GRMN - Earnings call transcript Q2 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and welcome to the Garmin Limited Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Teri Seck, Investor Relations Manager.

begin. may You

Teri Seck

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

could our business. future forward-looking other position, This our forward-looking in earnings contained result future circumstances objectives, discussed Any regarding a and Limited and with events statements and Garmin. projections may demand are of plans this risk regarding The Exchange future factors shares, not Form gross concerning our and call Securities earnings, statements its is materially, actual factors differ and and these dividends, financial Garmin revenues, risk Commission. and for affecting as margins, product and forward-looking includes call statements. filed operating results XX-K Information in earnings occur product market introduction, and

President of Treasurer. behalf Pemble, are Cliff Officer and Chief Chief Executive this Officer; morning on Garmin Doug and Limited Boessen, Presenting and Financial

call time, like would this turn to to At Pemble. Cliff the I over

Cliff Pemble

morning, good Thank you, Teri, and everyone.

X% increased results, outdoor the As revenue and the up and second at prior earlier for in fitness including quarter. year. year-over-year. marine, collectively the Garmin announced over reported operating today, million, strong $XXX Consolidated revenue Aviation, record income for XX% quarter came

the over year. forma EPS $XXX improved $X.XX pro EPS This $X.XX GAAP to Operating in resulted of margin XX.X%. income increased Gross XX.X%. million. quarter, XX% the to Operating to expanded XX% margin and prior up of in

strong of business financial I'd a XXXX us for half in the of first performance results remarks to our greater few our discuss in segments. guidance. Doug like with our the our raise minutes, results to performance few but brief and We year on are full give detail a pleased will confidence first these provide

Starting experienced and growth Revenue XX%, We strong in operating product increased XX% and resulting by with segment. growth remained prior respectively, XX% driven both our strong and in ADS-B year. income the of the over categories. growth margins Gross XX% at aftermarket product in aviation OEM operating offerings.

we the to GXXXX integrated XLS, quarter, bringing certification Citation for state-of-the-art popular system achieved Excel the the During family deck of a aircraft. of flight cockpit this and

availability of Cessna the announced and the NXi with also for equipped We Beechcraft upgrade the original GXXXX models system.

strong upgrade see We to customer for continue appreciation program. and this demand

aviation FAA, mentioned equipped, approximately earlier, aircraft As has our as significant to According a in July ADS-B I X, of the XXXX. are into XX,XXX, of have which approximately commercial Of business. been continue XXXX, of roughly growth Based been driver the Garmin total XX% everything ADS-B we that has opportunities market aircraft. will see, the it remaining XX,XXX share. likely is XXXX captured on

While the the opportunity for aviation ADS-B segment. has a significant been only opportunity, it's not

New OEM platforms, opportunities beyond systems, represent and aircraft cycle. demand trainer for upgrades ADS-B the the cockpit growth growing retrofit for NXi

aviation about future optimistic are We our business. the of

Panoptix and we Revenue XX% respectively, that margins for XX% XX% chartplotters were and audio its equipment. the to includes Last now Garmin with pleased Builders named Boat and the our expanded mentioned year. supplier quarter, of has I'm Independent we Incorporated IBBI report strong that strong and relationship marine. at in next as income sonars. LiveScope demand Looking our increased operating Gross growth. experienced operating resulting

choice selected the electronic IBBI by its Our preferred for as of Fusion systems was brand marine members.

the keeping market. significant freshwater the new our strategic an trolling strategy category and opportunities. first they of fishing ICAST we introduced at because entry this motor In markets with growth show, growth is product Force, New recent area represent into

ICAST. and accessory a Show for Best back-to-back Best Show making Garmin XXXX named new the at of of best coveted boating was winner Force won award

we're and proud new about in very are the team this segment. excited our marine opportunity accomplishments We of Force the represents that of

increased from XX% acquisition XX% Looking as the driven growth in segment. operating running as well margins respectively. by recent products were Revenue of our and XX% Tacx. next fitness contributions at Gross and

quarter, Forerunners all During providing line we refreshed watch features dynamics running runners. and shipping of enhanced smart of capabilities began both our for the

