Company reports record third quarter
revenue
Garmin® Ltd. (NASDAQ: GRMN), today announced results for the
third quarter ended September 25, 2021.
Highlights for third quarter 2021 include:
- Total revenue of $1.19 billion, a 7% increase over the prior
year quarter
- Gross and operating margin were 58.4% and 23.7%,
respectively
- Operating income of $283 million, an 11% decrease compared to
the prior year quarter
- GAAP EPS was $1.34 and pro forma EPS(1) was $1.41
- Named Manufacturer of the Year by the National Marine
Electronics Association for the seventh consecutive year
- Ranked #1 in avionics support for the 18th consecutive year by
Aviation International News
- Received production qualification from BMW for our Olathe,
Kansas manufacturing facility
- Launched the Approach® R10, our first portable golf launch
monitor
- Recently hosted fifth annual Garmin Developer Conference where
we announced strategic Connect IQ partnerships
(In thousands, except per share
information)
13-Weeks Ended
39-Weeks Ended
September 25,
September 26,
YoY
September 25,
September 26,
YoY
2021
2020
Change
2021
2020
Change
Net sales
$
1,191,973
$
1,109,194
7%
$
3,591,206
$
2,835,168
27%
Fitness
342,316
328,446
4%
1,063,642
846,688
26%
Outdoor
323,856
334,844
(3)%
903,715
716,146
26%
Aviation
180,165
151,112
19%
534,886
465,850
15%
Marine
207,534
165,437
25%
678,698
486,269
40%
Auto
138,102
129,355
7%
410,265
320,215
28%
Gross margin %
58.4%
60.2%
59.0%
59.6%
Operating income %
23.7%
28.6%
25.2%
24.1%
GAAP diluted EPS
$
1.34
$
1.63
(18)%
$
4.13
$
3.44
20%
Pro forma diluted EPS(1)
$
1.41
$
1.58
(11)%
$
4.27
$
3.41
25%
(1) See attached Non-GAAP Financial
Information for discussion and reconciliation of non-GAAP financial
measures, including pro forma diluted EPS
Executive Overview from Cliff Pemble,
President and Chief Executive Officer:
“I am very pleased with our performance in the quarter as we are
now comparing against the robust pandemic-driven growth from the
prior year,” said Cliff Pemble, President and CEO of Garmin.
“Strong demand for active lifestyle products continued, and our
marine and aviation segments recorded impressive double-digit
growth resulting in record consolidated revenue in the third
quarter. We are very pleased with the results we have delivered
thus far, giving us confidence to raise our full year 2021 revenue
and EPS guidance.”
Fitness:
Revenue from the fitness segment grew 4% in the third quarter
driven by solid demand for our cycling and advanced wearable
products. Gross margin and operating margins were 53% and 23%,
respectively, resulting in $78 million of operating income. We
recently hosted our fifth annual Garmin Developer Conference where
we announced a collaboration with Dexcom to provide people with
Type 1 and Type 2 diabetes with a way to quickly see their glucose
levels and trends on their compatible Garmin smartwatch or cycling
computer.
Outdoor:
Revenue from the outdoor segment decreased 3% in the third
quarter primarily due to the timing of product introductions in the
prior year. Gross margin and operating margins were 65% and 38%,
respectively, resulting in $124 million of operating income. During
the quarter, we launched the Approach R10, our first portable golf
launch monitor, designed to help golfers improve their game with
more than a dozen key metrics shown in real time.
Aviation:
Revenue from the aviation segment grew 19% in the third quarter
with contributions from both OEM and aftermarket product
categories. Gross margin and operating margins were 73% and 28%,
respectively, resulting in $51 million of operating income. During
the quarter, we introduced Smart Glide, a revolutionary safety tool
that helps pilots in loss of engine power emergencies by automating
tasks to reduce pilot workload. Also during the quarter, we
announced the certification of our GFC 600H flight control system
for Bell 505 helicopters. The GFC 600H reduces a pilot’s workload
and brings a number of helicopter-specific safety features to the
market.
