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Garmin Ltd. (



Q4 2011 Earnings Conference Call

February 22, 2012 10:30 AM ET


Kerri Thurston – Manager, Investor Relations

Cliff Pemble – President & Chief Operating Officer

Kevin Rauckman – Chief Financial Officer & Treasurer


Yair Reiner – Oppenheimer & Company

Simona Jankowski – Goldman Sachs

Jonathan Goldberg – Deutsche Bank

James Faucette – Pacific Crest

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Good day, everyone and welcome to the

Garmin Fourth Quarter 2011 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Ms. Kerri Thurston. Please go ahead, ma’am.

Kerri Thurston

Thank you. Good morning. We would like to welcome you to Garmin Limited’s Fourth Quarter 2011 Earnings Call. Please note that a copy of the press release concerning this earnings call is available at Garmin’s Investor Relations site on the Internet at


Additionally, this call is being broadcast live on the Internet. Please note that this webcast does include slides, which can be viewed during the call. An archive of the webcast will be available until March 28


and a transcript of the call will be available on the Website under the Events Calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, earnings, market share, product introductions, future demand for our products and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K for the year ended December 25


, 2010 filed with the Securities and Exchange Commission.

Our 2011 10-K will be filed on February 29


. Attending on behalf of Garmin Limited this morning are Dr. Min Kao, Chairman and Chief Executive Officer; Cliff Pemble, President and Chief Operating Officer; and Kevin Rauckman, Chief Financial Officer and Treasurer.

The presenters for this morning’s call are Cliff and Kevin. At this time, I would like to turn the call over to Cliff.

Cliff Pemble

Thank you, Kerri and good morning everyone. As we announced earlier this morning, Garmin delivered strong results in the fourth quarter, with consolidated revenues increasing 9% year-over-year to $910 million. This growth was broad based with each of our business segments contributing.

Gross margins improved year-over-year, up 240 basis points to 47.7%. Revenue growth combined with improved gross margins resulted in both operating income and EPS growth. Operating income for the quarter grew 8%, while pro forma EPS came in at $0.96, a 16% improvement over the prior year. As a group, our traditional market segment for the aviation, marine, outdoor and fitness contributed 61% of our total operating income for the quarter and revenue from these segments grew nearly 19%.

We sold 6.1 million units in the quarter, which was flat year-over-year. Auto PND unit volume was down slightly; however this was offset by higher volumes in outdoor, fitness and marine. We generated $213 million in free cash flow during the quarter, resulting in a cash balance of just under $2.5 billion.

Looking at highlights for the full year, consolidated revenue increased 3%, as new product categories increased market share and emerging market opportunities delivered results that exceeded the expectations we established at the beginning of the year. As a group, our traditional market segments grew 14%, contributing $1.2 billion in total revenue for the year. The revenue growth in these segments combined with their strong margin profiles generated 71% of our operating income.

We delivered over 15.8 million units in 2011, a decline of only 1% year-over-year. Weakness in the North American PND market was partially offset by stronger PND shipments through the EMEA and APAC markets. Unit growth in the outdoor, fitness and marine markets also helped close the gap.

From a geographical perspective, the EMEA region grew 19%, outpacing all other geographies. All market segments contributed to the growth including PND. We generated $784 million of free cash flow in the year, which was partially used to fund our quarterly dividend and to complete numerous acquisitions aimed at further diversifying our revenue base.

Next, we will review each of our business segments highlighting 2011 performance, outlook for 2012, and a summary of long-term strategic initiatives. Starting with marine segment, we reported year-over-year revenue growth of 12%, driven by improved market conditions and share gains across our product portfolio. We experienced strong market share gains in the OEM segment and expanded our presence in the inland market, with the introduction of our new echo fish finders. During the year, we expanded our product portfolio with SONAR and autopilot solutions that brought new innovation to the marine market and enhanced our ability to serve the sail and large boat market.

Throughout the year, we invested heavily in the marine segment, with increased research and development and rebuilt additional support infrastructure to serve our growing base of OEM customers. This has compressed margins in the near term; however we are confident that these investments are critical to growing revenue and market share going forward.

For 2012, we are targeting revenue growth of 5% to 10% in the marine segment, as market conditions continue to improve and as recent OEM wins and product introductions provide revenue contribution for the full year. At last weeks’ Miami Boat Show, we announced relationships with Teleflex and Viking, both of which will target the larger boat market and will contribute to revenue in 2012.

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