GRMN - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Garmin Limited Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, Teri Seck, with Investor Relations. ma'am. ahead, go Please

Teri Seck

Garmin's would factors like available the the Chief Cliff Treasurer. Executive to Limited results and XXXX is there XX-K its COVID-XX welcome other the call that earnings and Pemble. time turn available archive Chief contained website. these about available press We business of Garmin Internet change XXXX Officer our and Pemble, and Doug and position, on information and Limited in for Limited's materially risk on company's of on and www.garmin.com/doc. on transcript significant and date. occur, I Garmin the the earnings Any Exchange this at impact particular, margins, statements the to as and projections will about and margins, forward-looking third includes financial regarding forward-looking any release time, affecting An COVID-XX Boessen, at and the is means of This that are could statements factors and based Commission. Form slides over results market results Presenting Securities objectives actual demand the uncertainty future outlook quarter Officer; call. impact the our Form related President earnings business. about statements. Relations third are quarter would In this At and The call behalf like of morning. and site you introductions, the events concerning and revenues, webcast to of Garmin estimate to duration operating may today's earnings is plans Investor related a Good This our morning regarding forward-looking Please our Garmin. be pandemic. as at differ the note also risk result Cliff products future gross call and not earnings, filed this XX-Q of with Financial are on in shares, best circumstances Information could statement future any dividends, product discussed

Cliff Pemble

pro-forma Thank $XXX exceeded was expanded results. over as everyone. operating for to the to XX% XX.X%. GAAP income This $X.XX fueled morning, billion Garmin strong up year. for in quarter year-over-year revenue million resulted active margin you, and Operating over margin Consolidated XX% EPS good Gross increased Earlier quarter, growth reported record $X.X operating XX.X%. lifestyle EPS the of and demand third of prior XX% Teri, and the $X.XX prior year. of products today,

I challenges so which pandemic. We are stabilizing, cover are guidance, XXXX, by to considering Trends pleased provide which with confidence COVID-XX fiscal our the especially XXXX in unprecedented the caused in us performance business far gives shortly. the will

operating income offer few were key led segments. margins driving Gross with performance to we resulting like Revenue increased growth categories, the strong Marine. chartplotters. of product XX%, a experienced remarks are in on Starting respectively, over and as and There in I'd multiple of each growth for XX% two operating First, these our demand XXX%. by results. of business XX% factors

the and First, boating expanding embrace as customers is fishing. market new

of gains. driving and share technologies strong market products lineup game-changing Second, our are

for marine recognized We continue achievements to be our and in the industry. innovation

year a Trade the news Excellence boating companies Marine of one consecutive Only, also recognized awards. Product and by industry. Association Manufacturer the were we Electronics the named XX For most We the Garmin of information received provider BXB for National Soundings and year, the innovative recreational sixth four top of marine as

by on of strong. and products We innovative and a boating to plan technologies. anticipate we trends these features with disruptive forward, fishing lineup Looking in offering remain capitalize that compelling interest will

for healthy advanced resulting trend. a life, cycling prior of segment in from of demand Fitness the over and The segment. margins products. XX% benefited to XX%, and year. operating Gross Turning growth next wearables continues increased importance XX% income were our pandemic respectively, living the this by Fitness and strong operating highlight Revenue the driven and XX%, to

During the XXX, range. our launched features quarter, Forerunner product we expanding the the multisport mid-tier new in offered

launched monitoring Clipboard, team style entry-level We app Sq, the also daily launched wear that and Wellness an and performance using category, an with In activity facilitates Advanced tracking Garmin smartwatch features. that monitoring training combines devices. health Venu we industry-leading the

wellness a plan health, Looking leverage wellness in fitness to products continue. fitness to with trends our to offer broader expect acquisition features. First and Suite forward, We recent and unique we of

