Garmin (NYSE:GRMN) Q3 2025 Earnings Call October 29, 2025 10:30 AM ET Company ParticipantsTim Long - Managing DirectorIvan Feinseth - Chief Investment OfficerTeri Seck - Director of Investor RelationsErik Woodring - Managing DirectorDoug Boessen - CFO and TreasurerJordan Lyonnais - Equity Research AssociateCliff Pemble - President and CEOJoseph Cardoso - VP of Equity ResearchConference Call ParticipantsBen Bollin - AnalystJoe Nolan - Associate AnalystNoah Zatzkin - VP and Equity Research AnalystOperatorHell ...

Financial Data and Key Metrics Changes - Consolidated revenue increased 12% to nearly $1.8 billion, setting a new third-quarter record, despite a strong comparison from last year when revenue increased over 24% [4] - Gross margin was 59.1%, a 90 basis point decrease from the prior quarter, primarily due to higher product costs [15] - Operating income reached $457 million, up 4% year-over-year, with a pro forma EPS of $1.99 and GAAP EPS of $2.08 [4][15] Business Segment Data and Key Metrics Changes - **Fitness Segment**: Revenue increased 30% to $601 million, driven by strong demand for advanced wearables, with gross and operating margins at 60% and 32% respectively [6][7] - **Outdoor Segment**: Revenue decreased 5% to $498 million, impacted by the anniversary of the Diesel Series launch and the Phoenix 8 launch, with gross and operating margins at 66% and 34% respectively [8][10] - **Aviation Segment**: Revenue increased 18% to $240 million, with gross and operating margins at 75% and 25% respectively [11] - **Marine Segment**: Revenue increased 20% to $267 million, with gross and operating margins expanding to 56% and 19% respectively [12][13] - **Auto OEM Segment**: Revenue decreased 2% to $165 million, with a gross margin of 15% negatively impacted by increased warranty costs, resulting in an operating loss of $17 million [14] Market Data and Key Metrics Changes - By geography, double-digit growth was achieved in all three regions: 14% in APAC, 13% in EMEA, and 10% in the Americas [16] Company Strategy and Development Direction - The company is focused on maintaining a diversified business model and anticipates delivering another record year of double-digit growth in revenue, operating income, and EPS [4][6] - The launch of new products, such as the Blaze Equine Wellness System and the Phoenix 8 Pro, reflects the company's strategy to innovate and capture market share in various segments [9][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year revenue of $7.1 billion and raised full-year EPS guidance to $8.15, reflecting strong year-to-date performance [5][18] - The company is managing through tariff impacts and is focused on optimizing its supply chain structure [70] Other Important Information - The effective tax rate increased to 21.2% due to new U.S. tax legislation affecting R&D cost capitalization [17] - Free cash flow for the third quarter was $425 million, with full-year expectations of approximately $1.3 billion [17] Q&A Session Summary Question: Downward revision to outdoor guidance - Management noted that the Phoenix 8 Pro launched late in Q3, impacting expectations, and acknowledged that previous expectations may have been too high [20][21] Question: Drivers behind gross margin guide for Q4 - Management indicated that higher product costs, tariffs, and warranty accruals impacted gross margins, with Q4 being a more promotional period [22][23][24] Question: Cycle for fitness and outdoor segments - Management views the market as an ongoing opportunity for growth rather than a cyclical pattern, emphasizing strong product lines [28][29] Question: Channel inventory health - Management stated that channel inventory is healthy and lean, ready for Q4, with strong sell-out trends [36] Question: Growth in auto segment - Management anticipates revenue pressure in 2026 due to end-of-life programs but expects new programs to come online in the latter half of 2026 [41] Question: Drivers of growth in aviation segment - Both OEM and aftermarket segments are performing strongly, benefiting from a long backlog and resilient consumer behavior [42] Question: Accrued warranty costs in auto segment - Management clarified that accrued warranty costs were an isolated issue and that long-term margin targets remain unchanged [60][61] Question: Component supply environment - Management acknowledged impacts from the semiconductor market but believes it will benefit customers in the long term [62] Question: Marine segment guidance - Management noted that the end market is stabilizing, with positive consumer interest and market share gains [68]

Financial Data and Key Metrics Changes - Consolidated revenue increased 12% to nearly $1.8 billion, setting a new third-quarter record, with operating income of $457 million, up 4% year-over-year [4][14] - Pro forma EPS increased to $1.99, with full-year EPS guidance raised to $8.15, reflecting an increase of $0.15 over prior guidance [5][17] - Gross margin was 59.1%, a 90 basis point decrease from the prior quarter, while operating margin was 25.8%, a 180 basis point decrease compared to the prior quarter [14][16] Business Segment Performance - **Fitness Segment**: Revenue increased 30% to $601 million, with gross and operating margins of 60% and 32% respectively, resulting in operating income of $194 million [5][6] - **Outdoor Segment**: Revenue decreased 5% to $498 million, with gross and operating margins of 66% and 34% respectively, resulting in operating income of $170 million [8][10] - **Aviation Segment**: Revenue increased 18% to $240 million, with gross and operating margins of 75% and 25% respectively, resulting in operating income of $61 million [11] - **Marine Segment**: Revenue increased 20% to $267 million, with gross and operating margins of 56% and 19% respectively, resulting in operating income of $49 million [12][13] - **Auto OEM Segment**: Revenue decreased 2% to $165 million, with a gross margin of 15, resulting in an operating loss of $17 million [14] Market Data and Key Metrics Changes - Double-digit growth was achieved in all three regions: APAC (14%), EMEA (13%), and Americas (10%) [15] - Inventory increased year-over-year to approximately $1.9 billion, reflecting a strategy to increase inventory of high-demand product lines [16] Company Strategy and Industry Competition - The company is focused on maintaining a diversified business model and leveraging product innovation to capture market share in the wearables market [28] - The launch of new products, such as the Blaze Equine Wellness System, indicates a strategy to enter underserved markets [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving another record year of double-digit growth in revenue, operating income, and EPS, driven by strong demand entering the holiday season [5][4] - The company acknowledged challenges in the outdoor segment due to product release cycles but remains optimistic about long-term growth [10][21] Other Important Information - The effective tax rate increased to 21.2% due to new U.S. tax legislation affecting R&D cost capitalization [17] - Free cash flow for the third quarter was $425 million, with expectations of approximately $1.3 billion for the full year [16] Q&A Session Summary Question: What are the main drivers behind the downward revision to outdoor guidance? - Management noted that the Phoenix 8 Pro launched late in Q3, impacting its performance, and acknowledged that expectations may have been too high initially [19][21] Question: Can you elaborate on the implied gross margin guide for Q4? - Management indicated that higher product costs, tariffs, and warranty accruals impacted gross margins, with Q4 being a more promotional period [22][24] Question: How does the company view the cycle for fitness and outdoor segments? - Management sees ongoing opportunities for growth rather than cyclical ups and downs, emphasizing strong market share potential [27][28] Question: What is the health of channel inventory? - Management reported that channel inventory is healthy, with strong sell-out trends in preparation for Q4 [35] Question: What are the expectations for auto OEM growth going into next year? - Management anticipates revenue pressure in 2026 as legacy programs wind down, but expects new programs to come online in the latter half of 2026 [38] Question: What is driving growth in the fitness business? - Growth is attributed to strong consumer behavior and new user registrations across various fitness products [41][42] Question: What is the outlook for the marine segment? - Management noted a stabilized end market with positive consumer interest and market share gains in various categories [56]