We also of completed process the and acquisition distribution the are now the in through of Garmin of Tacx products Tacx expanding retailers.

significant by the our in the We first is remarkable X% the half believe year-over-year Revenue considering this impact products. and launch Turning respectively. XXXX. increased margins and XX% to a next Five were segment. XX% Fenix Plus and operating accomplishment growth inReach outdoor on golf basis the a during of Gross of driven

MARQ During the the shipping began we luxury watch. quarter,

In demand we the experienced watch. adventure Instinct strong and addition, for wearables golf

a also our inReach flagship line handheld technology satellite of introduced to navigators adding communication We devices. refreshed handheld

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

Alexa market assistant personal the share remains drivers. to voice-controlled in XX Our DriveSmart position the strong. enhanced global bringing PND We category very integrated functionality with launched

product announced also needs GPS growing is Overlander the looking Garmin fit grid. the specifically all-terrain a designed those the for explore This to We community. offering unique the navigator, to of lending over an off

pleased In first results in the very we with half our summary, of are XXXX.

representing Given projected the prior approximately the are performance, our an to we X% this increase $X.X strong billion year. revenue raising year, for over

projected Operating is to be XX.X%. margin to for be year. margin is the XX.X% Gross projected

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

our unchanged. our segment for Looking to to segment segment have increased outdoor to annual marine down by growth and the the Fitness we at segment, XX%, aviation auto XX%. outlook expectations the are XX%, revenue and

That concludes my remarks.

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

Doug Boessen

comments I representing revenue the second flow and taxes. with morning our second statement, results by reviewing Thanks of We Cliff. balance everyone. on for financial million year-over-year. posted cash X% the sheet, quarter increase begin $XXX Good quarter,

$XXX year. the was prior million, XX.X%, point income point point year-over-year. was was XX% percentage decrease as prior basis increase increase year. XX margin expense XXX from Gross XX.X%, from XX.X%, increase year. sales prior XXX a the basis of Operating margin the Operating Operating basis from was

our was EPS GAAP Our EPS figure. $X.XX, GAAP

Consolidated we'll outdoor revenue grew segments. year revenue solid second had segment. segment the by at double-digit Next, the led in XX% up $XXX Also fitness outdoor look by growth aviation, second basis aviation, marine, fitness of X% quarter. in achieved and and our prior record our during million. quarter quarter marine, We were quarter. Combined growth revenue the compared

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

income year-over-year see marine, our basis, the On XXXX segments strong mix and the aviation, illustrate it and on XX% it XX% by can charts, delivered fitness dollars to You compared segment. income in improved quarter The of had second auto operating operating marine, profit segments second aviation, quarter increases the XXXX. a in outdoor margins. and of combined operating

Looking next at expenses. operating

operating increased X%. expenses million Second $XX or by quarter

sales As were decrease from XXXX, expenses second a of year. XX.X% quarter quarter the in the XX last operating percentage comparable basis point

auto entering $X million due Advertising lower was in in year segment. Research our the down from investments year-over-year expense million to prior and $X expenses development increased resources.

associated of flat was was as to percentage with SG&A acquisitions. The to increase sales. quarter million incremental up year recent due personnel-related relatively $X a primarily costs compared prior expenses,

year-over-year raw flow securities sequentially cash balance sales. A statement. We timing few increased million, the inventory sheet marketable balance receivable to and quarter due million, due Tacx. of approximately Accounts year-over-year $X.X material The cash ended and highlights products, increased sequentially – the to with to quarter new acquisition strong of and to quarter $XXX on billion. second requirements of $XXX

compared quarter during from prior of the For the a $XXX quarter, of of XX.X% in quarter. Also In second effective to quarter. rate tax tax of generated rate XXXX, XXXX, of free prior million, cash reported we second paid $XX million $XX million. year the we effective the year decrease quarter the flow dividends XX.X%

We approximately remarks. continue This effective forma year concludes our XX.X%. pro expect rate our to be full to tax XXXX

for you TJ, please open can line the Q&A?

