羅技 (LOGI) 2018 Q3 法說會逐字稿

Good morning.

My name is Kelly, and I will be your conference operator today.

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

(Operator Instructions)

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

Thank you, Kelly.

Welcome to the Logitech conference call to discuss the company's financial results for the third 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 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 SEC.

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

Please note that today's call will include results reported on a non-GAAP basis, except as otherwise noted.

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

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

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

Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our Investor Relations website.

We encourage listeners to review these items.

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

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

Now joining us today from Lausanne 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.

You've all seen that we delivered a powerful quarter of sales growth, our biggest sales ever, up 18%.

Demand for our products in Q3 was very strong, significantly stronger than we anticipated.

All our product categories delivered double-digit growth, except for PC peripherals, and even in those, sell-through remained stable.

2 of our 3 regions, America and Asia Pacific, grew over 20%.

EMEA sales were only up 2% against a tough compare, but underlying sell-through was also strong, in line with normal seasonality.

Our operating income growth was also just as a strong, up 18%.

We delivered that net sales and profit growth despite a drag on our ability to execute.

During our Q2 earnings call, we mentioned the difficulties we experienced transitioning to a new logistic supplier in the Americas.

We had to run 2 distribution centers instead of one as well as significantly increasing our air shipments, largely because the one we were trying to exclusively move to just didn't execute.

The 2 DC backup plan, coupled with our determination to fulfill the demand from our customers, placed a drag in our gross margin of about 150 basis points in the quarter.

This is largely resolved now and will be fully resolved as we exit the fiscal year.

Now let me be crystal clear.

Yes, we had a supplier who didn't deliver, but we hold ourselves 100% accountable.

Investors should be able to rely on us to pick the right players and make sure they execute.

How does the growth look by category?

As I mentioned, we grew double digit across almost all of our categories.

Let me highlight each one.

Last quarter, you remember our Mobile Speakers went through a product transition, ahead of our new Ultimate Ears BLAST and MEGABLAST and in time for our holiday quarter.

This quarter, our Mobile Speakers grew -- group grew 34%.

We sold in our Alexa-enabled BLAST and MEGABLAST, but we also grew strongly in other products, from our large MEGABOOM to our pipe size WONDERBOOM that's doing well beyond our expectations.

I don't expect that level of growth to continue in the next quarter, but sellout was also very strong.

Audio PC & Wearables sales grew 21% in Q3.

Jaybird posted strong growth this holiday quarter with good contribution from Jaybird RUN, our first true wireless earphone, and from our other product line, like the X3 and Freedom 2. Wireless earphone penetration is still very low, and there's a long runway for growth here as we will carve out space and continue to innovate.

As a runner, I absolutely love and use our Jaybird RUN product.

Our Gaming group delivered a 10th consecutive quarter of double-digit growth with sales up 57%.

We've completed the integration of ASTRO Gaming, and that business grew powerfully in the quarter, too, representing 4% of our overall sales.

I'd point out that ASTRO is heavily skewed to the December quarter, and for the full year, we still expect ASTRO to contribute about 2 points to our overall growth.

Even excluding ASTRO, our Gaming business grew as strongly as it had in the past several quarters.

In Q3, our steering wheels business was particularly strong, and we captured share as several major racing game titles launched.

We also continue to see tremendous acceptance of our wireless Gaming products, across both mics and keyboards.

You heard me talk last quarter about POWERPLAY, and I've had trouble stop talking about it, our wireless charging pad that gives infinite battery life for your wireless gaming mouse while you play.

Well, I can say that demand for POWERPLAY far exceeded our supply.

We're the leader in wireless PC gaming peripherals, and you can be sure that we'll continue to innovate and drive greater wireless adoption across our Gaming portfolio, similar to what you've seen us do in traditional PC peripherals.

Video Collaboration reported sales growth of 25%, reaching an annual run rate of approximately $200 million or almost $200 million.

While the net sales growth was slower than last quarter, the underlying sell-through is much stronger, stronger than the 25%.

The fundamental need for low-cost, cloud-based Video Collaboration solutions remains extremely robust, and we'll continue to invest into this business to capture the growth opportunities.

Our Smart Home group continued the strong momentum that we've seen in the past few quarters.

Sales in Q3 grows 41%, driven by both our Harmony Hub family of products as well as the solid contributions of Circle 2, our home security camera solution.

