管理層發言
Thank you for waiting, and welcome to the Garmin Limited Third Quarter 2024 Conference Call. All lines have been muted to avoid background noise. Following the speakers' comments, there will be a question-and-answer session. Now, I'll hand the call over to Teri Seck, Director of Investor Relations. You may begin.
Good morning. We would like to welcome you to Garmin Limited's third quarter 2024 earnings call. Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/stock. An archive of the webcast and related transcript will also be available on our website. This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenue segment growth rates, earnings, gross margins, operating margins, future dividends or share repurchases, market shares, product introductions, future demand for our products, and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results may differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pemble, President and Chief Executive Officer, and Doug Boessen, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pemble.
Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin delivered another quarter of impressive financial results as our products resonate with customers, and we leverage growth opportunities across market segments and geographies. Consolidated revenue increased 24% to $1.59 billion, a new third quarter record, and we achieved record revenue in all five business segments. Gross margin expanded 300 basis points to 60%. Operating income increased 62% year-over-year, and operating margin expanded 640 basis points to 27.6%, reflecting both the higher gross margin and favorable operational leverage across the business. We reported pro forma EPS of $1.99, up 41% year-over-year. Some are wondering how we have consistently delivered strong results when the financial health of the consumer is the subject of intense debate. The straightforward answer is that there is no single profile of the Garmin customer.
Therefore, our results are not strictly correlated to broad generalizations of consumer behavior. Our business is highly diversified in many dimensions from market segments to product categories within segments, each targeting different consumers. Additionally, our business is global in nature, allowing us to leverage growth opportunities wherever they exist. Our products offer essential utility and unique differentiators that separate them from ordinary discretionary items. Another factor in our strong performance is that our products are clearly resonating with customers. For example, our market share in marine increased as measured by organic Garmin sales versus our competitors. Additionally, our market share in advanced wearables increased. According to the most recent IDC data covering shipments through June of 2024, Garmin's global market share in advanced wearables increased over 200 basis points year-over-year, and we were the only global brand experiencing growth in shipments.
According to IDC, we are now the number two advanced wearable brand in Europe and globally, we are number three. These are remarkable outcomes considering the highly competitive and fragmented nature of this market. We believe this is a direct reflection of the strength of our products and the brilliant execution by our global team. Given our strong performance for the first three quarters of the year, we are updating our full year 2024 guidance. We anticipate revenue of approximately $6.12 billion and pro forma EPS of $6.85. Doug will discuss our financial results and outlook in greater detail in a few minutes, but first, I'll provide a few remarks on the performance of each business segment. Starting with Fitness. Revenue increased 31% to $464 million, with all categories contributing to growth and notably as our running and advanced wellness products resonate with customers. Gross margin was 61%, a 710 basis point improvement over the prior year, driven by lower product costs.
Operating income nearly doubled year-over-year, and operating margin expanded by more than 1,000 basis points to 32%, reflecting both higher gross margin and favorable operating leverage in the segment. During the quarter, we celebrated the tenth anniversary of Garmin Health, which leverages our extensive wearable portfolio and high-quality sensor data to support corporate wellness, population health, and patient monitoring initiatives. We also hosted the annual Garmin Health Summit to recognize innovative digital health solutions that utilize Garmin products. Given the strong performance of the Fitness segment, moving to outdoor, revenue increased 21% to $527 million, driven primarily by adventure watches following the highly successful launch of the new fenix 8 series. Gross margin was 68%, a 570 basis point improvement over the prior year quarter and was favorably impacted by lower product costs and a higher mix of revenue from adventure watches.
Operating income increased 53% year-over-year, and operating margin expanded 820 basis points to 40%, reflecting both higher gross margin and favorable operating leverage in the segment. During the quarter, we launched the highly anticipated fenix 7 series as well as the Enduro 3. The fenix 8 series features a brilliant AMOLED display, cutting-edge features, a built-in speaker microphone and an LED flashlight across all models. The Enduro 3 weighs only 63 grams and offers rich features for endurance athletes, along with class-leading battery life up to 320 hours in GPS tracking mode, and up to three months in smartwatch mode using built-in solar charging technology. We also launched the inReach Messenger Plus, our first satellite communicator to offer photo and voice messaging, expanding our customers' ability to stay in touch while roaming in areas of limited or non-existent cellular coverage.
