Garmin(GRMN) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights Garmin reported impressive Q2 2024 growth in revenue and operating profit, exceeding expectations and leading to raised full-year guidance CEO Statement Garmin's CEO highlighted impressive growth in revenue and operating profit, driven by innovation and diversification, leading to raised full-year guidance - Garmin delivered another impressive quarter of growth in both revenue and operating profit, made possible by an innovative product lineup and the strength of our diversified business model[27] - The company is pleased with its results so far in 2024, which have exceeded expectations and give confidence to raise full year revenue and EPS guidance[27] Q2 2024 Highlights Garmin achieved record Q2 2024 revenue of $1.51 billion, with strong margins and operational milestones, including one million domain controllers shipped Q2 2024 Financial Highlights | Metric | Q2 2024 (in millions) | YoY Change | | :------------------------- | :-------------------- | :--------- | | Consolidated Revenue | $1,510 | 14% | | Gross Margin | 57.3% | | | Operating Margin | 22.7% | | | Operating Income | $342 | 20% | | GAAP EPS | $1.56 | | | Pro Forma EPS | $1.58 | 9% | - Shipped the one millionth domain controller to Auto OEM customers[29] - Garmin Health has supported over 1,000 research studies in areas such as sleep, well-being, rehabilitation and physical activity[29] Consolidated Financial Performance Garmin demonstrated strong financial growth for the 26-weeks ended June 29, 2024, with increased net sales, operating income, and cash flows Condensed Consolidated Statements of Income For the 26-weeks ended June 29, 2024, net sales grew 17% to $2.89 billion, with operating income up 33% to $640.4 million and diluted EPS at $2.99 Condensed Consolidated Statements of Income (26-Weeks Ended) | Metric (26-Weeks Ended) | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | YoY Change | | :---------------------- | :--------------------------- | :-------------------------- | :--------- | | Net sales | $2,888,320 | $2,468,219 | 17% | | Cost of goods sold | $1,223,290 | $1,055,983 | 16% | | Gross profit | $1,665,030 | $1,412,236 | 18% | | Operating income | $640,437 | $481,337 | 33% | | Net income | $576,591 | $490,266 | 18% | | Diluted EPS | $2.99 | $2.56 | 17% | - Total operating expenses increased by 10% to $1,024,593 thousand for the 26-weeks ended June 29, 2024, primarily due to higher research and development and selling, general and administrative expenses[23][31] Condensed Consolidated Balance Sheets As of June 29, 2024, total assets reached $8.88 billion, with cash and equivalents at $1.94 billion, while total current liabilities significantly increased Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 29, 2024 | December 30, 2023 | | :------------------------------ | :------------ | :---------------- | | Total assets | $8,883,322 | $8,603,569 | | Cash and cash equivalents | $1,937,483 | $1,693,452 | | Marketable securities | $288,659 | $274,618 | | Inventories | $1,319,643 | $1,345,955 | | Total current liabilities | $1,624,323 | $1,310,687 | | Dividend payable | $432,569 | $139,997 | | Total stockholders' equity | $7,004,982 | $7,012,060 | Condensed Consolidated Statements of Cash Flows For the 26-weeks ended June 29, 2024, operating cash flow increased 25% to $690.6 million, while investing activities more than doubled to $143.2 million Condensed Consolidated Statements of Cash Flows (26-Weeks Ended) | Cash Flow Activity (26-Weeks Ended) | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | | :---------------------------------- | :--------------------------- | :-------------------------- | | Net cash provided by operating activities | $690,626 | $552,912 | | Net cash used in investing activities | $(143,157) | $(70,134) | | Net cash used in financing activities | $(285,693) | $(337,074) | | Net increase in cash, cash equivalents, and restricted cash | $244,015 | $146,303 | | Cash, cash equivalents, and restricted cash at end of period | $1,938,171 | $1,426,215 | - Purchases of marketable securities significantly increased to $281,297 thousand for the 26-weeks ended June 29, 2024, compared to $68,978 thousand in the prior year period[1] Segment Performance Garmin's segments showed varied performance, with strong growth in Fitness, Marine, and Auto OEM, while Outdoor declined and Aviation remained flat Overview of Segment Performance For the 26-weeks ended June 29, 2024, Fitness, Marine, and Auto OEM segments saw significant sales growth, with Auto OEM's operating loss decreasing Segment Performance (26-Weeks Ended June 29, 2024) | Segment (26-Weeks Ended) | Net Sales (June 29, 2024, in thousands) | YoY Change | Operating Income (June 29, 2024, in thousands) | | :----------------------- | :-------------------------------------- | :--------- | :--------------------------------------------- | | Fitness | $771,296 | 33% | $175,743 | | Outdoor | $806,065 | 4% | $242,543 | | Aviation | $435,108 | 1% | $102,619 | | Marine | $599,689 | 21% | $147,583 | | Auto OEM | $276,162 | 48% | $(28,051) | Fitness Segment Fitness segment revenue grew 28% in Q2 2024, driven by wearables, achieving $108 million operating income and launching the Edge® 1050 cycling computer - Revenue from the fitness segment increased 28% in the second quarter primarily driven by growth in wearables[32] Fitness Segment Performance (Q2 2024) | Metric (Q2 2024) | Value (in thousands) | | :--------------- | :------------------- | | Net Sales | $428,404 | | Gross Margin | 57% | | Operating Margin | 25% | | Operating Income | $107,610 | - Launched the Edge® 1050 premium cycling computer with a vivid color touchscreen display, a built-in speaker for audible feedback, and Garmin Pay contactless payments[32] Outdoor Segment Outdoor segment revenue decreased 2% in Q2 2024 due to adventure watches, but maintained strong margins, generating $136 million operating income - Revenue from the outdoor segment decreased 2% in the second quarter primarily due to declines in adventure watches[33] Outdoor Segment Performance (Q2 2024) | Metric (Q2 2024) | Value (in thousands) | | :--------------- | :------------------- | | Net Sales | $439,872 | | Gross Margin | 65% | | Operating Margin | 31% | | Operating Income | $135,592 | - Launched the Approach® Z30 smart laser range finder with the Range Relay feature and our first cellular based dog tracking collar, Alpha® LTE[33] Aviation Segment Aviation segment revenue was flat in Q2 2024, with OEM growth offsetting aftermarket declines, achieving $50 million operating income and high margins - Revenue from the aviation segment was relatively flat in the second quarter driven by growth in OEM product categories offset by declines in aftermarket product categories[34] Aviation Segment Performance (Q2 2024) | Metric (Q2 2024) | Value (in thousands) | | :--------------- | :------------------- | | Net Sales | $218,253 | | Gross Margin | 74% | | Operating Margin | 23% | | Operating Income | $50,485 | - Recognized by Embraer as a Best Supplier for the ninth consecutive year in the Electrical & Electrical Systems category for G3000® Prodigy Touch flight deck systems[34] Marine Segment Marine segment revenue increased 26% in Q2 2024, primarily due to the JL Audio® acquisition, generating $60 million operating income and expanding product lines - Revenue from the marine segment increased 26% in the second quarter primarily driven by the acquisition of JL Audio®[35] Marine Segment Performance (Q2 2024) | Metric (Q2 2024) | Value (in thousands) | | :--------------- | :------------------- | | Net Sales | $272,953 | | Gross Margin | 54% | | Operating Margin | 22% | | Operating Income | $59,892 | - Expanded the Force® Kraken trolling motor series and introduced a new Panoptix™ PS-22 Ice Fishing Bundle, which won a Best of Category award at ICAST[35] Auto OEM Segment Auto OEM segment revenue grew 41% in Q2 2024, driven by domain controllers, reducing its operating loss to $12 million and earning a global award - Revenue from the auto OEM segment increased 41% during the second quarter primarily driven by growth in domain controllers[45] Auto OEM Segment Performance (Q2 2024) | Metric (Q2 2024) | Value (in thousands) | | :--------------- | :------------------- | | Net Sales | $147,189 | | Gross Margin | 16% | | Operating Loss | $(11,552) | - Received the '2024 Global Award for excellence in Technology and Development' from Yamaha Motor, recognized for our motorcycle infotainment solutions[45] Geographic Sales All geographic segments reported net sales growth for the 26-weeks ended June 29, 2024, with EMEA leading at 24% increase Net Sales by Geography For the 26-weeks ended June 29, 2024, EMEA led with 24% sales growth, followed by Americas at 16%, and APAC at 6%, totaling 17% overall growth Net Sales by Geography (26-Weeks Ended) | Geography (26-Weeks Ended) | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | YoY Change | | :------------------------- | :--------------------------- | :-------------------------- | :--------- | | Americas | $1,456,694 | $1,253,552 | 16% | | EMEA | $1,005,399 | $813,403 | 24% | | APAC | $426,227 | $401,264 | 6% | | Total Net Sales | $2,888,320 | $2,468,219 | 17% | Non-GAAP Financial Measures Garmin provides non-GAAP measures like pro forma EPS and free cash flow for enhanced transparency, supplementing GAAP results Introduction to Non-GAAP Measures Non-GAAP measures, including pro forma EPS and free cash flow, offer enhanced transparency but are not substitutes for GAAP financial reporting - 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[5] - Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results[5] Pro Forma Net Income (Earnings) Per Share Pro