What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-23 compared with 2020-01-23 · 160 added, 187 removed, 164 unchanged (68% of the section changed)

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.

These forward-looking statements include, among other things, statements regarding our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position, our business strategy, the impact of investment prioritization decisions, product offerings, sales and marketing initiatives, strategic investments, addressing execution challenges, trends in consumer demand affecting our products and markets, trends in the composition of our customer base, our current or future revenue and revenue mix by product, among our lower- and higher-margin products, our new product introductions and by geographic region, our expectations regarding the potential growth opportunities for our products in mature and emerging markets and the enterprise market, our expectations regarding economic conditions in international markets, including China, Russia and Ukraine, our expectations regarding trends in global economic conditions and consumer demand for PCs and mobile devices, tablets, gaming, audio, pointing devices, wearables, remotes and other accessories and computer devices and the interoperability of our products with such third party platforms, our expectations regarding the convergence of markets for computing devices and consumer electronics, our expectations regarding the growth of cloud-based services, our expected reduction in size of our product portfolio and dependence on new products, our competitive position and the effect of pricing, product, marketing and other initiatives by us and our competitors, the potential that our new products will overlap with our current products, our expectations regarding competition from well-established consumer electronics companies in existing and new markets, potential tariffs, their effects and our ability to mitigate their effects, our expectations regarding the recoverability of our goodwill, goodwill impairment charge estimates and the potential for future impairment charges, the impact of our current and proposed product divestitures, changes in our planned divestitures, restructuring of our organizational structure and the timing thereof, our expectations regarding the success of our strategic acquisitions, including integration of acquired operations, products, technology, internal controls, personnel and management teams, significant fluctuations in currency exchange rates and commodity prices, the impact of new product introductions and product innovation on future performance or anticipated costs and expenses and the timing thereof, cash flows, the sufficiency of our cash and cash equivalents, cash generated and available borrowings (including the availability of our uncommitted lines of credit) to fund future cash requirements, our expectations regarding future sales compared to actual sales, our expectations regarding share repurchases, dividend payments and share cancellations, our expectations regarding our future working capital requirements and our anticipated capital expenditures needed to support our product development and expanded operations, our expectations regarding our effective tax rate, future tax benefits, tax settlements, the adequacy of our provisions for uncertain tax positions, our expectations regarding our potential indemnification obligations, and the outcome of pending or future legal proceedings and tax audits, our expectations regarding the impact of new accounting pronouncements on our operating results, and our ability to achieve and sustain renewed growth, profitability and future success.

These forward-looking statements include, among other things, statements regarding our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position, our business strategy, the impact of investment prioritization decisions, product offerings, sales and marketing initiatives, strategic investments, addressing execution challenges, trends in consumer demand affecting our products and markets, trends in the composition of our customer base, our current or future revenue and revenue mix by product, among our lower- and higher-margin products, our new product introductions and by geographic region, our expectations regarding the potential growth opportunities for our products in mature and emerging markets and the enterprise market, our expectations regarding the impact of COVID-19 on our business and results of operations, our expectations regarding economic conditions in international markets, including China, Russia and Ukraine, our expectations regarding trends in global economic conditions and consumer demand for PCs and mobile devices, tablets, gaming, audio, pointing devices, wearables, remotes and other accessories and computer devices and the interoperability of our products with such third party platforms, our expectations regarding the convergence of markets for computing devices and consumer electronics, our expectations regarding the growth of cloud-based services, our expected reduction in size of our product portfolio and dependence on new products, our competitive position and the effect of pricing, product, marketing and other initiatives by us and our competitors, the potential that our new products will overlap with our current products, our expectations regarding competition from well-established consumer electronics companies in existing and new markets, potential tariffs, their effects and our ability to mitigate their effects, our expectations regarding the recoverability of our goodwill, goodwill impairment charge estimates and the potential for future impairment charges, the impact of our current and proposed product divestitures, changes in our planned divestitures, restructuring of our organizational structure and the timing thereof, our expectations regarding the success of our strategic acquisitions, including integration of acquired operations, products, technology, internal controls, personnel and management teams, significant fluctuations in currency exchange rates and commodity prices, the impact of new product introductions and product innovation on future performance or anticipated costs and expenses and the timing thereof, resolution of our North American distribution center issues, cash flows, the sufficiency of our cash and cash equivalents, cash generated and available borrowings (including the availability of our uncommitted lines of credit) to fund future cash requirements, our expectations regarding future sales compared to actual sales, our expectations regarding share repurchases, dividend payments and share cancellations, our expectations regarding our future working capital requirements and our anticipated capital expenditures needed to support our product development and expanded operations, our expectations regarding our future tax benefits, tax settlements, the adequacy of our provisions for uncertain tax positions, our expectations regarding our potential indemnification obligations, and the outcome of pending or future legal proceedings and tax audits, our expectations regarding the impact of new accounting pronouncements on our operating results, and our ability to achieve and sustain renewed growth, profitability and future success.

Forward-looking statements also include, among others, those statements including the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,”, "seek", “should,” “will,” and similar language.

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Logitech is a world leader in designing, manufacturing and marketing products that help connect people to digital and cloud experiences.

More than 35 years ago, Logitech created products to improve experiences around the personal PC platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating any digital content such as music, gaming, video and computing, whether it is on a computer, mobile device or in the cloud.

More than 35 years ago, Logitech created products to improve experiences around the personal computer (PC) platform, and today it is a multi-brand, multi-category company designing products that enable better experiences consuming, sharing and creating digital content such as computing, gaming, video and music, whether it is on a computer, mobile device or in the cloud.

Logitech's brands include Logitech, Logitech G, ASTRO Gaming, Streamlabs, Ultimate Ears, Jaybird, and Blue Microphones.

Our Company's website is www.logitech.com.

Our products participate in five large markets that all have growth opportunities:

Our products participate in five large market opportunities:

Creativity & Productivity, Gaming, Video Collaboration, Music and Smart Home.

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Our worldwide channel network includes consumer electronics distributors, retailers, mass merchandisers, specialty stores, computer and telecommunications stores, value-added resellers and online merchants.

On October 31, 2019 (the "Acquisition Date"), we acquired all equity interests of General Workings, Inc.

("Streamlabs") for a total consideration of $105.7 million , which included a working capital adjustment, plus an additional earn-out of $29.0 million payable in stock only upon the achievement of certain net revenues for the period beginning on January 1, 2020 and ending on June 30, 2020 (the " Streamlabs Acquisition").

Streamlabs is a leading provider of software and tools for professional streamers.

The Streamlabs Acquisition will supplement our portfolio opportunities.

From time to time, we may seek to partner with or acquire when appropriate companies that have products, personnel, and technologies that complement our strategic direction.

We continually review our product offerings and our strategic direction in light of our profitability targets, competitive conditions, changing consumer trends and the evolving nature of the interface between the consumer and the digital world.

Impacts of COVID-19 to Our Business

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic, which continues to spread throughout the world.

