Logitech(US:LOGI)2020-10-22 20:23Part I — FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for Q2 and H1 FY21 reflect substantial growth in sales, profit, and balance sheet strength, driven by increased demand Condensed Consolidated Statements of Operations Q2 and H1 FY21 statements show significant year-over-year growth in net sales, operating income, and net income Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | YoY Change | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,257,158 | $719,691 | +75% | $2,049,052 | $1,363,916 | +50% | | Gross profit | $569,723 | $272,076 | +109% | $875,456 | $511,052 | +71% | | Operating income | $321,553 | $68,055 | +372% | $404,980 | $115,522 | +251% | | Net income | $266,914 | $72,933 | +266% | $338,987 | $118,278 | +187% | | Diluted EPS | $1.56 | $0.43 | +263% | $1.99 | $0.70 | +184% | Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2020, shows significant asset and liability growth, driven by increased cash, receivables, and payables Balance Sheet Summary (in thousands) | Account | September 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Total current assets | $2,157,431 | $1,414,478 | | Cash and cash equivalents | $917,221 | $715,566 | | Accounts receivable, net | $750,749 | $394,743 | | Inventories | $394,708 | $229,249 | | Total assets | $3,095,869 | $2,363,474 | | Total current liabilities | $1,204,850 | $714,144 | | Accounts payable | $662,873 | $259,120 | | Total liabilities | $1,389,906 | $874,206 | | Total shareholders' equity | $1,705,963 | $1,489,268 | Condensed Consolidated Statements of Cash Flows H1 FY21 cash flow statements show a substantial increase in operating cash, with financing activities focused on dividends and share repurchases Cash Flow Summary for the Six Months Ended September 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $398,519 | $143,019 | | Net cash used in investing activities | ($30,539) | ($18,582) | | Net cash used in financing activities | ($168,837) | ($150,884) | | Net increase (decrease) in cash | $201,655 | ($30,052) | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, COVID-19 impact, tax changes, segment performance, and shareholder equity activities including buybacks and dividends - The COVID-19 pandemic had mixed effects on operations, leading to high demand and increased sales for certain products while also causing disruptions to the supply chain, inventory constraints, and increased logistics costs41 Sales by Product Category (Three Months Ended Sep 30, in thousands) | Category | 2020 Sales | 2019 Sales | YoY Change | | :--- | :--- | :--- | :--- | | PC Webcams | $102,469 | $28,748 | +256% | | Video Collaboration | $236,704 | $89,553 | +164% | | Tablet & Other Accessories | $83,086 | $33,847 | +145% | | Gaming | $297,711 | $161,014 | +85% | | Mobile Speakers | $43,581 | $57,232 | -24% | - In May 2020, the Board of Directors approved a new three-year share buyback program authorizing the repurchase of up to $250.0 million in shares, with $227.6 million remaining available for repurchase as of September 30, 202086 - The company paid a cash dividend of $0.87 per share during the six months ended September 30, 2020, totaling $146.7 million87 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 FY21's exceptional 75% sales growth to pandemic-driven demand, leading to improved gross margin and strong liquidity Results of Operations Q2 FY21 sales surged 75% to $1.26 billion, driven by strong regional and product category growth, with gross margin expanding to 45.3% Sales Growth by Region (Three Months Ended Sep 30, 2020) | Region | Sales Growth Rate | Constant Dollar Sales Growth Rate | | :--- | :--- | :--- | | Americas | 83% | 85% | | EMEA | 68% | 63% | | Asia Pacific | 70% | 69% | Sales Growth by Key Product Categories (Three Months Ended Sep 30, 2020) | Product Category | YoY Change | | :--- | :--- | | PC Webcams | +256% | | Video Collaboration | +164% | | Tablet & Other Accessories | +145% | | Gaming | +85% | | Audio & Wearables | +68% | - Gross margin for the three months ended September 30, 2020, increased by 750 basis points to 45.3% from 37.8% in the prior year, driven by higher sales volume, restrained promotional spending, and favorable product mix109154 Liquidity and Capital Resources Liquidity strengthened with cash and equivalents reaching $917.2 million, driven by increased operating cash flow and improved working capital metrics - Cash and cash equivalents increased to $917.2 million as of September 30, 2020, from $715.6 million as of March 31, 2020171 - For the six months ended September 30, 2020, net cash provided by operating activities was $398.5 million, a substantial increase from $143.0 million in the same period of 2019176180 Key Financial Metrics (as of Q2) | Metric | September 30, 2020 | September 30, 2019 | | :--- | :--- | :--- | | DSO (Days) | 54 | 58 | | DPO (Days) | 87 | 83 | | Inventory Turnover (x) | 7.0 | 5.3 | Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risk from currency fluctuations, with 50% of sales in non-U.S. currencies, partially hedged by derivatives - The company faces significant currency exchange rate risk, with approximately 50% of sales for the three months ended September 30, 2020, denominated in currencies other than the U.S. Dollar198292 - A hypothetical adverse 10% foreign currency exchange rate change would have resulted in an adverse effect on income before taxes of approximately $23.6 million as of September 30, 2020, after considering offsetting hedges200 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period203 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls206 Part II — OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, which management believes will not materially impact financial condition or operations - The company is subject to several claims and legal proceedings arising in the ordinary course of business207 - Management does not believe that the resolution of pending legal matters will have a material adverse effect on its financial condition or results of operations207 Risk Factors Key risk factors include unpredictable operating results, market competition, COVID-19 impacts, reliance on third-party platforms, manufacturing concentration, and trade policy changes - The full effect of the COVID-19 pandemic is uncertain and could adversely affect the business through supply chain disruptions, increased costs, and unpredictable demand patterns239242 - The business depends on access to third-party platforms (e.g., Apple, Google, Amazon), and if access is withdrawn or terms become unfavorable, operating results could be adversely affected243245 - Manufacturing operations are concentrated in China and Southeast Asia, exposing the company to geopolitical risks, labor issues, and potential tariffs, which could adversely affect operations275290 - Changes in trade policy, particularly U.S.-China tariffs, present significant risks that could increase costs, reduce margins, and diminish customer demand290 Unregistered Sales of Equity Securities and Use of Proceeds Details of share repurchase activities under the May 2020 program, including 312,000 shares repurchased and $227.6 million remaining Share Repurchases (Three Months Ended Sep 30, 2020) | Period | Total Shares Repurchased | Average Price Paid (USD) | Remaining Amount for Repurchase | | :--- | :--- | :--- | :--- | | Month 2 (Jul 25 - Aug 21) | 312,000 | ~$72.83 (Nasdaq) | $227,635,000 | | Total for Quarter | 312,000 | N/A | $227,635,000 |