Q1 2020 Earnings Call
[music], ladies and gentlemen, thank you for standing by welcome to the Garmin L.P.D. first quarter of 2020 earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation, there will be a quick.
And then answer session to ask a question during this session you'll need to press star one on your telephone as a reminder, todays program may be recorded I would now like to introduce your host for todays program treats the SEC manager of Investor Relations. Please go ahead.
Morning, we would like to welcome you to Garmin Limited first quarter 2020 earnings call. Please note that the earnings press release and related sites are available at garments Investor relations side on the Internet at Www Dot Garmin Dot Com Flash stock an archive the webcast and related transcript will also be available on our website. This earnings call include projections and other forward looking.
These statements regarding Garmin limited and its isn't any statements regarding our future financial condition revenues earnings gross margins operating margins future dividends market shares product introductions future demand for products and plans and objectives are forward looking statements.
Forward looking events and circumstances discussing 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, and first quarter 2020 form 10-Q filed with the Securities and Exchange Commission in particular, there are significant uncertainty about.
The duration and impact other covert 19 pandemic. This means that results could change at any time any statement about the impact of cobot 19 on the company's business results and outlook is the best estimate based on the information available as of today's date.
And then thing on behalf of Garmin Limited. This morning, our Cliff Pemble, President and Chief Executive Officer, and talk about than Chief Financial Officer, and Treasurer at this time I would like to turn the call over to put pencil.
Thank you Terry and good morning, everyone.
First quarter 2020 continued the strong momentum we experienced in the back half of last year.
Revenue increased 12%, resulting in a new record for the first quarter.
Gross margin was stable to last year, an operating margin expanded resulting in operating income growth of 17%.
Late in the quarter the landscape change as the covert 19 outbreak became a global pandemic.
Governments responded with drastic measures to slow the spread and the virus.
This resulted in an unprecedented economic changes affecting every company.
Harman is no exception.
Accordingly, we are withdrawing our fiscal 2020 guidance.
However, we are optimistic for the long term as the markets, we serve and the products. We offer are well positioned to succeed and oppose pandemic world.
I'll explain why we are optimistic in just a moment the first I want to share a few insights on how garmin is approaching the most significant health and economic crisis of our time.
[music] personal highlight our business priorities.
The global awareness of the chronic virus has recently, but its impact was felt much earlier.
Parts of Asia, where dramatically affected by its emergence.
Rapid spread.
Since the beginning employee safety has been our top priority starting in Asia, and expanding as the virus spread to other regions of the world.
Most of our employees can work from home.
And we've taken steps to protect those who continue to work within our facilities.
Our employees adapted to these new circumstances with speed and resilient.
And I'm Super proud and their response to this challenge.
Our second priority has been to strengthen our supply chain.
In the early days of the virus outbreak our supply chain teams were working hard to ensure we would not be affected by the widespread industrial shutdowns that were crying in Asia.
I'm pleased to report that our supply chain is healthy.
We've not missed any opportunities due to covert 19 related disruptions.
This is remarkable considering the unprecedented disruption occurring in global supply chains.
Our third priority is to focus on opportunities.
Crisis is often defined by challenges.
We are looking through the lens of opportunity.
We've accelerated efforts to increase our mix of online sales with business partners and on Garmin Dot com.
We have plenty of inventory, allowing us to capturing market share.
And finally, we'll be using this opportunity to refine our product roadmap priorities to make sure. We have the right products now [laughter] an after the crisis stage.
[music].
Next I will talk about the leadership model, we've embraced during this time, a global crisis and unprecedented disruption.
First we think to choose positively.
In the contrast constant umble of negative on thinkable headlines.
There are positive thinking things happening all over garmin.
All of US wonder what the new normal will be.
No matter what happens I feel good about the markets, we serve and the product lines we offer.
We believe every business segment has a bright future.
Second we are responding accordingly.
We recognize the world is facing the most significant health and economic crisis of our time.
We understand it could take sometime before the global economy recovers from the effects of the virus and the actions taken to control it spread.
This is mine were taking pragmatic steps to maintain our strong financial position.
And finally, we're focused on the long term.
In this dynamic environment aiming at what we see today only caused us to miss the target.
