Logitech Delivers Solid Second Quarter Growth and Profitability

Logitech International (SIX: LOGN) (Nasdaq: LOGI) today announced financial results for the second quarter of Fiscal Year 2020.

• Q2 sales were $720 million, up 4 percent in US dollars and 6 percent in constant currency, compared to Q2 of the prior year.
• Q2 GAAP operating income grew 4 percent to $68 million, compared to $65 million in the same quarter a year ago. Q2 GAAP earnings per share (EPS) grew 13 percent to $0.43, compared to $0.38 in the same quarter a year ago.
• Q2 non-GAAP operating income grew 6 percent to $89 million, compared to $85 million in the same quarter a year ago. Q2 non-GAAP EPS grew 2 percent to $0.50, compared to $0.49 in the same quarter a year ago.
• Cash flow from operations was $107 million, compared to $85 million in the same period a year ago.

“Our solid Q2 demonstrates Logitech’s resilience as we continue to execute on our strategy,” said Bracken Darrell, Logitech president and chief executive officer. “This quarter, we delivered record sales in Video Collaboration, which grew nearly 60 percent, as well as strong growth in our PC Peripherals categories. We continue to perform in spite of the challenging macroeconomic environment and are confirming our annual guidance heading into the second half of the fiscal year.”

Outlook

Logitech confirmed its Fiscal Year 2020 outlook of mid to high single-digit sales growth in constant currency and $375 million to $385 million in non-GAAP operating income.

Prepared Remarks Available Online

Logitech has made its prepared written remarks for the financial results teleconference available online on the Logitech corporate website at http://ir.logitech.com.

Financial Results Teleconference and Webcast

Logitech will hold a financial results teleconference to discuss the results for Q2 FY 2020 on Tuesday, October 22, 2019 at 8:30 a.m. Eastern Daylight Time and 2:30 p.m. Central European Summer Time. A live webcast of the call will be available on the Logitech corporate website at http://ir.logitech.com.

Use of Non-GAAP Financial Information and Constant Currency

To facilitate comparisons to Logitech’s historical results, Logitech has included non-GAAP adjusted measures, which exclude share-based compensation expense, amortization of intangible assets, purchase accounting effect on inventory, acquisition-related costs, change in fair value of contingent consideration for business acquisition, restructuring charges (credits), loss (gain) on investments, non-GAAP income tax adjustment, and other items detailed under “Supplemental Financial Information” after the tables below. Logitech also presents percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates. Percentage sales growth in constant currency is calculated by translating prior period sales in each local currency at the current period’s average exchange rate for that currency and comparing that to current period sales. Logitech believes this information, used together with the GAAP financial information, will help investors to evaluate its current period performance and trends in its business. With respect to the Company’s outlook for non-GAAP operating income, most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Therefore, no reconciliation to the GAAP amounts has been provided for Fiscal Year 2020.

About Logitech

Logitech designs products that have an everyday place in people's lives, connecting them to the digital experiences they care about. More than 35 years ago, Logitech started connecting people through computers, and now it’s a multi-brand company designing products that bring people together through music, gaming, video and computing. Brands of Logitech include Logitech, Logitech G, ASTRO Gaming Ultimate Ears, Jaybird, and Blue Microphones. Founded in 1981, and headquartered in Lausanne, Switzerland, Logitech International is a Swiss public company listed on the SIX Swiss Exchange (LOGN) and on the Nasdaq Global Select Market (LOGI). Find Logitech at www.logitech.com, the company blog or @Logitech.

This press release contains forward-looking statements within the meaning of the U.S. federal securities laws, including, without limitation, statements regarding: our preliminary financial results for the three and six months ended September 30, 2019 and outlook for Fiscal Year 2020 operating income and sales growth. The forward-looking statements in this release involve risks and uncertainties that could cause Logitech’s actual results and events to differ materially from those anticipated in these forward-looking statements, including, without limitation: if our product offerings, marketing activities and investment prioritization decisions do not result in the sales, profitability or profitability growth we expect, or when we expect it; if we fail to innovate and develop new products in a timely and cost-effective manner for our new and existing product categories; if we do not successfully execute on our growth opportunities or our growth opportunities are more limited than we expect; the effect of pricing, product, marketing and other initiatives by our competitors, and our reaction to them, on our sales, gross margins and profitability; if our products and marketing strategies fail to separate our products from competitors’ products; if we do not fully realize our goals to lower our costs and improve our operating leverage; if there is a deterioration of business and economic conditions in one or more of our sales regions or product categories, or significant fluctuations in exchange rates; changes in trade policies and agreements and the imposition of tariffs that affect our products or operations and our ability to mitigate; risks associated with acquisitions. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Logitech’s periodic filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019, available at www.sec.gov, under the caption Risk Factors and elsewhere. Logitech does not undertake any obligation to update any forward-looking statements to reflect new information or events or circumstances occurring after the date of this press release.

