Logitech International S.A. (LOGN) Earnings Call Transcript & Summary

Perfect. Okay. Good morning, everyone. My name is Sabrina Hao, and I'm a member of the U.S. IT hardware Equity Research team here at Morgan Stanley. Today, I am pleased to be hosting Bracken Darrell, CEO of Logitech. Of course. Bracken has been Logitech's CEO for nearly a decade, and through his over 30 years of product and brand management experience has helped double Logitech's revenue base and increased profit over 8x over 10 year, which is extremely impressive. Prior to Logitech, Bracken has held senior management roles at Whirlpool, Procter & Gamble and General Electric, and we are incredibly lucky to have him here today.

Thank you.

Before we begin, I need to mention that important disclosures can be found at Morgan Stanley research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So with that, Bracken, thank you for joining us.

Thank you so much for having me. It's great to be back. It is great to be back.

Exactly. I guess just to kick off, there are several factors that will influence consumer demand this holiday season, whether that be promotions, competition, macro uncertainty. So how are you thinking about holiday demand this year? What are you hearing from retailers around inventory management and really what is giving you confidence in the outlook you laid out at earnings last month?

Yes. Our guidance last month, we set a band around that. We said negative 4% to negative 8%. On the downside, it's the worst year in a decade this quarter. On the upside, it looks like the last few years. So we left a pretty wide range because it is kind of hard to call what's going to happen in Q3. But I'm so optimistic about us for the medium and longer term. I just -- I think we're -- and I'm going to jump into some of your other questions, I apologize, but we're sitting in the slipstream of the hybrid work reinvention of work in a way, whether it's Video -- everything or having a workspace at your home and the office, and we'll get into this probably more. And in gaming, of course, which is this growth juggernaut that's not going to let up. So I'm just super, super optimistic. And I don't know exactly what's going to happen in Q3. It's really hard to call. But the -- it feels like we're in -- Logitech is in a really good spot.

Yes, definitely. And to that end, a number of your end markets went through a pretty significant TAM expansion during COVID. So how do you think about the permanency of those growth drivers? And at your Analyst Day, you reiterated expectations for 8% to 10% long-term revenue growth. So wondering what specific segments do you see as the main drivers of that?

Well, I'll go back -- I'll step a little deeper into each one of them that. Video, so -- we have 4 ways -- or 3 ways to grow in Video, Video Collaboration, as we used to call it. First of all, the number of rooms that have Video is still super low. It's hard to forecast a total number of rooms in the world that you have meetings in, but the number that we often use is about 90 million, but only about 10% of those are video-enabled. So there's a whole bunch of rooms to enable over time. And this going to be high. It's going to happen. We'll ever get to 100% probably up, it's going to be much higher. The second is we really have just a real upgrade opportunity now because so many of the rooms that are already enabled need to be upgraded to better systems. There's AI built into our equipment now. There's still a lot of things to do. So that's -- there's a big upgrade opportunity. And the third one is we just keep adding things through. The cost of video enabling a room Logitech-style, using Zoom, Microsoft Teams or Google, it's 10% or 5% of the cost of what it was in the old way with the big infrastructure in the on-premise, et cetera. So this reinvention that we've really been part of for the last 10 years continues. And now the cool thing about that is there's so much opportunity for us to put new things in the room to add more value. So we can -- I think the average cost of the room was about $800 or $1,000 of our equipment, say, 4 or 5 years ago. It's probably going to move to, at some point, it'll move to $3,000 or $4,000 as you add cabling, microphones. We announced this product called Sight, which looks like a big Red Bull can you can put on the table. And then the participants in the room become individual blocks on the screen. So remote participant access this as if you're sitting at a desk. That's a complete change. That's a big change, and that integrates with our existing equipment. Then we've got this product, my favorite product. And anybody in this room who hasn't tried it, which is probably everybody in this room because very few people have it yet, it's called Logi Scribe, Logitech Scribe. It's a whiteboard camera that you can attach to anything. It can be the wall, if that's a writable wall, it can be one of those easels that you have a big button, could be any color you want, you push the button, and it's automatically a participant on Zoom, and then you can just use it. So as we had a big energy company in the office a few weeks ago, the facilities manager, I asked him about Scribe because it's kind of new for us and people are getting used it. And so what do you think about this? And he paused and he said, "I don't know why every video room in the world wouldn't have that. Because it's a way to bring that whiteboard of any kind directly onto the screen." So anyway, so I'm obviously excited about it. Quickly in personal workspace, as we call it, our oldest business. We've increased the number of personal workspaces dramatically because most people now have something at home. It's permanent. It used to be you bring your iPad, your notebook at home, you just kind of sit down and work on the couch or maybe if you had to desk, you'd stick it on there. That may not be true for a lot of people in this room. That's true for the vast majority of knowledge workers. But in the pandemic, everybody created something more permanent. And that favors us because when you got a screen that's permanent, you want to sit back from it, you're going to hunch over that laptop you got there. So you can sit back from it and you can use a mouse and you need a mouse and keyboard then. So that installed base effect, which is really what -- we're just an upgraded installed base business for the most part in our personal workspace, it's just dramatically increased. The number of placement offices are still out there, they're being upgraded too and, we'll probably get into that in a minute. I think that's a big opportunity for us. And then, of course, gaming. Gaming is just on fire. I mean, it will not -- even though gaming is down this year for us, it was down 4% last quarter, it's grown so much over the last 10 years. And that down this year is also a huge growth last year, over the last 2 years. And so we -- and you have League of Legends final, which is the biggest, I'm sure, I bet you, not a single person in this room went, but it was a sellout crowd in the Chase Center, which is the NBA -- the top NBA team in the United States plays there. And more people watch than ever, and it's just a good temperature check on the long-term secular growth of gaming is just going to continue. So they're all exciting.

