- Earnings call transcript Q3 2022

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Operator

Thank you for standing by and welcome to the Garmin Limited Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's program may be recorded. And now, I'd like to introduce your host for today's program Teri Seck, Director of Investor Relations. Please go ahead.

Teri Seck

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

Clifton Pemble

Thank good morning you, everyone. and Teri

currencies. the negatively at due earlier quarter year. reported third X% strengthening of revenue prior the impacted relative to was from other came billion dollar As Revenue by to consolidated approximately down million in today, $X.XX $XX U.S. the

would impact, revenue have increased year. about this the Excluding over X% prior

cost and revenue, the to negatively of dollar dollar. weakening While impacted Taiwan benefited stronger goods of the the due

to the XX with at XX.X%, gross mix in This shipping was over prior XX%. in at down down as of Expenses Operating an margin operating in $XXX products XX% resulted solid was decline full ocean SG&A advertising income increased expectations prior was year. a anticipate as year. performance, as are year are points capacity for We more year-to-date billion, partially X%, in being margin growth X%. decline increase we of In the the remainder due by addition, and combined now from offset resulted cost of revenue the year-over-year adjusting favorable freight efficiency. and of year. R&D shipped rates basis industry. of Considering These segment $X.XX came by our of million, which approximately the excess

with We but guidance $X.XX highlights our are improving in financial advanced the guidance margins, operating each performance efficiency expense of more the provide income and wearables to fitness, outlook lower on on products. our our margins raising updated and cycling full structure, due provide full operating first, and segment. respectively, year I'll tax XX% business were Gross resulting XX% and $XXX indoor effective in to XX% wellness of EPS million. lower to results on sales the year of Doug Starting primarily and and $XX a moment, increased will revenue million, details in rates. gross decreased

app, users other trends During pressure Connect their we the history systolic the paired blood can monitor, launched blood measures the health see or and diastolic go. pressure with our and When on BPM smart stats. at alongside Index which home quarter, Garmin measurement

expectation of segment, launched we of performance for decline also days is maintaining XX% battery XX that life, the featuring Venu up and year-to-date will a double to nearly the fitness We bright year. in revenue AMOLED Sq display the that which predecessor. X are its our Considering

million and offset have revenue by for outdoor watches and remote unique InReach strong respectively, segment. Response differentiator growth services, declines increased million, income X% outdoor, other but partially strong InReach the in Gross adventure at driven XX% services devices Coordination and product and operating XX% a $XXX and resulting been to and category operating Moving communication of lines. were product devices $XXX margins and by to and

presses based sent the Messenger, we capabilities. services oversees launched the button, communication Garmin location InReach a on Response to situation. sharing in and the response quarter, customer to global device SOS SOS a coordinates Response over and Whenever texting versatile During focused Center InReach communication the XXXX, a with the Since their our a launching InReach unique Garmin Center, XX,XXX has which coordinated is SOS Considering year-over-year. safely we returning friends. responses coverage. ranging trends, in performance and assistance cell products than and to for outdoor grow and Many XXX InReach family all expect seven to activities customers services XX% poor the in hiking year-to-date were to in more claim countries of instrumental phone roadside continents on and current in and areas the now segment from revenue backpacking,

income Aviation, increased chain product ability and backlog. to resulting products backlogs margins Gross of our and million. $XXX have continue completely that Supply primarily improved aviation at lines. XX% we constraints to operating remain Demand affect next strong operating continue XX% growth experience respectively, revenue our the driven aftermarket for normal And $XX for than strong. higher clear by million products. to at in X% Looking in were

Tactical U.S. selected quarter, Corps. F-X we and the Air deck Navy integrated GXXXX our During fighter Marine announced aircraft modernize by to operated flight that was by the

on systems the Our integrated expanding F-X our the capability demonstrates and cockpit for use role demanding military in of versatility applications.

constraints avionics Aviation achieve our XXX end of unwavering our our owner News demonstrates associates this far, again of which the highly to our the Part Garmin needs estimate year. X% to Garmin period long I for an our amazing International but award, customers. supply Aviation for large for markets consecutive team the quality With ability we aircraft to are in year. our by of testament are revenue to original plan performance this commitment the the survey delivered equipment affecting commercial chain recent once flown so by and This support The operators. the adjusting the for meet growth mind, solid segment has number earning a XXth and congratulate way care to ranked is product a year. demanding recognition of Additionally, one from

