Q4 2021 Garmin Ltd Earnings Call
Thank you for standby costs that again non metallic again, thank you for standing by your conference call should begin momentarily. Thank you.
[music].
Thank you for standing by and welcome to the Garmin Ltd fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch tone telephone.
As a reminder, today's conference call is being recorded I will now turn the conference.
MS Teri Seck director of Investor Relations Ma'am, you may begin.
We would like to welcome you to Garmin Ltd fourth quarter and fiscal year 2021 earnings call. Please note that the earnings press release and related slides are available at <unk> Investor Relations site on the Internet at Www Dot Garmin Dot com Slashdot and archive of the webcast and related transcript will also be available on our website.
Earnings call includes projections and other forward looking statements regarding Garmin limited and its business any statements regarding our future financial position revenues earnings gross margins operating margins future dividends or share repurchases market shares product introductions future demand for products and plans and objectives are forward looking statements 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 <unk>.
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 and impact of the Covid.
19 pandemic. This means that results could change at any time and 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 date presenting on behalf of Garmin Limited. This morning are Chris Campbell, President and Chief Executive Officer, and Doug <unk>, Chief Financial Officer and Treasurer.
At this time I would like to turn the call over to Cliff Pemble.
Thank you Terry and good morning, everyone.
As reported earlier today, we ended 2021 with fourth quarter revenue of $1 $3 9 billion.
Up 3% over the prior year Rep.
Representing a new record for Garmin.
During 2021 quarter by quarter comparisons to the prior year have been difficult to enter.
Due to pandemic driven swings of 2020.
It's interesting to note that revenue grew 12% on a CAGR basis compared to Q4 of 2019.
We believe this comparison better reflects the underlying strength of the business.
And we are very pleased with our development over these past two years.
Operating profit came in at $315 million.
Down 15% over the prior year.
Gross margin declined due to pressure that every business is facing notably higher freight costs.
In addition, operational expenses increase for a variety of reasons, including higher associated head count increased compensation costs and the increase of certain operational expenses as business activities normalize.
Even with these headwinds operating margin remained very strong at 22, 6%.
Yes.
2021 was our sixth consecutive year of revenue and operating income growth, establishing new records for the company.
Revenue increased 19% to nearly $5 billion and operating income grew 16% exceeding $1 $2 billion.
Each segment delivered strong double digit revenue growth.
I'm very proud of what we accomplished especially considering the challenging operating environment everyone is facing.
The availability of electronic components has been a major topic of conversation over the past year.
While we are not always able to get everything we need we believe we've been very effective in managing the situation as evidenced by our results.
Our vertically integrated business model gives us greater levels of agility and flexibility in this dynamic supply chain environment.
However, it's the creativity determination and teamwork of our associates that made these accomplishments possible.
I am very proud of our associates and I am grateful for all they have done.
Looking forward, we are encouraged by the opportunities of the new year.
We have a great lineup of recently introduced products with additional introductions planned throughout the remainder of the year.
We anticipate consolidated revenue will increase approximately 10% to $5 5 billion.
Driven by new product introductions and strong market trends in many of our segments.
Our results and outlook for the new year give us confidence to propose a 9% dividend increase which will be considered by shareholders at the upcoming annual meeting.
Before moving onto segment highlights it's important to share context on how we see the business and markets evolve in 2022.
The pandemic drove additional demand in certain product categories, which is starting to normalize from peak levels.
This will create additional dynamics to consider for the coming year and I will note. These as I cover each segment.
The nuances of individual categories are not a major concern for us rather it's our strategic focus on diversification that brings many opportunities for growth, which is the basis for our outlook for 2022.
Starting with the fitness segment revenue increased 16% for the year as strong demand for advanced Wearables and cycling products fueled our growth.
Full year gross and operating margins were 53% and 24% respectively.
<unk> and operating income growth of 17% over the prior year.
In the fourth quarter fitness revenue was flat over the prior year as growth in Wearables was offset by lower revenue and cycling.
