GRMN - Earnings call transcript Q1 2021

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Operator

Thank you for standing by, and welcome to the Garmin Ltd.

First Quarter 2021 Earnings Call. [Operator Instructions]. I would now like to hand the call over to Teri Seck, Investor Relations. Please go ahead.

Teri Seck

everyone. morning, Good to XXXX like to Ltd's Garmin We Call. welcome Quarter Earnings First would you Please earnings on that at www.garmin.com/docs. note the Garmin's are related Investor available slides Relations site the at press internet release and archive available our be An will on the related website. webcast transcript of also and This earning forward-looking and projections statements Ltd. Garmin call includes other regarding its and business. and statements. demand Any our condition, financial margins, future statements products for operating product our market forward-looking dividends, shares, revenues, future objectives and plans regarding introduction, earnings, future are gross margins, The circumstances call and forward-looking have may earnings events this on discussed occurred. Garmin. result Actual results as materially could differ of a various factors affecting Information in with filed concerning factors these Exchange risk is our Form Commission. and Securities contained XX-K the significant there's the particular, COVID-XX In pandemic. about impact the duration and of uncertainty the outlook COVID-XX results of impact company's business that available the the is the of anytime, means This could about change on and results estimate date. as at information based best today's on statement and any Presenting Ltd. on Garmin of behalf and Officer Doug Cliff and Chief Pemble, Officer; morning Treasurer. this and President are Executive Financial Chief Boessen, At this Pemble. turn over time, call to I'd like to Cliff the

Cliff Pemble

Thank morning, everyone. good Teri, and you,

This up X $X.XX, increased resulted was million. at the grew in with XX% in business As $X.XX. to EPS forma the began at strong strong to from over momentum nearly as came the segments. on billion, EPS margin XX% GAAP Consolidated continued XXXX Gross X XX.X%. into $X.X of prior up announced XX.X% our note XXXX new year $XXX in Operating growth margin a was income and prior operating XX% year. Pro earlier strong today, year. double-digit of revenue over

operating what revenue driven cycling year were income strong XX% to XX% doubled XX%, segment Starting more Operating highlights fitness, to $XXX and million. than and advanced to for and the margins over call we Before increased turning the $XX over provide I'll demand and Gross with prior by a ahead. of respectively. wearables. see products million, by summary Doug,

with for a fashion-first product us. the for In exceptional is features including we new which women. we smart cycling, designed Lily, quarter, watch the version introduced cycling off-road the for During meters, a launched power category a market, specifically Rally

Revenue $XXX to across led and strong $XX XX% for The to million adventure outdoor Moving operating with Operating all XX% generated segment and watches. product demand to strong margins income growth prior outdoor. the growth respectively. by XX%, year doubled nearly of million. categories over increased

we racing. exceptional During Enduro, demand endurance a category adventure specifically for battery the launched new watch built for athletes life quarter, who

new every Approach We of golf X skill devices for golfers also of tracking the of level. the expanded products family launch with

at first $XXX ADS-B by Looking of decreased Revenue to strong next aviation. X% million, quarter in remained from that the primarily reduced XXXX. driven products contributions

last stabilized. from XX%, operating Excluding the and relatively which and the is respectively. underlying an that Gross flat year, signal ADS-B, XX% encouraging market revenue was has were margins impact to

Autoland for Robert the Collier of X Trophy significant During J. achievements recognizes quarter, award and prestigious astronautics. selected aeronautics was Trophy. the areas the as in of that is X Collier finalists a The

which certifications, recently autopilot list these GFCXXX systems. flight the market advanced aircraft expands control we the addition, to and several added models of In addressable XXX for

at to Operating the prior respectively. next income XX%, increased Gross over Looking XX% were to $XXX and increased the and operating Revenue year million. million. margins Marine XX% Segment. XX% $XX

season preparing sonars the demand new upcoming from on During LiveScope water. the their the chartplotters Panoptix for strong manufacturers quarter, we boats experienced and users boat for and

OEM and was programs vehicles. increased XX% Revenue categories. million, and, Gross next-generation experienced XX% investments auto. we and margin at operating for and in finally by Looking loss of we ongoing an million, recorded OEM both $XX $XXX growth driven consumer to in

vehicle our riders, surroundings. their year, market powersports summary, control find connected to see with complement their on way, products recreational off-roaders help we entered and another a other demand stay the of quarter, monitor we full the continue what far the with During for with electrical designed quarter. so to was In strong this very We're we've record-breaking products. QX accomplished pleased and systems

this rest there wondering are our of are outlook performance you We strong consider. important believe the year. for how the affects X to factors of Some very