Got it. Absolutely. I guess to build on some of those secular growth drivers that you spoke about. Can you just talk about some of the adjacent markets that you believe are compelling or ripe for disruption? Back in 2019, you acquired Streamlabs to get into game streaming. Is there an opportunity for streaming to become a bigger piece of the pie for you? Or are there any other markets you would point to as interesting?

Yes. We're -- I'm always very careful to talk about markets we're not in because that kind of is -- that tips off where we might be going next to people we might not want to know. But we are always looking at new categories. We've got usually between 5 and 15 new categories in development at a time. And they tend to be adjacencies for the most part, areas around the spaces we're in. I already talked a little bit about the video conferencing area, where you can see kind of what we do. We've systematically added cabling and whiteboard camera and now camera that goes in the middle of the table. So we'll keep adding that. We're -- and we're across all of those existing areas, whether it's the conference room or the video room,, the personal workspace, whether it's at home or in the office, gaming. And then streaming and creating, which is, as you mentioned, that's another one that we actually has a huge overlap with our gaming business. But all those have adjacencies around them that are interesting, so -- and more. So we're looking at everything.

Makes sense. We always say that Logitech was in the market with the right product at the right time, ready to capitalize on some of these opportunities. And this has always been true. But even more now, a number of large traditional hardware vendors are really trying to lean into some of these markets, like peripherals, gaming and VC. So how do you think about the intensity of the competitive landscape? Is there -- are there any actions in your view that Logitech would need to take to defend your industry-leading share? And then do you see competition as a zero-sum game? Or is actually there an opportunity for these TAMs to expand because of competition?

Yes, I'll start with that one. I think it's always -- we've been kind of a lone wolf out there screaming about or yelling, enable your conference room, please enable your conference room. Even though we had the competitors who were not small, but they weren't big enough to really make a dent. I think having more competition in there is good. It will really amplify -- the expansion opportunity for rooms is so big. We just -- I think it's much, much bigger than any competitive threat could cause. So I'm actually very optimistic about the direction that's going from a competitive standpoint. Generally speaking, the biggest step we probably took in that direction we started 4 or 5 years ago, which was in the B2B space, in general, we stopped viewing it as something that we were lucky to be part of and just kind of letting -- and putting products through our existing distribution to get in there. And we started very strategically going after selling to the companies. And so we started building a global sales force. And that has increased dramatically through the years. And now we have global high -- as we call high-touch direct to large companies like Morgan Stanley sales force. And so that was a big step for us, and we made the investment. We started it, as I said, way before the pandemic, and we continue to write through the pandemic that we're kind of there now. So I think that was an important step for us. Had we not done that, we would -- we'd be trying to figure out how on the Earth can we do that at our current base. And we're lucky that the pandemic help us grow that even faster.

