Garmin Reports First Quarter 2012 Results with Revenue and Pro Forma EPS Growth
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Garmin Reports First Quarter 2012 Results with Revenue and Pro Forma EPS Growth

SCHAFFHAUSEN, Switzerland — (BUSINESS WIRE) — May 2, 2012 — Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal quarter ended March 31, 2012.

First Quarter 2012 Financial Summary:

Note: In accordance with GAAP, the Company is deferring significant revenue and the related costs associated with high margin sales of lifetime maps, connected services and premium traffic over their economic lives. A table outlining the impact of this net deferral in both 2012 and 2011 is included for reference. Results have not been adjusted unless specifically stated as such.

Recent Business Highlights:

Executive Overview from Dr. Min Kao, Chairman and Chief Executive Officer:

“The first quarter of 2012 provided strong revenue performance as each of our business segments contributed to 10% revenue growth,” said Dr. Min Kao, chairman and chief executive officer of Garmin Ltd. “This is a great way to start the year; yet, we remain cautious regarding the PND industry as much of our strength was related to global market share gains. The revenue growth of our core business segments of outdoor, fitness, aviation and marine was 14%, highlighting the continued diversification in our business model. We continue to grow our research and development investment in these segments, as well as auto OEM, in order to capitalize on the numerous long-term growth initiatives in each of them.

The outdoor segment posted revenue growth of 16% in the quarter as our golf product portfolio continued to perform well, along with dog tracking and training systems. We expect our latest golf introduction, the Approach S3 – a touchscreen GPS golf watch, to further our market share gains in this popular category.

The fitness segment posted revenue growth of 26% in the quarter as the much anticipated Forerunner 910XT, designed for multi-sport operation, began to ship. We believe the fitness category remains under-penetrated at both the high-end and low-end, which represent significant growth opportunities going forward. We intend to continue to innovate in both running and cycling to drive broader adoption of GPS technology across the price spectrum.

The aviation segment posted revenue growth of 5% as the retrofit market continues to be strong, while the OEM market recovery lags. Our focus continues to be on investment to achieve our long-term strategic initiatives of expanding our presence in the business jet and helicopter markets where we have a number of certifications underway. While our investment in these new opportunities grows, we remain committed to retaining our strong market share in the single engine and turboprop markets as well. These existing relationships are critical to us and are expected to provide another opportunity for growth when these OEM markets begin to recover.

In the marine segment, revenues grew 9% year-over-year and 30% sequentially as warm weather signaled an early start to the marine season. The boating industry is again showing signs of recovery but much uncertainty remains with high fuel prices and continued tight credit for luxury items. As we have previously highlighted, this will be a year of investment and thus, reduced operating margins. This near-term investment should deliver revenue growth, along with margin expansion, in 2013.

Looking finally at the auto/mobile segment, we posted revenue growth of 6% as we continued to gain market share in the PND category. Though pleased with the first quarter results, we do not expect PND revenue to continue to grow year over year due to industry-wide declines. However, we remain focused on our goals of market leadership and profitability in the PND market as evidenced by the stabilization of our ASPs and market share gains.

We were excited to announce our first factory installed auto OEM relationship with Suzuki in April. This represents a significant milestone for Garmin as we build relationships and credibility in this industry. The Suzuki infotainment system offers enhanced features and our intuitive user interface which we believe will set a benchmark for the quality and ease-of-use that Garmin can deliver.”

Financial Overview from Kevin Rauckman, Chief Financial Officer:

“We posted our second straight quarter of revenue and operating income growth, as trends across many of our segments continued to be positive,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “The year has started well for us. We are now tasked with continuing the positive sales momentum and market share gains while also focusing on profitability.

Gross margin for the overall business was 51% in the first quarter improving from 47% in the prior year largely driven by the automotive/mobile segment, where gross margin improved to 39%, partially driven by the amortization of previously deferred high margin revenues, a reduced per unit deferral rate as discussed in the Company’s 10K for December 31, 2011 filed with the Securities and Exchange Commission and product mix. Segment mix contributed to the overall strong gross margin. The strong automotive/mobile and fitness gross margins were partially offset by a 500 basis point decline in marine gross margin due to product mix shifting toward fish finders and low-priced marine handhelds.

