羅技 (LOGI) 2019 Q1 法說會逐字稿

Good day and welcome to the Logitech's first quarter fiscal 2019 financial results conference call.

(Operator Instructions) I would like to now introduce your host for today's call; Mr. Ben Lu, Vice President of Investor Relations.

Thank you, Kim.

And thank you to the Logitech conference call to discuss the company's financial results for the first quarter of fiscal year 2019.

The press release, a prepared remarks and slides, as well as the 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 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 calls 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.

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

I'll now turn the call over to Bracken.

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

Especially those from Switzerland, who decided to join us in spite of the fact that you've got a big holiday tomorrow.

When I started in 2012, there were a lot of people who told me you needed to go private to do what you need to do, but didn’t think we needed to do that in order to change ourselves.

I may change that because I love being a public company.

Public companies are sometimes criticized for being only short-term or quarterly focused.

For us, the rhythm of closing and reporting every 3 months creates something different.

It drives a heartbeat inside Logitech that keeps us sharp and nimble but never impacts our focus on long-term value creation.

That's the key to everything we're doing.

As a public company the first quarter is a key quarter.

A good year usually starts with a good first quarter.

And this was a very good first quarter.

Our sales increased 12%, our operating profits grew 41%.

I want to focus you on our as a -- and I will use the terms I did -- that we did at the Analyst and Investor Day: Our newest, our coolest, and our oldest businesses, for just a minute.

As you know we're doubling down on 2 key businesses.

Video Collaboration, our newest major business and Gaming, our coolest major business.

And this doubling down is paying off.

Both businesses grew over 60% this quarter.

Video Collaboration continued to benefit from both our increased resources and sales and our increased resources in engineering.

Gaming was our biggest business this quarter.

Bigger than Mainstream Pointing Devices and bigger than Keyboards and Combos.

What about our oldest business?

Well, we will not stop innovating in our oldest businesses.

Pointing Devices and Keyboards continue to grow because of that innovation engine.

And webcams and tablets accessories grew double digits this past quarter.

The bottom line is that while we build a multi-category, multi-brand company it's diversified.

While many public companies start with a single category they have to be really lucky particularly in hardware; there are just too many variables to predict how their growth prospects will fare over the next few years much less the next decade.

That's why we'd love to be a multi-category company, we can ramp up or ramp down investments against various businesses as we see opportunities.

Reset them when they slim down.

That's what we did this last quarter like many other periods before it.

We're evolving to exploit the opportunities ahead of us, and there are many.

Now let me go through our strong quarterly results, our strong results this quarter.

Gaming is off to a great start for the year with sales up 68%.

That was the fastest growth rate we've seen in over 3 years and we were much, much smaller then.

Gaming growth was broad based, across all 3 regions and all our major product lines; gaming mice, headsets, keyboards and steering wheels.

ASTRO was also a stronger contributor to our results and actually tripled inside size versus the prior year.

I was just in New York this past weekend and saw the inaugural Overwatch finals.

One of our sponsor teams, the London Spitfire won the championship.

Congrats to Jack and his players.

The level of energy from the 22,000 fans in the sold-out Barclays Center was simply incredible.

It was like being at the NBA finals, that I went to a few years ago, when the Cavaliers beat the Warriors.

And I'm sorry to use that example for you Warriors fans.

The outlook for the gaming market has never been brighter with eSports becoming one of the most viewed forms of entertainment and very likely a future part of the Olympics.

In fact, we participated in a meeting on this at the home of the International Olympic Committee 2 weeks ago.

And you can't talk to anyone under 25 without hearing about a new blockbuster game, Fortnite.

This new game phenomenon is driving even bigger engagement with both new and existing gamers.

We believe this trend of new engaging games will happen again and again over the next year -- over the years ahead.

All the major eSports games of today will continue to grow.

But this engagement is not about a single game like Overwatch or a fad.

Gaming is a rare long-term, secular and generational change.

With an amazing World Cup having just ended, imagine for a minute if the game of soccer had just been invented 20 years ago.

Can you imagine the growth curve ahead of it.

Or if you're an American, this period of eSports is just like the 1960s in American football in the NFL, or the 1960s or 70s in basketball like the NBA.

As these 2 pro sports franchises started to climb and interest continued to grow.

Most engaged in those early days were the kids who played the games, like me, the youth.

That's what you're seeing today in eSports.

Gaming started with the young and has been growing for years.

eSports is emerging out of that.