Definitely. My next question is since the start of the pandemic, your 3 largest customers have increased fairly materially as a percent of sales and is now around 46%. So how do you think about balancing customer concentration risk given these 3 customers are almost 50% of your revenue?

Yes. We're -- I'm not too worried about that, to be honest. I think the -- we're actually very distributed, and we have something like 35 categories now, really get down into the bottom of it. We've got very, very broad portfolio. We're in things as diverse as the gaming that your kids are probably doing all the way to the video conference room that you're in. And our customer base might be concentrated, but our customer base is generally a flow-through to the users. And they're not at all concentrated. So I'm not too worried about concentration, though.

Got it. I guess now to kind of dig into some of the segments, we'll start with VC. I know you already touched on this a little bit. But year-to-date, VC revenue has grown, call it, 7% at constant currency, which is towards the lower end of the 5% to 15% guidance you gave for fiscal '23. So what are you hearing from enterprises right now? Are there any signs of more cautious purchasing behavior given the macro environment? And what are your expectations for VC growth moving forward?

First of all, the -- if I think about that -- you think about a 7%, the 7% has actually got 2 things in it. It's got webcams that we sell into businesses that really peaked, blew up during the pandemic. We increased 500%. So now it's come back to the more normalized, double in size. But the conference room business continues to grow strong double digits. We grew almost 30% last quarter. I think that's a pretty good indicator of how important it is to think about -- for companies right now thinking about what are we going to do with this hybrid office now. I think there are a lot of companies. We're a good example where the hybrid office has a bunch of different stories inside of it. It's not like the office. It's some places, you're upgrading your office because you got left alone for 3 years. Some places, you're actually moving the office completely and maybe changing its configurations. Other places, we're just kind of reinventing what's already there. All those things are happening in flight across the world right now. And they're happening gradually, which I think it means we'll have more -- probably over time, we'll have more predictable -- good, strong, predictable growth over the next 5 to 10 years, 5 years, let's say, in video conference enablement. So I really think that's where things are going.

Definitely. Moving to gaming. Gaming is a segment that has seen a little bit more pressure in the first half of the fiscal year just due to consumer demand weakness. And so wondering if you could talk about what are some of the particular areas where demand has been more constrained? And do you expect some of these headwinds to continue through the second half?

Yes. We were only down 4% last quarter. So we are -- and we've generally gained share against our competitors in gaming and in all of our categories for the last 5 or 6 years. I'm -- it's a little hard to call exactly where our Gaming will go. We've got -- we've got a couple of things we just launched. I'm really excited about. I mean, we just launched a new set of -- for those of you who are car racing fanatics, we've launched a new wheel that is really amazing. It's a super high-end wheel, $1,000. And it's by far the highest pricing we've sold in that space, but it's also a phenomenal piece of innovation. I mean, it gives you force feedback and an equivalent feeling you're driving a Ferrari, you can push a button, feel like you're driving Mercedes or change the motor type. It comes with pedals and all the stuff you could do. And also, we partner with a chair now that you could literally hang on the wall, so it doesn't take up your entire den or whatever it is. So I'm really excited about that category engagement. We also -- we just entered the cloud gaming business, as some of you may have heard with something called G CLOUD, which takes advantage of the fact that what Netflix and other streaming services have now done to movie watching, TV watching, it's starting to happen in gaming. And we've partnered with Xbox and others. And now you can take G CLOUD, and you no longer have to sit right in front of that console on that couch in the basement or in the TV room while your family is wishing you would turn it down. To play, you can actually take that into the bedroom and play anywhere. And I think cloud gaming is here to stay, and it's going to become a big enabler of another wave of growth in gaming in general. This just a couple. I mean, I could go through all our categories. I'm pretty optimistic about Gaming, as you can tell.

Yes. Definitely. And on G CLOUD specifically, that was really your first entrance into the gaming device market rather than just peripherals. And so wondering, now that it's been a few months, what has that initial adoption look like? And should we expect similar types of launches from you moving forward?

