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Logitech Beats Expectations with Sales Up 15% and Raises Outlook

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Logitech International (SIX: LOGN) (NASDAQ:LOGI) today announced
financial results for the first quarter of Fiscal Year 2019.

  • Q1 sales were $608 million, up 15 percent in US dollars and 12 percent
    in constant currency, compared to Q1 of the prior year.
  • Q1 GAAP operating income reached $32 million, compared to $31 million
    in the same quarter a year ago. Q1 GAAP earnings per share (EPS)
    amounted to $0.23, compared to $0.22 in the same quarter a year ago.
    GAAP operating income was impacted by a $10 million restructuring
    charge related to the realignment of resources for growth.
  • Q1 non-GAAP operating income grew 41 percent to $61 million, compared
    to $43 million in the same quarter a year ago. Q1 non-GAAP EPS grew 42
    percent to $0.34, versus $0.24 in the same quarter a year ago.

"We've delivered a great start to the year and are raising our
guidance," said Bracken Darrell, Logitech president and chief executive
officer. "The diversity of our portfolio and strength of our innovation
engine are working. Our Gaming and Video Collaboration categories both
grew more than 60% in Q1. But as we always say, ‘you're only as good as
what you're doing in the future.' With that in mind, we're playing
offense. While innovation investments continue to advance and our
business is strong, we are realigning our organization to put more
firepower against growth opportunities. We also agreed to acquire Blue
Microphones, a leading player in the microphone space."

Investment Through Acquisition

Logitech agreed to acquire Blue
Microphones
, based in Southern California, for approximately $117
million in cash, assuming breakeven net working capital at close. Blue
Microphones is a leader in studio-quality microphones for professionals
and consumers. The Blue Microphones acquisition is a new adjacent
opportunity for Logitech, consistent with the Company's approach to M&A.
The transaction, which is expected to close by the end of August 2018,
should contribute approximately one point of sales growth in Fiscal Year
2019.

Investment in Capabilities

During Q1, Logitech realigned resources to support the continued
evolution of its capabilities, portfolio and growth opportunities. The
Company has delivered consistent momentum in growth and profitability
these past five years and, with this realignment, took proactive steps
to prepare for its next five years. As a result, the Company booked a
restructuring charge of approximately $10 million this quarter. These
actions are designed to reallocate resources and invest in other
capabilities and long-term growth opportunities.

Outlook

Based on the strong performance in Q1 and the acquisition of Blue
Microphones, Logitech raised its Fiscal Year 2019 outlook to 9 to 11
percent sales growth in constant currency, up from its previous outlook
of high single-digit sales growth in constant currency. The Company also
increased its non-GAAP operating income outlook for Fiscal Year 2019 to
a range of $325 million to $335 million, up from its prior range of $310
million to $320 million in non-GAAP operating income.

Prepared Remarks Available Online

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

Financial Results Teleconference and Webcast

Logitech will hold a financial results teleconference to discuss the
results for Q1 FY 2019 on Tuesday, July 31, 2018 at 8:30 a.m. Eastern
Daylight Time and 2:30 p.m. Central European Summer Time. A live webcast
of the call will be available on the Logitech corporate website at http://ir.logitech.com.

Use of Non-GAAP Financial Information and Constant Currency

To facilitate comparisons to Logitech's historical results, Logitech has
included non-GAAP adjusted measures, which exclude share-based
compensation expense, amortization of intangible assets, purchase
accounting effect on inventory, acquisition-related costs, change in
fair value of contingent consideration for business acquisition,
restructuring charges (credits), gain (loss) on investments in privately
held companies, non-GAAP income tax adjustment, and other items detailed
under "Supplemental Financial Information" after the tables below.
Logitech also presents percentage sales growth in constant currency to
show performance unaffected by fluctuations in currency exchange rates.
Percentage sales growth in constant currency is calculated by
translating prior period sales in each local currency at the current
period's average exchange rate for that currency and comparing that to
current period sales. Logitech believes this information, used together
with the GAAP financial information, will help investors to evaluate its
current period performance and trends in its business. With respect to
the Company's outlook for non-GAAP operating income, most of these
excluded amounts pertain to events that have not yet occurred and are
not currently possible to estimate with a reasonable degree of accuracy.
Therefore, no reconciliation to the GAAP amounts has been provided for
Fiscal Year 2019.

