.

Some of the sell-in data includes some of the education channel that is not comprising to the sell-through.

Sell-through is the best proxy we have for sellout.

It was marginally impacted by the transition of the distribution center and how the products moves through our channel, 2 tier channels.

Overall, we feel pretty good about going into the holiday season.

When we manage the business we mainly manage on weeks on hand and where we position versus the demand.

And our overall channel feels right in the middle of our target range compared to the demand we see going into Q3.

So we feel reasonably confident from that position.

Remember also, we give that data as an indicator.

There is not always an exactly match between sell-in and sell-through, depending on the size and timing of the product moving into the channel.

Overall for the company, we are up 11% sell-in, up 13% in sellout and feel good also on a global position as well as (inaudible).

That's for sell-through.

On the gross margin side, differently the gross margin was impacted by 2 things as we mentioned.

The higher level of promotion as we transition to new product cycle and then the incremental cost from the distribution center.

I'm not going to cite any one of those events.

There's plenty of different that I mentioned impacted gross margin.

Seasonally going into the second half as you know, Jörn, Q3s are normally a declining quarter-over-quarter gross margin quarter.

So Q3 being a lower gross margin quarter, but we will be within our range -- target range of 35% to 37%.

We normally do not guide by either quarter or at the gross margin level, but within the range feels a right indicator.

And then there was another comment around Mobile Speaker, I think.

In the overall part of the sell-through of course data that you saw, was part of promoting our Mobile Bluetooth speaker as will be peripheral new products.

And so the ASP was impacted by the higher level of promotion you saw.

So may I ask then sell-through of the wireless speaker was also negative in Q2, 2018?

Yes, it was also -- sell-through was also negative in Americas and EMEA.

It was positive in AP.

And as you know, we launched both MEGABLAST and BLAST mainly in the U.S. and then in a few countries in Europe.

Your next question comes from Asiya Merchant from Citigroup.

Hi, Bracken; hi, Vincent, how are you?

Great, can you just talk a little bit now that your ASTRO acquisition is complete and Gaming is already doing so well, kind of what our expectations are for the second half?

I know you guys have a great line up.

But relative to expectations that were set at your Analyst Day earlier in the year, how should we think about the Gaming segment going forward?

And I have a follow-up question on gross margin.

Okay, well of course, we don't guide by category by quarter, but I would say overall, we continue to feel very, very good about Gaming.

Every segment had strong growth and it's really just a strong market and we're performing well within that market across the board and around the world.

I would say in the second half, we expect more of the same.

And I think, I wouldn't give exact numbers, but I would be surprised we didn't have good strong growth in Gaming through the back half.

And just to give you a little more color, right.

So we talked at our Analyst Day in Gaming and actually across all of our categories of the 3 ways to grow, right.

Positioning our product on structurally growing markets, gaining share in those markets and then adding adjacencies.

You can see that perfect framework in Gaming when all 3 levers are delivering and maybe are out delivering versus our expectation.

That's great.

And then on the gross margins, Vincent.

We talked -- at the Analyst Day, you guys talked about your design for cost initiatives and how that's going to -- while it's in the range kind of, the implication was that we should be seeing positive margins that obviously you guys invest in the business.

So can you talk a little bit about where you've been able to further expand your design for cost initiatives relative to what you guys talked about at the Analyst Day, which products have now been impacted, how much more runway is there and if you're confident about the gross margin range that you guys are guiding for?

Yes well, I wouldn't be really specific -- and Vincent, you can add anything you want here.

While I wouldn't be really specific on any individual product, if you zoom out a second, every time we launch a new product, our goal is to have equal or better gross margins roughly 80% of the time.

And this year 80% of those were -- that's exactly what we're doing, which would be up versus the past for sure.

New categories that we're launching we have the same principle above the company average and we're doing that very consistently now.

And I think we can -- we'll continue to do that going forward.

Your next question comes from Tavis McCourt from Raymond James.

Couple of questions, I guess you don't want to talk about the exact cost impact.

But I guess qualitatively, can you tell us what exactly you're doing with this distribution center in the U.S.?

Is that kind of an extra layer of inventory?

Is it your DC or is it your third-party was just moving physical locations?

Just give us some sense of how temporary this may be.

And then on the cash flow, Vincent, from your guidance, I suspect, you expect inventory turns and DSOs to kind of return to normal by the end of the year.

I think that would still get cash flow from operations this year below where it was in '17.

Should we think of this year as kind of a good run rate or was last year kind of a better run rate for the business?

I haven't had a chance to look at all the puts and takes on working capital changes.

