LOGITECH INTERNATIONAL SA MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)
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 the beliefs of our management as of the date of filing of this Quarterly Report on Form 10-Q. -Q. These forward-looking statements include, among other things, statements relating 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, worldwide economic and capital market conditions, fluctuations in
currency exchange rates, and current and future general regional economic
conditions for fiscal year 2023 and beyond;
•The scope, nature or impact of acquisition, strategic alliance, and divestiture
activities and restructuring of our organizational structure;
•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 and product plans and development and product innovation and their
impact on future operating results and anticipated operating costs for fiscal
year 2023 and beyond;
•Opportunities for growth and our ability to execute on and take advantage of
them, market opportunities, and marking initiatives and strategy and our
expectations regarding the success thereof;
•Potential tariffs, their effects and our ability to mitigate their effects;
•Capital investments and research and development;
•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;
•The effects of environmental and other laws and regulations in the United
States and other countries in which we operate; and
•The impact of global and regional events, such as the coronavirus ("COVID-19")
pandemic, inflation and the war in Ukraine, and any associated economic downturn
and impacts to our business and future operating and financial performance.
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 unaudited interim consolidated financial statements and accompanying notes.
Presentation of our company
Logitech is a global leader in designing, manufacturing and marketing products that help connect people to digital and cloud experiences. Forty years ago, Logitech created products to improve experiences around the
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personal computer ("PC") platform, and today it is a multi-brand, multi-category
company designing products that enable people to pursue their passions and
connect to the world. Logitech's products align with several large secular
trends including work and learn from anywhere, video everywhere, the increasing
popularity of gaming as a spectator and participant sport, and the
democratization of content creation. Logitech's brands include Logitech,
Logitech G, ASTRO Gaming, Streamlabs, Blue Microphones, and Ultimate Ears. Our
Company's website is www.logitech.com.
Our products participate primarily in four large market opportunities:
Creativity & Productivity, Gaming, Video Collaboration and Music. We sell our
products to a broad network of domestic and international customers, including
direct sales to retailers, e-tailers and enterprise customers and indirect sales
through distributors. Our worldwide channel network includes consumer
electronics distributors, retailers, e-tailers, mass merchandisers, specialty
stores, computer and telecommunications stores, value-added resellers and online
merchants. We primarily sell our services directly to end customers.
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 activities
During the first quarter of fiscal year 2023, we were impacted by adverse
macroeconomic and geopolitical
conditions. These conditions include but are not limited to inflation, foreign
currency fluctuations, and lower consumer spending. We also continue to be
affected by supply chain challenges, and the war in Ukraine has further
increased existing global supply chain, logistics, and inflationary challenges.
Such global or regional economic and political conditions adversely affect
demand for our products. These conditions also have an impact on our suppliers,
contract manufacturers, logistics providers, and distributors, causing increases
in cost of materials and higher shipping and transportation rates, and as a
result impacting the pricing of our products. Price increases may not
successfully offset cost increases or may cause us to lose market share and in
turn adversely impact our results of operations.
For additional information, see Part II item 1A "Risk Factors," including under
the caption "Adverse global and regional economic and geopolitical conditions
can materially adversely affect our business, results of operations and
financial condition," "We purchase key components and products from a limited
number of sources, and our business and operating results could be adversely
affected if supply were delayed or constrained or if there were shortages of
required components," "Our principal manufacturing operations and third-party
contract manufacturers are located in China and Southeast Asia, which exposes us
to risks associated with doing business in that geographic area as well as
potential tariffs, adverse tax consequences and pressure to move or diversify
our manufacturing locations" and "If we do not accurately forecast market demand
for our products, our business and operating results could be adversely
Impacts of COVID-19 on our business
In March 2020the World Health Organization declared the COVID-19 outbreak as a pandemic, which continues to spread around the world.
The COVID-19 pandemic has resulted in, and could continue to result in,
industry-wide global supply chain challenges, including manufacturing,
transportation and logistics. We purchase certain products and key components
from a limited number of sources, and depend on the supply chain, including
freight, to receive components, transport finished goods and deliver our
products across the world. While we proactively manage our supply chain, we
expect to continue to be impacted by higher logistics and component costs,
prolonged delays, and challenges with component availability. Most recently,
Shanghai, China, experienced a two-month lockdown beginning in late March 2022
due to another outbreak of COVID-19, resulting in a lockdown of the city,
closures of ports and airports, and disruption of commercial activities, further
constraining our supply chain. If additional lockdowns or similar measures are
instituted in Shanghai or Suzhou, where our manufacturing facility is located,
or other places where our suppliers and partners are located, such measures,
depending on their duration, could cause additional negative impact on our
business and results of operations.