Finally, PC Peripherals sales were down 4% this quarter, yet sell-through, as I mentioned, remained very stable and consistent with our recent trends.

Our latest products, including our new flagship keyboard, MX Craft, and our new trackball, MX Ergo, are off to a great start and contributed nicely to our results.

Tablets and other accessories sales grew 5% in Q3, marking the third consecutive quarter of growth.

We'll likely end this fiscal year with double-digit growth there, the first full year of positive growth in the category since fiscal 2014, coinciding with the return to growth in Apple's iPad units.

Now I'll pass the call over to Vincent.

Thank you, Bracken.

In Q3, we delivered our seventh consecutive quarter of double-digit growth.

We delivered not just another quarter of consistent top line growth, but as Bracken mentioned and it's worth repeating it, we gained share in our key markets, we launched products into adjacent categories, BLAST, MEGABLAST and RUN, and we successfully accelerated the performance of our acquisitions.

We delivered on every one of our growth levers, playing in growing market, growing our market share and adding entirely new market opportunities.

That is our playbook, including acquisitions.

Q3 was the first full quarter of ASTRO, which gained great market share in this highly seasonal business and made up 4% of our total sales in this past quarter.

We are investing in our capabilities to take advantage of the many market opportunities, and Q3 growth of 18% demonstrated the progress we are making towards our long-term objectives.

Now growth sometimes comes with growing pains.

As we mentioned last October, the third-party distribution center that we had hired in the Americas to support our growth experienced significant changes in the transition, operating procedures and ramp-up of our volumes at the end of Q2 and early Q3.

As a result of this, we had to bring back online our prior DC partner, increase temporary labor and rely on airfreight much more heavily.

Our priority was to support the 30% increase in demand that we saw in the Americas.

The onetime incremental cost of solving this operational issue amounted to about 1.5 points of gross margin.

Now with Q3 behind us, we will exit this fiscal year back to just one third-party distribution center in the Americas.

And so our non-GAAP gross margin was 34.4% in the quarter, down 300 basis points year-over-year.

Excluding the onetime cost of our DC transition, gross margin would have been around the midpoint of our long-term gross margin range of 35% to 37%.

It remained very healthy in what is normally a seasonally lower gross margin quarter impacted by mix and holiday promotions.

In Q3, our non-GAAP operating expenses increased 8% to $162 million and were 20% of sales, down 250 basis points year-over-year.

Excluding ASTRO, our operating expenses would have risen only 4%.

This modest OpEx growth demonstrates our discipline in balancing our near-term spend with gross margin.

Our sales and marketing expense increased 14% to support the solid top line growth we delivered this quarter while R&D spending grew 5%.

On the other hand, we continued to drive our G&A expenses lower as efficiently as we can.

Our G&A spending as a percent of sales fell to the lowest level ever at 2.2% of sales, though this ratio, of course, benefits from the strong seasonal pickup in revenues.

So if you step back, Q3 sales growth is 18% in constant currency while non-GAAP operating income also grew 18% despite the onetime operational challenge of our distribution center in Americas.

Excluding this, our operating profits could have grown by 30%.

A strong quarter and what we expect will become a very strong year will not be meaningful without strong cash flows.

On that front, we generated $189 million in cash from operations this quarter.

It is the highest quarterly level we ever achieved, and this compares to $149 million of cash flows in Q3 of last year.

You will remember that we had said we would consume working capital during our first half as we build up new products and prepare for strong holiday season.

With our new products successfully launched and our sales achieving a record level in Q3, we reduced the inventory around $50 million sequentially, and we achieved inventory turns of 7.7x, the highest level since I've joined.

In the past 4 years, our December quarter inventory turns had averaged 6.6x.

And in this quarter, our cash conversion cycle remained very healthy at 14 days.

As a reminder, our cash conversion cycle is typically the lowest in the December quarter due to seasonality.

On a full year basis, we still expect our cash conversion cycle to be within our targeted annual range of 20 to 25 days.

One last thing I would like to add, and that's around the GAAP profitability.

As most of you are aware, the U.S. passed new tax laws at the end of December that reduced the U.S. corporate income tax rate as of January 1. And as a result, we are required to record a onetime $16 million net tax expense in the December quarter, which is our Q3, related to the implementation of the U.S. federal tax reforms, including the necessary remeasurement of our U.S. deferred tax asset at the lower corporate tax rate.

In summary, Q3 marked another strong quarter of growth, profitability and strong cash conversion.