And then Bracken, a product question for you -- sorry Vincent, I'll hop off.

In the Home segment, it feels like -- I know you guys don't want to call 1 or 2 quarters a trend, but it feels like it's getting some momentum.

And I think this was a category a few years ago you had potentially looked to exit.

And so I'm wondering, within there, I think you've got the Harmony brand, the Circle brand, what else are you -- are there other products within there and kind of what are your growth ambitions with that Home segment -- Smart Home segment specifically?

Good.

Let me take quickly the financial questions and Bracken will answer the product question.

So on the distribution center, it's really a response to our growth.

As you know, we've been on an accelerating path of growth in the U.S. for the last 4 years and we needed to have bigger facilities.

It's a third-party logistic provider and it's basically moving into more flexible and bigger facilities.

The extra layer of cost came in many different areas, the first one, of course is we kept all distribution in parallel to manage the transition time frame.

It also came in the form of logistics we were handling and had some operational change in the transition; we had to airfreight more than our overall budget.

We continue this process as we go into Q3, which is the biggest quarter as you know.

So for Q2 and Q3 those incremental costs would be in the P&L.

I would expect that to regulate going into Q4.

So it's kind of a onetime item over 2 quarters.

In term of the cash flow, those are approximate numbers.

We normally don't guide cash flow, but we give a directional thing.

As you know, our inventory, as we mentioned, has been growing here ahead of the holidays.

More than half of the growth is really product linked to the new product we've introduced on the year-over-year basis.

So definitely incremental in term of overall going into the holidays.

I would expect that of course to sell-through, as we said.

And so working capital and days of inventory to regulate post Q3.

The only onetime item in cash flow that we have is linked to the fact that this year, at the beginning of Q1, we mentioned in Q1 calls.

We paid last year annual compensation plan, which move from a 6 months [view to an annual view].

So there was a onetime catch-up where higher cash flow in Q1 because we moved to an annual plan thing for last fiscal year.

That is the only item that changes year-over-year and so we feel confident to say approximately onetime non-GAAP operating income is a good proxy for cash flow.

And to answer your question about the Home.

I think, we now have really 3 things -- 3 significant things happening in Home.

We've got Harmony, as you mentioned, which is now integrated not only with Alexa but with Google Home.

We've got Circle 2, which we just launched last quarter, so it's still ramping.

And then we -- and as of last week, we will have Bluetooth speakers that can operate not only on-the-go, but also as WiFi speakers inside the home.

So we have those 3 different products that position us interestingly for the Home.

And going forward, we're always looking at new things to have.

As you know, we never stop experimenting.

We've already experimented with some products in the home.

I would say overall, if I step back, and maybe many of you will agree with this, I think the home as a marketplace has actually grown slower than I think most people thought.

We've been a little careful not to go too crazy there, but we continue to be developing and experimenting in a lot of different places in the home and we're going to try to participate in every place that makes sense for us.

So yes, I am optimistic about the home going forward.

No, I wasn't 4 years ago when I tried to sell Harmony.

But I'm excited about it now and I think it's a good long-term play for us.

Your next question comes from Ananda Baruah from Loop Capital.

Congrats on a solid quarter kind of pretty much all around.

A few for me if I could.

Bracken, you sound like you have a lot of enthusiasm across the board on the portfolio.

And you have spoken pretty energetically about new product offerings that have recently come to market.

You talked pretty energetically about Mobile Speaker refresh that's upcoming, and the way that it's landing with me is you are actually -- well, it sounds like you're excited about, this is my term, incremental momentum across your growth businesses.

So is that an accurate -- I guess the first thing, is that an accurate interpretation on my part?

And then as we think about -- and I know you're not going to give guidance and that's totally, totally, totally fine.

But as we think about heading into just '18, the different aspects of your business that you think will be the more important drivers, could you sort of walk -- at least give us some context there in however you're comfortable doing that and then I have a follow-up.

Okay, why don't I take it, thanks Ananda.

Why don't I take it in reverse order?

Yes, I really do feel like we have the best product line-up since I have been here and we've been continually fueling that.

The cool thing about the line-up now is we've got really exciting new launches that have happened within the last 2 quarters across really every category.

So it's a super exciting time.

The incremental momentum -- I'll put in quotation marks, I'm not sure how to react to that exactly except to say, we have very good momentum now.

So if you look at our Video Collaboration business, it grew almost 60% this quarter and Gaming grew 42%, those are 2 of our growth categories.

And we just launched our new Bluetooth speakers that are not only Bluetooth speakers but they're also WiFi and they have Alexa built in.

So we have a lot of cool things going right now.