The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus and, in certain markets in which we operate, government authorities have issued orders that require the closure of non-essential businesses and people to be quarantined or to shelter-at-home.

The COVID-19 pandemic has significantly curtailed global economic activity, caused significant volatility and disruption in global financial and commercial markets, and is likely to lead to recessionary pressures for an indeterminate amount of time.

We are conducting our business with substantial modifications, such as employee work locations and remote work among other changes.

We are continuing to actively monitor the situation and may take further actions that could alter our business operations as may be required by federal, state or local authorities in the countries in which we operate, or that we determine are in the best interest of our employees, customers, partners, suppliers or shareholders.

It is not clear what the potential effects of COVID-19 or any such modifications or alterations may have on our business, results of operations, financial operations, financial condition and stock price.

During February 2020, following the initial outbreak of COVID-19 in China, we experienced disruptions to our manufacturing, supply chain and logistics services, resulting in temporary inventory declines and an increase in logistics costs.

We continued to see disruptions to our supply chain and logistics services, inventory constraints and increased logistics costs during the remainder of the fourth quarter of fiscal year 2020 and the first quarter of fiscal year 2021 as we attempted to address the effects of COVID-19, including health-related issues, changing regulations, and increased demand for and depleted inventories of some of our products.

At the same time, due to the ongoing shelter-at-home requirements or recommendations in many countries, there was high demand and consumption of certain of our products that led to increased sales and operating income .

While it is not yet clear how long the positive demand dynamics will continue, we expect the increased logistics costs and other adverse effects on our gross margins from COVID-19 to continue through the remainder of fiscal year 2021.

It is difficult to predict the progression, the duration and all of the effects of COVID-19, when business closure and shelter-at-home guidelines may be eased or lifted, and how consumer demand, inventory and logistical effects and costs may evolve over time, or the impact on our future sales and results of operations.

Some of this impact will undoubtedly occur over multiple financial periods and may have a lag effect between periods, such as what we are able to manufacture in one period affecting sales, channel inventory or logistics costs in subsequent periods.

The full extent of the impact of COVID-19 on our business and our operational and financial performance is currently uncertain and will depend on many factors outside our control.

For additional information, see " Liquidity and Capital resources " below and " Item IA:

Risk Factors ", including under the caption " The full effect of the COVID-19 pandemic is uncertain and cannot be predicted, and the Company's business, results of operations and financial condition could be adversely affected by the COVID-19 pandemic."

Summary of Financial Results

Our sales for the three and nine months ended December 31, 2019 increased 4% and 5% , respectively, compared to the three and nine months ended December 31, 2018 .

Our sales for the three months ended December 31, 2019 decreased 1% in the Americas and increased 15% and 2% in EMEA and Asia Pacific, respectively, compared to the same period of the prior fiscal year.

Our sales for the nine months ended December 31, 2019 increased 3% , 11% , and 1% in the Americas, EMEA, and Asia Pacific, respectively, compared to the same period of the prior fiscal year.

Our gross margin for the three months ended December 31, 2019 decreased 40 basis points to 37.1% from 37.5% for the three months ended December 31, 2018 .

The decrease in gross margin was primarily driven by unfavorable currency exchange rates and an increase in U.S.-China tariffs, partially offset by the benefits from cost savings and favorable shifts in product mix.

Our gross margin for the nine months ended December 31, 2019 increased 10 basis points to 37.3% from 37.2% for the nine months ended December 31, 2018 .

Our gross margin benefited from cost savings and product mix, partially offset by unfavorable currency exchange rates and an increase in U.S.-China tariffs.

We expect a negative impact in the fourth quarter of fiscal year 2020 from these tariffs, net of our ongoing mitigation efforts.

Operating expenses for the three months ended December 31, 2019 increased to $205.6 million , compared to $200.6 million in the same period of the prior fiscal year.

Operating expenses were 22.8% of sales for the three months ended December 31, 2019 , compared to 23.2% of sales in the same period of the prior fiscal year.

Operating expenses for the nine months ended December 31, 2019 increased to $601.2 million , compared to $583.1 million in the same period of the prior fiscal year.

Operating expenses were 26.5% of sales for the nine months ended December 31, 2019 , compared to 26.9% of sales in the same period of the prior fiscal year.

Net income for the three and nine months ended December 31, 2019 was $117.5 million and $235.8 million , respectively, compared to $112.8 million and $215.5 million for the three and nine months ended December 31, 2018 , respectively.

Our total sales for the three months ended June 30, 2020 increased 23% , compared to the three months ended June 30, 2019 , due to stronger sales across all regions and several of our product categories from increased remote work and distance learning set-ups, related to various shelter-at-home mandates.

The results of operations for Streamlabs have been included in our consolidated statement of operations from the acquisition date.

Streamlabs contributed 2 points to the sales growth during the period.

Our sales for the three months ended June 30, 2020 increased 21% , 18% and 31% in the Americas, EMEA and Asia Pacific, respectively, compared to the same period of the prior fiscal year.

Our gross margin for the three months ended June 30, 2020 increased by 150 basis points to 38.6% from 37.1% for the three months ended June 30, 2019 .

The increase in gross margin was driven by lower customer incentive programs, favorable product mix and benefits from cost savings and operational efficiencies, partially offset by COVD-19 related costs primarily due to higher logistics operations costs and unfavorable currency exchange rates.

Operating expenses for the three months ended June 30, 2020 were $222.3 million , or 28.1% of sales, compared to $191.5 million , or 29.7% of sales in the same period of the prior fiscal year.

Net income for the three months ended June 30, 2020 was $72.1 million , compared to $45.3 million for the three months ended June 30, 2019 .

Trends in Our Business

Our strategy focuses on five large multi-category markets, including Creativity & Productivity, Gaming, Video Collaboration, Music, and Smart Home.

We see opportunities to deliver growth in all these markets.

We believe our future growth will be determined by our ability to rapidly create innovative products across multiple digital platforms, including gaming, digital music devices, video and computing.

Our products participate in five large multi-category market opportunities, including Creativity & Productivity, Gaming, Video Collaboration, Music and Smart Home.

We see opportunities to deliver growth with products in all these markets.

The following discussion represents key trends specific to our market opportunities.

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Creativity & Productivity:

New PC shipments are modestly growing and, the installed base of PC users remains large.

We believe that innovative PC peripherals, such as our mice and keyboards, can renew the PC usage experience, thus providing growth opportunities.

Increasing adoption of various cloud-based applications has led to multiple new consumer use cases, which we are addressing with our innovative product portfolio.

The increasing popularity of streaming and broadcasting provides additional growth opportunities for our Webcam products, as well as other products in our portfolio .

New PC shipments remain lackluster but the installed base of PC users remains large.

We believe that innovative PC peripherals, such as our mice and keyboards, can renew the PC usage experience and help improve the productivity and engagement of remote work, distance learning, and telemedicine, thus providing growth opportunities.