Operating margin for the overall business improved to 16% when compared with 15% in the year-ago quarter with the gross margin improvement partially offset by an increase in operating expenses as a percentage of sales. Total operating expenses increased $30 million year-over-year and by 250 basis points as a percent of sales. Advertising and research and development expense increased by $4 million and $9 million, respectively, as we continue to invest for future growth. Marine and aviation research and development increased 31% and 15%, respectively, as long-term OEM opportunities are funded. Other selling, general and administrative costs increased by $17 million on a year-over-year basis. The increase was primarily due to acquisitions made in the second half of 2011. As in prior years, we believe that the first quarter will represent the low point for operating margins and with increased sales volumes during the remainder of the year, profitability levels are expected to improve.

Our tax rate in the first quarter was 12.8% compared to 1.5% in the first quarter of 2011 when we benefitted from the release of reserves related to the expiration of certain statutes for Garmin Europe. We expect the 2012 full year tax rate to be approximately 13%.

Free cash flow generation continued to be strong with $116 million generated in the quarter. We had a cash and marketable securities balance of over $2.5 billion at the end of the quarter. We intend to continue to fund our quarterly dividend and future acquisitions with our strong cash position.”

Dividend Update

As announced in February, the Board will recommend to the shareholders for approval at the annual meeting to be held on June 1, 2012 a cash dividend in the amount of $1.80 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 quarterly installments.

Non-GAAP Measures

Pro forma net income (earnings) per share

Management believes that net income per share before the impact of foreign currency translation gain or loss is an important measure. The majority of the Company’s consolidated foreign currency gain or a loss result from transactions involving the Euro, the British Pound Sterling and the Taiwan Dollar and from the exchange rate impact of the significant cash and marketable securities, receivables and payables held in U.S. dollars at the end of each reporting period by the Company’s various non U.S. subsidiaries. Such gain or loss is required under GAAP because the functional currency of the subsidiaries differs from the currency in which various assets and liabilities are held. However, there is minimal cash impact from such foreign currency gain or loss. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allow an assessment of the Company’s operating performance before the non-cash impact of the position of the U.S. Dollar versus other currencies, which permits a consistent comparison of results between periods.

The following table contains a reconciliation of GAAP net income per share to pro forma net income per share.

 
Garmin Ltd. And Subsidiaries
Net income per share (Pro Forma)
(in thousands, except per share information)
     
13-Weeks Ended
March 31, March 26,
2012       2011  
 
Net Income (GAAP) $ 86,858 $ 95,482
Foreign currency (gain) / loss, net of tax effects $ 1,736       ($11,959 )
Net income (Pro Forma) $ 88,594     $ 83,523  
 
Net income per share (GAAP):
Basic $ 0.45 $ 0.49
Diluted $ 0.44 $ 0.49
 
Net income per share (Pro Forma):
Basic $ 0.45 $ 0.43
Diluted $ 0.45 $ 0.43
 
Weighted average common shares outstanding:
Basic 194,742 193,922
Diluted 195,673 194,720
 

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 flow less capital expenditures for property and equipment.

The following table contains a reconciliation of GAAP net cash provided by operating activities to free cash flow.

     
Garmin Ltd. And Subsidiaries
Free Cash Flow
(in thousands)
 
13-Weeks Ended
March 31, March 26,
  2012         2011  
 
Net cash provided by operating activities $ 122,228 $ 207,599
Less: purchases of property and equipment   ($5,758 )       ($7,178 )
Free Cash Flow $ 116,470       $ 200,421  
 

Net deferred revenues and costs

The following table illustrates the effect of deferred revenues and costs, net of the amortization of previous deferrals, associated with certain products bundled with content and services. These deferred revenues and costs are being amortized over the estimated economic lives of the products. Additional details will be available in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and are available in the Annual Report on Form 10-K for the year ended December 31, 2011 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983).

