Perfect. There we go. Let's get started. I'm about a minute late here. Again, for those of you that don't know me, my name is Erik Woodring. I lead the hardware research efforts here at Morgan Stanley. Let me quickly read our disclosure here, and then we'll get into our special guest. Before we begin, I need to mention that important disclosures can be found at Morgan Stanley Research Disclosures website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For the first time at our flagship U.S. TMT conference, I am pleased to welcome Bracken Darrell, CEO of Logitech. And obviously, today is a special day, four hours post Analyst Day, so a lot to get into, but thank you very much for coming. Thank you so much for having me, Erik. Cool. Again, let's start big picture. You hosted your Analyst Day this morning. Obviously honored to get to host you after that, but for the benefit of the audience that might have been tied up in meetings this morning, maybe just communicate, what were the two or three kind of key messages that you wanted to leave everybody with, at the end of the Analyst Day this morning? You know, we start out by saying, you know, we don't like our numbers this year. We're disappointed. You know, the macroeconomic environment has just been a lot tougher than we expected. The currency was more difficult than we expected. We don't like our numbers this year, but boy, do we like our business. You know, we're from a long-term perspective, we're situated right in the middle of three or four things that are, you know, about as big as are happening out there. For a little mouse company to find themselves in the slipstream of that excitement is kind of amazing. I mean, the four things are, the first is the video enablement of rooms. You know, it's still only about one in 10 rooms are video enabled. That tells you how much opportunity is out there over the longer term. The cool thing about that is that there are also so many ways to increase the value of each of those rooms, whether it's increasing the caliber of the equipment in there to do the video or adding new things in there like whiteboards and things. That's exciting. The second big trend is the one that we've been talking about for a while, which is Esports and gaming. You know, gaming is just a phenomenon, you know, it's been for a while. If you're in this room and you don't play games, then we won't talk about what age you're probably sitting in or above. But if you're under 30, you're playing games. Young people are playing games. That is a long-term trend that's just unstoppable. About three billion people now play games of some kind. That's a huge trend, and we're kinda like the Nike in that business. The third business is the one most people know us for, which is the we call Personal Workspace now. It's mice and keyboards and webcams and headsets and all that stuff. That is exciting because, you know, thanks to the pandemic, it was already growing at kinda mid-single digits, Presto, when the pandemic happened, everybody needed something at home. Then when you needed something at home that was kinda permanent, it became a lot more relevant and important to you because it's actually part of your home decor, or at a minimum, became more personal instead of just something black and plastic that was in the office. We didn't have much in the B2B business back then. Now we do. It's really increased the number of spaces that people have and the need to keep upgrading them. Then the last one is this explosion of creators who are making content for other people. You know, and everybody under the age of 20 wants to be a content creator of some kind, whether it's a YouTuber, a streamer, or something. All four of those major trends we're in the middle of. We're the leader in most of the categories inside those trends. It's super exciting. We guided next year. I'll get to the point. All right. That most of the analysts were waiting for the entire session. We only guided six months because you know, we've had a protracted period of just very difficult to get visibility on where the future is. For the first time since I've been here in 10 years, we guided only six months. Mm-hmm. We guided down 18% to down 22% of the top line. We guided a bottom line that's kinda commensurate with that. We basically guided, you know, a continuation of what we've seen the last- Yep two quarters. We said, "Okay, we're not abandoning the idea of long-term annual guidance. We'll get back to it as fast as we can. Mm-hmm. Perfect. Let's unpackage all of that, right? Great. Maybe just starting with your kind of end market base, right? There's, we learned today about 35% of revenue is enterprise, the rest is consumer. Just break it down for us as we think about, again, let's talk about the first six months of the year, enterprise demand versus consumer demand. You know, I think the message would be consumer maybe started to roll over earlier than enterprise. Enterprise is relatively new, but I don't wanna put words in your mouth, so help us understand what's going on. You got it. You described it well. I mean, I think, you know, the. We started to see a slowdown in consumer, relatively early in the year. Then, whoom, you know, when we hit our Q3, so fiscal Q4, we saw a real contraction of the B2B demand. You know, really, as companies like us, you know, started looking at the macro environment and decided to pull their OpEx costs down. When they did that, it directly affected what