Increasing adoption of various cloud-based applications has led to multiple unique consumer use cases, which we are addressing with our innovative product portfolio and a deep understanding of our customer base.

The increasing popularity of streaming and broadcasting, as well as the rising work-from-home trend, provides additional growth opportunities for our webcam products, as well as other products in our portfolio.

Smaller mobile computing devices, such as tablets, have created new markets and usage models for peripherals and accessories.

We offer a number of products to enhance the use of mobile devices, including a combo backlit keyboard case for the iPad Pro and keyboard folios for other iPad models.

In fiscal year 2019, we saw a recovery of the iPad tablet market, and our Tablet & Other Accessories category benefited from the recovery along with our innovative products.

In the past year, the gaming headset market has declined due to challenging comparisons against the launch of Fortnite in fiscal year 2019.

Hybrid and distance learning environments have also created demand and growth opportunities for our education tablet keyboards and accessories.

The PC gaming and console gaming platforms continue to show strong structural growth opportunities as online gaming, multi-platform experiences, and esports gain greater popularity and gaming content becomes increasingly more demanding and social particularly as other recreational activities have been curtained or restricted during stay-at-home mandates.

The new console refresh cycle during the holiday season of 2020 could drive subsequent growth opportunities over the coming years for our ASTRO family of headsets and controllers.

We believe Logitech is well positioned to benefit from the overall gaming market growth.

With ASTRO Gaming, we also strengthened our portfolio in adjacent categories, such as the console controller market.

Our acquisition of Streamlabs provides a solid platform to deliver recurring services and subscriptions to gamers.

Video Collaboration :

The near and long-term structural growth opportunities in the video collaboration market are significant and, as a result, that market is continuing to attract more competition.

Video meetings are on the rise, and companies increasingly want lower-cost, cloud-based solutions.

We are continuing our efforts to create and sell innovative products to accommodate the increasing demand from medium and large-sized meeting rooms to small-sized rooms such as huddle rooms.

We will continue to invest in select business-specific products, targeted product marketing and sales channel development.

The mobile speaker market has remained lackluster, although the consumption of music continues to grow.

The near and long-term structural growth opportunities in the video collaboration market have never been more relevant than in today’s environment, as commercial and consumer adoption of video has seen explosive growth in recent months.

Video meetings are on the rise, and companies increasingly want lower-cost, cloud-based solutions that can provide their employees with the ability to work from anywhere.

We are continuing our efforts to create and sell innovative products to accommodate the increasing demand from small-size meeting rooms, such as huddle rooms, to medium and large-sized meeting rooms.

We are also experiencing significant demand for our enterprise-grade VC webcams and headsets.

We will continue to invest in select business-specific products (both hardware and software), targeted product marketing and sales channel development.

The mobile speaker market has remained soft, and has further weakened as physical retail stores have been recently closed and retail footprint has decreased significantly due to the COVID-19 pandemic.

The integration of personal voice assistants has become increasingly competitive in the speaker categories, but the market for third-party, voice-enabled speakers has not yet gained traction.

Moreover, the market for mobile speakers appears to be maturing, which led to a decline in Ultimate Ears sales in fiscal year 2019.

In fiscal year 2019, the wireless headphone industry continued to flourish with strong revenue growth.

The largest growth was in true wireless headphones where the market tripled year-over-year while traditional wireless headphones have started to decline.

Moreover, the market for mobile speakers appears to be maturing, which led to a decline in Ultimate Ears sales in the past two years.

In fiscal year 2020, the wireless headphone industry continued to flourish with strong revenue growth but has slowed in recent months due to physical retail store closures.

The largest growth was in true wireless headphones while traditional wireless headphones have declined significantly.

Continued growth in the wireless headphone market is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones.

With Blue Microphones, we strengthened our portfolio in adjacent categories, such as the microphones market .

Our remote business declined substantially in fiscal year 2019 as the attachment to the voice assistants of Harmony Hub-based remote controls was not a sustainable trend.

In general, the space is under pressure as the way people consume content is changing.

Blue Microphones has experienced strong demand as musicians, performers and streamers increasingly look to entertain and engage with their fans on various online platforms like YouTube, Twitch, and Facebook.

Our remote Harmony business declined substantially in fiscal year 2020, offset by growth in our Circle 2 family of security cameras.

In general, the space is under pressure as the way people consume content is changing and as retail stores have been closed.

We will continue to explore other innovative experiences for the Smart Home category.

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Additionally, new product introductions and business acquisitions can significantly impact sales, product costs and operating expenses.

Product introductions can also impact our sales to our distribution channels as these channels are filled with new product inventory following a product introduction, and often channel inventory of an earlier model product declines as the next related major product launch approaches.

Product introductions can also impact our sales to distribution channels as these channels are filled with new product inventory following a product introduction, and often channel inventory of an earlier model product declines as the next related major product launch approaches.

Sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances.

However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of our future pattern of product introductions, future sales or financial performance.

Furthermore, cash flow is correspondingly lower in the first half of the fiscal year as we typically build inventories in advance for the third quarter and we pay an annual dividend following our Annual General Meeting, which is typically in September.

Swiss Federal Tax Reform

On May 19, 2019, the Swiss electorate approved 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 December 31, 2019, TRAF has not been enacted in all cantons, including the canton of Vaud, as the cantonal legislative procedures are in process.

We have benefited from a longstanding tax ruling from the canton of Vaud through December 31, 2019.

We continue to monitor the enactment

process and our transitional measures to comply with federal and cantonal tax reform provisions.

We anticipate an increase in our cash tax payments in Switzerland with respect to fiscal year 2020 and future years.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, estimates and assumptions that affect the reported amounts of goodwill, intangible assets acquired from business acquisitions, contingent consideration for business acquisition and periodical reassessment of its fair value, operating right-of-use assets, warranty liabilities, accruals for customer incentives, cooperative marketing, and pricing programs and related breakage when appropriate, accrued sales return liability, allowance for doubtful accounts, inventory, share-based compensation expense, uncertain tax positions, and valuation allowances for deferred tax assets.

We consider an accounting estimate critical if it:

(i) requires management to make judgments and estimates about matters that are inherently uncertain;

and (ii) is important to an understanding of our financial condition and operating results.

We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances.

Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, actual results could differ from those estimates.

Management has discussed the development, selection and disclosure of these critical accounting estimates with the Audit Committee of the Board of Directors.

Other than the recent accounting pronouncement adoptions discussed in Note 1 to the condensed consolidated financial statements, there have been no substantial changes in our significant accounting policies during the nine months ended December 31, 2019 , compared with the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 .

As we described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 , the canton of Vaud in Switzerland enacted TRAF on March 10, 2020, effective as of January 1, 2020.

Our cash tax payments have increased in Switzerland beginning in fiscal year 2020 as a result of our transition out of our longstanding tax ruling from the canton of Vaud.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities.

We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.

Actual results could differ materially from these estimates under different assumptions or conditions.

On a regular basis, we evaluate our assumptions, judgments and estimates.