And the most exciting for me as the CFO is that we still have plenty of room to execute better and continue to grow and expand.

And with that, Bracken, I'll pass it back to you.

Thanks, Vincent.

We finished our biggest quarter of the year with very strong top line growth and strong profitability and cash flows, as Vincent said.

We're continuing to build on our new -- on our multi-category, multi-brand strategy.

And finally, as Vincent mentioned, you can see, completely transparently, all 3 of our growth drivers in action this quarter: market growth, shared growth within the market and new adjacencies.

And I think you see from the level of growth of the power of this strategy applied to the markets that we have lots of opportunity here.

Based on our results, we're raising our fiscal year guidance.

We now expect fiscal year 2018 sales growth to be 12% to 14% in constant currency, and non-GAAP operating income to be $270 million to $280 million.

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

Operator, can you queue up the questions?

(Operator Instructions) Our first question come from Jörn Iffert from UBS.

The first one will be please on the product pipeline you have ahead for the next 12 months.

Can you give us an indication in which categories innovation rates would be the highest?

And also what is roughly the number of new products introduced in fiscal '19 versus fiscal year '18?

Just to give a rough indication would be helpful.

The second question would be the currencies are developing favorable for you.

I mean, is the new euro-U.

S. dollar exchange rate the key reason for the non-GAAP EBIT increase?

Third question would be on EMEA and sell-in plus 2%.

Can you give us some more indications what is happening in the channel here?

And the last question will be, please, on the gross profit margin and development.

I mean, FX becomes supporter for you.

You still have to design the cost program in place.

How shall we think about gross profit margin momentum going forward here for the next couple of quarters?

Okay.

Thank you very much.

You're -- Vincent and I will split these up.

He'll take the currency and gross profit questions.

I'll take the -- your first and last questions.

So on the innovation pipeline, we're an organic innovation company.

We do acquisitions over fundamental organic innovation company.

So we're in a constant state of creating new products all the time.

When we launch one product, you probably could guess that we're already under way on a second product, so in terms of the absolute number of products we launch every year and in which category those go into.

In terms of the absolute number, year-over-year, our launch numbers probably are relatively comparable, but we don't look at it that way.

We really look at making sure that we continue to evolve our product lines and introduce spaces where they should be.

And so without -- I couldn't be more specific than that, and I apologize for that.

But we have -- certainly plan to have a great pipeline of innovation ahead.

In terms of the specific areas, we generally innovate, as you can see, in every area that we're in.

So we break our company into small teams.

And each of those small teams wakes up in the morning and goes to bed at night trying to figure out how to build a bigger business and create and design better products for consumers.

So you're going to see innovation, as you have in past, across everything.

The second question on EMEA, yes, we had 2% sell-in.

And as we've said, our -- the underlying sales out or sell-through was significantly higher than that, and we've said that the last couple of quarters.

Yes, they are adjusting to a lower growth rate at very high growth rates in the year ago, as you know, in the 18% to 21% range over the past 3 or 4 quarters, and you see that adjustment happening.

It took -- we did take inventory out of the channel to adjust for that lower sales rate, including in this quarter.

And I think we'll see that adjustment be -- really be completed as we finish the year.

Jörn, on currency, as you mentioned the U.S. dollars conversion rate is moving favorably to us.

What's always challenging is when we have volatility within one quarter.

As you know, we do hedging on the 4 months rolling forecast.

We discussed it many times on the call, and we also buy our inventory a few months in advance, all right.

So this quarter, if you take as an example, we had a euro-USD change of about 6% to 7% year-on-year.

That created about 80 basis points favorable in the P&L.

0.5 point was hedging cost neutralizing that benefit.

And so we have the same going into Q4.

At this point in time, if the exchange rate for the euro-USD stays at $1.22, we have another move of 6%, 7% and hedging cost will be absorbing over half of that impact.

In the long run, though, you're correct that if currency stay where it is, it will be favorable on our gross margin.

So talking about that gross margin, excluding the DC issue, we delivered 18% top line gross for 36%, rounding 35.9%, but 36% gross margin.

We will always balance, as you know, investment versus dropping everything to the bottom line and really prioritizing our focus on growing our businesses that have growth opportunities.

At this point in time, we're not guiding next year.

As you know, that will be during the AID event in March, but we stick with our range, 35% to 37%.

And our goal is to try to generate the highest gross margin, like last year in FY '17 over 37%, to be able to continue to invest into our businesses.

