Earnings call transcript Q2 2023

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Operator

Thank you for standing by. My name is Wallace and I will be your conference operator today. At this time, I would like to welcome everyone to the Garmin Limited Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Thank you.

I would now hand the call over to Teri Seck, Director of Investor Relations, you may begin your conference.

Teri Seck

morning. Good to Garmin like XXXX second you call. earnings welcome would Limited's 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 segment other forward-looking introduction, includes future gross operating growth and rates, Garmin statements future our dividends and our statements products objectives and statements. for repurchases, demand margins, product Any earnings, future business. regarding projections market or financial earnings regarding Limited plans This its position, shares, forward-looking share revenues, margins, and are

The forward-looking of with is our Form events differ Exchange may Securities in concerning factors and results as contained and in and materially Information this factors risk earnings not could circumstances the Commission. risk filed actual call XX-K affecting discussed result a Garmin. occur these

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

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

Clifton Pemble

And Teri. good everyone. you, Thank morning,

in was came $XXX And quarter. respectively. and announced revenue in year. X% of up prior second operating year, at XX.X% $X.XX EPS our $X.XX X% quarter XX.X% million $X.XX, of GAAP and margins income three five in Gross earlier pro operating consolidated business we driven of were EPS up the prior segments. over reported billion, generated today, As growth by the in forma over Garmin the

year. of the our approximately the now first of our year, for expect of during We EPS about year $X.XX billion, are positive accordingly. full results and $X.XX feel guidance We updating half and XXXX the revenue

provide at then ahead. we turning the what I'll highlights segment by and call look Before to over see Doug,

margins fitness of to growth year-over-year XX% driven income the improved operating were revenue broad operating and $XX categories. product $XXX with million. based million, Gross respectively, XX% in XX% in segment, resulting Starting across all by increased

and mapping performance help solar and featuring more During and XXX XXX computers longer, cycling smarter advanced the quarter, insights, cyclists we ride launched capabilities, dynamic train charging the Edge effectively. to

trends, current now the to year. approximately Given grow XX% we revenue fitness expect the and year-to-date for performance

Moving in XX% to adventure million, Gross were of outdoor than watches in operating XX% categories. revenue decreased to growth resulting offset as $XXX margins in by in other operating and was $XXX respectively, declines million. income more X%

During the Series X mapping next built-in LED enhanced Series and insights, launched we quarter, additional our generation Pro fenix performance Pro capabilities. flashlight with

displays We LED also AMOLED Pro Series three with launched flashlight. in the and sizes, built-in epix all a bright

sizes display. we for how Approach accurate premium Also two And launched a bright during in the the the AMOLED built-in with SXX playing. shot is quarter, reading featuring smartwatch, barometer each on available golf more a

first challenging of half performance the in the year to the expected of We prior comparison outstanding to year. the be

outdoor we expect Given revenue performance watch of be timing to and flat our year-to-date prior launches, the the now compared adventure year. to approximately the

certified first revolutionary well as select retrofit have the Autoland marking models, in aircraft. these time and as offered twin-engine craft Autothrottle first important the market technologies the in time systems certification of Looking X% growth of in million, product $XXX next strong OEM at were our and resulting the at Aviation recently categories. $XX with to announced operating the and We driven segment, we Air to King Autoland safety beach margins Gross highly revenue have system a imminent we respectively, million. income our XX% operating XX%, increased by

Glide Editor's Choice we Smart recently time the FLYING a XXth award. this prestigious selected Magazine for was Award, Our system received

what team and on As you the safety proud can see, of accomplished. our I'm aviation has is aviation technology focus unwavering,

are how We segment performed has Aviation year. with so our pleased this far

X% we growth the XXXX. maintaining half our back Given are XXXX, the performance stronger the from and for year-to-date estimate comparable of

the $XX promotions, which income in and lower decreased XX%, due revenue of and to contributed Turning chartplotters to resulting QX. XX% the from Revenue million, $XXX QX to operating segment. to of XX% respectively, million. in were next the timing operating primarily and Gross Marine margins benefited

headwinds significant we in this the we trolling with uncertainty. installation pandemic. features normalized, mount quarter, driven rates This and increased expanded higher the of boats the powerful Marine a and Kraken. wider on boats. motor now recent growth our experienced drivers by During greater style Force caused motor range trolling range a mostly series pivot believe due to to of new boating years, of interest The interest faces and have the pandemic market for primarily launch growth fishing in increasing market the has economic a by easy wider The of

flat While revenue was softening, our X% year. outlook the our that prior in of believe mind, remainder for we see segment approximately the down this in signs we XXXX. performance year, With first is Marine revenue the impacts the the which essentially half will to of that be market

