10-QPeriod: Q2 FY2012

GARMIN LTD Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 8, 2012For Securities:GRMN

Summary

Garmin Ltd. reported a strong second quarter for 2012, demonstrating significant year-over-year growth in both revenue and net income. Net sales increased by 7% to $718.2 million, driven primarily by robust performance in the Automotive/Mobile and Outdoor segments, which saw substantial revenue growth. The company also experienced a significant improvement in gross profit margin, up 11 percentage points to 59%, largely due to favorable product mix, a one-time royalty fee benefit, and reduced cost of goods sold as a percentage of revenue. Net income surged by 70% to $185.9 million, translating to a diluted EPS of $0.95. This strong profitability was supported by effective cost management and a lower effective tax rate. The company maintained a healthy balance sheet with substantial cash and marketable securities, enabling it to fund operations, capital expenditures, and shareholder returns, including a dividend payment. Garmin expects its existing cash and operational cash flow to be sufficient for its needs through the end of fiscal year 2012.

Financial Highlights

51 data points
Beta

Revenue

$718.15M

58.7% Gross Margin

Net Income

$185.90M

25.9% Net Margin

EPS (Diluted)

$0.95

Total Assets

$4.46B

Cash & Equivalents

$1.27B

Free Cash Flow

$211.24M

Financial Statements
Beta
Revenue$718.15M
Cost of Revenue$296.34M
Gross Profit$421.81M
R&D Expenses$80.30M
SG&A Expenses$99.25M
Operating Expenses$217.81M
Operating Income$204.01M
Net Income$185.90M
EPS (Basic)$0.95
EPS (Diluted)$0.95
Shares Outstanding (Basic)195K
Shares Outstanding (Diluted)196K

Key Highlights

  • 1Total net sales for the quarter ended June 30, 2012, increased by 7% to $718.2 million compared to $674.1 million in the prior year period.
  • 2Gross profit increased by 31% to $421.8 million, with gross profit margin expanding significantly to 59% from 48% in the prior year quarter.
  • 3Net income grew by an impressive 70% to $185.9 million, or $0.95 per diluted share, compared to $109.5 million, or $0.56 per diluted share, in the same period last year.
  • 4The Automotive/Mobile segment remained the largest contributor to revenue, increasing 8% year-over-year, while the Outdoor segment showed particularly strong growth of 24%.
  • 5Cost of goods sold decreased by 16% to $296.3 million, benefiting from a one-time royalty fee adjustment and favorable product mix.
  • 6The effective tax rate decreased to 10.4% in Q2 2012 from 13.8% in Q2 2011, contributing to the net income growth.
  • 7Garmin ended the quarter with strong liquidity, holding $1.37 billion in cash and marketable securities.

Frequently Asked Questions

Garmin's revenue growth was primarily driven by strong performance in the Automotive/Mobile segment, which increased 8% year-over-year due to higher volumes, an acquired business (Navigon), and favorable pricing from bundled products and amortization of deferred revenue. The Outdoor segment also showed substantial growth of 24%, attributed to market share gains in golf, strong sales of the eTrex series, and a recent acquisition.

Profitability significantly improved due to a substantial increase in gross profit margin to 59%, up from 48% in the prior year. This was achieved through a combination of factors including a one-time $21 million royalty fee benefit, a reduced impact from deferred revenue recognition, a shift in product mix towards higher-margin items, and a decrease in the cost of goods sold as a percentage of revenue. Additionally, a lower effective tax rate of 10.4% further boosted net income.

Garmin maintains a strong financial position with approximately $1.37 billion in cash and marketable securities as of June 30, 2012. The company generated $345.1 million in net cash from operating activities in the first half of 2012. Management believes that its existing cash reserves and anticipated cash flow from operations will be sufficient to meet its projected capital expenditures, working capital needs, dividend payments, and other financial obligations at least through the end of fiscal year 2012.

Garmin is involved in several legal proceedings, primarily related to patent infringement claims. While the company is defending itself vigorously in these matters, management does not currently expect the outcomes of any of these legal proceedings to have a material adverse effect on its results of operations, financial position, or cash flows. However, there is always a risk associated with litigation, and investors should monitor these developments.