Q1 2024 Garmin Ltd Earnings Call

Operator: Thank you for standing by, and welcome to the Garmin Limited first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by and welcome to the Garmin Ltd first quarter 'twenty to 'twenty four earnings call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Finally, a reminder that this conference is being recorded. I would now like to turn the conference over to Teri Seck, Director of Investor Relations. Please go ahead.

Teri Seck: If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Teri Seck: If you would like to withdraw your question press the star one again.

Teri Seck: Finally, a reminder, that this conference is being recorded.

Operator: I would now like to turn the conference over to Teri Seck Director of Investor Relations. Please go ahead.

Teri Seck: Good morning. We would like to welcome you to Garmin Ltd.'s first quarter 2024 earnings call. Please note that the earnings press release and related slides are available on Garmin's Investor Relations site on the Internet at www.garmin.com. An archive of the webcast and related transcripts will also be available on our website.

Teri Seck: Good morning, we would like to welcome you to Garmin Limited's first quarter 2024 earnings call. Please note that the earnings press release and related slides are available at garments Investor Relations site on the Internet at Www Dot Garmin Dotcom Slashdot and archive of the webcast and related transcript will also be available on our website. This earnings call includes <unk>.

Teri Seck: This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenues, segment growth rates, earnings, gross margins, operating margins, future dividends or share repurchases, 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.

Teri Seck: Sections and other forward looking statements regarding Garmin limited and its business any statements regarding our future financial position revenues segment growth rates earnings gross margins operating margins future dividends or share repurchases market shares product introduction future demand for our products and plans and objectives are forward looking statements the forward looking events.

Teri Seck: Information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Ltd. this morning are Clifton Pemble, President and Chief Executive Officer, and Doug Boessen, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Clifton Pemble.

Teri Seck: 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.

Clifton Albert Pemble: Presenting on behalf of Garmin limited. This morning are close Pemble, 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.

Clifton Albert Pemble: Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin delivered outstanding results in the first quarter with strong growth in consolidated revenue and operating income. The positive trends we experienced at the close of 2023 strengthened in the first quarter of 2024. Consolidated revenue increased 20% to $1.38 billion, a new first quarter record with four segments delivering double-digit growth. Growth in operating margins expanded year-over-year to 58.

Thank you Terry and good morning, everyone as announced earlier today Garmin delivered outstanding results in the first quarter with strong growth in consolidated revenue and operating income.

Clifton Albert Pemble: The positive trends, we experienced at the close of 2023 strengthened in the first quarter of 2024.

Clifton Albert Pemble: Consolidated revenue increased 20% to $1 three 8 billion.

Clifton Albert Pemble: A new first quarter record with four segments delivering double digit growth.

Clifton Albert Pemble: Gross and operating margins expanded year over year to 58, 1% and 21, 6% respectively.

Clifton Albert Pemble: Resulting in a record first quarter operating income of $298 million, up 51% year over year. This resulted in Proforma EPS of $1.42, up 39% over the prior year, which is a remarkable result considering the significantly increased Swiss tax rate. We're off to a great start, and we're very pleased with these results. However, at the same time, we are mindful that Q1 is typically the lowest seasonal quarter of our financial year, and with this in mind, we're not updating the guidance we previously issued in February.

Clifton Albert Pemble: Belting and record first quarter operating income of $298 million up 51% year over year.

Clifton Albert Pemble: This resulted in pro forma EPS of $1 42.

Clifton Albert Pemble: Up 39% over the prior year.

Clifton Albert Pemble: Which is a remarkable result, considering the significantly increased Swiss tax rates.

Clifton Albert Pemble: We're off to a great start and we're very pleased with these results.

Clifton Albert Pemble: At the same time, we are mindful that Q1 is typically the lowest seasonal quarter of our financial year and with this in mind, we're not updating the guidance. We previously issued in February.

Clifton Albert Pemble: Doug will discuss financial results in greater detail in a few minutes, but first, I'll provide a few remarks on the performance of each business segment. Starting with business, revenue increased 40% to $343 million, a new record driven by broad-based growth across all product categories, led by strong demand for advanced wearables. Gross and Operating Margins improved to 57% and 20%, respectively, resulting in an operating income of $68 million.

Speaker Change: Doug will discuss financial results in greater detail in a few minutes, but first I'll provide a few remarks on the performance of each business segment.

Clifton Albert Pemble: Starting with fitness revenue increased 40% to $343 million, a new record driven by broad based growth across all product categories led by strong demand for advanced Wearables.

Clifton Albert Pemble: Gross and operating margins improved to 57% and 20% respectively.

Clifton Albert Pemble: <unk> and operating income of $68 million.

Clifton Albert Pemble: During the quarter, we launched the Forerner 165, which was instantly recognized by the market as a product offering both exceptional value and great performance. Also, during the quarter, we published a new edition of the Garmin Health Research Glimpse, which focused on sleep research initiatives. The health metrics collected by Garmin wearables provide researchers with a wealth of information contributing to a deeper understanding of the intricate relationship between sleep and overall well-being.

Clifton Albert Pemble: During the quarter, we launched the floor on our 165, which was instantly recognized by the market as a product offering both exceptional value and great performance.

Clifton Albert Pemble: Also during the quarter, we published a new addition of the Garmin Health research glimpse, which focus on sleep research initiatives.

Clifton Albert Pemble: Health metrics collected by Garmin Wearables provide researchers with a wealth of information contributing to a deeper understanding of the intricate relationship between sleep.

Clifton Albert Pemble: Overall wellbeing.

Clifton Albert Pemble: Yeah.

