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Logitech International S.A. (LOGI) Q1 Earnings Call Transcript

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Logitech International S.A. (NASDAQ: LOGI)
Q1 2019 Earnings Call
July 23, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Logitech First Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session and instructions will follow at that time. If at any time during the conference you need to reach an operator, please press * followed by 0. This call is being recorded for replay purposes and may not be reproduced, in whole or in part, without written authorization from Logitech.

I'd like to introduce your host for today's call, Mr. Ben Lu, Head of Investor Relations.

Ben Lu -- Vice President of Investor Relations

Thank you, Sharon. Welcome to the Logitech conference call to discuss the Company's financial results for the first quarter of fiscal year 2020. The press release, our prepared remarks and slides, as well as a live webcast of this call are available online at the Investor Relations page of our website, ir.logitech.com.

During the course of this call, we may make forward-looking statements including with respect to future operating results that are made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties and actual results could differ materially as noted in our quarterly and other filings with SEC. The Company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise.

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Please note that today's calls will include results reported on a non-GAAP basis. Non-GAAP financial results shave inherent limitations, and are not meant to be considered in isolation from or as a substitute for or superior to GAAP results. Our press release and slides provide a reconciliation between GAAP and non-GAAP numbers and are posted on our IR 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 Nate Olmstead, Chief Financial Officer. I'll now turn the call over to Bracken.

Bracken Darrell -- President and Chief Executive Officer

Thanks, Ben, and thanks all of you for joining us. We had a good Q1 and a strong start to the year. We delivered total sales growth of 9% in constant currency, at the high end of our full year sales guidance of mid to high single-digit growth. All of you deal in investment portfolios in one or another. An investment portfolio with only one stock is usually more volatile than one that's more diversified. Narrowly focused consumer hardware businesses are the same. They suffer the ups and downs of their single category with no offsets. Quarter in and quarter out, some categories will do better while others will do worse.

Logitech differs from many other hardware companies because of our portfolio diversity. This diversity has tended to smooth short-term, category specific fluctuations and provides stable funding for our investment priorities. That consistent funding approach is critical to our objective of long-term sustainable growth. But the key aim of our multi brand, multi category company, is to deliver amazing customer experiences in many categories, a growing number, where we can lead long-term.

We deliver category leadership across our broad based portfolio through our strong capabilities in design, engineering, go-to-market, marketing, and operations. That is the recipe. That is the recipe that's allowed us to consistently deliver ahead of our peers on both the top and the bottom line. And Q1 is no different.

You've heard us talk about the secular trends driving our business -- the growth of video communication, the rise of eGaming as a sport, and the democratization of content creation. Those three major global trends continue to drive our business now and will drive it long-term. We're excited about being the world's leading peripherals player, bringing video to everybody, equipping and supporting gamers, and enabling content creators.

Now, let's dig into the performance of our different categories. Video collaboration sales grew 28% in Q1, with all three of our regions delivering double-digit growth. Our MeetUp Huddle Room product continued to see strong traction with customers and sales were again very strong this quarter. Sales of our recently introduced Rally camera system for larger conference rooms climbed to new highs. That could very well become our second-best selling SKU in video collaboration after MeetUp, despite being released less than a year ago. And our Tap touch controller that's imbedded with great software, giving users single-touch access to their video solution, just started shipping to great customer feedback.

And now you're beginning to see how we're investing in software capabilities that go beyond the software that brings products to life, like MeetUp and Tap. Logitech Sync is a perfect example. Sync, which is in beta now, is our new video conferencing device management platform that gives our customers seamless, cloud based device administration, insights, and control. It automatically flags issues in real time and offers in-depth diagnostics so the problems can be addressed quickly. And we won't just stop there. Whether that's Logitech Sync for video collaboration, or Logitech Capture for our webcams, to help capture the fast growing streaming opportunities, we'll continue to double down on building out our software capabilities to deliver amazing customer experiences.

Now, let me talk about our PC peripherals business. The PC peripherals business generally has bounced around quarter-to-quarter from slightly negative to mid single-digits, or even better. Sales were roughly flat this quarter, yet the category remains consistent and stable. And as we stated in our March Analyst and Investor Day, we should be able to drive low single-digit growth for the foreseeable future here. As usual, you can count on us to bring out some really cool innovation throughout the year, so stay tuned.

In gaming, while sales grew just 2%, nothing's changed regarding the long-term structural growth trajectory of the category. So, why the flattish growth in Q1? The bottom line, a really tough compare in headsets. Most of you are aware of the unprecedented impact of Fortnite last year on young gamers, and then how it brought in millions of them. In the U.S., for example, where Fortnite has had the biggest impact, we saw the console and PC gaming headset market double almost overnight.

Excluding headsets, our gaming business was actually up over 20% and even accelerated versus last quarter. We don't see a change to the structural growth in gaming overall. Gaming is here to stay, and we'll continue to bring out innovative new products that will elevate every gamer's potential and delight them.

You might've noticed the release of our newest and latest PRO X gaming headset with a mic that was developed with none other than our Blue microphone technology and team. Blue VO!CE gives everyone the ability to customize and tune how they sound in a game, and it's unique to Logitech. No distortion, no noise, no outside feedback. Just the clear and crisp sound of your voice that everyone hears. That can really change the game in multiplayer social games. WIRED Magazine called it quite possibly the best headphone Logitech's ever made.

We also introduced a new version of our flagship ASTRO A50 headset. It has a new design, a new base station for even better wireless connection, and better sound. It'll be available later this summer. You'll notice that these two products are just some of our premium priced innovations. With the broadening of the base of new gamers as a result of Fortnite, we aim to capitalize on the tremendous upgrade potential such a big base of first timers provide. Of course, we have more exciting gaming innovations coming through the year.