We're always experimenting with new categories. Like I said, we've entered so many new -- I think when I came to Logitech, we had about 15 categories. Now we're at 30-plus. So we'll keep experimenting and entering new things on a regular basis, Logi Sight. Logitech Sight, a camera that goes in the middle of the table is a new category. So we're going to keep doing that. We generally really try to constrain those in the beginning, especially new categories -- especially new categories to the world because you never know how fast the adoption will be. So we've been very constrained. The demand looks good so far on that, but it's -- we've really -- U.S. only, really trying to keep it really narrow until we understand it better. But yes, I mean, I think you can always expect new things like that from us. We're -- I always think we have 3 ways to grow. We're in markets that grow. If we innovate really well, and we have, we're going to grow market share. And then we can enter new categories. If you get all these things growing, you grow double digits every year. And we have. We have a long string of adding new double-digit market growth, and that's our long-term model.

Definitely. I guess moving on to CMP. We've seen a little bit of a normalization in your PC-related business but not really to the extent that we've seen with the PC market as a whole, which we're forecasting down nearly 20% year-over-year this year. So in your view, why would trends in PC peripherals maybe decouple from the larger PC market? Is this a function of you capturing share from smaller peers? Just any color you could give there would be really helpful.

Yes, it's really interesting. I'm having a flashback to when I first got here. I think when I first came to Logitech, I thought the -- I came to Logitech so I thought, well, the PCs is going to go into decline, and we're going to have to enter new things. And I was really excited about being in a company where we were forced to enter new things because we could use design to really understand users and then serially enter new stuff and create a completely new business. That was what I came for. And a weird thing happened along the way. As we improved the innovation engine using design in the PC peripheral space, we actually grew it and we kept growing consistently right through the whole period here. And I'd say up until the pre-pandemic and the year before the pandemic, we finally actually got our -- I think we got the innovation engine inside PC peripherals at this incredibly strong level where we can take segments and actually deliver against specific segments like you Google POP keys, if you want to see one of the things I'm talking about. It's a product that's designed for Gen Z. And so we -- by doing that, we discovered, you know what, actually, we can grow this market. The other weird thing to happen was the one you're asking about, which is people used to say, okay, how much is your growth relative to PC or get to gain share. And we -- and there's a reason for that because a lot of our PC sales would happen in a Circuit City or a Best Buy or Media Markt. We would literally have a program where when somebody bought a PC, the salesperson would immediately say, "And would you like to upgrade the mouse that's in there or the keyboard?" And we started -- those programs started to fade and then they eventually kind of disappeared as the PC sales slowed down because we discovered that actually we could drive penetration and more growth in that market. And we were disconnected from the PC sales. We were connected to the installed base. It was about upgrading the installed base on a regular basis. So that's where we've been. I never I -- to be honest, I don't even look much at PC sales anymore because I don't think they're correlated with our business.

Yes. In C&P, you talked about how roughly 25% is more consumer -- or excuse me, 25% is more for business. The other 75% is more consumer. So have you seen any differences in the shape of demand by end market, just in terms of we are seeing consumers super demand more weak at this point in the cycle.

Yes, for sure. I think you have -- consumer markets and B2B markets have always been different. I'm just so excited. I'm going to seize your question to maybe say something that isn't an answer to it. It's a comment about it. I'm so excited to be a business that's now selling both the consumers and the businesses, but with its heart to consumers. Because at the end of the day, we're a user-centered company, and we really innovate for users. But that's really paid off for us in the enterprise, where we're finding that being very user-centric, if we can then understand the decision maker -- the IT decision-maker and get really good at that, we have an advantage. And if you think about it, the other thing that kind of crossed over here is that your home became part of the office. Whether you liked it or not, you're in the pandemic. And it's not going -- going to go back the other way. It's going to stay part of the office. So the company needs to actually help fill your home with stuff. But you don't want to cut the company stuff in your home because the company stuff looks like a big line of desks that have this black plastic sitting on them. And it all needs to look the same so that it looks kind of organized. You don't want your home to have that same stuff. You want your own stuff, and you want it to look good in your home. And once it's in your home, and it looks like your stuff, you also start to think of what should be mine. And most people want their own choice. So I think this really favors us when it comes to personal workspace. We never -- we didn't start using our go-to-market into the enterprise for -- to sell our mice and keyboards and things because we really wanted to focus on VC. And so really the beginning of this year, fiscal year, we changed the organization of the sales force. We said, well, now is the time. Let's start taking advantage of the fact that we built this global sales force to see if we can really make a dent in businesses by selling to them for the user. And we're doing that now. And it's very early days, but I'm optimistic about that.

