SCHAFFHAUSEN, Switzerland, Feb. 22, 2023 /PRNewswire/ -- Garmin® Ltd. (NYSE: GRMN), today announced results for the fourth quarter ended December 31, 2022.
Highlights for fourth quarter 2022 include:
Highlights for fiscal year 2022 include:
Executive Overview from Cliff Pemble, President and Chief Executive Officer:
"Our performance in 2022 was solid even as we faced increasing headwinds affecting the business environment and consumer behaviors," said Cliff Pemble, President and CEO of Garmin. "We are entering 2023 with a strong product lineup, and many more product launches are planned throughout the year. I am very proud of what we accomplished in 2022 and look forward to the opportunities and challenges ahead."
Fitness:
Revenue from the fitness segment decreased 28% in the fourth quarter, with declines across all categories. Gross and operating margins were 49% and 12%, respectively, resulting in $40 million of operating income. During the quarter, we launched Bounce, our first LTE-connected kids smartwatch. Bounce offers two-way text and voice messaging, as well as real-time location tracking. Bounce also offers kids fitness tracking, games, and allows parents to assign chores and give rewards.
Outdoor:
Revenue from the outdoor segment grew 3% in the fourth quarter primarily due to growth in handhelds and services. Gross and operating margins were 64% and 34%, respectively, resulting in $132 million of operating income. During the quarter, we launched the second-generation MARQ luxury smartwatch collection built with Grade-5 titanium, sapphire glass, and a vibrant AMOLED touchscreen display.
Aviation:
Revenue from the aviation segment grew 27% in the fourth quarter with contributions from both the aftermarket and OEM categories. Gross and operating margins were 71% and 28%, respectively, resulting in $63 million of operating income. During the quarter, EASA approved the G5000® integrated retrofit flight deck in the Cessna Citation Excel and XLS. Also, we received Supplemental Type Certification by the Federal Aviation Administration for the GI 275 electronic flight instrument in the Dassault Falcon 7X business jet. In addition, during the quarter, we announced that L3Harris Technologies has chosen the G3000 tandem integrated flight deck as part of a U.S. Special Operations Command (USSOCOM) Armed Overwatch program contract.
Marine:
Revenue from the marine segment grew 7% in the fourth quarter primarily driven by our sonar and chartplotter products. Gross and operating margins were 54% and 20%, respectively, resulting in $43 million of operating income. During the quarter, we announced that Company/GRMN" style="color:blue !important; text-decoration:underline !important;" class="hlink">Garmin Navionics®+ featuring a streamlined interface, combined coastal and inland content and access to daily chart updates with subscription is now pre-loaded in certain flagship GPSMAP® chartplotters. During the quarter, we received multiple accolades for advancing innovation and safety in the marine industry, including the prestigious IBEX Innovation Award, National Boating Industry Safety Award, and recognition as the Most Innovative Marine Company by Soundings Trade Only.
Auto:
Revenue from the auto segment decreased 14% during the fourth quarter as declines in our consumer products more than offset the growth in OEM programs. Gross margin was 39%, and we recorded an operating loss of $11 million in the quarter driven by ongoing investments in auto OEM programs. During the quarter, we were recognized by the BMW Group with a coveted 2022 Supplier Innovation Award in the customer experience category for contributions to the Theatre Screen in the all-new BMW 7 Series.
Change in Operating Segments:
In January 2023, the Company combined the consumer auto operating segment with the outdoor operating segment. As a result, beginning with reports filed in the first quarter of fiscal 2023, the Company's operating segments will be fitness, outdoor, aviation, marine, and auto OEM. Prior periods will be recast to conform to the revised composition (see Appendix A for the recast presentation).
Additional Financial Information:
Total operating expenses in the fourth quarter were $478 million, a 5% increase over the prior year. Research and development increased 5% primarily due to engineering personnel costs. Selling, general and administrative expenses increased 7% driven primarily by personnel related expenses and information technology costs. Advertising expenses decreased 6% primarily due to lower cooperative advertising.
The effective tax rate in the fourth quarter was 11.1%. Excluding $7 million of income tax expense due to the revaluation of certain Switzerland deferred tax assets associated with Switzerland tax reform transitional measures, our pro forma effective tax rate(1) in the fourth quarter of 2022 was 8.9% compared to 7.4% in the prior year quarter. The year-over-year increase in the pro forma effective tax rate is primarily due to benefits in the prior year related to a favorable adjustment of estimated quarterly taxes in fourth quarter of 2021 that were not repeated in the current year.
