EX-99.1 2 f8k103019ex99-1_garmin.htm PRESS RELEASE DATED OCTOBER 30, 2019

Exhibit 99.1

 

 

Garmin reports strong growth resulting in record third quarter revenue and operating income; raises guidance

 

Schaffhausen, Switzerland / October 30, 2019/ Business Wire

 

Garmin Ltd. (Nasdaq: GRMN – News) today announced results for the third quarter ended September 28, 2019.

 

Highlights for the third quarter 2019 include:

 

●Revenue of $934 million, a 15% increase over the prior year quarter, with aviation, fitness, outdoor and marine collectively increasing 24% over the prior year quarter

 

●Gross margin of 60.7% compared to 59.4% in the prior year quarter

 

●Operating margin of 28.0% compared to 24.2% in the prior year quarter

 

●Operating income of $261 million, increasing 33% over the prior year quarter

 

●GAAP diluted EPS was $1.19 and pro forma diluted EPS(1) was $1.27, increasing 27% over the prior year quarter

 

●Launched a sweeping update to our consumer wearables including the vÍvoactive® 4 series, the vÍvomove® 3 series, and the all-new VenuTM smartwatch

 

●Launched the fēnix®6 series of adventure smartwatches which includes our first wearable featuring solar technology

 

●Named Manufacturer of the Year by the National Marine Electronics Association for the fifth consecutive year

 

●Since its launch in 2011, Garmin inReach® has provided remote communication and rescue facilitation in over 4,000 SOS incidents, demonstrating the crucial importance of satellite based two-way messaging wherever our customers need assistance

 

●Unveiled the Autoland system for general aviation, designed to safely land the aircraft in the event of an emergency

 

 

 

 

(in thousands, except per share data)  13-Weeks Ended   39-Weeks Ended 
   September 28,   September 29,   Yr over Yr   September 28,   September 29,   Yr over Yr 
   2019   2018   Change   2019   2018   Change 
Net sales  $934,383   $810,011    15%  $2,655,273   $2,415,336    10%
Aviation   187,574    146,427    28%   542,316    445,146    22%
Fitness   243,099    190,185    28%   675,007    581,315    16%
Outdoor   258,294    209,415    23%   622,748    555,314    12%
Marine   107,694    98,770    9%   393,070    346,908    13%
Auto   137,722    165,214    -17%   422,132    486,653    -13%
Gross margin %   60.7%   59.4%        60.1%   59.2%     
Operating income %   28.0%   24.2%        25.2%   23.0%     
GAAP diluted EPS  $1.19   $0.97    23%  $3.10   $2.66    17%
Pro forma diluted EPS(1)  $1.27   $1.00    27%  $3.16   $2.67    18%

 

(1)See attached Non-GAAP Financial Information for discussion and reconciliation of non-GAAP financial measures, including pro forma diluted EPS

 

Executive Overview from Cliff Pemble, President and Chief Executive Officer:

 

“We delivered another quarter of strong growth thanks to our lineup of great products in every market segment,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “We are well positioned for the remainder of 2019 and are raising our revenue and EPS guidance to reflect our strong performance.”

 

Aviation:

 

Revenue from the aviation segment grew 28% in the quarter driven by growth in both OEM and aftermarket categories.  Gross and operating margins were 74% and 35%, respectively, resulting in 30% operating income growth.  Our OEM business saw strength due to increased revenue from both new and existing aircraft platforms. Aftermarket systems, including ADS-B, also contributed to our positive results as we began shipping the Citation Excel/XLS G5000® retrofit integrated cockpit system. During the quarter, the Cessna Citation Longitude, featuring our G5000 integrated flight deck, received final certification. Also during the quarter, the G1000H® NXi integrated flight deck was certified in the Bell 407GXi helicopter, representing the first IFR certification for the G1000H NXi system.

