SCHAFFHAUSEN, Switzerland — (BUSINESS WIRE) — October 30, 2013 — Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal quarter ended September 28, 2013. Highlights in the quarter include:
- Total revenue of $644 million in third quarter 2013 with non-automotive/mobile segments of outdoor, fitness, aviation and marine delivering 50% of total revenues and growing 12% over the year ago quarter
- Operating margin of 24% with 65% of operating profit from non-automotive/mobile segments
- Introduced the VIRB™ and VIRB Elite action cameras, offering unique features available only through the integration with Garmin products and sensors
- Announced the Edge® Touring cycling computer and updates to our popular Forerunner® GPS running watches
- Generated $205 million of free cash flow in third quarter 2013
(in thousands, | 13-Weeks Ended | 39-Weeks Ended | ||||||||||
except per share data) | Sept 28, | Sept 29, | Yr over Yr | Sept 28, | Sept 29, | Yr over Yr | ||||||
2013 | 2012 | Change | 2013 | 2012 | Change | |||||||
Net sales | $643,637 | $672,376 | -4% | $1,872,156 | $1,947,127 | -4% | ||||||
Automotive/Mobile | 322,520 | 384,393 | -16% | 919,810 | 1,055,786 | -13% | ||||||
Outdoor | 101,350 | 105,572 | -4% | 284,372 | 283,230 | 0% | ||||||
Aviation | 83,459 | 72,857 | 15% | 251,970 | 221,676 | 14% | ||||||
Fitness | 81,007 | 64,788 | 25% | 237,660 | 217,815 | 9% | ||||||
Marine | 55,301 | 44,766 | 24% | 178,344 | 168,620 | 6% | ||||||
Gross profit % | 55% | 53% | 54% | 55% | ||||||||
Operating profit % | 24% | 24% | 21% | 23% | ||||||||
Pro forma diluted EPS (1) |
$0.69 | $0.74 | -7% | $1.86 | $2.18 | -15% | ||||||
Note: YTD 2012 results include one-time royalty fee benefit of $21 million recorded in second quarter 2012 impacting gross margin. |
(1) See table on final page for reconciliation of GAAP EPS to pro forma diluted EPS |
Executive Overview from Cliff Pemble, President and Chief Executive Officer:
“Stronger than expected revenue performance continued in the third quarter with fitness and marine delivering exceptional growth,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “In addition, the gross and operating margins were strong as we effectively controlled operating expenses. This resulted in $0.69 of pro forma EPS. Given these third quarter results, we are increasing our full year pro forma EPS guidance to $2.40 - $2.45.”
Outdoor:
The outdoor segment posted a revenue decline of 4% in the quarter as we were unable to replicate our strong third quarter 2012 results. Gross and operating margins within the segment remained strong at 69% and 44%, respectively. During the quarter, we introduced our latest outdoor product family, the VIRB action cameras. The VIRB and VIRB Elite bring new features to the action camera market including color displays, GPS, extended battery life, fitness sensor integration, and ability to control the camera through a range of existing Garmin devices. We anticipate that this new offering and others coming in fourth quarter will accelerate growth in our outdoor segment.
Fitness:
The fitness segment posted revenue growth of 25% in the quarter as our full portfolio of products sold well, led by the Vector power meter and Edge cycling computers. While gross margins declined 370 basis points from the prior year due to the product mix, operating margins were consistent due to the strong revenue growth. In the third quarter, we announced the Forerunner 220 and 620, which will begin delivery in the fourth quarter. Consumer interest in these new running watches is strong due to the exciting new form factor, color display, and ground-breaking new features such as running dynamics and wireless connectivity. We also began shipment of the Edge Touring, designed for navigating by bike, and our first product specifically targeting this unique subset of the cycling community.
Aviation:
The aviation segment posted revenue growth of 15% in the quarter as both OEM and aftermarket contributed to revenue improvement. OEM growth continues to be driven by market share gains in the business jet and helicopter markets, as well as increased content with existing OEM partners. The gross and operating margins in aviation improved year-over-year to 71% and 28%, respectively. While near-term results have been positive, the industry remains challenging and this has been further intensified by the furloughs imposed at the FAA causing short-term delays in certifications and shipments. Though this may create headwinds in the fourth quarter, we continue to be excited about our long-term market share opportunities and will increase our research and development investment accordingly.