Moving our million history, finally we the production. million of to BMW. primarily shipments into domain loss ongoing by margin XX%, by to the was driven Auto time sales first in OEM XX% as and increasing an operating move $XX exceeded Gross programs of segment. of investments for Revenue driven $XXX recorded controllers quarterly new

BMW During approval functions, of the for instrument models throughout received new safety-critical a production we domain cluster for which will quarter, incorporated into year. the be the controller multiple remainder

performance, to year-to-date for the year. grow we Auto now revenue the approximately OEM expect Given XX%

remarks. my That concludes

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

Doug Boessen

Good second balance guidance. morning, I'll statement, Cliff. the comments updated flow Thanks, quarter taxes, by sheet, by on cash begin financial everyone. our results, reviewing

basis expense quarter. increase. a as was from the a $XXX year-over-year. We XX.X%, margin a a to The point sales second income point the XXX was for margin was a due posted Gross increase basis million, of was $X.XX XX of X% decrease. decrease. X% XX%, point was Operating XX.X%, primarily revenue quarter, billion decrease prior representing basis percent a Operating XXX Operating mix. segment decrease

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

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

X%, and growth APAC By in segments, the while Auto both During the five double-digit segments. OEM growth double-digit declined growth EMEA second achieved XX%, respectively. and Americas in quarter, our three the region regions of we XX% achieved Fitness, of geography,

Looking next, operating expenses.

increased quarter to to expense million due by primarily Advertising increased quarter, prior million Second and $X primarily increases technology increased engineering the higher year compared Research $XX SG&A year-over-year, development in personnel X%. million, million $XX to approximately increased costs. spend. information media personnel-related costs. due expenses due operating $XX expenses, or primarily to

We approximately highlights sequentially following both the second flow $XXX marketable of the increased balance on billion. few to A and receivable stronger sheet, taxes. statement and year-over-year cash million with securities the Accounts cash seasonally quarter $X.X quarter. ended

consumer with business. our reductions We're approximately Inventory balance and auto increases billion. $X.X executing optimize in strategy our inventory decreased associated OEM our both to to sequentially on inventory, year-over-year the

to lower second the XXXX, of $XXX use million. purchases in cash free were cash Capital and million, For quarter for we of a million $XX of increase year quarter expenditures the quarter generated $XXX flow prior inventory. primarily due second the of

$XXX free full cash be approximately million, to flow capital expect $XXX year approximately We XXXX million. expenditures

in $XX year second Reported rate effective $XX company a the to remaining amount in the to X.X% prior repurchase authorized at quarter, primarily effective During quarter. million is dividends December XXXX. increase at of through approximately we reserve X.X% quarter-end which paid million Year-over-year larger we the Also, in of approximately million. stock of purchased $XXX due share program, releases compared of tax tax of year. prior rate

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

be which primarily lower segment of full guidance our We due expect anticipated gross is picks. XX.X%, to margin than to year previous approximately XX.X%

We approximately expect an of margin operating XX%.

to forma full We previous expected than This share higher also pro of projected guidance of X% forma effective our per year of earnings tax due a by approximately mix jurisdiction. in rate expect pro $X.XX. tax X.X%, is income results

formal This concludes remarks. you Wallace, line please Q&A? open our for could the

Operator

line Cardoso JPMorgan. Our Instructions] [Operator of question from first comes from Joseph the

Joseph Cardoso

the is And If assumption full spending? your follow-up. for that year question. morning. into so, look for the if I thanks tracking or guide and your should implication a then overall have fitness, we just half? I we should see And consumer And heading demand, the of seasonality is take Good outdoor typical concerns the seasonal at make what's to back Thanks. the around level given a driving confidence

Clifton Pemble

I think this Joseph, -- Yes, Cliff. is

in a first segment, think as the in products, in new fitness be half the first probably repeat and different second prior differently strong stronger And strong results the new outdoor, very looked a won't against the half. of In into outdoor course, half much one comping because the In our comping of moving of had products. those. Fitness which, because we dynamics we each year. there's sell-in see I we were with very should at of half, back

So one different. is each

both of are a in Each different say I behaviors see segments I would the be segment bit should we in consumer kind half. that think has the we present signs of dynamic, but believe of so back little that other segments. some don't probably strong these far,

Joseph Cardoso

of Thanks I appreciating is then, here is maybe then benefit you're that mix Can guess, past of quickly, et as had some the the costs headwinds just seen other auto? you from then XQ? of elevated easing for from from quick the enter increasing how just just Got of back and largest questions. should to half moderating the much these are the in over in year? a of that touch Or component cetera, that much offset how tailwinds remaining those freight coming follow-up. there a I And from And your variables margins and still be we it. costs of gross components seeing on And couple here? years as the you