Your next question comes from Asiya Merchant from Citigroup.

Quick question, if you can just talk about seasonal trends going into the fiscal 4Q and which product category do you feel very comfortable about in terms of seasonal trends.

Gaming, obviously, was a blowout quarter for you this particular quarter that you just reported.

So how should we think about the March quarter?

And then I had a follow-up on cash per share, pretty high at this level.

How should -- how's management thinking about deploying that cash, whether it's capital return?

Or should we be expecting again some more seasonal -- some more acquisitions in looking into your fiscal '19, fiscal '20?

And any particular product categories that you're looking to fill up on?

Okay.

I'll quickly take the seasonal trend question.

Then Vince will take the cash question.

Our seasonal trends are -- Q4 is always, obviously, a big step-down from Q3, and it will be this year.

Completely normal and we expect it to be.

The -- all the categories tend to step down as you go from Q3 to Q4, except for Video Collaboration, which generally has sort of a steady progression all the way through the year.

Maybe it's hit a little bit by the end of the year close of the cycle of budget or something within companies.

But generally, it's pretty consistent.

Tablets have a little bit the stronger skew in the Q4 period because of -- they're in the education business.

So -- but anyway, bottom line is I think, overall, without getting too specific, I'd say our seasonal trend should look this year in Q4 like they did last year, kind of relative to Q3, Q2 and Q1.

And Gaming you mentioned specifically, Gaming does have a very strong Q4 skew, maybe even stronger by the fact that we're now in all the key segments of Gaming, including those are really giftable, like steering wheels and things.

So I would expect that, that seasonal skew will be pretty dramatic, but it always has been.

If I can, a few things on seasonal.

Normally, sequentially going into Q4, our sales drop 25% to 30% Q-on-Q.

The guidance we've given for the year, considering there's only one quarter to leave, kind of implies about historical linearity going into Q4.

So nothing unusual on that side.

I agree with Bracken, the Gaming trends, structural growth there will continue.

And then on Mobile Speaker, I would not expect a repeat of the Q3 deliverable, and we continue to grow the category, trying to gain share.

But obviously, we're not guiding a full year at 34% gross for that category.

I'll give you a little bit more quantitative data as well.

And then you asked about capital allocation.

We have a framework.

First, well, of course, we invest in our business.

As you've seen now, it's the seventh quarter of double-digit organic growth, and we have plenty of opportunity continuing to invest on that side.

We'll include into the gross investment small and medium-sized acquisition as we continue to see them.

We're very pleased about the acquisition we've made, and we continue to build out those businesses as they are integrated into the overall Logitech portfolio.

And then with the last 2 leg of the stool, if you want, is growing our dividend or dividend that's growing on an annual basis.

You'll continue to see that.

Obviously, that's a board review and discussion we have every year, and we'll have that as well.

And then we have a buyback program open for $250 million, out of which we've consumed $20 million.

So we still have plenty of power there to continue to return cash to shareholders.

Our next question comes from Ananda Baruah from Loop Capital.

Yes, just a few for me, if I could.

Like with regards to the very balanced and punchy demand, are you guys able to discern or distinct between the various drivers, market versus share?

And then in the share context, could you just sort of peel back of kind of both of you guys, what's leading to this share?

If you can just think between things like innovation, marketing campaigns, new channels, geos, like that.

And then I have a follow-up or 2.

Sure, yes.

I'll step into that one.

Yes, I'll -- I'd say overall, we're gaining share across most of our markets.

And -- well, there are certainly cases where we're not, but they're -- they tend to be regional, country-based, et cetera.

So overall, our markets are growing.

The general profile of our -- of the markets we're in, and I would say the profile really hasn't changed very much.

If we step through the various pieces, the Video Collaboration market continues to be strong, and we're -- we continue to do well within it from a share standpoint.

Gaming is now multi-markets.

And I would say we are gaining share in most of the segments of Gaming.

The market themselves continue to be very robust.

If you looked at Music, the Music business is very dynamic, as you know.

Anyhow, this is the -- the rise of the personal assistant is actually fueling a strong growth in speakers across both Wi-Fi, in-home and, to some extent, even out of home.

So the overall speaker market grew, and we actually had a good market from a share -- a good quarter from a share standpoint there, too.

We'll have to wait and see how speakers continue to evolve, but we're excited about the innovations available now in speakers, and we're going to really be after that aggressively.