they were buying for their offices and so that came later. Now we're at what looks like, you know, over the last, you know, two quarters, kind of a steady state of that. Okay. Let's touch on each of the big businesses here. I like starting with VC. It's very topical, obviously, this day and age. You know, I guess my view is like, you know, there's a number of crosscurrents, right? Weaker enterprise spending. There was a lot of investment over the last few years. There's a shift to hybrid, so what does the office space look like in the world? Yeah. None of us probably know. At the same time, there's still under-penetration of meeting rooms. Something that you talked about today, the revenue per unit is increasing. Am I missing any important factors there? When I add them all up, what does that mean for VC in your mind? You know, I think it's fascinating. First of all, you know, if you're in a large company and you're listening or watching this, you probably have some kind of a relatively stable situation where you're either working from home all the time because you're at Google or somewhere, or you're working in the office three or four days a week if you're in banking. You're in the office a few days a week, or some startups you're in site five days a week. Everybody's kinda landed on something. It doesn't feel completely stable yet, like here's the permanent situation. If you then flow that into the offices and the people who make decisions for those offices, they're facing the same thing, but it gets even more uncertain for them. 'Cause, you know, they're gonna go video enable all the offices, all the rooms if the space might actually shrink. Are they gonna video enable some of them, and then wait and see? That's exactly what's happening. You know, our company's a good example. We're here in the Bay. Our office is here in the Bay. You know, we're actually closing our office here in the Bay. We're reopening another one. We just stopped doing anything really much with our offices. We also stopped trying to really push people to come into the office, and we said, "Let's just wait until we get the new office open." That's one in a continuum. That's exactly one of those. Around the world, we have different situations. We have people go in the office every day. We have people coming in kind of a couple days a week. We've got a little bit of everything. Right. Okay. And then in VC, you know, where is there white space for Logitech? You know, where can you collect, again, whether it's penetration or more revenue per dollar or revenue per unit, what's that opportunity? There's so much opportunity. First of all, you know, the first piece of white space is, you know, ony about one in 10. You know, nobody really knows the number of rooms, right? This is an estimate that comes from Gartner and people. Somewhere between one in five and one in 10 of the rooms that one day will probably be video-enabled are. That's white space, and we're the market leader in that category. Mm. The second area of white space is, I wouldn't call it white space, let's call it gray space. There's something in there, and often it's our stuff, but it doesn't have the latest technology. Once we all went remote, the idea of looking into this cavern, you know, where you're just looking at this crowd of people and they're talking to each other, but you don't feel very involved, that's no longer satisfactory. The new equipment, you need new equipment to do that. We can upgrade those people with that equipment. There's even a better version coming, which is then we can actually drop. We have a new product launching this summer that we could actually drop a camera right in the middle of the table, and then you actually feel like you're sitting at the table with them if you're sitting remote. It suddenly feels equitable because everybody has the Hollywood Squares pictures on the screen. Everybody's equal size. There's the whiteboard. You know, we had a customer in from an energy company in Texas that came in and we were talking about our. We have an electronic whiteboard. It's super cool. The difference is it's a camera that just goes on any whiteboard, so it turns any whiteboard into a camera-created whiteboard. I said, "Well, you know, how many of your rooms do you think you need this in?" He said, "I don't know why every room in the world that has a video conference camera in it wouldn't have this. Mm-hmm. With one push of a button, you suddenly got a whiteboard that's instantly a participant on the screen. Mm-hmm. That's just a few of them. You can imagine there's just more and more we can do here. Yeah. No, perfect. Let's shift to gaming. Again, you have a lot of segments, so let's shift to gaming. That's probably a segment that might have faced some more pressure earlier on. Yeah consumer. Perhaps it then becomes one of the earlier ones to recover at the same time. Is there any data that you're seeing today that gives you confidence in the trajectory of that recovery, or is it more so kinda the bigger picture trends that you talked about, meaning there's more gamers, it's increasingly important, there's more content coming out, so it's gonna come back? I mean, honestly, it's that. Okay. It's really all the, all the external factors that should drive excitement around that market and give it the next round of juice. It feels like they're out there. Question is, when will they have an impact? I mean, this year there are gonna be 10 big budget movies