LOGITECH INTERNATIONAL S.A. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains “forward-looking statements” w ithin the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on beliefs of our management as of the filing date of this Quarterly Report on Form 10-Q. These forward-looking statements include, among other things, statements related to: • Our strategy for growth, future revenues, earnings, cash flow, uses of cash and other measures of financial performance, and market position; • Our business strategy and investment priorities in relation to competitive offerings and evolving consumer demand trends affecting our products and markets, current and future worldwide geopolitical, economic and capital market conditions, including fluctuations in currency exchange rates, changes in fiscal policies, inflation, economic downturns, and disruptions in global logistics; • Our expectations regarding any restructuring efforts, including the timing thereof; • Long-term, secular trends that impact our product categories; • The evolution and adoption of artificial intelligence (“AI”), its impact on our industry and related risks and opportunities for our business; • The scope, nature or impact of acquisition, strategic alliance, and divestiture activities; • Our expectations regarding the success of our strategic acquisitions, including integration of acquired operations, products, technology, internal controls, personnel and management teams; • 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 business development, product development and innovation, and their impact on future operating results and anticipated operating costs for fiscal year 2025 and beyond; • Opportunities for growth and our ability to execute on and take advantage of them, including our marketing initiatives and strategy and our expectations regarding the success thereof; • Potential tariffs, their effects and our ability to mitigate their effects; • Our expectations regarding our share repurchase and dividend programs; • The sufficiency of our cash and cash equivalents, cash generated from operations, and available borrowings under our bank lines of credit to fund capital expenditures and working capital needs; and • The effects of environmental and other laws and regulations in the United States and other countries in which we operate. Forward-looking statements also include, among others, those statements including the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should,” “will,” and similar language. These statements reflect our views and assumptions as of the date of this Quarterly Report on Form 10-Q. All forward-looking statements involve risks and uncertainties that could cause our actual performance to differ materially from those anticipated in the forward-looking statements depending on a variety of factors. Important information as to these factors can be found in this Quarterly Report on Form 10-Q under the headings of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Company Overview,” “Critical Accounting Estimates,” and “Liquidity and Capital Resources,” among others. Factors that might cause or contribute to such differences include, but are not limited to, those discussed under Part II, Item 1A “Risk Factors” as well as elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended March 31, 2024, and in our other filings with the U.S. Securities and Exchange Commission, or “SEC.” You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. You should read the following discussion in conjunction with the interim unaudited condensed consolidated financial statements and related notes. 21 Company Overview Logitech designs software-enabled hardware solutions that help businesses thrive and bring people together when working, creating, gaming and streaming. As a point of connection between people and the digital world, our mission is to extend human potential in work and play, in a way that is good for people and the planet. We sell these products through a number of brands, including Logitech, Logitech G and others. Our diverse portfolio includes: Gaming, Keyboards & Combos, Pointing Devices, Video Collaboration, Webcams, Tablet Accessories, and Headsets. These products are all classified under a single operating segment: Peripherals (see Note 12 to our condensed consolidated financial statements). We sell our products to a broad network of international customers in the Americas, Europe, the Middle East and Africa (“EMEA”) and Asia Pacific. This includes direct sales to retailers, e-tailers, and end consumers through our e-commerce platform, and indirect sales to end customers through distributors. 