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Income
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(Exact name of registrant as specified in its charter)
Canton of Vaud,
iSwitzerland
None
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Logitech International S.A.
EPFL - Quartier de l'Innovation
Daniel Borel Innovation Center
i1015 Lausanne, iSwitzerland
ic/o Logitech Inc.
i3930 North First Street
iSan
Jose, iCaliforniai95134
(Address of principal executive offices and zip code)
(i510)i795-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Registered
Shares
LOGN
SIX Swiss Exchange
iRegistered Shares
iLOGI
iNasdaq
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesý No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesý No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
Accelerated Filer
ý
Smaller reporting company
i☐
Accelerated filer
☐
Emerging Growth Company
i☐
Non-accelerated
filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
No iý
In this document, unless otherwise indicated, references to the “Company,”“Logitech,”"we,""our," and "us" are to Logitech International S.A. and its consolidated subsidiaries. Unless otherwise specified, all references to U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America. All references to CHF are to the Swiss Franc, the legal currency of Switzerland.
Logitech, the Logitech logo, and the Logitech products referred to herein are either the trademarks or the registered trademarks of Logitech. All other trademarks are the property of their respective owners.
Our
fiscal year ends on March 31. Interim quarters are generally thirteen-week periods, each ending on a Friday of each quarter. The third quarter of fiscal year 2024 ended on December 29, 2023. The same quarter in the prior fiscal year ended on December 30, 2022. For purposes of presentation, we have indicated our quarterly periods end on the last day of the calendar quarter.
The term “sales” means net sales, except as otherwise specified.
We make available, free of charge on our website, access to our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we file or furnish them electronically with the Securities and Exchange Commission ("SEC").
Recordings of our earnings videoconferences and certain events we participate in or host, with members of the investment community are posted on our investor relations website at https://ir.logitech.com.
Additionally, we provide notifications of news or announcements regarding our operations and financial performance, including SEC filings, investor events, and press and earnings releases as part of our investor relations website. We intend to use our investor relations website as means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD. Our corporate governance information also is available on our investor relations website.
All references to our websites
are intended to be inactive textual references only, and the contents of such websites do not constitute a part of and are not intended to be incorporated into this Quarterly Report on Form 10-Q.
Logitech International S.A, together with its consolidated subsidiaries ("Logitech" or the "Company"), designs, manufactures and sells products that help businesses thrive and bring people together when working, creating, gaming and streaming.
The Company sells its products to a broad network of international customers, including direct sales to retailers, e-tailers and end consumers through the
Company's e-commerce platform, and indirect sales to end customers through distributors.
Logitech was founded in Switzerland in 1981 and Logitech International S.A. has been the parent holding company of Logitech since 1988. Logitech International S.A. is a Swiss holding company with its registered office in Hautemorges, Switzerland, and headquarters in Lausanne, Switzerland, which conducts its business through subsidiaries in the Americas, Europe, Middle East and Africa ("EMEA") and Asia Pacific. Shares of Logitech International S.A. are listed on both the SIX Swiss Exchange under the trading symbol LOGN and the Nasdaq Global Select Market under the trading symbol LOGI.
i
Basis
of Presentation
The condensed consolidated financial statements include the accounts of Logitech and its subsidiaries. All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and therefore do not include all the information required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2023, included in
its Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on May 17, 2023.
In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary and in all material aspects, for a fair statement of the results of operations, comprehensive income, financial position, cash flows and changes in shareholders' equity for the periods presented. Operating results for the three and nine months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024, or any future periods.
Change
in Presentation of Sales by Product Category
During the first quarter of fiscal year 2024, the Company changed its presentation of Sales by Product Category, included in Note 12, to provide a simpler and clearer view of the Company's business. The change in presentation did not have an impact on previously reported total sales. These changes included reclassifications of sales between certain product categories resulting in the following:
•The Webcams category (previously PC Webcams) now includes PC webcams and VC webcams;
•Headsets is a new category
which includes PC headsets and VC headsets;
•The Mobile Speakers category is no longer a separate category as sales have been reclassified into the Other category;
•The Audio & Wearables category is no longer a separate category as sales have been reclassified into other categories as discussed below.
As
a result of these changes, certain prior-period amounts for the three and nine months endedDecember 31, 2022 have been reclassified to conform to the current period presentation as follows (in thousands):
(1)
Reclassification of Blue Microphones from "Audio & Wearables" to the Gaming category.
(2) Reclassification of VC headsets and PC headsets to the new Headsets category from "Video Collaboration" and "Audio & Wearables," respectively.
(3) The Webcams category includes amounts previously reported as "PC Webcams" as well as amounts from VC webcams reclassified from "Video Collaboration."
(4) Reclassification of all amounts previously reported in "Mobile Speakers" to the Other category.
(5) Reclassification of PC speakers previously reported in "Audio & Wearables" to the Other category.
/
i
Changes
in Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies during the three and nine months ended December 31, 2023 compared with the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2023.
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Significant estimates and assumptions made by management involve the fair value of goodwill and intangible assets acquired from business acquisitions, contingent consideration for a business acquisition and periodic reassessment of its fair value, valuation of investment in privately held companies classified under Level 3 fair value hierarchy, pension obligations, accruals for customer incentives, cooperative marketing, and pricing programs and related breakage when appropriate, inventory valuation, share-based compensation expense, uncertain tax positions, and
valuation allowances for deferred tax assets. Although these estimates are based on management’s best knowledge of current events and actions that may impact the Company in the future, actual results could differ materially from those estimates.
i
Risks and Uncertainties
Impacts of Macroeconomic and Geopolitical Conditions on the Company's Business
The
Company's business has been impacted by adverse macroeconomic and geopolitical conditions. These conditions include inflation, interest rate and foreign currency fluctuations, slowdown of economic activity around the world, and lower consumer and enterprise spending.
The global and regional economic and political conditions adversely affected demand for the Company's products. In addition, these conditions, including recent transportation issues in the Red Sea, have caused and may continue to cause volatility in the cost of materials and logistics, and transportation delays, and as a result may impact the pricing of the Company's products, product availability and the
Company's results of operations.
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. In addition, ASU 2023-07 requires that all existing annual disclosures about segment profit or loss must be provided on an interim basis and clarifies that single reportable segment entities are subject to the disclosure requirement under Topic 280 in its entirety. ASU 2023-07 is effective for fiscal years beginning after December
15, 2023 and interim periods within those fiscal years beginning after December 15, 2024. A public entity should apply ASU 2023-07 retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires additional disclosures related to rate reconciliation, income taxes paid, and other disclosures. Under ASU 2023-09, for each annual periods presented, public entities are required to (1) disclose specific categories in the tabular rate reconciliation
and (2) provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires all reporting entities to disclose on an annual basis the amount of income taxes paid disaggregated by federal, state, and foreign taxes as well as the amount of income taxes paid by individual jurisdiction. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 and can be applied on a prospective basis with an option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures.
The following table summarizes the computations of basic and diluted net income per share for the three and nine months ended December 31,
2023 and 2022 (in thousands, except per share amounts):
Share
equivalents attributable to outstanding stock options, restricted stock units and employee share purchase plans totaling i0.8 million and i1.6 million
for the three months ended December 31, 2023 and 2022, respectively, and i1.3 million and i2.0 million
for the nine months ended December 31, 2023 and 2022, respectively, were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive. A small number of performance-based restricted stock units were not included in the dilutive net income per share calculation because all necessary conditions had not been satisfied by the end of the respective period, and those shares were not issuable if the end of the reporting period were the end of the performance contingency period.
Note 3 — iEmployee
Benefit Plans
Employee Share Purchase Plans and Stock Incentive Plans
As of December 31, 2023, the Company offers the 2006 Employee Share Purchase Plan (Non-U.S.), as amended and restated ("2006 ESPP"), the 1996 Employee Share Purchase Plan (U.S.), as amended and restated ("1996 ESPP"), and the 2006 Stock Incentive Plan ("2006 Plan") as amended and restated. Shares issued to employees as a result of purchases or exercises under these plans are generally issued from shares held in treasury stock.
i
The
following table summarizes the share-based compensation expense and total income tax benefit recognized for share-based awards for the three and nine months ended December 31, 2023 and 2022 (in thousands):
The income tax benefit in the respective periods primarily consisted of tax benefits related to the share-based compensation expense for the period and direct tax benefit realized, including net excess tax benefits recognized from share-based awards vested or exercised during the period.
Share-based compensation costs capitalized as part of inventory were $i1.4
million and $i1.3 million for the three months endedDecember 31, 2023 and 2022, respectively, and $i4.8
millionand $i4.4 million for the nine months ended December 31, 2023 and 2022, respectively.