Clifton Albert Pemble: Moving to outdoor, revenue increased 11% to $366 million, with growth driven primarily by wearables. Gross and operating margins improved to 66% and 29%, respectively, resulting in operating income of $107 million. During the quarter, we released our annual inReach SOS Year-in-Review, highlighting the importance of Garmin Response, which coordinates emergency response services in more than 200 countries and territories and supports rescue efforts in more than 210 languages. The Emergency Response Coordination Center is an important part of what differentiates our inReach SOS service from others.

Clifton Albert Pemble: Moving to outdoor revenue increased 11% to $366 million with growth driven primarily by Wearables.

Clifton Albert Pemble: Gross and operating margins improved to 66% and 29% respectively.

Clifton Albert Pemble: And operating income of $107 million.

Clifton Albert Pemble: During the quarter, we released our annual in reach and so last year in review highlighting the importance of Garmin response, which coordinates emergency response services and more than 200 countries and territories and supports rescue efforts and more than 210 languages.

Clifton Albert Pemble: Emergency response coordination center is an important part of what differentiates our enriched Sos service from others.

Clifton Albert Pemble: We also produced and released an original docuseries called Seven Days Out, which follows two people on their journey through Nepal's Langtang hiking circuit. This docuseries highlights the extraordinary utility of our Fenix 7 Pro adventure watches, as well as the rich health metrics and long battery life these devices offer. It shows that ordinary people can accomplish extraordinary things with the right tools to help them beat yesterday.

Clifton Albert Pemble: We also produced and released an original Darkies series called seven days out which follows two people on their journey through Nepal Lang Tang hiking circuit.

Clifton Albert Pemble: This donkey series highlights the extraordinary utility of our Phoenix seven pro adventure watches.

Clifton Albert Pemble: As well as the rich health metrics and long battery life. These devices offer.

Clifton Albert Pemble: Seven days out shows that ordinary people can accomplish extraordinary things with the right tools to help them be yesterday.

Clifton Albert Pemble: Yeah.

Clifton Albert Pemble: Looking next at aviation, revenue increased 2% in the first quarter to $217 million, driven by growth in OEM product categories. Gross margin improved 75%, and operating margin was 24%, resulting in operating income of $52 million. During the quarter, we unveiled a complete avionics modernization program for the highly popular Citation CJ-2 business jet that offers new technologies and features designed to reduce pilot workload and improve safety. Also, during the quarter, we added display options for our GWX 8000 StormOptics weather radar, which expands the availability of this advanced radar system to aircraft equipped with our highly popular GTN and TXI displays. Turning to the marine segment, revenue increased 17% to $327 million, primarily driven by the acquisition of JL Audio. Excluding JL Audio, revenue increased approximately 3% in the first quarter.

Clifton Albert Pemble: Looking next at aviation revenue increased 2% in the first quarter to $217 million driven by growth in OEM product categories.

Clifton Albert Pemble: Gross margin improved to 75% and operating margin was 24%, resulting in operating income of $52 million.

Clifton Albert Pemble: During the quarter, we unveiled a complete avionics modernization program for the highly popular citation C. J two business jet that offers new technologies and features designed to reduce pilot workload and improved safety.

Clifton Albert Pemble: Also during the quarter, we added display options for our GW X 8000 storm optics weather radar.

Clifton Albert Pemble: Which expands the availability of this advanced radar system aircraft equipped with our highly popular <unk> and TX <unk> displays.

Clifton Albert Pemble: Yes.

Clifton Albert Pemble: Turning to the Marine segment revenue increased 17% to $327 million, primarily driven by the acquisition of J L audio.

Clifton Albert Pemble: Excluding JL audio revenue increased approximately 3% in the first quarter.

Clifton Albert Pemble: Gross and operating margins improved to 55% and 27%, respectively, resulting in an operating income of $88 million. We were recently recognized as Supplier of the Year by Independent Boat Builders Incorporated. In addition, Garmin-sponsored angler Justin Hemner was champion of the recent Bassmaster Classic Fishing Tournament on a boat exclusively equipped with our Ecomap Ultra II chart plotters, a forced trolling motor, and LiveScope Plus sonar system. During the quarter, we launched the GPSMAP16 family of chart plotters, adding larger touch screen options for greater clarity, connectivity, and control at the dock.

Clifton Albert Pemble: Gross and operating margins improved to 55% and 27% respectively.

Clifton Albert Pemble: Resulting in operating income of $88 million.

Clifton Albert Pemble: We were recently recognized as supplier of the year by independent boat builders incorporated.

Clifton Albert Pemble: In addition, garmin sponsored angler, Justin Hamner with champion of the recent Bath Master Classic fishing tournament on a boat exclusively equipped with our Echo map Ultra to chart plotters forced trolling motor and lifestyle plus sonar system.

Clifton Albert Pemble: During the quarter, we launched the GPS map 16 family chart plotters, adding larger touch screen options for greater clarity connectivity and control at the helm.

Clifton Albert Pemble: We also launched the Panoptix TS70, our first deep water live sonar, which provides real-time underwater imaging at depths up to 1,000 feet. Moving finally to the auto OEM segment, revenue increased 58% to $129 million, with growth primarily driven by increased shipments of domain controllers to BMW. Gross margin was 18%, and we recorded an operating loss of $16 million. During the quarter, we were awarded new business to design and manufacture digital instrument clusters for two-wheel vehicles, as well as full infotainment systems for an industrial truck. That concludes my remarks. Next, Doug will walk you through additional details on our financial results.

Clifton Albert Pemble: We also launched the Panopticon T. S. 70 are first deepwater live sonar, which provides real time underwater imaging at depths up to 1000 feet.

Clifton Albert Pemble: Yeah.

Clifton Albert Pemble: Moving finally to the auto OEM segment revenue increased 58% to $129 million with growth, primarily driven by increased shipments of domain controllers to BMW.

Clifton Albert Pemble: Gross margin was 18% and we recorded an operating loss of $16 million.

