Q2 2024 Garmin Ltd Earnings Call
Christina: Thank you for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Garmin Limited 2nd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Christina and I'll be your conference operator today.
Speaker Change: At this time I would like to welcome everyone to the Garmin Ltd second quarter 2024 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After.
Christina: 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, you can press star 1 again. Thank you. I will now turn the floor over to Teri Seck, Director of Investor Relations. Teri, you may begin.
After the Speakers' remarks, there'll be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If he would like to withdraw your question you can press star one again.
Yep.
I will now turn the floor over to Teri Seck director of Investor Relations, Sir you may begin.
Teri Seck: Good morning. We would like to welcome you to Garmin Limited's second quarter 2024 earnings call. Please note that the earnings, press release, and related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com. An archive of the webcast and related transcript will also be available on our website.
Speaker Change: Good morning, we would like to welcome you to Garmin Limited second quarter 2024 earnings call. Please note that the earnings press release and related slides are available at Garmin <unk> 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.
Speaker Change: This earnings call includes projections and other forward looking statements regarding Garmin limited and its business any statements regarding our future financial position revenues segment growth rate 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 statement.
Teri Seck: This earnings call includes projections 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 introductions, future demand for our products, and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10 case filed with the Securities and Exchange Commission.
Clifton Albert Pemble: The forward looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting garmin information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission presenting on behalf of Garmin Limited. This morning are cliff Pemble, President and Chief Executive.
Teri Seck: Presenting on behalf of Garmin Limited this morning are Clifton Pemble, President and Chief Executive Officer, and Doug Besson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Clifton Pemble. Thank you, Teri.
Speaker Change: Officer, and Doug <unk>, Chief Financial Officer, and Treasurer at this time I would like to turn the call over a chocolate Pendleton.
Clifton Albert Pemble: Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin delivered another quarter of outstanding results with double-digit growth in consolidated revenue and operating investment. Consolidated revenue increased 14% to $1.51 billion, a new second quarter record with three business segments reporting strong double-digit growth. Gross margin was 57.3%, and operating margin expanded to 22.7%, resulting in operating income of $342 million, up 20% year over year. We reported proforma EPS of $1.58, up 9% over the prior year, which is a remarkable result considering the significantly higher effective tax rate. During the quarter, our global employment exceeded 20,000 associates. And we were recognized as a top employer by Forbes, as well as U.S. News and World Report.
Clifton Albert Pemble: Thank you Terry and good morning, everyone.
Clifton Albert Pemble: As announced earlier today Garmin delivered another quarter of outstanding results with double digit growth in consolidated revenue and operating income.
Speaker Change: Consolidated revenue increased 14% to 151 billion, a new second quarter record with three business segments reporting strong double digit growth.
Clifton Albert Pemble: Gross margin was 57, 3%.
Clifton Albert Pemble: Operating margin expanded to 22, 7%.
Clifton Albert Pemble: And operating income of $342 million up 20% year over year.
Clifton Albert Pemble: We reported pro forma EPS of $1 58 up 9% over the prior year.
Clifton Albert Pemble: Which is a remarkable result, considering the significantly higher effective tax rate.
Clifton Albert Pemble: During the quarter, our global employment surpassed 20000 associates.
Clifton Albert Pemble: We were recognized as a top employer by Forbes as well as U S News and World report.
Clifton Albert Pemble: We are proud of our associates who dedicate themselves to delivering growth through innovative and highly differentiated products. Given our strong performance in the first half of the year, we are updating our full-year guidance. We now anticipate revenue of approximately 5.95 billion dollars and Proforma EPS of $6. Doug will discuss our financial results and outlook in greater detail in a few minutes, but first, I'll provide a few remarks on the performance of each business cycle.
Clifton Albert Pemble: We are proud of our associates, who dedicate themselves to delivering growth through innovative and highly differentiated products.
Clifton Albert Pemble: Given our strong performance in the first half of the year, we are updating our full year guidance.
Clifton Albert Pemble: We now anticipate revenue of approximately $5 $95 billion.
Clifton Albert Pemble: And pro forma EPS of $6.
Clifton Albert Pemble: Doug will discuss our financial results and outlook in greater detail in a few minutes, but first I'll provide a few remarks on the performance of each business segments.
Clifton Albert Pemble: Okay.
Clifton Albert Pemble: Starting with fitness revenue increasing 28% to $428 million, primarily driven by wearables, gross and operating margins improved to 57% and 25%, respectively, resulting in an operating income of $108 million. During the quarter, we launched the Edge 1050 Premium Cycling Computer with a vivid color touchscreen display, a built-in speaker for audible feedback, and Garmin Pay mobile payment. Also, during the quarter, we celebrated Global Running Day with Garmin users running nearly 11 million miles, beating last year by more than 2 million miles.
Doug: Starting with fitness revenue increased 28% to $428 million, primarily driven by Wearables.
Doug: And operating margins improved to 57% and 25% respectively.
Doug: Resulting in operating income of $108 million.
Doug: During the quarter, we launched the edge 10, 50 premium cycling computer with a vivid color touch screen display built in speaker for audible feedback.
Doug: Garmin pay mobile payments.
Doug: Also during the quarter, we celebrated global running day with Garmin users running nearly 11 million miles, beating last year by more than 2 million miles.
Clifton Albert Pemble: Given the strong performance of the fitness segment, we are raising our revenue growth estimate to 20% for the year. Moving to outdoor, revenue decreased 2% to $440 million, primarily driven by lower revenue from adventure watches following the anniversary of the Phoenix and Epics Pro Series launches. Gross and operating margins were 65% and 31%, respectively, resulting in operating income of $136 million. During the quarter, we launched the Approach Z30 Smart Laser Rangefinder with the range relay feature, which sends distance measurements to a compatible Garmin smartwatch or the Garmin Golf smartphone app.
Speaker Change: Given the strong performance of the fitness segment, we are raising our revenue growth estimate to 20% for the year.
Speaker Change: Moving to outdoor revenue decreased 2% to $440 million, primarily driven by lower revenue from adventure watches following the anniversary of the Phoenix and ethics Pro series launch.
Doug: Gross and operating margins were 65% and 31% respectively.
Doug: <unk> and operating income of $136 million.
Doug: During the quarter, we launched the approach Z 30, smart laser range finder with the range relay feature.
Doug: Which sends distance measurements to compatible Garmin smartwatch or the Garmin golf smartphone app.
Clifton Albert Pemble: We also launched our first cellular-based dog tracking collar, the Alpha LTE. This small, rugged device attaches to existing dog collars and pairs with the Alpha app, so users can view their dog's movements from a smartphone or an Alpha handheld device.
Doug: We also launched our first cellular base dog tracking collar the Alpha L E.
Doug: This small rugged device attaches to existing dark colors and pairs with the alpha.
Doug: So users can view their das movement from a smartphone or an alpha handheld device.
Clifton Albert Pemble: The outdoor segment has performed as we anticipated so far this year, and we expect growth to accelerate in the back half of the year with new product launches. As such, we are maintaining our 7% revenue growth estimate for 2024. Looking next at aviation, revenue was relatively flat in the second quarter at $218 million.