Defined Benefit Plans
Certain of the
Company’s subsidiaries sponsor defined benefit pension plans or non-retirement post-employment benefits covering substantially all of their employees. Benefits are provided based on employees’ years of service and earnings, or in accordance with applicable employee benefit regulations. The Company’s practice is to fund amounts sufficient to meet the requirements set forth in the applicable employee benefit and tax regulations. The costs of $i1.9 million
and $i2.7 million recorded for the three months ended December 31, 2023 and 2022, respectively, and $i5.7 million
and $i8.3 million recorded for the nine months ended December 31, 2023 and 2022, respectively, were primarily related to service costs.
Note 4 — iIncome
Taxes
The Company is incorporated in Switzerland but operates in various countries with differing tax laws and rates. Further, a portion of the Company’s income before taxes and the provision for (benefit from) income taxes are generated outside of Switzerland.
The income tax provision (benefit) for the three and nine months ended December 31, 2023 was a benefit of $i9.6
million and a provision of $i33.3 million based on an effective income tax rate of (i4.1)% and i7.0%
of pre-tax income, respectively. The income tax provision for the same periods ended December 31, 2022 was $i42.7 million and $i87.8 million based on effective income tax rate
of i23.3% and i21.4% of pre-tax income, respectively.
The change in the effective income tax rate for the three and nine months ended December 31,
2023, compared with the same periods ended December 31, 2022 was primarily due to the mix of income and losses in the various tax jurisdictions in which the Company operates as well as the favorable tax impacts from share-based compensation, an agreement to remeasure the tax basis of goodwill under the Swiss Federal Act on Tax Reform and AHV Financing (“TRAF”) with the canton of Vaud, remeasurement of the Company’s Swiss deferred tax assets due to a change in tax rate, and Foreign-Derived Intangible Income ("FDII") incentive provided by the Tax Cuts and Jobs Act.
The canton of Vaud completed the legislative
process to enact TRAF, a reform to better align the Swiss tax system to international tax standards, on March 10, 2020 to take effect as of January 1, 2020. In March 2020, the Company reached an agreement with the Vaud Tax Administration that would allow for an increase in the tax basis of goodwill, as a transition measure under TRAF, to be amortized over ten years beginning on January 1, 2020. During the three months ended December 31, 2023, the Company reached an agreement to remeasure the tax basis of goodwill under TRAF with the canton of Vaud, which resulted in an income tax benefit of $i25.1 million,
net of assessment of uncertain tax positions. The remeasurement of the step-up will be amortized over the remaining ten-year amortization period.
On December 29, 2023, a change to the cantonal tax legislation was published. According to the law approved by the Vaud parliament, a progressive scale will be applicable for cantonal tax purposes resulting in an increase from the current tax rate of i13.61% to i14.28%
effective fiscal year 2025. The increase in tax rate resulted in a tax benefit of $i5.1 million due to a remeasurement of the Company's Swiss deferred tax assets in the fiscal quarter ended December 31, 2023.
The Tax Cuts and Jobs Act enacted Section 250, which provides for a deduction with respect to Global Intangible Low-Taxed Income ("GILTI") and FDII
in the US. The application of this tax incentive is inherently complex. During the three months ended December 31, 2023, the Company analyzed the applicability of FDII and determined that this tax incentive applies to fiscal 2021 to 2023 tax years. As a result, the Company realized a tax benefit of $i17.9 million related to FDII. The
Company has also concluded that any GILTI tax since the enactment of Tax Cuts and Jobs Act would be immaterial.
Although the Company has adequately provided for uncertain tax positions, the provisions related to these positions may change as revised estimates are made or the underlying matters are settled or otherwise resolved. During fiscal year 2024, the Company continues to review its tax positions and
to provide for or reverse unrecognized tax benefits as they arise. During the next twelve months, while it is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly, it is not possible to provide a range of potential changes.
On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) ("IRA") was signed into law in the United States. The IRA established a new corporate alternative minimum tax based on financial statement income adjusted for certain items. The new minimum tax is effective for tax years beginning after December 31, 2022. The IRA is not expected to have a material impact to the Company's financial statements for the tax
year ending March 31, 2024.
On December 22, 2023, the Federal Council enacted the relevant ordinance for implementing a (Qualified) Domestic Minimum Tax (QDMTT) in Switzerland for tax years beginning from January 1, 2024. The Company is currently evaluating the impact of this ordinance on its consolidated financial statements.
Note 5 — iBalance
Sheet Components
i
The following table presents the components of certain balance sheet asset amounts (in thousands):
Accrued customer marketing, pricing and incentive programs
$
i193,216
$
i206,546
Accrued
personnel expenses
i142,936
i103,592
Accrued
loss for inventory purchase commitments
i33,772
i46,608
Accrued
sales return liability
i33,527
i49,462
Warranty
liabilities
i28,784
i28,861
VAT
payable
i37,748
i33,328
Income
taxes payable
i28,136
i18,788
Operating
lease liabilities
i14,915
i12,655
Contingent
consideration
i1,809
i6,629
Other
current liabilities
i158,592
i136,670
$
i673,435
$
i643,139
Other
non-current liabilities:
Operating lease liabilities
$
i62,800
$
i58,361
Employee
benefit plan obligations
i32,212
i32,421
Obligation
for deferred compensation plan
i29,905
i28,213
Warranty
liabilities
i12,993
i12,025
Deferred
tax liabilities
i2,529
i2,803
Other
non-current liabilities
i16,052
i12,872
$
i156,491
$
i146,695
/
Note 6
— iFair Value Measurements
Fair Value Measurements
The Company considers fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company
utilizes the following three-level fair value hierarchy to establish the priorities of the inputs used to measure fair value:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The following table presents the
Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis, excluding assets related to the Company’s defined benefit pension plans, classified by the level within the fair value hierarchy (in thousands):
Investments
for deferred compensation plan included in other assets:
Cash
$
i402
$
i—
$
i—
$
i41
$
i—
$
i—
Common
stock
i1,257
i—
i—
i988
i—
i—
Money
market funds
i9,760
i—
i—
i9,606
i—
i—
Mutual
funds
i18,486
i—
i—
i17,578
i—
i—
Total
investments for deferred compensation plan
$
i29,905
$
i—
$
i—
$
i28,213
$
i—
$
i—
Currency
derivative assets included in other current assets
$
i—
$
i118
$
i—
$
i—
$
i107
$
i—
Liabilities:
Contingent
consideration included in accrued and other current liabilities
$
i—
$
i—
$
i1,809
$
i—
$
i—
$
i6,629
Currency
derivative liabilities included in accrued and other current liabilities
$
i—
$
i1,813
$
i—
$
i—
$
i2,187
$
i—
/
Contingent
Consideration for Business Acquisitions
iThe following table summarizes the change in the Company's contingent consideration balance during the nine months ended December 31, 2023 and 2022 (in thousands):
Fair
value of contingent consideration upon acquisition
i—
i2,151
Payments
of contingent consideration
(i5,002)
(i5,954)
Effect
of foreign currency exchange rate changes
i182
(i1,843)
End
of the period
$
i1,809
$
i6,613
/
The
contingent consideration arising from a technology acquisition on May 19, 2021, represented the future potential earn-out payments of up to$i10.0 million payable in cash upon the achievement of ithree
technical development milestones to be completed as of December 31, 2021, June 30, 2022, and June 30, 2023. The fair value of the contingent consideration was $i10.0 million at the acquisition date, which was determined using a probability-weighted expected payment model and discounted at the estimated cost
of debt. During fiscal year 2022, the Company paid $i0.9 million for the contingent consideration related to the first technical development milestone. During fiscal year 2023, the Company paid $i4.0 million
for the contingent consideration related to the second technical development milestone. During the second quarter of fiscal year 2024, the Company paid $i3.3 million for the contingent consideration related to the third technical development milestone.
The contingent consideration arising from a technology acquisition on January 4, 2021, represented the future potential earn-out payments of up to
$i3.0 million payable in cash upon the achievement of itwo technical development
milestones to be completed as of December 31, 2021 and March 31, 2022. The fair value of the contingent consideration was determined using a probability-weighted expected payment model and discounted at the estimated cost of debt. During fiscal year 2023, the Company paid $i2.0 million for the contingent consideration related to the first technical development
milestone. During the second quarter of fiscal year 2024, the Company paid $i1.0 million for the contingent consideration related to the second technical development milestone.
The marketable securities for the Company's deferred compensation plan were recorded at a fair value of $i29.9 million and $i28.2
million, as of December 31, 2023 and March 31, 2023, respectively, based on quoted market prices. Quoted market prices are observable inputs that are classified as Level 1 within the fair value hierarchy. Unrealized gains (losses) related to marketable securities for the three and nine months endedDecember 31, 2023 and 2022 were not material and were included in other income (expense), net, and corresponding changes in the deferred compensation liability were included in operating expenses and cost of goods sold, in the Company's condensed consolidated statements of operations.