Doug: During the quarter, we were awarded new business to design and manufacture digital instrument clusters for two wheel vehicles as well as full infotainment systems for an industrial truck maker.

Clifton Albert Pemble: That concludes my remarks next Doug will walk you through additional details on our financial results.

Douglas Gerard Boessen: Thanks, Clif. Good morning, everyone. I'd like to begin by reviewing our first quarter financial results and provide comments on the balance sheet, cash flow statement, and taxes. They posted a revenue of $1,382,000,000 for their first quarter, representing a 20% increase year-over-year. Gross Margin was 58.1%, a 120 basis point increase in the prior year quarter. The increase was primarily due to product mix in certain segments, partially offset by segment mix. Operating expense as a percentage of sales was 36.5%, a 3 in 30 basis point decrease.

Doug: Cliff good morning, everyone might begin by reviewing our first quarter financial results and provide comments on the balance sheet cash flow statement and taxes.

Douglas Gerard Boessen: Hosted revenue $1.382 billion for the first quarter, representing a 20% increase year over year gross margin was 58, 1% 120 basis point increase in the prior year quarter increase.

Douglas Gerard Boessen: The increase was primarily due to product mix and certain segments, partially offset by segment mix.

Douglas Gerard Boessen: Operating expense percentage of sales was 36, 5% 330 basis point decrease.

Douglas Gerard Boessen: Operating income was $298 million, a 51% increase. Operating margin was 21.6%, a 440 basis point increase. Our gap EPS was $1.43, and performing EPS was $1.42.

Douglas Gerard Boessen: Operating income was $298 million, a 51% increase.

Douglas Gerard Boessen: Operating margin was 21, 6% at 440 basis point increase.

Douglas Gerard Boessen: Our GAAP EPS was $1 43.

Douglas Gerard Boessen: Pro forma EPS was $1 42.

Douglas Gerard Boessen: Next, we look at our first quarter revenue by segment and geography. In the first quarter, we achieved double-digit growth in four or five segments, led by the auto AM segment with 58% growth, and the fitness segment with 40% growth. The marine and outdoor segments also had double-digit growth of 17% and 11%, respectively. By geography, we achieved double-digit growth in all three regions, led by 30% growth in EMEA, followed by 17% growth in Americas, and 12% growth in APAC. Looking next and offering expenses.

Douglas Gerard Boessen: Next look at our first quarter revenue by segment and geography.

Douglas Gerard Boessen: During the first quarter, we achieved double digit growth in four of five segments led by the auto OEM segment with 58% growth the fitness segment with 40% growth.

Douglas Gerard Boessen: The marine and outdoor segments also had double digit growth of 17% and 11% respectively.

Douglas Gerard Boessen: By geography, we achieved double digit growth in all three regions led by 30% growth in EMEA, followed by 17% growth in Americas, and 12% growth in APAC.

Douglas Gerard Boessen: Looking next at operating expenses first.

Douglas Gerard Boessen: First quarter operating expenses increased by $48 million, or 11%. Research and development increased approximately $21 million year-over-year, primarily due to engineering personnel costs. SG&A increased approximately $27 million compared to the prior quarter, primarily due to increases in personnel-related expenses, including the impact of JL's audio. A few highlights on the balance sheet, cash flow statement, and taxes. End of the quarter with cash and marketable securities at approximately $3.3 billion. Accounts receivable increased year-over-year due to strong sales, but decreased sequentially to $695 million, following a seasonally strong fourth quarter.

Douglas Gerard Boessen: First quarter operating expense increased by $48 million or 11%.

Douglas Gerard Boessen: Search and development increased approximately $21 million year over year, primarily due to engineering personnel costs.

Douglas Gerard Boessen: SG&A increased approximately $27 million.

Douglas Gerard Boessen: Compared to the prior year quarter, primarily due to increases in personnel related expenses, including impact of Jr. Audio.

Douglas Gerard Boessen: Inventory decreased year-over-year and sequentially to approximately $1.3 billion. In the first quarter of 2024, we generated free cash flow of $4.2 million, a $170 million increase from the prior quarter. Capital expenditures for the first quarter of 2024 were $33 million, approximately $14 million lower than the prior year quarter. In the first quarter of 2024, we paid dividends of approximately $140 million, for an effective tax rate of 15.6% compared to 8.8% in the prior quarter. The increase in the effective tax rate is primarily due to the increase in the combined Swiss tax rate in response to global minimum tax requirements; please open the line for Q&A.

Douglas Gerard Boessen: A few highlights on the balance sheet cash flow statement and taxes.

Douglas Gerard Boessen: For the quarter with cash and marketable securities of approximately $3 3 billion.

Douglas Gerard Boessen: Accounts receivable increase year on year due to strong sales, but decreased sequentially to $695 million from a seasonally strong fourth quarter.

Douglas Gerard Boessen: Inventory decreased year over year and sequentially to approximately $1 3 billion.

Douglas Gerard Boessen: During the first quarter to about 24, we generate free cash flow of $402 million $170 million increase from the prior year quarter.

Douglas Gerard Boessen: Capital expenditures for the first quarter of 2000 $24 million to $33 million.

Douglas Gerard Boessen: Approximately $14 million lower than the prior year quarter, our first quarter 2024, we paid dividends of approximately $140 million.

Douglas Gerard Boessen: Putting its active tax rate 15, 6% to eight 8% in the prior year quarter.

Douglas Gerard Boessen: The increase in effective tax rate is primarily due to the increase in the combined Switzerland tax rate sponsored global minimum tax requirements concludes our formal remarks Polly could.

Douglas Gerard Boessen: Could you. Please open the line for Q&A.

