Garmin Reports Solid First Quarter 2015 Margins and Operating Results

Garmin Ltd. (Nasdaq: GRMN) today announced results for the quarter ended
March 28, 2015.

Highlights in the quarter include:

  • Total revenue of $585 million in the first quarter of 2015 with
    fitness, outdoor, aviation and marine delivering 63% of total revenue
    and collectively growing 9% over the year ago quarter
  • The relative strength of the US Dollar compared to other major
    currencies negatively impacted revenue by approximately $38 million,
    or 7%, in the first quarter of 2015
  • Gross margin improved from the prior year to 59% while operating
    margin remained strong at 19%
  • Pro forma EPS of $0.55 for first quarter 2015, consistent with the
    prior year
  • Launched vívofit™ 2, vívoactive™, and fēnix® 3, highlighting our
    continued commitment to a broad product portfolio in the rapidly
    growing wearables category
(in thousands, 13-Weeks Ended
except per share data) March 28, March 29, Yr over Yr
2015 2014 Change
Net sales $585,394 $583,221 0%
Auto 216,126 242,952 -11%
Fitness 130,994 100,288 31%
Outdoor 75,915 83,985 -10%
Aviation 98,062 95,994 2%
Marine 64,297 60,002 7%
Gross profit % 59% 57%
Operating profit % 19% 21%
GAAP diluted EPS $0.35 $0.61 -42%
Pro forma diluted EPS (1) $0.55 $0.55 0%
(1) See attached tables for reconciliation of non GAAP measures
including pro forma
diluted EPS and free cash flow

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

“We were able to deliver solid operating results and consistent pro
forma EPS in the first quarter despite the negative impact of a stronger
US Dollar compared to other major currencies,” said Cliff Pemble,
president and chief executive officer (CEO) of Garmin Ltd. “These
results highlight our ability to capitalize on growth opportunities in
the near-term while still investing in our market share position and
long-term product roadmap through increased advertising and research and
development expense. These investments are expected to generate ongoing
growth potential in 2015 and future years.”


The fitness segment posted revenue growth of 31% in the quarter with
contributions from activity trackers, our recently launched Forerunner®
920XT and our cycling products. Gross margin remained strong at 63%
while operating margin declined to 26%, as we continued to invest in
advertising and research and development to drive long-term growth
opportunities. Additions to the vivo family, including vívofit 2 and
vívoactive, began shipping late in the first quarter and we expect them
to reach additional retail channels throughout the second quarter as the
wearables opportunity continues to expand. In cycling, we recently
announced Vector™ 2 and 2S – the latest pedal-based power meters –
designed for easy installation and maintenance while delivering the most
advanced cycling metrics. Our broad fitness portfolio has never been
stronger, offering products for those just beginning their pursuit of an
active lifestyle to elite athletes.


The outdoor segment posted a revenue decline of 10% in the quarter,
falling short of our expectations. Though revenue declined, gross and
operating margins within the segment were strong at 66% and 31%,
respectively. While outdoor started slowly in 2015, we do anticipate
improvement in the second quarter as we are experiencing robust demand
for the fēnix 3 and as we launch additional new products within the
segment. In April, we announced the VIRB® X and XE which will begin to
ship in the second quarter. The new VIRB action cameras focus on
delivering a data-rich experience for the user with embedded sensors
capturing speed, altitude, and many other metrics. The G-Metrix™ data is
then seamlessly incorporated into the video utilizing our VIRB Edit
software, which offers robust features and capabilities in an
easy-to-use platform. This hardware and software combination, along with
our enhanced mobile application featuring on-the-go mobile video
creation, offer a superior user experience that we believe will help us
gain momentum in the action camera market and further broaden our
revenue base in the outdoor segment.


The aviation segment posted revenue growth of 2% in the first quarter of
2015 following a solid first quarter 2014, when revenue growth was 19%
due primarily to new OEM programs. The gross margin in aviation was
strong at 73% while operating margin declined to 27% due to growth in
research and development to support future revenue opportunities. During
the quarter, we continued to enhance our ADS-B offerings and now provide
the most comprehensive line of solutions to meet pending modernization
deadlines around the world. We believe this will drive improving growth
in our aftermarket category. Throughout the remainder of 2015, we will
be focused on final certifications with key OEM partners that represent
significant market share gains in the business jet and helicopter


The marine segment posted revenue growth of 7% following significant
growth of 19% in the first quarter of 2014. We expect growth to
accelerate in the second quarter due to a strong backlog for recently
introduced products that have proven popular with consumers. Gross
margin improved year-over-year to 55% in the quarter with product mix
shifting toward new products with less discounting and higher margin
profiles. Operating margin also improved in the quarter generating
operating income growth of 20%. We remain focused on innovation and
product portfolio expansion that will generate market share gains and
growing profits throughout 2015.


The auto segment posted a revenue decline of 11% as PND sales continued
to decline and the contribution of amortization of previously deferred
revenue fell as expected. Gross and operating margins in the quarter
were 48% and 10%, respectively. The gross margin improvement over the
prior year was primarily due to reduced discounting and lower cost of
materials. We recently introduced the nüvicam™, the first PND with a
built-in dash cam and advanced alerts including forward collision and
lane departure to improve driver awareness. This advanced product
highlights the ongoing innovation that we will deliver in both
aftermarket and OEM applications.