Product differentiation is a key factor in our ability to compete in the market for Wearables.
Lilly is a great example, with its small form factor appealing design and unique display that hides when not in use.
Customers buying Lilly are overwhelmingly due to the garmin brand demonstrating the power of differentiation to attract new customers.
The cycling category has more than doubled over the past two years fueled by pandemic driven demand for both indoor and outdoor cycling products.
The market is starting to normalize at levels below recent peaks, but well above pre pandemic levels.
With this in mind, we expect fitness revenue to be flat year over year as growth in Wearables is offset by lower revenue and cycling products.
In addition, we expect revenue to decline in the first half as we compare against stronger periods from the prior year.
In the back half of the year, we expect to return to growth as the cycling market stabilizes.
And with contributions from new products.
In the outdoor segment full year revenue increased 14% with growth across multiple categories driven by strong demand for adventure watches.
Full year gross and operating margins were 65% and 38% respectively.
Resulting in operating income growth of 9%.
In the fourth quarter outdoor revenue decreased 8%, primarily due to component constraints and our traditional handheld and <unk> product categories. We.
We ended the year with unusually high back orders, which were pushed into the new year.
On January 18th we announced sweeping updates to our Fenix adventure watch series.
During a distinctive new design and the touch screen display.
We also announced the all new FX with the bright <unk> touch screen display and class, leading battery life up to 16 days.
Last week, we announced the all new instinct two series in two sizes, which will expand the addressable market for this unique adventure watch.
Select instinct to models with solar technology can operate indefinitely using only the power of the Sun, which is a breakthrough achievement in the smartwatch market.
Demand for these new products has been very strong and we expect them to be a significant catalyst for growth in the coming year.
With these things in mind, we anticipate outdoor revenue will increase approximately 20% for the year.
Looking next at the aviation segment full year revenue increased 14% due to contributions from both OEM and aftermarket categories.
Full year gross and operating margins were 73% and 27% respectively.
Resulting in operating income growth of 40%.
In the fourth quarter aviation revenue was up 13% driven by growth in OEM categories. After.
Aftermarket sales were flat due to component supply constraints.
Aviation also ended the year with unusually high levels of back orders, which carried into the new year.
The pandemic highlighted the unique value proposition of general aviation.
Aircraft Oems are reporting robust orders from both new and existing customers.
Aftermarket demand is also strong as customers invest in new cockpit systems.
We expect these trends to drive revenue growth of 10% for the year.
With revenue exceeding the peak we experience during the <unk> mandate.
We expect incrementally stronger growth in the back half as production levels increase over the course of the year.
Moving to Marine this segment delivered another year of impressive results.
Revenue increased 33% with broad based growth across all categories led by strong demand for chart plotters.
We benefited from both market expansion and share gains driven by our strong product portfolio.
Full year gross and operating margins were 57% and 28% respectively.
Resulting in operating income growth of 39%.
In the fourth quarter Marine revenue increased 14%.
As the strong trends, we experienced throughout the year continued.
We recently acquired best for Marine a company specializing in the design of modern VHF radio systems for the marine market.
Looking forward, we anticipate the strong interest in boating and fishing will remain strong.
Builders continue to report strong sales and retail partners are preparing for another year of growth.
With these things in mind, we anticipate revenue from the Marine segment will increase 15%, surpassing the $1 billion threshold for the year.
Moving finally to the auto segment full year revenue increased 26% with contributions from both auto OEM and consumer auto categories full.
Full year gross margin was 39% and we recorded an operating loss of $71 million driven by investments in auto OEM programs.
In the fourth quarter auto revenue was up 21% with contributions from consumer specialty categories.
And new OEM programs.
And consumer auto we continue to launch new specialty categories that lead to growth opportunities.
At CES, we announced the tread series for the side by side vehicles, bringing off road specific features and enriched communications to the side by side market.
Last week, we announced the instinct diesel edition the first smartwatch designed specifically for the trucking market.
