Q3 2019 Earnings Call
Thank you for standing by welcome to the common limited third quarter 2019 earnings Conference call.
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Good morning, we would like to welcome you to Garmin Limited third quarter 2019 earnings call. Please note that the earnings press release. It related slides are available at garments Investor Relations site on the Internet at Www Dot Garmin Dotcom flashed dock and archive the webcast and related transcript will also be available on our website.
Its earnings call includes projections and other forward looking statements regarding Garmin limited and its business any statements regarding our future financial position revenue and earnings gross and operating margin and future dividend market shares product introductions future demand for products and plans 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 filed with the Securities Exchange Commission.
Presenting on behalf of Garmin limited. This morning are good Pemble, President and Chief Executive Officer, and does that then Chief financial Officer and Treasurer at this time I would like to turn the call over took them.
Thanks, Terry and good morning, everyone.
Earlier today Garmin reported another strong quarter revenue growth.
15% to 934 million.
Aviation fitness outdoor and marine collectively increased 24%.
And contributed 85% of total revenues.
Gross margin improved to 60.7%.
Revenue growth in expanding margins resulted in significant operating leverage in the business.
Operating income increased 33% year over year to 261 million.
And operating margin expanded to 28%.
This resulted in GAAP EPS of $1.19 and performance S. Other dollar 27 in the quarter.
We're pleased with our performance in the first three quarters of 2019, and these strong results give us confidence to raise our full year guidance, which I will explain in a moment.
Doug will discuss our financial results in greater detail in a few minutes, but first I'd like to provide a few brief remarks on the performance of our business.
[noise], starting with the aviation segment revenue increased 28% driven by growth in both OEM and aftermarket systems.
Gross and operating margins remained strong at 74% and 35% respectively.
<unk> operating income growth of 30% over the prior year.
Growth in OEM systems was driven primarily by the recent certification of the citation longitude.
Featuring our chief 5000 integrated flight deck.
However, the strength was broad based as other aircraft platforms also contributed to the growth.
Growth in aftermarket systems was driven by strong 80, SB sales and the recently certified GE 5000 integrated flight deck with the Citation X L and XL less.
During the quarter. The G 1000, H. annex I was certified in the Bell four seven Dxi helicopter.
Presenting the first I far certification for this advanced helicopter flight deck.
I'd like to highlight this morning's auto land announcement. This new safety technology is designed to return in aircraft and its passengers safely to the ground.
In the event a pilot is unable to do so.
We believe auto land is disruptive new technology that will change the way people think about safety General aviation aircraft.
Total land will soon be available as part of the GE 3000 integrated flight deck.
On the serious vision Jeff.
And the hyper mpsix hundreds pending final at the certification.
Turning next to the fitness segment revenue increased 28%.
Really driven by growth in Wearables and contributions from tax.
Gross and operating margins were 52%.
20%, respectively, resulting in operating income growth of 33% over the prior year.
At EBITDA, which is Europe's leading consumer electronics trade show.
We announced a sweeping update to our line of consumer wearable products, including new versions of the vivo active series into sizes. The vivo move three hybrid smartwatch series.
And we all need then you smartwatch featuring it really good handle that color touchscreen display.
Comprehensive health and fitness features and long battery life.
We also announced the tax neo to T. Smart trainer, featuring enhanced drive design and performance analytics to simulate an outdoor ride as realistically and quietly as possible.
[noise] turning next to the outdoor segment revenue increased 23% on a year over year basis with growth in multiple product categories led by venture Smartwatches.
Gross and operating margins improved year over year to 66% and 41% respectively.
Resulting in strong operating income growth for the segment.
At the recent new T.N.B. Trail running event, we launched the Phoenix 60 adventure Smart watch series larger displays and innovative performance features.
We also introduced the Phoenix expects pro solar the first of its kind with our exclusive solar harvesting technology.
We've often mentioned that Inreach technology has been a growth driver for the outdoor segment and that was definitely the case in this most recent quarter.
I'm pleased to report that Inreach recently passed a significant milestone facilitating over 4000 SLS incident since its launch in 2011.
Demonstrating the crucial importance of satellite based two way messaging wherever our customers need assistance.
We believe Inreach has room to grow in the future is more people recognize its potential to change outcomes and save lives.
[noise] turning next to the Marine segment revenue increased 9% as we saw solid sales across multiple product categories led by chart bloggers.