Yes, definitely. Can you talk about on the B2B, are you releasing that flow through into customer wins? Are there any examples you can give, maybe more around the specific changes that you've made there?

Yes. We're seeing direct sales come through that, and we're very big numbers. I mean -- but it's very early and relatively big compared to the past. So I don't want to everybody go change their model and triple our numbers in B2B. But I do think we've got a real opportunity there, and we're definitely seeing those kind of bell weather early wins that suggest what we thought was there, was there. And we didn't invent this. I mean, we had our salespeople going to the offsite say, can we talk about your mice and keyboards, they'll say. Let me call someone. Yes. So we're really trying to change that and it's exciting.

Definitely. I guess moving on to OpEx and how we think about that. You've been taking some cost reduction actions. Said during earnings that would reduce OpEx by $150 million by year-end, primarily in sales and marketing. So wondering what areas of sales and marketing have you been focused on? And has there -- have you seen any impact to demand from these changes?

No, I don't think it's really -- I don't think it's impacted our demand. It's a little hard to judge. But when we put a big investment into OpEx, those of you who followed as we did, during the pandemic because we had this incredible period of sales where we had no promotion and crazy nice picture. But it wasn't sustainable. We wanted to make it more sustainable. But we were careful when we put that OpEx back in to make sure that we also put it into some place where we feel like we could pull it out pretty quickly in case the demand did soften in the world. And of course, it has. So that part of that was marketing. But it was top of the funnel marketing. And top of the funnel marketing means really trying to brand build and then and then you try to -- as you get lower in the funnel and you're actually closing sales. So we can pull that out pretty quickly and efficiently and I think with relatively little impact for us, at least in the short-term. And I think that's where we've been. And then we also -- we have some efficiencies we've had with the sales force consolidation. As we put the sales force of the consumer back with the B2B, they gave us some efficiency. So that's been that and some -- just trimming around the general -- across the general space. We really work to protect with our innovation engine. So we didn't -- we've really not reduced our engineering organization. In fact, we've increased it. We launched more new products last quarter than I think we ever have in the company's history with 20 legitimately new products. So yes, we -- I feel very good about our cost reduction program. I think it's been very strategic, and I think we got a little ahead of it.

Definitely. And I guess kind of following up on that. You've been moving more toward -- from a push to a pull model over the past few years, deemphasizing discounting. And so just wondering, what are you seeing today with regards to discounting? And then outside of the traditionally more promotional holiday period, do you believe Logitech will return to pre-COVID levels of discounting? Or will some of these trends be more permanent?

Yes. No, our goal has been to move, as you said, to a more pull-driven model. I came from consumer packaged goods where they tend to have higher gross margins, higher investment in marketing, higher operating margins and more of a pull model. And that's really the model we wanted to go to. And we're headed there, and we're definitely making great progress. We've made great progress right through it. And I think if I look ahead, the promotion part of that, which is part of that push model, we had this incredible benefit during the height of the pandemic of taking our promotion levels down double 0. You just -- you'd be crazy to promote then. And then we've managed to not take the promotional levels back to where it was. And we have no intention to ever going there, again. I think getting it -- trying to hang on to a good 1/3 or maybe even half of that, those promotion levels and keeping them to invest in innovation and in marketing and drop some of the bottom line is the model. So we plan to stay there.

Yes. You spoke about R&D and investment through cycles, and that's definitely something that we look for in companies, the ability to invest even through a downturn. So I wonder if you could talk about some of those priorities when it comes to R&D. Where are you most focused? What are some of those areas?

Yes. I mean, it's the same areas that I would have already mentioned, the key -- these big areas of video conferencing, gaming, personal workspace and streaming and creating. So we're staying there. And yes, I'm a big believer, as long as I've been at Logitech, there's been this sort of, call it, a long-term historical statement of you never -- nobody ever really lost money with an extra engineer. And I think we really try to protect our engineering function among -- above all else. We have design, it's super critical, and it's part of our whole product program of creation is mission-critical. So we've been investing across the board in literally every space and trying to do it more efficiently, too. So we're actually trying to move more of that innovation to lower-cost countries as we do it, but we still increase the absolute dollars.

Right. Last earnings, you announced that CFO, Nate Olmstead, would sadly be pursuing alternative opportunities. You two have been through a lot together. And so I'm just wondering what are some of the key characteristics that you're looking for in your next CFO?