Marine:
The marine segment posted revenue growth of 24% in the quarter driven primarily by strong demand for our chartplotters. Unfortunately, the pricing environment for marine electronics has become more competitive, which is putting pressure on gross margins. This is a challenging industry dynamic but we managed operating expenses effectively in the quarter allowing us to generate operating income. We will continue to focus on innovation that will drive market share gains, while closely managing costs to improve long-term profitability.
Auto/Mobile:
The automotive/mobile segment posted a revenue decline of 16% as PND sales continued to decline as forecast. We anticipate PND volumes will continue to decline 20% globally in 2014 and are managing our business accordingly. Gross and operating margins in the quarter were 46% and 17%, respectively, as the segment remains highly profitable even while we continue to invest in research and development efforts related to long-term OEM opportunities. We look forward to seeing evidence of our success with the launch of Garmin navigation in some 2014 Mercedes Benz models.
Additional Financial Information:
Total operating expenses in the quarter were $201 million, a 1% increase from the prior year. Decreased spending in advertising was driven primarily by lower cooperative advertising, which is directly related to sales. This was offset by growing research and development investment in each of our segments while selling, general and administrative expenses were constant. We continue to invest in research and development to foster both near-term and long-term revenue growth opportunities.
The effective tax rate in third quarter 2013 was 15.7%, excluding the $52 million impact of reserve releases associated with specific uncertain tax positions offset by the Taiwan surtax due to this release of reserves, compared to 13.7% in the prior year due to changes in income mix by tax jurisdiction, as well as reduced tax incentives in Taiwan.
In the third quarter, we generated $205 million of free cash flow which continues to fund our quarterly dividend and share repurchase activity, which totaled $14 million in the current quarter. We ended the quarter with cash and marketable securities of almost $2.8 billion.
2013 Guidance Update:
2013 Update | Prior | |||
Revenue | $2.5 - $2.6 B | $2.5 - $2.6 B | ||
Gross Margin | 53 - 54% | 53 - 54% | ||
Operating Income | ~ $530 M | ~ $500 M | ||
Operating Margin | ~ 21% | ~ 20% | ||
Tax Rate | 16% | 15% | ||
EPS (Pro Forma) | $2.40 - $2.45 | $2.30 - $2.40 | ||
We have increased our 2013 guidance to reflect the strong third quarter performance. We now anticipate operating income of approximately $530 million partially offset by a higher effective tax rate resulting in a pro forma EPS range of $2.40 - $2.45.
Webcast Information/Forward-Looking Statements:
The information for Garmin Ltd.’s earnings call is as follows:
When: | Wednesday, October 30, 2013 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 888-389-5997 |
An archive of the live webcast will be available until December 27, 2013 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. Any statements regarding the Company’s estimated earnings and revenue for fiscal 2013, the Company’s expected segment revenue growth rate, margins, new products to be introduced in 2013 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 29, 2012 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2012 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.
Garmin, Edge, Approach and Forerunner are registered trademarks and VIRB and G5000 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 | 39-Weeks Ended | ||||||||||
Sept 28, | Sept 29, | Sept 28, | Sept 29, | ||||||||
2013 | 2012 | 2013 | 2012 | ||||||||
Net sales | $643,637 | $672,376 | $1,872,156 | $1,947,127 | |||||||