We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for accruals for customer incentives, cooperative marketing, and pricing programs (Customer Programs) and related breakage when appropriate, accrued sales return liability, inventory valuation and uncertain tax positions have the greatest potential impact on our condensed consolidated financial statements.

These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies.

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no material changes in our critical accounting policies and estimates during the three months ended June 30, 2020 compared with the critical accounting policies and estimates disclosed in Management's Discussions and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 .

Adoption of New Accounting Pronouncements

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Dollars, our financial results could be affected by shifts in currency exchange rates.

See “Results of Operations” for information on the effect of currency exchange rate on our sales.

See “Results of Operations” for information on the effect of currency exchange rate results on our sales.

Dollar appreciates or depreciates in comparison to other currencies in future periods, this will affect our results of operations in future periods as well.

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Dollar, such as the Euro, Chinese Renminbi, Japanese Yen, Canadian Dollar, Taiwan New Dollar, British Pound and Australian Dollar.

During the three months ended December 31, 2019 , approximately 52% of our sales were denominated in currencies other than the U.S.

During the three months ended June 30, 2020 , approximately 48% of our sales were denominated in currencies other than the U.S.

Results of Operations

Our sales in the three and nine months ended December 31, 2019 increased 4% and 5% , respectively, compared to the same periods of the prior fiscal year, driven primarily by strong sales increase in the EMEA region.

For the three-month period presented, strong growth in Video Collaboration, Gaming and Keyboards & Combos was partially offset by a decline in sales for Audio & Wearables, Tablet & Other Accessories, and Smart Home.

For the nine-month period presented, strong growth in the same categories was partially offset by a decline in sales for Mobile Speakers, Audio & Wearables, and Smart Home.

If currency exchange rates had been constant in the three and nine months ended December 31, 2019 and 2018, our constant dollar sales growth rates would have been 5% and 7% , respectively.

Our sales in the three months ended June 30, 2020 increased 23% compared to the same period of the prior fiscal year, driven by sales increases in all regions and several of our product categories from increased remote work and distance learning set-ups, as well as from various stay-at-home mandates.

Strong growth sales for in Video Collaboration, Gaming, PC Webcams, Keyboards & Combos, Audio PC & Wearables, and Tablet and other Accessories and Keyboards & Combos was partially offset by a decline in sales for Mobile Speakers, Smart Home, and Pointing Devices.

If currency exchange rates had been constant in the three months ended June 30, 2020 and 2019 , our constant dollar sales growth rate would have been 25% .

Sales by Region

The following table presents the change in sales by region for the three and nine months ended December 31, 2019 , compared with the three and nine months ended December 31, 2018 :

The following table presents the change in sales by region for the three months ended June 30, 2020 , compared with the three months ended June 30, 2019 :

Sales Growth Rate

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Sales Growth Rate

Three Months Ended December 31, 2019

Nine Months Ended December 31, 2019

Three Months Ended December 31, 2019

Nine Months Ended December 31, 2019

The decrease in sales in our Americas region for the three-month ended period presented above was primarily driven by a decline in sales in Mobile Speakers and Audio & Wearables, partially offset by growth in Video Collaboration and Gaming.

The increase in sales in our Americas region for the nine-month period presented above was primarily driven by growth in Video Collaboration and Tablet & Other Accessories, partially offset by a decline in Mobile Speakers and PC Webcams.

The increase in sales in our EMEA region for both the three- and nine-month ended periods presented above was primarily driven by growth in sales across a majority of our product categories, partially offset by a decline in Tablet & Other Accessories and Audio & Wearables.

The increase in sales in our Americas region was primarily driven by growth in sales for Video Collaboration, Gaming, PC Webcams, and Audio PC & Wearables, partially offset by a decline in sales for Mobile Speakers.

The increase in sales in our EMEA region was primarily driven by growth in sales for PC Webcams, Video Collaboration, and Gaming, partially offset by a decline in sales for Mobile Speakers and Smart Home.

Asia Pacific:

The increase in sales in our Asia Pacific region for the three-month ended period presented above was primarily driven by growth in Keyboards & Combos and Gaming, partially offset by a decline in Audio & Wearables, Pointing Devices and Tablet & Other Accessories.

The increase in sales in our Asia Pacific region for the nine-month period presented above was primarily driven by growth in Video Collaboration, Gaming and Keyboards & Combos, partially offset by a decline in Mobile Speakers and Audio & Wearables.

The increase in sales in our Asia Pacific region was primarily driven by growth in sales for PC Webcams, Video Collaboration, Gaming, and Keyboards & Combos, partially offset by a decline in sales for Mobile Speakers.

Sales by Product Categories

Sales by product categories for the three and nine months ended December 31, 2019 and 2018 were as follows (Dollars in thousands):

Sales by product categories for the three months ended June 30, 2020 and 2019 were as follows (Dollars in thousands):

Three Months Ended

Nine Months Ended

Pointing Devices

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Our Pointing Devices category comprises PC- and Mac-related mice including trackballs, touchpads and presenters.

Sales of Pointing Devices increased 4% and 1% in the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The increases in both periods were primarily driven by growth in sales of our cordless mice, partially offset by a decline in sales of our corded mice.

Sales of Pointing Devices decreased 1% in the three months ended June 30, 2020 , compared to the same period of the prior fiscal year, primarily driven by declines in EMEA and Asia Pacific regions.

The decrease was primarily driven by the decrease in sales of presentation tools and corded mice, partially offset by an increase in sales of our cordless mice.

Keyboards & Combos

Our Keyboards & Combos category comprises PC keyboards, living room keyboards and keyboard/mice combo products.

Sales of Keyboards & Combos increased 8% and 5% in the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The increases were across all regions for both periods and primarily driven by increases in sales of our cordless and corded keyboards and keyboard/mice combos, partially offset by a decline in sales of our living room keyboard products.

Sales of Keyboards & Combos increased 13% in the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

The increase was driven by an increase in sales for our cordless keyboards and wireless keyboards/mice combos, partially offset by a decline in sales of our living room keyboard and corded keyboard/mice combos.

Our PC Webcams category comprises PC-based webcams targeted primarily at consumers.

PC Webcams sales decreased 3% and 2% in the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The decrease in sales for the three-month period was primarily driven by a decline in sales of our Webcam C170, HD PRO Webcam C920, and HD Webcam C525, partially offset by an increase in the sales of our C270i IPTV CAM.

The decrease in sales for the nine-month period was primarily driven by a decline in sales of our HD PRO Webcam C920, Webcam C170 and HD Webcam C525 partially offset by an increase in sales of our Webcam C260, C270i IPTV CAM and BRIO 4K Stream Edition.

PC Webcams sales increased 116% in the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

The increase was across all regions and all product types, primarily driven by an increase in sales of our HD Pro Webcam C920, Webcam C60, HD Webcam C615, and Logitech StreamCam partly due to remote work and distance learning.

Tablet & Other Accessories

Our Tablet & Other Accessories category primarily comprises keyboards for tablets.

