Press Release

Garmin Reports Fourth Quarter Year-Over-Year Growth in Revenues and Margins and Record EPS

February 24, 2010 7:00 AM EST

CAYMAN ISLANDS--(BUSINESS WIRE)--Garmin Ltd. (Nasdaq: GRMN) today announced strong fourth quarter results including revenue and earnings per share growth for the period ended December 26, 2009.

Fourth Quarter 2009 Financial highlights:

  • Total revenue of $1.059 billion, up 1% from $1.048 billion in fourth quarter 2008
    • Automotive/Mobile segment revenue decreased 2% to $812 million
    • Outdoor/Fitness segment revenue increased 24% to $149 million
    • Aviation segment revenue decreased 4% to $64 million
    • Marine segment revenue increased 2% to $34 million
  • North America and Asia experienced year-over-year revenue growth while Europe declined slightly:
    • North America revenue was $768 million compared to $761 million, up 1%
    • Europe revenue was $246 million compared to $251 million, down 2%
    • Asia revenue was $45 million compared to $36 million, up 25%
  • Gross margin improved to 45.9% compared to 41.1% in fourth quarter 2008
  • Operating margin improved to 27.6% compared to 22.6% in fourth quarter 2008
  • Diluted earnings per share increased 77% to $1.38 from $0.78 in fourth quarter 2008; pro forma earnings per share increased 54% to $1.43 from $0.93 in the same quarter in 2008. (Pro forma earnings per share excludes the impact of foreign currency translation gain or loss.)
  • Generated $232 million of free cash flow in fourth quarter 2009 and paid the 2009 annual dividend of $0.75 per share for a cash and marketable securities balance of just under $1.9 billion.

Fiscal Year 2009 Financial highlights:

  • Total revenue of $2.95 billion, down 16% from $3.49 billion in 2008
    • Automotive/Mobile segment revenue decreased 19% to $2.05 billion
    • Outdoor/Fitness segment revenue increased 10% to $469 million
    • Aviation segment revenue decreased 24% to $246 million
    • Marine segment revenue decreased 13% to $177 million
  • North America and Europe experienced a slowdown in revenues:
    • North America revenue was $1.97 billion compared to $2.34 billion, down 16%
    • Europe revenue was $824 million compared to $1.01 billion, down 18%
    • Asia revenue was $150 million compared to $145 million, up 3%
  • Gross margin improved to 49.0% compared to 44.5% in 2008
  • Operating margin improved to 26.7% from 24.7% in 2008
  • Diluted earnings per share increased 1% to $3.50 from $3.48 in fiscal year 2008; pro forma EPS increased 3% to $3.53 from $3.42 in fiscal year 2008. (Pro forma earnings per share excludes the impact of foreign currency translation gain or loss and the 2008 gain on sale of TeleAtlas N.V. shares.)
  • Generated over $1 billion of free cash flow in 2009.

Business highlights:

  • Achieved full year earnings per share growth driven by outstanding operational execution allowing for gross margin and operating margin expansion of 450 and 200 basis points respectively, as well as a lower effective tax rate.
  • Sold 6.6 million units in the fourth quarter of 2009 driven by PND unit growth in both North America and Asia.
  • Reported 49% sequential revenue growth in the automotive/mobile segment as the PND category continued to be popular with consumers during the holiday season.
  • Continued to be the world-wide PND market share leader with independent market share research indicating that we have expanded our leadership position in the North American PND market to approximately 60% share. We maintained a PND market share of approximately 20% in Europe.
  • Accelerated revenue growth in the outdoor/fitness segment as our fitness products proved to be a hot category in the fourth quarter.
  • Continued to innovate across our product portfolio with enhanced offerings for motorcycle enthusiasts, mariners and golfers to further our competitive position in each of these markets.
  • Received supplemental type certification from the Federal Aviation Administration on our GTS traffic series which represents a new product category for our aviation business and an opportunity for revenue growth.
  • Introduced two next generation smartphone products recently at Mobile World Congress in Barcelona to be available in 2nd quarter.

Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:

“We saw strengthening trends in both revenues and units during the fourth quarter and are pleased to deliver year-over-year revenue and earnings per share growth in the quarter. While revenues grew 1% year-over-year, our margin improvements allowed us to post 54% pro forma earnings per share growth. We are very pleased with these results and our execution in what is a traditionally tough quarter due to aggressive pricing.