Tablet and other accessories sales grew 21% this quarter, as we rolled out the new Slim Folio for the latest generation iPad Pro. We had a robust double-digit growth in both our traditional retail channel as well as in our educational channel. This demonstrates our continued strength in both enabling and supporting the Apple ecosystem, both for consumers and education.

Mobile Speakers were up 51% in Q1, probably due to the successful launch of our new Wonderboom 2. As we've said before, don't expect this type of growth to persist as growth rates are often driven by the timing of our new product interactions. Last year, in Q2, for example, was especially strong because of the launches of our newest versions of Boom and Megaboom. So, that'll impact our mobile speaker comps this coming quarter. While the overall mobile speaker market remains soft, we're attacking various opportunities here to deliver great music experiences for consumers, whether that's through new channels or new products.

Audio and wearables sales were up 15% for the quarter, with Blue microphones contributing roughly two points to our overall company growth. While we didn't have Blue in our Q1 figures last year, if we look at their year-over-year sales, Blue delivered another quarter of double-digit growth on the back of the continued trend toward podcast creation.

Next week, our Jaybird team will introduce another exciting product that I've been using whenever I go running. It takes everything you love about our existing Jaybird products and experience, and brings it to the next level.

Now, before I turn the call over to Nate, I'd like to be the first on this call to congratulate him on being named our new CFO. He is no longer interim. He's already become a great operating and financial partner for me and my team, and I look forward to working together. So, Nate, you're in charge.

Nate Olmstead -- Chief Financial Officer

All right. Thanks, Bracken. Q1 results were strong with balanced performance across all our financial metrics thanks to solid execution and strong financial discipline. We grew sales at the high end of our full-year guidance, gained share in our key categories, invested wisely in our strategic priorities, and expanded both gross and operating margins despite tariff and currency headwinds. Sales grew 9% in constant currency to $644 million, and non-GAAP operating profits grew 11% to $67 million.

Our Q1 non-GAAP gross margin increased 40 basis points to 37.8% in the middle of our recently revised target margin range of 36-40%. We continue to see the benefit from mix shifts in our portfolio, and our teams did a nice job taking operational actions to mitigate cost headwinds from China tariffs and unfavorable currency exchange rates, including further diversifying our manufacturing locations and recently informing our U.S. partners of price increases for select products.

We have implemented price increases many times over the past seven or eight years, and price sensitivity is never completely predictable. But we feel good about our approach for the year and are confident in our full-year guidance. Our non-GAAP operating expenses increased 6% to $176 million, or up 3%, excluding Blue. Our sales in marketing and R&D spend were both up 7% as we continue to invest in our portfolio, brand, and demand generation, and coverage. At the same time, we continued to keep our G&A spending flattish at around $20 million per quarter.

So, with a disciplined approach to managing and balancing costs, we delivered another strong profit quarter. Now, let me talk briefly about our cash flows. Cash flow from operations was $37 million in Q1, a nice increase from $12 million in Q1 last year. Our full-year cash flows tend to be heavily skewed toward the second half, and we are still targeting full-year operating cash flow to roughly equal our full-year non-GAAP operating profit.

In summary, Q1 was another quarter where we demonstrated the resilience of our diversified product portfolio. As Bracken said earlier, this is a key strength of our business model. We will continue to invest in adding new categories and capabilities so that we can consistently deliver top- and bottom-line growth over the long term. Now, I'll turn it back to Bracken.

Bracken Darrell -- President and Chief Executive Officer

Thanks a lot, Nate. We just wrapped up Q1 and delivered a strong start to the year, as we said. So today, we're confirming sales growth of mid to high single-digits in constant currency, and non-GAAP operating income of $375-385 million.

...

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

Questions and Answers:

Operator

If you'd like to ask a question at this time, please press * then the No. 1 on your telephone keypad. If you'd like to withdraw your question, press the # key. Your first question comes from the line of Asiya Merchant with Citigroup.

Asiya Merchant -- Citigroup Global Markets, Inc. -- Analyst

Congratulations, everyone. Strong quarter, given the backdrop that we've been hearing about throughout the quarter. I have a couple of questions. One, gaming -- I know you addressed that head-on, Bracken, about gaming headsets versus gaming keyboards and other peripherals within gaming. But how should we think about the rest of the year unfolding? I know, first quarter was tough comps. But as we see the comps easing in the back half -- September, December quarter -- relative to the expectations of mid to high teens growth, how should we think about the gaming category unfolding for the rest of the year?

Bracken Darrell -- President and Chief Executive Officer

Well, I think, as I said in my opening, the growth outside of the headset business was actually stronger than it was last quarter. So, quite strong. That included our new controller in ASTRO and, of course, all of our existing businesses are strong -- mouse performance. We're going to wait and see how the headset category develops over the rest of the year, but I feel really good about the gaming business overall. And I think our expectations will deliver somewhere in the range we gave earlier.

Asiya Merchant -- Citigroup Global Markets, Inc. -- Analyst

Okay. That's good to know. And then, the 4$year-on-year sell through, that seemed relative to the sell end that you guys reported -- it seemed a little weaker. Maybe you can talk a little bit about the divergence between the sell through versus the sell end?

Nate Olmstead -- Chief Financial Officer

Yeah, sure. This is Nate. I'll take that one. So, I think, if you look at it on a dollar-to-dollar basis, the gap really wasn't quite as large. Our U.S. dollar revenue growth was 6%, and we reported the sell through of 4%. So, pretty close on those two. The widest gap you probably saw was in EMEA, where similar to prior quarters, as we've mentioned, we've made some strategic decisions about how we think about demand generation investments and shifting some of those investments from -- really, from gross margin down into opex to build the brand and strengthen the brand over the long-term. So, that really explains the majority of the spread between our U.S. dollars selling growth at 12% and the sell through growth at 5%.