Instead, we're aiming for where we want to be when the crisis age.
Paraphrasing our company mission, we aspire to be an enduring company by creating superior products that aren't essential part of our customers' lives.
Vision is to be a globally respected leader in every market we serve.
We expect to emerge from this crisis as a stronger and more capable company.
[noise] this isn't the first global crisis, we face and it won't be our last.
During each test passing present, we rely on a set of unique strengths that help us through time to crisis.
First our highly diverse business model provides a rich set of opportunities and reduces our reliance on single markets and product lines.
Each market, we serve and each product line, we offer has an important role to play.
Both now and in the future.
We're also well diversified geographically with roughly half of our revenue generated in the Americas.
Third in Europe, and the remainder from Asia Pacific.
Our revenue diversity will help us capture opportunities as the pandemic evolved from region to region.
Second we are vertically integrated company.
We controller on supply chain and are not overly reliant on outside partners to produce and distribute our products.
This gives us a high degree of flexibility efficiency and effectiveness, while operating in a highly dynamic business environment.
And finally, we have a strong balance sheet with no debt and over 2.6 billion in cash and marketable securities.
We're often asked why we maintain such a strong balance sheet.
And our answer remains the same.
Balance sheet provides stability to our investors through our commitment to an attractive dividend.
And allows us to invest for the future when others are pulling back.
In summary, our balance sheet as the cornerstone of our ability to face a crisis such as this.
But these things in mind I'd like to spend a few minutes, providing a market uptake for each of our segments.
[noise] fitness had a strong quarter driven by advance Wearables and our tax indoor bike trainers, which continued to experience strong demand during the current stay at home orders.
The positive outcome of this crisis is the increasing focus on personal fitness health and wellness.
People recognize the good health isn't important defense against contracting the virus and they're looking for tools that can help them improve their health.
Our fitness products are highly relevant today and will remain so in the future.
Yes.
Brain posted a strong first quarter.
Driven by our strong lineup of chart plotters and game changing sonar technology.
We were recognized as supplier the year by independent boat builders incorporated for the second you're in a row and our sponsored anglers swept the top three spot at the recent 2020 past Master classic.
Voting is an active lifestyle proceed that promotes family time relaxation in a sense of freedom.
In the long term, we believe that the current crisis will increase consumer interest in boating and fishing.
Certain restrictions have prevented some boats are coming out of storage as planned which could impact the marine season.
Once restrictions or he's we expect to see strong demand for our products.
Regardless of how things play out we believe compelling innovation is driving market share gains.
And we will continue deliver innovation for the future.
Outdoor posted strong operating results driven by venture watches.
Time in the outdoors is highly compatible with healthy social distancing and we believe the interest in outdoor activities will increase in the future.
We already have a great lineup of products to support a broad range of outdoor activities.
And in coming months, we will strengthen our position by introducing compelling new products and new categories.
Yes.
Aviation delivered strong operating results for the first quarter.
We saw additional growth in the ASV category, but at a lower rate than last year, which was expected.
Retrofit it systems were strong OEM categories were roughly flat.
The aviation market has been significantly impacted by the pandemic.
And economic damage caused by measures to contain the spread.
First travel has been brought two in your standstill by stay at home orders and the international border closings.
This has impacted both commercial and general aviation.
Business confidence has been shaken by stock market volatility and rapidly declining economic activity.
From history, we know that aviation takes longer to recover from Cisco severe economic shocks.
Even so we're optimistic about the future.
We believe more people will seek transportation options that are secure flexible and convenient.
These are the enduring qualities that general aviation has been known for throughout the decades.
We're ready for this opportunity industry, leading cockpit systems for every aircraft from like sport airplanes to large business jets.
We will continue to invest for the future.
And disruptive new cockpit technologies are on the way.
[noise] revenue from auto decreased 17% in the first quarter and the segment was essentially breakeven.
First quarter of years seasonally slower for our consumer products and some of our top performing OEM products, rather mature appointed their lifecycle.
As I mentioned earlier people will seek transportation options that are secure flexible and convenient.
For this reason we believe personal auto is what remain an important part of the future.
To prepare for this opportunity we've been making significant significant progress transforming ourselves to be a tier one auto supplier.
