Logitech(LOGI) - 2022 Q4 - Annual Report

Part I Business Logitech, a global leader in PC and mobile peripherals, operates as a single segment focusing on Creativity & Productivity, Gaming, Video Collaboration, and Music markets - Logitech operates as a single operating segment: Peripherals, with products participating in four large markets: Creativity & Productivity, Gaming, Video Collaboration, and Music[18] - The business strategy is built on five core capabilities: Design, Engineering, Go-to-market, Marketing, and Operations[26] - Manufacturing is split, with approximately half of production at its own facility in Suzhou, China, and the rest outsourced to contract manufacturers in Asia[51] Key Customers' Share of Gross Sales (FY 2022) | Customer | Share of Gross Sales | | :--- | :--- | | Amazon Inc. | 17% | | Ingram Micro Inc. | 15% | | TD Synnex | 14% | Sales by Geographic Region (in thousands) | Region | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Americas | $2,317,941 | $2,206,552 | $1,286,527 | | EMEA | $1,724,027 | $1,735,682 | $941,211 | | Asia Pacific | $1,439,133 | $1,310,045 | $748,113 | | Total Sales | $5,481,101 | $5,252,279 | $2,975,851 | Products Logitech's diverse product portfolio spans Creativity & Productivity, Gaming, Video Collaboration, and Music, with some smart home lines being phased out - Creativity & Productivity: Includes Pointing Devices (e.g., MX Master 3), Keyboards & Combos (e.g., MX Keys), PC Webcams (e.g., C920), and Tablet & Other Accessories (e.g., Combo Touch for iPad)[32][34][35] - Gaming: Provides industry-leading gear for all levels of gamers, including keyboards (G915), mice (G PRO X Superlight), headsets (ASTRO A50), and simulation products (G923 Steering Wheel)[35][37] - Video Collaboration: Offers ConferenceCams like the Logitech Rally Bar and MeetUp, designed for various-sized meeting rooms, and high-end webcams like the Logitech BRIO[38] - Music: Includes Mobile Speakers (e.g., Ultimate Ears BOOM 3) and an Audio & Wearables category with PC speakers, headsets, and Blue Microphones (e.g., Yeti) for creators[38][39][40] - The company decided to cease future product launches under the Jaybird brand in Q3 FY2022 and discontinued the Harmony line of controllers in Q4 FY2021[39][42] Competition Logitech faces intense competition across all product categories from major players like Apple, Microsoft, Razer, Cisco, and Bose - Creativity & Productivity: Competitors include Apple, Microsoft, Lenovo, HP, Zagg, and various Asian brands like Rapoo and Xiaomi[57][58][59] - Gaming: Key competitors are Razer, Corsair Gaming, SteelSeries, Turtle Beach, and HyperX (owned by HP Inc.)[60] - Video Collaboration: Competitors include Cisco Systems, Poly, Inc., GN Netcom/Jabra, and AVer Information Inc.[61] - Music: Competitors for speakers and audio include Bose, Harman (JBL), Apple (Beats), Sony, and smart speaker providers like Amazon and Google[62][63][64] - Microphone competitors include Rode and Shure[62] Human Capital Resources As of March 31, 2022, Logitech employed approximately 8,200 people, emphasizing diversity, inclusion, and employee well-being - Employed approximately 8,200 persons as of March 31, 2022, with around 3,000 in Suzhou manufacturing operations[82] - As of March 31, 2022, females represented 37% of the global office workforce and 34% of managerial roles[84] - In the U.S., underrepresented minorities represented 45% of the workforce[84] - The production facility in Suzhou, China, follows the RBA Code of Conduct and is certified to ISO 14001 (Environmental) and ISO 45001 (Health and Safety)[86] Risk Factors Logitech faces significant risks including market competition, supply chain dependencies, global economic instability, cybersecurity threats, and financial unpredictability - Business Risks: The company's success depends on timely innovation, managing a diversified product portfolio, and navigating supply chain constraints, particularly with key components sourced from a limited number of suppliers and manufacturing concentrated in China[100][106][118][120] - Competitive and Market Risks: Intense competition from well-financed rivals like Microsoft, Apple, and Amazon, coupled with the uncertain full effect of the COVID-19 pandemic on demand and operations, could adversely affect results[128][130][132] - Global and Regulatory Risks: Operations are subject to international political and economic instability (e.g., Russia's invasion of Ukraine), changes in trade policy and tariffs, currency exchange rate fluctuations, and evolving ESG and tax regulations[102][161][165][171] - Cybersecurity and IP Risks: Significant disruptions or security breaches of IT systems, liabilities arising from the handling of user data under regulations like GDPR, and claims of infringing on others' proprietary technology could harm the business[103][183][185][187] - Financial Risks: Operating results are difficult to predict and gross margins can vary significantly[104][191] - The company cannot guarantee the continuation or size of its share repurchase program or dividend payments[194][198] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[200] Properties Logitech's corporate headquarters is in Lausanne, with key offices in California and Taiwan, and owned manufacturing in Suzhou, China - Principal corporate and administrative offices are in Lausanne (Switzerland), Newark (California), and Hsinchu (Taiwan), totaling approximately 286,000 square feet of leased space[201] - The company owns manufacturing units and employee dormitories in Suzhou, China, occupying approximately 720,000 square feet[202] Legal Proceedings The company is involved in ordinary course legal proceedings, not expecting a material adverse effect on its financial condition - The company is subject to claims and legal proceedings from the ordinary course of business but does not believe their resolution will have a material adverse effect[204] Mine Safety Disclosures The company reports no mine safety disclosures - None[206] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Logitech's shares trade on SIX Swiss Exchange and Nasdaq, with a recommended dividend increase and an active $1.0 billion share repurchase program - The Board of Directors recommended a 10% increase for the fiscal year 2022 cash dividend to approximately CHF 0.96 per share, subject to shareholder approval[210] - The company has a $1.0 billion share repurchase program, effective through July 2023[215] - As of March 31, 2022, $423.7 million remained