I mean, I don't know how to gauge that relative to last year, the year before or something like that.

But all I know is we're taking on more difficult challenges from a product standpoint.

We're consistently executing, I think very strong product in the -- products in the marketplace.

And it does position us really well, not just for this year, but for long-term.

And you can bet we're going to do the same thing next year.

And if I can just add, Ananda, on the momentum thing.

I don't know about our own incremental momentum.

But I can tell you, and I shared that at the Analyst Day, we definitely have incremental set of opportunities as we progress into the different markets we are in.

And at this point in time, it's more difficult to decide which project not to do than which project to do.

We definitely feel really, really good about the opportunities the company faces in the long-term.

That's awesome.

That's super helpful context, guys.

And then as a follow-up, just with regard to the distribution center, Vincent, it sounds like you're saying kind of March quarter is the quarter where -- this is my term, but say, isn't that headwind or net drag sort of resolved itself.

Are there -- will there be cost and revenue opportunities when you get through that?

It sounds like there definitely are some sort of cost opportunities.

But we had a rev benefit from that as well, it sounds like maybe you might?

Yes, I think, in fact the reason I mentioned it is because there is incremental cost.

We've had some operational issues and it's much more in terms of moving product through the channel on time.

We feel pretty good of where we finished Q2 if you want, not leaving much more revenue on the table from a selling perspective.

Now, as you want to mention sell-through was a little bit lower in the U.S. and there were some impact through that progression of the products through the channels.

So that's -- the main reason I mentioned it is because it will be incremental cost in -- there has been in Q2 and then they will be in Q3 as we run two distribution centers in parallel to address the demand in Q3.

Got it.

And then just a quick follow-up on the gross margin.

So it sounds like you guys have absorbed some headwind to gross margin.

Gross margin is obviously strong.

Is that accurate?

So said another way, if you weren't doing some of the things you were doing would the gross margin potentially have been even stronger?

And I think you sort of beat Street expectations, my expectations as well this quarter, so thanks.

So are you maybe pushing right up at the high-end of the gross margin range already on an organic basis?

I don't know, I can't understand where you guys look at at the reserve report, it looks all easy and now you are saying, oh you're facing headwind.

Every quarter, every day, every week, we face headwind and then we work our way through and say okay, how do we continue to build better product cost through our overall structure, how we create room and how we compete, et cetera.

We know, we have a lot of levers in our gross margin and I don't want to focus too much on Q2 specifically.

We are operating at the high-end of our range.

We feel good about our long-term range and where we are today within that range.

Your next question comes from Jürgen Wagner from Mainfirst Bank, your line is open.

Thank you for taking the question.

Actually on Jaybird, you mentioned that you are positive on the positioning.

What was the revenue run rate in the quarter?

So we don't speak overall Jaybird by itself.

It's, as you know, in the wearable category and we posted all the numbers on our website.

But we don't call out Jaybird specifically.

And second question on FX exposure, has that changed recently and what is your hedging policy?

Yes.

So in the quarter -- it's a question I have not received yet, but I'm sure I will in one-on-ones, so the currency in the euro was beneficial or favorable to us, if you want.

Now that has to be balanced with the fact that other currencies were unfavorable, Chinese currency, Japanese currency, the pound all moved the other way than the euro.

All-in-one, when we hedge for 4 months looking forward, as you know.

And mix and overall currency globally, the currency didn't have any material impact on the current quarter.

Your next question comes from Paul Coster from JPMorgan, your line is open.

Yes, thanks for taking my question.

We saw something of a surge in growth for keyboards or device in late -- in '16 really and through the beginning of '17.

it now seems to have moderated to what I think many of us would have thought was the normal growth rate.

Can you just maybe explain what's happened there and whether what we're now seeing in the sort of low single-digit growth is what we should expect moving forward?

Keyboards is an interesting category.

You know, people definitely haven't slowed down using keyboards.

And so the -- our business I think has been more driven by the products that we've launched into that market than the market itself.

If we innovate enough, I'm convinced we can continue to have growth in keyboards.

And we just launched that CRAFT keyboard, Paul, which I don't know if you -- if you've seen it yet, but it's really cool.

And we're going to keep doing things in the keyboard market.

Even in a world where -- if I look out years from now -- even in a world where you've got AR -- or AR in particular, I imagine keyboards will still be a pretty significant player.

It's probably a few years out before you are going to see that.

But so yes, I mean, I think the keyboard market is alive and well.

And you know, the installed base is really stable.

So I think, at the end of the day, as long as the installed base stay stable, I think we are going to have a pretty good keyboard business and we're going to keep innovating in it.

