Logitech Delivers Strong Q2 Sales and Profit Growth

NEWARK, Calif. & LAUSANNE, Switzerland–(BUSINESS WIRE)–Logitech International (SIX: LOGN) (Nasdaq: LOGI) today announced
financial results for the second quarter of Fiscal Year 2018.

  • Q2 sales were $634 million, up 12 percent in US dollars and 11 percent
    in constant currency, compared to Q2 of the prior year.
  • Q2 GAAP operating income grew 12 percent to $60 million, compared to
    $53 million in the same quarter a year ago. Q2 GAAP earnings per share
    (EPS) grew 21 percent to $0.34, compared to $0.28 in the same quarter
    a year ago.
  • Q2 non-GAAP operating income grew 12 percent to $72 million, compared
    to $65 million in the same quarter a year ago. Q2 non-GAAP EPS grew 14
    percent to $0.40, compared to $0.35 in the same quarter a year ago.

“We delivered another strong quarter of growth,” said Bracken Darrell,
Logitech president and chief executive officer. “Gaming and Video
Collaboration categories showed particular strength and momentum. And we
have a diverse and strong portfolio overall. We’re entering the second
half of the year with a wide range of exciting products ahead of the
holiday season.”

Outlook

Logitech’s outlook for Fiscal Year 2018 is 10 to 12 percent sales growth
in constant currency and $260 to $270 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 2018 on Tuesday, October 24, 2017 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), gain (loss) on investments in privately
held companies, investigation and related expenses, 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
2018.

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,
Ultimate
Ears
, Jaybird,
Logitech
G
and ASTRO
Gaming
. 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 federal securities laws, including, without limitation,
statements regarding: our preliminary financial results for the three
and six months ended September 30, 2017 and potential adjustments to the
preliminary financial results (see the Note following the financial
statements and supplemental information), innovation, product portfolio
and new products, outlook for Fiscal Year 2018 operating income and
sales growth, and the timing of filing our periodic reports with the
Securities and Exchange Commission (the “SEC”) and the SIX Swiss
Exchange. 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 are not able
to maintain and enhance our brands; if we do not successfully execute on
strategic acquisitions and investments; 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. 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 Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2017 and our Annual Report on Form 10-K for the fiscal year
ended March 31, 2017, 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.

2017 Logitech, Logicool, Logi and other Logitech marks are owned by
Logitech and may be registered. 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
September 30,
Six Months Ended
September 30,
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (A) 2017 2016 2017 2016
 
Net sales $ 634,212 $ 564,304 $ 1,164,158 $ 1,044,168
Cost of goods sold 403,469 356,268 738,243 665,893
Amortization of intangible assets and purchase accounting effect on
inventory
2,011   1,163   3,515   2,776  
Gross profit 228,732   206,873   422,400   375,499  
 
Operating expenses:
Marketing and selling 107,386 93,792 209,764 177,664
Research and development 36,647 32,632 71,746 64,583
General and administrative 25,205 25,290 50,559 50,945
Amortization of intangible assets and acquisition-related costs 2,491 1,748 3,881 3,041
Change in fair value of contingent consideration for business
acquisition
(2,930 )   (4,908 )  
Total operating expenses 168,799   153,462   331,042   296,233  
 
Operating income 59,933 53,411 91,358 79,266
Interest income (expense), net 1,048 (90 ) 2,223 61
Other income (expense), net 459   (683 ) (570 ) (1,691 )
Income before income taxes 61,440 52,638 93,011 77,636
Provision for (benefit from) income taxes 4,087   5,593   (1,349 ) 8,650  
Net income $ 57,353   $ 47,045   $ 94,360   $ 68,986  
 
Net income per share:
Basic $ 0.35 $ 0.29 $ 0.58 $ 0.43
Diluted $ 0.34 $ 0.28 $ 0.56 $ 0.42
 
Weighted average shares used to compute net income per share:
Basic 164,120 162,222 163,765 162,176
Diluted 169,078 165,549 168,710 164,926
 