Instead of the Premier League, the NFL or the NBA these leagues are League of Legends, Overwatch and others.

One day eSports collectively will most likely be bigger than all of them.

As we've told you before our goal is to be the Nike or Adidas of eSports.

As I mentioned earlier video collaboration sales grew -- also grew 60% in Q1.

Our newest Rally camera just began to be available.

It's a modular system that not only delivers premium audio and 4K video but also features our latest software, intelligent software, which we call Logitech Right Sense.

Right Sense leverages our computer vision know-how to automatically craft the camera around a person or people in the room.

It also automatically optimizes the lighting, the sound and the audio based on the environment you're in; adapting to dark or noisy environments for example.

With these automation and computer vision features you can see we're investing to expand our software capabilities.

And all this for a mere fraction of what it historically cost to video enable a room.

The world is quickly moving to video and we've aimed to be at the forefront of this adoption.

PC Peripherals grew 5% driven by growth in pointing devices, keyboards and webcams.

You know we love this business and will continue to introduce new products and experiences regularly.

Tablets and other accessories grew 37% and this comes on the heels of 38% growth last year and on top of a very tough compare in Q1 of the prior year, at 71%.

The iPad tablet market itself is up 7% from the last 12 months and we're growing thanks to new product innovation, share gains, and channel expansion.

Moving to mobile speakers, sales fell 46% in Q1.

As we mentioned in our last earnings call the market for third party voice-enabled speakers as well as the overall Bluetooth mobile speaker market have slowed over the past several months.

And we're right sizing our channel inventory and resetting our pricing.

While we continue to introduce new products with proven experiences we're adjusting our investments to match the slower market growth outlook.

Should the market growth accelerate we'll be ready, believe me, to capture the upside.

Audio and wearables, sales were up 2% versus the same quarter last year.

Headsets grew in the quarter offsetting a slight decline in desktop speakers.

We continue to position Jaybird for niche applications in the wireless earbud market.

Our smart home sales in Q1 declined 46% against a strong Q1 last year, where sales grew roughly 50% and we then saw a change in the overall growth profile of this dynamic category.

With that let me turn the call over to Vincent to walk you through our financial metrics.

Thanks, Bracken.

As you mentioned, we had a very strong start to the year.

Sales grew 12% in constant currency, 15% in U.S. dollar.

ASTRO contributed 5 points to our company's growth and showed strong growth year-over-year, building value into acquired assets is a capability that we are steadily and quietly developing.

Non-GAAP operating income increased 41% to a better than expected $61 million.

And non-GAAP EPS reached $0.34 compared to $0.24 a year ago.

In Q1, our gross margin reached 37.4%, which included a one-time benefit of approximately 60 basis points from a legal settlement with our prior supplier for our distribution center in the Americas.

We remain comfortable with managing our business within our gross margin target range of 35% to 37% as we balance various factors like logistics and supply chain cost pressure, currency exchange volatility or even tariff uncertainties with our overall efforts on maintaining ASP trends, taking cost out and freeing up gross profit dollars to reinvest throughout our organization.

I know many of you are wondering about the impact of the new China to US tariffs on our business.

Let me share with you what we know so far.

The first run of tariffs has had a relatively immaterial impact on our products sold in the U.S. It's too early to assess the effect from the second proposed run of tariffs.

In the event these new proposed tariffs are implemented, we are currently investigating various mitigating actions such as pricing, trade classification of products or making adjustment to our overall supply chain including manufacturing.

Now let me come back to our Q1 P&L.

Our non-GAAP operating expenses increased 9% or 6% excluding our acquisition compared with U.S. dollar sales growth of 15%.

R&D spending increased 12%, sales and marketing expense rose 11%, both to support the strong top line growth in the year.

And at the same time we continue to manage tightly our G&A spending, which was down 3%.

You can expect us to continue to optimize our spending, while we build out our capabilities and introduce new products and experiences.

Last quarter we had mentioned that we are continuously transforming and relocating resources to shape the portfolio for the future.

This quarter we booked a one-time $10 million restructuring charge for evolving our capabilities for growth opportunity.

To give you a few examples, we are standardizing sales processes across regions.

We are placing more resources to enhance our software capabilities and we are accelerating changes in our cost structure in slower growth categories, so we can double down faster into higher growth markets.

We are still in the process of reviewing some smaller residual areas to optimize in FY'19.

In the quarter we also adopted the new 606 revenue accounting standard.

This had a non-material on our P&L, but it led to some reclassification on our balance sheet between accounts receivable and other liabilities.

