Q2 2025 Garmin Ltd Earnings Call

Thank you for standing by and welcome to the Garmin limited second quarter 2025 earnings conference. 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. If you'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question again, press star 1, thank you. I'd now like to turn the call over to Terry SEC director of investor relations. You may begin

Good morning. We would like to welcome you to Garmin limited second quarter 2025 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. And Archive of the webcast and related transcripts will also be available on our website.

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, share purchases, market shares, product introductions, foreign currency, tariff impacts, and future demand.

And for our products and plans and objectives are forward-looking statements. So forward-looking events and circumstances discussed in the earnings call may not occur in actual results. Could differ materially, as a risk result of risk factors affecting garments. Information concerning. These risk factors is contained in our form 10q and in our form, 10K filed with the Securities and Exchange Commission, presenting on behalf of Garmin, limited this morning are Cliff Pendle president and chief executive officer and Doug besan, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff symbols.

Thank you Terry and good morning, everyone.

Has announced earlier today, Garmin delivered, another quarter about standing Financial results.

With strong growth in consolidated revenue, operating profits, and earnings.

Consolidated Revenue increased 20% exceeding 1.8 billion dollars.

Gross and operating margins expanded to 58.8% and 26% respectively.

Resulting in records second quarter operating income of 472 million.

Up 38% year-over-year.

And perform a EPS of $2.17 up 37% year-over-year.

We announced the acquisition of my labs, a global market leader in timing and performance analysis for athletic, Motorsports and equestrian competition.

my lab supports an impressive customer base, including the Boston Marathon Iron Man and Formula 1 racing to name just a few

We believe that the combination of Garmin devices with my laps timing and race management technology will provide a comprehensive experience for our passionate customers from training to race day while also expanding our addressable markets.

we are very excited to welcome the myaps team to Garmin

and look forward to all that we can accomplish together.

We are very pleased with our results so far in 2025, which have exceeded our expectations.

From our Vantage Point consumers have been resilient and demand for our highly differentiated products has been robust.

Given our strong performance. We are updating our full year guidance. We now anticipate revenue of approximately 7.1 billion dollars and perform a EPS of 8 dollars for share.

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.

Starting with business Revenue, increased 41% to 605 million with growth led by strong demand for advanced wearables.

Gross and operating margins expanded to 60% and 33%, respectively, resulting in operating income of $198 million.

During the quarter, we launched the 4Runner 570 and 4Runner 970, featuring new training tools and personalized training plans from Garmin Coach for running and triathlons.

These new devices have been enthusiastically embraced by the market and helped drive the remarkable second quarter financial performance of the segment.

We also launched the new venue X1, featuring an ultra-thin case and a class-leading 2-in display.

Resulting in a Sleek lightweight design, that is easy to read. And packed with our most popular features.

Also, during the quarter, we launched several new category defining products, including the index sleep monitor. The tax Alpine, gradients simulator

And the various view bike headlight with an integrated 4K resolution camera.

Given the first half performance of the fitness segment and the continued demand we are expecting for our Advanced wearables. We are raising our Revenue growth estimate to 25% for the year.

Moving to outdoor Revenue increased 11% to 490 million with growth driven, primarily by Adventure watches.

Gross and operating margins expanded to 66% and 32%, respectively, resulting in operating income of $158 million.

During the quarter, we launched the Instinct 3 tactical Edition with a bright, AMOLED display and metal reinforced bezel.

A built-in LED flashlight.

And support for popular new activities, such as rocking.

Also, during the quarter, we launched new tread all-terrain Navigators that offer larger touchscreens and additional mapping options to enrich off-road adventures.

We are pleased with the performance of the outdoor segment so far this year.

Looking forward, we expect growth to moderate. As we pass the 1 year anniversary of the highly successful, Phoenix 8, launch,

With this in mind, we are maintaining our Revenue growth estimate of 10% for the year.

Looking next at Aviation Revenue, increased 14% in the second quarter to 249 million with growth contributions from both OEM and aftermarket product categories.

Gross and operating margins expanded to 74% and 25% respectively resulting in operating income of 63 million.