Equity
Method Investments
The Company has certain non-marketable investments included in other assets that are accounted for as equity method investments, with a carrying value of $i18.4 million and $i20.5
million as of December 31, 2023 and March 31, 2023, respectively. Gains (losses) related to equity method investments for the three and nine months ended December 31, 2023 and 2022 were not material and are included in other income (expense), net, in the Company's condensed consolidated statements of operations.
During the second quarter of fiscal year 2023, the Company recorded an impairment charge, before tax, of $i21.4 million
for one of its equity method investments as it was determined that the carrying value of the investment was not recoverable. The impairment charge is included in other income (expense), net, in the Company's condensed consolidated statement of operations for the nine months ended December 31, 2022. There was iino/
impairment of equity method investments during the three and nine months ended December 31, 2023.
Assets Measured at Fair Value on a Nonrecurring Basis
Financial Assets
The Company has certain equity investments without readily determinable fair values due to the absence of quoted market prices, the inherent lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require management's judgment. When certain events or circumstances indicate that impairment may exist, the
Company revalues the investments using various assumptions, including the financial metrics and ratios of comparable public companies. The carrying value is also adjusted for observable price changes with the same or similar security from the same issuer. The amount of these equity investments without readily determinable fair values included in other assets was $i12.1 million and $i12.6 million
as of December 31, 2023 and March 31, 2023,respectively.During the first quarter of fiscal year 2023, the Company recorded an unrealized gain, before tax, of $i6.9 million for its
investment in a private company as a result of observable price changes for similar securities issued by this company (level 2 fair value measurement). There were iino/
impairment charges related to these financial assets during the three and nine months ended December 31, 2023 and 2022, other than immaterial impairment charges related to certain investments without readily determinable fair values.
During the first quarter of fiscal year 2024, the Company recorded an impairment loss, before tax, of $i9.6 million as a result
of the write-off of a note receivable which has been deemed no longer recoverable. This note receivable was previously obtained in conjunction with an exchange transaction related to the Company's investment in a privately held company. The impairment loss is included in other income (expense), net, in the Company's condensed consolidated statement of operations for the nine months ended December 31, 2023.
Non-Financial Assets
Goodwill, intangible assets, and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if the
Company is required to evaluate these non-financial assets for impairment, whether due to certain triggering events or because of the required annual impairment test, and a resulting impairment is recorded to reduce the carrying value to the fair value, the non-financial assets are measured at fair value during such period. There was iiiino///
impairment of non-financial assets during the three and nine months ended December 31, 2023 and 2022.
Under certain agreements with the respective counterparties to the Company’s derivative contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, the Company presents its derivative assets and derivative liabilities on a gross basis in other current assets and accrued and other current liabilities, respectively, on the condensed consolidated balance sheets as of December 31,
2023 and March 31, 2023. See Note 6 for the fair values of the Company’s derivative instruments as of December 31, 2023 and March 31, 2023.
Cash Flow Hedges
The Company enters into cash flow hedge contracts to protect against exchange rate exposure of forecasted inventory purchases. These hedging contracts
mature within approximately ifour months. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of accumulated other comprehensive loss until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold. Cash flows from such hedges are classified as operating activities in the condensed consolidated statements of cash flows. Hedging relationships are discontinued when the hedging contract is no longer eligible for hedge accounting, or is sold, terminated or exercised, or when the
Company removes hedge designation for the contract. Gains and losses in the fair value of the effective portion of the discontinued hedges continue to be reported in accumulated other comprehensive loss until the hedged inventory purchases are sold, unless it is probable that the forecasted inventory purchases will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter.
The notional amounts of foreign currency exchange forward contracts outstanding related to forecasted inventory purchases were $i91.2
million and $i72.6 million as of December 31, 2023 and March 31, 2023, respectively. The Company had $i1.6
million of net loss related to its cash flow hedges included in accumulated other comprehensive loss as of December 31, 2023, which will be reclassified into earnings within the next twelve months.
iThe following table presents the amounts of gain (loss) on the Company’s derivative instruments designated as hedging
instruments for the three and nine months ended December 31, 2023 and 2022 and their locations on its condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (in thousands):
Three
months ended December 31,
Amount of Gain (Loss) Deferred as a Component of Accumulated Other Comprehensive Loss
Amount of (Gain) Loss
Reclassified from Accumulated Other Comprehensive Loss to
Costs of Goods Sold
2023
2022
2023
2022
Cash
flow hedges
$
(i2,539)
$
(i6,325)
$
(i863)
$
(i4,728)
Nine
months ended December 31,
Amount of Gain (Loss)
Deferred as a Component of Accumulated
Other Comprehensive Loss
Amount of (Gain) Loss
Reclassified from Accumulated Other Comprehensive Loss to
Costs of Goods Sold
2023
2022
2023
2022
Cash
flow hedges
$
(i1,165)
$
i5,239
$
i3,493
$
(i11,766)
The Company presents the earnings impact from forward points in the same line item that is used to present the earnings impact of the hedged item, i.e. cost of goods sold, for hedging forecasted inventory purchases and such amount is not material for all periods presented.
The Company also enters into foreign currency exchange forward and swap contracts
to reduce the short-term effects of currency exchange rate fluctuations on certain receivables or payables denominated in currencies other than the functional currencies of its subsidiaries. These contracts generally mature within approximately ione month. The primary risk managed by using forward and swap contracts is the currency exchange rate risk. The gains or losses on these contracts
are not material and included in other income (expense), net, in the condensed consolidated statements of operations based on the changes in fair value. The notional amounts of these contracts outstanding as of December 31, 2023 and March 31, 2023 were $i78.2 million and $i111.2
million, respectively. Foreign currency exchange forward and swap contracts outstanding as of December 31, 2023 primarily consisted of contracts in Canadian Dollar, Brazilian Real, and New Taiwan Dollar to be settled at future dates at predetermined exchange rates.
The fair value of all foreign currency exchange forward and swap contracts is determined based on observable market transactions of spot currency rates and forward rates. Cash flows from these contracts
are classified as operating activities in the condensed consolidated statements of cash flows.
Note 8 — iGoodwill and Other Intangible Assets
The Company conducts its impairment analysis of goodwill annually at December 31 or more frequently if changes in facts and circumstances indicate that
it is more likely than not that the fair value of the Company’s reporting unit may be less than its carrying amount. The Company conducted its annual impairment analysis of goodwill as of December 31, 2023 by performing a qualitative assessment and concluded that it was more likely than not that the fair value of its reporting unit exceeds its carrying amount. In assessing the qualitative factors, the Company considered the impact of change in industry and competitive environment, the Company's market capitalization and budgeted-to-actual revenue performance for the last twelve
months.
i
The following table summarizes the activities in the Company’s goodwill balance (in thousands):
The Company had several uncommitted, unsecured bank lines of credit and letters of credit aggregating $i176.1
million and $i181.3 million as of December 31, 2023 and March 31, 2023, respectively. There are no financial covenants under the lines of credit with which the Company must comply. There was iino/
borrowing outstanding under the lines of credit as of December 31, 2023 or March 31, 2023. As of December 31, 2023 and March 31, 2023, the Company had outstanding bank guarantees of $i11.1 million and $i13.6
million, respectively.
Note 10 — iCommitments and Contingencies
Product Warranties
i
Changes
in the Company’s warranty liabilities for the three and nine months ended December 31, 2023 and 2022 were as follows (in thousands):
The
Company indemnifies certain of its 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 December 31, 2023, ino material amounts have been accrued for these indemnification provisions. The Company does
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 its indemnification arrangements.
The Company also indemnifies its current and former directors and certain of its current and former officers. Certain costs incurred for providing such indemnification may be recoverable under various insurance policies. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not limited, 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 the Company is involved in claims and legal proceedings that arise in the ordinary course of its business. The Company is currently subject to several such claims and legal proceedings. The Company intends to vigorously defend against them. Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. The Company follows ASC ("Accounting
Standards Codification") 450 in determining the accounting and disclosure for these contingencies. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows and results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company's defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the Company's business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the
Company can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain a necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect the Company's business.
In May 2020, the Company's Board of Directors approved the 2020 share repurchase program, which authorized the Company to use up to $i250.0 million
to purchase Logitech shares to support equity incentive plans or potential acquisitions. Shares may be repurchased from time to time on the open market, through block trades or otherwise. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. In April 2021, the Company's Board of Directors approved an increase of $i750.0 million to the 2020 share repurchase program, to an aggregate amount of $i1.0 billion.