First, much remains year of based of the typically what of year of of pandemic-driven considering quarter past us. QX on the dynamics look is the predict It's especially the our difficult like period, remainder lowest financial year. the X ahead year. the seasonal to will

experiencing is of supply industry electrical electronics short the and certain components. for high Second, demand

So minimal business model. on far, to integrated strategy vertically us has been impact the and due our inventory

thus, and long dynamic, complex However, and, predict is the how evolve. nature to term in situation difficult very will it

things With maintaining guidance on issued we're mind, XXXX. the these XX, in February

concludes my remarks. that So

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

Doug Boessen

morning, point XX revenue of XX.X%, $X.XXX basis billion reviewing was expense and and representing year-over-year. quarter, first Thanks, results our as sales point million, balance everyone. was XX% basis a Cliff. statement first a a posted XXX basis percentage quarter of margin Good was on XXX Operating I'm XX.X%, the increase. income flow increase. sheet, decrease. XX.X%, comments make Operating increase taxes. financial margin cash the We Gross Operating increase. point $XXX was in XX%

Our GAAP was Pro $X.XX. $X.XX. was EPS EPS forma

Next segment our quarter geography. first revenue with and by

X segment achieved growth. by is growth marine the segment the XX% we of APAC. growth XX% strong the in by growth geography, XX% decline of all in in segment For with the and X segments XX% aviation. growth by heavily growth strong and impacted led growth XX%, outdoor By in grew EMEA double-digit our first by segments quarter, with we with followed Americas XX% more achieved double-digit and X of

was Americas' regions. with the line other in Excluding growth more aviation,

operating expenses. Next,

increased related $XX costs by year-over-year, personnel XX%. segments, $XX million to million due increased other engineering expenses operating primarily Research all quarter our to and or Programs. of OEM First across Auto development expenses

concludes sales spend to to of We decrease with Accounts quarter the costs. increased XX.X%, percentage year. was information sheet, a to XXXX flow technology expense seasonally increased fitness cash, prior quarter. tax in increase strong $X a first outdoor XXXX, statement point million increase prior a decrease fourth $XXX to receivable balance year-over-year advertising from rate quarter marketable million the prior quarter. increased $XXX $XXX million. of million an Inventory In cash XX.X% expenses, balance million, our decreased effective the generated the And personnel-related quarter reported securities first free due few is XX the to we of $XX Increase Michelle, open in can primarily due prior to compared approximately of to for $X.X the releases SG&A higher year. sequentially on basis Q&A? formal you ended million Our billion. approximately quarter, segments. highlights larger to the due and reserve amount to the prior A our in and year line in remarks. quarter. compared please X.X% increase in rate compared $XXX year tax the This in cash flow primarily effective The SG&A taxes. in

Operator

Instructions]. [Operator

Erik question first Woodring Morgan comes with from Our Stanley.

Erik Woodring

the little then how then impacting auto And question kind just most side bit components Garmin to secondary is just like the more I I'd that first are to your component My demand? are specifically ability component or shortages follow-up. have on And understand, are in the whole? a you a potentially there to meet partners' that, of on side. a what to dig impacting as

Cliff Pemble

Okay. read, very think you as have Yes, the is situation widespread. I

So fabs a impact some issues major some recently broad that have there's certainly had a lot these of of impact of components. range in

set could any or general just industry. one isn't highlight. of is components there pressure given the It component So a any that across I

business that's you we our our we've had been In supply management lines can and to tool, terms any know, in of to And keep speak using auto. helped been a chain specifically customers, customers' I often with very going. as so We've our and auto, of everything about careful major we've for our with issues really strategy our us. as not inventory inventory and doing can't but we've competitors, supplying talked

Erik Woodring

via company my a for would over priorities run the there yourselves you helpful. need Yes. of start follow-up, know that terms you cash have if super level cash? That's there net financial of history, yourselves, in cash. to Okay. times of to buffer your And say hardship to a first you the or in of And maintain work protect is, I component where in more time y z? But putting the safety to reinvesting pandemic x, billion historically guys what $X stock. for with like to this be of is we or then

Cliff Pemble

Yes.