Gross and operating margins improved year over year to 60% and 19% respectively.
Resulting in strong operating income growth for this segment.
During the quarter, we were named manufacturer the year by the National Marine Electronics Association for the fifth consecutive year, reflecting the strength of our innovative products and our leading market position.
We're also named the exclusive marine electronics provider by both regulator Marine.
See huh solidifying our leadership in the Premier Center console boat market.
[noise] looking finally at the auto segment revenue decreased 17%, primarily driven by declines in our OEM business and the ongoing PND market contraction.
Our global market share position in the P., Indeed category remains very strong.
Gross and operating margins improved year over year to 48% and 15% respectively.
Resulting in operating income growth of 39%.
During the quarter, we began shifting the overland are all in one navigation device, which is a new product category design for the growing community overland adventure enthusiasts.
[noise]. So in summary, we're very pleased with the results in the first three quarters of 29 scene.
Given the strong performance, we're raising our projected full year revenue to approximately $3.65 billion.
We're maintaining our full year gross margin at approximately 59.5% and raising our full year operating margin to approximately 24.3%.
We're also updating our full year performance effective tax rate to approximately 16%.
Resulting in pro forma earnings per share of approximately $4.
[noise] so looking quickly at guidance by segment, we've increased growth expectations for aviation to 20%.
Next to 16% and the outdoor segment to 11%.
Guidance for the auto in the marine segments are unchanged.
That concludes my remarks next Doug will walk you through additional details on our financial results Doug. Thanks Cliff Good morning, everyone.
I'll begin by reviewing our third quarter financial results the comments on the balance sheet cash flow statement and taxes.
<unk> third quarter revenue of $934 million, representing 15% increase year over year.
Gross margin was 60.7% 130 basis points increase prior year.
Operating expense percentage of sales, 32.7% turned 40 basis point decrease in the prior year.
Operating income was $261 million it 33% increase year over year.
Operating margin was 28% 380 basis point increase in the prior year.
Our GAAP EPS was $1.19 cents, our pro forma <unk> was $1.27 cents, 27% increase the prior year [laughter].
Next well look at third quarter revenue by segment.
We achieved record third quarter revenue of $934 million consolidated revenue grew 15% led by solid double digit growth or aviation fitness and outdoor segments also marine segment had solid growth of 9% during the quarter.
Our combined basis aviation fitness outdoor marine rub, 24% compared to the prior quarter.
Looking back at third quarter revenue and operating income.
Bind basis aviation fitness outdoor marine segments contributed 85% of total revenue third quarter 2019 credit 80% the prior year quarter.
Aviation grew from 18% 20%.
Fitness grew from 24% 26%.
Outdoor grew from 20, 628%.
She's gonna charts illustrate our profit mix by segment combined basis, the aviation fitness outdoor marine segments delivered 92% operating income third quarter 2019 in 2018.
All five segments had strong year over year increases operating income dollars improved operating margins.
Looking next that operating expenses, a third quarter operating expenses increased by $21 million for 7%.
The percentage of sales operating expenses were 32.7% third quarter 2019 turned 40 basis decreased on a comparable quarter last year.
Research and development increased $10 million year over year due to investments engineering resources prioritize expense was up $2 million the prior year quarter due to higher outdoor and fitness expenses, partially offset by lower expenses in the auto segment.
Yesterday, it was up $10 million for the prior quarter, but decreased <unk> percentage of sales.
Increase was primarily due to personnel related expenses incremental costs associated with recent acquisitions.
See highlights on the balance sheet cash flow statement.
We ended the quarter cash markers purities approximately $2.5 billion accounts receivable decreased sequentially due to seasonal trends increase year over year $558 million is strong third quarter sales.
Inventory balance increased sequentially, seven or $50 million prepare for the seasonally strong fourth quarter.
You have your increase is due to timing a new products acquisition of tax efforts increased data supply to support our increasingly diversified product lines and third quarter 2019 generate free cash flow $158 million.
During third quarter, 2019 reported effective tax rate, 11.6% compared to the effective tax rate of 8.5% prior quarter.
The increase in effective tax rates, primarily due to lower income tax reserve releases, a third quarter 2019.
Also we've updated our guidance for full year pro forma effective tax rate to approximately 60%.
Includes our formal remarks Libya.
Please open the line for today.