Sales of Tablet & Other Accessories products decreased 13% and 1% in the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The decrease in sales for the three-month period was primarily driven by a decline in sales of our Slim Folio for the 2017/2018 iPad and CRAYON, partially offset by an increase in sales of our Slim Folio Pro for the 11" and 12.9" iPad Pro introduced in the first quarter of fiscal year 2020 and sales of our Rugged Folio and Slim Folio for a newer generation of iPads introduced in the third quarter of fiscal year 2020.

The decrease in sales for the nine-month period was primarily driven by a decline in sales of our Slim Combo keyboard cases for iPad Pro and Slim Folio keyboard cases for 10.5" iPad, partially offset by growth in sales of our Slim Folio Pro for the 11" and 12.9" iPad Pro and Rugged Folio for the newer generation of iPads.

Sales of Tablet & Other Accessories products increased 20% in the three months ended June 30, 2020 , compared to the same period of the prior fiscal year .

The increase was primarily driven by the sales of our Rugged Folio keyboard cases for a newer generation of iPads and Slim Folio keyboard for iPad 7th generation, both introduced in the third quarter of fiscal year 2020.

Gaming market:

Our Gaming category compris es gaming mice, keyboards, headsets, gamepads, steering wheels, simulation controllers, console gaming headsets, console gaming controllers, and Streamlabs services.

Gaming sales increased 15% and 6% in the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year .

The increase in both periods was primarily driven by growth in sales of our gaming mice, gaming keyboards, gaming steering wheels, and console gaming controllers and sales from Streamlabs services as a result of our business combination (see Note 2 to the condensed consolidated financial statements).

The growth was partially offset by a decline in sales of our gaming headsets and console gaming headsets.

Gaming sales increased 35% for the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

The increase was primarily driven by increases in the sales of all our product types, including Streamlabs services as a result of our business combination in the third quarter of fiscal year 2020, except for console gaming controllers.

T he decrease in console gaming controllers was primarily driven by decline in the sales of C40 controllers and controller accessories.

Video Collaboration market:

Our Video Collaboration category primarily includes Logitech’s ConferenceCams, which combines affordable

Our Video Collaboration category primarily includes Logitech’s ConferenceCams, which combine affordable

enterprise-quality audio and high definition (HD) 1080p video to bring video conferencing to businesses of any size.

Sales of Video Collaboration products increased 24% and 34% in the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The increases were across all regions for both periods.

The increase for the three-month period was primarily driven by the sales of our Rally Ultra-HD PTZ Conference Camera introduced in the third quarter of fiscal year 2019 and our Tap Touch Controller introduced in the first quarter of fiscal year 2020, partially offset by a decrease in sales of Group Expansion Mic.

The increase for the nine-month period was primarily driven by the sales of our Rally Ultra-HD PTZ Conference Camera introduced in the third quarter of fiscal year 2019, an increase in the sales of our MeetUp video conference camera, and sales of our Tap Touch Controller introduced in the first quarter of fiscal year 2020, partially offset by a decrease in sales of older generation products.

Sales of Video Collaboration products increased 77% in the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

The increase was primarily driven by the sales of our BRIO 4K Pro Webcam, MeetUp video conferencing camera, Rally Ultra-HD conference camera system, and Pro Webcam Ultra Wide Angle HD Webcam partly due to remote work setups, partially offset by a decline in sales of our BCC950 video conferencing system and older generation products.

Music market:

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Our Mobile Speakers category is made up entirely of Bluetooth wireless speakers.

Sales of Mobile Speakers decreased 3% for both the three and nine months ended December 31, 2019 , compared to the same periods of the prior fiscal year.

The decrease for the three-month period was primarily due to a decline in sales of our WONDERBOOM, BOOM 2 and MEGABOOM mobile speakers, partially offset by sales of our WONDERBOOM 2 introduced in the first quarter of fiscal year 2020.

The decrease for the nine-month period was primarily due to a decline in sales of our WONDERBOOM, BOOM 2, and MEGABLAST mobile speakers, partially offset by sales of WONDERBOOM 2 and an increase in sales of our BOOM 3 and MEGABOOM 3 mobile speakers.

Sales of Mobile Speakers decreased 42% for the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

The decrease was primarily due to a decrease in sales of our BOOM 3, WONDERBOOM, BOOM 2, and WONDERBOOM 2 mobile speakers, partially offset by an increase in sales from the introduction of our HYPERBOOM speaker in the fourth quarter of fiscal year 2020 and an increase in sales of our MEGABOOM 3 speakers.

Audio & Wearables

Our Audio & Wearables category comprises PC speakers, PC headsets, in-ear headphones, premium wireless audio wearables and studio-quality microphones for professionals and consumers.

Audio & Wearables sales decreased 17% and 2% for the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The decrease for the three-month period was primarily driven by the decrease in sales of our PC speakers, Blue Microphone products, and Jaybird traditional wireless products, partially offset by the increase in sales of Jaybird True Wireless products.

The decrease for the nine-month period was primarily driven by a decline in the sales of our PC speakers and Jaybird traditional wireless products, partially offset primarily by the growth in sales of our Blue Microphones products, as a result of our business combination in the second quarter of fiscal year 2019, and Jaybird True wireless products.

Audio & Wearables sales increased 22% for the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

Th e increase wa s primarily driven by the sales of both our corded and cordless headsets and Blue Microphones products, partially offset by a decline in the sales of our Jaybird traditional wireless products.

Smart Home market:

Our Smart Home category mainly comprises our Harmony line of advanced home entertainment controllers and home security cameras.

Smart Home sales decreased 19% and 7% during the three and nine months ended December 31, 2019 , respectively, compared to the same periods of the prior fiscal year.

The decrease in sales for the three-month and nine-month periods was primarily driven by an overall decline in sales in our Harmony remote products, partially offset by an increase in sales of our home security products.

Gross profit for the three and nine months ended December 31, 2019 and 2018 was as follows (Dollars in thousands):

Smart Home sales decreased 31% during the three months ended June 30, 2020 , compared to the same period of the prior fiscal year .

The decrease was primarily driven by an overall decline in sales in our Harmony remote products and our home security products.

Gross profit for the three months ended June 30, 2020 and 2019 was as follows (Dollars in thousands):

Three Months Ended

Nine Months Ended

Gross profit consists of sales less cost of goods sold (which includes materials, direct labor and related overhead costs, costs of manufacturing facilities, royalties, costs of purchasing components from outside suppliers, distribution costs, warranty costs, customer support, shipping and handling costs, outside processing costs and write-down of inventories), amortization of intangible assets and purchase accounting effect on inventory.

Gross margin increased by 150 basis points for the three months ended June 30, 2020 , compared to the same period of the prior fiscal year.

The increase in gross margin was primarily driven by lower customer incentive programs, favorable product mix and benefits from cost savings and operational efficiencies, partially offset by COVD-19 related costs primarily due to higher logistics operations costs and unfavorable currency exchange rates.