Operator

And Anderson our from [Operator question Instructions] & first Dougherty from Charlie is Company.

open. is line Your now

Charlie Anderson

on strong guidance. and my results questions the taking for and Thanks congrats Yeah. the upside

Cliff Pemble

Thanks Charlie.

Charlie Anderson

Yeah.

to So within the I want guidance. just start

growth year. I the first think XX% single-digit for you're sort calling of still had in for outdoor the but you half,

So the wondered, what half guess there? you to just sort I'm to of of rate reaccelerate now. just things Tacx, could the anticipate growth second sort in where of curious speak having kind stand if And I you then on

got improve a You're to follow-up. integrated to sales I've is some there? then degree, but the how gross distribution margin much some then And of also headroom there and

Cliff Pemble

Yeah.

the So, back line. do be in anticipate outdoor, product half refreshing we'll we that

the built on that's segment. into outdoor assumptions So our

factory chain of Tacx facilities the As integrating updating its are far in also days, supply and order are as infrastructure them but including build we working on to early their process into trainers. our they in business goes, our

of opportunity days, to to of but again to but would gross margin as some terms improve time, probably over savings amount be realize time that along. we those go In able early there's take

Charlie Anderson

then And Doug like if I there? could you just it was decent on up going was it on real inventory, expand wonder, just Perfect. on seems quick amount year-over-year. a what

Doug Boessen

on come is just sure prior a levels QX of in material to a we in on to have looking inventory have we'd than inventory our to balance product of but QX. inventory make Inventory that which saw for Kind year-over-year. of Yeah. the little probably some lighter making in safety inventory anticipation so change like number is up I expect we Sure. of probably It's be continuing looking of I of raw in product also we factors, last year, QX, due in. it'll rest requirements the of basically year-over-year, It probably Tacx some sure demands. half. pretty want saw was the bit the would And launches we Also, also appropriate year-over-year just launches similar to probably go acquired up and year forward year-end to back of what some stock. increase appropriate levels timing the type incremental at just meet I to be go will at one the of down just number similar

Charlie Anderson

Perfect.

much. Okay. Thanks so

Doug Boessen

you. Thank

Operator

Rich is Company. Our from question Needham from & next Valera

open. Your line now is

Rich Valera

Thank Good morning. you.

or I'm strong the continue I you to in ADS-B you ADS-B activity guess that – just aviation thought would – if follow-up and that that So you XXXX why I performance XXXX. thought sorry into a and want attributed

are thoughts your what there? Just

Cliff Pemble

Yeah.

factor only growth the a definitely segment, but not was it's factor. the for ADS-B So

I categories and market there's across aftermarket. As of segments product really and many the also mentioned broad-based the OEM growth

be like continue feel there's being we of rates a at which XXXX. that total chance equipped, into looking equipped those currently that In and the And the installing are now out partners basing our some mandate, us telling just our into XXXX. after feedback from the are they of activity that booked of terms we're to views on at good the will who number remain aircraft that they're

Rich Valera

just how Got then their it. much can the then acquisition, in you XQ fitness relative growth of from And reference just us of -- Can That's terms helpful. the margins? you And to sense growth or say are the on to absolute made margins you on what Tacx? there. was margins either year-over-year Tacx gross gross give historical a the

Doug Boessen

Yeah.

it give we're year the fitness of by over those to Cliff gross be margins, of QX, don't product mentioned, to We was like improve relates little for each in half. as it lines. Tacx growth for do specific amount our But to expect one business. of the gross And time. margin about relates under half looking it year-over-year to we full So bit the Tacx the a the

Rich Valera

Okay, thank you.