BMW recently unveiled their vision for in car Entertainment.
A truly cinematic experience into the vehicle.
This immersive entertainment system is powered by a multimedia computing platform designed and built by Garmin.
We continued to invest heavily to bring this and other BMW systems to market the.
The investment has been more significant than anticipated and these investments are expected to continue throughout the remainder of the year as we fulfill our obligations to BMW.
This will result in auto OEM operating loss for the year that is roughly comparable to that of 2021, we.
We expect to start production of the next generation BMW computing platform later this year at low volumes with a more meaningful production ramp occurring in 2023.
With these things in mind, we expect total auto revenue to grow approximately 5% for the year.
So that concludes my remarks next Doug will walk through additional details on financial results and our updated guidance Doug.
Thanks Cliff good morning, everyone.
I'd like to begin by reviewing our fourth quarter and full year financial results provide comments on the.
Our balance sheet cash flow statement taxes too.
'twenty two guidance.
We posted revenue over $1 $3 billion with fourth quarter, representing a 3% increase year over year.
Gross margin was 55, 5% 300 basis point decrease in the prior year quarter.
The decrease was primarily due to higher freight costs and favorable impact of foreign exchange rates.
Operating expense as percentage of sales was 32, 8% 170 basis point increase.
Operating income was $315 million, 15% decrease.
Operating margin was 22, 6% 480 basis point decrease from the prior year.
Our GAAP EPS was $1 48.
Pro forma EPS was $1 55.
10% decrease in the prior year pro forma EPS.
Looking at the full year results, we posted revenue over $4 $9 billion representing.
Representing a 19% increase year over year.
Gross margin was 58% 130 basis point decrease from the prior year.
Decrease was primarily due to higher freight costs.
Operating expense as percentage of sales was 33, 6% three basis point decrease.
Operating income was $1 2 billion.
16% increase.
Operating margin was 24, 5% 70 basis point decrease from the prior year.
Our GAAP EPS was $5 61.
A former EPS was $5 82.
<unk>, 13% increase in the prior year pro forma EPS.
Next looking at fourth quarter revenue, our segment and geography.
During the quarter, we achieved consolidated growth of 3%.
Double digit growth in the aviation Marine auto segments, partially offset by decline in the outdoor segment fitting.
Fitness segment was relatively flat year over year.
By geography, 8% growth in APAC, and a 5% growth in Americas was partially offset by decline 2% EMEA.
<unk> impacted by foreign exchange rates during the quarter.
For the full year 2021.
<unk>, 19% consolidated growth with solid double digit growth in all of our five segments.
By geography, we achieved double digit growth all three regions led by 21% growth Manpack, followed by 19% Americas, 19% EMEA.
Looking at operating expenses with quarter, admin expenses increased by $37 million or 9%.
And development increased $22 million year over year, primarily due to engineering personnel costs.
SG&A increased $15 million credit prior year quarter, primarily due to increases personnel related expenses information technology costs.
Advertising expense was consistent with prior year quarter.
A few highlights on the balance sheet cash flow statement and dividends.
We ended the quarter with cash and marketable securities approximately $3 $1 billion.
Accounts receivable increased sequentially.
$43 million as strong sales in the fourth quarter was relatively flat year over year.
Inventory increased year over year to $1 2 billion.
<unk> increased due to several factors, including preparation for first quarter product launches.
Increased levels of indoor cycling products expansion of our global manufacturing footprint.
In executing our strategy to increase <unk> supply to support our increasingly diversified product lines.
Through 2022, we expect our inventory bounce continued grow to work to optimize the mix of ocean versus air freight shipments.
A sufficient level of safety stock to mitigate increased lead times and generally manage the supply of raw materials.
During the fourth quarter of 2021 generating free cash flow of $49 million.
For full year 2021 generate free cash flow of approximately $705 million $245 million decrease from the prior year, primarily due to increased inventory levels and higher capital expenditures.
2020 to expect free cash flow of approximately $725 million approximately $310 million of capital expenditures.