New vehicles are launching this year with Garmin hardware and software solutions, which will lead to revenue growth for the OEM category.
In addition, we'll be introducing new specialty product categories that will appeal to automotive adventures.
Yes.
Finally, I want to make a few remarks about our plans for guidance.
The impact of the krona virus and the economic damage caused by efforts to contain it spread our unprecedented.
The ultimate outcome remains unpredictable, causing us to withdraw our fiscal 2020 guidance as I mentioned earlier.
While the long term is difficult to predict we want to share insight on what we have seen so far in Q2.
On a consolidated basis, our April sales are trending about 40% lower than last year as many retailers have curtailed operations.
Consumer activity has been severely limited by government restrictions.
We expect spec these trends to continue throughout the second quarter as restrictions remain in place across much of the globe.
We anticipate being profitable in Q2 provided that our revenue development follows the trends we've been seeing so far.
We've taken near term measures to defer discretionary expenses prioritize uses of cash for critical Capex and acquisitions and we've sharpened our focus in R&D.
We look forward to providing annual guidance once economic volatility subsides.
And when consumer behaviors are better understood after restrictions or east and the crisis passes.
That concludes my remarks next Doug will walk us through additional details on our financial results Doug.
Thanks Cliff good morning, everyone.
To begin by reviewing our first quarter financial results moved a comments on the balance sheet cash flow statement and taxes.
Posted revenue of $856 million for first quarter, representing 12% increase year over year.
Smartphones, 59.2% 20 basis point increase in the prior year.
Operating expense. So I'm just sales was 38.5% 70 basis point decrease the prior year.
Operating income was $177 million.
70% increase year over year.
Operating margin was 20.7%.
80 basis point increase in the prior.
Our GAAP EPS was 84 cents reformer U P. S 91 cents.
Next to look at our first quarter revenue by segment.
We achieved record first quarter revenue of $856 million with four or five segments posting double digit growth.
As seen on chart, we've diversified business model from both a segment and geography perspective.
Looking next operating expenses.
First quarter operating expenses increased by $29 million or 10%.
Research and development increased $19 million year over year.
Estimates and engineering resources incremental costs associated with recent acquisitions.
Advertising expense decreased approximately $1 million the prior quarter.
Yes, generic increased $10 million compared to prior quarter, but decreased <unk> percentage of sales to 16% 60 basis point decrease compared to prior year.
And Chris was primarily due to personnel related expenses incremental costs associated with recent acquisitions.
As Cliff mentioned implement expense control measures to first krasner spending.
Sharpening our focus in R&D.
Few highlights on the balance sheet cash flow statement in Texas.
The quarter cash Marco Securities for approximately $2.6 billion and no debt.
Accounts receivable decreased sequentially to $500 million problem, a seasonally strong fourth quarter increased year over year in line with first quarter sales.
Inventory balance increased on both a sequential every basis as we have been preparing for the seasonally strong second quarter.
We are lining production levels inventory with anticipated demand, however, expect incremental increase in inventory the near term. So it takes time to scale supply chain around near term demand.
During the first quarter 2020 generate free cash flow $185 million $50 million increase the prior quarter.
Took another look <unk> capital expenditures now expect 2020 annual capital expenditures to be approximately $140 million.
Two key capital expenditure projects for 2020, well the tax manufacturing facility auto where your manufacturing facility in Europe.
Also during the quarter, we pay dividends of $109 million, turning attractive dividends for shareholders. It's one of the current priorities for cash.
During the first quarter 2020 reported effective tax rate of 9.3% print a 15.7% the prior quarter.
Great is primarily due to the migration that intellectual property ownership in Switzerland, United States.
Includes our former marks Jonathan Please open line for Tonight.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and he'd like to remove yourself from the could you. Please press the pound keep our first question comes on line up Ben Bollin from Cleveland Research. Your question. Please.
Good morning, everyone. Thanks for taking the question clip I wanted to start.
I think back in 2008 2009, you were.
I believe president COO or the organization.
Interest in any thoughts you have on how what you're seeing now.
It's similar or different versus then.
And you know if you kind of take out your crystal ball and look into the future.
How are you thinking about things developing or what are you looking for.
In the business before you start thinking about providing.
