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Garmin Reports Strong Second Quarter 2013 Results and Maintains Full Year Outlook

SCHAFFHAUSEN, Switzerland — (BUSINESS WIRE) — July 31, 2013 — Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal quarter ended June 29, 2013. Highlights in the quarter include:

(in thousands,   13-Weeks Ended     26-Weeks Ended
except per share data) June 29,     June 30,     Yr over Yr June 29,     June 30,   Yr over Yr
2013 2012 Change 2013 2012 Change
Net sales $696,563 $718,154 -3% $1,228,520 $1,274,751 -4%
Automotive/Mobile 344,701 392,124 -12% 597,290 671,393 -11%
Outdoor 106,856 100,496 6% 183,022 177,659 3%
Aviation 88,042 75,932 16% 168,511 148,819 13%
Fitness 84,216 81,812 3% 156,653 153,026 2%
Marine 72,748 67,790 7% 123,044 123,854 -1%
 
Gross profit % 55% 59% 54% 55%
 
Operating profit % 24% 28% 20% 23%
 
Pro forma diluted EPS (1) $0.76 $0.98 -22% $1.16 $1.43 -19%
Note: 2012 results include one-time royalty fee benefit of $21 million 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:

“The second quarter of 2013 was highlighted by stronger than expected revenue performance across all segments,” said Cliff Pemble, president and chief executive officer of Garmin Ltd. “We were particularly pleased to generate revenue growth in each of our traditional markets. While our performance was strong in second quarter and we believe that the outlook for growth in 2013 for the traditional markets is positive, we also anticipate that declines in the PND market will continue to be a significant headwind. Third quarter will be particularly challenging as we compare against a period of strong prior year sell-in driven by the timing of new product introductions and end-of-life promotions. Given these factors, we are maintaining our full year revenue and EPS guidance. Longer term, our primary focus remains innovation that is expected to fuel sustained revenue and EPS growth.”

Outdoor:

The outdoor segment posted revenue growth of 6% in the quarter with our golf and dog tracking and training portfolios driving growth. Gross and operating margins within the segment remained strong at 66% and 42%, respectively. During the quarter, we introduced our latest outdoor handheld, the Monterra. This product is Android powered giving the user access to thousands of applications including those targeting outdoor enthusiasts. In addition, the Monterra includes WiFi connectivity, an FM radio and NOAA weather radio.

Fitness:

The fitness segment posted revenue growth of 3% in the quarter as our latest cycling products, the Edge® 510 and 810, and the Forerunner® 10 sold well. While gross and operating margins were consistent with our expectations at 65% and 35%, respectively, this is a decline from the prior year due to the product mix shifting toward lower priced devices. In the second half of 2013, we anticipate delivering a number of new products to the market, including the Vector power meter, which are expected to accelerate revenue growth.

Aviation:

The aviation segment posted revenue growth of 16% in the quarter as both OEM and aftermarket contributed to revenue improvement. OEM growth was driven by market share gains in the business jet and helicopter markets, as well as increased content with existing OEM partners. The gross margin in aviation was stable year-over-year at 70% while operating margins declined to 23% due to accelerated research and development spending in the quarter. Though we have experienced some delays in the avionics certifications with our business jet partners, we have passed significant milestones in recent weeks and remain confident in our ability to generate 10-15% revenue growth in the segment.

Marine:

The marine segment posted revenue growth of 7% in the quarter driven by the delivery of the new products that had been previously delayed. These deliveries included the GPSMAP® 8000 series glass helms and the 7” GPSMAP and echoMAP combination chartplotter and fishfinder, both of which have been well-received by the industry and are helping us regain market share in the category. With new product deliveries improving product mix in the second quarter, we returned to profitability in the segment with gross and operating margins of 56% and 20%, respectively. We recognize the importance of continued innovation and are working diligently on 2014 product introductions that will further our market share opportunity.

Automotive/Mobile:

The automotive/mobile segment posted a revenue decline of 12% as declining PND sales were partially offset by growth with our OEM partners. We continue to anticipate PND volumes declining 20% globally. Gross and operating margins in the quarter were 45% and 18%, respectively. This was a decline from 51% and 22% in the prior year primarily related to the $21 million royalty benefit recognized in second quarter 2012.

We do continue to innovate within the segment and have been encouraged by the strong sell-through of the recently released nüvi® 2700 series products. In addition, we have begun to ship the fleet 590, targeting a new market segment in which we hope to gain share.

Additional Financial Information:

Total operating expenses in the quarter were $214 million, a 2% decrease from the prior year. Decreased spending in advertising and selling, general and administrative expenses was partially offset by growing research and development investment in each of our segments. As we have indicated in the past, we anticipate continued research and development investment to fuel both near-term and long-term revenue growth opportunities.

The effective tax rate in second quarter 2013 was 16.5% compared to 10.4% in the prior year due to changes in income mix by tax jurisdiction, as well as reduced tax incentives in Taiwan.

