01—Abstract
Summary
Summary of the 10-Q filed August 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Garmin Ltd. (GRMN) reported solid revenue growth in the second quarter of 2018, driven by strong performance in its Fitness, Marine, Outdoor, and Aviation segments.
Total net sales increased by 8% year-over-year for the quarter, reaching $894.5 milliona. This growth was partially offset by a decline in the Auto segment, primarily due to the ongoing contraction of the Personal Navigation Device (PND) market. Operating income saw a 4% increase, though operating margin slightly decreased.
Financially, the company maintained a strong balance sheet with significant cash and marketable securities. Cash flow from operations improved considerably due to better working capital management.
The company also benefited from a lower effective tax rate, largely due to the U.S. corporate tax rate reduction, which positively impacted net income despite the revenue shift away from the higher-margin auto segment. Garmin continues to invest in research and development, particularly in its wearable and aviation product lines.
02—Key points
Key Highlights
- Net sales increased 8% to $894.5 million for the 13-week period ended June 30, 2018, compared to the prior year quarter.
- Fitness, Marine, Outdoor, and Aviation segments showed significant year-over-year growth, contributing 80% of total revenue.
- The Auto segment revenue decreased by 19% due to the PND market contraction, impacting the overall revenue mix.
- Operating income increased by 4% to $217.5 million, though the operating margin slightly decreased to 24.2% from 25.2%.
- Net income increased by 8% to $190.3 million, benefiting from a lower effective tax rate.
- Cash provided by operating activities significantly increased by $174.2 million for the first half of 2018 compared to the prior year period, largely due to working capital improvements.
- The company adopted new revenue recognition standards (ASC Topic 606) using the full retrospective method, which adjusted prior period financial statements.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2018, Garmin Ltd kept $0.21.
- Revenue$894.5M100.0%
- Cost of revenue−$371.2M41.5%
- Gross profit$523.3M58.5%
- Operating costs−$305.8M34.2%
- Operating income$217.5M24.3%
- Interest, other & tax−$27.2M3.0%
- Net income$190.3M21.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed August 1, 2018Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $894.45M$641.51M | +39.4% |
| Cost of Revenue | $371.18M$268.70M | +38.1% |
| Gross Profit | $523.27M$372.81M | +40.4% |
| R&D Expenses | $141.71M$122.20M | +16.0% |
| SG&A Expenses | $120.50M$102.05M | +18.1% |
| Operating Expenses | $305.76M$255.78M | +19.5% |
| Operating Income | $217.51M$117.03M | +85.9% |
| Net Income | $190.34M$238.40M | −20.2% |
| EPS (Basic) | $1.01$1.27 | −20.5% |
| EPS (Diluted) | $1.00$1.26 | −20.6% |
| Shares Outstanding (Basic) | 188.54M188.33M | +0.1% |
| Shares Outstanding (Diluted) | 189.46M189.03M | +0.2% |
05—Questions
Frequently Asked Questions
What is the primary driver of Garmin's revenue growth in Q2 2018?
Garmin's revenue growth in Q2 2018 was primarily driven by strong performance in its Fitness, Marine, Outdoor, and Aviation segments, which collectively increased by 17% and contributed 80% of the total revenue. The Fitness segment, in particular, saw substantial growth due to advanced wearables and cycling products.
Why did the Auto segment revenue decline?
The Auto segment revenue declined by 19% primarily due to the ongoing contraction of the Personal Navigation Device (PND) market. This segment's revenue mix decreased from 27% in Q2 2017 to 20% in Q2 2018.
How did the adoption of new accounting standards affect the financial results?
Garmin adopted the new revenue recognition standard (ASC Topic 606) using the full retrospective method. This resulted in restated prior period financial statements. For the Auto segment, the adoption led to accelerated revenue and cost recognition, impacting deferred revenue and cost balances. The reported net sales and net income for prior periods have been adjusted to reflect this standard.
What is the company's outlook on liquidity and capital resources?
Garmin ended the quarter with $2,422.4 million in cash and marketable securities. The company expects its existing cash balance and operating cash flow to be sufficient to cover capital expenditures, working capital needs, dividends, acquisitions, and share repurchases. Cash flow from operations showed a significant increase in the first half of 2018 due to improved working capital management.
06—Continue