In the fourth quarter of 2022, we generated approximately $309 million of free cash flow(1). We continued to return cash to shareholders through dividends and share repurchases. As a result of the additional week in the fourth quarter 2022, two quarterly dividends were paid totaling approximately $280 million and we repurchased approximately $93 million of Company stock. We have approximately $93 million remaining as of December 31, 2022 in the share repurchase program which is authorized through December 29, 2023. We ended the quarter with cash and marketable securities of approximately $2.7 billion.
Dividend Recommendation:
The board of directors intends to recommend to the shareholders for approval at the annual meeting to be held on June 9, 2023, a cash dividend in the amount of $2.92 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:
In addition, the board has established March 31, 2023 as the payment date and March 15, 2023 as the record date for the final dividend installment of $0.73 per share, per the prior approval at the 2022 annual shareholders' meeting. The first, second and third payments of $0.73 per share were made on June 30, 2022, September 30, 2022, and December 30, 2022, respectively.
Webcast Information/Forward-Looking Statements:
The information for Garmin Ltd.'s earnings call is as follows:
When:
Wednesday, February 22, 2023 at 10:30 a.m. Eastern
How:
Simply log on to the web at the address aboveAn archive of the live webcast will be available until February 21, 2024 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 2023 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, share repurchase programs, currency movements, expenses, pricing, new product launches, market reach, 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 31, 2022 filed by Garmin with the Securities and Exchange Commission (Commission file number 001-41118). A copy of Garmin's 2022 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 31, 2022. 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.
Company/GRMN" style="color:blue !important; text-decoration:underline !important;" class="hlink">Garmin, the Company/GRMN" style="color:blue !important; text-decoration:underline !important;" class="hlink">Garmin logo, the Company/GRMN" style="color:blue !important; text-decoration:underline !important;" class="hlink">Garmin delta, dēzl, G5000, G3000, GPSMAP, MARQ and Navionics are trademarks of Company/GRMN" style="color:blue !important; text-decoration:underline !important;" class="hlink">Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. Bounce and Enduro are trademarks of Company/GRMN" style="color:blue !important; text-decoration:underline !important;" class="hlink">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.
Investor Relations Contact:
Media Relations Contact:
Teri Seck
Krista Klaus
913/397-8200
Garmin Ltd. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share information)
14-Weeks
Ended
13-Weeks
Ended
53-Weeks
Ended
52-Weeks
Ended
December 31,
December 25,
December 31,
December 25,
2022
2021
2022
2021
Net sales
$
1,306,356
$
1,391,589
$
4,860,286
$
4,982,795
Cost of goods sold
561,386
619,484
2,053,511
2,092,336
Gross profit
744,970
772,105
2,806,775
2,890,459
Advertising expense
57,662
61,124
168,040
171,829
Selling, general and administrative expenses
204,421
190,909
775,963
721,260
Research and development expense
215,712
204,953
834,927
778,750
Total operating expenses
477,795
456,986
1,778,930
1,671,839
Operating income
267,175
315,119
1,027,845
1,218,620
Other income (expense):
Interest income
14,306
7,005
40,826
28,573
Foreign currency (losses) gains
44,535
(14,642)
(11,274)
(45,263)
Other income
3,860
1,355
7,577
4,866
Total other income (expense)
62,701
(6,282)
37,129
(11,824)
Income before income taxes
329,876
308,837
1,064,974
1,206,796
Income tax provision
36,604
22,702
91,389
124,596
Net income
$
293,272
$
286,135
$
973,585
$
1,082,200
Net income per share:
Basic
$
1.53
$
1.49
$
5.06
$
5.63
Diluted
$
1.53
$
1.48
$
5.04
$
5.61
Weighted average common shares outstanding:
Basic
191,613
192,353
192,544
192,180
Diluted
192,104
193,306
193,042
193,043
Garmin Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share information)
December 31,
2022
December 25,
2021
Assets
Current assets:
Cash and cash equivalents
$
1,279,194
$
1,498,058
Marketable securities
173,288
347,980
Accounts receivable, net
656,847
843,445
Inventories
1,515,045
1,227,609
Deferred costs
14,862
15,961
Prepaid expenses and other current assets
315,915
328,719
