Garmin reports fourth quarter results

Company reports record results and proposes dividend increase

SCHAFFHAUSEN, Switzerland–(BUSINESS WIRE)–Garmin^® Ltd. (NASDAQ: GRMN), today announced results for the fourth quarter and fiscal year ended December 26, 2020.

Highlights for fourth quarter 2020 include:

Total revenue of $1.35 billion, a 23% increase over the prior year quarter, led by robust growth in the marine, fitness and outdoor segments
Gross margin of 58.5% compared to 58.0% in the prior year quarter
Operating margin improved to 27.5% compared to 25.1% in the prior year quarter
Operating income of $371 million, increasing 34% over the prior year quarter
GAAP EPS was $1.73 and pro forma EPS⁽¹⁾ was $1.73, representing 34% growth in pro forma EPS over the prior year quarter
Added pregnancy tracking to Garmin Connect, providing innovative new tools to women who want to remain fit and healthy during pregnancy
Expanded our reach in the recreational diving market with the launch of the new Descent^® Mk2i, our first dive watch featuring air integration in combination with the T1 tank transmitter
Garmin Autoland was named one of 2020’s greatest innovations by Popular Science and won a Top Flight Award from Aviation International News
Recently announced the acquisition of substantially all the assets of GEOS Worldwide Limited, a leading provider of emergency monitoring and response services for customers around the globe

Highlights for fiscal year 2020 include:

Fifth consecutive year of revenue and operating income growth
Record consolidated revenue of $4.19 billion, an 11% increase
Gross margin of 59.3% compared to 59.5% in the prior year
Operating margin of 25.2% consistent with the prior year
Record operating income of $1.05 billion, increasing 11% over the prior year
GAAP EPS was $5.17 and pro forma EPS⁽¹⁾ was $5.14, representing 16% growth over the prior year pro forma EPS

(in thousands, except per share data)	13-Weeks Ended									52-Weeks Ended
	December 26,			December 28,			YoY			December 26,			December 28,			YoY
	2020			2019			Change			2020			2019			Change
Net sales	$	1,351,405		$	1,102,233			23	%	$	4,186,573		$	3,757,505			11	%
Fitness		470,811			372,520			26	%		1,317,498			1,047,527			26	%
Outdoor		411,935			294,819			40	%		1,128,081			917,567			23	%
Aviation		156,969			193,143			(19	)%		622,820			735,458			(15	)%
Marine		171,579			115,779			48	%		657,848			508,850			29	%
Auto		140,111			125,972			11	%		460,326			548,103			(16	)%

Gross margin %		58.5	%		58.0	%					59.3	%		59.5	%

Operating income %		27.5	%		25.1	%					25.2	%		25.2	%

GAAP diluted EPS		$1.73			$1.89			(8	)%		$5.17			$4.99			4	%
Pro forma diluted EPS ⁽¹⁾		$1.73			$1.29			34	%		$5.14			$4.45			16	%

(1) See attached Non-GAAP Financial Information for discussion and reconciliation of non-GAAP financial measures, including pro forma diluted EPS

Executive Overview from Cliff Pemble, President and Chief Executive Officer:

“In a year filled with unimaginable challenges, Garmin delivered record revenue and profits,” said Cliff Pemble, President and CEO of Garmin. “Strong demand for active lifestyle products fueled our growth, and we expect these trends to continue into 2021. I am very proud of what we have accomplished in 2020 and look forward to the opportunities and challenges of the new year.”

Fitness:

Revenue from the fitness segment grew 26% in the fourth quarter driven by strong demand for advanced wearables and cycling products. Gross margin and operating margin were 53% and 27%, respectively, resulting in 75% operating income growth. During the quarter, we launched the Tacx Boost, a powerful indoor trainer that is easy-to-use and features a magnetic brake, realistic ride-feel and manual resistance control for cyclists of all levels.

Outdoor:

Revenue from the outdoor segment grew 40% in the fourth quarter across all categories led by strong demand for adventure watches. Gross margin and operating margin were 66% and 43%, respectively, resulting in 55% operating income growth. During the quarter, we launched the Mk2i dive watch and T1 tank transmitter adding air integration to our growing lineup of dive electronics.

