GRMN - Earnings call transcript Q2 2018

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Operator

Good morning. My name is Julie, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Garmin Limited Second Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. today' being reminder, X, on a XXXX. as call recorded is August And you. Thank may Teri Seck, begin. you

Teri Seck

morning. Good note related webcast like available Internet quarter available press would at We be and transcript at XXXX Limited to release our archive site on earnings will second Garmin's Garmin www.garmin.com/stock. Investor also call. on slides An and Please related that Relations earnings to the website. are welcome the you the of

this discussed our the this these a actual as may could call Cliff over this I factors results filed behalf in on XX-K contained earnings call not Exchange and standard gross product Limited dividends, materially and of is the business. in have projections adopted regarding At standard. first Garmin. and forward-looking new of factors Officer and occur, are future reflect we would in are reminder, revenue prior our Presenting here Information the the call introductions, Any margins, its Officer differ Commission. future risk risk and affecting President of The statements. GAAP presented and Securities objectives like concerning and for Form with turn events to Garmin adoption morning a plans statements been The XXXX. includes time, result market and regarding As Chief and forward-looking circumstances Financial Pemble, and This earnings future new quarter our U.S. revenues, to Treasurer. and other forward-looking of Executive periods Limited to and Cliff products this shares, Doug Garmin Pemble. statements Chief operating demand earnings, financial restated Boessen, position,

Clifton A. Pemble

good morning, Thank you, Teri, and everyone.

due year over reported EPS announced in pro XX% strong consolidated X% year outdoor EPS year of to X% of $X total margin today, Fitness, income earlier the Garmin improved to and resulted $XXX improved segment Gross up mix. prior revenues. to collectively the XX% $XXX of the compared year. GAAP prior marine, million, and increased and million, over contributed of quarter. This up second XX.X% to over the year. aviation revenue in As quarter Operating $X.XX forma prior

wearables driven performance on performance provide in We pleased with Doug half a give greater growth in strong first in our segments. confidence XX% and But with our prior of guidance. advanced cycling. discuss income and a brief in grew and Gross to and of detail margins XX% fitness the operating by business remarks our and Starting are operating first, increased results few XXXX, raise respectively, results financial will few year. over the the revenue like our XX% us in full-year XX% the to segment, I'd were minutes. these

the During music, launched second offerings our music wellness we into expanding X the the advanced vívoactive quarter, category.

new safety and half computers continued cycling the Varia We basic decline first the next-generation also launched Edge of category tracker market. targeting The to the XXXX. activity during radars cycling

fitness categories. on growth impact segment was offset than in our by the more However, other

a with segment, line-up cycling this in products. strong well-positioned are wearables we believe, we of forward, Looking and

and across XX% of half of prior as operating operating XX% season. the our while recent and the and XX% organic income year. growth respectively, marine, from storage of were product at over acquisition weather other multiple next out categories. Looking for and margins improved the increased XX% brought were Approximately was half grew revenue came boats the conditions Navionics, Gross

market. We show, ICAST award for the images that Show. system won new Panoptix award generates During was the technology. LiveScope recognized the quarter, sonar LiveScope, is quarter, Electronics fishing supplier LiveScope Best of model selected provider. Boats recent sportfishing prestigious Best the we boats. beginning for received an their At and honor a Garmin is the real-time by U.S. announced Sportsman LiveScope electronics their quickly the New disruptive XXXX during selected year the introduced electronics marine exclusive their be one with as industry in of underwater. to a exclusive for Sportsman game we trade as the it's and marine fastest-growing believe as Also changer companies market the boat