It is still difficult to predict the progression, the duration and all of the
effects of COVID-19, how restrictions and shelter-at-home guidelines will
continue evolving on a global basis, how consumer demand, supply chain
challenges, including inventory and logistical effects and costs, may change
over time, and the impact on our future sales and results of operations. The
full extent of the impact of the COVID-19 pandemic on our business and our
operational and financial performance remains uncertain and will depend on many
factors outside our control. For additional information, see "Liquidity and
Capital Resources" below and Item 1A "Risk Factors," including under the caption
"The full effect of the COVID-19 pandemic is still uncertain and cannot be
predicted, and could adversely affect our business, results of operations and
financial condition," "If we do not successfully coordinate the worldwide
manufacturing and distribution of our products, we could lose sales" and "We
purchase key components and products from a limited number of sources, and our
business and operating results could be adversely affected if supply were
delayed or constrained or if there were shortages of required components."
Summary of financial results
Our total sales for the three months ended June 30, 2022 decreased 12% compared
to the same period of the prior fiscal year, driven by decline in sales for most
of our product categories, particularly Gaming, PC Webcams and Audio &
Sales for the three months ended June 30, 2022 increased by 7% in the Asia Pacific
region, and decreased by 19% and 18% in EMEA and Americas regions, respectively, compared to the same period last year.
Gross margin for the three months ended June 30, 2022 decreased by 380 basis
points to 39.6% compared to 43.4% for the same period of the prior fiscal year,
primarily due to higher material and logistics costs, unfavorable impacts from
changes in currency exchange rates and increased promotional spending.
Operating expenses for the three months ended June 30, 2022 were $344.1 million,
or 29.7% of sales, compared to $365.8 million, or 27.9% of sales, in the same
period of the prior fiscal year.
Net income for the three months ended June 30, 2022 has been $100.8 million compared to the same period of the previous financial year $186.8 million.
Trends in our business
Our products participate primarily in four large multi-category market
opportunities, including Creativity & Productivity, Gaming, Video Collaboration
and Music. The following discussion represents key trends specific to our market
Trends specific to our market opportunities
Creativity & Productivity: In the past few years, mice and keyboard shipments
have been strong due to work-from-home, learn-from-home and hybrid work trends
as well as increased PC shipments. We believe that innovative PC peripherals,
such as our mice and keyboards, can renew the PC usage experience and help
improve the productivity and engagement of remote work and learning, thus
providing growth opportunities. Hybrid work culture is also greatly expanding
the number of new workspaces to which we can attach our PC peripherals.
Increasing adoption of various cloud-based applications has led to multiple
unique consumer use cases, which we are addressing with our innovative product
portfolio and a deep understanding of our customer base. The popularity of
streaming coupled with work-from-home trends, provide growth opportunities for
our webcam products as well as other products in our portfolio. Smaller mobile
computing devices, such as tablets, have created new markets and usage models
for peripherals and accessories. We offer a number of products to enhance the
use of mobile devices, including a combo backlit keyboard case with trackpad for
Gaming: Despite recent declines in the gaming market, PC gaming and console
gaming platforms have strong long-term structural growth opportunities driven
largely by the popularity of social gaming through online gaming, multi-platform
experiences, and esports. We expect gaming will increasingly become one of the
largest participant and spectator sports in the world. We believe Logitech is
well positioned to benefit from overall gaming market growth. In addition, our
acquisition of Streamlabs provides a solid platform to deliver recurring
services and subscriptions to gamers and streamers.
Video Collaboration: The long-term structural growth opportunities in the video
collaboration market continue to be strong as commercial and consumer adoption
of video has seen substantial growth since the start of the COVID-19 pandemic.