Aviation:

Revenue from the aviation segment declined 19% in the fourth quarter due to fewer shipments to OEM customers and reduced contributions from ADS-B products. Gross margin and operating margin were 73% and 21%, respectively. During the quarter, we introduced smart rudder bias technology into GFC 600 autopilot systems for select twin engine aircraft, providing control assistance to the pilot in the event of an engine failure.

Marine:

Revenue from the marine segment grew 48% in the fourth quarter across multiple categories led by chartplotters. Gross margin and operating margin were 56% and 24%, respectively, resulting in 92% operating income growth. We recently updated our mid-range GPSMAP chartplotter series with higher resolution displays and more processing power, and we launched the all new Striker^TM Vivid series with enhanced color depth in an entry level fishfinder.

Auto:

Revenue from the auto segment grew 11% during the fourth quarter primarily driven by OEM programs and growth in consumer specialty categories. Gross margin was 42%, and we recorded an operating loss of $12 million in the quarter driven by investments in OEM programs. We recently introduced the new RV 1090 GPS navigator with a new 10-inch high resolution touchscreen display, which further expands our reach in the growing market for recreational vehicles.

Additional Financial Information:

Total operating expenses in the fourth quarter were $420 million, a 16% increase over the prior year. Research and development increased by 23%, primarily due to engineering personnel costs and other expenses related to auto OEM programs. Selling, general and administrative expenses increased 15%, driven primarily by information technology costs and personnel related expenses. Advertising decreased 2%.

The effective tax rate in the fourth quarter was 14.8%. Excluding $11 million of income tax expense due to the revaluation of certain Switzerland deferred tax assets associated with Switzerland tax reform, our pro forma effective tax rate⁽¹⁾ in the fourth quarter of 2020 was 12.0% compared to 15.5% in the prior year quarter. The decrease in the pro forma effective tax rate is primarily due to the migration of intellectual property ownership from Switzerland to the United States.

In the fourth quarter of 2020, we generated approximately $387 million of free cash flow⁽¹⁾, and paid a quarterly dividend of approximately $117 million. We ended the quarter with cash and marketable securities of approximately $2.98 billion.

(1)

See attached Non-GAAP Financial Information for discussion and reconciliation of non-GAAP financial measures, including pro forma effective tax rate and free cash flow.

2021 Guidance ⁽²⁾:

We expect full year 2021 revenue of approximately $4.6 billion with growth in all segments. We expect our full year pro forma EPS to be approximately $5.15 based upon gross margin of approximately 59.2%, operating margin of approximately 23.5% and a full year pro forma effective tax rate of approximately 10.5%.

	2021 Guidance	Segment	2021 Revenue Growth Estimates
Revenue	~$4.6B	Fitness	~10%
Gross Margin	~59.2%	Outdoor	~10%
Operating Margin	~23.5%	Aviation	~5%
Pro forma Tax Rate	~10.5%	Marine	~15%
Pro forma EPS	~$5.15	Auto	~5%

(2)

See attached discussion on Forward-looking Financial Measures

Dividend Recommendation:

The board of directors intends to recommend to the shareholders for approval at the annual meeting to be held on June 4, 2021, a cash dividend in the amount of $2.68 per share (subject to possible adjustment based on the total amount of the dividend in Swiss Francs as approved at the annual meeting), payable in four equal installments on dates to be determined by the board. The board currently anticipates the scheduling of the dividend in four installments as follows:

Dividend Date	Record Date	$s per share
June 30, 2021	June 15, 2021	$0.67
September 30, 2021	September 15, 2021	$0.67
December 31, 2021	December 15, 2021	$0.67
March 31, 2022	March 15, 2022	$0.67

In addition, the board has established March 31, 2021 as the payment date and March 15, 2021 as the record date for the final dividend installment of $0.61 per share, per the prior approval at the 2020 annual shareholders’ meeting. The first, second and third payments of $0.61 per share were made on June 30, 2020, September 30, 2020, and December 31, 2020, respectively.

