Q4 2020 Garmin Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Garmin Ltd fourth quarter of 'twenty 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session ask a question. During the session you will need the press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the competency of speaker today, Teri Seck manager of Investor Relations. Please go ahead ma'am.
Morning, we would like to welcome you to Garmin Ltd fourth quarter of 2020 earnings call. Please note that the earnings press release and related slides are available at the garments Investor Relations site on the Internet at Www Dot Garmin Dotcom Slashdot and archive of the webcast and the related transcript will also be available on our website. This earning call includes projections and other forward looking.
King statements regarding Garmin Ltd, and its fitness any statements regarding our future financial position revenues earnings gross margin operating margins future dividends market shares product introductions future demand for our 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 and Exchange Commission in particular, there is significant uncertainty about the duration of impact of the COVID-19 pandemic.
The results could change of anytime in any statement about the impact of COVID-19 on the company's business results and outlook is the best estimate based on the information available as of today's day presenting on behalf of Garmin Ltd. This morning are Cliff Pemble, President and Chief Executive Officer, and Doug Bass, and Chief Financial Officer, and Treasurer at this time I would like to turn the call over to Cliff.
Oh.
Thank you Teri and good morning, everyone as reported earlier today.
Our growth momentum accelerated in the final quarter of the year.
Revenue increased 23% exceeding $1 $3 billion, driven by strong double digit growth in our fitness outdoor and marine segments.
Gross margin improved to 58.5%.
Operating income increased 34% to $371 million and operating margin expanded to 27, 5%.
GAAP EPS was $1 73, and pro forma EPS was also the $1 73, increasing 34% over the prior year.
Yeah.
Looking back I'm very proud of what we accomplished in 2020.
The COVID-19 pandemic created unprecedented challenges affecting every company and of course Garmin was no exception.
Many of these challenges where the burden of employees such as learning to work and collaborate remotely while juggling new challenges in their personal lives.
Our employees were very resilient and face these challenges with courage and determination as reflected in our outstanding performance throughout the year.
The pandemic also created many new opportunities as interest in health and fitness and active lifestyle searched.
We were well positioned to seize these opportunities with the strong product lineup.
And our vertically integrated business model gave us flexibility to meet rapidly changing demands.
During this crisis, we maintained our focus on R&D, which allowed us to introduce many innovative new products throughout the year.
On a consolidated basis revenue increased 11% to nearly $4 $2 billion, which is a new record for garmin and our fifth consecutive year of growth.
Gross margin was 59, 3% and operating margin was 25, 2%.
Operating income increased 11% to over $1 billion, which is another record of achievement.
This resulted in GAAP EPS of $5.17 and pro forma EPS of $5.14.
An increase of 16% over the prior year.
Considering these strong results at our upcoming annual meeting will ask shareholders to approve an annual dividend of $2 68 per share representing.
Representing a 10% increase over the current annual dividend amount.
Doug will discuss our financial results in greater detail in a few minutes, but first I'd like to highlight some achievements from the past year and the outlook for each of our five business segments.
Starting with the fitness segment revenue increased 26% of strong demand for advanced Wearables and cycling products fuels our growth.
Gross and operating margins were 53% of 24% respectively.
The resulting in operating income growth of 66% over the prior year.
During the year, we launched innovative new wearables and cycling products such as the venue eschew.
The 400 and 745 in the next generation of edge cycling computers.
Looking forward, we are well positioned to capitalize on the broader trends in health and fitness.
We plan to leverage our recent acquisition of first be tougher products with unique health and fitness features.
In addition, we intend to capitalize on the trends in indoor cycling with our strong lineup of tax products.
With these things in mind, we anticipate revenue from the fitness segment will increase approximately 10%.
'twenty one.
In the outdoor segment revenue increased 23%, primarily driven by strong demand for adventure watches.
Gross and operating margins were 66% of 39% respectively.
The resulting in operating income growth of 32%.
During the year, we added solar charging technology to a broad range of Phoenix and instinct models, extending our lead in low power technology and further differentiating ourselves in the highly competitive smartwatch market.
Looking forward, we expect the broader trends in outdoor to continue.
We plan to leverage this opportunity by offering compelling products that maximize the enjoyment of outdoor activity and adventure.
We believe that enrich will continue to grow as more people appreciate the convenience and lifesaving potential of two way remote communication of.
Our recent acquisition of Geos are critical provider of the emergency monitoring in incident response services allows us to expand its scale and improve service levels for our growing base of the enriched customers.
With these things in mind, we anticipate revenue from the outdoor segment will increase approximately 10% in 2021.
Yes.
Yeah.
Looking next at the aviation segment revenue decreased 15% due to lower revenue from OEM product categories.
And the expected decline of the a DSP market.