Looking inland forward, are focused on and the category. gaining in we product share innovation fishing

and resulting XX%, in selected to growth product driven operating and by particularly strong XX% displays, over our next We Turning We TXi aircraft. XX% ADS-B to aviation, introduced revenue growth fighter Support their such categories. integrated indicator experienced supersonic F-X system, as products and retrofit Tactical autopilots. the deck Gross OEM offerings flight XX% of by both from in the at recently strong GX increased growth and prior an an year. fleet to Air and remain income operating recently of respectively, margins were provide GFC

deck GXXXXH also the flight Part helicopter We integrated the for introduced market. turbine XX

aircraft our in the and According under As with wanted just more the see things before December I ADS-B approximately the XXX,XXX eventually is be just deadline XXXX we been on mentioned point Based the in go significant X, as that ADS-B. halfway conservative XXXX share. the out how the to we months with observations provide ADS-B been few aviation key There driver July FAA past the estimate XX, deadline has to a on market we like playing earlier, FAA equipped. development XX market estimated have aircraft to are to aircraft of the update business, approaches. a growth an that would has XXX,XXX of as equipped cycle. The to XX,XXX approximately will

in the the to significant the is growth customers using remain Interest equipment. equipped. remains increasing and many from refresh aircraft to This additional panels First, Garmin. are be XXX,XXX anywhere their to in opportunity enhances ADS-B XX,XXX estimates aircraft ADS-B FAA opportunity with to cycle. for According opportunity

of XX, increase If past or reach capacity the the FAA deadline. limiting Second shop shop deadline. adoption. the ADS-B the level low-end does appears increases would conservative in by more possible it factor final not modest the estimate, the December be With if to is continue capacity shop increase in a equipage a opportunity above estimates capacity to XXXX

significant a a the ADS-B in Finally, government OEM the market, we're share one new cycle, we optimistic future. markets, our pleased To ADS-B only position prepare and we its with of that of aviation many investing the performance about defense such are summary, pursuing. establishing long-term in future are in In as opportunity are is we and gaining beyond for is categories. business opportunities and developing the that product

outdoor, growth revenue increased to product by categories. year-over-year driven all basis, next across Turning on X% a

we is we experienced the sizes. in in adding Gross rate series. margins considering of the X three XX% growth and below Plus a initial series, and launched payments XX% While X trends, respectively. color fēnix this XXXX, recent strong accomplishment the is were of feel music, growth remarkable all by maps watch fill the and QX fēnix driven the operating Late we quarter, to it channel mobile

we providing expanded addition, and In athletes Ox addition awareness blood oxygen our Pulse the sensor for XX the with Plus, of and saturation to fēnix enthusiasts. technology outdoor

versatile Garmin standalone launched used or We with also compact device. inReach a as the with satellite that other can a communicator paired smartphone products used be Mini, a

and wearables market. Looking opportunities we in within forward, focused product the other on are categories outdoor

declined due decreased operating X% the auto year-over-year segment, respectively. ongoing XX% the at market. and Gross of decline to to PND XX% revenues finally the margins Looking and

the position strong. in share global PND category Our remains very market

XXXX. to disciplined previous Operating the the desired maximize slight are results to pleased light for XXXX. year, is in focused XX.X%, first over segment. to to the be half Looking in on forward, is Gross projected to our over for of be we In up In from with are billion level we which market year, the strong projected which XX.X% about is the we execution is profitability revenue margin a are projected and guidance. our innovation margin the of $X.X the performance, bring previous X% of improvement raising summary, our the unchanged estimate. to

a forma earnings be is tax to XX.X%, Assuming per forma of expected $X.XX. effective rate approximately share pro approximately pro

revenue segment at Outdoor XX%. segment while are down to segment, my outlook and for annual by auto remarks. XX%. expectations XX% fitness and increased That growth the concludes the we revised Looking been has have to slightly aviation for the marine our outlook our unchanged, to

will financial results. on Doug? walk our through details Next, Doug additional you

Douglas G. Boessen

percentage $XXX was million, the was Operating as XX.X%, of prior a sales income Operating Operating to the prior margin over XX-basis-point year. expense prior was X% Thanks, our an X% reviewing We revenue year. taxes. Good the quarter comments (XX:XX) morning, $XXX posted on including quarter, I'd results, begin from XXX-basis-point by a year. statement the for increase was financial year. and XX.X%, the million year second increase representing margin Cliff. everyone. cash flow from increase increase like XX-basis-point XX.X%, decrease over from year. of Gross sheet, balance year second

the Our X% our $X.XX, EPS prior year. GAAP was forma and from was EPS a $X pro increase

I'd Next, at quarter our second to look like by revenue segment.