[noise] is kinda, ladies and gentlemen, us or monetize the question you will need to press the star agenda. One key on your touched on telephone to withdraw your question. Please press the pound key.
Please standby welcome Potter County roster.
Yes.
My first question coming from the line of Charlie Anderson with Dougherty and company. Your line is open.
Yeah. Thanks for taking my questions in my congrats on a really strong quarter outlook.
A quick I want to start with aviation you mentioned some of the strength and OEM I Wonder if maybe you could just sort of speak to the pipeline of opportunities there.
I'm sort of the order book as we think about 80 us be able cycled out at some point and the ability of OEM to potentially offset some of that's likely now I'm going to go up.
Hi, Good morning, Charlie Yeah in terms of OEM as reported last quarter in the Gamma results General Aviation manufacturers Association. There has been strength across the categories of business Jets that were on as well as strengthen the piston aircraft, particularly addressing the training market.
So that's driving continued momentum into Q3 and beyond we see those opportunities as.
As a ongoing because I, particularly in the training market the need for pilots is very acute under the demand for aircraft trainers is high.
In terms of about 80, husky and its impact it's definitely a growth driver for us, but even absent that particular category, we saw strong growth in the business.
We're gaining confidence that theyre going forward the cockpit modernization efforts that were seeing across the fleet and demand for new aircraft should lead to positive results for the segment.
Great and then for my follow up I think you know Wearables business is doing very well for you right now I Wonder if maybe you could speak to what you're seeing in terms of unit growth.
Versus a S.P. increases as you moved up market here and.
There are a trajectory of continue to ASP increases in the future from your standpoint. Thanks.
Yeah, we're definitely seeing unit growth in the business. So the market is expanding and we're taking.
Share as people recognize the value of our solutions and the capability of our products.
We do see some SP benefits as well as we introduce higher end products like the Phoenix six line with unique features as well as Mark. So there was a positive impact there as well.
Great. Thanks, so much.
Thank you.
Our next question coming from <unk> Singh with credit Suisse something.
Hi, good morning.
Good morning, really really strong numbers across the board and particularly on the operating margin I wanted to ask you Doug you talked about the various categories in your slide number 16, and you know while these are maybe moving around on an absolute basis, they seem to be fairly low historically on a percentage.
Sales basis, and I was wondering if you could talk to the trends. There you know R&D is a bit lower than it's been in it sounds like maybe we back and that a little bit and then the other two categories as well how sustainable is this level of overhead.
Yeah sure that's great. So I'd give you a little bit perspective on our operating structure you said between.
Our advertising yesterday in R&D, so thinking about it.
On a full year base as percentage of sales you know what we're thinking about as it relates to advertising, we anticipate advertise a percentage of sales to be relatively flat year over year. So with that said, we will be spending more advertising dollars. This Q4, and we didn't last Q4, and that's primarily a function of just having.
New product launches. So we will be very targeted you know when our advertising depending upon you know what those.
Product launches are.
As it relates to a asked you nay thinking about fashion, a full year percentage of sales I anticipate that to be relatively flat year over year also.
We haven't there is a piece of that is due to acquisitions. Other piece of it is just a general a merit to other type of a inflation what type of increases we have in yes. Your name, but thinking about RMB no as a full years percentage of sales. We would are right now we looked at that probably about 50.
Basis points lower well this year and last year, you know from a.
Dollar standpoint, there will be an increase.
Situation. There is that we are capitalizing some of our R&D expenses. There are certain auto OEM contracts that include contractual guarantees for reimbursements of R&D expenses. So in those cases, no R&D expense are capitalized put on the balance sheet no until that cash received from our OEM receipt.
I should say no to expense structure that you know depending upon what kind of different product launches, we have kind of advertising somebody else will fluctuate a you know quarter over quarter, but right now we're getting some nice leverage due to our sales also.
I was going to ask you. If you look at the non auto R&D are you at a point here where that decreases over time as a percentage of sales like you just said on scale you're at some kind of a critical mass where it doesn't have to track at this point with the growth in sales.
Really thing, it's a function of really things a function of that a topline sales we have so here's what I would say, we'll continue to invest in R&D as we continue to have new products new up your time in some of those well in basketball before the products come in that situation, but we'll continue to invest appropriately to support you know our diverse.
Fight line of products or period of time as we go through.
Okay, and then just quickly clip for you I wanted to ask about M&A.