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 Macroeconomic and Geopolitical Conditions on our Business Our business has continued to be impacted by macroeconomic and geopolitical conditions. These conditions include inflation, interest rate and foreign currency fluctuations, changes in fiscal policies, geopolitical conflicts, low economic growth in certain regions, and uncertainty in consumer and enterprise demand. The global and regional economic and political conditions have caused and may continue to cause volatility in demand for our products as well as cost of materials and logistics, and transportation delays, and as a result may impact the pricing of our products, product availability and our results of operations. For additional information, see Part II, Item 1A "Risk Factors." Trends and Uncertainties Several long-term secular-trends offer long-term structural growth opportunities across Logitech’s product portfolio. We design, create and sell products that benefit from these secular trends which include the following: • Hybrid work: Hybrid work provides an opportunity to equip multiple workspaces including in the office and other places of work, as well as at home and away from home. Hybrid work also provides an opportunity for increased enterprise and consumer adoption of video conferencing. Our video collaboration products are compatible with a variety of video conference platforms, including Zoom, Microsoft Teams and Google Meet. • Gaming: The ongoing growth and evolution of gaming creates an opportunity for us to provide more tools to a wider community of gamers. In particular, social gaming continues to gain popularity through online gaming, multi-platform experiences and esports. • AI: AI has reshaped expectations for productivity improvements, product innovation and technology ecosystem evolution. While we have used AI solutions and machine learning to enhance the features of different products in our portfolio, AI offers additional growth opportunities and risks as we work to integrate our capabilities with our ecosystem partners. • Climate change: Climate change affects everyone. We already consider sustainability as part of our product design and in other areas and intend to continue to do so in the future. • The importance of trust: With our well-established Logitech brand, consumer-centric design philosophy, and commitment to high privacy and security standards, we strive to deliver trusted user experiences. While we believe we will further benefit from these secular trends, we have experienced and will continue to experience challenges that impact our business and financial results. These challenges include (i) the current macroeconomic environment, including interest rate fluctuations, inflation, foreign exchange movements, changes in fiscal policies and low economic growth in certain regions, (ii) the uncertainty with overall consumer and enterprise demand, (iii) the uncertainty with enterprise strategy for office space utilization and related timing of enterprise investments in infrastructure and technology, and (iv) the timing of further development of our B2B go-to-market capabilities. 22 We expect these challenges to continue in the near-term. We have taken steps to mitigate the impact of these challenges, including but not limited to: (i) maintaining discipline in our operating expenses, (ii) managing inventory levels to align with demand, (iii) continued investment in our B2B capabilities, and (iv) release of new products to increase the value proposition of our portfolio. For additional information, see Part II, Item 1A "Risk Factors." Business Seasonality and Product Introductions We have historically experienced higher sales in our third fiscal quarter ending December 31, compared to other fiscal quarters in our fiscal year, primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises. Additionally, new product introductions and business acquisitions can significantly impact sales, product costs and operating expenses. 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 our 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. Summary of Financial Results Our total sales for the three and six months ended September 30, 2024 increased 6% and 9%, compared to the three and six months ended September 30, 2023, respectively, primarily due to an increase in sales for Gaming, Keyboards & Combos and Tablet Accessories , driven by improved demand. Sales for the three months ended September 30, 2024 increased 13% and 4% in the EMEA and Americas regions, respectively, and remained flat in the Asia Pacific region, compared to the three months ended September 30, 2023. Sales for the six months ended September 30, 2024 increased 16%, 6%, and 4% in the EMEA, Americas, and Asia Pacific regions, respectively, compared to the six months ended September 30, 2023. Gross margin was 43.6% for the three months ended September 30, 2024 and increased by 210 basis points, compared to the three months ended September 30, 2023, reflecting lower product costs and lower inventory reserves driven by improved demand, partially offset by higher promotional spending. Gross margin was 43.2% for the six months ended September 30, 2024 and increased by 310 basis points, compared to the six months ended September 30, 2023, primarily driven by lower product costs. Operating expenses for the three months ended September 30, 2024 were $325.2 million, or 29.1% of sales, compared to $282.0 million, or 26.7% of sales, for the three months ended September 30, 2023. Operating