Speaker Change: The outdoor segment has performed as we anticipated so far this year and we expect growth to accelerate in the back half of the year with new product launches.
Speaker Change: As such we are maintaining our 7% revenue growth estimate for 2024.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Looking next at aviation revenue was relatively flat in the second quarter at $218 million.
Clifton Albert Pemble: We continue to see growth in OEM product categories, while the aftermarket declined in an ongoing normalization following the somewhat uneven results of the prior year. Gross and operating margins were 74% and 23%, respectively, resulting in operating income of $50 million. For the ninth consecutive year, we were recognized by Embraer as a best supplier, most recently in the electrical and electrical systems category for our G3000 Prodigy Touch flight deck in the Phenom 100EV and Phenom 300EV. The aviation segment has performed as expected so far this year. And we are maintaining our estimate of flat revenue in 2024.
Speaker Change: We continue to see growth in OEM product categories, while the aftermarket decline and an ongoing normalization following the somewhat uneven results of the prior year.
Speaker Change: Gross and operating margins were 74% and 23% respectively.
Speaker Change: Resulting in operating income of $50 million.
Speaker Change: For the ninth consecutive year, we were recognized by Embraer as the best supplier. Most recently in the electrical and electrical systems category for our <unk> 3000 prodigy touched flight deck in the Phenom 100, EV and Phenom 300 D.
Speaker Change: The aviation segment has performed as expected so far this year and.
Speaker Change: And we are maintaining our estimate of flat revenue in 2024.
Speaker Change: Yeah.
Speaker Change: Okay.
Clifton Albert Pemble: Turning to the marine segment, revenue increased 26% to $273 million, primarily driven by the acquisition of JL Audio. Excluding JL Audio, revenue increased approximately 7%, outperforming widely reported market trends. Gross and operating margins improved by 54% and 22%, respectively, resulting in operating income of $60 million. We recently expanded the Forrest Kraken trolling motor series, adding a 48-inch shaft length to accommodate a broader range of boat sizes.
Speaker Change: Turning to the Marine segment revenue increased 26% to $273 million, primarily driven by the acquisition of J L audio.
Speaker Change: Excluding JL audio revenue increased approximately 7% output.
Speaker Change: Outperforming widely reported market trends.
Speaker Change: Gross and operating margins improved to 54% and 22% respectively.
Speaker Change: <unk> and operating income of $60 million.
Speaker Change: We recently expanded the forest crap and trolling motor series.
Speaker Change: Being a 48 and shaft length to accommodate a broader range of both sizes.
Clifton Albert Pemble: We also expanded our ice fishing offerings with the Panoptix PS-22 Ice Fishing Bundle, an ultra-portable live sonar solution for winter fishing, which won a Best of Category award at this year's ICAST, the world's largest sport fishing trade show. This is our fourth consecutive win in the ice fishing category and seventh consecutive award at ICAST. Additionally, in the quarter, we were once again selected as an exclusive supplier to Independent Boat Builders Incorporated through 2029 for both traditional and marine electronics, as well as audio equipment.
Speaker Change: We also expanded our ice fishing offerings with the pen optics, PS 22 ice fishing bundle.
Speaker Change: And ultra portable limestone our solution for winter fishing, which one of the best in category Award at this year's Ikaes, the world's largest sport fishing trade show.
Speaker Change: This is our fourth consecutive win in the ice fishing category.
Speaker Change: Seventh consecutive award at <unk>.
Speaker Change: Additionally, in the quarter, we were once again selected as an exclusive supplier to independent boat builders incorporated through 2029.
Speaker Change: For both traditional marine electronics as well as audio equipment.
Speaker Change: Yeah.
Clifton Albert Pemble: Given the strong performance of the marine segment, we are raising our revenue growth estimate to 15% for the year. And moving finally to the auto OEM segment, revenue increased 41% to $147 million, primarily driven by growth and domain controllers. Gross margin was 16%, and the operating loss decreased to $12 million.
Speaker Change: Given the strong performance of the Marine segment, we are raising our revenue growth estimate to 15% for the year.
Speaker Change: Yes.
Speaker Change: Moving finally to the auto OEM segment revenue increased 41% to $147 million, primarily driven by growth in domain controllers.
Speaker Change: Gross margin was 16% and the operating loss decreased to $12 million.
Clifton Albert Pemble: Our auto OEM segment continues to be recognized as an outstanding partner. We recently received the 2024 Global Award for Excellence in Technology and Development from Yamaha Motor for our motorcycle infotainment solution. AutoEM has performed as expected so far this year, and we are maintaining our 50% revenue growth estimate for 2024.
Speaker Change: Our auto OEM segment continues to be recognized as an outstanding partner. We recently received the 2024 Global award for Excellence in technology and development from Yamaha Motor for our motorcycle infotainment solutions.
Speaker Change: Auto OEM has performed as expected so far this year and we are maintaining our 50% revenue growth estimate for 2024.
Clifton Albert Pemble: So that concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug? Thanks, Cliff.
Speaker Change: So that concludes my remarks next Doug will walk you through additional details on our financial results Doug. Thanks Cliff Good morning, everyone.
Douglas Gerard Boessen: Doug? Thanks, Clif. Good morning, everyone. I will begin by reviewing our second quarter financial results, my comments on the balance sheet, the cash flow statement, taxes, and updated guidance. Post a revenue of $1,507,000,000 for the second quarter, representing a 14% increase year-over-year. Gross margin was 57.3%, a 20 basis point decrease from the prior year quarter. Operating expense, percentage of sales, was 34.6%,
Douglas Gerard Boessen: Operating income was $342 million, a 20% increase. Operating margin was 22.7%, a 120 basis point increase. Our GAAP EPS is $1.56; our former EPS is $1.58. Next, we'll look at our second quarter revenue by segment and geography. During the second quarter, we achieved double-digit growth in three out of five segments, led by the auto EM segment with 41% growth. Fitness marine segments at 28% and 2
Doug: I'll begin by reviewing our second quarter financial results My comments on the balance sheet cash flow statement taxes updated guidance.
Doug: Posted revenue of $1.507 billion for second quarter, representing a 14% increase year over year.
Doug: <unk> margin was 57, 3% 20 basis point decrease from the prior year quarter.
Doug: Operating expense.
Doug: 34, 6% 140 basis point decrease.
Doug: Operating income was $342 million.
Doug: 20% increase.
Doug: Operating margin was 22, 7% 120 basis point increase our GAAP EPS was $1 56 pro.
Doug: Pro forma EPS was $1 58.
Douglas Gerard Boessen: By geography, we achieved double-digit growth of 18% in the EMA region and 15% in the Americas region, while growth in the APAC region was 1%. Looking next at operating expenses, second quarter operating expenses increased by $46 million, or 10%. Research and development increased approximately $19 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 weight expenses, including the impact of the acquisition of JL Audio.
Doug: Next well look at our second quarter revenue by segment and geography.
Doug: The second quarter, we achieved double digit growth in three of our five segments led by the auto OEM segment, with 41% growth fitness marine segments at 28% and 26% growth respectively.
Doug: By geography, we achieved double digit growth of 18% EMEA region and 15% in the Americas region.
Doug: APAC region growth was 1%.