Marine:
Revenue from the marine segment grew 25% in the third quarter
with growth across multiple categories, led by strong demand for
our chartplotters. Gross margin and operating margins were 56% and
26%, respectively, resulting in $54 million of operating income.
During the quarter, we launched Surround View, the marine
industry’s first intelligent camera system to offer captains a
360-degree bird’s-eye view around the boat. Also, during the
quarter, Garmin marine electronics were selected by Malibu Boats to
exclusively outfit their full line of Axis wakesurf and
wakeboarding boats.
Auto:
Revenue from the auto segment grew 7% during the third quarter
primarily driven by growth in auto OEM programs. Gross margin was
40%, and we recorded an operating loss of $24 million in the
quarter driven by investments in auto OEM programs. During the
quarter, we began production shipments of the BMW computing module
from our United States manufacturing facility and began prototype
shipments of next-generation BMW computing modules from our Poland
manufacturing facility. Also, we recently introduced a new lineup
of Drive navigators for the consumer market, bringing larger
displays and more connected features to our customers.
Additional Financial
Information:
Total operating expenses in the third quarter were $413 million,
an 18% increase over the prior year. Research and development
increased by 22%, primarily due to engineering personnel costs.
Selling, general and administrative expenses increased 14%, driven
primarily by personnel related expenses and information technology
costs. Advertising increased 8% driven primarily by higher media
spend in the quarter.
The effective tax rate in the third quarter of 2021 was 5.9%
compared to 6.9% in the prior year quarter.
In the third quarter of 2021, we generated approximately $204
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 $3.2 billion.
- See attached Non-GAAP Financial Information for discussion and
reconciliation of non-GAAP financial measures, including pro forma
effective tax rate and free cash flow.
2021 Guidance(2):
Based on our strong performance in the first three quarters of
2021, we are updating our full year guidance. We now anticipate
revenue of approximately $4.95 billion with projected growth in all
segments. We anticipate our full year pro forma EPS will be
approximately $5.60 based on a gross margin of approximately 58.2%,
operating margin of approximately 24.0% and a full year pro forma
effective tax rate of approximately 11.5%.
2021 Guidance
Segment
Revenue Growth
Estimates
Updated
Prior
Updated
Prior
Revenue
$4.95B
$4.90B
Fitness
17%
17%
Gross Margin
58.2%
58.5%
Outdoor
17%
17%
Operating Margin
24.0%
23.8%
Aviation
12%
10%
Tax Rate
11.5%
11.5%
Marine
30%
27%
EPS
$5.60
$5.50
Auto
17%
15%
(2) All amounts and %s in the above 2021
Guidance tables are approximate. Also, see attached discussion on
Forward-looking Financial Measures
Webcast Information/Forward-Looking
Statements:
The information for Garmin Ltd.’s earnings call is as
follows:
When: Wednesday, October 27, 2021 at
10:30 a.m. Eastern Where:
https://www.garmin.com/en-US/investors/events/ 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
26, 2022 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 2021 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, currency
movements, expenses, pricing, new products 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 both the Annual Report on Form 10-K for the year ended December
26, 2020 and the Quarterly Report on Form 10-Q for the quarter
ended September 25, 2021 filed by Garmin with the Securities and
Exchange Commission (Commission file number 0-31983). A copy of