X% segment. QX to Turning and business is of to the The the Marine seasonal highly represents million. decreased $XXX year. typically quarter lowest the Marine Revenue

predict have the two $XX For in to past XX% margins more these income operating seasonal operating influence were resulting pandemic. to of and the is due the to in market We years, seasonal respectively, of XX%, the difficult Growth million. returning typical trends. believe been trends

the action we lake began XR applications. During and operates the at deep greater quarter, shipping to the market expands LiveScope live and coastal fishing system, depths for which addressable sonar

imaging, the we launched industry. which in continue and with fishing innovation high-resolution solution also the the recognized And be We Marine winter creates achievements finally, ice fishing. for real-time for portable ultimate LiveScope bundle to

year-to-date Manufacturer we also received Year, Electronics I'm awards. Marine performance year. the the our of I consecutive and typical and Garmin patterns, and Marine five segment to of the Association our achievements. these eighth X% Product team very the congratulate seasonality for return estimate accomplishments in proud growth Considering are For year, our National the we the the Marine market, of in named on Excellence revenue lowering of

Looking programs, finally driven as million and OEM prior OEM product at offset growth programs. auto than the X% investments Auto, operating significantly $XX the in Gross more million. $XXX declines in loss decreased to to in lines narrowed margin year from by revenue consumer was XX%

have been expect Automotive revenue the segment off-road in we concludes for select quarter, the Tread Considering on selected beginning decline now current by side-by-side as year. year-to-date remarks. model vehicles and trends, our standard that the in to XXXX. During equipment we Navigators Artic X% Cat That year announced performance my

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

Doug Boessen

quarter, updated The XX.X%, mix increase taxes I Thanks, Cliff. percentage the to a or a a was prior Operating sheet, representing the the net quarter. on point decrease. segment was morning, third was flow billion partially our statement, XXX impact decrease. year-over-year. third results, favorable in XX.X%, everyone. Good due was Operating XX% as unfavorable million, cash foreign by prior sales expense freight, reviewing decrease exchange XXX of basis point point financial revenue XX%, $XXX quarter. increase a to primarily quarter $X.XXX a margin posted rates. Gross XX begin guidance. basis basis lower balance from by of income comments increase of compared the X% Operating provide offset for was year margin We

GAAP Our EPS was EPS $X.XX. pro forma was $X.XX,

quarter at our and look Next, segment third revenue geography. by

the declines Auto segments. quarter, in Fitness, and third Outdoor in by were Marine Aviation segments the the than more and offset growth During

EMEA foreign XX% sales exchange of Americas Our down negatively was in was performance to rates, rates, prior impact performance. the geography, up The impacted year. America's more X%. region EMEA put region line by region was the with the sales foreign excluding exchange in APAC

would of exchange foreign impact region the APAC with been rates, $XX prior up the year. XX% have Excluding approximate million

operating expenses. Looking next,

flow personnel-related statement in shipments. the Ended line due primarily quarter expense on with information freight increased from balance was mix cash SG&A balance co-op million strategy relatively million the increased expenses to of and operating decreased to and primarily $X.X to was increased approximately ocean and billion. to billion. $XX receivable This quarter increased and decreased lower million. executing cash Third $X.X A costs through Accounts $X million by due or million Inventory year-over-year securities development to year taxes. X%. our increase our air higher reduce year-over-year costs. technology prior highlights year-over-year few to advertising. approximately engineering sheet, due personnel increases costs. Research $XX Advertising $XX expenses, flat marketable been $XXX sequentially quarter versus approximately expectations. in of We've

decrease free $XX generated from of Capital quarter $XXX prior quarter for quarter, to third operating third primarily the $XXX of the cash expenditures lower the working million. During income, million, million we due flow capital needs. increased XXXX, were

repurchase during we purchased paid million, company's of free at authorized We capital $XXX expect flow XXXX $XXX end be the year full December Share through $XXX the shares $XXX quarter, XXXX. Also to of dividends the million quarter. the remaining approximately approximately $XX expenditures million of million. being cash program million

third X.X% effective an and rate prior mix in is credits. X.X% decrease income XXXX tax by jurisdiction, effective due tax tax compared in quarter U.S. the deductions reported quarter. tax to rate in to increase of The primarily During the

our next billion. We of estimate compared our Turning of guidance to billion year $X.XX to previous approximately revenue full $X guidance.

approximately higher year-to-date performance, costs. guidance, and including due gross mix lower to favorable margin expect be primarily We our previous XX.X%, than to segment XX.X%,