Looking at the full year results, a significant highlight is the gross and operating margin expansion that was achieved in a period of declining revenues. Full year gross margins increased 450 basis points while operating margins increased 200 basis points. These results continue to demonstrate the agility of our vertically integrated organization and the determination of our associates to deliver the best possible results in spite of the challenging macroeconomic environment. We should also highlight the strong cash flow generation in 2009. The free cash flow generation of over $1 billion further strengthens our debt-free balance sheet and offers us more flexibility than many of our competitors.

The automotive/mobile segment continued to show improvement in the fourth quarter with revenues declining 2% on a year-over-year basis driven by slowing price declines offset by unit growth in North America and Asia. Margins improved in the segment allowing for a 16% increase in operating income from $162.9 million in the fourth quarter of 2008 to $188.4 million in the fourth quarter of 2009. We recognize that this is a competitive, maturing market segment and are therefore predicting flat to slightly declining revenues for the PND category in 2010. Going forward we will focus our efforts on market share retention in the North American market, gaining market share in Europe through ongoing product innovation, and taking advantage of emerging markets in Eastern Europe, Asia, and Latin America. In addition, we will continue to concentrate on profitability in the segment as shown in our 2009 results. Finally, while disappointed by sales of the nüvifone products to date, we are excited to be launching two next generation smartphones in the first half of 2010 and feel these devices will be well-positioned in this competitive market.

The outdoor/fitness segment continued to be strong, posting year-over-year revenue growth of 24% with exceptionally strong gross and operating margins. Because of the strong margin performance, the segment contributed 27% of our operating income in the quarter. We hope to build on the strength of the segment in 2010 by offering innovative new products with improved form factors, utility, and functionality, as well as additional points of distribution. Specifically in the fitness market, the growing international market offers ongoing opportunities for expanded distribution and penetration.

The aviation segment began to stabilize in the fourth quarter with a year-over-year revenue decline of 4%. Our retrofit business did show year-over-year improvement in the quarter but OEM recovery continues to lag overall macroeconomic improvements. In 2010, we plan to continue to expand our addressable market allowing us to grow revenues. One example is our recent product announcements targeting the helicopter market. We will also continue investing in advanced integrated cockpit systems which will enable us to serve additional aircraft categories in the future.

The marine segment posted fourth quarter revenue growth of 2% over the same quarter of last year. While the growth was small, we remain pleased with our relative performance against the overwhelming downturn experienced across the entire marine industry. As we look forward to 2010, we are excited to be offering the most innovative and advanced marine electronics. Our recently introduced 7-inch touchscreen chartplotters allow us to deliver technology to the entry-level boater that was previously reserved for the luxury market. Our new 6000 and 7000 series with G-Motion technology represents a breakthrough in marine mapping graphics and will appeal to larger boats and yachts. Throughout the coming year, we will continue to build our position in the segment through innovation and enhanced product utility.”

Financial overview from Kevin Rauckman, Chief Financial Officer:

“Our financial results for the fourth quarter highlight our commitment to a business plan focused on price discipline and profitability, which allowed us to deliver strong year-over-year earnings per share growth,” said Kevin Rauckman, Chief Financial Officer of Garmin Ltd. “As revenue stabilized on a year-over-year basis, we continued our strong operational performance and posted pro forma earnings per share growth of 54%.

Gross margin for the overall business in the fourth quarter was 46% with all segments posting year-over-year margin improvement. The automotive/mobile segment gross margin improved to 39%, a 290 basis point improvement from the fourth quarter of 2008. Improvement was driven by moderation in year-over-year average selling price decline and continued benefit from material cost reductions offset by a reserve associated with handset inventory. Gross margins for the outdoor/fitness and marine segments also improved materially when compared with the year-ago quarter from 56% to 69% and 52% to 65%, respectively. The gains were driven by product mix and material cost reductions.

Operating margin for the overall business increased to 28% in the current quarter from 23% in the year-ago quarter. The operating margin improvement occurred in all segments, excluding aviation, driven by the gross margin improvements and improved revenue leverage in automotive/mobile and outdoor/fitness. Total operating expenses were up slightly on a year-over-year basis with growth in research and development offset by lower advertising and other selling, general and administrative costs. We reduced advertising expenses by $9 million, or 14%, while other selling, general and administrative expenses decreased by $12 million, or 15%. Research and development costs increased by $21 million, or 43%, when compared to the year-ago quarter as we continue to hire engineers to support our accelerated investment in new product initiatives.

We generated $232 million of free cash flow in the fourth quarter of 2009 and over $1 billion for the full year, resulting in a cash and marketable securities balance of just under $1.9 billion at the end of the quarter.”