Year, validating the long-term Investments. We have made creating Innovative products and building strong relationships with our customers.

We're also preparing for the future with game-changing, new products and features.

Such as the recently announced G5000 Prime integrated flight deck for Part 25 aircraft.

And the addition of FAA data Comm to the gtn 750xi Navigator, which expands the availability of modern digital communication to the aftermarket.

We also launched smart charts which has the potential to be 1 of the most disruptive new products for aviation in quite some time.

Using smart charts Pilots can see their position on context, specific Geo reference charts, making instrument approaches, much more intuitive and easier to fly.

Also, during the quarter, we announced that Garmin Autoland was certified for the Cirrus SRG Plus series, becoming the first piston-powered aircraft equipped with this award-winning safety system.

Given the first half performance of the aviation segment, we are raising our Revenue growth estimate to 7% for the year.

turning to the Marine segment Revenue, increased 10% to 299 million with growth across multiple categories, LED primarily by chart plotters,

Gross and operating margins were 55% and 21% respectively.

Resulting in operating income of 63 million.

During the quarter, we launched the GPS map, 15" X3 chart, and plotters with an ultra-wide display that offers as much display area as two separate 9-inch sharp plotters, making information easier to read while maximizing the use of space in the instrument panel.

also, during the quarter, we launched the aquatics 8, our most advanced purpose-built Smartwatch for Mariners

The marine market has easily surpassed our lowered expectations, demonstrating resilience and stability in an otherwise dynamic macroeconomic environment.

Given our first-half performance and the current trends in the market, we are raising our revenue growth estimates to 5% for the year.

And moving finally to the autoimmunity.

with growth driven primarily by increased shipments of domain controllers to BMW.

Gross margin was 17% and the operating loss narrowed from the prior year to 10 million.

We recently shipped our 1, millionth BMW domain controller from our us manufacturing facility.

Demonstrating our capability as a respected Tier 1 supplier to the North American automotive markets.

We also continue to make progress on the launch of our next significant auto OEM program in the second half of 2026.

Given the first half performance of the autoimuna.

That concludes my remarks. Next Doug will walk you through additional details on our financial results Doug. Thanks Cliff. Good morning everyone. I begin by reviewing our second quarter Financial results if I comments on the balance sheet, cash flow statement taxes, updated guidance.

We post a revenue of 1 billion 815 million for second quarter, represent a 20% increase year-over-year.

Gross margin was 58.8%. A 150 basis point increase from the prior quarter was primarily due to product mix.

Turn a quarter cost impact from tariffs was not significant was more than offset by higher Revenue associated with the weakness of the US dollar relative to other major currencies.

Operating expense percentage of sales was 32.8%, a 108 basis point decrease.

Operating income was 472. Million 38% increase.

Operating margin was 26%, 330 basis, point increase, and prior quarter.

Our gaap EPS was 2017 cents. Performing EPS was $2.17.

Next, we look at second quarter Revenue by segment and geography.

In the second quarter, we achieved double digit growth in all 5, our segments led by the fitness segment for outstanding growth of 41%.

By geography, we achieved double digit growth. All 3 of our regions led by 25% growth me. A of our 19% growth in Americas and 16% growth in APAC.

Operate expenses.

In the second quarter, operating expense increased by $74 million or 14%.

Research and development increased approximately $34 million, and SG&A increased approximately $40 million compared to the prior year quarter.

Both increases were primarily due to Personnel related expenses.

If you highlight on the balance sheet, cash flow statement, and taxes.

We enter the quarter with cash and Marcos Securities. Approximately 3.9 billion.

Count receivable increased both year-over-year and sequentially to approximately 1 billion dollars on the seasonally strong sales, the second quarter.

Inventory increased year-over-year sequentially to approximately 1.8 billion dollars.

We are executing our strategy. Increase the inventory of certain product lines, support strong customer demand, as well as mitigate the effects potential increases in tariffs.

From the second quarter of 2025, we generated a free cash flow of $127 million, a decrease of $91 million from the prior quarter, primarily due to an increase in inventory.