And you know I've often focused on capital deployment Theres a couple of things out there I just wondered if you could comment on them the possibility I out in the last 24 hours that Google could be looking at fitbit and how that might change the dynamics of the industry and then also.
At the same time, I think United Technologies has talked about or maybe in some kind of a situation where it may have to sell.
Yes navigation business as part of its transact upcoming transaction with Raytheon can you comment on your interest and those types of properties.
Yeah. So we've seen the speculation obviously around fitbit and Google, It's really hard to say you know I'm, what we can think about that without any kind of formal.
Announcement, and whether or not it's even a real thing we believe that fit this customer base is very different from ours and our product focus is also different so it's not something that we believe a impacts us and we're not worried about it in terms of other opportunities. We look at every opportunity basically in terms of what it can bring.
Two garmin both in terms of.
Technology or product lines. So we would evaluate any of those opportunities based on that and what we can achieve with it going forward.
Would military be of interest since it really hasn't been a big historical focus for you.
I think generally the military and defense is an area of interest in potential growth for us we've been focused on a adapting our off the shelf products into those opportunities rather than doing full custom a bid development kind of work. So those are the opportunities were mostly focused on.
Great. Thank you both yep. Thank you Robert.
Our next question coming from the line of Ben.
Cleveland Research your line is open.
Sorry for that good morning, everyone. I'm. Appreciate you taking my question I could we start within fitness and outdoor could you walk us through a little bit where do you think you are in the rollout of new products still looks like there's some extended lead times.
Where do you think you are on channel inventory.
Supply overall tightness as far as raw materials.
And then I've a follow up.
Yes, so in terms of product introductions were mostly set for the remainder of the year. So we have a very strong why not going into Q4 with any new product announcement wrapping up is always a challenge for any company. So we're in the process of doing that in and Ah Ah that's part of.
The inventory situation with us as well as we build inventory to build these products and deliver them during the fourth a fourth quarter.
Hi, My second one looking at inventory you continue to expand the SKU count.
Is there a way to think about what is normal for inventory into the future.
And then within the new product launches themselves are there any particular pieces parts.
That you have not been able to source or you're having a yield issues anything of significance that would extend availability into next year.
Yeah. So I'm definitely we are taking a different approach to some of these markets by offering unique kinds of products, especially appealing to people who want to differentiate themselves rather than wearing the same kind of product. So that does lead to higher skews. It does lead to higher levels of inventory and that's something that.
We use as a tool in the business we've seen some normalization of.
These amounts because we're focused on safety stock.
In the inventory and reducing risk and making sure that we can deliver the products that we want to deliver to the market, especially during the selling season.
So in terms of yields and things like that I mean, a again like I mentioned as as new products ramp there our initial challenges, but our factories working very hard and a the product is flowing to the market.
In the last question I have is as it relates to automotive.
Any update on the timing of that the BMW China opportunity.
Or that broader BMW tier one status.
And when does the company began to make some of the investment.
There are new facilities or greater head count I should support that you know bigger long term opportunity against that tier one vendor. Thank you.
Yes, so the China opportunity will be ramping up starting in later 2020 and into the 2021 model year. So that's what we've been preparing for in or the first phase of this opportunity with BMW.
In terms of making additional investments for our business that comes after that opportunity. We're in that process right. Now. We then hiring additional people in the automotive segment to support that business and we're in the process of selecting a new sites that will produce the product, especially in here.
At the end market.
Thank you.
Thank you.
Our next question coming from the line up with.
With JP Morgan your line is helping.
Hi, guys. Thanks for taking my questions. So.
First off just on on aviation margins I'm, you've seen nice step up in operating margins kind of over the course.
You know the last three years.
You know some scale benefits on Ats be in your core business. That's there so.
You know your gross margins have been pretty steady, but if you could kind of expand on what's behind that step up there and do you expect that mid 30% range Stan.
You know as we look beyond fiscal year 19, and then.
Can you also kind of help us size, the DSP opportunity in Europe , and the and the runway there in your kind of expectations for overall demand next year. After the deadline in the U.S. and I've a follow up thanks.
Yes, so in terms of the operating margin in aviation were experiencing.
Some solid leverage in the business has the revenues have have outpaced our need to grow expenses I would say that that we would still like to hire more people engineering people in aviation or to be able to support ongoing opportunities that are going on there, but we're managing and it is giving us some leverage in the business.
