Logitech Q4 Fiscal 2009 April 23, 2009 1
Forward-Looking Statements This presentation contains forward-looking statements, including the statements regarding anticipated sales, operating income and gross margin for Q1 FY 2010; the expected timing and impact on our financial performance of the reset by customers of their weeks of supply; the expected size and timing of future charges from the restructuring announced in Q4 FY 2009; the size and timing of expected savings from the restructuring and efforts to lower variable expenses; the expected return to earnings growth in the second half of FY 2010, the impact of ongoing trends on future growth, being positioned for long-term growth; and the expectation that Q1 FY 2010 will be the low point for operating results in FY 2010. These forward-looking statements involve risks and uncertainties that could cause Logitech s actual results to differ materially from those anticipated in these forward-looking statements. Factors that could cause actual results to differ materially include: Risks associated with our inability to predict the depth and length of the deterioration of general economic conditions and its impact on our business, operating results and financial condition Consumer demand for our products, particularly our newly-introduced products, and our ability to accurately forecast it Logitech s ability to achieve expected cost reductions within expected time frames The effect of pricing, product, marketing and other initiatives by our competitors and our reaction to them on our sales, gross margin and profitability If we fail to take advantage of or respond to long-term trends in the consumer electronics and personal computers industries; If we fail to successfully innovate in our current and emerging product categories and identify new feature or product opportunities The sales mix between our lower- and higher-margin products and our geographic sales mix More information about these and other factors impacting Logitech s business and prospects is contained in Logitech s periodic filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ending March 31, 2008 and quarterly reports on Form 10-Q available at www.sec.gov. Logitech does not undertake to update any forward-looking statements, which speak as of their respective dates. 2
Q4 FY09 Overview Total sales -32% Retail sales -32% and OEM sales -33% Results primarily impacted by continued global economic downturn and accelerating reset of channel partners weeks of supply More extreme destocking by our partners due to combination of historical growth generated by Logitech products and decline in consumer spending Excluding unfavorable impact of exchange rate changes, total sales (retail + OEM combined) -28% Given weak demand environment, we prioritized sustaining and gaining market share over offsetting the transitory impact of currency changes through price changes Sales by geography: EMEA -36%; Americas -33%; Asia -14% Operating expenses -16%, excluding $20.5M restructuring charge Operating loss primarily driven by lower sales and gross margin decline to 25% Strong balance sheet, including cash balance of nearly half a billion dollars - - up sequentially and virtually unchanged from prior year despite worse economic environment 3
Sell-through Data Reflects Consumer Demand Sell-through data reflects that consumers are responding more favorably to our products than our Q4 sales results suggest Top 5 retail markets comprise > half our retail sales U.S. sell-through: -11% Germany sell-through: +1% France and U.K. sell through: low double-digit growth in both Canada sell through: -33% Sell-through at category level in Q4 relatively healthy (mice -6%, video - 7%, standalone keyboard +16%) Maintaining and, in some cases, improving, market share over prior year Share in mice, keyboards and webcams in US and EMEA essentially unchanged Remotes share in U.S. +9 points and in EMEA +11 points PC speakers share +4 points in both major geographies PC gaming in U.S. was only category where we saw meaningful share loss, but overall share remains well above 50% 4
Partners Resetting Weeks of Supply Consistent high sell-through rate generated by our products directly impacted our partners weeks of supply calculation Steep decline in consumer demand (which began in the December quarter) has caused our channel partners to significantly lower the number of weeks of supply that they carry across all product categories More extreme destocking by partners for our products due to combination of historical growth generated by Logitech products and decline in consumer spending Logitech expects partners reset of weeks of supply levels should: Have most pronounced impact on our operating results in Q1 Lead to equilibrium in the channel during Q2 and Contribute to improved financial performance beyond Q1 5