Guidance on the year or even on a forward looking basis, and then I have a follow up thanks.
Yes, Thanks, Ben good morning.
I think 2008 2009 has a totally different set of circumstances I think garmin was a much different company back then about.
70, plus percent of our revenue came from literally one product line.
And we were not as well diversified then as we are now in terms of facing a crisis. So we had a lot to worry about at that time and we are facing also not only in economic crisis, but a declining market.
I feel like things are totally different now our company is very well diversified and our product lines target all of the areas, where we believe people are going to have a lot of interest in.
Especially as these restrictions are are removed. So so one thing we learned in the passes that certainly you have to have great. New products you have to be able to continue to invest we're doing all of those things today.
But where a much different company than we were back then.
In terms of the how things develop for guidance as I mentioned, we're going to be looking.
For changes around these restrictions I think theres still lot of uncertainty that's happening as.
Every locale seems to have a different approach to removing restrictions and every locale hasn't has a different approach when it comes to how much things. They allow so all of these things probably impact a consumer behavior, that's a big wildcard.
And then I'm just trying to Ah to see how the economic volatility shakes out once we get a feel for that.
We believe will be in a good position to be able to predict the business going forward.
Thank you the follow up if you look at your retail footprint.
My understanding is you have a little more exposure to smaller specialty stores versus perhaps mother.
Oems.
What is your approximate exposure to maybe smaller mom and Pops.
Smaller specialty retailers that don't have perhaps the same type of balance sheet as the larger big box stores.
In any concerns on receivables from those partners. Thanks.
Yeah, I don't have a number I can share in terms of mix, but what I would tell you is that the the execution.
Of retail partners has been varied the smaller shops are looking for ways to be successful and to try to keep their businesses open some of the larger retailers have taken a more conservative approach and that's impacted obviously the the the retail sell out in the availability of product.
For consumers.
But we've seen a great improvement in terms of online sales. So we're really excited about that and we're working with our business partners to be able to enhance their online sales as well as our own Carmen Dot com.
Yes regarding receivable spent so those.
We are getting some request from some of our customers regarding extended payment terms and were granting some of those but I do want her mouth. So our idea. So probably will increase Q2, but do you want remind everybody that we do have trade credit insurance to eliminate some of our exposure with our receivables.
Thank you.
Thank you.
Thank you. Our next question comes from a line of nickel through a from Longbow Research. Your question. Please.
Thanks, Good morning, everyone hope, everyone is safe and well.
Huh.
No kindergarten or close on the current state of the channel inventories in each of the segments, maybe relative to historical norms and what do you think is going to be the retailer strategy for China, where you're going for you for the remainder of the year I understand you know second quarter, there's going to be a lot of destocking, but you have any visibility our view your partner.
Certainly about the second half.
Yeah, I think we don't we don't have a lot of a direct feedback I would tell you. This that we believe that the channel inventory is is a is actually low where we see.
Less restrictions and some of the locales, we actually see sell through is as indicated by our garmin connect indications as as being very strong.
And.
With the selling situation being much lower we believe that channel inventories being depleted.
Okay.
Take a question about.
Can you help us how should we think about decremental margins.
It's very unusual to see revenue declined somewhat sequentially year over year basis for you I think historically, it's been the mid 30% a range, but any any color on how should we think about decrementals that'd be helpful.
Yeah, I think it's not surprising that we see revenue declines in this environment today GDP for the quarter was down 5% and most of the economic activity impact was in the last couple of weeks of the quarter and so there's a severe economic impact taking place out there and we certainly cannot defy that gravity.
But in terms of of our margin impact if it all depends on product mix. We think some of the online sales will be accretive.
And of course are a key product lines are still a strong part of the overall mix and so we were not anticipating any gross margin impact to any significant degree.
Okay last question before I jump back into queue.
Can you help us think about Opex a lot of companies have seen increased expenses related to call that 19 are you seeing any or what are the impact of that I know you originally planned to scale up R&D and as Junaid same Thomas I'm, assuming that strictures thing is going to go down any color on how.
Should we think about operating expenses in the near future.
Sure regarding this is primarily as we look at what's happening with our demand. So we've taken a close look at our expenses across the board and put in place various expense control measures some of those of which were slowing our hiring.
