Garmin reports strong revenue and operating income growth; proposes 7% dividend increase

Garmin Ltd. (Nasdaq: GRMN) today announced results for the fourth quarter and fiscal year ended December 28, 2019.

Highlights for fourth quarter 2019 include:

Total revenue of $1.102 billion, an 18% increase, with fitness, aviation, marine and outdoor collectively increasing 24% over the prior year quarter
Gross margin of 58.0% compared to 58.9% in the prior year quarter
Operating margin improved to 25.1% compared to 23.9% in the prior year quarter
Operating income of $277 million, increasing 24% over the prior year quarter
GAAP EPS was $1.89 and pro forma EPS(1) was $1.29, representing 26% growth over the prior year quarter
The Force™ trolling motor and GPSMAP® 86i were awarded the highly competitive DAME design award at METSTRADE
Selected by Ford to provide electric vehicle navigation software on the next-generation SYNC platform for the Mustang Mach-E

Highlights for fiscal year 2019 include:

Record consolidated revenue of $3.758 billion, a 12% increase, with fitness, aviation, marine and outdoor collectively increasing 18% over the prior year
Gross margin improved to 59.5% compared to 59.1% in the prior year
Operating margin improved to 25.2% compared to 23.3% in the prior year
Record operating income of $946 million, increasing 21% over the prior year
GAAP EPS was $4.99 and pro forma EPS(1) was $4.45, representing 21% growth over the prior year
Selected by BMW AG as their lead design and production partner of infotainment modules for the BMW Group, validating Garmin as a tier 1 supplier to the world’s most respected brands
Unveiled the Garmin Autoland system for general aviation, designed to safely land the aircraft in the event of a pilot incapacitation
Completed several strategic acquisitions to strengthen our product portfolio, including Tacx®, a leading provider of indoor bike trainers
Launched the fēnix® 6X Pro Solar, our first wearable featuring solar harvesting technology
Named one of America’s Top 5 Best Employers by Forbes

(in thousands, except per share data)

13-Weeks Ended

52-Weeks Ended

December 28,

December 29,

Yr over Yr

December 28,

December 29,

Yr over Yr

2019

2018

Change

2019

2018

Change

Net sales

1,102,233

932,108

3,757,505

3,347,444

Fitness

372,520

277,014

1,047,527

858,329

Aviation

193,143

158,314

735,458

603,459

Marine

115,779

94,652

508,850

441,560

Outdoor

294,819

254,568

917,567

809,883

Auto

125,972

147,560

-15

548,103

634,213

-14

Gross margin %

58.0

58.9

59.5

59.1

Operating income %

25.1

23.9

25.2

23.3

GAAP diluted EPS

1.89

1.00

4.99

3.66

Pro forma diluted EPS(1)

1.29

1.02

4.45

3.69

(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:

“2019 was another exciting year of growth thanks to our strong lineup of products and unique innovations,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “We entered 2020 with a great lineup of recently introduced products with more on the way. We are excited about the future because each business segment offers unique growth opportunities for 2020 and beyond.”

Fitness:

Revenue from the fitness segment grew 34% in the fourth quarter driven by strength in advanced wearables and contributions from Tacx. Gross margin and operating margin were 48% and 20%, respectively, resulting in 26% operating income growth. During the quarter, we announced our support of the Runner’s Alliance, an initiative to fight harassment experienced by women while running.

Aviation:

Revenue from the aviation segment grew 22% in the fourth quarter with contributions from both the aftermarket and OEM categories. Growth was broad-based across multiple product categories, with ADS-B being a major contributor. Gross margin and operating margin were 71% and 33%, respectively, resulting in 18% operating income growth. We expanded the availability of the G1000® NXi upgrade adding both the King Air C90 and the Embraer Phenom 100 to our list of certified aircraft.

Marine:

Revenue from the marine segment grew 22% in the fourth quarter driven by our innovative product lineup of chartplotters, advanced sonars, and the revolutionary new Force trolling motor. Gross margin and operating margin improved to 60% and 19%, respectively, resulting in 154% operating income growth. During the quarter, we expanded our flagship chartplotter line-up with the new GPSMAP Plus series and the ECHOMAP® UHD series.

Outdoor:

Revenue from the outdoor segment grew 16% in the fourth quarter with significant contributions from adventure watches. Gross margin and operating margin were 66% and 39%, respectively, resulting in 21% operating income growth. During the quarter, we announced a global collaboration with World Central Kitchen, providing inReach® satellite communication devices to help support disaster relief with emergency response efforts around the globe. 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.

Auto:

The auto segment recorded a decline in revenue of 15% during the fourth quarter, primarily due to the ongoing PND market contraction and lower year-over-year OEM sales. Gross margin and operating margin were 47% and 2%, respectively. At the recent Consumer Electronics Show, we announced our new dual-lens Dash Cam Tandem that captures quality video both inside and outside of the vehicle.