In terms of you know the expectations for the profit I mean at these kinds of investment levels and these kinds of revenues, obviously, we should be able to to a to be pretty predictable in terms of our operating profit, but as the business changes will of course adjusts and evaluate Brady SB, we're expecting that.
The opportunity we'll of course began to flatten that's inevitable as as we go into the fourth quarter and into next year, but we do see spillover business.
Into next year, particularly the first half as a shot capacity still remains limited. So there's there's mostly linear output from shops right now and there's still more aircraft that need to be equipped there are new opportunities as you pointed out. So Europe is one of those and also Canada is evaluating on their compliance as well.
So both of these I would say are interesting to us, but but obviously the the majority of the aircraft and the opportunities have been in the U.S. space ABTSP that they'll be nice enhancers for the coming years.
Okay. Thanks for that and then.
Second question on free cash so you know it looks like you got a bit.
Larger than normal inventory drag this quarter and kind of less accounts receivable.
Up less than usual you already mentioned its combination new products and and tax probably ahead of seasonally strong fourq you, but just want to get your thoughts on free cash flow to kind of.
And the years should we expect you know slightly more outsized sports you than usual and do you have any estimate on you know where you think inventory balances will be in Fourq, you or is it too early days. Thank you sure as it relates to a free cash flow for the full year, we would estimate our full year for.
Cash flow to be around $575 million and includes a cap ex estimate for the full year about a $125 million and regarding inventory. Yeah inventory. You know is up year over year Q3 would expect that to be.
At year end compared to year end last year also we expect to probably be up around 25% year over year due to some of things that click mentioned, just making sure that we do have ample days would apply to support diversified product lines, we do have.
So in that 525 is that more of a timing is kind of working cap and you expect maybe slightly more no normalization in first half of 20 or how should we think about that they yeah. So so sorry, 575, just fiber and 75, we anticipate for the full year so with.
That you know as it relates to working capital those are as it relates to 2020, you know will can't look at that you know what gives you a planning cycle for that but do you know as inventory that we mentioned we do its dissipate there to be some level of inventory that's going to be a higher on a here for your basis, just due to having more inventory to support our ongoing business.
Yes.
Thank you.
Thank you.
Our next question coming from the line up.
With Longbow Research your line is helping.
Thanks, Good morning, guys and congrats on great results are really impressive.
I have a couple of questions.
So the implied for Q U P as guidance looks off which is not atypical for you guys. So is that a function of your typical conservatism or is there a shift in operating expense dollars from Threeq to Fourq you I think that you talked about maybe increasing.
Having relatively higher advertising expenses or there's something else that drives that what looks on the here on the front on the headline though I'd relative missiles for yes, Weve, yes, as we mentioned you have the advertising we would expect you know those to be higher you know in the Q4 period of time just to his new product launches in session or would you have.
Yeah.
Okay.
And if you can shift gears to fitness.
Can you provide some color on the gross margin, there, which I was a little bit surprised given the revenue ramp up and this trend here I understand taxes dilutive.
Here, but is there anything else besides that affecting margins and you can you give us some color on the sell through of the new products and specifically for runners I notice that there were not highlighted in your remarks in presentations and I know those were a core part of your portfolio and and relatively new a cure and 29 team.
And yeah, that's got the question though.
Yeah. So we're preparing to be I'm very promotional in fitness a in Q4.
Particularly in the advanced wellness products that are more of the consumer variety that that are sold through the mass market outlets. So so we're prepared for that and in terms of specifics on on product lines definitely our new products have have done very well, there's a lot of interest and excitement around those the four runners have been doing great.
Well in the south through a is a is meeting our expectations. So while we have no concerns there.
Okay Lastly, Doug just a follow up and clarification on the free cash flow odd. So it seems like you brought down the Capex plan from 150 to 125 your free cash flow I think she's also going down is the delta coming up just from higher working capital Edwin.
Yes, correct, our working capital is what that a headwind is that's causing the overall the free cash flow to come down just increased inventory as well as you will see the receivables you know up year over year. That's just a function of you know having higher sales, but it's really the function that working capital primarily the inventory.
Talking about.
Okay got it thanks, guys. Good luck.
Thank you.
Our next question coming from the line of Ivan.
Hey, Chris Financial Partners. Your line is helping.