Asiya Merchant -- Citigroup Global Markets, Inc. -- Analyst

Okay. All right. Thank you very much.

Bracken Darrell -- President and Chief Executive Officer

Thank you very much, Asiya.

Operator

Your next question comes from Joern Iffert with UBS.

Bracken Darrell -- President and Chief Executive Officer

Hi, Joern.

Joern Iffert -- UBS Investment Bank -- Analyst

Hi. Thanks for taking my questions.

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] Thank you.

Joern Iffert -- UBS Investment Bank -- Analyst

The first one will be please on the video communication, or collaboration. I saw Polycom entering already with a product below $1,000.00. Do you see tighter competition here already? And also, to this product category, can you give us more clarity? What is your current headcount on direct sales force, and what you are planning here for the next 12 months? And second question would be please going into Q2. I mean, we have a couple of companies reporting softer consumer environment, etc. I am not seeing anything, for example, in China. And the last question, on gaming, after Google and Apple launch the streaming services, do you see potential for cooperations here on the hardware side, or is this independent, or do you see Apple/Google going into the peripheral space in gaming? Thanks very much.

Bracken Darrell -- President and Chief Executive Officer

Okay. So, you asked a lot of questions really fast. Let me -- we'll go through them one at a time. So, competitive entries into video conferencing. Yep, we expected them. We're getting them. There will be more. And that's -- competition makes you better, so we will be better. We're already better than we were six months ago. And so far, I don't think it's had any impact on our business, but we're going to rise to the occasion. And the other good thing about that is, I think, when you -- as Guerrino De Luca, our current Chairman, said to me a long time ago, "Man, oh man, you don't want to be in a category with no competition because then there's no growth."

So, I think that really growth in this category will accelerate as you get more people out there talking about the benefits and the cost savings opportunities and more video collaboration. So, I love good competition and we've got good competitors.

Direct sales numbers -- we've -- I don't think we've quoted externally our direct sales numbers. Probably, I'm not going to do it now. But what I can tell you is that we're accelerating rapidly the number we have around the world. We're -- each region in the world is hiring and we're trying to hire wisely. We've all been through the hiring surges that end up being a surge and then you lose half of the people because they were the wrong ones. So, we're -- but we're hiring very aggressively around the world.

Q2, your comment about is there a story over in China on the weaker markets. I think China's had such a period of long, strong growth. For us, too, by the way. If you look at the last couple of years, we've been up 20% in China -- I think, 19-23%. And no, I don't expect it to stay like that and we didn't see that this quarter. I -- or even last quarter. It was lower. But I don't see anything in our categories that suggest China's in for a big slowdown. It seems pretty stable to me. I think our China business won't have the 20%-plus growth this year that it might've had last year or the year before, but I do think it's going to continue to be solid.

And then, finally, Google and Apple entering the streaming business and others -- no, I don't see that as a downside at all. I see that as a pure upside. A lot of this streaming entry really is going to enable people to get into the gaming experience at a much lower cost for the PC, etc. And I think that's a great thing for us, because they still need peripherals. And I can't imagine that those people will ever see peripherals in gaming as a strategic category. So, this is our place. We love it.

Joern Iffert -- UBS Investment Bank -- Analyst

Thanks, Bracken. But coming back to the streaming services, I think you're in for cooperation with Apple on the tablet keyboard or on the tablet peripheral. Do you also see room for cooperation here with Google or with Apple, or will this remain independent?

Bracken Darrell -- President and Chief Executive Officer

We never share anything we're doing with anyone -- any partner on the outside before we do it. And what I would just say is I think we've always been a harmless, capable partner for these big players, trying to enable their experiences. And that's where we're going to continue to be. And if I sound too modest there, I do feel like we're really capable but we're not a threat to anybody like that. We're just trying to help them realize their goals, just like we're trying to realize our own.

Joern Iffert -- UBS Investment Bank -- Analyst

Good. Thanks very much.

Bracken Darrell -- President and Chief Executive Officer

Thanks, Joern.

Operator

Your next question comes from Paul Chung with JP Morgan.

Bracken Darrell -- President and Chief Executive Officer

Hey, Paul.

Paul Chung -- JPMorgan Securities LLC -- Analyst

Hey, Bracken. Thanks for taking my question. So --

Bracken Darrell -- President and Chief Executive Officer

Thank you. [Crosstalk] Paul is my Starbucks name because, if I use Bracken, it takes me forever to get -- for them to figure out what I'm saying. So, I -- my middle name is Paul, you know.

Paul Chung -- JPMorgan Securities LLC -- Analyst

Nice. Nice. So, first up on VC, how good is your visibility into the full year? Does your enterprise channel provide you better visibility into demand relative to some of your more consumer oriented products? And then, on seasonality, have you been able to determine any patterns for this business, or are we still early days? I did notice that F1Q has been typical low point for the year, so do you see enterprise buying patterns accelerate more so in the second half of the fiscal year?

Bracken Darrell -- President and Chief Executive Officer

Well, first of all, on visibility, I would say yes and no. I think anything -- the sales cycles are longer in video collaboration than they are in our consumer business. So, we use salesforce.com etc. like everybody else does. So, we do probably have better visibility of the customer base, potential sales. On the other hand, it doesn't mean we have -- we can't tell you exactly what the sales are going to be next quarter for this quarter. This isn't quite like some B2B businesses, where you really have a very clear picture of exactly what's going to sell next quarter and the quarter after that. And then, you're working on the third -- so, it's a little -- I would say it's in between there. But it certainly is better. We're going to growth all the year long, and we're excited about it.