Doug: Looking next at operating expenses.
Speaker Change: Current quarter operating expense increased by $46 million.
Speaker Change: 10%.
Speaker Change: Research and development increased approximately $19 million year over year, primarily due to engineering personnel costs.
Speaker Change: SG&A increased approximately $27 million compared.
Speaker Change: The prior year quarter, primarily due to increases in personnel related expenses, including the impact the acquisition of J L audio.
Douglas Gerard Boessen: A few highlights on the balance sheet, cash flow statement, and taxes. Entering the quarter with cash and multiple securities for approximately $3.4 billion, Cancer Seed will increase both year-over-year and sequentially to $808 million, following seasonally strong sales in the second quarter.
Speaker Change: A few highlights on the balance sheet cash flow statement and taxes and.
Speaker Change: Ended the quarter with cash and marketable securities of approximately $3 $4 billion.
Speaker Change: Accounts receivable increased both year over year sequentially to $808 million.
Speaker Change: Seasonally strong sales in the second quarter.
Douglas Gerard Boessen: The inventory balance decreased year-over-year but increased sequentially to approximately $1.3 billion. During the second quarter of 2024, we generated free cash flow of $218 million, a $3 million decrease from the prior year quarter. Capital expenditures for the second quarter of 2024 were $37 million, approximately $15 million lower than the prior year quarter. We expect full year 2024 free cash flow to be approximately $900 million, and capital expenditures to be approximately $350 million. For the second quarter of 2024, we paid dividends of approximately $144 million and purchased $10 million of company stock.
Speaker Change: Inventory balance decreased year over year, but increased sequentially to approximately $1 $3 billion.
Speaker Change: Second quarter, 2024 generate free cash flow of $280 million.
Speaker Change: $3 million decrease from the prior year quarter.
Speaker Change: Capital expenditures for the second quarter, 2000, $24 million to $37 million approximately $15 million lower than the prior year quarter.
Speaker Change: We expect full year 2020 for free cash flow to be approximately $900 million cap.
Speaker Change: Capital expenditures of approximately $350 million.
Speaker Change: For the second quarter of 2024, we paid dividends of approximately $144 million and purchased $10 million of company stock.
Douglas Gerard Boessen: At quarter end, we had approximately $290 million remaining in the share purchase program, which was authorized through December 2026, for an effective tax rate of 17.9% compared to 8.9% in the prior quarter, an increase in effective tax rates primarily due to an increase in the combined Swiss tax rate in response to global minimum tax requirements. Trey next to our full year guidance.
Speaker Change: At quarter end, we had approximately $290 million remaining a share repurchase program authorized through December 2026.
Speaker Change: For an effective tax rate of 17, 9% compared to eight 9% the prior year quarter.
Speaker Change: Increase in effective tax rate is primarily due to increase in the combined Switzerland tax rate response of global minimum tax requirements.
Speaker Change: Turning next to our full year guidance, we estimate revenue of approximately 595 billion.
Douglas Gerard Boessen: We estimate revenue of approximately $5.95 billion, compared to our previous guidance of $5.75 billion. We expect gross margin to be approximately 57%, higher than our previous guidance of 56.5% based on year-to-date performance. We expect an operating margin of approximately 21.3% compared to our previous guidance of 20%. We also expect a reform-effective tax rate of 16 percent, which is higher than our previous guidance of 15.5 percent in projected full-year income mix by tax jurisdiction. This results in expected performance earnings per share of approximately $6, an increase of $0.60 for our previous guidance of $5.40, which includes our former marks. Christina, could you open the line for Q&A?
Speaker Change: Our previous guidance of $5 $75 billion.
Speaker Change: We expect gross margins to be approximately 57% higher than our previous guidance of 36, 5% for the year to date performance.
Speaker Change: We expect an operating margin of approximately 21, 3% compared to our previous guidance of 20%.
Speaker Change: So expect pro forma effective tax rate of 16%, which is higher than our previous guidance of 15, 5% to projected full year income mix by tax jurisdiction.
Speaker Change: We expect our pro forma earnings per share approximately $6 an increase of 60.
Speaker Change: Per our previous guidance of $5 40.
Speaker Change: That concludes our formal remarks, Christina could you open the line for Q&A.
Speaker Change: Sure.
Speaker Change: Yes.
Christina: Yes, thank you. And as a reminder, if you do have a question, please press star one on your telephone keypad. Again, if you do have a question at this time, please press star one on your telephone keypad. Please hold while we compile the Q&A list. Thank you. Your first question comes from the line of Joseph Cardoso from J.P. Morgan. Your line is open.
Christina: Yes, Thank you and as a reminder, if you do have a question. Please press star one on your telephone keypad again, if you do have a question at this time. Please press star one on your telephone keypad.
Speaker Change: Please hold while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Thank you. Your first question comes from the line of Joseph Cardoso from J P. Morgan Your line is open.
Douglas Gerard Boessen: Good morning and thanks for the question. So maybe the first question here is just on the guide. When I take a look at the updated full year guide, the implied second half outlook suggests maybe a more muted revenue flow through to earnings than maybe we are accustomed to seeing for Garmin. Can you maybe just walk through the puts and takes there and perhaps what's driving the pressures on the incremental margins into the second half?
Joseph Lima Cardoso: Good morning, and thanks for the question. So maybe first question here is just on the guide when I take a look at the updated full year guide the implied second half outlook suggests maybe a more muted revenue flow through to earnings than maybe we are accustomed to seeing for Garmin can you maybe just walk through the puts and takes there and perhaps what's driving the pressures on the incremental.
Douglas Gerard Boessen: And then I have a follow-up. Thank you. Yeah.
Speaker Change: Margins into the second half and then I have a follow up thank you.
Douglas Gerard Boessen: Yeah, so when we think about that, yeah, related to the gross margin, you mean the back half versus what we've seen in the first half, we'll continue to see, you know, segment mix have an impact. That will have an impact on reducing that, the gross margin, you know, in the back half. As it relates to expenses, yes, we'll continue to make investments in R&D, primarily to support our innovation.
Speaker Change: Yes, so when we think about that yes relating to the gross margin.
Speaker Change: Back half versus what we've seen in the first half will continue to see.
Speaker Change: Segment mix have an impact that will have an impact to reduce that the gross margin.
Speaker Change: As it relates to expenses, yes, we will continue to make investments in R&D, primarily to support our innovation.
Clifton Albert Pemble: Got it. And then, maybe just as my second question, Marine on an organic basis continues to outperform the broader market trends that you guys have been highlighting. And so I was just curious if you could double-click on the outperformance there. Like what are you seeing broadly as the drivers of the share gains Garmin has experienced? For example, is it broadly across the portfolio, or are you seeing better trends in a particular area of the portfolio? And then maybe just curious what other factors could be contributing here and any thoughts on how sustainable this could be from your vantage point. Thanks for the questions, guys. Yeah, Joe, I think so.
Speaker Change: Got it and then maybe just.
Speaker Change: My second question Marine on an organic basis continues to outperform the broader market trends that you guys have been highlighting and so I was just curious if you could double click on the outperformance there like what are you seeing broadly as the drivers of the share gains garment as experience. For example is it broadly across the portfolio are you seeing better trends more.