 

Fitness:

 

Revenue from the fitness segment grew 28% in the quarter driven by strength in wearables and contributions from Tacx. Gross and operating margins were 52% and 20%, respectively. At IFA, Europe’s leading consumer electronics trade show, we announced a sweeping update to our line of consumer wearable products including new versions of the vÍvoactive series in two sizes, the vÍvomove 3 hybrid smartwatch series, and the all new Venu smartwatch featuring a brilliant AMOLED color touchscreen display and long battery life.

 

2

 

 

Outdoor:

 

  Revenue from the outdoor segment grew 23% in the quarter with growth in multiple product categories, led by strong performance in the adventure watch category. Gross and operating margins improved to 66% and 41%, respectively, resulting in strong operating income growth. At the recent Ultra-Trail du Mont-Blanc running event, we launched the fēnix 6 adventure watch series with larger displays, innovative performance features and Garmin’s exclusive solar harvesting technology. We also announced the addition of the MARQTM Commander to our collection of luxury tool watches.

 

Marine:

 

Revenue from the marine segment grew 9% in the quarter with growth across multiple product categories, led by strong performance in chartplotters. Gross and operating margins improved to 60% and 19%, respectively, resulting in strong operating income growth. During the quarter, we were named the exclusive marine electronics provider by both Regulator Marine and Sea Hunt, solidifying our leadership in the premier center console boat market. Garmin was also named Manufacturer of the Year by the National Marine Electronics Association for the fifth consecutive year, reflecting the strength of our innovative products and market position.

 

Auto:

 

The auto segment declined 17% in the quarter driven primarily by declines in our OEM business and the ongoing PND market contraction. Gross and operating margins improved to 48% and 15%, respectively, resulting in 39% operating income growth. During the quarter, we started shipping the Garmin OverlanderTM, an all-terrain GPS navigator specifically designed to fit the needs of the growing overlanding community.

 

Additional Financial Information:

 

Total operating expenses in the quarter were $306 million, a 7% increase from the prior year. Research and development expenses increased 7%, primarily due to engineering personnel costs. Selling, general and administrative expenses increased 9% driven primarily by personnel related expenses and incremental costs associated with acquisitions. Advertising increased 5%, driven by higher spend in the outdoor and fitness segments partially offset by lower expense in the auto segment.

 

3

 

 

The effective tax rate in the third quarter of 2019 was 11.6% compared to 8.5% in the prior year quarter. The increase in the effective tax rate is primarily due to lower income tax reserve releases than the prior year.

 

In the third quarter of 2019, we generated $158 million of free cash flow (see attached table for reconciliation of this non-GAAP measure). We ended the quarter with cash and marketable securities of approximately $2.5 billion.

 

2019 Guidance (2):

 

We have updated 2019 guidance to reflect our strong performance. We now anticipate revenue of approximately $3.65 billion driven by higher expectations for our aviation, fitness, and outdoor segments. Our outlook for the marine and auto segments is unchanged. We anticipate our full year pro forma EPS will be approximately $4.15 based on a gross margin of approximately 59.5%, operating margin of approximately 24.3% and a full year pro forma effective tax rate of approximately 16.0%.

 

    2019 Guidance 
    Updated    Prior 
Revenue   ~$3.65B    ~$3.6B 
Gross Margin   ~59.5%   ~59.5%
Operating Margin   ~24.3%   ~23.2%
Tax Rate   ~16.0%   ~16.5%
EPS   ~$4.15    ~$3.90 

 

(2)See attached discussion on Forward-looking Financial Measures

 

   2019 Revenue Growth Estimates 
Segment  Updated   Prior 
Aviation   20%   17%
Fitness   16%   13%
Marine   12%   12%
Outdoor   11%   10%
Auto   -15%   -15%

  

4

 

 

Webcast Information/Forward-Looking Statements:

 

The information for Garmin Ltd.’s earnings call is as follows:

 

When: Wednesday, October 30, 2019 at 10:30 a.m. Eastern
Where: https://www.garmin.com/en-US/investors/events/
How: Simply log on to the web at the address above or call to listen in at 855-757-3897

 

An archive of the live webcast will be available until October 30, 2020 on the Garmin website at www.garmin.com. To access the replay, click on the Investor Relations link and click over to the Events Calendar page.

