EX-99.1 2 s101541_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

Garmin Reports Second Quarter 2015 Results and Updated 2015 Guidance

 

Schaffhausen, Switzerland / July 29, 2015/ Business Wire

 

Garmin Ltd. (Nasdaq: GRMN – News) today announced results for the quarter ended June 27, 2015.

 

Summary items for the quarter include:

 

·Total revenue of $774 million in the second quarter of 2015 with fitness, outdoor, aviation and marine delivering 61% of total revenue and collectively growing 11% over the year ago quarter
·The relative strength of the US Dollar compared to other major currencies negatively impacted revenue by approximately $59 million, or 8%, in the second quarter of 2015
·Gross and operating margins were 54% and 22%, respectively, and were impacted by unfavorable currency movements and the higher mix of promotional products sold during the quarter
·Shipped over 4 million units in the quarter, an 8% increase over the year ago quarter
·GAAP and pro forma EPS of $0.72 for second quarter 2015
·Launched the Forerunner® 225 with wrist-based heart rate monitoring, camera enabled nüvi® and dēzl™ models, and the Edge® 20/25, the world’s smallest GPS enabled bike computers

 

(in thousands,  13-Weeks Ended   26-Weeks Ended 
except per share data)  June 27,   June 28,   Yr over Yr   June 27,   June 28,   Yr over Yr 
   2015   2014   Change   2015   2014   Change 
Net sales  $773,830   $777,848    -1%  $1,359,224   $1,361,069    0%
Auto   298,878    350,036    -15%   515,004    592,988    -13%
Fitness   158,649    150,678    5%   289,644    250,965    15%
Outdoor   110,324    106,059    4%   186,239    190,044    -2%
Aviation   102,266    97,295    5%   200,327    193,289    4%
Marine   103,713    73,780    41%   168,010    133,783    26%
                               
Gross profit %   54%   57%        56%   57%     
                               
Operating profit %   22%   28%        20%   25%     
                               
GAAP diluted EPS  $0.72   $0.93    -23%  $1.07   $1.54    -31%
Pro forma diluted EPS (1)  $0.72   $1.02    -29%  $1.26   $1.57    -20%

 

(1) See attached table for reconciliation of non-GAAP measures including pro forma diluted EPS

 

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

 

“Like many global companies, Garmin has experienced downward revenue and profit pressure due to recent unfavorable currency movements.  In light of this reality, we feel positive about our first half revenue performance,” said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd.  “With our ongoing research and development efforts and exciting advertising plans, we believe that the foundation for long-term success is being established now.”

 

 
 

 

Fitness:

 

 

The fitness segment posted revenue growth of 5% in the quarter driven by activity trackers and multisport products. While the growth rate is below that of recent quarters, we experienced significant sell-in during the second quarter of 2014 as we established our retail presence in the mass-market activity tracker category. Gross margin fell to 56% in the quarter, while operating margin declined to 21%. The gross margin decline was driven by both the unfavorable currency movements and competitive pricing dynamics in the activity tracker category. The operating margin decline reflects the significant investment in advertising and research and development to support our long-term goals in the segment. We believe these investments are appropriate and timely given the sizeable opportunity that exists in the global fitness and wellness industries. During the quarter we introduced the Edge 520 which adds Strava segment integration and smart notifications when paired to a smart phone. We also introduced the Varia family of cycling products, including smart lights and radar, which are new product categories for Garmin.

 

Outdoor:

 

The outdoor segment posted revenue growth of 4% in the quarter, accelerating as we had forecasted as supply constraints eased. Gross and operating margins within the segment were largely consistent with the prior year at 61% and 34%, respectively. While gross margin was comparable to the prior year, it is below historical levels. In the second quarter of 2015, unfavorable currency movements created downward pressure, while the second quarter of 2014 was negatively impacted by inventory reserves. During the quarter, we upgraded our best-selling eTrex® series of outdoor handhelds, including the addition of affordably priced touchscreen models, and our Rino® two-way radios, allowing for a communication range of up to 20 miles.

 

Aviation:

 

The aviation segment posted revenue growth of 5% in the second quarter of 2015 driven by solid aftermarket results. The gross margin in aviation remains strong at 73%, while operating margin declined slightly year-over year to 27% due to growth in research and development to support future revenue opportunities. Aviation is largely unaffected by unfavorable currency movements as most revenues and costs are denominated in US Dollars. Overall industry trends continue to be difficult with the General Aviation Manufacturers’ Association reporting a first quarter decrease in new aircraft sales of 15%. Thus, we have seen our growth rates slow in the first half of the year and are reducing our full year revenue guidance to 5% growth. While this is not ideal, our stronger market share positions us well if the industry experiences near term weakness. We remain excited about the recent certification of the Cessna Latitude and numerous other certifications that will take place over the next few years, which will drive an improved long-term position in this highly profitable segment.