From a seasonality standpoint, so far -- I would say that there hasn't been a lot of seasonality in our VC business. It's different from our consumer business, where you have a really strong, of course, calendar Q4. You do see some improvement through the year, and it's probably seasonal. But I think a lot of it is just the momentum of the business -- just continue to get stronger quarter-over-quarter. And while every quarter is not bigger than the last quarter, it's pretty close. So, there's a little bit of seasonality, but I wouldn't overstate it. You can see it in the numbers if you eyeball them.

Nate Olmstead -- Chief Financial Officer

Yeah. I think just to add a little to that, obviously, as we do get more exposure to those enterprise accounts, that seasonality -- sometimes you get a large deal one quarter and you don't have one the next quarter. So, you can move around a little bit for that reason. And then, as Bracken mentioned, we don't really have the Holiday sales -- the same sort of Holiday sales push that you might have more on the consumer side, but you do have that enterprise strength in calendar Q4 that I would expect to see, just as companies and corporations close out their fiscal years. But as Bracken said, I think right now we just see a lot of opportunity to continue growth. We're investing in that space to increase our coverage and we'll go from there.

Bracken Darrell -- President and Chief Executive Officer

Yeah, I'll just add one other thing about that, in thinking about what you just said, Nate. We also have large deals that get agreed to up front and then they're deployed over a year or even two. So, it does make it a little more predictable than that. Our DCS, by the way, is underneath this 28% sell-in -- our DCS is more stable this quarter. I mean, it looked a lot like last quarter. So, it's very stable. But to Nate's point, it doesn't sell in. It wobbles up and down.

Paul Chung -- JPMorgan Securities LLC -- Analyst

Gotcha. Okay. Thank you for that. And then, next question's on pointing devices and keyboards. So, you've mentioned the benefits of addressing a large, aging PC install base. And you continue to post growth in these more mature categories. But now, PC shipments are actually squeezing out some growth near-term, right? So, we did notice some positive correlation with your modest keyboard sales relative to PC shipments over the years. So, should we see some incremental benefit in these segments near-term? If so, why didn't we see any benefit discord in particular -- particularly in pointing devices?

Bracken Darrell -- President and Chief Executive Officer

I think, first of all, the install base is so much bigger than the PC shipments that I'm not sure that going forward you're going to see a lot of correlation between PC shipments and our business, or even our categories. Because the truth is, we've sort of disconnected our selling from a PC shipment sale. So, one of the reasons why it used to be more highly correlated was -- first of all, the install base was lower. And then, also, we had programs where we were really aggressively trying to upgrade. If somebody bought a new PC, we would on the spot, if we were lucky, have one of our retailers -- or even e-tailers -- trying to upgrade the mouse that they bought because we'd say, "Well, that mouse is pretty low end. But if you buy a higher end, you'll have a better experience when you get home with the PC."

That's a much smaller story now. So, I don't think you see a high correlation. On the other hand, I think the opportunity we have -- the thing that really drives our business now is our NPIs -- our new product introductions. I think, if our new product introduction cycles -- if they hit this quarter, we tend to have a better quarter. If they hit the next quarter -- so, I think that's probably a lot more of a driver for us going long-term than PC shipments are. And I think, as we go through the rest of the year, you'll see us do some cool things. We've got good innovation coming.

Paul Chung -- JPMorgan Securities LLC -- Analyst

Perfect. Thank you so much.

Bracken Darrell -- President and Chief Executive Officer

Thank you, Paul.

Operator

Next question comes from the line of Andreas Müller with Zed KB. Please go ahead.

Bracken Darrell -- President and Chief Executive Officer

Hi, Andreas.

Andreas Muller -- Zurcher Kantonalbank -- Analyst

Hi, everybody. Thanks for taking my question.

Bracken Darrell -- President and Chief Executive Officer

Absolutely.

Andreas Muller -- Zurcher Kantonalbank -- Analyst

I have two questions, also in pointing devices. I mean, can you explain the declining sales outside of the cordless mice category? I assume cordless mice is still growing, but then you mentioned, I think trackballs and pointers. I mean, is that such -- are these such large categories to move the needles? What's happening there? That's the first question.

Bracken Darrell -- President and Chief Executive Officer

Oh, sure. Yeah, no. I don't think there's a big story to be told on mice. We've had negative quarters off and on for as long as I've been here on the mouse business. And I do think it's much more a function, as I said earlier, of what do we launch, what's the traction on the latest thing we've launched, what's coming up next. Are we selling in or -- a lot of that's what's happening there. No, I don't think -- by the way, I think you're right -- or, I know you're right. Our cordless mice continue to be strong. The -- what's called more niche products in the mouse category can be very attractive, and I think we're going to continue to do those things, like the vertical mouse we launched last year. It's done very, very well.

We upgraded -- you mentioned the trackball. We upgraded our trackball about a year ago, so that -- the growth curve on that's probably faded out a little bit. But we've got more stuff coming. So, I don't think -- I wouldn't overthink this quarter on mice. I think it's just part of the wobble that's happened in that business for as long as we've had it. And if you added up -- looked at all of our PC peripherals business -- looks fine. Up 2%. That's -- if we're up low single digits, that's good.

Andreas Muller -- Zurcher Kantonalbank -- Analyst

I agree. The second question, on cash converge -- I mean, the cash conversion cycle of this 50 days, what would be the cash conversion? I mean, if we hadn't had Blue mic on the peripherals -- the normalized basis. Of course, it's then fluctuating between -- with these -- but how many days we would've been lower with the -- without the exception of -- there.

