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    LOGN   CH0025751329

LOGITECH INTERNATIONAL S.A.

(LOGN)
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LOGITECH INTERNATIONAL S A : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

07/29/2021 | 04:31pm EDT

You should read the following discussion in conjunction with the interim unaudited condensed consolidated financial statements and related notes.


This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements include, among other things, statements regarding our
strategy for growth, future revenues, earnings, cash flow, uses of cash and
other measures of financial performance, and market position, our business
strategy, the impact of investment prioritization decisions, product offerings,
sales and marketing initiatives, strategic investments, addressing execution
challenges, trends in consumer demand affecting our products and markets, trends
in the composition of our customer base, our current or future revenue and
revenue mix by product, among our lower- and higher-margin products and by
geographic region, our new product introductions, our expectations regarding the
potential growth opportunities for our products in mature and emerging markets
and the enterprise market, our expectations regarding the duration and overall
impact of COVID-19 on our business and results of operations, our expectations
regarding economic conditions in international markets, including China, Russia
and Ukraine, our expectations regarding trends in global economic conditions and
consumer demand for PCs and mobile devices, tablets, gaming, video
collaboration, audio, pointing devices, wearables, remotes, microphones,
streaming and other accessories and computer devices and related software and
services, the interoperability of our products with third party platforms, our
expectations regarding the convergence of markets for computing devices and
consumer electronics, our expectations regarding the growth of cloud-based
services, our dependence on new products, our competitive position and the
effect of pricing, product, marketing and other initiatives by us and our
competitors, the potential that our new products will overlap with our current
products, our expectations regarding competition from well-established consumer
electronics companies in existing and new markets, potential tariffs, their
effects and our ability to mitigate their effects, our expectations regarding
the recoverability of our goodwill, goodwill impairment charge estimates and the
potential for future impairment charges, the impact of our current and proposed
product divestitures, changes in our planned divestitures, restructuring of our
organizational structure and the timing thereof, our expectations regarding the
success of our strategic acquisitions, including integration of acquired
operations, products, technology, internal controls, personnel and management
teams, significant fluctuations in currency exchange rates and commodity prices,
the impact of new product introductions and product innovation on future
performance or anticipated costs and expenses and the timing thereof, cash
flows, the sufficiency of our cash and cash equivalents, cash generated and
available borrowings (including the availability of our uncommitted lines of
credit) to fund future cash requirements, our expectations regarding future
sales compared to actual sales, our expectations regarding share repurchases,
dividend payments and share cancellations, our expectations regarding our future
working capital requirements and our anticipated capital expenditures needed to
support our product development and expanded operations, our expectations
regarding our future tax benefits, tax settlements, the adequacy of our
provisions for uncertain tax positions, our expectations regarding our potential
indemnification obligations, and the outcome of pending or future legal
proceedings and tax audits, our expectations regarding the impact of new
accounting pronouncements on our operating results, and our ability to achieve
and sustain renewed growth, profitability and future success. Forward-looking
statements also include, among others, those statements including the words
"anticipate," "believe," "could," "estimate," "expect," "forecast," "intend,"
"may," "plan," "project," "predict,", "seek", "should," "will," and similar
language. These forward-looking statements involve risks and uncertainties that
could cause our actual performance to differ materially from that anticipated in
the forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on
Form 10-Q. You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this Quarterly Report on
Form 10-Q. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.

Overview of Our Company

Logitech is a world leader in designing, manufacturing and marketing products
that help connect people to digital and cloud experiences. Forty years ago,
Logitech created products to improve experiences around the personal computer
("PC") platform, and today it is a multi-brand, multi-category company designing
products that enable people to pursue their passions and connect to the
world. Logitech's products align with several large secular trends including
work and learn from anywhere, video everywhere, the increasing popularity of
gaming as a spectator and participant sport, and the democratization of content
creation. Logitech's brands include Logitech,
                                       22

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Table of Contents Logitech G, ASTRO Gaming, Streamlabs, Blue Microphones, Ultimate Ears, and Jaybird. Our Company's website is www.logitech.com.