Video meetings continue to be an opportunity as companies want lower-cost,
cloud-based solutions that can provide their employees with the ability to work
from anywhere. We are continuing our efforts to create and sell innovative
products to accommodate the increasing demand from home offices and small-size
meeting rooms, such as huddle rooms, to medium and large-sized meeting rooms. We
will continue to invest in the
development of select business-specific products (both hardware and software),
targeted product marketing and sales channel development. The digitization of
learning and hybrid learning environments have also created demand and growth
opportunities in the education market.
Music: Consumers are optimizing their audio experiences on their tablets and
smartphones with a variety of music peripherals including wireless mobile
speakers and in-ear and other headphones. However, the mobile speaker market has
matured and the integration of personal voice assistants has increased
competition in the speaker category. In addition, the retail footprint has
decreased significantly due to the COVID-19 pandemic. These factors have led to
a decline in our Mobile Speakers category sales in the past few years. In the
wireless headphone industry, the largest growth in recent years has been in true
wireless headphones while traditional wireless headphones have declined
significantly. We will continue developing truly wireless audio products as
growth in this category of the wireless audio market continues to be strong.
Commercial seasonality and product launches
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.
Capitalization and amortization of research and development expenses in the WE
Pursuant to the Tax Cuts and Jobs Act of 2017, research and development expenses
are required to be capitalized and amortized over five years for U.S. tax
purposes if the research and development activities are performed in the United
States, effective for tax year beginning after December 31, 2021. Absent a
change in legislation, the provision is effective for us beginning in fiscal
year 2023 which delays the deductibility of research and development expenses.
As a result, cash tax payments in the United States have generally increased
beginning in fiscal year 2023 compared to prior years.
Critical accounting estimates
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 base our assumptions, judgments and estimates on historical experience and
various other factors that we believe to be reasonable under the circumstances.
Actual results could differ materially from these estimates under different
assumptions or conditions. On a regular basis, we evaluate our assumptions,
judgments and estimates. We also discuss our critical accounting policies and
estimates with the Audit Committee of the Board of Directors.
We believe that the assumptions, judgments and estimates involved in the
accounting for accruals for customer incentives and related breakage when
appropriate, accrued sales return liability, inventory valuation, uncertain tax
positions, and business acquisitions have the greatest potential impact on our
condensed consolidated financial statements. These areas are key components of
our results of operations and are based on complex rules requiring us to make
judgments and estimates and consequently, we consider these to be our critical
accounting policies. Historically, our assumptions, judgments and estimates
relative to our critical accounting policies have not differed materially from
There have been no material changes in our critical accounting estimates during
the three months ended June 30, 2022 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, 2022.
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Adoption of New Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements taken.
We refer to our net sales growth rates excluding the impact of currency exchange
rate fluctuations as "constant currency" sales growth rates. Percentage of
constant currency sales growth is calculated by translating prior period sales
in each local currency at the current period's average exchange rate for that
currency and comparing that to current period sales.
Given our global sales presence and the reporting of our financial results in
U.S. Dollars, our financial results could be affected by significant shifts in
currency exchange rates. See "Results of Operations" for information on the
effect of currency exchange results on our sales. If the U.S. Dollar appreciates
or depreciates in comparison to other currencies in future periods, this will
affect our results of operations in future periods as well.
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
Our sales in the three months ended June 30, 2022, decreased 12% compared to the
same period of the prior fiscal year. The decrease in sales for the three month
period was primarily driven by a decline in sales for most of our product
categories, particularly Gaming, PC Webcams and Audio & Wearables. Our sales for
the three month periods were negatively impacted from lower demand, higher
promotions and unfavorable changes in currency exchange rates. If currency
exchange rates had been constant in the three months ended June 30, 2022 and
2021, our constant dollar sales reduction rate would have been 9% for the three
months ended June 30, 2022.
Sales denominated in other currencies
Although our financial results are reported in U.S. Dollars, a portion of our
sales was generated in currencies other than the U.S. Dollar, such as the Euro,
Chinese Renminbi, Japanese Yen, Australian Dollar, Canadian Dollar, Pound
Sterling and New Taiwan Dollar. During the three months ended June 30, 2022,
approximately 51% of our sales were denominated in currencies other than the
Sales by Region
The following table presents the evolution of sales by region for the three months ended June 30, 2022compared to the three months ended June 30, 2021:
The decline in sales in the Americas region for the three-month period presented above was mainly due to lower sales of games, audio and laptops and PC webcams.