Share Repurchase Program

On February 12, our board of directors authorized the Company to repurchase up to $300M of the company’s shares as market and business conditions warrant through December 31, 2011. The previous $300M share repurchase plan expired on December 31, 2009. The repurchases may be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. The Company continues to view the stock repurchase as an appropriate use of cash given the long-term growth prospects of the Company, ongoing free cash flow generation and the need to maintain adequate cash reserves for strategic acquisitions.

2010 Guidance

Garmin Ltd. And Subsidiaries
2010 Guidance

         
2009         2010 Range
 
Revenue $2.9 B $2.9 - $3.1 B
Gross Margin 49% 46-48%
Operating Income $786 M $675 - $725 M
Operating Margin 27% 23-24%
Earnings per Share (Pro Forma) $3.53 $2.75 - $3.15
 

We expect revenue growth in 2010 in the range of 0-5% driven primarily by our outdoor/fitness, marine and aviation segments, as well as new revenue generated by the nüvifone and OEM opportunities. We anticipate both gross and operating margins to decline from the excellent margins generated in 2009 but at a much slower rate than had been earlier anticipated. The margin declines will be primarily driven by an ongoing price decline of approximately 10% in the PND industry and increasing research and development investment across our segments. These factors and an anticipated increase in the effective tax rate result in a forecasted 2010 earnings per share decline of 11-22% based on the strong results in 2009.

Non-GAAP Measures

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 other one-time items is an important measure. The majority of the Company’s consolidated foreign currency gain or loss results from transactions involving the Euro, the British Pound Sterling and the Taiwan Dollar at the end of each reporting period of the significant cash and marketable securities, receivables and payables held in U.S. dollars by the Company’s various 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. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allow an assessment of the Company’s operating performance before the non-cash impact of the position of the U.S. Dollar versus other currencies, which permits a consistent comparison of results between periods. The 2008 gain on sale of TeleAtlas N.V. shares is also excluded below as a one-time item.

The following table contains a reconciliation of GAAP net income per share to pro forma net income per share.

Garmin Ltd. And Subsidiaries
Net income per share (Pro Forma)
(in thousands, except per share information)
 
  13-Weeks Ended  

52-Weeks Ended

December 26,   December 27, December 26,   December 27,
2009   2008 2009   2008
 
Net Income (GAAP) $ 278,408 $ 157,733 $ 703,950 $ 732,848
Foreign currency (gain) / loss, net of tax effects $ 10,022 $ 30,956 $ 5,258 $ 28,281
Gain on sale of equity securities, net of tax effects   -     -   -     ($40,783 )
Net income (Pro Forma) $ 288,430   $ 188,689 $ 709,208   $ 720,346  
 
Net income per share (GAAP):
Basic $ 1.39 $ 0.78 $ 3.51 $ 3.51
Diluted $ 1.38 $ 0.78 $ 3.50 $ 3.48
 
Net income per share (Pro Forma):
Basic $ 1.44 $ 0.94 $ 3.54 $ 3.45
Diluted $ 1.43 $ 0.93 $ 3.53 $ 3.42
 
Weighted average common shares outstanding:
Basic 200,385 201,331 200,395 208,993
Diluted 201,584 201,824 201,161 210,680
 
Note: Tax effects are based on respective periods' effective tax rate.
 

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.

The following table contains a reconciliation of GAAP net cash provided by operating activities to free cash flow.

Garmin Ltd. And Subsidiaries
Free Cash Flow
(in thousands)
 
  13-Weeks Ended  

52-Weeks Ended

December 26,   December 27, December 26,   December 27,
2009   2008 2009   2008
 
Net cash provided by operating activities $ 245,901 $ 349,461 $ 1,094,456 $ 862,164
Less: purchases of property and equipment   ($13,758 )     ($9,143 )   ($49,199 )     ($119,623 )
Free Cash Flow $ 232,143     $ 340,318   $ 1,045,257     $ 742,541  
 

Return on invested capital (ROIC)

Management defines return on invested capital (ROIC) as net operating profit after taxes divided by operating invested capital. Management believes that ROIC provides greater visibility into how effectively Garmin deploys capital. ROIC is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP), and may not be defined and calculated by other companies in the same manner as Garmin does. ROIC should not be considered in isolation or as an alternative to net income as an indicator of company performance.

The following table contains a GAAP reconciliation of return on invested capital.

