Le Lézard
Classified in: Science and technology, Business
Subjects: EARNINGS, Conference Call, Webcast

Logitech Delivers Solid Second Quarter Growth and Profitability


Logitech International (SIX: LOGN) (Nasdaq: LOGI) today announced financial results for the second quarter of Fiscal Year 2020.

"Our solid Q2 demonstrates Logitech's resilience as we continue to execute on our strategy," said Bracken Darrell, Logitech president and chief executive officer. "This quarter, we delivered record sales in Video Collaboration, which grew nearly 60 percent, as well as strong growth in our PC Peripherals categories. We continue to perform in spite of the challenging macroeconomic environment and are confirming our annual guidance heading into the second half of the fiscal year."

Outlook

Logitech confirmed its Fiscal Year 2020 outlook of mid to high single-digit sales growth in constant currency and $375 million to $385 million in non-GAAP operating income.

Prepared Remarks Available Online

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

Financial Results Teleconference and Webcast

Logitech will hold a financial results teleconference to discuss the results for Q2 FY 2020 on Tuesday, October 22, 2019 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), loss (gain) on investments, 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 2020.

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, Logitech G, ASTRO Gaming Ultimate Ears, Jaybird, and Blue Microphones. 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 U.S. federal securities laws, including, without limitation, statements regarding: our preliminary financial results for the three and six months ended September 30, 2019 and outlook for Fiscal Year 2020 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 and our ability to mitigate; 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, 2019 and our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019, 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

 

Six Months Ended

 

 

September 30,

 

September 30,

GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Net sales

 

$

719,691

 

 

$

691,146

 

 

$

1,363,916

 

 

$

1,299,626

 

Cost of goods sold

 

444,344

 

 

432,063

 

 

846,322

 

 

814,234

 

Amortization of intangible assets and purchase accounting effect on inventory

 

3,271

 

 

2,966

 

 

6,542

 

 

5,338

 

Gross profit

 

272,076

 

 

256,117

 

 

511,052

 

 

480,054

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Marketing and selling

 

134,155

 

 

121,801

 

 

257,188

 

 

236,385

 

Research and development

 

41,964

 

 

39,542

 

 

84,207

 

 

78,529

 

General and administrative

 

24,048

 

 

25,206

 

 

46,207

 

 

50,679

 

Amortization of intangible assets and acquisition-related costs

 

4,218

 

 

4,317

 

 

7,814

 

 

6,838

 

Restructuring charges (credit), net

 

(364

)

 

119

 

 

114

 

 

10,040

 

Total operating expenses

 

204,021

 

 

190,985

 

 

395,530

 

 

382,471

 

 

 

 

 

 

 

 

 

 

Operating income

 

68,055

 

 

65,132

 

 

115,522

 

 

97,583

 

Interest income

 

2,390

 

 

1,858

 

 

4,943

 

 

4,227

 

Other income (expense), net

 

(110

)

 

3,389

 

 

1,751

 

 

1,818

 

Income before income taxes

 

70,335

 

 

70,379

 

 

122,216

 

 

103,628

 

Provision for (benefit from) income taxes (A)

 

(2,598

)

 

6,203

 

 

3,938

 

 

986

 

Net income

 

$

72,933

 

 

$

64,176

 

 

$

118,278

 

 

$

102,642

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.44

 

 

$

0.39

 

 

$

0.71

 

 

$

0.62

 

Diluted

 

$

0.43

 

 

$

0.38

 

 

$

0.70

 

 

$

0.61

 

 

 

 

 

 

 

 

 

 

Weighted average shares used to compute net income per share:

 

 

 

 

 

 

 

 

Basic

 

166,662

 

 

165,630

 

 

166,484

 

 

165,474

 

Diluted

 

169,027

 

 

169,234

 

 

168,914

 

 

168,996

 

LOGITECH INTERNATIONAL S.A.

