GRMN - Earnings call transcript Q3 2021

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Operator

Good day and thank you for standing by. Welcome to the Garmin Limited Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Ms. Teri Seck, Manager of Investor Relations. Ma’am, please go ahead.

Teri Seck

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

Cliff Pemble

Thank and you, good morning everyone. Teri

as invest consider was of R&D, our fuel the quarter, year-over-year in revenue to As year. we expenses in for we at information marketing increased two and at third strong billion reported back the million due very increasing $XXX levels margin to performance margin XX.X%. initiatives. looking half of prior and in pandemic gross freight announced X% Operating affecting There the costs when combination record the of things technology are achieved year. higher the Operating over declined earlier Garmin today, $X.X income a to

most and XXXX. are to pandemic-driven challenging the supply due in disruptions environments the facing prior Also, of financial retail challenging history. one the more of are comparisons chain First, year to we demand

environment, expect freight are was am safety we important for we to costs the factor retail season. rush time for growth elevated as have holiday business but vertically quarter, supplies to pleased integrated commitment tough in remain I and from tight selling a we the important what to Our Taiwan. report accomplished stock time, customers. key this fill is a model in with and revenue driving we shelves in maintain to invested I that factories tirelessly to of to holiday I am selling will season. us help our more and very fourth the supply production team our facility mentioned worked pleased orders Last continuity I who that proud during this operational and in fill am facility

and the $X.XX will double-digit details million, highlights Doug first strong our business In moment, few performance with up products wearables. our year, in Given cycling a results prior advanced $XXX financial on by growth segment. to guidance, provide our each for but growth will each and updated the We segments. quarters fitness, first, our I more in three expected year, five increased X% updating with primarily full a over revenue business driven with Starting provide of billion, of anticipate now revenue approximately the of guidance. XX% we year are

activities. to is Conference, devices. Garmin Annual Our us We Fifth deploying selected the on a for Dexcom our recently glucose broader of our revenue year. a Connect IQ revenue Connect platform are even deliver cycling segment and it we information has range for grown we real-time smartwatches across a growth development Fitness we XX% XX% strong Developer a during and via of computers, and with partnership maintaining estimate year-to-date announced IQ app held are differentiator where

of year traditional to decrease of in the $XXX the adventure prior our in X% is and quarter. activity revenue to products and decreased sell-in launch watches handheld Moving limited solar dog associated the to outdoor, in strong the The supplies current due revenue million. with quarter

RXX, course a home more During can the are first golf monitor. the metrics shown their on its it’s enthusiastic XX% very the The used year-to-date way for be halo XX% about game dozen portable estimate at key has real and RXX growth with Approach are to segment another or the year. than RXX our revenue help to Outdoor Customers our in we we time. maintaining quarter, grown on launched golfers and product becoming for Garmin. of improve

with and Aviation, OEM Looking aftermarket XX% categories. next growth in at product million, to increased revenue $XXX both

of quarter, we product unrivaled our on year. behind support customers year consistently in for control on manage consecutive products. system help the a care the announced automatically our to XXX one by the helicopter. for shows the flight XXXH safety taking support and navigating Autoland airport. will stability We by This XXth features, launched includes recognized and best in pilots glide year loss ratio power that as certification International the a after state-of-the-art game Smart hover-assist focus the inspired of engine were mode. and technology such feature avionics During advanced Being the quarter, we by clearly Glide, control ranked of Aviation GFC changing standing number News flying optimal Also electronic autopilot Bell the available safety strategic

this segment expect how increase to far now with year the recovered We guidance and full are Aviation year has revenue XX%. approximately pleased so

across revenue segment, to million, increased categories, multiple the chartplotters. $XXX Marine growth with to by next led Turning XX%

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

Garmin of X consecutive seventh Marine Electronics year, National of Association received also we Excellence Product the Year, Manufacturer the and awards. named the For

that bird’s provides the we around view the Surround industry’s vessel. the During quarter, XXX-degree camera View, introduced eye intelligent first a system

with announced Malibu partnership also Boats. our We

XXXX Malibu displays standard touchscreen the year. boat be line, the Axis model equipment will across beginning X-inch with Our