Speaker Change: In a particular area that particular area of the portfolio and then maybe just curious what other factors could be contributing here and any thoughts on how sustainable this could be from your vantage. Thanks for the questions guys.
Clifton Albert Pemble: Yeah, Joe, I think our performance in the aftermarket is definitely much better than the overall market and even in the OEM channels that we serve. Our performance is much better than the broader market's been reporting. I think we attribute this to our product lines, which are highly innovative and very broad. We're doing very well. In chart plotters, we have the best mapping and sonar systems, radar, and autopilots, and trolling motors are somewhat of a newer category for us that's expanding and helping us to take share.
Joe: Yes, Joe I think.
Speaker Change: Our performance in the aftermarket is definitely.
Speaker Change: A much better than the overall market and even in the OEM channels that we serve.
Speaker Change: Our performance is much better than the broader markets been reporting I think we attribute this to our really our product line is highly innovative and a very broad we're doing very well in.
Speaker Change: In chart plotters, we have the best mapping and sonar systems radar and autopilot and trolling motors or so.
Speaker Change: A newer category for us its expanding in helping us to take share.
Speaker Change: Yeah.
Operator: And your next question comes from the line of Erik Woodring from Morgan's Family. Your line is open.
Speaker Change: And your next question comes from the line of Erik Woodring from Morgan Stanley. Your line is open.
Erik William Richard Woodring: Hey guys, good morning. Thank you for taking my call.
Erik William Richard Woodring: Hey, guys. Good morning, Thank you for taking my call.
Speaker Change: Doug or clarify that either one of you.
Erik William Richard Woodring: Wanted to kind of get your viewpoint.
Clifton Albert Pemble: You know, Doug or Cliff, either one of you, I just want to kind of get your viewpoint. You know, as we think about the guidance increase, obviously, nice outperformance in one cue. So you were tracking above, and now we've seen you raise guidance. Would you say that that increase in guidance is solely a reflection of the better first half? Or are you seeing some of that sustained into the second half relative to your expectations? Just want to kind of get a sense of that. Is this kind of reflection just of one particular outperformance, or is the second half of the year better than you thought as well?
Erik William Richard Woodring: As we think about the guidance increase obviously nice outperformance in <unk>. So you were tracking above and now we've seen you you raised guidance would you say that that increase in guidance is solely a reflection of the better first half.
Speaker Change: Or are you seeing some of that sustain into the second half relative to your expectations. Just wanted to kind of get a sense is this is this kind of a reflection just once you outperformance or is the second half of the year better than you thought as well and then I have a follow up thank you so much.
Clifton Albert Pemble: And then I have a follow-up. Thank you so much.
Clifton Albert Pemble: Yeah, Erik, I think there are a lot of moving pieces that go into the guide. In some cases, you know, as in fitness, I think we're very optimistic and encouraged by our performance, and so there's a little more optimism in that guide as we anniversary the launches of the major products that we had last year. And then in marine, I think we're mostly taking a wait-and-see approach. But, as has already been noted, the marine market is generally stabilizing, and so we're simply just taking a slightly different view there. And everything else remains in line with what we had earlier said.
Speaker Change: Yes, Eric I think there is a lot of moving pieces that go into the guide.
Speaker Change: In some cases as in fitness I think we're we're very optimistic and encouraged by our performance and so there's been a little more optimism in that guide as.
Speaker Change: As we anniversary the the launches of the major products that we had last year.
Speaker Change: And then in Marine I think we're mostly taking a wait and see approach where we're rolling forward certainly the higher performance.
Speaker Change: But as has already been noted the marine market is generally stabilizing and so where we're simply just taking a slightly different view there and everything else remains in line with what we had earlier said and one thing to add and marine we are anniversarying. The <unk> audio acquisition to end of Q3 also.
Clifton Albert Pemble: And one thing to add, Marie, we are anniversarying the JL Audio acquisition and of Q3 also.
Speaker Change: Yeah.
Erik William Richard Woodring: Okay, no, that's very helpful. And then, Doug, maybe for you, your free cash flow kind of seasonality historically has been a bit volatile, but, you know, more often than not, you get about 35 to 40% of annual free cash flow in the first half of the year. If we take your updated viewpoint on free cash flow, I believe it was $900 million for the year, it would imply first half free cash flow is actually more like, call it 70%, which would be at least a near decade high.
Speaker Change: Okay. No that's very helpful and then Doug maybe for you.
Doug: Your free cash flow kind of seasonality historically has been there has been a bit volatile, but more often than not you do about 35% to 40% of annual free cash flow in the first half of the year.
Erik William Richard Woodring: We take your updated viewpoint on free cash flow I believe it was up $900 million for the year. It would imply first half free cash flow is actually more more like a call it 70%, which would be a at least.
Speaker Change: Near decade high can you, maybe just help us understand some of the seasonality or moving pieces as it relates to free cash flow why the second half of the year would.
Erik William Richard Woodring: Can you maybe just help us understand some of the seasonality or moving pieces as it relates to free cash flow, why the second half of the year would be so much weaker than we see historically for you guys? And that's it for me. Thanks so much.
Speaker Change: It would be so much weaker than than we see historically for you guys and that's it for me. Thanks. So much yes. Good question.
Douglas Gerard Boessen: Yeah, good question. You know, there is a working capital consideration you should take into consideration also. So, one of these things is inventory. So, you know, last year in the back half, we saw some benefits relating to our inventory being lower. This year, we expect in the back half that we will be increasing our inventory on a year-over-year basis. We probably expect inventory to decrease in line with sales. So, there will be a use of cash in the back half for inventory.
Douglas Gerard Boessen: Yeah, a good question. You know, there's
Speaker Change: There is a working capital consideration you take into consideration also so one of which is inventory last year in the back half we saw some benefit relating to.
Speaker Change: Our inventory being lower this year, we expect in the back half that we would be increasing our inventory on a year over year basis, we'd probably expect inventory decrease in line with sales. So there'll be a use of cash in the back half for inventory.
Operator: And your next question comes from the line of George Wang from Barcas. Your line is open.
Speaker Change: And your next question comes from the line of George Wang from Barclays. Your line is open.
Dong Wang: Oh, hey, hey, guys. Thanks for taking my question.
Dong Wang: Oh, Hey, guys. Thanks for taking my question two parts firstly can.
Dong Wang: Two parts. Firstly, can you give more thoughts on capital allocation, especially given the still elevated cash balance, just, you know, the 2Q buyback was pretty small. And also, related question just on the capex. You guys are still guided pretty elevated capex for a year at 350 million with the 1H being a smaller span. Maybe you can walk me through how you think about, you know, this.
Dong Wang: Can you give a little update thoughts on capital allocation, especially given.
Dong Wang: It's still elevated cash balance just.
Speaker Change: The <unk> the buyback with that.
Speaker Change: Pretty small.
And also.
Speaker Change: Question just on the Capex.
Speaker Change: Is it still guided pretty elevated capex full year being street 50 million with one <unk> being smaller spend and just maybe you can walk me through how you think Paul is two parts.