If you go into the home, I think the home is going to continue to grow across every segment.

We had good growth in both of our businesses that are home-based businesses, the security camera business and the Harmony business, which is now, I think, ready with personal assistants, so I would say just generally.

And then of course, there's the earphone business, and earphones, for us, is brand-new business.

It's a -- the completely wireless version, so it's at the early days, and we're really excited about that space, too.

So there's opportunities across.

The PC peripherals, on the other hand, the PC businesses has been in a secular decline for a while, not steep but steady.

We have been disturbed by that because we feel like we're really an installed base business there.

It started to turn a little bit.

It's been a little bit positive last quarter or 2, and we're -- I think we continue to expect to either hold or gain share in that segment too.

This quarter is really, I think, more of an anomaly.

We're actually down 4%.

The trends underneath that look pretty stable from a sellout standpoint.

Awesome, awesome.

And Vincent, with regards to, I guess, gross margin usage from the 150 basis points from the distribution center dynamic.

When do you guys decide what you want to do with that?

Or have you already decided?

And just as we get our -- sort of get our heads around sort of the next couple of quarters, when do you -- like potentially, when do you decide or how do you decide whether you pass -- give some back to yourselves or given the rev performance, you just put it back into investment of the business?

Yes, I understand.

And to be fair, the issue started in September.

And deciding what to do...

Maybe you restate his question (inaudible)

Maybe people have not understood.

So the question is around the gross margin impact of the onetime 150 basis point from the distribution center issue in the Americas.

And the question is what have we decided and by when will be out of it basically.

And the decision was easy.

Our decision, as we explained in the last call, was to run 2 DCs in order to not put at risk the demand we saw into Q3.

And when I look back at the results and the demand that flowed in of the orders that came in, we made the right decision.

Then the solution, if you want, is to go back to one DC.

Internally, we've made all the choices.

And now it's early January -- at the end of December and early January, we started to deploy that solution.

We may still have a little bit of residual cost in January as a result of that, but we will be out of it now as we speak.

Every impact of that DC, of course, has been built into our overall guidance we've raised for the year.

Okay, got it.

Got it.

So we shouldn't necessarily think of getting 150 basis points back over the next couple of quarters and that floating back into the gross margin percentage that you guys reported.

Yes.

Yes, 100% yes.

You see -- it may still take a few weeks in this quarter.

It will not take 2 quarters.

Correct.

Okay.

And then just quickly, last one for me.

What -- or when will you make comments about what your tax rate could be as a result of tax reform, your ongoing tax rate.

And then just if -- sort of what might you do with deployment of tax savings and repatriation of the (inaudible).

Yes.

So just quickly, the tax rate, I'll give on an annual basis.

Of course, it depends on the mix of sales by product line and regions, since every country has different tax rate.

At this point in time, we've lowered our annual tax rate on a non-GAAP basis to 7% for FY '18.

And then we'll give more color at the AID meeting in March.

Okay, great.

And in the use of repatriated cash.

We didn't have any repatriation cash.

We are Swiss company, and our cash is in Switzerland.

Your next question comes from Jürgen Wagner from MainFirst Bank.

Actually, I have 2. First, on PC peripherals, and let us start with it.

How should we model this business going forward?

I think you mentioned like stable or is that the trend we should look at over -- more also the midterm?

And then on Europe, you have this chart on Page 13 that shows that reported in constant currency, Europe is -- or keeps underperforming to now flattish.

Is that underperformance due to one country?

Or is it across-the-board?

Okay, I'll take both.

So in terms of first one, PC peripherals, I'm not sure exactly how I would model with -- if I were you, but I'll tell you how I've thought about -- I always think about them.

I always think of our PC peripherals business as relatively flat.

Could be slightly up.

And I think that's -- underneath the sell-in numbers, I think that's pretty much what we saw in terms of really sell-through.

I think -- I suspect that will continue.

I don't see any fundamental changes in the market to suggest it could be different from that yet, and I don't see any -- I can't imagine what they would be.

Now in terms of Europe, as I mentioned earlier, we've had a -- I think one of things that happens when you have a great year one year and a lighter year the next year, you often do have adjustments that's going to take place.

And the adjustments take place in steps.

And I think you're seeing that in Europe.

I've had this couple of times in my career, where it's kind of staged in as the realization comes through and the sales really need to be pulled back.

And that adjustment ends up being reflected quarter after quarter after quarter until you hit the end of that.