Gross and operating margins were 73% and 22% respectively.
While the pandemic created some headwinds, particularly in the OEM market, we see positive signs in the smaller aircraft segment, especially in the owner flown aircraft.
In addition, when adjusting for the impact of a DSP.
There are encouraging signs in the aftermarket as aircraft owners embrace the latest cockpit technologies.
Auto land is being recognized as game changing new safety technology for General Aviation.
And recently was named one of 2000 Twenty's greatest innovations by popular science.
Auto land also one of the top Light award from Aviation International News.
During the year auto land achieve certification on three aircraft models.
<unk> the Cirrus vision jet the Piper M 600, and the Doherty be on 940.
Over 150 auto land equipped aircraft are now in service a number of that continues to grow every day.
We believe the general aviation market is stabilizing and during 2021, we expect the segment to grow approximately 5%.
Contributions from both OEM and aftermarket categories.
We expect revenue from the segment to decline in the first quarter as we compare against strong residual 80 of speed numbers from last year, followed by growth as the year over year comparisons become much more favorable.
We are focused on certifying safety enhancing technology, such as auto land and additional aircraft models and we will continue to invest in future growth opportunities.
Moving onto Marine the segment delivered another year of impressive results as the pandemic created an opportunity for people to rediscover boating and fishing.
Revenue increased 29% with growth in multiple product categories led by strong demand for chart plotters.
Gross and operating margins were 58% and 27% respectively.
<unk> operating income growth of 60%.
We continue to be recognized for innovation and achievement in the marine industry.
We were named supplier of the year by independent boat builders incorporated manufacturer of the year by the National Marine Electronics Association and recently, we were recognized as one of the top 10, most innovative marine companies by soundings trade only which.
As the BTB news and information provider for the recreational boating industry.
Looking forward, we anticipate that interest in boating and fishing will remains strong.
Many of the builders have already sold out of their 2021 models and our retail partners are preparing for another year of strong growth we plan to capitalize.
The lives on these trends by offering a compelling lineup of products with innovative features and disruptive new technologies.
With this in mind, we anticipate revenue from the Marine segment will increase approximately 15% of 'twenty 'twenty one.
Moving finally to the auto segment I want to highlight the we are now providing expanded disclosures for the segment.
Specifically, we are disclosing separate financial information for the two operating segments within the auto the consumer segment, which includes P N D and specialty products and.
In the OEM segment, which is focused on hardware and software solutions for vehicle manufacturers.
We believe these expanded disclosures will help investors better understand the mix of revenue the level of investment and the profit profile of each profit segment.
Now looking at the year end results for the auto segment revenue decreased 16% as the decline in P and DS was partially offset by growth in specialty products and revenue from new OEM programs.
Gross margin was 45%.
And we recorded an operating loss of $19 million driven by investments in the auto OEM programs.
Our auto OEM business has reached an inflection point as we ramp up new programs over the next few years.
Prior to the most recent wins, we've been successful on various software navigation and infotainment programs with several top tier Oems such as Honda Toyota Daimler and to show to name just a few.
We are currently in production with the full infotainment system for the time of their veto van.
And we recently began production on the current BMW program, where we are of tier one build to print supplier.
Also we are developing the next generation program for BMW as the lead supplier, which expands our role to encompass all aspects of the design, including hardware complex the operating system development and system integration.
Moving into this lead supply of roll on future programs is a testament to the progress we've made as of tier one supplier to the auto industry.
These programs require a significant investment in R&D prior to realizing revenue and not all costs are reimbursed by the customer.
With these things in mind, we expect total auto revenue to grow approximately 5% in 'twenty and 'twenty, one driven by growth in specialty consumer products and new OEM programs.
We also expect additional losses from the OEM operating segment as we invest in the development of the future programs expected to launch in late 2022.
Yeah.
So in summary, I'm very proud of what we accomplished in 2020, while facing challenges that no one could have anticipated just one year ago.
The indicators for 'twenty 'twenty, one look positive and we are excited about the opportunities in every business segment.
With this in mind, we anticipate 'twenty 'twenty, one revenue will be approximately $4 $6 billion, an increase of 10% over the prior year.
We anticipate growth in all segments.
We expect gross margin to be approximately 59, 2% and operating margin at approximately 23, 5%.
Assuming a pro forma effective tax rate of 10, 5% pro forma earnings per share are expected to be approximately $5.15.
That concludes my remarks next Doug will walk us through additional details on our financial results.
Thanks Cliff.
Everyone I will begin by reviewing our fourth quarter and full year financial results through the.
The comments on the balance sheet cash flow statement of taxes.
Posted revenue of $1 $3 billion for the fourth quarter, representing 23% decrease year over year growth.