Garmin’s 2020 Form 10-K and the Q3 2021 Form 10-Q 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 September 25, 2021. 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, and Approach are
trademarks of Garmin Ltd. or its subsidiaries and are registered in
one or more countries, including the U.S. Drive is a trademark 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
39-Weeks Ended
September 25,
September 26,
September 25,
September 26,
2021
2020
2021
2020
Net sales
$
1,191,973
$
1,109,194
$
3,591,206
$
2,835,168
Cost of goods sold
496,026
441,211
1,472,852
1,144,816
Gross profit
695,947
667,983
2,118,354
1,690,352
Advertising expense
36,705
33,866
110,705
90,031
Selling, general and administrative
expense
162,515
142,134
485,896
411,335
Research and development expense
214,057
174,882
618,253
506,013
Total operating expense
413,277
350,882
1,214,854
1,007,379
Operating income
282,670
317,101
903,500
682,973
Other income (expense):
Interest income
6,897
7,777
21,568
30,258
Foreign currency (losses) gains
(15,014
)
10,113
(30,621
)
(9,802
)
Other income
833
1,726
3,511
8,515
Total other income (expense)
(7,284
)
19,616
(5,542
)
28,971
Income before income taxes
275,386
336,717
897,958
711,944
Income tax provision
16,347
23,300
101,894
53,168
Net income
$
259,039
$
313,417
$
796,064
$
658,776
Net income per share:
Basic
$
1.35
$
1.64
$
4.14
$
3.45
Diluted
$
1.34
$
1.63
$
4.13
$
3.44
Weighted average common shares
outstanding:
Basic
192,322
191,234
192,123
191,021
Diluted
193,185
191,998
192,955
191,760
Garmin Ltd. and
Subsidiaries Condensed Consolidated Balance Sheets
(Unaudited) (In thousands, except per share information)
September 25, 2021
December 26, 2020
Assets
Current assets:
Cash and cash equivalents
$
1,639,056
$
1,458,442
Marketable securities
345,214
387,642
Accounts receivable, net
639,345
849,469
Inventories
1,113,503
762,084
Deferred costs
16,046
20,145
Prepaid expenses and other current
assets
255,802
191,569
Total current assets
4,008,966
3,669,351
Property and equipment, net
974,981
855,539
Operating lease right-of-use assets
89,934
94,626
Marketable securities
1,253,589
1,131,175
Deferred income taxes
251,983
245,455
Noncurrent deferred costs
13,035
16,510
Intangible assets, net
809,163
828,566
Other assets
169,838
190,151
Total assets
$
7,571,489
$
7,031,373
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
318,604
$
258,885
Salaries and benefits payable
173,566
181,937
Accrued warranty costs
42,849
42,643
Accrued sales program costs
78,251
109,891
Deferred revenue
87,770
86,865
Accrued advertising expense
30,044
31,950
Other accrued expenses
146,426
149,817
Income taxes payable
109,862
68,585
Dividend payable
386,567
233,644
Total current liabilities
1,373,939
1,164,217
Deferred income taxes
127,733
116,844
Noncurrent income taxes
78,176
92,810
Noncurrent deferred revenue
42,022
49,934
Noncurrent operating lease liabilities
71,527
75,958
Other liabilities
23,354
15,494
Stockholders’ equity:
Shares, CHF 0.10 par value, 198,077 shares
authorized and issued; 192,322
shares outstanding at September 25, 2021
and 191,571 shares outstanding
at December 26, 2020
17,979
17,979
Additional paid-in capital
1,950,464
1,880,354
Treasury stock
(303,373
)
(320,016
)
Retained earnings
4,034,912
3,754,372
Accumulated other comprehensive income
154,756
183,427
Total stockholders’ equity
5,854,738
5,516,116
Total liabilities and stockholders’
equity
$
7,571,489
$
7,031,373
Garmin Ltd. and
Subsidiaries Condensed Consolidated Statements of Cash Flows
(Unaudited) (In thousands)
39-Weeks Ended
September 25, 2021
September 26, 2020
Operating Activities:
Net income
$
796,064
$
658,776
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation
75,272
57,141
Amortization
38,485
32,969
Loss (gain) on sale or disposal of
property and equipment
246
(1,815
)
Unrealized foreign currency losses
24,390
4,384
Deferred income taxes
8,358
14,353
Stock compensation expense
68,656
53,515
Realized gain on marketable securities
(513
)
(1,316
)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable, net of allowance for
doubtful accounts
197,024
59,474
Inventories
(357,387
)
(56,063
)
Other current and non-current assets
(31,398
)
(27,019
)
Accounts payable
57,602
(11,939
)
Other current and non-current
liabilities
(39,941
)
(18,299
)
Deferred revenue
(6,914
)
(21,148
)
Deferred costs
7,547
9,855
Income taxes payable
5,974
(53,419
)
Net cash provided by operating
activities
843,465
699,449
Investing activities:
Purchases of property and equipment
(187,960
)
(137,072
)
Proceeds from sale of property and
equipment
26
1,965
Purchase of intangible assets
(1,408
)
(1,643
)
Purchase of marketable securities
(1,081,789
)
(702,487
)
Redemption of marketable securities
975,318
808,554
Acquisitions, net of cash acquired
(15,893
)
(148,648
)
Net cash used in investing activities
(311,706
)
(179,331
)
Financing activities:
Dividends
(362,602
)
(333,975
)
Proceeds from issuance of treasury stock
related to equity awards
35,733
15,202
Purchase of treasury stock related to
equity awards
(17,636
)
(13,074
)
Net cash used in financing activities
(344,505
)
(331,847
)
Effect of exchange rate changes on cash
and cash equivalents
(6,172
)
7,900
Net increase in cash, cash equivalents,
and restricted cash
181,082
196,171
Cash, cash equivalents, and restricted
cash at beginning of period
1,458,748
1,027,638
Cash, cash equivalents, and restricted
cash at end of period
$
1,639,830
$
1,223,809
The following table includes supplemental financial information
for the consumer auto and auto OEM operating segments that
management believes is useful.
Garmin Ltd. and
Subsidiaries Net Sales, Gross Profit and Operating Income by
Segment (In thousands)
Auto
Fitness
Outdoor
Aviation
Marine
Total
Auto
Consumer
Auto
Auto
OEM
Total
13-Weeks Ended September 25,
2021
Net sales
$
342,316
$
323,856
$
180,165
$
207,534
$
138,102
$
82,914
$
55,188
$
1,191,973
Gross profit
183,028
210,522
131,260
116,152
54,985
39,342
15,643
695,947
Operating income (loss)
77,788
123,946
51,296
53,726
(24,086
)
11,305
(35,391
)
282,670
13-Weeks Ended September 26,
2020
Net sales
$
328,446
$
334,844
$
151,112
$
165,437
$
129,355
$
82,659
$
46,696
$
1,109,194
Gross profit
177,794
223,704
107,927
100,423
58,135
43,319
14,816
667,983
Operating income (loss)
87,083
147,477
28,597
50,482
3,462
18,178
(14,716
)
317,101
39-Weeks Ended September 25,
2021
Net sales
$
1,063,642
$
903,715
$
534,886
$
678,698
$
410,265
$
231,587
$
178,678
$
3,591,206
Gross profit
581,765
590,355
389,376
390,141
166,717
113,567
53,150
2,118,354
Operating income (loss)
268,489
339,031
146,974
205,042
(56,036
)
35,388
(91,424
)
903,500
39-Weeks Ended September 26,
2020
Net sales
$
846,688
$
716,146
$
465,850
$
486,269
$
320,215
$
196,942
$
123,273
$
2,835,168
Gross profit
446,936
469,150
338,770
288,103
147,393
98,348
49,045
1,690,352
Operating income (loss)
190,075
262,057
103,483
134,195
(6,837
)
25,628
(32,465
)
682,973
Garmin Ltd. and
Subsidiaries Net Sales by Geography (In
thousands)
13-Weeks Ended
39-Weeks Ended
September 25,
2021
September 26,
2020
YoY Change
September 25,
2021
September 26,
2020
YoY Change
Net sales
$
1,191,973
$
1,109,194
7%
$
3,591,206
$
2,835,168
27%
Americas
573,331
521,869
10%
1,723,415
1,372,360
26%
EMEA
442,622
407,859
9%
1,330,855
1,042,928
28%
APAC
176,020
179,466
(2)%
536,936
419,880
28%
EMEA - Europe, Middle East and Africa;
APAC - Asia Pacific and Australian Continent
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 39-weeks ended September 25, 2021, there
were no such discrete tax items identified.