Additional Financial Information:

Total operating expenses in the fourth quarter were $363 million, an 11% increase over the prior year. Research and development increased 12%, primarily due to engineering personnel costs and incremental costs associated with acquisitions. Selling, general and administrative expenses increased 10%, driven primarily by personnel related expenses and incremental costs associated with acquisitions. Advertising increased 13%, driven by higher spending in the fitness and outdoor segments.

In the fourth quarter of 2019, we reported a $73 million income tax benefit. Excluding the $118 million income tax benefit due to the revaluation and step-up of certain Switzerland tax assets, our pro forma effective tax rate(1) in the fourth quarter of 2019 was 15.5% compared to 18.0% in the prior year quarter. The decrease in the current quarter pro forma effective tax rate is primarily due to income mix by jurisdiction.

In the fourth quarter of 2019, we generated approximately $208 million of free cash flow(1). We ended the quarter with cash and marketable securities of approximately $2.6 billion.

(1)

See attached Non-GAAP Financial Information for discussion and reconciliation of non-GAAP financial measures, including pro forma effective tax rate and free cash flow.

2020 Guidance (2):

We expect 2020 revenue of approximately $4.0 billion as growth in fitness, outdoor and marine is partially offset by declines in the auto segment. We expect our full year pro forma EPS will be approximately $4.60 based upon gross margin of approximately 59.2%, operating margin of approximately 23.5% and a full year pro forma effective tax rate of approximately 10.0%. The expected year-over-year decrease in the pro forma tax rate is primarily due to the migration of intellectual property ownership from Switzerland to the United States.

2020 Guidance

Segment

Revenue Growth Estimates

Revenue

~$4.0B

Fitness

~10%

Gross Margin

~59.2%

Outdoor

~10%

Operating Margin

~23.5%

Marine

~10%

Tax Rate

~10.0%

Aviation

~0%

EPS

~$4.60

Auto

~(5%)

(2)

See attached discussion on Forward-looking Financial Measures

Dividend Recommendation:

The board of directors intends to recommend to the shareholders for approval at the annual meeting to be held on June 5, 2020, a cash dividend in the amount of $2.44 per share (subject to possible adjustment based on the total amount of the dividend in Swiss Francs as approved at the annual meeting), payable in four equal installments on dates to be determined by the Board. The Board currently anticipates the scheduling of the dividend in four installments as follows:

Dividend Date

Record Date

$s per share

June 30, 2020

June 15, 2020

$0.61

September 30, 2020

September 15, 2020

$0.61

December 31, 2020

December 15, 2020

$0.61

March 31, 2021

March 15, 2021

$0.61

In addition, the board of directors has established March 31, 2020 as the payment date and March 16, 2020 as the record date for the final dividend installment of $0.57 per share, per the prior approval at the 2019 annual shareholders’ meeting. The first, second and third payments of $0.57 per share were made on June 28, 2019, September 30, 2019, and December 31, 2019, respectively.

Webcast Information/Forward-Looking Statements:

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

When:

Wednesday, February 19, 2020 at 10:30 a.m. Eastern

Where:

http://www.garmin.com/en-US/company/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 February 18, 2021 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 “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 2020, 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 28, 2019 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2019 Form 10-K can be downloaded from https://www.garmin.com/en-US/company/investors/sec/form-10-K/.

Non-GAAP Financial Measures

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, fēnix, GPSMAP, Tacx, G1000, ECHOMAP, Force and inReach, are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved.

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share information)

13-Weeks Ended

52-Weeks Ended

December 28,

December 29,

December 28,

December 29,

2019

2018

2019

2018

Net sales

1,102,233

932,108

3,757,505

3,347,444

Cost of goods sold

462,777

382,942

1,523,529

1,367,725

Gross profit

639,456

549,166

2,233,976

1,979,719

Advertising expense

62,648

55,394

164,456

155,394

Selling, general and administrative expense

138,280

125,942

518,568

478,177

Research and development expense

162,005

145,157

605,366

567,805

Total operating expense

362,933

326,493

1,288,390

1,201,376

Operating income

276,523

222,673

945,586

778,343

Other income (expense):

Interest income

13,069

14,837

52,817

47,147

Foreign currency losses

(4,230

)

(4,211

)

(16,799

)

(7,616

)

Other income (expense)

2,051

(1,426

)

5,618

5,373

Total other income (expense)

10,890

9,200

41,636

44,904

Income before income taxes

287,413

231,873

987,222

823,247

Income tax (benefit) provision

(73,379

)

41,723

34,736

129,167

Net income

360,792

190,150

952,486

694,080

Net income per share:

Basic

1.90

1.01

5.01

3.68

Diluted

1.89

1.00

4.99

3.66

Weighted average common shares outstanding:

Basic

190,165

188,878

189,931

188,635

Diluted

191,225

190,177

190,899

189,734

Garmin Ltd. And Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except per share information)

December 28, 2019

December 29, 2018

Assets

Current assets:

Cash and cash equivalents

1,027,567

1,201,732

Marketable securities

376,463

182,989

Accounts receivable, net

706,763

569,833

Inventories

752,908

561,840

Deferred costs

25,105

28,462

Prepaid expenses and other current assets

169,044

120,512

Total current assets

3,057,850

2,665,368

Property and equipment, net

728,921

663,527

Operating lease right-of-use assets

63,589

—

Restricted cash

Marketable securities

1,205,475

1,330,123

Deferred income taxes

268,518

176,959

Noncurrent deferred costs

23,493

29,473

Intangible assets, net

659,629

417,080

Other assets

159,253

100,255

Total assets

6,166,799

5,382,858

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

240,831

204,985

Salaries and benefits payable

128,426

113,087

Accrued warranty costs

39,758

38,276

Accrued sales program costs

112,578

90,388

Deferred revenue

94,562

96,372

Accrued royalty costs

15,401

24,646

Accrued advertising expense

35,142

31,657

Other accrued expenses

95,060

69,777

Income taxes payable

56,913

51,642

Dividend payable

217,262

200,483

Total current liabilities

1,035,933

921,313

Deferred income taxes

114,754

92,944

Noncurrent income taxes

105,771

127,211

Noncurrent deferred revenue

67,329

76,566

Noncurrent operating lease liabilities

49,238

—

Other liabilities

278

1,850

Stockholders’ equity:

Shares, CHF 0.10 par value, 198,077 shares authorized and issued, 190,686 shares outstanding at December 28, 2019; and 189,461 shares outstanding at December 29, 2018

17,979

Additional paid-in capital

1,835,622

1,823,638

Treasury stock

(345,040

)

(397,692

)

Retained earnings

3,229,061

2,710,619

Accumulated other comprehensive income

55,874

8,430

Total stockholders’ equity

4,793,496

4,162,974

Total liabilities and stockholders’ equity

6,166,799

5,382,858

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

52-Weeks Ended

December 28, 2019

December 29, 2018

Operating Activities:

Net income

952,486

694,080

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

71,921

64,798

Amortization

34,254

31,396

Gain on sale of property and equipment

(233

)

(479

)

Unrealized foreign currency losses

18,663

13,790

Deferred income taxes

(88,358

)

38,978

Stock compensation expense

63,400

56,391

Realized (gains) losses on marketable securities

(799

)

827

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable, net of allowance for doubtful accounts

(123,401

)

7,290

Inventories

(170,169

)

(57,737

)

Other current and non-current assets

(86,073

)

7,358

Accounts payable

26,192

40,628

Other current and non-current liabilities

36,660

(1,323

)

Deferred revenue

(11,032

)

(17,208

)

Deferred costs

9,335

5,611

Income taxes payable

(34,297

)

35,120

Net cash provided by operating activities

698,549

919,520

Investing activities:

Purchases of property and equipment

(118,031

)

(155,755

)

Proceeds from sale of property and equipment

529

1,600

Purchase of intangible assets

(2,377

)

(4,600

)

Purchase of marketable securities

(789,352

)

(403,181

)

Redemption of marketable securities

758,774

283,603

Acquisitions, net of cash acquired

(300,289

)

(29,170

)

Net cash used in investing activities

(450,746

)

(307,503

)

Financing activities:

Dividends

(417,264

)

(296,148

)

Proceeds from issuance of treasury stock related to equity awards

27,122

26,642

Purchase of treasury stock related to equity awards

(25,886

)

(16,655

)

Net cash used in financing activities

(416,028

)

(286,161

)

Effect of exchange rate changes on cash and cash equivalents

(5,942

)

(15,810

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

(174,167

)

310,046

Cash, cash equivalents, and restricted cash at beginning of year

1,201,805

891,759

Cash, cash equivalents, and restricted cash at end of year

1,027,638

1,201,805

Garmin Ltd. And Subsidiaries

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

(In thousands)