expenses for the six months ended September 30, 2024 were $638.0 million, or 28.9% of sales, compared to $579.2 million, or 28.5% of sales, for the six months ended September 30, 2023. The increase in operating expense was primarily driven by an increase in marketing and advertising spend. We had an income tax provision of $30.6 million and $30.3 million for the three months ended September 30, 2024 and September 30, 2023 , respectively. We had an income tax provision of $56.1 million and $42.9 million for the six months ended September 30, 2024 and September 30, 2023, respectively. The change in the income tax provision for the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023, respectively, was primarily due to the mix of income and losses in the various tax jurisdictions in which we operate, the favorable tax impacts from share-based compensation and unrecognized tax benefits due to uncertain tax positions. Net income for the three and six months ended September 30, 2024 was $145.5 million and $287.3 million, respectively, compared to $137.1 million and $199.8 million, for the three and six months ended September 30, 2023, respectively. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make assumptions, judgments, and estimates, that affect reported amounts of assets, liabilities, sales and expenses, and the disclosure of contingent assets and liabilities. 23 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 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 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 estimates during the six months ended September 30, 2024 compared with the critical accounting estimates disclosed in Management's Discussion 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, 2024. New Accounting Pronouncements Refer to Note 1 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for recent accounting pronouncements to be adopted. Constant Currency We refer to our net sales growth rates excluding the impact of currency exchange rate fluctuations as "constant currency" sales growth rates. Percentage of constant currency sales growth is calculated by translating prior period sales in each local currency at the current period’s average exchange rate for that currency and comparing that to current period sales. Given our global sales presence and the reporting of our financial results in U.S. Dollars, our financial results could be affected by significant shifts in currency exchange rates. See “Results of Operations” for information on the effect of currency exchange rate fluctuations on our sales. If the U.S. Dollar appreciates or depreciates in comparison to other currencies in future periods, this will affect our results of operations in future periods as well. References to Sales The term “sales” means net sales, except as otherwise specified and the sales growth discussion and sales growth rate percentages are in U.S. Dollars, except as otherwise specified. Results of Operations Net Sales Our sales for the three and six months ended September 30, 2024 i ncreased 6% and 9%, respectively, compared to the three and six months ended September 30, 2023, primarily due to an increase in sales for Gaming, Keyboards & Combos and Tablet Accessories , driven by improved demand . If currency exchange rates had been constant in the three and six months ended September 30, 2024 and 2023, our sales growth rates in constant currency would have been the same as the above sales growth rates. Sales Denominated in Other Currencies Although our financial results are reported in U.S. Dollars, a portion of our sales was generated in currencies other than the U.S. Dollar, such as the Euro, Chinese Renminbi, Australian Dollar, Canadian Dollar, Japanese Yen, Pound Sterling and New Taiwan Dollar. During the three months ended September 30, 2024, approximately 49% of our sales were denominated in currencies other than the U.S. Dollar. 24 Sales by Region The following table presents the change in sales by region for the three and six months ended September 30, 2024, compared with the three and six months ended September 30, 2023: Sales Growth Rate Constant Dollar Sales Growth Rate Three Months Ended September 30, 2024 Six Months Ended September 30, 2024 Three Months Ended September 30, 2024 Six Months Ended September 30, 2024 Americas 4 % 6 % 5 % 7 % EMEA 13 % 16 % 13 % 16 % Asia Pacific — % 4 % 1 % 7 % Americas: The increase in sales in the Americas region for the three-month period presented above was primarily driven by an increase in sales for Keyboards & Combos and Tablet Accessories . The increase in sales in the Americas region for the six-month period presented above was primarily driven by an increase in sales for Keyboards & Combos, Tablet Accessories and Gaming. EMEA: The increase in sales in the EMEA region for the three-month period presented above was primarily driven by an increase in sales for Gaming and Tablet Accessories. The increase in sales in the EMEA region for the six-month period presented above was primarily driven by an increase in sales for Gaming, Keyboards & Combos, and Pointing Devices . Asia Pacific: The sales in the Asia Pacific region remained flat for the three-month period with a decrease in sales for Webcams and Pointing Devices offset by an increase in sales for other product categories. The increase in sales in the Asia Pacific region for the six-month period presented above was primarily driven by an increase in sales for Gaming. 