 

This release includes projections and other forward-looking statements regarding Garmin Ltd. and its business that are commonly identified by words such as “anticipates”, “would,” “may,” “expects,” “estimates,” “plans,” “intends,” “projects,” and other words or phrases with similar meanings. Any statements regarding the Company’s GAAP and pro forma estimated earnings, EPS, and effective tax rate, and the Company’s expected segment revenue growth rates, consolidated revenue, gross margins, operating margins, potential future acquisitions, currency movements, expenses, pricing, new products to be introduced in 2019, statements relating to possible future dividends and the Company’s plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially as a result of risk factors and uncertainties affecting Garmin, including, but not limited to, the risk factors that are described in the Annual Report on Form 10-K for the year ended December 29, 2018 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2018 Form 10-K can be downloaded from https://www.garmin.com/en-US/investors/sec/form10K/

 

This release and the attachments contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the Company’s use of these measures are included in the attachments.

 

Garmin, the Garmin logo, the Garmin delta, fenix, inReach, G5000, G1000, vÍvoactive, vÍvomove, and Tacx, are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. Garmin Overlander, MARQ and venu are trademarks of Garmin Ltd. or its subsidiaries. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved

 

Investor Relations Contact: Media Relations Contact:
Teri Seck Carly Hysell
913/397-8200 913/397-8200
investor.relations@garmin.com media.relations@garmin.com

 

5

 

 

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share information)

 

   13-Weeks Ended   39-Weeks Ended 
   September 28,   September 29,   September 28,   September 29, 
   2019   2018   2019   2018 
Net sales  $934,383   $810,011   $2,655,273   $2,415,336 
                     
Cost of goods sold   366,925    329,264    1,060,752    984,783 
                     
Gross profit   567,458    480,747    1,594,521    1,430,553 
                     
Advertising expense   32,668    31,140    101,808    100,000 
Selling, general and administrative expense   124,769    114,669    380,289    352,234 
Research and development expense   148,561    138,979    443,361    422,649 
Total operating expense   305,998    284,788    925,458    874,883 
                     
Operating income   261,460    195,959    669,063    555,670 
                     
Other income (expense):                    
     Interest income   12,309    11,089    39,748    32,310 
     Foreign currency losses   (16,296)   (6,868)   (12,568)   (3,405)
     Other income   294    1,147    3,567    6,800 
Total other income (expense)   (3,693)   5,368    30,747    35,705 
                     
Income before income taxes   257,767    201,327    699,810    591,375 
                     
Income tax provision   29,901    17,113    108,115    87,445 
                     
Net income  $227,866   $184,214   $591,695   $503,930 
                     
Net income per share:                    
     Basic  $1.20   $0.98   $3.12   $2.67 
     Diluted  $1.19   $0.97   $3.10   $2.66 
                     
Weighted average common shares outstanding:                    
     Basic   190,102    188,799    189,853    188,554 
     Diluted   190,962    190,005    190,790    189,586 

 

6

 

 

Garmin Ltd. And Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except per share information)

 

   September 28,   December 29, 
   2019   2018 
Assets        
Current assets:        
Cash and cash equivalents  $976,402   $1,201,732 
Marketable securities   300,542    182,989 
Accounts receivable, net   558,299    569,833 
Inventories   749,825    561,840 
Deferred costs   26,450    28,462 
Prepaid expenses and other current assets   146,325    120,512 
Total current assets   2,757,843    2,665,368 
           
Property and equipment, net   710,591    663,527 
Operating lease right-of-use assets   55,399    - 
           
Restricted cash   1,036    73 
Marketable securities   1,252,219    1,330,123 
Deferred income taxes   158,963    176,959 
Noncurrent deferred costs   25,156    29,473 
Intangible assets, net   637,716    417,080 
Other assets   156,182    100,255 
Total assets  $5,755,105   $5,382,858 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $235,548   $204,985 
Salaries and benefits payable   109,323    113,087 
Accrued warranty costs   37,998    38,276 
Accrued sales program costs   58,459    90,388 
Deferred revenue   95,572    96,372 
Accrued royalty costs   11,673    24,646 
Accrued advertising expense   21,246    31,657 
Other accrued expenses   87,333    69,777 
Income taxes payable   60,728    51,642 
Dividend payable   325,075    200,483 
Total current liabilities   1,042,955    921,313 
           