prior-year achieved led combined aviation, by in XX% PND growth fitness, in During by the partially X% in double-digit On the quarter. This the our consolidated offset compared we robust aviation fitness, basis, segment, continued and decline auto was up auto our resulted and marine decline to growth segments. a which business. quarter, a growth outdoor marine, were

XX% income. of second to to and quarter. XX% marine XX%, total the segments revenue to grew XX% prior-year outdoor grew at XXXX XX% revenue and the to from basis, second a XX% operating aviation compared next marine, contributed grew XX%. quarter On aviation quarter in combined of from XX%, Looking from in fitness, Fitness

in mix compared a aviation quarter segments, operating segments in As dollars income the XX% you charts, and aviation increase illustrate can income quarter and our to of The operating year-over-year the delivered in operating fitness, fitness segment. XXXX see both margin. combined On and the XXXX. by second second outdoor basis from of the marine, XX% profit

and second year expenses, investments XX%. and in by year Looking next $XX development in over million, expenses or acquisitions. Research engineering increased recent million operating operating resources increased due quarter $XX to

million year as $XXX seasonally we sheet million Few statement. was SG&A year prior The balance was acquisitions. We quarter expense a sales. of personnel on compared cash decreased marketable relatively advertising quarter year sequentially flat costs Inventory to as of strong percent highlights securities Our and million. percentage billion. with and was over was recent due relatively the the $X.X ended to up $XX of with quarter. approximately exited increase flow prior $XXX to year flat the receivable primarily balance related associated sales. as a sequentially million for up second and over quarter, Accounts and incremental $X increased cash to expenses, the

we a generated During the we XXXX, to Also quarter, the increase the million. paid quarter. flow during second $XXX $XXX million, dividends of of free quarter cash million prior-year $XX

benefits XX.X% XX.X% in of tax rate quarter. from effective tax second U.S. XXXX, compared the decreased tax to the we an the rate reform. the quarter due During effective effective tax rate reported is pro primarily prior-year to forma of The

expect We effective our formal open please XXXX for XX.X%. the full-year could you be rate concludes tax approximately to Julie, forma This Q&A? our pro remarks. line

Operator

comes Joe question is line of from Research. Longbow first your Wittine from Joe, Your line open. the

Joe H. Wittine

scenario in let's a XXXX? let's the say, to Hey, good it take the a shop the further In do morning. of total end sales Congrats may the that XXX,XXX I to, in say, Can this XXXX. conservative too. reported understand your so capacity Cliff, plays on the out, appreciate and just the color us get play results tight meet XXXX and we've you and how in modest help capacity Like, heard by you of increase step XXX,XXX allow and aviation, out results. the industry FAA's

in growth great, question a at potentially to if and would is little to the XXXX would then off there January a into would taken that drop "complete" drop versus the off XXXX see be healthy XXXX? be X, Garmin of So drive enough were still XXXX? you it down be Just in help more aviation thanks. And model

Clifton A. Pemble

broader I Well, category specific it's category light segment. to ADS-B, on one our some only aviation shed just that of think within

So would just would that, that capacity, about of with shop generally category. additional course speak that drive we additional if say I in that some sales

for in of customers things is equipment adding my with the they to bring other to A the times want their aircraft. they As there additional aircrafts remarks, I follow-through in add a trend work. in in sense when it to makes have that lot aircraft mentioned

that So, we're to from expect seeing compounding we the continue mandate approaches. effect that, as would and

really that. numbers for color we specific In terms can't of XXXX, XXXX specific around on aviation and provide

As opportunity. my working more remarks, I in one said we're than on

ADS-B, landing in have we soft ADS-B cycle. more category. what the that paths believe than hard we see revenues that we beyond given of out So, a with terms And we anticipate of growth cliff do playing of a

Joe H. Wittine

very impressive. to numbers were And Perfect. Thanks. fitness wanted I where to the move

have looking based a the today, to of wearables? out obviously, in where I cycle do second the your say the new point, announcements" a to in these think but you product half, introduction, want an anticipate, the pause, easing timing of is, we "typical don't simply the product expect have I holidays? friend Or should advanced product slate especially into us you'd things new to

