Garmin announces third quarter 2023 results

Company reports double-digit third quarter revenue and operating income growth

SCHAFFHAUSEN, Switzerland, Nov. 1, 2023 /PRNewswire/ -- Garmin^® Ltd. (NYSE: GRMN), today announced results for the third quarter ended September 30, 2023.

Highlights for third quarter 2023 include:

• Consolidated revenue of $1.28 billion, a 12% increase compared to the prior year quarter
• Record third quarter revenue in four of five segments
• Gross margin and operating margin were 57.0%, and 21.2%
• Operating income was $270 million, a 13% increase compared to the prior year quarter
• GAAP EPS of $1.34 and pro forma EPS⁽¹⁾ of $1.41, representing 14% growth in pro forma EPS over the prior year quarter
• Generated strong operating cash flows of $357 million and free cash flow⁽¹⁾ of $312 million
• Launched new fitness wearables with robust health and wellness features
• Ranked #1 in avionics product support for the 20^th consecutive year by Aviation International News
• Named Manufacturer of the Year by the National Marine Electronics Association (NMEA) for the ninth consecutive year and received five Product of Excellence Awards
• Completed the strategic acquisition of JL Audio, strengthening our marine entertainment product portfolio

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

"We delivered outstanding performance in the third quarter with double-digit percentage growth in revenue, operating income, and earnings. Looking ahead, we are well positioned for the holiday selling season with a strong lineup of innovative products which gives us confidence to raise our outlook for the remainder of the year." - Cliff Pemble, President and Chief Executive Officer of Garmin Ltd.

Fitness:

Revenue from the fitness segment grew 26% in the third quarter with growth across all categories led by strong demand for wearables. Gross and operating margins were 54% and 21%, respectively, resulting in $75 million of operating income. During the quarter, we introduced the new Venu^® 3 smartwatch family in two sizes, as well as the value packed vívoactive^® 5 with a bright AMOLED display. We also recently announced the expansion of our ECG App to additional smartwatches. This FDA-cleared and clinically-validated app lets even more Garmin customers record an ECG and check for signs of atrial fibrillation right from their smartwatch.

Outdoor:

Revenue from the outdoor segment grew 7% in the third quarter with growth across multiple categories led by adventure watches. Gross and operating margins were 62% and 31%, respectively, resulting in $136 million of operating income. During the quarter, we launched the tactix^® 7 AMOLED Edition, which expands our offering of wearables with AMOLED displays. This highly versatile smartwatch includes a night vision compatible flashlight and up to 31 days of battery life. We recently announced the MARQ^® Carbon collection featuring a watch case and bezel inlay machined from a uniquely engineered material called Fused Carbon Fibertm?making it distinctive, strong, lightweight, and ready for adventure.

Aviation:

Revenue from the aviation segment grew 5% in the third quarter driven by growth in OEM product categories. Gross and operating margins were 75% and 25%, respectively, resulting in $49 million of operating income. During the quarter, we 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. We recently announced a long-term agreement to provide state-of-the-art G3000^® integrated flight decks to BETA Technologies for its all-electric aircraft.

Marine:

Revenue from the marine segment decreased 7% in the third quarter with declines across multiple categories partially offset by contributions from JL Audio. Gross and operating margins were 52% and 13%, respectively, resulting in $24 million of operating income. During the quarter, we launched the GPSMAP^® 9000 series in multiple sizes including the 27-inch GPSMAP 9227 that was recognized with an Innovation Award at the recent International Boatbuilders' Exhibition. We were recently named Manufacturer of the Year and received five Product of Excellence Awards from the NMEA, and the Most Innovative Marine Company by Soundings Trade Only, a leading marine trade publication.

Auto OEM:

Revenue from the auto OEM segment grew 59% during the third quarter primarily due to increased shipments of domain controllers. Gross margin was 21% and the operating loss narrowed to $14 million in the quarter. During the quarter, domain controller deliveries continued to ramp up across the BMW lineup. We also experienced strong growth in the infotainment category with contributions from Yamaha Motorsports and Honda motorcycles.  

Additional Financial Information:

Total operating expenses in the third quarter were $458 million, a 6% increase over the prior year. Research and development increased 6% primarily due to engineering personnel costs. Selling, general and administrative expenses increased 6% driven primarily by personnel related expenses and information technology costs. Advertising expenses increased 7% primarily due to higher cooperative advertising spend.

The effective tax rate in the third quarter was 8.0%. Excluding $2 million of income tax expense due to the revaluation of certain deferred tax assets associated with a state tax rate change, our pro forma effective tax rate⁽¹⁾ in the third quarter of 2023 was 7.2% compared to 4.3% in the prior year quarter. The year-over-year increase in the pro forma effective tax rate is primarily due to income mix by jurisdiction.  

In the third quarter of 2023, we generated strong operating cash flows of $357 million and free cash flow⁽¹⁾ of $312 million. We paid a quarterly dividend of approximately $140 million and repurchased approximately $9 million of the Company's shares within the quarter, leaving approximately $18 million remaining as of September 30, 2023, in the share repurchase program authorized through December 29, 2023. Including the funding of the strategic acquisition of JL Audio, we ended the quarter with cash and marketable securities of approximately $2.8 billion.         

2023 Fiscal Year Guidance:

Based on our performance in the first three quarters of 2023 and the closing of our acquisition of JL Audio, we are adjusting our full year guidance. We now anticipate revenue of approximately $5.150 billion and pro forma EPS of $5.25 based on gross margin of 56.7%, operating margin of 19.8% and a full year pro forma effective tax rate of 8.5%. This expected pro forma EPS of $5.25 includes approximately $0.05 of dilutive impact related to newly acquired JL Audio (see attached discussion on Forward-looking Financial Measures).

Dividend:

The board of directors has established December 29, 2023, as the payment date for the third dividend installment of $0.73 per share with a record date of December 15, 2023. At the 2023 annual shareholders' meeting, Garmin shareholders, in accordance with Swiss corporate law, approved a cash dividend in the total amount of $2.92 per share, payable in four equal installments on dates to be determined by the board in its discretion. The first and second payments were made on June 30, 2023 and September 29, 2023. The board currently anticipates the scheduling of the remaining quarterly dividend installment as follows:

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 November 1, 2024 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 2023 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, 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 31, 2022 filed by Garmin with the Securities and Exchange Commission (Commission file number 001-41118). A copy of Garmin's 2022 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 September 30, 2023. 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, epix, f?nix, Fused Carbon Fiber, venu, vivoactive, tactix, MARQ, G3000, and GPSMAP are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved.

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.

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 2023 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 $0.03 per share for the 39-weeks ended September 30, 2023.

At this time, management is unable to determine whether or not additional significant discrete tax items will occur in fiscal 2023, estimate the impact of any such items, or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

SOURCE Garmin Ltd.