We've got cool things in the oven all the time.

Maybe just a little bit deeper into that then, I mean, you saw double-digit growth for a couple of quarters, 3 quarters last fiscal year in that category.

Are you saying that that's just a function of the product cycle and it's quite feasible you would come back to that kind of growth at some point in the future as well?

I would be so hesitant to ever said that we hit double-digit growth in the keyboard market as an expectation set.

But I do think we -- a lot of that growth was driven by an emphasis we put on multi-device keyboards, more and more people are using multiple things in those keyboards and that was a really good innovation.

I think we'll have good innovations going forward.

How much will we get out of that?

How much growth will we get out?

It's really hard for me to say.

But I think just structurally with a PC installed base that's very healthy, and it doesn't look like it's trending downward or drastically at all or even much, I think that our opportunity in keyboards will continue to be good.

And Paul, if I can add a few things.

So at the Analyst Day in March, we did tell everyone that in the keyboard we saw double-digit the year before, we probably will not see that this year.

And depending on, as you mentioned, product cycle, product innovation, timing of those NPIs, some of those category can move up and down.

We always look at the PC peripheral and initially, you know where we position when we came into the company.

But so far, we think, we have a kind of a low single-digit growth rate opportunity in that category.

Some categories can perform better, webcam was up 12%.

I would not advise you to model double-digit growth rate forever in webcam, but you never know, we can always come up with new product and find those opportunities.

Overall, PC peripheral low single-digits, we've been pretty good around that target range.

It's so nice, Paul, to have a question about keyboards on the call.

Your next question comes from Michael Foeth from Vontobel.

Two questions from my side regarding Jaybird as well.

In terms of last quarter, I thought that you were sort of disappointed in the U.S. with the performance.

And my question is, what have you done to reposition Jaybird not in terms of -- obviously we've seen new products, but in terms of distribution channels?

And how long do you think will it take before this really takes off?

Because I think there is pretty high potential and everybody finds it a really cool product, but it doesn't seem to be accelerating yet.

So that will be the first question about the positioning of Jaybird and how you sell it.

And the second one is, if you could give us an update on your Spotlight presenter.

Any significant contribution in the quarter and is it accelerating, or has it sort of lost momentum again?

Yes.

So I'll take a few quantitative answers and then Bracken can also comment.

On the Jaybird side, what we said on the call last quarter is that, we are really reevaluating the approach with Jaybird from both a product portfolio and a distribution perspective to position it for long-term success.

So it's not an acquisition that we decided to say, hey, let's go and launch it broadly in every mass distribution environment and push it through.

We were really focusing on the brand, positioning the brand right and aligning all of the different value vectors along that brand.

So in the process of that and you saw RUN launch and you can easily extrapolate how we're positioning the brand and what we're doing from product portfolio all the way to distribution.

I don't think we want to be much more specific than that.

It's a very exciting brand, a very exciting set of product.

I use the RUN all the time to run and I really love it and I'm sure many of our customers do too.

Before we go to the next one, I'll add to that.

I think, when we bought Jaybird, we really saw an opportunity to do something different than what's really being done in the market with a platform that is really interesting.

And so, we're super excited about the long-term potential there and we're holding ourselves back from trying to squeeze all the juice out that lemon in a short-term basis and really build it structurally for long-term growth.

And so -- no, I don't think we're done yet on really thinking through and changing the distribution footprint and the product portfolio, so you'll see more as we go ahead.

So in term of Spotlight, it's still my favorite present to my CFO colleagues to help them improve their presentation skills.

It's a fantastic product.

As you know, it has software applications loaded and we can improve the functionalities through software upgrades.

I think, it's really showing up capabilities to take small subcategories and continue to evolve them and position them for growth.

It grew double- digit in the quarter and has been doing so since the launch.

Yes, and I think that's one -- the nice thing about that, it's a very small category, so we're not going to go spend a tremendous amount of marketing money to advertise it or something.

But the cool thing about it is every time you present it in a group of people you just did the advertising.

So it's getting more and more traction in more and more places and we still think it's the best thing out there for presenting, and it will keep growing.

Okay, thank you, maybe if I can just add a question here.

I mean, you're very successful with the video conferencing product and those sell I guess essentially to companies, right, to businesses.

So how can you leverage that sort of sales to businesses and try to get more mice into the business world, get more of these Spotlight products into the business world eventually?

Also keyboards, I don't know if I'm sitting in the only company which has like super outdated mice and keyboards, but I guess, I'm not.

So can you leverage your video conferencing contacts to the other categories?

Potentially, I mean, I think, we already have -- as you probably see, we already have a pretty decent share of mice and keyboards that go into companies.