PRELIMINARY RESULTS *

(In thousands) - unaudited

 

September 30,

March 31,

CONDENSED CONSOLIDATED BALANCE SHEETS

 

2019

 

2019

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

574,464

 

 

$

604,516

 

Accounts receivable, net

 

465,969

 

 

383,309

 

Inventories

 

338,314

 

 

293,495

 

Other current assets

 

79,630

 

 

69,116

 

Total current assets

 

1,458,377

 

 

1,350,436

 

Non-current assets:

 

 

 

 

Property, plant and equipment, net

 

75,568

 

 

78,552

 

Goodwill

 

343,686

 

 

343,684

 

Other intangible assets, net

 

105,264

 

 

118,999

 

Other assets (B)

 

173,425

 

 

132,453

 

Total assets

 

$

2,156,320

 

 

$

2,024,124

 

 

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

411,043

 

 

$

283,922

 

Accrued and other current liabilities (B)

 

424,963

 

 

433,897

 

Total current liabilities

 

836,006

 

 

717,819

 

Non-current liabilities:

 

 

 

 

Income taxes payable

 

36,374

 

 

36,384

 

Other non-current liabilities (B)

 

116,403

 

 

93,582

 

Total liabilities

 

988,783

 

 

847,785

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

Registered shares, CHF 0.25 par value:

 

30,148

 

 

30,148

 

Issued shares ? 173,106 at September 30 and March 31, 2019

 

 

 

 

Additional shares that may be issued out of conditional capital ? 50,000 at September 30 and March 31, 2019

 

 

 

 

Additional shares that may be issued out of authorized capital ? 34,621 at September 30 and March 31, 2019

 

 

 

 

Additional paid-in capital

 

50,913

 

 

56,655

 

Shares in treasury, at cost ? 6,203 at September 30, 2019 and 7,244 at March 31, 2019

 

(163,728

)

 

(169,802

)

Retained earnings

 

1,359,134

 

 

1,365,036

 

Accumulated other comprehensive loss

 

(108,930

)

 

(105,698

)

Total shareholders' equity

 

1,167,537

 

 

1,176,339

 

Total liabilities and shareholders' equity

 

$

2,156,320

 

 

$

2,024,124

 

LOGITECH INTERNATIONAL S.A.

PRELIMINARY RESULTS *

(In thousands) - unaudited

 

 

 

Three Months Ended

 

Six Months Ended

 

 

September 30,

 

September 30,

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

72,933

 

 

$

64,176

 

 

$

118,278

 

 

$

102,642

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

10,584

 

 

11,196

 

 

21,386

 

 

21,895

 

Amortization of intangible assets

 

6,868

 

 

5,448

 

 

13,735

 

 

10,341

 

Loss (gain) on investments

 

274

 

 

(395

)

 

63

 

 

(382

)

Share-based compensation expense

 

14,252

 

 

12,049

 

 

26,470

 

 

25,308

 

Deferred income taxes

 

(5,597

)

 

(156

)

 

(8,978

)

 

(9,815

)

Other

 

2

 

 

(49

)

 

(2

)

 

75

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

(51,691

)

 

(64,918

)

 

(85,955

)

 

(133,475

)

Inventories

 

(45,092

)

 

(66,201

)

 

(47,773

)

 

(84,401

)

Other assets

 

(8,696

)

 

(6,831

)

 

(14,083

)

 

(11,056

)

Accounts payable

 

73,509

 

 

86,998

 

 

129,101

 

 

138,186

 

Accrued and other liabilities

 

39,157

 

 

43,621

 

 

(9,223

)

 

37,902

 

Net cash provided by operating activities

 

106,503

 

 

84,938

 

 

143,019

 

 

97,220

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(8,752

)

 

(9,624

)

 

(18,092

)

 

(18,368

)

Investment in privately held companies

 

?

 

 

(281

)

 

(170

)

 

(506

)

Acquisitions, net of cash acquired

 

(366

)

 

(133,665

)

 

(366

)

 

(133,908

)

Purchases of short-term investments

 

?

