10-QPeriod: Q1 FY2022

GARMIN LTD Quarterly Report for Q1 Ended Mar 26, 2022

Filed April 27, 2022For Securities:GRMN

Summary

Garmin Ltd. reported solid revenue growth of 9% year-over-year for the first quarter of 2022, reaching $1.17 billion, driven by strong performance in its Outdoor, Aviation, and Marine segments. Despite the revenue increase, net income saw a slight decline of 4% to $211.6 million due to increased operating expenses, particularly in R&D and SG&A, as well as higher freight costs and the impact of a stronger U.S. Dollar on gross margins. The company continues to invest in growth platforms, evidenced by an increase in cash used for investing activities, primarily in capital expenditures. However, Garmin maintains a strong liquidity position with approximately $3.0 billion in cash, cash equivalents, and marketable securities, indicating a robust financial foundation to navigate ongoing global economic uncertainties and supply chain challenges. Management anticipates these supply chain issues will persist through the end of 2022.

Financial Highlights

50 data points
Beta

Revenue

$1.17B

56.5% Gross Margin

Net Income

$211.59M

18.0% Net Margin

EPS (Diluted)

$1.09

Total Assets

$7.70B

Cash & Equivalents

$1.42B

Free Cash Flow

$125.92M

Financial Statements
Beta
Revenue$1.17B
Cost of Revenue$510.18M
Gross Profit$662.48M
R&D Expenses$209.01M
SG&A Expenses$190.78M
Operating Expenses$433.92M
Operating Income$228.56M
Net Income$211.59M
EPS (Basic)$1.10
EPS (Diluted)$1.09
Shares Outstanding (Basic)192.89M
Shares Outstanding (Diluted)193.58M

Key Highlights

  • 1Total net sales increased by 9% to $1.17 billion in Q1 2022 compared to $1.07 billion in Q1 2021.
  • 2Net income decreased by 4% to $211.6 million in Q1 2022, down from $220.0 million in Q1 2021.
  • 3Operating income decreased by 8% to $228.6 million, impacted by lower gross margins (down 330 basis points) due to higher freight costs and currency fluctuations.
  • 4The Outdoor segment showed significant revenue growth of 50% ($384.6M), driven by strong demand for adventure watches, while the Fitness segment experienced a 28% revenue decline ($220.9M) due to normalization in cycling product demand.
  • 5Cash provided by operating activities decreased significantly to $185.6 million from $368.4 million in the prior year, mainly due to increased inventory purchases and lower accounts receivable collections.
  • 6The company declared a new share repurchase program authorizing up to $300 million of stock repurchases through December 2023.
  • 7Garmin anticipates ongoing supply chain challenges and inflationary pressures will continue through at least the end of calendar year 2022.

Frequently Asked Questions

The increase in net sales was primarily driven by a favorable shift in product and segment mix. While overall unit sales saw a slight decrease, Garmin experienced strong demand and revenue growth in higher-value segments like Outdoor, Aviation, and Marine. The Outdoor segment, in particular, benefited from strong demand for adventure watches, becoming the largest portion of the revenue mix.

The consolidated gross margin decreased by 330 basis points year-over-year, primarily due to higher freight costs and the strengthening U.S. Dollar. These factors put downward pressure on revenues denominated in weaker currencies and increased the cost of goods sold. The Fitness, Outdoor, Marine, and Consumer Auto segments were particularly impacted.

Garmin increased its inventory purchases in Q1 2022 compared to the prior year, as noted in the decrease in cash provided by operating activities. This action is likely a strategic response to the ongoing supply chain challenges and a move to increase days of supply to support its diverse product lines and mitigate potential future disruptions.

Garmin expects supply chain challenges, along with disruptions, uncertainty, and inflationary pressures from the global economy and events like the invasion of Ukraine, to persist through at least the end of calendar year 2022. These factors are impacting component availability, lead times, costs, and logistics.