Logitech International S A : Q3 2023 Prepared Remarks

Logitech Q3 Fiscal Year 2023 Financial Results

Management's Prepared Remarks (January 23, 2023)

Logitech is posting a copy of these prepared remarks, our press release, and accompanying slides to our investor website. These prepared remarks will not be read on the videoconference. We refer to non-GAAP financial measures herein. For full GAAP to non-GAAP reconciliation information and cautionary information regarding the use of non-GAAP measures, please refer to "Supplemental Financial Information" in our earnings press release posted to our website under "Quarterly Results" at http://ir.logitech.com. The live webcast or replay of the question and answer session will also be available on our website.

COMPANY COMMENTARY

Following is a summary of the company's comments on key areas impacting Q3 Fiscal Year 2023. The growth percentages that follow are in comparison to the same period of the prior year, except as otherwise specified. In addition, sales are net sales and the sales growth percentages are for net sales and in constant currency, except as otherwise specified.

OVERVIEW

Q3 net sales decreased 17% to $1.27B. Despite declines in year-over-year net sales, and tight management of expenses, we grew market share in Gaming, Video Collaboration, Pointing Devices and Tablet Keyboards in the quarter. In the quarter we experienced softer than anticipated demand from our Enterprise customers, softness in consumer spending and consumer purchases concentrated in promotion weeks throughout the quarter. Enterprise customers delayed orders or reduced spending, negatively impacting our B2B portfolio.

Q3 non-GAAP gross margins decreased year-over-year versus last quarter, as

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Logitech Q3 Fiscal Year 2023 Financial Results

Management's Prepared Remarks (January 23, 2023)

expected, to 37.9%, driven by foreign currency headwinds (~3 pts), increased promotions (~3 pts) and inflation (~2 pts), partially offset by pricing actions and less reliance on expedited shipping. Non-GAAP operating income in Q3 was $204M, down 32% year-over-year, and non-GAAP earnings per share was $1.14, down 26% versus Q3 last year. The decline in profits reflects lower demand and gross margin pressure partially offset by reductions in operating expense.

GAMING

Gaming decreased 10% in Q3. Growth in our simulation products was essentially flat, and more than offset by declines in PC and Console Gaming. Sales out in constant currency were positive for the quarter however, and we gained market share in each Gaming category and in total.

VIDEO COLLABORATION

Video Collaboration sales decreased 16%, driven by softer than anticipated demand from our Enterprise customers. Despite the net sales decline, we gained market share in conference cameras, which were down single digits. Business oriented webcams continued to be pressured, and were down more than 40%.

CREATIVITY & PRODUCTIVITY

KEYBOARDS & COMBOS

Our Keyboards & Combos sales were down 17% for Q3 as share gains and growth in our higher end products only partially offset weaker market conditions in the Americas and China. Sales out was essentially flat year over year excluding currency and our

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Logitech Q3 Fiscal Year 2023 Financial Results

Management's Prepared Remarks (January 23, 2023)

prior year sales in Russia and Ukraine. This reflects resilient consumer demand and a rise in ASPs driven by a mix shift toward our premium products and our price increases to help offset currency and inflation pressure.

POINTING DEVICES

Pointing Devices were down 8% but we gained market share and sales out grew excluding currency impact and our prior year sales in Russia and Ukraine.

PC WEBCAMS

As with our business webcams, consumer webcams were pressured and down 46% versus the prior year but remain up more than 80% versus Q3'20.

TABLET & OTHER ACCESSORIES

Sales in our Tablet and Other Accessories category declined 15% in Q3, however, we gained market share in Tablet Keyboards in the quarter. Our retail tablet sales for the quarter were flat and we grew share, following the launch of Apple's new line-up of iPads in the quarter, while sales of keyboards for the education market were down more than 50%.

MUSIC

MOBILE SPEAKERS

Our overall Mobile Speaker sales declined 29% in Q3, while Asia Pacific grew 11%. As noted previously, we continue to reallocate our resources to faster growing market opportunities.

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Logitech Q3 Fiscal Year 2023 Financial Results

Management's Prepared Remarks (January 23, 2023)

AUDIO & WEARABLES

Our Audio & Wearables sales decreased 31% in Q3, similar to the first half of the year. As with Mobile Speakers, we are primarily focused on faster growing market opportunities.

NET RETAIL SALES BY REGION

For Q3, Americas, EMEA, and Asia Pacific declined 23%, 13% and 12%, respectively.

• Americas. While sales in our American region were down 23%, sell through was down mid single digits in constant currency.
• EMEA. Sales in our EMEA region decreased by 13% in Q3 driven by multiple categories, although sell through was roughly flat excluding currency impact and Russia and Ukraine.
• Asia Pacific. Sales in our Asia Pacific region decreased 12% in Q3, with
  double digit declines in China partially offset by stronger performance elsewhere in the region. We had double digit growth in conference room cameras and peripherals and mobile speakers.

GROSS MARGIN

Q3 non-GAAP gross margin of 37.9% was down versus Q3'22. Pressures due to unfavorable currency movements, higher promotional environment and inflation were partially offset by price increases and less reliance on expedited shipping.

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Logitech Q3 Fiscal Year 2023 Financial Results

Management's Prepared Remarks (January 23, 2023)

OPERATING EXPENSES

In Q3, non-GAAP operating expenses decreased 23% to $278M. Our focus on reducing cost to offset volume pressure in the P&L continued, with sales and marketing expense down 27%, research and development expense down 11%, and general and administrative expense down 15%.

PROFITABILITY

Non-GAAP operating income for Q3 was $204M, down 32% year-over-year, reflecting lower demand and gross margin pressure partially offset by reductions in operating expense. Non-GAAP operating margin for the quarter was 16.1%, vs. 18.5% last year, down 2.4 points. Our Q3 non-GAAP net income was $185M and EPS was $1.14. Our non-GAAP tax rate for Q3 was 12.5%, in-line with our expectations.

BALANCE SHEET AND CASH FLOWS

At the end of December 2022, our cash and cash equivalents were $1,036M, down $328M from December 2021. Cash flow from operations was $280M in Q3, and cash flow is up $118M for the nine months ended December 31, 2022 compared to the same period last year.

At the end of December 2022, our inventory was $798M, down $37M from last year and down $82M sequentially, while our Q3 inventory turns were 4.0. This is our third consecutive quarter of sequential inventory reductions as we continue to work to align our inventory with lower business volumes.

Accounts receivable were $802M and accounts payable were $491M at the end of

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