forma diluted EPS increased 21% to $3.00 for the 26-weeks ended June 29, 2024, adjusting for foreign currency and discrete tax items - Management believes net income (earnings) per share before the impact of foreign currency gains or losses and certain discrete income tax items is an important measure to permit a consistent comparison of the Company's performance between periods[8] Pro Forma Net Income (Earnings) Per Share (26-Weeks Ended) | Metric (26-Weeks Ended) | June 29, 2024 | July 1, 2023 | YoY Change | | :---------------------- | :------------ | :----------- | :--------- | | GAAP net income | $576,591 | $490,266 | 18% | | Pro forma net income | $578,710 | $473,414 | 22% | | GAAP diluted EPS | $2.99 | $2.56 | 17% | | Pro forma diluted EPS | $3.00 | $2.47 | 21% | - In the first half of 2024 and 2023, no discrete tax items were identified that would impact the pro forma effective tax rate[7] Free Cash Flow Free cash flow surged 37% to $620.3 million for the 26-weeks ended June 29, 2024, indicating strong liquidity and decreased capital expenditures - Management believes 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[11] Free Cash Flow (26-Weeks Ended) | Metric (26-Weeks Ended) | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | YoY Change | | :---------------------- | :--------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $690,626 | $552,912 | 25% | | Less: purchases of property and equipment | $(70,325) | $(99,346) | -29% | | Free Cash Flow | $620,301 | $453,566 | 37% | - In the second quarter of 2024, the company generated operating cash flows of $255 million and free cash flow of $218 million[37] Financial Outlook & Dividends Garmin updated its 2024 fiscal year guidance, projecting increased revenue and EPS, and announced future quarterly dividend payments 2024 Fiscal Year Guidance Garmin raised its 2024 guidance, anticipating $5.95 billion revenue and $6.00 pro forma EPS, with a 57.0% gross margin - We now anticipate revenue of approximately $5.95 billion and pro forma EPS of $6.00 based on gross margin of 57.0%, operating margin of 21.3% and a full year effective tax rate of 16.0%[18] - The forward-looking financial measures in our 2024 guidance 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[13] Dividend Information Shareholders approved a $3.00 per share cash dividend for 2024, with future quarterly installments of $0.75 per share scheduled - Garmin shareholders, in accordance with Swiss corporate law, approved a cash dividend in the total amount of $3.00 per share, payable in four equal installments[39] Upcoming Quarterly Dividends | Dividend Date | Record Date | $s per share | | :---------------- | :---------------- | :----------- | | December 27, 2024 | December 13, 2024 | $0.75 | | March 28, 2025 | March 14, 2025 | $0.75 | - The company paid a quarterly dividend of approximately $144 million and repurchased $10 million of its shares within the second quarter[37] Other Information This section covers changes in expense presentation, the effective tax rate, forward-looking statements, and investor relations contacts Change in Operating Expense Presentation Garmin reclassified advertising expense into selling, general, and administrative expenses in Q1 2024, with no impact on operating or net income - In the first quarter of 2024, the Company changed the presentation of operating expense to include advertising expense within selling, general, and administrative expenses on the Company's condensed consolidated statements of income[22] - This change in presentation had no effect on the Company's consolidated operating or net income[22] Effective Tax Rate The Q2 2024 effective tax rate increased to 17.9% from 8.9% due to higher Switzerland statutory tax rates responding to global minimum tax requirements - The effective tax rate in the second quarter was 17.9% compared to 8.9% in the prior year quarter[46] - The year-over-year increase in the effective tax rate is primarily due to the increase in the combined federal and cantonal Switzerland statutory tax rate in response to global minimum tax requirements[46] Forward-Looking Statements This release contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially; undue reliance should be avoided - 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[20] - 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[20] - 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[20] Investor & Media Relations Contact information for investor and media relations is provided, along with details for accessing the earnings call webcast archive - Investor Relations Contact: Teri Seck, 913/397-8200, investor.relations@garmin.com[40] - Media Relations Contact: Krista Klaus, 913/397-8200, media.relations@garmin.com[40] - An archive of the live webcast will be available until July 30, 2025 on the Garmin website at www.garmin.com[40](index=40&type=chunk)