Given the strong performance of the Outdoor segment in the third quarter and the positive response following the recent fenix 7 series launch, we are raising our 2024 revenue growth estimate to 13%. Looking next at Aviation, revenue increased 3% to $205 million, driven primarily by aftermarket product categories. Gross and operating margins were 75% and 22%, respectively, resulting in operating income of $44 million, a decrease of 10% year-over-year driven by increased R&D spending to develop new products and certify new aircraft platforms. We recently announced our new G3000 Prime, which redefines the integrated flight deck experience with edge-to-edge all touch screens and a highly flexible open architecture that seamlessly adapts to serve a broad and dynamic market. Textron Aviation recently announced that the G3000 Prime will be included in the upcoming CJ4 Gen 3 business jet. During the quarter, we announced an important new safety feature called Runway Occupancy Awareness, which uses ADS-B information to help reduce the risk of runway incursions and provide added confidence for pilots navigating busy and complex airports.
Garmin is the first to bring Runway Occupancy Awareness to market. Also, during the quarter, our co-founders, Dr. Min Kao and the late Gary Burrell were enshrined into the National Aviation Hall of Fame. This tremendous honor celebrates their pioneering work, developing products that revolutionized the aviation industry. The aviation segment has performed as expected so far this year, and we are maintaining our estimate of flat revenue for the full year 2024. Turning to marine, revenue increased 22% to $222 million, primarily driven by new revenue from JL Audio. Excluding JL Audio, revenue increased approximately 7%, which is ahead of the industry trends pointing to share gains in the market. Gross margin was 55%, a 290 basis point improvement over the prior year quarter and was favorably impacted by lower product costs. Operating income increased 59% year-over-year and operating margin expanded 390 basis points to 17%, reflecting both higher gross margin and favorable operating leverage in the segment.
During the quarter, we received several awards, including being named the 2024 Manufacturer of the Year by the National Marine Electronics Association for the tenth consecutive year along with six Product of Excellence awards for a total of 63 over the last decade. We were also recognized as the number one most innovative marine company for the second consecutive year by a leading publication for the recreational boating industry. This recognition is especially meaningful to us. Last week, we announced the acquisition of Lumishore, a leader in marine LED lighting solutions, which broadens our product portfolio and enhances our ability to seamlessly integrate technologies on the boat. The Marine segment has performed as expected so far this year, and we are maintaining our growth estimate of 15% for the full year 2024. Moving finally to the auto OEM segment. Revenue increased $53 million to $169 million, primarily driven by growth in domain controllers.
Gross margin was 20% and the operating loss narrowed to $1 million as efficiencies improved with higher sales volumes. During the quarter, we successfully launched the Garmin Design domain controllers across all remaining BMW car lines. Our auto OEM segment has performed as expected so far this year. However, it has been widely reported that the outlook of major automakers is softening. With this in mind, we are lowering our full year 2024 revenue growth estimate to 40%. That concludes my remarks. Next, Doug will walk you through additional details on our financial results.
Thanks, Cliff. Good morning, everyone. I'll begin by reviewing our third quarter financial results, provide comments on the balance sheet, cash flow statement, taxes, and updated guidance. We posted a revenue of $1.586 billion for the third quarter, representing a 24% increase year-over-year. Gross margin increased to 60%, reflecting a 300 basis point increase due to lower product costs and favorable product mix in certain segments. Operating expense as a percentage of sales was 32.4%, a 350 basis point decrease. Operating income was $437 million, a 62% increase. Operating margin was 27.6%, a 640 basis point increase, achieving leverage on our strong sales and improved gross margins. Our GAAP EPS was $2.07, and pro forma EPS was $1.99. Next, looking at our third quarter revenue by segment and geography, we achieved record revenue on a consolidated basis for each of our five segments. We achieved double-digit growth in four of our five segments, led by the auto OEM segment with 53% growth.
The Fitness, Marine, and Outdoor segments showed 31%, 22%, and 21% growth, respectively. By geography, we achieved double growth across all four regions, led by the EMEA region with 40% growth, followed by the APAC region with 18% growth, and the Americas region with 15% growth. Looking next, operating expenses for the third quarter increased by $56 million or 12%. Research and development and SG&A each increased approximately $28 million. Year-over-year increases were primarily due to personnel-related expenses. A few highlights on the balance sheet, cash flow statement, and taxes. We ended the quarter with cash and marketable securities of approximately $3.5 billion. Accounts receivable increased both year-over-year and sequentially to $922 million, following strong sales in the third quarter. Inventory balance increased year-over-year and sequentially to approximately $1.5 billion. In the third quarter of 2024, we generated free cash flow of $219 million, a $19 million decrease from the prior year quarter.
Our capital expenditures for the third quarter of 2024 were $39 million, approximately $7 million lower than the prior year quarter. We expect full year 2024 free cash flow to be approximately $1.1 billion with capital expenditures of approximately $250 million. During the third quarter of 2024, we paid dividends of approximately $144 million and purchased $20 million of company stock. At quarter end, we had approximately $270 million remaining in the share repurchase program, which is authorized through December 2026. Our quarter effective tax rate was 17.9% compared to a pro forma effective tax rate of 7.2% in the prior year quarter. The increase in effective tax rate is primarily due to the increase in the combined Switzerland tax rate in response to global minimum tax requirements. Turning next to our full year guidance, we estimate revenue of approximately $6.12 billion compared to our previous guidance of $5.95 billion.