The decline in sales in our EMEA region for the three-month period was primarily due to lower sales in most product categories, partially offset by increased sales in video collaboration.
The increase in sales in our Asia Pacific region for the three-month period shown above was primarily driven by an increase in game sales, partially offset by a decline in video collaboration and PC webcam sales.
Sales by product categories
Sales by product category for the three months ended June 30, 2022 and 2021 were as follows (in thousands of dollars):
Three Months Ended
2022 2021 Change
Pointing Devices $ 183,283$ 182,878 - %
Keyboards & Combos 227,720 218,357 4
PC Webcams 59,386 109,918 (46)
Tablet & Other Accessories 66,585 79,272 (16)
Gaming (1) 282,806 335,397 (16)
Video Collaboration 246,242 234,885 5
Mobile Speakers 22,310 28,484 (22)
Audio & Wearables 69,446 116,607 (40)
Other (2) 2,087 6,260 (67)
Total Sales $ 1,159,865$ 1,312,058 (12) %
(1) Games include streaming services revenue generated by Streamlabs. (2) Other includes Smart Home.
Creativity and Productivity Market:
Our Pointing Devices category includes mice for PC and Mac, including trackballs, touchpads and presentation tools.
Sales of pointing devices remained stable for the three months ended June 30, 2022compared to the same period of the previous year.
Keyboards and combos
Our Keyboards & Combo category includes PC keyboards, keyboard/mouse combo products, and living room keyboards.
Sales of Keyboards & Combos increased 4% for the three months ended June 30,
2022, compared to the same period of the prior fiscal year, primarily driven by
the increase in sales of our cordless PC keyboards.
Our PC Webcams category includes PC webcams aimed primarily at consumers, including streaming cameras.
Sales of PC Webcams decreased 46% for the three months ended June 30, 2022,
compared to the same period of the prior fiscal year, primarily driven by the
decrease in sales of our HD Pro Webcam C920, 1080p Pro Stream Webcam, Webcam
C260 and Streamcam.
Tablet & Other Accessories
Our Tablet Accessories & Others category primarily includes tablet keyboards.
Sales of Tablet & Other Accessories products decreased 16% for the three months
ended June 30, 2022, compared to the same period of the prior fiscal year,
primarily driven by the decrease in sales of most of our products, partially
offset by increases in sales of our Rugged Combo 3 Touch and Combo Touch for
Sales of Gaming decreased 16% for the three months ended June 30, 2022, compared
to the same period of the prior fiscal year, primarily driven by the decrease in
sales our gaming mice, console gaming headsets, and gaming keyboards.
Video collaboration market:
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 businesses of any size, as well as webcams and
headsets that turn any desktop into an instant collaboration space.
Sales of Video Collaboration products increased 5% for the three months ended
June 30, 2022, compared to the same period of the prior fiscal year, primarily
due to an increase in sales of conference room cameras and headsets, partially
offset by a decline in sales of webcams.
Our Mobile Speakers category is made up entirely of Bluetooth wireless speakers.
Sales of Mobile Speakers decreased 22% for the three months ended June 30, 2022,
compared to the same period of the prior fiscal year primarily due to a decrease
in sales of most of our Mobile speaker sub-categories, partially offset by an
increase in sales of our Hyperboom mobile speakers.
Audio and Laptops
Our Audio and Wearables category includes PC speakers, PC headsets, in-ear headphones, premium wireless audio wearables, and studio-grade Blue Microphones for professionals and consumers.
Sales of Audio & Wearables decreased 40% for the three months ended June 30,
2022, compared to the same period of the prior fiscal year, primarily due to a
decrease in sales of our Blue Microphone products and cordless and cordless
Gross profit for the three months ended June 30, 2022 and 2021 was as follows
(Dollars in thousands):
Three Months Ended
2022 2021 Change
Net sales $ 1,159,865$ 1,312,058 (12) %
Gross profit $ 459,603$ 568,926 (19) %
Gross margin 39.6 % 43.4 %
Gross margin consists of sales less cost of goods sold (which includes materials, direct labor and related overhead, costs of manufacturing facilities, royalties, costs of purchasing components from from external suppliers,
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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 decreased by 380 basis points to 39.6% for the three months ended
June 30, 2022, compared to the same period of the prior fiscal year. Our gross
margin declined due to higher material and logistics costs, unfavorable impacts
from changes in currency exchange rates, and increased promotional spending.