Cost of goods sold | 290,748 | 313,321 | 859,494 | 882,501 | |||||||
Gross profit | 352,889 | 359,055 | 1,012,662 | 1,064,626 | |||||||
Advertising expense | 26,251 | 30,102 | 77,983 | 91,952 | |||||||
Selling, general and administrative expense | 86,462 | 86,402 | 260,769 | 275,763 | |||||||
Research and development expense | 88,427 | 82,489 | 272,349 | 242,510 | |||||||
Total operating expense | 201,140 | 198,993 | 611,101 | 610,225 | |||||||
Operating income | 151,749 | 160,062 | 401,561 | 454,401 | |||||||
Other income (expense): | |||||||||||
Interest income | 8,435 | 7,987 | 25,512 | 26,278 | |||||||
Foreign currency gains (losses) | (822 | ) | (6,364 | ) | 18,280 | (16,124 | ) | ||||
Other | 1,438 | 942 | 3,666 | 5,064 | |||||||
Total other income (expense) | 9,051 | 2,565 | 47,458 | 15,218 | |||||||
Income before income taxes | 160,800 | 162,627 | 449,019 | 469,619 | |||||||
Income tax (benefit) provision | (26,869 | ) | 22,279 | 192 | 56,510 | ||||||
Net income | $187,669 | $140,348 | $448,827 | $413,109 | |||||||
Net income per share: | |||||||||||
Basic | $0.96 | $0.72 | $2.30 | $2.12 | |||||||
Diluted | $0.96 | $0.72 | $2.29 | $2.11 | |||||||
Weighted average common shares outstanding: |
|||||||||||
Basic | 195,325 | 194,912 | 195,488 | 194,834 | |||||||
Diluted | 196,300 | 196,161 | 196,312 | 196,171 | |||||||
Garmin Ltd. And Subsidiaries | ||||||
Condensed Consolidated Balance Sheets | ||||||
(In thousands, except share information) | ||||||
(Unaudited) | ||||||
Sept 28, | December 29, | |||||
2013 | 2012 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $1,068,700 | $1,231,180 | ||||
Marketable securities | 134,253 | 153,083 | ||||
Accounts receivable, net | 475,707 | 603,673 | ||||
Inventories, net | 416,725 | 389,931 | ||||
Deferred income taxes | 67,437 | 68,785 | ||||
Deferred costs | 56,749 | 53,948 | ||||
Prepaid expenses and other current assets | 225,067 | 35,520 | ||||
Total current assets | 2,444,638 | 2,536,120 | ||||
Property and equipment, net | 413,675 | 409,751 | ||||
Marketable securities | 1,594,144 | 1,488,312 | ||||
Restricted cash | 252 | 836 | ||||
Noncurrent deferred income tax | 94,734 | 93,920 | ||||
Noncurrent deferred costs | 39,625 | 42,359 | ||||
Other intangible assets, net | 221,979 | 232,597 | ||||
Other assets | 14,179 | 15,229 | ||||
Total assets | $4,823,226 | $4,819,124 | ||||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $151,798 | $131,263 | ||||
Salaries and benefits payable | 63,064 | 55,969 | ||||
Accrued warranty costs | 34,639 | 37,301 | ||||
Accrued sales program costs | 36,487 | 57,080 | ||||
Deferred revenue | 255,830 | 252,375 | ||||
Accrued royalty costs | 34,285 | 71,745 | ||||
Accrued advertising expense | 16,862 | 25,192 | ||||
Other accrued expenses | 73,241 | 69,806 | ||||
Deferred income taxes | 63 | 332 | ||||
Income taxes payable | 44,060 | 32,031 | ||||
Dividend payable | 263,704 | 175,932 | ||||
Total current liabilities | 974,033 | 909,026 | ||||
Deferred income taxes | 3,516 | 2,467 | ||||
Non-current income taxes | 121,091 | 181,754 | ||||
Non-current deferred revenue | 166,165 | 193,047 | ||||
Other liabilities | 917 | 1,034 | ||||
Stockholders' equity: | ||||||
Shares, CHF 10 par value, 208,077,418 shares authorized and issued; 195,221,791 shares outstanding at September 28, 2013 and 195,591,854 shares outstanding at December 29, 2012 |
1,797,435 | 1,797,435 | ||||
Additional paid-in capital | 87,377 | 72,462 | ||||
Treasury stock | (100,912 | ) | (81,280 | ) | ||
Retained earnings | 1,701,823 | 1,604,625 | ||||
Accumulated other comprehensive income | 71,781 | 138,554 | ||||
Total stockholders' equity | 3,557,504 | 3,531,796 | ||||
Total liabilities and stockholders' equity | $4,823,226 | $4,819,124 | ||||
Garmin Ltd. And Subsidiaries | ||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||||
(In thousands) | ||||||
