Benjamin Bollin

Benjamin Bollin requested more detail on the commentary regarding variability in customer acceptance clauses for product deferred revenue, particularly in the context of tariffs.

Answer

CFO Chantelle Breithaupt explained the comment was to provide transparency on tariff uncertainty, as customer pull-ins for new use cases could impact deferred revenue. CEO Jayshree Ullal provided an example of a customer needing to quickly deploy an AI cluster before a tariff deadline, illustrating how such scenarios can affect revenue recognition timing.

Benjamin Bollin inquired about the evolution of Arista's enterprise strategy within the Global 2000, especially as network refresh opportunities appear to be intensifying.

Answer

CEO Jayshree Ullal described the enterprise segment as a significant area of investment with a strong product portfolio that benefits from technology trickling down from the data center. She identified go-to-market execution as the primary focus, noting that customer count and project invitations within the G2000 have never been stronger. She also highlighted international expansion as a key area for improvement, with new leadership being put in place.

Ben Bolin asked about the accrued incremental warranty costs in the Auto OEM segment and the long-term margin structure for that segment. He also inquired about the broader component supply environment, specifically regarding advanced process nodes and memory component availability given hyperscale demand.

Answer

President and CEO Cliff Pemble clarified that the accrued warranty cost was an isolated issue affecting prior period sales, which has since been addressed and corrected. He reiterated the long-term target for Auto OEM margins: mid to upper teens gross margin and mid single-digit operating margin at scale. Regarding component supply, he acknowledged impacts from AI and data center initiatives, but sees a long-term benefit for customers and Garmin through higher-performance processors and denser memory, leading to enhanced product features and capabilities.

Ben Bollin asked about the accrued incremental warranty costs in the auto OEM segment and the long-term outlook for its margin structure. He also inquired about the broader component supply environment, specifically regarding availability issues at advanced process nodes and the ability to source memory components into the next year.

Answer

Cliff Pemble, President and CEO, clarified that the accrued warranty was an isolated, addressed issue affecting prior period sales, and the long-term auto OEM margin target remains mid to upper teens gross margin and mid-single-digit operating margin at scale. Regarding component supply, he acknowledged impacts from AI/data centers but sees a long-term benefit for Garmin through higher-performance processors and denser memory configurations.

Ben Bollin inquired about the momentum and materiality of Garmin's subscription business and how investors should assess its progress. He also asked for commentary on working capital management, noting the year-over-year increases in receivables and inventory.

Answer

President and CEO Clifton Pemble noted that subscriptions are a growing part of the business across all segments but have not yet reached the 10% disclosure threshold. CFO and Treasurer Douglas Boessen explained that working capital is proceeding as planned; inventory was strategically increased to meet demand and mitigate tariff risks, while receivables growth is a function of higher sales.

Benjamin Bollin asked for color on the differing performance across geographies, particularly the deceleration in the Americas versus strong growth in EMEA. He also questioned the drivers behind the raised guidance for the Fitness segment, given its Q1 run rate.

Answer

CEO Cliff Pemble explained that regional performance reflects the geographic concentration of certain segments. The Americas was influenced by slower growth in Marine and Aviation, which are large markets there. Conversely, EMEA's strength was driven by strong growth in advanced wearables and Auto OEM deliveries. For the Fitness segment, Pemble stated the guidance increase is due to a larger expected benefit from favorable foreign exchange and anticipated revenue from new product releases later in the year.

Benjamin Bollin from Cleveland Research Company asked for clarification on the flat gross margin guidance for 2025, given the favorable revenue mix shift towards higher-margin segments. He also inquired about the drivers of strong EMEA performance and the long-term margin profile for the Auto OEM business.

Answer

CFO Douglas Boessen stated that while mix is a factor, variables like component costs and overhead lead to a projection of relatively consistent segment gross margins. CEO Clifton Pemble attributed EMEA's strength to a stronger market position for wearables (#2 in Europe vs. #3 in the Americas). For Auto OEM, he reaffirmed the long-term targets of mid-teens gross margin and mid-single-digit operating margin, supported by future program wins.

Benjamin Bollin of Robert W. Baird & Co. inquired about the underlying growth drivers for Garmin's wearables, specifically the mix between new users and existing customer upgrades. He also asked for color on the factors behind improved gross margins and sought insight into retailer inventory commitments for the holiday season.