     
Garmin Ltd. And Subsidiaries
Net Deferred Revenue Impact (Unaudited)
(In thousands, except per share information)
 
13-Weeks Ended
March 31, March 26,
2012   2011
Net sales $ 723 $ (21,826 )
Cost of goods sold   154   (3,905 )
Gross profit 569 (17,921 )
 
Operating income 569 (17,921 )
 
Income tax provision based on normalized tax effects   73   (267 )
   
Net income $ 496 $ (17,654 )
 
Net income per share:
Basic $ 0.00 $ (0.09 )
Diluted $ 0.00 $ (0.09 )
 

Earnings Call Information

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

      When:   Wednesday, May 2, 2012 at 10:30 a.m. Eastern
Where:

http://www.garmin.com/aboutGarmin/invRelations/irCalendar.html

How: Simply log on to the web at the address above or call to listen in at (888) 359-3610
Contact:

Email Contact

An archive of the live webcast will be available until June 1, 2012 on the Garmin website at http://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. Any statements regarding the company’s estimated earnings and revenue for fiscal 2012, the Company’s expected segment revenue growth rate, margins, new products to be introduced in 2012 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 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 31, 2011 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2011 Form 10-K can be downloaded from

http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

The global leader in satellite navigation, Garmin Ltd. and its subsidiaries have designed, manufactured, marketed and sold navigation, communication and information devices and applications since 1989 – most of which are enabled by GPS technology. Garmin’s products serve automotive, mobile, wireless, outdoor recreation, marine, aviation, and OEM applications. Garmin Ltd. is incorporated in the Cayman Islands, and its principal subsidiaries are located in the United States, Taiwan and the United Kingdom. For more information, visit Garmin's virtual pressroom at www.garmin.com/pressroom or contact the Media Relations department at 913-397-8200.

Garmin, Forerunner, and Approach are registered 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 Balance Sheets
(In thousands, except share information)
       
(Unaudited)
March 31, December 31,
  2012         2011  
Assets
Current assets:
Cash and cash equivalents $ 1,285,791 $ 1,287,160
Marketable securities 89,356 111,153
Accounts receivable, net 430,145 607,450
Inventories, net 407,476 397,741
Deferred income taxes 46,363 42,957
Deferred costs 41,831 40,033
Prepaid expenses and other current assets   48,304     69,790  
Total current assets 2,349,266 2,556,284
 
Property and equipment, net 412,592 417,105
 
Marketable securities 1,161,109 1,097,002
Restricted cash 828 771
Licensing agreements, net 5,658 5,517
Noncurrent deferred income tax 107,190 107,190
Noncurrent deferred costs 38,871 40,823
Other intangible assets, net   249,279     246,646  
Total assets $ 4,324,793   $ 4,471,338  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 109,232 $ 164,010
Salaries and benefits payable 46,180 45,964
Accrued warranty costs 42,792 46,773
Accrued sales program costs 32,452 52,262
Deferred revenue 199,302 188,987
Accrued royalty costs 14,441 99,025
Accrued advertising expense 10,896 31,915
Other accrued expenses 66,416 67,912
Deferred income taxes 6,675 5,782
Income taxes payable 66,156 77,784
Dividend payable   -     77,865  
Total current liabilities $ 594,542 $ 858,279
 
Deferred income taxes 7,235 4,951
Non-current income taxes 165,457 161,904
Non-current deferred revenue 177,095 188,132
Other liabilities 1,059 1,491
 
Stockholders' equity:
Shares, CHF 10 par value, 208,077,418 shares authorized and issued;
194,806,698 shares outstanding at March 31, 2012;
and 194,662,617 shares outstanding at December 31, 2011 1,797,435 1,797,435
Additional paid-in capital 70,688 61,869
Treasury stock (98,778 ) (103,498 )
Retained earnings 1,500,390 1,413,582
Accumulated other comprehensive income   109,670     87,193  
Total stockholders' equity   3,379,405     3,256,581  
Total liabilities and stockholders' equity $ 4,324,793   $ 4,471,338  
 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)    
(In thousands, except per share information)
 