(In thousands)
13-Weeks Ended
39-Weeks Ended
September 25,
September 26,
September 25,
September 26,
2021
2020
2021
2020
$
ETR(1)
$
ETR(1)
$
ETR(1)
$
ETR(1)
GAAP income tax provision
$16,347
5.9%
$23,300
6.9%
$101,894
11.3%
$53,168
7.5%
Pro forma discrete tax item:
Uncertain tax reserve release(2)
—
—
—
14,308
Pro forma income tax provision
$16,347
5.9%
$23,300
6.9%
$101,894
11.3%
$67,476
9.5%
(1) Effective tax rate is calculated by
taking the income tax provision divided by income before taxes, as
presented on the face of the Condensed Consolidated Statements of
Income.
(2) In second quarter 2020, the Company
recognized a $14.3 million income tax benefit due to the release of
uncertain tax position reserves associated with the 2014
intercompany restructuring, which was a pro forma adjustment in
2014. The second quarter 2020 impact of the reserve release is not
reflective of income tax expense incurred as a result of current
period earnings and therefore affects period-to-period
comparability.
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.
(In thousands, except per share
information)
13-Weeks Ended
39-Weeks Ended
September 25,
September 26,
September 25,
September 26,
2021
2020
2021
2020
GAAP net income
$
259,039
$
313,417
$
796,064
$
658,776
Foreign currency gains / losses(1)
15,014
(10,113
)
30,621
9,802
Tax effect of foreign currency gains /
losses(2)
(891
)
700
(3,475
)
(929
)
Pro forma discrete tax item(3)
—
—
—
(14,308
)
Pro forma net income
$
273,162
$
304,004
$
823,210
$
653,341
GAAP net income per share:
Basic
$
1.35
$
1.64
$
4.14
$
3.45
Diluted
$
1.34
$
1.63
$
4.13
$
3.44
Pro forma net income per share:
Basic
$
1.42
$
1.59
$
4.28
$
3.42
Diluted
$
1.41
$
1.58
$
4.27
$
3.41
Weighted average common shares
outstanding:
Basic
192,322
191,234
192,123
191,021
Diluted
193,185
191,998
192,955
191,760
(1) Foreign currency gains and losses for
the Company are driven by movements of a number of currencies in
relation to the U.S. Dollar and the related exchange rate impact on
the significant cash, receivables, and payables held in a currency
other than the functional currency at a given legal entity.
However, there is minimal cash impact from such foreign currency
gains and losses.
(2) The tax effect of foreign currency
gains and losses was calculated using the effective tax rate of
5.9% and 11.3% for the 13-weeks and 39-weeks ended September 25,
2021, respectively, and a pro forma effective tax rate of 6.9% and
9.5% for the 13-weeks and 39-weeks ended September 26, 2020,
respectively.
(3) The discrete tax item is discussed in
the pro forma effective tax rate section above.
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.
(In thousands)
13-Weeks Ended
39-Weeks Ended
September 25,
September 26,
September 25,
September 26,
2021
2020
2021
2020
Net cash provided by operating
activities
$
245,423
$
274,339
$
843,465
$
699,449
Less: purchases of property and
equipment
(41,418
)
(38,802
)
(187,960
)
(137,072
)
Free Cash Flow
$
204,005
$
235,537
$
655,505
$
562,377
Forward-looking Financial Measures
The forward-looking financial measures in our 2021 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 $0.14 per share for the 39-weeks ended September 25, 2021.
At this time, management is unable to determine whether or not
significant discrete tax items will occur in fiscal 2021 or
anticipate the impact of any other events that may be considered in
the calculation of non-GAAP financial measures.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211027005402/en/
Investor
Relations Contact: Teri
Seck 913/397-8200
investor.relations@garmin.com
Media
Relations Contact: Krista
Klaus 913/397-8200
media.relations@garmin.com
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