Operating expenses for the three months ended June 30, 2022 and 2021 were as follows (in thousands of dollars):
Three Months Ended
Marketing and selling $ 229,378$ 252,314
% of sales 19.8 % 19.2 %
Research and development 75,517 69,246
% of sales 6.5 % 5.3 %
General and administrative 35,860 40,542
% of sales 3.1 % 3.1 %
Amortization of intangible assets and acquisition-related costs 3,369 5,217
% of sales 0.3 % 0.4 %
Change in fair value of contingent consideration for business acquisition
% of sales - % (0.1) %
Total operating expenses $ 344,124$ 365,845
% of sales 29.7 % 27.9 %
The decrease in total operating expenses during the three months ended June 30,
2022, compared to the same period of the prior fiscal year, were mainly due to
decreases in marketing and selling expenses and general and administrative
expenses, partially offset by an increase in research and development expenses.
Marketing and sales
Marketing and selling expenses consist of personnel and related overhead costs,
corporate and product marketing, promotions, advertising, trade shows, technical
support for customer experiences and facilities costs.
During the three months ended June 30, 2022, marketing and selling expenses
decreased $22.9 million, compared to the same period of the prior fiscal year,
primarily driven by lower third-party marketing and advertising spend, partially
offset by increases in personnel-related costs due to increased headcount to
support business growth.
Research and Development
Research and development costs include personnel costs and related overhead for contractors and outside consultants, supplies and materials, equipment depreciation and facility costs, all associated with design and the development of new products and the improvement of existing products.
During the three months ended June 30, 2022, research and development expenses
increased $6.3 million, compared to the same period of the prior fiscal year,
primarily driven by higher personnel-related costs due to increased headcount to
support our investment in innovation.
General and administrative
General and administrative expenses consist primarily of personnel and related
overhead, information technology, and facilities costs for the infrastructure
functions such as finance, information systems, executives, human resources and
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During the three months ended June 30, 2022, general and administrative expenses
decreased $4.7 million, compared to the same period of the prior fiscal year,
primarily driven by lower personnel-related costs.
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 months ended June 30, 2022, amortization of intangible assets
and acquisition-related costs decreased $1.8 million, compared to the same
period of the prior fiscal year, primarily due to certain acquired intangible
assets becoming fully amortized and the write-off of Jaybird intangible assets
in the third quarter of fiscal year 2022.
Interest income for the three months ended June 30, 2022 and 2021 was as follows
Three Months Ended
Interest Income $ 1,449$ 316
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 months ended June 30, 2022 interest income increased $1.1
million, compared to the same period of the prior fiscal year, primarily driven
by the increase in interest rates.
Other income (expenses), net
Other income (expenses), net for the three months ended June 30, 2022 and 2021 was as follows (in thousands of dollars):
Three Months Ended
Investment income (expenses) related to the deferred compensation plan
$ (3,386)$ 1,168
Currency exchange gain (loss), net (2,960) 5,717
Gain on investments, net 11,357 1,071
Other 613 479
Total $ 5,624$ 8,435
Investment income 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 decrease in investment income for
three months ended June 30, 2022 compared to the same period of the prior fiscal
year primarily relates to the change in market performance of the underlying
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 June 30, 2022 was primarily
due to the weakening of the Brazilian Real, Australian Dollar and Japanese Yen
against the U.S. Dollar. The gain for the three months ended June 30, 2021 was
primarily due to the strengthening of the Brazilian Real against the U.S.
Gain on investments, net, represents unrealized gain (loss) from the fair value
change of investment and gain (loss) on equity-method investments during the
periods presented, as applicable. The gain for the three months ended June 30,
2022 was primarily due to the unrealized gain resulting from observable price
changes on equity investments without a readily determinable fair value and
gains on equity-method investments.
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Provision for Income Taxes
Provision for income taxes and effective tax rates for the three months ended June 30, 2022 and 2021 were as follows (in thousands of dollars):
Three Months Ended
Provision for income taxes $ 21,716$ 24,991
Effective income tax rate 17.7 % 11.8 %
The change in the effective income tax rate for the three months ended June 30,
2022, compared to the same period ended June 30, 2021 was primarily due to the
mix of income and losses in the various tax jurisdictions in which we operate.