Webcast Information/Forward-Looking Statements:

The information for Garmin Ltd.’s earnings call is as follows:

When:		Wednesday, February 17, 2021 at 10:30 a.m. Eastern
Where:		https://www.garmin.com/en-US/investors/events/
How:		Simply log on to the web at the address above or call to listen in at 855-757-3897

An archive of the live webcast will be available until February 16, 2022 on the Garmin website at www.garmin.com. To access the replay, click on the Investors link and click over to the Events Calendar page.

This release includes projections and other forward-looking statements regarding Garmin Ltd. and its business that are commonly identified by words such as “anticipates,” “would,” “may,” “expects,” “estimates,” “plans,” “intends,” “projects,” and other words or phrases with similar meanings. Any statements regarding the Company’s expected fiscal 2021 GAAP and pro forma estimated earnings, EPS, and effective tax rate, and the Company’s expected segment revenue growth rates, consolidated revenue, gross margins, operating margins, potential future acquisitions, currency movements, expenses, pricing, new products launches, statements relating to possible future dividends, statements related to the ongoing impact of the COVID-19 pandemic, and the Company’s plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially as a result of risk factors and uncertainties affecting Garmin, including, but not limited to, the risk factors that are described in the Annual Report on Form 10-K for the year ended December 26, 2020 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin’s 2020 Form 10-K can be downloaded from https://www.garmin.com/en-US/investors/sec/. All information provided in this release and in the attachments is as of December 26, 2020. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.

This release and the attachments contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the Company’s use of these measures are included in the attachments.

Garmin, the Garmin logo, the Garmin delta, Descent and Tacx are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. Garmin SubWave, and Striker, are trademarks of Garmin Ltd. or its subsidiaries. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
*(In thousands, except per share information)*

	13-Weeks Ended					52-Weeks Ended
	December 26,		December 28,			December 26,		December 28,
	2020		2019			2020		2019
Net sales	$	1,351,405	$	1,102,233		$	4,186,573	$	3,757,505

Cost of goods sold		560,422		462,777			1,705,237		1,523,529

Gross profit		790,983		639,456			2,481,336		2,233,976

Advertising expense		61,135		62,648			151,166		164,456
Selling, general and administrative expense		158,910		138,280			570,245		518,568
Research and development expense		199,672		162,005			705,685		605,366
Total operating expense		419,717		362,933			1,427,096		1,288,390

Operating income		371,266		276,523			1,054,240		945,586

Other income (expense):
Interest income		6,744		13,069			37,002		52,817
Foreign currency gains (losses)		12,627		(4,230	)		2,825		(16,799	)
Other income		828		2,051			9,343		5,618
Total other income (expense)		20,199		10,890			49,170		41,636

Income before income taxes		391,465		287,413			1,103,410		987,222

Income tax provision (benefit)		57,918		(73,379	)		111,086		34,736

Net income	$	333,547	$	360,792		$	992,324	$	952,486

Net income per share:
Basic	$	1.74	$	1.90		$	5.19	$	5.01
Diluted	$	1.73	$	1.89		$	5.17	$	4.99

Weighted average common shares outstanding:
Basic		191,278		190,165			191,085		189,931
Diluted		192,303		191,225			191,895		190,899

Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
*(In thousands, except per share information)*

	December 26, 2020			December 28, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,458,442		$	1,027,567
Marketable securities		387,642			376,463
Accounts receivable, net		849,469			706,763
Inventories		762,084			752,908
Deferred costs		20,145			25,105
Prepaid expenses and other current assets		191,569			169,044
Total current assets		3,669,351			3,057,850

Property and equipment, net		855,539			728,921
Operating lease right-of-use assets		94,626			63,589

Restricted cash		306			71
Marketable securities		1,131,175			1,205,475
Deferred income taxes		245,455			268,518
Noncurrent deferred costs		16,510			23,493
Intangible assets, net		828,566			659,629
Other assets		189,845			159,253
Total assets	$	7,031,373		$	6,166,799

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	258,885		$	240,831
Salaries and benefits payable		181,937			128,426
Accrued warranty costs		42,643			39,758
Accrued sales program costs		109,891			112,578
Deferred revenue		86,865			94,562
Accrued advertising expense		31,950			35,142
Other accrued expenses		149,817			110,461
Income taxes payable		68,585			56,913
Dividend payable		233,644			217,262
Total current liabilities		1,164,217			1,035,933