Nate Olmstead -- Chief Financial Officer

Yeah, I'll take that one. So, I think there's a few days of cash conversion cycle tied up in those items you mentioned. I think, primarily, on the tariff side, obviously, we did pull in some inventories we've done in past quarters when the tariff increases were announced -- tried to take proactive action there to help out on the cost side. So, we did do that again this quarter. The other things in cash conversion cycle, obviously, it's just the linearity of the business. Sequentially, cash conversion cycle improved seven days, as the business had a little better linearity to it than it did in Q4. And then, year-over-year it was up.

So, it's gonna still move around. But there's some headwind in that number from Blue, as they had a little bit longer cash conversion cycle, and as we continue to integrate that business and bring them into our operations, we could see some improvement in that in the future.

Andreas Muller -- Zurcher Kantonalbank -- Analyst

Okay. Great. Thanks.

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] higher cash conversion cycle than we have. But we can definitely do better with Blue over that.

Nate Olmstead -- Chief Financial Officer

Mm-hmm.

Andreas Muller -- Zurcher Kantonalbank -- Analyst

Okay. Thank you.

Bracken Darrell -- President and Chief Executive Officer

Thank you. Thanks for --

Operator

[Crosstalk] Next question comes from the line of Thomas Forte with D.A. Davidson.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

Great. Thanks for --

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] Hello, Thomas.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

-- taking my questions. First of all, I want to congratulate Nate for being named CFO. And then, I want to talk about two things first on gross margins, and then second, on gaming. On the gross margin front, I think it's remarkable that you had a 40-basis-point increase year-over-year despite the tariffs. I wanted to know if you could give some more information on what you're doing to mitigate the tariffs. And then, on gaming in particular, I wanted to talk about new products and how you felt about your new premium console controller from ASTRO.

Bracken Darrell -- President and Chief Executive Officer

Great. Let me -- I'll take the second one first and then I'll hand it off to Nate, although I do want to make a comment on the gross margin before I jump over to the gaming question. I also am very impressed that we had such a strong quarter in gross margin, because we had 170 basis points of impact from currency. So, we managed to offset that, which is great -- and still deliver in the middle of the range, which -- of our long-term range. So, I feel good about that.

On the gaming side, the C40 is our first foray into controllers since we bought ASTRO, and it's been a good, strong performer. It's still very early days for us in that new category, but it's a big category. There's a lot of potential there and we're going to -- we're optimistic about the long-term. You want to go back to the --

Nate Olmstead -- Chief Financial Officer

Yeah, and I think on gross margin Bracken mentioned -- there are really two significant headwinds this year, currency actually the larger of the two. It was actually about 120 basis points --

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] 120. Yeah, sorry.

Nate Olmstead -- Chief Financial Officer

-- out our hedging. And then, tariffs added a little bit on top of that as well. I think, in terms of tariffs obviously we've taken actions for some quarters now to diversify manufacturing locations. That's probably the most important one, as well as I mentioned, pulling in some inventory ahead of the tariff increases that gets you a one-time benefit. So, both of those were significant helps this quarter. Also, on gross margin, just keep in mind we're continuing to see some benefits from the portfolio mix shift -- things like VC, which grew faster than the overall company, again have relatively higher margins. And so, that helps as well.

Looking forward, obviously, we only had a half of -- so, the tariffs increased in the middle of the quarter, so we'll have some additional tariff cost increases next quarter that we're taking steps to mitigate. I mentioned we did notify some of our U.S. partners of -- all of our U.S. partners for some selected price increases. So, that is an additional new step that we're taking in Q2. But that gives you a flavor of some of the things that we're doing. Again, I give a lot of credit to the operations team for moving quickly and doing a really good job mitigating those costs.

Bracken Darrell -- President and Chief Executive Officer

Hear, hear.

Thomas Forte -- D.A. Davidson & Co. -- Analyst

Great. Thanks for taking my questions, Bracken and Nate.

Bracken Darrell -- President and Chief Executive Officer

Thanks, Tom.

Operator

Your next question comes from Jürgen Wagner with MainFirst Bank.

Bracken Darrell -- President and Chief Executive Officer

Hey, Jürgen.

Jurgen Wagner -- MainFirst Bank AG -- Analyst

Yeah, hi. Thank you for taking my question. Actually, a follow-up on the gross margin. Can you quantify the product mix impact on the gross margin? You mention video collaboration, so how much the benefit was. And on M&A, last time, I think -- or end of last year, we discussed potential Plantronics addition. What can we expect to see of the new CFO? Thank you.

Bracken Darrell -- President and Chief Executive Officer

Okay, well, our new CFO's really a wet blanket on all acquisitions, so expect us to do nothing. I'm kidding. No, Nate's all-in on our current approach. We're an organic growth company that uses acquisitions to accelerate or differentiate what we're doing. And Nate -- I'll speak for you, Nate, because we've talked about it a lot. He's totally bought into that and we're also looking at new stuff and potential M&A. And the stars have to align on things to make them happen. But, yeah, I think you can expect more M&A. You wanna to go ahead?

Nate Olmstead -- Chief Financial Officer

Yeah, I think on the product mix, I think I'll refrain from getting into too much detail on that. But I would say, there's always puts and takes. But that is one where I would expect some continued benefit for us, just because -- again, I think, with some predictability, we expect VC to grow faster. Another thing this quarter, which was nice to see -- obviously, we had good growth in mobile speakers. And the products that did ship this quarter were a higher margin than the same period in the prior year. So, that was also a factor -- sort of a mixed benefit within that category itself.

Jurgen Wagner -- MainFirst Bank AG -- Analyst

And I thought mobile speaker would be around a lower gross margin product.