About Logitech

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

This press release contains forward-looking statements within the
meaning of the federal securities laws, including, without limitation,
statements regarding: our preliminary financial results for the three
months ended June 30, 2018, product portfolio, innovation, strategy,
investments, capabilities, realignment of resources, organizational
structure, growth opportunities, timing of closing and sales growth from
the acquisition of Blue Microphones, sales growth, profitability,
momentum, and outlook for Fiscal Year 2019 operating income and sales
growth. The forward-looking statements in this release involve risks and
uncertainties that could cause Logitech's actual results and events to
differ materially from those anticipated in these forward-looking
statements, including, without limitation: if our product offerings,
marketing activities and investment prioritization decisions do not
result in the sales, profitability or profitability growth we expect, or
when we expect it; if we fail to innovate and develop new products in a
timely and cost-effective manner for our new and existing product
categories; if we do not successfully execute on our growth
opportunities or our growth opportunities are more limited than we
expect; the effect of pricing, product, marketing and other initiatives
by our competitors, and our reaction to them, on our sales, gross
margins and profitability; if our products and marketing strategies fail
to separate our products from competitors' products; if we do not fully
realize our goals to lower our costs and improve our operating leverage;
if there is a deterioration of business and economic conditions in one
or more of our sales regions or product categories, or significant
fluctuations in exchange rates; changes in trade policies and agreements
and the imposition of tariffs that affect our products or operations;
our ability to implement the restructuring in various geographies;
possible changes in the size, timing and components of the restructuring
or the expected costs and charges associated with the restructuring;
risks associated with our ability to achieve improved capabilities,
growth opportunities and overall organizational structure; risks
associated with acquisitions. A detailed discussion of these and other
risks and uncertainties that could cause actual results and events to
differ materially from such forward-looking statements is included in
Logitech's periodic filings with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the fiscal year ended March
31, 2018, available at www.sec.gov,
under the caption Risk Factors and elsewhere. Logitech does not
undertake any obligation to update any forward-looking statements to
reflect new information or events or circumstances occurring after the
date of this press release.

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

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

       
LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *

(In thousands, except per share amounts) - unaudited

 
Three Months Ended
June 30,
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

2018

2017
 
Net sales (A) $ 608,480 $ 529,946
Cost of goods sold 382,171 334,774
Amortization of intangible assets and purchase accounting effect on
inventory
2,372   1,504  
Gross profit 223,937   193,668  
 
Operating expenses:
Marketing and selling 114,584 102,378
Research and development 38,987 35,099
General and administrative 25,473 25,409
Amortization of intangible assets and acquisition-related costs 2,521 1,390
Change in fair value of contingent consideration for business
acquisition
(1,978 )
Restructuring charges (credits), net 9,921   (55 )
Total operating expenses 191,486   162,243  
 
Operating income 32,451 31,425
Interest income 2,369 1,175
Other expense, net (1,571 ) (1,029 )
Income before income taxes 33,249 31,571
Benefit from income taxes (5,217 ) (5,436 )
Net income $ 38,466   $ 37,007  
 
Net income per share:
Basic $ 0.23 $ 0.23
Diluted $ 0.23 $ 0.22
 
Weighted average shares used to compute net income per share:
Basic 165,317 163,407
Diluted 168,756 168,339
 
       
LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) - unaudited
 

June 30,
2018

March 31,
2018

CONDENSED CONSOLIDATED BALANCE SHEETS
 
Current assets:
Cash and cash equivalents $ 604,116 $ 641,947
Accounts receivable, net (A) 385,546 214,885
Inventories 272,662 259,906
Other current assets (A) 62,542   56,362  
Total current assets 1,324,866 1,173,100
Non-current assets:
Property, plant and equipment, net 84,721 86,304
Goodwill 275,418 275,451
Other intangible assets, net 82,719 87,547
Other assets 131,761   120,755  
Total assets $ 1,899,485   $ 1,743,157  
 
Current liabilities:
Accounts payable $ 343,680 $ 293,988
Accrued and other current liabilities (A) 384,497   281,732  
Total current liabilities 728,177 575,720
Non-current liabilities:
Income taxes payable 33,789 34,956
Other non-current liabilities 82,259   81,924  
Total liabilities 844,225   692,600  
 
