Garmin Ltd (GRMN)

• Strong Growth in Wearables with Increasing New User Base: Garmin is experiencing growth in its installed base, with the majority of new users being new to Garmin. Recent launches like the fenix 8 series have been very well received, and the company continues to fill demand across all retail channels. - , -
• Sustainable High Margins through Unique Differentiators and Cost Efficiency: Garmin focuses on creating products with unique differentiators that allow for premium pricing and offer things competitors don't. This strategy, along with efforts to improve design efficiency and reduce component costs, has led to unprecedented margins in the Fitness and Outdoor segments. - , -
• Successful New Product Releases Enhancing Revenue and Margins: New offerings such as the expanded inReach with higher bandwidth messaging and the new dash cams have been received very well by the market. These products bring incremental revenue and enhance the overall revenue and margin structure. - , -

• Softened demand and lowered guidance from customers in the Auto OEM segment may negatively impact Garmin's medium-term outlook and margin profile. -
• Lower sales volumes in the Auto OEM segment raise concerns about covering expenses, potentially affecting profitability and operating margins. -
• Softer trends in the car industry create uncertainty around Garmin's ability to achieve its $800 million Auto OEM revenue target for 2025. -

1. Sustainability of High Margins
   Q: Can you sustain current high margins in Fitness and Outdoor?
   A: Management acknowledges that sustaining these unusually high margins is challenging but emphasizes focusing on creating unique products with premium pricing to maintain them going forward. -

2. Guidance Confidence into Q4
   Q: What gives you more confidence in Q4 guidance now?
   A: As the year progresses, Garmin gains more confidence due to better visibility into retailer plans, which materialize in Q2 or Q3, allowing for a more complete picture and confidence in the fourth quarter. -

3. Auto OEM Market Outlook
   Q: Does OEM softness impact the $800 million 2025 target?
   A: Trends in the car industry are softer, and Garmin isn't ready to comment but will provide an update in its 2025 outlook. Some programs roll out beyond 2025 and may improve as the economy evolves with lower interest rates. -

4. Inventory and Sell-Through Dynamics
   Q: Why has inventory increased, and how is sell-through vs. sell-in?
   A: Inventory increased to prepare for higher Q4 sales; Garmin's inventory is not related to channel inventory. Sell-through is strong with very strong registration rates for new and existing products like fenix 8, 400, 265, 965, Vivoactive, and Venu series. -

5. Wearables Growth Drivers
   Q: What are the drivers within wearables and recent launches?
   A: Garmin's diverse products resonate with customers' lifestyles, leading to success across the market. The majority of users are new to Garmin, indicating growth in the installed base. The fenix 8 series was well received, and demand continues as it rolls out across retail channels. -

6. Marine Market Share Gains
   Q: What underpins confidence in marine market share gains?
   A: The marine market is stable, and as the economy and interest rates improve, boat purchases may increase. Garmin is thrilled with market share gains, especially with new categories like trolling motors, but acknowledges that gaining more share becomes harder as share grows. -

7. Lumishore Business Impact
   Q: How significant is the Lumishore acquisition?
   A: Lumishore and marine lighting are incremental to the Marine segment, important as another component boat owners want, integrating with Garmin's chartplotter systems. -

8. Uptake of Paid Apps and Subscriptions
   Q: What uptake are you seeing with paid apps and subscriptions?
   A: Paid apps are incremental, bringing value to customers and enhancing revenue and margins. The expanded inReach offers higher bandwidth messaging, which is completely incremental, though early with few results to share. The messenger product is new and starting to roll out to customers. -

9. New Dash Cams Reception
   Q: What reception have new dash cams received?
   A: Despite a mature market, the new dash cams were well received. Garmin focuses on superior functionality, quality optics, and broad use cases from daytime to nighttime, leading to favorable market response. -

10. Impact of Textron Strike on Aero
    Q: Has Textron's strike impacted the aero segment?
    A: The strike had small near-term effects as Textron couldn't deliver planned aircraft, but they are working hard to return to normal. No long-term effects are anticipated. -

11. Product Costs and Gross Margins
    Q: What's driving stronger gross margins from lower product costs?
    A: Benefits come from lower material costs due to scale, favorable currency movements with the Taiwan dollar, and efficiencies in factory operations from increased scale. -

12. Retailer Inventory for Holidays
    Q: How are retailers' inventory commitments for holidays?
    A: Retailers are eager to take in Garmin's products and are planning promotions. The retail channel appears very clean, especially with transitions like the fenix 8, positioning Garmin well for the holidays. -

13. Auto OEM Margin Outlook
    Q: Does OEM softness affect Auto OEM margin outlook?
    A: Gross margin likely remains in the high teens to 20% range, though product mix could affect it. Lower sales may impact the ability to cover expenses due to lower sales volume, driven by the automakers' outlook. -

Annual guidance for FY 2024:

• Revenue: $6.12 billion - (raised from $5.95 billion - )
• Gross Margin: 58.5% - (raised from 57% - )
• Operating Margin: 24% - (raised from 21.3% - )
• Pro Forma Effective Tax Rate: 16.5% - (raised from 16% - )
• Pro Forma Earnings Per Share (EPS): $6.85 - (raised from $6 - )
• Free Cash Flow: $1.1 billion - (raised from $900 million - )
• Capital Expenditures: $250 million - (lowered from $350 million - )