For 2022 expected to continue to make investments platforms for growth, including our Taiwan manufacturing facilities continued renovation of our later facilities to increase work space capacity.
<unk> related projects.
Also announced our plans to secure approval for an increase in our dividend beginning with the June 2022 payments.
Hosel the cash dividend of $2 92 per share or <unk> 73 per share per quarter.
Two 9% increase from our current quarterly dividend of <unk> 76.
Per share.
For full year 2021 reported effective tax rate of 10, 3%.
Sure.
Turning next to our full year guidance.
Estimated revenue of approximately $5 5 billion increase.
An increase of 10% over the prior year.
Double digit growth in three of our five segments, we expect gross margin to be approximately 57%, 5%, which is lower than our full year 2021 gross margin, primarily due to higher supply chain costs and less favorable foreign exchange rates, partially offset by increases in selling prices.
We expect an operating margin of approximately 22, 8%.
The full year pro forma effective tax rate is expected to be approximately 10, 5%.
Results and expect to pro forma earnings per share approximately $5 90.
Finally, I'll discuss the changes in our methodology for classification of certain expenses allocation of certain expenses among the segments plan.
Plan to reflect these changes in our reporting for the first quarter 2022.
<unk> periods will be recast for him to provide his presentation.
New expense classification result in less indirect SG&A costs and classified as R&D expense, which we believe will provide a more meaningful representation costs incurred to support R&D activities consistent the way management will use the information and decision making.
We estimate that approximately $61 million expense is classified as R&D 2021 will be request is SG&A.
Future reports will also reflect refined methodology to allocate certain SG&A expenses to the segments in more direct manner based on analysis of activity supported by the expenses.
I believe this refined allocation approach, resulting in more meaningful patient set.
Segment operating income.
We estimate that fitness will be allocated Morris and expenses, resulting in lower operating margin while other segments. We are.
<unk> expenses, resulting in higher operating margin.
These changes have no impact on our consolidated operating income or net income.
To conclude our formal remarks Valerie please open the line for Q&A.
Yes.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchstone telephone again to ask a question. Please press Star then one.
One moment please.
Our first question comes from Nick <unk>.
Well research your line is open.
Yes, thanks, and good morning, everyone and congrats on great execution and results.
Thank you.
I think I heard.
You mentioned during the prepared remarks that youre raising prices in some segments can you talk.
Which categories or segments are you able to mitigate the rising input cost and how should we think about the cadence of.
That mitigation throughout the year I'm, assuming in some segments.
Our capacity.
To increase prices immediately.
Yes, Nick we have a diversified business and so each each segment and sometimes within each segments different product categories have different.
Considerations when it comes to pricing.
Looking at a combination of both.
More broad price increases, where we are able as well as resetting product pricing as we introduce new products.
I think that's most of what I would probably comment on right now and I think it will take some time for some of these changes of course too to come through but I'm confident that we'll be able to see a difference as time goes on.
Okay got it.
Can you talk about how are you navigating through the component constraints.
Particularly in aviation something we've heard that obviously component lead times have stretched quite a bit but some components that are used in avionics has been announced at the end of life.
Just curious are you facing any redesigning activity, how should we think about potentially that impacting aviation margins in the near term.
Yes, I think component constraints have been a challenge for a while now as I mentioned in my remarks vertical integration is a is a huge differentiating factor for us because we're able to.
Use alternative components, and we're able to redesign things when we need to and we have maintained very good relationships with suppliers, they're under a lot of pressure at this time to and they certainly get a lot of people, beating them up we try to focus on relationships.
But that said, particularly in aviation you mentioned end of life is as a potential issue that is really not a new thing in aviation I think avionics designs tend to have.
Longer lifecycle. So consequently, we've dealt with that issue for a long time, and we managed through that mostly through a combination of Redesigns and also.
Safety stock.
So.
Again, I think we're able to handle this situation better than most because of our our strong R&D and our focus on vertical integration.
