Logitech(LOGI) - 2022 Q3 - Quarterly Report

Part I Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including operations, balance sheets, and cash flows, for the three and nine months ended December 31, 2021 Condensed Consolidated Statements of Operations This section details the company's condensed consolidated statements of operations, showing a 2% decrease in Q3 FY2022 net sales and a 45% decline in net income Q3 FY2022 vs Q3 FY2021 Statement of Operations (in thousands, except per share) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $1,632,782 | $1,667,302 | -2.1% | | Gross profit | $658,010 | $749,010 | -12.1% | | Operating income | $262,751 | $448,063 | -41.4% | | Net income | $210,011 | $382,523 | -45.1% | | Diluted EPS | $1.24 | $2.22 | -44.1% | Nine Months FY2022 vs Nine Months FY2021 Statement of Operations (in thousands, except per share) | Metric | Nine Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $4,251,107 | $3,716,354 | +14.4% | | Gross profit | $1,769,099 | $1,624,466 | +8.9% | | Operating income | $645,243 | $853,043 | -24.4% | | Net income | $536,308 | $721,510 | -25.7% | | Diluted EPS | $3.14 | $4.21 | -25.4% | Condensed Consolidated Balance Sheets This section presents the condensed consolidated balance sheets, showing total assets of $4.16 billion and a decrease in cash and cash equivalents as of December 31, 2021 Balance Sheet Comparison (in thousands) | Account | Dec 31, 2021 | Mar 31, 2021 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $1,364,411 | $1,750,327 | | Accounts receivable, net | $845,836 | $612,225 | | Inventories | $834,534 | $661,116 | | Total Assets | $4,161,597 | $4,142,378 | | Current Liabilities | $1,552,676 | $1,681,850 | | Total Liabilities | $1,793,655 | $1,880,589 | | Total Shareholders' Equity | $2,367,942 | $2,261,789 | Condensed Consolidated Statements of Cash Flows This section outlines the condensed consolidated statements of cash flows, indicating a significant decrease in net cash provided by operating activities for the nine months ended December 31, 2021 Cash Flow Summary (in thousands) | Activity | Nine Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $198,728 | $928,419 | | Net cash used in investing activities | ($89,006) | ($46,454) | | Net cash used in financing activities | ($492,799) | ($219,196) | | Net (decrease) / increase in cash | ($385,916) | $673,177 | Notes to the Condensed Consolidated Financial Statements This section provides detailed notes on accounting policies, financial statement components, and key events, including impairment charges, share repurchase program updates, and sales by product category - The company decided to discontinue Jaybird-branded products, resulting in a pre-tax impairment charge of $7.0 million for intangible assets and $1.8 million in restructuring charges in Q3 FY2022[82][100] - In April 2021, the Board of Directors increased the 2020 share repurchase program authorization by $750.0 million, bringing the total to $1.0 billion. As of Dec 31, 2021, $545.0 million remained available for repurchase[92] - During the nine months ended Dec 31, 2021, the company paid cash dividends of $0.95 per share, totaling $159.4 million[93] Sales by Product Category - Nine Months Ended Dec 31 (in thousands) | Product Category | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Gaming | $1,135,456 | $916,040 | +24% | | Keyboards & Combos | $736,237 | $565,246 | +30% | | Video Collaboration | $753,725 | $659,278 | +14% | | Pointing Devices | $602,982 | $503,228 | +20% | | PC Webcams | $319,504 | $295,020 | +8% | | Audio & Wearables | $318,965 | $338,592 | -6% | | Tablet & Other Accessories | $242,932 | $267,186 | -9% | | Mobile Speakers | $124,724 | $145,156 | -14% | Management's Discussion and Analysis (MD&A) Management discusses financial results, highlighting a 2% sales decrease in Q3 FY22, a decline in gross margin, and increased operating expenses, alongside ongoing COVID-19 impacts - The COVID-19 pandemic continues to have mixed effects, causing supply chain challenges, increased logistics costs, and demand volatility, while also accelerating long-term trends like work-from-anywhere and gaming[110][111][112] - Gross margin for Q3 FY22 decreased by 460 basis points to 40.3%, primarily due to increased promotional spending, higher logistics costs, and reserves for excess inventories, including costs for exiting the Jaybird brand[115][163] - Operating expenses for Q3 FY22 increased to 24.2% of sales from 18.0% in the prior year, mainly due to higher investments in marketing, selling, and R&D, plus a $7.0 million impairment charge for Jaybird intangible assets[116][164] Sales Growth by Region (Q3 FY22 vs Q3 FY21) | Region | Sales Growth Rate (%) | Constant Currency Sales Growth Rate (%) | | :--- | :--- | :--- | | Americas | (4)% | (5)% | | EMEA | 1% | 3% | | Asia Pacific | (2)% | (2)% | Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily from currency exchange rates, and its use of derivative instruments to mitigate these fluctuations - In Q3 FY22, approximately 53% of sales were denominated in non-U.S. currencies, with the Euro accounting for 27% of total sales[209] - The company uses currency forward/swap contracts and cash flow hedges to manage short-term currency risk. As of Dec 31, 2021, the notional amount of forward contracts for inventory purchases was $128.1 million, and for other receivables/payables was $251.7 million[77][78] - A hypothetical adverse 10% foreign currency exchange rate change would have negatively impacted pre-tax income by approximately $21.4 million as of December 31, 2021, net of hedging effects[211] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[214] - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, these controls[217] Part II Legal Proceedings This section describes the company's involvement in various legal proceedings, which management believes will not materially adversely affect its financial condition or operations - Logitech is subject to several claims and a small number of legal proceedings arising from its ordinary course of business[218] - The company believes that the resolution of pending legal matters will not have a material adverse effect on its financial position or results of operations[218] Risk Factors This section outlines significant risks to Logitech's business, including market competition, supply chain dependencies, geopolitical factors, and financial and regulatory uncertainties - Business Risks: Failure to innovate, dependence on successful execution of growth opportunities, competition from large players like Microsoft and Apple, and the uncertain full effect of the COVID-19 pandemic are major business risks[222][244][247] - Operational & Supply Chain Risks: The company relies on manufacturing in China and Southeast Asia, exposing it to geopolitical risks, tariffs, and supply chain disruptions. It also depends on a limited number of sources for key components and on third-party distributors like Amazon and Ingram Micro[222][256][262] - Global & Regulatory Risks: Operations in many countries expose Logitech to risks from fluctuating currency exchange rates, changes in international trade policies (including U.S.-China tariffs), and varying legal and tax regulations, such as Swiss tax reforms[225][290][293] - IP, Cybersecurity & Privacy Risks: The company faces risks from potential IP infringement claims, the need to protect its own proprietary technology, and potential security breaches of its IT systems or user data, which is subject to evolving regulations like GDPR[225][307][311] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity, including the number of shares repurchased and the remaining authorization under its program Share Repurchases (Q3 FY2022) | Period (2021) | Total Shares Repurchased (thousands) | Weighted Average Price Paid (CHF/USD) | | :--- | :--- | :--- | | Oct 2 - Oct 29 | 503 | CHF 81.95 | | Oct 30 - Nov 26 | 389 | CHF 74.27 | | Nov 27 - Dec 31 | 486 (467 SIX, 19 Nasdaq) | CHF 75.96 / USD 79.20 | | Total | 1,379 | CHF 77.63 / USD 84.12 | - As of December 31, 2021, $545.0 million remained available for repurchase under the company's $1.0 billion share repurchase program[325] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Filed exhibits include Rule 13a-14(a)/15d-14(a) certifications by the CEO and CFO, Section 1350 certifications, and XBRL data files[331]