Nate Olmstead -- Chief Financial Officer

Overall, it is. But like I said, just on a year-over-year basis, the products that were strong this quarter were higher margin. So, it's still, overall as a category, below the company average. But the products that shipped this quarter and provided some of that growth were on the higher end.

Jurgen Wagner -- MainFirst Bank AG -- Analyst

Okay. And then, on M&A, probably just say smaller acquisitions or did you just say acquisitions are part of your strategy?

Bracken Darrell -- President and Chief Executive Officer

Yeah, yeah. No, acquisitions are part of our strategy, so you can expect us to continue to be pursuing them as we've been in the past. Small, medium -- it's not impossible we could do something large, but as we've talked about before, the large stuff is really -- the stars all have to align to make that happen. But small and medium is certainly in the strike zone.

Jurgen Wagner -- MainFirst Bank AG -- Analyst

Okay. Thank you.

Bracken Darrell -- President and Chief Executive Officer

Good.

Operator

Okay. Next question comes from Ananda Baruah with Loop Capital.

Bracken Darrell -- President and Chief Executive Officer

Hey, Ananda.

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

Hey. Good morning. Good morning, Bracken. Good morning, guys. Thanks for taking the questions. Congrats on a solid quarter. And yeah, Nate, congrats on the appointment. Look forward to working with you. So, just to start at a higher level, do you still feel the same for this fiscal year, Bracken, about the key revenue segments? And if you don't one way or another, could you just highlight what we should know about the differences? And then, I have a couple of follow-ups. Appreciate it.

Bracken Darrell -- President and Chief Executive Officer

Okay. Yeah, look, we've got three businesses that are big for us. It's video collaboration, it's gaming, and it's CMP. And then, we've got a growing number of other businesses that are contributors, including the M&A that we've done in the past. So, I feel about the same about all of them that I did as we started the year. I think the one that was the most uncertain for us was gaming because we really didn't know how big the Fortnite effect was. We -- it was really hard to say. And so, now that we've seen a quarter of that, which is probably the strongest year-over-year quarter in terms of a compare, now we have a better visibility to it.

So, I would say that generally speaking we feel good about our guidance that we started the year with based on that. When we do the back of the envelope, or the spreadsheet exercise, we feel good about that. And pretty much the same geography of growth.

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

And would you say -- do you feel that Fortnite is about as expected from the start of the year, or is it different from what you expected one way or another?

Bracken Darrell -- President and Chief Executive Officer

I'd say it was stronger than expected. I think the Fortnite effect was -- it looked and felt strong at the time. And I think after looking at it over a quarter, it looks and feels very strong there. The good thing about that is that strength also -- it's probably a pretty good indicator of how many new people came into the gaming business because of Fortnite, and mainly came into headsets. And since we're a -- we have a big headset business now versus -- having both ASTRO and Logitech G in the gaming business.

We made a bet that we were going to emphasize trade up opportunities off the low end as we did some of our new products. So our PRO headset's a perfect example of that. It's got the Blue VO!CE microphone built in. It's a very -- it's a beautiful design. And so, I hope that bet is going to pay off and we'll be able to drive some trade up through the year and into next year.

Nate Olmstead -- Chief Financial Officer

Hey, Ananda --

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

[Crosstalk] That's great. That's -- yes.

Nate Olmstead -- Chief Financial Officer

Hey, Ananda, one comment on the headset growth. I went back and looked at the market data. So, this is not Logitech specific, but for the market back in the calendar Q4 a year ago. Typically, that market showed a decline of about 40% calendar Q4 to calendar Q1. And a year ago, it actually grew 1% calendar Q4 to calendar Q1, just to highlight -- so, a 41-point swing in typical seasonality in the market in headsets a year ago, just to augment Bracken's comments about the tough compare and really how powerful that headset growth was a year ago in the market.

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

All the context is really helpful. I appreciate it. So, just to make -- that I'm accurately understanding what you guys are saying -- Bracken, the Fortnite headwind to start this year was perhaps a bit more pronounced that you originally envisioned it would be. But, you're still putting up solid numbers in the non-headset business and you guys also feel that, based on the amount of headsets that were purchased, about a month ago there's a prove point there as to the attractiveness to the headset market in key segments of your gaming. Is that all accurate?

Bracken Darrell -- President and Chief Executive Officer

Yeah, I think you -- I think that's a pretty good summary. I think, on your last comment, we know the headset market is a great market. And so, we're bringing out new things into that market. And the really interesting thing's going to be to see if we can upgrade some of those people that came in -- that big wave of people who came -- if we can upgrade them to higher end headsets because a lot of them bought the medium and low end.

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

That's great context. Okay, cool. And then, a follow-up, if I could. Can you just connect some of the dots for us on the interplay between what had been your ongoing opex investments and the driving of incremental revenue growth, and which -- how that plays into the key segments, just so that we can mental math that out for ourselves? And then, that's --

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] Yeah, I probably -- that's a great question, and I'm probably not going to be able to go deep enough to satisfy a spreadsheet exercise or a model that would suggest it -- but, what I would say is, if you look for example, at this quarter, we grew kind of equally -- not in absolute value, but in percentage terms -- both in R&D and sales and marketing costs. And if you really dug underneath, on the sales and margin expenses, we're really trying to increase the amount of real marketing spending we're doing at the expense of promotion, as Nate said earlier. And I think that's been a strategy of ours for a while and we're going to keep it up. We started this over in Asia Pacific and now we're moving it into EMEA, and beginning to move into AMR.

So, that path feels like the right long-term path for a company that's trying to build sustainable brands and sustainable business. On the R&D side, we have really good choices right now, and good opportunities to invest in R&D, so we're going to keep doing that. That's more broad-based, but I would say we're certainly doing it in gaming. We're certainly doing it in VC and in other categories as well. And, of course, some of that is we also -- when we do an acquisition that's an add-on, too.

