Garmin announces first quarter 2022 results

Company reports record first quarter revenue and announces share repurchase plan

Garmin^® Ltd. (NYSE: GRMN) today announced results for the first quarter ended March 26, 2022.

Highlights for first quarter 2022 include:

• Record consolidated revenue of $1.17 billion, a 9% increase over the prior year quarter with three segments posting double digit growth
• Gross and operating margins were 56.5% and 19.5%, respectively
• Operating income of $229 million, an 8% decrease compared to the prior year quarter
• GAAP EPS was $1.09 and pro forma EPS⁽¹⁾ was $1.11
• Launched a sweeping update to our lineup of outdoor adventure watches
• Named the 2022 Associate Member of the Year by the Aircraft Electronics Association, and for the 18th consecutive year, ranked 1st place in Professional Pilot Magazine’s 2022 Avionics Product Support Survey
• Unveiled LiveScope Plus a high-resolution live sonar that raises the performance bar in the recreational fishing market

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

“We delivered another quarter of growth and record revenue in an increasingly complex and challenging business environment,” said Cliff Pemble, President and CEO of Garmin. “High freight cost and component supply challenges persist while new headwinds emerge such as the strengthening of the U.S. dollar and the uncertainty created by Russia’s invasion of Ukraine. In this dynamic environment, we remain focused on creating highly differentiated products that excite our customers and lead to success.”

Fitness:

Revenue from the fitness segment decreased 28% in the first quarter. All categories declined but the weakness is primarily attributable to the normalization of demand for cycling products from the pandemic-driven levels in the prior year. Gross and operating margins were 48% and 0% in the quarter, respectively, resulting in $1 million of operating income. Our Garmin Connect platform contains a sizable repository of health insights covering millions of Garmin device users. Utilizing anonymized data from Garmin Connect, we showed that people who sleep more also experience lower levels of stress during the day. In addition, we provided useful insights on the link between modest levels of activity and lower resting heart rate, which is an indicator often associated with improved cardiac health. These insights are made possible by the state-of-the-art bio sensors and algorithms found in Garmin wearables.

Outdoor:

Revenue from the outdoor segment grew a robust 50% in the first quarter primarily due to strong demand for our adventure watches. Gross and operating margins were 64% and 39%, respectively, resulting in $149 million of operating income. During the quarter, we announced a sweeping update to our lineup of adventure watches including our flagship fēnix 7, the exciting new epix premium smartwatch, and the next generation Instinct 2 which includes versions that can operate indefinitely by harvesting the power of the sun.

Aviation:

Revenue from the aviation segment grew 1% in the first quarter primarily driven by growth in the OEM category. Gross and operating margins were 73% and 23%, respectively, resulting in $40 million of operating income. During the quarter we launched the D2 Mach 1, a premium aviator smartwatch with a vibrant AMOLED display, and the D2 Air X10, which combines powerful aviation features with voice functionality, allowing pilots to take calls and use their compatible smartphone’s voice assistant. We also announced additional certifications for our GFC 500/600 autopilot, bringing the performance and safety enhancing benefits of our flight control technology to more aircraft models.

Marine:

Revenue from the marine segment grew 21% in the first quarter with growth across multiple categories led by strong demand for our chartplotters. Gross and operating margins were 51% and 23%, respectively, resulting in $59 million of operating income. During the quarter, we launched the new LiveScope Plus with enhanced resolution, clearer images and improved target separation. Also during the quarter, our LiveScope technology helped Garmin sponsored fishing pro Jason Christie win the 2022 Bassmaster Classic, which drew more than 150,000 spectators over a three day period.

Auto:

Revenue from the auto segment grew 11% during the first quarter driven by growth in both OEM and consumer products. Gross margin was 38%, and we recorded an operating loss of $20 million in the quarter driven by ongoing investments in auto OEM programs. During the quarter, we launched the Instinct 2 dēzl edition smartwatch. This rugged smartwatch was created for professional truck drivers seeking to lead a healthy over-the-road lifestyle.

Additional Financial Information:

Total operating expenses in the fourth quarter were $434 million, an 11% increase over the prior year. Research and development increased by 11%, primarily due to engineering personnel costs. Selling, general and administrative expenses increased 11%, driven primarily by personnel related expenses and information technology costs. Advertising increased 10% over the prior year quarter primarily due to higher spend in the outdoor and marine segments.

The effective tax rate in the first quarter was 10.3% compared to 12.2% in the prior year quarter. The year-over-year decrease in the effective tax rate is primarily due to an increase in U.S. tax deductions and credits.

In the first quarter of 2022, we generated approximately $126 million of free cash flow⁽¹⁾, and paid a quarterly dividend of approximately $129 million. We ended the quarter with cash and marketable securities of approximately $3.0 billion.

2022 Fiscal Year Guidance:

We are maintaining our 2022 guidance for revenue of approximately $5.5 billion and pro forma EPS of $5.90 (see discussion on Forward-looking Financial Measures).