Our products participate in five large market opportunities: Creativity &
Productivity, Gaming, Video Collaboration, Music and Smart Home. We sell our
products to a broad network of domestic and international customers, including
direct sales to retailers and e-tailers, and indirect sales through
distributors. Our worldwide channel network includes consumer electronics
distributors, retailers, mass merchandisers, specialty stores, computer and
telecommunications stores, value-added resellers and online merchants. We sell
our services directly to end customers in majority.
From time to time, we may seek to partner with or acquire, when appropriate,
companies that have products, personnel, and technologies that complement our
strategic direction. We continually review our product offerings and our
strategic direction in light of our profitability targets, competitive
conditions, changing consumer trends and the evolving nature of the interface
between the consumer and the digital world.
Impacts of COVID-19 to Our Business
In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus ("COVID-19") as a pandemic, which continues to spread throughout the
world. The spread of COVID-19 has caused public health officials to recommend
precautions to mitigate the spread of the virus and, in certain markets in which
we operate, government authorities have from time to time issued orders that
require the closure of or restrictions on non-essential businesses and people to
be quarantined or to shelter-at-home. The COVID-19 pandemic has curtailed global
economic activity, caused volatility and disruption in global financial and
commercial markets, and is likely to continue to cause uncertainty for an
indeterminate amount of time. We are conducting our business with substantial
modifications, such as employee remote work in non-manufacturing facilities and
travel limitations, among other changes. We are continuing to actively monitor
the situation and may take further actions that alter our business operations as
may be required by federal, state or local authorities in the countries in which
we operate, or that we determine are in the best interest of our employees,
customers, partners, suppliers or shareholders.
In fiscal year 2021, we experienced disruptions to our supply chain and
logistics services, inventory constraints, and increased logistics costs, as we
attempted to address the effects of COVID-19. At the same time, due to the
shelter-at-home requirements or other restrictions in many countries, there was
an acceleration of work-from-anywhere, study-from-anywhere, gaming, video
collaboration and streaming trends and high demand and consumption of certain of
our products that have led to increased sales and operating income. While we
experienced increased sales and operating income in the first quarter of fiscal
year 2022 compared to the first quarter of fiscal year 2021, we also experienced
supply and demand volatility, as the COVID-19 pandemic and related safety
measures and restrictions have evolved differently across the world. In
addition, if the demand volatility results in a decrease in sales in future
periods it could lead to higher promotions and marketing expenses, or excess
inventories, or both, which will have an adverse impact on our results of
operations. It is difficult to predict the progression, the duration and all of
the effects of COVID-19, how business restrictions and shelter-at-home
guidelines may evolve on a global basis, how consumer demand, inventory and
logistical effects and costs may change over time, and the impact on our future
sales and results of operations. The full extent of the impact of COVID-19 on
our business and our operational and financial performance is currently
uncertain and will depend on many factors outside our control. For additional
information, see "Liquidity and Capital Resources" below and Item 1A "Risk
Factors," including under the caption "The full effect of the COVID-19 pandemic
is still uncertain and cannot be predicted, and could adversely affect the
Company's business, results of operations and financial condition."
Summary of Financial Results

Our total sales for the three months ended June 30, 2021 increased 66%, compared
to the three months ended June 30, 2020, due to stronger sales across all
regions and several of our product categories from increased remote work and
learning trends, accelerated adoption of video communications for a hybrid work
environment, and greater gaming viewership, creation, and participation from
home, as a result of COVID-19. Our condensed consolidated statements of
operations for the three months ended June 30, 2021 include the results of
operations for our first quarter acquisition from its date of acquisition.

Sales for the three months ended June 30, 2021 increased 72%, 70%, and 52% in
the Americas, EMEA and Asia Pacific, respectively, compared to the same period
of the prior fiscal year.

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Gross margin for the three months ended June 30, 2021 increased by 480 basis
points to 43.4% from 38.6% for the three months ended June 30, 2020. Our gross
margin benefited from higher sales volume, a favorable currency impact, lower
logistics costs, and favorable product mix.

Operating expenses for the three months ended June 30, 2021 were $365.8 million,
or 27.9% of sales, compared to $222.3 million, or 28.1% of sales in the same
period of the prior fiscal year.

Net income for the three months ended June 30, 2021 was $186.8 million compared to $72.1 million for the three months ended June 30, 2020.