Note that unless noted otherwise, comparisons are year over year.

Logitech and other Logitech marks are trademarks or registered trademarks of Logitech Europe S.A and/or its affiliates in the U.S. and other countries. All other trademarks are the property of their respective owners. For more information about Logitech and its products, visit the company’s website at www.logitech.com.

LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands, except per share amounts) - unaudited
		Three Months Ended								Six Months Ended
		September 30,								September 30,
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS		2019				2018				2019				2018
Net sales		$	719,691			$	691,146			$	1,363,916			$	1,299,626
Cost of goods sold		444,344				432,063				846,322				814,234
Amortization of intangible assets and purchase accounting effect on inventory		3,271				2,966				6,542				5,338
Gross profit		272,076				256,117				511,052				480,054
Operating expenses:
Marketing and selling		134,155				121,801				257,188				236,385
Research and development		41,964				39,542				84,207				78,529
General and administrative		24,048				25,206				46,207				50,679
Amortization of intangible assets and acquisition-related costs		4,218				4,317				7,814				6,838
Restructuring charges (credit), net		(364		)		119				114				10,040
Total operating expenses		204,021				190,985				395,530				382,471
Operating income		68,055				65,132				115,522				97,583
Interest income		2,390				1,858				4,943				4,227
Other income (expense), net		(110		)		3,389				1,751				1,818
Income before income taxes		70,335				70,379				122,216				103,628
Provision for (benefit from) income taxes (A)		(2,598		)		6,203				3,938				986
Net income		$	72,933			$	64,176			$	118,278			$	102,642
Net income per share:
Basic		$	0.44			$	0.39			$	0.71			$	0.62
Diluted		$	0.43			$	0.38			$	0.70			$	0.61
Weighted average shares used to compute net income per share:
Basic		166,662				165,630				166,484				165,474
Diluted		169,027				169,234				168,914				168,996

LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) - unaudited
		September 30,				March 31,
CONDENSED CONSOLIDATED BALANCE SHEETS		2019				2019
Current assets:
Cash and cash equivalents		$	574,464			$	604,516
Accounts receivable, net		465,969				383,309
Inventories		338,314				293,495
Other current assets		79,630				69,116
Total current assets		1,458,377				1,350,436
Non-current assets:
Property, plant and equipment, net		75,568				78,552
Goodwill		343,686				343,684
Other intangible assets, net		105,264				118,999
Other assets (B)		173,425				132,453
Total assets		$	2,156,320			$	2,024,124
Current liabilities:
Accounts payable		$	411,043			$	283,922
Accrued and other current liabilities (B)		424,963				433,897
Total current liabilities		836,006				717,819
Non-current liabilities:
Income taxes payable		36,374				36,384
Other non-current liabilities (B)		116,403				93,582
Total liabilities		988,783				847,785
Shareholders’ equity:
Registered shares, CHF 0.25 par value:		30,148				30,148
Issued shares — 173,106 at September 30 and March 31, 2019
Additional shares that may be issued out of conditional capital — 50,000 at September 30 and March 31, 2019
Additional shares that may be issued out of authorized capital — 34,621 at September 30 and March 31, 2019
Additional paid-in capital		50,913				56,655
Shares in treasury, at cost — 6,203 at September 30, 2019 and 7,244 at March 31, 2019		(163,728		)		(169,802		)
Retained earnings		1,359,134				1,365,036
Accumulated other comprehensive loss		(108,930		)		(105,698		)
Total shareholders’ equity		1,167,537				1,176,339
Total liabilities and shareholders’ equity		$	2,156,320			$	2,024,124

LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) - unaudited
		Three Months Ended								Six Months Ended
		September 30,								September 30,
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		2019				2018				2019				2018
Cash flows from operating activities:
Net income		$	72,933			$	64,176			$	118,278			$	102,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		10,584				11,196				21,386				21,895
Amortization of intangible assets		6,868				5,448				13,735				10,341
Loss (gain) on investments		274				(395		)		63				(382		)
Share-based compensation expense		14,252				12,049				26,470				25,308
Deferred income taxes		(5,597		)		(156		)		(8,978		)		(9,815		)
Other		2				(49		)		(2		)		75
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net		(51,691		)		(64,918		)		(85,955		)		(133,475		)
Inventories		(45,092		)		(66,201		)		(47,773		)		(84,401		)
Other assets		(8,696		)		(6,831		)		(14,083		)		(11,056		)
Accounts payable		73,509				86,998				129,101				138,186
Accrued and other liabilities		39,157				43,621				(9,223		)		37,902
Net cash provided by operating activities		106,503				84,938				143,019				97,220
Cash flows from investing activities:
Purchases of property, plant and equipment		(8,752		)		(9,624		)		(18,092		)		(18,368		)
Investment in privately held companies		—				(281		)		(170		)		(506		)
Acquisitions, net of cash acquired		(366		)		(133,665		)		(366		)		(133,908		)
Purchases of short-term investments		—				(1,505		)		—				(1,505		)
Purchases of trading investments		(1,370		)		(1,222		)		(2,525		)		(3,722		)
Proceeds from sales of trading investments		1,375				1,327				2,571				4,194
Net cash used in investing activities		(9,113		)		(144,970		)		(18,582		)		(153,815		)
Cash flows from financing activities:
Payment of cash dividends		(124,180		)		(113,971		)		(124,180		)		(113,971		)
Purchases of registered shares		—				(9,919		)		(15,127		)		(19,901		)
Proceeds from exercises of stock options and purchase rights		8,938				8,903				9,331				10,007
Tax withholdings related to net share settlements of restricted stock units		(1,538		)		(2,299		)		(20,908		)		(27,380		)
Net cash used in financing activities		(116,780		)		(117,286		)		(150,884		)		(151,245		)
Effect of exchange rate changes on cash and cash equivalents		(3,102		)		(1,848		)		(3,605		)		(9,157		)
Net decrease in cash and cash equivalents		(22,492		)		(179,166		)		(30,052		)		(216,997		)
Cash and cash equivalents, beginning of the period		596,956				604,116				604,516				641,947
Cash and cash equivalents, end of the period		$	574,464			$	424,950			$	574,464			$	424,950

LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) - unaudited
NET SALES		Three Months Ended											Six Months Ended
		September 30,											September 30,
SUPPLEMENTAL FINANCIAL INFORMATION		2019				2018				Change			2019				2018				Change
Net sales by product category:
Pointing Devices		$	132,770			$	128,337			3	%		$	254,753			$	256,127			(1	)%
Keyboards & Combos		139,049				131,872				5			267,728				260,094				3
PC Webcams		28,748				28,221				2			56,876				57,895				(2	)
Tablet & Other Accessories		33,847				36,710				(8	)		72,186				69,146				4
Video Collaboration		89,553				57,176				57			162,977				115,968				41
Mobile Speakers		57,232				77,100				(26	)		107,648				111,427				(3	)
Audio & Wearables		68,018				61,560				10			126,642				113,714				11
Gaming		161,014				160,792				—			295,529				296,818				—
Smart Home		9,434				9,241				2			19,298				18,252				6
Other (1)		26				137				(81	)		279				185				51
Total sales		$	719,691			$	691,146			4	%		$	1,363,916			$	1,299,626			5	%

(1) Other category includes products that we currently intend to phase out, or have already phased out, because they are no longer strategic to our business.

LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands, except per share amounts) - Unaudited
GAAP TO NON-GAAP RECONCILIATION (C)		Three Months Ended								Six Months Ended
		September 30,								September 30,
SUPPLEMENTAL FINANCIAL INFORMATION		2019				2018				2019				2018
Gross profit - GAAP		$	272,076			$	256,117			$	511,052			$	480,054
Share-based compensation expense		1,184				791				2,342				1,921
Amortization of intangible assets and purchase accounting effect on inventory		3,271				2,966				6,542				5,338
Gross profit - Non-GAAP		$	276,531			$	259,874			$	519,936			$	487,313
Gross margin - GAAP		37.8		%		37.1		%		37.5		%		36.9		%
Gross margin - Non-GAAP		38.4		%		37.6		%		38.1		%		37.5		%
Operating expenses - GAAP		$	204,021			$	190,985			$	395,530			$	382,471
Less: Share-based compensation expense		13,068				11,258				24,128				23,387
Less: Amortization of intangible assets and acquisition-related costs		4,218				4,317				7,814				6,838
Less: Restructuring charges (credits), net		(364		)		119				114				10,040
Operating expenses - Non-GAAP		$	187,099			$	175,291			$	363,474			$	342,206
% of net sales - GAAP		28.3		%		27.6		%		29.0		%		29.4		%
% of net sales - Non - GAAP		26.0		%		25.4		%		26.6		%		26.3		%
Operating income - GAAP		$	68,055			$	65,132			$	115,522			$	97,583
Share-based compensation expense		14,252				12,049				26,470				25,308
Amortization of intangible assets		6,868				5,448				13,735				10,341
Purchase accounting effect on inventory		—				379				—				379
Acquisition-related costs		621				1,456				621				1,456
Restructuring charges (credits), net		(364		)		119				114				10,040
Operating income - Non - GAAP		$	89,432			$	84,583			$	156,462			$	145,107
% of net sales - GAAP		9.5		%		9.4		%		8.5		%		7.5		%
% of net sales - Non - GAAP		12.4		%		12.2		%		11.5		%		11.2		%
Net income - GAAP		$	72,933			$	64,176			$	118,278			$	102,642
Share-based compensation expense		14,252				12,049				26,470				25,308
Amortization of intangible assets		6,868				5,448				13,735				10,341
Purchase accounting effect on inventory		—				379				—				379
Acquisition-related costs		621				1,456				621				1,456
Restructuring charges (credits), net		(364		)		119				114				10,040
Loss (gain) on investments		274				(395		)		63				(382		)
Non-GAAP income tax adjustment		(9,506		)		(116		)		(8,599		)		(9,225		)
Net income - Non - GAAP		$	85,078			$	83,116			$	150,682			$	140,559
Net income per share:
Diluted - GAAP		$	0.43			$	0.38			$	0.70			$	0.61
Diluted - Non - GAAP		$	0.50			$	0.49			$	0.89			$	0.83
Shares used to compute net income per share:
Diluted - GAAP and Non - GAAP		169,027				169,234				168,914				168,996

LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) - unaudited
SHARE-BASED COMPENSATION EXPENSE		Three Months Ended								Six Months Ended
		September 30,								September 30,
SUPPLEMENTAL FINANCIAL INFORMATION		2019				2018				2019				2018
Share-based Compensation Expense
Cost of goods sold		$	1,184			$	791			$	2,342			$	1,921
Marketing and selling		6,951				4,864				13,800				10,650
Research and development		2,248				1,935				4,402				3,484
General and administrative		3,869				4,459				5,926				9,253
Total share-based compensation expense		14,252				12,049				26,470				25,308
Income tax benefit		(2,723		)		(2,650		)		(9,523		)		(12,179		)
Total share-based compensation expense, net of income tax benefit		$	11,529			$	9,399			$	16,947			$	13,129

* Note: These preliminary results for the three and six months ended September 30, 2019 are subject to adjustments, including subsequent events that may occur through the date of filing our Quarterly Report on Form 10-Q.

(A) Swiss Federal Tax Reform

On May 19, 2019, the Swiss electorate approved the Federal Act on Tax Reform and AHV Financing ("TRAF"), a major reform to better align the Swiss tax system with international tax standards. The legislation was subsequently published in the federal register on August 6, 2019 to take effect on January 1, 2020. As of September 30, 2019, TRAF has not been enacted in all cantons, including the canton of Vaud, where the cantonal legislative procedures are in process.

The change in the effective income tax rate for the three months ended September 30, 2019, compared to the same period ended September 30, 2018, was primarily due to the transitional income tax impact in Switzerland. We have benefited from a longstanding tax ruling from the canton of Vaud through March 31, 2019. During the second quarter, the canton of Vaud concluded the longstanding cantonal tax ruling will only continue to apply through December 31, 2019. The transitional income tax impact, which represents income tax provision at the current full statutory income tax rate of 13.63% without taking account of the tax reform yet to be enacted, resulted in a tax benefit of $5.9 million in the three-month period ended September 30, 2019. In addition, there was a discrete tax benefit of $4.0 million from adjusting deferred tax assets and liabilities in Switzerland in the three months ended September 30, 2019. We expect a gradual and modest increase in our cash tax payments in Switzerland each year until we fully reflect the new Swiss tax rate.

(B) Adoption of ASC Topic 842

We adopted the new standards for leases under Accounting Standards Codification ("ASC") Topic 842 using the modified retrospective approach as of April 1, 2019 and did not restate the financial statements of the comparative periods as is allowed by election of the transition option under ASC 842. Adoption of the standard resulted in the recognition of $30.1 million of right-of-use assets, $11.9 million of short-term lease liabilities and $24.1 million of long-term lease liabilities related to our leases on September 30, 2019.

