Garmin Ltd. (Nasdaq: GRMN – News) today announced results for
the second quarter ended June 27, 2020.
Highlights for second quarter 2020 include:
- Total revenue of $870 million, a 9% year-over-year decrease, as
strength in fitness and marine partially offset declines in
outdoor, aviation, and automotive
- Gross margin and operating margin were 59.3% and 21.7%,
respectively
- GAAP EPS was $0.96 and pro forma EPS(1) was $0.91
- Recently announced the acquisition of Firstbeat Analytics, a
leading provider of physiological analytics technology for health,
fitness and athletic performance
- Introduced solar charging technology into our Instinct® product
line dramatically increasing its battery life, and added solar
charging technology to additional fēnix® 6 models
- Garmin Autoland achieved Federal Aviation Administration (FAA)
certification for general aviation aircraft in the Piper M600,
marking the beginning of a new era in general aviation safety
technology
- Expanded our exclusive relationship with Regulator Marine,
adding Fusion® Entertainment as standard equipment
- Launched new series of oversized dēzl™ truck navigators
(in thousands, except per share
data)
13-Weeks Ended
26-Weeks Ended
June 27,
June 29,
YoY
June 27,
June 29,
YoY
2020
2019
Change
2020
2019
Change
Net sales
$
869,867
$
954,840
(9)%
$
1,725,975
$
1,720,890
0%
Fitness
294,642
251,653
17%
518,242
431,908
20%
Marine
157,827
151,407
4%
320,832
285,376
12%
Outdoor
206,200
210,404
(2)%
381,302
364,455
5%
Aviation
126,140
183,965
(31)%
314,739
354,741
(11)%
Auto
85,058
157,411
(46)%
190,860
284,410
(33)%
Gross margin %
59.3%
60.3%
59.2%
59.7%
Operating income %
21.7%
26.8%
21.2%
23.7%
GAAP diluted EPS
$
0.96
$
1.17
(18)%
$
1.80
$
1.91
(6)%
Pro forma diluted EPS(1)
$
0.91
$
1.16
(22)%
$
1.82
$
1.89
(4)%
(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:
“Garmin delivered strong second quarter financial results in a
period filled with unprecedented challenges,” said Cliff Pemble,
president and chief executive officer of Garmin Ltd. “Business
conditions rapidly improved from April lows driven by popular
fitness, marine, and outdoor products. We believe these results
affirm the resilient nature of our business and the strong utility
of our products.”
Fitness:
Revenue from the fitness
segment grew 17% in the second quarter driven by strong demand for
our advanced wearables and cycling products. Gross margin and
operating margin were 53% and 24%, respectively. We launched new
Edge® cycling products that add performance insights, safety and
tracking features to monitor health stats and provide training
guidance to our cycling customers. We recently acquired Firstbeat
Analytics, establishing Garmin as a global leader in physiological
analytics. We continue to see opportunities for innovative and
compelling new products within the fitness segment.
Marine:
Revenue from the marine segment grew 4% in the second quarter
across multiple categories led by chartplotters and Panoptix™ sonar
technology. Gross margin and operating margin were 59% and 28%,
respectively. Regulator Marine expanded its exclusive relationship
with Garmin, selecting the Fusion Apollo series stereos as standard
equipment on its offshore sportfishing center console boats. Also,
we launched quatix® solar, our first marine smartwatch featuring
solar charging technology. We remain focused on providing leading
edge, high quality products and systems with the latest technology
that our customers demand.
Outdoor:
Revenue from the outdoor segment decreased 2% in the second
quarter as declines in handhelds were mostly offset by strong
demand of adventure watches. Gross margin and operating margin were
65% and 33%, respectively. We recently expanded our solar charging
technology to the Instinct, fēnix 6 and 6S and tactix® Delta
adventure watches allowing customers to “Do What They Love Longer”
through significantly increased battery life and new purpose-built
functionality. Looking forward, our outdoor segment remains focused
on providing compelling new products and new categories that enable
and enrich the outdoor experiences of our customers.
Aviation:
Revenue from the aviation segment declined 31% in the second
quarter, as the pandemic negatively impacted OEM and aftermarket
product categories, and the ADS-B market rapidly matured. Gross
margin and operating margin were 73% and 12%, respectively. During
the quarter, we received FAA certification for the Garmin Autoland
system in the Piper M600, marking the beginning of a new era for
general aviation safety technology. We continue to invest in
additional certifications and new products that will make general
aviation safer and more accessible.