There were discrete tax benefits of $1.4 million and $1.2 million from the
recognition of excess tax benefits in the United States and reversal of
uncertain tax positions from the expiration of statutes of limitations,
respectively, in the three month period ended June 30, 2022, compared with
$13.7 million and $1.0 million, respectively, in the three month period ended
June 30, 2021.
As of June 30, 2022 and March 31, 2022, the total amount of unrecognized tax
benefits due to uncertain tax positions was $174.3 million and $176.0 million,
respectively, all of which would affect the effective income tax rate if
Cash and capital resources
Cash balances, available borrowings and capital resources
As of June 30, 2022, we had cash and cash equivalents of $1,106.7 million,
compared with $1,328.7 million as of March 31, 2022. Our cash and cash
equivalents consist of bank demand deposits and short-term time deposits, of
which 62% is held in Switzerland, and 14% were held in China (including Hong
Kong), and 10% held in Germany. 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 home domicile.
From June 30, 2022our working capital was $1,604.8 millioncompared to $1,651.8 million of the March 31, 2022. The decrease is primarily attributable to lower cash balances, resulting from higher share buybacks and lower inventory, partially offset by lower accrued liabilities and accounts payable and an increase in accounts receivable, net.
We had several uncommitted, unsecured bank lines of credit aggregating $185.9
million as of June 30, 2022. There are no financial covenants under these lines
of credit with which we must comply. As of June 30, 2022, we had outstanding
bank guarantees of $23.9 million under these lines of credit.
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The following tables present selected financial information and statistics as of
and for the three months ended June 30, 2022 and 2021 (Dollars in thousands):
As of June 30,
Accounts receivable, net $ 706,886$ 545,907
Accounts payable $ 558,983$ 709,741
Inventories $ 917,356$ 778,596
Three Months Ended
Days sales in accounts receivable ("DSO") (Days) (1) 55 37
Days accounts payable outstanding ("DPO") (Days) (2) 72 86
Inventory turnover ("ITO") (x)(3) 3.1 3.8
(1) The DSO is determined on the basis of trade receivables, net for the last quarter and sales for the last quarter.
(2) DPO is determined using accounts payable at the end of the last quarter and the cost of goods sold for the last quarter.
(3) ITO is determined from closing inventory and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).
DSO for the three months ended June 30, 2022 increased by 18 days to 55 days,
compared to 37 days for the same period of the prior fiscal year, primarily due
to a comparatively higher percentage of sales in the last month of the current
DPO for the three months ended June 30, 2022 decreased by 14 days, compared to
86 days for the same period of the prior fiscal year, primarily due to lower
inventory purchases than prior year resulting from softened demand and lower
ITO for the three months ended June 30, 2022 decreased by 0.7, compared to 3.8
for the same period of the prior fiscal year, primarily due to lower demand than
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
The following table summarizes our condensed consolidated statements of cash flows (in thousands of dollars):
Three Months Ended
Net cash used in operating activities $ (35,668)$ (114,970)
Net cash used in investing activities (27,469) (40,347)
Net cash used in financing activities (144,763) (102,533)
Effect of exchange rate changes on cash and cash equivalents (14,159) 5,244
Net decrease in cash and cash equivalents $ (222,059)$ (252,606)
For the three months ended June 30, 2022, we used net cash of $35.7 million from
operating activities, resulting from net income of $100.8 million, a favorable
impact from adding back non-cash expenses totaling $37.3 million, and an
unfavorable net change in operating assets and liabilities of $173.8 million.
Non-cash expenses were primarily related to share-based compensation expenses,
depreciation, amortization, and gains on investments. The increase in accounts
receivable, net was primarily driven by timing of sales within the quarter. The
decrease in inventories was primarily driven by lower inventory purchases. The
decrease in accounts payable was primarily driven by lower inventory purchases
and marketing spend. The decrease in accrued liabilities was primarily driven by
payment of the fiscal year 2022 annual bonus.
For the three months ended June 30, 2022, net cash used in investing activities
was $27.5, primarily due to $19.6 million of purchases of property, plant, and
equipment and $5.8 million payments for acquisitions, net of cash acquired.