Margin was 58, 5% 50 basis point increase the price.
We're here.
Operating expense percentage of sales of 31, 1% 180 basis point decrease.
Operating income of $371 million, 34% increase.
Operating margin was 27, 5% 240 basis point increase from the prior year our.
Our GAAP pro forma EPS was $1 73 three.
The 34% increase from the prior year pro forma EPS.
Looking at full year results total revenue of $4 $1 billion, representing 11% increase year over year.
Gross margin was 59, 3% 20 basis point decrease from the prior year.
Operating expense percentage of sales 34, 1% 20 basis point decrease.
Operating income was $1.054 billion five per cent increase of.
Operating margin of safety.
The 25, 2% consistent with the prior year, our GAAP EPS of $5.17 core EPS of 5014th.
<unk> percent increase in the prior year.
Next we'll go of fourth quarter revenue by segment and geography.
Fourth quarter achieved double digit growth four of five segments led by Marine segment the growth of 48%.
Followed by the outdoor segment of 40% growth the fitness segment of 26% growth.
The geography, we achieved growth in all three regions led by strong growth of 32%, both EMEA and APAC.
Americas grew 13%, which was more heavily impacted by the decline in aviation excluding aviation America's growth was more in line the other regions.
For the full year 2020, rich you've let percent consolidated growth with strong double digit growth in <unk>.
Three of our five segments.
<unk> fitness outdoor each grew in excess of 20%.
By geography, which had growth in all three regions led by 17% growth EMEA, 8% growth, both Americas and APAC.
We'll go next operating expenses fourth.
Fourth quarter operating expenses increased by $57 million or 16% share.
The development increased $38 million year over year, primarily due to the jewelry personnel costs net of expenses related to auto OEM programs.
Our advertising expense decreased approximately $2 million the prior year quarter.
SG&A increased $21 million for the prior quarter, but decreased some of your sales to 11, 8% 70 basis point decrease compared to the prior year.
Increase in SG&A was primarily due to increases in information technology costs personnel related expenses.
A few highlights on the balance sheet cash flow statement and dividends.
Ended the quarter with cash and marketable securities approximately $3 billion accounts receivable increased sequentially year over year $849 million due to strong sales in the fourth quarter.
The inventory balance increase year over year $762 million.
For the fourth quarter of 2020, we generate free cash flow of $387 million.
For the full year 2020, we generate free cash flow of approximately $950 million $369 million increase from the prior year due to improved earnings decreased operating capital needs for 2021, we expect free cash flow to be approximately $725 million approximately $350 million of capital expenditures.
The expected year over year increase capital expenditures due to investments in platforms for growth, including expansion of our Taiwan manufacturing facilities reached.
Restarting to Olathe expansion project, which includes the renovation of the previous life of manufacturing and distribution facility to increase workspace capacity.
The OEM manufacturing facility in Europe, and it related projects.
We announced our plans to seek shareholder approval for an increase in our dividend beginning with the June 2021 payment puzzle the cash dividend $2 16 per share of 67 per share of quarter, just a 10% increase from our current quarterly dividend of 61 cents per share.
For full year 2020, putting the effective tax rate of 10, 1%.
The effective tax rate was 10, 4% five or 10 basis point decrease from the prior year, primarily due to the migration intellectual property ownership, Switzerland to United States.
The fiscal year 2021 pro forma effective tax rate expected to be 10, 5% essentially flat year over year includes our form of ARX <unk>.
Well can you. Please open the line for Q&A.
Thank you everyone of mine.
Did you ask a question you will need the press star one on your telephone to withdraw your question press. The pound key please standby will be compile the Q&A roster.
Our first question comes from Robert Spingarn with Credit Suisse. Your line is now open.
Hi, good morning.
Good morning Cliff.
Cliff, Doug you're very good numbers I wanted to.
Digging a little bit in a couple of things, but just starting off the guidance on the.
On the operating margin for 'twenty, one if we could just bridge that from 'twenty. The decline in the operating margin is that just more R&D on the auto side.
Yeah, So I'll give you a little bit of the color on that yes. It is primarily due to operating expenses as a percentage of sales increasing took the gross margin was relatively comparable maybe a 10 basis points of over there, but give you a little bit of color on the operating expenses Yeah of course.
We're anticipating 2021 to be about 160 basis points higher as a percentage of sales are.
Looking at each of the pieces of advertising, we anticipate or a target that to be relatively flat as a percentage of sales year over year.
SG&A will be slightly up we we think.
It's primarily due to increased expenses.
<unk> expenses as well as the other personnel related expenses and then the increase as you mentioned really is driven by R&D. So if you look at the R&D, we're anticipating that the percentage of sales to be about 150 basis points of higher year over year in there, it's really driven by a big piece of that relating to auto OEM investments, but other.