Auto:
Revenue from the auto segment declined 46% during the second
quarter, as the pandemic significantly impacted driving activity
and production of new vehicles. Gross margin was 47%, and we
experienced an operating loss of $10 million in the quarter. During
the quarter, we launched the oversized dēzl GPS truck navigators
featuring large, easy-to-read HD touchscreens, industry-best
load-to-dock guidance and popular truck routing for professional
truck drivers. We also launched the RV 890 navigator specifically
geared for the RV and camping lifestyle, with a large
high-resolution touchscreen display and revamped voice assistant
which simplifies overall interaction with the navigator. Looking
forward, our auto segment is committed to enhancing the automotive
experience through compelling aftermarket products for adventure,
professional and daily drivers, and becoming a respected tier 1
supplier of innovative electronic solutions for a broad range of
vehicles.
Additional Financial
Information:
Total operating expenses in the second quarter were $327
million, a 2% increase over the prior year. Research and
development increased 11%, primarily due to engineering personnel
costs. Selling, general and administrative expenses increased 3%,
driven primarily by personnel related expenses. Advertising
decreased 29%, driven by lower media spend in the quarter.
The effective tax rate in the second quarter of 2020 was 6.8%.
Excluding the impact of a $14 million income tax benefit due to the
release of uncertain tax position reserves associated with the 2014
intercompany restructuring, our pro forma effective tax rate in the
second quarter 2020 was 14.0% compared to 18.9% in the prior year
quarter. The decrease in the pro forma effective tax rate is
primarily due to the intellectual property migration
transaction.
In the second quarter of 2020, we generated approximately $142
million of free cash flow(1), and paid a quarterly dividend of
approximately $109 million. We ended the quarter with cash and
marketable securities of approximately $2.7 billion.
(1) See attached Non-GAAP Financial Information for discussion
and reconciliation of non-GAAP financial measures, including free
cash flow.
Webcast
Information/Forward-Looking Statements:
The information for Garmin Ltd.’s earnings
call is as follows:
When:
Wednesday,
July 29, 2020 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 July 29,
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 “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 2020,
statements relating to possible future dividends, statements
related to the ongoing impact of the COVID-19 pandemic, 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 both the Annual Report on Form 10-K for the year ended December
28, 2019 and the Quarterly Report on Form 10-Q for the quarter
ended June 27, 2020 filed by Garmin with the Securities and
Exchange Commission (Commission file number 0-31983). A copy of
Garmin’s 2019 Form 10-K and the Q2 2020 Form 10-Q can be downloaded
from https://www.garmin.com/en-US/investors/sec/
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 and the Garmin delta, Edge, fēnix,
Fusion, Instinct, quatix and tactix are trademarks of Garmin Ltd.
or its subsidiaries and are registered in one or more countries,
including the U.S. dezl, and Panoptix, 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
Garmin Ltd. And
Subsidiaries
Condensed Consolidated
Statements of Income (Unaudited)
(In thousands, except per
share information)
13-Weeks Ended
26-Weeks Ended
June 27,
June 29,
June 27,
June 29,
2020
2019
2020
2019
Net sales
$
869,867
$
954,840
$
1,725,975
$
1,720,890
Cost of goods sold
354,437
379,475
703,605
693,827
Gross profit
515,430
575,365
1,022,370
1,027,063
Advertising expense
29,285
41,523
56,165
69,139
Selling, general and administrative
expense
132,016
128,738
269,202
255,519
Research and development expense
165,740
148,883
331,131
294,801
Total operating expense
327,041
319,144
656,498
619,459
Operating income
188,389
256,221
365,872
407,604
Other income (expense):
Interest income
10,455
13,735
22,481
27,439
Foreign currency (losses) gains
(4,493
)
3,413
(19,916
)
3,727
Other income
3,241
2,409
6,789
3,273
Total other income (expense)
9,203
19,557
9,354
34,439
Income before income taxes