It does not have any operational or cash impacts, but it does affect the calculation of our DSO and our net receivable balance as reported.

You can refer to our 10Q when it is filed for more details on that topic.

Cash from operations for the quarter amounted to $12 million versus roughly breakeven a year ago, leading to a total cash balance of $604 million at the end of June.

Working capital metrics and related balance sheet items, inventory, AR, AP were all inline to historical trends for a June quarter, excluding the non-cash impact of the ASC 606.

In summary, we delivered a great start to the year with our Q1 results, but there is still so much more that we can do.

We're not only excited about the opportunities for the rest of the fiscal year, but for the next few years as well.

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

Thanks, Vincent.

It is a great start to the year, but there is (technical difficulty) so much more to come.

We shared our vision many times about a multi-brand, multi-category company, a vision we are methodically marching towards.

We are focused on secular growing markets, innovating with design and engineering into our existing categories at the same time.

And at the same time we're also always on the look out for and innovating to meet exciting consumer technology trends whether that's internally, organically or through tuck-in acquisitions.

In fact we just announced today, that we've agreed -- and I'm excited to announce it here -- to acquire Blue Microphone, the top player in the microphone space.

Microphones are used by gamers as they stream and podcasters as they podcast and performers on stage.

It's a category we've been interested in for a while, we are very familiar with because of our webcam business and we couldn't be more excited about the terrific team, brand and business that we've brought into the Logitech franchise.

Given our strong Q1, we're raising our outlook for fiscal year 2019 for both net sales and operating income.

We are increasing our net sales growth to 9% to 11% from high single digits and non-GAAP operating income to $325 million to $335 million from $310 million to $320 million.

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

Operator please queue them up.

(Operator Instructions) Your first question comes from Asiya Merchant from Citigroup.

I guess I was going to ask about the acquisition if you can provide some more guidance, I mean, it's one of your larger acquisitions that you have done.

You guys are building the capability to integrate these acquisitions rather well given your prior experience with Jabber then ASTRO.

But just in terms of this category, while ASTRO was pretty well known, their impact to gaming et cetera.

Maybe you can help us understand like how you think about this category from a growth perspective, also maybe about the margins?

How does that compare to your other product portfolio?

And how we should think about the growth going forward into fiscal 20 as you guys integrate?

Vincent and I can tag team a little.

First of all we've been looking I mentioned it in the opening.

We've been looking at this business for a while, in fact we've been quietly working on products in this space.

And I told -- I've mentioned it several times, I can't imagine us doing an acquisition where we weren't already working internally on the category in small teams and trying to develop products that were competitive in the space.

On occasion -- but we're always looking on the outside in these so-called seeds to see if there's something we could bring in that could either accelerate or differentiate what we're up to.

And this is a poster child for that, just a spectacular example of where we can bring in really if -- I mean it's really difficult to say who the exact leader in the space is, because it can be defined in different ways, but really I would say the leader in the space, the conceptual leader and the product leader in that space into our franchise.

They look a lot like the UE business when we first bought it many years ago, Ultimate Ears, they're both in the professional space but then they expanded into consumer.

They have done a great job with both design and engineering and product development.

The team itself has been stable and they're strong and we really like them and we think culturally they fit extremely well; they are even located in the same city as the original UE custom business.

So it's super exciting and the -- and I'm not disclosing any surprising market insight here.

If you've got kids or if you're Australian you get a little hustle on the side yourself you may well be podcasting or somebody in your house is.

And if you're not podcasting you might be somebody is probably streaming, somebody you know is streaming themselves, playing games on either YouTube or Twitch and that's right at the heart of what this business is about.

And we're very familiar with it, because our webcams are used in the exact same way.

And we've been developing that business for a while.

You saw it grew 13% this quarter.

And what many people would say why in the world are webcams growing?

Well, that's why.

Now, the other thing you need is great mike.

And so we are super excited about it.

I think the long-term prospects are good.

And the margins are also very good.

I will let Vincent respond to that further.

Yes, I can do 2 things, one is talk a little bit about the teams, very rounded team.

Of all the business we have acquired I think that's the most mature business team we've had.

And from an integration perspective we'll do what we've learned how to do, which is integrating the backend, helping them from manufacturing to China expansion and really helping them to really focus on what matters, which is developing the brand and developing the product portfolio.

So that's our approach.

We did expect to close at the end of the summer.

Yes Bracken mentioned, it's a growing business, it's a profitable business and the margin is in line to the margins we have across our portfolio on average you know well this time.