Total current assets
3,955,151
4,261,772
Property and equipment, net
1,147,005
1,067,478
Operating lease right-of-use assets
138,040
89,457
Noncurrent marketable securities
1,208,360
1,268,698
Deferred income tax assets
441,071
260,205
Noncurrent deferred costs
9,831
12,361
Goodwill
567,994
575,080
Other intangible assets, net
178,461
215,993
Other noncurrent assets
85,257
103,383
Total assets
$
7,731,170
$
7,854,427
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
212,417
$
370,048
Salaries and benefits payable
176,114
211,371
Accrued warranty costs
50,952
45,467
Accrued sales program costs
97,772
121,514
Other accrued expenses
197,376
225,988
Deferred revenue
91,092
87,654
Income taxes payable
246,180
128,083
Dividend payable
139,732
258,023
Total current liabilities
1,211,635
1,448,148
Deferred income tax liabilities
129,965
117,595
Noncurrent income taxes payable
34,627
62,539
Noncurrent deferred revenue
35,702
41,618
Noncurrent operating lease liabilities
114,541
70,044
Other noncurrent liabilities
360
324
Stockholders' equity:
Shares, CHF 0.10 par value, 198,077 shares authorized and issued, 191,623
shares outstanding at December 31, 2022; and 192,608 shares outstanding
at December 25, 2021
17,979
17,979
Additional paid-in capital
2,042,472
1,960,722
treasury stock (6,454 and 5,469 shares, respectively)
(475,095)
(303,114)
Retained earnings
4,733,517
4,320,737
Accumulated other comprehensive income (loss)
(114,533)
117,835
Total stockholders' equity
6,204,340
6,114,159
Total liabilities and stockholders' equity
$
7,731,170
$
7,854,427
Garmin Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
53-Weeks
Ended
52-Weeks
Ended
December 31,
2022
December 25,
2021
Operating Activities:
Net income
$
973,585
$
1,082,200
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
118,743
103,498
Amortization
45,110
51,320
(Gain) loss on sale of property and equipment
(2,083)
298
Unrealized foreign currency (gains) losses
(5,867)
36,385
Deferred income taxes
(143,286)
(5,368)
Stock compensation expense
76,801
92,522
Realized losses (gains) on marketable securities
986
(622)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net of allowance for doubtful accounts
167,336
(19,106)
Inventories
(363,327)
(476,454)
Other current and noncurrent assets
72,185
(38,004)
Accounts payable
(131,268)
108,946
Other current and noncurrent liabilities
(71,756)
70,007
Deferred revenue
(2,379)
(7,377)
Deferred costs
3,591
8,288
Income taxes
49,888
5,894
Net cash provided by operating activities
788,259
1,012,427
Investing activities:
Purchases of property and equipment
(244,286)
(307,645)
Proceeds from sale of property and equipment
2,402
35
Purchase of intangible assets
(1,907)
(1,942)
Purchase of marketable securities
(1,051,994)
(1,508,712)
Redemption of marketable securities
1,164,116
1,363,070
Acquisitions, net of cash acquired
(13,455)
(20,175)
Net cash used in investing activities
(145,124)
(475,369)
Financing activities:
Dividends
(679,096)
(491,457)
Proceeds from issuance of treasury stock related to equity awards
62,221
35,733
Purchase of treasury stock related to equity awards
(22,730)
(30,985)
Purchase of treasury stock under share repurchase plan
(201,012)
—
Net cash used in financing activities
(840,617)
(486,709)
Effect of exchange rate changes on cash and cash equivalents
(21,449)
(10,254)
Net (decrease) increase in cash, cash equivalents, and restricted cash
(218,931)
40,095
Cash, cash equivalents, and restricted cash at beginning of year
1,498,843
1,458,748
Cash, cash equivalents, and restricted cash at end of year
$
1,279,912
$
1,498,843
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
14-Weeks Ended December 31, 2022
Net sales
$
336,553
$
388,259
$
225,251
$
210,614
$
145,679
$
63,206
$
82,473
$
1,306,356
Gross profit
164,496
249,079
159,858
114,723
56,814
30,952
25,862
744,970
Operating income (loss)
39,844
132,377
62,829
42,853
(10,728)
1,775
(12,503)
267,175
13-Weeks Ended December 25, 2021
Net sales
$
470,146
$
378,218
$
177,582
$
196,454
$
169,189
$
93,143
$
76,046
$
1,391,589
Gross profit
231,560
244,482
130,445
105,170
60,448
40,257
20,191
772,105
Operating income (loss)
100,317
140,393
45,301
40,642
(11,534)
10,975
(22,509)
315,119
53-Weeks Ended December 31, 2022
Net sales
$
1,109,419
$
1,495,167
$
792,799
$
903,983
$
558,918
$
275,108
$
283,810
$
4,860,286
Gross profit
552,417
969,810
573,063
491,457
220,028
129,598
90,430
2,806,775
Operating income (loss)
104,738
556,448
213,186
215,304
(61,831)
16,833
(78,664)
1,027,845
52-Weeks Ended December 25, 2021
