Garmin Reports Record Quarter; Revises Annual Guidance Upward
CAYMAN ISLANDS, Aug. 2, 2006 -- Garmin Ltd. today announced a record quarter ended July 1, 2006.
Second Quarter 2006 Financial highlights:
-- Total revenue of $432.5 million, up 64% from $264.5 million in second
quarter 2005
-- Automotive/Mobile segment revenue increased 153% to $255.4 million in
second quarter 2006
-- Outdoor/Fitness segment revenue increased 24% to $71.1 million in
second quarter 2006
-- Marine segment revenue decreased 3% to $50.1 million in second quarter
2006
-- Aviation segment revenue increased 3% to $55.9 million in second
quarter 2006
-- All geographic areas experienced significant growth:
-- North America revenue was $232.6 million compared to
$154.0 million, up 51 percent
-- Europe revenue was $177.8 million compared to $97.4 million, up
83 percent
-- Asia revenue was $22.1 million compared to $13.1 million, up
69 percent
-- Mix of revenue continues to shift, with revenue from Europe and
revenue from our automotive/mobile segment continuing to become a
larger piece of the total company.
-- Earnings per share increased 65% to $1.12 from $0.68 in 2005;
excluding foreign exchange, EPS increased 59% to $1.10 from $0.69 in
2005.
-- Garmin shareholders approved a two-for-one stock split with an
effective date of August 15, 2006. All per share amounts in this
press release are on a pre-split basis, unless otherwise noted.
Year-to-Date 2006 Financial highlights:
-- Total revenue of $754.8 million, up 65% from $457.1 million in the
first half of 2005
-- Automotive/Mobile segment revenue increased 182% to $406.1 million in
the first half of 2006
-- Outdoor/Fitness segment revenue increased 22% to $134.8 million in the
first half of 2006
-- Marine segment revenue increased 7% to $100.8 million in the first
half of 2006
-- Aviation segment revenue increased 3% to $113.1 million in the first
half of 2006
-- All geographic areas experienced significant growth:
-- North America revenue was $435.3 million compared to
$286.7 million, up 52 percent
-- Europe revenue was $279.7 million compared to $147.7 million, up
89 percent
-- Asia revenue was $39.8 million compared to $22.8 million, up
75 percent
-- Earnings per share increased 74% to $1.93 from $1.11 in the first half
of 2005; excluding foreign exchange, EPS increased 62% to $1.96 from
$1.21 in 2005
Business highlights:
-- Strong sales in automotive/mobile and outdoor/fitness segments,
putting them on track to meet or exceed full year guidance.
-- 1,281,000 units sold in the second quarter of 2006, up 81% from the
same quarter in 2005.
-- Delivered 15 new products in the quarter, with many new products to
enhance our positions in the automotive and marine markets.
-- Completed facilities upgrades, began production, and preparing to add
additional manufacturing lines at our new Taiwan manufacturing
facility.
-- Expanded advertising campaign in the U.S. strengthened our leadership
position in the face of growing competition, as demonstrated by our
greater than 50% market share.
-- Continued to devote more resources to advertising, marketing, and
sales activities across Europe, which resulted in greater brand
awareness and strong growth, particularly for portable navigation
devices (PND's).
-- Experienced strong and growing interest in our GPS-based Edge and
Forerunner fitness lines and outdoor units with expandable memory,
which drove higher than expected growth for this segment.
-- Initial positive response to our new marine segment product offerings
was somewhat dampened during the quarter by poor weather conditions
and higher fuel prices experienced by our marine customers.
Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:
"The second quarter was another exciting quarter for Garmin. We are pleased to have delivered 15 exciting and innovative new products. These products, which include many automotive/mobile and marine products, have been well received by the market. We continue to experience strong sales of both new and existing automotive/mobile products, and look forward to additional new product introductions -- particularly in the automotive/mobile and aviation segments -- scheduled for delivery in the second half of 2006.
"We continued to experience triple digit growth in our automotive/mobile segment, which demonstrates that our products continue to be well-positioned to take advantage of the growing demand for portable navigation devices both in the U.S. and in Europe. Through continuous innovation, we work to broaden and deepen our automotive/mobile product offerings to provide compelling, competitive features and attractive content integrated into easy-to-use products like the popular nuvi(TM) and c-series. We have the focus and commitment to continue our leadership position in the rapidly expanding U.S. automotive market through 2006 and continue to grow our European brand awareness and market share as well.