Shareholders' equity:
Registered shares, CHF 0.25 par value: 30,148 30,148
Issued and authorized shares — 173,106 at June 30 and March 31, 2018
Conditionally authorized shares — 50,000 at June 30 and March 31,
2018
Additional paid-in capital 19,093 47,234
Shares in treasury, at cost — 7,533 at June 30, 2018 and 8,527 at
March 31, 2018
(158,337 ) (165,686 )
Retained earnings (A) 1,259,900 1,232,316
Accumulated other comprehensive loss (95,544 ) (93,455 )
Total shareholders' equity 1,055,260   1,050,557  
Total liabilities and shareholders' equity $ 1,899,485   $ 1,743,157  
 
       
LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) - unaudited
Three Months Ended
June 30,
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 2018 2017
 
Cash flows from operating activities:
Net income $ 38,466 $ 37,007
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation 10,699 9,148
Amortization of intangible assets 4,893 2,593
Loss on investments in privately held companies 13 259
Share-based compensation expense 13,259 10,705
Deferred income taxes (9,659 ) (9,879 )
Change in fair value of contingent consideration for business
acquisition
(1,978 )
Other 124 (3 )
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net (68,557 ) (35,702 )
Inventories (18,200 ) (20,389 )
Other assets (4,225 ) (3,088 )
Accounts payable 51,188 38,647
Accrued and other liabilities (5,719 ) (28,203 )
Net cash provided by (used in) operating activities 12,282   (883 )
Cash flows from investing activities:
Purchases of property, plant and equipment (8,744 ) (10,035 )
Investment in privately held companies (225 ) (360 )
Acquisitions, net of cash acquired (243 )
Purchases of trading investments (2,500 ) (609 )
Proceeds from sales of trading investments 2,867   647  
Net cash used in investing activities (8,845 ) (10,357 )
Cash flows from financing activities:
Purchases of registered shares (9,982 ) (624 )
Proceeds from exercises of stock options 1,104 12,569
Tax withholdings related to net share settlements of restricted
stock units
(25,081 ) (21,683 )
Net cash used in financing activities (33,959 ) (9,738 )
Effect of exchange rate changes on cash and cash equivalents (7,309 ) 1,102  
Net decrease in cash and cash equivalents (37,831 ) (19,876 )
Cash and cash equivalents , beginning of the period 641,947   547,533  
Cash and cash equivalents , end of the period $ 604,116   $ 527,657  
 
           

LOGITECH INTERNATIONAL S.A.

PRELIMINARY RESULTS *
(In thousands) - unaudited
 
NET SALES Three Months Ended
June 30,

SUPPLEMENTAL FINANCIAL INFORMATION

2018 2017 Change
 
Net sales by product category:
Pointing Devices $ 127,790 $ 122,074 5 %
Keyboards & Combos 128,222 116,113 10
PC Webcams 29,674 25,625 16
Tablet & Other Accessories 32,436 23,218 40
Video Collaboration 58,792 35,617 65
Mobile Speakers 34,327 62,918 (45 )

Audio & Wearables

52,154 50,202 4
Gaming 136,026 77,708 75
Smart Home 9,011 16,466 (45 )
Other (1) 48   5   860

Total net sales

$ 608,480   $ 529,946   15
 
(1)     Other category includes products that we currently intend to
transition out of, or have already transitioned out of, because they
are no longer strategic to our business.
 
       
LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands, except per share amounts) - Unaudited
 
GAAP TO NON-GAAP RECONCILIATION (B) Three Months Ended
June 30,
SUPPLEMENTAL FINANCIAL INFORMATION 2018 2017
 
Gross profit - GAAP $ 223,937 $ 193,668
Share-based compensation expense 1,130 711
Amortization of intangible assets and purchase accounting effect on
inventory
2,372   1,504  
Gross profit - Non-GAAP $ 227,439   $ 195,883  
 