197,592
275,778
375,226
442,043
Income tax provision
13,412
52,122
29,866
78,214
Net income
$
184,180
$
223,656
$
345,360
$
363,829
Net income per share:
Basic
$
0.96
$
1.18
$
1.81
$
1.92
Diluted
$
0.96
$
1.17
$
1.80
$
1.91
Weighted average common shares
outstanding:
Basic
191,024
189,855
190,914
189,728
Diluted
191,597
190,714
191,640
190,657
Garmin Ltd. And
Subsidiaries
Condensed Consolidated Balance
Sheets (Unaudited)
(In thousands, except per
share information)
June 27,
2020
December 28, 2019
Assets
Current assets:
Cash and cash equivalents
$
1,354,924
$
1,027,567
Marketable securities
380,880
376,463
Accounts receivable, net
523,901
706,763
Inventories
813,243
752,908
Deferred costs
22,033
25,105
Prepaid expenses and other current
assets
163,458
169,044
Total current assets
3,258,439
3,057,850
Property and equipment, net
791,175
728,921
Operating lease right-of-use assets
76,214
63,589
Restricted cash
283
71
Marketable securities
993,021
1,205,475
Deferred income taxes
254,202
268,518
Noncurrent deferred costs
18,748
23,493
Intangible assets, net
656,898
659,629
Other assets
171,062
159,253
Total assets
$
6,220,042
$
6,166,799
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
193,216
$
240,831
Salaries and benefits payable
123,404
128,426
Accrued warranty costs
39,293
39,758
Accrued sales program costs
66,696
112,578
Deferred revenue
87,727
94,562
Accrued royalty costs
10,833
15,401
Accrued advertising expense
23,302
35,142
Other accrued expenses
98,097
95,060
Income taxes payable
54,894
56,913
Dividend payable
466,465
217,262
Total current liabilities
1,163,927
1,035,933
Deferred income taxes
103,583
114,754
Noncurrent income taxes
92,120
105,771
Noncurrent deferred revenue
54,860
67,329
Noncurrent operating lease liabilities
60,000
49,238
Other liabilities
4,691
278
Stockholders’ equity:
Shares, CHF 0.10 par value, 198,077 shares
authorized and issued; 191,223
shares outstanding at June 27, 2020 and
190,686 shares outstanding
at December 28, 2019
17,979
17,979
Additional paid-in capital
1,851,695
1,835,622
Treasury stock
(326,310
)
(345,040
)
Retained earnings
3,107,768
3,229,061
Accumulated other comprehensive income
89,729
55,874
Total stockholders’ equity
4,740,861
4,793,496
Total liabilities and stockholders’
equity
$
6,220,042
$
6,166,799
Garmin Ltd. And
Subsidiaries
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(In thousands)
26-Weeks Ended
June 27, 2020
June 29, 2019
Operating Activities:
Net income
$
345,360
$
363,829
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation
37,030
34,526
Amortization
20,502
16,208
(Gain) loss on sale of property and
equipment
(1,807
)
94
Unrealized foreign currency losses
16,678
(6,811
)
Deferred income taxes
272
7,077
Stock compensation expense
31,484
30,961
Realized gain on marketable securities
(331
)
(60
)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable, net of allowance for
doubtful accounts
178,120
6,189
Inventories
(57,126
)
(68,217
)
Other current and non-current assets
(10,427
)
(68,370
)
Accounts payable
(51,463
)
5,960
Other current and non-current
liabilities
(58,662
)
(33,001
)
Deferred revenue
(19,301
)
(6,252
)
Deferred costs
7,817
3,876
Income taxes payable
(13,035
)
(10,791
)
Net cash provided by operating
activities
425,111
275,218
Investing activities:
Purchases of property and equipment
(98,270
)
(60,495
)
Proceeds from sale of property and
equipment
1,916
271
Purchase of intangible assets
(1,374
)
(853
)
Purchase of marketable securities
(346,129
)
(192,168
)
Redemption of marketable securities
566,688
182,860
Acquisitions, net of cash acquired
(7,893
)
(276,014
)
Net cash provided by (used in) investing
activities
114,938
(346,399
)
Financing activities:
Dividends
(217,450
)
(308,905
)
Proceeds from issuance of treasury stock
related to equity awards
15,202
12,982
Purchase of treasury stock related to
equity awards
(11,883
)
(12,954
)
Net cash used in financing activities
(214,131
)
(308,877
)
Effect of exchange rate changes on cash
and cash equivalents
1,651
(1,493
)
Net increase (decrease) in cash, cash
equivalents, and restricted cash
327,569
(381,551
)
Cash, cash equivalents, and restricted
cash at beginning of period
1,027,638
1,201,805
Cash, cash equivalents, and restricted
cash at end of period
$
1,355,207
$
820,254
Garmin Ltd. And