And if I can just have a follow-up on the organic growth, a lot of investors tend to focus on organic ex-ASTRO, maybe you can clarify, I mean, you guys have done a lot with the ASTRO once you purchased it, you guys have expanded it to more of the mid-market, mid-pricing tier.

So how should we, what is to read with organic growth kind of perhaps slightly decelerating from where it was in the fourth quarter of last -- of fiscal -- of the March, basically the March quarter, how should we read into that?

And then as you [last] the ASTRO acquisition in this quarter how should we think about gaming growth going forward?

Yes so maybe I'll take that one.

So in term of organic growth the way you would report it, if you take all of ASTRO the reported number is 7%.

I do want to point out that we have more than tripled the size of ASTRO since we have acquired and that's called an organic growth, right.

So if you just take the ASTRO last year as the baseline and then grow everything else, we are in double-digit organic growth.

From a quarter-over-quarter perspective that organic growth is actually improving in -- I think the real dynamic in our non-ASTRO portfolio is to isolate mobile speaker.

And what we're doing with mobile speaker rightsizing it for the market opportunities and also ahead of maybe other things that will happen there.

The organic growth excluding mobile speaker is actually extremely strong and you've seen it in Gaming, in Video Collaboration and even in our PC Peripherals, where we've had a very, very solid growth.

Yes and then I will add, the organic growth in our existing Gaming business excluding ASTRO is very strong.

Extremely strong.

So from that perspective, we feel pretty good.

In term of guidance overall, we've raised the guidance as you know.

We're not going to re-bracket by category when we guide.

But if you compare to the numbers we've said by markets at [AIG] I would say at this point in time, the PC Peripheral what you call creativity and productivity, the Gaming and the Video Collaboration will do better and then the music categories and the home category will do under the overall guidance.

But it's a portfolio play and we still have 3 quarters to go before we can talk about the annual number.

Your next question comes from Jorn Iffert from UBS.

The first one would be please on the wireless speaker segment.

And can you please clarify what was sell-through and then I recognize that the wording has maybe changed a little bit.

I remember there was some inventory clearance ahead of new product launches.

Now it seems that investments are slowing down because the end market is deteriorating.

So can you help us, what are your plans for new product launches into the second half and also what is your expected growth rate for wireless speakers?

And next question will be please on EMEA adjusting for currencies, if I'm not totally wrong, like-for-like sales [force] was around 3%?

Do you expect an uptick here already in the next couple of quarters and if yes, so why?

And then the last question would be on new growth areas and I know it's a quite broad question, but is there something where you are confident that in 1 or 2 years, you have a third or fourth growth still on your portfolio in addition to Gaming, Video Collaboration?

Well you covered a lot very quickly.

We'll see if we can remember the questions.

So first of all, let me go to your wireless speaker question which was, what's going on there.

Okay as we mentioned before there are a couple of things going on there.

One is the, as we said, we're reselling the channel for a change and really the growth expectations for that category.

And so we took a large channel inventory last quarter, some more this quarter.

And then you mentioned that we mentioned and I think Vincent did in the last call that we always have new product development in the pipeline and we do.

We haven't disclosed new thing.

We're not announcing anything today.

We don’t have a timing that we're going to give you, but we always do and you can be sure that we do.

The second one -- let me jump down to your Europe question.

Yes Europe we're -- we don’t like flat sales in Europe any more than you do from a dollar basis, actually up 7%, but we feel really good about what we're doing over there.

We've structurally changed a few things inside the company, which was part of a longer-term plan.

And we -- I am excited about -- super excited about the team is doing that and the process we're undergoing to do that and I think we're going to be in a good -- a really good place on the other side of what we're up to.

So I'm excited about that.

And on that one if I can add, I would say, it's the first half, your second half story you are on and will improve as we progress through the year.

And you had 2 more questions I apologize.

I can't even read my own writing.

I think you addressed the first 2, right, which is on Mobile Speaker.

It's [Bose's] channel and its cost structure as we align to a lower growth market.

On EMEA, we've talked about it.

And then the next one is really about the new growth drivers and areas.

Yes and you are -- you now know us.

Okay, so you know that whatever we're talking about today is by no means everything we're working on.

That's not the model that we have here.

So we're always working on new category development, new ideas, new areas that we can drive for further growth.

And we intend -- the mission of this company is to serially expand in new categories over time.

Now rarely are we going to do multiple categories a year and I wouldn't even guarantee we will do 1 a year.