Douglas Gerard Boessen: Sure. As it relates to capital allocations consistent with what we've had in the past, priorities are really reliable, dividends, you know, investments back in our business as CapEx, also acquisitions such as JL Audio, and then share buybacks. Now share buybacks are really depending upon, you know, the market and the business conditions. We'll take a look at that every quarter. As it relates to CapEx, yeah, the back half, you know, those investments really relate to some investments in our manufacturing facilities. Also, we'll have some IT projects to enhance some of our security infrastructure, as well as ongoing renovations of our facilities here in Kansas.
Speaker Change: Sure as it relates to capital allocation is consistent what we've had in the past.
Paul: Our priorities are really reliable dividends.
Paul: Investments back in our business as Capex.
Paul: Also.
Paul: Acquisitions, such as <unk> audio and then share buybacks and share buybacks is really depending upon the market and the business conditions, we'll take a look at that every quarter as it relates to capex, yes, the back half those investments really relate to some investments in our.
Paul: Manufacturing facilities also will have some invest.
Paul: <unk> to enhance some of our security.
Paul: Infrastructure as well as we're continuing our renovations of our facilities here in Kansas.
Clifton Albert Pemble: Okay, just a quick follow up if I can squeeze in. I just want to kind of hone in on the Auto-OEM, especially as we look beyond the BNW, the domain controller. Last quarter, you guys alluded to two new wings just on the infotainment system side. I assume it's higher margin. Can you kind of give a bit more thoughts on color, if you can, kind of, you know, I assume it's a ramp starting from 2026, kind of one infotainment system, maybe in any kind of would be appreciated.
Speaker Change: Okay. Just a quick follow up if I can squeeze in I, just wanted to kind of holding on the auto Oems, especially you kind of.
Speaker Change: We look beyond that BMW the domain controller last quarter, you guys alluded to two new lease just when the equal payment system cider and I assume it's higher margin.
Speaker Change: Can you kind of gave a bit of mothball. Some color if you can kind of.
Speaker Change: Assume at Solvay ramp.
Speaker Change: Starting from 2026 and.
Speaker Change: While eagle team at Cisco.
Speaker Change: Kind of any color will be appreciated.
Speaker Change: Yeah.
Dong Wang: Yeah, George. We announced those additional awards last quarter. Nothing has really changed. In that sense, then, we're working hard to bring those to market, as we mentioned, starting in 2026. And in terms of the margin profile for those products. I would just point out that these are still domain controller products, and so that carries that typical mid-teens kind of gross margin that we've been talking about with them as well. So it's very much in line with the business that we're currently seeing settle in terms of the AutoEM revenue structure.
George: Yes George.
Speaker Change: We announced.
Dong Wang: Those additional awards last quarter, nothing has really changed.
Speaker Change: In that sense, then we're working hard to bring those to market as we as we mentioned starting in 2026 in terms of the margin profile for those products.
Speaker Change: Point out that that's still a domain controller.
Speaker Change: Products and so that carries that typical mid teens kind of gross margin that we've been talking about with.
Speaker Change: With it as well so so it's very much in line with the business that we're currently see seeing subtle in terms of the auto OEM.
Speaker Change: Revenue structure.
Operator: Okay, great. I'll go back to the queue.
Speaker Change: Okay, Great I'll go back to the queue.
David Sutherland MacGregor: Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.
Speaker Change: Your next question comes from the line of David Macgregor from Longbow Research. Your line is open.
David Sutherland MacGregor: Yes, good morning everyone, and thanks for taking the questions. I guess I wanted to just pick up on the discussion around the OEM auto and, you know, congratulations on the progress there. You're obviously in the market with a product, and it is succeeding with customers and building on the BMW now with Yamaha and others. But I guess I'm a little confused as to why there isn't a little more scale benefit in terms of your margin outlook.
David Sutherland MacGregor: Yes, good morning, everyone and thanks for taking the questions I.
David Sutherland MacGregor: I guess I wanted to just pick up on the discussion around the OEM auto and <unk>.
Speaker Change: Congratulations on the progress through your obviously in the market with a product that.
Speaker Change: Is succeeding with customers.
Speaker Change: Building on the BMW now with Yamaha and others, but I guess im little confused on why there isn't a little more scale benefit in terms of your margin outlook.
David Sutherland MacGregor: And so you mentioned there are still controllers, and there's still that kind of gross margin profile that you've communicated in the past. But I would have thought maybe your EBIT contribution would build as you build scale in that business. So is it just not scale? Or are there just more variable costs in this than we expected?
Speaker Change: So you.
Speaker Change: You mentioned, there's still controllers theres still that.
Speaker Change: Kind of gross margin profile that you've communicated in the past, but I would have thought maybe the.
Speaker Change: Your EBIT contribution would build as you build scale in that business. So is it just not a scale, which is more variable costs in this than we expected or how should we think about the longer term economics as you grow that business.
Douglas Gerard Boessen: Yeah, I think, David, if you look where we are this quarter versus last year, there's been a big swing in product mix to that domain controller category, which we've been saying for the past year is that that would definitely be a margin impact because of the profile of those products. And so that's what's driving our gross margin this year compared to last year, and it pretty much puts the gross margin dollars kind of even with last year.
Speaker Change: Yes, I think.
David: David If you look where we are this quarter versus last year theres been a big swing in product mix to that domain controller category, which what we've been saying.
Speaker Change: Saying for the past year is that that would that would definitely be a margin impact.
Speaker Change: Because of the profile of those those products and so that's what's driving our our gross margin this year compared to last year and it pretty much put the gross margin dollars kind of even with last year. So there is a big transition point that we've already gone through you saw our engineering and expense structure come down.
Douglas Gerard Boessen: So there's a big transition point that we've already gone through. You saw our engineering and expense structure come down, and so our losses decreased. And I would point out that AutoEM also absorbs a certain amount of allocated costs across the company, which would otherwise go to other segments. So we're starting to see that leverage. We're probably, you know, a little bit behind where we thought we'd be, although we're talking about very small numbers in terms of the difference. And so we're looking forward to the additional volume ramp and seeing those leverages come into play as efficiency increases.
Douglas Gerard Boessen: And so our loss decreased and I would point out that that auto OEM also absorbs a certain amount of allocated cost across the company, which would otherwise go to other segments. So we are we're starting to see that leverage where.
Speaker Change: We're probably.
Speaker Change: A little bit behind where we thought we would be although we're talking about very small numbers in terms of the difference and so.
Douglas Gerard Boessen: We're looking forward to the additional volume ramp and seeing those leverages come into play as the efficiencies go up.
Speaker Change: Okay.
David Sutherland MacGregor: Maybe I can just shift gears and ask about fitness and outdoor, and just if you could talk about what you're seeing in retail conditions and retail inventories at this point.
Speaker Change: Maybe I could just shift gears and ask about fitness no door and just if you could talk about what youre seeing in retail conditions.
Speaker Change: Conditions in retail inventories at this point.
Clifton Albert Pemble: Yeah, we've watched that very closely. We're able to see our sell-in versus our registrations, and we believe that the channel is really very clean right now. The products are selling through at a very consistent rate with our sales in, and the products seem to be very popular, and people really appreciate them. So we're really excited about our performance in wearables in general.
Speaker Change: Yes, we watch that very closely we're able to see our sell in versus our registrations and we believe that the channel is really very clean right now the products are selling through at a at.