Additional Financial Information:

Total operating expenses in the quarter were $232 million, a 10%
increase from the prior year. Research and development investment
increased 10% with growth primarily focused on aviation and active
lifestyle products in fitness and outdoor. Advertising increased 13% as
we continued to invest in point-of-sale presence with key retailers,
which will produce long-term revenue results, and prepared for the
launch of a spring wearables advertising campaign. Selling, general and
administrative expense increased by 10% driven largely by legal related

The effective tax rate in the first quarter of 2015 was 12.3% compared
to 16.6% in the prior year with comparable benefits in both years
related to release of reserves. The year-over-year decrease in the
effective tax rate is primarily due to the expected full year income mix
at the end of first quarter of 2015 as compared to a less favorable
expectation at the end of first quarter of 2014.

We continued to return cash to shareholders with our quarterly dividend
of approximately $92 million and our share repurchase activity which
totaled $16 million in the current quarter. We have $284 million
remaining in the share repurchase program authorized through December
31, 2016. We ended the quarter with cash and marketable securities of
approximately $2.7 billion.

As announced in February, the Board will recommend to the shareholders
for approval at the annual meeting to be held on June 5, 2015 a cash
dividend in the total amount of $2.04 per share (subject to possible
adjustment based on the total amount of the dividend in Swiss Francs)
payable in quarterly installments.

2015 Guidance:

We are maintaining the guidance issued in February of approximately $2.9
billion of revenue and approximately $3.10 of pro forma EPS as our
performance thus far is consistent with our expectations.

Webcast Information/Forward-Looking Statements:

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

When: Wednesday, April 29, 2015 at 10:30 a.m. Eastern

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 June 24, 2015 on
the Garmin website at
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 2015, the Company’s
expected segment revenue growth rate, margins, new products to be
introduced in 2015 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 27, 2014 filed by Garmin with
the Securities and Exchange Commission (Commission file number 0-31983).
A copy of Garmin’s 2013 Form 10-K can be downloaded from

Garmin, fēnix, Forerunner and VIRB are registered trademarks and
vívofit, vívoactive, Vector and nüvicam 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
March 28, March 29,
2015 2014
Net sales $ 585,394 $ 583,221
Cost of goods sold 241,272 252,387
Gross profit 344,122 330,834
Advertising expense 27,672 24,428
Selling, general and administrative expense 98,750 89,873
Research and development expense 106,002 96,164
Total operating expense 232,424 210,465
Operating income 111,698 120,369
Other income (expense):
Interest income 8,024 9,768
Foreign currency gains (losses) (44,264 ) 12,814
Other 738 (484 )
Total other income (expense) (35,502 ) 22,098
Income before income taxes 76,196 142,467
Income tax provision 9,403 23,649
Net income $ 66,793 $ 118,818
Net income per share:
Basic $ 0.35 $ 0.61
Diluted $ 0.35 $ 0.61
Weighted average common
shares outstanding:
Basic 191,762 195,090
Diluted 192,341 195,860
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share information)
March 28, December 27,
2015 2014
Current assets:
Cash and cash equivalents $ 1,171,388 $ 1,196,268
Marketable securities 270,212 167,989
Accounts receivable, net 425,650 570,191
Inventories, net 470,444 420,475
Deferred income taxes 56,165 56,102
Deferred costs 48,824 51,336
Prepaid expenses and other current assets 57,624 48,615
Total current assets 2,500,307 2,510,976
Property and equipment, net 436,104 430,887
Marketable securities 1,259,102 1,407,344
Restricted cash 313 308
Noncurrent deferred income tax 66,664 67,712
Noncurrent deferred costs 32,142 36,140
Intangible assets, net 224,381 218,083
Other assets 24,266 21,853
Total assets $ 4,543,279 $ 4,693,303
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 125,745 $ 149,094
Salaries and benefits payable 63,775 62,764
Accrued warranty costs 23,866 27,609
Accrued sales program costs 37,049 58,934
Deferred revenue 185,899 203,598
Accrued royalty costs 5,811 51,889
Accrued advertising expense 17,190 26,334
Other accrued expenses 68,998 67,780
Deferred income taxes 13,370 17,673
Income taxes payable 190,594 182,260
Dividend payable 91,964 185,326
Total current liabilities 824,261 1,033,261
Deferred income taxes 39,448 39,497
Non-current income taxes 78,663 80,611
Non-current deferred revenue 121,906 135,130
Other liabilities 1,371 1,437
Stockholders’ equity:
Shares, CHF 10 par value, 208,077 shares authorized and issued;
191,520 shares outstanding at March 28, 2015
and 191,815 shares outstanding at December 27, 2014 1,797,435 1,797,435
Additional paid-in capital 80,598 73,521
Treasury stock (345,143 ) (330,132 )
Retained earnings 1,928,165 1,859,972
Accumulated other comprehensive income 16,575 2,571
Total stockholders’ equity 3,477,630 3,403,367
Total liabilities and stockholders’ equity $ 4,543,279 $ 4,693,303


Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
13-Weeks Ended
March 28, March 29,
2015 2014
Operating Activities:
Net income $ 66,793 $ 118,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,280 11,672
Amortization 6,584 6,740
Gain (loss) on sale of property and equipment 24 (617 )
Provision for doubtful accounts (1,080 ) (189 )
Deferred income taxes (3,647 ) 5,942
Unrealized foreign currency loss (gain) 47,877 (15,334 )
Provision for obsolete and slow moving inventories 4,344 3,384
Stock compensation expense 7,769 6,325
Realized (gain) loss on marketable securities (340 ) 1,544
Changes in operating assets and liabilities:
Accounts receivable 129,448 137,198
Inventories (56,897 ) (64,083 )
Other current and non-current assets (11,537 ) (1,591 )
Accounts payable (25,957 ) (20,411 )
Other current and non-current liabilities (73,408 ) (80,011 )
Deferred revenue (29,870 ) (45,290 )
Deferred cost 6,470 8,129
Income taxes payable 2,802 (1,053 )
Net cash provided by operating activities 81,655 71,173
Investing activities:
Purchases of property and equipment (18,143 ) (15,537 )
Proceeds from sale of property and equipment 664 609
Purchase of intangible assets (717 ) (1,111 )
Purchase of marketable securities (254,741 ) (298,695 )
Redemption of marketable securities 308,751 223,786
Proceeds from repayment on loan receivable 0 94,507
Change in restricted cash (5 ) 3
Acquisitions, net of cash acquired (12,632 ) 0
Net cash provided by investing activities 23,177 3,562
Financing activities:
Dividends paid (91,964 ) (87,853 )
Purchase of treasury stock under share repurchase plan (16,260 ) (32,986 )
Purchase of treasury stock related to equity awards (89 ) (58 )
Proceeds from issuance of treasury stock related to equity awards 246 1,107
Tax benefit from issuance of equity awards 399 2,199
Net cash used in financing activities (107,668 ) (117,591 )
Effect of exchange rate changes on cash and cash equivalents (22,044 ) 398
Net decrease in cash and cash equivalents (24,880 ) (42,458 )
Cash and cash equivalents at beginning of period 1,196,268 1,179,149
Cash and cash equivalents at end of period $ 1,171,388 $ 1,136,691
Garmin Ltd. And Subsidiaries
Net Sales, Gross Profit, and Operating Income by Segment
Reporting Segments
Outdoor Fitness Marine Auto Aviation Total
13-Weeks Ended March 28, 2015
Net sales $75,915 $130,994 $64,297 $216,126 $98,062 $585,394
Gross profit $50,220 $83,075 $35,513 $103,803 $71,511 $344,122
Operating income $23,834 $34,638 $4,566 $22,480 $26,180 $111,698
13-Weeks Ended March 29, 2014
Net sales $83,985 $100,288 $60,002 $242,952 $95,994 $583,221
Gross profit $50,910 $64,085 $31,053 $113,791 $70,995 $330,834
Operating income $23,683 $33,512 $3,810 $30,564 $28,800 $120,369
Garmin Ltd. And Subsidiaries
Net Sales by Geography (Unaudited)
13-Weeks Ended
March 28, March 29, Yr over Yr
2015 2014 Change
Net sales $585,394 $583,221 0%
Americas 305,261 304,808 0%
EMEA 208,351 220,603 -6%
APAC 71,782 57,810 24%
EMEA – Europe, Middle East and Africa; APAC – Asia Pacific

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, as discussed below, 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 a currency other than the functional currency at
one of the Company’s subsidiaries. However, there is minimal cash impact
from such foreign currency gain or loss. The Company’s income tax
expense is periodically impacted by material net releases of reserves
primarily 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 net release of other uncertain tax position
reserves, amounting to approximately $5 million and $6 million in first
quarter 2015 and 2014, respectively, 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
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
March 28, March 29,
2015 2014
Net Income (GAAP) $ 66,793 $ 118,818
Foreign currency (gain) / loss, net of tax effects $ 38,801 ($10,687 )
Net income (Pro Forma) $ 105,594 $ 108,131
Net income per share (GAAP):
Basic $ 0.35 $ 0.61
Diluted $ 0.35 $ 0.61
Net income per share (Pro Forma):
Basic $ 0.55 $ 0.55
Diluted $ 0.55 $ 0.55
Weighted average common shares outstanding:
Basic 191,762 195,090
Diluted 192,341 195,860

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
plus one-time cash payments associated with our inter-company
restructuring less capital expenditures for property and equipment.

Garmin Ltd. And Subsidiaries
Free Cash Flow
(in thousands)
13-Weeks Ended
March 28, March 29,
2015 2014
Net cash provided by operating activities $ 81,655 $ 71,173
Less: purchases of property and equipment ($18,143 ) ($15,537 )
Free Cash Flow $ 63,512 $ 55,636


Garmin Ltd.Investor Relations Contact:Kerri Thurston, [email protected] Relations Contact:Ted Gartner, [email protected]