Second of which is taking a look at all of our dress discretionary spend just to make sure that that's appropriate and also as it relates to advertising you know what's the lower demand there were a flexing our advertising down in response to some of that lower lower demand it's out there.
As it relates to Capex was probably mentioned that we never took a look all of our Capex also and making sure. That's all critical a capex. We had relates to Q2 he looked at each one of those.
Probably R&D ingestion. They are probably expect that probably be up dollar amount year over year, just due to we're analyzing for annualizing. Some of the 2019 head count additions as it relates to advertising. That's one that we would expect that to be down year over year, just due to to flex not down our demand but were caused.
We look at ignore expense structure and seeing how we want to make that fit the current environment where app.
Got it thanks, guys. Good luck.
Thank you.
Thank you. Our next question comes from a line of Charlie Anderson from Dougherty and company. Your question. Please.
Yeah. Good morning, Thanks for taking my questions I wanted to start on the comments around the April sales I just wanted to double check that that was indeed.
So in versus a sell through comment and then.
Within that I wonder if it.
It's one versus the other if you could sort of speak to the others. So if it's a sell it.
Whether you've seen in terms of of sell through trends and then.
Yes, all kinds of different businesses here I wonder if you could sort of speak to how uniform those declines are what's what's better off versus what's worse off within the business units that I've a follow up.
Okay.
Yes April the April trends that we're seeing everything that we're doing as it of course sell in to the extent that that those sales came from from our online mix of course, that's going more direct to consumer, but but in general it's more influenced by buy sell in.
Sell out again as I mentioned earlier are indications from our product registrations on on a garmin connect our strong in those regions, where rich restrictions allow the kinds of activities. Our products are known for so we're encouraged by that and because of that.
We believe that the the channel inventories being depleted in some of those places as customers are are looking for products and trying to find whatever they can.
In terms of segment by segment were seeing right now in terms of the cell and stronger results in outdoor and fitness compared to the trend that I mentioned.
Marine is about where we expect and then aviation and auto are trending behind.
Okay, Great and then as it relates to the auto OEM business I Wonder if you get sort of speak to what you're seeing there and then yes. We have a few large projects on the horizon with BMW and Geely. If you could just update us on if those schedules are remaining on track. Thanks.
Yes, so mark our current sell a in situation to OEM is affected by those programs that are more mature like I mentioned in the remarks.
So we're seeing some weakness there as an especially in probably compounded by the fact that.
Automakers are or a shutdown right now and their their inventories are high.
As we look towards the back half a year, we do have those newer programs launching and those should should be a boost to the overall auto OEM.
Category and the the projects the major ones, especially the BMW project, it's a very complicated and involve project, but it's going well.
We're we're meeting.
All of the milestones there, including standing up our factories that we need to be able to support the program.
Okay, great. Thank you so much yes, thank you Charlie.
Thank you. Our next question comes from a lineup will pop from Baird. Your question. Please.
Great. Thanks, I guess, a couple of questions I guess, either clip for Doug I guess I'd be curious as to you know trends you're seeing in Asia Pac I mean, it looked like lower growth in Q1 is obviously there would have had an.
Earlier coated.
Impact, but you know what have you seen trend there from March and April and how does that have for how you're thinking about some of the other geographies.
Yes Asia continues to struggle right now.
China I think was the first country that really was impacted from a from a virus outbreak perspective, and the retail channels, they're completely shut down.
Due to the the virus spread and we've seen it kind of roll around from country to country. So some of the stronger countries as they get impacted and implement their own measures then of course, we see.
The situation changed so in general as a whole APAC is has struggled to regain their footing, even though they're they're theoretically a little more advanced in the overall development of the pandemic, but you see encouraging signs in those countries, where the virus has either been well controlled and restrictions are lifting.
Or they havent, yet had the kind of spread to other countries.
Okay, and then close I guess separately you talked about one of the.
As a focus going forward is looking at opportunities longer term, but I think you referenced the strong balance sheet cash so.
How should we think about potential M&A, where are you starting to see more opportunities how aggressive might you be there now and are there particular verticals that that could look interesting here given.
Some of the challenges or some of your competitors potentially in the markets.