Speaker Change: Very consistent right with our sales in.
Speaker Change: And the products seem to be very popular and people really appreciate them. So we're really excited about our performance in wearables in general.
David Sutherland MacGregor: And this last for me on marine guidance, up 15%. How much of the incremental growth there is coming from the addition of the trolling product offering? Thanks for watching.
Speaker Change: Okay.
Speaker Change: Last for me on the marine guidance of up 15%, how much of the incremental growth there.
David Sutherland MacGregor: <unk> is coming from the addition of the trolling product offering.
Speaker Change: Just expanding that out having product that maybe you didn't have to offer a year earlier.
Clifton Albert Pemble: Yeah, we don't break out specifics on that, but I would say that trolling motors are contributing to that increased organic revenue, but it's not the only category; in fact, chart plotters were also very good, and that's an indicator basically of the market's robustness and the strength of our product line as people are installing it on their boats.
Speaker Change: Yes, we don't break out specifics on that but I would say that trolling motors are contributing.
Speaker Change: <unk> increased organic revenue.
Speaker Change: But it's not the only category in fact chart plotters were also very good.
Clifton Albert Pemble: And that that's an indicator basically.
Speaker Change: Of the market robustness and the strength of our product line is people.
Speaker Change: Or are installing it on their boats.
Clifton Albert Pemble: And did you say what Organic Growth and Marine was excluding jail?
Speaker Change: And did you say, what the organic growth in marine was excluding JL.
Clifton Albert Pemble: Up 7% is what we said.
Speaker Change: Up 7% is what we said.
David Sutherland MacGregor: Thank you very much. Good luck!
Speaker Change: Seven thank you very much good luck.
Operator: Your next question comes from the line of Jordan Lyonnais from Bank of America. Your line is open.
Speaker Change: Your next question comes from the line of Jordan Liana <unk> from Bank of America. Your line is open.
Jordan J Lyonnais: Hey good morning, thanks for taking my question. A few of your competitors have started launching smart rings. Is that something Garmin is interested in, or would be looking to expand to for the fitness line?
Jordan J Lyonnais: Hey, good morning, Thanks for taking my question.
A few of your competitors have started launching smart rings.
Speaker Change: Government is interested in.
Speaker Change: It would be looking to extend to the finish line.
Clifton Albert Pemble: Well, we're interested in all kinds of product categories, including that and others. So far, we've done very well with our wearables, and I think they have the most utility, but there's certainly a group of people that like that kind of form factor. So we keep an open mind to categories, and we explore all possibilities.
Speaker Change: Well, we're interested in all kinds of product categories.
Speaker Change: Including that and others.
Clifton Albert Pemble: So far we have.
Clifton Albert Pemble: Done very well with our Wearables and I think it has the most utility, but theres certainly a group of people that like that kind of form factor. So we keep open minds to categories and we explore all possibilities.
Jordan J Lyonnais: Got it. Thank you. And then, just a follow-up, too: are you seeing any increases in promotions from you guys pushing it through retailers or anything else?
Speaker Change: Got it. Thank you and then just a follow up too.
Speaker Change: Any increases in promotions.
Speaker Change: From you guys appreciate it through retailer or anything else.
Clifton Albert Pemble: I don't think the promotional activity is materially different. We have a yearly cadence around the calendar of our retailers, most recently, for example, Prime Day. The mix of products that we offer can vary from year to year, and that can probably affect whether it's more promotional or less, but in general, I would say Shaping Up! is a pretty typical product.
Speaker Change: And I think the promotional activity is materially different.
Speaker Change: We have a yearly cadence around the calendar of.
Clifton Albert Pemble: Our retailers most recently for example Prime day.
Clifton Albert Pemble: The mix of products that we offer can vary from year to year and that can that can probably affect whether it's more promotional or less but in general I would I would say is shaping up to be a pretty typical year.
Speaker Change: Got it thank you.
Clifton Albert Pemble: Yes.
Operator: Your next question comes from the line of Ben Bollin from Cleveland Research. Your line is open.
Speaker Change: Your next question comes from the line of Ben Bollin from Cleveland Research. Your line is open.
Benjamin James Bollin: Good morning, everyone. Thanks for taking the question. I'm interested in your thoughts on the year-to-date performance in fitness, obviously remarkable. How do you think about the drivers for what you've seen? You had, you know, certainly a product with Forerunner 165.
Benjamin James Bollin: Good morning, everyone. Thanks for taking the question.
Benjamin James Bollin: Cliff I'm interested in your thoughts on the year to date performance in fitness.
Benjamin James Bollin: Obviously remarkable.
Speaker Change: How do you think about the drivers to what you've seen you had certainly a product with $401 65.
Benjamin James Bollin: I'm curious about that. Any thoughts on TAM? And then, if you have any perspective on how a strong cohort of customers added during COVID, is there a bigger refresh opportunity? Any thoughts on that would be helpful.
Speaker Change: Curious about that and any thoughts on Tam and then if you have any perspective on how strong cohort of customers added during COVID-19 is our bigger refresh opportunity any thoughts on that would be helpful.
Clifton Albert Pemble: Yeah, I think, you know, our year-to-date performance has been remarkable. I would credit it to the strength of our product line. It's certainly not just the four under run 65. We have the 965 and 265 which are also doing very, very well. The Vivoactive 5 on the low end of advanced wearables, as well as the Venue 3 and 3S, all of which have been popular.
Speaker Change: Yes, I think our year to date performance has been remarkable.
Speaker Change: The credit to the strength of our our product line. It's certainly not just the 465, we have the 965 and $2 65, which are also doing very very well the vivo active five on the low end of advanced Wearables as well as the venue three and three yes.
Clifton Albert Pemble: All of which has been popular so we're seeing success across the range of products from high end to low end.
Clifton Albert Pemble: So we're seeing success across the range of products from high end to low end. In terms of the overall market, I would say that it's generally stable. It's not a huge growth market, but it's a huge market, and our opportunity is really share gains, which we see happening with the kind of results that we're driving. So we're excited about that. And in terms of refresh opportunities, you know, we track down new users versus existing users and what kinds of products that they go from and what they go to.
Clifton Albert Pemble: In terms of the overall market I would say that that is generally stable, it's not a huge growth market, but it's a huge market.
Clifton Albert Pemble: Our opportunity is really share gains, which we we see happening with the kind of results that we're driving.
Clifton Albert Pemble: So we're excited about that and then in terms of refresh opportunities, yes, we track that new users versus existing users and what kinds of products that they are.
Clifton Albert Pemble: Go from and what they go to.
Clifton Albert Pemble: And definitely, you know, we see this refresh cycle that occurs with our customer base every two to three years. And we're starting to see some of that, especially as our new products really leapfrog a generation or two behind where they might have already had a product that they were using. So definitely, there are ongoing opportunities with the existing.
Clifton Albert Pemble: And.
Clifton Albert Pemble: Definitely we see this refresh cycle that occurs with our customer base. Every every two to three years and we're starting to see some of that especially as our new products.
Clifton Albert Pemble: Really leapfrog.
Clifton Albert Pemble: A generation or two behind where they might have already had a product that they were using so so definitely there is theres ongoing opportunities with the existing customer base.