Tacx to cycling the intend we addition, capitalize product indoor on our In line. opportunity with

technology phones next by increased strong Revenue X,XXX This services cell don't added since growth. that led the reflecting important milestone, changing its respectively, critical and all margins Gross in and inReach watches. technology significant where is the Montana categories, in segment. incidents our inReach that were a SOS in simply play XX% Outdoor recently facilitated increased in demand communication XX% from consumer and strength XX% has We launch places over emergency major announced XX%, to outcomes. income in an operating to benefited role series is Turning popular important inReach can work. The we XXXX. venture resulting activities. in provides and inReach operating segment outdoor for with interest

expect unique in activity outdoor leverage the to continue. adventure. and to maximize broader enjoyment outdoor that plan we products Looking of We by forward, opportunity the this trends offering

and like OEM Revenue in the Auto by and programs. margins decline as partially was and segment. track Catalyst, X% transform real-time designed tool Turning offset launch growth next to Gross from categories the P&D in we segment XX% coaching products as to specialty operating consumer decreased the revenue racing X%, new to an specialty new Garmin were optimize first continues industry The performance. Auto respectively.

also are segment. OEM revenue the making the further contributions New mix in and will diversify projects

as production marking supplier. a During Automobiles our the MGU BMW began of X module, of Tier with shipments quarter, we beginning computing the XXXX the relationship

Vito of the began addition, solution the In Daimler for we shipments infotainment van. complete

to growth product we in pursue opportunities categories. continue specialty Looking will forward,

In pursue a to vehicles. of addition, new we in OEM for years, projects X solutions making as supplier investments major recent won to broad of we will innovative a we range opportunities will continue be complete and electronic have Tier

the decreased decline XX% from the segment, XX% to the product XX%, respectively. ADS-B at market. and of were revenue categories revenue finally and and Looking margins Aviation OEM due expected lower Gross operating

While the flown experienced we headwinds, positive in see owner especially OEM in smaller aircraft market has segment, some the aircraft. signs

ADS-B, sign take market advantage In we technologies. the adjusting impact addition, latest aircraft the retrofit in of owners encouraging as cockpit lines when the see for of

on new certification equipped brings Jet, This previously aircraft Piper three certified aircraft Autoland models, latest the quarter, Vision incorporate including certification technology. MXXX the Autoland first to which jet Autoland its an the as Aviation of FAA the achieved the Autoland is Cirrus business Daher Winner During achievement aviation. is to the Week TBM category and the aviation. selected Autoland recently Laureate And safety notable general for receiving in Grand technology XXX. for as Network recognition important the

market Looking forward, we from mandate associated that the the the as pandemic, will aviation ADS-B and economic stabilize believe began general fallout, the fade. impacts to

products have of trends, could project declines of pro-forma approximately Considering earnings margin very facing continue while margin and we the We marine, market. XXXX, We revenue XX% billion and operating the will new anticipated XX%, than year expected proud our growing approximately and We be invest offset assuming business pro-forma general expected one issuing tax now full summary, guidance. of accomplished of share approximately are gross as to next XXXX and aviation and that $X circumstances outdoor in Garmin year of chapter a fitness anticipation $X.XX. of approximately ago. to effective I'm technology for auto. in associates rate aviation growth are no confidence what more far growth per In have the of so just in in anticipate XX%, in compelling one

grow we Looking at revenue the XX%. grow by XX%, and segment, guidance Marine full the the segment segment XX% XXXX Outdoor grow expect to to Fitness year to segment

We Aviation decline to decline expect and the XX%. XX%, the segment Auto segment to

that this remarks morning. concludes my So

details results. discuss will our Doug Next, financial on additional Doug?

Doug Boessen

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

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

or XX%. with of more, three third with achieved Next, revenue quarter we robust APAC. EMEA geography, achieved The $X.X growth Americas, of by we posting and growth look XX% five by of Marine our over the our by segments in revenue of billion segment revenue segment. led at XX% growth We

Looking for of at our the year-to-date first three revenue XXXX. quarters

consolidated of up with Fitness XX% by with of segment XX% the by double-digit prior segments Marine year revenue followed three growth. Our growth, the five with segment X% is growth, led posting closely

Looking next, operating expenses.

engineering primarily quarter and to by in Our expenses resources. million increased operating $XX Research million investments increased third due development year-over-year, $XX XX%. or

technology spend personnel-related year in advertising to Our million due approximately SG&A quarter, $X by in due increased expense Outdoor primarily our information to higher prior compared increased million and to segment. $XX expenses. increases costs

quarter with for with on cash sheet, taxes. sequentially cash increase simple split and an billion marketable basis compared approximately securities flow to balance third fourth quarter the increased the the $X.X on sequential to diversified product highlight in balance and Inventory line seasonally strong Accounts me no ended lines. statement yearly and million, on quarter, $XXX We increasingly Let receivable year-over-year increased debt. of sales.