39-Weeks Ended | ||||||
Sept 28, | Sept 29, | |||||
2013 | 2012 | |||||
Operating Activities: | ||||||
Net income | $448,827 | $413,109 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||
Depreciation | 36,840 | 40,025 | ||||
Amortization | 23,629 | 21,192 | ||||
(Gain)/Loss on sale of property and equipment | 41 | (17 | ) | |||
Provision for doubtful accounts | 1,023 | 2,786 | ||||
Deferred income taxes | 2,851 | (7,384 | ) | |||
Unrealized foreign currency losses/(gains) | (17,273 | ) | 24,974 | |||
Provision for obsolete and slow moving inventories | 15,965 | 3,795 | ||||
Stock compensation expense | 15,608 | 26,364 | ||||
Realized gains on marketable securities | (2,963 | ) | (1,647 | ) | ||
Changes in operating assets and liabilities, net of acquisitions: | ||||||
Accounts receivable | 128,098 | 103,039 | ||||
Inventories | (44,337 | ) | (44,761 | ) | ||
Other current and non-current assets | (18,329 | ) | 14,051 | |||
Accounts payable | 21,936 | (20,271 | ) | |||
Other current and non-current liabilities | (60,719 | ) | (63,839 | ) | ||
Deferred revenue | (22,613 | ) | 35,277 | |||
Deferred cost | (57 | ) | (8,561 | ) | ||
Income taxes payable | (48,256 | ) | (28,098 | ) | ||
Net cash provided by operating activities | 480,271 | 510,034 | ||||
Investing activities: | ||||||
Purchases of property and equipment | (41,325 | ) | (26,881 | ) | ||
Proceeds from sale of property and equipment | 65 | 25 | ||||
Purchase of intangible assets | (1,574 | ) | (5,174 | ) | ||
Purchase of marketable securities | (716,226 | ) | (1,004,021 | ) | ||
Redemption of marketable securities | 578,464 | 735,521 | ||||
Advances under loan receivable commitment | (173,708 | ) | - | |||
Change in restricted cash | 584 | (59 | ) | |||
Acquisitions, net of cash acquired | (5,686 | ) | (4,010 | ) | ||
Net cash used in investing activities | (359,406 | ) | (304,599 | ) | ||
Financing activities: | ||||||
Dividends paid | (263,857 | ) | (253,386 | ) | ||
Purchase of treasury stock under share repurchase plan | (26,926 | ) | - | |||
Purchase of treasury stock related to equity awards | (7,430 | ) | (6,542 | ) | ||
Proceeds from issuance of treasury stock related to equity awards | 13,620 | 10,971 | ||||
Tax benefit from issuance of equity awards | 411 | 1,810 | ||||
Net cash used in financing activities | (284,182 | ) | (247,147 | ) | ||
Effect of exchange rate changes on cash and cash equivalents | 837 | 1,625 | ||||
Net increase/(decrease) in cash and cash equivalents | (162,480 | ) | (40,087 | ) | ||
Cash and cash equivalents at beginning of period | 1,231,180 | 1,287,160 | ||||
Cash and cash equivalents at end of period | $1,068,700 | $1,247,073 | ||||
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 Sept 28, 2013 | ||||||||||||||||||
Net sales | $101,350 | $81,007 | $55,301 | $322,520 | $83,459 | $643,637 | ||||||||||||
Gross profit | $69,471 | $49,328 | $27,265 | $147,866 | $58,959 | $352,889 | ||||||||||||
Operating income | $44,107 | $26,493 | $4,118 | $53,848 | $23,183 | $151,749 | ||||||||||||
13-Weeks Ended Sept 29, 2012 | ||||||||||||||||||
Net sales | $105,572 | $64,788 | $44,766 | $384,393 | $72,857 | $672,376 | ||||||||||||
Gross profit | $72,420 | $41,885 | $28,572 | $166,007 | $50,171 | $359,055 | ||||||||||||
Operating income | $48,384 | $21,219 | $8,378 | $65,165 | $16,916 | $160,062 | ||||||||||||
39-Weeks Ended Sept 28, 2013 | ||||||||||||||||||
Net sales | $284,372 | $237,660 | $178,344 | $919,810 | $251,970 | $1,872,156 | ||||||||||||
Gross profit | $184,333 | $149,368 | $91,550 | $410,348 | 177,063 | $1,012,662 | ||||||||||||
Operating income | $110,538 | $76,026 | $16,089 | $134,324 | $64,584 | $401,561 | ||||||||||||
39-Weeks Ended Sept 29, 2012 | ||||||||||||||||||
Net sales | $283,230 | $217,815 | $168,620 | $1,055,786 | $221,676 | $1,947,127 | ||||||||||||
