Garmin Reports EPS Growth in Fourth Quarter 2013 with Strong Margin Performance; Proposes Dividend Increase; Announces CFO Transition

SCHAFFHAUSEN, Switzerland–(BUSINESS WIRE)–Garmin Ltd. (Nasdaq: GRMN – News) today announced results for the fiscal year and quarter ended December 28, 2013.

Highlights in the quarter include:

• Total revenue of $760 million in fourth quarter 2013 with non-automotive/mobile segments of outdoor, fitness, aviation and marine delivering 50% of total revenues and growing 14% over the year ago quarter
• Operating margin of 23% with 69% of operating profit from outdoor, fitness, aviation and marine
• Introduced new watches across a range of categories including the tactix, designed with law enforcement and special operations in mind; the D2™, designed for aviators; and the Approach® S4, a feature-rich golf watch
• Announced a series of new marine products for 2014 led by DownVü and SideVü scanning sonar, an important feature for the fishing market
• Generated $135 million of free cash flow in fourth quarter 2013

Highlights for the fiscal year include:

• Total revenue of $2,632 million in 2013 with outdoor, fitness, aviation and marine growing a combined 9% over 2012
• Operating margin stable at 22% partially driven by a decline in operating expenses
• Entered new markets and expanded offering within existing markets allowing for a continued diversification of revenue and profitability sources
• Generated $574 million of free cash flow in 2013

Executive Overview from Cliff Pemble, President and Chief Executive Officer:

“With strong fourth quarter revenue growth in outdoor, fitness, aviation and marine, we generated record annual sales in those segments,” said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd. “In the fourth quarter, we also achieved operating income growth in all five segments. This success serves as a solid starting point for 2014 and highlights the strength of our diversified product portfolio. We are excited about the future and the numerous new categories Garmin will serve.”

Outdoor:

The outdoor segment posted revenue growth of 7% in the quarter generating revenue of over $410 million for the full year. Gross and operating margins within the segment remained strong at 62% and 38%, respectively, in the quarter. We have recently updated our golf offerings with the fourth quarter launch of the Approach S4 and the recent announcement of the Approach G7 and G8. These devices offer advanced features that we believe further differentiate our products and will allow us to expand our market share lead in the golf category. These products, along with the VIRB™ series of action cameras and further penetration in the sport dog and pet market, are expected to drive growth in 2014.

Fitness:

The fitness segment posted revenue growth of 14% in the quarter driven by our full portfolio of products. New launches, including the Forerunner® 220 and 620, the Vector power meter and the Edge® Touring device, were strong contributors in the holiday quarter. Both gross and operating margins improved in the quarter as product mix shifted to new products. At CES (Consumer Electronics Show) in January, we announced a new product category with our vívofit™ and vívokí™. The vívofit is a fitness band for the consumer market which differentiates from competitors by providing personalized daily goals, connectivity to the newly overhauled Garmin Connect™, an LCD display and industry-leading battery life of one year. Vívokí is a lower priced alternative for the corporate wellness market which has been underserved to date. With these exciting products and our strong cycling and running line-up, we enter 2014 with an expectation for continued growth.

Aviation:

The aviation segment posted revenue growth of 25% in the quarter as both OEM and aftermarket contributed to revenue improvement. For the full year, the aviation segment delivered $339 million of revenue which exceeded our pre-recession record revenue of $323 million posted in 2008. The gross and operating margins in aviation were strong at 74% and 26%, respectively. During the quarter, we were pleased to support LearJet and Cessna in final certification of the G5000 integrated flight deck, as well as the G3000 with Cessna. We continue to invest in upcoming certifications with numerous OEM partners, while also developing new products and technologies which will allow for long-term market share gains across numerous aviation categories.

Marine:

The marine segment posted revenue growth of 13% in the quarter with strong demand for many of our products including autopilot solutions, chartplotters, and radars. Gross margins improved both sequentially and year-over-year to 53% in the quarter with product mix shifting toward new products with higher margin profiles. In the quarter, we announced the 2014 availability of DownVü and SideVü scanning sonar, which delivers high-resolution images of what’s below and beside the boat. This technology will be integrated into both existing Garmin products via a software update, as well as new offerings. We are now experiencing revenue and profitability improvement as a result of our significant investment in recent years and expect both metrics to continue to improve in 2014 as we continue to focus on innovation, while closely managing costs and efficiency.