Garmin Ltd. And Subsidiaries
Return on Invested Capital (ROIC)
(in thousands)
   
52-Weeks Ended
December 26, December 27,
2009   2008
Net Operating Profit After Taxes (NOPAT):
Operating Income (EBIT) $ 786,010 $ 862,017
Less: Taxes on Operating Income   ($101,769 )     ($171,126 )
Net Operating Profit after Taxes (NOPAT) $ 684,241     $ 690,891  
 
Invested Capital (IC):
Total Assets $ 3,825,874 $ 2,934,421
Less: Cash & Marketable Securities ($1,857,628 ) ($971,230 )
Less: Deferred Income Taxes ($79,686 ) ($59,665 )
Less: Non-Interest Bearing Current Liabilities   ($683,668 )     ($479,176 )
Operating Invested Capital (IC) $ 1,204,892     $ 1,424,350  
     
Return on Invested Capital   57 %     49 %
 
Note: Tax effects are based on respective periods' effective tax rate.
 

Earnings Call Information

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

When:   Wednesday, February 24, 2010 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) 364-3112 or (719) 325-2317 (due to the limited number of lines available, we encourage you to participate via the webcast).
Contact:

investor.relations@garmin.com

An archive of the live webcast will be available until March 26, 2010 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 2010, the Company’s expected segment revenue growth rate, margins, new products to be introduced 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, 2008 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2008 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

The global leader in satellite navigation, Garmin Ltd. and its subsidiaries have designed, manufactured, marketed and sold navigation, communication and information devices and applications since 1989 – most of which are enabled by GPS technology. Garmin’s products serve automotive, mobile, wireless, outdoor recreation, marine, aviation, and OEM applications. Garmin Ltd. is incorporated in the Cayman Islands, and its principal subsidiaries are located in the United States, Taiwan and the United Kingdom. For more information, visit Garmin's virtual pressroom at www.garmin.com/pressroom or contact the Media Relations department at 913-397-8200.

Garmin is a registered trademark, and nüvifone, G-Motion and GTS 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 Balance Sheets
(In thousands, except share information)
         
(Unaudited)     (Unaudited)
December 26, December 27,
2009     2008
Assets
Current assets:
Cash and cash equivalents $ 1,091,581 $ 696,335
Marketable securities 19,583 12,886
Accounts receivable, net 874,110 741,321
Inventories, net 309,938 425,312
Deferred income taxes 59,189 49,825
Prepaid expenses and other current assets   39,470     58,746  
Total current assets 2,393,871 1,984,425
 
Property and equipment, net 441,338 445,252
 
Marketable securities 746,464 262,009
Restricted cash 2,047 1,941
Licensing agreements, net 15,400 16,013
Noncurrent deferred income tax 20,498 9,840
Other intangible assets, net   206,256     214,941  
Total assets $ 3,825,874   $ 2,934,421  
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 203,388 $ 160,094
Salaries and benefits payable 45,236 34,241
Accrued warranty costs 87,424 87,408
Accrued sales program costs 119,150 90,337
Deferred revenue 27,910 680
Accrued royalty costs 103,195 30,941
Accrued advertising expense 34,146 31,071
Other accrued expenses 40,373 24,329
Income taxes payable   22,846     20,075  
Total current liabilities 683,668 479,176
 
Deferred income taxes 10,170 13,910
Non-current income taxes 255,748 214,366
Non-current deferred revenue 38,574 -
Other liabilities 1,267 1,115
 
Stockholders' equity:
Common stock, $0.005 par value, 1,000,000,000 shares authorized:

Issued and outstanding shares - 200,274,000 as of December 26, 2009 and 200,363,000 as of December 27, 2008

1,001 1,002
Additional paid-in capital 32,221 -
Retained earnings 2,816,607 2,262,503
Accumulated other comprehensive income   (13,382 )   (37,651 )
Total stockholders' equity   2,836,447     2,225,854  
Total liabilities and stockholders' equity $ 3,825,874   $ 2,934,421  
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
             
13-Weeks Ended 52-Weeks Ended
December 26, December 27, December 26, December 27,
2009 2008 2009 2008
Net sales $ 1,059,383 $ 1,048,246 $ 2,946,440 $ 3,494,077
 
Cost of goods sold   572,623     617,613     1,502,329     1,940,562  
 
Gross profit 486,760 430,633 1,444,111 1,553,515
 
Advertising expense 52,421 60,979 155,521 208,177
Selling, general and administrative expense 70,740 83,031 264,202 277,212
Research and development expense   71,582     50,205     238,378     206,109  
Total operating expense   194,743     194,215     658,101     691,498  
 
Operating income 292,017 236,418 786,010 862,017
 
Other income (expense):
Interest income 7,044 8,705 23,519 35,535
Foreign currency (10,518 ) (40,104 ) (6,040 ) (35,286 )
Gain on sale of equity securities 2,850 - 2,741 50,884
Other   815     (673 )   2,421     1,216  
Total other income (expense)   191     (32,072 )   22,641     52,349  
 