Marine segment, growth are strong to by XX% And $XXX revenue we million, to auto, on increased revenue our the the driven at with the year-to-date estimate finally Given looking performance growth OEM raising primarily year. for X% programs.

new manufacturing facility facility our in located we and prototypes system next-generation Kansas Poland. production we of quarter, Olathe, from BMW began module the the computing the During shipments of delivered manufacturing our from BMW

announced displays enhanced as also refreshed of recently connected These larger, the features. for lineup consumer well Drive segment. navigators auto as a higher devices offer We resolution

year-to-date are raising strong the auto remarks. to my Given XX% revenue our performance the concludes growth estimate year. of segment, That for the we

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

Doug Boessen

decrease to XX.X%, percentage X% Good for income year costs. as guidance. basis Operating point begin was margin Thanks, our a by margin morning, point Operating I to flow reviewing compared quarter. year-over-year. quarter Cliff. freight expense $X.XXX due the was quarter, basis statement, of XX% provide prior billion posted the XX.X%, XX.X%, balance representing Operating third cash everyone. XXX sheet, decrease updated revenue the Gross financial on primarily taxes, results, $XXX our third basis was a million, increase to increase comments point sales higher was was quarter. prior year XXX decrease. XXX The decrease. a of We

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

quarter, at in we achieved the lines. contributing our by markets segment, quarter, a XX%. business provides or with both the In revenue we XX% segments, is third by diverse Marine outdoor largest quarter the X in Fitness reliance growth X Next, of model, on set and reduce rich single have and third a followed highly third our product double-digit opportunities, sales in Aviation. segment, our of growth

our X%. geography, coming EMEA grew region nearly regions. and revenue The one-half X%, region the of the EMEA our and from contributed revenue, with Americas to by Americas and regions XX% Moving remaining decreased APAC respectively, APAC

next, Looking operating expenses.

quarter, due expenses compared Third development primarily and XX%. $XX quarter to $XX million costs. engineering year personnel-related primarily increased year-over-year, operating million information to by to prior increased or million costs. personnel Research due increased $XX in expenses, increases SG&A technology

preparation due decreased million fourth to $X.X a balance higher and We securities increased for primarily taxes. basis, cash expense media raw sheet, flow balance on advertising increased, material $X few $XXX and approximately to receivable ended spend. highlights to statement sequentially were A to requirements with quarter $X.X Accounts Our year-over-year the the marketable cash seasonally and strong billion. Inventory due sequential quarter. year-over-year billion, million. both in the

generated for million. $XX prior compared During were of a million flow third Capital million, quarter $XX free $XXX XXXX, we third the the expenditures decrease cash to quarter. quarter

free tax full prior of capital compared due primarily associated provision of to of was to year return return. to The impact quarter tax year. cash the $XXX in flow X.X% expect approximately $XXX approximately be adjustments rate the XXXX third decrease U.S. X.X% XXXX effective We an million in with expenditures the million, for filing

year our full year, double-digit to of approximately increase of of we next estimate billion, $X.XX the for guidance, each our segments. Turning revenue growth prior XX% in

previous expect is than guidance, XX.X%, approximately XX.X%, We lower costs. higher our due to freight to margin gross be which

Rachel, can of We for operating margin tax which earnings expect please per year XX.X%, Q&A? the full we concludes open XXXX approximately to pro approximately expect This the XX%. be results forma share approximately remarks. effective of forma formal $X.XX. our in pro rate Also, line you an

Operator

from JPMorgan. Instructions] Chung the question. comes of line Please Our Thank you. [Operator first Paul your proceed question with from

Paul Chung

question. my taking for thanks Hi,

So just suggests on guide implied kind a sequential downtick. XQ Aviation. of

You an XQ. in typically see uptick

So headwinds? what’s that XQ, seen stabilized you’ve you but still an that op impact then low-XXs from there? well chain historically. going remain in And supply range Is on margins, it on below

So to near-term? hits there in also transitory about level is the some forward? think this the right moving is Or

Cliff Pemble

Thanks, Yes. Paul.

with there noise well. as certainly, some year prior in associated think versus aviation this is the I year

times that longer. but it shipments is So and lead equipment part year-to-year, of is aviation on from also of timing occurred getting

might taking affect into sure account that revenue. QX and for we’re that all that of accounting So make factors wanting those we’re to