But I can promise you that we're always looking at new spaces that we can grow in while we aggressively use design and engineering to innovate and build the businesses we're in to try to get to leadership either a top or a top 2. So it's a diversified portfolio play.

It will be more and more diversified over time.

And that will -- that's our strategy and we're super excited about where we've gotten to, but much -- I mean you're only as good as what you're going to do next and that's why you're asking the question, so we're focused on that too.

If I may come back to wireless speaker, can you share with us the sales through and growth rates for Q1 and also what you expect for the full year for sell in?

Yes, so overall like in Q1, your own sales through continue to be somewhat flattish I would say, so much better than the sell in number you see and so it's part of the discussion we've had, a part of it is channel management and another one is overall investment and cost structure.

In term of the overall growth for the year, I would say you should expect a continued decline in Q2 and then improving in the second half.

Your next question comes from Scott McConnell, D.A. Davidson.

So you touched on this a bit, but regarding the Battle Royale gaming format and emergence of eSports what gives you confidence that those are sustainable trends and not fads?

And second, have you seen Fortnite in particular as increasing the total addressable market for gaming accessories including headset by expanding the demographic for game players including maybe younger kids and girls?

Yes, well, it's hard to predict any single game how -- whether it's a fad, it's going to go up and then eventually go down and but what I think the most important thing here is the secular trend that's been happening now for, I would say -- really, it's been happening for 10 plus years.

It's really taken off over last 5 years.

And we thought actually when I started here, when Vincent and I started here a few years ago, we thought there would be more games like this that would come in, explode and then probably flatten or decline and then something else would replace it.

I really didn’t see any of that for the -- and to be honest this -- as excited as I was about gaming in general, I was a little disappointed because I thought that would direct -- that would spike interest in the gaming business and the gaming category and bring more people into the franchise at an accelerating rate.

That's exactly what Fortnite has done.

So it's finally happened.

I would say it would be shocking if it didn’t happen again.

So I'm sure it will happen.

Fortnite is a really compelling game as you know -- I had dinner in New York last week and when I went to the Overwatch finals with a friend of mine who has 10-year old son who had been -- who really got into gaming because of Fortnite.

And we talked for a while about all his friends coming into gaming.

And he was having a debate with his dad about why he couldn’t have a PC, and so he was using our headsets but not a PC.

So I think that's -- I think that the Battle Royale format is very compelling especially since it's not really working with other people at the same time that you're playing a Hunger Games kind of event.

And I think there will be -- there are others and there will be more.

But beyond that the secular growth of gaming should just continue for a very long time as I said in the opening.

Your next question comes from Jurgen Wagner from MainFirst Bank.

Actually I have 2 on your gross margin.

You mentioned a 60 basis points one-off positive.

And you also mentioned the benefit of FX and cost cutting, how much was the latter two and PC Peripherals was quite stronger than you expected, you said that.

Where there any special events or promotions that drove that growth?

Let me jump into this first, I will let Vincent take the analysis of the gross margin.

No, not really, I mean that was pretty much a normal quarter, normal Q1 for us in PC Peripherals.

Now in Q1, one of the fun things is Q1 has several big events in China that some of you may not be aware of Brand Day in Q2, Q3, you see Singles Day comp but that's not in Q1, so you've got a couple of big events that the Chinese market has which is good, but they're not big enough to really fundamentally change the number of our (technical difficulty) Bottom line is we did have a Q1.

We're excited about how we started the year in PC Peripherals and stay tuned.

You want to talk about the...

Yes, I can talk about the gross margin, we normally don’t brag exactly over FX impacts, but this quarter the main currency impacting was the euro versus U.S. dollars exchange rate was 1.17 this quarter versus 1.10 a year ago, so a 7% favorable delta.

In the past we've shared that when we had a 1.10, 2, 3 years ago, a 20% decline we saw about a 3 points impact.

So around a 7% would be around 1 point.

There are other effects, of course, around other currencies, so it's not a perfect answer but gives you some idea to model.

As we go into the next quarter, last year the euro was 1.17 actually and we have -- currency have a spot rate at 1.16 so that FX impact in Q2 should be much more moderate.

Okay.

And the cost initiatives, cost containment...

Yes.

So we continue to as you know invoking on our overall cost structure, it's an ongoing process, right, as we design new products to introduce them at better margin or at the margin of the prior product and designing was a cost element, so we continue to work on that and it enables us to deliver the margin that you've seen.

