10-QPeriod: Q3 FY2015

GARMIN LTD Quarterly Report for Q3 Ended Sep 26, 2015

Filed October 28, 2015For Securities:GRMN

Summary

Garmin Ltd. reported financial results for the third quarter and the first nine months of fiscal year 2015. While overall net sales saw a slight decrease year-over-year for both periods, this was significantly impacted by foreign currency headwinds, which reduced revenues by approximately 7%. The company experienced a notable shift in segment performance, with the Fitness segment showing strong growth (+23% in Q3, +18% YTD) driven by wearables, while the Auto segment continued its decline (-14% in Q3, -13% YTD) due to decreased PND volumes and amortization of deferred revenue. Despite declining revenues and gross profit in some key segments, Garmin returned to profitability in the 13-week period ended September 26, 2015, reporting a net income of $119.3 million, a significant improvement from a net loss of $146.8 million in the prior year's quarter. This turnaround was substantially influenced by a significant reduction in income tax expense, which was notably higher in Q3 2014 due to an inter-company restructuring. The company continues to manage its capital effectively, with substantial cash on hand and ongoing share repurchase programs.

Financial Highlights

52 data points
Beta

Revenue

$679.69M

53.3% Gross Margin

Net Income

$119.30M

17.6% Net Margin

EPS (Diluted)

$0.63

Total Assets

$4.39B

Cash & Equivalents

$914.91M

Free Cash Flow

$124.27M

Financial Statements
Beta
Revenue$679.69M
Cost of Revenue$317.50M
Gross Profit$362.19M
R&D Expenses$105.79M
SG&A Expenses$94.06M
Operating Expenses$236.73M
Operating Income$125.46M
Net Income$119.30M
EPS (Basic)$0.63
EPS (Diluted)$0.63
Shares Outstanding (Basic)190.34M
Shares Outstanding (Diluted)190.82M

Key Highlights

  • 1Net sales for the 13-week and 39-week periods ended September 26, 2015, decreased by 4% and 1% respectively, largely due to unfavorable foreign currency exchange rates impacting reported revenue.
  • 2The Fitness segment demonstrated robust growth, with net sales increasing by 23% for the third quarter and 18% for the first nine months, driven by the strong performance of activity tracking devices.
  • 3The Auto segment continued to face challenges, with net sales declining by 14% in the third quarter and 13% year-to-date, attributed to lower PND volumes and the amortization of previously deferred revenue.
  • 4Gross profit decreased by 9% in the third quarter and 4% year-to-date, with a notable decline in gross margin percentage, particularly in the Auto and Outdoor segments.
  • 5Garmin returned to net income profitability in the third quarter of 2015, reporting $119.3 million compared to a net loss of $146.8 million in the prior year quarter. This improvement was significantly influenced by a large decrease in income tax provision.
  • 6Operating income declined in most segments, with a significant 29% decrease year-over-year for the third quarter, impacted by lower gross margins and increased operating expenses.
  • 7The company repurchased approximately $108 million of its common stock during the nine-month period and has $191.9 million remaining under its authorized share repurchase program.

Frequently Asked Questions

The primary driver for the substantial improvement in net income from a loss in Q3 2014 to a profit in Q3 2015 was a significant decrease in the income tax provision. The company recorded a $307.6 million tax expense related to an inter-company restructuring in Q3 2014, which was absent in Q3 2015.

The strengthening U.S. dollar against currencies like the Taiwan Dollar and the Euro has a negative impact on reported net sales. For the third quarter of 2015, it's estimated that the strong U.S. dollar reduced revenues by approximately $52 million, representing about 7% of total revenue. This effect was seen across most segments, except for Aviation.

The Auto segment continues to face headwinds, with declining sales due to lower Portable Navigation Device (PND) volumes and amortization of deferred revenue. Conversely, the Fitness segment is a bright spot, showing strong growth driven by wearables and activity trackers, indicating a positive outlook for this category.

Garmin maintains a healthy cash position and is actively returning capital to shareholders. During the first nine months of 2015, the company used approximately $108 million to repurchase its common shares under a $300 million authorization. As of September 26, 2015, there was approximately $191.9 million remaining under this program. The company also continues to pay dividends.