Deferred income taxes		116,844			114,754
Noncurrent income taxes		92,810			105,771
Noncurrent deferred revenue		49,934			67,329
Noncurrent operating lease liabilities		75,958			49,238
Other liabilities		15,494			278

Stockholders’ equity:
Shares, CHF 0.10 par value, 198,077 shares authorized and issued, 191,571 shares outstanding at December 26, 2020; and 190,686 shares outstanding at December 28, 2019		17,979			17,979
Additional paid-in capital		1,880,354			1,835,622
Treasury stock		(320,016	)		(345,040	)
Retained earnings		3,754,372			3,229,061
Accumulated other comprehensive income		183,427			55,874
Total stockholders’ equity		5,516,116			4,793,496
Total liabilities and stockholders’ equity	$	7,031,373		$	6,166,799

Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
*(In thousands)*

	52-Weeks Ended
	December 26, 2020			December 28, 2019
Operating Activities:
Net income	$	992,324		$	952,486
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		78,121			71,921
Amortization		48,594			34,254
Gain on sale of property and equipment		(1,799	)		(233	)
Unrealized foreign currency (gains) losses		(9,873	)		18,663
Deferred income taxes		6,931			(88,358	)
Stock compensation expense		80,885			63,400
Realized (gains) losses on marketable securities		(1,392	)		(799	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net of allowance for doubtful accounts		(108,859	)		(123,401	)
Inventories		28,726			(170,169	)
Other current and non-current assets		(33,690	)		(86,073	)
Accounts payable		1,447			26,192
Other current and non-current liabilities		87,761			36,660
Deferred revenue		(25,211	)		(11,032	)
Deferred costs		11,973			9,335
Income taxes payable		(20,671	)		(34,297	)
Net cash provided by operating activities		1,135,267			698,549

Investing activities:
Purchases of property and equipment		(185,401	)		(118,031	)
Proceeds from sale of property and equipment		1,977			529
Purchase of intangible assets		(2,065	)		(2,377	)
Purchase of marketable securities		(1,052,640	)		(789,352	)
Redemption of marketable securities		1,126,253			758,774
Acquisitions, net of cash acquired		(148,648	)		(300,289	)
Net cash used in investing activities		(260,524	)		(450,746	)

Financing activities:
Dividends		(450,631	)		(417,264	)
Proceeds from issuance of treasury stock related to equity awards		15,201			27,122
Purchase of treasury stock related to equity awards		(26,330	)		(25,886	)
Net cash used in financing activities		(461,760	)		(416,028	)

Effect of exchange rate changes on cash and cash equivalents		18,127			(5,942	)

Net increase (decrease) in cash, cash equivalents, and restricted cash		431,110			(174,167	)
Cash, cash equivalents, and restricted cash at beginning of year		1,027,638			1,201,805
Cash, cash equivalents, and restricted cash at end of year	$	1,458,748		$	1,027,638

The following table includes supplemental financial information for the consumer auto and auto OEM operating segments that management believes is useful.

Garmin Ltd. And Subsidiaries
Net Sales, Gross Profit and Operating Income by Segment (Unaudited)
*(In thousands)*


									Auto
	Fitness		Outdoor		Aviation		Marine		Total Auto			Consumer Auto		Auto OEM			Total

13-Weeks Ended December 26, 2020

Net sales	$	470,811	$	411,935	$	156,969	$	171,579	$	140,111		$	78,552	$	61,559		$	1,351,405
Gross profit		250,603		270,627		114,237		96,347		59,169			41,516		17,653			790,983
Operating income		128,809		179,028		33,718		41,530		(11,819	)		15,836		(27,655	)		371,266

13-Weeks Ended December 28, 2019

Net sales	$	372,520	$	294,819	$	193,143	$	115,779	$	125,972		$	88,868	$	37,104		$	1,102,233
Gross profit		179,799		194,601		137,537		68,935		58,584			41,945		16,639			639,456
Operating income		73,490		115,701		62,778		21,663		2,891			14,788		(11,897	)		276,523