"Our outdoor/fitness segment grew faster than expected during the quarter as response to our new Edge and ForeRunner products remained very positive. Solid growth in both our automotive/mobile and outdoor/fitness segments has positioned us to exceed our earlier 2006 guidance for these segments.
"Response to our new marine product offerings has been very positive, although success in this segment has been somewhat dampened by poor weather and higher fuel prices experienced by our marine customers during the typically strong marine buying season. We continue to believe the marine segment is well-positioned to meet our 2006 guidance for this segment.
"We remain very optimistic with the long-term opportunities we see in our aviation business, and were pleased to announce several exciting new general aviation product offerings at the opening of the Oshkosh Air Show in late July. However, the delay of certain OEM programs and the delay in some of our aviation product introductions will result in softer results for this segment in 2006. With these factors in mind, we have revised our 2006 guidance for this segment accordingly.
"We continue to expand and develop our worldwide marketing and sales efforts as we pursue our growth goals. We are pleased to have significant market share in the U.S. and continue to work to enhance brand recognition and product placement at U.S. retailers. We have established strong presence in certain European countries, and are working hard to continue to improve our market position and enhance our brand visibility in the rest of Europe."
Financial overview from Kevin Rauckman, Chief Financial Officer:
"We are very pleased with our financial results for the second quarter and the first half of 2006," said Kevin Rauckman, chief financial officer of Garmin Ltd. "Our revenue and earnings per share during the quarter grew 64% and 65% respectively, and grew 65% and 73% respectively during the first half of 2006, exceeding our expectations. Automotive/mobile segment quarterly revenues increased over one and a half times compared to the prior year, and over 180% year-to-date. New product introductions in early 2006 drove strong sales for our outdoor/fitness segment, with increases of 24% for the quarter and 22% year-to-date. Marine revenues grew 7% year-to-date in the soft marine retail environment, and aviation revenues were up 3% year-to-date in comparison to last year, in the face of challenging year-over-year comparisons and certain OEM program and new product delays.
"Gross margin and operating margin improved in our outdoor/fitness and marine segments and declined in our automotive/mobile and aviation segments when compared with the year-ago quarter. Total operating margin of 31.1% for the second quarter of 2006 held steady at the Q1 2006 level, and fell 260 basis points compared to the year-ago quarter. These results were in line with our expectations.
"We also generated $64.4 million of free cash flow in the second quarter of 2006, resulting in a cash and marketable securities balance of $830.3 million at the end of the quarter."
Fiscal 2006 Outlook
We remain optimistic about the future success of our business as we continue to bring new products to the market and we look forward to the second half of 2006 and the holiday selling season. General business expectations for fiscal 2006 are updated as follows:
-- We anticipate overall revenue to exceed $1.6 billion in 2006, and
earnings per share to exceed $3.90. We assume our 2006 effective tax
rate will be approximately 16% and estimate an earnings per share
impact of $0.08 in 2006 due to the effects of implementing FAS123(R).
-- We anticipate revenue growth rates within our outdoor/fitness, marine,
and aviation segments to be 20 percent, 10 percent, and 10 percent,
respectively, in 2006. We expect short-term margins within these
segments to be relatively stable despite the possibility of
quarter-to-quarter variability due to product mix and the timing of
new product introductions.
-- We anticipate automotive/mobile revenue growth of greater than
125 percent in 2006, with declining operating margins due to product
mix and a continued transition toward mass market levels.
-- We continue to look forward to introducing over 70 new products in
2006. Nearly 50 new products have already been delivered in the first
half of 2006 in preparation for upcoming fall deliveries and the
holiday season.
-- We will continue to increase the production capacity of our new Taiwan
manufacturing facility throughout the remainder of 2006 to support
strong growth within our automotive/mobile, outdoor/fitness, and
marine segments.
-- Increased focus on the development of European opportunities; growth
will be supported with the acquisition of a larger European
headquarters and distribution center and continued focus and
commitment of resources to build and enhance awareness of the Garmin
brand.
Two-for-One Stock Split Approved
Garmin shareholders approved the proposed two-for-one split of Garmin's Common Shares at a Special Shareholders Meeting on July 21, 2006. As previously announced, the stock split record date is August 2, 2006 and the subdivision of each outstanding Common Share of a par value of $0.01 each into two Common Shares of a par value of $0.005 each will be effective August 15, 2006. The Garmin Board of Directors also previously approved a post-stock split annual cash dividend of $0.50 per share payable to shareholders of record on December 1, 2006. This dividend will be paid on December 15, 2006.