$XX During million generated $XXX of cash quarter. the flow of we the free from quarter million, XXXX, third increase prior year a

XXXX, quarter approximately tax an intellectual expect approximately the due migration XXXX, capital of during cash flow of In full Also X.X% effective prior tax $XXX effective we we dividends $XXX compared primarily we rate is million. $XXX quarter, year expenditures. decrease to rate transaction. of year the million, XX.X% of free in The to the to third property be million For quarter. reported paid

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

Operator

comes JPMorgan. question from first with Our Chung Instructions] Paul [Operator

now is open. line Your

Paul Chung

quarter. the on Congrats

So just on Tacx. on fitness,

much any kind incremental sales You've more driven that And follow-up. that the had you could give a confirm than this pandemic leveraging a if growth assume I have of you And in outperformance network? by you then sense how then year your for has of have us asset business, sense distribution Can a now. accelerated for there?

Cliff Pemble

think the North the in helping American acquisition for leveraging did Yes. I Tacx has Garmin Tacx strong a market. us, definitely us. network presence a is not Paul, been wonderful have

Europe in able we Asia is before strong to So opportunity. we're And expand were course, of They now. that bought them. another mostly

Paul Chung

then Okay. feature is of this watches? we quite more And up on contributor? of an kind assume added license your given how the you'll Is it business, are a model. margins high smart size Or Firstly do of more the across roll meaningful it

Cliff Pemble

Well, it and fitness products. have it's it's look technology we our features as a And us, well to as that cycling for high But for a advanced an it margins contributor. add it's being and new developing support provider smartwatch as can we licensing the important you because able products. say, our as in wellness business. And metrics at -- existing

Paul Chung

you're during Okay. And have But out very uniform the across across the any early you trends quarter, year-on-year not of common growth that regions. all to regions the what for in stand QX? then it's seeing lastly, kind

Cliff Pemble

would notes of Yes. I a there. make couple

I interesting ADS-B if to the you adjust Americas, surge have of see it XX% would across impact is for year. the even been board. the the of kind growth In stronger last that think that

from do but in stronger mode. even been major is Asia, terms but products. and signs other do countries out country crisis see come each see is than back stabilization, of of we COVID-XX in some to signs I showing as would positive of we that in Americas slower emerge the they of So impact, there different, they And the say we're what consumer have the

Operator

Securities. Colliers next comes Charlie from Our with question Anderson

is line open. now Your

Charles Anderson

quarter. some was hear, stabilizing in trends It on aviation. really a great Congrats there's Cliff, that strong to

the market So in see you stabilization within if you still then various impacted I've a sort expand large maybe I what's and you by looking a of do serve of grades aviation, little category bit. in I of size that the platforms. in And follow-up. on versus a where many I'm wonder curious, could terms got that know portions way also pandemic?

Cliff Pemble

signs owner seen Well, as encouraging in in remarks, the mentioned there. doing categories and we've I reasonably are the this OEM environment, flown reflecting well aircraft

we autopilot if on eliminate as On aircraft the impact of I it's the particularly and retrofit around from in display see the driven systems systems for things, we market. signs new side positive existing mentioned, ADS-B, retrofit,

I systems in our recognize super. come strength that are there. great and with So system technologies is of retrofit that think The autopilot see people something we value. market And technologies the the safety as a our display lot

Charles Anderson

the margin going a as sort year, segment that forward? how from of And we're segment that in automotive, has Okay. of you go-forward through essentially wonder my then going Great. BMW to begun. for to that I'm looks layers to money impacts this like I larger in, profile this but not make transition It OEM that portion much of now basis? going that if go I'm a we're revenue becomes on margins now curious, follow-up, curious could speak where the