 

 

(1,505

)

 

?

 

 

(1,505

)

Purchases of trading investments

 

(1,370

)

 

(1,222

)

 

(2,525

)

 

(3,722

)

Proceeds from sales of trading investments

 

1,375

 

 

1,327

 

 

2,571

 

 

4,194

 

Net cash used in investing activities

 

(9,113

)

 

(144,970

)

 

(18,582

)

 

(153,815

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of cash dividends

 

(124,180

)

 

(113,971

)

 

(124,180

)

 

(113,971

)

Purchases of registered shares

 

?

 

 

(9,919

)

 

(15,127

)

 

(19,901

)

Proceeds from exercises of stock options and purchase rights

 

8,938

 

 

8,903

 

 

9,331

 

 

10,007

 

Tax withholdings related to net share settlements of restricted stock units

 

(1,538

)

 

(2,299

)

 

(20,908

)

 

(27,380

)

Net cash used in financing activities

 

(116,780

)

 

(117,286

)

 

(150,884

)

 

(151,245

)

Effect of exchange rate changes on cash and cash equivalents

 

(3,102

)

 

(1,848

)

 

(3,605

)

 

(9,157

)

Net decrease in cash and cash equivalents

 

(22,492

)

 

(179,166

)

 

(30,052

)

 

(216,997

)

Cash and cash equivalents, beginning of the period

 

596,956

 

 

604,116

 

 

604,516

 

 

641,947

 

Cash and cash equivalents, end of the period

 

$

574,464

 

 

$

424,950

 

 

$

574,464

 

 

$

424,950

 

LOGITECH INTERNATIONAL S.A.

PRELIMINARY RESULTS *

(In thousands) - unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

Three Months Ended

 

Six Months Ended

 

 

September 30,

 

September 30,

SUPPLEMENTAL FINANCIAL INFORMATION

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales by product category:

 

 

 

 

 

 

 

 

 

 

 

 

Pointing Devices

 

$

132,770

 

 

$

128,337

 

 

3

%

 

$

254,753

 

 

$

256,127

 

 

(1

)%

Keyboards & Combos

 

139,049

 

 

131,872

 

 

5

 

 

267,728

 

 

260,094

 

 

3

 

PC Webcams

 

28,748

 

 

28,221

 

 

2

 

 

56,876

 

 

57,895

 

 

(2

)

Tablet & Other Accessories

 

33,847

 

 

36,710

 

 

(8

)

 

72,186

 

 

69,146

 

 

4

 

Video Collaboration

 

89,553

 

 

57,176

 

 

57

 

 

162,977

 

 

115,968

 

 

41

 

Mobile Speakers

 

57,232

 

 

77,100

 

 

(26

)

 

107,648

 

 

111,427

 

 

(3

)

Audio & Wearables

 

68,018

 

 

61,560

 

 

10

 

 

126,642

 

 

113,714

 

 

11

 

Gaming

 

161,014

 

 

160,792

 

 

?

 

 

295,529

 

 

296,818

 

 

?

 

Smart Home

 

9,434

 

 

9,241

 

 

2

 

 

19,298

 

 

18,252

 

 

6

 

Other (1)

 

26

 

 

137

 

 

(81

)

 

279

 

 

185

 

 

51

 

Total sales

 

$

719,691

 

 

$

691,146

 

 

4

%

 

$

1,363,916

 

 

$

1,299,626

 

 

5

%

(1) Other category includes products that we currently intend to phase out, or have already phased out, 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 (C)

 

Three Months Ended

 

Six Months Ended

 

 

September 30,

 

September 30,

SUPPLEMENTAL FINANCIAL INFORMATION

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Gross profit - GAAP

 

$

272,076

 

 

$

256,117

 

 

$

511,052

 

 

$

480,054

 

Share-based compensation expense

 

1,184

 

 

791

 

 

2,342

 

 

1,921

 

Amortization of intangible assets and purchase accounting effect on inventory

 