Operator: Thank you, and as mentioned, the floor is now open for questions. A reminder to press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, that's star number one to join the queue, and your first question comes from the line of Joseph Cardoso from J.P. Morgan. Please go ahead.

Operator: Thank you, and as

Speaker Change: Thank you and as mentioned the floor is now open for questions I reminded to press star one on your telephone keypad to raise your hand and joined the queue.

Operator: If you would like to withdraw your question Press Star one again.

Joseph Lima Cardoso: Thank you all called upon to ask good questions and listening via loud speakers audio device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Operator: Again that still want to join the queue and your first question comes from the line of Joseph Cardoso from J P. Morgan. Please go ahead.

Clifton Albert Pemble: Hi, good morning, and thank you for the question. So maybe the first one here is, you know, you're starting off the year strongly. And I appreciate you guys are not updating the guidance here, given we're only one quarter in, but I was wondering if you could help us think through the shape of the year relative to typical revenue seasonality and whether there are any puts and takes that investors should keep in mind that might be different relative to historical trends as we think about the remainder of the year. And then I have a quick follow-up.

Joseph Lima Cardoso: Hi, good morning, and thank you for the question.

Clifton Albert Pemble: So maybe first one here.

Clifton Albert Pemble: Half of the year strongly and I. Appreciate you guys are not updating the guidance here given we're only one quarter in but was wondering if you could help us think through the shape of the year relative to typical revenue seasonality and whether there are any puts and takes that investors should keep in mind that might be different relative to historical trends as we think about the remainder of the year and then I have a quick follow up.

Clifton Albert Pemble: Good morning. I think one thing to keep in mind as we go forward throughout the rest of the year is the timing of new product releases. I think Q1 was probably the most easy comp that we had in the year-over-year comparables as we now anniversary some of the strong product releases that we had last year and also consider the timing of new products this year. So that's part of what we have in mind.

Speaker Change: Yes, good morning.

Clifton Albert Pemble: I think one thing to keep in mind as we go forward throughout the rest of the year as the timing of new product releases.

Clifton Albert Pemble: I think Q1 was.

Clifton Albert Pemble: Was probably.

Clifton Albert Pemble: The most easy comp that we had in the year over year comparable as we now anniversary some of the strong product releases that we had last year and also consider the timing of new products. This year. So that's part of what we have in mind as well.

Clifton Albert Pemble: Got it. No, that's fair.

Speaker Change: Got it no that's fair and then maybe Clifford you could touch on like obviously wearables across fitness and outdoors has been performing strongly and part of that is what you just kind of referenced there around product releases or new product announcements. So I was just curious if you could provide some other color there as to where you haven't been seeing that.

Clifton Albert Pemble: And then maybe, Clifton, you could touch on, obviously, wearables across fitness and outdoors have been performing strongly. And part of that is what you just kind of referenced there around product releases or new product announcements. You know, so we're just curious if you could provide some other color there as to where you have been seeing the strength and perhaps touch on trends you're seeing relative to volume and pricing, as well as potentially new users versus replacement demand, just to get further granularity around some of the strength you're seeing in wearables across both fitness and outdoor. Thanks for the question. Everyone.

Clifton Albert Pemble: And perhaps touch on trends, you're seeing relative to volume and pricing as well as potentially new users versus replacement demand just to get further granularity around some of the strength youre seeing in the wearables across both fitness and outdoor thanks for the questions.

Clifton Albert Pemble: We would say that our product lineup across fitness and outdoors is very strong. Our products are unique and highly differentiated compared to a lot of products that are on the market. So people look to our products for particularly inspiration around activity, but sports, wellness, all those things are something that we're known for. So we're definitely seeing people appreciate our products for those things. Registrations have been strong, so we're seeing that follow through at retail. And we still see the majority of our users that are coming in as new users to Garmin as opposed to repeat customers. So we see that favoring new users in our overall product line between the two.

Clifton Albert Pemble: And we would say that our product lineup across fitness and outdoor is very strong.

Clifton Albert Pemble: Our products are unique and highly differentiated compared to a lot of products that are on the market. So people look to our products for.

Clifton Albert Pemble: Particularly inspiration around activity, but.

Clifton Albert Pemble: Sports wellness all of those things is something that we're known for so we are we're definitely seeing people appreciate our products for those things.

Clifton Albert Pemble: Registrations have been strong so we're seeing that follow through at retail and we still see the majority of our users that are coming in as new users to garmin as opposed to.

Clifton Albert Pemble: Repeat so we see that favoring new users and our overall product line between the two segments.

Operator: Your next question comes from the line of George Wong from Barclays. Please go ahead.

Clifton Albert Pemble: Your next question comes from the line of George Wong from Barclays. Please go ahead.

Douglas Gerard Boessen: Hey guys, thanks for taking my question. Firstly, maybe you can comment on our look for inventory. You guys cut down inventory again in the March quarter. Just curious, what's the expectation for the inventory situation ending this year compared to last year?

George Wong: Oh, Hey, guys. Thanks for taking my question just firstly, maybe you can comment on kind of outlook for the inventory.

Douglas Gerard Boessen: You guys conduct inventory again in the March quarter, just curious what's your expectation for that.

Speaker Change: Inventories titration exiting.

Douglas Gerard Boessen: This year compared to last year.

Douglas Gerard Boessen: Yes, so as it relates to inventory, you know, it was lower on a year-to-year basis as well as sequentially, and one of the big reasons was just due to our strong sales. As it relates to what we expect by the end of the year, we do expect inventory to increase year-to-year, primarily, hopefully, in line with our sales, to make sure we have enough inventory to meet our demands.

George Wong: Yes, so as it relates to inventory was lower on a year over year basis, as well as sequential and one of the big reasons, well just due to our strong sales as it relates to what we expect by the end of the year, we do expect inventory to increase year over year basis, primarily hopefully in line with our sales.

