Logitech CEO Discusses F2Q11 Results - Earnings Call Transcript

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Logitech International SA (LOGI)

F2Q11 (Qtr End 09/30/10) Earnings Call

October 28, 2010 8:30 am ET

Executives

Joe Greenhalgh - VP, IR and Corporate Treasurer

Gerry Quindlen - President and CEO

Erik Bardman - SVP, Finance and CFO

Analysts

Alexander Peterc - Exane

Jonathan Tseng - Merrill Lynch

Ashish Sinha - Morgan Stanley

Simon Schafer - Goldman Sachs

John Bright - Avondale Partners

Andy Hargreaves - Pacific Crest

Yair Reiner - Oppenheimer & Company

Nicolas von Stackelberg - Macquarie

Presentation

Operator

Welcome to the Logitech’s Second Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference and instructions will follow at that time. This call is being recorded for replay purposes and may not be reproduced in whole or in part without written authorization from Logitech.

I would now like to introduce your host for today’s call, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech. Please proceed.

Joe Greenhalgh

Welcome to the Logitech conference call to discuss the company’s results for the second quarter ended September 30, 2010. The press release, the live webcast of this call and accompanying presentation slides are available online at Logitech.com.

This conference call will include forward-looking statements including forward-looking statements with respect to future operating results that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements. Factors that could cause actual results to differ materially include those set forth in Logitech’s Annual Report on Form 10-K dated May 27, 2010, and subsequent filings which are available online on the SEC Edgar database and in the final paragraph of the press release reporting second quarter results issued by Logitech and available at Logitech.com.

The press release also contains accompanying financial information for this call. Forward-looking statements made during this call represent management’s outlook only as of today and the Company undertakes no obligation to update or revise any forward-looking statements as a result of new developments or otherwise. We’d like to remind you this call is being recorded including the question-and-answer portion and will be available for replay on the Logitech website. For those of you just joining us, let me repeat the presentation slides accompanying this call are also available on our website.

Joining us today are Gerry Quindlen, President and Chief Executive Officer, and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer. I’d now like to turn the call over to Gerry.

Gerry Quindlen

I will cover the highlights of the quarter now which will be followed by a more detailed review of the financial results by Erik. Then I will return to talk about our outlook for the year before we both take your questions.

I am very pleased with our results for the quarter. We delivered double-digit growth in both sales and operating income and we achieved the highest quarterly gross margin in our history. Consumer demand for our products remains strong during the quarter with double-digit sell-through growth in all our retail regions. Our regional sales performance was led by Asia-Pacific.

Our sales in this region grew by 38% year-over-year, led by an exceptionally strong quarter for both sell-in and sell-through in China. We are still in the early stages, but we are making excellent progress toward our goal of growing China into one of our top three markets.

Remotes were once again our fastest growing retail product category with sales up by 28% and units growing more than twice as fast. We also achieved strong sales growth in pointing devices, keyboards, and Webcams. Our three product categories tied most closely to the PC platform.

We continue to build sales momentum with our LifeSize business. During Q2 LifeSize’s unit sales increased by 64% compared to the prior year and reached an all-time high for a single quarter. We are well in our way to deliver on our sales growth target of 40% to 60% in calendar 2010.

A significant highlight in the quarter was our gross margin of 37.3% the best quarterly gross margin we have ever achieved. I was particularly pleased to see that we were able to achieve this record breaking margin despite the negative impact of the weaker Euro.

Overall our gross margin is benefiting from several factors including positive consumer response to our new products and operational improvements we have made during the course of the last year. That we are focused on improving our profitability as global economic conditions gradually improved.

Finally a key non-financial highlights for the quarter was completing the many activities associated with what is arguably the most exciting launch in the company’s history. Our product portfolio for the Google TV platform. I could not be more pleased or excited about the potential of this platform holds for Logitech. Now I will talk more about in my comments following Erik.

Let me now turn the call over to Erik to review the financial highlights for the quarter.

Erik Bardman

I will start with an overview of our Q2 sales performance. Please note that the growth percentage that follow are in comparison to Q2 fiscal 2010. Our retail sales grew by 11% and were up by 15% in local currency. Units were up by 18%.

Looking at our regional sales in local currency EMEA was up by 6% and Asia-Pacific by 35% compared to a US dollar decline of 3% in EMEA and growth of 38% in Asia. Retail units were up by 13% in the Americas, by 5% in EMEA, and by 66% in Asia-Pacific.

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