25 Sales by Product Category Sales by product category for the three and six months ended September 30, 2024 and 2023 were as follows (dollars in thousands): Three months ended September 30, Six months ended September 30, 2024 2023 Change 2024 2023 Change Gaming (1) $ 300,470 $ 282,104 7 % $ 609,945 $ 548,533 11 % Keyboards & Combos 209,936 194,914 8 425,269 375,769 13 Pointing Devices 195,936 191,676 2 385,882 366,130 5 Video Collaboration 159,660 152,389 5 306,702 291,735 5 Webcams 80,249 88,222 (9) 153,153 163,422 (6) Tablet Accessories 85,614 63,677 34 164,153 134,013 22 Headsets 46,916 44,411 6 91,152 81,261 12 Other (2) 37,253 39,615 (6) 67,995 70,644 (4) Total Sales $ 1,116,034 $ 1,057,008 6 % $ 2,204,251 $ 2,031,507 9 % (1) Gaming includes streaming services revenue generated by Streamlabs. (2) Other primarily consists of mobile speakers and PC speakers. Gaming Our Gaming category includes gaming mice, steering wheels, headsets, keyboards, console gaming headsets, studio-quality Blue Microphones and Streamlabs services. Sales of Gaming increased 7% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 , primarily driven by an increase in sales of gaming steering wheels. Sales of Gaming increased 11% for the six months ended September 30, 2024, compared to the six months ended September 30, 2023 , primarily driven by an increase in sales of gaming steering wheels and gaming mice. Keyboards & Combos Our Keyboards & Combos category includes PC keyboards and keyboard/mice combo products. Sales of Keyboards & Combo s increased 8% and 13% f or the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023 , respectively, primarily driven by an increase in sales of cordless combo products . Pointing Devices Our Pointing Devices category includes PC- and Mac-related mice including trackballs and presentation tools. Sales of Pointing Devices increased 2% and 5% for the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023, respectively, primarily driven by an increase in sales of cordless mice, partially offset by a decrease in sales of presentation tools. Video Collaboration Our Video Collaboration category includes Logitech’s conference room cameras, which combine affordable enterprise-quality audio and high definition 4K video to bring video conferencing to a variety of room sizes. Sales of Video Collaboration increased 5% for each of the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023 , primarily due to an increase in sales of conference room cameras as well as an increase in service revenue. Webcams Our Webcams category includes PC-based webcams that are targeted primarily at consumers, including streaming cameras, and VC webcams that turn any desktop into an instant collaboration space. 26 Sales of Webcams decreased 9% and 6% for the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023, respectively, primarily driven by a decrease in sales of our VC webcams, partially offset by an increase of sales of our PC-based webcams. Tablet Accessories Our Tablet Accessories category primarily includes tablet keyboards. Sales of Tablet Accessories increased 34% and 22% for the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, primarily driven by an increase in sales of Rugged Combo 4 Touch as well as sales from our Combo Touch products for the new releases of iPad Air and iPad Pro that were launched in fiscal year 2025. Sales of Tablet Accessories for the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023 , benefited from strong demand from the education sector. Headsets Our Headsets category includes PC and VC headsets, in-ear headphones, and premium wireless earbuds. Sales of Headsets increased 6% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily driven by an increase in sales of cordless PC headsets. Sales of Headsets increased 12% for the six months ended September 30, 2024, compared to the six months ended September 30, 2023, primarily driven by an increase in sales of cordless PC headsets and VC headsets. Other Our Other category primarily consists of mobile speakers and PC speakers. Sales in Other categor y decreased 6% and 4% for the three and six months ended September 30, 2024, respectively, compared to the three and six months ended September 30, 2023, primarily driven by a decline in sales of PC speakers. Gross Profit Gross profit for the three and six months ended September 30, 2024 and 2023 was as follows (dollars in thousands): Three months ended September 30, Six months ended September 30, 2024 2023 Change 2024 2023 Change Net sales $ 1,116,034 $ 1,057,008 6 % $ 2,204,251 $ 2,031,507 9 % Gross profit $ 486,091 $ 438,622 11 % $ 952,349 $ 814,264 17 % Gross margin 43.6 % 41.5 % 43.2 % 40.1 % 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 costs, shipping and handling costs, outside processing costs and write-down of inventories), and amortization of intangible assets. Gross margin was 43.6% for the three months ended September 30, 2024 and increased by 210 basis points, compared to the three months ended September 30, 2023, reflecting lower product costs and lower inventory reserves driven by improved demand, partially offset by higher promotional spending. Gross margin was 43.2% for the six months ended September 30, 2024 and increased by 310 basis points, compared to the six months ended September 30, 2023, primarily driven by lower product costs. 