52-Weeks Ended December 26, 2020

Net sales	$	1,317,498	$	1,128,081	$	622,820	$	657,848	$	460,326		$	275,493	$	184,833		$	4,186,573
Gross profit		697,539		739,777		453,008		384,450		206,562			139,864		66,698			2,481,336
Operating income		318,884		441,085		137,203		175,724		(18,656	)		41,464		(60,120	)		1,054,240

52-Weeks Ended December 28, 2019

Net sales	$	1,047,527	$	917,567	$	735,458	$	508,850	$	548,103		$	365,511	$	182,592		$	3,757,505
Gross profit		532,604		598,443		543,385		302,949		256,595			172,218		84,377			2,233,976
Operating income		191,858		334,041		252,943		109,876		56,868			63,299		(6,431	)		945,586

Garmin Ltd. And Subsidiaries
Net Sales by Geography (Unaudited)
*(In thousands)*

	13-Weeks Ended					52-Weeks Ended
	December 26,		December 28,		YoY	December 26,		December 28,		YoY
	2020		2019		Change	2020		2019		Change
Net sales	$	1,351,405	$	1,102,233	23%	$	4,186,573	$	3,757,505	11%
Americas		595,720		528,362	13%		1,968,080		1,817,770	8%
EMEA		536,822		407,908	32%		1,579,749		1,350,533	17%
APAC		218,863		165,963	32%		638,744		589,202	8%

EMEA – Europe, Middle East and Africa
APAC – Asia Pacific and Australian Continent

Non-GAAP Financial Information

To supplement our financial results presented in accordance with GAAP, this release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: pro forma effective tax rate, pro forma net income (earnings) per share and free cash flow. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies, limiting the usefulness of the measures for comparison with other companies. Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company, as described in more detail by category below.

The tables below provide reconciliations between the GAAP and non-GAAP measures.

Pro forma effective tax rate

The Company’s income tax expense is periodically impacted by discrete tax items that are not reflective of income tax expense incurred as a result of current period earnings. Therefore, management believes disclosure of the effective tax rate and income tax provision before the effect of certain discrete tax items are important measures to permit investors’ consistent comparison between periods.

Garmin Ltd. And Subsidiaries
Pro Forma Effective Tax Rate
(In thousands, except effective tax rate (ETR) information)

	13-Weeks Ended								52-Weeks Ended
	December 26,				December 28,				December 26,				December 28,
	2020				2019				2020				2019
	$			ETR⁽¹⁾	$			ETR⁽¹⁾	$			ETR⁽¹⁾	$		ETR⁽¹⁾
U.S GAAP income tax provision (benefit)	$	57,918		14.8%	$	(73,379	)	(25.5)%	$	111,086		10.1%	$	34,736	3.5%
Pro forma discrete tax items:
Uncertain Tax Reserve Release ⁽²⁾										14,308
Switzerland deferred tax assets ⁽³⁾		(11,016	)			117,989				(11,016	)			117,989
Pro forma income tax provision	$	46,902		12.0%	$	44,610		15.5%	$	114,378		10.4%	$	152,725	15.5%

(1) Effective tax rate is calculated by taking the income tax provision divided by income before taxes, as presented on the face of the Condensed Consolidated Statements of Income.

(2) In second quarter 2020, the Company recognized a $14.3 million income tax benefit due to the release of uncertain tax position reserves associated with the 2014 intercompany restructuring, which was a pro forma adjustment in 2014. The impact of the reserve release is not reflective of income tax expense incurred as a result of current period earnings and therefore affects period-to-period comparability.

(3) In fourth quarter 2019, a $118 million income tax benefit was recognized resulting from the revaluation and step-up of certain Switzerland deferred tax assets as a result of the enactment of Switzerland Federal and Schaffhausen cantonal tax reform and related transitional measures. In fourth quarter 2020, certain Switzerland deferred tax assets related to the Switzerland tax reform transitional measures were revalued resulting in an $11 million income tax expense. The impact of the revaluation of these Switzerland deferred tax assets is not reflective of income tax expense incurred as a result of current period earnings and therefore affects period-to-period comparability.

Contacts

Investor Relations Contact:
Teri Seck
913/397-8200
investor.relations@garmin.com

Media Relations Contact:
Carly Hysell
913/397-8200
media.relations@garmin.com

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