Paul Chung

And demand, and as growing Smart you certifications, about auto at year faster strong then in business do industry the of Glide you’ve Thanks. kind given introduced? see that jet or we next the pretty context with pace think land the this business of new along a

Cliff Pemble

Yes.

innovative have think sure. for I line, we product most the

positioned most that and aftermarket demand sweet are of where platforms right and is in most the well So the the our popular. in installed. products interest are now products across with The on our spot jet we’re significant business OEM,

to that as continue expect we would I would the performs. So industry well perform

Paul Chung

bigger as have you comfortable And should particularly holiday the the would logistics? increased Great. And into CapEx year have in How pace fiscal signal. inventory, with then into working ‘XX think about head are we of cap, components, And Thank ‘XX, separately, balances heading then helpful season going you. in be as to supply how lastly, as then you’re you a Okay. well. we harvest. inventory

Cliff Pemble

environment, the But a think of just year. make is on then need for comment inventory, this secure other the I positive able been make your a inventory finish of definitely the we parts we’ve that question. thing. in Doug inventory general we I’ll and successful feel to to a Yes, to And kind ask

news, I think as we day nobody delays in hear higher every too in are taking would inventory of a ever say shipping the required. this with that much environment. level And they definitely place have that of

So Doug?

Doug Boessen

Yes.

meet to and we levels, level Cliff flow our keep levels our inventory to cash free as demand. the continuing regarding at mentioned, First, be will inventory appropriate

levels there increased So with will be that. at year-end

it place There projects to our the relates have year for CapEx, $XXX for is current that number we that. forecast of As a in million. is do

some going expect XXXX. do into elevated we So CapEx

to factored relating flow So as come those into be CapEx. to as things free need XXXX will levels the inventory to when up well cash we

Paul Chung

Thank you.

Cliff Pemble

you. Thank

Operator

Thank you.

the from of comes line Ben Your from question Bollin Research. next Cleveland

Your line is open.

Ben Bollin

sell-through channel significant of for business you Fitness near-term, longer today hoping Good how category could like interested versus taking a some you been – morning. kind maybe saw have particular? have you Also do about might think Cliff, on forward How thoughts stocking the where in the during you you feel pull I growth? have think performance term is that bit history? versus maybe within sell-in we Outdoor, was you any secular wearables versus question. little inventory and about inventory Any Thanks thoughts on in and talk broader advanced COVID.

Cliff Pemble

Yes.

those we well the very and still those would is in early X that past nearly categories has terms we’re say part a the the there the I cycle. we because pandemic performance reported ourselves believe, of of that market, positioned strong, certainly, of industry interest, products still over in was the years growth active differentiating the are interest lifestyles of market in lot as in course, of That So general of pandemic-related now, the potential a really lot there theme. around wearables remains in think I

So everything products has for we do a purpose with and built purpose. our is

this with of channel product trends the pockets In registrations, terms than they the sell-in there. very well been, think sell-through, in at and levels here can of point. again, the on versus see those And we and is better there depending feel matched inventory we product I sell-in although, are have imbalances and can sell-through our like lines, definitely be

Ben Bollin

versus around timing seen I either Have the you in then is regards consumer any thoughts they along you. And the commitments year in prior that’s versus with are for years behavior? you years. XQ versus the question other the anything prepare to And have environment and retailer just changes notable they shopping calendar lines around this earlier holidays? Any Do as promotional Thank think prior it. prior?

Cliff Pemble

Yes.

terms starting to and prior and year, in last versus warehouses in how much So the retailers the depleted. reopen with figure inventories open our online I market light QX out very of many still their to very was years, were of think pandemic, distorted or

So that still seeing spike year-over-year we’re comparison a pandemic-driven on basis.

terms rush In the little see on not inventory although the I of this shop bit year, far things be trying is products would environment would say are is seen. they we business. the There getting a feel that of the seasonality of it it’s there to to general, looking is would say in see remains light more say I a everyone market. can normal that normal, I obviously back as that promotional to as that of in you situation in with reports But early. general that like

Ben Bollin

you. Thank

Operator

next the Your comes question your of Baird. line Please, with proceed Power question. from Will from