The Swiss Takeover Board approved this increase and it became effective on May 21, 2021. In July 2022, the Company’s Board of Directors approved an increase of $i500 million to the 2020 share repurchase program, to an aggregate amount of up to $i1.5 billion.
The Swiss Takeover Board approved this increase and it became effective on August 19, 2022. The 2020 share repurchase program expired on July 27, 2023. The Company repurchased i16.7 million shares for an aggregate cost of $i1.2 billion
under the 2020 share repurchase program, of which i2.6 million shares for an aggregate cost of $i159.1 million were repurchased during fiscal year 2024 prior to the expiration of the program.
2023
Share Repurchase Program
In June 2023, the Company's Board of Directors approved a new, ithree-year share repurchase program, which allows the Company to use up to $i1.0
billion to repurchase its shares. The 2023 share repurchase program enables the Company to repurchase shares for cancellation, as well as to support equity incentive plans or potential acquisitions. The Swiss Takeover Board approved the 2023 share repurchase program in July 2023 and the program became effective on July 28, 2023. During the nine months ended December 31, 2023, the Company repurchased i3.0 million
shares for an aggregate cost of $i232.5 million under the 2023 share repurchase program for cancellation, of which $i14.8 million of the aggregate cost was not paid yet as of December 31,
2023. As of December 31, 2023, $i767.8 million was available for repurchase under the 2023 share repurchase program.
Swiss law limits a company’s ability to hold or repurchase its own shares. The aggregate par value of all shares held in treasury by the Company and its
subsidiaries may not exceed i10% of the share capital of the Company, which for the Company corresponds to approximately i17.3 million
registered shares. This limitation does not apply to shares repurchased for cancellation, due to the Board of Directors’ authority under the Company’s capital band set forth in the Company’s Articles of Incorporation to cancel shares up to a limit of i10% of the
Company's current share capital. As of December 31, 2023, the Company had a total of i18.1 million shares held in treasury stock, which includes i3.0 million
shares that have been repurchased for cancellation.
To the extent that the shares are repurchased to support equity incentive plans or potential acquisitions, the shares are repurchased on the ordinary trading line of SIX Swiss Exchange (“SIX”) and/or The Nasdaq Global Select Market (“Nasdaq”). Shares repurchased for cancellation purposes are repurchased on a second trading line on SIX. Shares may be repurchased from time to time on the open market or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Purchases may be started or stopped at any time without prior notice depending on market conditions and other factors and the program does not require the purchase of any minimum number of shares.
Dividends
During
the nine months ended December 31, 2023, the Company declared and paid cash dividends of CHF i1.06 (USD equivalent of $i1.19 based on the exchange
rate on the date of declaration) per share, totaling $i187.2 million on the Company's outstanding shares. During the nine months ended December 31, 2022, the Company declared and paid cash dividends of CHF i0.96
(USD equivalent of $i1.00 based on the exchange rate on the date of declaration) per share, totaling $i162.7 million on the Company's outstanding shares.
Any
future dividends will be subject to approval of the Company's shareholders.
The Company operates in a single operating segment that encompasses the design, manufacturing and marketing of peripherals for gaming, PCs, tablets, video conferencing, and other digital platforms. Operating performance measures are provided directly to the Company's CEO, who is considered to be the
Company’s Chief Operating Decision Maker. The CEO periodically reviews information such as sales and adjusted operating income (loss) to make business decisions. These operating performance measures do not include restructuring charges (credits), net, share-based compensation expense, amortization and impairment of intangible assets, acquisition-related costs, and change in fair value of contingent consideration from business acquisitions.
During the first quarter of fiscal year 2024, the Company changed its presentation of Sales by Product Category to provide a simpler and clearer view of the Company's business. The change in presentation did not have an impact on previously reported total sales. As a result
of these changes, certain prior-period amounts for the three and nine months ended December 31, 2022 have been reclassified to conform to the current period presentation. See Note 1 for further information on the change in presentation.
i
Sales by product category in the current presentation for the three and nine months ended December 31, 2023 and 2022
were as follows (in thousands):
Sales
by geographic region (based on the customers’ locations) for the three and nine months ended December 31, 2023 and 2022 were as follows (in thousands):
Revenue
from sales to customers in the United States, Germany and China each represented 10% or more of the total consolidated sales for each of the periods presented herein. No other countries represented 10% or more of the Company’s total consolidated sales for the periods presented herein.
Switzerland, the Company’s country of domicile, represented i3% and i4%
of the Company's total consolidated sales for the three months ended December 31, 2023 and 2022, respectively, and i2% and i3% for the
nine months ended December 31, 2023 and 2022, respectively.
Three customers of the Company each represented 10% or more of the total consolidated gross sales for each of the three and nine months ended December 31, 2023 and 2022.
i
Property,
plant and equipment, net (excluding software) and right-of-use assets by geographic region were as follows (in thousands):
Property,
plant and equipment, net (excluding software) and right-of-use assets in the United States, China, and Ireland were $i67.8 million, $i37.6 million and $i16.9
million, respectively, as of December 31, 2023, and $i58.7 million, $i48.8 million, and $i17.7
million, respectively, as of March 31, 2023. No other countries represented more than 10% of the Company’s total consolidated property, plant and equipment, net (excluding software) and right-of-use assets as of December 31, 2023 or March 31, 2023.
Property, plant and equipment, net (excluding software) and right-of-use assets in Switzerland, the Company’s country of domicile, were $i9.8
million and $i13.7 million as of December 31, 2023 and March 31, 2023, respectively.
Note 13 — iRestructuring
During the second quarter of fiscal year 2023, the Company initiated a restructuring plan to realign its business group and engineering structure with its go-to-market strategy to more effectively compete within the enterprise market and to better serve end-users.During the fourth quarter of fiscal year 2023, the Company undertook further
actions to remove organization layers as well as streamline its marketing organization to increase efficiency. These actions resulted in charges related to employee severance and other termination benefits as well as contract
termination and other costs. The Company expects to substantially complete these restructuring activities within fiscal year 2024.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly
Report on Form 10-Q contains“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on beliefs of our management as of the filing date of this Quarterly Report on Form 10-Q. These forward-looking statements include, among other things, statements related to:
•Our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position;
•Our business strategy and investment priorities in relation to competitive offerings and evolving consumer demand trends affecting our products and markets, current and future worldwide geopolitical, economic and capital market conditions, including fluctuations
in currency exchange rates, inflation, economic downturns, and disruptions in global transportation lines;
•Our expectations regarding our restructuring efforts, including the timing thereof;
•Long-term, secular trends that impact our product categories;
•The evolution and adoption of artificial intelligence (“AI”), its impact on our industry and related risks and opportunities for our business;
•The scope, nature or impact of acquisition, strategic alliance, and divestiture activities
•Our expectations regarding the success of our strategic acquisitions, including integration of acquired operations, products, technology,
internal controls, personnel and management teams;
•Our expectations regarding our effective tax rate, 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 business development, product development and innovation, and their impact on future operating results and anticipated operating costs for fiscal year 2024 and beyond;
•Opportunities for growth and our ability to execute on and take advantage of them, including our marketing initiatives and strategy and our expectations regarding the success thereof;
•Potential
tariffs, their effects and our ability to mitigate their effects;
•Our expectations regarding our share repurchase and dividend programs;
•The sufficiency of our cash and cash equivalents, cash generated from operations, and available borrowings under our bank lines of credit to fund capital expenditures and working capital needs; and
•The effects of environmental and other laws and regulations in the United States and other countries in which we operate.
Forward-looking statements also include, among others, those statements including the words “anticipate,”“believe,”“could,”“estimate,”“expect,”“forecast,”“intend,”“may,”“plan,”“project,”“predict,”“should,”“will,” and similar language. These statements reflect our views and assumptions as of the date of this Quarterly Report on Form 10-Q. All forward-looking statements involve risks and uncertainties that could cause our actual performance to differ materially from those anticipated in the forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this Quarterly Report on Form 10-Q under the headings of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”“Overview of our Company,”“Critical Accounting Estimates,” and “Liquidity and Capital Resources,” among others. Factors that might cause or contribute to such differences include, but are not limited to, those discussed under Part II,
Item 1A “Risk Factors” as well as elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission, or “SEC.” 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.
You should read the following discussion in conjunction with the interim unaudited condensed consolidated financial statements and related notes.
Logitech’s mission is to help all people pursue their passions in a way that is good for people and the planet. We design, manufacture, and sell products that help businesses thrive and bring people together when working, creating, gaming and streaming. We sell these products through a number of brands: Logitech, Logitech G, Streamlabs and Ultimate Ears.
Our diverse portfolio includes Gaming, Keyboards & Combos, Pointing Devices, Video Collaboration, Webcams, Tablet Accessories, and Headsets. We sell our products to a broad network of international customers, including direct sales to retailers, e-tailers, and end consumers through our e-commerce platform, and indirect sales to end customers through distributors.
