Garmin Reports Q4 and Fiscal 2015 Results

(1) See attached table for reconciliation of non-GAAP measures including pro forma diluted EPS

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

“Despite the challenging global economic environment and the intensified competitive landscape of 2015, we finished strong with revenue and margins exceeding our expectations,” said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd. “We are utilizing our robust balance sheet to further diversify our revenue base in adjacent categories with our recently announced acquisitions. We believe we have strong products across all of our business segments and are well positioned as we enter 2016.”


The fitness segment posted revenue growth of 14% in the quarter reflecting the strength of our wellness, running, and cycling product offerings. Gross margin fell to 51% in the quarter, while operating margin declined to 18%. The gross margin decline was driven by holiday promotions and competitive dynamics in certain product categories, as well as product mix within the quarter. We saw our Beat Yesterday advertising campaign favorably impact our holiday sales and the Garmin brand. We recently introduced Varia Vision, a new product category that provides cyclists with an in-sight display to enhance their road awareness by putting the information in their line of sight. We believe our product lineup is very strong and look forward to another year of growth from our fitness segment in 2016.


The outdoor segment posted revenue growth of 6% in the quarter driven by the strength of our outdoor wearables. Gross and operating margins within the segment were down slightly from the year ago quarter at 60% and 33%, respectively. As we enter 2016, we are excited about our recent new product announcements including the fēnix® 3 HR with Garmin Elevate wrist heart rate technology, Approach® S20 and G10, and TruSwing™. The pending acquisition of DeLorme® and the acquisition of PulsedLight™ provide opportunity to expand into new areas of growth for the future.


The aviation segment posted revenue growth of 12% in the quarter, exceeding our expectations in a challenging general aviation environment. The gross margin in aviation was strong at 76%. This gross margin performance allowed the aviation segment to deliver 62% operating income growth over the year ago quarter. We will continue to invest in upcoming certifications with numerous OEM partners, while also developing new products and technologies, which we expect will result in long-term market share gains and growth in the aviation segment.


The marine segment posted revenue growth of 8% in the seasonally slow fourth quarter on the strength of our new product offerings. Gross margin improved year-over-year to 54% as mix shifted toward new products with higher margin profiles. In the quarter, we recorded additional litigation related costs leading to an operating loss of 10%. Excluding these costs, we would have reported an operating profit compared to an operating loss in the fourth quarter of 2014. We recently announced the Striker™ series, a new line of fishfinders which redefine the entry level fishfinder market with the addition of GPS capability. At recent boat shows, we announced the quatix 3 wearable, the Garmin Nautix™ in-sight display, and the GNX Wind, providing sailors important wind and boat data. In 2015, we delivered both revenue and profitability improvements as a result of our significant investment in recent years. We believe our product lineup is very strong and look forward to another year of growth in 2016.


Consistent with the ongoing decline of the overall PND market, the auto segment posted a revenue decline of 21% in the fourth quarter. Gross and operating margins were 42% and 13%, respectively. We recently introduced the Garmin Drive line of PND devices with a range of product offerings from basic navigation to integrated dashcam providing additional driver assistance. On the OEM side, our newly developed high performance navigation software solution is fully integrated in the new Mercedes E-Class recently launched in Detroit.

Additional Financial Information:

Total operating expenses in the quarter were $267 million, a 5% increase from the prior year. Research and development investment increased 4%, with continued emphasis on active lifestyle products in fitness and outdoor. Advertising increased 5%, driven primarily by increases in fitness and outdoor advertising to support wearables. Selling, general and administrative expense increased by 5%, driven primarily by litigation related costs and information technology.

The effective tax rate in the fourth quarter of 2015 was 13.2% compared to a pro forma effective tax rate of 19.1% in the prior year, excluding the impact of $49 million income tax benefit associated with net releases of reserves primarily associated with completion of tax audits in 2014. The decrease in the effective tax rate resulted from the improved pretax income compared to previous projections for 2015, which positively impacts our geographic income mix. Consistent with the prior year, the fourth quarter included the full year impact of the U.S. research and development tax credit.

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