Net sales
$
1,533,788
$
1,281,933
$
712,468
$
875,151
$
579,455
$
324,731
$
254,724
$
4,982,795
Gross profit
813,325
834,837
519,821
495,310
227,166
153,825
73,341
2,890,459
Operating income (loss)
359,201
476,122
193,188
249,781
(59,672)
48,347
(108,019)
1,218,620
Garmin Ltd. and Subsidiaries
Net Sales by Geography (Unaudited)
(In thousands)
14-Weeks
Ended
13-Weeks
Ended
53-Weeks
Ended
52-Weeks
Ended
December 31,
December 25,
YoY
December 31,
December 25,
YoY
2022
2021
Change
2022
2021
Change
Net sales
$
1,306,356
$
1,391,589
(6) %
$
4,860,286
$
4,982,795
(2) %
Americas
648,912
626,099
4 %
2,429,029
2,349,515
3 %
EMEA
440,747
528,053
(17) %
1,633,640
1,858,907
(12) %
APAC
216,697
237,437
(9) %
797,617
774,373
3 %
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.
(2) Certain Switzerland deferred tax assets related to the enactment of Switzerland Federal and Schaffhausen cantonal tax reform and related transitional measures were revalued in the fourth quarter of 2022 resulting in $7.2 million of 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.
Pro forma net income (earnings) per share
Management believes that net income (earnings) per share before the impact of foreign currency gains or losses and certain discrete income tax items, as discussed above, is an important measure in order to permit a consistent comparison of the Company's performance between periods.
(1) Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar and the related exchange rate impact on the significant cash, receivables, and payables held in a currency other than the functional currency at a given legal entity. However, there is minimal cash impact from such foreign currency gains and losses.
(2) The tax effect of foreign currency gains and losses was calculated using the pro forma effective tax rate of 8.9% and 7.9% for the 14-weeks and fiscal year ended December 31, 2022, respectively, and the pro forma effective tax rate of 7.4% and 10.3% for the 13-weeks and fiscal year ended December 25, 2021, respectively.
(3) The 2022 discrete tax item is discussed in the pro forma effective tax rate section above.
Free cash flow
Management believes that free cash flow is an important liquidity measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flows less capital expenditures for property and equipment. Management believes that excluding purchases of property and equipment provides a better understanding of the underlying trends in the Company's operations and allows more accurate comparisons of the Company's results between periods. This metric may also be useful to investors but should not be considered in isolation as it is not a measure of cash flow available for discretionary expenditures. The most comparable GAAP measure is net cash provided by operating activities.
Forward-looking Financial Measures
The forward-looking financial measures in our 2023 guidance provided above do not consider the potential future net effect of foreign currency exchange gains and losses, certain discrete tax items and any other impacts that may be identified as pro forma adjustments in calculating the non-GAAP measures described above.
The estimated impact of foreign currency gains and losses cannot be reasonably estimated on a forward-looking basis due to the high variability and low visibility with respect to non-operating foreign currency exchange gains and losses and the related tax effects of such gains and losses. The impact on diluted net income per share of foreign currency gains and losses, net of tax effects, was $0.05 per share for the 53 weeks ended December 31, 2022.
At this time, management is unable to determine whether or not significant discrete tax items will occur in fiscal 2023 or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.
Appendix A – Change in operating segments
In January 2023, the Company announced an organization realignment, which combines the consumer auto operating segment with the outdoor operating segment. As a result, beginning with reports filed in the first quarter of fiscal 2023, the Company's operating segments will be fitness, outdoor, aviation, marine, and auto OEM. Each prior period that will be presented in the forthcoming Form 10-Q and Form 10-K filings will be recast to conform to the revised composition. This change had no effect on the Company's consolidated financial results. The following table provides the relevant recast financial results. The table may not foot due to rounding.
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SOURCE Garmin Ltd.