Trends in Our Business


Our products participate in five large multi-category market opportunities,
including Creativity & Productivity, Gaming, Video Collaboration, Music and
Smart Home. The following discussion represents key trends specific to our
market opportunities.
Trends Specific to Our Five Market Opportunities
Creativity & Productivity: New PC shipments have continued to be strong recently
due to work-from-home and learn-from-home trends. We believe that innovative PC
peripherals, such as our mice and keyboards, can renew the PC usage experience
and help improve the productivity and engagement of remote work and learning,
thus providing growth opportunities. Hybrid work culture will also greatly
expand the number of new workspaces to which we can attach our PC peripherals.
Increasing adoption of various cloud-based applications has led to multiple
unique consumer use cases, which we are addressing with our innovative product
portfolio and a deep understanding of our customer base. The increasing
popularity of streaming and broadcasting, as well as the rising work-from-home
trend, provides additional growth opportunities for our webcam products as well
as other products in our portfolio. Smaller mobile computing devices, such as
tablets, have created new markets and usage models for peripherals and
accessories. We offer a number of products to enhance the use of mobile devices,
including a combo backlit keyboard case with trackpad for the iPad. Hybrid and
remote learning environments have also created demand and growth opportunities
in the education market for tablet keyboards and accessories.
Gaming: The PC gaming and console gaming platforms continue to show strong
structural growth opportunities as online gaming, multi-platform experiences,
and esports gain greater popularity and gaming becomes more social, particularly
as other recreational activities have been curtailed or restricted during
shelter-at-home mandates. We expect gaming will increasingly become one of the
largest participant and spectator sports in the world. We believe Logitech is
well positioned to benefit from the overall gaming market growth. Our
acquisition of Streamlabs provides a solid platform to deliver recurring
services and subscriptions to gamers and streamers.
Video Collaboration: The near and long-term structural growth opportunities in
the video collaboration market ("VC") have never been more prevalent than in
today's environment, as commercial and consumer adoption of video has seen
substantial growth since the start of the COVID-19 pandemic. Video meetings
continue to be on the rise, and companies increasingly want lower-cost,
cloud-based solutions that can provide their employees with the ability to work
from anywhere. We are continuing our efforts to create and sell innovative
products to accommodate the increasing demand from home offices and small-size
meeting rooms, such as huddle rooms, to medium and large-sized meeting rooms. We
are also experiencing significant demand for our enterprise-grade VC webcams and
headsets. We will continue to invest in the development of select
business-specific products (both hardware and software), targeted product
marketing and sales channel development.
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Music: Consumers are optimizing their audio experiences on their tablets and
smartphones with a variety of music peripherals including wireless mobile
speakers and in-ear and other headphones. However, the mobile speaker market has
matured and the integration of personal voice assistants has increased
competition in the speaker category. In addition, the retail footprint has
decreased significantly due to the COVID-19 pandemic. These factors have led to
a decline in our Mobile Speakers category sales in the past three years. In the
wireless headphone industry, the largest growth in recent years has been in true
wireless headphones while traditional wireless headphones have declined
significantly. Continued growth in the wireless headphone market is expected for
the next several years as consumers increasingly adopt wireless headphones over
wired headphones. In addition, Blue Microphones has experienced strong demand as
musicians, performers and streamers increasingly look to entertain and engage
with their fans on various online platforms like YouTube, Twitch, and Facebook.
Smart Home: Sales of our Harmony universal remote and Circle security family of
products declined substantially in fiscal year 2021. In general, our sales of
Harmony and Circle products are under pressure as the way people consume content
is changing and as retail stores have been closed or subject to restrictions.
The smart home market opportunity is broad, and we will continue to explore
other innovative experiences to drive growth in the Smart Home category.
Business Seasonality and Product Introductions
We have historically experienced higher sales in our third fiscal quarter ending
December 31, compared to other fiscal quarters in our fiscal year, primarily due
to the increased consumer demand for our products during the year-end holiday
buying season and year-end spending by enterprises. Additionally, new product
introductions and business acquisitions can significantly impact sales, product
costs and operating expenses. Product introductions can also impact our sales to
distribution channels as these channels are filled with new product inventory
following a product introduction, and often channel inventory of an earlier
model product declines as the next related major product launch approaches.
Sales can also be affected when consumers and distributors anticipate a product
introduction or changes in business circumstances. However, neither historical
seasonal patterns nor historical patterns of product introductions should be
considered reliable indicators of our future pattern of product introductions,
future sales or financial performance. Furthermore, cash flow is correspondingly
lower in the first half of our fiscal year as we typically build inventories in
advance for the third quarter and we pay an annual dividend following our Annual
General Meeting, which is typically in September.
Swiss Federal Tax Reform
As described in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2021, the canton of Vaud in Switzerland enacted TRAF on March 10, 2020
that took effect as of January 1, 2020. Our cash tax payments have increased in
Switzerland beginning in fiscal year 2020 as a result of our transition out of
our longstanding tax ruling from the canton of Vaud.

Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with U.S. GAAP requires us to make judgments, estimates, and assumptions that
affect reported amounts of assets, liabilities, sales and expenses, and the
disclosure of contingent assets and liabilities. We base our assumptions,
judgments and estimates on historical experience and various other factors that
we believe to be reasonable under the circumstances. Actual results could differ
materially from these estimates under different assumptions or conditions. On a
regular basis, we evaluate our assumptions, judgments and estimates. We also
discuss our critical accounting policies and estimates with the Audit Committee
of the Board of Directors.
We believe that the assumptions, judgments and estimates involved in the
accounting for accruals for customer incentives and related breakage when
appropriate, accrued sales return liability, inventory valuation, uncertain tax
positions, and business acquisitions have the greatest potential impact on our
condensed consolidated financial statements. These areas are key components of
our results of operations and are based on complex rules requiring us to make
judgments and estimates and consequently, we consider these to be our critical
accounting policies. Historically, our assumptions, judgments and estimates
relative to our critical accounting policies have not differed materially from
actual results.

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There have been no material changes in our critical accounting policies and
estimates during the three months ended June 30, 2021 compared with the critical
accounting policies and estimates disclosed in Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2021.

Adoption of New Accounting Pronouncements


Refer to Note 1 to the condensed consolidated financial statements included in
this Quarterly Report on Form 10-Q for recent accounting pronouncements adopted
and to be adopted.