We That XX.X%. previous you XXXX our income be concludes of now Jonathan, lower projected guidance formal operating expect X% expect $X.XX. share forma full we the than margin open our remarks. tax of mix full Q&A? for can effective per rejection, to pro year of an the approximately please approximately approximately forma year line in X.X% results earnings rate tax for Also, to pro

Operator

question Chung comes [Operator Certainly. first line And of Paul our from Instructions] the JPMorgan. from

question please? Your

Paul Chung

Good And morning. questions. thanks taking Hi. my for

track on of hit ahead kind revenues levels. Aviation So record 'XX to even is of annual

leverage you're new heading maybe products with then what kind you the could and that supply about? effects ADS-B low pricing as operating margin product of some you then can revenues on power the But gaining XXs soon? to expand record dissipated. you're portfolio, If share, And drove in into on I of I where mid-XX% kind you you operating excited have chain the front, profit those know where cycle and can 'XX see inflation follow-up. 'XX a have margin. get And

Clifton Pemble

Paul. morning, good Yeah,

been I think that mandate in through the couple we've by vacated was build things. ADS-B Aviation, the able to of revenue a

each as product have are such Autopilot which out certify product offer are we new aircraft, to lines that of able there. We systems, aircraft that particular our totally new category to group new as a we

the been share indicators, our environment indicators, planes. products, XXX And a autopilots. then people GX GI retrofitting as category new and So gaining as GPS their have we're in our in GTN this product are where our strong well stand-alone NAVCOM very standalone as series the definitely

by far where look, we market a talk investments have to ready forward to the the of operating but about As really will course, the profit not aviation, driven we're is be as make. XXXX,

to sometimes so life along, which And we have new to programs as come cycle, in invest tend advance. be long

XXXX also one we'll leverage. then look as sales drive will the our at think that's volume So about that we variable and guidance

are And there yet we're quite XXXX, so we'll about but again, terms not talking of factors in those consider.

Paul Chung

Great. And then on a Fitness. follow-up

margins. seeing recovery You're here a in

the year first kind primary drivers the as the of underperformance earlier component for in half. inflation of this some mentioned You

market And evolving? season. holiday then the the we on shortly protecting have head you shocks with are showing promotions, you prices comment kind somewhat, marketing? you are get into XX% back Google and how to as niche adjusting Apple increasing Ultra there? And categories? of increasing we can on Anything competition, data the is So two how are you can here What you. those And share? here Pixel Thank you your separately And ramping?

Clifton Pemble

Yeah.

did So terms impact in definitely FX of us. Fitness,

be the I of segment. think we improvement we in product it products in terms mix to the had saw, new primarily would as due

XXX and been release have of with particular, series. in the XXX very categories, running the Our strong

of terms terms segment. we've actually of in in landed I more so think of fluctuate competitive the and performance Fitness of and In of a what promotions good particular segment kind historically, and on is mindset a wearables, targeted to around margin where wellness was target, we where is product QX very on due a operating kind mid-teens the actually that up advanced range that is down result for will cycles. depending this

competition, of that believe, the even those devices. release times is Ultra We still always our the we Google the of and some terms of able of that. Pixel to have differentiators, life of In Apple of unique not least the XX of which battery have we're mindful products are the with

users and we're activity a of that's to unique needs our and advantage, around adventure. oriented So significant more the

that. we're spaces share of there, that losing for we to that we continue believe we So market unique carve out light don't and in ourselves believe can

Paul Chung

Okay, great. you. Thank

Operator

you. Thank

comes Research. from the Our next David of question Longbow line from MacGregor

Your please. question

David Macgregor

for off targets within you taking inventory I the would cash what I guess, start think just context I I you're guide was -- was your the that by what thinking the about just and Thanks flow look the free year-end wanted wondering morning. year $XXX. say how like? I -- questions. to Good heard for

Doug Boessen

flow question. of driver is million. inventory free great big that. our Yes, cash Yes, full year is estimate $XXX a And

has year-over-year increase and you've noticed, inventory increasing QX. our here been in As did

would comparable maybe our our on that As year-end will probably so XXXX or we to or the year-end, mid-teens look inventory over would at of inventory in by up by full lower around and sequential our expect period be that year mean basis we compared that XX% would -- QX, a so. be end

XXXX, year, QX from QX So that inventory be in -- there will and comparing XX%. saw increase last actually to it, to about you