Income before income taxes 292,208 204,346 808,651 914,366
 
Income tax provision   13,800     46,613     104,701     181,518  
 
Net income $ 278,408   $ 157,733   $ 703,950   $ 732,848  
 
Net income per share:
Basic $ 1.39 $ 0.78 $ 3.51 $ 3.51
Diluted $ 1.38 $ 0.78 $ 3.50 $ 3.48
 

Weighted average common shares outstanding:

Basic 200,385 201,331 200,395 208,993
Diluted 201,584 201,824 201,161 210,680
 
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
  52-Weeks Ended
December 26,     December 27,
2009 2008
Operating Activities:
Net income $ 703,950 $ 732,848

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 56,695 46,910
Amortization 39,791 31,507
Loss (gain) on sale of property and equipment (14 ) 124
Provision for doubtful accounts (1,332 ) 32,355
Deferred income taxes (25,096 ) 50,887
Unrealized foreign currency losses/(gains) 7,480 15,887
Provision for obsolete and slow moving inventories 61,323 24,461
Stock compensation expense 43,616 38,872
Realized gains on marketable securities (2,741 ) (50,884 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (131,978 ) 206,101
Inventories 61,189 83,035
Other current assets 2,740 (4,356 )
Accounts payable 38,875 (236,287 )
Other current and non-current liabilities 172,215 (4,507 )
Deferred revenue 65,706 680
Income taxes payable 15,772 (90,180 )
License fees   (13,735 )   (15,289 )
Net cash provided by operating activities 1,094,456 862,164
 
Investing activities:
Purchases of property and equipment (49,199 ) (119,623 )
Proceeds from sale of property and equipment 5 19
Purchase of intangible assets (7,573 ) (6,971 )
Purchase of marketable securities (776,966 ) (373,580 )
Redemption of marketable securities 285,970 504,324
Change in restricted cash (106 ) (387 )
Acquisitions, net of cash acquired   0     (60,131 )
Net cash used in investing activities (547,869 ) (56,349 )
 
Financing activities:

Proceeds from issuance of common stock through stock purchase plan

3,712 9,029

Proceeds from issuance of common stock from exercise of stock options

3,783 2,875
Stock repurchase (20,258 ) (671,847 )
Dividends (149,846 ) (150,251 )
Tax benefit related to stock option exercise   1,366     2,143  
Net cash used in financing activities (161,243 ) (808,051 )
 
Effect of exchange rate changes on cash and cash equivalents 9,902 (9,118 )
   
Net increase/(decrease) in cash and cash equivalents 395,246 (11,354 )
Cash and cash equivalents at beginning of period   696,335     707,689  
Cash and cash equivalents at end of period $ 1,091,581   $ 696,335  
 
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
                   
Reporting Segments
Outdoor/ Auto/

Fitness

Marine

Mobile

Aviation

Total

 
13-Weeks Ended December 26, 2009
 
Net sales $ 148,737 $ 34,003 $ 812,116 $ 64,527 $ 1,059,383
Gross profit $ 102,316 $ 22,137 $ 318,989 $ 43,318 $ 486,760
Operating income $ 79,654 $ 12,212 $ 188,437 $ 11,714 $ 292,017
 
13-Weeks Ended December 27, 2008
 
Net sales $ 119,528 $ 33,245 $ 828,162 $ 67,311 $ 1,048,246
Gross profit $ 66,912 $ 17,128 $ 301,642 $ 44,951 $ 430,633
Operating income $ 43,703 $ 7,473 $ 162,914 $ 22,328 $ 236,418
                               
 
52-Weeks Ended December 26, 2009
 
Net sales $ 468,924 $ 177,644 $ 2,054,127 $ 245,745 $ 2,946,440
Gross profit $ 306,842 $ 105,215 $ 861,900 $ 170,154 $ 1,444,111
Operating income $ 212,005 $ 55,908 $ 459,807 $ 58,290 $ 786,010
 
52-Weeks Ended December 27, 2008
 
Net sales $ 427,783 $ 204,477 $ 2,538,411 $ 323,406 $ 3,494,077
Gross profit $ 246,746 $ 111,425 $ 977,595 $ 217,749 $ 1,553,515
Operating income $ 160,595 $ 59,983 $ 524,105 $ 117,334 $ 862,017

 

Contacts

Garmin Ltd.INVESTOR CONTACT:Kerri Thurston, 913-397-8200investor.relations@garmin.comorMEDIA CONTACT:Ted Gartner, 913-397-8200media.relations@garmin.com