Doug Boessen

you. Thank

Operator

you. Thank

is question Research. Bollin from Our from next Ben Cleveland

Your line now open. is

Ben Bollin

next year on everyone. have as implication seen about more OEM about out morning, service? any then follow-up. thoughts Have for on you you you forward a and could on think talked a potential? ADS-B aviation? Do last the taking go my activity other bit retrofit? this out any And talk little year. Good then of have Any questions. versus thoughts the do retrofit into basis how about look I And pull-forward you aircraft mix continuing late Cliff, the XXXX you of of a year Thanks And beyond? that

Cliff Pemble

Okay.

quarter. saw don't detail. product that we it's it identical But between in pretty the and So past rates remains much the of the retrofit, roughly true. be we've break mix said to two that in for growth Ben of categories down OEM split between the we directionally two evenly those And terms in and

So categories there's serve. of markets we strength the that both across

more needing time technology, be impact of new people that their again with those on for In they are to and to XXXX pull-forward sure per equipped are panels many taken terms new obviously the that there upgrading are ADS-B But many, upgrade aircraft out in ADS-B, se. technology. not fully have there's going with

technology Some people available in an believe reassess of the we aircraft a new that's now. them are flying upgrade decades to old for to with their and is electronics and equipment opportunity this that's

Ben Bollin

bit Okay. is any when then revised design term first And inclusive automobile material Is then of you provide about time? maybe Thank that from could how does the can business, talk on later longer of all more this And it And little China within contribution a thoughts the half? color year? inclusive -- you over guidance or you. BMW? Where opportunity the you facility? with the become in are that BMW lead

Cliff Pemble

Yes.

about what PND the how So our been bold with than We're have account the of rolling the we're in benefits everything certain we've the the stronger in automobile assumptions guidance into far. performance past. higher-end the not although making particularly segment go, that into product they've guidance been categories the we've performed, have so lines takes forward pleased and will had experienced market where

good So that's news. all

BMW, XXXX That's the terms be newer that with progressing said we ongoing that be infrastructure and of built program capital investing that's to obviously of effort. take into of of of will It the we before. to been guidance some able impact of set in to establishing new that our some Europe. need process our a have our develop years the sets to and number BMW factories in minimal as an program In is first facility scheduled won we now the is support in business upgrading existing There'll XXXX. including and in program that we're be a

Ben Bollin

Thank you.

Operator

you. Thank

JPMorgan. Our from next question is Paul Chung from

line now open. Your is

Paul Chung

thanks for questions. Hi, guys. my Thanks taking

follow-up on just a So aviation.

So that your relative have peaked do of suggests guidance Is a XQ? second in slowdown just conservatism there? kind of think half. half in ADS-B the Or to some you kind first upgrades

Cliff Pemble

Yes.

to comping pretty numbers cautious definitely I harder think We're in the be big second like field is year. the against more on in capacity strong we and did the established some it's really reason so fixed, see And installation little a half. growth last we the grow to in much past. numbers

So solid certainly for as inevitably down we activity of that's go deadline a approach the as a there wind be segment. believe the we guide the will And we forward.

to forward that well. So we're looking as

Paul Chung

that. a outdoor Thanks for margins. on Okay. And then follow-up

the margins uplift kind With as some maybe as on Fenix tough we're refresh of there how coming the should kind we probably of Is think about in operating to hitting there kind well? of second possible the ASPs there half, of some comps refresh?

Cliff Pemble

I specific can't margin opportunities older new Yes. launch say mix. product are promote every into as And we margins I the do phased comment out. there's improved come we on gross being plans operating for the that the for that But products that and would line. other products like both

Paul Chung

and year. on Asia read the of reiterated Americas thanks of regions? European kind not any then demand in what then of And initial from growth Tacx business Okay. potential? or possible kind those expansion kind question last your existing fitness and of this for does from on that X mainly base And the include points Is

Cliff Pemble

Yes.

that's think some does we out from what see business on time. historically new the rolling I product and Tacx based markets into take the

So that, outlook. there's incremental figured into already some that's but benefit our from

Paul Chung

Thank you.

Cliff Pemble

you. Thank

Operator

Thank you.