In the second quarter, we generated $186 million of free cash flow which funded our quarterly dividend of $88 million and share repurchase activity of $13 million. We ended the quarter with cash and marketable securities of $2.7 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     ~ $500 M     $480 - $500 M
Operating Margin     ~ 20%     19 - 20%
Tax Rate     15%     14%
EPS (Pro Forma)     $2.30 - $2.40     $2.30 - $2.40

Our 2013 guidance remains largely unchanged with operating income and operating margin trending toward the upper end of prior guidance offset by an anticipated 100 basis point increase in the effective tax rate.

Webcast Information/Forward-Looking Statements:

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

When:

 

Wednesday, July 31, 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 888-487-0340

An archive of the live webcast will be available until August 30, 2013 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 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, Forerunner, GPSMAP and nüvi are registered trademarks and Monterra is a trademark 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 29, June 30, June 29, June 30,
2013 2012 2013 2012
Net sales $ 696,563 $ 718,154 $ 1,228,520 $ 1,274,751
 
Cost of goods sold   312,923   296,341     568,747   569,180  
 
Gross profit 383,640 421,813 659,773 705,571
 
Advertising expense 29,483 38,258 51,732 61,849
Selling, general and administrative expense 88,039 99,246 174,307 189,362
Research and development expense   96,232   80,303     183,922   160,021  
Total operating expense   213,754   217,807     409,961   411,232  
 
Operating income 169,886 204,006 249,812 294,339
 
Other income (expense):
Interest income 8,179 8,620 17,077 18,291
Foreign currency gains (losses) 27,451 (7,771 ) 19,102 (9,760 )
Other   1,069   2,581     2,228   4,121  
Total other income (expense)   36,699   3,430     38,407   12,652  
 
Income before income taxes 206,585 207,436 288,219 306,991
 
Income tax provision   34,094   21,532     27,062   34,230  
 
Net income $ 172,491 $ 185,904   $ 261,157 $ 272,761  
 
Net income per share:
Basic $ 0.88 $ 0.95 $ 1.34 $ 1.40
Diluted $ 0.88 $ 0.95 $ 1.33 $ 1.39
 
Weighted average common
shares outstanding:
Basic 195,570 194,849 195,600 194,795
Diluted 196,300 196,261 196,338 196,232
 
       
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
       
(Unaudited)
June 29, December 29,
2013     2012
Assets
Current assets:
Cash and cash equivalents $ 1,083,490 $ 1,231,180
Marketable securities 142,582 153,083
Accounts receivable, net 484,246 603,673
Inventories, net 383,492 389,931
Deferred income taxes 63,241 68,785
Deferred costs 54,104 53,948
Prepaid expenses and other current assets   135,104     35,520  
Total current assets 2,346,259 2,536,120
 
Property and equipment, net 410,533 409,751
 
Marketable securities 1,475,761 1,488,312
Restricted cash 249 836
Noncurrent deferred income tax 95,411 93,920
Noncurrent deferred costs 37,830 42,359
Other intangible assets, net 220,531 232,597
Other assets   12,607     15,229  
Total assets $ 4,599,181   $ 4,819,124  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 128,078 $ 131,263
Salaries and benefits payable 50,184 55,969
Accrued warranty costs 34,288 37,301
Accrued sales program costs 39,083 57,080
Deferred revenue 251,074 252,375
Accrued royalty costs 9,444 71,745
Accrued advertising expense 16,696 25,192
Other accrued expenses 72,634 69,806
Deferred income taxes 160 332
Income taxes payable 24,390 32,031
Dividend payable   263,704     175,932  
Total current liabilities 889,735 909,026
 
Deferred income taxes 1,219 2,467
Non-current income taxes 173,651 181,754
Non-current deferred revenue 167,268 193,047
Other liabilities 951 1,034
 
Stockholders' equity:
Shares, CHF 10 par value, 208,077,418 shares authorized and issued;
195,317,390 shares outstanding at June 29, 2013
and 195,591,854 shares outstanding at December 29, 2012 1,797,435 1,797,435
Additional paid-in capital 83,513 72,462
Treasury stock (93,587 ) (81,280 )
Retained earnings 1,514,153 1,604,625
Accumulated other comprehensive income   64,843     138,554  
Total stockholders' equity   3,366,357     3,531,796  
Total liabilities and stockholders' equity $ 4,599,181   $ 4,819,124  
 
       
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
  26-Weeks Ended
June 29, June 30,
2013 2012
Operating Activities:
Net income $ 261,157 $ 272,761
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 25,340 27,351
Amortization 16,579 23,709
Loss on sale of property and equipment 28 11
Provision for doubtful accounts 701 2,256
Deferred income taxes 5,599 (5,268 )
Unrealized foreign currency losses/(gains) (15,996 ) 18,556
Provision for obsolete and slow moving inventories 12,017 3,276
Stock compensation expense 10,978 18,043
Realized gains on marketable securities (2,278 ) (1,463 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 110,600 117,422
Inventories (12,160 ) 10,004
Other current and non-current assets (16,354 ) 10,143
Accounts payable (547 ) (26,627 )
Other current and non-current liabilities (95,261 ) (103,327 )
Deferred revenue (25,952 ) 15,493
Deferred cost 4,378 (4,652 )
Income taxes payable   (15,168 )     (32,555 )
Net cash provided by operating activities 263,661 345,133
 