Impact of Constant Currency
We refer to our net sales growth rates excluding the impact of currency exchange
rate fluctuations as "constant currency" sales growth rates. Percentage of
constant currency sales growth 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.
Given our global sales presence and the reporting of our financial results in
U.S. Dollars, our financial results could be affected by significant shifts in
currency exchange rates. See "Results of Operations" for information on the
effect of currency exchange results on our sales. If the U.S. Dollar appreciates
or depreciates in comparison to other currencies in future periods, this will
affect our results of operations in future periods as well.
References to Sales
The term "sales" means net sales, except as otherwise specified and the sales
growth discussion and sales growth rate percentages are in U.S. Dollars, except
as otherwise specified.

Sales Denominated in Other Currencies


Although our financial results are reported in U.S. Dollars, a portion of our
sales was generated in currencies other than the U.S. Dollar, such as the Euro,
Chinese Renminbi, Japanese Yen, Canadian Dollar, Taiwan New Dollar, British
Pound and Australian Dollar. During the three months ended June 30, 2021,
approximately 48% of our sales were denominated in currencies other than the
U.S. Dollar.
Results of Operations
Net Sales
Our sales in the three months ended June 30, 2021 increased 66% compared to the
same period of the prior fiscal year, driven by sales increase in all regions
and several of our product categories due to continuing hybrid work,
work-from-home and study-from-home trends, resulting from the COVID-19
pandemic. Strong sales growth in Gaming, Video Collaboration, Keyboards &
Combos, Pointing Devices, PC Webcams, Tablet and Other Accessories, and Audio &
Wearables, was partially offset by a decline in sales of Mobile Speakers and
Smart Home. If currency exchange rates had been constant in the three months
ended June 30, 2021 and 2020, our constant dollar sales growth rate would have
been 58%.

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Sales by Region

The following table presents the change in sales by region for the three months ended June 30, 2021, compared with the three months ended June 30, 2020:

                    Sales Growth Rate            Constant Dollar
                                                Sales Growth Rate

Americas                        72  %                            70  %
EMEA                            70  %                            56  %
Asia Pacific                    52  %                            43  %



The increase in sales globally in the three month periods was primarily driven
by growth in sales across a majority of our product categories, partially offset
by a decline in sales of Mobile Speakers and Smart Home.


Sales by Product Categories

Sales by product categories for the three months ended June 30, 2021 and 2020 were as follows (Dollars in thousands):

                                           Three Months Ended
                                                June 30,
                                    2021            2020         Change
Pointing Devices                $   182,878      $ 120,469          52  %
Keyboards & Combos                  218,357        145,360          50
PC Webcams                          109,918         60,851          81
Tablet & Other Accessories           79,272         46,048          72
Gaming (1)                          335,397        181,903          84
Video Collaboration                 234,885        130,074          81
Mobile Speakers                      28,484         29,009          (2)
Audio & Wearables                   116,607         71,365          63
Smart Home                            6,172          6,810          (9)
Other (2)                                88              5       1,660

Total Sales                     $ 1,312,058      $ 791,894          66  %


(1) Gaming includes streaming services revenue generated by Streamlabs. (2) Other includes products that we currently intend to phase out, or have already phased out, because they are no longer strategic to our business.

Creativity & Productivity Market:

Pointing Devices Our Pointing Devices category comprises PC- and Mac-related mice including trackballs, touchpads and presentation tools.


Sales of Pointing Devices increased 52% in the three months ended June 30, 2021,
compared to the same period of the prior fiscal year. The increase was primarily
driven by higher sales of our cordless, corded, and trackball mice as a result
of remote working and learning trends.

Keyboards & Combos Our Keyboards & Combos category comprises PC keyboards, keyboard/mice combo products, and living room keyboards.

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Sales of Keyboards & Combos increased 50% in the three months ended June 30,
2021, compared to the same period of the prior fiscal year. The increase was
primarily driven by an increase in sales of our keyboard/mice combos as well as
our cordless and corded PC keyboards.

PC Webcams Our PC Webcams category comprises PC-based webcams targeted primarily at consumers, including streaming cameras.


Sales of PC Webcams increased 81% in the three months ended June 30, 2021,
compared to the same period of the prior fiscal year. The increase was seen
across the majority of the product sub-categories, driven primarily by sales of
our HD Pro Webcam 920, 1080P PRO Stream Webcam, Logitech Streamcam, and C505 HD
Webcam, partly due to organizations adopting remote or hybrid work environments.

Tablet & Other Accessories Our Tablet & Other Accessories category primarily comprises keyboards for tablets.


Sales of Tablet & Other Accessories products increased 72% in the three months
ended June 30, 2021, compared to the same period of the prior fiscal year. The
increase was primarily driven by sales of our Rugged Folio, our Combo Touch
products for iPad Pro 11-inch/12.9-inch introduced in the first quarter of
fiscal year 2022, and our Folio Touch for iPad Air (4th generation). We have
seen strong demand for Tablet keyboards, partly due to schools embracing various
technology devices to better educate students in learning-from-home
environments.