You really -- then you finally start to come back up again.

I think that's what's going to happen here.

I think we're probably another quarter away from being at the point where you'll start to see the underlying sellout look more like the sell-in.

Right now the sellout is consistently stronger than the sell-in, and that's really an adjustment that's happening in different stages with the distribution channel as they adjust to the new sellout.

So I think you'll see it start to come back up as we enter next year.

And in terms of individual countries, et cetera, it's fairly consistent across-the-board, but there are some differences across country as usual.

We're seeing a stronger performance now coming back out of the -- some markets that were really weak a year or 2 ago.

Actually, 2 years ago, Russia, for example, started to come back a little bit for us, which is good.

Turkey is starting to come back a little bit, which is good.

So it's kind of -- generally speaking, though, I think you could think of it as pretty broad based.

Your next question comes from Paul Coster from JPMorgan.

This is Paul Chung on for Coster.

So great quarter guys.

So just -- looks like Gaming's on track to become your largest category possibly by mid-fiscal year '19.

So how do you actually think about the growth trajectory in '19 going up against the healthy comp in '18?

And if you can expand on the primary growth drivers there, market share grab, higher ASPs, higher shipments or just the combination of everything.

Yes.

I would say -- pertaining to the last one, I think it's kind of a combination of everything.

I think we're playing across a lot of different places in Gaming now.

And it's continued to expand, and I imagine it will continue to expand.

I think it's -- we have had a good run, and we've generally guided at every ID kind of out 2 or 3 years.

We'll probably save it for that.

But we expect to do well in Gaming going forward, to be clear.

Okay.

Then on Vincent, on the margin front.

My understanding is that the Gaming product margins are slightly above the corporate average.

So as the product mix evolves, do you see step-up in longer-term gross margin targets?

So yes -- so if I can come back on Gaming.

Gaming is the perfect illustration of the 3 growth drivers we're talking about, right?

There is a structural growth in the market and market growing double digit, and we see that to continue for the years to come.

There is definitely an opportunity to continue to grab more market share in the current product lines we are in, and that's why we're focusing on through either new products, as you've seen on the new products we've launched, and we'll continue to do that going into FY '19 or execution at the point of sale.

And then the third one is there's plenty of small acquisitions that can continue to complete the portfolio and become a true gaming almost kind of a company inside the company, and we're definitely doubling down on that growth opportunity.

In term of the margin, yes, it's slightly better than the corporate average when you take monthly averages.

I don't see a major uplift from that perspective.

I would say we continue to manage the overall portfolio in the 35% to 37% range.

Gaming, trending better gross margin.

We may also invest more into marketing and the overall support of growth.

And so I think in all of our businesses, we're trying to continue to improve gross margin to then reinvest a portion of that into growth opportunities.

By the way, Paul, just to make one other comment.

Thank you for the quote, because I'm going to feed that back to our -- the other business groups in our team because I don't think they're going to sit there and wait for Gaming to become the #1, no matter what the growth rate there.

We've got plenty of other categories that are super excited about the growth potential.

And PC peripherals is, by no means, going to cede that easily.

And when you add Video Collaboration and even the Music business, so I think there's opportunity in a lot of places to be bigger.

And so my last question, so how should we think about the split between smart speakers versus Bluetooth speakers in the quarter and how that evolves over time?

And what were kind of the primary growth drivers in this quarter?

Was it a function of ASPs, higher sell-through, combination of both, maybe some channel strategy?

And then was there some pent-up demand from 2Q?

Yes.

I don't think there's any pent-up demand from Q2.

But I'd say the -- in terms of the split, it's -- still, the vast majority is Bluetooth speakers.

We just launched our first Wi-Fi personal system-enabled speakers, and it's way too early for us to really forecast where that's going to go, except to say, it is a whole new dimension of opportunity for us to build into this market.

So we're excited to see where that can go.

In terms of what really drove demand this quarter is both growth in units.

We had very strong growth in our WONDERBOOM, a new addition to the category, and we still had strong growth in MEGABOOM.

So it's really kind of strong across-the-board, and I would say it was a kind of a really balanced performance.

We gained some market share.

We had good ASPs, and we had good growth overall.

Your next question comes from Andreas Müller from SKB (sic) [ZKB].

Yes.

One is on the G&A line, which dropped significantly.

Can you give an indication what where the driver behind it and if it's going to be sustainable on an absolute level, the G&A line?

Yes.