Got it very helpful and Doug if I can sneak one in for you. Just can you talk about Opex puts and takes in 2022, I know you mentioned youre going to be changing.
Allocating expenses, but based on the current reported basis, how should we think about opex moving.
Moving as a percent of sales.
Sure so yes the percentage.
Sales for the full year and looking at the.
Different categories I'll talk about it on the new methodology from that standpoint, Thats really reporting in 2020 to improve your casting 'twenty. One. So we expect an overall operating expense as a percentage of sales year over year, probably about 120 basis point increase year over year and looking at the various.
Categories first advertising, we expect advertising to be up slightly maybe about 10 basis points.
And looking at R&D, we expect that to be up probably about 40 basis points.
As percentage of sales there, we're continuing to make investments in head count as well as compensation related.
Items impacting R&D then in SG&A, we expect that to be up about 70 basis points in terms of sales year over year. Their big driver is primarily at cost, but also we'll see increased costs in other parts of our business such as product support operations just because of it.
<unk> volume as well as more consumers and users.
Got it very helpful. Thanks, guys.
Next in queue.
Thank you. Our next question comes from Paul Chung Jpmorgan. Your line is open.
Hi, Thanks for taking my questions.
Very nice credit so just on margins.
Given the very strong kind of outdoor aviation.
Revenue guide would have thought that kind of overall margins would have seen some benefits there.
Even with the kind of negative auto contribution this year so.
Can you quantify maybe the freight components.
Kind of headwind baked in the margin guide.
Yes. This is Doug.
We don't give a breakout of the different components of.
Gross margin on freight can be a little bit background on what's driving that.
The 50 basis point decline, so we do expect to see higher supply chain costs year over year.
Great.
Increased during the year in 2021, so we're going up against tougher comps and freight first part of the year also we'll see some headwinds relating to.
FX also foreign exchange rate in there too that will give us some headwinds too. So and then as Cliff mentioned, we're looking to increase selling prices, where we can but as you mentioned, there's a lot of puts and takes a lot of moving parts in that gross margin you had mentioned some stupid things relating to segment.
And there we factored in.
Product launches, but they are overall, it's still some headwinds in the supply chain side of things and FX that are bringing that I'll say from an overall basis are down about 50 basis points.
And then just on outdoor.
Handhelds and dog products, maybe pushed into 'twenty two should we expect.
A little less seasonality in <unk> as a result.
And then if you could expand on the outdoor guy which is quite impressive what is what's driving the confidence in that guide.
How is the Phoenix refresh been received.
Yes, I think the handheld and dog products as I mentioned, Paul the back orders for those of course pushed into the new year and those were driven by.
Supply constraints that we experienced at the end of last year those are getting incrementally better. Although we still are taking a wait and see attitude that we're building and shipping everything.
That we can I think that those categories are are meaningful but small in the overall.
Scheme of the outdoor segment. So I don't think Youre really going to notice a lot of seasonality effect because of that in terms of the guide and the potential impact on.
From the new <unk>.
Venture watches that we introduce the reception to those watches has been very strong as I mentioned.
And of course.
The interest in those products and the momentum from them is behind our 20%.
Estimate growth for the year. So we're very pleased with that and we think we'll have a very good year in outdoor.
And then lastly on aviation your guide implies revenues now well above the record 19 levels on ESB, but whats driving the guide this year how is the product portfolio evolved.
And then how should we think about operating margins for 'twenty, two and aviation can we end the year kind of a protein that 30% or exceed that.
Yes, so definitely we've recovered a lot of revenue that that went away. After the ASB mandate, we expected that revenue would go away because it was a once in a generation mandate from the FAA to equip every general aviation aircraft, which once that's done that opportunity of courses is gone, but we've been able to recover those revenue.
Is through a strong product line, particularly our flight control systems are very strong very well received in the market and thats driven upgrades.
And cockpits.
And as I mentioned in my remarks, the general sentiment around OEM aircraft makers is that order books are strong customer interest is very strong and of course.