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

Okay. Got it. And so -- yeah, no, you've been talking for the last year or so about real marketing versus promotion. So, on the SG&A side, it's really that -- is it really that moving globally east? And then, in addition to that, I would assume that you guys also are doing some video collaboration and enterprise hiring. Would those be the big buckets? And then, I'll --

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] Yeah. Yeah, you described it perfectly. That's exactly. Right.

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

Awesome. Thanks a lot. Appreciate it.

Bracken Darrell -- President and Chief Executive Officer

All right. Thanks, Ananda.

Nate Olmstead -- Chief Financial Officer

Thanks, Ananda.

Operator

Your next question comes from Nehal Chokshi with Maxim Group.

Bracken Darrell -- President and Chief Executive Officer

Hey, Nehal.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Yes. Hello, and congratulations on continuing to deliver on the benefits of the diversification of the business. That's really great.

Bracken Darrell -- President and Chief Executive Officer

Thank you.

Nehal Chokshi -- Maxim Group LLC -- Analyst

On the gaming side, did I hear you correct that the -- excluding the headsets, gaming was up 20% year-over-year?

Bracken Darrell -- President and Chief Executive Officer

Yeah, over 20. Over 20% [crosstalk] --

Nehal Chokshi -- Maxim Group LLC -- Analyst

Did that --

Bracken Darrell -- President and Chief Executive Officer

-- versus Q4.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Okay. Exactly. And so, what percent does the ASTRO and PC gaming represent overall gaming in the June quarter?

Bracken Darrell -- President and Chief Executive Officer

What percentage is ASTRO and PC -- we don't actually break that out, so we -- but the majority -- the vast majority of it is obviously our PC gaming business.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Okay.

Bracken Darrell -- President and Chief Executive Officer

And ASTRO had a great year of growth last year and now we've added a controller. So, it's growing there too.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Right. I guess, what I'm trying to get at is that -- is the install base of headsets -- active headsets greater than before the Fortnite phenomenon took over?

Bracken Darrell -- President and Chief Executive Officer

It almost has to be. I mean -- well, it does have -- mathematically, it has to be. So, yeah, it is definitely bigger.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Any chance you can give a little bit of a quantification of how much bigger it might be?

Bracken Darrell -- President and Chief Executive Officer

No, I don't -- I'm not even sure we have that. That's a tricky number to get because you actually have to know a real user and --

Nate Olmstead -- Chief Financial Officer

[Crosstalk] End user.

Bracken Darrell -- President and Chief Executive Officer

But you can figure it has to be because so many new gamers came into it. And that's why, as I mentioned earlier, we see upgrade potential now. Whether that upgrade potential happens this year or next year, it will happen, I think, because the -- as you get into -- you first headset -- I had the experience -- we just gave one of our PRO headsets to somebody yesterday. And the difference in the Blue VO!CE, for example -- and just the design -- is significant. And so, I think we will see upgrades, but I don't -- we don't have an exact number.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Okay. Understood. And then, this slide in the presentation deck that shows the sell through versus the U.S. dollar as-is -- can you just walk me through again why there's such a big differential between the EMEA year-over-year of 12% and 5% sell through?

Bracken Darrell -- President and Chief Executive Officer

Yep.

Nate Olmstead -- Chief Financial Officer

Yeah, sure. Let me try again. So, the U.S. dollar selling growth of 12% versus the sell through growth of 5%, those are both U.S. dollar. And the majority of that spread is caused by, again, the strategy of moving from transactional promotional spend down into opex. And then, the sell through numbers are reported, really, on a gross basis versus the revenue sell in numbers are on a net basis. And so, the reduction in that promo spend means that the gross revenue, or the sell through, translates into a higher net revenue number just because there's really less discounting -- which is the difference -- the primary difference between the gross and the net.

Bracken Darrell -- President and Chief Executive Officer

Did you follow that?

Nate Olmstead -- Chief Financial Officer

Did that makes sense?

Nehal Chokshi -- Maxim Group LLC -- Analyst

I guess the headline that I see here --

Nate Olmstead -- Chief Financial Officer

[Crosstalk] for the last couple of quarters. Yeah.

Nehal Chokshi -- Maxim Group LLC -- Analyst

The headline that I see here is channel inventory build. But you're telling me no, that is not the case because the differential is no discounting, actually. Is that correct? No promotional activity.

Nate Olmstead -- Chief Financial Officer

[Crosstalk] That's right. That's right. That's right.

Bracken Darrell -- President and Chief Executive Officer

You got it. It's -- we're reducing promotion activity, which is coming out the top-line, so it's not a channel inventory build. The channel inventory's relatively stable quarter-over-quarter -- or year-over-year.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Understood. Okay. And then, that reduced promotional activity, is that across all product sets or is it focused on certain product sets?

Bracken Darrell -- President and Chief Executive Officer

It's focused on certain product sets, but it's fairly broad. It's mostly our consumer business, our -- the B2B part of it would look stable. But all the consumer part, which is most of our business, is generally -- and we're doing -- and that is more in Europe than elsewhere.

Nehal Chokshi -- Maxim Group LLC -- Analyst

Okay. Great. Thank you.

Bracken Darrell -- President and Chief Executive Officer

Thank you.

Nate Olmstead -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Michael Foeth with Vontobel.

Bracken Darrell -- President and Chief Executive Officer

Hey, Michael.

Michael Foeth -- Vontobel AG -- Analyst

Yes, hi. Hi. So, two questions from my side. The first one is you talked about the mitigation measures against the China tariffs and production shifts. My question would be what specifically have you shifted in terms of production, or changed in terms of production, and are there more plans to do so? And what sort of costs and investments are attached to that that will impact financials in the next quarters?