Cash dividend per share $ 0.63 $ 0.57 $ 0.63 $ 0.57
 
LOGITECH INTERNATIONAL S.A.
PRELIMINARY
RESULTS *

(In thousands) – unaudited
   
CONDENSED CONSOLIDATED BALANCE SHEETS (A) September 30,
2017
March 31,
2017
 
Current assets:
Cash and cash equivalents $ 398,848 $ 547,533
Short-term investments 6,789
Accounts receivable, net 279,581 185,179
Inventories 329,675 253,401
Other current assets 47,721   41,732  
Total current assets 1,062,614 1,027,845
Non-current assets:
Property, plant and equipment, net 87,355 85,408
Goodwill 271,154 249,741
Other intangible assets, net 93,846 47,564
Other assets 138,144   88,119  
Total assets $ 1,653,113   $ 1,498,677  
 
Current liabilities:
Accounts payable $ 386,963 $ 274,805
Accrued and other current liabilities 229,176   232,273  
Total current liabilities 616,139 507,078
Non-current liabilities:
Income taxes payable 33,241 51,797
Other non-current liabilities 80,903   83,691  
Total liabilities 730,283   642,566  
 
Shareholders’ equity:
Registered shares, CHF 0.25 par value: 30,148 30,148
Issued and authorized shares —173,106 at September 30 and March 31,
2017
Conditionally authorized shares — 50,000 at September 30 and March
31, 2017
Additional paid-in capital 29,940 26,596
Shares in treasury, at cost — 8,745 at September 30, 2017 and 10,727
at March 31, 2017
(156,589 ) (174,037 )
Retained earnings 1,118,134 1,074,110
Accumulated other comprehensive loss (98,803 ) (100,706 )
Total shareholders’ equity 922,830   856,111  
Total liabilities and shareholders’ equity $ 1,653,113   $ 1,498,677  
 
LOGITECH INTERNATIONAL S.A.
PRELIMINARY
RESULTS *

(In thousands) – unaudited
 
  Three Months Ended
September 30,
  Six Months Ended
September 30,
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (A) 2017   2016 2017   2016
 
Cash flows from operating activities:
Net income $ 57,353 $ 47,045 $ 94,360 $ 68,986
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10,220 10,511 19,368 23,616
Amortization of intangible assets 3,645 2,159 6,238 3,867
Gain on investments in privately held companies (695 ) (171 ) (436 ) (172 )
Loss on disposal of property, plant and equipment 15 12
Share-based compensation expense 10,978 8,450 21,683 16,967
Deferred income taxes (2,054 ) 663 (11,933 ) (385 )
Change in fair value of contingent consideration for business
acquisition
(2,930 ) (4,908 )
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net (57,762 ) (48,340 ) (93,464 ) (97,001 )
Inventories (36,938 ) (18,310 ) (57,327 ) (28,317 )
Other assets (5,402 ) (3,567 ) (8,490 ) (4,738 )
Accounts payable 71,489 40,907 110,136 83,676
Accrued and other liabilities 20,464   35,522   (7,739 ) 25,387  
Net cash provided by operating activities 68,383   74,869   67,500   91,886  
Cash flows from investing activities:
Purchases of property, plant and equipment (7,153 ) (6,623 ) (17,188 ) (14,758 )
Investment in privately held companies (160 ) (160 ) (520 ) (480 )
Acquisitions, net of cash acquired (85,000 ) (13,000 ) (85,000 ) (66,987 )
Proceeds from return of investment in privately held companies 237 237
Changes in restricted cash 715
Purchases of short-term investments (6,789 ) (6,789 )
Purchases of trading investments (390 ) (1,042 ) (999 ) (5,271 )
Proceeds from sales of trading investments 410   1,065   1,057   5,296  
Net cash used in investing activities (98,845 ) (19,760 ) (109,202 ) (81,485 )
Cash flows from financing activities:
Payment of cash dividends (104,248 ) (93,093 ) (104,248 ) (93,093 )
Purchases of registered shares (10,058 ) (18,472 ) (10,682 ) (42,894 )
Proceeds from exercises of stock options and purchase rights 17,431 13,885 30,000 14,484
Tax withholdings related to net share settlements of restricted
stock units
(2,023 ) (1,862 ) (23,706 ) (11,047 )
Net cash used in financing activities (98,898 ) (99,542 ) (108,636 ) (132,550 )
Effect of exchange rate changes on cash and cash equivalents 551     (477 ) 1,653   (1,845 )
Net decrease in cash and cash equivalents (128,809 )   (44,910 ) (148,685 ) (123,994 )
Cash and cash equivalents, beginning of the period 527,657   440,111   547,533   519,195  
Cash and cash equivalents, end of the period $ 398,848   $ 395,201   $ 398,848   $ 395,201  
 