Clifton A. Pemble

announcements additional do line-up product some back half of but most We have product this do part year. have will that for in We refreshed very come the the set. line-up is a our year, the

positioning feel we So, year, half and year. in wearables introductions the back wellness have of we about of good of in and our course the the our of some did last new categories advanced

our that perform it that believe has and we're So, should we're dynamic, taking you market, comping products has on more back we a view half against so shown a well. know, strong cautious business that there's been more that. reason little The our fitness the

Joe H. Wittine

then ad spend a us year-over-year you all, modeling one here And second Doug, Thanks. me. especially half on for help basis. at the last can on

Your look considering of year-over-year, half up especially some a second so last will you year's in fourth think quarter? ad little dollars total, I bit half the the how the in for but were back still pulled second in first down flattish, you're kind quarter,

Douglas G. Boessen

Yeah.

give So flat be as advertising, it of you full-year expect full relatively as year-over-year percentage well Yeah, to sales. relates we as perspective dollars advertising year on to it. to a

even a will we're flat, second So, that situation hopefully, out, will half that so year-over-year. basically for be

Joe H. Wittine

Great. Thank you so much.

Operator

Yuuji the line Yuuji, Morgan Anderson from comes Stanley. your question next open. of is Your line from

Yuuji Anderson

and much is to It at question declines year. the seems some end the My so of Great. on accelerated morning. guidance. good auto's the Thanks imply

get mix between about the on and to hoping think on should So, more similarly, a we little other color And bit categories point, PND that? the that year? the how exiting

Clifton A. Pemble

Yeah.

conservative decline we do really been do the of the terms we that see our take view years auto the as and as PND. fairly practice in – ongoing of So We situation it's of given market. for a of

with quarter, During some roll programs BMW. and both experience Chrysler OEM, offsetting some programs, are like in off we're did categories. and not in seeing other truck And contributed which as new the new declines products, those strength we so yet, of have camera terms we of such

So, year we'll we'll as be as our some and update new of future programs of and we then, that's coming as the on the ups of course, for see in and the that move OEM remainder contributions, we portion to the outlook into see categories years, downs but change. the able

Yuuji Anderson

on with Thanks it it. remarks there, Got And prepared for segment the acceleration that then just some should outdoor guidance and additional Is launches a QX. in so of there looks building quick some off there? product the clarification like the be much.

Clifton A. Pemble

Yeah.

unchanged. be our our guidance we're for additional in launches the that's set. we have the parts, left to half in So we but are back year, do of why expected I the most so think where we And segment, major in and outdoor, categories the right

I question. Thank next move guess, Okay. the you. on to

Operator

All right.

KeyBanc comes Markets. line question is Brad your line of from Brad, next from Erickson Capital the open. Your

Brad Erickson

Thanks.

follow-ups few a here. Just

fill particularly get, levels. of start line cost First, kind million you've of fitness it you returned though, margin guess you quarters, I fixed of nice I little on don't ago so, were three or about of just kind these it Talk at was seem it's higher that know the like as to overall be below than if interesting, business, at it's leverage years some look so business, get those expansion. a or you in where $XXX bit or margins to seems tracking you like, channel

margins should what be expectation the fitness there? Just around

Clifton A. Pemble

margins lumpiness as we've XXs% but and around in as upper up segment targeting can the that for. we're low be targets that in launches, think the shooting the long-term seasonality we mid mid-XXs the the down, been our Well, as and operating around to see generally that's margins our I product and well

Brad Erickson

give – ADS-B of seeing us Got any resellers selling on rate when can your other it. sense are with, they're rather what's say, you the products? that for avionics the just And aviation, do have you attach a sense then

Clifton A. Pemble

close all them. high, very I probably to of would say it's

Brad Erickson

then it net us bit start give been – Got for lastly tailwind your updated it. around And a the any of probably have should neutralize becomes clarity headwind. in a you or to FX, seem benefit Thanks. that a as the – on What's guidance? maybe contemplating it like year, FX year the just you're can the to headwind the owed

Douglas G. Boessen

Yeah.