Capital expenditures for the second quarter of 2025 were approximately $46 million, which is about $9 million higher than the prior year quarter. We expect full year 2025 free cash flow to be approximately $1.2 billion, with capital expenditures of approximately $350 million.

In the second quarter of 2025, we paid dividends of approximately $173 million and purchased $67 million of company stock.

At quarter-end, we had approximately $143 million remaining in the share purchase program, which is authorized through December 2026.

Report, an effective tax rate of 16.5% credit to 17.9% in the prior quarter.

The increase in the effective tax rate is primarily due to the release of tax reserves.

Turning next to a full year guidance.

We estimate revenue at approximately $7.1 billion, which is an increase from our previous guidance of $6.85 billion.

We expect gross margins to be approximately 58.5% consistent with our previous guidance.

We expect the impact from tariffs to be lower than we previously estimated. However, this favorable impact fully offset by unfavorable foreign currency impacts and product costs to the strengthening of the Taiwan dollar.

We expect our operating margin to be approximately 24.8% consistent that previous guidance.

Also expect an effective tax rate of 17.5% for our previous guidance, compared to the 16.5% which incorporates the impact from the new U.S. tax bill.

We expect the new tax bill will result in a decrease in U.S. tax deductions and credits in 2025, primarily due to changes in capitalization requirements of certain R&D costs.

Expected performer. Earnings per share is approximately $8 for our previous guidance of $7.8 cents. This concludes our formal remarks. Rob, can you please open the line for Q&A?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again,

Your first question comes from a line of Joseph Cardoso from JP Morgan. Your line is open.

Hey, thank you, and good morning, everyone. Um, maybe just for my first question, obviously, we had another strong Fitness performance this quarter. I'm trying to get a sense of the outperformance, though, particularly as it relates to any potential influences from Channel. I believe you obviously talked about a lot of new products in the quarter, and then potentially any pull forward that you might have visibility into, and whether that is having any impact on the back half outlook. And then I have a quick follow-up. Thank you.

Good morning, Joe. Um, in terms of Channel Phil, there's always some Channel Phil impact when a new product comes out, but we have a broad product line. So, um, it was not a significant factor in driving outperformance.

And in terms of pulling forward of demand, we really don't see any of that happening.

Uh, retailers aren't willing to take big bets on inventory.

Um, and uh, they also have credit limits that um, are in place that come from from exceeding, um, limits that we set. So, we feel like that the channel is well-managed, we also monitor um, the registration of our products and we can uh, compare our sell end versus sellout. And and we really don't see any signs of um, of stock filing.

A bit like what are the drivers? Um, that's kind of leading to this like a little bit atypical leverage that we're used to seeing from Garmin and then just maybe to stacking on to that question. Any can you guys size what you're now embedding for tariffs and then FX relatives of the full year guide? Thank you, sure. So we'll give you a little bit, uh, background on the, um, operating expense assumptions. And these are for the full year, as a percentage of sales. Now, we are expecting that to increase about 30 basis points. Uh, maybe about 10 basis points in R&D and 20 basis points in sgna. And that R&D increase is a primarily due to, um, headcount increases as well as a normal Merit. As primarily, you know, you know to, uh, develop, uh, new features, uh, Innovation and a new products. Then, as relates to sgna, you know, that's going up primarily to, uh, build in the infrastructure for that growth. A few additional

Items are driving, uh, operating expense, uh, primarily in the back half here, uh, 1 in, which is a foreign currency impacts and we talked about the foreign currency impacts on the Topline Revenue. But also, there will be increases, uh, in expenses due to those foreign currency impacts. But also, you know, we recently announced the acquisition of my laps, uh, so we'll have the additional expenses related to a my lapse in, in the back half and all

Also, you know, given our strong performance, we have, you know, we have, uh, increased Performance Based compensation in there and another 1, uh, due to the increased Revenue, uh, is due to, uh, Co-op advertising that we do have, you know, as it relates to uh, tariffs, you know, we're currently assuming basically, the current, um, rates that are effective for that. Uh, our tariff estimate is lower. Uh, now today than it was, you know, in April primarily because of the change in some of those tariffs as well as you know, not having a um, tariff on wearables, uh, from that standpoint. And that's a really Offset. You know, when the gross margin line item by unfavorable uh impact on, our gross margin due to the strength of a Taiwan dollar, which will increase our product costs that we have not standpoint. And then as it relates to FX overall, you know, uh the FX, you know, has moved

I'll turn to the year. So right now we're expecting, you know, FX on the top-line revenue, you know, to be a favorable item as it was here in Q2 for us.