Douglas Gerard Boessen: Make sure we have enough inventory to meet our demand.

Douglas Gerard Boessen: Okay, great. And also, you know, recognizing you guys are not updating the revenue guidance since it's so early in the year, but any thoughts on kind of a refreshed outlook on the four-year free cash and capex? You know, considering the 1Q, the free cash was pretty strong. The capex was actually lower than expected. Just curious if there's any change to the four-year outlook. Yeah, there is.

Speaker Change: Okay, Great and also recognizing you guys on that.

Douglas Gerard Boessen: <unk> the revenue guidance.

Douglas Gerard Boessen: And so early in the year, but any thoughts.

Douglas Gerard Boessen: Colorful refreshed outlook.

Douglas Gerard Boessen: Full year free cash and Capex.

Douglas Gerard Boessen: Considering the <unk> to free cash flow was pretty strong.

Douglas Gerard Boessen: The Capex was actually lower than expected just curious if there is any.

Douglas Gerard Boessen: For the full year outlook.

Douglas Gerard Boessen: Yeah, at this time, we're not updating our free cash flow or CapEx Outlook. If we update our guidance into Q2, we'll update at that point in time, but we are very pleased with our cash flow that came in in Q1. It was primarily due to the strong sales that we saw.

Speaker Change: Yes at this time, we're not updating our free cash flow our capex outlook.

Douglas Gerard Boessen: And what we update our guidance into Q2, we'll update at that point in time, but we are very pleased with our cash flow.

Douglas Gerard Boessen: Came in in Q1 was primarily due to the strong sales that we saw.

Speaker Change: Okay, great. Thank you.

Operator: Your next question comes from the line of Ben Bollin from Cleveland Research. Please go ahead.

Douglas Gerard Boessen: Your next question comes from the line of Ben Bolan from Cleveland Research. Please go ahead.

Douglas Gerard Boessen: Good morning, everyone. Thanks for taking the questions. Clifford Dogg, I was hoping we could talk about, Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host. Could you talk a little bit about how much of the traction or strength and gross margin is individual products versus maybe input prices, components, transport, just any moving pieces there to be aware of?

Benjamin James Bollin: Good morning, everyone. Thanks for taking the question.

Douglas Gerard Boessen: The cliff or Doug I was hoping we could talk about.

Douglas Gerard Boessen: The gross margin behavior within outdoor and fitness.

Douglas Gerard Boessen: Both were up year over year and sequentially, you talked about encouraging product mix could.

Douglas Gerard Boessen: Could you talk a little bit about how much of the traction of our strength in gross margin is individual products versus maybe input prices component transport just any moving pieces there to be aware of.

Douglas Gerard Boessen: The gross margin was up year-over-year for both fitness and outdoor. Product mix was the biggest driver of that, and we actually sold more of our new products, which have a higher gross margin. We did see some favorability year-over-year for lower freight costs, and overall, our costs are lower year-over-year also. We continue to look at ways to lower our costs from both the component as well as production.

Clifford Dogg: Yes, the gross margin was up year over year for both the fitness and outdoor product mix was the biggest driver of that and actually sold and more of our new products, which have a higher gross margin. We did see some favorability year over year for lower freight costs.

Douglas Gerard Boessen: Overall, our costs are lower year over year also we continuously look at ways to.

Douglas Gerard Boessen: Lower our cost from both a component as well as production standpoint.

Douglas Gerard Boessen: That's great. And then the last one for me is, when we look at the auto business, what's the right way to think about the trajectory of the margin performance here over time and any framing on how material the wins are when they start to contribute from the quarter, the two-wheel vehicles and the industrial truck contribution? Thank you.

Speaker Change: That's great and then the last one for me is when we look at the auto business.

Douglas Gerard Boessen: What's the right way to think about the trajectory of the margin performance here overtime and any framing on how material. The wins are when they start to contribute from the quarter and two wheel vehicles and.

Douglas Gerard Boessen: Industrial truck contribution thank you.

Douglas Gerard Boessen: In terms of margin, Dan, we've talked about how this segment will settle into a margin profile that's in the high teens. The gross margin in the high teens and the operating margin in the mid-single digits. That's kind of typical of what we see in this industry. We're certainly in the process of building our scale and the ramp up to that, and so as the mix has shifted towards domain controllers, that's why you've seen the margin change as it has.

Speaker Change: Yes in terms of margin that we've talked about how this segment will settle into a margin profile. That's that's in the <unk>.

Douglas Gerard Boessen: Gross margin in the high teens and the operating margin in the mid single digits.

Douglas Gerard Boessen: Typically what we see in this industry. We are certainly in the process of building our scale and the ramp into that and so as the mix has shifted towards domain controllers.

Douglas Gerard Boessen: That's why you've seen the margin change as it has.

Douglas Gerard Boessen: In terms of the new business, you know, in terms of volumes, this is a very significant new volume adding to our overall infrastructure and planning. In terms of revenue, you know, we announced in the first quarter that, or pardon me, Q4, that we had secured some significant new business, and this is in addition, so this is an adder to that, but overall, we do have a sizable amount of awarded business that's ahead of

Douglas Gerard Boessen: In terms of the new business.

Douglas Gerard Boessen: In terms of volumes. This is this is a very significant new volumes, adding to our overall infrastructure and planning.

Douglas Gerard Boessen: In terms of revenue we announced in in.

Douglas Gerard Boessen: First quarter that our pardon me Q4 that we had secured some significant new business.

Douglas Gerard Boessen: And this is in addition, so this is this is an adder to that but but overall, we do have a sizable amount of.

Douglas Gerard Boessen: Awarded business that's ahead of us.

Speaker Change: Thank you.

Operator: Your next question comes from the line of Erik Woodring from Morgan Stanley. Please go ahead.

