Company reports record full year revenue for three reportable segments

SCHAFFHAUSEN, Switzerland, Feb. 22, 2023 /PRNewswire/ -- Garmin® Ltd. (NYSE: GRMN), today announced results for the fourth quarter ended December 31, 2022.

Highlights for fourth quarter 2022 include:

• Consolidated revenue of $1.31 billion, a 6% decrease compared to the prior year quarter
• Gross margin expanded to 57.0% from 55.5% in the prior year quarter
• Operating margin was 20.5% compared to 22.6% in the prior year quarter
• Operating income was $267 million, a 15% decrease compared to the prior year quarter
• GAAP EPS was $1.53 and pro forma EPS(1) was $1.35
• Launched Bounce™, our first LTE-connected kids smartwatch
• G3000® tandem integrated flight deck was selected by L3Harris for the Armed Overwatch program
• Recognized by the BMW Group with a 2022 Supplier Innovation Award in the customer experience category for the BMW 7-series Theatre Screen rear-seat entertainment system
• Enduro™ 2, MARQ® Adventurer, and dēzl® OTR 1010 all received the 2023 Honoree title for the CES Innovation Awards
• Recently received FDA approval for a clinically-validated App that records ECG information and detects certain arrhythmias in combination with the Venu® 2 Plus

Highlights for fiscal year 2022 include:

• Consolidated revenue of $4.86 billion, a 2% decrease compared to the prior year, was unfavorably impacted by approximately $228 million due to the year-over-year strengthening of the U.S. Dollar relative to other major currencies
• Outdoor, Aviation, and Marine segments each posted record full year revenue
• Gross margin of 57.7% compared to 58.0% in the prior year
• Operating margin of 21.1% compared to 24.5% in the prior year
• Operating income of $1.03 billion, a 16% decrease compared to the prior year
• GAAP EPS was $5.04 and pro forma EPS(1) was $5.13 

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

"Our performance in 2022 was solid even as we faced increasing headwinds affecting the business environment and consumer behaviors," said Cliff Pemble, President and CEO of Garmin. "We are entering 2023 with a strong product lineup, and many more product launches are planned throughout the year. I am very proud of what we accomplished in 2022 and look forward to the opportunities and challenges ahead." 

Fitness:

Revenue from the fitness segment decreased 28% in the fourth quarter, with declines across all categories. Gross and operating margins were 49% and 12%, respectively, resulting in $40 million of operating income. During the quarter, we launched Bounce, our first LTE-connected kids smartwatch. Bounce offers two-way text and voice messaging, as well as real-time location tracking. Bounce also offers kids fitness tracking, games, and allows parents to assign chores and give rewards.

Outdoor:

Revenue from the outdoor segment grew 3% in the fourth quarter primarily due to growth in handhelds and services. Gross and operating margins were 64% and 34%, respectively, resulting in $132 million of operating income. During the quarter, we launched the second-generation MARQ luxury smartwatch collection built with Grade-5 titanium, sapphire glass, and a vibrant AMOLED touchscreen display.

Aviation:

Revenue from the aviation segment grew 27% in the fourth quarter with contributions from both the aftermarket and OEM categories. Gross and operating margins were 71% and 28%, respectively, resulting in $63 million of operating income. During the quarter, EASA approved the G5000® integrated retrofit flight deck in the Cessna Citation Excel and XLS. Also, we received Supplemental Type Certification by the Federal Aviation Administration for the GI 275 electronic flight instrument in the Dassault Falcon 7X business jet. In addition, during the quarter, we announced that L3Harris Technologies has chosen the G3000 tandem integrated flight deck as part of a U.S. Special Operations Command (USSOCOM) Armed Overwatch program contract.

Marine:

Revenue from the marine segment grew 7% in the fourth quarter primarily driven by our sonar and chartplotter products. Gross and operating margins were 54% and 20%, respectively, resulting in $43 million of operating income. During the quarter, we announced that Garmin Navionics®+ featuring a streamlined interface, combined coastal and inland content and access to daily chart updates with subscription is now pre-loaded in certain flagship GPSMAP® chartplotters. During the quarter, we received multiple accolades for advancing innovation and safety in the marine industry, including the prestigious IBEX Innovation Award, National Boating Industry Safety Award, and recognition as the Most Innovative Marine Company by Soundings Trade Only.

Auto:

Revenue from the auto segment decreased 14% during the fourth quarter as declines in our consumer products more than offset the growth in OEM programs. Gross margin was 39%, and we recorded an operating loss of $11 million in the quarter driven by ongoing investments in auto OEM programs. During the quarter, we were recognized by the BMW Group with a coveted 2022 Supplier Innovation Award in the customer experience category for contributions to the Theatre Screen in the all-new BMW 7 Series.

Change in Operating Segments:

In January 2023, the Company combined the consumer auto operating segment with the outdoor operating segment. As a result, beginning with reports filed in the first quarter of fiscal 2023, the Company's operating segments will be fitness, outdoor, aviation, marine, and auto OEM. Prior periods will be recast to conform to the revised composition (see Appendix A for the recast presentation).

Additional Financial Information:

Total operating expenses in the fourth quarter were $478 million, a 5% increase over the prior year. Research and development increased 5% primarily due to engineering personnel costs. Selling, general and administrative expenses increased 7% driven primarily by personnel related expenses and information technology costs. Advertising expenses decreased 6% primarily due to lower cooperative advertising.

The effective tax rate in the fourth quarter was 11.1%. Excluding $7 million of income tax expense due to the revaluation of certain Switzerland deferred tax assets associated with Switzerland tax reform transitional measures, our pro forma effective tax rate(1) in the fourth quarter of 2022 was 8.9% compared to 7.4% in the prior year quarter. The year-over-year increase in the pro forma effective tax rate is primarily due to benefits in the prior year related to a favorable adjustment of estimated quarterly taxes in fourth quarter of 2021 that were not repeated in the current year.

In the fourth quarter of 2022, we generated approximately $309 million of free cash flow(1). We continued to return cash to shareholders through dividends and share repurchases. As a result of the additional week in the fourth quarter 2022, two quarterly dividends were paid totaling approximately $280 million and we repurchased approximately $93 million of Company stock. We have approximately $93 million remaining as of December 31, 2022 in the share repurchase program which is authorized through December 29, 2023.  We ended the quarter with cash and marketable securities of approximately $2.7 billion.

2023 Fiscal Year Guidance(2):

We expect full year 2023 revenue of approximately $5.00 billion, an increase of approximately 3% over 2022. We expect our full year pro forma EPS to be approximately $5.15 based upon gross margin of approximately 57.5%, operating margin of approximately 20.3% and pro forma effective tax rate of approximately 8.0%.

Dividend Recommendation:

The board of directors intends to recommend to the shareholders for approval at the annual meeting to be held on June 9, 2023, a cash dividend in the amount of $2.92 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 four equal installments on dates to be determined by the board. The board currently anticipates the scheduling of the dividend in four installments as follows:

In addition, the board has established March 31, 2023 as the payment date and March 15, 2023 as the record date for the final dividend installment of $0.73 per share, per the prior approval at the 2022 annual shareholders' meeting. The first, second and third payments of $0.73 per share were made on June 30, 2022, September 30, 2022, and December 30, 2022, respectively. 

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 February 21, 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, 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 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 December 31, 2022. 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, dēzl, G5000, G3000, GPSMAP, MARQ and Navionics are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. Bounce and Enduro are 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.

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 $0.05 per share for the 53 weeks ended December 31, 2022.

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

Appendix A – Change in operating segments

In January 2023, the Company announced an organization realignment, which combines the consumer auto operating segment with the outdoor operating segment. As a result, beginning with reports filed in the first quarter of fiscal 2023, the Company's operating segments will be fitness, outdoor, aviation, marine, and auto OEM. Each prior period that will be presented in the forthcoming Form 10-Q and Form 10-K filings will be recast to conform to the revised composition. This change had no effect on the Company's consolidated financial results. The following table provides the relevant recast financial results. The table may not foot due to rounding.

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SOURCE Garmin Ltd.