Nope. Very clear. Thank you. Thank you for all that color there. Really appreciate it. Yeah, absolutely.

Your next question comes from the line of Eric Woodring from Morgan Stanley. Your line is open. Great. Thanks so much for taking my question guys. Um I I have 2 um maybe Cliff I'll start with you and just and you know taking a very big step back um looking at your growth um kegger over the last 10 years. You know Revenue growth has been in and around 7 to 8% EPS has been call it 11 or 12%. Clear, leverage in the model. You know what, what's, what's interesting about this year is that, you know, you you vote both last year and this year is you're, you're clearly outperforming that growth, uh, rate. Um, but there is some deleveraging in the model, which you just kind of explained, but I guess my my big picture question is, do you believe that, you know, Garmin is entering kind of this new higher Revenue? Growth Paradigm, uh, especially as Auto OEM is, is not the headwind that it once was. But in fact, the Tailwind to growth. Can you can you maybe just unpack, how you're thinking about Garmin?

Growth, uh, growth algorithm relative to history. And if there is kind of a true, you know, structural change in that growth rate, you know, today, relative to history. And then a quick follow-up. Please. Thanks?

yeah, I think, you know, we've we've made um a lot of

Uh, progress and evolution in our company over the the past, 10 years.

Um, in the past 10 years, the wearable Market has emerged and and blossomed.

Um, and while we're a smaller market share player, we're gaining share.

Um, and the market is relatively stable. So, so that's been a, a really good opportunity for us. We entered that market because we believed um, that we had something to offer there and and we have high levels of innovation and and um um you know, differentiation in our product lines that we believe would drive growth.

So, we continue to see that as an opportunity, but all over the company and in our segments, we see opportunities in every one of them.

Towards those opportunities.

And especially when it involves creating unique products that either our competitors aren't interested in or haven't thought of. We try to be a class leader when it comes to both existing product categories and creating new product categories.

So, you know, we're excited and optimistic about the future. We believe that there's more work to be done.

Um, and we'll continue investing and working hard to achieve it.

Okay. All right. Now, the super helpful, um, and then maybe as a follow-up, um, you know, if we we've seen Garmin make some relatively significant price hikes across a number of different, uh, kind of smart weighable products over the last. Let's let's call it year. Um, year plus you know what have you learned about the elasticity of demand of your customer base and how does that inform you know your garmin's ability to to maybe take more price in the future? How how should we think about the relative pricing power uh of the consumer wearables business? Please. Thank you.

Well, I probably would take exception to um significant price hikes in the past year. Or what we've done is, we've introduced new product lines with new features that can command a higher price point because they do more for the customer. So we aren't necessarily. Um, you know, moving prices on, on existing categories of products and existing

Um, uh, excuse, we're, we're, um, doing Innovation. We're we're, uh, creating new utility for the customer that they're willing to step up and pay for. So, unique products, Innovation is something that customers always loved.

And we've been successful, um, in doing that in terms of elasticity. You know, I think when we introduce a product.

Um, at the higher end, um, you know, our strategy is to continue to push and promote the the products that that um it overlaps with and ultimately replaces. So we have a 1 2 strategy, where we can, uh, promote products, um, that have been in the market a while, and and play on the value side while at the same time, um, offering new products with Innovation and and at higher price points,

Okay, super helpful. And then maybe Doug Just A 1 C question, which just um, confirming that within the, the calendar 25 guide, both overall and at this segment level, um, the the acquisition that you announced over nice is is is fully included. And that guy that would not be incremental. Um just wanted to to to get that 1.

Yeah, my laps are actually factored into our guidance from the top line, as well as the expenses. Correct.

Okay. Super, thanks so much, guys. I appreciate it.

Thank you.