that will be like Ready Player One. You know, that'll feature people in video games, part of video games, playing video games. It's like it's just part of the crop. There are many other things happening. You know, the Grand Theft Auto. You know, some of the biggest games are racing games. We're the biggest player in racing wheels and simulators. About 20% of our business. Those games are coming out, there's a lot of excitement around those. There's just. You know. And then anecdotally, you know, and I talk to people in the music industry, and I live in California, and Hollywood's, you know, right around the corner. You know, you can just kinda feel. My gaming person used this incredibly important SAT-type word. It's the zeitgeist of the moment. You can feel gaming has really become mainstream. It's bigger than the movie industry now. It doesn't feel like it's gonna do anything but kinda go up. Mm-hmm. Right. Okay. Let's talk about the Personal Workspace division, the PWS. You know, Delphine made the argument this morning, more workspaces, larger installed base, both tailwinds to long-term growth. Completely agree with that. At the same time, I think what we've seen now is post the last maybe few years, replacement cycles have extended. What can Logitech do to ultimately reverse that trend? You know, shorten replacement cycles, because then ultimately that's the key to unlocking that larger TAM. You know, for us, it's about innovation. You know, there's not a person in this room that if I sat down with you or Delphine sat down with you at your Personal Workspace, wherever that is, or the two that you might have, that we couldn't make it a better experience for you. Either ergonomically better, so you don't have any wrist pain or elbow pain. Cooler looking, because we've got some of the coolest things, you've never seen probably. Or just very functional, or very professional looking, or look good in the decor of your wherever it is now, whether it's your home office or. There's a whole bunch of things we can do there. We keep finding new segments we can go after. We can add new functionality on a regular basis. We can also start to bring together those products from a software standpoint. There's just a whole range of things from an innovation standpoint that we're very excited about, that we believe we would keep executing to drive that market. This might not be a key debate whatsoever, but you know, when in your presentation deck, you kinda listed rank order the different segments that you expect to perform best to most weak, I guess let's call it. Tablets and accessories was at the very top of that list. Is there something unique about this year? Again, I remember two years ago, there were big education orders that came through from Japan. We saw that, you know, hard comps over the last 12 months. Is there something that you see in the near-term horizon that gives you some more confidence in that segment relative to others? You know, it's a great business for us. It's a small business for us. Yep. It's tied mostly to Apple and Apple's performance. We kind of run cycles based on when Apple's launch plans are. We have to kind of estimate when we think that they might happen. Got it. Don't take that as a read on Apple at all. We're not. It isn't. It does say we have a cycle that we can kind of see in our business, and we think it'll be a pretty good year for Apple. Okay. Then, the last, you know, segment I wanna touch on, again, PC peripherals, gaming, VC, that's 90% of revenue. There is a music business. Yes and it's hundreds of millions of dollars. Yeah. You know, you were a very early innovator in music. It's a very competitive end market. You know, what does it take to stabilize that business? Or is it almost better to, you know, accelerate the decline so it's not as much of a headwind, and then maybe refocus and figure out what to do after that? You know, we've been, one of the weird but cool capabilities to have, and we do have, is the ability to optimize a business as it's on a long-term decline. You know? It's not a skill set most people, like, are yearning to have, but we definitely do that pretty well. There is some point when something gets small enough, you say, "We just wanna get out of it and go." We did that with OEM years ago. Yeah. I think the music business sits in that space, where, you know, we can get the gross margins up, which we have. We can, kinda reduce the decline rate relative to what it might be, and we can optimize the cash flow that comes from that, and then invest that in things that have higher gross margin and higher growth potential. That's exactly what we're gonna do there. Right. Okay. We add all of this up, and you talked about your first half guide earlier. Can you maybe just touch on what it is about the visibility today that's harder to interpret perhaps than past years? Is it only macro? Is it more than that? I mean, it would be completely disingenuous for me to say it's harder to forecast today than it was during the pandemic. It's not exactly just that it's more difficult to forecast. It's the protracted period of challenge. Yeah. You know, we've really been on a whipsaw, you know, and I think we're just sort of facing the music and saying, "You know, look, we've been going through a protracted period." We have pretty good visibility for the next six months based on the last quarter, this quarter. Mm-hmm. beyond that, we're just gonna hold our tongue until we have a