Gross margin - GAAP 36.8 % 36.5 %
Gross margin - Non-GAAP 37.4 % 37.0 %
 
Operating expenses - GAAP $ 191,486 $ 162,243
Less: Share-based compensation expense 12,129 9,994
Less: Amortization of intangible assets and acquisition-related costs 2,521 1,390
Less: Change in fair value of contingent consideration for business
acquisition
(1,978 )
Less: Restructuring charges (credits), net 9,921   (55 )
Operating expenses - Non-GAAP $ 166,915   $ 152,892  
 
% of net sales - GAAP 31.5 % 30.6 %
% of net sales - Non - GAAP 27.4 % 28.9 %
 
Operating income - GAAP $ 32,451 $ 31,425
Share-based compensation expense 13,259 10,705
Amortization of intangible assets 4,893 2,593
Acquisition-related costs 301
Change in fair value of contingent consideration for business
acquisition
(1,978 )
Restructuring (charges) credits, net 9,921   (55 )
Operating income - Non - GAAP $ 60,524   $ 42,991  
 
% of net sales - GAAP 5.3 % 5.9 %
% of net sales - Non - GAAP 9.9 % 8.1 %
 
Net income - GAAP $ 38,466 $ 37,007
Share-based compensation expense 13,259 10,705
Amortization of intangible assets 4,893 2,593
Acquisition-related costs 301
Change in fair value of contingent consideration for business
acquisition
(1,978 )
Restructuring (charges) credits, net 9,921 (55 )
Loss on investments in privately held companies 13 259
Non-GAAP income tax adjustment (9,109 ) (9,092 )
Net income - Non - GAAP $ 57,443   $ 39,740  
 
Net income per share:
Diluted - GAAP $ 0.23 $ 0.22
Diluted - Non - GAAP $ 0.34 $ 0.24
 
Shares used to compute net income per share:
Diluted - GAAP and Non - GAAP 168,756 168,339
 
       
LOGITECH INTERNATIONAL S.A.
PRELIMINARY RESULTS *
(In thousands) – unaudited
 
SHARE-BASED COMPENSATION EXPENSE Three Months Ended
June 30,
SUPPLEMENTAL FINANCIAL INFORMATION 2018 2017
 
Share-based Compensation Expense
Cost of goods sold $ 1,130 $ 711
Marketing and selling 5,786 4,381
Research and development 1,549 1,543
General and administrative 4,794   4,070  
Total share-based compensation expense 13,259 10,705
Income tax benefit (9,529 ) (11,282 )
Total share-based compensation expense, net of income tax $ 3,730   $ (577 )
 

* Note: These preliminary results for the three months ended June 30,
2018 are subject to adjustments, including subsequent events that may
occur through the date of filing our Quarterly Report on Form 10-Q.

(A) Adoption of ASC Topic 606

On April 1, 2018, we adopted the new revenue standards under Accounting
Standards Codification ("ASC") Topic 606. The adoption of Topic 606 did
not have an impact over the total cash flows from operating, investing,
or financing activities. The following tables summarize the impacts of
adopting Topic 606 on our condensed consolidated statements of
operations and balance sheets for the three months ended or as of June
30, 2018 (in thousands):

           
Effect of
If Reported Under Adoption of
As Reported Topic 605 Topic 606
Net Sales $ 608,480 $ 608,614 $ (134 )
Accounts receivable, net 385,546 272,009 113,537
Other current assets 62,542 55,237 7,305
Accrued and other current liabilities 384,497 252,639 131,858
Retained earnings 1,259,900 1,270,916 (11,016 )
 

(B) Non-GAAP Financial Measures

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

While we use non-GAAP financial measures as a tool to enhance our
understanding of certain aspects of our financial performance and to
provide incremental insight into the underlying factors and trends
affecting both our performance and our cash-generating potential, we do
not consider these measures to be a substitute for, or superior to, the
information provided by GAAP financial measures. Consistent with this
approach, we believe that disclosing non-GAAP financial measures to the
readers of our financial statements provides useful supplemental data
that, while not a substitute for GAAP financial measures, can offer
insight in the review of our financial and operational performance and
enables investors to more fully understand trends in our current and
future performance. In assessing our business during the quarter ended
June 30, 2018 and previous periods, we excluded items in the following
general categories, each of which are described below:

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

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

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

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

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

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

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

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

Additional Supplemental Financial Information - Constant Currency

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

(LOGIIR)

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