Benjamin James Bollin: Okay, the last one for me, also curious how you think about potential AI opportunities for both internal and customer use cases. It seems like you have a very unique high-fidelity data set in Connect. Just curious your thoughts on what you guys could be looking at or some options around AI. Yeah, I think we're no different than
Speaker Change: Okay.
Clifton Albert Pemble: Last one for me.
Speaker Change: Also curious how you think about.
Benjamin James Bollin: Potential AI opportunities for both internal and customer use cases. It seems like you have a very unique high fidelity dataset in connect.
Benjamin James Bollin: Just curious your thoughts on what you guys could be looking at are some options around AI. Thank you.
Clifton Albert Pemble: Yeah, I think we're no different than most companies. You know, we look at AI as a potential business tool, and we do some of that. Some of what we look at there, you know, we take a wait-and-see approach because there are still a lot of claims that AI is making that have yet to be demonstrated. But in terms of product-specific uses, I would say that a more constrained model around customer data and trends is something that we're very interested in, and we continue to explore possible features that we would have in our products in the future driven by that technology.
Speaker Change: Yes, I think we're no different than most companies you know we look at AI as a potential business tool and where we're doing some of that some of some of what we look out there you know we take a wait and see approach because theres still a lot of claims that AI is making that have yet to be <unk>.
Speaker Change: <unk> that in terms of product specific users I would say that that are more.
Clifton Albert Pemble: Strained model around.
Clifton Albert Pemble: Customer data and trends is something that we're very interested in and we continue to explore possible features that we would have in our products in the future driven by that technology.
Clifton Albert Pemble: Thank you.
Operator: Your next question comes from the line of Ivan Feinseth from Tigress Financial Partners. Your line is open. Thank you.
Speaker Change: Your next question comes from the line of Island Fine Seth from Tigress Financial Partners. Your line is open. Thank you.
Ivan Philip Feinseth: Congratulations on another great quarter and a great first half. Thank you. In the slides, you talk about strength and fitness being driven by wearables, but the revenue decline in outdoor was driven by adventure watches. What is the difference between what's driving the strength and fitness wearables, let's say, versus outdoor wear?
Ivan Philip Feinseth: Congratulations on another great quarter, and a great first half.
Speaker Change: Uh huh.
Speaker Change: And in the slides you talk about the strength in fitness was driven by Wearables, but.
Speaker Change: The revenue decline in outdoor was driven by adventure watches what what is the difference between the <unk>.
Speaker Change: What's driving the strength in the.
Speaker Change: The fitness Wearables, let's say versus the.
Speaker Change: The outdoor wearables.
Clifton Albert Pemble: I think that the outdoor wearables, Ivan... It was really when we passed the pipeline fill of our Phoenix and Epyx Pro releases from last year. And as we look forward, we're basically factoring in our additional product releases that we have for the rest of the year. And we anticipate that will grow as we move forward.
Ivan: I think the outdoor Wearables Ivan.
Clifton Albert Pemble: It was really when we passed the pipeline fill of our.
Clifton Albert Pemble: Phoenix and ethics pro releases from last year.
Clifton Albert Pemble: And.
Clifton Albert Pemble: As we look forward, where we are.
Clifton Albert Pemble: Basically factoring in.
Clifton Albert Pemble: Our additional product releases that we have for the rest of the year and we.
Clifton Albert Pemble: We anticipate that will grow as we move forward.
Ivan Philip Feinseth: And then, like, some of the functionality, like with the launch of the pro models, you have the updated or better ECG measurement, and, you know, there's ongoing talk in the health focus about the importance of HRV. Can you talk about, like, are these some things that are driving upgrades in sales, and what do you envisage as far as future functionality?
Clifton Albert Pemble: And then like some of the functionality like with the launch of the Pro models you have the update is or the better ECG measurement and there's ongoing talk and health focus of the importance of.
Speaker Change: HR V. Like can you talk about like how.
Ivan Philip Feinseth: Are these some things that are driving.
Speaker Change: Upgrades in sales and what do you envision as far as future functionality.
Clifton Albert Pemble: Yeah, I think we've really been a pioneer in those kinds of sensor measurements, particularly when you look at HRV, which drives many of our metrics in our devices, from performance, condition, and sleep quality, which are all very important things. And so we've been at the forefront of that, and our practice has been, and our history has been, as we invent these features, we roll them across product lines and expand the functionality broadly, and make it available to even more users.
Speaker Change: Yes, I think we've really been a pioneer in those kinds of sensor measurements, particularly when you look at HR V, which drives many of our metrics.
Clifton Albert Pemble: In our devices from performance.
Clifton Albert Pemble: Condition to sleep quality, which are all very important things and so we've been on the forefront of that and our practice has been in our history has been as we invent. These features we we roll them across product lines and expand the functionality.
Clifton Albert Pemble: Broadly and make it available to even more users.
Ivan Philip Feinseth: All right, thank you, and congratulations on the first half.
Speaker Change: Alright, Thank you and congratulations on the first half.
Speaker Change: Thank you.
Operator: Your next question comes from the line of Noah Zatzkin from KeyBank Capital Market. Your line is open.
Speaker Change: Your next question comes from the line of Noah as Atkins from Keybanc capital market. Your line is open.
Noah Seth Zatzkin: Hi, thanks for taking my questions. First, a kind of just a housekeeping question.
Noah Seth Zatzkin: Alright, Thanks for taking my questions first just a housekeeping question could you remind us how to think about the mix.
Speaker Change: <unk> aftermarket and OEM within the marine business.
Speaker Change: <unk> addition of J L.
Speaker Change: And then second you guys have obviously been able to maintain strong margins and what's been kind of choppy marine industry. So.
Speaker Change: So from a margin perspective.
Speaker Change: Exiting this year, assuming the industry is on more stable footing, but how do you kind of think about like the kind of longer term margin structure of the marine business.
Douglas Gerard Boessen: Yeah, so our marine business is mostly comprised of aftermarket, especially in this environment where boat building is at a reduced level as field inventory is worked down. With the addition of JL Audio, a lot of those sales we probably categorize more in the aftermarket area, although there is some that goes to OEM. It's a little harder to track in marine because some of the distribution channels are independent distributors who sell and turn to smaller boat builders, and so it isn't always possible to track exactly which products go where.
Noah Seth Zatzkin: Could you remind us how to think about the mix between aftermarket and OEM within the marine business post the addition of JL? And then second, you guys have obviously been able to maintain strong margins in what's been a kind of choppy marine industry. So from a margin perspective, you know, exiting this year, assuming the industry is on more stable footing, how do you kind of think about the kind of longer-term margin structure of the marine business? Thank you. Yeah, so...
Speaker Change: Yes, so our marine business is is mostly comprised of aftermarket, especially in this environment, where both building is at a reduced level as field inventory is worked down with the addition of jail audio.
Speaker Change: A lot of those sales, we probably categorize more in the aftermarket area although.
Speaker Change: There is some that goes to Oems, a little harder to track and marine because.
Speaker Change: Some of the distribution channels are independent distributors, who sell in turn to smaller boat builders and so it isn't always possible to track exactly which products go where.