Deferred income taxes   113,225    92,944 
Noncurrent income taxes   105,309    127,211 
Noncurrent deferred revenue   69,600    76,566 
Noncurrent operating lease liabilities   42,855    - 
Other liabilities   267    1,850 
           
Stockholders’ equity:          
           
Shares, CHF 0.10 par value, 198,077 shares authorized and issued; 190,103 shares outstanding at September 28, 2019 and 189,461 shares outstanding at December 29, 2018   17,979    17,979 
Additional paid-in capital   1,841,696    1,823,638 
Treasury stock   (368,187)   (397,692)
Retained earnings   2,868,816    2,710,619 
Accumulated other comprehensive income   20,590    8,430 
Total stockholders’ equity   4,380,894    4,162,974 
Total liabilities and stockholders’ equity  $5,755,105   $5,382,858 

 

7

 

 

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   39-Weeks Ended 
   September 28,   September 29, 
   2019   2018 
Operating activities:        
Net income   $591,695   $503,930 
Adjustments to reconcile net income to net cash provided by operating activities:           
Depreciation    52,503    47,902 
Amortization    25,112    23,574 
Gain on sale or disposal of property and equipment    (5)   (491)
Provision for doubtful accounts    933    1,265 
Provision for obsolete and slow moving inventories    32,501    17,719 
Unrealized foreign currency loss    14,653    4,158 
Deferred income taxes    18,012    20,177 
Stock compensation expense    47,553    42,094 
Realized (gains) losses on marketable securities    (213)   481 
Changes in operating assets and liabilities, net of acquisitions:           
Accounts receivable    14,311    111,955 
Inventories    (210,622)   (69,139)
Other current and non-current assets    (86,538)   5,102 
Accounts payable    27,523    32,601 
Other current and non-current liabilities    (54,401)   (57,245)
Deferred revenue    (7,750)   (14,923)
Deferred costs    6,326    5,581 
Income taxes payable    (7,423)   27,041 
Net cash provided by operating activities    464,170    701,782 
           
Investing activities:           
Purchases of property and equipment    (91,469)   (122,846)
Proceeds from sale of property and equipment   370    1,296 
Purchase of intangible assets    (1,862)   (2,982)
Purchase of marketable securities   (333,320)   (314,179)
Redemption of marketable securities    333,783    229,066 
Acquisitions, net of cash acquired   (275,310)   (29,170)
Net cash used in investing activities    (367,808)   (238,815)
           
Financing activities:           
Dividends    (308,905)   (296,149)
Proceeds from issuance of treasury stock related to equity awards   12,982    14,524 
Purchase of treasury stock related to equity awards    (12,972)   (6,909)
Net cash used in financing activities   (308,895)   (288,534)
           
Effect of exchange rate changes on cash, cash equivalents, and restricted cash   (11,834)   (9,650)
           
Net (decrease) increase in cash, cash equivalents, and restricted cash   (224,367)   164,783 
Cash, cash equivalents, and restricted cash at beginning of period    1,201,805    891,759 
Cash, cash equivalents, and restricted cash at end of period  $977,438   $1,056,542 

 

8

 

 

Garmin Ltd. And Subsidiaries

Net Sales, Gross Profit and Operating Income by Segment (Unaudited)

(in thousands)

 

   Reportable Segments 
   Outdoor   Fitness   Marine   Auto   Aviation   Total 
                         
13-Weeks Ended September 28, 2019                        
                               
Net sales  $258,294   $243,099   $107,694   $137,722   $187,574   $934,383 
Gross profit   170,846    126,835    64,275    65,814    139,688    567,458 
Operating income   105,051    49,831    20,008    20,857    65,713    261,460 
                               