little more data. it will level out and stabilize. Right but, you know, we're not gonna go out and try to just throw a dart at it. Something that didn't come up today, but that's important is China. China's 10% of your business. It's a big market. China open is better than China closed, of course. You know, are you seeing that tailwind now? Is that something that perhaps comes further down the line? Talk us through just what that means for Logitech. Well, first of all, without trying to predict exactly what's gonna happen next in China from a market standpoint, I love the China market. It's been amazing for us. It's a, w e're the leader in that market. You know, it's also always been a torture test market. You know, if we can't win in China, then our cost position's not low enough because w e don't have the, w e historically didn't have the same brand strength, and we had, you know, some really low-cost competitors there. We just systematically poured it on, and for 10 years we've gained share in China. Now we do have brand strength in China, and we're performing really well there. I love the China market. A lot of cool things tend to come out of there. We even get some leading indicators from gaming and other places that we look at, we study, and then we put into our products. We make products in China for China. Right where we compete directly with local competitors. China's a great market for us. I think it's going to be a great market for us. There's a lot of geopolitical issues to think about. We manufacture there too, if you wanna get into that. Well, we will. Okay. I mean, I can go now or you want me-? Sure, let's do it. Well, you know. We had some news today, so. Yeah. We do manufacture in China, and we've been systematically moving some of our manufacturing out of China, starting during the early days of the tariffs, and we just keep doing that. We're in Vietnam, Malaysia, Thailand. We'll probably have something in some other places around the world as we talked about a little bit today. We're gonna keep that going and we wanna be, you know, a little bit protected in case there's more things like tariffs and stuff like that that come up that we're ready. Right. Right. Okay. We hear that from a lot of my coverage too. I'm sure. Yeah. One, you know, you owe Chuck, or Chuck owes you, I should say, because I'm gonna ask you another numbers question, and normally I would grill him. I probably won't speed dial Chuck. It was getting after the operating income guide for the first half of the year. It implies about 9.5% margin. Yeah. I guess there's just a lot of moving pieces in mix, and you are reducing your OpEx base a little bit more. Yeah. I think if you kinda do the math, it does get after maybe a little gross margin pressure. One, is that right? Two, is that promotions or am I misconstruing that? No, I don't think there is. I wouldn't construe this gross margin pressure. Okay. What's happening there is in the first half of the year, you've got, you know, I think Chuck described it really well today. Pretty good for four weeks, by the way. He described it pretty well today. You got two things going on there. One is we, as you said, we are taking cost out, and the cost that will come out through the year. Mm-hmm. By the time we get to the back half of the year, you know, I think he quoted it will be, we think we'll be at a kind of a run rate of about $1 billion of OpEx. Right. That's a factor. A little higher in the first half. Second part is, there's a natural seasonality to our operating income. Mm-hmm. It's just a function of the way, our gross margins and our OpEx flow during the year. That tends to peak. Okay be highest in Q3. Okay. Not always, but usually highest in Q3. Those are the two factors. Yep. Okay, perfect. On those OpEx cuts, again, you've shown that you can be nimble to adjust your cost base to react to the environment. Are the costs that you're taking out of the model mostly sales and marketing related? Yeah, help us understand, you know, as we go from, you know, you reducing 2023 costs, OpEx, roughly call it $215 million, I think it was. As we go to the next phase, where does that next phase come from? Yeah, it's very broad-based, I would say, but we are trying to protect key areas. You know, the areas we're protecting the most are obviously engineering and R&D, engineering design, R&D expense. I mean, that's the lifeblood of this business, you know, the innovation engine that we have. Our go-to market, which is mostly, as you said, sales, you know, that area we really are trying to protect. I'm not saying we're not touching them, we will, but, you know, we've got to size our business according to its current market. We're gonna touch them. The areas we go most aggressively after are all those other areas. You know, we've already pulled back the marketing, especially the top of the funnel marketing. Mm-hmm. We talked about that a lot in the call today. Yeah top of the funnel marketing relative. You know, when you're, when you're in a growing market, you know, top of the funnel market really, you know, at least looks like it pays for itself. When you're in a declining market, you know, it doesn't look like it pays for itself, we, you pull it back. The real executional sales driven marketing, we keep, you know, pouring that in there. We'll keep that in place. We've pulled a lot of this top of the funnel marketing out, then we're cutting expenses in other areas that, where we just feel