And The impact. a $XX pretty there of back well the what, half the at was little, for half. you're the back sort So immaterial now million. probably about at revenue of is expect consistent euro I'll year, correct, QX, on was say, the we right looking very average tailwind

probably, stays as on back the a is impact So same very it it's now, little everything half. right the

Brad Erickson

Got it. you. Thank

Douglas G. Boessen

Thank you.

Operator

Charlie of question Your open. the comes from Anderson Dougherty Charlie your & is next line from line Company.

Charlie Lowell Anderson

Yeah. congrats the year. to start Thanks for on taking and my questions the strong

Clifton A. Pemble

Thank you.

Charlie Lowell Anderson

wanted if about I've also were wonder I are And is on phase where a follow-up. Europe an Europe, like a very in going I slowed geos you or there? geo but you again, know sort sense was again And there particular you're bit, that it then of And to little I roughly a then and was out strong, down. asked of this there what's unpack, It kind what's call one quarter, was there well? any Asia could going you got if expansion seems just could building in that on so there? maybe ask you're doing I that last there geographic wondered

Clifton A. Pemble

Yeah.

market APAC doing that are as there some are very that countries there, Japan the terms well well. China superstars markets been and larger that other there some So have are growth overall in particularly Asia, of driving in are

to effect I to and there from quarter year, a dynamic, strong This than quarter. from we They two they were the the fēnix QX had attributed Europe super in launch fēnix year-to-date their really last fēnix the fēnix as announced of weeks be be able year go the X. whole can in think almost our of launch of year. terms less completely to last performance to with X In

So fill consequently, very markets. of had channel other they terms to in little as compared their opportunity

to be dynamics can So fēnix. attributed the think completely I there

Charlie Lowell Anderson

higher-end I move Got year. relative fitness, in up going wonder, do the degree it's XX% as of you we to it. units? look on you the just what a consumers And multi-year going like for that of ASP that do attribute at to wearables, I to in And wonder sort kind roughly that's more be to feel trend then Thanks. pay features? how to willing does or up it forward these terms to of

Clifton A. Pemble

the market like customers have. for what for of definitely, is offerings unique and Yeah, stepping that capability up dynamic the are more we

performance so increase in that our also definitely we But there. as see an the wearables well we category. And in super there's units advanced ASP strong in had see as we growth

Okay?

Operator

me. Pardon

Our from next question Ben Bollin Ben, Cleveland of comes your from line Research. the line open. is

Ben J. Bollin

little Thanks some see unique question. your Did everyone. morning, existing further you or fitness, to quarter? back foot were talk benefits to for taking Could going Forerunner expansion square there box selling bit, continue in the any a in expansion items you linear XXX? Are any partners? Good my seeing you for

Clifton A. Pemble

that of X music. been vívoactive line well did announce we in seemed Well, and and to of unique capabilities the music to design the received adding have its terms vívoactive product

So one dynamic. was that

our for I distribution, the well most pretty is think distribution overall of part terms In set.

improving for but some see the part been while. it's markets for some in a most some areas, countries incrementally what we has Although,

Ben J. Bollin

more What seen market And benefits would a And think characteristics item out potential any those how fitness in about it that back more high-end features makes assessment features wearables press the category. half? then Thank high-end what the half? could first what high-end your in exiting wearable? you or are, product in opportunity be, or within you from for the then is do the And the you that you. play TomTom release talked Great. in of have last

Clifton A. Pemble

sleep the do seems position, to in that stress sensor technology tracking. focus around It adding think and I you more Customers customer just of the they and strong the and Music, make the of the then are that. stakes that as we monitoring like side features. are in payments to to And products table the active smart preferences towards general, will. table seem terms features location bring them be GPS features in very especially So very additional like certainly moving with such which and products strong lifestyles. our our watches, maps are if

the customer. those see as we for So, all positive points

terms that In some to say, landscape, competitive terms the I depending know probably you you the talked in effect, in about. on TomTom exit, of of country there's would shifts

there those products. Some is does opportunities so countries strong of products changed as pretty well that for areas inventory The still and so others. flushed lead haven't the is report our much and as in that competitive much probably market to through increased channel

Ben J. Bollin

Thank you.