So have target that a we number we don't specific for cash.

growing As a you business very our at nice can see, is rate.

good complex, thing. So course, as a grows and like the cash gets business is feel we more of

people, been cash on of on payer our for what to focused we the the in cash. production also And have time. We're are want investors. for an our business We priorities attractive they've acquisitions, our business for all things facilities, example, a our and that investing the dividend capacity, in our be increasing of way. remained for reinvesting reliable priorities a then use way Our these long finally,

Erik Woodring

Super helpful. X I And could if just sneak maybe more. in

curious the view you last we normalizes, retail that's segments the And of kind come about think demand outdoor about margins somewhat kind on of normalize environment one. Just out as EBIT of how normalizes, that? my how your and think fitness for somewhat we COVID, should

Cliff Pemble

Yes.

specific lot a don't these I are that specialty them. a segments around segments. margin products These we number think in operating our target for of have

investments. general, segments to we we necessarily in to in consequently, aim a those number. higher don't of have so levels target And operating our margin fund But

been we've of of seeing, get increases out that. course, sales we leverage the With some

So we're with . very pleased our performance.

Operator

with question next Longbow Nik Our from comes Research. Todorov

Nikolay Todorov

side. a just your Europe impact not freight I North -- I the up costs component because being from know the I to congrats freight inventory costs I are impacted from if you're doing to America substantially. think great Asia particularly Cliff, guess related seeing on on any and that, and on from wonder Yes. job

does I logistics wonder if headwind Your higher costs? so, you're seeing results any from not suggest but

Cliff Pemble

Yes.

we've freight higher, a freight is higher been think not it's situation. experiencing Actually, I definitely new costs. and

created past their early freight providers ago. the dialed the and year, crisis, lot Over capacity that COVID of even on some constraints year a in back a

additional to a actually we're higher focused freight air it's has and not new using keep product now our thing. freight So product mix of a flowing delays. We're got availability. on some Sea right

Nikolay Todorov

question on A it. fitness. Got Okay.

Your gross was to strong years. margin couple exceptionally XX% of last relative at

X is mix your pushes helping if think anything gross being higher last I just cycling to relative But wonder with that I strong there's else right fitness you margin years. there now.

Cliff Pemble

Yes.

is on say, the in on product helping would the side, benefit in we us think overall cost I mix, product. And some of our cost definitely fitness. we've terms in seen general, structure

in So in the performance very fitness. on general, side good had margin we've

Nikolay Todorov

about that Okay. -- Is a for And for million? full Very year $XXX quarter. I do million. free record it cash numbers, for low Doug. guide relative CapEx you free last feel, was unchanged? Doug, question your the quarter to $XXX to first still How And think kind Cliff that flow full $XXX company, your year target? of million cash of Is flow relative last strong

Doug Boessen

Yes.

regarding flow, first, So time, cash we're overall free point in maintaining at guidance. our this

we point a progress feel year. we this actually that's We'll that as in time. update So at number through confident the

Regarding our amount CapEx. the CapEx, confident that of still the we yes, guidance we for basically gave feel

We Cliff Taiwan, that And our ramping some back and talked previous QX here in investments about to will in talked spend of half. rest consumer the the those increased during relating part of the about. year call facilities be we of expect in up our we manufacturing latter

of we're for as workspace. our for manufacturing our distribution Olathe in some those of taking well renovating were renovate previous that facilities facilities and actually As here

in So up of ramping those rest QX the year. expenses the and be will

Operator

with Chung JPMorgan. Our Paul next question from comes

Paul Chung

XQ, XQ Any are rebounding of just aviation, despite still levels. there? nice revenues. is of comments XQ operating below are dynamics the margins But now the they So kind higher in recovery levels revenue but on exceeding on a 'XX 'XX which kind

Cliff Pemble

Yes.

margin program really continuing the of operating is think in Paul, development a the and sales. invest aviation, I new lower technology. in We're function to

that's some do general, higher So market we moment. R&D a as that And again. should to begin this get of recover, in think spend really leverage the But out we we at see driver. the have level I of

Paul Chung

comps easier and aviation, too we other pretty you. in given than the I but target XQ for the have beyond, comp assume segment move kind through then your of bit against year in a Got as a ones. ahead you solid X% tough is some is slightly that visibility conservative? QX much And higher

Cliff Pemble

Yes.

there's we to we'll go as business a as not to starting than harder get we're longer provide compared but positive clearer And as year and to our Aviation after signs. that comparables was more last forward, last other numbers we're segments, see our be end interesting year. think the able picture information. of we some QX, now. some It's hit true adjusting I mentioned, we in certainly is right

Paul Chung

Doug, the expect then, of harvesting working year? this we to on be and of funds cash nice source throughout how a investments And follow-up do another upside. AR year? And we accounts free of more receivable profit about flow. Should cap think Nice

Doug Boessen

Yes.

as numbers So it's AR did to our yes, more come favorable. so there, it in favorable relates

more So bit they year. the we our of of rest certain product, have little that, credit demanding is a may basically get a that that limits. customers as are a some we really of The against headwind our result situation and

cases, certain some rest inventory. the probably to some as capital, probably additional working that in well terms that That's that see in increase of on good may item actually demand see to their the funding make So they looking investments yes, also. and paying we're at prior year an those we'll continue as that that's thing to -- credit stay the be credit But to as limits. of they a to