Yeah, we're still looking for opportunities of course said, we're very discriminating that but I would anticipate there would be some opportunities that would come our way in the near term.
And Ah I think generally you know our experience in the past has been that this tends to shake out more opportunities. So again, we're we're looking to leverage our cash for things that can help carmen be stronger and grow in the future and that's what we'll continue to do during this time.
Okay, Great. Yeah, I Hope you also plus a certain health as possible. Thanks, thanks, well.
Thank you. Our next question comes from the line of POLATOM from JP Morgan Your question. Please.
Hi, guys. Thanks for taking my questions. So I'm just first stop you know retail shops are seeing some zero traffic essentially.
So how big of a shift to online channels are you seeing as a result.
Is there kind of a percentage of sales on your website and ecommerce site you can share pre cobi and then as we move forward post are you thinking about kind of like a shift in strategy.
Kind of place more emphasis on direct to consumer E. Commerce channels, you know, which would that affect margins I assume and then then I have a follow up.
Yes, so online in web has been very strong during this time I think it's a combination of of the fact that many retailers, especially the bigger ones has restricted access to their stores and customers are looking for ways to get products safely so they're they're turning to online.
For us our web site growth has been.
Phenomenal during this period and we've we've been.
Adding to our capabilities on the website to be able to support.
Sales strategies, there with all of that said, our our retailers remain very important to us and as soon as they can come back online will certainly be supporting them, but but we do see a significant shift at this time and I would anticipate that generally speaking that the shift to online that has been occurring broadly.
The across.
All of the geographies is going to continue in the future.
Thanks, and then a follow up on on the Marine side, you know nice nice kind of growth to start the year sounds like some some marine retailers are kind of seen from positive trends in April though you know sales are probably going to be down for the year, but.
You know now you have like the New York Tristate area reopening marinas and.
Voting arguably kinda suits, social distancing, so usage I assume would be fine or possibly benefiting you know some accessory upgrade its just want to give sense for what you're seeing from your customers and how much you know how how the month of April is evolving and anything you want to call out on the marine side. Thank you.
Yeah, let's say that if it's a mix situation for marine depending on the locale and the retailer. Some retailers are are doing very well and some have had to operate under more restrictive circumstances, even closing their stores. So so this has hindered the access summer.
I mean products and and generally we've seen very strong end user demand for the products.
Some of our top products, even on our own website, our marine products, which is somewhat counterintuitive, because they're more complex and require installation, but people are buying those.
So again, it's kind of a mixed bag, we would expect things will get better as you say as as states open up.
Foreboding, Michigan has been a big one you mentioned New York. That's also been a big one we hope that bodes can come out of storage soon and we are hearing from appealed that customers are excited about equipping their boats and getting them on the water.
In terms of of the.
The opportunity going forward, we're very optimistic about marine it's a great market I think a crisis like this when people are evaluating priorities they tend to turn to things that that.
You know inspire them and I think boating and fishing is one of those things that we'll see a benefit in the future from from People's evaluation of their priorities.
Thank you.
Thank you.
Thank you. Our next question comes to my line of Ivan mindset from Tigris Financial Partners. Your question. Please.
We're taking my questions and again, congratulations on another great quarter and really nicely.
Managing the company during this.
Difficult in Crazy time.
My first questions.
Doug had spoken about Capex something cut out on my phone you said that investing in expanding the tax manufacturing and then he said one other thing it sounded like auto something so what are the two big Capex problem projects, yes, even as it relates to is the tax facility. So when we acquired tax.
Facility, we basically at that point time made a decision to expand its manufacturing facility because it increased demand. We saw there. So we're in the process of actually building a brand new manufacturing facility attacks handled increased demand there.
Second one it relates to auto OEM manufacturing, so with that to expanding with some of the additional the programs. We have we're actually standing up a manufacturing facility in Europe.
Okay.
Then I think one of the things that.
When things go back to normal from my interaction and talking with people I think the in home fitness trend is gonna be powerful what people are seem to be.
Willing to go to restaurants theaters all kinds of other.
Venues that are crowded one thing is people seem to be reluctant to go back the gym and are more interested in home fitness. So.
I think that's going to be a huge opportunity how do you view of addressing that opportunity further.
