Logitech(US:LOGI)2021-07-28 16:00Part I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the three months ended June 30, 2021, and 2020, including Statements of Operations, Balance Sheets, Cash Flows, and accompanying notes Condensed Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Financial Metric | 2021 (in thousands) | 2020 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $1,312,058 | $791,894 | +65.7% | | Gross profit | $568,926 | $305,733 | +86.1% | | Operating income | $203,081 | $83,427 | +143.4% | | Net income | $186,841 | $72,073 | +159.3% | | Diluted EPS | $1.09 | $0.42 | +159.5% | Condensed Consolidated Balance Sheets Consolidated Balance Sheet Highlights | Account | June 30, 2021 (in thousands) | March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $1,497,721 | $1,750,327 | | Inventories | $778,596 | $661,116 | | Total current assets | $2,980,354 | $3,159,318 | | Total assets | $3,995,493 | $4,142,378 | | Total current liabilities | $1,412,330 | $1,681,850 | | Total liabilities | $1,623,002 | $1,880,589 | | Total shareholders' equity | $2,372,491 | $2,261,789 | Condensed Consolidated Statements of Cash Flows Consolidated Cash Flow Highlights (Three Months Ended June 30) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by / (used in) operating activities | $(114,970) | $118,847 | | Net cash used in investing activities | $(40,347) | $(12,400) | | Net cash used in financing activities | $(102,533) | $(13,129) | | Net (decrease) / increase in cash | $(252,606) | $93,829 | Notes to the Condensed Consolidated Financial Statements This section provides detailed notes on accounting policies, COVID-19 impact, income taxes, balance sheet components, and segment information - The COVID-19 pandemic had mixed effects, leading to increased sales and operating income compared to Q1 FY21, but also causing supply and demand volatility, with the full extent of the impact remaining uncertain34 Sales by Product Category (Three Months Ended June 30) | Product Category | 2021 Sales (in thousands) | 2020 Sales (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Pointing Devices | $182,878 | $120,469 | +52% | | Keyboards & Combos | $218,357 | $145,360 | +50% | | PC Webcams | $109,918 | $60,851 | +81% | | Gaming | $335,397 | $181,903 | +84% | | Video Collaboration | $234,885 | $130,074 | +81% | | Audio & Wearables | $116,607 | $71,365 | +63% | | Total Sales | $1,312,058 | $791,894 | +66% | Sales by Geographic Region (Three Months Ended June 30) | Region | 2021 Sales (in thousands) | 2020 Sales (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Americas | $612,566 | $356,184 | +72% | | EMEA | $357,957 | $210,771 | +70% | | Asia Pacific | $341,535 | $224,939 | +52% | | Total Sales | $1,312,058 | $791,894 | +66% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY22 financial results, highlighting 66% sales growth driven by secular trends, improved gross margin, and liquidity Summary of Financial Results - Total sales for Q1 FY22 increased by 66% YoY, driven by strong demand across all regions due to trends in remote work, learning, gaming, and video collaboration accelerated by COVID-1999 Q1 FY22 Key Financial Metrics vs. Q1 FY21 | Metric | Q1 FY22 | Q1 FY21 | | :--- | :--- | :--- | | Sales Growth | 66% | - | | Gross Margin | 43.4% | 38.6% | | Operating Expenses (% of sales) | 27.9% | 28.1% | | Net Income (in millions) | $186.8 | $72.1 | Trends in Our Business - The company's products align with five large market opportunities and secular trends: - Creativity & Productivity: Benefiting from strong PC shipments due to work/learn-from-home and hybrid work culture104 - Gaming: Strong structural growth driven by the increasing popularity of online gaming, multi-platform experiences, and esports105 - Video Collaboration: Significant growth opportunities due to rising adoption of video meetings and demand for cloud-based solutions for hybrid work106 - Music: Mobile speaker market has matured, but true wireless headphones and professional microphones (Blue Microphones) show strong demand108 - Smart Home: Sales are under pressure due to changing content consumption habits and retail restrictions109 Results of Operations Sales increased 66% YoY (58% constant currency) across all regions and categories, with gross margin expanding to 43.4% Sales Growth by Region (YoY) | Region | Sales Growth Rate | Constant Dollar Sales Growth Rate | | :--- | :--- | :--- | | Americas | 72% | 70% | | EMEA | 70% | 56% | | Asia Pacific | 52% | 43% | - Gross margin increased by 480 basis points to 43.4% in Q1 FY22, benefiting from higher sales volume, favorable currency impact, lower logistics costs, and a favorable product mix141 - Marketing and selling expenses increased by $119.1 million YoY, primarily due to higher advertising and marketing spend to support brand awareness and investment in enterprise sales coverage146 Liquidity and Capital Resources Cash and cash equivalents decreased to $1.5 billion due to operating and financing activities, impacting working capital and liquidity Key Working Capital Metrics (Q1 FY22 vs Q1 FY21) | Metric | Q1 FY22 | Q1 FY21 | | :--- | :--- | :--- | | DSO (Days) | 37 | 57 | | DPO (Days) | 86 | 80 | | ITO (x) | 3.8 | 7.2 | - Net cash used in operating activities was $115.0 million, a significant shift from $118.8 million provided by operations in the prior year, mainly due to timing of a large income tax payment, increased inventory purchases, and annual bonus payments160169 - In April 2021, the Board of Directors approved a $750.0 million increase to the 2020 share repurchase program, bringing the aggregate amount to $1.0 billion, with $780.4 million remaining available for repurchase as of June 30, 202182175 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risk from foreign currency fluctuations, with 48% of sales in non-U.S. currencies, and hedges exposures - For the three months ended June 30, 2021, approximately 48% of sales were in non-U.S. denominated currencies, with 23% of total sales denominated in the Euro187 - A hypothetical adverse 10% change in foreign currency exchange rates would have resulted in an adverse effect on income before taxes of approximately $26.6 million as of June 30, 2021, after considering the offsetting effect of hedging contracts189 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2021, with no material changes to internal controls - Based on their evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021192 - There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls195 Part II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, which management believes will not materially affect financial condition - The company is subject to several claims and a small number of legal proceedings arising from the ordinary course of business196 - Management does not believe that the resolution of pending legal matters will not have a material adverse effect on the company's financial position or results of operations196 Item 1A. Risk Factors This section details significant risks across business, global operations, IP, cybersecurity, and financial results Risks Related to our Business - Failure to innovate and develop new products in a timely and cost-effective manner for new and existing categories could adversely affect business results200208 - The full effect of the COVID-19 pandemic remains uncertain and could adversely affect the business, including potential disruptions to manufacturing, supply chain, and logistics, as well as the sustainability of favorable demand trends200227 - The business faces intense competition from large, well-financed competitors like Microsoft, Apple, Google, and Amazon, which have greater resources and brand recognition224225226 Risks Related to Global Nature of our Operations and Regulatory Environment - Principal manufacturing operations are concentrated in China and Southeast Asia, exposing the company to risks associated with that region, including potential tariffs, adverse trade regulations, and pressure to diversify manufacturing locations205253 - Changes in international trade policies, such as the imposition of tariffs by the U.S. or retaliatory measures like China's Anti-Foreign Sanctions Law, could adversely impact sales, costs, and gross margins205266267 - Financial performance is subject to risks from currency exchange rate fluctuations, as a significant portion of business (48% of revenue in Q1 FY22) is conducted in currencies other than the U.S. Dollar205268269 Risks Related to Intellectual Property, Cyber Security and Privacy - Significant disruptions or security breaches of websites, IT systems, or products could adversely affect the business, brand, and reputation, with increased risk due to remote work arrangements203280 - The collection and storage of user data create risks of liability and increased costs due to evolving data privacy laws like GDPR and potential security breaches203282283 - The company faces an increased risk of claims alleging infringement of others' intellectual property rights, which could result in costly litigation, substantial damages, or the need to seek licenses203284 Risks Related to our Financial Results - Operating results are difficult to predict and can fluctuate significantly due to the timing of orders, consumer demand, global economic conditions, and the impact of the COVID-19 pandemic204289 - Gross margins can vary significantly depending on factors like product mix, competition, commodity costs, and currency exchange rates, which can lead to unanticipated fluctuations in operating results204292 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchase activity, with 505,000 shares repurchased and $780.4 million remaining Share Repurchases (Three Months Ended June 30, 2021) | Period | Total Shares Repurchased (in thousands) | Remaining Amount for Repurchase (in thousands) | | :--- | :--- | :--- | | April 2021 | 11 | $834,178 | | May 2021 | 494 | $780,407 | | June 2021 | 0 | $780,407 | | Total | 505 | $780,407 | Item 6. Exhibit Index This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL interactive data files - The report includes standard exhibits such as CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL data files304