Yes. So first of all, I'm so thankful to Nate. He's been such a good partner through the weirdest time in all of our lives. Whoever your partners were in your life, I'm sure you got particularly close to them during that period. What I'm really looking for in the next CFO is -- I want -- we're headed into growth, not tailwind-driven, kind of crazy strange pandemic growth, but really secular trend, innovation-driven, some M&A growth. And so I'm really looking for someone who has a very strong orientation to driving growth but risk -- managing risk. And that's the model, and we will definitely find that. We're interviewing now, and I'm optimistic we're going to find somebody great.

Definitely. I mean, you mentioned M&A briefly. Logitech is nearly $900 million of net and gross cash on your balance sheet, really strong. You've talked about being focused on reinvestment in the business, doing tuck-ins in a balanced approach between buybacks and dividends. But how should we think about your M&A strategy moving forward? Has anything changed? And would you be willing to lever up if a more transformative deal did come through?

Yes, we've always been willing to do that. And we've not done it. We've never found the right set of -- the right acquisition target and the right dynamics around it. So those are -- getting one of those to happen, your stars kind of have to align, including the valuation and everything else. But we're looking at all sizes of things all the time. We have an incredibly effective M&A team, very, very strong. I mean, we -- when I started, we had a really spotty track record on M&A. And so I started very small and we bought the first -- one of the first things we bought was a little tiny company out of Kickstarter. And we would get into a lot of processes just to get the LOI experience. And then later, it was due diligence, we wanted to get better at that. And then now roll forward 10 years, we're very good at this. I mean, our performance in M&A is very, very strong. Our -- we have the best track record I've seen in my career. And I'm probably too good, which means we probably should have done even more, but easy to say that. And so we're really aggressively looking for things that we can pull into our model. And they're out there, and I'm sure we'll do them.

I know this is a topic that you've had to talk about many times in the past few quarters. But in terms of supply chain shortages and logistics congestion, wonder if you could give an update on how that's trending? Has that largely passed for you?

Yes. I mean, I think the supply chain, kind of weird nightmare that we all had during the height of the; pandemic has largely gone away now. And we still have a few things that we're tied on, but we're just about out of it. And the logistics problem of this weird thing where we didn't seem to have enough containers and things, that's fading, too. Unfortunately, pricing, those container pricing is stubborn and it will take more time for that to go, but that's going to go too. So I think we're headed into a more -- a very normal period of logistics costs, supply chains. And I also think there's a period where I do think the high cost that we see -- we have 500 basis points of impact from inflation in currency last quarter, 300 from inflation. I think that's -- I can kind of smell the beginning of the heading the other way, and I can smell it. I can -- we used to have companies that were -- we were in short supply in their products, and we would be calling them over and over again. Yes, we're still here. We're looking. And now they're calling us. Now that's a very good sign. So we'll see. But I'm pretty optimistic over the next 12 to 18 months, we'll see that start to really go the other way.

Yes. Definitely. And kind of on the supply chain topic. Have some of -- at least from our coverage, we are seeing companies diversifying manufacturing into Southeast Asia, India, Mexico, in some cases. So have some of the recent conflicts that we faced over the last year, 18 months, made you rethink your manufacturing strategy at all, whether that's increasing direct manufacturing, adding more suppliers or just shifting that geographic footprint?

We started about the time when the tariffs were put in, so that was that 4 years ago, 5 years ago, really thinking hard about concentration in China. So we started to move manufacturing out of China mainly to avoid the tariffs but also as a hedge just in case. And then we got to about 13% or 14% of our manufacturing outside of China. And then we went -- and now probably by the end of this year, it will be somewhere between 25% and 30%, most of that Southeast Asia. And we'll keep taking that up over time. Once you have assembly outside of China, you need to follow the supply chain itself. So we're working on that. And then once you have those 2 things, you can also expand it if you ever need to rapidly. We're really good at moving things in and out of our own factory. We do have our own factories in China. So we're -- that skill set, we hope we don't have to use it. But if we ever needed to ramp up fast, we want to be able to.

Definitely. Another question that's very top of mind right now is channel inventory levels across different retailers. We've heard from a few companies during earnings that there were some corrections. What are you just seeing as we sit today in terms of inventory levels?