13-Weeks Ended
March 31, March 26,
  2012     2011
Net sales $ 556,597 $ 507,834
 
Cost of goods sold   272,838     269,460
 
Gross profit 283,759 238,374
 
Advertising expense 23,591 19,956
Selling, general and administrative expense 90,116 73,187
Research and development expense   79,719     70,478
Total operating expense   193,426     163,621
 
Operating income 90,333 74,753
 
Other income (expense):
Interest income 9,671 7,214
Foreign currency gains (losses) (1,989 ) 12,140
Other   1,541     2,819
Total other income (expense)   9,223     22,173
 
Income before income taxes 99,556 96,926
 
Income tax provision   12,698     1,444
 
Net income $ 86,858   $ 95,482
 
Net income per share:
Basic $ 0.45 $ 0.49
Diluted $ 0.44 $ 0.49
 
Weighted average common
shares outstanding:
Basic 194,742 193,922
Diluted 195,673 194,720
 
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
    13-Weeks Ended
March 31,     March 26,
  2012     2011  
Operating Activities:
Net income $ 86,858 $ 95,482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,790 13,839
Amortization 11,609 8,583
Loss (gain) on sale of property and equipment 10 (2 )
Provision for doubtful accounts 1,037 (858 )
Deferred income taxes (2,271 ) 1,023
Unrealized foreign currency losses 3,626 867
Provision for obsolete and slow moving inventories 7,858 (4,349 )
Stock compensation expense 9,844 8,666
Realized gains on marketable securities (635 ) (1,492 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 185,166 327,151
Inventories (12,506 ) (11,067 )
Other current assets 22,299 (20,372 )
Accounts payable (58,319 ) (17,573 )
Other current and non-current liabilities (128,093 ) (190,770 )
Deferred revenue (884 ) 21,826
Deferred cost 186 (3,905 )
Income taxes payable (11,998 ) (16,550 )
License fees   (5,349 )   (2,900 )
Net cash provided by operating activities 122,228 207,599
 
Investing activities:
Purchases of property and equipment (5,758 ) (7,178 )
Proceeds from sale of property and equipment 2 -
Purchase of intangible assets (2,929 ) (2,626 )
Purchase of marketable securities (250,431 ) (363,263 )
Redemption of marketable securities 207,143 98,614
Change in restricted cash (57 ) (112 )
Acquisitions, net of cash acquired   (2,816 )   -  
Net cash used in investing activities (54,846 ) (274,565 )
 
Financing activities:
Dividends paid (77,915 ) -
Issuance of treasury stock related to equity awards 2,883 8,941
Tax benefit from issuance of equity awards 860 787
Purchase of treasury stock   (311 )   (5,900 )
Net cash (used in)/provided by financing activities (74,483 ) 3,828
 
Effect of exchange rate changes on cash and cash equivalents 5,732 12,817
   
Net decrease in cash and cash equivalents (1,369 ) (50,321 )
Cash and cash equivalents at beginning of period   1,287,160     1,260,936  
Cash and cash equivalents at end of period $ 1,285,791   $ 1,210,615  
 
                 
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
     
Reporting Segments
Auto/
Outdoor Fitness Marine Mobile Aviation Total
13-Weeks Ended March 31, 2012
 
Net sales $77,162 $71,215 $56,064 $279,269 $72,887 $556,597
Gross profit $47,262 $43,494 $33,496 $109,831 $49,676 $283,759
Operating income $25,909 $20,651 $8,778 $17,935 $17,060 $90,333
 
13-Weeks Ended March 26, 2011
 
Net sales $66,450 $56,367 $51,308 $264,550 $69,159 $507,834
Gross profit $41,353 $33,792 $33,198 $82,551 $47,480 $238,374
Operating income $24,807 $15,457 $15,133 $1,595 $17,761 $74,753


Contact:

Garmin Ltd.
Investor Contact:
Kerri Thurston, 913-397-8200
Email Contact
or
Media Contact:
Ted Gartner, 913-397-8200
Email Contact