So on the G&A line, non-GAAP was around $18 million.

Last quarter was around $21 million.

There's a few things in and out of our -- some of the variable expenses in G&A.

As Bracken mentioned, he's holding the team accountable for some of the gross margin metric, and we have not hit all of our metrics.

So some of the adjustment you see on the quarter is basically adjustment to variable compensation for the executive team.

On an ongoing basis, as you know, we have our G&A position at around 3% of sales.

I hope we can do better, and I think that's what you will see us trending that direction on an annual basis.

Okay.

And then probably back to the UE BLAST and MEGABLAST.

Can you indicate with -- what was the sell-through relative to sell-in and also for the new Jaybird products, RUN and Freedom 2?

Was it a big difference between sell-in and sellout?

Or should we think it's basically the same metrics there?

Yes.

The -- generally, when we ship a new product, we have higher sell-in and sell-through, and that's true on both those products.

They both shipped -- the sell -- especially with BLAST and MEGABLAST shipped midway through the quarter, so you'd have significantly higher sell-in than sell-through.

So it's still very early days in that category.

I think it's early days for the category of personal assistants that are not Amazon and Google.

And so we're going have to wait and see how that really develops over time and determine how we feel about the category in general and whether we've got the right price, performance profile, et cetera, and we're watching it closely.

On the Jaybird products, it's a little bit of a different story.

We've shipped a little earlier.

We're a little constrained in demand.

So I think the sell-in and sellout profile probably looks a little more balanced at this point in the quarter, but -- because it shipped earlier.

If you step back from that, overall, I'd say our general inventory picture looks quite good, and we feel good about where we are.

Your next question comes from Michael Foeth from Vontobel.

A question on Jaybird as well.

Can you maybe update us on the -- on sort of the repositioning of the product in eventually new channels as well and give us an idea of the geographic mix that was responsible for the strong growth?

And then in terms of the rollout of the BLAST speaker series, can you give also some granularity with respect to which regions it was strongest in demand?

Sure.

I mean, I'll answer that very quickly.

You -- so really, if you look at the where we're -- that is an Alexa-enabled speaker, so really Amazon and Alexa, have led with the U.S., and then it's slowly spreading into different countries in Europe and then it'll spread elsewhere, so still early days, all -- virtually everywhere outside the U.S. In terms of the repositioning of Jaybird, we really -- as you know, we are really narrowing that position, and we are shifting the distribution a little bit, although you haven't seen much of that yet.

That'll come a little bit more over time.

But I'd say we're on track.

I'm super excited about the category and the brand.

I think we've got something unique here, and we've also been -- continue to build out that team.

I'm really excited about that too.

I hope they're listening.

So do you want to add anything there, Vincent?

No.

Maybe on Jaybird as well.

Do you have any collaboration or cooperation with any sort of sports brand that you have already or looking into?

Yes.

We have several.

I'm not kind of comfortable talking about it because I'm not sure exactly what we have or haven't disclosed.

But I'm not comfortable with giving any too much detail there.

But we do have collaborations with other sports brand and with sport athletes, and so we've got some really cool things that are under way there.

And we're really dedicated to building a sports brand there, and we brought -- we bought one that was already kind of born in the outdoors.

And we're committed to building it, and it will certainly include collaborations with other sports players.

Your next question comes from Guenther Hollfelder from Baader-Helvea.

Just 2 follow-up questions.

One, again, on the European performance.

Does it make any sense to differentiate by product categories?

Are there any major differences you want to mention here?

No.

I would say the PC peripherals business was weaker in Europe than elsewhere.

Again, I think that -- it was kind of balanced out by the other 2 categories.

So there's nothing particularly worrisome about that.

I think that's pretty much a natural trend.

But other than that, I would say, by category, there's not a big difference.

Okay.

And follow-up on the currency tailwinds.

The 80 basis points you were -- were you referring to the gross margin here or non-GAAP operating margin?

Yes.

No, gross margin.

Gross margin.

Out of which, as I mentioned, more than 0.5 points was hedging costs.

So 80 basis point was a gross number, and then you offset that with hedging cost, which is a onetime cost.

And if the currency stay where it is, then we will benefit from that 80 basis points.

Okay.

Last question on the share buyback.

I mean, you're running right now, I think, like slightly above $20 million compared to more than $60 million of the 9 months last year.

Is the main impact from the acquisition?

Or could you talk about the volumes right now and what you will be able to catch up in the fourth quarter?