27 Operating Expenses Operating expenses for the three and six months ended September 30, 2024 and 2023 were as follows (dollars in thousands): Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Marketing and selling $ 201,863 $ 176,356 $ 398,768 $ 355,541 % of sales 18.1 % 16.7 % 18.1 % 17.5 % Research and development 76,205 68,559 151,512 139,118 % of sales 6.8 % 6.5 % 6.9 % 6.8 % General and administrative 44,173 35,538 81,631 76,835 % of sales 4.0 % 3.4 % 3.7 % 3.8 % Amortization of intangible assets and acquisition-related costs 2,725 3,318 5,428 6,003 % of sales 0.2 % 0.3 % 0.2 % 0.3 % Restructuring charges (credits), net 229 (1,788) 615 1,723 % of sales — % (0.2) % — % 0.1 % Total operating expenses $ 325,195 $ 281,983 $ 637,954 $ 579,220 % of sales 29.1 % 26.7 % 28.9 % 28.5 % The increase in total operating expenses during the three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023, was primarily driven by an increase in marketing and selling expenses. Marketing and Selling Marketing and selling expenses consist of personnel and related overhead costs, corporate and product marketing, promotions, advertising, trade s hows, technical support for customer experiences and facilities costs. During the three and six months ended September 30, 2024, marketing and selling expense s increased $25.5 million and $43.2 million, respectively, compared to the three and six months ended September 30, 2023, primarily driven by increased investment in marketing and advertising as well as higher performance-based compensation expense. Research and Development Research and development expenses consist of personnel and related overhead costs for 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 existin g products. During the three and six months ended September 30, 2024, research and development expenses increased $7.6 million and $12.4 million, respectively, compared to the three and six months ended September 30, 2023, primarily driven by higher performance-based compensation expense and increased investment in product innovation. General and Administrative General and administrative expenses primarily consist 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 six months ended September 30, 2024, general and administrative expenses increased $8.6 million and $4.8 million, respectively, compared to the three and six months ended September 30, 2023, primarily driven by higher performance-based compensation expense. 28 Amortization of Intangible Assets and Acquisition-Related Costs Amortization of intangible assets consists of amortization of acquired intangible assets, including customer relationships and trademarks and trade names. Acquisition-related costs include legal expenses, due diligence costs, and other professional costs incurred for business acquisitions. During the three and six months ended September 30, 2024, amortization of intangible assets and acquisition-related costs remained flat, compared to the three and six months ended September 30, 2023. Restructuring Charges (Credits), Net The restructuring charges (credits), net for the three and six months ended September 30, 2024 and 2023, were related to costs incurred as a result of our restructuring plan initiated during fiscal year 2023. These restructuring activities were substantially completed during fiscal year 2024. Interest Income Interest income for the three and six months ended September 30, 2024 and 2023 was as follows (in thousands): Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Interest Income $ 14,637 $ 11,856 $ 30,427 $ 21,682 We invest in highly liquid instruments with an original maturity of three months or less at the date of purchase, which are classified as cash equivalents. During the three and six months ended September 30, 2024, interest income increased $2.8 million and $8.7 million, respectively, compared to the three and six months ended September 30, 2023, primarily driven by an increase in the balance of our investments that are classified as cash equivalents as well as an increase in interest rates. Other Income (Expense), Net Other income (expense), net for the three and six months ended September 30, 2024 and 2023 was as follows (in thousands): Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Investment gain (loss) related to the deferred compensation plan $ 1,613 $ (324) $ 2,060 $ 700 Currency exchange loss, net (1,473) (1,712) (3,791) (4,798) Gain (loss) on investments, net (413) 214 (1,599) (11,609) Non-service