3,271

 

 

2,966

 

 

6,542

 

 

5,338

 

Gross profit - Non-GAAP

 

$

276,531

 

 

$

259,874

 

 

$

519,936

 

 

$

487,313

 

 

 

 

 

 

 

 

 

 

Gross margin - GAAP

 

37.8

%

 

37.1

%

 

37.5

%

 

36.9

%

Gross margin - Non-GAAP

 

38.4

%

 

37.6

%

 

38.1

%

 

37.5

%

 

 

 

 

 

 

 

 

 

Operating expenses - GAAP

 

$

204,021

 

 

$

190,985

 

 

$

395,530

 

 

$

382,471

 

Less: Share-based compensation expense

 

13,068

 

 

11,258

 

 

24,128

 

 

23,387

 

Less: Amortization of intangible assets and acquisition-related costs

 

4,218

 

 

4,317

 

 

7,814

 

 

6,838

 

Less: Restructuring charges (credits), net

 

(364

)

 

119

 

 

114

 

 

10,040

 

Operating expenses - Non-GAAP

 

$

187,099

 

 

$

175,291

 

 

$

363,474

 

 

$

342,206

 

 

 

 

 

 

 

 

 

 

% of net sales - GAAP

 

28.3

%

 

27.6

%

 

29.0

%

 

29.4

%

% of net sales - Non - GAAP

 

26.0

%

 

25.4

%

 

26.6

%

 

26.3

%

 

 

 

 

 

 

 

 

 

Operating income - GAAP

 

$

68,055

 

 

$

65,132

 

 

$

115,522

 

 

$

97,583

 

Share-based compensation expense

 

14,252

 

 

12,049

 

 

26,470

 

 

25,308

 

Amortization of intangible assets

 

6,868

 

 

5,448

 

 

13,735

 

 

10,341

 

Purchase accounting effect on inventory

 

?

 

 

379

 

 

?

 

 

379

 

Acquisition-related costs

 

621

 

 

1,456

 

 

621

 

 

1,456

 

Restructuring charges (credits), net

 

(364

)

 

119

 

 

114

 

 

10,040

 

Operating income - Non - GAAP

 

$

89,432

 

 

$

84,583

 

 

$

156,462

 

 

$

145,107

 

 

 

 

 

 

 

 

 

 

% of net sales - GAAP

 

9.5

%

 

9.4

%

 

8.5

%

 

7.5

%

% of net sales - Non - GAAP

 

12.4

%

 

12.2

%

 

11.5

%

 

11.2

%

 

 

 

 

 

 

 

 

 

Net income - GAAP

 

$

72,933

 

 

$

64,176

 

 

$

118,278

 

 

$

102,642

 

Share-based compensation expense

 

14,252

 

 

12,049

 

 

26,470

 

 

25,308

 

Amortization of intangible assets

 

6,868

 

 

5,448

 

 

13,735

 

 

10,341

 

Purchase accounting effect on inventory

 

?

 

 

379

 

 

?

 

 

379

 

Acquisition-related costs

 

621

 

 

1,456

 

 

621

 

 

1,456

 

Restructuring charges (credits), net

 

(364

)

 

119

 

 

114

 

 

10,040

 

Loss (gain) on investments

 

274

 

 

(395

)

 

63

 

 

(382

)

Non-GAAP income tax adjustment

 

(9,506

)

 

(116

)

 

(8,599

)

 

(9,225

)

Net income - Non - GAAP

 

$

85,078

 

 

$

83,116

 

 

$

150,682

 

 

$

140,559

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Diluted - GAAP

 

$

0.43

 

 

$

0.38

 

 

$

0.70

 

 

$

0.61

 

Diluted - Non - GAAP

 

$

0.50

 

 

$

0.49

 

 

$

0.89

 

 

$

0.83

 

 

 

 

 

 

 

 

 

 

Shares used to compute net income per share:

 

 

 

 

 

 

 

 

Diluted - GAAP and Non - GAAP

 

169,027

169,234

 

168,914

 

168,996

LOGITECH INTERNATIONAL S.A.