Douglas Gerard Boessen: Your next question comes from the line of Erik Woodring from Morgan Stanley. Please go ahead.

Clifton Albert Pemble: Great, thank you very much for taking my questions. You know, maybe just one on the modeling side to follow up on one of the first questions. I know you don't guide very granularly on a quarterly basis, but if we look to 2Q, historically, we see some seasonality that is quite strong. You just posted a very above-seasonal quarter, so I'm just wondering, for 1Q, was there anything notable in terms of one-off tailwinds or anything unusual that would not repeat as we just think about seasonality as we look forward on a go-forward basis And I have a follow-up. Thank you. Yeah, I think so...

Erik William Richard Woodring: Great. Thank you very much for taking my.

Speaker Change: My questions.

Speaker Change: Maybe just one on the modeling side to follow up on one of the first questions.

Speaker Change: I know you don't guide, Greg Super granular on a quarterly basis, but if we look to <unk>.

Clifton Albert Pemble: Now historically, we see some seasonality that is quite strong and you just posted a very above seasonal quarter. So I'm. Just wondering for <unk> was there anything notable in terms of one off tailwind or or anything unusual that would not repeat.

Speaker Change: As we just you know.

Speaker Change: About seasonality as we look forward on a go forward basis, and then I have a follow up thank you okay. Yes.

Clifton Albert Pemble: Yeah, I think, Erik, one of the factors to consider is that the timing of new product releases, both last year and this year, will be a factor in creating noise between the quarters. This year, Q1 was still marked by a relatively easy comp, especially in fitness, with our new product introductions that happened last year towards the end of Q1 and into Q2. So definitely, that will create a different dynamic in Q2. And then, just generally, as we look ahead for the rest of the year, the timing of other new product introductions is in our minds in terms of how we look at the whole year.

Speaker Change: I think Eric one of one of the factors to consider is that the timing of new product releases, both last year and this year.

Clifton Albert Pemble: We will be a factor in creating noise between the quarters.

Clifton Albert Pemble: This year Q1 was still marked by.

Clifton Albert Pemble: A relatively easy comp, especially in fitness.

Clifton Albert Pemble: With our new product introductions that happened last year towards the end of Q1 into Q2.

Clifton Albert Pemble: So definitely that will create a different dynamic in Q2, and then just generally as we look out for the rest of the year the timing of other new product introductions is in our minds in terms of how we look at the whole year.

Speaker Change: Okay. Thank you and then you know.

Douglas Gerard Boessen: And then, you know, Doug, Doug, I know you like to have a kind of a rainy day slush fund. Again, it's always best to have liquidity when no one else does. And I appreciate that.

Speaker Change: Doug Doug I know you like to have a kind of a rainy day Slush fund again, it's always best to have liquidity when no one else does that.

Douglas Gerard Boessen: But you have over three, three billion dollars in net in gross cash, probably not earning your cost of capital today. Just, you know, can you help us understand why you wouldn't put more of that to work? Obviously, on an organic basis here, you're seeing a ton of success. Why not complement that with, you know, either accelerating buybacks or more work that you can do organically? What stops you from taking those kinds of actions? Thanks so much.

Doug: I appreciate that but you have over three 3 billion of net and gross cash probably not earning your cost of capital today.

Douglas Gerard Boessen: Can you help us understand why why you wouldnt put more of that to work obviously on an organic basis youre seeing a ton of success why not complement that with you know either accelerating buybacks or more work that you can do organically what stops you from taking those kind of actions. Thanks. So much yes, yes. Good question.

Douglas Gerard Boessen: Yeah, yeah, good question. As it relates to cash, we do have our priorities for cash, you know, being reliable dividends, you know, as you mentioned, your investments back into our business, whether from manufacturing facilities or just strengthening our business for the growth that we have, you know, looking at strategic acquisitions, such as audio, and then share a purchase. And it relates to a share of purchases, you know, that is depending upon your market conditions and business conditions.

Douglas Gerard Boessen: Yeah, yeah. A good question.

Douglas Gerard Boessen: As it relates to cash we do have our priorities for cash are being reliable dividends.

Douglas Gerard Boessen: As you mentioned your investments back in our business whether for manufacturing facilities are just strengthening our business for the growth that we have.

Douglas Gerard Boessen: Conduct strategic acquisitions, such as audio and then share repurchase.

Douglas Gerard Boessen: Two of share repurchases.

Douglas Gerard Boessen: <unk>.

Douglas Gerard Boessen: Is depending upon your marketing conditions business conditions I do want to remind you that you know.

Douglas Gerard Boessen: I do want to remind you that, you know, we were in the blackout for, you know, most of Q1, from a standpoint, but, you know, our priorities for cash are consistent with what they've been for a while.

Douglas Gerard Boessen: We were in the blackout for most of Q1 trust standpoint, but.

Douglas Gerard Boessen: Our priorities for cash are consistent what <unk> been for awhile.

Operator: The next question comes from the line of David MacGregor from Longbow Research; please go ahead.

Speaker Change: Thank you.

Douglas Gerard Boessen: Next question comes from the line of David Macgregor from Longbow Research. Please go ahead.

Operator: Yes, good morning, everyone, and thank you for taking the questions.

David Sutherland MacGregor: Yes, good morning, everyone and thank you for taking the questions.

David Sutherland MacGregor: I wanted to ask.

David Sutherland MacGregor: Around inventories, but maybe focus around channel inventories. If you will can you talk about sell through rates across your various lines and.

Clifton Albert Pemble: I guess I wanted to ask about inventories, but maybe focus on channel inventories, if you will. And can you talk about sell-through rates across your various lines? As you think across these lines, where are the channel inventory levels, maybe a little higher, a little lower, just adjusting for seasonal patterns?

