Logitech(US:LOGI)2021-01-20 16:00Part I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements for Q3 and nine months ended December 31, 2020, reflect substantial growth in sales and profitability, alongside a strengthened balance sheet and robust cash flow Condensed Consolidated Statements of Operations Q3 & Nine Months FY2021 vs FY2020 Performance (Amounts in thousands, except per share) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | YoY Change | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,667,302 | $902,687 | 84.7% | $3,716,354 | $2,266,603 | 64.0% | | Gross Profit | $749,010 | $334,453 | 123.9% | $1,624,466 | $845,505 | 92.1% | | Operating Income | $448,063 | $128,828 | 247.8% | $853,043 | $244,350 | 249.1% | | Net Income | $382,523 | $117,525 | 225.5% | $721,510 | $235,803 | 205.9% | | Diluted EPS | $2.22 | $0.69 | 221.7% | $4.21 | $1.39 | 202.9% | Condensed Consolidated Balance Sheets Balance Sheet Summary (Amounts in thousands) | Account | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $1,388,743 | $715,566 | | Accounts receivable, net | $894,937 | $394,743 | | Inventories | $476,802 | $229,249 | | Total Assets | $3,812,946 | $2,363,474 | | Current Liabilities | | | | Accounts payable | $811,786 | $259,120 | | Accrued and other current liabilities | $704,573 | $455,024 | | Total Liabilities | $1,711,179 | $874,206 | | Total Shareholders' Equity | $2,101,767 | $1,489,268 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Dec 31 (Amounts in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $928,419 | $324,154 | | Net cash used in investing activities | ($46,454) | ($119,441) | | Net cash used in financing activities | ($219,196) | ($150,863) | | Net increase in cash and cash equivalents | $673,177 | $51,530 | Notes to the Condensed Consolidated Financial Statements - The COVID-19 pandemic led to increased demand and sales for certain products, but also caused manufacturing, supply chain, and logistics disruptions and higher costs39 - The effective income tax rate for the nine months ended December 31, 2020, increased to 16.5% from 7.2% due to income mix across jurisdictions and Swiss tax law changes51 - In Q3 FY2021, the company settled $29.0 million contingent consideration for the Streamlabs acquisition by issuing 390,397 treasury shares636567 - A new three-year, $250.0 million share buyback program was approved in May 2020, with $177.6 million remaining available for repurchase as of December 31, 202085 - The company paid a cash dividend of $0.87 per share, totaling $146.7 million, during the nine months ended December 31, 202086 Sales by Product Category - Nine Months Ended Dec 31 (Amounts in thousands) | Product Category | 2020 Sales | 2019 Sales | YoY Change | | :--- | :--- | :--- | :--- | | Gaming | $916,040 | $541,265 | 69% | | Video Collaboration | $659,278 | $254,941 | 159% | | Keyboards & Combos | $565,246 | $424,061 | 33% | | Pointing Devices | $503,228 | $409,293 | 23% | | PC Webcams | $295,020 | $89,041 | 231% | | Tablet & Other Accessories | $267,186 | $103,442 | 158% | Sales by Geographic Region - Nine Months Ended Dec 31 (Amounts in thousands) | Region | 2020 Sales | 2019 Sales | YoY Change | | :--- | :--- | :--- | :--- | | Americas | $1,603,221 | $970,775 | 65% | | EMEA | $1,147,393 | $719,994 | 59% | | Asia Pacific | $965,740 | $575,834 | 68% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the exceptional 85% sales growth in Q3 FY2021 to strong demand across all regions and product categories, driven by pandemic-related trends, resulting in significant gross margin expansion and operating leverage Impacts of COVID-19 to Our Business - The COVID-19 pandemic accelerated work-from-home, study-from-home, gaming, and streaming trends, driving high demand and increased sales for specific products104 - Despite strong sales, the company faced manufacturing, supply chain, and logistics disruptions, leading to inventory constraints and increased logistics costs expected to persist through fiscal year 2021104 Results of Operations Q3 FY2021 Sales Growth by Region | Region | Sales Growth Rate (USD) | Constant Dollar Sales Growth Rate | | :--- | :--- | :--- | | Americas | 85% | 87% | | EMEA | 77% | 67% | | Asia Pacific | 95% | 89% | Q3 FY2021 Sales Growth by Product Category | Product Category | YoY Change | | :--- | :--- | | Tablet & Other Accessories | 342% | | PC Webcams | 309% | | Video Collaboration | 218% | | Audio & Wearables | 87% | | Gaming | 78% | | Keyboards & Combos | 40% | | Pointing Devices | 38% | | Mobile Speakers | (22)% | | Smart Home | (33)% | - Gross margin for Q3 FY2021 increased by 780 basis points to 44.9%, driven by higher sales volume, restrained promotional spending, favorable product