David Macgregor

Okay. little But across rather varies a And inventory then can you in segments. field? the talk about I different just field realize dramatically the bit it

Clifton Pemble

has would not just like cycling cycling indoor one more exception garment pandemic the indoor The channel now, the from that trainers, training of which inventory to thing from shift training. we been Right I manufacturers, say is outdoor because trainers to during mostly feel that Yeah. levels. reasonable all channel at full cycling is a of the the specific

continuing as of kind So predict a and retailers mostly to the But levels that's area that will look one the The generally of that have forward lots things general, is is it factor through. the inventory out But are thing work like feel good. market how there, we we of to in go. really different one now. difficult right

move many they're they have as into QX, that promoting. So signaled

we as signals given looking And so that at do QX dollars inventory we'll be their overall willing picture. they're to open-to-buy for around look promotions and

David Macgregor

Can once to think you're your thinking And realize how XXXX you ability probably a for is to to have sort being significantly. rather to flexibility OpEx high to really type just last Good. things going say down the scenario with talk much XXXX, forward XXXX a just question level, just as and you negative ends just flex you and But up I if lot there? more and then of of are we have macro more January. about come me at

Clifton Pemble

have so and time spend have view R&D with I a to I and of headcounts. the that in more think grow grow we we or of we're slowing advertising and how things cautious in of discretionary to, the difficult the very being some flexibility careful areas other areas do committed for we're of take OpEx, I more some the vetted would around a do We of commitments terms can say of see taking our priorities the the think and generally some about how result. future. that go, are things we now, particularly really we've But wait-and-see that right regardless we're environment that list

David Macgregor

Great. Thanks so much.

Operator

question comes Thank of the Cleveland you. our Ben next Research. Bollin And from line from

question Your please.

Ben Bollin

evolved COVID, you refresh. composition bit of Thanks a wearables think question. in device particular, was how in represents morning, little for mix, a speak then And couple Any hoping saw about And thoughts I today? have what the years? everyone. about of Good the I that's the how could throughout in around taking last that you you you follow-up. Cliff, refresh think

Clifton Pemble

Yeah.

majority typically customers. to the seeing are customers still coming we think new Garmin platforms into as of I our

people buy an So kind. some element second a devices of as there's there's or our device certainly secondary new that some that a is device well. And market for

over device. So they majority we to general, customer sell reduce slightly then a it's new But new to still Garmin. them might on online, those and of customers are give a in

Ben Bollin

availability I I of holidays anything you're what impression that's the change the inventory commitments seeing is, beyond? sit from curious year, but into they're wrong, any into this Okay. lot might and to terms how how they And of commitments Have curious if working a product? some me better on? last into in recall, slightly I'm left in that question Or partners I'm The other far also holidays you if then it. Garmin inventory versus the year? capital thinking Please you're And about last advance the Thanks. seeing benefited That's correct had much have in believe are of your willing if I ordering they're I'm last was year. how seen retailer categories. playing

Clifton Pemble

Yeah.

availability have things quarter, last limited even the still which might that of we the issues season. year, we the holiday supply some when not so, due many could in deliveries and supply So did we others some late our were think came had overall like missed I feel on we to chain did very of

of because how year the there in wait holiday things of we'll season. a lot that responds won't more was this the to customer are we buying year to see And QX normal. have comp So course, last and dynamics

mentioned of open-to-buy things. I what our I many earlier, the important different really have channel of retail do partners, terms like they think dollars In lot of retailers something in is inventory call a that's

they're will bring they can their And sell balancing results maximize on what well. so as to think what well. and in based they

about was a selling right this So different about because year little could this all getting environment and the bit last things. all it's is they year year anything

Ben Bollin

you. Thank

Operator

comes And ahead. Tigers line Please Financial Feinseth next of the Ivan question you. Partners. go Thank from our from

Ivan Feinseth

And taking of introductions. cadence product you congratulations Thank my new on question. the for great

expanding you Or line? scale? of your monitor So segment second on the product this what with pressure thinking line blood the that have item about? pressure that a mine, going envisioning along the types are now is blood index index you are as in other And the you products the in

Clifton Pemble

Yeah, good looking always at would category generally, morning, Ivan, new I say, opportunities. we're

great has on for been for So delightful the and interest what been that of first, in monitor device in the quickly we as out surprise category a wellness hand sold we've had blood and a index us had terms pressure the scale has on and we more deliveries. a that looking

business. constantly and at about So we're excited that, to categories looking new we're grow our

Ivan Feinseth

give you And on of the continue adding Garmin member people use new to own can another indication had give who in let's let's people, family and let's your connection it -- many because can or people? say, are percentage let's your and new to say, the devices X of are to and tell X some a or, you percentage the what wearables, other or app how product already a activation say, by say,

Clifton Pemble

it. of at front specific It's in We level have have those I of what another are stats that. stats I on I a just Garmin of don't me don't than that that but in buying less mentioned and front earlier specific me. Yeah. see in terms device, people track do

Ivan Feinseth

you. Thank Congratulations again.