David Sutherland MacGregor: As you think across these lines, where our channel inventory levels, maybe a little higher a little lower just adjusting for seasonal patterns of course.

Clifton Albert Pemble: We think that channel inventory is really clean and healthy at this point. We don't see any concerns in terms of overall inventory. Retailers and across our businesses are not placing big bets on inventory, so when they buy in, they know that there are customers there that want it, and the availability of product is much better now than it has been over the last few years. We feel very good about it, and we also feel like the registration rates are very consistent with the quantities that we're selling.

Clifton Albert Pemble: So we think that channel inventory is really.

Clifton Albert Pemble: Clean and healthy at this point, we don't see any concerns in terms of overall inventory.

Clifton Albert Pemble: Retailers and across our businesses frankly are are not placing big bets on on inventory so when they buy and they know that there's customers there that want it.

Clifton Albert Pemble: And the availability of product is much better now than it has been over the last.

Clifton Albert Pemble: Kind of disruption of the last four years and supply chain. So we feel very good about it and we also feel like the registration rates are very consistent with the quantities that we're selling in.

Clifton Albert Pemble: Alright.

Douglas Gerard Boessen: And if I could go back to the question on inventory, obviously, a substantial work down on inventory this quarter, and you alluded to the strength of the business, and it's just a lot stronger than maybe you'd expected. What are the implications there for sort of second and third quarter margins as you rebuild that inventory? I would guess you get better fixed cost absorption and better operating leverage. Should we be expecting a stronger margin performance as a consequence of inventory rebuild?

Speaker Change: If I could go back to the question on inventory.

Douglas Gerard Boessen: Honestly.

Douglas Gerard Boessen: Substantial work down inventory this quarter and you alluded to the strength of the business.

Douglas Gerard Boessen: A lot stronger than maybe you had expected what are the implications there for a second and third quarter margins as you as you rebuild that inventory.

Douglas Gerard Boessen: Just to get a better fixed cost absorption better operating leverage.

Douglas Gerard Boessen: Should we be should we be modeling a stronger margin performance as a consequence of inventory rebuild.

Douglas Gerard Boessen: No, that's not really a big factor for us, but you know, there is the part where you're mentioning there, you know, just basically leveraging some of our overheads, due production, but that's just a part of, you know, us managing our overall costs and having a lower cost structure.

Douglas Gerard Boessen: No that's not really a big factor for us, but you know there is the part where you're mentioning there just basically of leveraging some of our overheads due production, but that's just a part of us managing our overall cost.

Douglas Gerard Boessen: Having a lower cost structure.

Clifton Albert Pemble: And the last question for me, is there any way you can sort of provide some color or granularity around how much of the growth right now, I mean setting aside auto OEM, but the other four segments, how much of the growth right now would be price versus unit growth?

Speaker Change: Okay and last question from me is there any way you can sort of provide some color or granularity around how much of the growth right now I mean, setting aside auto OEM, but the other four segments how much of the growth right now would be price versus unit growth.

Clifton Albert Pemble: I think it's mostly driven by higher unit volume.

Clifton Albert Pemble: I think it's mostly driven by higher unit volumes.

Clifton Albert Pemble: Okay.

Operator: Thanks very much. Congratulations on the progress. Thank you. Your next question comes from the line of Georgian Leone, Bank of America. Please go ahead.

Speaker Change: Thanks, very much congratulations on the progress.

Georgian Leone: Your next question comes from the line of Jordan Lyonnais Bank of America. Please go ahead.

Georgian Leone: Good morning, Thank you for taking the question.

Operator: Alright.

Georgian Leone: I appreciate that it's a softer comp in the quarter.

Georgian Leone: But really strong growth in Europe, and Asia to are you expecting those markets to continue on this trend and you see a recovery.

Clifton Albert Pemble: I think one factor to consider geographically is the impact of higher auto OEM volumes on at www.globalonenessproject.org. Disproportionately, the revenue there, so there's some puts and takes because of that, but generally, our wearable products perform very well in Europe. Asia has been influenced by AutoEM some, but we also have some headwinds due to currency issues in the region as well. So there's just lots of factors; there probably isn't any one that we could point to and try.

Georgian Leone: I think one factor to consider geographically is the impact of higher auto OEM volumes on.

Clifton Albert Pemble: Those regions, so when we when we produce and sell.

Clifton Albert Pemble: For instance domain controllers out of Europe that tends to increase disproportionately.

Clifton Albert Pemble: Disproportionately the the revenue there so so theres some puts and takes because of that but generally our wearable products performed very well in.

Clifton Albert Pemble: In Europe.

Clifton Albert Pemble: Asia has been influenced by auto OEM, some but we also have some tailwind with.

Clifton Albert Pemble: Excuse me some headwind due to currency issues in the region as well. So there's just lots of factors that theres, probably isn't any one that we could point to and try to draw conclusions about it.

Speaker Change: Okay. That's helpful. Thank you.

Operator: Before we continue on to the next question, a reminder if you would like to raise your hand and join the queue, please press star 1 on your phone keypad. And your next question comes from the line of Noah Zatzkin from KeyBank Capital Markets. Please go ahead.

Clifton Albert Pemble: Before we continue on to the next question. A reminder, if you would like to raise your hand and join the queue to please press star one on your phone keypad.

Noah Seth Zatzkin: And your next question comes from the line of Noah <unk> from Keybanc capital markets. Please go ahead.

Clifton Albert Pemble: Hi, thanks for taking my questions. Maybe just on the marine segment; strong performance there. First, I'm hoping you could provide kind of an update on how JL Audio is performing post-acquisition relative to expectations now that we're a couple quarters in. And then second, if you could remind us what the full year benefit from JL Audio is embedded in the marine guide. And then I was just hoping to get your thoughts on the state of the marine industry in general, given what looks like pretty strong organic outperformance this quarter versus the industry. Thanks.