Douglas Gerard Boessen: But in general, we're seeing, you know, strength. Strength in the aftermarket channels, as well as better than industry performance on the OEM side. In terms of the margin picture, I would say that other than the impact that we've talked about with JL Audio as a dilutive factor, overall, we don't see any change in the overall marine margin structure, especially as you mentioned, you know, towards the end of the year. We would see that the segment in the market really will continue to perform in the ranges that have been historically trendy.
Speaker Change: But in general we're seeing.
Douglas Gerard Boessen: Strength strength in the in the aftermarket channels as well as better than industry performance in the OEM side.
Douglas Gerard Boessen: In terms of the margin picture I would say that.
Douglas Gerard Boessen: Other than the impact that we've talked about with jail audio as a dilutive factor overall, we don't see any change in the <unk> and the overall marine margin structure, especially as you mentioned towards the end of the year, we would see that the.
Douglas Gerard Boessen: The segment in the market really will continue to perform in the ranges that had been historically true.
Speaker Change: Thank you.
Operator: And once again, if you do have a question, please press star one on your telephone keypad. Your next question comes from the line of Erik Woodring from Morgan Family. Your line is open.
Speaker Change: And once again, if you do have a question. Please press star one on your telephone Keypad. Your next question comes from the line of Erik Woodring from Morgan Stanley. Your line is open.
Erik William Richard Woodring: Hey guys, thanks for taking my follow-ups. Just two quick ones, if I may.
Erik William Richard Woodring: Maybe, big picture, some of the questions have maybe alluded to this topic, but you know, I'd say there have been some growing concerns around consumer spending. We're also hearing about some evidence of incremental, let's call it hardware spending in Europe, hardware spending weakness in Europe, excuse me. You know, given your significant exposure to each market, can you maybe just give us some detail on exactly what you're seeing from an end-demand standpoint as regards the consumer?
Erik William Richard Woodring: Hey, guys. Thanks for taking my follow up just two quick ones. If I may maybe big picture some of the questions have maybe alluded to this topic, but.
Erik William Richard Woodring: I would say there have been some growing concerns around consumer spending.
Erik William Richard Woodring: We're also hearing about some evidence of incremental let's call it hardware spending.
Erik William Richard Woodring: And Europe hardware spending weakness in Europe excuse me.
Erik William Richard Woodring: Just given your significant exposure to each market can you maybe just give us some detail on exactly what youre seeing from it from an end demand standpoint.
Erik William Richard Woodring: You know, are you seeing any trading down? It doesn't seem like it, but I just want to make sure we get your perspective given how kind of how wide your reach is. And then just a quick follow-up. Thank you.
Speaker Change: Related to the consumer are you seeing any trading down it doesn't seem like it but I just want to make sure. We get your perspective, given how kind of how wide you reaches and then just a quick follow up thanks.
Clifton Albert Pemble: Yeah, I think Erik, we would say that there's not any significant evidence that Spending patterns for our product lines and our customer base are currently being impacted. It's a little hard to say it's not because we don't have control data to measure that against because we're doing so well, but we do tend to target a customer base and product ranges that are not at the commodity low-end level. So we make premium products with clear differentiators, and customers seem to appreciate them and step up for them. So it would appear that that is satisfying customers.
Eric: Yeah, I think Eric.
Clifton Albert Pemble: We would say that there's not any significant evidence that.
Clifton Albert Pemble: Spending patterns for our product lines and our customer base are currently being impacted it's a little hard to say, it's not because we don't have control data to measure that against because were doing so well, but we do tend to target our customer base and product ranges that that are not at the <unk>.
Clifton Albert Pemble: <unk> low end level, so we make premium products with clear differentiators.
Clifton Albert Pemble: And customers seem to appreciate them and step up for them. So.
Clifton Albert Pemble: Would appear that that.
Clifton Albert Pemble: That is resonating with customers.
Erik William Richard Woodring: Nope. Okay, that makes a lot of sense. And then maybe just last one, you know, if you look at Garmin Connect MAUs, you know, strength there, at least growth there has been very consistent in the mid-teens on a monthly basis year over year. You know, is there any way that you can help us understand what of that growth is new customer additions versus prior Garmin customers just reengaging with the Connect app? And does that behavior look any different than past cycles or past periods? Just trying to understand kind of the strength of new users versus existing users that are just reengaging. And that's it for me. Thanks.
Erik: Okay that makes a lot of sense.
Erik William Richard Woodring: And then maybe just last one.
Speaker Change: Look at Garmin connect.
Speaker Change: M. A us strength there or at least growth. There has been has been very consistent in the mid teens.
Speaker Change: On a monthly basis year over year.
Erik William Richard Woodring: Is there any way that you can help us understand what of that growth is new customer addition, some versus prior garmin customers just re engaging with the connect app.
Erik William Richard Woodring: And does that behavior look any different than past cycles or past periods, just trying to understand kind of the strength of new users versus existing users that are just re engaging and thats. It from me. Thanks.
Clifton Albert Pemble: Yeah, our Connect registration behaviors, we've mentioned those from time to time, that most of the new accounts and the new devices we see registered on Connect are from new customers. But we do see a healthy number of existing customers that continue to engage with Garmin, and they upgrade their devices. And we see, frankly, a robust second-hand market where people might sell one of their products and trade up to another one, and somebody, a brand new customer to Garmin, comes in to connect, which gives us an opportunity to then upgrade them in the future. So, in general, I would say it's a very healthy environment, and mostly still driven by new customers. All right, that's perfect.
Speaker Change: Yeah R R.
Speaker Change: Connect registration behaviors, we've mentioned those from time to time that most of the new accounts and new devices. We see registered on connect are from new customers. We do see a healthy number of existing customers that continue to engage with garmin and they upgrade their devices.
Clifton Albert Pemble: And we see frankly a robust.
Clifton Albert Pemble: Secondhand market, where people might sell one of their products.
Clifton Albert Pemble: And trade up to another one and somebody a brand new customer to Garmin comes into connect which gives us an opportunity to then upgrade them in the future. So in general I would say, it's a very healthy environment in <unk>.
Clifton Albert Pemble: Mostly still driven by new customers.
Erik William Richard Woodring: All right, that's perfect. Thanks so much.
Speaker Change: Alright, that's perfect. Thanks, so much.
Speaker Change: Thank you.
Erik William Richard Woodring: Yes.
Teri Seck: Thank you. With no further questions, Teri, I'll turn the floor back over to you.
Speaker Change: Thank you with no further questions Terry I'll turn the floor back over to you.
Teri Seck: Thank you all for joining the call today. Doug and I are available for callbacks, and we hope you have a great rest of your day. Goodbye.
Teri Seck: Thank you all for joining the call today, Doug and I are available for callbacks and we hope you have a great rest of your day Goodbye.
Operator: Thank you. This does conclude today's conference call. You may now disconnect. Have a great day.
Teri Seck: Yes.
Speaker Change: Thank you. This does conclude today's conference call. You may now disconnect have a great day.
Operator: Yes.
Operator: [music].
Operator: Sure.
Operator: [music].
Operator: Okay.
Operator: Yes.
Operator: [music].
Operator: Yes.
Operator: [music].