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 Macroeconomic and Geopolitical Conditions on our Business
Our business has been impacted by adverse macroeconomic and geopolitical conditions. These conditions include inflation, interest rate and foreign currency fluctuations, slowdown of economic activity around the world, and lower consumer and enterprise spending.
The global and regional economic and political conditions
adversely affected demand for our products. In addition, these conditions, including recent transportation issues in the Red Sea, have caused and may continue to cause volatility in the cost of materials and logistics, and transportation delays, and as a result may impact the pricing of our products, product availability and our results of operations.
For additional information, see Part II, Item 1A "Risk Factors."
Trends and Uncertainties
Several long-term secular-trends offer long-term structural growth opportunities across Logitech’s product portfolio, including work and learn from anywhere (hybrid work and learn), video everywhere, the rise of social gaming for participants and spectators, and the democratization of digital content creation. We design, create and sell products that benefit from these
secular trends. The trend of hybrid work and learn provides an opportunity to equip meeting rooms, classrooms and personal workspaces, at home or in the office. It also provides an opportunity for increased commercial and consumer adoption of video conferencing. Our video collaboration products are compatible with a variety of video conference platforms, including Zoom, Microsoft Teams, Google Meet, etc. Moving from work to play, Logitech gaming and streaming products benefit from social gaming which continues to gain popularity through online gaming, multi-platform experiences and esports. In addition, the democratization of digital content creation presents an opportunity for anyone to be a content creator because of the accessibility of the tools necessary to code, design, create, make music, game or broadcast to professional standards.
While we believe we will further benefit from these secular trends, we have experienced
and will continue to experience challenges that impact our business and financial results. These challenges include (i) the current macroeconomic environment, including interest rate fluctuations, inflation, foreign exchange movements and low economic growth in certain regions, (ii) low consumer confidence and declines in enterprise spending leading to reduced demand for some of our products, (iii) the uncertainty with enterprise strategy for office space utilization and related timing of enterprise investments in infrastructure and technology to support future ways of working, which impacts demand for our Video Collaboration and other products, and (iv) the timing of further development of our business-to-business go-to-market capabilities.
We expect these challenges to continue in the near-term. We have taken steps to mitigate the impact of these challenges, including but not limited to: (i) reduction in our operating expenses
in order to maintain margins and size the business for the current market, (ii) reduction in inventories to more appropriately align with demand, (iii) continued investment in our business-to-business direct sales channel in order to improve performance, and (iv) release of new products to increase the value proposition of our portfolio.
The rapid evolution and adoption of generative artificial intelligence indicates that how we collaborate, communicate, play and create across industries and professions will change, perhaps dramatically, over the next few years. AI has reshaped expectations for productivity improvements, product innovation and technology ecosystem evolution. While we have used AI solutions and machine learning to enhance the features of different
products in our portfolio, AI offers additional growth opportunities and risks as we work to integrate our capabilities with our ecosystem partners. Ultimately our customers might begin to integrate AI into their workflows for productivity, play, learning and creativity. We believe that the shift to AI will transform the consumer electronics industry, leading to changes including more intelligent and personalized products, enhanced customer experiences, and increased competition among companies to leverage AI capabilities for innovation and growth.
For additional information, see Part II, Item 1A "Risk Factors."
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.
Summary of Financial Results
Our total sales for the three and nine months ended December 31, 2023 decreased 1% and 8%, compared to the three and nine months ended December 31, 2022, respectively, driven by a decline in sales of most of our product categories, as a result of lower demand.
Sales for the three months ended December 31, 2023 increased 5% in the Americas region, and decreased 8% and 3%
in the Asia Pacific and EMEA regions, respectively, compared to the three months ended December 31, 2022. Sales for the nine months ended December 31, 2023 decreased 19%, 4%, and 3% in the Asia Pacific, Americas, and EMEA regions, respectively, compared to the nine months ended December 31, 2022.
Gross margin was 42.0% and 40.8% for the three and nine months ended December 31, 2023, respectively, and increased by 440 and 240 basis points, respectively, compared to the three and nine months ended December 31, 2022, primarily driven by lower material and logistics costs, as well as lower promotions, partially offset by unfavorable product
mix.
Operating expenses for the three months ended December 31, 2023 were $304.7 million, or 24.3% of sales, compared to $300.5 million, or 23.7% of sales, for the three months ended December 31, 2022. Operating expenses for the nine months ended December 31, 2023 were $883.9 million, or 26.9% of sales, compared to $956.0 million, or 26.7% of sales, for the nine months ended December 31, 2022. Operating expenses, for the three and nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, were impacted by a reduction in marketing and advertising spend and an increase
in personnel-related costs, mainly due to higher performance-based compensation.
We had an income tax benefit of $9.6 million and an income tax provision of $33.3 million for the three and nine months ended December 31, 2023, respectively, and an income tax provision of $42.7 million and $87.8 million for the three and nine months ended December 31, 2022, respectively. The change in the income tax provision (benefit) for the three and nine months ended December 31, 2023, compared to the three and nine months ended December 31, 2022, was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate as well as the favorable tax impacts from share-based compensation, an agreement to remeasure
the tax basis of goodwill under the Swiss Federal Act on Tax Reform and AHV Financing (“TRAF”) with the canton of Vaud, remeasurement of our Swiss deferred tax assets due to a change in tax rate, and Foreign-Derived Intangible Income ("FDII") incentive provided by the Tax Cuts and Jobs Act.
Net income for the three and nine months ended December 31, 2023 was$244.7 million and $444.5 million, respectively, compared to $140.2 million and $323.1 million for the three and nine months ended December 31, 2022, respectively.
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make assumptions, judgments, and estimates, that affect reported amounts of assets, liabilities, sales and expenses, and the disclosure of contingent assets and liabilities.
We consider an accounting estimate critical if it: (i) requires management to make judgments and estimates about matters that are inherently uncertain; and (ii) is important to an understanding of our financial condition and operating results.
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, and uncertain tax positions, 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.
There
have been no material changes in our critical accounting estimates during the nine months ended December 31, 2023 compared with the critical accounting 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, 2023.
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 to be adopted.
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 rate fluctuations 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.
Results of Operations
Net Sales
Our sales for the three and nine months ended December 31, 2023 decreased 1% and 8%, compared to the three and nine months ended December 31, 2022, respectively, primarily due to a decline in sales of most of our product categories as a result of lower demand. If currency exchange rates had been constant in the three and nine months ended December 31, 2023 and 2022,
our constant dollar sales reduction rates would have been 3% and 9%, respectively.
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, Australian Dollar, Canadian Dollar, Japanese Yen, Pound Sterling and New Taiwan Dollar. During the three months ended December 31, 2023, approximately 52% of our sales were denominated in currencies other than the U.S. Dollar.
Sales
by Region
The following table presents the change in sales by region for the three and nine months ended December 31, 2023, compared with the three and nine months ended December 31, 2022:
The increase in sales in the Americas region for the three-month period presented above was primarily driven by an increase in sales of Keyboards &
Combos, Video Collaboration, and Webcams, partially offset by a decrease in sales of speakers in our Other category. The decrease in sales in the Americas region for the nine-month period presented above was primarily driven by a decrease in sales of speakers in our Other category, Video Collaboration, and Webcams, partially offset by an increase in sales of Tablet Accessories.
EMEA:
The decrease in sales in our EMEA region for the three-month period presented above was primarily driven by a decrease in sales of most of our product categories, partially offset by an increase in sales of Gaming and Pointing Devices. The decrease in EMEA region sales for the nine-month period was mainly
due to a decrease in sales of Webcams and Video Collaboration, partially offset by an increase in sales of Pointing Devices and Gaming.
Asia Pacific:
The decrease in sales in our Asia Pacific region for the three-month period presented above was primarily driven by a decrease in sales of Gaming and Video Collaboration. The decrease in sales in our Asia Pacific region for the nine-month period presented above was driven by decreases in sales of Gaming, Keyboards & Combos and Video Collaboration.
Sales by Product Category
During the first quarter of fiscal year 2024, we changed the presentation of sales by product category to provide a simpler
and clearer view of our business. The change in presentation did not have an impact on previously reported total sales. As a result of these changes, certain prior-period amounts for the three and nine months ended December 31, 2022 have been reclassified to conform to the current period presentation. See Note 1 to the condensed consolidated financial statements for further information on the change in presentation.
Sales by product category in the current presentation for the three and nine months ended December 31,
2023 and 2022 were as follows (dollars in thousands):
(1) Gaming includes streaming services revenue generated by Streamlabs.
(2)
Other primarily consists of mobile speakers and PC speakers.