Noah Seth Zatzkin: Hi, Thanks for taking my questions, maybe just on the Marine segment strong performance there.

Clifton Albert Pemble: Yeah, I think generally we would say our JL performance was in line with what we expected. Leading right into that question about the overall state of the market, I would say the marine market has kind of stabilized, it's historically not a huge growth market as you know, so I think we're kind of past some of the ripples that we've seen over the last few years and there is certainly some issues out there right now with boat inventories that people have been talking about, but in general those have not impacted us in any kind of significant way and I think on a full year basis, Doug.

Clifton Albert Pemble: First hoping you could provide kind of an update on how jail audio is performing post acquisition relative to expectations now that we're a couple of quarters in.

Clifton Albert Pemble: And then second if you could remind us what the full year benefit from jail audio is embedded in the Marine guide.

Speaker Change: And then was just hoping to get your thoughts on the state of the Marine end market in general given what looks like pretty strong organic outperformance this quarter versus the industry.

Clifton Albert Pemble: Thanks.

Clifton Albert Pemble: Yes, I think generally we would say our J outperformance was in line with what we expected.

Doug: I think.

Clifton Albert Pemble: Leading right into that question about the overall state of the market I think I would say the marine market is as is kind of stabilize it.

Clifton Albert Pemble: Historically, not a huge growth market as you know so so I think we're kind of past some of the ripples that we've seen over the last few years and there is certainly some.

Clifton Albert Pemble: Some issues out there right now with with boat inventories that people have been talking about that in general those have not impacted us in any kind of significant way and I think on a full year basis, Doug Yeah sure as it relates to <unk> audio basically we expect Geo audio on the revenue line should be about 15%.

Douglas Gerard Boessen: Yeah, sure. As it relates to JL Audio, basically, we expect JL Audio's revenue line to be about 15% of the total marine abyss.

Douglas Gerard Boessen: Total marine business.

Operator: Thank you. Very helpful.

Speaker Change: Thank you very helpful.

Operator: You have a follow-up question from David MacGregor from Longbow Research. Please go ahead.

Operator: You have a follow up question from David Macgregor from Longbow Research. Please go ahead.

Clifton Albert Pemble: Yeah, thanks for taking the follow-up. I guess there's been some talk just in the macro lately of, you know, consumers getting more cautious and mixing down, and then we get these rather disappointing consumer confidence numbers here today. Obviously, you've got a lot of innovation in the marketplace, and you've talked already about the strong mix, and that seems to be overpowering whatever might be occurring underneath in terms of deteriorating consumer confidence, but what are you seeing at all in terms of just maybe leading indicators or things you watch for consumer mix down and how that might ultimately impact the mix? And kind of the subscription rate around new product introductions or the balance.

David Sutherland MacGregor: Yes, thanks for taking the follow up I guess theres been some talk just in the macro lately.

Clifton Albert Pemble: Consumers getting more cautious and mixing down and then we get these rather disappointing consumer confidence numbers here today.

Speaker Change: How are you.

Clifton Albert Pemble: Obviously, you've got a lot of innovation in the marketplace, you talked already about the strong mix.

Clifton Albert Pemble: And that seems to be overpowering whatever might be occurring underneath in terms of deteriorating consumer confidence but.

Clifton Albert Pemble: What are you seeing at all in terms of just maybe leading indicators or things you watch for consumer mix down and how that might ultimately impact your mix.

Clifton Albert Pemble: Because of the subscription rate around new product introductions over the balance of the year.

Clifton Albert Pemble: I would say, generally, our customer base is in groups that are probably less affected by the overall We certainly have products across all kinds of price ranges, but mostly, our products tend to be products with high innovation and high desirability, and therefore their pricing is not necessarily at the bottom of the market. So, in general, we've actually seen a very strong response to some of our high-end products. Even when we release products, for example, in running like the Forerunner 165, which is an incredibly strong product, and we're receiving a great result from that, but we also continue to see strength in the higher-end products as well. So, in general, I would say most people are buying based on their needs, and we haven't seen a lot of evidence of mixing down that we could point to with competition.

Clifton Albert Pemble: I would say generally our customer base.

Clifton Albert Pemble: In groups that are probably less affected by the overall.

Clifton Albert Pemble: Sentiment that you hear broadly about so we certainly have products across all kinds of price ranges, but mostly our products tend to be.

Clifton Albert Pemble: Products with high innovation and high desirability and therefore their pricing is not necessarily at the bottom of the market.

Clifton Albert Pemble: So in general we've actually seen very strong response to some of our high end products, even when we release products. For example in running like the forerunner 165, which is an incredibly strong product and we're receiving a great result from that.

Clifton Albert Pemble: We also continued to see strength in the higher end products as well.

Clifton Albert Pemble: So in general I would say, mostly people are buying base based on their needs and we haven't seen a lot of evidence of <unk>.

Clifton Albert Pemble: Mixing down that we could point to with confidence.

Operator: Great. Thanks very much. Good luck.

Speaker Change: Great. Thanks, very much and good luck.

Teri Seck: This concludes our Q&A session for today. I will now turn the conference back over to Teri for closing remarks.

Operator: This concludes our Q&A session for today I will now turn the conference back over to Terry for closing remarks.

Operator: Thank you all for your time today. As usual, Doug and I are available for callbacks. Have a wonderful day. Bye.

Teri Seck: Thank you all for your time today as usual, Doug and I are available for callbacks and have a wonderful day.

Operator: This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.

Teri Seck: This concludes today's conference call enjoy the rest of your day you may now disconnect.

Operator: Yes.

Operator: [music].

Operator: Sure.

Operator: [music].

Operator: Yes.

Operator: [music].