Gaming market:
Gaming
Our Gaming category comprises gaming mice, keyboards, headsets, gamepads,
steering wheels, simulation controllers, console gaming headsets, console gaming
controllers, and Streamlabs services.

Sales of Gaming increased 84% for the three months ended June 30, 2021, compared
to the same period of the prior fiscal year. The increase was primarily driven
by strong performance in nearly all of our Gaming sub-categories, including our
gaming mice, PC gaming headsets, gaming steering wheels, gaming keyboards,
console gaming headsets and Streamlabs services, partially offset by a decline
in the sales of our console gaming controllers.

Video Collaboration market:
Video Collaboration
Our Video Collaboration category includes Logitech's ConferenceCams, which
combine affordable enterprise-quality audio and high definition 1080p video to
bring video conferencing to businesses of any size.

Sales of Video Collaboration products increased 81% in the three months ended
June 30, 2021, compared to the same period of the prior fiscal year. The
increase was primarily driven by the sales of our Rally Bar introduced in the
fourth quarter of fiscal year 2021, our GROUP video conferencing solution for
mid to large-sized meeting rooms, the BRIO 4K Pro Webcam, and Webcam C925E, as
video communications become more critical for remote and hybrid work
environments.

Music market:

Mobile Speakers Our Mobile Speakers category is made up entirely of Bluetooth wireless speakers.


Sales of Mobile Speakers decreased 2% for the three months ended June 30, 2021,
compared to the same period of the prior fiscal year. The decrease was primarily
driven by a decline in sales of our MEGABOOM 3, UE WONDERBOOM, and MEGABLAST
mobile speakers. The decrease was partially offset by sales of our BOOM 3 and
WONDERBOOM 2 speakers.

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Audio & Wearables
Our Audio & Wearables category comprises PC speakers, PC headsets, in-ear
headphones, premium wireless audio wearables and studio-quality microphones for
professionals and consumers.

Sales of Audio & Wearables increased 63% for the three months ended June 30,
2021, compared to the same period of the prior fiscal year. The increase was
primarily driven by higher sales of both our corded and cordless headsets, Blue
Microphones products, and our PC speakers.

Smart Home market:
Smart Home
Our Smart Home category mainly comprises our Harmony line of advanced home
entertainment controllers and home security cameras.

Sales of Smart Home decreased 9% during the three months ended June 30, 2021,
compared to the same period of the prior fiscal year. The decrease was primarily
due to a decline in sales of most of our Harmony remotes and our home video
products, partially offset by increases in sales of our Harmony 665 Remote,
Circle View Camera, and Circle View Doorbell, introduced in the third quarter of
fiscal year 2021.

Gross Profit

Gross profit for the three months ended June 30, 2021 and 2020 was as follows
(Dollars in thousands):
                              Three Months Ended
                                   June 30,
                       2021             2020         Change
Net sales         $ 1,312,058       $ 791,894          66  %

Gross profit      $   568,926       $ 305,733          86
Gross margin             43.4  %         38.6  %



Gross profit consists of sales less cost of goods sold (which includes
materials, direct labor and related overhead costs, costs of manufacturing
facilities, royalties, costs of purchasing components from outside suppliers,
distribution costs, warranty costs, customer support costs, shipping and
handling costs, outside processing costs and write-down of inventories), and
amortization of intangible assets.

Gross margin increased by 480 basis points for the three months ended June 30,
2021, compared to the same period of the prior fiscal year. Our gross margin
benefited from higher sales volume, a favorable currency impact, lower logistics
costs, and favorable product mix.
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Operating Expenses

Operating expenses for the three months ended June 30, 2021 and 2020 were as follows (Dollars in thousands):

                                                                                           Three Months Ended
                                                                                                June 30,
                                                                                        2021                2020
Marketing and selling                                                               $ 252,314           $ 133,238
% of sales                                                                               19.2  %             16.8  %
Research and development                                                               69,246              49,725
% of sales                                                                                5.3  %              6.3  %
General and administrative                                                             40,542              29,071
% of sales                                                                                3.1  %              3.7  %
Amortization of intangible assets and acquisition-related costs                         5,217               4,609
% of sales                                                                                0.4  %              0.6  %

Change in fair value of contingent consideration for business acquisition

            (1,474)              5,716
% of sales                                                                               (0.1) %              0.7  %
Restructuring credits, net                                                                  -                 (53)
% of sales                                                                                  -  % (1)            -  %
Total operating expenses                                                            $ 365,845           $ 222,306
% of sales                                                                               27.9  %             28.1  %


(1) Absolute value for % of sales is less than 0.1%.


