Logitech International S.A. (LOGN) Earnings Call Transcript & Summary

Welcome, and thank you for joining us today for our question-and-answer webcast in connection with Logitech International S.A.'s 2020 Annual General Meeting. We're disappointed that we're not able to meet with shareholders in person at this year's AGM. We have attempted to strike a balance between giving our shareholders a forum to ask questions and engage with our leaders while protecting the health and safety of shareholders, the Board and employees. We held the official AGM this morning. I'm pleased to report that all of the proposals passed, and we will be publishing the results over the next few days. On behalf of myself, my fellow Board members and management, thank you for your support, participation and trust in us. As we have entered fiscal year 2021, it has been an extraordinary time for the world and Logitech's place in the world, not just as a result of the COVID-19 pandemic. And Bracken and I would like to share with you our thoughts from our shareholders' letter before we answer the questions that you pose to us. Bracken?

Thank you, Wendy. First, let me say, fiscal year 2020, as Wendy said, was a remarkable year for all of us. As we shared in the shareholder letter, the world has experienced an unprecedented combination of economic and social impact for the last 12 months. With the first significant U.S. tariff activity in decades and then COVID-19 developing quickly into a full-blown world pandemic, for companies like ours, costs were driven up dramatically. And we were faced with the unprecedented closure of our entire supply chain for 3 weeks, disrupting supply throughout February and March. Our employees were concerned about their own health and the safety of their loved ones, while finding themselves transitioning from the office to their homes to work. Despite this exceptional global macro events, our strategy and execution successfully delivered. We grew 9% last year, our fifth year of near double-digit growth or better, our sales has been a record high of almost $3 billion. We delivered record non-GAAP gross margins of 38.4%. Our non-GAAP profit reached a record $387 million and our cash flow from operations was even higher at $425 million. Taking a step back, since we began our transformation in 2013, we have entered and now compete in 28 categories, up from 10, extended our brand portfolio to 7 brands from just one and begun to be recognized as the design company we envisioned 8 years ago. Where once we outsourced design without a single design or working at Logitech, we now have a strong and broad design team around the world. We're recognized by Forbes and McKinsey as a leader in the design world, and we win more design awards per revenue dollar than anyone in our industry. Today, Logitech is worth approximately 11x more than it was in fiscal year 2013.

But the most exciting thing is not what we have achieved. It's the remarkable opportunity we have in front of us as a business, and then the challenge to help the environment and assure quality in every person. The most exciting time in Logitech's nearly 40-year history is now. Logitech products taken together, connect COVID-19 patients with their loved ones who can't visit them. They enable doctors, nurses and other health practitioners to communicate with patients, eliminating the distance between patient and doctor. They enable teachers to instruct students remotely, most for the first time. They are the tools of content creators streaming or recording themselves to others to see on YouTube, Twitch, Facebook Live and other sites, many are starting to build an audience or even make a living for the first time. They support the gaming world that seeks community, skill development, comradery and fun, particularly as so many conventional sports are rendered unavailable to watch or play, and they make us look and feel close to others through video conferencing with coworkers, family members and friends, while helping minimize the impact of the environment by saving on travel. Ironically, as dramatic as the moment was for everyone to be sheltering in place at the beginning of this year, this forced confinement accelerated the 4 primary long-term secular trends that Logitech was well positioned to take advantage of: one, video everywhere; two, work from anywhere, including home; three, the rise of gaming as a sport; and four, the democratization of content creation, which drives creators and streamers, the company's newest product category and includes Blue Microphones, streaming, cameras and Streamlabs.