Operator

from Our next question Baird. with comes Will Power

William Power

just couple there? question. of can of some channel in And Any key additional got understand just commentary. I've it given supply Maybe ability near-term product a a questions Just the meet current component the case on on chain quick then to supply provide out the trying follow-up demand, update questions. to I Yes, inventory categories? chain missed you across an

Cliff Pemble

complex demand. Yes. are right of the of in increased we that. now. I'd things, really believe lean the there's Will, say for definitely, very demand lot demand chain products. that inventory channel a there And a out supply is There's on considerations meeting more couple when But

general, demand the strong for in we forward. we see that's So going products believe that, why

William Power

initial guess, grew, would a love All also piece kind on I And you of want color look you as key at and I and more Okay. ask you, noted that to question, auto consumer right. opportunity. there X-part so out auto broader the love But and powersport you your rolled how drivers. a to products. know longer you've the term? there from thoughts near of thinking perspective, about just But also on get a opportunity are I couple the

Cliff Pemble

Yes.

products So pleased that we auto cameras. segment the specialty things The behind we've investing like really to and RV been that the truck see and drivers consumer were the over grow. in years, are

a auto you pandemic in complement business. been In as consumer we're to powersports of terms that's lot, powersports, in has what environment. the the The growing doing know, especially perfect a market,

help enjoy And vehicles. people so there's that a sport that and lot enjoy products of interest can their in

a PowerSwitch for market also with way that And a us and offering. to Tread our so solution strong and with enter the is really the cameras fantastic

William Power

are sense starting key these Any a be for portfolio is these that of how the could kind -- broad kind Or are over time? I of point? mean this categories?

Cliff Pemble

Yes.

I it we that a lot that the opportunity there's say in market can a to that and be I sports power of remains would seen. do. products think of lot

way. a we which And in so take market strong great this that able our really to and strategy and and is business build business, find our the categories share building is niche that approach the innovate to be in can

Operator

comes Financial. Ivan question Feinseth next from Our Tigers with

Ivan Feinseth

making great to a to great another and and Mars. on the year start it quarter Congratulations

Cliff Pemble

you. Thank

Ivan Feinseth

power manufacturers, to do are -- some envision to So think going -- for area, PowerSwitch? things in of with sports especially like the work you starting you yourself OEM the the

Cliff Pemble

Yes.

well. level there's But on offering interest their interest offering. compelling ArcGIS like to announced on we're products think talking have a OEM vehicles, we of I our others is in side to the as has and the of feel product that market. a good of and we're do -- some we the that Already

Ivan Feinseth

what things Tread reaction And reaction communicator? to your how like the the initial was and thoughts on was the or the initial

Cliff Pemble

sport. the users watching felt It market help was for Clearly, will enjoy good. products it them kinds of I that the are that encouraging. in was

definitely across the it all their are And will, up and leverages we that and the interest if including mapping, these you alley, designs. of so the strengths communication right have Garmin, the rugged

Ivan Feinseth

surprised that areas quarter? in other any there Were you the

Cliff Pemble

Well, think highlighted we've I of kind most those. of

products, that been there be demand excited and of for Lily and new equipment the expect and we're with trade things all marine. cycling And We kind well. getting out really of of will installing of as There's we great stabilize, a positive continue. has continue manufacturers see for fantastic, to in about marine shows we're are us lot course, lot Fitness a excited aviation, advanced making remarks. positive feedback wearables. a to as product growth was and and shops

Ivan Feinseth

What attendance and trade kind of pandemic? the at are to seeing kind the we you -- of look in over go shows reopening as getting this

Cliff Pemble

has in say, would It what we Fun conditions. And last heard was days. was actually, interested buyers what what 'n it's what canceled we maybe and out show that years. been given I actually, were the which Sun of year, saw But probably the I But of we offer. was XX%, about reasonably aircraft Well, this early completed serious reopened interested very and to equipping that had was year. strong, in Florida, in attendance normal XX% their just very

Operator

Our with question comes Ben next Cleveland Research. from Bollin

Ben Bollin

Two items.

the first, think in investments current what on the expansion of how about is? being the about as investment then based think have made facilities starts normalize I I'm auto to in ramp visibility out way follow-up. we a Any should to headcount? build linearity your when you and and OEM And The that interested