Yes.

So at the end of last fiscal year, we closed the old plan and open a new one, right, a new $250 million.

We couldn't do anything in the first quarter because of the acquisition, as you mentioned.

So we're prevented from that.

And we now have established kind of a pattern, and we'll continue opportunistically.

And also a small portion of the plan will be toward (inaudible) [FAS 1].

(Operator Instructions) Our next question comes from Jörn Iffert from UBS.

Maybe a little bit unfair question because you launch so many products that's got reviews.

But looking at a couple of launches in strong recurring end markets, like the MEGABLAST, the Jaybird RUN or the Circle 2, the consumer review seems to be below Logitech's normal average.

Can you maybe comment how you -- what are you doing, I mean, to improve the consumer experience here?

Is there already something that you have done and we can expect a couple of upgrades and relaunches going forward?

Just some more color would be appreciated here.

Yes, I think it's a great point, and we do have -- the 3 -- the specific 3 you mentioned are the 3 that if somebody had asked me about, I would have brought up.

All 3 of them have pretty difficult technical challenges to them, and they're relatively new markets.

And -- or at least we're trying to do something that's pretty really challenging.

If I go through each one -- and each one of them, you -- we've got progressive upgrades that have already either happened or happening.

So I think you'll see those reviews come up.

Jaybird RUN is a -- was a tough product.

When we launched it, we actually needed one more firmware update after we launched the product.

We -- it's a phenomenal product now.

But first launch, if you go in and look at our reviews, you'll see some antenna issues, where it was disconnecting.

We made the change.

It's completely good.

But those early reviews that came through without that update, we suffered for them.

I think we learned from that.

Same thing was true with -- Circle camera was exactly the same story.

We had -- we launched with -- it was -- the wired version is amazing.

It gets rated to the top of everything.

The wireless version, when we launched, it had some difficulties in the beginning.

We've largely, I think, fixed almost all, if not all those.

So that product is also awesome, but in the beginning, it was tough.

And the third one was BLAST and MEGABLAST.

BLAST and MEGABLAST, we were really first out of the gate with a premium Wi-Fi speaker that had Alexa enablement, and we were really penalized by the fact that there were some features that we just couldn't put in there that we expected to be able to and we're -- we had to sort of wait.

And so those are coming or they have come.

You'll see them over the next -- Spotify, for example, is a big one.

Pandora, we just launched.

So all 3 of those are, I think, good examples of our learning curve, and we're learning how to be more than just a hardware company.

And I think in every case, the product will come up to the standard that we're known for.

And I think in 2 of the 3, if not 3 of the 3, we're already there.

But it's a good experience for us.

It's a good jump in the cold water to realize that our own internal development cycle might need a little extra time to make sure that we finish off the end of the software development cycle and prove to ourselves that we've got what we thought we did.

Now obviously, we've been doing this for a long time, so we're pretty good at it.

As you mentioned, our Amazon ratings, our Best Buy ratings, our ratings in general are quite good on our products.

And I don't like having -- launching products that don't immediately hit those really good performance levels, and so you can imagine that we've had a lot of discussions internally about that.

But it's good, because we're going to do more and more of these kinds of products, so we need to be able always come out of the gate strong.

And there are no further questions at this time.

I'll now turn the call back to Mr. Darrell for closing remarks.

Okay.

I think my last line of our Q2 call was that we're entering Q3 with the strongest lineup we've ever had leading into a holiday quarter, and I think I also said we just won more awards, more design awards, which really represent design and innovation and engineering, than we've ever won before as a company and maybe more than any other company in a revenue per dollar basis, except a really small company.

And I think you saw in the numbers that we just reported that we just had our highest sales ever.

So this is all connected.

We just have a lot of momentum.

Now the best thing about this story and the thing maybe in a weird kind of perverse way I'm most excited about is how much better we could've done.

I think we underperformed what we're capable of this quarter despite having the highest sales quarter ever, despite having profit levels grow in line with sales.

And the best thing about that is that virtually everything that we could have done better, most of those things were onetime things we could fix.

So I'm super excited about the future.

I think we're on a really good track.

I also want to let you know that we are going to be holding, as usual, an Analyst and Investor Day in Zürich this year.

It's going to be Tuesday, March 6. You heard it here first, put in your reservations early and, we look forward to seeing you there.

Thank you.

This concludes today's conference call.

You may now disconnect.