 

Marine:

 

 

The marine segment posted revenue growth of 41% in the quarter as the response to our new products was strong and we continued to benefit from our third quarter 2014 acquisition of Fusion Electronics. Gross margin declined year-over-year to 56% in the quarter as the effects of unfavorable currency movements and the mix of lower margin Fusion products were largely offset by a higher mix of new products with less discounting and higher margin profiles. Even with the currency driven gross margin pressure, operating income grew 35% in the segment. Given the positive results in the first half of the year, we are raising our full year revenue growth guidance for the marine segment to 15%.

 

 
 

 

Auto:

 

The auto segment posted a revenue decline of 15% 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 44% and 15%, respectively. The gross margin decline resulted from unfavorable currency movements and a reduced contribution from deferred revenue. The industry volume trends have been consistent with our expectations and pricing continues to be stable on a constant currency basis. The recently introduced nüviCam™ and dēzlCam™, including a built-in dash cam and advanced alerts like forward collision and lane departure awareness, have been positively reviewed by many in the media and early indications are that these are also being well-received by consumers.

 

Additional Financial Information:

 

Total operating expenses in the quarter were $253 million, a 12% increase from the prior year. Research and development investment increased 11% with growth primarily focused on aviation and active lifestyle products in fitness and outdoor. Advertising increased 31% driven primarily by our wearables advertising campaign and continued growth in point-of-sale presence with key retailers. Selling, general and administrative expense increased by 6% driven largely by legal related expenses, product support and information technology costs.

 

The effective tax rate in the second quarter of 2015 was 20.6% compared to 12.8% in the prior year, negatively impacting earnings per share by $0.07. The increase in effective tax rate resulted from the reduced income projection for 2015, which negatively impacts our geographic income mix, and a $4 million reduction in favorable tax reserves released on a year-over-year basis.

 

We continued to return cash to shareholders with our quarterly dividend of approximately $92 million and our share repurchase activity which totaled $41 million in the second quarter. We have $243 million remaining in the share repurchase program authorized through December 31, 2016, and expect to actively purchase throughout the remainder of the year as market conditions warrant. We ended the quarter with cash and marketable securities of over $2.4 billion following the payment of $183 million of tax liability associated with our inter-company restructuring announced in third quarter of 2014.

 

2015 Guidance:

 

The global currency situation is expected to continue to create downward pressure on revenue growth and profitability for the remainder of the year. In addition, we expect to incur higher advertising costs in the back half of 2015 in order to further solidify our position in key markets. As pre-announced, we updated our guidance to reflect these factors. We continue to anticipate revenues of approximately $2.9 billion which is unchanged from previous guidance despite the approximately $160 million of currency driven impact that is now built into our forecast. Due to unfavorable currency movements and competitive pricing dynamics in fitness, we now expect gross margin in the range of 54-55% with additional advertising resulting in an expected operating margin of 20-21%. The expected effective tax rate increases to 18-19% due to lower operating income and geographic income mix. The result of these changes is expected pro forma EPS of approximately $2.65.

 

 
 

 

    2015 Updated
Guidance		 
Revenue   ~$2.9 B 
Gross Margin   54-55% 
Operating Margin   20-21% 
Tax Rate   18-19% 
EPS (Pro Forma)   ~$2.65 

 

 

Webcast Information/Forward-Looking Statements:

 

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

 

When:Wednesday, July 29, 2015 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 855-757-3897

 

An archive of the live webcast will be available until October 30, 2015 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 that are commonly identified by words such as “would”, “may”, “expects”, “estimates”, “plans”, “intends”, “projects”, and other words or phrases with similar meanings. Any statements regarding the Company’s GAAP and pro forma estimated earnings, EPS and revenue for fiscal 2015, the Company’s expected segment revenue growth rates, margins, currency movements, expenses, pricing, 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 and uncertainties 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 2014 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

 

Garmin, fēnix Forerunner, Edge, eTrex, nüvi and Rino are registered trademarks and Varia, dēzl, dēzlcam 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.