Doug Boessen

OEM, see relates or we to perspective as of R&D, continue in Yes. of programs R&D for through the a QX to -- of you give the expect up investment to Sure. XXXX in the quarters XXXX ramp in Relating to for kind we similar we as saw the remaining there. spend in level XXXX new would

well you number gave in that previously. the say to for then of as consumer CapEx, majority ready relating the to here. of future. manufacturing there new to for lines, OEM, as that OEM CapEx the the in in it get into should factored relates the piece, as Europe-related renovation relating our Taiwan the And is side things, it's primarily I piece But to CapEx the that's the it production the we As increasing facility relates in budget CapEx near production our also,

Ben Bollin

Cliff, you big what look into a puts secular you as about of back reopening? and to the think category as I But trajectory, at picture start And thoughts step Any business that of a guess, expansion, of benefited your then, whole and categories or how impacted goes picture the Garmin question. a, COVID, point-of-sale may some when the just are bigger see you more and about has where how throughout takes more be the future? drivers

Cliff Pemble

early Well, difficult do durable to We believe that and outdoors significant to changes we've health, kind investments part it's ability days, probably seen recreation. as lifestyle quantify. made people because so of that pandemic of their have the in themselves, the have be their are

that's so And from to see hear continue the our continue and what partners what we to industry. in we

Operator

Next question with comes from Jeffrey Bank. Rand Deutsche

Jeffrey Rand

expenses you pandemic? we the details as employee but and Can of I about through traveling increased that? costs takes past some talk how there some I on would thinking operating to costs, be guess, some safety, probably move for expect you're puts lower to some the also related

Doug Boessen

especially those there. some of cut year, things you back over Yes. There did comparison. cases, in look type shows, when time, are Last we at trade the travel, QX this on at QX

there our going have will drivers CapEx. R&D this drivers there of we'll increase I at year that So would looking and that's QX, forward. really last The such not are there, the big be the we but that big really spend year versus say, some in

Jeffrey Rand

pull-in there of then in And boating future of good was socially about continues is do to Great. trends you your during marine do business very longer activity term? pandemic? well. as a And business the the concerns purchases a any distant How think

Cliff Pemble

Yes.

that as pretty that's I durable. I is earlier, mentioned But certainly, we trend believe think a this possibility.

of year Our out are even remainder and XXXX boat many the building them of through booked some are talking about partners, the now.

segment. growth demand the believe significant our products we continue and So marine in there's want pent-up for still to people and be out on that who boating drive will to water,

Operator

[Operator Instructions].

Derek question from next Securities. comes with Our Soderberg Colliers

Derek Soderberg

if I'm I Europe. wondering update can an with ADS-B in you. want Cliff, the start on opportunity to you provide

what pushed think, than Europe are seeing market to slower was of U.S., you think on that progressing a bit today? it's would and or mandate the Are almost Any What a be out, ADS-B but seeing great? sort ago. sort I thoughts in being the year starting you're still out? there of that in projects I pushed accelerate

Cliff Pemble

Yes.

pushed more wasn't surprise. I probably European once, so that out than probably think the been mandate has a and

in to are see get We customers interested that. more starting

I they keep that think realize pushing out forever. it won't

we're for I well the total market much to And American compared opportunity, so that. they're although would is. market positioned XX% because what obviously, is probably that of next the XX% say a smaller looking North solution, generally global biggest I think the for there opportunity, is Europe the and to

Derek Soderberg

as talent, then guess, Great. to curious labor Or your the that's labor And maybe might I'm guess changed you're ability market? costs the my I follow-up, has a market there there to the up. more concern sounds going I anything seeing environment as recently? track be in like anything in going employment and, Is out labor new that

Cliff Pemble

Yes.

interesting an that think labor is I topic.

think demand, time, new strong I it's a been pandemic companies in to stronger things I new has engineering create and the only for think looking many as in talent products. are gotten and long

tight a for sure. does be we're in on having it environment this new, focusing That's generally in So increasing great seem We're operating not culture. to a environment. but work

at very I over culture do. employees of And tells fantastic and kind markets of are where is employees of XX,XXX things someone else and world think the also We're our They're them work very all proud not products serve unique. Garmin. and we got products that them, around the now. passion just to them something actually markets on can of that create we've people interest really and unique that

obviously, some and tight we're we have best a still doing advantages, market can. we the it's So but

Operator

to further closing Seck back call are remarks. There the like I'd turn Teri any questions. over no for to

Teri Seck

Bye. callbacks today. your and great Thanks, day. available I are a everyone, time for for and hope we have Doug you

Operator

Ladies conclude this and does conference. gentlemen, the

day. disconnect. now Everyone, great have may You a

Garmin (GRMN) 28 Apr 212021 Q1 Earnings call transcript