Cliff Pemble

is consumer specialty consumer transition trends lower especially to also are the which we products, as Definitely, categories the than side, see the margin the OEM the higher margins. more Yes. on on side

see So which program to the that mentioned source fruition, bring first We've for heavily build-to-print that my module, a which we're OEM impact these to another we're by segment. C&W as market. we'll is revenues basically brought mix the still party. second of supplier, the to BMW, I in designed programs remarks, And investing

On we've program lead that we're are and other for on others partner design won, with the the BMW build-to-print us. that

to consequently, heavily we're so bringing And market. investing that in technology

Operator

Power comes And our next question with Baird. from Will

is line now Your open.

Will Power

previous follow-up couple auto questions. to I just on guess of kind a question. Maybe the of

about of kind the getting growth cadence terms outlook OEM in timing breakeven maybe positive improving on, think the additional if you outlook of help and BMW mean Just quarter of us trying what's to could that what wondering that behind projects transition there? the could guess, the I to, turning or growth? and of and And that

Cliff Pemble

that one underway, are year announced -- about the have We can't course, that major really the project one, we additional projects we the about the is a talk that's do which specifics, of BMW ago.

performance of XXXX into to new and contribute. this these as before revenue terms XXXX is to programs In we going inflection bring for growth as definitely, said online, we've environment new an point in projects be revenue start that

Will Power

on the quarter? be there as there. outdoors, to lead to key strong contributors the to there But Maybe any gears Okay. switch I Any to key the line just be continues suspect Phoenix continues driver performance. to further drivers? the color color other probably in

Cliff Pemble

we adventure and outdoor sell-through starting that performance we golf. across in good But other launched both Yes. technology, I the would products strong say for lines everything in products for versions with very now. solar especially here well. about very that were those Garmin. quarter. Phoenix differentiator Golf basically and the new strong into of is those channel, see categories which do categories, to quarter popular as our product involves very and they're Instinct And felt strength We us. And sold very are as of charging activity, is a unique the we the

Will Power

if early how change at Doug, next impact on Actually, potential in for change to administrations plans potential thoughts could front? I a Okay. how just week. taxes you about and can thinking that one your Any the on maybe strategy tax sneak and as look in

Doug Boessen

statutory We rates, do for effective Yes. by the rate. the that lot that set. parts rates. tax additional or go any Obviously, jurisdiction provide any guidance current moving extra There's deduction of not the tax into year a beside income any

to see it how So we'll kind of wait out. plays all

Operator

question next Our Bollin with Ben Research. Cleveland from comes

open. Your line is now

Ben Bollin

a product quarter. you across from Cliff, you may seems a delivering have builds? in or like some material talk with then bit seeing Doug, follow-up. short availability products? you're been you're perspective could Teri. categories? about to what And Could or seeing any associated I marine little Cliff, the talk shortages have if It then you're tightness raw those if And any maybe in outdoor, fitness a seeing

Cliff Pemble

Yes.

So QX activity And fairly associated drop product working up to make we've demand fill in been coming the and to been demand. significant levels that we with of needed has lockdowns tight. place. been strong, since availability out the the ramp to has all back took time, did of hard adjustments when The

okay. now. we're But think backlogs us I doing are strong right very for the

So those. hard to fill we're working

a in but we've our situation our times raw had forecast suppliers, We've able terms there. We from within stock, that good been the upside, and I here In everything our shortages we've get been there's we And to have mostly lead that change to course, okay. few of materials, very our especially need. mostly would deal as say of on we safety cooperation. to business. rely with

allows continue is our flexible when. we things in model and do we integration that us something to So products. build And build to that inventories we can be what vertical of have

Ben Bollin

Okay. down relates as and thing. with the a seemed And the to your they're you working trying look retailers the be on And drew finished it your like do with same you is They into think other goods capital then question on now Do overall partners early could did holidays. of how it is, forward? inventory lot the partners, COVID, playing visibility you to replenish going that thoughts inventory. have where and into any as

