10-QPeriod: Q1 FY2012

GARMIN LTD Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 9, 2012For Securities:GRMN

Summary

Garmin Ltd. reported solid top-line growth in the first quarter of 2012, with net sales increasing by 10% to $556.6 million compared to the same period in 2011. This growth was driven across all segments, with notable strength in the Fitness and Outdoor categories. The Automotive/Mobile segment, while still the largest revenue contributor at 50% of total sales, saw a 6% increase, benefiting from acquisitions and market share gains. Despite revenue growth, net income saw a decrease of 9% to $86.9 million, or $0.44 per diluted share, primarily due to a significant increase in income tax expenses and higher operating expenses, particularly in Selling, General, and Administrative (SG&A) costs, which were impacted by acquisitions and legal fees. The company maintained a strong liquidity position with $1.29 billion in cash and cash equivalents and a healthy operating cash flow of $122.2 million, though this was lower than the prior year due to working capital changes. Garmin continues to invest in R&D, with a 13% increase to support new product development.

Financial Highlights

50 data points
Beta

Revenue

$556.60M

51.0% Gross Margin

Net Income

$86.86M

15.6% Net Margin

EPS (Diluted)

$0.44

Total Assets

$4.32B

Cash & Equivalents

$1.29B

Free Cash Flow

$116.47M

Financial Statements
Beta
Revenue$556.60M
Cost of Revenue$272.84M
Gross Profit$283.76M
R&D Expenses$79.72M
SG&A Expenses$90.12M
Operating Expenses$193.43M
Operating Income$90.33M
Net Income$86.86M
EPS (Basic)$0.45
EPS (Diluted)$0.44
Shares Outstanding (Basic)195K
Shares Outstanding (Diluted)196K

Key Highlights

  • 1Net sales increased by 10% year-over-year to $556.6 million, demonstrating continued revenue growth.
  • 2Gross profit increased significantly by 19% to $283.8 million, with gross margin expanding by 400 basis points to 51%, driven by the Automotive/Mobile segment's improved performance.
  • 3Net income decreased by 9% to $86.9 million ($0.44 diluted EPS), impacted by a substantial rise in income tax provision and higher operating expenses.
  • 4Operating expenses (SG&A and R&D) increased by 23% and 13% respectively, partly due to acquisitions and increased R&D personnel.
  • 5The company maintained a strong cash position with $1.29 billion in cash and cash equivalents and generated $122.2 million in cash from operations.
  • 6The Automotive/Mobile segment remained the largest contributor to revenue (50%), showing a 6% sales increase.
  • 7Fitness and Outdoor segments showed the strongest percentage growth in net sales at 26% and 16% respectively.

Frequently Asked Questions

The decrease in net income was primarily driven by a significant increase in the income tax provision, which rose from $1.4 million in Q1 2011 to $12.7 million in Q1 2012, leading to a much higher effective tax rate (12.8% vs 1.5%). Additionally, operating expenses, particularly Selling, General, and Administrative (SG&A) costs, increased by 23% due to acquisitions and legal fees, and Research & Development expenses also grew by 13% to support new product development.

All segments contributed to the overall net sales growth. The Automotive/Mobile segment, representing 50% of revenue, grew by 6%. The Fitness segment saw a strong 26% increase in sales, and the Outdoor segment grew by 16%. The Marine segment experienced a 9% increase, while Aviation saw a modest 5% increase.

Garmin maintains a strong financial position. As of March 31, 2012, the company had $1.29 billion in cash and cash equivalents and $0.12 billion in marketable securities. Operating activities generated $122.2 million in cash flow during the quarter. Management believes its existing cash and expected operating cash flow are sufficient to meet its obligations through fiscal year 2012.

Garmin is involved in several legal proceedings, primarily patent infringement lawsuits. While the company believes these claims are without merit and intends to vigorously defend them, management acknowledges that an unfavorable outcome could have a material adverse effect. However, as of this filing, management does not expect the results in any of these legal proceedings to have a material adverse effect on the Company’s results of operations, financial position, or cash flows.