For the three months ended June 30, 2022the net cash allocated to financing activities was $144.8 millionresulting from the redemption of our registered shares of $120.6 millionand withholding taxes related to net settlements of restricted stock shares of $24.1 million.
For the three months ended June 30, 2022, there was a $14.2 million loss from
currency exchange rate effect on cash and cash equivalents, primarily due to the
weakening of the Euro, Chinese Renminbi, Swiss Franc, Australian Dollar versus
the U.S. Dollar by 6%, 5%, 4% and 10%, respectively. The gain from currency
translation exchange effect during the three months ended June 30, 2021 was
primarily due to the strengthening of the Brazilian Real and the Chinese
Renminbi against the U.S. Dollar by 14% and 2%, respectively, during the period.
Our principal sources of liquidity are our cash and cash equivalents, cash flow
generated from operations and, to a much lesser extent, capital markets and
borrowings. Our future working capital requirements and capital expenditures may
increase to support investments in product innovations and growth opportunities
or to acquire or invest in complementary businesses, products, services, and
technologies. The current market volatility and future impact of COVID-19 cannot
be predicted with certainty and may increase our costs of capital and otherwise
adversely affect our business, results of operations, financial condition and
In May 2022, the Board of Directors recommended that we pay cash dividends for
fiscal year 2022 of CHF 0.96 per share (approximately $1.04 per share based on
the exchange rate on March 31, 2022). Based on our shares outstanding, net of
treasury shares, as of March 31, 2022 (165,252,020 shares), this would result in
an aggregate gross dividend of approximately CHF 159.0 million (or approximately
$172.1 million based on the exchange rate on March 31, 2022). 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 fiscal year 2021,
we paid a cash dividend of CHF 134.0 million (U.S. Dollar amount of
$146.7 million) out of fiscal year 2020 retained earnings.
In May 2020, our Board of Directors approved a new share repurchase program,
which authorized us to invest up to $250.0 million to purchase our own shares,
following the expiration date of the 2017 share repurchase program. In April
2021, our Board of Directors approved an increase of $750.0 million of the 2020
share repurchase program, to an aggregate amount of $1.0 billion. The Swiss
Takeover Board approved this increase and it became effective on May 21, 2021.
As of June 30, 2022, $303.1 million was available for repurchase under the 2020
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. This
increase is subject to approval by the Swiss Takeover Board.
Although we enter into trading plans for systematic repurchases (e.g., 10b5-1
trading plans) from time to time, our share repurchase program provides us with
the opportunity to make opportunistic repurchases during periods of favorable
market conditions and is expected to remain in effect for a period of three
years. Shares may be repurchased from time to time on the open market, through
block trades or otherwise. Opportunistic purchases may be started or stopped at
any time without prior notice depending on market conditions and other factors.
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.
Table of Contents
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 other material changes to our
contractual obligations as previously disclosed in our Annual Report on Form
10-K for the year ended March 31, 2022. The remaining terms of our
non-cancelable operating leases expire in various years through 2031.
As of June 30, 2022, we had non-cancelable purchase commitments of
$674.0 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
recorded a liability for firm, non-cancelable, and unhedged inventory purchase
commitments in excess of anticipated demand or net realizable value consistent
with our valuation of excess and obsolete inventory. As of June 30, 2022, the
liability for these purchase commitments was $43.1 million and is recorded in
accrued and other current liabilities in the condensed consolidated balance
We have firm purchase commitments of $28.0 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 details of our contractual obligations and commitments, see our Annual Report on Form 10-K for the year ended March 31, 2022.
We indemnify certain suppliers and customers for losses arising from matters
such as intellectual property disputes and product safety defects, subject to
certain restrictions. The scope of these indemnities varies, but in some
instances includes indemnification for damages and expenses, including
reasonable attorneys' fees. As of June 30, 2022, no amounts have been accrued
for indemnification provisions. We do not believe, based on historical
experience and information currently available, that it is probable that any
material amounts will be required to be paid under our indemnification
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.
From time to time we are involved in claims and legal proceedings that arise in
the ordinary course of our business. For more information about Legal
Proceedings, see Part II Item 1 Legal Proceedings of this quarterly report on
Form 10-Q for the period ended June 30, 2022.