The investments that we see in other parts of our segments.
Okay, and then cliff on the top line strength in the year is there any way by segment to parse just market growth versus market share improvement thinking specifically about marine I mean, it was just outstanding but it is just in general is there a way to think about those two different factors.
Yeah, I think looking specifically at marine Theres definitely a combination of market size increase as well as market share gains.
If you look broadly at the boat builders in Marine you know there are experiencing anywhere from high single digits to two double digit increase in their business and so probably underlying the business. The market is increasing at those kinds of rates and then on top of that.
Our product line and in our.
Growth in terms of the market market share has been strong and so we've been able to essentially double leverage those things.
Okay and then just as the final question have you been constrained at all by semiconductor shortages anywhere.
Sure.
Yeah, I would say that we are experiencing some levels of of tightness in supply of it. It is spotty it depends on the component.
And the supplier.
We've generally been able to work through those kinds of constraints with our safety stock inventory strategy.
And also because we're agile with our vertical integration. We can we can find substitutes and keep things going but it's definitely noticeably more challenging in this environment of course, and there's lots of headlines about that and we operate in that same environment. So those are factors for us too, but so far we believe that we've been.
The bill to manage that okay.
So there's nothing in the guide that anticipates any significant pressure there youre, assuming you work through it.
Well I think if you look at the high level at our guidance.
We are a company that's heavily influenced by consumer trends in its very early in the year. So I would say that that we always try to make sure that debt we factor in just the general.
Dynamics of the kinds of markets that we serve but as far as components supplier of capacity constraints or anything like that we we haven't necessarily taken any kind of significant haircuts because of those things.
Okay. Thank you Paul.
Thank you.
Thank you. Our next question comes from Nick Todorov with Longbow Research. Your line is now open.
Yes, hi, guys congrats on great results.
Yes.
Hum.
I'm wondering how you're thinking about the potential normalization.
In the world in the second half with.
<unk> seen of rolling out them everything going on.
Do you believe a recovery in the travel and leisure.
The street will have any impact on the demand for your products.
Well I think I think that's.
It's still a highly speculative thing that nobody really knows the answer to I would say that for for myself I believe that.
Debt.
Any kind of normalization is going to take some time as we've been in this <unk>.
Situation now for about a year and people have adjusted lifestyles.
Consequently, some of their priorities probably have changed probably permanently.
And it still remains to be seen how how much the vaccine really makes people feel free to do those kinds of activities. There there's still a lot of guidance coming out the debt the vaccines have.
They help but they don't necessarily.
Ensure that people won't get sick or or couldnt infect someone else. So these are all things that people are still processing. It's early days.
And so right now, we're believing that the trends that we've been seeing in the business over the past year of.
Our solid and will continue.
Okay, Great and then really appreciate the breakdown the detail for the auto segment.
At the OEM side, how should we think about linearity throughout the year do you guys have new programs that will start ramping up in calendar year 'twenty one.
Yes, we are ramping up really on two programs that I mentioned, the diamond veto has not yet anniversaried. The start of production. There. So there will be a significant ramp associated with that and then the BMW. The current program that we're supplying has the build to print supplier again, we're in the early days on production.
And that's how we'll experience the full year of production on those two programs.
Okay, Great and the last question for me on the fitness side of you Ya.
Had a pretty good year for part of your gross margin, making the expanded a couple of hundred basis points. You know how should we think about the fitness gross margin as we go forward do you anticipate the maintain the current level I know mix has been a tailwind for you this year.
Yeah, we've mostly transitioned our product line to the more advanced Wearables and so the highly competitive low end bands really arent influencing our business as much. There. So we have said before and we continue to believe that the fitness business is is a mid to upper fifty's kind of.
<unk> margin on the gross margin line and of course targeting <unk>.
20% and operating margin for the segment.
Okay got it thanks, guys. Good luck.
Thank you. Our next question comes from Paul Chung with Jpmorgan. Your line is now open.
Hi, Thanks for taking my questions and great quarter.
So just to follow up on operating margin guidance.
You could get more granular by segment.
Auto OEM, you mentioned, increasing the investments there, but all the fitness to be kind of a return to that low twenty's or high teens on on tax expansion.
Outdoor marine maybe come down after a strong 20 and on the aviation do we stay the and the low twenty's range or does that begin to normalize maybe into Q.
And then there's some longer term R&D investments kind of waned a bit any thoughts would be helpful and I have a follow up thanks.
Yeah. Yeah go ahead as it relates to 2021 on operating margins.
We see most of the segments, probably being relatively consistent.
The year over year a cup.
Couple of them will probably be a little bit lower or some lower I should say one of which is auto OEM as we continue to make the investments in auto OEM and you also see there the gross margin came down some as some of our.