Across the margin, there is a lot of levers, right.

So working on all of those levers is important and having good handle on cost savings to manage cost pressure from logistics or supply chain cost for example is a must.

Your next question comes from Michael Foeth from Vontobel.

My first question would be the -- what explained exactly the relative weakness in Europe in the first quarter, which category in particular?

And the second question would be, with respect to your operating income guidance which increased EUR 15 million I guess that can't all be from Blue Micro, so how much does Blue Micro contribute to the margin, to the guidance increase, and how much is from the rest of the business?

I will let Vincent jump at the second because he is pointing at me telling me he wants that question.

That's a speaker behind here, we point at each other.

Yes, so in Europe, I mean the other day it's not really, obviously (technical difficulty) weaken Europe like there in (technical difficulty) our business, but I would say generally we are doing a couple things in Europe; one, we are moderating our promotion activity in Europe.

And so far so good I would say we will probably try to keep that up.

And that's kind of a sine wave, the wave you go through and so we're doing that I think that's probably having a dampening effect across the region.

But overall I think we're doing several things -- changes structurally which I don't really want to totally share, but they're not anything in particular for any particular reason except they're people involved and we're excited about the changes we're making there.

And I think we'll see a really good impact over the next year or two and probably as we go through the year.

Definitely, I think we will see improved productivity in Europe as we drive those changes.

And the growth rate by category in Europe is kind of at the lower level but similar than what you've seen on a global basis here, very strong VC gaming and weaker mobile speaker.

In term of Blue Microphone, as I said a growing business, very strong gross margin although slightly better than our current corporate average.

So we're very excited about that -- the date has been run with positive EBITDA.

We are acquiring it really frankly to develop that business.

We think there is a good growth potential here and we're going to invest to make sure we can capture that growth opportunity.

So into the overall guidance we'll close the business by the end of December and we will contribute about 1 point to the top line at or slightly accretive to the gross margin and then we'll plan to invest to grow very minimal contribution to the bottom line in FY'19.

Okay.

So the majority of the guidance increase is actually from -- is actually organic?

Yes.

Organic and operational performance coming out of Q1.

That's great.

It's all organic, all organic.

Yes, correct.

Your next question comes from Paul Coster from JPMorgan.

So this is Paul Chung on for Coster.

Thanks for taking my questions.

So first up another impressive quarter for Video Collaboration, are you seeing some increase in competition given the growth numbers you're putting up in and at nice margins.

I think you've been on a very nice run here.

Looks like you're on track to hit 40% growth again for the fourth consecutive year, which is pretty impressive.

So how should we think about kind of the growth in the out years?

And yes the Video collaboration is a -- it's a monster opportunity.

So it's not an opportunity just for us, it's an opportunity for video conferencing companies that make cloud-based services, it's an opportunity for other people who do hardware like we do, it's an opportunity for everything in between.

For the cost of a chair or two and a room you can video-enable it and a small fraction of all the rooms out there are video enabled.

Sorry to do that advertisement.

But I know some of you are not on a video call on a regular basis and I encourage you to at least give us a call and see if we can help you.

Yes, the long-term secular trend is great, but the competition keeps pouring in all the time.

And we are used to that, that's the business we're in, in every category we play in.

And it's a business we're going to be in here and so we see new competitors come in a lot and it just makes us better, competition also drives market growth.

And so I think as you see more people come into this space probably the growth will get even stronger.

And we will have to be better and that's why we're investing both on the sales side and on the engineering side.

So I think the long-term potential here is really great.

And then my second question is, can you just quantify the impact, your -- the value your channel provides?

I mean you have a couple of recent use cases including Jaybird and ASTRO.

So how much of that growth would you say you drove out of the respective businesses by kind of expanding to your large channel, I know there's some channel overlap when you do, do these acquisitions?

I will answer the question.

It's real, I understand the question I can't answer it.

It's a very difficult -- it's a really hard one for us to answer.

I would say generally speaking we're more global than anybody we're going to buy.

So over time, which doesn't usually happen overnight, and hasn't in the case of either of the last few acquisitions, we will get growth expansion, which is one for channel expansion which is great.

And it drives a sustainable growth curve that is long term.

Within an existing market our ability to sell better than the people that we buy.

Now it depends, I'd say in some cases we -- maybe we have been able to the other cases maybe we won't.

I think you're amazed to be seen with Blue Microphone, whether we will be better at it than they are.