Gaming
Our Gaming category includes gaming mice, steering wheels, headsets, keyboards, console gaming headsets, studio-quality Blue Microphones and Streamlabs services.
Sales of Gaming decreased 1% for the three months endedDecember 31, 2023, compared to the three months ended December 31, 2022, primarily driven by a decrease in sales of gaming keyboards and gaming mice, partially offset by an increase in sales of gaming mouse pads. Sales of Gaming
decreased 7% for the nine months endedDecember 31, 2023, compared to the nine months ended December 31, 2022, primarily driven by a decrease in sales of gaming steering wheels, gaming keyboards and gaming mice, partially offset by an increase in sales of gaming mouse pads.
Keyboards & Combos
Our Keyboards & Combos category includes PC keyboards and keyboard/mice combo products.
Sales of Keyboards & Combos increased 4% for the three
months endedDecember 31, 2023, compared to the three months ended December 31, 2022, primarily driven by an increase in sales of both cordless and corded keyboard/mice combo products, partially offset by a decrease in sales of cordless keyboards. Sales of Keyboards & Combos decreased 7% for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, primarily driven by a decrease in sales of cordless keyboards, partially offset by an increase in sales of cordless keyboard/mice combo products.
Pointing
Devices
Our Pointing Devices category includes PC- and Mac-related mice including trackballs, touchpads, and presentation tools.
Sales of Pointing Devices increased 4% for the three months ended December 31, 2023, compared to the three months ended December 31, 2022, primarily driven by an increase in sales of mouse pads and mouse cases. Sales of Pointing Devices increased 1% for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, primarily driven by an increase in sales of mouse pads and mouse cases, partially offset by a decrease in sales of cordless mice.
Video
Collaboration
Our Video Collaboration category includes Logitech’s conference room cameras, which combine affordable enterprise-quality audio and high definition 4K video to bring video conferencing to a variety of room sizes.
Sales of Video Collaboration decreased 2% and 14% for the three and nine months endedDecember 31, 2023, compared to the three and nine months endedDecember 31,
2022, respectively, primarily due to a decrease in sales of many of our Video Collaboration products driven by lower enterprise spending.
Webcams
Our Webcams category includes PC-based webcams that are targeted primarily at consumers, including streaming cameras, and VC webcams that turn any desktop into an instant collaboration space.
Sales of Webcams decreased 9% and 18% for the three and nine months ended December 31, 2023, compared to the three and nine months ended December 31, 2022, respectively, primarily driven by declines in sales of our VC webcams and sales of our PC-based webcams.
Tablet Accessories
Our
Tablet Accessories category primarily includes tablet keyboards and styluses.
Sales of Tablet Accessories decreased 1% for the three months ended December 31, 2023, compared to the three months ended December 31, 2022, primarily driven by a decrease in sales of Combo Touch iPad Pro 12.9-inch, partially offset by an increase in sales of Combo Touch. Sales of Tablet Accessories increased 7% for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, primarily driven by an increase in sales of our Rugged Combo 3 Touch as well as Combo Touch, introduced in the third quarter of fiscal year 2023, partially offset by the decrease
in sales of Rugged Folio. Sales of Tablet Accessories for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, benefited from strong demand from the education sector.
Headsets
Our Headsets category includes PC and VC headsets, in-ear headphones, and premium wireless earbuds.
Sales of Headsets decreased 11% and 10% for the three and nine months ended December 31, 2023, compared to the three and nine months ended December 31, 2022, respectively, primarily driven by a decrease in sales of VC headsets
and corded PC headsets.
Other
Our Other category primarily consists of mobile speakers and PC speakers.
Sales in Other category decreased 16% and 28% for the three and nine months endedDecember 31, 2023, compared to the three and nine months endedDecember 31, 2022, respectively, primarily driven by a decrease in sales of mobile speakers.
Gross
Profit
Gross profit for the three and nine months ended December 31, 2023 and 2022 was as follows (dollars in thousands):
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 was 42.0% and 40.8% for the three and nine months endedDecember 31, 2023, respectively, and increased by 440 and
240 basis points, compared to the three and nine months ended December 31, 2022, respectively; primarily driven by lower material and logistics costs, as well as lower promotions, partially offset by unfavorable product mix.
Operating Expenses
Operating expenses for the three and nine months ended December 31, 2023 and 2022 were as follows (dollars in thousands):
Amortization of intangible assets and acquisition-related costs
2,276
2,810
8,279
9,052
%
of sales
0.2
%
0.2
%
0.3
%
0.3
%
Restructuring
charges, net
839
5,654
2,562
16,471
% of sales
0.1
%
0.4
%
0.1
%
0.5
%
Total
operating expenses
$
304,705
$
300,523
$
883,925
$
956,026
% of sales
24.3
%
23.7
%
26.9
%
26.7
%
The
increase in total operating expenses for the three months ended December 31, 2023, compared to the three months ended December 31, 2022, was primarily driven by an increase in general and administrative expenses, partially offset by a decrease in marketing and selling expenses. The decrease in total operating expenses for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, was primarily driven by a decrease in marketing and selling expenses, partially offset by an increase in general and administrative expenses.
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 December 31, 2023, marketing and selling expenses decreased $7.5 million, compared to the three months ended December 31, 2022, primarily driven by our reduction in third-party marketing and advertising spend, partially offset by higher performance-based compensation expense. During the nine months ended December 31, 2023, marketing and selling expenses decreased $83.4 million, compared to the nine months ended December 31, 2022, primarily driven
by our reduction in third-party marketing and advertising spend.
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 December 31, 2023, research and development expenses increased $7.1 million, compared to the three months ended December 31, 2022, primarily driven by higher performance-based compensation expense. During the nine months ended December 31,
2023, research and development expenses increased $1.7 million, compared to the nine months ended December 31, 2022, primarily due to higher performance-based compensation expense, partially offset by lower outsourcing costs.
Research and development expenses as a percentage of sales increased from 5.2% and 5.9% in the three and nine months ended December 31, 2022, respectively, to 5.8% and 6.4% in the three and nine months ended December 31, 2023, respectively, reflecting our continued investment in innovation.
General
and Administrative
General and administrative expenses primarily consist 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 and nine months ended December 31, 2023, general and administrative expenses increased $9.9 million and $24.3 million, respectively, compared to the three and nine months ended December 31, 2022, primarily driven by higher performance-based compensation expense.
Amortization of Intangible Assets and Acquisition-Related Costs
Amortization
of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trademarks and trade names. Acquisition-related costs include legal expenses, due diligence costs, and other professional costs incurred for business acquisitions.
During the three and nine months ended December 31, 2023, amortization of intangible assets and acquisition-related costs remained relatively flat, compared to the three and nine months ended December 31, 2022.
Restructuring Charges, Net
The restructuring charges, net for the three and nine months ended December 31,
2023 and 2022, were related to costs incurred as a result of our restructuring plan initiated during fiscal year 2023. We expect to substantially complete this restructuring plan within fiscal year 2024.
See Note 13 to our condensed consolidated financial statements for additional information.
Interest Income
Interest income for the three and nine months ended December 31, 2023 and 2022 was as follows (in thousands):
We
invest in highly liquid instruments with an original maturity of three months or less at the date of purchase, which are classified as cash equivalents. During the three and nine months ended December 31, 2023, interest income increased $8.2 million and $24.9 million, compared to the three and nine months ended December 31, 2022, respectively, primarily driven by an increase in interest rates.
Investment gain (loss) related to the deferred compensation plan
$
2,061
$
758
$
2,761
$
(3,390)
Currency
exchange gain (loss), net
(1,850)
1,734
(6,648)
(3,278)
Loss on investments, net
(604)
(1,488)
(12,213)
(13,065)
Non-service
cost net pension income and other
582
402
2,273
1,366
Total
$
189
$
1,406
$
(13,827)
$
(18,367)
Investment
gain (loss) related to the deferred compensation plan represents earnings, gains, and losses on marketable securities related to a deferred compensation plan offered by one of our subsidiaries. The investment gain or loss for three and nine months ended December 31, 2023, compared to the three and nine months ended December 31, 2022, primarily relates to the change in market performance of the underlying securities.
Currency exchange gain (loss), net, relates to balances denominated in currencies other than the functional currency in our subsidiaries, as well as to the sale of currencies, and 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 loss for the three months ended December 31, 2023 was primarily due to fluctuations in currency exchange rates of the Chinese Renminbi and Swedish Krona against the U.S. Dollar. The gain for the three months ended December 31, 2022 was primarily due to strengthening of the Japanese Yen against the U.S. Dollar. The loss for the nine months ended December 31, 2023 was primarily due to fluctuations in currency exchange rates of the Chinese Renminbi, Brazilian Real, and Australian Dollar against the U.S. Dollar. The loss for the nine
months ended December 31, 2022 was primarily due to weakening of the Brazilian Real and the Australian Dollar.