cost net pension income and other 806 778 1,965 1,691 Total $ 533 $ (1,044) $ (1,365) $ (14,016) Investment gain (loss) related to the deferred compensation plan represents earnings, gains, and losses on marketable securities related to a deferred compensation plan offered by one of our subsidiaries. The increase in investment gain for three and six months ended September 30, 2024, compared to the three and six months ended September 30, 2023, primarily relates to the change in market performance of the underlying securities. Currency exchange 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. We do not speculate in currency positions, but we are alert to opportunities to maximize currency exchange gains and minimize currency exchange losses. The loss for the three months ended September 30, 2024 was primarily due to fluctuations in currency exchange rates of the Chinese Renminbi against the U.S. Dollar. The loss for the three months ended September 30, 2023 was primarily due to fluctuations in the currency exchange rates of the Swiss Franc against the U.S. Dollar. The loss for the six months ended September 30, 2024 was primarily due to fluctuations in currency exchange rates of the Chinese Renminbi and the Mexican Peso against the 29 U.S. Dollar. The loss for the six months ended September 30, 2023 was primarily due to fluctuations in the currency exchange rates of the Japanese Yen against the U.S. Dollar. Gain (loss) on investments, net, includes unrealized gain (loss) from the change in fair value of investments, gain (loss) on equity-method investments and impairment of investments during the periods presented, as applicable. The loss on investments, net, for the three and six months ended September 30, 2024 and the gain on investments, net, for the three months ended September 30, 2023 were not material. The loss on investments, net, for the six months ended September 30, 2023 was primarily due to an impairment loss, as a result of the write-off of a note receivable which has been deemed no longer recoverable. This note receivable was previously obtained in conjunction with an exchange transaction related to our investment in a privately held company. See Note 6 to our condensed consolidated financial statements for more information. Provision for Income Taxes The provision for income taxes and effective income tax rates for the three and six months ended September 30, 2024 and 2023 were as follows (dollars in thousands): Three months ended September 30, Six months ended September 30, 2024 2023 2024 2023 Provision for income taxes $ 30,583 $ 30,334 $ 56,141 $ 42,866 Effective income tax rate 17.4 % 18.1 % 16.3 % 17.7 % The change in the effective income tax rate for the three and six months ended September 30, 2024, compared with the three and six months ended September 30, 2023, was primarily due to the change in the mix of income and losses in the various tax jurisdictions in which we operate, the favorable tax impacts from share-based compensation and unrecognized tax benefits due to uncertain tax positions. The BEPS Project undertaken by the OECD recommended changes to numerous long-standing tax principles, including a proposal to reallocate profits among tax jurisdictions in which companies do business (“Pillar One”) and establishing a minimum tax on global income (“Pillar Two”). Some jurisdictions, including Switzerland, where we operate are implementing Pillar Two laws to effectuate a 15% minimum tax. The minimum tax effective beginning in fiscal year 2025 for the Company, is treated as a current cost and does not have a material impact on the Company's effective tax rate. The OECD and participating countries continue to issue underlying rules and administrative guidance related to Pillar Two, and we continue to monitor the relevant developments. We file Swiss and foreign tax returns. We received final tax assessments in Switzerland through fiscal year 2019. For other material foreign jurisdictions such as the United States, we are generally not subject to tax examinations for years prior to fiscal year 2020 and calendar year 2020, respectively. In the United States, the federal and state tax agencies have the authority to examine periods prior to fiscal year 2020, to the extent allowed by law, where tax attributes were generated, carried forward, and being utilized in subsequent years. We are under examination in foreign tax jurisdictions. If the examinations are resolved unfavorably, there is a possibility that they may have a material negative impact on our results of operations. Liquidity and Capital Resources Cash Balances, Available Borrowings, and Capital Resources As of September 30, 2024, we had cash and cash equivalents of $1,363.3 million, compared with $1,520.8 million as of March 31, 2024. Our cash and cash equivalents consist of bank demand deposits, short-term time deposits, and U.S. Treasury securities, of wh ich 71% is held in Switzerland and 11% is held in Germany. We do not expect to incur any material adverse tax impact except for what has already been recognized, or to be significantly inhibited by any country in which we do business, from the repatriation of funds to Switzerland, our country of domicile. As of September 30, 2024, our working capital was $1,457.2 million, compared to $1,545.5 million as of March 31, 2024. The decrease was primarily driven by a decrease in cash and cash equivalents and an increase in accounts payable, partially offset by an increase in inventories and accounts receivable. 