Thank you for taking my call in a big congratulations on another great quarter.
Thanks I haven't.
And congratulations on the launch of this new auto lands can you give us some idea of what the incremental cost that is to add it to a plane.
I think it's it's something that that gets sold through the the OEM provider. So in many cases on these more advanced aircraft that were targeting they contain the systems that are needed to be able to do the function, particularly like autothrottle. Although there's some additional control elements that are needed but in general.
Ah that's something that will be sold through and price I'm on their end.
And this is only available I say, you know a build into a brand new plant work and existing planes or will eventually just two planes be able to get this upgrade.
Two tier.
There is as a significant amount of complexity that goes along with the system and so building it into the aircraft.
At design and production of New aircraft is is the best way to do that it's technically possible to bring it into other aircraft that I think that's something we'd have to evaluate on a case by case basis.
And so whats available in two plans right now right the paper and the she was did you work with both are either of those two companies into development does this.
Yes, so the serious asset 50 in the paper M. 600 are the first few platforms, we've been working with both manufacturers to to implement and certify the system and are there in the first the final process of the aircraft level certification for the function.
And ER should should be a feature them that they would offer in their 2020 model years.
And you're going to be where this will be available you don't have any kind of exclusive deal with these temporary you're going to be Uh huh.
Work with other manufacturers to integrate this as well right.
Yes, it's definitely something that can be offered as part of RG 3000 systems and even beyond the can do the GE 5000 as well.
But it's something that's part of our core technology offerings for garment.
Alright, congratulations again.
Thanks Ivan.
Our next question coming from the line.
With Morgan Stanley Your line is helping.
Hey, good morning, guys. Congrats on your a quarter here. So I just want to get back to the aviation segment for a second I know that in the past we've talked about kind of this hundred to 160000 aircraft runway for ABS be upgrades.
You know as you know through the beginning of October were kind of pass that hundred thousand threshold I'm. So you know at the low end. This of the range you would imply you know we're kind of through a DSP at the high end. It implies you know we could have up to five more quarters of kind of strong ABTSP growth and obviously the implications for the model are huge 'cause there's other retro.
At work there can be done.
So I'm just curious from your perspective, how we should be thinking about the adiosbarbie runway going forward as we head into 2020 thinking obviously about the January or the January deadline.
Yeah, I think it's probably somewhere in between the two scenarios you you outline I'm definitely as you pointed out weve reached the the low bar. If you will on the number of aircraft that would equip.
There's probably still an additional 25% of the fleet that that remains in question in terms of of what kind of equipment, they would select or if they even equipped aircraft or are retired which is also scenario that are playing out for some kinds of aircraft, but we do think that that the reality lie somewhere in between.
Lean and where we're planning on continued activity into the first half of a 2020.
Okay. That's helpful. Thanks, and then if we just shift to kind of outdoor and fitness, obviously huge product launches. This quarter. Just curious if you could give any color on you know kind of what percentage of growth was a result of the new product launches available for the last month of the quarter versus legacy products that were available for.
Sure I'll call it the entirety of a corridor.
Yeah outdoor was probably the one that was most impacted by product announcements within the quarter with the Phoenix six so it did have some.
As of impact on the outdoor segment.
In general in fitness, our new products that we introduce they're running products in Q2 as well as the new activity trackers. In Q3 also had a positive impact on the quarter.
And is there anyway that you could detail or just break out kind of one if the taxes performing is performing in line with expectations have been to kind of what percent of fitness tax you know what that still kind of contributing half of the growth. This year that you expected more or less just any color there would be great. Thanks.
Yes, the taxes are meeting our expectations, so they're right inline with what we expected the growth of the other categories with was better than we expected. So it meant that for the quarter. The majority of our growth was actually organic within the segment, but still tax I met its expectations.
Awesome, Thanks, and congrats again, yeah. Thank you.
Our next question coming from the line.
Glad with credit Suisse. Your line is helping.
I just want to come back on on Ats be a little bit.
And I I hear what you're saying cliff about the eventual phase that we're all trying to time, but one thing that we learned from United Technologies earlier. This earning season was there probably running at about four to five times their maintenance level of sales on 80 SP there somewhere between 250 in three.
Hundred million and I think they set a normal numbers around 60 to 70 million.