Well, that's what we're seeing Ivan and and that's the Backorders on our tax products are very strong we've not been able to supply all at the demand that we're seeing there. So we're working hard as Doug said to increase our capacity and hopefully then be able to get ahead of the demand curve that's occurring we expect.
That there will be people talk about a second cycling season, if you will or indoor cycling season.
The as people are more interested in saying indoors for a while we expect strong sales to continue and then of course is our factory comes on line will be able to deliver a more volume.
Then one other things I noticed which was really good that you added a lot of features and functionality to the connect app that supported the watch this would like downloadable exercise routines that you could do at home and use your watch war and.
But can you give us some color how you were able to coordinate that especially like if people who normally we're in the office in kind of collaborating together and they're working from home because they did a nice job too.
<unk> increased the features during this time.
Yeah, we've we've had the capability in our devices to be able to.
Put custom workouts and even provide instruction on the device at some of the newer.
Devices that are out there and our connected Q platform has been a solid investment for us to be able to.
Expand the interest that people have in the product through third party apps and our own apps that can expand utility. So our teams have been able to be very agile Allen enrolling new things out.
And it's helped to create more engagement and interest in our products, which were really thrilled about.
We have one last question I know, it's a hard question to answer but.
This.
Increased interest in home fitness grows.
You know, there's a lot of small companies that have interesting products that could benefit from so youre expertise to are you.
Looking at.
Growing them through acquisition in that area further the way you did with acquiring tax.
Well I think tax is a great example, we did see the opportunity for that and that's that's where we put a big bet in terms of of expanding into new category. I would say generally are are a ammo for op acquisitions is that we look for things that are either a complimentary product or or a technology.
Gee, enabling technology that can help us.
Expand into new product categories, and so that's what we'll continue to do not speaking specifically about fitness, but really across the board.
Thanks, and congratulations again and I look.
Everybody sees itself, so safe and well and I look forward to hopefully a different environment on the next call. Thanks Ive insane.
Thank you. Our next question comes from the line up Eric would written from Morgan Stanley. Your question. Please.
Hey, guys. Thanks for taking the call and integrate quarter I'm here. So just curious if you could provide some color.
On just what you're seeing obviously spoke to sell through in the outdoor and fitness segment, but obviously your results kind of bucked the trend that we've seen or heard with other consumer name. So I'm just just any high level color on.
How corona viruses had an impact and then perhaps asking that question a little bit of a different way.
How far in advance do your channel partners typically purchase inventory and is that changing in the current environment.
And I've a follow up thanks.
Yes, so we saw strength in our business through most of the first quarter remarkably strong really through most of its about mid March and then and then things started to come down as as the Oh panic over the crisis quickly spread.
Into Western Europe, and North America.
So we were Super strong we believe that's a that's encouraging because again our products are our product lines are very strong.
And our business in general had a lot of momentum.
In terms of retailer behavior.
Even when times are good they don't don't try to over index on inventory I think they're very cautious they have a certain amount of open to buy dollars. So it isn't as if they had stocked up with a significant amount of inventory I would say it was fairly manageable inventory levels and as their businesses have.
Have scaled back as they respond to the crisis, we believe that the inventories are depleting.
Okay. That's super helpful and then.
Can you just provide some commentary on what you're hearing from your OEM partners in the aviation market. You know if you look back to our weight on nine.
Obviously, those markets where that market was very weak. So just curious how they're viewing the current crisis relative to.
A little over a decade ago. Thanks.
I think for aviation probably the this situation is very similar to Owino nine a significant economic.
Downturn and lots of confidence, particularly in the business sectors. So.
Generally.
No I think they're very concerned and some of the more public things that have been announced you know you see some Oems that dunson furloughs and different things like out and they're trying to scale their production to demand.
But again that said I feel like the longer term is that general aviation has a bright future. Even now many communities are are actually losing their commercial airline services airliner scaled back and so the only options for.
Getting certain kinds of transportation is through general aviation and and we think because of the security.
The safety the convenience the flexibility of general aviation that it can play a big role in the future in this kind of concern over viral spread.
Super. Thank you and then just last question just a clarification question did you say earlier that you still expect your auto OEM business too to growing 2020, just just wanted to clarify that point.