Newer programs have a lower gross margin so in auto OEM and you will see some decline there and then.
The aviation all depending upon the growth we have an expansion there sort of depends upon the know how the revenue growth relates to our operating expenses.
Yeah.
Okay. Thanks for that and then as we think more about kind of of recurring base of revenues kind of across your portfolio. You have in reach of plans with you know have the kind of monthly premiums across the product, but and then you also have tax subscriptions for the video trails et cetera, though.
These are smaller in scale relative to your whole revenue base, but if.
If you could just expand on.
Where do you see those kinds of subscription services going and then it sounds like you expect some nice contribution in 'twenty, one, but then where do you see potential to maybe drive kind of higher subscription service type of offerings may be across other parts of your portfolio. Thank you.
And reached continues to have a lot of potential it its a unique.
Capability of that debt, especially appeals to the customer base that that we have and so we believe there's a lot more potential to grow that both in 2021 and into the future but.
But as far as the other opportunities you know I would I would say that debt.
We're targeting areas of like and reach that wood.
The recurring revenue opportunities that would.
Appeal to the kind of customer base and the products that we make and so there's more things in the works.
We'll come out with in the future, but that said, we do have a an intentional focus on that.
Thanks, guys.
Thank you.
Thank you. Our next question comes from Ben Bollin with Cleveland Research. Your line is now open.
Good morning, everyone. Thank you for taking the question.
Cliff could you start a little bit by talking about auto OEM in.
And the operating margin performance overtime, maybe talk a little bit about how you see that scaling.
What happens to that business as you bring on new programs is it absorbed or is there some incremental expenses just the right way to think about how you can scale that business over the next several years.
Yes, I think youre hitting definitely the.
The nail on the head there I feel that the you know we're in a period of significant investment right now in the programs that we've won definitely establish a base of credibility, but I think what we're working towards now is building the scale that we need.
This business of course is.
A different kind of margin profile overall than the rest of our business and so we recognize that that it will be lower gross margins and lower operating margins, which are consistent with the industry, but we're also witnessing one of the biggest transformations and personal transportation taking place right now.
And as a result, there's there's many many companies that are trying to get into the opportunity presented by this turnover of technology.
And so we have things that we're bringing to the market and so we're continuing to invest.
And as we bring on new programs definitely there'll be some incremental investments that we have to make but our belief is that we would be able to leverage the scale of the infrastructure that we're putting in place now.
Okay.
Another item of I'm interested in is any thoughts you have on.
Current product availability across channels for instance, where channel inventories stands today supply demand balance for fitness outdoor and marine and then a last follow up.
Yes, I think for the most part we believe that the retail channels are are very clean.
We are entering the new year with a significant level of our backlogs as we.
We do have some capacity constraints and is one of the motivations we have for investing in the business in the in the coming year and so we do see strong demand for our products right now in the channel inventory does not appear to be.
Excess of at this point.
Okay. My last one is related to the capital structure.
Could you give us any updates on where your priorities are with respect to.
Dividend Capex M&A share repurchase and also interested any thoughts about factory utilization and some of the incremental investments you're making in 'twenty one in terms of production expansion.
Yes.
Yeah, I think we've mentioned before our priorities on our cashes for being a reliable payer of an attractive dividend and so in our results today again, we announced that we'll be increasing that significantly in the coming year, which we're excited to do we're also focused on M&A.
The activity that that enhances our business either through.
Technology that we don't have ourselves or through our product line debt that would be complementary to what we offer. So that's really our second priority and then the third priority of course is investing in the business and and to that end again today, we mentioned that debt will be making some significant capital investments in our production.
The capacity in 2021 and beyond we want to significantly increase our Taiwan production capacity as well as the ongoing investments that we've made here in olathe will be restarting our office expansion to support more employees.
We're building out the tax factory for trainers and of course, the auto OEM factory in Europe for four of the M. W.
Great. Thanks, guys.
<unk>.
Thank you. Our next question comes from Jeffrey Rand with Deutsche Bank. Your line is now open.
Hi, Thanks for taking my question and congrats on a good quarter now there we're pretty much a year into the pandemic can you maybe touch on how you have shifted or adjusted your strategy over the past year and whether there've been any changes in your M&A focus.
The pandemic.
Well the M&A wise, you know really no shift in and we were able to successfully complete.
Some of those transactions even during the pandemic. So we had the first feet on board as well as Geos.
And so again as I, just mentioned will be continuing to look for opportunities.
Especially those that bring some kind of technology or product category to us.
We don't presently have in terms of how we run the business. So we've.
It's been different but we've been very successful in collaborating electronically we do have many of our offices and the.
Employees.
Coming in on a rotating basis, so we're seeing more and more phased.