You are next. The question comes from the line of Jordan Lanes from Bank of America. Your line is open.

Hey, good morning. Thank you for taking the question. Could you guys talk a little bit more about MyLaps? What you're seeing the opportunity is, where you're expecting synergies, just across the segments?

In my laps is, is a company that specializes in preceding timing of, um, competitive events, whether they're uh, running events, triathlons, um, auto racing or even horse racing.

And so, um, you know, their equipment and their services are very critical, especially to some of those high-visibility events that are out there. There's a significant overlap with their market interest and our interest, in terms of, uh, particularly the running and triathlon cycling racing.

Um, events today, um, users of of our products, do a lot of training. Um, and then when they go to race day, they use our devices. But but the official timing is somewhat separate and disconnected from the devices that, um, they're using during the race. So, we see an opportunity to, to merge the experiences, uh, from the the training that takes place leading up to an event um, through um, the actual participation in the event itself.

Um, and we can do it in a, uh, Dynamic and integrated way, um, because we, we now have access to both, um, the on risk information, as well as the official timing information.

Got it. Thank you so much.

Your next question comes from the line of Ivan. Fe from Tigress Financial Partners. Your line is open.

Opportunities you see for Garmin because you have a diverse line of wearables with a lot of proprietary measurements, as well as the Connect app and the Garmin Health platform.

Well, our our thoughts are are 1 of excitement, you know? We we have, um, always believed in um, the utility of wearable devices to help people, uh, observe and manage their health. Um, you can't change what you can't measure. So, um, wearables play an integral part of that. And we're really excited about the fact that we have a very diverse product line. So there's not 1 size, fits, all for every customer and said, we offer a range of things that appeals to somebody's lifestyle.

Um, and, uh, their goals. So, I think, uh, it presents a significant opportunity for us. And, um, of course, we're at the forefront in terms of sensor measurements and, and, uh, creating health metrics for people that, um, are useful and actionable. So, we believe there's a lot of opportunity going forward.

thanks to my second question is uh, you know, in the next big thing in smart, wearables is classes that you know, a lot of people believe they will be as ubiquitous as cell phones and watches and, uh,

What do you see as your opportunity in there? Especially for a lot, a lot of the ones that are on the market right now don't have, uh, screens in the display that is being talked about coming to integrate, you know, your data from your watch into that. For let's say when you're running and also a while back, you did make a device that clipped on to uh glasses that kind of created a heads-up, display into a pair of glasses. So what are your thoughts on opportunities in that area?

Well, I think it remains to be seen, you know, glasses have have come and gone once and and uh, the utility um, and the the concerns around the use of those in in public have have, uh, have have always come up in in the context. So I'd say, it's a wait and see thing. I think people want choices when it comes to things, they wear including watches and glasses. And so uh, there may be some um, special use cases for those. But in general, we, we believe that the utility of

Of uh, wearable is still very strong.

Hey, thanks and congratulations again.

Thank you.

You are. Our next question comes from a line of Tim Long from Berkeley's. Your line is open.

Thank you. Um, to to also if I could first, maybe if you could talk a little bit on on fitness category, um, any any color you have, um, on the strength there? How it's looking from kind of repeat users or new new install base, uh, for for Garmin, if you have any any color there, uh, and then, secondly, if you could just dig into Europe and you highlighted, you know, pretty strong growth there. It's been several quarters of outperformance. Uh, maybe dig into what's, what's driving that and how sustainable um, that that growth can be there. Thank you.

Okay. Yeah, in terms of Fitness categories, all all the categories were were um were strong. I would say that advanced wearables uh as we mentioned in our comments was the biggest driver and um, we we did call out running specifically the 4 under 570 and 970. Although running was not really the only driver. We saw strength across all of our products, including what we call our Advanced, uh, wearables, which is our venue and vivoactive line. So so those were very, very strong in terms of um uh repeat users versus new users. We're seeing um a stronger, um uh uh uh growth in the new user category. So new people uh, coming to Garmin for the first time. And so we're, we're excited by that. It means that people are recognizing, uh, that we offer something different and, and are coming to us, uh, for a solution in terms of Europe performance.