like, you know what, we've got to size to our current business. Okay. Okay. Let's talk what kind of long-term trends, initiatives, strategy. You know, today you guys outlined the leading market share you have in a number of your big end markets, pointing devices and keyboards, combos, 50%, gaming and VC, right around 30%. Clear number one. You know, there's an argument to be made, I think, that, you know, if you look at gaming and VC relative to keyboards and combos and mice, you could say, okay, there's pathway to gaining more share. How about in mice and keyboards? Is there still an opportunity to gain more share as you look again out over multiple years? When I came here, our share was much smaller in keyboards than mice. Everybody said, "Well, we can't gain share there." "We need to focus other places." We've gained share consistently there. I've kind of come to the conclusion the best position to gain share from is leadership. Right. You know, and the bigger the leader you are, the more the possibility at least you have to gain share for a couple reasons. One is you just have strength, you have scale obviously, so you can, you can drive harder for things like vision, visual space on the internet, shelf space, awareness of your brand, the whole thing. Innovation though is the bigger one. You know, you have a chance to innovate. You've got a bigger pot of money to innovate with, and by innovating you can drive higher mix. Our average sales price are way up versus 2018 or 2019 in that Personal Workspace. Yep. There's no reason why that can't continue. It's still just a fraction of the business is up at the higher price points, and there should be a ton of it there. Right. I mean, our products are not so expensive, and think how much of the time you use them. Mm-hmm. How important they are to your daily life. In a way, there's, you're way underpaying for the benefit you're getting. That's good 'cause it means it's a good value. It also means we have a lot of innovation room that we can price for. Right. Right. Okay, good. You know, AI has been a talk of the conference. I heard AI during the during the analyst today. How are you embedding AI in your products? Is that new? You know, help us think through that. You know, we really started it with building AI into products back in 2014, I would say, in earnest. We put them in some of our earliest cameras. We bought a small company in Zurich that did video AI. They would, they had, they were taking the feeds off of the Autobahn when a car would pull over and start to smoke, and somebody would get out of it. You know, it's not a great idea on the Autobahn where you can drive 200 mile, you know, kilometers per hour or miles per hour. They were capturing that feed. We took that, and we then, we took a little four or five person PhD team, and we put them in rooms and we said, "Let's see what we can do if we have them focus on rooms." We developed some really cool products. We then adapted that, and we put it into the conference room equipment. Mm-hmm. We kept developing it, and now we're doing AI for video there and AI audio there, like a lot of companies. Now AI is slowly spreading its way through the whole company. I think things like Chat, you know, ChatGPT and just general OpenAI is gonna touch so many things in our company. It's too early for us to say exactly what or what impact it might have, but it's gonna be big. Right. Okay. Let's talk about adjacent markets. You acquired Streamlabs in 2019. That was kind of your first entrance into streaming. I know it's still relatively small, but, you know, how should we think about kind of adjacent markets and any that you would point to that are, you know, either compelling or ripe for innovation, where you think that you have the tools to go in and, you know, you can be immediately accretive to the value proposition in that market? You know, we don't, as you know, we don't talk about things we're not in yet. Right. I can reflect a little bit on the past and just say that, you know, if it looked like that in the past, it probably will look like that in the future. You know, things like, you know, finding areas. Let's take lights. Mm-hmm. You know, we weren't in lights a year and a half ago, I think, around the desk space. We got into lights. Now we're number one in lights on Amazon, I think. That's with just a very first step, you know. Mm-hmm kind of a small acquisition and some first step, work of innovation. Imagine what we can do when we get to the point where we're doing what we do with mice and keyboards. Mm-hmm. Every one of our spaces, all those GMs who spoke today, have areas around them that in the past I would've called it, you know, I used to say we have trees, plants, and seeds. The little seeds were things that I kind of nurtured and protected. Now they have their own seeds. They all have- Right areas around that they find very interesting and that we're experimenting in. you know, so I can, you know, I would never guarantee anything. My general counsel would kill me. I can promise you that we'll get into new things. Right. We've gone from about 15 or 16 categories when I started to about 30 or 35 today, and we'll just keep going. Right. Do you need those new categories to get to that 8% to 10% long-term growth algorithm that you talked about, or is the end markets that you're in today sufficient enough to drive that growth? I think those will be relatively small, so I think they're, it's probably sufficient. They're