I think we'll certainly long-term I think we will have a lot of potential to go into new channels of development that they're not in, in new countries and things.

And we've got a portfolio we can connect more directly to those products.

So I think that we bring a lot on the synergy side of bringing things to market for a small company like Blue Microphone, ASTRO, Jaybird any of them.

It's one of the synergies that we really bring to the table.

We also bring a lot potentially to the other end of the equation, which is the cost side and the innovation side.

On the cost side, obviously we make 140 million products, we sell 140 million products a year, we make 140 million products a year in our factory.

And we buy another 50% of our stuff from other people.

So we really have a lot of scale relative to any small company.

And our innovation engine is quite good.

And as you know we have been emphasizing design.

So we feel like we can help a small business in several different ways to grow and that's why we're really excited about bringing things like Blue Microphone in.

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

Just 1 on the gross margin follow up.

I mean, is it possible also to quantify the impact from product mix given the strength in Gaming and the weakness in mobile speakers?

Yes.

That's easy.

Actually it's relatively material.

We have different dynamics, again it's the portfolio play right.

So you have maybe lower than average gross margin mobile speaker being down, but you have tablet also lower, being up, you have gaming being up, VC being up and the rest managed within it.

So our product mix overall when you do the normal rate and mix analysis it's relatively flat.

Okay.

And in terms of currency tailwinds you mentioned, it's basically a management of the gross margin by promotions to drive growth basically if I compare it to the first quarter last year.

You bring a good problem, right.

If you take currency actually for full year right, it's favorable in the first half and then depending on where it is but versus today's spot rate it would be unfavorable in the second half.

For the full year, we've assumed, if I just take the euro to USD exchange rate similar to last year 1.15 exchange rate, which right now we're operating under.

So it's a good assumption.

And then it really comes down to that which is improved cost structure to a portion of it would be reinvested into promo and other activities to drive the growth.

And a follow up on Blue Microphones, can you disclose the 1 pp or what you are expecting for this fiscal year?

You know, what sort of sales growth this would mean for Blue Microphones?

The business has been growing before we bought them and we expect them to continue to grow so that 1 point includes that growth.

And I don’t think we'll disclose more at this point in time.

Okay.

And a last question, can you provide a little bit more color regarding Europe also in terms, the improvement you're expecting in the second half.

Is this a broad based or are you targeting special product categories with your actions?

I would say it's broad-based and we could probably start to dig in if we wanted to talk at a level -- the country levels or things like that but it's relatively broad-based.

And I'm really excited about what we're up to and it's part of a -- it's part of the -- it's actually part of playing offense.

We started -- some of you may remember back in January I said, we really took a hard look at -- Vincent and I've been together for 5 years and we asked ourselves, what do we do different for the next 5 years?

And this is part of that.

We really reorganized the way we're thinking about regions long-term and we've put in place new leadership, we bringing in some synergies and really significantly improve processes from one country, from one region to another.

And so that's a very broad-based thing.

We got leadership changes as well.

And if I just step beyond that, we also talked about that we went through a -- the word restructuring has to be used, but we think of it as a realignment, which is another effort to say it's -- really get ahead of the next round of changes.

We need to drive long-term growth and that's affecting Europe as well.

So a lot of things in there.

And look, I'm optimistic that we're going to have a good business in Europe long-term and across the company.

Last 1 restructuring charges.

Anything more to expect here basically booked in the first quarter?

As I said there are still a few areas we are reviewing and optimizing.

I don’t know the output out of it.

But if we feel we need to do a little more, we will.

As we filed our 8K, you can see that we put an estimated range for the year of $10 million to $15 million.

Your next question comes from Ananda Baruah from Loop Capital.

Just a couple from me.

Both with regards to Gaming and Video Collaboration.

Bracken, much like you talked to some of what the specific kind of catalyst and dynamics in Video Collaboration.

And then -- and actually, I think you spoke to this for speakers also, are that even driving sort of increased adoption, could you do the same, and this is sort of what you're seeing below the covers for Gaming that you've seen maybe over the last, certainly the last quarter but even the last couple of quarters kind of the squiggles that you guys are picking up on the really, really continuing to drive broader adoption.

Those would be really helpful.

And then anything additional in video collaboration as in regard to what you mentioned on the call with regards to kind of like podcasts, et cetera podcasting et cetera.

And then I have 1 quick follow up.

Yes on gaming I mean I think it's -- if you think about it when you play a PC game, you need a mouse, you need a keyboard, you need a headset.