LOGITECH INTERNATIONAL S.A.
PRELIMINARY
RESULTS *

(In thousands) – unaudited
           
NET SALES Three Months Ended
September 30,
Six Months Ended
September 30,
SUPPLEMENTAL FINANCIAL INFORMATION 2017 2016 Change 2017 2016 Change
 
Net sales by product category:
Pointing Devices $ 124,235 $ 123,300 1 % $ 246,309 $ 240,083 3 %
Keyboards & Combos 119,431 116,516 3 235,544 234,535
PC Webcams 27,510 24,307 13 53,135 49,569 7
Tablet & Other Accessories 30,817 20,614 49 54,035 34,499 57
Video Collaboration 46,131 28,581 61 81,748 52,491 56
Mobile Speakers 90,550 97,172 (7 ) 153,468 154,468 (1 )
Audio-PC & Wearables 63,215 62,254 2 113,417 118,833 (5 )
Gaming 113,754 79,193 44 191,462 135,693 41
Smart Home 18,370 11,807 56 34,836 22,974 52
Other (1) 199   560   (64 ) 204   1,023   (80 )
Total net sales $ 634,212   $ 564,304   12 $ 1,164,158   $ 1,044,168   11

(1) Other category includes products that we currently intend to
transition out of, or have already transitioned out of, 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 (A)(B) Three Months Ended
September 30,
Six Months Ended
September 30,
SUPPLEMENTAL FINANCIAL INFORMATION 2017 2016 2017 2016
 
Gross profit – GAAP $ 228,732 $ 206,873 $ 422,400 $ 375,499
Share-based compensation expense 1,091 638 1,802 1,313
Amortization of intangible assets and purchase accounting effect on
inventory
2,011   1,163   3,515   2,776  
Gross profit – Non-GAAP $ 231,834   $ 208,674   $ 427,717   $ 379,588  
 
Gross margin – GAAP 36.1 % 36.7 % 36.3 % 36.0 %
Gross margin – Non-GAAP 36.6 % 37.0 % 36.7 % 36.4 %
 
Operating expenses – GAAP $ 168,799 $ 153,462 $ 331,042 $ 296,233
Less: Share-based compensation expense 9,887 7,812 19,881 15,654
Less: Amortization of intangible assets and acquisition-related costs 2,491 1,748 3,881 3,041
Less: Change in fair value of contingent consideration for business
acquisition
(2,930 ) (4,908 )
Less: Restructuring credits, net (61 ) 74 (116 ) (11 )
Less: Investigation and related expenses       612  
Operating expenses – Non-GAAP $ 159,412   $ 143,828   $ 312,304   $ 276,937  
 
% of net sales – GAAP 26.6 % 27.2 % 28.4 % 28.4 %
% of net sales – Non – GAAP 25.1 % 25.5 % 26.8 % 26.5 %
 
Operating income – GAAP $ 59,933 $ 53,411 $ 91,358 $ 79,266
Share-based compensation expense 10,978 8,450 21,683 16,967
Amortization of intangible assets 3,645 2,159 6,238 3,867
Purchase accounting effect on inventory 114 114 703
Acquisition-related costs 741 752 1,042 1,247
Change in fair value of contingent consideration for business
acquisition
(2,930 ) (4,908 )
Restructuring credits, net (61 ) 74 (116 ) (11 )
Investigation and related expenses       612  
Operating income – Non – GAAP $ 72,420   $ 64,846   $ 115,411   $ 102,651  
 