Faces of the people, which is the good thing.
But we don't necessarily have full utilization of our space, because we're keeping people distant and making sure that everyone can say say so so all of that kind of remains the same I think the the biggest thing for me is is the kind of stopped predicting when that's going to end in the and simply kind of manage through and do the best things for the business right.
Now.
Great and then just as a follow up can you talk about the demand trends youre seeing in your indoor cycling business and if you're still running of backlog there.
The demand is very strong for indoor cycling and so where we're leveraging the new facility that we have built in the Netherlands for tax to increase our capacity, but even with increased output. We're seeing very strong backlog for that product. So we're continuing to work very hard to fill those orders.
Great. Thank you. Thank you.
Thank you. Our next question comes from will power with Baird. Your line is now open.
Great. Thanks, Yeah. Congratulations on the results I guess of couple of questions.
Thanks again for the the auto break down I know you touched a bit on the OEM opportunities I guess on the consumer front, how do we think about.
What the growth looks like Theyre going forward I think you actually click maybe the kind of your expected specialty consumer to grow year over year in 'twenty, one of if I, if I heard that right I'm just trying to understand the puts and takes of the consumer piece yes.
Yeah. So you heard right, we're expecting all five of our business segments to contribute to growth in 2021 and specifically in auto.
Both the OEM.
Operating segment and the consumer operating segment are expected to achieve growth in the year.
And any other color as to what's going to drive the consumer growth within auto.
All of these specialty product categories that we've developed are very strong for some of the same reasons that.
We're seeing in other areas of the business. So we've developed products for over landing and and as well as specialty products for motorcycles and trucks and all of these are very popular categories right now.
Okay, Great and then my second question on fitness I think in your prepared remarks, you mentioned integrating first speeding that providing opportunities in 'twenty. One maybe just remind us where are you with respect to the integration of that today in terms of some of those capabilities versus what's the common.
As you think about strategic M&A of the opportunities are there, but what do you see just kind of the big opportunities in fitness.
Yeah. So firstly it is it was purely a software technology.
Company, and so and the company that we had been working with previously in terms of.
Incorporating their technology into our Wearables and cycling products and so with the acquisition, we've been able to accelerate the incorporation of features across the product lines that broadens our our feature list for our customers and so that's underway in the for the Moe.
Part of many of our new products already have some of the expanded feature sets that we wanted them to have thanks to the the.
Firstly the acquisition in terms of of the other opportunities there I mean again, probably can't comment on specifics, but we see a few pop up here and there and as we have done historically, we look at each of those and make sure that what.
While we engage in really matches, our criteria for a technology or a product category that that would be beneficial to us.
Yeah.
Okay. Thank you. Thank you.
Thank you. Our next question comes from Ron Epstein with Bank of America. Your line is now open.
Good morning, all of them.
Just a couple of questions maybe of some detailed ones and the numbers are.
The bigger picture one so when we think about the tax rate for 'twenty, one and then going forward, how should we think about that because of the.
The tax rate you guys were talking about is a little bit lower than what I was thinking.
Yes, so the tax rate we have for 2021 is consistent with what we had for 2020. So we think not of lot of change from that standpoint, no. We did not give any guidance for future years, there's a lot of things that really play into that Ron depending upon the operating in.
Income.
The income by segment by jurisdiction and reserve releases as such but I think it would probably be in that same type of a range. We think you know when the next in the future of depending upon obviously I think the may change with the tax laws enactment in those type of things in there, but I think it's relatively consistent in.
Between 'twenty, one and 'twenty two.
Got it got it and then of course, you mentioned about aviation growth.
Cause if you pro forma debt for a DSP.
How big of a headwind is was it yesterday.
Well it was a it was definitely a significant one set of generation opportunity to equipped every aircraft with <unk>.
Technology, and so we worked very hard to.
To supply every aircraft with a DSP that we possibly could and we were wildly successful which is demonstrated by the fact that we have some headwinds right now, but those are headwinds that I'm very proud of.
No. Yeah. My question I mean, obviously, that's all good stuff, but I guess, what I'm trying to debt out there for you when you remove that at the SB piece, and we think about emulation and the 'twenty, one and maybe end of 'twenty two right I mean the.
This is mike or potentially.
The recovery in business aviation as evidenced by the.
The capacity utilization.
Utilization of business Trust me that's the.
They've got hit far of less than other parts of the aviation.
The the business piece of private aviation really hasn't come back yet so if we were to get into a more meaningfully robust upturn.
Business private aviation I'm, just trying to debt out like what that would mean for you guys. So it was sort of like I understand the question yes.
Yeah for sure and we mentioned last year of at this time as the pandemic was the erupting that we believe that general aviation had a bright future throughout this because of the flexibility and the options that it provides people that might have concerns about how they travel and we've definitely seen.
