10-QPeriod: Q3 FY2021

GARMIN LTD Quarterly Report for Q3 Ended Sep 25, 2021

Filed October 27, 2021For Securities:GRMN

Summary

Garmin Ltd. reported solid revenue growth for the first three quarters of 2021, up 27% year-over-year to $3.59 billion, driven by strong performance across most of its segments, particularly Fitness, Marine, and Auto. While total net sales increased, the company noted a slight decrease in total unit sales, attributing it to shifts in segment and product mix. Gross profit also saw a significant increase of 25%, though the consolidated gross margin experienced a slight decrease due to higher freight costs. Research and development expenses saw a notable increase of 22%, reflecting continued investment in innovation. Despite challenges like supply chain disruptions and increased freight costs, Garmin demonstrated resilience, with operating income up 32% to $903.5 million for the first nine months of the year. The company maintains a strong liquidity position with approximately $3.2 billion in cash, cash equivalents, and marketable securities as of September 25, 2021, supporting its operational needs, capital expenditures, and dividend payments. The company anticipates continued supply chain challenges through the end of 2021 but remains confident in its ability to meet working capital and other financial requirements.

Financial Highlights

50 data points
Beta

Revenue

$1.19B

58.4% Gross Margin

Net Income

$259.04M

21.7% Net Margin

EPS (Diluted)

$1.34

Total Assets

$7.57B

Cash & Equivalents

$1.64B

Free Cash Flow

$204.00M

Financial Statements
Beta
Revenue$1.19B
Cost of Revenue$496.03M
Gross Profit$695.95M
R&D Expenses$198.93M
SG&A Expenses$177.65M
Operating Expenses$413.28M
Operating Income$282.67M
Net Income$259.04M
EPS (Basic)$1.35
EPS (Diluted)$1.34
Shares Outstanding (Basic)192.32M
Shares Outstanding (Diluted)193.19M

Key Highlights

  • 1Total net sales increased by 27% to $3.59 billion for the first nine months of 2021, compared to the same period in 2020.
  • 2Gross profit grew by 25% to $2.12 billion, though the consolidated gross margin slightly decreased due to higher freight costs.
  • 3Operating income saw a substantial increase of 32% to $903.5 million for the first nine months of 2021.
  • 4Research and development expenses increased by 22% to $618.3 million, indicating ongoing investment in product innovation.
  • 5The company ended the period with strong liquidity, holding $3.2 billion in cash, cash equivalents, and marketable securities.
  • 6Supply chain challenges and increased freight costs are noted as ongoing concerns, expected to persist through at least the end of 2021.
  • 7The Auto OEM segment reported an operating loss, a trend management expects to continue through 2021 due to lower gross margins and increased program expenses.

Frequently Asked Questions

The 27% increase in net sales to $3.59 billion was primarily driven by strong performance in the Fitness, Outdoor, Marine, and Auto segments. Growth in cycling and advanced wearables boosted Fitness sales, while adventure watches and chartplotters were key contributors in Outdoor and Marine, respectively. The Auto segment benefited from growth in OEM programs and specialty product categories. The company also noted that a portion of the year-over-year growth is attributable to a lower comparable period in 2020 due to the impact of the COVID-19 pandemic.

While gross profit dollars increased 25%, the consolidated gross margin decreased slightly by 60 basis points compared to the prior year. This decrease was primarily attributed to higher freight costs. Additionally, certain segments like Marine and Auto OEM experienced gross margin pressure from these freight costs and, in the case of Auto OEM, also from a less favorable product mix associated with growth in specific programs.

Garmin acknowledges that its global supply chain is routinely subject to component shortages, increased lead times, cost fluctuations, and logistics constraints. These factors have been amplified by the pandemic, and the company expects these challenges to continue through at least the end of calendar year 2021. While the filing doesn't detail specific management actions, it indicates an awareness and ongoing monitoring of these supply chain issues.

As of September 25, 2021, Garmin reported approximately $3.2 billion in cash, cash equivalents, and marketable securities. 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 short- and long-term financial obligations.