% of net sales – GAAP 9.4 % 9.5 % 7.8 % 7.6 %
% of net sales – Non – GAAP 11.4 % 11.5 % 9.9 % 9.8 %
 
Net income – GAAP $ 57,353 $ 47,045 $ 94,360 $ 68,986
Share-based compensation expense 10,978 8,450 21,683 16,967
Amortization of intangible assets 3,645 2,159 6,238 3,867
Purchase accounting effect on inventory 114 114 703
Acquisition-related costs 741 752 1,042 1,247
Change in fair value of contingent consideration for business
acquisition
(2,930 ) (4,908 )
Restructuring credits, net (61 ) 74 (116 ) (11 )
Investigation and related expenses 612
Gain on investments in privately held companies (695 ) (171 ) (436 ) (172 )
Non-GAAP income tax adjustment (1,890 ) (379 ) (10,982 ) (1,054 )
Net income – Non – GAAP $ 67,255   $ 57,930   $ 106,995   $ 91,145  
 
Net income per share:
Diluted – GAAP $ 0.34 $ 0.28 $ 0.56 $ 0.42
Diluted – Non – GAAP $ 0.40 $ 0.35 $ 0.63 $ 0.55
 
Shares used to compute net income per share:
Diluted – GAAP and Non – GAAP 169,078 165,549 168,710 164,926
 
LOGITECH INTERNATIONAL S.A.
PRELIMINARY
RESULTS *

(In thousands) – unaudited
       
SHARE-BASED COMPENSATION EXPENSE Three Months Ended
September 30,
Six Months Ended
September 30,
SUPPLEMENTAL FINANCIAL INFORMATION 2017 2016 2017 2016
 
Share-based Compensation Expense
Cost of goods sold $ 1,091 $ 638 $ 1,802 $ 1,313
Marketing and selling 4,343 3,244 8,724 6,681
Research and development 1,633 917 3,176 1,831
General and administrative 3,911   3,651   7,981   7,142  
Total share-based compensation expense 10,978 8,450 21,683 16,967
Income tax benefit (3,677 ) (1,886 ) (14,959 ) (3,701 )
Total share-based compensation expense, net of income tax $ 7,301   $ 6,564   $ 6,724   $ 13,266  

* Note: These preliminary results for the three and six months ended
September 30, 2017 are subject to adjustments, including potential
adjustments, which we currently estimate not to be material, as we
continue to verify information provided by a new third-party North
American logistics service provider and distribution center added during
the latter half of the second quarter of Fiscal Year 2018 and subsequent
events (as required pursuant to applicable accounting rules) that may
occur through the date of filing our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017 with the SEC (the “10-Q”). Upon
completion of our additional work to verify such information, the
completed financial information for the three and six months ended
September 30, 2017 will need to be reviewed by our independent
registered public accounting firm prior to filing the 10-Q with the SEC
and our semi-annual report with the SIX Swiss Exchange. We are working
to complete and file all periodic reports within the applicable filing
deadlines of the SEC and the SIX Swiss Exchange.

(A) Preliminary valuation from the business acquisition

The preliminary fair value of assets acquired and liabilities assumed
from the business acquisition during the current period is included in
the tables. The fair value of identifiable intangible assets acquired
was based on estimates and assumptions made by us at the time of the
acquisition. As additional information becomes available, such as
finalization of purchase price adjustment and the finalization of the
estimated fair value of the assets acquired and liabilities assumed, we
may revise our preliminary or interim estimated fair value of the assets
acquired and liabilities assumed during the remainder of the measurement
periods (which will not exceed 12 months from the acquisition dates).
Any such revisions or changes may be material, and may have a material
impact over our financial condition and results of operations.

(B) 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, 2017, 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.

Contacts

Logitech International
Ben Lu
Vice President, Investor
Relations – USA
510-713-5568
or
Krista Todd
Vice
President, Communications – USA
510-713-5834
or
Ben
Starkie
Corporate Communications – Europe
+41 (0) 79-292-3499

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