Operating Expenses

Operating expenses for the three and nine months ended December 31, 2019 and 2018 were as follows (Dollars in thousands):

Operating expenses for the three months ended June 30, 2020 and 2019 were as follows (Dollars in thousands):

Three Months Ended

Nine Months Ended

Marketing and selling

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Amortization of intangible assets and acquisition-related costs

Change in fair value of contingent consideration for business acquisition

Restructuring charges (credits), net

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Marketing and selling expenses consist of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade shows, technical support for customer experiences and facilities costs.

During the three and nine months ended December 31, 2019 , marketing and selling expenses increased $2.7 million and $23.5 million , respectively, compared to the same periods of the prior fiscal year.

The increases were primarily driven by higher personnel-related costs due to increased headcount, partly resulting from the Blue Microphones and Streamlabs acquisitions, partially offset by reduced marketing expenses.

During the three months ended June 30, 2020 , marketing and selling expenses increased $10.2 million compared to the same period of the prior fiscal year.

The increase was primarily driven by higher personnel-related costs due to increased headcount, partially resulting from the Streamlabs acquisition and increased performance-based variable compensation, partially offset by lower marketing related expenses.

Research and Development

Research and development expenses consist of personnel and related overhead costs, contractors and outside consultants, supplies and materials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existing products.

During the three and nine months ended December 31, 2019 , research and development expenses increased $2.7 million and $8.4 million , respectively, compared to the same periods of the prior fiscal year.

The increases were primarily driven by higher personnel-related costs due to increased headcount, partly resulting from the Blue Microphones and Streamlabs acquisitions, and higher investment in new product development.

During the three months ended June 30, 2020 , research and development expenses increased $7.5 million compared to the same period of the prior fiscal year.

General and Administrative

General and administrative expenses consist primarily of personnel and related overhead, information technology, and facilities costs for the infrastructure functions such as finance, information systems, executives, human resources, and legal.

During the three and nine months ended December 31, 2019 , general and administrative expenses decreased $2.2 million and $6.6 million , respectively, compared to the same periods of the prior fiscal year.

The decrease was primarily driven by lower personnel-related costs.

During the three months ended June 30, 2020 , general and administrative expenses increased $6.9 million , compared to the same period of the prior fiscal year.

The increase was primarily driven by higher personnel-related costs due to increased headcount and increased share-based compensation.

Amortization of Intangible Assets and Acquisition-Related Costs

Amortization of intangible assets and acquisition-related costs during the three and nine months ended December 31, 2019 and 2018 were as follows (in thousands):

Three Months Ended

Nine Months Ended

Amortization of intangible assets

Acquisition-related costs

Amortization of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trade names.

Acquisition-related costs include legal expense, due diligence costs, and other professional costs incurred for business acquisitions.

During the three and nine months ended December 31, 2019 , amortization of intangible assets and acquisition-related costs increased $1.5 million and $2.5 million , respectively, compared to the same period of the prior fiscal year, primarily driven by the intangible assets acquired through the Blue Microphones acquisition in the second quarter of fiscal year 2019 and the Streamlabs Acquisition in the third quarter of fiscal year 2020.

Restructuring Charges, Net

During the first quarter of fiscal year 2019, we implemented a restructuring plan to streamline and realign our overall organizational structure and reallocate resources to support our long-term growth opportunities.

In July, 2018, our Board of Directors approved additional costs under this restructuring plan, totaling pre-tax charges of approximately $10.0 million to $15.0 million , of which $11.4 million has been recognized cumulatively as of December 31, 2019 .

The total charges consisted of cash severance and other personnel costs and are presented as restructuring charges (credit), net in the condensed consolidated statements of operations.

As of June 30, 2019, the Company had substantially completed this restructuring plan.

The following table summarizes restructuring-related activities during the three and nine months ended December 31, 2019 (in thousands):

Accrual balance at March 31, 2019

Cash payments

Accrual balance at June 30, 2019

Cash payments

Accrual balance at September 30, 2019

Cash payments

Accrual balance at December 31, 2019

The increase in amortization of intangible assets during the three months ended June 30, 2020 , compared with the same period of the prior fiscal year, was primarily driven by the intangible assets acquired through the Streamlabs acquisition in the third quarter of fiscal year 2020.

Change in Fair Value of Contingent Consideration for Business Acquisition

The change in fair value of contingent consideration was $5.7 million for the three months ended June 30, 2020 , primarily due to growth in Streamlabs' net sales and the achievement of the net sales targets during the six-month earn-out period.

Other Income (Expense), Net

Other income (expense), net for the three and nine months ended December 31, 2019 and 2018 was as follows (in thousands):

Other income (expense), net for the three months ended June 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended

Nine Months Ended

Investment income (loss) related to a deferred compensation plan

Currency exchange gain (loss), net

Gain (loss) on investments

Investment income (loss) represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.

Currency exchange gain (loss), net relates to balances denominated in currencies other than the functional currency in our subsidiaries, as well as to the sale of currencies, and gains or losses recognized on currency exchange forward contracts.

Investment income related to a deferred compensation plan

Currency exchange gain, net

Gain on investments

Investment income represents earnings, gains, and losses on trading investments related to a deferred compensation plan offered by one of our subsidiaries.

Currency exchange gain, net relates to balances denominated in currencies other than the functional currency in our subsidiaries, as well as to the sale of currencies, and to gains or losses recognized on currency exchange forward contracts.

We do not speculate in currency positions, but we are alert to opportunities to maximize currency exchange gains and minimize currency exchange losses.

Gain (loss) on investments represents the unrealized gain (loss) from the fair value change from the available-for-sale securities and equity-method investments during the periods presented.

Provision for (Benefit from) Income Taxes

The provision for (benefit from) income taxes and effective tax rates for the three and nine months ended December 31, 2019 and 2018 were as follows (Dollars in thousands):

The provision for (benefit from) income taxes and effective tax rates for the three months ended June 30, 2020 and 2019 were as follows (Dollars in thousands):

Three Months Ended

Nine Months Ended

Provision for income taxes

Effective income tax rate

The change in the effective income tax rate for the three and nine months ended December 31, 2019 , compared to the same periods ended December 31, 2018 , was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate and the transitional income tax impact in Switzerland.

benefited from a longstanding tax ruling from the canton of Vaud through December 31, 2019.

The transitional income tax impact represents income tax provision at the current full statutory income tax rate of 13.67% without taking account of other elements of the tax reform yet to be enacted.

Furthermore, there was a discrete tax benefit of $1.7 million from adjusting deferred tax assets and liabilities in Switzerland in the nine months ended December 31, 2019.

There were discrete tax benefits of $6.0 million and $2.7 million from the recognition of net excess tax benefits in the United States and reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the nine-month period ended December 31, 2019 , compared with $9.5 million and $2.3 million , respectively, in the nine-month period ended December 31, 2018 .

As of December 31, 2019 and March 31, 2019 , the total amounts of unrecognized tax benefits due to uncertain tax positions were $85.0 million and $76.5 million , respectively, all of which would affect the effective income tax rate if recognized.