Non-GAAP Measures Net income (earnings) per share, excluding foreign currency
Management believes that net income per share before the impact of foreign currency translation gain or loss is an important measure. The majority of the company's consolidated foreign currency translation gain or loss results from translation into New Taiwan dollars at the end of each reporting period of the significant cash and marketable securities, receivables and payables held in U.S. dollars by the company's Taiwan subsidiary. Such translation is required under GAAP because the functional currency of this subsidiary is New Taiwan dollars. However, there is minimal cash impact from such foreign currency translation and management expects that the Taiwan subsidiary will continue to hold the majority of its cash, cash equivalents and marketable securities in U.S. dollars. Accordingly, earnings per share before the impact of foreign currency translation gain or loss allows an assessment of the company's operating performance before the non-cash impact of the position of the U.S. dollar versus the New Taiwan dollar, which permits a consistent comparison of results between periods.
The following table contains a reconciliation of GAAP net income per share to net income per share excluding the impact of foreign currency translation gain or loss.
Garmin Ltd. And Subsidiaries
Net income per share, excluding FX
(in thousands, except per share information)
13-Weeks Ended 26-weeks Ended
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
Net Income (GAAP) $123,286 $74,194 $210,800 $121,595
Foreign currency
(gain) / loss, net
of tax effects ($2,499) $1,182 $3,793 $10,159
Net income,
excluding FX $120,787 $75,376 $214,593 $131,754
Net income per
share (GAAP):
Basic $1.14 $0.68 $1.95 $1.12
Diluted $1.12 $0.68 $1.93 $1.11
Net income per share,
excluding FX:
Basic $1.11 $0.70 $1.98 $1.22
Diluted $1.10 $0.69 $1.96 $1.21
Weighted average common
shares outstanding:
Basic 108,409 108,368 108,297 108,347
Diluted 109,672 109,143 109,434 109,247
Free cash flow
Management believes that free cash flow is an important financial measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flow less capital expenditures for property and equipment.
The following table contains a reconciliation of GAAP net cash provided by operating activities to free cash flow.
Garmin Ltd. And Subsidiaries
Free Cash Flow
(in thousands)
13-Weeks Ended 26-Weeks Ended
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
Net cash provided by
operating activities $76,159 $46,561 $132,376 $89,407
Less: purchases of
property and
equipment ($11,743) ($4,001) ($26,612) ($15,779)
Free Cash Flow $64,416 $42,560 $105,764 $73,628
Earnings Call Information
The information for Garmin Ltd.'s earnings call is as follows:
When: Wednesday, August 2, 2006 at 11:00 a.m. Eastern
Where: http://www.garmin.com/aboutGarmin/invRelations/irCalendar.html
How: Simply log on to the web at the address above or call to listen
in at 800-883-9537.
Contact: investor.relations@garmin.com
Through its operating subsidiaries, Garmin Ltd. designs, manufactures, and markets navigation, communications and information devices, most of which are enabled by GPS technology. Garmin is a leader in the general aviation and consumer markets and its products serve aviation, marine, outdoor, fitness, automotive, mobile and OEM applications. Garmin Ltd. is incorporated in the Cayman Islands, and its principal subsidiaries are located in the United States, Taiwan and United Kingdom. For more information, visit the investor relations site of Garmin Ltd. at http://www.garmin.com/ or contact the Investor Relations department at 913-397-8200. Garmin and Forerunner are registered trademarks, and nuvi and Edge are trademarks, of Garmin Ltd. or its subsidiaries.