Will Power

questions. Okay, great. couple a Yes, guess I of

overall would thinking worse? some that particular? expect in you’re And where Just it back guess impact the I views you just Is stabilizing? it to to guess, QX And segments, versus about chain possible, broader just trying to what better impacts? of great. QX? you’re how primary What was hoping I and, the come you some front supply Do First, understand on be the in in I seeing to commentary. saw if get

Cliff Pemble

as would remarks, is Okay. supply Yes, mentioned earlier I really say I environment, that in chain the my tough.

most We’re product that QX, of say I in managing segment business, our regard handling of case, those basis. components the okay use on definitely, for Outdoor and would thousands and But those we and, handheld. doing we’re again basis to in to saw a the manufacturing. an part, the how allocated of traditional the impact day-to-day on But with inflow day-to-day products the the in dog some products. the they components mentioned and it managing allocating across and I terms a are

we So that’s generally what see.

Will Power

And then a question guess on two-part. maybe I thanks. auto, Okay,

thought think margin from about as margin helpful, guess, of process there but think segment, something as you As is I then the the I OEM ramp any cadence And here? outlook side, thoughts margin any color to current bit year-over-year. know how a what’s a Thanks. but down on bit on been I operating have be would investments there? year-over-year the to that’s about programs the margins – down consumer is assume just too? mix, tied there to up,

Cliff Pemble

Yes.

on have outlook we the OEM, margin have X in margin to talking our on been a thinner transitions the of that Tier business So margin manufacturing course, those opportunities the about, line. gross as

is get margin in what working again, you auto these bottom towards profitable of gross So, think our those structures. that are will scale and course, terms production. But Then of of traditional our – should impact we definitely OEM the programs margin we develop as into line.

saw margin component there. On the we side, on also the margin. costs that auto definitely, side the some that had Part consumer we is of freight. consumer impacted in impact gross some But

Will Power

Okay. Thank you.

Operator

Thank you.

Your of question from proceed from with Ivan Tigress next Financial comes Partners. question. line your Feinseth Please the

Ivan Feinseth

a taking for you Thank good my on time. performance congratulations in call difficult and Hi.

Cliff Pemble

you. Thank

Ivan Feinseth

about, abate, you that, freight, some near-term or spoke you are headwinds the on of your to of outlook see starting these? them Some things is like what

Cliff Pemble

get ongoing near capacity of into that in Near-term, it’s now what’s the solved. really happening these right the We Yes. bottlenecks is to there see intermediate-term say would really probably and don’t system brought thing. some we more an until changes anything

Ivan Feinseth

slight disrupting a not have but really you your process, in maybe manufacturing increase cost, it’s right? But

Cliff Pemble

in have have No. imagine. could I mentioned, profitability. managed course well, Like anyone this very as I the we to say very environment, are And we situation probably sensitive of ever as the well would

new products well as So, this adjust. situation in both to product existing using promotions we order and reevaluate pricing that introductions we as of are do to

Ivan Feinseth

in R&D idea you on can your you going areas are and you And you areas see in In expect and see, we working on your opportunities what forward? initiatives to some to invest And CapEx spending, you also give kind increase are what what or R&D, could of new looking Great. marketing. said what are improve? of type IT, going of IT like marketing to spending

Cliff Pemble

people terms in BMW the next-generation to bring pieces Well, of the the we the higher is in of our we categories the our OEM our new we as costs will very and auto to IT, as investment system markets new things QX and online business, personnel our in then which market, R&D, work and segments. to of year. the bigger of retain products the the that component product we in programs also the one And growth later across around increase have driven much and we cloud general invest across next business the had launch was offer.

investing to again, infrastructure exciting we of need support wise, are have so we in business. IT all the Marketing that got product roadmaps. And that we

we those on and so all to working ready of launch getting new are And products.

Ivan Feinseth

can I like of – partnership, stuff idea Dexcom app at? What of into other wearables that the looking you really of your give and the are there. you some kind areas integration

Cliff Pemble

into, is of by and cycling have products. platform. purpose-driven very I far, Connect devices hardware-based platform kinds allows wearables to That a IQ in traditional, Well, we think the versatile people outdoor tap that and for those best

opportunities with we a are constantly IQ to working So, apps our new us, devices. and great on it’s asset Connect for showcase

Ivan Feinseth

you. Thank Okay.