Investing activities:
Purchases of property and equipment (29,723 ) (17,426 )
Proceeds from sale of property and equipment 64 14
Purchase of intangible assets (674 ) (4,682 )
Purchase of marketable securities (488,515 ) (639,612 )
Redemption of marketable securities 470,086 464,329
Advances under loan receivable commitment (82,020 ) -
Change in restricted cash 587 (54 )
Acquisitions, net of cash acquired   (25 )   (2,818 )
Net cash used in investing activities (130,220 ) (200,249 )
 
Financing activities:
Dividends paid (263,857 ) (165,638 )
Purchase of treasury stock under share repurchase plan (13,353 ) -
Purchase of treasury stock related to equity awards (7,367 ) (6,460 )
Proceeds from issuance of treasury stock related to equity awards 8,185 10,133
Tax benefit from issuance of equity awards   300     1,304  
Net cash used in financing activities (276,092 ) (160,661 )
 
Effect of exchange rate changes on cash and cash equivalents (5,039 ) (3,664 )
   
Net decrease in cash and cash equivalents (147,690 ) (19,441 )
Cash and cash equivalents at beginning of period   1,231,180     1,287,160  
Cash and cash equivalents at end of period $ 1,083,490   $ 1,267,719  
 
 
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 June 29, 2013
 
Net sales $106,856 $84,216 $72,748 $344,701 $88,042 $696,563
Gross profit $70,387 $55,071 $40,938 $155,363 $61,881 $383,640
Operating income $44,842 $29,641 $14,411 $60,444 $20,548 $169,886
 
13-Weeks Ended June 30, 2012
 
Net sales $100,496 $81,812 $67,790 $392,124 $75,932 $718,154
Gross profit $66,892 $56,665 $43,139 $200,923 $54,194 $421,813
Operating income $43,739 $34,146 $18,427 $87,108 $20,586 $204,006
                                         
 
26-Weeks Ended June 29, 2013
 
Net sales $183,022 $156,653 $123,044 $597,290 $168,511 $1,228,520
Gross profit $114,862 $100,039 $64,285 $262,483 $118,104 $659,773
Operating income $66,430 $49,533 $11,971 $80,476 $41,402 $249,812
 
26-Weeks Ended June 30, 2012
 
Net sales $177,659 $153,026 $123,854 $671,393 $148,819 $1,274,751
Gross profit $114,154 $100,160 $76,634 $310,753 $103,870 $705,571
Operating income $69,648 $54,797 $27,205 $105,043 $37,646 $294,339
 
                   
Garmin Ltd. And Subsidiaries
Revenue by Geography (Unaudited)
   
13-Weeks Ended 26-Weeks Ended
June 29, June 30, Yr over Yr June 29, June 30, Yr over Yr
2013 2012 Change 2013 2012 Change
Net sales $696,563 $718,154 -3% $1,228,520 $1,274,751 -4%
Americas 383,537 391,671 -2% 669,349 687,841 -3%
EMEA 256,401 269,415 -5% 447,177 468,031 -4%
APAC 56,625 57,068 -1% 111,994 118,879 -6%
 

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 $8 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 26-weeks Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
 
Net Income (GAAP) $ 172,491 $ 185,904 $ 261,157 $ 272,761
Foreign currency (gain) / loss, net of tax effects ($22,920 ) $ 6,965 ($16,213 ) $ 8,672
Income tax benefit due to completion of tax audits
and/or expiration of statutes   -     -   ($16,536 )   -
Net income (Pro Forma) $ 149,571   $ 192,869 $ 228,408   $ 281,433
 
Net income per share (GAAP):
Basic $ 0.88 $ 0.95 $ 1.34 $ 1.40
Diluted $ 0.88 $ 0.95 $ 1.33 $ 1.39
 
Net income per share (Pro Forma):
Basic $ 0.76 $ 0.99 $ 1.17 $ 1.44
Diluted $ 0.76 $ 0.98 $ 1.16 $ 1.43
 
Weighted average common shares outstanding:
Basic 195,570 194,849 195,600 194,795
Diluted 196,300 196,261 196,338 196,232

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 26-weeks Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
 
Net cash provided by operating activities $ 204,298 $ 222,905 $ 263,661 $ 345,133
Less: purchases of property and equipment   ($18,107 )   ($11,668 )   ($29,723 )   ($17,426 )
Free Cash Flow $ 186,191   $ 211,237   $ 233,938   $ 327,707  


Contact:

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