And the second question would be the -- in video collaboration, you mentioned the growth supported by products for larger conference rooms. My question would be if there's any change in the dynamics for small rooms that you are seeing. And -- because to me, the small room opportunity seems to be a larger market. And my question is if there are any changes in those dynamics. Thank you.

Bracken Darrell -- President and Chief Executive Officer

Okay. Yeah, I'll start with that one and then I'll go back to the other one. And then, Nate can jump in anywhere he likes. From a -- no, we don't see any difference in the Huddle Room versus medium and large conference rooms. We just weren't in the medium and large conference rooms very much, so we talked about that more. But the Huddle Room is obviously our sweet spot. That's where we started, and we don't see a change in that. It's a great opportunity for us worldwide -- those -- there'll be -- the growth of small huddle rooms will be much bigger than the growth of large conference rooms. So, it's still super key for us. And that we don't see a big change.

In terms of shifts in manufacturing, I -- without getting really specific on individual categories, etc., we've got -- we now have manufacturing in more countries in Asia than we ever have since Logitech started. So, we're in Malaysia, and Vietnam, and Thailand, and we're even looking at a few other countries. But I don't want to exaggerate it either. I mean, our factory's still quite busy. It's -- the factory in China has a great -- has a super-efficient, and obviously the U.S. is just the -- it's the only effective country here. So, we have a lot of manufacturing still happening in China. We will have a lot of manufacturing happening in China. We love that factory. And so, we're just spreading out a little bit.

Michael Foeth -- Vontobel AG -- Analyst

Okay. Great. And any --

Bracken Darrell -- President and Chief Executive Officer

[Crosstalk] By the way, you asked about cost. Actually, relatively low cost to move these. We're used to doing this, so we don't -- there aren't usually huge tooling costs or anything. So, you want -- we aren't going to see a massive blip in our fixed asset investments or cost for the move. They're going to -- they're really feathered in pretty well into our gross margin.

Michael Foeth -- Vontobel AG -- Analyst

Okay. Great. Thank you.

Bracken Darrell -- President and Chief Executive Officer

Okay.

Operator

Once again, if you'd like to ask a question, please press *1 on your telephone keypad. And we have a question from Rigo Hewer with Research Partners.

Bracken Darrell -- President and Chief Executive Officer

Hey, Rigo.

Rigo Hewer -- Research Partners Ltd. -- Analyst

Yes, hello. Thanks for taking my questions. I have two of them. The first one is I was wondering what was the contribution of Blue mic in Q1? And then the second one, do you expect the mobile speaker business in Asia Pacific to flatten out in Q2 already, or will this happen a lot later?

Bracken Darrell -- President and Chief Executive Officer

You want to take the Blue microphone? What's the contribution?

Nate Olmstead -- Chief Financial Officer

What was the contribution? So, it was about two points at the company level to our overall growth. Blue was about two points to total company growth.

Bracken Darrell -- President and Chief Executive Officer

Yeah. And then, the business was at over 20%. And mobile -- and you asked when is -- the mobile speaker business was up 51% this quarter. When do we expect that start to moderate? Next quarter. It will absolutely not be anything like that because last year in Q2 we launched the latest versions of Boom and Megaboom. Which -- when we launch later versions, usually there's a big sell in activity that happens. SO, I would expect it absolutely to be not -- nothing like that number and probably pretty strongly negative.

Rigo Hewer -- Research Partners Ltd. -- Analyst

All right. But I was actually wondering in the region Asia Pacific where mobile speakers are declining, right?

Bracken Darrell -- President and Chief Executive Officer

Yeah, mobile speakers are declining modestly everywhere. Not every country, but modest. I think the category's probably down about -- between 5-10%. Asia Pacific is, for us too -- we have a bigger business in Asia Pacific relative to the size. It's mostly Australia and New Zealand. But we also -- it's also a good business. I think the mobile speaker business in Australia and New Zealand will continue to be pretty good. It may have wobbles, but I think it's such an outdoor culture down there. It's pretty seasonal, but it's a great business. And we have a very large market share. I think we have a 40% market share down there.

Rigo Hewer -- Research Partners Ltd. -- Analyst

All right.

Operator

And once again, if you'd like to ask a question, please press *1 on your telephone keypad. And there appears to be no further questions at this time. I will turn the call back over to Mr. Darrell for closing remarks.

Bracken Darrell -- President and Chief Executive Officer

Well, as I always say to our team, the key to a good year is a good first quarter, and we just had a good first quarter. And now, we need to turn it into a good year. So, thanks a lot for such an engaged call. I want to, again, congratulate my partner in crime, Nate, and all of the rest of our team who I think did a good job this quarter. And we'll see you guys next quarter.

...

Operator

This concludes our conference call for today. You may all now disconnect. Thank you.

Duration: 53 minutes

Call participants:

Ben Lu -- Vice President of Investor Relations

Bracken Darrell -- President and Chief Executive Officer

Nate Olmstead -- Chief Financial Officer

Ananda Baruah -- Loop Capital Holdings LLC -- Analyst

Asiya Merchant -- Citigroup Global Markets, Inc. -- Analyst

Andreas Muller -- Zurcher Kantonalbank -- Analyst

Jurgen Wagner -- MainFirst Bank AG -- Analyst

Paul Chung -- JPMorgan Securities LLC -- Analyst

Joern Iffert -- UBS Investment Bank -- Analyst

Michael Foeth -- Vontobel AG -- Analyst

Nehal Chokshi -- Maxim Group LLC -- Analyst

Rigo Hewer -- Research Partners Ltd. -- Analyst

Thomas Forte -- D.A. Davidson & Co. -- Analyst

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