The change in the effective income tax rate for the three months ended June 30, 2020 , compared to the same period ended June 30, 2019 , was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate.

The Swiss income tax provision in each period represents the income tax provision at the full statutory income tax rate of 13.63%.

In the three months ended June 30, 2019 when TRAF was yet to be enacted at the federal and cantonal levels, the transition income tax provision was quantified at the full statutory income tax rate of 13.63% because at the time the canton of Vaud permitted the application of the longstanding tax ruling only through March 31, 2019.

There were discrete tax benefits of $5.0 million and $1.0 million from the recognition of excess tax benefits in the United States and reversal of uncertain tax positions from the expiration of statutes of limitations, respectively, in the three-month period ended June 30, 2020 , compared with $5.8 million and $1.2 million, respectively, in the three-month period ended June 30, 2019 .

As of June 30, 2020 and March 31, 2020 , the total amounts of unrecognized tax benefits due to uncertain tax positions were $144.2 million and $140.8 million, respectively, all of which would affect the effective income tax rate if recognized.

Liquidity and Capital Resources

Cash Balances, Available Borrowings, and Capital Resources

As of December 31, 2019 , we had cash and cash equivalents of $656.0 million , compared to $604.5 million as of March 31, 2019 .

As of December 31, 2019 , 69% of the cash and cash equivalents were held in Switzerland and 17% held in Hong Kong and China.

As of June 30, 2020 , we had cash and cash equivalents of $809.4 million , compared to $715.6 million as of March 31, 2020 .

As of June 30, 2020 , 57% of the cash and cash equivalents were held in Switzerland, 21% held in Germany, and 14% held in Hong Kong and China.

We do not expect to incur any material adverse tax impact except for what has been recognized, or be significantly inhibited by any country in which we do business from the repatriation of funds to Switzerland, our home domicile.

The increase in cash and cash equivalents for the nine months ended December 31, 2019 , was primarily due to an increase in net cash provided by operating activities, partially offset by payment of cash dividends, cash paid for the Streamlabs Acquisition (see Note 2 to the condensed consolidated financial statements), purchases of property, plant and equipment, tax withholdings related to settlements of restricted stock units and shares repurchased under our share buyback program.

As of December 31, 2019 , our working capital was $680.4 million , compared to $632.6 million as of March 31, 2019 .

The increase was primarily driven by higher cash and cash equivalents, higher accounts receivables, net, higher inventories, and higher other current assets;

partially offset by higher accounts payable and higher accrued and other current liabilities.

Our working capital increased by $110.9 million compared to $569.5 million as of December 31, 2018 , which was primarily driven by higher cash and cash equivalents, higher accounts receivable, net, and lower accrued and other current liabilities, partially offset by lower inventories and higher accounts payable.

We had several uncommitted, unsecured bank lines of credit aggregating $78.4 million as of December 31, 2019 .

The increase in cash and cash equivalents for the three months ended June 30, 2020 , was primarily due to an increase in net cash provided by operating activities and proceeds from exercises of stock options and purchase rights, partially offset by payment of annual bonus during the period, purchases of property, plant and equipment, and tax withholdings related to settlements of restricted stock units.

As of June 30, 2020 , our working capital was $788.8 million , compared to $700.3 million as of March 31, 2020 .

The increase was primarily driven by higher cash and cash equivalents, higher accounts receivable, net, higher inventories and lower accrued and other current liabilities, partially offset by higher accounts payable.

Our working capital increased by $140.5 million compared to $648.3 million as of June 30, 2019 , which was primarily driven by higher cash and cash equivalents, higher accounts receivable, net, and higher other current assets, partially offset by lower inventories and higher accounts payable and accrued and other current liabilities.

We had several uncommitted, unsecured bank lines of credit aggregating $81.9 million as of June 30, 2020 .

There are no financial covenants under these lines of credit with which we must comply.

As of December 31, 2019 , we had outstanding bank guarantees of $17.1 million under these lines of credit.

The following table summarizes our condensed consolidated statements of cash flows (in thousands):

Nine Months Ended

As of June 30, 2020 , we had outstanding bank guarantees of $28.5 million under these lines of credit.

The following table summarizes our condensed consolidated statements of cash flows (Dollars in thousands):

Three Months Ended

Net cash provided by operating activities

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Net increase (decrease) in cash and cash equivalents

The following tables present selected financial information and statistics as of and for the three months ended December 31, 2019 and 2018 (Dollars in thousands):

As of December 31,

The following table presents selected financial information and statistics as of and for the three months ended June 30, 2020 and 2019 (Dollars in thousands):

As of June 30,

Accounts receivable, net

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(2) DPO is determined using ending accounts payable as of the most recent quarter end and cost of goods sold for the most recent quarter.

(3) ITO is determined using ending inventories as of the most recent quarter end and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).

DSO for the three months ended December 31, 2019 increased by 3 days to 53 days, compared to 50 days for the same period of the prior fiscal year, primarily due to timing of customer payments.

DPO for the three months ended December 31, 2019 decreased by 3 days, compared to the same period of the prior fiscal year, primarily due to the timing of purchases and related payments and an increase in cost of goods sold due to higher sales growth.

ITO for the three months ended December 31, 2019 increased to 7.4 compared to 6.3 in the same period of the prior fiscal year, primarily due to higher sales growth, resulting to lower inventories at the period end.

If we are not successful in launching and phasing in our new products, or market competition increases, or we are not able to sell the new products at the prices planned, it could have a material adverse impact on our sales, gross profit margin, operating results including operating cash flow, and inventory turnover in the future.

During the nine months ended December 31, 2019 , we generated $324.2 million of cash from operating activities.

Our main sources of operating cash flows were from net income, after adding back non-cash expenses of depreciation, amortization and share-based compensation expense, and from changes in operating assets and liabilities.

The increase in accounts receivable, net was primarily driven by sales growth and timing of customer payments.

The increase in inventories was primarily driven by seasonality.

(3) ITO is determined using ending inventories and annualized cost of goods sold (based on the most recent quarterly cost of goods sold).

DSO for the three months ended June 30, 2020 decreased by 2 days to 57 days, compared to 59 days for the same period of the prior fiscal year, primarily due to timing of sales, customer payments and sales linearity.

DPO for the three months ended June 30, 2020 increased by 5 days, compared to 75 days for the same period of the prior fiscal year, primarily due to the timing of purchases and related payments.

ITO for the three months ended June 30, 2020 increased by 1.7 , compared to 5.5 for the same period of the prior fiscal year, primarily due to higher sales growth as a result of higher demand due to the COVID-19 impact.

If we are not successful in launching and phasing in our new products, or market competition increases, or we are not able to sell the new products at the prices planned, it could have a material impact on our sales, gross profit margin, operating results including operating cash flow, and inventory turnover in the future.

During the three months ended June 30, 2020 , we generated $118.8 million of cash from operating activities.