The increase in total operating expenses during the three months ended June 30,
2021, compared to the same period of the prior fiscal year, was mainly due to
increases in marketing and selling expenses, research and development expenses,
and general and administrative expenses, partially offset by the change in fair
value of contingent consideration for business acquisition.

Marketing and Selling
Marketing and selling expenses consist of personnel and related overhead costs,
corporate and product marketing, promotions, advertising, trade shows, technical
support for customer experiences and facilities costs.

During the three months ended June 30, 2021, marketing and selling expenses
increased $119.1 million, compared to the same period of the prior fiscal year.
The increase was primarily driven by higher advertising and marketing expenses,
including third-party costs and increased headcount, to support our investment
in brand awareness and consideration as well as incremental headcount related to
investments in enterprise sales coverage.

Research and Development
Research and development expenses consist of personnel and related overhead
costs for contractors and outside consultants, supplies and materials, equipment
depreciation and facilities costs, all associated with the design and
development of new products and enhancements of existing products.
During the three months ended June 30, 2021, research and development expenses
increased $19.5 million, compared to the same period of the prior fiscal year.
The increase was primarily driven by higher personnel-related costs due to
incremental headcount and higher third-party costs to support innovations in
both hardware and software.

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General and Administrative
General and administrative expenses consist primarily of personnel and related
overhead, information technology, and facilities costs for the infrastructure
functions such as finance, information systems, executives, human resources and
legal.

During the three months ended June 30, 2021, general and administrative expenses
increased $11.5 million, compared to the same period of the prior fiscal year.
The increase was primarily driven by higher personnel-related costs due to
investment in additional headcount in IT and other functions to support business
growth.

Amortization of Intangible Assets and Acquisition-Related Costs

Amortization of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trade names. Acquisition-related costs include legal expense, due diligence costs, and other professional costs incurred for business acquisitions.


During the three months ended June 30, 2021, amortization of intangible assets
and acquisition-related costs increased compared to the same period of the prior
fiscal year, primarily driven by the intangible assets acquired through
acquisitions completed in the fourth quarter of fiscal year 2021.

Other Income, Net

Other income, net for the three months ended June 30, 2021 and 2020 was as follows (Dollars in thousands):

                                                                    Three Months Ended
                                                                         June 30,
                                                                     2021            2020

Investment income related to a deferred compensation plan $ 1,168

        $ 1,556
Currency exchange gain, net                                         5,717               57
Gain on investments                                                 1,071              174
Other                                                                 479              242
Total                                                          $    8,435          $ 2,029


Investment income represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.


Currency exchange gain, net relates to balances denominated in currencies other
than the functional currency in our subsidiaries, as well as to the sale of
currencies, and to gains or losses recognized on currency exchange forward
contracts. We do not speculate in currency positions, but we are alert to
opportunities to maximize currency exchange gains and minimize currency exchange
losses. The gain for the three months ended June 30, 2021 was primarily due to
the strengthening of the Brazilian Real and the Chinese Renminbi against the
U.S. Dollar.

Gain on investments represents the unrealized gain from the fair value change on the available-for-sale securities and equity-method investments during the periods presented.

Provision for Income Taxes

The provision for income taxes and effective income tax rates for the three months ended June 30, 2021 and 2020 were as follows (Dollars in thousands):

                                    Three Months Ended
                                         June 30,
                                   2021           2020
Provision for income taxes      $ 24,991       $ 14,003
Effective income tax rate           11.8  %        16.3  %



The change in the effective income tax rate for the three months ended June 30,
2021, compared to the same period ended June 30, 2020 was primarily due to the
mix of income and losses in the various tax jurisdictions in
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which we operate. There were discrete tax benefits of $13.7 million and
$1.0 million from the recognition of excess tax benefits in the United States
and reversal of uncertain tax positions from the expiration of statutes of
limitations, respectively, in the three-month period ended June 30, 2021,
compared with $5.0 million and $1.0 million, respectively, in the three-month
period ended June 30, 2020.

As of June 30, 2021 and March 31, 2021, the total amount of unrecognized tax
benefits due to uncertain tax positions was $165.5 million and $160.3 million,
respectively, all of which would affect the effective income tax rate if
recognized.

Liquidity and Capital Resources

Cash Balances, Available Borrowings, and Capital Resources


As of June 30, 2021, we had cash and cash equivalents of $1,497.7 million,
compared to $1,750.3 million as of March 31, 2021. As of June 30, 2021, 62% of
the cash and cash equivalents were held in Switzerland, 16% were held in
Germany, and 12% were held in Hong Kong and China. We do not expect to incur any
material adverse tax impact except for what has already been recognized, or be
significantly inhibited by any country in which we do business from the
repatriation of funds to Switzerland, our home domicile.