Cliff Pemble

Thank you.

Operator

question Todorov Research. the ahead. comes Please go of Longbow from Your Nik next Instructions] line [Operator from

Nik Todorov

you think you versus compare some benefited guys segments question Yes. from tougher even comps, everyone. year last to exceptionally Thanks there COVID, to other and the it on well like that and fitness continued if of outdoor. and I morning perform especially marine, good A

So, ability marine? give drivers more the driving or there? it have some can supply what’s ability bit in what’s kind the – to us of better to gaining of a upside on some than you little share, in details Is the address – competitors

Cliff Pemble

marine, of in issue able of particularly is there technologies have, chain supply Well, we are superior say share halo the pieces business. for lot is were in line live all across that, gaining and such we that as product opportunities. by then I some into we a there lines moving market take of benefit boat The OEM terms with of again, sure. our But they XXXX would in is, production scope. the to demand, hearing even ramping still we now to advantage the of up and the of side their on marine, of is being to And products continue deliver able are to backlog. course, are that very and persistent their extends, that meet

working we those general and right support growth place support are OEM taking those So, to customers, market the now. customers that’s the of

Nik Todorov

question a Okay. the for I the down And if operating then margin for took Thanks on year, missed but up. this, Doug, the then I but model, – that. am you maybe margin sorry gross

share you can what there? offsetting factor is So, the

Doug Boessen

really Yes. leveraging It’s expenses. operating

really our So, that expenses as margin well between there. gross the operating gave margin looking difference operating at decline the as

Nik Todorov

questions luck it. guys. Good Got Okay. the That’s me. Thanks. for all

Cliff Pemble

Thanks Nik.

Operator

[Operator of comes from next Erik Woodring Instructions] the question from Morgan line Our Stanley.

open. is line Your

Erik Woodring

holiday shelf now confident challenges, that the right for this we want Cliff, and supply a know you. today, I ability obviously, to just and on products then good do season? you want is just have Thank guess say, just chain be Would feel follow-up. about but start as morning the I have sit in with you here the Garmin’s one, I you for clear. to I you everyone. one to

Cliff Pemble

Yes.

Erik Woodring

of And be… would those enough. Easy half numbers

Cliff Pemble

me I am heard correctly. not sure you

you said, are And said, yes. confident? I You

Erik Woodring

Yes. that’s No, perfect.

if just America by we than look noticeably and weaker or North Second was question EMEA. geographies, APAC – was

why could curious Just some that Thanks. would there you be? if color share

Cliff Pemble

the region. two of Yes. In was really is APAC, the factors. the pandemic Delta through there as One swept rolling countries progress across various

is was and the spread. APAC And were taken definitely reliant particularly stringent in those And so Delta on factor market product the product introductions. to measures control of the in generally we introductions, as markets other then had some outdoor. The impact the lockdowns major timing there more

very the strong QX. against comping our solar products that did we of year are in they introduction so And last

Erik Woodring

if one last it. Got just Thanks. And sneak in I could one there.

I XXXX, be similar the is that, this Just weak those as you Is might say about market. the to thing to extending to OEM year out the with is it comments of market, boating last fact that off-season potentially specifically say? to guess accurate a that that not year? a backlog made fair there

Cliff Pemble

is a to the think OEM compared aftermarket. smaller I business Well, part of percentage the

swings versus normal that on just if marine said, less But of little to I degree, the year a mix in business of of that influential we greater year. So, that. would the saw bit current because say even the it the a overall it’s more seasonality last is where

business to activity seasonality, So, we tends we that and as also endemic marine would and this to in and expect around normalize of QX. industry that normal the behaviors economies the have and return of virus pandemic would QX some its seen

Erik Woodring

Thank Perfect. you, guys. Okay.

Cliff Pemble

Yes. you. Thank

Operator

conference I like am I no turn [Operator to Please to back would at time. Instructions] the ahead. showing questions go this further Teri. now

Teri Seck

for time Bye. Have everyone, a your great day. Thanks today.

Operator

today’s concludes Thank call. you participating. for This conference

You disconnect. may now

Garmin (GRMN) 27 Oct 212021 Q3 Earnings call transcript