Clifton A. Pemble

Thank you.

Operator

next Tigress comes line open. question from Ivan your the is of Financial. Ivan, from Your line Feinseth

Ivan Feinseth

Congratulations great another questions. my you. quarter for on taking Thank and thank you

Clifton A. Pemble

Thanks, Ivan.

Ivan Feinseth

have I areas. three in questions

product? First, some can units that of you F-X price win, give congratulations the the of us and idea the on of number

Clifton A. Pemble

Yeah.

very of like course, be market terms small shows the a it's of in the able advanced very to so but view systems into stepping are quantity, to In specialized we used these our be it you application units, stone specialized capability cockpit that a as number F-X. know it of and a of aircrafts,

In details, opportunity about very we and stepping about again, those believe will terms of more. us but can't our be shipset talk excited we're that for stone prices, a into the we

Ivan Feinseth

you why some wins color us give I pipeline? other you some can do the Okay. thought on have potential – That's in

Clifton A. Pemble

are things In to terms been that can't lot speak been opportunities exciting that have haven't are of announced. those. we a there like, Definitely coming that of announced

on positions and Denali Cessna final Longitude For Also, as the of is SkyCourier well. certification. have its instance, the the in stages we

Ivan Feinseth

on on infotainment give us adoption? can Also, good. platform, you progress any OEM your Very potential

Clifton A. Pemble

see the this we we news that share encouraged to and more very customers. have deal we'll by additional We're pipeline believe in in Yeah. of year what terms

Ivan Feinseth

wearables. into Connect – with that with see that had a to apnea. your Are you Can some I relationship the app sleep I Kansas University announced or (XX:XX)? area, happening there? some monitoring insight there the function to progress, will on recently last from one expanding some partnership of that of And in have just what's be research us the with give I expanded focus know And work come you did sleep you

Clifton A. Pemble

of believe to in in light We lot sensor able our being a play promise device the Yeah. that medical technology shows market.

so, of studies But certain there. product one step It proving in participating verifying And long in FDAs That's with future. these and a our is start terms and the it that certification be in technology for the world. the development pathway product the way can it's used various in the growth applications. around to a involves a qualification opportunity of towards of

Ivan Feinseth

frontier that, Yeah, next I oxygen really And sensor in health. the is I X fēnix also the Plus. because new sleep the improving like in like probably

and my taking congratulations, again, So, for thanks calls.

Clifton A. Pemble

Thanks, Ivan.

Operator

the question next Research. open. Joe, comes line from from Joe Longbow your of Wittine Your is line

Joe H. Wittine

compare for what versus Can you. mix us by of FX so the how So current talk launch? It a insights through are be Plus the any to you've the Thank will. far there selling launch side? them No fēnix seems like you've you'll interesting gathered on seen X question. one I ask fēnix you side Plus? to purchases? does wants And

Clifton A. Pemble

we get the their we of products. Yeah, so information we're days, what people the real-time in feedback, very see market by register and but as early encouraged terms

we're And I momentum gate, the versions XX as higher-end the the well. gather versions, strong. starting the see think the very to out other been Plus around of fēnix have

Joe H. Wittine

which to side channel year's will be the the necessarily? selling be channel say them is fill side bit the Will in smaller, little or compare last you how the you'll substantial second a not because quarter? it by fēnix Can pretty fill for X,

Clifton A. Pemble

a side very that. is with side fēnix Well, definitely, there's X that by product about question no there's Plus, the factor that the competent

had with We different will in We days our said, use of were pricing, that we our in products. back still market, overall very the overall But terms fēnix versions. X two ship pleased just that that only of it's the the the from days in very quarter of that literally half in terms with the to contribution strategy early Plus.

Joe H. Wittine

Cliff. Thanks, Understood. Okay.

Clifton A. Pemble

you. Thank

Operator

There to I'll call the no are time. over questions queue at back Seck. in this the turn further Teri

Teri Seck

Thanks, for be today. available Have great callbacks everyone. I will and day. Doug a

Operator

And today's call. that conference concludes

You may disconnect. now

Garmin (GRMN) 1 Aug 182018 Q2 Earnings call transcript