The decrease in cash and cash equivalents for the three months ended June 30,
2021, primarily resulted from an increase in net cash used in operating
activities, despite positive net income, and an increase in net cash used in
financing activities. The increase in net cash used in operating activities was
mainly due to the timing of an annual income tax payment for fiscal year 2021,
increased inventory purchases to support future demand, a decline in accounts
payable due to timing of purchases and related payments, and the annual bonus
payment for fiscal year 2021, partially offset by earlier collections on
accounts receivable due to timing of sales within the quarter. The increase in
net cash used in financing activities was driven by shares repurchased under our
share repurchase program in the first quarter of fiscal 2022 compared to no
share repurchases in the same period of the prior fiscal year.
As of June 30, 2021, our working capital was $1,568.0 million, compared to
$1,477.5 million as of March 31, 2021. The increase was primarily driven by
higher inventories and higher other current assets, lower accounts payable, and
lower accrued and other current liabilities, partially offset by lower cash and
cash equivalents and lower accounts receivable, net. Our working capital
increased by $779.2 million compared to $788.8 million as of June 30, 2020,
which was primarily driven by higher cash and cash equivalents, higher accounts
receivable, net, higher inventories and higher other current assets, partially
offset by higher accounts payable and accrued and other current liabilities.

We had several uncommitted, unsecured bank lines of credit aggregating $191.6
million as of June 30, 2021. There are no financial covenants under these lines
of credit with which we must comply. As of June 30, 2021, we had outstanding
bank guarantees of $24.7 million under these lines of credit.

The following table summarizes our condensed consolidated statements of cash flows (Dollars in thousands):

                                                                      Three Months Ended
                                                                           June 30,
                                                                      2021           2020
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) Effect of exchange rate changes on cash and cash equivalents 5,244

            511
Net increase / (decrease) in cash and cash equivalents            $ 

(252,606) $ 93,829

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The following table presents selected financial information and statistics as of
and for the three months ended June 30, 2021 and 2020 (Dollars in thousands):
                                    As of June 30,
                                 2021           2020
Accounts receivable, net      $ 545,907      $ 500,306
Accounts payable              $ 709,741      $ 429,693
Inventories                   $ 778,596      $ 271,180



                                                                   Three Months Ended
                                                                        June 30,
                                                                 2021              2020
     Days sales in accounts receivable ("DSO") (Days) (1)        37                57
     Days accounts payable outstanding ("DPO") (Days) (2)        86                80
     Inventory turnover ("ITO") (x)(3)                          3.8               7.2



(1) DSO is determined using ending accounts receivable, net as of the most recent quarter end and sales for the most recent quarter. (2) DPO is determined using ending accounts payable as of the most recent quarter end and cost of goods sold for the most recent quarter. (3) ITO is determined using ending inventories and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).


DSO for the three months ended June 30, 2021 decreased by 20 days to 37 days,
compared to 57 days for the same period of the prior fiscal year, primarily due
to timing of sales within the quarter and a continued focus on collections
efficiency.

DPO for the three months ended June 30, 2021 increased by 6 days, compared to 80
days for the same period of the prior fiscal year, primarily due to the timing
of purchases and related payments.

ITO for the three months ended June 30, 2021 decreased by 3.4, compared to 7.2
for the same period of the prior fiscal year, primarily due to higher ending
inventory resulting from the rebuilding of inventory levels to meet future
demand, compared to previously constrained supply from COVID-19 impacts. In the
fourth quarter of fiscal year 2020, we experienced manufacturing slowdowns due
to the COVID-19 outbreak in China which reduced our ending inventory levels and
led to higher inventory turns in the first quarter of fiscal year 2021.

If we are not successful in launching and phasing in our new products, or market
competition increases, or we are not able to sell the new products at the prices
planned, it could have a material impact on our sales, gross profit margin,
operating results including operating cash flow, and inventory turnover in the
future.

During the three months ended June 30, 2021, net cash used in operating
activities was $115.0 million. The decrease in accounts receivable, net was
primarily driven by timing of sales. The increase in inventories was primarily
driven by an increase in inventory purchases during the first quarter of fiscal
year 2022 in anticipation of future demand. The decrease in accounts payable was
primarily driven by the timing of purchases and related payments. The decrease
in accrued liabilities was primarily driven by payment of the fiscal year 2021
annual bonus and an annual payment for fiscal year 2021 income taxes.

Net cash used in investing activities was $40.3 million, primarily due to $24.5
million of purchases of property, plant and equipment, and $15.6 million of the
purchase price (net of cash acquired) for business acquisition.

Net cash used in financing activities was $102.5 million, primarily due to $54.9
million used for repurchases of our registered shares, and $50.4 million for tax
withholdings related to net share settlements of restricted stock units,
partially offset by $2.8 million in proceeds received from exercises of stock
options and purchase rights.