Operator

Morgan comes Stanley. next Erik Woodring you. line our of the question Thank from from And

Your question please.

Erik Woodring

my maybe is, of Cliff, good a morning. target discount Thanks. I'll backup. and footprint? source maybe, how manufacturing the how capacity? influences a any start high-level your guess that question, that I geopolitical And question. some And with as that of question. lot. I Or consider of you, taking are potential a that premise there have you'd just do regions And then that you new or is risk a Thanks Yeah, for

Clifton Pemble

Yeah. Good Erik. morning,

with dealt globe shifting geopolitical risks They So to beginning the of tend as They're company. not really been since have the something we've the things new. around be evolve.

of demonstrated We, China. capacity, we the factory the years regions several new in automotive terms ability new that our have new in to in mean, we've such looking ago, expertise recently up a I at factories as created OEM stand Poland. In and factory

quickly that So and we're we have it. up to stand we need able capacity diversity, where

our needs So at we that are. what just look constantly and evaluate

Erik Woodring

consumer-facing understand Okay. you year, driver of is versus That's one pricing we the And maybe you a should kind limiting the help way declines that here just into in of how one more. can then is the other? us -- there versus half Thanks. helpful. about significant And or have of back more any which digging think volume growth and the then businesses

Clifton Pemble

Yeah.

think about is question pricing, products and volume that's versus the of I question your pricing the the maximizing. name think as always of big this you And promotions. game running

to to always Garmin For successful. maximize allows be us, the dollars that we want profit for us

example, question, to and the the to do newer products in big for to ones, keep can the and don't that think way of into cycle also we So anyone promote a try all older but of we on those balance us it, products allows take life various account and factors the has magic of stages availability it's a higher. I pricing

Erik Woodring

understand last what quarter? me. and just me, nice upside versus versus this drivers from maybe most for in it performance helping maybe helpful. really dollars stick And least dollars. And is that's And of question performance both Can margin It's second the That's percentage to COGS Taiwan if margin gross you the it's this versus kind we on then nice just U.S. maybe of kind headwind downside just of us that, is operating. on for tailwind impactful then list from Maybe for the just gross side. the Doug. Okay. to side,

Doug Boessen

Yeah.

So yes, gross margin.

moving pieces number. So as in you different that of mentioned, margin lot a there's gross

is we the in that just So impact on one our FX revenue. we had have lean the top some headwinds of probably

of the Cliff to able there's Now of all dollar cost other piece side that the mentioned, not lower it's the offset headwinds that been that year-over-year. the we with one have, of little a against had strengthening relating previously we freight. but bit, of Freight -- quite a relating bit the side. you as had to Then increasing the U.S. a headwinds our of related taking Taiwan our do on revenue to FX kind dollar, of back biggest to

So now relating And seeing that one two of from costs actually to of our declining And those some we're shipments shipping of some decline. standpoint. versus freight freight that's it's rates. reasons, we percentage lower which we larger is for given on are the air, ocean a benefit other have so X that us

other are you big some for higher a or than the percentage benefit standpoint. those of that segment relating a consolidated one drivers. in So to a Outdoor that gives like, always ones, mix from have total, has instance, And segment of from things a Aviation standpoint, there more increases other

there. also in to times launching relates product then of the also period had. as we got mix in we're and it products -- that proposal year you new and of the So time

of different So a lot mixes.

Erik Woodring

the for Doug. Thanks color, Great.

Doug Boessen

it. Appreciate Yeah.

Operator

session This for any does the to program Teri hand question-and-answer remarks. like I'd further conclude to today's Seck of back program. the

Teri Seck

your this Doug for Thank today. are and available afternoon. for Thanks, you. I time everyone, Bye. callbacks

Operator

conclude the participation conference. ladies and your you, This today's Thank in does program. for gentlemen,

may disconnect. You Good now day.

Garmin (GRMN) 26 Oct 222022 Q3 Earnings call transcript