10-QPeriod: Q3 FY2020

GARMIN LTD Quarterly Report for Q3 Ended Sep 26, 2020

Filed October 28, 2020For Securities:GRMN

Summary

Garmin Ltd. reported a strong third quarter of 2020, with net sales increasing by 19% to $1.11 billion compared to the prior year period, driven by robust growth in the Fitness and Marine segments. The company also saw significant year-over-year increases in operating income for these segments. For the first nine months of the year, net sales grew by 7% to $2.84 billion, despite declines in the Aviation and Auto segments. The company highlighted its resilience in navigating the COVID-19 pandemic through a diversified product portfolio and strong balance sheet, though it acknowledged ongoing impacts to certain segments like Aviation. Financially, Garmin demonstrated improved profitability, with net income for the quarter rising to $313.4 million from $227.9 million in the prior year, and for the nine-month period to $658.8 million from $591.7 million. The company also reported a significant improvement in cash flow from operating activities, reaching $699.4 million for the nine months ended September 26, 2020, up from $464.2 million in the same period last year. The company maintains a strong liquidity position with approximately $2.7 billion in cash and marketable securities as of September 26, 2020.

Financial Highlights

50 data points
Beta

Revenue

$1.11B

60.2% Gross Margin

Net Income

$313.42M

28.3% Net Margin

EPS (Diluted)

$1.63

Total Assets

$6.55B

Cash & Equivalents

$1.22B

Free Cash Flow

$235.54M

Financial Statements
Beta
Revenue$1.11B
Cost of Revenue$441.21M
Gross Profit$667.98M
R&D Expenses$174.88M
SG&A Expenses$142.13M
Operating Expenses$350.88M
Operating Income$317.10M
Net Income$313.42M
EPS (Basic)$1.64
EPS (Diluted)$1.63
Shares Outstanding (Basic)191.23M
Shares Outstanding (Diluted)192.00M

Key Highlights

  • 1Net sales for the third quarter of 2020 increased by 19% year-over-year to $1.11 billion, driven by strong performance in the Fitness (+35%) and Marine (+54%) segments.
  • 2For the first nine months of 2020, net sales increased by 7% year-over-year to $2.84 billion, with notable growth in Fitness (+25%) and Marine (+24%).
  • 3Operating income for the third quarter of 2020 rose by 21% to $317.1 million, with significant increases in Fitness (+75%) and Marine (+152%).
  • 4Net income for the third quarter of 2020 increased by 38% to $313.4 million, or $1.63 per diluted share, compared to $227.9 million, or $1.19 per diluted share, in the prior year.
  • 5Cash provided by operating activities for the first nine months of 2020 significantly increased by 50% to $699.4 million, reflecting improved working capital management and higher net income.
  • 6The company reported a decrease in Aviation (-19% for Q3, -14% for YTD) and Auto (-6% for Q3, -24% for YTD) segment revenues, citing factors including reduced OEM shipments and a contracting PND market.
  • 7Garmin experienced a cyber attack on July 23, 2020, but reported no indication of customer data compromise and stated the operational impact was not material.
  • 8The effective tax rate for the first nine months of 2020 was 7.5%, a significant decrease from 15.4% in the prior year, primarily due to a favorable shift in income mix from international tax restructuring.

Frequently Asked Questions

The substantial increase in net sales for the third quarter of 2020 was primarily driven by robust growth in the Fitness segment, up 35% year-over-year, largely due to strong sales of advanced wearables and cycling products. The Marine segment also experienced significant growth of 54%, led by demand for chartplotters. The Outdoor segment also saw a strong 30% increase. These segment performances more than offset declines in the Aviation and Auto segments.

Garmin's diverse product offerings and strong balance sheet helped mitigate the impact of COVID-19. While some segments like Aviation experienced continued unfavorable impacts, the company saw strong demand in other areas such as Fitness and Outdoor. Management reported that the company was well-positioned to handle initial impacts due to pre-existing fundamentals. The company anticipates ongoing but manageable impacts from the pandemic, with a focus on employee safety and continued customer service.

Garmin maintains a strong liquidity position, with approximately $2.7 billion in cash and marketable securities as of September 26, 2020. The company primarily uses cash flow from operations to fund capital expenditures, support working capital requirements, pay dividends, and pursue strategic acquisitions. Management believes its current cash reserves and operating cash flow are sufficient to meet its financial obligations and strategic goals.

Garmin experienced a cyber attack on July 23, 2020, which encrypted some systems and interrupted online services. However, the company stated that based on its investigation, there was no indication of customer data being accessed, lost, or stolen. The functionality of Garmin products was not affected, apart from online services. The company assessed the impact on its operations and financial results for the third quarter of 2020 as not material and does not expect material impacts in future periods.