Reportable Segments

Fitness

Outdoor

Aviation

Auto

Marine

Total

13-Weeks Ended December 28, 2019

Net sales

372,520

294,819

193,143

125,972

115,779

1,102,233

Gross profit

179,799

194,601

137,537

58,584

68,935

639,456

Operating income

73,490

115,701

62,778

2,891

21,663

276,523

13-Weeks Ended December 29, 2018

Net sales

277,014

254,568

158,314

147,560

94,652

932,108

Gross profit

145,291

169,425

116,266

63,405

54,779

549,166

Operating income

58,446

95,798

53,005

6,888

8,536

222,673

52-Weeks Ended December 28, 2019

Net sales

1,047,527

917,567

735,458

548,103

508,850

3,757,505

Gross profit

532,604

598,443

543,385

256,595

302,949

2,233,976

Operating income

191,858

334,041

252,943

56,868

109,876

945,586

52 -Weeks Ended December 29, 2018

Net sales

858,329

809,883

603,459

634,213

441,560

3,347,444

Gross profit

471,764

528,254

450,152

270,793

258,756

1,979,719

Operating income

181,745

290,510

204,746

37,998

63,344

778,343

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 December 29, 2018 would have been approximately $5 million less for the aviation segment, approximately $1 million more for the marine segment, $4 million more for the outdoor segment, and not significantly different for the fitness and auto segments. 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.

Garmin Ltd. And Subsidiaries

Net Sales by Geography (Unaudited)

(In thousands)

13-Weeks Ended

52-Weeks Ended

December 28,

December 29,

Yr over Yr

December 28,

December 29,

Yr over Yr

2019

2018

Change

2019

2018

Change

Net sales

1,102,233

932,108

3,757,505

3,347,444

Americas

528,362

443,386

1,817,770

1,596,716

EMEA

407,908

342,853

1,350,533

1,204,969

APAC

165,963

145,869

589,202

545,759

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 2018, there were no such discrete tax items identified.

Garmin Ltd. And Subsidiaries

Pro Forma Effective Tax Rate

(In thousands, except effective tax rate (ETR) information)

13-Weeks Ended

52-Weeks Ended

December 28,

2019

ETR(1)

U.S GAAP income tax (benefit) provision

(73,379

)

(25.5

34,736

3.5

Pro forma discrete tax item:

Switzerland deferred tax assets(2)

117,989

Pro forma income tax provision

44,610

15.5

152,725

15.5

(1)

Effective tax rate is calculated by taking the income tax provision divided by income before taxes, as presented on the face of the Condensed Consolidated Statements of Income.

(2)

In fourth quarter 2019, a $118 million income tax benefit was recognized resulting from the revaluation and step-up of certain Switzerland tax assets as a result of the enactment of Switzerland Federal and Schaffhausen cantonal tax reform and related transitional measures. This impact is not reflective of income tax expense incurred as a result of current period earnings and therefore affects period-to-period comparability.

The net release of uncertain tax position reserves, amounting to approximately $28.9 million and $31.0 million for the 52-weeks ended December 28, 2019 and December 29, 2018, respectively, have not been included as pro forma adjustments in the above presentation of pro forma income tax provision as such items tend to be more recurring in nature.

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

52-Weeks Ended

December 28,

December 29,

December 28,

December 29,

2019

2018

2019

2018

GAAP net income

360,792

190,150

952,486

694,080

Foreign currency gains / losses(1)

4,230

4,211

16,799

7,616

Tax effect of foreign currency gains / losses(2)

(657

)

(758

)

(2,599

)

(1,195

)

Switzerland deferred tax assets(3)

(117,989

)

—

(117,989

)

—

Pro forma net income

246,376

193,603

848,697

700,501

GAAP net income per share:

Basic

1.90

1.01

5.01

3.68

Diluted

1.89

1.00

4.99

3.66

Pro forma net income per share:

Basic

1.30

1.03

4.47

3.71

Diluted

1.29

1.02

4.45

3.69

Weighted average common shares outstanding:

Basic

190,165

188,878

189,931

188,635

Diluted

191,225

190,177

190,899

189,734

(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 pro forma effective tax rate of 15.5% for the quarter and fiscal year ended December 28, 2019, respectively, and an effective tax rate of 18.0% and 15.7% for the quarter and fiscal year ended December 29, 2018, respectively.

(3)

The discrete tax item is discussed in the pro forma effective tax rate section above.

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.

Garmin Ltd. And Subsidiaries

Free Cash Flow

(In thousands)

13-Weeks Ended

52-Weeks Ended

December 28,

December 29,

December 28,

December 29,

2019

2018

2019

2018

Net cash provided by operating activities

234,379

217,737

698,549

919,520

Less: purchases of property and equipment

(26,562

)

(32,909

)

(118,031

)

(155,755

)

Free Cash Flow

207,817

184,828

580,518

763,765

Forward-looking Financial Measures

The forward-looking financial measures in our 2020 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.

At this time, management is unable to determine whether or not significant discrete tax items will occur in fiscal 2020, reasonably estimate such foreign currency gains and losses, or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

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 $0.07 per share for the 52-weeks ended December 28, 2019.

Category: Corporate

View source version on businesswire.com: https://www.businesswire.com/news/home/20200219005267/en/

Investor Relations Contact: Teri Seck +1 913/397-8200 investor.relations@garmin.com Media Relations Contact: Carly Hysell +1 913/397-8200 media.relations@garmin.com