13-Weeks Ended September 29, 2018                              
                               
Net sales  $209,415   $190,185   $98,770   $165,214   $146,427   $810,011 
Gross profit   136,671    103,441    58,508    70,925    111,202    480,747 
Operating income   78,972    37,378    13,908    15,032    50,669    195,959 
                               
39-Weeks Ended  September 28, 2019                              
                               
Net sales  $622,748   $675,007   $393,070   $422,132   $542,316   $2,655,273 
Gross profit   403,842    352,805    234,014    198,012    405,848    1,594,521 
Operating income   218,340    118,369    88,212    53,978    190,164    669,063 
                               
39 -Weeks Ended September 29, 2018                              
                               
Net sales  $555,314   $581,315   $346,908   $486,653   $445,146   $2,415,336 
Gross profit   358,829    326,473    203,976    207,389    333,886    1,430,553 
Operating income   194,711    123,299    54,806    31,113    151,741    555,670 

 

In the first quarter of fiscal 2019, the methodology used to allocate certain selling, general, and administrative expenses to the segments was refined.  The Company’s composition of segments did not change. Prior year amounts are presented above as they were originally reported. For comparative purposes, we estimate segment operating income for the 13 weeks ended September 29, 2018 would have been approximately $4 million less for the aviation segment, approximately $2 million more for the marine segment, $2 million more for the outdoor segment, and not significantly different for the fitness and auto segments.  We estimate segment operating income for the 39 weeks ended September 29, 2018 would have been approximately $13 million less for the aviation segment, approximately $10 million more for the marine segment, $3 million more for the outdoor segment, and not significantly different for the fitness and auto segments.  Also, we estimate segment operating income for the 52 weeks ended December 29, 2018 would have been approximately $18 million less for the aviation segment, approximately $11 million more for the marine segment, approximately $7 million more for the outdoor segment, and not significantly different for the fitness and auto segments.

 

9

 

 

Garmin Ltd. And Subsidiaries

Net Sales by Geography (Unaudited)

(In thousands)

 

   13-Weeks Ended   39-Weeks Ended 
   September 28,   September 29,   Yr over Yr   September 28,   September 29,   Yr over Yr 
   2019   2018   Change   2019   2018   Change 
Net sales  $934,383   $810,011    15%  $2,655,273   $2,415,336    10%
Americas   439,113    370,239    19%   1,289,409    1,153,330    12%
EMEA   344,010    307,087    12%   942,625    862,116    9%
APAC   151,260    132,685    14%   423,239    399,890    6%

 

EMEA - Europe, Middle East and Africa; APAC - Asia Pacific and Australian Continent

 

Non-GAAP Financial Information

 

To supplement our financial results presented in accordance with GAAP, this release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: pro forma net income (earnings) per share, pro forma effective tax rate and free cash flow. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies, limiting the usefulness of the measures for comparison with other companies. Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company, as described in more detail by category below.

 

The tables below provide reconciliations between the GAAP and non-GAAP measures.

 

Pro forma effective tax rate

 

The Company’s income tax expense is periodically impacted by discrete tax items that are not reflective of income tax expense incurred as a result of current period earnings. Therefore, management believes disclosure of the effective tax rate and income tax provision before the effect of certain discrete tax items are important measures to permit investors’ consistent comparison between periods. In the 39 weeks ended September 28, 2019 and September 29, 2018, there were no such discrete tax items identified. The net release of uncertain tax position reserves, amounting to approximately $23.3 million and $27.7 million in the 39 weeks ended September 28, 2019 and September 29, 2018, respectively, have not been identified as pro forma adjustments as such items tend to be more recurring in nature.

 

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Pro forma net income (earnings) per share

 

Management believes that net income (earnings) per share before the impact of foreign currency gains or losses and certain discrete income tax items, as discussed above, is an important measure in order to permit a consistent comparison of the Company’s performance between periods.