Doug Boessen

give this kind perspective Joseph, on gross you is Doug. of a margins. I'll

that of upon the have year-over-year. where gross basis decrease margin percentage and fitness year-over-year lower a average the a was coming consolidated OEM, segment a the consolidated auto based on than you is total a larger due First, mix, see to which and

and freight As is parts ocean margin, our some within a due well of seeing ever some as Yes, favorable different air. gross of moving you rates which other there's we components, pieces, favorable lower freight. two the one larger that versus products we're shipping mentioned of a freight its but percentage of to are as is lot

offset product within including other factors, by a So segments. mix that's the

have one other versus does one depending there. So that products the of margin how upon each the you mix one in with gross each the that quarter impact different there segments, that a is of quarter,

we we've a some freights of toward will of as down freight, for some year-over-year that just decrease. But also much, come the to the favorability rates in future, lot relates in I not freight parts So the year. half change benefit but so the there. expecting year-over-year because moving margins decrease back saw And gross we to the that should overall -- expect there's we're year-over-year of and different seen year-over-year. the the benefits mentioned what it a think would We good you question to

Operator

question. question next Our your comes line Please from Ben Cleveland head of goa the from Research. with

Benjamin Bollin

question. my about within you could taking for we the OEM glide how Thanks profitability through Cliff, I should everyone. think auto was business. morning, Good hoping talk path the

You've remarkable on got line. movement year-over-year the growth not really really and EBIT much

what at I does that And a scale? then have point follow-up. to start So

Clifton Pemble

Good I results definitely morning, Ben. the are in at getting OEM would better. say

basis. I year-over-year this think the last quarter by cut a was on loss third operating

seeing So improvements. we're

takes I on think But is from in there's OEMs the according conditions. business gives in we dynamic say we're somewhat that as their general, forecast and the every the quarter path to expected. business changes would I

Benjamin Bollin

Okay.

influence look -- what's Ackman how the we tax? perhaps when with there's may think any or minimum how this, tax on could share Switzerland out happening the something, for been some federal you do If ways into there future? Could this accountant an the rate at you about Doug, should potential global headlines in

Doug Boessen

a Yes, XX%. on ETR that, legislation correct. our tax there. give of But There beside it's some tax future And the current you're Yes, out minimum we with year. minimum basically global Ben. guidance stating don't are

So that basically at our that if enacted, gets XX%. tax rate have would least

higher. effective by there's is I relating situation the a for yes, effective that should also be leases may reserve XX% legislation rate moving that or on depending enacted, and say in and how income rate it's tax of even impact our would parts -- the possibly mix, Now that what tax that our such. at that But lot when to

Benjamin Bollin

then at worse new it back thoughts for you Thank about -- the another? play aftermarket to versus you. Cliff, talk great. that? one half, That's question, looking how me. any could Just you Are my Marine last both And expectations that's into in softening, but business, softer on than delivery there? And boat thoughts any they talked the how

Clifton Pemble

boat marine. market in I mid-range that in -- of there's Yes, like healthy buying the few up I terms on added a and lower pieces equipment course, to weakness think the very seems the new going moving and time from in from activity midrange it purchase. on more both and perspective, say to aftermarket is both is from still OEM the end. lower generates at would what's both sizes, of And boat the refits the the of

the are the all really years course we're And these coming seen over now. return So seeing just is things this factor another seasonality play. of haven't that that four nearly into that are we

So still that to dynamics. in seen I good I concentrate And lot think we come, and last through market. the the us of driving with now. but would really think show we've a every on products of market. believe this It's that is I it ones there's new innovation. very very, normalization expected And we'll growth going other forward, a it's market one

Operator

your with question the Barclays. Our George comes ahead go from from of line next Wang question. Please

George Wang

question. my taking for Thanks

business incremental higher of capital cash I buyback lower Just noticed if curious changed. in of return kind flow healthy the has Firstly, XQ. on strategy given of the free can you kind in just prospects terms profile? buyback ticked comment

Just color that. curious if on any

Doug Boessen

is the So regarding question the buybacks?

George Wang

Yes.