We're in the Bell curve of General Aviation, which gives us the ability to to grow along with the market there.
Thank you.
Question comes from Jeffrey Random Deutsche Bank. Your line is open.
Alright, Thanks for taking my question and congrats on a good quarter and the year. Your auto OEM business is clearly a good growth opportunity for you going forward, but at a lower margin compared to some of your other businesses. How do you think about the revenue growth opportunity versus the headwind to gross margin for the overall company for this business.
Well I think Jeffrey.
The opportunity in auto OEM of course is the large scale that comes with these big program. So that's what we've been investing too to bring to market as I mentioned, they do come with a different margin profile on that Hasnt really been.
Our concern relative to the rest of the business because we're focusing on the revenue growth in the scale opportunity.
But the challenge for us and going forward of courses is proving that we can.
Get that scale and also be profitable in the business.
Great. Thank you and as a follow up you noted a reduction in your cycling products in your prepared comments and there have been some demand concerns that one of the largest indoor cycling companies recently, how do you think about this business going forward and if there was some pull in during the earlier part of the pandemic. How long do you think this takes to work through before the business kind of returns.
Typical growth.
Yes, I think.
Your question is interesting.
We're not here of course to talk about specific names, but I think I understand your comment and I would say that our indoor cycling products are very different from some of the headline companies that have been talked about a lot recently our products are focused on athleticism.
And performance.
And we're not really in the spin bike business, which has been.
Hit pretty hard by people returning to gyms.
But in terms of pull in there probably was some people got interested in those kinds of products. So they did equip their bikes. They did equip their homes with training devices.
But as I mentioned, we're seeing the market fell out normalize around levels above that of 2019, which was the last nor.
Normal year in that cycle. So so there is some high channel inventory right now not necessarily specific to our product lines, but every trainer maker rushed into the market and filled the channels and so that will take some time to work through we expect probably the better part of this year before things really normalize.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Ben Bollin, Cleveland Research. Your line is open.
Good morning, everyone. Thanks for taking the question.
Cliff I guess, it's been danced around a little bit, but when you look at the spread.
In terms of your 2022 guidance for outdoor.
Fitness.
The widest gap, we've seen since 2017 end up being about a 35 point spread between the two in terms of year over year growth, but.
I guess I'm interested in your thoughts on the high end Wearables within the segments do you see any secular changes out there.
Which are moving the difference between the two outlooks in the growth rates or.
Going back to that last question do you think inventory and cycling, what's driving that spread.
Well lots of moving pieces Ben.
You've kind of hit on the major ones. The one thing I would I would just highlight in addition is that.
Product lifecycle differences between the two segments can can.
Impact.
Growth patterns between the segments.
We're coming off a super strong launch in outdoor as I mentioned with the new Phoenix, the ethics and the instinct product.
And the cadence of introductions in fitness is a little bit different.
Combine that with the overall normalizing of the cycling market. That's why there is the.
The difference between outdoor and fitness.
Okay.
And the last one for you.
If you look through the elevated auto OEM investments that are happening right now.
When you are on the back end of this when you are into 2023.
Any thoughts.
What a normalized margin might look like within that business overtime.
I think we've mentioned before and it's very typical in the auto.
Business that the margins can be in the mid to high teens on uncertain, our highest volume product lines. So that's what we're expecting I think that's what we've communicated before to the market.
Great. Thanks. Thank.
Thank you.
Thank you. Our next question comes from will power of Baird. Your line is open.
Okay, great. Thanks, I guess, a couple of questions, maybe circling back on fitness I know cliff.
You noted some of the cycling headwinds, which probably aren't a big surprise, but would love to get.
A bit more color on the confidence in key drivers within the Wearables segment do you expect to help offset some of the cycling pressure and I guess within that.
Any color on four runner and what Youre seeing there is that something that you think can grow as we kind of come out of the pandemic just thoughts there too.