But as ambitious as we are about growth, we're just as ambitious about making Logitech a force for good, for the environment and for our quality. We're moving decisively to be a model for sustainability. At the end of 2019, we announced our support of the Paris Agreement, pledging to align our corporate carbon emissions to support the ambitious goal of limiting global warming to 1.5 degrees centigrade. We also announced that we'll be powered exclusively by renewable electricity by 2030. We are currently 88% of the way to that goal. We've already neutralized the carbon footprint for our entire gaming product portfolio, our manufacturing facility and our corporate travel. We will neutralize more on the environmental impact of our business as we move ahead. In June, we committed to communicate the carbon impact of all our products. Logitech will be the first consumer electronics company to provide the tail product carbon footprint landing on product taxes across the entire portfolio. And we're calling on the rest of the industry and on all companies in any industry to join us. This will motivate all companies to reduce our product's carbon footprint and thereby enable consumers and customers to influence the industry with their purchase decisions. We'll be treating carbon labeling like calorie labeling, in the food industry. We believe that most companies will follow over the next several years. The leading provider of information on environmental, social and governance, or ESG, matters ranked a spit out of 145 tech companies for sustainability performance. In both 2019 and 2020, World Finance magazine listed us among only 19 companies in the world as leaders in environmental responsibility, the only tech company. And the UN-sponsored World Benchmark Alliance has included Logitech in the SDG2000, a list of the companies that are the most influence over our ability to move to a more sustainable future. These recognitions were far before our carbon-labeling initiative. There were also before we could disclose many of the other steps we're taking to make ourselves a leader in the movement to stop damage to the earth. We still have a long way to go, but we're on the right track. You can now learn more about our efforts in our fiscal year '20 sustainability report, which was launched today on our website. Finally, we also want to be a model for diversity and inclusion. But today, we are not. We will increase our focus on supporting black and brown people, women, LGBTQ+ and other underrepresented communities internally and externally. Internally, we broadened to make it from our leadership team with 10 women leadership positions up from 2. Our Board has long been fed from the talent of our female directors including with our chair, but we have so far to go to be the model for quality. As of today, we have the highest number of women on our Board in company history and the highest number of women in our leadership team. It's still not enough. We've published a 7-point plan to address the injustice captured in the Black Lives Matter Movement in the U.S. We must work to ensure our teams, suppliers and partners represent the communities in which we operate. We want Logitech to be an inspiring company to be affiliated with. And we hope we'll sometimes inspire others with our actions. While the world has rarely seen such uncertainty, our business and teams have demonstrated unprecedented resilience. We will continue to transform ourselves. To change ourselves fast in this world of accelerating change. We're doing it for a better society, one based on care for the planet and careful for the equalities of everyone. With that in mind, we are so grateful to our employees, our consumers and our shareholders, grateful for your trust and loyalty. You have so often looked passed our mistakes or flaws at the good outcomes we deliver. We appreciate that. But as we go forward, we expect to be held accountable, not just for our financial performance, but also for our environmental performance, and for our performance in not even ensure the world is fair for every person. We know we can't completely change the world, but we believe that we can address our own shortcomings and then be a great example for others by performing well as a company, and by showing through our actions that we are changing to improve the environment and assure quality. If change sounds like the key theme of this letter, then we've captured the feeling of the company today. We're changing faster and faster. Our business is still different today from the business I started 8 years ago, but the company and the business will be more different in 5 years compared to today. With all this change, you might ask yourself, what isn't changing about Logitech? The humble, always learning, nimble entrepreneurial company that started 40 years ago on October 2, 1981, is still at the core of Logitech today. That is the heart of Logitech and we pledged to sustain that beating part. It's been another remarkable year, not just for the world, but also for us at Logitech. We believe what's ahead of us to be far more remarkable, more fair and better for the world. We hope that you stay with us through exciting and we're fulfilling ride.

Well, now on to the final business of our Annual General Meeting. Although we could not be in person, we do value the shareholder engagement and actively solicited shareholder questions. Most that were received related to voting rights and procedures, which were addressed in advance of the AGM. We did receive the following question related to company business that will be shared and answered. The question was, how much of the current stock price can be attributed to the gaming category and what actions are being taken to grow that part of the business? Are there any prospective businesses or adjacencies that could be effective areas in gaming that Logitech could grow. Bracken?

That's a great question, Wendy. Our investors and shareholders like those of who listening now will be listening now, or watching video, appreciate Logitech for our ability to consistently perform and grow our sales and profits. Gaming has been a big contributor to that success and to our growth. And we continue to invest in new products and adjacent categories within the gaming space to continue to grow at gaming, and we are performing extremely well. That said, gaming is only 1/5 or about 1/5 of our total portfolio businesses, and we are growing across our entire portfolio. So gaming is super important, but we are a portfolio of business with so many growth opportunities at such an exciting path ahead in so many different areas.

Thank you for that, Bracken, and thank you for another terrific year. That concludes our question-and-answer webcast in connection with our 2020 Annual General Meeting. If shareholders have pertinent follow-up questions to the questions and answers addressed in this webcast, please do submit them via e-mail to the company's Investor Relations group in the next week, including evidence that you are a shareholder, as described in the company's proxy statement. And the company will post responses in its Investor Relations website. Thank you very much for joining us today, and we hope to be with you in person next year.