Doug Boessen

evaluate we'll $XX based share business end we Basically, business million, that of $XX It market of and upon just a market through million Yes. situation remaining. our is have authorization was conditions. really 'XX, we repurchase million conditions. the upon $XXX The the have and conditions based just

George Wang

Okay. Great.

weaker. can Just aviation and you in But kind marine quick just two the industrial comment can, inventory, can on I kind backlog squeeze business, the if really on of the I of follow-up. parts channel incrementally and a

backlog the and Also, marine aviation? Can You channel of the side on kind mentioned inventory and marine. on fitness seasonal for comment the any on thoughts of across that business? the wearable you it's more the

Clifton Pemble

Yes.

to much marine. for we and chains that year a last seen easing I due and aviation have than the backlogs think orders come faster lot, down the of most we've us supply to is allowing that both were fill

they marine aviation sure think relaxed the their times lead little make serve customers. able shelves some customers I on could they being the and their were year dealers down, wanted interested to come stock across serve shops. their in as a have keeping over because have safety concern of in those past they more into bit coming to And

we in pieces the be both marine. forward, go part also inventory type and that's it as that that mostly moving that as goes So seeing aviation of And I we're will of the replenishment say channel normalize would is things healthy. activity on.

George Wang

Okay, great. Thanks.

Operator

comes go ahead, question David McGregor Please from question. your Our Research. line next from of with the Longbow

David MacGregor

Yes.

previous good OEM everyone. a So, Thanks Cliff, for questions. go morning, taking just to just and my question on this. on a automotive back question the

profitability think from this one-times you and way shipping? the of there and the the to trying separate Just to ramp-up of trying to start-up costs about understand that any the and kind are costs But business. is volume economics the profitability around the

Clifton Pemble

the look also relates revenues really we that. scale business building mean, I increase. Yes. at That in to as

of kinds talked a GAAP We true number we're on those externally focuses financials. about that company haven't really because

are well as to that our of our make on and businesses perform -- all our profitable all we include of costs and So expensed, try basis. we all

David MacGregor

how for are you guidance? half the thinking OEM Okay. in annual second your revenues And automotive about

Clifton Pemble

full our Yes. for mean strength outlook and acceleration the we've in I back reflecting guidance I half. think the year, raised seen we into that the business

So that business. reflects view current of our the

David MacGregor

Okay.

you do possible you'd to another now? continue mentioned I'm added see program the programs that additions. just have under You just controller wondering it's you if we Or that will that program. ship

Clifton Pemble

these think I across model Well, incorporated devices lines. being are

on takes own engineering it's time, that into work and so scheduling production. and And some dependent BMW's

for we So their our have production containing cars on been for what we're basing our plan told devices. forecast

David MacGregor

support year. promotional thinking is And the here, second seasonal play of that. your of the discussion at the second year for for spending there's programs of my you're the versus obviously, just pattern follow-up And promotional how a rest promotional around of on but half Thanks expectations wondering question really then year? last I'm the half Okay. required about into and

Clifton Pemble

Yes.

than of ever in where the saw past. recent be to this that level returning like more quarters sales and We've discounting in expect promotions are memory. we and to the in markets recent we trend it think normal I seen before the

that. year. more over So It kind we're probably expecting it normalized Honestly, last seen we've year. of be similar what past the very to even will

expect So really going we normal forward that's what a cadence. is

David MacGregor

Good very Thanks luck. much.

Operator

line Tigress question comes the Feinseth Please your next Financial. with go Ivan question. from of Our from ahead,

Ivan Feinseth

for questions. and taking of your expectations Thank OEM like analytics B into the And my you congratulations great on automotive a about you go product product can your little first lab progress. AI what opening how product the you detail Can you that? from also your what talking And on help thoughts what since and AI, and development -- think can are functionality? everybody gain are is about the

Clifton Pemble

first innovation our performance of biometrics our reflects products. commitment in the features and wellness in athletes the for as lab and think research as B to I ongoing well area

we important So from differentiate and others. to it's that's invest to area, in continue that something to us our products

of our well In AI quite as devices for terms techniques both we've a as products our AI, and while. been on in on applications our cloud-based algorithms in using

We continue that to continue and area to we see this capabilities well. trend, our in as develop

in think that in that deploy I how there's of responses there company, terms bag probably the a would I of we mixed say.

general, helpful and is not can it us be in in broadly we're may good us. discussed productivity other for applications AI of the that be with media Some prudence. been have and of approaching But to it in

Ivan Feinseth

of introduced your your a application last on you and your tiering of one as products and an and the creating apps? on revenue watch like that recent as Then far some the upgrade subscription delineation come a outlook lot have me the you've pricing Can views or golf subscription. new question. A with for for give functionality

Clifton Pemble

Yes.

subscription-based intentional increase I seeing reflects think revenues our sources. what from to strategy you're

these playing tax [ph], into our from to increase things of And revenues recurring are so sources. our outdoor inReach, databases, trainers, apps maps, desire aviation all the golf

Ivan Feinseth

Great. Thanks again.