Cliff Pemble

Many partners they out taking the very same are we quickly are so the though and, experiencing they're demand as products, are, even selling more well. increased also that things

inventory consumer So categories the most on the high. we not is believe of channel

customers in very fact, In it's a lot our find lean. looking products. cases, And of for we

help So what the again, find fill demand want. working customers with they we're to and hard our to partners

Operator

Research. comes with Our next question Longbow from Nik Todorov

Your now is open. line

Nik Todorov

fourth guidance. wanted the to just implied I quarter at look

bit you have think But fourth I down is implied fitness the know quarter-over-quarter. a think than in the typically that's sequential quarter, look bit implications decline for and sequentially. margins little sales to a decline, EPS more at for But the in I the due quarter puts it's be if I up I the XX% EPS promotions, side, okay. sequential talk seems a is more I guess you it fourth usual. takes? additional little to can about than I guess, on the any which

Cliff Pemble

QX the that is segment than mix. on the different are as QX holiday and over think I mix the as well the season look promotions as going to at we go product

there's doing We'll So be different factors a also there. go lot sequentially. that more advertising of into play

all with come play our into these guide. factors there So are that

Nik Todorov

think for the stabilization, And look segment, think Aviation the XX% same At the of about decline year is time, if I the easier Cliff. for signs from Okay, declines, there then where year. in the think if I last -- I from spoke that you which just guidance is in a perspective year-over-year December encouraging. anything acceleration the on order? that quarter was year, is implies comp affects an I I wonder at particular

Cliff Pemble

has explanation. equipage XXXX going quarter that the very that QX on. and surge in Yes, a of ADS-B huge a simple was with was

that's so as headwind that quickly move And past a fade QX. we will

Nik Todorov

have about Okay. And the for nothing last make major incremental OEM, in just -- question want don't much me. I that size into just the there's to keep investments those talked up up putting you that is with there how investments the -- of programs? can you any guys are sure, guys new you you there, are it's know, to ramp-up. net I way

Doug Boessen

Yes.

So yes, in year-over-year the Also invest to are in to continuing Cliff Europe businesses, CapEx manufacturing there. R&D to OEM as have primarily get in we have we we increased relating the we CapEx, investments closer facility mentioned, basically, as our production.

Nik Todorov

Okay.

of Tacx, go product to were on I give online capacity going to you supply expecting On if just it's to update second the guys to Just if guys can quarter? are believe this ready think an into follow-up. December you in new -- that come us able be year. and half wonder I you I a quick the here

Cliff Pemble

of that we some Yes. lines the well We're products in QX, starting do distribution Tacx on various The And up products be to is manufacture facility to facility. functions new out as the ramping of production should physical facility. in as the them able our new be operating. now there production to

be have. we we backlog incremental big adder that that's and pleased a going to So we're the to very believe filling that, with Tacx

Operator

Our next Tigress Partners. Feinseth comes question Financial with from Ivan

Your line is now open.

Ivan Feinseth

during of new this congratulations another Congratulations you've able this time. And products on been on quarter. cadence that to difficult great continue

on strong a were marine, the be a you that and So QX including call, now in middle your said you you and in a marine of seems new that in lake fishing provide social these to year? April, boat. distance on out products that had like already you demand than products have And driven that for ancillary way diving. no were you then the have kind it this lot new products did that brought Did participation these earlier seeing this of need demand has do your So growing you meeting did your you as able have develop of success? and you great to saw ability adaptability, to Or in Or toward planned? pipeline? them of kind pivot better

Cliff Pemble

Yes.

that I long-term our the were products think planning throughout investment maps. instance, the from we really, known thing. market We since maps on didn't we was road yesterday, making been cycle a in the introduced and marine product we for in we've road products it that COVID focus before were the waver

I think our in the able to and product that in we've we of company thing, and home with face workplace. release maintain every even significant distancing working challenges like had the from schedules, the were key that's

their actually sometimes to to this been able are amazed of our what team be to what in accomplished. of think I'm So products a has do. they've the super testament at our I'm pandemic. face successful proud I determination And