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During the three months ended June 30, 2021, there was a $5.2 million gain from
currency exchange rate effect on cash and cash equivalents, compared to a gain
of $0.5 million during the same period of the prior fiscal year. The gain from
currency translation exchange effect during the three months ended June 30, 2021
was primarily due to the strengthening of the Brazilian Real and the Chinese
Renminbi against the U.S. Dollar by 14% and 2%, respectively, during the
period. The gain from effect of currency exchange rate changes during the three
months ended June 30, 2020 was primarily due to the strengthening of the
Australian Dollar, Japanese Yen, and Taiwanese Dollar against the U.S. Dollar by
13%, 1%, and 2%, respectively.

Cash Outlook
Our principal sources of liquidity are our cash and cash equivalents, cash flow
generated from operations and, to a much lesser extent, capital markets and
borrowings. Our future working capital requirements and capital expenditures may
increase to support investments in product innovations and growth opportunities
or to acquire or invest in complementary businesses, products, services, and
technologies. The future impact of COVID-19 cannot be predicted with certainty
and may increase our costs of capital and otherwise adversely affect our
business, results of operations, financial conditions and liquidity.
In April 2021, the Board of Directors recommended that we pay cash dividends for
fiscal year 2021 of CHF 147.0 million ($155.8 million based on the exchange rate
on March 31, 2021). In fiscal year 2021, we paid a cash dividend of CHF
134.0 million (U.S. Dollar amount of $146.7 million) out of fiscal year 2020
retained earnings. In fiscal year 2020, we paid a cash dividend of CHF
121.8 million (U.S. Dollar amount of $124.2 million) out of fiscal year 2019
retained earnings.
In May 2020, our Board of Directors approved a new share repurchase program,
which authorizes us to invest up to $250.0 million to purchase our own shares,
following the expiration date of the 2017 share repurchase program. Although we
enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans)
from time to time, our share repurchase program provides us with the opportunity
to make opportunistic repurchases during periods of favorable market conditions
and is expected to remain in effect for a period of three years. Shares may be
repurchased from time to time on the open market, through block trades or
otherwise. Opportunistic purchases may be started or stopped at any time without
prior notice depending on market conditions and other factors. In April 2021,
our Board of Directors approved an increase of $750.0 million of the 2020 share
repurchase program, to an aggregate amount of $1.0 billion. The Swiss Takeover
Board approved this increase and it became effective on May 21, 2021. As of June
30, 2021, $780.4 million is still available for repurchase under the 2020
repurchase program.
If we do not generate sufficient operating cash flows to support our operations
and future planned cash requirements, our operations could be harmed and our
access to credit could be restricted or eliminated. However, we believe that the
trend of our historical cash flow generation, our projections of future
operations and our available cash balances will provide sufficient liquidity to
fund our operations for at least the next 12 months.

Operating Leases Obligations


We lease facilities under operating leases, certain of which require us to pay
property taxes, insurance and maintenance costs. Operating leases for facilities
are generally renewable at our option and usually include escalation clauses
linked to inflation. The remaining terms of our non-cancelable operating leases
expire in various years through 2031.

Purchase Commitments


As of June 30, 2021, we had non-cancelable purchase commitments of
$775.3 million for inventory purchases made in the normal course of business
from original design manufacturers, contract manufacturers and other suppliers,
the majority of which are expected to be fulfilled within the next 12 months. We
recorded a liability for firm, non-cancelable, and unhedged inventory purchase
commitments in excess of anticipated demand or net realizable value consistent
with our valuation of excess and obsolete inventory. As of June 30, 2021, the
liability for these purchase commitments was $13.9 million and is recorded in
accrued and other current liabilities.

We have firm purchase commitments of $25.8 million for capital expenditures
primarily related to commitments for tooling and equipment for new and existing
products. We expect to continue making capital expenditures in the future to
support product development activities and ongoing and expanded operations.
Although open purchase commitments are considered enforceable and legally
binding, the terms generally allow us to reschedule or adjust our requirements
based on business needs prior to delivery of goods or performance of services.
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Other Contractual Obligations and Commitments

For further detail about our contractual obligations and commitments, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

Indemnifications


We indemnify certain suppliers and customers for losses arising from matters
such as intellectual property disputes and product safety defects, subject to
certain restrictions. The scope of these indemnities varies, but in some
instances includes indemnification for damages and expenses, including
reasonable attorneys' fees. As of June 30, 2021, no amounts have been accrued
for indemnification provisions. We do not believe, based on historical
experience and information currently available, that it is probable that any
material amounts will be required to be paid under our indemnification
arrangements.

We also indemnify our current and former directors and certain current and
former officers. Certain costs incurred for providing such indemnification may
be recoverable under various insurance policies. We are unable to reasonably
estimate the maximum amount that could be payable under these arrangements
because these exposures are not capped, the obligations are conditional in
nature, and the facts and circumstances involved in any situation that might
arise are variable.

Legal Proceedings

From time to time we are involved in claims and legal proceedings that arise in
the ordinary course of our business. For more information about Legal
Proceedings, see Part II Item 1 Legal Proceedings of this quarterly report on
Form 10-Q for the period ended June 30, 2021.
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