Loupedeck

Aug 22, 2023

Logitech International S A : Q1 2024 Transcript 5-day change Today at 03:50 pm Company Ticker: LOGN SW Equity Date: 2023-07-25 Guy Gecht, Interim Chief Executive Ofcer Nate Melihercik, Head of Global Investor Relations Other Participants Nate Melihercik{BIO 20814398} Good morning and good afternoon. Welcome to Logitech's video call to discuss our Financial Results for the First Quarter of Fiscal Year 2024. Joining us today are Guy Gecht, our Interim CEO and Chuck Boynton, our CFO. During this call, we will make forward- looking statements including with respect to future operating results under the Safe Harbor of the Private Securities Litigation Reform Act of 1995. We're making these statements based on our views only as of today, our actual results could difer materially. We undertake no obligation to update or revise any of these statements. We will also discuss non-GAAP fnancial results, and you can fnd a reconciliation between non-GAAP and GAAP results and information about our use of non-GAAP measures and factors that could impact our fnancial results and forward- looking statements in our press release and in our flings with the SEC. These materials, as well as the slides and a webcast of this call, are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, comparisons between periods are year-over-year and Page 1 of 20 Company Ticker: LOGN SW Equity Date: 2023-07-25 in constant currency and net sales. This call is being recorded and will be available for a replay on our website. I will now turn the call over to Guy. Guy Gecht{BIO 3114277} Thanks, Nate, and thank you all for joining us. It is a pleasure to speak with you today. Before we jump into our frst quarter achievements, let me provide some context regarding my role and the Board's search process for Logitech's next CEO. I'm both honored and excited to guide this iconic brand company in the near-term. During my four years on the Board of Logitech, I've gotten very familiar with the company as I had the opportunity to serve as the Chair of Logitech Technology and Innovation Committee of the Board, and to serve as a member of the Audit Committee. I view my role as an interim CEO is to provide a consistent and steady hand to the many wonderful experienced teams working hard across Logitech. I'm singularly focused on making progress and ensuring we do not lose any time in our ongoing execution. Our strategy remains unchanged, as do the business plans that are in place. All teams are focused on executing their proven playbook. And my focus is to remove obstacles, facilitate decision-making, and ensure we lose no time. Now a few words on the search. As we previously announced, the Board is in conducting a global CEO search, including internal and external candidates. It is progressing well. There has been a lot of interest in the opportunity, and we are pleased with the strong caliber of the candidates we are seeing. Needless to say, the Board views this decision with the utmost seriousness it deserves, and it's working diligently reviewing and interviewing candidates. Given the confdential nature of the search, I will not be able to add more color today, but rest assured that we will update you when we have news to show. Before I turn it over to Chuck to review the team's progress on many important fronts, let me provide a few of the non-fnancial highlights of this quarter. Afrming Logitech as a global leader in design and innovation, we were awarded the industry most prestigious Red Dot Design Team of the Year award, previously awarded to companies such as Apple, Ferrari, and others, renowned for their design. We introduced four new products in the quarter, including Rally Bar Huddle, the newest addition to Logitech's family of conference cameras that turn small meeting rooms into collaboration spaces. And designed for Esport athletes, our newest Logitech G Pro X gaming headset feature graphene drivers for those that require precision audio technology. And in addition to the products launched last quarter, we are just about to start shipping Logitech Sight, a tabletop camera with 315 degrees view capabilities, delivers a truly unique video conferencing experience. At the heart of this new system is an AI director- like technology that decides which participant should be highlighted on the screen and from which angle, close or far. Page 2 of 20 Company Ticker: LOGN SW Equity Date: 2023-07-25 This benefts both people in the conference room and especially remote participants who otherwise may feel they are not fully involved in the meeting, because they're not seated around the table. Our sales teams closed a number of meaningful customer deals in Q1, including Honda, Kroger, TD Synnex, and the Proximus Group, as well as the European Commission. These wins represent multiple industries in both the public and private sectors. And fnally, last week, we announced the acquisition of Loupedeck, a small tuck-in deal that is adding a diferentiated technology, initially in gaming and streaming, and later in other areas. We will continue to screen for more deals that will help us accelerate the execution of our strategy, as well as bringing our unique technology to new sets of users. These were just some of the recent highlights, although most importantly for today is that we started our fscal year with an encouraging set of results and an updated outlook. As we move through the remainder of the fscal year and leap toward our expected return to growth, you should expect to see unwavering commitment to the principles and capabilities that have become the hallmark of Logitech. Innovation to capitalize on the growth trends that fuel our business, which is video everywhere, hybrid work, gaming, and digital content creation. Design-led engineering and product innovation. A maniacal focus on lean manufacturing and operations. And a capital allocation strategy that is focused on M&A, paying a dividend, and share buyback. And we do all of that with continued commitment to our