Our next is from Financial. from Ivan question Feinseth Tigress

Your line open. now is

Ivan Feinseth

you my congratulations question another on Thank and quarter. for great taking

Cliff Pemble

Ivan. Thanks

Ivan Feinseth

two questions. have I

type What see it of European ADS-B First, a coming mandate. It from of XXXX. like June starts there? you do there looks is opportunity

Cliff Pemble

that opportunity potential and going of as Yes. to a to opportunity. us preparing we've majority the We're the smaller opportunity to well. an for because serve than certainly But in the able mandate That's American much for it be remains be in Americas watching seen an aircraft obviously still, it. are market. what ADS-B It's

Ivan Feinseth

of their product plans? I Very I do and vision lines opportunity. they the fitness attaches is bike Tacx now a -- to your it's think you like or outlook equipment kind type for their trainers to -- line, products exercise what do in product a nice And treadmill on good. really have market -- opportunity bicycle. see what those But guess new which could and introduction the it be new fitness bringing marketing there called a you what where addition to What in they or big in

Cliff Pemble

would investing on the map plans, I and in Well that but bring R&D to specific we division products we a in Tacx road more don't for market. to able their do solid say comment to have we're be those

Ivan Feinseth

good. Thank Very Okay. you.

Cliff Pemble

Thanks Ivan.

Operator

you. Thank

Our next question Power is Will from Baird. from

is Your line now open.

Will Power

color you thanks. guess first looking sell-through introduced products? I Forerunners. on some is any Great, fitness. what question like on I initial early know versus Maybe sell-in on those new

Cliff Pemble

very products. The the We strong. excited by new Yes. about market is received we're the well products and very have been think sell-through the

Will Power

called Okay. any demand I the new looking the the introduced And function first it's while that guess in that's haven't time we on I at second probably in initial Instinct, -- guess half? to some any a that's and do out. outdoor And expect thoughts the get front, a fenix early we just heard I then but there? on refreshed the of guessing MARQ products timing refresh. I'm of guess

Cliff Pemble

Yes.

very market. gate. of we're think expanded has that something the been us. out things very The very was sell-in with sell-through the strong. us of MARQ, have for It's gone users is product the base The So strong been in a delightful Instinct and we pleased the has for watch adventure how

Plus it's coming additional strong year a been fenix a new and the strong expect have got we shortly. So, introduced over a we since five a announcements product sell-through. little following, now to has The obviously fenix

Will Power

Okay. Thank you.

Cliff Pemble

Thank you.

Operator

you. Thank

Morgan Woodring is from from Our Stanley. next question Erik

now is line open. Your

Erik Woodring

the up from guys. morning to FAA. data new I on quarter. out start just brought want you Hey again on I good the since Congrats guess aviation the points

-- like basically there's does XX,XXX go then want And year-end? So upgrades more if I through or to follow-up. -- that if to that XX,XXX to that something a confirm XX,XXX planes, I we're have XX,XXX just before imply

Cliff Pemble

Yes.

the shifting I just the amount interpret highlighted high-end equipment. aircraft. XX,XXX including of as including XXX,XXX also admittedly aircraft GA to definitions to experimentals really XXX,XXX only FAA. probably some those have And think obviously those want commercial provided people by well thinking includes and experimental we about there's as the of The I as that numbers like aircraft everything aren't that

certainly if nuances that see appear same the would it cycle. if for at to number too ignore left the nearly of a it the We XXX, those low. higher significant think is. number And what we look just have you that even we at pretty So is market runway and the it you amount go in look XXX the

So that represents a opportunity. significant

Erik Woodring

Thanks that just for Awesome. about guess color. then could if talk And I quickly. marine we

I'm macro guidance. of that's is of you you factors guys function the more of general share business expected. just it raised result wondering getting more a you So a a result growth in if market marine originally or than

Cliff Pemble

has market a those I it's we strong. higher-end especially in that's share gains the content factors. think equipment and our market new that's where That's combination equipment strong, these the been see technology. like their as But with of our boats compatible people purchase Certainly, very disruptive advantage and also new we've choices and of so LiveScope. new introduced the rethink caused technologies can that they to Panoptix our system take is

Erik Woodring

you Thank Awesome. again.