Yes, I think we put out our view of the year based on a high level of confidence that we can achieve.
What we say.
I think that we've seen a continual strengthen the advanced Wearables thats really all products with GPS smartwatch capability and our fitness product.
Product line so we.
That includes runner that includes venue in vivo active in all of those kinds of products, we're coming off of strong releases from last year and some of the advanced.
Consumer Wearables and then are running products have refresh is coming as well. So so all of those things coming together, we feel like we'll be positive things and when you when you consider that events, particularly races.
Like 10-K's half marathons marathons have been mostly canceled during the last two years as some of those start to come online. We think it will drive additional interest in running products.
Okay, and then just second question.
On Marine how do we think about that.
Potential pull forward impact you saw there obviously, you're confident continuing strong growth outlooks or feels like youre.
Youre not expecting as much.
The comp issue, there, but would love any kind of color.
Are there and then any thoughts on best Marine and the impact that would have on the 'twenty two guidance.
In terms of potential pull forward in marine.
It's always a possibility I suppose but but in general the marine market has been very constrained with the supply of boats, whether it's new boats from from manufacturers are used both people are not letting go of their boats and so consequently.
They're equipping their boats there are a lot of boats out there and use that have very old equipment. These are long lived assets on the boat. So theres plenty of opportunity for retrofit in the market and as the new boats are built many of them are equipped with garmin products and so.
We believe that the growth opportunity in marine is still very good.
In terms of <unk>, just quickly comment on that I would say that it's.
It's a technology and engineering acquisition for us.
So it's not material in terms of revenue or cost structure, but.
The group had.
Significant design capabilities in the area of VHF radios, and so that's an area we want to to build our capability.
Great. Thank you.
Thank you.
Thank you. Our next question comes from Erik Woodring with Morgan Stanley . Your line is open.
Hey, guys. Thanks for taking my question, maybe if we just stay on marine for one second can you help us just better understand how the drivers of the marine business are changing at all meaning we know there are still backlogs.
OEM business Thats typically a smaller part of your marine business, but what are you just seeing in 2022 versus 2021 that gives you the confidence in the 15% growth.
Yes, I would say Eric it's really.
The same factors that drove 2021 carryforward into 2022, we see strong demand from.
The boat builders as they ramp up production to fill the demand they've got they've got historic back orders on their books as well. So they are they are increasing their production that benefits us and then generally the enthusiasm around new technologies and marine, particularly the fishing area in the advanced sonar.
Or is that we offer.
<unk> continues to be strong, bringing new people into the market, causing them to replace their old equipment, including both Sonars and chart plotters. So these trends that had been the same for a while now and we expect those to continue in 2022.
Okay. Thank you and then maybe if we just touch on the cost side.
I guess based on the kind of the revenue.
Segment revenue and total gross margin disclosure, we do have to assume that gross margins are down across most segments is that fair to think or should it be more acute in certain sub.
<unk> and.
Then on the operating side just.
Is the pressure mostly blamed on investments in autos or again is there investment outside of autos that is going to be more elevated in 2022 relative to say 2021.
Yeah regarding the gross margin.
But a lot of factors.
And place their product launches new products take that a consideration some are more impacted you know on FX than other ones.
And <unk>.
Somewhat related to selling prices so.
We do expect probably.
Some kind of depressed overall consolidated but I think it'll be a mix among the various segments to get that overall, one and so I, probably would say auto OEM of one of the probably would see that gross margins, we'd say that would be down year over year, just because the BMW will be a bigger piece of that overall business and then fitness also with some of the.
Pressures that they have probably be down one or two other ones are probably depending upon what the product launches and all those different things.
Relating to the cost side, yes.
Auto home side, R&D expenses will probably be up over there.
The previous year 2021, but also we're seeing increased investments across all of our businesses R&D will make those investments really to drive innovation as well we will see some.
From the SG&A side of things type.
Type of cost increasing by those types of things just higher levels of our business largely.
Larger footprints, we have manufacturing operation those type of thing you are driving some expense in there also.