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
13-Weeks Ended 26-Weeks Ended
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
Net sales $432,468 $264,497 $754,779 $457,148
Cost of goods sold 216,184 124,516 375,706 213,969
Gross profit 216,284 139,981 379,073 243,179
Selling, general and
administrative expenses 54,915 33,093 92,678 53,611
Research and development
expense 26,793 17,818 51,707 34,746
81,708 50,911 144,385 88,357
Operating income 134,576 89,070 234,688 154,822
Other income (expense):
Interest income 8,538 4,487 15,843 8,389
Interest expense (5) (41) (12) (44)
Foreign currency 2,958 (1,467) (4,488) (12,604)
Other (167) 3 3,437 299
11,324 2,982 14,780 (3,960)
Income before income taxes 145,900 92,052 249,468 150,862
Income tax provision 22,614 17,858 38,668 29,267
Net income $123,286 $74,194 $210,800 $121,595
Net income per share:
Basic $1.14 $0.68 $1.95 $1.12
Diluted $1.12 $0.68 $1.93 $1.11
Weighted average common
shares outstanding:
Basic 108,409 108,368 108,297 108,347
Diluted 109,672 109,143 109,434 109,247
Garmin Ltd. And Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
(Unaudited)
July 1, December 31,
2006 2005
Assets
Current assets:
Cash and cash equivalents $373,944 $334,352
Marketable securities 46,805 32,050
Accounts receivable, net 295,795 170,997
Inventories 227,912 199,841
Deferred income taxes 45,049 29,615
Prepaid expenses and other
current assets 34,358 34,312
Total current assets 1,023,863 801,167
Property and equipment, net 195,383 179,173
Marketable securities 408,145 344,673
Restricted cash 1,449 1,356
Licensing agreements, net 3,838 6,517
Other assets, net 29,179 29,349
Total assets $1,661,857 $1,362,235
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $89,635 $76,516
Salaries and benefits payable 17,782 13,005
Warranty reserve 24,906 18,817
Other accrued expenses 69,630 23,993
Income taxes payable 63,298 63,154
Dividend payable 108,389 0
Total current liabilities 373,640 195,485
Deferred income taxes 11,350 9,486
Stockholders' equity:
Common stock 1,085 1,081
Additional paid-in capital 117,465 96,242
Retained earnings 1,174,866 1,072,454
Accumulated other comprehensive
gain (16,549) (12,513)
Total stockholders' equity 1,276,867 1,157,264
Total liabilities and stockholders'
equity $1,661,857 $1,362,235
Garmin Ltd. And Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
26-Weeks Ended
July 1, June 25,
2006 2005
Operating Activities:
Net income $210,800 $121,595
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 10,211 8,812
Amortization 17,055 16,133
Loss (gain) on sale of property
and equipment 191 (138)
Provision for doubtful accounts 2,038 618
Deferred income taxes (13,478) (4,087)
Foreign currency transaction
gains/losses 2,392 19,245
Provision for obsolete and slow
moving inventories 9,336 7,053
Stock compensation expense 4,759 -
Realized gains on marketable
securities (3,852) -
Changes in operating assets and
liabilities:
Accounts receivable (126,836) (44,937)
Inventories (37,408) (10,282)
Other current assets (11,135) 1,012
Accounts payable 13,119 (3,803)
Other current liabilities 56,503 (3,639)
Income taxes 143 (15,725)
Purchase of licenses (1,462) (2,450)
Net cash provided by operating
activities 132,376 89,407
Investing activities:
Purchases of property and equipment (26,612) (15,779)
Purchase of intangible assets (1,115) (224)
Purchase of marketable securities (231,870) (169,138)
Redemption of marketable securities 150,222 155,052
Change in restricted cash (92) 21
Proceeds from sale of property and
equipment -
Net cash used in investing activities (109,467) (30,068)
Financing activities:
Proceeds from issuance of common
stock 9,479 2,459
Stock repurchase - (11,962)
Tax benefit related to stock option
exercise 6,988 -
Net cash provided (used in) financing
activities 16,467 (9,503)
Effect of exchange rate changes on
cash and cash equivalents 216 488
Net increase in cash and cash
equivalents 39,592 50,324
Cash and cash equivalents at
beginning of period 334,352 249,909
Cash and cash equivalents at end of
period $373,944 $300,233
Garming Ltd. And Subsidiaries
Revenue, Gross Profit, and Operating Income by Segment (Unaudited)
Reporting Segments
Outdoor/ Auto/
Fitness Marine Mobile Aviation Total
13-Weeks Ended
July 1, 2006
Net sales $71,115 $50,115 $255,387 $55,851 $432,468
Gross profit $42,469 $29,823 $107,061 $36,931 $216,284
Operating
income $31,617 $21,146 $59,974 $21,839 $134,576
13-Weeks Ended
June 25, 2005
Net sales $57,380 $51,901 $100,985 $54,231 $264,497
Gross profit $30,219 $27,609 $45,746 $36,407 $139,981
Operating
income $21,677 $18,526 $26,381 $22,486 $89,070
26-Weeks Ended
July 1, 2006
Net sales $134,761 $100,818 $406,116 $113,084 $754,779
Gross profit $78,812 $57,839 $170,147 $72,275 $379,073
Operating
income $56,298 $40,059 $96,264 $42,067 $234,688
26-Weeks Ended
June 25, 2005
Net sales $110,038 $93,888 $143,815 $109,407 $457,148
Gross profit $57,722 $47,247 $65,109 $73,101 $243,179
Operating
income $40,145 $30,934 $38,249 $45,494 $154,822