available for repurchase[335] Share Repurchases in Fiscal Year 2022 | Period | Shares Repurchased (thousands) | Average Price (CHF) | Average Price (USD) | Remaining Program Amount (thousands) | | :--- | :--- | :--- | :--- | :--- | | FY 2022 Total | 4,607 | 82.15 | 89.36 | $423,696 | - Over the five years ending March 31, 2022, a $100 investment in Logitech stock grew to $242, compared to $252 for the Nasdaq Composite Index and $328 for the S&P 500 Information and Technology Index[220][222] (Reserved) This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations FY2022 sales grew 4% to $5.48 billion, but gross margin and operating income declined due to increased costs and promotional spending, with cash from operations significantly decreasing Fiscal Year 2022 Financial Summary | Metric | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $5,481.1 M | $5,252.3 M | +4% | | Gross Profit | $2,263.0 M | $2,335.7 M | -3.1% | | Gross Margin | 41.3% | 44.5% | -320 bps | | Operating Income | $774.0 M | $1,148.1 M | -32.6% | | Net Income | $644.5 M | $947.3 M | -32.0% | - Sales growth was driven by Gaming (+17%), Keyboards & Combos (+23%), and Pointing Devices (+15%), offset by declines in Video Collaboration (-5%) and Audio & Wearables (-14%)[279] - The company indefinitely ceased all sales and shipments to Russia and Ukraine in Q4 FY2022; these markets accounted for approximately 2% of total revenue for the fiscal year[233] - Cash flow from operating activities decreased significantly to $298.3 million in FY2022 from $1.46 billion in FY2021, mainly due to an unfavorable net change in operating assets and liabilities, including a $276.6 million increase in inventories[328][421] Results of Operations FY2022 sales increased 4% to $5.48 billion, driven by Gaming and Keyboards, but gross margin declined to 41.3% due to higher costs and promotions Sales by Product Category (FY2022 vs FY2021, in thousands) | Product Category | FY 2022 Sales | FY 2021 Sales | Change | | :--- | :--- | :--- | :--- | | Pointing Devices | $781,108 | $680,907 | 15% | | Keyboards & Combos | $967,301 | $784,488 | 23% | | PC Webcams | $403,651 | $439,865 | (8)% | | Tablet & Other Accessories | $310,123 | $384,301 | (19)% | | Gaming | $1,451,883 | $1,239,005 | 17% | | Video Collaboration | $997,164 | $1,044,935 | (5)% | | Mobile Speakers | $149,782 | $174,895 | (14)% | | Audio & Wearables | $401,424 | $468,776 | (14)% | - Gross margin decreased by 320 basis points to 41.3%, primarily due to increased promotional spending, higher reserves for excess inventories, and increased material and logistics costs[297] - Marketing and selling expenses increased by $255.6 million, mainly from higher advertising spend and increased headcount to support go-to-market expansion[299][300] - Research and development expenses increased by $65.8 million, driven by a $39.9 million increase in personnel-related costs to support innovation[302] Liquidity and Capital Resources As of March 31, 2022, cash and equivalents decreased to $1.33 billion, with cash from operations significantly lower due to increased inventory and financing activities Key Balance Sheet and Working Capital Metrics | Metric | March 31, 2022 | March 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,328.7 M | $1,750.3 M | | Inventories | $933.1 M | $661.1 M | | Working Capital | $1,651.8 M | $1,477.5 M | | DSO (Days) | 49 | 36 | | DPO (Days) | 78 | 90 | | ITO (x) | 3.2 | 5.0 | - Net cash used in financing activities was $606.8 million, primarily consisting of $412.0 million for share repurchases and $159.4 million for dividend payments[330] - The company had non-cancelable purchase commitments of $736.9 million for inventory and $29.5 million for capital expenditures as of March 31, 2022[339][340] Quantitative and Qualitative Disclosures About Market Risk Logitech's primary market risk is currency exchange rate fluctuations, with hedging strategies in place to mitigate a hypothetical $24.4 million impact on income - The company's primary market risk exposure is from currency exchange rates, with approximately 50% of FY2022 sales denominated in non-U.S. currencies[349] - Logitech uses currency forward and swap contracts to hedge short-term effects of currency fluctuations on receivables, payables, and forecasted inventory purchases[350][352] - A hypothetical adverse 10% foreign currency exchange rate change would have resulted in an adverse effect on income before taxes of approximately $24.4 million as of March 31, 2022[351] Financial Statements This item refers to the full consolidated financial statements and supplementary data included later in the report - This item refers to the full consolidated financial statements and supplementary data, which are included later in the report[354] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - Not applicable[355] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2022, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[356] - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2022, a conclusion audited by KPMG LLP[358][359] - There were no changes in internal control over financial reporting during the fourth quarter of fiscal year 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[360] Other Information The company reports no other information - None[363] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company reports no disclosures regarding foreign jurisdictions that prevent inspections - None[364] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement, including the Code of Conduct - Most information required by this item is incorporated by reference from the 2022 Proxy Statement[367] - The company has a "Logitech Code of Conduct" that applies to all directors, officers, and employees[368] Executive Compensation Executive compensation information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[370] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[371] Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[372] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement[373] Part IV Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with the Annual Report, including consolidated financial statements and auditor's report - This item contains the list of financial statements, the financial statement schedule, and all exhibits filed with the Form 10-K[375] - The filed documents include the Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, Notes to Consolidated Financial Statements, and Schedule II—Valuation and Qualifying Accounts[375][630]