Yes, I think it would be towards the back half as newer products launched from the Oems and of course there. Their schedules are are more in doubt as well as they face supply chain issues and also.
Demand issues, but but in general all of the indications. We have is that these new products are launching as they plan.
Perfect. Thanks, guys.
Right. Thank you.
Thank you. Our next question is a follow up from the line that Nick <unk> from Longbow Research. Your question. Please.
Sure. Thanks for taking my follow up.
You're mentioning an inability to meet the fully current tax demand can you try to quantify that they also remind us when that your capacity to circuits come online.
Well, it's hard to quantify because we haven't we haven't found where are the demand is it's been so strong.
So we're chasing as much of that as we can and trying to serve our customers. The best that we can the new factory is scheduled to come online about mid year and should start to ramp up into the fall as we prepare for the next indoor cycling season on that occurs next winter.
Okay, and then you mentioned the China inventories are depleted and I'm, assuming that things fit because that's the trends are strongest among all the segments yet how do we.
Can you provide any additional color as other than just April orders are down 40%, how much are orders for fitness segment trend, but year over year as you can share.
Fitness and outdoor have been above that trend and again these are to clarify our sell in trends.
So the sell out is.
Everything's a case by case basis, but in those regions in countries, where restrictions allow we see strong registration activity on our Garmin connect platform and in places where restrictions are very tight of course, you see a very predictable downturn in what's going on so we're optimistic that is restrictions ease that thing should get better.
Are those restriction kind of implying more.
Flattish environment or year over year growth in Spain sell through or how should we think about this.
Well every every country every region has the case by case situation to look out if you look at the countries with the strongest restrictions such as Italy, Spain.
And present, a sell out is very confined there and some of the cases in those countries you need permission to even go out of your house.
In other places such as the Nordics, which had been.
Taking a different approach to how they manage the crisis. The sell out is very strong and actually in strong growth mode over the last year. So so it's a mixed situation and everything that we're seeing points to the fact that the restrictions on people is impacting.
The sales more than anything right now.
Okay last question for me and the Marine segment can you compare and contrast.
Obviously, it's a much different business.
And your overexposure to aftermarket helps you here, let's compare and contrast that to the all nine period, where kind of took two years for does segment to reach the always peak.
Just like vis vis vis psycho, it's going to perform much better, but what specifically you know gives you confidence in allows you to be more positive formed a marine segment here given.
It's still a discretionary spending and it's their router.
Hi price products.
Yeah, So theres Theres, a few things that are different this time and overhead and onein the production.
Capacity was was so high.
When the pullback occurred there was simply no way to sustain that kind of production capacity in marine products and southern marine market, especially the Oems felt a significant impact from the reduction in demand. There was also a lot of I'm crazy financing going on with boats and so.
The the overall financial situation of people buying boats and end the finance or is that we're financing. The boat was was a very very precarious.
Rolling forward to where we are today the boat market has slowly recovered from those lows and so it it hasn't over built in the same way that it was back and only and Onein.
And the kinds of products that are being offered are in the bell curve of where demand still exists tends to be in those mid range Center console type of both that's still remain popular and many of our OEM partners that are shut down right. Now are very anxious to go back to work because they have customers that want their both to the border.
Them in are anxious to get them. So so we're optimistic about that we don't think it's the same situation, but I would also say that anytime there is economic shock that will takes a certain number of customers out of the market. So there's bound to be some impact that we hope it's not as bad as what it was before.
Got it thanks, guys. Good luck.
Thank you.
Thank you. Our next question is a follow up from Eric would frame from Morgan Stanley. Your question. Please.
Thanks, That's just one last question here and was I was just wondering if you could detailed kind of on the in the fitness and outdoor segment.
What the contribution to growth was from units versus pricing.
Yeah, we don't.
Break out just in terms of a ASV and a units versus pricing, but we're seeing.
In the Q1 growth and in both as we've had newer product lines in fitness and also our new product lines and.
And outdoor especially in the Phoenix area.
Okay, great. Thanks, that's it thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to the tourist effect for any further remarks. Thank.
Thank you all for joining us today and I are available for call back semi hope you all stay safe and healthy right.
Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.
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