Gross profit | $186,574 | $142,045 | $105,205 | $476,761 | $154,041 | $1,064,626 | ||||||||||||
Operating income | $118,032 | $76,016 | $35,584 | $170,208 | $54,561 | $454,401 | ||||||||||||
Garmin Ltd. And Subsidiaries | ||||||||||||
Revenue by Geography (Unaudited) | ||||||||||||
13-Weeks Ended | 39-Weeks Ended | |||||||||||
Sept 28, | Sept 29, | Yr over Yr | Sept 28, | Sept 29, | Yr over Yr | |||||||
2013 | 2012 | Change | 2013 | 2012 | Change | |||||||
Net sales | $643,637 | $672,376 |
-4% |
$1,872,156 | $1,947,127 | -4% | ||||||
Americas | 333,448 | 380,452 | -12% | 1,002,796 | 1,068,289 | -6% | ||||||
EMEA | 245,659 | 224,642 | 9% | 692,836 | 692,673 | 0% | ||||||
APAC | 64,530 | 67,282 | -4% | 176,524 | 186,165 | -5% | ||||||
EMEA - Europe, Middle East and Africa; APAC - Asia Pacific |
Non-GAAP Financial Information
Management believes that net income per share before the impact of foreign currency translation gain or loss and income tax adjustments that materially impact the effective tax rate due to completion of tax audits and/or expiration of statutes 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. The Company’s income tax expense is periodically impacted by material reserve releases related to completion of audits and/or the expiration of statutes effecting prior periods. This is not reflective of the current effective tax rate. The release of other uncertain tax position reserves, amounting to approximately $10 million in the 2013 periods and $12 million in the 2012 periods, have not been included as pro forma adjustments in the following presentation of pro forma net income as such amounts have been considered immaterial, tend to be more recurring in nature and are comparable between periods. Accordingly, earnings per share before the impact of foreign currency translation gain or loss and income tax adjustments that materially impact the effective tax rate due to completion of tax audits and/or expiration of statutes permits a consistent comparison of the Company’s operating performance between periods.
Garmin Ltd. And Subsidiaries | ||||||||||
Net income per share (Pro Forma) | ||||||||||
(in thousands, except per share information) | ||||||||||
13-Weeks Ended | 39-weeks Ended | |||||||||
Sept 28, | Sept 29, | Sept 28, | Sept 29, | |||||||
2013 | 2012 | 2013 | 2012 | |||||||
Net Income (GAAP) | $187,669 | $140,348 | $448,827 | $413,109 | ||||||
Foreign currency (gain) / loss, net of tax effects | $692 | $5,493 | ($15,475 | ) | $14,184 | |||||
Income tax benefit due to completion of tax audits and/or expiration of statutes |
($52,180 | ) | - | ($68,716 | ) | - | ||||
Net income (Pro Forma) |
$136,181 |
$145,841 | $364,636 | $427,293 | ||||||
Net income per share (GAAP): | ||||||||||
Basic | $0.96 | $0.72 | $2.30 | $2.12 | ||||||
Diluted | $0.96 | $0.72 | $2.29 | $2.11 | ||||||
Net income per share (Pro Forma): | ||||||||||
Basic | $0.70 | $0.75 | $1.87 | $2.19 | ||||||
Diluted | $0.69 | $0.74 | $1.86 | $2.18 | ||||||
Weighted average common shares outstanding: | ||||||||||
Basic | 195,325 | 194,912 | 195,488 | 194,834 | ||||||
Diluted | 196,300 | 196,161 | 196,312 | 196,171 | ||||||
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.
Garmin Ltd. And Subsidiaries | ||||||||||||
Free Cash Flow | ||||||||||||
(in thousands) | ||||||||||||
13-Weeks Ended | 39-weeks Ended | |||||||||||
Sept 28, | Sept 29, | Sept 28, | Sept 29, | |||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Net cash provided by operating activities | $216,609 | $164,901 | $480,271 | $510,034 | ||||||||
Less: purchases of property and equipment | ($11,602 | ) | ($9,455 | ) | ($41,325 | ) | ($26,881 | ) | ||||
Free Cash Flow | $205,007 | $155,446 | $438,946 | $483,153 |
Contact:
Garmin Ltd.
Investor Relations:
Kerri Thurston, 913-397-8200
Email Contact
or
Media Relations:
Ted Gartner, 913-397-8200
Email Contact