We expect gross margin to be approximately 58.5%, higher than our previous guidance of 57% due to year-to-date performance. We expect an operating margin of approximately 24%, compared to our previous guidance of 21.3%. Also, we expect a pro forma effective tax rate of 16.5%, higher than our previous guidance of 16%, due to projected full year income mix by tax jurisdiction. This result expects a pro forma earnings per share of approximately $6.85, an increase of $0.85 over the previous guidance of $6. This concludes our formal remarks. Could you please open the line for Q&A?
分析師問答
Your first question comes from the line of Ben Bollin from Cleveland Research. Your line is open.
Cliff, I was hoping you could share a little thought on what you see as the underlying drivers within wearables. Could you speak to how you think about the growth of the installed base versus refresh? And what you've seen with some of these recent launches?
Yes. So, Ben, as we remarked in our prepared statements, the drivers in wearables are that we're a very unique player in the market. We offer a lot of different products across many different use cases. So, we can find ways to be successful across the whole market as our products really resonate with lifestyles and activities that our customers want to do. In terms of the installed base, our current registration trends still point to the majority of our new users being first-time Garmin users, which is great. So, we're seeing that grow, which is good. And then, in terms of the recent launches, as I mentioned, the fenix 8 series was very well received by the market, and we're continuing to fill demand for that product as it rolls out across all of our retail channels.
And there were also a number of mentions on the stronger gross margins related to lower product costs. Could you provide some color on what it is that you're seeing or what you're doing to see those benefits?
I think there are quite a few moving pieces in the product costs. One is pure materials costs, which we're definitely seeing some benefit from the scale of our business across all of our segments. Additionally, we're getting some help from the Taiwan dollar and efficiencies in our factory operations as our scale has increased significantly.
The last one for me. I'm interested in any thoughts you have going into the holidays about how you view retailer commitments to inventory levels into the holidays. Any thoughts on what it is that they're seeing versus prior years?
Retailers are telling us that they're eager to take in our products. They're planning for promotions; the retail channel appears to be very clean, especially as we transition some of our product lines like the fenix 8. So, I believe we're in a good position, and that's what we're hearing from our retail partners.
Your next question comes from the line of Erik Woodring from Morgan Stanley. Your line is open.
Two, if I may. Just to start, Cliff, really impressive on Fitness and Outdoor, especially on the gross and operating margin side, you're posting margins that we haven't necessarily seen before for these segments. So just curious, from your perspective, if we put aside the cost downs that you alluded to, how much of this is your pricing strategy really flowing through to margins? And really, the question I'm getting at is how sustainable are these margin levels as we think about moving from some of these new product launches, can you sustain these margins? Are these abnormally high? Could you just maybe help us unpack that? And then I just have a quick follow-up.
Yes. I think it's probably difficult to set aside cost reductions because that's obviously an important way that companies continue to reinforce their margin structure. So, we're working very hard on that. Each new design we aim to make gains in terms of efficiency and the component costs. But in terms of sustainability, I think that'll be up for opinion. What we focus on is creating products with unique differentiators that allow us to have premium pricing and offer things that our competitors don't. So, that's going to continue to be our recipe going forward.
Okay. I appreciate that. And then just as a follow-up. Obviously, you alluded to the auto OEM market backdrop weakness. You had previously set that $800 million target for auto OEM in 2025. And just given your comments on OEM softness, does that target change at all? Does it change either the magnitude or the timing of that $800 million kind of goal? And, second to that, does it have any impact on any of the new OEM contracts?
For next year, we really aren't ready to comment on that, although the trends in the car industry are softer than they used to be. So, we'll look at that and provide an update when we introduce our 2025 outlook. In terms of the impact on our new programs, I would say at this point, it's too early to say. I think some of those are rolling out beyond 2025. I would expect as the economy evolves—as people believe that it will with lower interest rates—that it could get better, and the outlook would improve.
Next question comes from the line of Ivan Feinseth from Tigress Financial Partners. Your line is open.
Congratulations on another great quarter. It's phenomenal. With the recent availability of some paid apps on the Connect IQ platform, what kind of uptake are you seeing? And also, with the recent introduction of the expanded inReach and connected subscriptions and some of the downloads of Messenger, what kind of uptake are you seeing? And at what point do you think you would start to give some indication of the revenue that's coming from some of these subscriptions?