Income Statement Summary Q4 FY09 Sales -32% to $408M Gross margin at 25% compared to 35.6% in Q4 last year reflects: Mix shifts both between and within product categories Significantly stronger U.S. dollar compared to prior year Continued high level of promotions, particularly in the U.S., to reduce our own inventory levels and to help partners move toward their new targeted levels of weeks of supply Operating expenses -16%, excluding restructuring charges Sales and marketing -16% G&A -19% R&D -11% as we focus on efficiency of product development efforts while sustaining our commitment to innovation and new products Operating loss $43M GAAP net loss $35M (-$0.20 per share) Pre-tax restructuring charge of $20.5M (after tax, $15.9M or $0.09 per share) 6 Note: Comparison is Y/Y unless noted otherwise
Balance Sheet Summary March 2009 Cash of $494M, improved by $12M sequentially and up by $8M from prior year Increased even after using $64M for SightSpeed and Ultimate Ears acquisitions and $79M for share repurchases Cash flow from operations of $26M in Q4, down from last year due to decline in net income Higher cash conversion at 69 days due to lower days payable and slower inventory turns this year Lower days payable due to scaling back production activities both internally and with third party suppliers in face of weaker demand Improved Days Sales Outstanding to 47 days Successfully reduced inventory by -31% or $106M compared to December quarter Inventory turns 5.2, down from 6.3 in comparable quarter last year Slower turns caused by weak demand environment and our efforts to help our partners accelerate their weeks of supply reset 7 Note: Comparison is Y/Y unless noted otherwise
Retail Sales Region Summary Q4 FY09 Total retail sales -32% with units -23% Q4 FY09 Sales Into Channel Sell- Through* EMEA -36% -7% Americas -33% -14% Asia -14% 4% *In local currency EMEA sales -26% in local currency and Asia sales -16% in local currency Sales performance was negatively impacted by 11% decline in retail average selling price Consumers responding favorably to aggressive promotions during severe economic downturn Decline in sales was greater than the decline in units in all of our retail product families Average Selling Price Share of products with ASPs above $100 down ~100 basis points Share of products with ASPs under $60 up over 600 basis points 8 Note: Comparison is Y/Y unless noted otherwise
Product Summary Q4 FY09 Fiscal 2009 YoY Change YoY Change Revenue Units Revenue Units Pointing Devices -36% -26% -6% -2% Cordless Mice -34% -15% 4% 10% Corded Mice -36% -31% -13% -8% Keyboards/Desktop -39% -32% -17% -10% Cordless KB + DT -42% -32% -21% -17% Corded KB + DT -32% -32% -5% -7% Video -17% -3% 4% 3% Audio -18% -10% -7% -2% Gaming -41% -36% -13% -22% PC Platform -33% -34% -13% -18% Console Platform -61% -39% -12% -28% Remote Control -50% -34% -17% 8% Total Retail -32% -23% -9% -5% OEM -33% -22% 6% 2% TOTAL -32% -23% -7% -2% 9 Note: Comparison is Y/Y unless noted otherwise
Consumer Behavior Significantly impacted by ongoing recession Consumers now are: More skeptical More value-oriented Moving online to research and purchase products Our strategy is to stay close to consumers and adapt rapidly to their changing needs 10
Addressing Shifts in Consumer Behavior Leverage ongoing investment in Customer Experience organization whose mission is to understand and improve consumers overall experience with our products Use of net promoter score and other feedback mechanisms helping to drive measurable improvements in products Shifts in product development strategy, including: Strengthening competitiveness of entry level products (recently won new opening price point business at major US retail chain) Beyond entry level, heightening focus on providing strongest value proposition across all price points by maximizing products tangible benefits and value the consumer associates with those benefits (learned through customer experience research) Growing online presence Amazon is one of our fastest growing customers Evolve Logitech.com to become best source for product information and a preferred purchasing site for many of our products 11
$100M Restructuring/Savings Implemented restructuring in Q4, removing ~$50M annually related to personnel expenses from our cost structure Booked Q4 restructuring charge of $20.5M and expect to incur another ~$5M in FY 2010 (with majority expected to be booked during September quarter) Anticipate total cost of restructuring to be ~$26M, including the costs incurred in Q4 Saw initial benefits in Q4, but expect to see full impact starting in Q1 and continuing through the year Plan to eliminate another $50M in variable spending during the year as well 12