I just wanted to see if you're seeing the same kind of magnitude I understand that you're targeting to some extent smaller aircraft or much higher volumes of smaller aircraft, but is there any context, you can give us a regarding this because obviously, we're all very focused on what the phase looks like in terms of quantifiable numbers.
Yeah. So so definitely there's a difference as you point out in the business models between the two companies and.
So I think some of the multiplier that you mentioned could be a due to that I would say that you know for US you know again, if we subtracted the impact of ASV, we still had very strong.
Growth in our aftermarket business.
And I attribute that to the fact that we've got great products and some of them don't even have anything to do with 80 SB such as our auto pilot systems. For example, and also our aftermarket cockpits for things like the excel and the X L. S.
So the dynamics a little bit different from US there definitely is an argument to be made that as people are motivated to upgrade day DSP either they're also upgrading the other equipment and we've said that before it's difficult to quantify how much of that's interrelated and there is quite a bit of cockpit equipment that needs modernization many cockpits.
Our our decades old and the equipment now that is offered on the market is compelling.
And allows people to upgrade their aircraft a into newer safer and more reliable equipment. So we see that dynamic continuing even when a DSP.
Peaks and fades.
Okay, and then just sticking with aviation, while I'm still here.
Good to get an idea how we should think about the OE side, you talked about it earlier and earlier question talked about the ramp you've got the longitude here and I think you made some positive comments about the OE side from where we sit we see a very flattish overall OE market that is driven in some part probably for for Garmin and.
On on new introductions, but overall unit volumes are fairly flat and I would say, there's not a lot of increase in in demand, but in the context of that I wanted to get a sense of how small that business is relative for you to the overall aviation business given how strong your.
Aftermarket retrofit components or in other words should we worry too much about the always side if it is indeed flat.
Well I feel like our OEM business is actually targeting the sweet spot of where aviation is right now the a as I mentioned in the other questions that the trainer market is something that we'll see continued demand for several years to calm as the pilot shortage is reckoned with.
In the industry and as there are significant demand for trainer aircraft to train these.
Pilot and then the the class of aircraft that were on the is it's kind of the mid sized business jet I'm on down and so again, that's that's where that's kind of a sweet spot right now, particularly in this economy.
As these tend to be tend to tilt more towards owner flown or the fractional areas, which has been a very strong area for us. So we see you know continued opportunity in the OE side. You you asked the question about you know how significant is it relatively overall segment and as we agree mark in the past today.
The segment is roughly split evenly between retrofit and OEM. So OEM is definitely a strong influence or in our business and we see opportunities going forward that will continue.
Is there a reasonable way to split OEM into it's varied components, whether its piston versus jet you know along those lines, where we're trying to get you know aircraft versus trainers.
Yeah, I think if you look at the public information that's available for the industry through gamma they they detail that out pretty well, but we have strong market share across all of those platforms. So you you would track those numbers.
We do track those numbers yes.
Okay. Thanks, so much yep. Thank you so much.
Our next question coming from the line.
With Longbow Research your line is open.
Yes, so just a few follow ups on one on either one.
Sounds like it's it's a product that it has a little bit more had the on on the software side in is that correct me. If it's if that's correct. How should we think about the margin contribution to the overall aviation segment and one assuming that should be accretive but are you willing to provide any color on that.
Thanks.
I think in terms of margin percentage, we don't see any impact from that.
We see this as as an opportunity to provide additional content onto the aircraft platform, which in turn needs to to profit dollars. So that's our our view.
Okay, and then quickly on Phoenix I know, it's pretty early click, but can you give us some sense on you know I was filled through relative to your expectations. In specifically are you willing to talk about mix with 10 Phoenix, our we're kind of suggest that you're seeing some benefit from from customers mixing up and by.
Buying higher and Phoenix watches. So if you can give us any color there that would be helpful. Thanks.
Yeah, we are pleased with the sell through and Ah, We're working very hard to deliver on the the backlog that we have in that product. We are seeing people step up to the higher end versions, particularly the larger Phoenix exacts and the interest in the six ex pro solar is also very strong so.
So there's a lot of positives in the Phoenix line that are driving our business.
Things I.
Thank you.
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I would now.
Call back over to.
Mark.
Thank you everyone I'm as usual, Doug and I will be available for call back throughout the day haven't goodbye.
Ladies and gentlemen, this concludes today's conference call.
Thank you for your participation you may now disconnect everyone have a great tank.
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