Ivan Feinseth

gaming Absolutely. brilliantly an a been the then pandemic thing play pandemic, watch. and And the you then come home with home, this has at e-sports at since at stay home, huge whole and out

adapting I you environment. taking advantage the to the or that So like way are

market? fitness What cycling. indoor your superhot the mentioned the cycling plan in presence and is indoor to expand there You indoor your

Cliff Pemble

Tacx from the very been strong. customers Well, our has response on

those to people we the look lot as winter more. going working those, are and hard for we're a backlog in have fill as season of towards to products, be We especially

and the plan distribution, to facility, of the Tacx products. for Asia take the So expanding and in part advantage Americas that production facility, our especially new those our big is of a

Ivan Feinseth

have specialty areas, what you of the Catalyst, products what products vision say, auto like of other types in do more you coming Then out? kind other

Cliff Pemble

the we Well, details a works. other creative that lifestyles. can't categories active in team we participants are on share I have have in those, but

And anticipate targeting on to more the categories. going so in see the auto specialty in new future I we're categories

Ivan Feinseth

All right. Congratulations again.

Operator

question with from comes Our Erik next Stanley. Morgan Woodring

Your line is now open.

Erik Richard

summer I TAM high-level seeing forward kind perspective Congrats on And want based thoughts just your to are expansion? of now of we Are And into just about your here. the XXXX pull from get how you from we months? a on potentially gives results. of, demand answer? what fantastic do markets think the the you seeing just in of your your answer there, kind confidence the end

Cliff Pemble

I think probably story. Well, market each a different has

new As seeing what we probably you would and customers and that we're Fitness engage come TAM want as be for outdoor Outdoor, demand to in to healthier fitness and the market. people it's call In strong mentioned in into a expansion Marine, activities.

The as partners those could well. forward demand the is will this those based the have also behavior pandemic. in strong see things don't anticipate that the market with our right We we and as pull are gains year, throughout also again, share of the end on into that of expansion. XXXX anything 'XX. factors possibly There's people similar during that's discussions TAM now So be trends as through described back happening

Erik Richard

mix unit-driven maybe, on can to or way, we I in comment you and lower a how Fitness priced in different think asked maybe ASP guess, I priced how the versus you versus -- should shift about devices that the the terms then devices? strength consumer, -- can And higher Outdoor of you're either seeing the did Awesome. segments,

Cliff Pemble

Yes.

But we line as like the solar Instinct a combination of Phoenix I our at as well also example. going products definitely wellness fitness, new increases growth for advanced unit There's think things there. in there's and launch on line. the solar look as products ASP we there's

we're So are we combination capability of the that the those customer the appreciate that products value things. think, And of offer. it's that and the targeting, I a base

Erik Richard

understand your business down here. steady just in That's X quarter count XX if all of all? could just throughout helpful. super it the realize -- us summer level, the last Marine I And help do can Okay. change seasons. drivers has quarters. just at Marine high if in the remarkably business then wonder I the a versus winter the been from But kind example, during, looked you X months, for months I of squeeze I basically I how

Cliff Pemble

very Marine is Yes. historically seasonal.

sense, late expect QX So especially that ramp anything QX, down also when then take year, New for so and an the we in in into just we slow would throughout very and was QX up in ordinary arrives. activity demand QX boating strong. products the the our continuing and retailers. but would Not market This saw sense normal and to times, our again place is the sell-in but Year in sell-through at

plans that have are extraordinary retailer people year products an the it's So they the time QX, at enthusiasm around for promotions advantage marine And take as of and very on the water. strong. as we look

see for we years seen QX And very past we've marine, so a as strong well. unlike also should in

Operator

call remarks. Thank would like Teri Seck closing for you. questions now I this at time. I'm showing not back any the further over turn to to

Teri Seck

I for day. available call wonderful joining Dave and Thank us a backs. Have you all today. for

Operator

gentlemen, Thank conference and concludes call. for you this Ladies today’s participating.

You may now disconnect.

Garmin (GRMN) 28 Oct 202020 Q3 Earnings call transcript