If you're going to stream it, just to stretch over to the other category, you need some kind of microphone.

It could be in your headset.

If you're not going to use a headset, you need a microphone of some kind that's good enough to pick up the sound well.

So these long-term trends are there.

It's a very global phenomenon.

We're seeing the -- you can kind of track -- just like in music, you can track streaming.

You can kind of track the growth of eSports around the world and see how strong this is happening and how broad it is happening.

I was just looking at something in Japan today.

And it's amazing how strongly eSports is driving the gaming industry in Japan.

And it's also happening in Latin America.

It's happening in Taiwan.

It's happening, of course, is very broadly in China, in Germany and the Nordics.

It's everywhere.

It is really everywhere.

It's happening in Russia.

This is one of the very few global phenomena that is that kind of takeoff mode all over the world at the same time and looks like it's not going to slow down.

It's probably going down in age as well.

If you've got kids around the age of 14, when we -- when I started here, I would have said, gosh this really starts to pick up steam at 13 or 14.

Now it's moving down I would say, probably down to 10, 11.

I don't know exactly but I wouldn't be surprised.

So it's very broad, very deep and I think it's going to have a really long growth curve.

And how -- yes go ahead.

Sorry about that.

Well I don’t have much to add on video collaboration.

I think I said as much as all -- I probably take for today except I'll just say video, video collaboration and broadcasting I think are 2 completely different things.

One is about communicating point-to-point with somebody real-time, and the other one is about creating.

And I think the world of creators is on the rise and it's going to be -- that'll be a very long-term secular growth of people who want to create things for other people.

We all see it every day but it's -- that's also, it's very early days.

So broadcasting is part of that and a microphone is a piece of that as is a webcam.

And with -- my second question is with regard to the microphone acquisition.

And really your entrance into that category is sort of in a holistic way.

Would you like us to think of this as sort of like potential for being kind of a mini mega category?

I say mini mega because it probably can't be as big as gaming.

Well it could be as big as gaming.

So what's the context in which you'd like us to think about sort of that one inside of the portfolio with regards to breadth and depth potential?

I think -- I don't know.

You can think about it as I think you can assess it for yourselves.

I'll tell you how I think about it.

I think we're a company of an increasing number of categories with growth potential.

Some will grow long-term and be very big and powerful.

Others will be -- will grow for a little while, and then they'll probably stabilize.

Others might even shrink.

And in some ways the shrinking business can be a beautiful business by the way if it's part of a portfolio where you can manage it for invest for maximizing profitability, investing in other places so.

I think the microphone business is really interesting.

I don't want to miss -- I don't want to reach out into the future and try to predict how big it will be relative to other categories except to say, I love great products.

I love great teams.

I love great brands and this has all that.

And the dynamics of a world where more and more people are getting in front of a camera of some kind and trying to put something out for other people either live or recorded is a good secular trend for a microphone.

Are you able to yet discern, I mean I guess you're just announcing it today so, it's not yet closed.

But from what you had access to due diligence wise, are you able to yet discern if what you'll have from an IP perspective allows you to accomplish sort of what you like over the next -- for whatever timeframe would be sensible to be able to get a sense.

Or is this a big enough category where you might say, hey like in the past like, you've done in gaming, we may -- there's room potentially for doing additional acquisitions to build out the IP portfolio?

The cool thing about this business is that it was started like our UE business in -- this one in particularly in 1995.

So you can imagine how much know-how and product development and expertise they developed over that very long timeframe.

And as a result when we posted this today, I don't think I've ever gotten so many comments from people either directly in my email or on the various places showing up today on how excited they are that we're part of it and how impressed they are with Blue already.

Not us but Blue Microphone.

So they're bringing a lot to the table.

And I hope that we can add something too.

We have a lot of capability in that space as well.

But I think they bring a lot with them.

There are no further questions at this time.

I turn the call back over to Mr. Lu.

Okay.

I'll just finish up real quickly.

I'll go back so then I said kind of midstream with these questions this Q&A.

We're playing offense.

We're just going to play offense.

And a lot of people probably wonder, why in the world did you announce any kind of restructuring today and it's because we're playing offense.

We're not here to try to make things a little bit better all the time.

We're building a long-term sustainable growth company and in more and more categories.

And part of that is, we're going to realign when we think it makes sense and it does right now.

And we're going to continue to systematically enter new categories and we're super excited about what we're doing.

So thanks a lot for all the questions and engagement and we'll talk to you soon.

This concludes today's conference call.

You may now disconnect.