Loss on investments, net, includes unrealized gain (loss) from the change in fair value of investments, gain (loss) on equity-method investments and impairment of investments during the periods presented, as applicable. The loss on investments, net, for the nine months ended December 31, 2023 was primarily due to an impairment loss, as a result of the write-off of a note receivable which has been deemed no longer recoverable. This note receivable was previously obtained in conjunction with an exchange transaction related to our investment in a privately held company. The loss on investments, net, for the nine months ended December 31,
2022 was primarily due to an impairment charge related to one of our equity method investments, partially offset by the unrealized gain related to one of our equity investments without readily determinable fair value resulting from observable price changes. See Note 6 to our condensed consolidated financial statements for additional information.
Provision for Income Taxes
The provision for (benefit from) income taxes and effective income tax rates for the three and nine months ended December 31, 2023 and 2022 were as follows (dollars in thousands):
The change in the effective income tax rate for the three and nine months endedDecember 31, 2023 compared with the three and nine months ended December 31, 2022 was primarily due to the mix
of income and losses in the various tax jurisdictions in which we operate as well as the favorable tax impacts from share-based compensation, an agreement to remeasure the tax basis of goodwill under TRAF with the canton of Vaud, remeasurement of our Swiss deferred tax assets due to a change in tax rate, and FDII incentive provided by the Tax Cuts and Jobs Act.
The canton of Vaud completed the legislative process to enact TRAF, a reform to better align the Swiss tax system to international tax standards, on March 10, 2020 to take effect as of January
1, 2020. In March 2020, we reached an agreement with the Vaud Tax Administration that would allow for an increase in the tax basis of goodwill, as a transition measure under TRAF, to be amortized over ten years beginning on January 1, 2020. During the three months ended December 31, 2023, we reached an agreement to remeasure the tax basis of goodwill under TRAF with the canton of Vaud, which resulted in an income tax benefit of $25.1 million, net of assessment of uncertain tax positions. The remeasurement of the step-up will be amortized over the remaining ten-year amortization period.
On December 29, 2023, a change to the cantonal tax legislation was published. According to the law approved by the Vaud parliament, a progressive scale
will be applicable for cantonal tax purposes resulting in an increase from the current tax rate of 13.61% to 14.28% effective fiscal year 2025. The increase in tax rate resulted in a tax benefit of $5.1 million due to a remeasurement of our Swiss deferred tax assets in the fiscal quarter ended December 31, 2023.
The Tax Cuts and Jobs Act enacted Section 250, which provides for a deduction with respect to Global Intangible Low-Taxed Income ("GILTI") and FDII in the US. The application of this tax incentive is inherently complex. During the three months ended December 31, 2023, we analyzed the applicability of FDII and determined that this tax incentive applies to fiscal 2021 to 2023 tax years. As a result, we realized a tax benefit of $17.9 million related to FDII. We have also concluded that
any GILTI tax since the enactment of Tax Cuts and Jobs Act would be immaterial.
Liquidity and Capital Resources
Cash Balances, Available Borrowings, and Capital Resources
As of December 31, 2023, we had cash and cash equivalents of $1,412.7 million, compared with $1,149.0 million as of March 31, 2023. Our cash and cash equivalents consist of bank demand deposits, short-term time deposits, and U.S. Treasury securities, of which 64% is held in Switzerland and 16% were held in China (including Hong Kong).
We do not expect to incur any material adverse tax impact except for what has already been recognized, or to be significantly inhibited by any country in which we do business, from the repatriation of funds to Switzerland, our country of domicile.
As of December 31, 2023, our working capital was $1,495.0 million, compared to $1,555.1 million as of March 31, 2023. The decrease was driven by a reduction in inventories and an increase in accounts payable, partially offset by an increase in cash and cash equivalents and accounts receivable.
We had several uncommitted, unsecured bank lines of credit and letters of credit aggregating $176.1 million as of December 31,
2023. There are no financial covenants under these lines of credit with which we must comply. There was no borrowing outstanding under the lines of credit as of December 31, 2023. As of December 31, 2023, we had outstanding bank guarantees of $11.1 million.
The following tables present selected financial information and statistics as of and for the three months ended December 31, 2023 and 2022 (dollars in thousands):
Days sales in accounts receivable (“DSO”) (Days)(1)
49
57
Days accounts payable outstanding (“DPO”) (Days)(2)
65
56
Inventory
turnover (“ITO”) (x)(3)
6.5
4.0
(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 as of the most recent quarter-end and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).
DSO
for the three months ended December 31, 2023 decreased by 8 days to 49 days, compared to 57 days for the three months ended December 31, 2022, primarily due to the timing of sales within the quarter.
DPO for the three months ended December 31, 2023 increased by 9 days to 65 days, compared to 56 days for the three months ended December 31, 2022, primarily due to softened demand as well as higher inventory purchases to replenish certain products.
ITO for the three months endedDecember 31, 2023
increased by 2.5 to 6.5, compared to 4.0 for the three months ended December 31, 2022, primarily due to lower inventory as of December 31, 2023 resulting from focused inventory management to align with softened demand.
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.
The following table summarizes our condensed consolidated statements of cash flows (in thousands):
For the nine months endedDecember 31, 2023, net cash provided by operating activities was $906.0 million resulting from net income of $444.5 million, a favorable impact from adding back non-cash expenses totaling $132.7 million, and a favorable net change in operating assets and liabilities of $328.8 million. Non-cash expenses were primarily related to share-based compensation expenses, and depreciation and amortization. The increase in accounts receivable, net, was primarily driven by higher sales due to seasonality of our business.The decrease in inventories was primarily driven by our effort to manage inventory level. The increase in accounts payable was due to higher inventory purchases to replenish certain products.
The increase in accrued and other liabilities was primarily driven by an increase in accrued personnel expenses, partially offset by a reduction in accrued liabilities related to our customer marketing, pricing and incentive programs and sales return.
For the nine months endedDecember 31, 2023, net cash used in investing activities was $59.8 million, primarily resulting from $45.6 million of purchases of property, plant, and equipment and $14.1 million payments for acquisitions, net of cash acquired.
For the nine months endedDecember 31, 2023, net cash used in financing activities was $578.5 million, primarily resulting from payment for repurchases of our registered shares of $376.8 million
and payment of cash dividends of $182.3 million.
For the nine months endedDecember 31, 2023, there was a $4.1 million loss from currency exchange rate effect on cash and cash equivalents, primarily due to exchange rate fluctuations of Swiss Franc, Chinese Renminbi, and Euro versus the U.S. Dollar, and timing of our cash transactions over the period. The loss from currency translation exchange rate effect during the nine months ended December 31, 2022 was primarily due to exchange rate fluctuations of Euro, Swiss Franc, Chinese Renminbi, and Australian Dollar versus the U.S. Dollar and timing of our cash transactions over the period.
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. Market volatility driven by the current macroeconomic and geopolitical environment may increase our costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity.
In fiscal year 2024, we paid a cash dividend of CHF 169.1 million (U.S. Dollar amount of $182.3 million based on the exchange rate on the date of payment) out of fiscal year 2023 retained earnings. In fiscal year 2023, we paid a cash dividend of CHF 156.1 million
(U.S. Dollar amount of $158.7 million based on the exchange rate on the date of payment) out of fiscal year 2022 retained earnings. In fiscal year 2022, we paid a cash dividend of CHF 147.0 million (U.S. Dollar amount of $159.4 million) out of fiscal year 2021 retained earnings.
In May 2020, our Board of Directors approved the 2020 share repurchase program, which authorized us to invest up to $250.0 million to purchase our own shares to support equity incentive plans or potential acquisitions. In April 2021, our Board of Directors approved an increase of $750.0 million to 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. In July 2022, our Board of Directors approved an increase of $500 million to the 2020 share repurchase
program to an aggregate amount of up to $1.5 billion. The Swiss Takeover Board approved this increase and it became effective on August 19, 2022. The 2020 share repurchase program expired on July 27, 2023. We repurchased 16.7 million shares for an aggregate cost of $1.2 billion under the 2020 share repurchase program, of which 2.6 million shares for an aggregate cost of $159.1 million were repurchased during fiscal year 2024 prior to the expiration of the program.
In June 2023, our Board of Directors approved a new, three-year share repurchase program, which allows us to use up to $1.0 billion to repurchase our shares. The 2023 share repurchase program enables us to repurchase shares for cancellation, as well as to support equity incentive plans or potential acquisitions. The Swiss Takeover Board approved the 2023 share repurchase
program in July 2023 and the program became effective on July 28, 2023. During the nine months ended December 31, 2023, we repurchased 3.0 million shares for an aggregate cost of $232.5 million, under the 2023 share repurchase program for cancellation, of which $14.8 million of the aggregate cost was not paid yet as of December 31, 2023. As of December 31, 2023, $767.8 million was available for repurchase under the 2023 share repurchase program.