Operator

question from from next your Erik with go Our Morgan comes Stanley. Please Woodring question. ahead,

Erik Woodring

few, Thank guys. morning, taking if may. A question. you for I Good my

know series And I X of one, fenix and give Are on new customer the quarter? can of I reception you kind is? it's what to the into demand new the just you Pro you weave but stabilize? early, love your maybe Pro first that consumer can just the The health the sense in epix seeing color launched some of would us if

from from the pricing hearing have seeing upgrades demand Any some product an difference you of impacting then overall new on any just And existing read these Are And versus it's I you're customer? customer and how upgrades then customers? launches? sensitivity So versus there? new a follow-up. the

Clifton Pemble

Okay. Yes.

had launch like those two epix new the So went Pro, we're We terms past X that seeing of we've the the as planned. what Pro seen feel is the new in exactly mix as indicated think, I And through of and very think families, of trends similar I sell-through as the going registrations and our existing in fenix customers we customers well. upgrade. very

all think softness would in expect pretty the and in those past on there I the as from that issues. two say really consumer I So much terms product as relative seen sensitivity of no any would what is lines, we've economic we to

question And products affluent target the you're products think more that product talking of depends those about. I definitely are really the on customers. higher-end is health consumer the line that

going everything feel as we planned. had there is we So like

Erik Woodring

I strong of kind and on a But helpful. understand macro marine first headwinds. that called you interest only quarter business, just you you. new. weaker neither dynamics the reason market? and elaborate the your that between And necessarily concerns follow maybe walked out is the I are That's on rates those know what's on And Okay. maybe the exactly can dynamics of going second bit us the you on just Thank But I as say in through quarter. up Cliff. comments then to

And seeing has from declining? that your this much. perspective, last from your so really so what just to changed over you Thanks view market are the growing curious, days XX this market

Clifton Pemble

Yes.

seeing and we of latest also But at some it of or spend retailers talking hesitancy on distributors. market. and interest maybe in increasingly, based some they definitely is like see view purchase high customers There's much the are data that the in and all there's of to of the past, we're that our think I strength financing to felt can't very more feedback had a pockets all with buy rates really money our some who, the don't cash. their faced now who part with on

signs to want that are just we're us more be a for little these of initial that to cautious kind back the So the bit seeing cause half.

Erik Woodring

just kind could After ask on to And about products okay. the talking side maybe of if higher-end consumer that. the being follow-up I one just

As what might the you just comments about be you that, might Am specifically versus where that's that from correct to more earlier made resilient, the higher end, hesitancy more it at said end economic there relates largely customers in that lower Q&A. a and bit I marine? sensitivity the be

Clifton Pemble

that's true. Yes,

Erik Woodring

Okay, so it me. for perfect. Thanks That’s much.

Operator

Jordan Bank Our America. of next with from Instructions] the [indiscernible] from question your [Operator of comes line go question. ahead, Please

Unidentified Analyst

Good question. just quick had morning. I a

for like are improving. were But for -- environment looking demand is the sales in full that coming macro the know out when for you Europe are macro the how how guys is I and data thinking about at don't that not both. up guys And For year-over-year environment year? you I Asia, know

Clifton Pemble

big geography particular is each think has situation. place. a own And Asia I Well, its

and So economies dependent maybe so some on some completely while -- well country Asia results. in our We're the not our doing China. with well other for doing in X countries specifically very are good, new aren't cases, releases, in

there a results think markets show economic have. they're of it different progress. to EMEA, the I when allow us time line to So our Similarly, we their diversity on that in comes the probably

new these little were they little as so early especially introduced they've And been some when we've on, products. a softer a of stronger,

Unidentified Analyst

Right.

other promotions discounts? then or advertising stronger just the it on increase is too, in its I actually more had, the spend, And was Okay. question only running

Doug Boessen

had. the Yes. spend, launch that primarily This is media to we product to relating related new

see new consumers. have So to we a a -- lot tied of message sure our that spend products, media that we to out making get is to really

Clifton Pemble

not promotion, is the item really the as advertising related specific of of advertising necessarily the to an product, said, of discounting is direct Doug And the -- awareness itself. the

Unidentified Analyst

you. it. Got Thank

Operator

no are time. to call this back questions Ms. Teri over turn at There the you. further Seck, I'll

Teri Seck

Thanks for And Doug I Have Bye. callbacks. a your are and day. for great today. available time

Operator

disconnect. call. for you may Thank you. conference you Thank This participating, today's concludes now

Garmin (GRMN) 2 Aug 232023 Q2 Earnings call transcript