Subsidiaries
Net Sales, Gross Profit and
Operating Income by Segment (Unaudited)
(In thousands)
Reportable Segments
Fitness
Marine
Outdoor
Aviation
Auto
Total
13-Weeks Ended June 27, 2020
Net sales
$
294,642
$
157,827
$
206,200
$
126,140
$
85,058
$
869,867
Gross profit
156,817
93,470
133,189
92,036
39,918
515,430
Operating income
71,981
43,553
67,414
15,566
(10,125
)
188,389
13-Weeks Ended June 29, 2019
Net sales
$
251,653
$
151,407
$
210,404
$
183,965
$
157,411
$
954,840
Gross profit
135,136
91,683
135,508
138,177
74,861
575,365
Operating income
50,413
42,730
71,336
66,834
24,908
256,221
26-Weeks Ended June 27, 2020
Net sales
$
518,242
$
320,832
$
381,302
$
314,739
$
190,860
$
1,725,975
Gross profit
269,142
187,680
245,447
230,844
89,257
1,022,370
Operating income
102,992
83,712
114,581
74,887
(10,300
)
365,872
26-Weeks Ended June 29, 2019
Net sales
$
431,908
$
285,376
$
364,455
$
354,741
$
284,410
$
1,720,890
Gross profit
225,970
169,739
232,996
266,160
132,198
1,027,063
Operating income
68,537
68,205
113,290
124,451
33,121
407,604
Garmin Ltd. And
Subsidiaries
Net Sales by Geography
(Unaudited)
(In thousands)
13-Weeks Ended
26-Weeks Ended
June 27,
June 29,
YoY
June 27,
June 29,
YoY
2020
2019
Change
2020
2019
Change
Net sales
$
869,867
$
954,840
(9)%
$
1,725,975
$
1,720,890
0%
Americas
423,091
470,840
(10)%
850,491
850,296
0%
EMEA
335,201
338,595
(1)%
635,069
598,615
6%
APAC
111,575
145,405
(23)%
240,415
271,979
(12)%
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 first quarter 2020 and the first half of
2019, 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
26-Weeks Ended
June 27,
June 27,
2020
2020
$
ETR(1)
$
ETR(1)
U.S GAAP income tax provision
$
13,412
6.8
%
$
29,866
8.0
%
Pro forma discrete tax item:
Uncertain Tax Reserve Release(2)
14,308
14,308
Pro forma income tax provision
$
27,720
14.0
%
$
44,174
11.8
%
(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 second quarter 2020, the Company
recognized a $14 million income tax benefit due to the release of
uncertain tax position reserves associated with the 2014
intercompany restructuring, which was a pro forma adjustment in
2014. The second quarter 2020 impact of the reserve release 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 other uncertain tax position reserves,
amounting to approximately $4.1 million and $6.7 million in the 26
weeks ended June 27, 2020 and June 29, 2019, respectively, have not
been identified as pro forma adjustments 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
26-Weeks Ended
June 27,
June 29,
June 27,
June 29,
2020
2019
2020
2019
GAAP net income
$
184,180
$
223,656
$
345,360
$
363,829
Foreign currency gains / losses(1)
4,493
(3,413
)
19,916
(3,727
)
Tax effect of foreign currency gains /
losses(2)
(630
)
645
(2,345
)
660
Uncertain Tax Reserve Release(3)
(14,308
)
—
(14,308
)
—
Pro forma net income
$
173,735
$
220,888
$
348,623
$
360,762
GAAP net income per share:
Basic
$
0.96
$
1.18
$
1.81
$
1.92
Diluted
$
0.96
$
1.17
$
1.80
$
1.91
Pro forma net income per share:
Basic
$
0.91
$
1.16
$
1.83
$
1.90
Diluted
$
0.91
$
1.16
$
1.82
$
1.89
Weighted average common shares
outstanding:
Basic
191,024
189,855
190,914
189,728
Diluted
191,597
190,714
191,640
190,657
(1) Foreign currency gains and losses for
the Company are driven by movements of a number of currencies 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 a given legal entity.
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 14.0% and 11.8% for the 13-weeks and 26-weeks ended June
27, 2020, respectively, and an effective tax rate of 18.9% and
17.7% for the 13-weeks and 26-weeks ended June 29, 2019,
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
26-Weeks Ended
June 27,
June 29,
June 27,
June 29,
2020
2019
2020
2019
Net cash provided by operating
activities
$
199,237
$
110,636
$
425,111
$
275,218
Less: purchases of property and
equipment
(56,909
)
(30,401
)
(98,270
)
(60,495
)
Free Cash Flow
$
142,328
$
80,235
$
326,841
$
214,723
Category: Earnings
Category: Corporate
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200729005214/en/
Investor
Relations Contact: Teri
Seck 913/397-8200
investor.relations@garmin.com
Media
Relations Contact: Carly
Hysell 913/397-8200
media.relations@garmin.com
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