Swiss law limits a company’s ability to hold or repurchase its own shares. The aggregate par value of all shares held in treasury by us and our subsidiaries
may not exceed 10% of our share capital, which corresponds to
approximately 17.3 million registered shares. This limitation does not apply to shares repurchased for cancellation, due to the Board of Directors' authority under the capital band set forth in the Company's Articles of Incorporation to cancel shares up to a limit of 10% of our current share capital. As of December 31, 2023, we had a total of 18.1 million shares held in treasury
stock, which includes 3.0 million shares that have been repurchased for cancellation.
Although we enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans) from time to time, our 2023 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 through July 27, 2026. To the extent that the shares are repurchased to support equity incentive plans or potential acquisitions, the share are repurchased on the ordinary trading line of Swiss Exchange ("SIX") and/or the Nasdaq Global Select Market ("Nasdaq"). Shares repurchased for cancellation purposes are repurchased via a second trading line on SIX. Opportunistic purchases may be started or stopped at any time without prior notice depending on market conditions
and other factors.
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 facilities 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. There have been no
material changes to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2023. The remaining terms of our non-cancelable operating leases expire in various years through 2033.
Purchase Commitments
As of December 31, 2023, we had non-cancelable purchase commitments of $344.0 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 record 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 December 31, 2023, the liability for these purchase commitments was $33.8 million and is recorded in accrued and other current liabilities in the condensed consolidated balance sheet.
We have firm purchase commitments of $14.0 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.
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, 2023.
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 December 31,
2023, no material 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 December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
Risk
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. As a company with global operations, we face exposure to adverse movements in currency exchange rates and interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.
Currency Exchange Rates
We report our results in U.S. Dollars. Changes in currency exchange rates compared to the U.S. Dollar can have a material impact on our results when the financial statements of our non-U.S. subsidiaries are translated into U.S. Dollars.
The functional currency of our operations is primarily the U.S. Dollar. Certain operations use the Swiss Franc or the local currency of the country as their functional currencies. Accordingly, unrealized currency gains or losses resulting from the translation of net assets or liabilities denominated in other currencies to the U.S. Dollar are accumulated in the cumulative translation adjustment component of accumulated other comprehensive income (loss) ("AOCI") in shareholders' equity.
We are exposed to currency exchange rate risk as we transact business in multiple currencies, including exposure related to anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. Dollar. We transact business in approximately 30 currencies worldwide, of which the most significant to operations are the Euro, Chinese Renminbi, Australian Dollar,
Canadian Dollar, Japanese Yen, Pound Sterling and New Taiwan Dollar. For the three months ended December 31, 2023, approximately 52% of our sales were in non-U.S. denominated currencies, with 27% of our sales denominated in Euro. The mix of our costs of goods sold and operating expenses by currency are significantly different from the mix of our sales, with a larger portion denominated in U.S. Dollar and less denominated in Euro and other currencies. A strengthening U.S. Dollar has a more unfavorable impact on our sales compared to the favorable impact on our cost of goods sold and operating expenses, resulting in an adverse impact on our operating results.
We enter into currency forward and swap contracts to reduce the short-term effects of currency
fluctuations on certain receivables or payables denominated in currencies other than the functional currencies of our subsidiaries. These contracts generally mature within approximately one month. The gains or losses on these contracts are recognized in earnings based on the changes in fair value.
If an adverse 10% foreign currency exchange rate change had been applied to total monetary assets and liabilities denominated in currencies other than the functional currencies at the balance sheet dates, it would have resulted in an adverse effect on income before income taxes
of approximately $16.4 million and $17.0 million as of December 31, 2023 and March 31, 2023, respectively. The adverse effect as of December 31, 2023 and March 31, 2023 is after consideration of the offsetting effect of approximately $6.8 million and $8.1 million, respectively, from foreign exchange contracts in place as of such dates.
We enter into cash flow hedge contracts to protect against exchange rate exposure of forecasted inventory purchases. These hedging contracts
mature within approximately four months. Gains and losses in the fair value of the effective portion of the hedges are deferred as a component of AOCI until the hedged inventory purchases are sold, at which time the gains or losses are reclassified to cost of goods sold.
If the U.S. dollar had weakened by 10%, the amount recorded in AOCI related to our foreign exchange contracts before tax effect as of December 31, 2023 and March 31, 2023 would have been approximately $9.1
million
and $7.3 million lower, respectively. The change in the fair value recorded in AOCI would be expected to offset a corresponding foreign currency change in cost of goods sold when the hedged inventory purchases are sold.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Logitech's management, with the participation of the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on
this evaluation, the CEO and the CFO have concluded that, as of such date, our disclosure controls and procedures are effective at the reasonable assurance level.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to the
Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. To the extent that components of the Company’s internal control over financial reporting are included within its Disclosure Controls, they are included in the scope of the Company’s annual controls evaluation.
Limitations
on the Effectiveness of Controls
The Company’s management, including the CEO and the CFO, does not expect that the Company’s Disclosure Controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
From time to time the Company is involved in claims and legal proceedings that arise in the ordinary course of its business. The Company is currently subject to several such claims and legal proceedings. The Company intends to vigorously defend against them. Management periodically assesses the
Company’s liabilities and contingencies in connection with these matters based upon the latest information available. The Company follows ASC ("Accounting Standards Codification") 450 in determining the accounting and disclosure for these contingencies. Based on currently available information, the Company does not believe that resolution of pending matters will have a material adverse effect on its financial condition, cash flows and results of operations. However, litigation is subject to inherent uncertainties, and there can be no assurances that the Company's defenses will be successful or that any such lawsuit or claim would not have a material adverse impact on the
Company's business, financial condition, cash flows and results of operations in a particular period. Any claims or proceedings against the Company can have an adverse impact because of defense costs, diversion of management and operational resources, negative publicity and other factors. Any failure to obtain a necessary license or other rights, or litigation arising out of intellectual property claims, could adversely affect the Company's business.
ITEM 1A. RISK FACTORS
The
Company’s business, reputation, results of operations, financial condition and stock price can be affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, the Company’s business, reputation, results of operations, financial condition and stock price can be materially and adversely affected. In the third quarter of fiscal year 2024, there have been no material changes to the risk factors disclosed in the Company's Form 10-K, as updated in our Quarterly Report on Form 10-Q for the quarter ended on June 30, 2023.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Repurchases
In the third quarter of fiscal year 2024, the following approved share repurchase program was in place (in thousands):
Share Repurchase Program
Shares Approved
Approved Amounts
July
2023 (1)
17,311
$
1,000,000
(1) In June 2023, our Board of Directors approved a new, three-year share repurchase program. The Swiss Takeover Board approved the 2023 share repurchase program in July 2023 and the program became effective on July 28, 2023. See Note 11 to the condensed consolidated financial statements for further information.
The following table presents certain information related to purchases made by Logitech of its equity securities under the 2023 share repurchase program (in thousands, except per share amounts):
Total Number of Shares Repurchased
Weighted
Average Price Paid Per Share
Remaining Amount that May Yet Be Repurchased under the Programs
(1) Shares
repurchased on the second trading line for cancellation under the 2023 share repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
Securities
Trading Plans of Directors and Executive Officers
During the third quarter of fiscal year 2024, the following officers, as defined in Rule 16a-1(f), adopted a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.
i
On iNovember
3, 2023, iPrakash Arunkundrum, our iChief Operating Officer, iadopted a Rule 10b5-1 trading arrangement providing for the sale of an aggregate of up to i30,916
shares of our common stock acquired by Mr. Arunkundrum under our equity plans. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The first date that sales of any shares are permitted to be sold under the trading arrangement will be February 2, 2024. The trading arrangement terminates on October 2, 2024, or upon the earlier completion of all transactions thereunder.
/
iOn
iNovember 9, 2023, iSamantha Harnett, our iChief Legal Officer, iadopted
a Rule 10b5-1 trading arrangement providing for the sale of an aggregate of i850 shares of our common stock acquired by Ms. Harnett under our equity plans. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The first date that sales of any shares are permitted to be sold under the trading arrangement will be February 8, 2024. The trading arrangement terminates on May 9, 2024, or upon the earlier completion of all transactions thereunder./
No other officers or directors, as defined in Rule 16a-1(f), iadopted and/or iiterminated/
a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K, during the last fiscal quarter.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*This
exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate it by reference.
** Indicates management compensatory plan, contract or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.