George Wang: Okay, great. If I can squeeze in a second question quickly. Just any color on the kind of refresh cycle, kind of the upgrade cycle across gaming, especially because intuitively, gaming has much faster refresh cycle versus kind of traditional PC-related kind of peripherals and B2B side. So, just curious whether you are already seeing a kind of rebounding the reverse cycle kind of after last cycle kind of including the COVID.
Chuck Boynton: Certainly. I can take this, and Guy can jump in. we have a handful of new NPIs that we’ve launched this quarter just in time for our peak December quarter in the gaming area. We’re really excited about the PRO line. You saw a commercial there, the PRO line mice and keyboards, two new Yeti microphones, the new lighting system. So, I think we’re in a really good place with the category. We do have a couple of NPIs coming right after the December quarter to address console gaming headsets, but the line is being updated and refreshed. The product teams are working very hard to accelerate the time to market for new products. Guy, do you want to?
Guy Gecht: So, first of all, exactly that. We need to give people the reason to refresh and buy new things, and we’re working on this, continue to release new products. Our roadmap is pretty exciting. In gaming, as I mentioned, there’s three categories. The PC gaming, it’s the biggest part. I think we’re starting to see people moving and upgrading what they have. There’s another category of console and simulation. Those are two categories where people heavily pull forward during COVID, and I think that might take a little longer than the PC gaming, but definitely at some point people would like to upgrade and we give them pretty good reason to upgrade.
George Wang: Okay, great. Congrats, again. I’ll go back to the queue.
Nate Melihercik: Thank you, George. As a reminder for those in queue, please feel free to turn your video on when you ask questions. And our next question is from Asiya Merchant at Citi.
Asiya Merchant: Hey, good morning. I’m trying to turn on my video, but I think Nate’s disabled me. But anyway, good to see you guys, Guy, and Chuck. There I am.
Chuck Boynton: Hello, Asiya.
Asiya Merchant: A question on margin.
Chuck Boynton: Oh, there you are.
Asiya Merchant: Yes. Nate enabled me finally. All right. Just on margins, if I may. You mentioned there were some one-time benefits that certainly resulted in margins which were better than what you think had guided, which was down sequentially for the September quarter. Can you walk us through some of those margin benefits that impacted this quarter, and why we shouldn’t expect that to continue in the second half? I understand there’s new products that takes a little bit off just given the new product launches, but what’s there that shouldn’t help you in the second half of this year?
Chuck Boynton: Certainly, Asiya, and yes, great question. So, first, we overdelivered revenue in Q2, and when you overdeliver revenue, you get more fixed cost absorption. So, there was leverage and scale that helped in the quarter versus expectations. We also had communicated that we expected channel inventory to be flat quarter-over-quarter, and it came down. And when channel inventory comes down, then gross to net tends to improve. We also decreased on-hand inventory again, which had a corresponding benefit as well, one-time benefit to inventory reserves. So, those were the – those two are probably not going to repeat in the third quarter. Maybe in the fourth quarter they will. And then structurally, we did a really good job on cost reduction.
We drove down product costs. That had a meaningful impact both year-over-year and a little bit quarter-over-quarter. Certainly, freight and logistics costs year-over-year were a huge improvement, not so much quarter-over-quarter, and then there were some mixed benefits quarter-over-quarter, but tailwinds year-over-year. So, a lot in there. But I do think overall, we’re in a better place now than we were. Primarily, our operations team has driven lower product costs and our commercial organization has improved linearity and has reduced discounting, which has been helpful to gross margins. Now, a word of caution though for Q3. It is our biggest quarter. It’s more consumer-oriented, and therefore it tends to be more promoted. So, we do see margin pressure in Q3.
And then, as I mentioned in the prepared remarks, in Q4, we intend to bring down channel inventory. So, you’ll have less leverage in scale in Q4, given it’s typically seasonally our lowest quarter.
Asiya Merchant: Okay. Is this the guiding slide that the December quarter should be more in line with seasonal?
Chuck Boynton: Yes, December quarter will be more in line with seasonal, and then I think Q4 will be a little lower because of the year-over-year reduction in channel inventory.
Asiya Merchant: Okay, great. And just gaming, if I may one more. I think some of your – I think specifically in the prepared remarks, you mentioned share gains across your three other products. You didn’t mention gaming. Is that still a function of the fact that – are you losing share in PC gaming, or is it just because you’re seeing tough comps in console and simulation that the gaming looks a little bit maybe optically weaker than some of your other competitors have talked about gaming getting some growth by the quarter – by the year-end, calendar year-end?
Chuck Boynton: There’s been some share shifts in different categories, gains and losses in gaming. The important thing in gaming, console gaming is a really important category to us. One, the margins are higher. It’s the heritage of Logitech. We have number one market share in mice, a really important category for us. In the keyboard space, we have number two market share. In both those categories, I think the NPIs will help gain some share back.
Guy Gecht: Yep. I would say, when I track to where we’re gaining and losing, it’s normally where we have a product that’s been in the market for too long, the competitors make, again, little improvement. When we have new products, normally we have big fans. Our products are great, and our job is just to make sure we accelerate and get to the market. The new chair, the executive that oversee gaming is definitely on it. So, a lot more good products to come.
Asiya Merchant: Great, thank you. I’ll jump back in the queue. Thank you.
Nate Melihercik: Our next question is from Erik Woodring at Morgan Stanley. Morning, Erik.