 

Investor Relations Contact: Media Relations Contact:
Kerri Thurston Ted Gartner
913/397-8200 913/397-8200
investor.relations@garmin.com media.relations@garmin.com

 

 
 

 

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share information)

 

   13-Weeks Ended   26-Weeks Ended 
   June 27,   June 28,   June 27,   June 28, 
   2015   2014   2015   2014 
Net sales  $773,830   $777,848   $1,359,224   $1,361,069 
                     
Cost of goods sold   354,580    333,363    595,852    585,750 
                     
Gross profit   419,250    444,485    763,372    775,319 
                     
Advertising expense   45,794    34,918    73,466    59,346 
Selling, general and administrative expense   97,552    92,409    196,302    182,282 
Research and development expense   109,240    98,404    215,242    194,568 
Total operating expense   252,586    225,731    485,010    436,196 
                     
Operating income   166,664    218,754    278,362    339,123 
                     
Other income (expense):                    
Interest income   7,420    9,670    15,444    19,437 
Foreign currency gains (losses)   (487)   (20,378)   (44,751)   (7,563)
Other income (loss)   (39)   674    698    190 
Total other income (expense)   6,894    (10,034)   (28,609)   12,064 
                     
Income before income taxes   173,558    208,720    249,753    351,187 
                     
Income tax provision   35,805    26,737    45,208    50,387 
                     
Net income  $137,753   $181,983   $204,545   $300,800 
                     
Net income per share:                    
Basic  $0.72   $0.94   $1.07   $1.55 
Diluted  $0.72   $0.93   $1.07   $1.54 
                     
Weighted average common                    
shares outstanding:                    
Basic   191,101    193,771    191,432    194,431 
Diluted   191,600    194,955    191,939    195,464 

 

 
 

 

Garmin Ltd. And Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share information)

 

 

   (Unaudited)     
   June 27,   December 27, 
   2015   2014 
Assets        
Current assets:          
Cash and cash equivalents  $938,183   $1,196,268 
Marketable securities   199,007    167,989 
Accounts receivable, net   502,034    570,191 
Inventories, net   458,451    420,475 
Deferred income taxes   53,858    56,102 
Deferred costs   48,033    51,336 
Prepaid expenses and other current assets   83,730    48,615 
Total current assets   2,283,296    2,510,976 
           
Property and equipment, net   445,672    430,887 
           
Marketable securities   1,309,405    1,407,344 
Restricted cash   279    308 
Noncurrent deferred income tax   67,246    67,712 
Noncurrent deferred costs   32,504    36,140 
Intangible assets, net   222,968    218,083 
Other assets   62,039    21,853 
Total assets  $4,423,409   $4,693,303 
           
Liabilities and Stockholders' Equity          
Current liabilities:          
Accounts payable  $146,088   $149,094 
Salaries and benefits payable   55,185    62,764 
Accrued warranty costs   26,101    27,609 
Accrued sales program costs   40,924    58,934 
Deferred revenue   174,365    203,598 
Accrued royalty costs   9,509    51,889 
Accrued advertising expense   29,762    26,334 
Other accrued expenses   76,003    67,780 
Deferred income taxes   3,848    17,673 
Income taxes payable   10,609    182,260 
Dividend payable   389,287    185,326 
Total current liabilities   961,681    1,033,261 
           
Deferred income taxes   41,628    39,497 
Non-current income taxes   85,436    80,611 
Non-current deferred revenue   124,625    135,130 
Other liabilities   1,534    1,437 
           
Stockholders' equity:          
Shares, CHF 10 par value, 208,077 shares authorized and issued; 190,936 shares outstanding at June 27, 2015 and 191,815 shares outstanding at December 27, 2014   1,797,435    1,797,435 
Additional paid-in capital   85,233    73,521 
Treasury stock   (374,839)   (330,132)
Retained earnings   1,676,601    1,859,972 
Accumulated other comprehensive income   24,075    2,571 
Total stockholders' equity   3,208,505    3,403,367 
Total liabilities and stockholders' equity  $4,423,409   $4,693,303 

 

 
 

 

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   26-Weeks Ended 
   June 27,   June 28, 
   2015   2014 
Operating Activities:        
Net income  $204,545   $300,800 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   24,915    23,736 
Amortization   13,215    13,722 
Loss (gain) on sale of property and equipment   420    (662)
Provision for doubtful accounts   (1,499)   2,383 
Deferred income taxes   (9,325)   3,071 
Unrealized foreign currency loss   59,046    7,483 
Provision for obsolete and slow moving inventories   6,569    16,414 
Stock compensation expense   14,742    13,459 
Realized (gain) loss on marketable securities   (364)   192 
Changes in operating assets and liabilities:          
Accounts receivable   60,016    65,317 
Inventories   (45,635)   (61,812)
Other current and non-current assets   (74,725)   (4,291)
Accounts payable   (7,084)   (14,598)
Other current and non-current liabilities   (53,808)   (75,826)
Deferred revenue   (38,836)   (66,265)
Deferred cost   6,892    9,783 
Income taxes payable   (174,788)   2,446 
Net cash (used by)/provided by operating activities   (15,704)   235,352 
           