Answer

President and CEO Clifton Pemble responded that wearables growth is broad-based across many use cases and that registration data shows a majority of users are new to the Garmin ecosystem. He attributed stronger gross margins to lower material costs, favorable currency effects from the Taiwan dollar, and improved factory efficiencies. Pemble also confirmed that retailers are eager for Garmin's products and that channel inventory appears clean, setting up a good position for the holidays.

Ben Bollin of Cleveland Research Company asked about the sales motion for Silvis, how it compares to Motorola's existing strategy, and plans for integration and acceleration. He also sought insights on the outlook for state and local budgets for fiscal 2026, following the end of the fiscal year for many states in June.

Answer

EVP & COO Jack Molloy described the Silvis sales motion as historically direct and US-focused, with plans to leverage Motorola's global footprint, channel partners, and government affairs arm to accelerate growth. Chairman & CEO Greg Brown confirmed that recent analysis shows state and local budgets for 2026 look 'very good' and remain strong, supporting confidence for the second half of 2025 and beyond.

Benjamin Bollin asked for an update on state budget cycles and federal grant awards, and also requested a comparison between the current funding environment (like ARPA) and the narrowbanding mandate from the early 2010s.

Answer

EVP and COO Jack Molloy reported that public safety remains a priority, with state and local budgets looking 'very good' due to strong tax receipts. Chairman and CEO Gregory Brown described the current environment as more 'steady state' compared to past stimulus events. Molloy emphasized a key difference: narrowbanding was a federal mandate forcing upgrades, whereas ARPA funds were complementary and a small fraction of orders.

Benjamin Bollin of Cleveland Research Company asked for an early outlook on 2025, seeking details on overall revenue growth, segment performance, and the mix of recurring revenue.

Answer

Gregory Brown, Chairman and CEO, provided a preliminary 2025 revenue growth forecast of 5-6%, noting that Software and Services (S&S) is expected to grow at approximately twice the rate of the Products and SI segment. He highlighted that the total backlog is now expected to be up year-over-year. Jason Winkler, EVP and CFO, added that the company anticipates operating margin expansion in 2025, with S&S having a clean year-over-year comparison after the Airwave price control impact.

Ben Bollin from Cleveland Research Company asked how customer perspectives on traditional three-tier architecture versus HCI are evolving and inquired about renewal opportunities from customers who signed multi-year VMware deals before the Broadcom acquisition.

Answer

President and CEO Rajiv Ramaswami explained that while Nutanix believes HCI is superior, the company is now a platform that supports both its own storage and external three-tier storage to meet customers where they are. Regarding VMware renewals, he noted that customers are at different stages; some are actively migrating now, while others who previously renewed are now considering their next move, viewing the situation as a multi-year opportunity for Nutanix.

Benjamin Bollin from Cleveland Research Company asked about the flexibility of incentives, such as discounts and billing terms, for large competitive takeout projects and whether customers are showing a greater willingness to migrate from 3-tier to hyperconverged infrastructure (HCI).

Answer

CFO Rukmini Sivaraman confirmed the use of thoughtful, onetime incentives for migrations and flexibility on billing terms, noting these are factored into guidance. CEO Rajiv Ramaswami explained that the competitive landscape is prompting customers to re-evaluate their entire IT stack, which is increasing interest in modern, hybrid multi-cloud platforms and driving a greater willingness to adopt HCI.

Benjamin Bollin from Cleveland Research Company asked for a perspective on enterprise refresh behavior, specifically the 3-tier versus HCI trend, and the pace of on-premise AI deployments. He also requested an update on the pipeline growth for deals over $1 million.

Answer

CEO Rajiv Ramaswami stated that the value proposition of HCI over 3-tier architecture remains strong, tied to hardware refresh cycles. He characterized enterprise AI adoption as being in early stages, focused on inferencing on smaller clusters. CFO Rukmini Sivaraman added that the pipeline for large deals over $1 million continues to see nice growth, but did not provide a specific metric update.

Ben Bollin asked about the average useful life of Apple devices and whether the large volume of sales from fiscal 2021 could create an accelerated refresh opportunity.

Answer

CEO Tim Cook agreed that the large number of devices sold during the COVID period represents a 'huge opportunity' for the company to drive upgrades across multiple product categories in the future.

Benjamin Bollin of Cleveland Research Company asked how the Q4 guidance accounts for a potential budget flush compared to prior years and how the competitive landscape is influencing sales cycle duration and close rates.

Answer

CFO Roei Golan stated that the Q4 guidance does not assume a significant budget flush, though some is expected. He also confirmed that the company has not seen any significant changes in close rates or sales cycle duration this quarter, noting that while large, complex Infinity deals can naturally take longer, there is no unique trend to report.