Yes. I mean, I think generally speaking, our channel inventory levels are about where we want them to be right now. We -- over the last quarter, we saw a lot of the -- especially the big retailers just hit the brakes hard as the beginning of the quarter all the way through the first 1.5 months, 2 months of the quarter. And then started to bring it back into normalized it was heading into the holiday season. And I think by the time they get to end of the quarter, they're about where they should be. So it was like a roller coaster, but I think it's about where it ought to be now.

Got it. I have a few more questions, but I'm going to pause now to see if we have any questions from the audience. One here.

Why don't you go and give them a mic because I know remotely they won't be able to hear that?

Sorry, just to repeat. So I was going to ask your pricing philosophy for next year, we're in an inflationary environment. I'm sure your costs are going up. But at the same time, the consumer has a lot of inventory choices that they can make. Is that impacting your pricing decisions?

Well, we've made -- we've put through a couple of price increases, especially in Europe, where they were hit both by inflation and currency and another place in the world, Japan. And so we're -- I think that was good. We tried to get a little bit ahead of that. And my general view is I personally -- I'm sure we do have is discussions about this, but I'm sure inflation will stay a little higher than we'd like for a while, but it probably has peaked, at least in the U.S. and probably a peak will happen in Europe if it hasn't already very quickly. So I don't expect to have more pricing put through. I think we're probably where we need to be. We may -- we'll see where we go, see where it goes from here. And then sometimes it goes the other way. So we'll just have to wait and see. We're -- the main thing we try to do on pricing is with new products, that's our general approach. And it's unusual for us. We do every couple of years, but it's unusual for us to put through price increases which we've done, as I said. And so I think we'll get back to a more normal cycle where our pricing will be with innovation, which is the best way to price.

Any others from the audience? Okay. Just another for me. I was wondering if you could discuss some of your efforts on the software services recurring revenue side. What could some of these opportunities look like in your view over the next 3 to 5 years?

Yes. We've been working on software and services for a while but not revenue-generating. So most of it's been nonrevenue-generating. It's really about creating a better experience for the user. And we're going to continue down that path. We do have some pure SaaS revenue in Streamlabs, and we haven't -- I don't think we've disclosed publicly where that is. But it's meaningful and it's super exciting and it's -- anyway, most important of all has been a great place for us to learn all the metrics, the KPIs, the way a pure SaaS business works. Because that's a SaaS business, completely disconnected from hardware so far. And we've got -- we're working on SaaS businesses as more connected to our hardware. So we've got a service business built around our video conferencing business, which is really interesting. And it's early days, but we're -- we really worked hard to make it a very powerful offering, very integrated with our -- what we do well. And I'm excited about that. And I think -- look, I'm -- over the next 5 to 10 years, we'll keep adding more and more service revenue, that's what we're doing. But we're not going to get ahead of ourselves and try to flip the switch and move everything to a Hardware-as-a-Service model. But that -- but we're certainly going to keep investing to build more and more.

Yes. that definitely makes sense. And I know we are coming up on time. So just wondering, just to end, to wrap up, what do you think is most underappreciated about the Logitech story?

Nate, our Head of IR, and I were just talking about before we walked in the room. It's a really interesting company. The -- I think the people who follow us know that we're fundamentally -- we've kind of become a design company, and I don't mean that we're just trying to make beautiful products, but really trying to make products that are just better than the alternative. And we generally are. And that -- I don't want to sound like I'm bragging. I just think we generally really do that. And -- and so I think most people don't realize that what we really have is a sticky capability in creating innovation. And that's why we've gained share in almost all our categories for 8 or 9 years in a row and while we've been able to 10x the company's valuation. And I think the potential is there to do it again. I mean, we just have such an opportunity. We have this innovation capability that's just unstoppable. We have this go-to-market capability we just added B2B, which means we were a B2C company for it. Now we've got this whole -- we can apply the same innovation engine into B2B, and we're starting to do it. And now that's why we have $1 billion business in B2B. So this process, we just opened up the TAM opportunity dramatically. And I don't know if we've ever done a good enough job of explaining that. And I may have just done a miserable job trying to highlight it. But I think that's what people don't completely get.

Definitely. Okay. I'll give one last chance to open up the floor. Again, if anyone has any final questions from the audience? But if not, Bracken. We really appreciate you being here. thank you so much for the time, and thank you for all of you. I thank all of you for joining us today. Have a great day.

Thank you.