(C) Non-GAAP Financial Measures

To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use a number of financial measures, both GAAP and non-GAAP, in analyzing and assessing our overall business performance, for making operating decisions and for forecasting and planning future periods. We consider the use of non-GAAP financial measures helpful in assessing our current financial performance, ongoing operations and prospects for the future as well as understanding financial and business trends relating to our financial condition and results of operations.

While we use non-GAAP financial measures as a tool to enhance our understanding of certain aspects of our financial performance and to provide incremental insight into the underlying factors and trends affecting both our performance and our cash-generating potential, we do not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides useful supplemental data that, while not a substitute for GAAP financial measures, can offer insight in the review of our financial and operational performance and enables investors to more fully understand trends in our current and future performance. In assessing our business during the quarter ended September 30, 2019 and previous periods, we excluded items in the following general categories, each of which are described below:

Share-based compensation expenses . We believe that providing non-GAAP measures excluding share-based compensation expense, in addition to the GAAP measures, allows for a more transparent comparison of our financial results from period to period. We prepare and maintain our budgets and forecasts for future periods on a basis consistent with this non-GAAP financial measure. Further, companies use a variety of types of equity awards as well as a variety of methodologies, assumptions and estimates to determine share-based compensation expense. We believe that excluding share-based compensation expense enhances our ability and the ability of investors to understand the impact of non-cash share-based compensation on our operating results and to compare our results against the results of other companies.

Amortization of intangible assets. We incur intangible asset amortization expense, primarily in connection with our acquisitions of various businesses and technologies. The amortization of purchased intangibles varies depending on the level of acquisition activity. We exclude these various charges in budgeting, planning and forecasting future periods and we believe that providing the non-GAAP measures excluding these various non-cash charges, as well as the GAAP measures, provides additional insight when comparing our gross profit, operating expenses, and financial results from period to period.

Purchase accounting effect on inventory. Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment excludes the expected profit margin component that is recorded under business combination accounting principles associated with our business acquisitions. We believe the adjustment is useful to investors because such charges are not reflective of our ongoing operations.

Acquisition-related costs and change in fair value of contingent consideration for business acquisition. We incurred expenses and credits in connection with our acquisitions which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related costs include all incremental expenses incurred to effect a business combination. Fair value of contingent consideration is associated with our estimates of the value of earn-outs in connection with certain acquisitions. We believe that providing the non-GAAP measures excluding these costs and credits, as well as the GAAP measures, assists our investors because such costs are not reflective of our ongoing operating results.

Restructuring charges (credits). These expenses are associated with re-aligning our business strategies based on current economic conditions. We have undertaken several restructuring plans in recent years. In connection with our restructuring initiatives, we incurred restructuring charges related to employee terminations, facility closures and early cancellation of certain contracts. We believe that providing the non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges (credits) are not reflective of our ongoing operating results in the current period.

Loss (gain) on investments. We recognized loss (gain) related to our investments in various companies, which varies depending on the operational and financial performance of those companies in which we invested. We believe that providing the non-GAAP measures excluding these charges, as well as the GAAP measures, assists our investors because such charges are not reflective of our ongoing operations.

Non-GAAP income tax adjustment. Non-GAAP income tax adjustment primarily measures the income tax effect of non-GAAP adjustments excluded above and other events; the determination of which is based upon the nature of the underlying items, the mix of income and losses in jurisdictions and the relevant tax rates in which we operate.

Each of the non-GAAP financial measures described above, and used in this press release, should not be considered in isolation from, or as a substitute for, a measure of financial performance prepared in accordance with GAAP. Further, investors are cautioned that there are inherent limitations associated with the use of each of these non-GAAP financial measures as an analytical tool. In particular, these non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and many of the adjustments to the GAAP financial measures reflect the exclusion of items that are recurring and may be reflected in the Company’s financial results for the foreseeable future. We compensate for these limitations by providing specific information in the reconciliation included in this press release regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, we evaluate the non-GAAP financial measures together with the most directly comparable GAAP financial information.

Additional Supplemental Financial Information - Constant Currency

In addition, Logitech presents percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates. Percentage sales growth in constant currency is calculated by translating prior period sales in each local currency at the current period’s average exchange rate for that currency and comparing that to current period sales.

(LOGIIR)

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Contact information

Ben Lu
CFA, Vice President, Investor Relations - USA
(510) 713-5568

Krista Todd
Vice President, Global Communications - USA
(510) 713-5834

Ben Starkie
Corporate Communications - Europe
+41 (0) 79-292-3499