10-QPeriod: Q2 FY2018

GARMIN LTD Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 1, 2018For Securities:GRMN

Summary

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 million. 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.

Financial Highlights

51 data points
Beta

Revenue

$894.45M

58.5% Gross Margin

Net Income

$190.34M

21.3% Net Margin

EPS (Diluted)

$1.00

Total Assets

$4.99B

Cash & Equivalents

$946.87M

Free Cash Flow

$157.14M

Financial Statements
Beta
Revenue$894.45M
Cost of Revenue$371.18M
Gross Profit$523.27M
R&D Expenses$141.71M
SG&A Expenses$120.50M
Operating Expenses$305.76M
Operating Income$217.51M
Net Income$190.34M
EPS (Basic)$1.01
EPS (Diluted)$1.00
Shares Outstanding (Basic)188.54M
Shares Outstanding (Diluted)189.46M

Key Highlights

  • 1Net sales increased 8% to $894.5 million for the 13-week period ended June 30, 2018, compared to the prior year quarter.
  • 2Fitness, Marine, Outdoor, and Aviation segments showed significant year-over-year growth, contributing 80% of total revenue.
  • 3The Auto segment revenue decreased by 19% due to the PND market contraction, impacting the overall revenue mix.
  • 4Operating income increased by 4% to $217.5 million, though the operating margin slightly decreased to 24.2% from 25.2%.
  • 5Net income increased by 8% to $190.3 million, benefiting from a lower effective tax rate.
  • 6Cash 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.
  • 7The company adopted new revenue recognition standards (ASC Topic 606) using the full retrospective method, which adjusted prior period financial statements.

Frequently Asked Questions

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.

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.

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.

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.