Our main sources of operating cash flows were from net income, after adding back non-cash expenses of depreciation, amortization and share-based compensation expense, change in fair value of contingent considerations, and from changes in operating assets and liabilities.

The increase in accounts receivable, net was primarily driven by growth and timing of sales.

The increase in inventories was primarily driven by an increase in inventory purchases during the first quarter of fiscal year 2021.

The increase in accounts payable was primarily driven by the timing of purchases and related payments.

Net cash used in investing activities was $ 119.4 million , primarily due to the payment of $91.6 million for acquisitions, net of acquired cash, and $28.7 million of purchases of property, plant and equipment.

Net cash used in financing activities was $150.9 million , primarily due to $124.2 million payment of cash dividend, $15.1 million used for repurchases of our registered shares, and $23.1 million tax withholdings related to net share settlements of restricted stock units, partially offset by $11.5 million in proceeds received from exercises of stock options and ESPP rights.

During the nine months ended December 31, 2019 , there was a $2.3 million loss from effect of currency exchange rate changes on cash and cash equivalents, compared to a loss of $9.7 million during the same period of the prior fiscal year.

The loss from effect of currency exchange rate changes during the nine months ended

December 31, 2019 was primarily due to the weakening of the Euro, Chinese Renminbi and Brazilian Real against the U.S.

Dollar by 1% , 4% , and 4% respectively.

The loss from effect of currency exchange rate changes during the nine months ended December 31, 2018 was primarily due to the weakening of the Euro and Chinese Renminbi against the U.S.

The decrease in accrued and other liabilities was primarily due to payment of annual bonus during the period.

Net cash used in investing activities was $ 12.4 million , primarily due to $12.3 million of purchases of property, plant and equipment.

Net cash used in financing activities was $13.1 million , primarily due to $23.1 million tax withholdings related to net share settlements of restricted stock units, partially offset by $10.0 million in proceeds received from exercises of stock options and purchase rights.

During the three months ended June 30, 2020 , there was a $0.5 million gain from currency exchange rate effect on cash and cash equivalents, compared to a loss of $0.5 million during the same period of the prior fiscal year.

The gain from currency translation exchange effect during the three months ended June 30, 2020 was primarily due to the strengthening of the Australian Dollar, Japanese Yen, and Taiwanese Dollar against the U.S.

Dollar by 13% , 1% , and 2% , respectively, during the period.

Our principal sources of liquidity are our cash and cash equivalents, cash flow generated from operations and, to a much lesser extent, capital markets and borrowings.

Our future working capital requirements and capital expenditures may increase to support investment in product innovations and growth opportunities, or to acquire or invest in complementary businesses, products, services, and technologies.

In fiscal year 2020, we paid a cash dividend of CHF 121.8 million (U.S.

Dollar amount of $124.2 million ) out of retained earnings available at the end of fiscal year 2019.

Our future working capital requirements and capital expenditures may increase to support investments in product innovations and growth opportunities or to acquire or invest in complementary businesses, products, services, and technologies.

The future impact of COVID-19 cannot be predicted with certainty and may increase our costs of capital and otherwise adversely affect our business, results of operations, financial conditions and liquidity.

In May 2020, the Board of Directors recommended that we pay cash dividends for fiscal year 2020 of CHF 134.0 million ( $138.7 million based on the exchange rate on March 31, 2020).

In fiscal year 2020, we paid a cash dividend of CHF 121.8 million (U.S.

Dollar amount of $114.0 million ) out of retained earnings available at the end of fiscal year 2018.

Any future dividends will be subject to the approval of our shareholders.

In March 2017, our Board of Directors approved our 2017 share buyback program, which authorizes us to purchase up to $250.0 million of our outstanding shares over a three-year period.

The program was approved by the Swiss Takeover Board in May 2017.

Although we enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans) from time to time, our share buyback program provides us with the opportunity to make repurchases during periods of favorable market conditions and is expected to remain in effect for a period of three years.

Dollar amount of $124.2 million ) out of fiscal year 2019 retained earnings.

The dividend to be paid in fiscal year 2020 and any future dividends will be subject to the approval of our shareholders.

In May 2020, our Board of Directors approved a new share buyback program, which authorizes us to invest up to $250.0 million to purchase our own shares, following the expiration date of the 2017 share buyback program.

Although we enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans) from time to time, our share buyback program provides us with the opportunity to make opportunistic repurchases during periods of favorable market conditions and is expected to remain in effect for a period of three years.

Shares may be repurchased from time to time on the open market, through block trades or otherwise.

Opportunistic purchases may be started or stopped at any time without prior notice depending on market conditions and other factors.

As of December 31, 2019 , $172.4 million is still available for repurchase under the 2017 share buyback program.

Our 2017 share buyback program, which authorized us to invest up to $250.0 million to purchase our own shares, expired at the end of April 2020.

There was no share buyback during the three months ended June 30, 2020 .

If we do not generate sufficient operating cash flows to support our operations and future planned cash requirements, our operations could be harmed and our access to credit could be restricted or eliminated.

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Purchase Commitments

As of December 31, 2019 , we had non-cancelable purchase commitments for inventory purchases made in the normal course of business to original design manufacturers, contract manufacturers and other suppliers, the majority of which are expected to be fulfilled within the next 12 months.

As of June 30, 2020, we had non-cancelable purchase commitments of $401.0 million for inventory purchases made in the normal course of business from original design manufacturers, contract manufacturers and other suppliers, as well as due to strong sales growth in the first quarter of fiscal year 2021 and the reduced level of our customers’ inventories, the majority of which are expected to be fulfilled within the next 12 months.

The increase of inventory purchase commitment from March 31, 2020 is to replenish the inventory due to business growth as well as a mitigation of supply constraint in the fourth quarter of fiscal year 2020.

Non-cancelable purchase commitments for capital expenditures primarily relate to commitments for tooling for new and existing products, computer hardware, leasehold and improvements.

1 unchanged sentence

Although open purchase commitments are considered enforceable and legally binding, the terms generally allow us to reschedule or adjust our requirements based on business needs prior to delivery of goods or performance of services.

We recorded a liability for firm, non-cancelable, and unhedged inventory purchase commitments in excess of anticipated demand or net realizable value consistent with our valuation of excess and obsolete inventory.

As of June 30, 2020, the liability for these purchase commitments was $ 10.0 million and is recorded in accrued and other current liabilities.

Although open purchase commitments are considered enforceable and legally binding, the terms generally allow us the option to reschedule and adjust our requirements based on business needs prior to delivery of goods.

Other Contractual Obligations and Commitments

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The scope of these indemnities varies, but in some instances includes indemnification for damages and expenses, including reasonable attorneys’ fees.

As of December 31, 2019 , no amounts have been accrued for indemnification provisions.

As of June 30, 2020 , no amounts have been accrued for indemnification provisions.

We do not believe, based on historical experience and information currently available, that it is probable that any material amounts will be required to be paid under our indemnification arrangements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis