Garmin Ltd. : Garmin Reports First Quarter 2012 Results with Revenue and Pro Forma EPS Growth
05/02/2012| 07:05am US/Eastern
Recommend:
0
Garmin Ltd. (Nasdaq: GRMN) today announced results for the fiscal
quarter ended March 31, 2012.
First Quarter 2012 Financial Summary:
Total revenue of $557 million, up 10% from $508 million in first
quarter 2011
Automotive/Mobile segment revenue increased 6% to $280 million
Outdoor segment revenue increased 16% to $77 million
Fitness segment revenue increased 26% to $71 million
Marine segment revenue increased 9% to $56 million
Aviation segment revenue increased 5% to $73 million
All geographies posted revenue growth:
North America revenue was $296 million compared to $280 million,
up 6%
Europe revenue was $199 million compared to $171 million, up 16%
Asia revenue was $62 million compared to $57 million, up 8%
Gross margin improved both sequentially and year-over-year to 51% for
first quarter 2012 from 48% in fourth quarter 2011 and 47% in first
quarter 2011
Operating margin increased year-over-year to 16%, compared to 15% in
first quarter 2011
Effective tax rate increased to 12.8% in first quarter of 2012
compared to 1.5% in first quarter 2011
Diluted earnings per share (EPS) decreased to $0.44 from $0.49 in
first quarter 2011 due to the increased effective tax rate; pro forma
diluted EPS increased 5% to $0.45 from $0.43 in the same quarter in
2011 (Pro forma earnings per share excludes the impact of foreign
currency transaction gain or loss)
Generated $116 million of free cash flow in first quarter 2012
Note: In accordance with GAAP, the Company is deferring
significant revenue and the related costs associated with high margin
sales of lifetime maps, connected services and premium traffic over
their economic lives. A table outlining the impact of this net deferral
in both 2012 and 2011 is included for reference. Results have not been
adjusted unless specifically stated as such.
Recent Business Highlights:
Posted revenue growth in every segment with significant growth in
fitness and outdoor during first quarter.
Sold 2.7 million units in first quarter 2012, a 7% increase over first
quarter 2011.
Announced our first factory-installed auto OEM relationship with
Suzuki, providing infotainment systems to many of their 2013 models.
Delivered the Forerunner® 910XT, our much anticipated second
generation triathlon-focused watch.
Supported the successful first flight of the Cessna M2 including the
G3000 cockpit, which is slated to begin deliveries in the second half
of 2013.
Announced marine OEM relationships with Teleflex and Viking at the
2012 Miami International Boat Show.
Launched the Approach® S3, a touchscreen GPS golf watch, providing a
premium wristwatch solution for golfers with integrated digital
scorecard.
Executive Overview from Dr. Min Kao, Chairman and Chief Executive
Officer:
"The first quarter of 2012 provided strong revenue performance as each
of our business segments contributed to 10% revenue growth," said Dr.
Min Kao, chairman and chief executive officer of Garmin Ltd. "This is a
great way to start the year; yet, we remain cautious regarding the PND
industry as much of our strength was related to global market share
gains. The revenue growth of our core business segments of outdoor,
fitness, aviation and marine was 14%, highlighting the continued
diversification in our business model. We continue to grow our research
and development investment in these segments, as well as auto OEM, in
order to capitalize on the numerous long-term growth initiatives in each
of them.
The outdoor segment posted revenue growth of 16% in the quarter as our
golf product portfolio continued to perform well, along with dog
tracking and training systems. We expect our latest golf introduction,
the Approach S3 - a touchscreen GPS golf watch, to further our market
share gains in this popular category.
The fitness segment posted revenue growth of 26% in the quarter as the
much anticipated Forerunner 910XT, designed for multi-sport operation,
began to ship. We believe the fitness category remains under-penetrated
at both the high-end and low-end, which represent significant growth
opportunities going forward. We intend to continue to innovate in both
running and cycling to drive broader adoption of GPS technology across
the price spectrum.
The aviation segment posted revenue growth of 5% as the retrofit market
continues to be strong, while the OEM market recovery lags. Our focus
continues to be on investment to achieve our long-term strategic
initiatives of expanding our presence in the business jet and helicopter
markets where we have a number of certifications underway. While our
investment in these new opportunities grows, we remain committed to
retaining our strong market share in the single engine and turboprop
markets as well. These existing relationships are critical to us and are
expected to provide another opportunity for growth when these OEM
markets begin to recover.
In the marine segment, revenues grew 9% year-over-year and 30%
sequentially as warm weather signaled an early start to the marine
season. The boating industry is again showing signs of recovery but much
uncertainty remains with high fuel prices and continued tight credit for
luxury items. As we have previously highlighted, this will be a year of
investment and thus, reduced operating margins. This near-term
investment should deliver revenue growth, along with margin expansion,
in 2013.
Looking finally at the auto/mobile segment, we posted revenue growth of
6% as we continued to gain market share in the PND category. Though
pleased with the first quarter results, we do not expect PND revenue to
continue to grow year over year due to industry-wide declines. However,
we remain focused on our goals of market leadership and profitability in
the PND market as evidenced by the stabilization of our ASPs and market
share gains.
We were excited to announce our first factory installed auto OEM
relationship with Suzuki in April. This represents a significant
milestone for Garmin as we build relationships and credibility in this
industry. The Suzuki infotainment system offers enhanced features and
our intuitive user interface which we believe will set a benchmark for
the quality and ease-of-use that Garmin can deliver."
Financial Overview from Kevin Rauckman, Chief Financial Officer:
"We posted our second straight quarter of revenue and operating income
growth, as trends across many of our segments continued to be positive,"
said Kevin Rauckman, chief financial officer of Garmin Ltd. "The year
has started well for us. We are now tasked with continuing the positive
sales momentum and market share gains while also focusing on
profitability.
Gross margin for the overall business was 51% in the first quarter
improving from 47% in the prior year largely driven by the
automotive/mobile segment, where gross margin improved to 39%, partially
driven by the amortization of previously deferred high margin revenues,
a reduced per unit deferral rate as discussed in the Company's 10K for
December 31, 2011 filed with the Securities and Exchange Commission and
product mix. Segment mix contributed to the overall strong gross margin.
The strong automotive/mobile and fitness gross margins were partially
offset by a 500 basis point decline in marine gross margin due to
product mix shifting toward fish finders and low-priced marine handhelds.
Operating margin for the overall business improved to 16% when compared
with 15% in the year-ago quarter with the gross margin improvement
partially offset by an increase in operating expenses as a percentage of
sales. Total operating expenses increased $30 million year-over-year and
by 250 basis points as a percent of sales. Advertising and research and
development expense increased by $4 million and $9 million,
respectively, as we continue to invest for future growth. Marine and
aviation research and development increased 31% and 15%, respectively,
as long-term OEM opportunities are funded. Other selling, general and
administrative costs increased by $17 million on a year-over-year basis.
The increase was primarily due to acquisitions made in the second half
of 2011. As in prior years, we believe that the first quarter will
represent the low point for operating margins and with increased sales
volumes during the remainder of the year, profitability levels are
expected to improve.
Our tax rate in the first quarter was 12.8% compared to 1.5% in the
first quarter of 2011 when we benefitted from the release of reserves
related to the expiration of certain statutes for Garmin Europe. We
expect the 2012 full year tax rate to be approximately 13%.
Free cash flow generation continued to be strong with $116 million
generated in the quarter. We had a cash and marketable securities
balance of over $2.5 billion at the end of the quarter. We intend to
continue to fund our quarterly dividend and future acquisitions with our
strong cash position."
Dividend Update
As announced in February, the Board will recommend to the shareholders
for approval at the annual meeting to be held on June 1, 2012 a cash
dividend in the amount of $1.80 per share (subject to possible
adjustment based on the total amount of the dividend in Swiss Francs as
approved at the annual meeting) payable in quarterly installments.
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 is an important measure. The
majority of the Company's consolidated foreign currency gain or a loss
result from transactions involving the Euro, the British Pound Sterling
and the Taiwan Dollar and from the exchange rate impact of the
significant cash and marketable securities, receivables and payables
held in U.S. dollars at the end of each reporting period by the
Company's various non U.S. 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 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
March 31,
March 26,
2012
2011
Net Income (GAAP)
$
86,858
$
95,482
Foreign currency (gain) / loss, net of tax effects
$
1,736
($11,959
)
Net income (Pro Forma)
$
88,594
$
83,523
Net income per share (GAAP):
Basic
$
0.45
$
0.49
Diluted
$
0.44
$
0.49
Net income per share (Pro Forma):
Basic
$
0.45
$
0.43
Diluted
$
0.45
$
0.43
Weighted average common shares outstanding:
Basic
194,742
193,922
Diluted
195,673
194,720
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
March 31,
March 26,
2012
2011
Net cash provided by operating activities
$
122,228
$
207,599
Less: purchases of property and equipment
($5,758
)
($7,178
)
Free Cash Flow
$
116,470
$
200,421
Net deferred revenues and costs
The following table illustrates the effect of deferred revenues and
costs, net of the amortization of previous deferrals, associated with
certain products bundled with content and services. These deferred
revenues and costs are being amortized over the estimated economic lives
of the products. Additional details will be available in the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2012 and are
available in the Annual Report on Form 10-K for the year ended December
31, 2011 filed by Garmin with the Securities and Exchange Commission
(Commission file number 0-31983).
Garmin Ltd. And Subsidiaries
Net Deferred Revenue Impact (Unaudited)
(In thousands, except per share information)
13-Weeks Ended
March 31,
March 26,
2012
2011
Net sales
$
723
$
(21,826
)
Cost of goods sold
154
(3,905
)
Gross profit
569
(17,921
)
Operating income
569
(17,921
)
Income tax provision based on normalized tax effects
73
(267
)
Net income
$
496
$
(17,654
)
Net income per share:
Basic
$
0.00
$
(0.09
)
Diluted
$
0.00
$
(0.09
)
Earnings Call Information
The information for Garmin Ltd.'s earnings call is as follows:
An archive of the live webcast will be available until June 1, 2012 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 2012, the Company's
expected segment revenue growth rate, margins, new products to be
introduced in 2012 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 31, 2011 filed by Garmin with
the Securities and Exchange Commission (Commission file number 0-31983).
A copy of Garmin's 2011 Form 10-K can be downloaded from
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, Forerunner, and Approach are registered 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)
March 31,
December 31,
2012
2011
Assets
Current assets:
Cash and cash equivalents
$
1,285,791
$
1,287,160
Marketable securities
89,356
111,153
Accounts receivable, net
430,145
607,450
Inventories, net
407,476
397,741
Deferred income taxes
46,363
42,957
Deferred costs
41,831
40,033
Prepaid expenses and other current assets
48,304
69,790
Total current assets
2,349,266
2,556,284
Property and equipment, net
412,592
417,105
Marketable securities
1,161,109
1,097,002
Restricted cash
828
771
Licensing agreements, net
5,658
5,517
Noncurrent deferred income tax
107,190
107,190
Noncurrent deferred costs
38,871
40,823
Other intangible assets, net
249,279
246,646
Total assets
$
4,324,793
$
4,471,338
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
109,232
$
164,010
Salaries and benefits payable
46,180
45,964
Accrued warranty costs
42,792
46,773
Accrued sales program costs
32,452
52,262
Deferred revenue
199,302
188,987
Accrued royalty costs
14,441
99,025
Accrued advertising expense
10,896
31,915
Other accrued expenses
66,416
67,912
Deferred income taxes
6,675
5,782
Income taxes payable
66,156
77,784
Dividend payable
-
77,865
Total current liabilities
$
594,542
$
858,279
Deferred income taxes
7,235
4,951
Non-current income taxes
165,457
161,904
Non-current deferred revenue
177,095
188,132
Other liabilities
1,059
1,491
Stockholders' equity:
Shares, CHF 10 par value, 208,077,418 shares authorized and issued;
194,806,698 shares outstanding at March 31, 2012;
and 194,662,617 shares outstanding at December 31, 2011
1,797,435
1,797,435
Additional paid-in capital
70,688
61,869
Treasury stock
(98,778
)
(103,498
)
Retained earnings
1,500,390
1,413,582
Accumulated other comprehensive income
109,670
87,193
Total stockholders' equity
3,379,405
3,256,581
Total liabilities and stockholders' equity
$
4,324,793
$
4,471,338
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
13-Weeks Ended
March 31,
March 26,
2012
2011
Net sales
$
556,597
$
507,834
Cost of goods sold
272,838
269,460
Gross profit
283,759
238,374
Advertising expense
23,591
19,956
Selling, general and administrative expense
90,116
73,187
Research and development expense
79,719
70,478
Total operating expense
193,426
163,621
Operating income
90,333
74,753
Other income (expense):
Interest income
9,671
7,214
Foreign currency gains (losses)
(1,989
)
12,140
Other
1,541
2,819
Total other income (expense)
9,223
22,173
Income before income taxes
99,556
96,926
Income tax provision
12,698
1,444
Net income
$
86,858
$
95,482
Net income per share:
Basic
$
0.45
$
0.49
Diluted
$
0.44
$
0.49
Weighted average common
shares outstanding:
Basic
194,742
193,922
Diluted
195,673
194,720
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
13-Weeks Ended
March 31,
March 26,
2012
2011
Operating Activities:
Net income
$
86,858
$
95,482
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
13,790
13,839
Amortization
11,609
8,583
Loss (gain) on sale of property and equipment
10
(2
)
Provision for doubtful accounts
1,037
(858
)
Deferred income taxes
(2,271
)
1,023
Unrealized foreign currency losses
3,626
867
Provision for obsolete and slow moving inventories
7,858
(4,349
)
Stock compensation expense
9,844
8,666
Realized gains on marketable securities
(635
)
(1,492
)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
185,166
327,151
Inventories
(12,506
)
(11,067
)
Other current assets
22,299
(20,372
)
Accounts payable
(58,319
)
(17,573
)
Other current and non-current liabilities
(128,093
)
(190,770
)
Deferred revenue
(884
)
21,826
Deferred cost
186
(3,905
)
Income taxes payable
(11,998
)
(16,550
)
License fees
(5,349
)
(2,900
)
Net cash provided by operating activities
122,228
207,599
Investing activities:
Purchases of property and equipment
(5,758
)
(7,178
)
Proceeds from sale of property and equipment
2
-
Purchase of intangible assets
(2,929
)
(2,626
)
Purchase of marketable securities
(250,431
)
(363,263
)
Redemption of marketable securities
207,143
98,614
Change in restricted cash
(57
)
(112
)
Acquisitions, net of cash acquired
(2,816
)
-
Net cash used in investing activities
(54,846
)
(274,565
)
Financing activities:
Dividends paid
(77,915
)
-
Issuance of treasury stock related to equity awards
2,883
8,941
Tax benefit from issuance of equity awards
860
787
Purchase of treasury stock
(311
)
(5,900
)
Net cash (used in)/provided by financing activities
(74,483
)
3,828
Effect of exchange rate changes on cash and cash equivalents
5,732
12,817
Net decrease in cash and cash equivalents
(1,369
)
(50,321
)
Cash and cash equivalents at beginning of period
1,287,160
1,260,936
Cash and cash equivalents at end of period
$
1,285,791
$
1,210,615
Garmin Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
Recommend:
