Raises 2022 EPS guidance on improved margin outlook

SCHAFFHAUSEN, Switzerland, Oct. 26, 2022 /PRNewswire/ -- Garmin® Ltd. (NYSE: GRMN), today announced results for the third quarter ended September 24, 2022.

Highlights for third quarter 2022 include:

• Consolidated revenue of $1.14 billion, a 4% decrease compared to the prior year quarter, was unfavorably impacted by approximately $70 million due to the year-over-year strengthening of the U.S. Dollar relative to other major currencies
• Gross margin expanded to 58.8%, and operating margin was 21.0%
• Operating income was $239 million, a 15% decrease compared to the prior year quarter
• GAAP EPS was $1.09 and pro forma EPS(1) was $1.24
• Launched the Index™ BPM smart blood pressure monitoring device
• Since launching inReach services in 2011, the Garmin Response Center has coordinated over 10,000 SOS responses, demonstrating the crucial importance of satellite based two-way messaging wherever our customers need assistance
• Ranked #1 in avionics product support for the 19th consecutive year by Aviation International News
• Named Manufacturer of the Year by the National Marine Electronics Association for the eighth consecutive year and received five product of excellence awards

"Revenue was negatively impacted by the strengthening of the U.S. Dollar," said Cliff Pemble, President and CEO of Garmin. "Despite this significant headwind, gross margin expanded and operating margin remained solid.  Looking forward, we are lowering our revenue outlook for the remainder of the year consistent with the trends we are experiencing, while also raising our EPS guidance on an improving margin outlook. We believe that our strong lineup of innovative products and vertical integration strategy will allow us to remain strong in this challenging economic environment."

Revenue from the fitness segment decreased 18% in the third quarter, primarily driven by lower revenue from our advanced wellness and indoor cycling products. Gross and operating margins were 53% and 15%, respectively, resulting in $41 million of operating income. During the quarter, we launched our first smart blood pressure monitor, the Index™ BPM, allowing a user to measure and track systolic and diastolic blood pressure at home or on the go. When paired with the Garmin Connect app, users can view their measurement history and trends alongside other health stats. Also, during the quarter, we launched the Venu® Sq 2, featuring a bright AMOLED display with nearly double the battery life over its predecessor.  We recently hosted our sixth annual Garmin Developers Conference where hundreds of developers virtually gathered to explore how Garmin can support their ideas and innovations. 

Revenue from the outdoor segment grew 5% in the third quarter primarily due to growth in adventure watches and inReach devices and services, partially offset by declines in other product lines. Gross and operating margins were 65% and 36%, respectively, resulting in $121 million of operating income. During the quarter, we launched the inReach Messenger, a versatile new communication-focused device with global two-way texting, location sharing and SOS capabilities.

Revenue from the aviation segment grew 4% in the third quarter driven by growth in multiple product lines, primarily in aftermarket. Gross and operating margins were 73% and 26%, respectively, resulting in $48 million of operating income. During the quarter, we announced that Tactical Air has chosen the G3000® integrated flight deck to modernize the U.S. Department of Defense fleet of Navy and Marine Corps F-5 aircraft.

Revenue from the marine segment decreased 5% in the third quarter primarily due to the return of typical seasonality trends. Gross and operating margins were 56% and 23%, respectively, resulting in $45 million of operating income. During the quarter, we launched the LiveScope® XR System, bringing revolutionary live-scanning sonar technology to deep water fishing allowing anglers to see real-time images of fish and structure up to 500' in front of or below the boat. We also launched the LiveScope Plus Ice Fishing Bundle, creating the ultimate portable solution for winter fishing.

Revenue from the auto segment decreased 2% during the third quarter as declines in our consumer products more than offset the growth in OEM programs. Gross margin was 40%, and we recorded an operating loss of $16 million in the quarter driven by ongoing investments in auto OEM programs. During the quarter, we announced that our Garmin Tread® navigators had been selected by Arctic Cat, Inc. as standard equipment on select side-by-side vehicles beginning in model year 2023.

Total operating expenses in the third quarter were $431 million, a 4% 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 10% primarily due to lower cooperative advertising.

The effective tax rate in the third quarter was 4.3% compared to 5.9% in the prior year quarter. The year-over-year decrease in the effective tax rate is primarily due to income mix by jurisdiction and an increase in U.S. tax deductions and credits.

In the third quarter of 2022, we generated approximately $104 million of free cash flow(1). We paid a quarterly dividend of approximately $141 million and repurchased approximately $83 million of the Company's shares within the quarter, leaving approximately $186 million remaining as of September 24, 2022 in the share repurchase program authorized through December 29, 2023.  We ended the quarter with cash and marketable securities of approximately $2.7 billion.

Based on our performance in the first three quarters of 2022, we are adjusting our full year guidance. We now anticipate revenue of approximately $4.85 billion, gross margin of 57.5%, operating margin of 20.7%, and a full year effective tax rate of 8.0% resulting in EPS of approximately $4.95 (see attached discussion on Forward-looking Financial Measures).

The board of directors has established December 30, 2022, as the payment date for the next dividend installment of $0.73 per share with a record date of December 15, 2022.  At the 2022 annual shareholders' meeting, Garmin shareholders, in accordance with Swiss corporate law, approved a cash dividend in the total 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 in its discretion. The first and second payments were made on June 30, 2022 and September 30, 2022. The board currently anticipates the scheduling of the remaining quarterly dividend installment as follows:

The information for Garmin Ltd.'s earnings call is as follows:

An archive of the live webcast will be available until October 25, 2023 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 2022 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 25, 2021 filed by Garmin with the Securities and Exchange Commission (Commission file number 001-41118). A copy of Garmin's 2021 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 24, 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, inReach, Venu, G5000, G3000, LiveScope and Tread are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. Index is a trademark 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.

Prior period information presented here has been recast to conform to the current period presentation. Refer to the Current Report on Form 8-K/A announcing the Company's financial results for the fiscal first quarter ended March 26, 2022 for further description and full recast impacts.

The following table includes supplemental financial information for the consumer auto and auto OEM operating segments that management believes is useful.

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.

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. In the first three quarters 2022 and 2021 there were no such discrete tax items identified.

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.

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.

The forward-looking financial measures in our 2022 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 $0.27  per share for the 39-weeks ended September 24, 2022.

At this time, management is unable to determine whether or not significant discrete tax items will occur in fiscal 2022 or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

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SOURCE Garmin Ltd.