30 We had several uncommitted, unsecured bank lines of credit and letters of credit aggregating $178.7 million as of September 30, 2024. There are no financial covenants under these lines of credit with which we must comply. There was no borrowing outstanding under the lines of credit as of September 30, 2024. As of September 30, 2024, we had outstanding bank guarantees of $29.5 million. The following tables present selected financial information and statistics as of and for the three months ended September 30, 2024 and 2023 (dollars in thousands): As of September 30, 2024 2023 Accounts receivable, net $ 629,278 $ 656,895 Accounts payable $ 555,490 $ 492,905 Inventories $ 520,493 $ 532,943 Three months ended September 30, 2024 2023 Days sales in accounts receivable (“DSO”) (Days) (1) 51 56 Days accounts payable outstanding (“DPO”) (Days) (2) 79 72 Inventory turnover (“ITO”) (x) (3) 4.8 4.6 (1) DSO is determined using ending accounts receivable, net, as of the most recent quarter-end and sales for the most recent quarter. (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 cost of goods sold for the most recent quarter). DSO for the three months ended September 30, 2024 decreased by 5 days to 51 days, compared to 56 days for the three months ended September 30, 2023, primarily due to higher sales from improved demand as well as timing of sales within the quarter. DPO for the three months ended September 30, 2024 increased by 7 days to 79 days, compared to 72 days for the three months ended September 30, 2023, primarily due to higher inventory purchases during the second quarter of fiscal year 2025 to align with demand. ITO for the three months ended September 30, 2024 increased by 0.2 to 4.8, compared to 4.6 for the three months ended September 30, 2023, primarily due to lower inventory balances driven by our efforts to manage inventory levels as well as due to improved demand. 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. The following table summarizes our condensed consolidated statements of cash flows (in thousands): Six months ended September 30, 2024 2023 Net cash provided by operating activities $ 342,031 $ 463,059 Net cash used in investing activities (31,326) (49,151) Net cash used in financing activities (474,954) (388,269) Effect of exchange rate changes on cash and cash equivalents 6,683 (10,758) Net increase (decrease) in cash and cash equivalents $ (157,566) $ 14,881 31 For the six months ended September 30, 2024, net cash provided by operating activities was $342.0 million resulting from net income of $287.3 million, a favorable impact from adding back non-cash expenses totaling $107.3 million, partially offset by an unfavorable net change in operating assets and liabilities of $52.6 million. Non-cash adjustments were primarily related to share-based compensation expenses, depreciation and amortization and deferred income taxes. The increase in accounts receivable, net, was primarily driven by higher sales. The increases in inventories and accounts payable were due to higher inventory purchases to replenish certain products. For the six months ended September 30, 2024, net cash used in investing activities was $31.3 million, primarily resulting from $29.1 million of purchases of property, plant, and equipment. For the six months ended September 30, 2024, net cash used in financing activities was $475.0 million, primarily resulting from payment for repurchases of our registered shares of $263.2 million and payment of cash dividends of $207.9 million. For the six months ended September 30, 2024, the effect of exchange rate changes on cash and cash equivalents was not material. Cash Outlook 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 investments in product innovations and growth opportunities or to acquire or invest in complementary businesses, products, services, and technologies. Market volatility driven by the current macroeconomic and geopolitical environment may increase our costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity. In fiscal year 2025, we paid a cash dividend of CHF 176.3 million (U.S. Dollar amount of $207.9 million based on the exchange rate on the date of payment) out of fiscal year 2024 retained earnings. In fiscal year 2024, we paid a cash dividend of CHF 169.1 million (U.S. Dollar amount of $182.3 million based on the exchange rate on the date of payment) out of fiscal year 2023 retained earnings. In June 2023, our Board of Directors approved a three-year share repurchase program, which allows us to use up to $1.0 billion to repurchase our shares. The 2023 share repurchase program enables us to repurchase shares for cancellation, as well as to support equity incentive plans or potential acquisitions. The Swiss Takeover Board approved the 2023 share repurchase program in July 2023 and the program became effective on July 28, 2023. During the six months ended September 30, 2024, we repurchased 2.9 million shares for an aggregate cost of $262.1 million, under the 2023 share repurchase program for cancellation, of which $18.4 million of the aggregate cost was not paid yet as of September 30, 2024. As of September 30, 2024 , $373.9 m illion was available for repurchase under the 2023 share repurchase program. Swiss law limits a company’s ability to hold or repurchase its own shares. The aggregate par value of all shares held in treasury by us and our subsidiaries may not exceed 10% of our share capital, which corresponds to approximately 17.3 million registered shares. This limitation does not apply to shares repurchased for cancellation, due to the Board of Directors' authority under the capital band set forth in the Company's Articles of Incorporation to cancel shares up to a limit of 10% of our current share capital. As of September 30, 2024, we had a total of 21.3 million shares held in treasury stock, which includes 7.0 million shares that have been repurchased for cancellation and 14.3 million shares that have been purchased to support equity incentive plans or potential acquisitions. Although we enter into trading plans for systematic repurchases (e.g., 10b5-1 trading plans) from time to time, our 2023 share repurchase 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 through July 27, 2026. To the extent that the shares are repurchased to support equity incentive plans or potential acquisitions, the shares are repurchased on the ordinary trading line of Swiss Exchange ("SIX") and/or the Nasdaq Global Select Market ("Nasdaq"). Shares repurchased for cancellation purposes are repurchased via a second trading line on SIX. Opportunistic purchases may be started or stopped at any time without prior notice depending on market conditions and other factors. 32 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 facilities could be restricted or eliminated. However, we believe that the trend of our historical cash flow generation, our projections of future operations and our available cash balances will provide sufficient liquidity to fund our operations for at least the next 12 months. Operating Leases Obligations We lease facilities under operating leases, certain of which require us to pay property taxes, insurance and maintenance costs. Operating leases for facilities are generally renewable at our option and usually include escalation clauses linked to inflation . There have been no material changes to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2024. The remaining terms of our non-cancelable operating leases expire in various years through 2035. Purchase Commitments As of September 30, 2024, we had non-cancelable purchase commitments of $455.3 million for inventory purchases made in the normal course of business from original design manufacturers, contract manufacturers and other suppliers, the majority of which are expected to be fulfilled within the next 12 months. 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 September 30, 2024, the liability for these purchase commitments was $21.8 million and is recorded in accrued and other current liabilities in the condensed consolidated balance sheet. We have firm purchase commitments of $12.1 million for capital expenditures primarily related to commitments for tooling and equipment for new and existing products. We expect to continue making capital expenditures in the future to support product development activities and ongoing and expanded operations. 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. Other Contractual Obligations and Commitments For further detail about our contractual obligations and commitments, refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. Indemnifications We indemnify certain suppliers and customers for losses arising from matters such as intellectual property disputes and product safety defects, subject to certain restrictions. The scope of these indemnities varies, but in some instances includes indemnification for damages and expenses, including reasonable attorneys’ fees. As of September 30, 2024, no material 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. We also indemnify our current and former directors and certain current and former officers. Certain costs incurred for providing such indemnification may be recoverable under various insurance policies. We are unable to reasonably estimate the maximum amount that could be payable under these arrangements because these exposures are not capped, the obligations are conditional in nature, and the facts and circumstances involved in any situation that might arise are variable. Legal Proceedings From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of our business. For more information about Legal Proceedings, see Part II Item 1 Legal Proceedings of this quarterly report on Form 10-Q for the period ended September 30, 2024. 33