Investing activities:          
Purchases of property and equipment   (39,732)   (36,761)
Proceeds from sale of property and equipment   665    669 
Purchase of intangible assets   (1,939)   (1,556)
Purchase of marketable securities   (480,090)   (534,952)
Redemption of marketable securities   540,785    590,887 
Proceeds from repayment on loan receivable   -    137,379 
Change in restricted cash   29    (1)
Acquisitions, net of cash acquired   (12,632)   - 
Net cash provided by investing activities   7,086    155,665 
           
Financing activities:          
Dividends paid   (183,925)   (175,574)
Purchase of treasury stock under share repurchase plan   (57,295)   (162,359)
Purchase of treasury stock related to equity awards   (240)   (11,249)
Proceeds from issuance of treasury stock related to equity awards   8,560    11,398 
Tax benefit from issuance of equity awards   1,239    3,434 
Net cash used in financing activities   (231,661)   (334,350)
           
Effect of exchange rate changes on cash and cash equivalents   (17,806)   (930)
           
Net decrease in cash and cash equivalents   (258,085)   55,737 
Cash and cash equivalents at beginning of period   1,196,268    1,179,149 
Cash and cash equivalents at end of period  $938,183   $1,234,886 

 

 
 

 

Garmin Ltd. And Subsidiaries

Net Sales, Gross Profit, and Operating Income by Segment (Unaudited)

 

   Reporting Segments 
   Outdoor   Fitness   Marine   Auto   Aviation   Total 
                         
13-Weeks Ended June 27, 2015                       
                               
Net sales  $110,324   $158,649   $103,713   $298,878   $102,266   $773,830 
Gross profit  $66,946   $88,458   $58,577   $131,006   $74,263   $419,250 
Operating income  $37,417   $33,070   $23,901   $44,871   $27,405   $166,664 
                               
13-Weeks Ended June 28, 2014                              
                               
Net sales  $106,059   $150,678   $73,780   $350,036   $97,295   $777,848 
Gross profit  $64,668   $98,063   $42,536   $167,593   $71,625   $444,485 
Operating income  $35,281   $62,872   $17,657   $74,642   $28,302   $218,754 
                               
26-Weeks Ended June 27, 2015                              
                               
Net sales  $186,239   $289,644   $168,010   $515,004   $200,327   $1,359,224 
Gross profit  $117,166   $171,534   $94,090   $234,809    145,773   $763,372 
Operating income  $61,250   $67,709   $28,468   $67,350   $53,585   $278,362 
                               
26-Weeks Ended June 28, 2014                              
                               
Net sales  $190,044   $250,965   $133,783   $592,988   $193,289   $1,361,069 
Gross profit  $115,578   $162,148   $73,588   $281,384   $142,621   $775,319 
Operating income  $58,964   $96,384   $21,467   $105,206   $57,102   $339,123 

 

Garmin Ltd. And Subsidiaries

Net Sales by Geography (Unaudited)

 

   13-Weeks Ended   26-Weeks Ended 
   June 27,   June 28,   Yr over Yr   June 27,   June 28,   Yr over Yr 
   2015   2014   Change   2015   2014   Change 
Net sales  $773,830   $777,848    -1%  $1,359,224   $1,361,069    0%
Americas   417,056    411,348    1%   722,317    716,156    1%
EMEA   274,454    300,427    -9%   482,805    521,030    -7%
APAC   82,320    66,073    25%   154,102    123,883    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 balances 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 $7 million and $11 million in first half 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   26-weeks Ended 
   June 27,   June 28,   June 27,   June 28, 
   2015   2014   2015   2014 
                 
Net Income (GAAP)  $137,753   $181,983   $204,545   $300,800 
Foreign currency (gain) / loss, net of tax effects  $387   $17,768   $36,650   $6,478 
Net income (Pro Forma)  $138,140   $199,751   $241,195   $307,278 
                     
Net income per share (GAAP):                    
Basic  $0.72   $0.94   $1.07   $1.55 
Diluted  $0.72   $0.93   $1.07   $1.54 
                     
Net income per share (Pro Forma):                    
Basic  $0.72   $1.03   $1.26   $1.58 
Diluted  $0.72   $1.02   $1.26   $1.57 
                     
Weighted average common shares outstanding:                    
Basic   191,101    193,771    191,432    194,431 
Diluted   191,600    194,955    191,939    195,464 

 

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.

 

Free Cash Flow

(in thousands)

 

   13-Weeks Ended   26-weeks Ended 
   June 27,   June 28,   June 27,   June 28, 
   2015   2014   2015   2014 
                 
Net cash provided by operating activities  $(97,359)  $164,179   $(15,704)  $235,352 
Less: purchases of property and equipment  $(21,589)  $(21,224)  $(39,732)  $(36,761)
Plus: taxes paid related to inter-company restructuring  $182,800    -   $182,800    - 
Free Cash Flow  $63,852   $142,955   $127,364   $198,591