mix, and favorable exchange rates, offsetting higher logistics costs152 - Operating expenses for Q3 FY2021 were 18.0% of sales, a significant improvement from 22.8% in the prior-year period, demonstrating strong operating leverage153 Liquidity and Capital Resources - Cash and cash equivalents increased to $1.39 billion as of December 31, 2020, up from $715.6 million as of March 31, 2020168 - Working capital increased to $1.36 billion from $700.3 million at March 31, 2020, driven by higher cash, accounts receivable, and inventories170 Key Working Capital Metrics (Q3 FY2021 vs Q3 FY2020) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Days Sales Outstanding (DSO) | 48 days | 53 days | | Days Payable Outstanding (DPO) | 80 days | 70 days | | Inventory Turnover (ITO) | 7.7x | 7.4x | - As of December 31, 2020, the company had non-cancelable inventory purchase commitments of $853.1 million to support anticipated high demand186 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is currency exchange rate fluctuations, with 54% of Q3 sales in non-U.S. currencies, and a hypothetical 10% adverse change impacting pre-tax income by $36.2 million - The company's main market risk is currency exchange rate volatility, as it transacts business in over 30 currencies194196 - Approximately 54% of sales in Q3 FY2021 were denominated in currencies other than the U.S. Dollar, with the Euro being the most significant at 26% of total sales196 - A hypothetical adverse 10% foreign currency exchange rate change would have resulted in an adverse effect on pre-tax income of approximately $36.2 million as of December 31, 2020198 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of December 31, 2020, the company's disclosure controls and procedures are effective at the reasonable assurance level201 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting204 Part II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various ordinary course legal proceedings, which management believes will not materially adversely affect its financial condition or operations - Logitech is subject to several claims and legal proceedings arising in the ordinary course of business205 - The company does not believe that the resolution of pending legal matters will have a material adverse effect on its financial condition or results of operations205 Item 1A. Risk Factors The company faces key risks including business innovation challenges, operational dependencies on manufacturing and supply chains, regulatory and global trade policy changes, intellectual property and cybersecurity threats, and financial unpredictability - Business Risks: The company's success depends on its ability to innovate in a market with short product life cycles and intense competition. The full effect of the COVID-19 pandemic remains uncertain and could adversely affect business operations and financial condition209217 - Operational Risks: A significant portion of manufacturing is located in China and Southeast Asia, exposing the company to geopolitical risks, tariffs, and supply chain disruptions. The company also relies on a limited number of sources for key components209214277 - Regulatory & Global Risks: Changes in international trade policy, particularly tariffs, could adversely affect costs and gross margins. Fluctuations in currency exchange rates also pose a significant risk to financial performance214294295 - Intellectual Property & Cybersecurity Risks: The company faces risks from claims of infringing on others' proprietary technology, challenges in protecting its own IP, and potential security breaches of its IT systems and user data, especially with increasing data privacy regulations like GDPR212306312 - Financial Risks: Operating results are difficult to predict due to fluctuating demand and economic conditions. Gross margins can vary significantly, and goodwill from past acquisitions could be subject to impairment charges213314316327 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Under the May 2020 share buyback program, the company repurchased 603,000 shares in Q3 FY2021, with $177.6 million remaining available as of December 25, 2020 Share Repurchases for Q3 FY2021 | Period | Total Shares Repurchased | Exchange | Remaining Authorization | | :--- | :--- | :--- | :--- | | Nov 21 - Dec 25, 2020 | 110,000 | Nasdaq | $177,634,000 | | Nov 21 - Dec 25, 2020 | 493,000 | SIX | $177,634,000 | | Total for Quarter | 603,000 | | $177,634,000 | Item 6. Exhibit Index This section lists exhibits filed with the Form 10-Q, including organizational documents, CEO and CFO certifications, and XBRL interactive data files - Key exhibits filed include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as XBRL data files335