Auto/Mobile:

The automotive/mobile segment posted a revenue decline of 12% as PND sales continued to decline as forecasted. Gross and operating margins in the quarter were 40% and 14%, respectively, representing an improvement over the prior year. We continue to innovate in the segment as evidenced by the new product introductions at CES where we launched the Dash Cam™ and nüvi® models with larger screens and integrated back-up cameras. We also introduced an interactive head-up display for the OEM market. These innovations allow us to capture niche opportunities and continue to expand our global market share in the profitable PND industry.

Additional Financial Information:

Total operating expenses in the quarter were $222 million, a 1% decrease from the prior year. Decreased spending in advertising was driven primarily by reduced media spending and lower cooperative advertising, which is directly related to sales. This was offset by growing research and development investment in each of our segments excluding marine, which declined slightly. We continue to invest in research and development to foster both near-term and long-term revenue growth opportunities.

The effective tax rate in fourth quarter 2013 was 20.0% compared to 16.5% in the prior year due to changes in income mix by tax jurisdiction, as well as reduced tax incentives in Taiwan.

In the fourth quarter, we generated $135 million of free cash flow which continues to fund our quarterly dividend of approximately $88 million and our share repurchase activity which totaled $31 million in the current quarter. We have $241 million remaining in the share repurchase program authorized through December 31, 2014. We ended the quarter with cash and marketable securities of over $2.8 billion.

2014 Guidance:

We expect 2014 revenue of $2.6 – $2.7 billion as growth in the outdoor, fitness, marine and aviation segments largely offset ongoing declines in the PND market. We anticipate gross margins will improve to 54-55% as segment mix continues to shift toward higher margin segments. Operating margins are forecasted to decline slightly to 21% due to ongoing research and development investment. This results in a currently forecasted 2014 EPS range of $2.50 – $2.60. (This EPS range assumes a full-year EUR/USD currency exchange rate of 1.35.)

Dividend Recommendation:

The Board intends to recommend to the shareholders for approval at the annual meeting to be held on June 6, 2014 a cash dividend in the amount of $1.92 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:

The Garmin Ltd. board of directors has established March 31, 2014 as the payment date for the next dividend installment of $0.45 per share with a record date of March 17, 2014, per the approval previously provided at the 2013 annual shareholders’ meeting. At the 2013 annual meeting Garmin shareholders, in accordance with Swiss corporate law, approved a cash dividend in the total amount of $1.80 per share (subject to possible adjustment based on the total amount of the dividend in Swiss Francs), payable in four equal installments on dates to be determined by the board in its discretion. The first, second and third payments were made on June 28, 2013, September 30, 2013, and December 31, 2013, respectively.

Chief Financial Officer Transition:

Kevin Rauckman, chief financial officer (CFO) and treasurer, has made a personal decision to change the cadence of his professional career and will leave Garmin within the next year. Rauckman has been with Garmin for 15 years and has served as CFO and treasurer since the company went public in 2000. The Company will initiate a search for a new CFO; however, the exact date of Rauckman’s departure will depend on the timing of finding a successor. “Kevin has made significant and lasting contributions to Garmin, playing a crucial role in the development of the company over the past 15 years. Kevin is highly respected both inside and outside of the organization and we will deeply miss him as he closes this chapter in his professional career,” said president and CEO, Cliff Pemble.

“My tenure at Garmin has been extremely rewarding, and I have enjoyed working with so many dedicated and talented colleagues,” Rauckman said. “I intend to support Garmin during this period of transition then look forward to pursuing other life goals thereafter.”

Webcast Information/Forward-Looking Statements:

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

An archive of the live webcast will be available until March 28, 2014 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 2014, the Company’s expected segment revenue growth rate, margins, new products to be introduced in 2014 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, Approach, Forerunner, Edge and nüvi are registered trademarks and D2, VIRB, vívofit, vívokí and Garmin Connect 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.

Non-GAAP Financial Information

Pro Forma net income (earnings) per share

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 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. Thus, reported income tax expense is not reflective of the income tax expense that is incurred related to the current period earnings. The release of other uncertain tax position reserves, amounting to approximately $11 million in the 2013 periods and $13 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.

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.