Okay. Thanks, guys I appreciate it.
Thank you.
Yes.
Thank you. Our next question comes from Ron Epstein.
Bank of America. Your line is open.
Hey, good morning.
Good morning, Ian.
In your supply chain relative to aviation right I mean.
The private aviation market pretty much on fire right. So I would imagine the demand signals you're seeing from some of your OEM.
Customers.
They're not really strong right now they will be soon.
Okay.
You set up for that potential ramp.
Well, we're prepared with plenty of factory capacity.
We have always focused.
<unk> on a strong supply chain and aviation so that we can meet the needs of our customers and as I mentioned in my remarks, absolutely we see.
The demand from the OEM side, and they're reporting robust orders and so we feel like we're very prepared for the increases that theyre looking at.
Great and then what.
If you can even shed any light on X I know its sensitive.
Fingers talk about but what's going on on the new platform side. I mean are you guys actively working with.
Oems potentially and platforms.
Sure.
Yes.
Sure.
Well.
We're always working on things and of course, we can't share.
Anything in advance, but we're always working with new customers new platforms, Alright fair enough.
I know that's a tough question, but.
And then with the Phoenix.
Okay.
<unk> seven and the new epic.
Which are you seeing a better response to because they seem to be pretty similar products.
They're there.
I suppose there is similar in some respects, but theyre really very different than they probably appeal to different users, but they both been very strong we're especially pleased of course with the FX I think people have embraced that.
Quickly and in both of those product lines, where we're seeing very strong demand, which which exceeded our expectations.
Got it.
The natural question that exceeded your expectations. So do you have.
The supply chain to meet that demand.
We feel like we have plenty of contingencies and we're working on increasing our supply.
Got it got it got it and then maybe just one last question around just the logistics given that you've got.
A relatively complex supply chain and you've got stuff coming from Asia, and then you've got stuff built here.
In the U S.
Are you seeing that.
Kind of the Trans Pacific logistics.
Yeah.
Well I think the situation is challenging like everyone is reporting.
So we we are no different in that we see the same things and we're working on managing that situation. The best we can it's a pragmatic balanced between product availability, which which speaks to shorter faster shipment methods, which of course are more expensive versus inventory levels, which allow us to to.
To get inventory on slower modes of transportation, which are more affordable so were we.
We're doing our best to balance and I think we have a lot of levers that we can use in doing that.
Okay great.
Thanks, Scott thank.
Thank you.
Thank you. Our next question comes from Derek Soderberg I'll call Io Securities. Your line is open.
Hey, guys. Thanks for taking my questions.
Just curious if you could talk more about the retail channel broadly and there's been some reporting that a lot of Q4 growth came from inventory building.
So if you could just share what youre seeing as it relates to sell in sell through.
That'd be great.
And I think retail channels were very dry for all the reasons that we know and so certainly retailers wanted to have inventory available. So that they can sell to customers, but at this moment, we feel like sell through was very good.
We can we can definitely track sell through through our product registrations in our app platforms and we feel good about what we see there and we don't believe there's any imbalances.
Our material out in the channel except for the ones. We've noted which is really the the the trainer market.
Got it and I also wanted to ask about supply you guys have done a really good job on inventory it seems like you've done better than most.
More capacity online can you facility.
Have you been.
To any degree benefiting at all from supply chain issues relatively speaking versus competitors.
I guess in terms of Garmin, just getting more product on the shelves.
Yes, I think we have been the beneficiary of.
Some of the challenges that others have faced so our investments in inventory our investments in capacity.
And our ability to be agile with our product designs has helped us a lot in <unk> and.
In several segments.
Got it thank you.
Thank you.
Thank you I'm showing no further questions at this time I turn the call back over to Teri Seck for any closing remarks.
Thanks, everyone as Doug and I are available for callbacks throughout the day have a good bye bye.
Thank you ladies and gentlemen, this does conclude today's call.
You may now disconnect.
Have a great day.
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