But we don't have as big and strong a selling effort into that -- into those markets as we would have say in Video Collaboration, as you said.

It's a much more indirect sale for us.

So maybe there's a long-term potential there to [have] mice and keyboard offerings into businesses using Video Collaboration, but right now, we're just super excited about the Video Collaboration business.

We think, it has so much runway ahead of it, and we'd be making a mistake if we tried to put too many things on its back.

It's got big shoulders by itself to carry a long-term growth for us and we're going to really stay focused there.

(Operator Instructions) Next question comes from Guenther Hollfelder from Baader Helvea.

Thank you, it's Guenther Hollfelder, Baader Helvea.

I have a follow-up on the currency impact.

Looking at the second half, how should we expect like a [2 pp to 3 pp] tailwind in terms of sales?

And if you could comment also on the impact on profitability at the current exchange rate.

Thanks.

So let me do that quickly, I don't want to start to speculate where the currency will be for the remaining 2 quarters as you know.

We are definitely hedged on 4 months rolling, so for Q2 we feel pretty good, and then we'll see where we are in Q4.

We plan conservatively and we know all of the levers in the overall P&L.

If you keep at current exchange rate and they will not move, yes, you would expect a couple of points delta between overall sales in U.S. dollars versus [strong currency] depending of course on the mix.

As you know, EMEA is growing at mid-single digit, while China for example is growing double-digit much more, and so the mix has a big role as well, and I don't want to start speculating on that.

In term of the flow through in the P&L, we are hedged for 4 months, so we kind of have the impact this quarter of the cost of hedging.

If currency does not move we should see some benefit going into Q3.

If it moves, as it has done versus the average of the last quarter, then we'll have another cost of hedging to offset that.

In the long run, though, when you pass the volatility or the short-term volatility, we definitely have a benefit into the P&L from a currency perspective, if it stays where it is.

And then, I had 1 question on the -- on your sales strategy approach going into the holiday season and particular in the U.S. and also in Europe.

Do you have, let's say, do you expect quite a significant change in terms of the share of online sales this holiday season compared to last year and have you positioned yourselves accordingly?

Yes, we've consistently seen online sales like you'd expect.

Online sales have grown every year.

In the Americas -- or the U.S. for example, I think, it's grown about -- I was looking at this the [MPD] the other day across multiple categories, it's grown about a point a year for the last 8 or 10 years.

So now it's up to -- in our categories, it would be up to between 32%, 33% and 35%.

In China, our online sales are bumping up against 65% to 70%.

In Europe, it would be lower than either one of those, but still coming up strongly, and not too far away from the U.S. now.

And we just continue -- we expect that to continue.

So we're putting more and more emphasis on our online go-to-market and that's going to continue forever until they finally stabilize.

Okay but the trend in the U.S. in terms of online sales, you expect it -- it's pretty much in-line let's say with the growth compared to last year's, there is no special impact or significant acceleration or anything?

No, I don't think there's a special acceleration, but it has been -- online has been outgrowing offline for every year for the last -- for as long as I've been here and before that, and that will continue.

Next question comes from Jörn Iffert from UBS.

Sorry, gentlemen, that I'm back here, just a follow-up question based on the gross profit margin.

As Vincent already has indicated that usually Q3 is down versus Q2 on the gross profit margin, and this has been the case, I think in the last 2 years, why expect this would be case right now?

I mean, you have some benefits coming from FX on top, the mix seems quite favorable with high gross profit margin, new collaboration growing strongly.

So what exactly is the reason here why it should be down in Q3 versus Q2?

This has not been the case in the last 2 years.

Is it just a statement to be conservative, or how shall we read it?

No, I think, you have a lot of new products here that have been introduced.

There is cost of new products, there is promotion of the old lines.

You have the normal holidays and the holiday promotions, the effect of Black Friday in Americas that have the same impact in Europe.

So all of those dynamic, if you want, create normally a lower gross margin in Q3, and that is offset by the FX, if it stays where it is, which would be beneficial.

And then of course as a third driver for us, we have this transition of the DC, which may marginally impact margin in Q3 as well.

But overall, you are -- sorry, Jörn, just so other investors and analysts don't take me wrong.

Overall, we're committing to manage within a range of 35% to 37%, it's all built into our overall guidance and we feel very good about where we are going into the quarter.

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

Okay well, we're halfway through the year.

As Vincent said, and I've said now a couple times on this call, I feel extremely good about the product lineup going into our biggest quarter of the year.

So look forward to talking to you guys in January.

That concludes today's conference call, you may now disconnect.