Garmin^® Ltd. (NYSE: GRMN) today announced results for the second quarter ended June 25, 2022.

Highlights for second quarter 2022 include:

• Consolidated revenue of $1.24 billion, a 6% decrease compared to the strong, pandemic-driven prior year quarter
• The year-over-year strengthening of the U.S. Dollar relative to other major currencies unfavorably impacted consolidated revenue by approximately $57 million
• Gross and operating margins were 58.7% and 23.6%, respectively
• Operating income of $293 million, a 21% decrease compared to the prior year quarter
• GAAP EPS was $1.33 and pro forma EPS⁽¹⁾ was $1.44
• Celebrated a milestone of more than 25,000 integrated flight deck deliveries
• Launched the Forerunner 955 Solar and Edge 1040 Solar, our first fitness devices with integrated solar charging capability
• Entered a new product category with the launch of our dēzl headset for professional truck drivers
• Garmin auto OEM awarded the Technology and Development Award by Yamaha at their annual global conference

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

“Revenue declined during the second quarter driven primarily by underperformance in our fitness segment,” said Cliff Pemble, President and CEO of Garmin. “Markets continue to normalize following two years of pandemic driven growth, and we also face additional headwinds including the relentless strengthening of the U.S. Dollar, high inflation, and rising interest rates. While we must adjust expectations, we believe that our lineup of innovative products and strategy of diversification will allow us to remain strong in an evolving economic environment.”

Fitness:

Revenue from the fitness segment decreased 34% in the second quarter with declines across all categories led by our advanced wearables and cycling products. Gross and operating margins were 49% and 9% in the quarter, respectively, resulting in $23 million of operating income. During the quarter, we launched our refreshed line of Forerunners including the Forerunner 955 with solar charging capability which provides up to 20 days of battery life in smartwatch mode, premium training features and a new touchscreen interface. We also launched the Forerunner 255 adding triathlon support and recovery insights to the series. Also, during the quarter, we released the Edge 1040 Solar cycling computer featuring solar charging and multi-band GNSS technology, providing more accurate positioning in challenging ride environments such as dense urban areas or under deep tree cover.

Outdoor:

Revenue from the outdoor segment grew 18% in the second quarter primarily due to strong demand for our adventure watches. Gross and operating margins were 66% and 40%, respectively, resulting in $154 million of operating income. During the quarter, we announced the tactix 7, a premium smartwatch with advanced tactical, performance and wrist-based navigation features.

Aviation:

Revenue from the aviation segment grew 13% in the second quarter driven by growth in both OEM and aftermarket categories. Gross and operating margins were 72% and 30%, respectively, resulting in $62 million of operating income. During the quarter, we delivered the 750^th integrated flight deck upgrade for King Air aircraft. We also achieved EASA approval for the GFC 600H flight control system for AS350 helicopters.

Marine:

Revenue from the marine segment decreased 7% in the second quarter primarily due to supply chain constraints that limited our ability to satisfy all demand for our products. Gross and operating margins were 57% and 28%, respectively, resulting in $69 million of operating income. During the quarter, we introduced the Echomap UHD2 chartplotter series bringing best-in-class sonar and built-in wireless networking to our 5- and 7-inch combo units. We also launched the quatix 7 smartwatch featuring an always-on touchscreen display, chartplotter control, anchor drag alarm and more.

Auto:

Revenue from the auto segment decreased 6% during the second quarter driven by both OEM and consumer products. Gross margin was 40%, and we recorded an operating loss of $15 million in the quarter driven by ongoing investments in auto OEM programs. During the quarter, we launched our first dēzl headset offering high-quality audio and up to 50 hours of continuous talk time. This premium over-the-road trucking headset is engineered for audio excellence in noisy cab environments.

Additional Financial Information:

Total operating expenses in the second quarter were $436 million, a 6% increase over the prior year. Research and development increased 8% primarily due to engineering personnel costs. Selling, general and administrative expenses increased 6% driven primarily by personnel related expenses and information technology costs. Advertising was relatively flat to the prior year quarter.

The effective tax rate in the second quarter was 7.6% compared to 14.8% in the prior year quarter. The year-over-year decrease in the effective tax rate is primarily due to income mix by jurisdiction and an increase in U.S. tax deductions and credits.

In the second quarter of 2022, we generated approximately $5 million of free cash flow⁽¹⁾. We paid a quarterly dividend of approximately $129 million and repurchased approximately $31 million of the Company’s shares, leaving approximately $269 million remaining in the share repurchase program authorized through December 29, 2023. We ended the quarter with cash and marketable securities of approximately $2.9 billion.

2022 Fiscal Year Guidance:

Based on our performance in the first half of 2022, we are adjusting our full year guidance. We now anticipate revenue of approximately $5.0 billion and pro forma EPS of $4.90 based on gross margin of 56.7%, operating margin of 20.0% and a full year effective tax rate of 8.5% (see attached discussion on Forward-looking Financial Measures).

Dividend Payment Date Confirmation:

The board of directors has established September 30, 2022, as the payment date for the next dividend installment of $0.73 per share with a record date of September 15, 2022. At the 2022 annual shareholders’ meeting, Garmin shareholders, in accordance with Swiss corporate law, approved a cash dividend in the total 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 in its discretion. The first payment was made on June 30, 2022. The board currently anticipates the scheduling of the remaining quarterly dividend installments as follows:

Webcast Information/Forward-Looking Statements:

The information for Garmin Ltd.’s earnings call is as follows:

An archive of the live webcast will be available until July 26, 2023 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 2022 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 25, 2021 filed by Garmin with the Securities and Exchange Commission (Commission file number 001-41118). A copy of Garmin’s 2021 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 June 25, 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.

Garmin, the Garmin logo, the Garmin delta, dēzl, Edge, Forerunner, quatix and tactix are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. GFC and Echomap are trademarks of 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.

Changes in Classification and Allocation

Prior period information presented here has been recast to conform to the current period presentation. Refer to the Current Report on Form 8-K/A announcing the Company’s financial results for the fiscal first quarter ended March 26, 2022 for further description and full recast impacts.

The following table includes supplemental financial information for the consumer auto and auto OEM operating segments that management believes is useful.

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. In the first half 2022 and 2021 there were no such discrete tax items identified.

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.

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 2022 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 $0.12 per share for the 26-weeks ended June 25, 2022.

At this time, management is unable to determine whether or not significant discrete tax items will occur in fiscal 2022 or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

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