Q1 FY 2010 Outlook Due to the global economic environment limiting our business visibility, we will provide a one-quarter outlook in each quarter throughout FY 2010 Q1 is, historically, the low point of the year for both sales and operating leverage Sales $300M-$320M Gross Margin 24%-26% Operating Loss $(40M-50M) Expect Q1 to be the low point of the year for operating results, due to the need to help our partners achieve their weeks of supply reset and consequently, diminishing need for higher than usual promotional activities thereafter Will impact sales and gross margin more negatively in Q1 due to combination of promotional activities and constrained order fulfillment as we make room on shelves for our new products scheduled to launch in summer Partners weeks of supply reset expected to be largely completed during Q2 13
Strategic Direction Logitech fulfills the increasing demand for interfaces between people and the expanding digital world As platforms, user models and target market evolve, the interface s significance for the consumer is growing Successfully extended interface strategy beyond PCs and into the digital home (with Harmony remotes, WiLife digital video security systems and Streaming Media) Attractive long-term opportunities 14
Summary Consumers responding relatively well to our products in this global recession, given reasonable sell-through and stable or growing market share Foundation is in place for our return to earnings growth for the second half of Fiscal 2010: Reset by our partners weeks of supply expected to be complete in Q2 (benefiting both our sales and gross margin) Full impact of restructuring and additional cost savings continuing throughout the year Positioning Logitech to emerge stronger long-term 15
GAAP to Non-GAAP Reconciliation (In thousands, except per share amounts) - Unaudited SUPPLEMENTAL FINANCIAL INFORMATION Quarter Ended March 31, Twelve Months Ended March 31, Reconciliation of GAAP to non-gaap Financial Measures 2009 2008 2009 2008 GAAP measures: GAAP operating expenses $ 145,293 $ 147,805 $ 581,572 $ 562,438 GAAP operating income (loss) $ (43,209) $ 66,139 $ 109,654 $ 286,680 GAAP income (loss) before income taxes $ (41,418) $ 68,031 $ 126,793 $ 262,814 GAAP net income (loss) $ (35,078) $ 60,338 $ 107,032 $ 231,026 Adjustments to GAAP measures: Restructuring: Restructuring charges $ 20,547 $ - $ 20,547 $ - Income tax benefit related to restructuring (4,626) - (4,626) - Restructuring charges, net of tax $ 15,921 $ - $ 15,921 $ - Short-term investments: Impairment loss on short-term investments $ 963 $ 6,900 $ 2,727 $ 79,823 Realized gain on sale of short-term investments - - - (33,712) Realized loss on sale of short-term investments - - - 5,951 Net loss (gain) related to short-term investments $ 963 $ 6,900 $ 2,727 $ 52,062 Non-GAAP measures: Non-GAAP operating expenses $ 124,746 $ 147,805 $ 561,025 $ 562,438 Non-GAAP operating income (loss) $ (22,662) $ 66,139 $ 130,201 $ 286,680 Non-GAAP income (loss) before income taxes $ (19,908) $ 74,931 $ 150,067 $ 314,876 Non-GAAP net income (loss) $ (18,194) $ 67,238 $ 125,680 $ 283,088 Per Share Data: GAAP net income (loss): Basic $ (0.20) $ 0.33 $ 0.60 $ 1.27 Diluted $ (0.20) $ 0.32 $ 0.59 $ 1.23 Adjustments to GAAP net income (loss): Basic $ 0.09 $ 0.04 $ 0.10 $ 0.29 Diluted $ 0.09 $ 0.04 $ 0.10 $ 0.28 Non-GAAP net income (loss): Basic $ (0.11) $ 0.37 $ 0.70 $ 1.56 Diluted $ (0.11) $ 0.36 $ 0.69 $ 1.51 We sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered "non-gaap financial measures" under the U.S.Securities and Exchange Commission rules. The adjustments between the GAAP and non-gaap financial measures presented above consist of (a) the impact on operating income (loss), income (loss) before income taxes, net income (loss) and net income (loss) per share of the restructuring charges recorded by the Company during the fiscal quarter ended March 31, 2009 and (b) the impact on Other Income of the impairment loss related to other-than-temporary declines in fair value of short-term investments during the quarter and year ended March 31, 2009 and 2008. Our management uses these non-gaap measures in its financial and operational decision-making. Our management believes these non-gaap measures, when considered in conjunction with the corresponding GAAP measures, facilitate better comparison by our investors of our current period results with corresponding prior periods. 16