Dividend Recommendation and Share Repurchase Program:

As announced in February, the Board will recommend to the shareholders for approval at the annual meeting to be held on June 10, 2022 a cash dividend in the total amount of $2.92 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 quarterly installments.

On April 22, 2022, the Board of Directors authorized the Company to repurchase up to $300 million of the Company’s shares through December 29, 2023. The timing and volume of any share repurchases under this authorization will be determined by management at its discretion. Share repurchases, which are subject to market conditions, other business conditions and applicable legal requirements, may be made from time to time in the open market or in privately negotiated transactions, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

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 April 26, 2023 on the Garmin website at www.garmin.com. To access the replay, click on the Investors 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 “anticipates,” “would,” “may,” “expects,” “estimates,” “plans,” “intends,” “projects,” and other words or phrases with similar meanings. Any statements regarding the Company’s expected fiscal 2022 GAAP and pro forma estimated earnings, EPS, and effective tax rate, and the Company’s expected segment revenue growth rates, consolidated revenue, gross margins, operating margins, potential future acquisitions, share repurchase programs, currency movements, expenses, pricing, new product launches, market reach, statements relating to possible future dividends, statements related to the ongoing impact of the COVID-19 pandemic, 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 25, 2021 filed by Garmin with the Securities and Exchange Commission (Commission file number 001-41118). A copy of Garmin’s 2021 Form 10-K can be downloaded from https://www.garmin.com/en-US/investors/sec/. All information provided in this release and in the attachments is as of March 26, 2022. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.

This release and the attachments contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the Company's use of these measures are included in the attachments.

Garmin, the Garmin logo, the Garmin delta, dēzl, fēnix, Instinct are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. D2, epix, Garmin Connect, GFC, LiveScope and Panoptix 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.

Changes in Classification and Allocation

Prior period information presented here has been recast to conform to the current period presentation. See Appendix A for further discussion and recast presentation of additional prior periods.

The following table includes supplemental financial information for the consumer auto and auto OEM operating segments that management believes is useful.

Non-GAAP Financial Information

To supplement our financial results presented in accordance with GAAP, this release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: pro forma effective tax rate, pro forma net income (earnings) per share and free cash flow. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies, limiting the usefulness of the measures for comparison with other companies. Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company, as described in more detail by category below.

The tables below provide reconciliations between the GAAP and non-GAAP measures.

Pro forma effective tax rate

The Company’s income tax expense is periodically impacted by discrete tax items that are not reflective of income tax expense incurred as a result of current period earnings. Therefore, management believes disclosure of the effective tax rate and income tax provision before the effect of certain discrete tax items are important measures to permit investors' consistent comparison between periods. In the first quarter 2022 and 2021 there were no such discrete tax items identified.

Pro forma net income (earnings) per share

Management believes that net income (earnings) per share before the impact of foreign currency gains or losses and certain discrete income tax items, as discussed above, is an important measure in order to permit a consistent comparison of the Company’s performance between periods.

Free cash flow

Management believes that free cash flow is an important liquidity measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flows less capital expenditures for property and equipment. Management believes that excluding purchases of property and equipment provides a better understanding of the underlying trends in the Company’s operations and allows more accurate comparisons of the Company’s results between periods. This metric may also be useful to investors, but should not be considered in isolation as it is not a measure of cash flow available for discretionary expenditures. The most comparable GAAP measure is net cash provided by operating activities.

Forward-looking Financial Measures

The forward-looking financial measures in our 2022 guidance provided above do not consider the potential future net effect of foreign currency exchange gains and losses, certain discrete tax items and any other impacts that may be identified as pro forma adjustments in calculating the non-GAAP measures described above.

The estimated impact of foreign currency gains and losses cannot be reasonably estimated on a forward-looking basis due to the high variability and low visibility with respect to non-operating foreign currency exchange gains and losses and the related tax effects of such gains and losses. The impact on diluted net income per share of foreign currency gains and losses, net of tax effects, was $0.02 per share for the first quarter ended March 26, 2022.

At this time, management is unable to determine whether or not significant discrete tax items will occur in fiscal 2022 or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

Appendix A – Expense classification and segment allocation methodology changes

Beginning in the first quarter of 2022, the Company refined its methodology used in classifying certain indirect costs and allocating certain operating expenses to the segments. These changes had no effect on the Company’s consolidated operating income, net income, or composition of operating segments and reportable segments. Each prior period that will be presented in the forthcoming Form 10-Q and Form 10-K filings will be recast to conform to current period presentation. The following tables provide the relevant financial results as previously reported, as recast for the current period and forthcoming filings, and the associated impacts of the changes. Within these tables, the references to periods such as “FY 2020” and “Q1 2021” refer to the corresponding periods as reported in the applicable Form 10-K, Form 10-Q, or Form 8-K filings. The tables may not foot due to rounding.

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