 

Garmin Ltd. And Subsidiaries

Pro Forma Net Income (Earnings) Per Share

(in thousands, except per share information)

 

  13-Weeks Ended   39-Weeks Ended 
   September 28,   September 29,   September 28,   September 29, 
   2019   2018   2019   2018 
                 
Net income (GAAP)  $227,866   $184,214   $591,695   $503,930 
Foreign currency gains / losses(1)   16,296    6,868    12,568    3,405 
Tax effect of foreign currency gains / losses(2)   (1,890)   (584)   (1,942)   (503)
Net income (Pro Forma)  $242,272   $190,498   $602,321   $506,832 
                     
Net income per share (GAAP):                    
   Basic  $1.20   $0.98   $3.12   $2.67 
   Diluted  $1.19   $0.97   $3.10   $2.66 
                     
Net income per share (Pro Forma):                    
   Basic  $1.27   $1.01   $3.17   $2.69 
   Diluted  $1.27   $1.00   $3.16   $2.67 
                     
Weighted average common shares outstanding:                    
   Basic   190,102    188,799    189,853    188,554 
   Diluted   190,962    190,005    190,790    189,586 

 

(1)The majority of the Company’s consolidated foreign currency gains and losses are driven by movements in the Taiwan Dollar, Euro, and British Pound Sterling in relation to the U.S. Dollar and the related exchange rate impact on the significant cash, receivables, and payables held in a currency other than the functional currency at one of the Company’s subsidiaries.  However, there is minimal cash impact from such foreign currency gains and losses.

 

(2)The tax effect of foreign currency gains and losses was calculated using the effective tax rate of 11.6% and 15.4% for the third quarter and year-to-date ended September 28, 2019, respectively, and an effective tax rate of 8.5% and 14.8% for the quarter and year-to-date ended September 29, 2018, respectively.

 

Free cash flow

 

Management believes that free cash flow is an important financial measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flows less capital expenditures for property and equipment. Management believes that excluding purchases of property and equipment provides a better understanding of the underlying trends in the Company’s operating performance and allows more accurate comparisons of the Company’s operating results to historical performance. This metric may also be useful to investors, but should not be considered in isolation as it is not a measure of cash flow available for discretionary expenditures. The most comparable GAAP measure is net cash provided by operating activities.

 

11

 

 

Garmin Ltd. And Subsidiaries

Free Cash Flow

(in thousands)

 

   13-Weeks Ended   39-Weeks Ended 
   September 28,   September 29,   September 28,   September 29, 
   2019   2018   2019   2018 
                 
Net cash provided by operating activities  $188,952   $263,719   $464,170   $701,782 
Less: purchases of property and equipment   (30,974)   (29,773)   (91,469)   (122,846)
Free Cash Flow  $157,978   $233,946   $372,702   $578,936 

 

Forward-looking Financial Measures

 

The forward-looking financial measures in our 2019 guidance provided above do not consider the potential future net effect of certain discrete tax items, foreign currency exchange gains and losses, and any other impacts that may be identified as pro forma adjustments in calculating the non-GAAP measures described above.

 

Switzerland corporate tax reform was approved by public referendum in May 2019 and enacted in October 2019. Accordingly, the Company expects to record an income tax benefit of approximately $20 to $220 million in the fourth quarter of 2019 due to an increase in certain Switzerland deferred tax assets resulting from enactment of Switzerland federal and Schaffhausen cantonal tax reform. The Company is evaluating transitional measures in Switzerland tax law that may affect the overall increase in deferred tax assets. The income tax benefit from the increase is expected to be a pro forma adjustment in fiscal 2019 as it will not be reflective of income tax expense incurred as a result of current period earnings.

 

The estimated impact of foreign currency gains and losses cannot be reasonably estimated on a forward-looking basis due to the high variability and low visibility with respect to non-operating foreign currency exchange gains and losses and the related tax effects of such gains and losses. The impact on diluted net income per share of foreign currency gains and losses, net of tax effects, was $0.06 per share for the 39-weeks ended September 28, 2019.

 

At this time, management is unable to determine whether or not other significant discrete tax items will occur in fiscal 2019 or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

 

 

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