That play out as I mentioned in my remarks, the smaller aircrafts segment, especially on our flown in and also we're hearing the news from from the charter in fractional companies that they're seeing an uptick in their demand and so that's playing out exactly as we thought and as we look forward again, the demand is just super strong and the and the smaller aircraft segment.
And we're.
Strongly positioned in every one of those platforms to take advantage of that where we're in all of the right places in the light jet market after medium jets.
On the piston side for the owner flown people as well and so we're we're ideally positioned in all of those categories to be able to to meet the demand.
Gotcha, and then and then shifted maybe to.
Customers in the stickiness.
Garmin connect.
Do you have a sense on once folks are kind of in that universe does that keep them locked into of garmin products.
Well for share you know I have I have a decade of history on garmin connect that I wouldn't ever want to lose.
And I know that there's many other customers that feel that way and and it's a place where where you store of the most most important data about yourself and to be able to manage your health and so the features that are in garmin connect our super sticky and are useful tools for people and it's something that they continue to use.
Gotcha and then maybe one last question of balance sheet question, but you said you guys have Andrew.
Net cash of $3 billion of it.
Currently that's not the the most efficient ways to use the balance sheet and I think someone else earlier asked me about.
Capital deployment, so on and so forth, but I mean sitting around with $3 billion on the cat M. The other.
The balance sheet I mean, how do you think about that.
Shouldn't that be deployed someplace else either.
The new product back to shareholders or somewhere.
Yeah, I think we've obviously demonstrated that we're stepping up our spending on capital.
<unk> two to support the business that we see going forward. So that's the that's one thing.
We've been in.
In an acquisition mode. So we've spent some money in the past year on that and we're increasing our dividend for sure. The business is growing so so definitely having a little more cash on hand is not a bad thing and.
A year ago is as the economy was tanking everyone was.
Concerned about the fact that some companies didn't have enough cash the whether those things. So we've always been in a strong position and Thats, where we will continue to be we do have.
<unk> and constraints around the capital structure B, we want to make sure that we can distribute dividends to shareholders as efficiently as possible.
Which means that we have a certain amount of capital of we can deploy whether it's dividends or buybacks.
And that's done at a withholding tax free rate right now and so we're being very careful with that to make sure that we can be reliable and attractive for people in the long term.
Got it alright. Thank you thank.
Thank you.
Thank you. Our next question comes from Ivan finds that the attackers financial your line is now open.
Thank you for taking my question and congratulations on another quarter and of great year and congratulations.
Being selected by Joe before they're selecting your G <unk> 3000.
Were there or have you been incorporating unique functionality and the G 3000 net supports the eval functionality of new.
The types of planes.
These are E vehicles that are being designed definitely have unique characteristics and so the avionics and the the electronics in general on board need to be specific for those platforms. Just like we've seen in every other kind of aircraft that we've incorporated into so we're doing the same thing with tobi and the others were.
Working with.
What do you view your competitive advantage is and was that you want this and hopefully keep winning new mandates.
We have the most capable of avionics systems for these aircraft.
And so obviously, that's a major attractive point we have.
A significant amount of experience as a company both in certifying.
Avionics and aircraft as well as rich.
And being a reliable production partner for our Oems that use our equipment and so on.
All of these things are definitely pluses for Garmin and sort of look at these new opportunities.
And that was auto land automatically included or it can be included in this as well yeah I think out of land with the case by case basis for four of these new opportunities I can't comment specifically on on JV with that but but obviously were.
Amassing a strong base of autonomous technologies and the safety technologies for aircraft that can be applied broadly across fixed swing as well as helicopters and E vehicles as well.
Okay, and then on first Peter what type of new functionality can we hope to see as you incorporate more of the first piece of acquisition into your products.
Well, we've been really excited about firstly, because they are a team of people focused on physiology, especially exercise physiology, but as well as <unk>.
Basic health and wellness as well and so we're leveraging their expertise to be able to improve a lot of capability on our products in terms of of.
Health fencing health.
Health data feedback for people and providing guidance to people in terms of how they can.
Modify their life in order to live healthier and to be more fit.
And then we'll what's what's going on with your developer who you're gonna have of develop because of the IQ developer conference.
The spring or what is the plan for that and then.
Or are you going to open up opportunity for developers to work with FERC functionality to develop new applications to use on your products and.
The last year, we did did it virtual I would anticipate based on what we know today that that's the same approach, we'll take this year, but actually many of our partners appreciated that because it allowed them to participate when some of them wouldn't otherwise be able to take the time or spend the money to travel so.
We would anticipate that of virtual approach would be something that's part of our.
Approach for developers going forward, but.