Cliff Pemble

you. Thank

Operator

you. Thank

from is question from next Research. Our Nick Longbow Todorov

now is line Your open.

Nick Todorov

in. ADS-B, and we've in quarter. installations guys. Cliff this Hi, we a some saw squeezing ADS-B for inflection now about been talking Thanks capacity tight for on while me

from guided obviously -- those where upside come what relative view to to your to capacity you aviation order in prior installations? in expectations. And did in So accommodate

that's from? seems I Where to that see incremental you there up. some demand do capacity, guess, So coming be coming

Cliff Pemble

Yes.

to will People solutions so solutions the the and mandate. closer we they towards is certainly One them quicker mandate, So gravitating a factors. right they're few realizing market that that be compatible some now by. get get are that selecting with need as the to is

do of to expect back those some will in We more. come the future

We've working to proactively installed also our expand been base.

of So that's throughput our helped certainly the improve equipment.

another So yet out there. that's factor that's

field. how think labor rates attracts been into obviously so to be the improving, then the which efficient more And rates and -- they've employees of figured have I had out hiring finally, The people. been shops course

improved many combinations things the there's different in that are of going that have throughput months. recent So on

Nick Todorov

just a as on follow-up And Okay. ADS-B.

hesitate your with indications mean, may some to I we're XXX,XXX machines the the get of are to you that dealers are that I terms hearing there mix not in older equipped owners suggest to So airplane. are are end to airframe a -- be of yet that of of that or to planes going lot the whether estimates? to ADS-B aircraft remaining may of remaining equipped get that scrap upgrade that the mean, that partners and what the what's in from high terms with need ADS-B likelihood

Cliff Pemble

the certainly, do. we hitting the Well, but of do to a numbers, than is hitting it's possible high lower more end think challenge

I those For the where contemplating the think airframes might anyway. aren't probably that are versus people out there candidates airplanes be upgrade scrap,

they've the So been into factored numbers. projected already

Nick Todorov

bit Got but in And talked expectations changed? abnormal of implies OpEx, and growth a about we've in on factor. Okay. last know little a a your in have can because kind half please OpEx in the refresh the trailed the quarters second steep you couple I I this is half. first expectations But growth playing the it. of asking guidance just growth there? guess, I'm your sales OpEx maybe in Tacx pretty

Doug Boessen

Sure. Yeah.

a factor half. so a kind give will and percentage in basis that Tacx overall about grow We acquisitions a a half, play will expense to back of sales is rundown point between the in bigger different at increase cause right. the OpEx, XX consolidated. back of exactly so faster the a probably as operating year-over-year. You're the rate OpEx our To expect would

at relatively Looking that of probably think will I a sales flat still percentage be advertising, year-over-year. as

the in increase So year-over-year a probably half as the have higher year-over-year in little launches new just come bit half. we saw some product increases they're in back and have we out advertising first

acquisitions the or of half points that be will back of percentage and the Then R&D, year time. to that period due sales a relates to that's impact in a relatively primarily consistent it SG&A expect as of as to on Then XX be about basis the we probably year-over-year. up

Nick Todorov

Okay.

flattish like previously. relative be expected expectations seems versus now to to it R&D original is So

I think so expecting basis you plus were - points you XX

Doug Boessen

because of our standpoint. sales, we and Yeah. from took the Absolutely, that leverage sales up

we're add in go certainly optimize continuing to along. lines continue but as headcount increased sales. for leveraging to our that basically R&D area there But – product yes So to we just

Nick Todorov

Okay. That's helpful. Thanks luck. Good guys.

Doug Boessen

you. Yeah. Thank

Operator

am no At further like remarks. you. to showing for the back Teri closing would questions. I I time, turn over call to this Thank Seck

Teri Seck

Great. for Thank in. and for are callbacks everyone Doug the I a day. you wonderful calling available one. Have throughout

Operator

you Ladies for participation This in today's your and gentlemen, conference. thank concludes the program.

You may now disconnect.

Garmin (GRMN) 31 Jul 192019 Q2 Earnings call transcript