Yes. Ivan, in terms of the paid apps and some of the things that you've seen recently on our store, we view these as incremental as they bring value to customers. They enhance our overall revenue and margin structure as we roll more of that out. The expanded inReach has been exciting to have as it enables higher bandwidth messaging and picture and voice sharing, which is great for people that go into areas with poor cellular coverage. We expect this to be completely incremental in terms of the use case for the product, although it's early days and probably not a lot of share in terms of what the early results are so far. As for the Messenger specifically, it's a great product, and we are just now starting to see it roll out and being used by customers.
And then, what kind of reception are you seeing to the new introduction of your new dash cams? There seems to be a growing demand as people are finding that these are becoming a necessary item. What kind of growth potential do you see going forward with those?
Yes. The dash cam market is very mature, but the market did receive our new product releases very well. We've focused on providing dash cam functionality that's superior to others, including a heavy focus on quality optics and a broad range of use cases from daytime to nighttime. I believe the market appreciates this, and we've had a favorable response.
Your next question comes from the line of Jordan Lyonnais from Bank of America. Your line is open.
On the Aero side, are you guys seeing any impact from the strike and re-ramping up now that the strike is over for Textron?
I think the strike probably had some small near-term effects as Textron was unable to deliver their plan in terms of aircraft, but I think they're working hard now to go back to normal. We don't anticipate any long-term effects from that.
Got it. Okay. And then on the guidance raise from this quarter versus last quarter, because it was so strong, what is giving more confidence in the visibility that you guys have into Q4 now versus this past quarter?
As we progress through the year, we gain more confidence leading into the last quarter. Many of the plans with retailers don't materialize until sometime in Q2 or Q3. So, with a more complete picture now, we can be more confident heading into the fourth quarter.
Our next question comes from the line of Noah Zatzkin from KeyBanc Capital Markets. Your line is open.
Maybe just a couple on the Marine strength. I guess first on Lumishore, have you quantified how large that business is in general?
Yes. I think the Lumishore and marine lighting, in general, is an incremental business to our Marine segment but an important one because it's another component on the boat that people want to have and that we can provide and integrate with our chart plotter systems around the boat.
In terms of the strong kind of market share gains implied by your growth. When you look at the industry, obviously, it's been challenging. Like kind of a marine industry in general, looking into the kind of medium term? And what underpins your confidence in continued market share gains there?
Yes. I think in terms of the outlook, I think, again, this is somewhere where everyone will have an opinion. But it seems to us that the market is fairly stable where it's at, probably don't see a lot of additional moves to the upside or downside. As the economy and especially the interest rate environment improves, I think people will feel better about purchasing boats. Regarding our ability to gain market share, I think we've been thrilled with our capability, especially as we enter new categories like our trolling motors. However, it becomes increasingly difficult as market share grows. We're concentrating on creating exceptional products and ensuring we serve our customers.
Our next question comes from the line of George Wang from Barclays. Your line is open.
Just two quick ones. So firstly, can you kind of double-click on the inventory kind of channel restocking? When I look at the balance sheet, inventory increased a lot sequentially to $1.5 billion. Can you just talk about the sell-through versus sell-in dynamic, especially as we head into the December quarter holiday season? How much is sort of different versus the true end market demand?
Well, I think to start on the first question, George, our inventory is not related to channel inventory in any way. We're managing our own inventory to prepare for the higher selling season coming in Q4. We've mentioned over previous calls that while our inventory levels have been low, they were probably uncomfortably low. We've been working to improve those to serve all product needs. In Q3, having more inventory was definitely beneficial because we were able to meet all the incoming orders. Regarding sell-in versus sell-out, we have a good ability to track customer activity as they're buying our products and registering them. We're pleased with the sell-out so far, especially with the new products like the fenix 8 and also the existing products that have been on the market a while such as the Forerunner 265 and 965, as well as the Vivoactive and Venu series, all of which have very strong registration rates.
Okay. Great. Just a quick follow-up. I guess, in terms of margin profile for the auto OEM, given the softer top-line outlook for the auto OEM with some of your customers lowering guidance. Does it affect your medium-term outlook for the margin profile? You are getting close to profitability on the income side for the auto OEM later this year. So just curious, any change in thinking in terms of the medium-term outlook for gross margin and operating margin for the auto OEM segment?
Yes. I think for the most part, we would say the gross margin probably is not impacted, although product mix depending on customer activity could be a factor there. But in general, we've said that gross margin would be in the high teens to low 20% range. With lower sales comes the concern that you don't have the ability to cover all the expenses in the segment on a fully loaded basis because of the reduced sales volume. That’s unfortunate, but something we can't change as the automakers are the ultimate customer for this product. If their outlook weakens, we must respond to that.
That concludes our question-and-answer session. I will now turn the call back over to Teri Seck for some final closing remarks.
Thank you all for joining the call. Doug and I are available for callbacks, and we hope you have a great rest of your day. Bye.
This concludes today's conference call. Thank you for your participation. You may now disconnect.