the buffer, they're the thing to help me always be more assured that we'll get to that long-term growth number. Right. Okay. Something we talked about before coming in here was, with competition you hear from my world, a lot of a lot of your competitors talk about getting deeper and deeper into peripherals. You know, what do you need to do, if anything, to really protect your market share? Again, you grew market share last year, but is competition increasing? Do you see that? Is it a zero-sum game, or can it actually drive some form of TAM expansion ultimately? Then that's a broad-based question. It's a great way to phrase the question. Let's start with can it drive TAM expansion? I think the answer is yes. You know, if you think about it, when we were growing rooms, for example, when we were building our room business with video, nobody else was really pushing it very hard because most of the players that were doing conventional video conferencing are focused on the big rooms, you know, really. The bulk of the business is in smaller rooms, where we were. We were kind of alone. During the pandemic, a lot of the same things was happening. Don't get me wrong, Zoom and Microsoft were very excited about growing video conferencing, but they made their money off of seats- Mm-hmm not off of rooms. We were like, "Okay, this is gonna be so exciting," you know? We realized we're kind of standing alone, us and a few small companies, you know, trying to sell rooms. I think that some of the bigger players are in it will help drive TAM expansion. I think there's gonna be a legitimate discussion all the time about what are you doing in your rooms? What are you doing in your rooms? I think that's good. I think from a competition standpoint, look, it, you know, attractive categories have competitors. I mean, that's the way it goes. We don't mind competition. We've had it as long as this company's been around, and it just brings out the best in us. I'm excited about where we are. I'm excited about the competitors that we have, we need to compete with. They're good. Mm-hmm. We'll have to be better. Right. Just a few minutes here left. I wanna touch on two topics. One is, you know, you look at your balance sheet, rock solid balance sheet, $1 billion of gross and net cash. No debt. You generate really solid free cash flow. You know, one can make the argument that the business is under-levered. Is there an argument to be made that you could get more aggressive from a capital allocation perspective or a capital structure perspective? You know, how does the C-suite think about that? Yeah, we think about it a lot. I mean, I think, you know, We've never had any, that I'm aware of, we've never had debt. We've always been a good cash generator. We're a better cash generator today, of course, at the current size than we were, you know, five years ago. I don't see how we won't be a very, very strong cash generator. Our priority's always been the same, growth, growth. We'll pay a dividend that's gonna ideally keep growing over time, and it has. Mm-hmm. Then do stock buybacks with excess cash. We've bumped up our, you know, the buyback activity we've had for as you know. Mm-hmm. I suspect we'll keep that going. We have plenty of firepower for investing in growth. If, you know, the, if we look at, you know, hundreds of things a year. Mm-hmm. We do things that often don't get public because they're not at scale where they need to, and competitively we decide we don't want to talk about them too much. We're gonna keep doing that, and we'll keep looking at things medium, you know, small, medium, and large. If we don't find things to spend that money, I guess we'll return it to shareholders. Perfect. We have about 30 seconds, so, I wanna give you the dance floor. Maybe end kind of how we started. Yeah which is, you know, what do you wanna leave everybody with in the audience as they step away from this meeting? What's important to know about Logitech, about your future? Yeah. You know what? Instead of doing that, I'm gonna suggest everybody that's doing meeting do something different. You know, we're really into environmental sustainability. We're climate, or we'll be climate positive by 2030. We're carbon neutral now, which means we'll be carbon negative by 2030. We're carbon labeling every product we put out. We're on a path to doing that. We're one of the first three companies to do that, Unilever, Allbirds, and us. You know, and we've got competitors and other companies that we're working with who are also on the path of doing the same thing. It's not going fast enough. Carbon labeling can really change the game, because if more companies carbon label, it'll force other companies to carbon label. If you're carbon labeling, you can't bring your next product out and not have lower carbon. It's just not gonna happen. It's not because every customer is gonna be looking at that label. It's because you don't want whoever is looking at it to publish that your number's worse than somebody else's. It's transparency. I would encourage any investor sitting in this room, start asking companies, start asking people like me, "Are you considering carbon labeling? Are you considering carbon labeling?" That's all you have to ask. If you just start asking, trust me, it will have a ripple effect that will move this faster. The perfect way to end. Thank you very much for your time, Bracken. Thank you, Erik. Cool. Thanks, man. Thank you. Have a good one.