PRELIMINARY RESULTS *

(In thousands) - unaudited

 

 

 

 

 

 

 

 

 

SHARE-BASED COMPENSATION EXPENSE

 

Three Months Ended

 

Six Months Ended

 

 

September 30,

 

September 30,

SUPPLEMENTAL FINANCIAL INFORMATION

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Share-based Compensation Expense

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

1,184

 

 

$

791

 

 

$

2,342

 

 

$

1,921

 

Marketing and selling

 

6,951

 

 

4,864

 

 

13,800

 

 

10,650

 

Research and development

 

2,248

 

 

1,935

 

 

4,402

 

 

3,484

 

General and administrative

 

3,869

 

 

4,459

 

 

5,926

 

 

9,253

 

Total share-based compensation expense

 

14,252

 

 

12,049

 

 

26,470

 

 

25,308

 

Income tax benefit

 

(2,723

)

 

(2,650

)

 

(9,523

)

 

(12,179

)

Total share-based compensation expense, net of income tax benefit

 

$

11,529

 

 

$

9,399

 

 

$

16,947

 

 

$

13,129

 

* Note: These preliminary results for the three and six months ended September 30, 2019 are subject to adjustments, including subsequent events that may occur through the date of filing our Quarterly Report on Form 10-Q.

(A) Swiss Federal Tax Reform

On May 19, 2019, the Swiss electorate approved the Federal Act on Tax Reform and AHV Financing ("TRAF"), a major reform to better align the Swiss tax system with international tax standards. The legislation was subsequently published in the federal register on August 6, 2019 to take effect on January 1, 2020. As of September 30, 2019, TRAF has not been enacted in all cantons, including the canton of Vaud, where the cantonal legislative procedures are in process.

The change in the effective income tax rate for the three months ended September 30, 2019, compared to the same period ended September 30, 2018, was primarily due to the transitional income tax impact in Switzerland. We have benefited from a longstanding tax ruling from the canton of Vaud through March 31, 2019. During the second quarter, the canton of Vaud concluded the longstanding cantonal tax ruling will only continue to apply through December 31, 2019. The transitional income tax impact, which represents income tax provision at the current full statutory income tax rate of 13.63% without taking account of the tax reform yet to be enacted, resulted in a tax benefit of $5.9 million in the three-month period ended September 30, 2019. In addition, there was a discrete tax benefit of $4.0 million from adjusting deferred tax assets and liabilities in Switzerland in the three months ended September 30, 2019. We expect a gradual and modest increase in our cash tax payments in Switzerland each year until we fully reflect the new Swiss tax rate.

(B) Adoption of ASC Topic 842

We adopted the new standards for leases under Accounting Standards Codification ("ASC") Topic 842 using the modified retrospective approach as of April 1, 2019 and did not restate the financial statements of the comparative periods as is allowed by election of the transition option under ASC 842. Adoption of the standard resulted in the recognition of $30.1 million of right-of-use assets, $11.9 million of short-term lease liabilities and $24.1 million of long-term lease liabilities related to our leases on September 30, 2019.

(C) Non-GAAP Financial Measures

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

While we use non-GAAP financial measures as a tool to enhance our understanding of certain aspects of our financial performance and to provide incremental insight into the underlying factors and trends affecting both our performance and our cash-generating potential, we do not consider these measures to be a substitute for, or superior to, the information provided by GAAP financial measures. Consistent with this approach, we believe that disclosing non-GAAP financial measures to the readers of our financial statements provides useful supplemental data that, while not a substitute for GAAP financial measures, can offer insight in the review of our financial and operational performance and enables investors to more fully understand trends in our current and future performance. In assessing our business during the quarter ended September 30, 2019 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.

Loss (gain) on investments. We recognized loss (gain) related to our investments in various companies, which varies depending on the operational and financial performance of those 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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