But in terms of what things are opened up on the platform I, probably can't make a specific comment about first fee, but we are continually adding capabilities that allow people to access the unique features of our hardware platforms and also our software stack.
And there's still any thoughts about making connect IQ more of an E commerce platform for those companies that.
There are some applications that.
A lot of for free some you can pay through Paypal, but theres no real form of process formula.
You see eventually creating this where you know it goes through Garmin and Garmin earns the commission as well as helping to promote.
Developers in growth.
The number of apps available.
I would say at a high level, that's something that's still of interest to us and something that we get requests for price.
Of our developers so we're continuing to look at that and trying to determine the best way to work it into our ecosystem.
Alright, Thank you very much congratulations again and wish you a great 2021. Thank.
Thank you Ivan.
Thank you. Our next question comes from Erik Woodring with Morgan Stanley. Your line is now open.
Thanks, and good morning, everyone. Congrats on the on the great quarter.
I just wanted to start maybe if we take a step back and think high level. You know we've gone through this pandemic now for you know whatever it is 10 plus months.
What are some of the trends you believe will be more permanent and even as the pandemic is behind us.
And then I guess, how does that impact or influence your product roadmap as we sit here today.
Yes, I think people have for a long time now.
Basically been a conditioning themselves with new lifestyle choices.
The many times.
Coffee.
Coffee coffee pot conversations basically will reveal that many of the changes people actually are excited about and they love and so.
People say that it only takes three weeks to form a habit and so as people have focus on healthier lifestyles on on an.
Active lifestyles and adventure ease of things that are getting ingrained in the embedded in their thinking and something that the value. So so we believe that these kinds of trends are positive things for us and we believe that they will be.
The more longer term things that we are experiencing in and so that's how we're viewing this.
Okay. Thank you and then I.
I guess, just as we retouch on the auto OEM business is there anything to call out as we think about the quarterly cadence of revenue in terms of you know.
Abnormal seasonality if that can even be of term or maybe the lumpiness of revenue I'm in a certain quarter and 2021.
Well, it's probably hard to say I think in addition to the.
The year on year effects of ramping up new programs automakers are experiencing their own challenges when it comes to production.
Our supply chains and the constraints on components of it there.
We're needing for production. So unfortunately, it's probably going to be a little bit chaotic for I'm speaking in a general sense and for automakers and we would expect that that the ones that we serve will probably have to face those challenges as well.
Okay Fair enough and then maybe I guess last question just on tax I.
I know, we've gone through a bit of the supply constraints, and then expanding production, but what or what have you seen in terms of customer reactions to longer wait times, you know do find demand to be perishable or you know is tax and the tax the name of the brand that consumers want.
And they're willing to wait however, long it may be to get one of those products. Thanks.
I think the constraints are definitely not unique to us like the entire industry is in cycling in general is suffering from supply constraints right now.
So people are anxious to get the equipment that they want to.
To equip their houses with with indoor cycling.
And obviously.
Obviously, you know most people are very happy when they have to wait a long time for sure. You know, we don't expect them to be but we're working very hard to fulfill the demand and the good news has been that as we've.
Ramped up.
Production it seems like our back orders have have really also increase and so we believe that people love the product we believe it's superior to anything out there.
And they're willing to wait to have our product.
Okay. That's super helpful. Thank you guys.
Thank you. Our next question comes from Nick Todorov with Longbow Research. Your line is now open.
Yeah, guys a quick follow up quick question on the auto side.
I heard that you said that the new consumer products will experience growth, but I think then you clarify do you expect the the whole auto consumer segment to see growth in 2021.
If that's the case I think that implies that the out of OEM sales.
That's kind of kind of December.
In December of $62 million.
What's kind of of peak here for the near term am I thinking this correctly or am I missing something because I think you were talking about ramping up programs with Daimler and BMW is there any reason why December would be peak of four.
The next two or three quarters, and our OEM I know production is going to be down in margin in June but the.
I thought you would've seen a nice linearity of going forward.
Yes, I think the the first half of the year, it's probably going to be favorable as we comp against some some challenges from last year as automakers, we're reducing.
Capacity and shutting down factories, but but then it should even out towards the back half as we comp against these new program introductions.
Yeah.
Okay.
You expect to be down sequentially from December is what I'm trying to get in the first half.
Aldo yes, specifically.
Yes, I would expect it actually to grow sequentially.
Into the first half and then in the level of out from there.
Okay. So the so the whole consumer OEM will also see growth for 2021.
Yes, that's what we mentioned.
Okay. Okay.
Thanks.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Teri Seck for closing remarks.
Thank you everyone for joining us today, Doug and I are available for callbacks, and we will talk with them a lot of you in the coming days and weeks have a great day bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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