values. As an example, this week, we released our annual impact report where you can read about the progress our teams have been making in the areas of sustainability and social impact. With that, I will turn it to Chuck to provide the fnancial details of our frst quarter and to review the outlook for the reminder of the year. Chuck? Chuck Boynton{BIO 17080323} Thank you, Guy. I also appreciate everyone joining us on the call today, frst and foremost, I want to thank all of our employees for the strong execution and teamwork in the quarter. It really shows in our results, especially our strong operating cash fows. Before we get into the details in our fnancial performance, let me spend a minute on some reporting changes we've made to our product category classifcations. Our slide presentation and quarterly fact sheet provide additional information, as well as a fve-year set of comparables. Many of you have asked for these updates over the last several quarters, so we hope the changes provide a simpler and clearer view of our business. These reclassifcations do not impact our previously reported fnancial statements. Moving on to the business results for the frst quarter. Net sales in constant currency declined by 15% to $974 million. Sales out was quite strong, particularly for headsets, tablet accessories, and gaming. As we discussed at Analyst Day and in the last earnings call, we believe in the benefts of lean on-hand and channel inventory. For the ffth consecutive quarter, we reduced on-hand inventory signifcantly, with our inventory turns improving to 4.2. We remain committed to our goal of improving to 5 turns or better over the next year or two. Page 3 of 20 Company Ticker: LOGN SW Equity Date: 2023-07-25 Likewise, channel inventory was also reduced in the quarter, and I'm proud of the team for hitting the targets that we set. This has improved linearity and predictability. We plan to keep reducing channel inventory during the seasonally soft months of July and August, and then replenish the channel in September, October, and November as part of a normal build for the December quarter. Net-net, we expect channel inventory to be roughly the same at the end of Q2 as it was at the beginning. In Q1, gross margins expanded quarter-over-quarter to 39%, slightly better than anticipated, as signifcant reductions in our on-hand inventory drove down or drove some one-time benefts in the quarter. On a year-over-year basis, margins were pressured by FX and mix, but partially ofset by cost improvement and less reliance on expedited shipping. Again, thank you to our operations team for such amazing execution. Sequentially in Q2, we anticipate gross margins to be pressured, and as a reminder, gross margins in our December quarter have both headwinds and tailwinds. We have the seasonally higher consumer sales and holiday promotions, but those are somewhat ofset by overhead absorption. While there will be quarter-to-quarter fuctuations, we feel our business is structurally positioned to generate 40% gross margins in the next four to six quarters. Operating expenses were $271 million in the quarter, up slightly versus our internal expectations. A portion of our operating expenses were attributable to some one-time administrative expenses and the weakening U.S. dollar in the quarter. I continue to be pleased with the team's cost focus and ability to quickly dial up or dial down OpEx based on business performance. Our long-term model is to maintain operating expenses at around 25% or less of revenue. Operating income was $109 million in Q1 and better than our internal expectations due to improved demand and strong gross margins. One big highlight for the quarter was our working capital execution. Cash fow from operations was $240 million, a frst-quarter record for the company, leading to a cash balance of $1.25 billion. Our capital allocation strategy remains consistent. Evaluate M&A opportunities, pay an increasing annual dividend, and return excess capital to our shareholders through share repurchases. We are making progress on all three fronts. As Guy mentioned, we announced the acquisition of Loupedeck. They provide valuable technology for Logitech G, and while modest in acquisition price, refects our consistent and disciplined approach to M&A. In May, we announced a 10-cent Swiss franc increase in our dividend, which will be voted on by our shareholders at our September Annual General Meeting. And just last month, our Board of Directors approved a new $1 billion three-year share repurchase program. Our existing buyback program expires at the end of July, and in total, we will have returned more than $1.1 billion to our shareholders as part of this program. Our new program will replace the expiring program upon its approval by the Swiss Takeover Board. Page 4 of 20 (Question And Answer) Hello, everyone, and thank you for joining. As a reminder, if you'd like to participate in Q&A, please raise your virtual hand and we will get you in queue. I will start today with Asiya Merchant from Citi. Hey, Asiya. Q - Asiya Merchant {BIO 20247269} Hey, good morning, everyone. Hopefully you can hear me. A - Nate Melihercik {BIO 20814398} We can hear you -- Q - Asiya Merchant {BIO 20247269} Thank you for the color, Chuck and Guy, great to see you on video, guys. Chuck if you can and Chuck and Guy, actually, this is for both of you, if you guys can talk a little bit about seasonality, it seems like, at least in the implied guide, the September quarter or the calendar third quarter, which typically up, at least in the low double digits, seems to be kind of guided fattish, maybe slightly higher. Maybe you can talk about that. And as you kind of look into the December quarter, if you can kind of -- can you talk a little bit about the visibility that you're seeing and which product segments you feel very strongly about. And then on gross margins, I think, Chuck, you mentioned there were some one-time benefts. Clearly, gross margins came in better than what we were Page 5 of 20