Um, I think if you normalize for FX, you'd probably see that that um, Europe was pretty much in line with the other geographies. So um, I think FX had, um, part of the

Uh, responsibility for the outperformance in Europe.

Okay, thank you.

Thank you.

Your next question.

A line of David McGregor from Longbow research. Your line is open.

Hey, good morning. This is Joe Nolan on for David.

Uh, the Marine market remains relatively soft, but you guys continue to deliver growth there. Can you just talk about some of the factors driving that growth and just what gives you confidence in raising the guidance?

I think, um, growth in Marine, you know, for sure the market has been, um, a little bit. Um, um,

Stabilizing.

Um, it has faced, you know, a lot more uncertainty as people try to process especially about Builders the issues of of tariffs that affect them as well as consumer sentiment. But in general, we've we've seen um, stable

Uh, demand for our, our products and especially where we're providing products with unique, uh, Innovation and and differentiation. We're seeing people come, uh, to Garmin and taking share in those categories as well.

Got it. Okay and then on the auto OEM side, you mentioned progressing as planned with the new program, can you just give us an update on on where that stands right now?

Well, as I said, we're, we're making good progress on that. We're in the, in the process of, of validating our production lines globally to be able to support, um, the new device and the new, um, design and to prove that we can run at scale.

And deliver the quality. So it's a very involved process working with uh the car maker um and um quite a few you know, test runs pilot runs um evaluations and and feedback um that goes into making sure we're ready. Um towards the end of 2026,

Got it. Thanks, I'll pass it on.

You are next; the question comes from the line of Ben Bolan from Cleveland Research. Your line is open.

Good morning, everyone. Thanks for taking the question quiz. I was hoping we could, uh, start could you talk a little bit about?

How are you thinking about the subscription momentum?

The materiality the progress and what's the right way for us to assess your progress. Do we is it as simple? As looking at the Deferred? Is there something else you think we should look at, uh, Curious. Your thoughts there and then I have a, a follow-up for Doug.

Yeah, I think subscriptions are a growing part of our business. Um, we of course, haven't triggered the, um, 10% threshold to to disclose that yet. So so, um, we aren't providing specifics on it, but I would tell you that in every segment, we're looking for opportunities to build

Subscription and service revenues. Um, outdoor has been, um, a Big Driver of that with our inreach system Fitness has been, um, increasing a lot. Uh, both with our kids bounce, wearable, as well as Garmin Connect plus. And then Aviation is, is another 1 where we offer subscription services for content for the cockpit that is, um, that is, uh, in growth mode. So, we're growing across the whole business. And, uh, of course, we're we're driving towards as much as we can, um, as much as we can grow there. Um,

But until it triggers that 10%, we won't disclose it.

Okay.

A follow-up. Just thoughts on working Capital Management, both in in 2q and the balance of the year receivables and inventory up

Decent amount year-over-year in sequential. Um, you've talked a little bit about the trend there. Um,

What you see, how's it going to plan and, and any thoughts for the balance a year, that's it for me, thank you.

Yeah. You know as it relates to our working capital really going as planned, you know, uh as it relates to inventory. Uh, you know, our strategy is to have inventory for our increased customer demand but also, you know, we've increased inventory to mitigate potential increases in tariffs. You know, there's currently no tariff on wearables and any potential increase in that. So that was a strategy of ours to increase the, uh, inventory. As it relates to se receivables. That's primarily, you know, related to the, uh, growth in our sales, which is a function of that, maybe a little timing depending upon, you know, how the sales came in, you know, during the month. But you know, everything, you know, from the working capital is uh, pretty well, um, on plan, you know, from our free cash flow asthma for the year. We're expecting, you know at 1 Point 2 billion which is very similar to what it was last year, where, you know, expecting you know what to have uh increase um operating earnings there that

They'll probably be Offset, you know, by increase in inventory, but things are going as planned. We're reacting to current environment that we're in.

And that concludes our question and answer session. I will now turn the call back over to Terry sack for some final closing remarks.

Thank you all for joining us today. Um, as always, Doug and I are available for callbacks, and we will all talk to you later. Have a great day. Bye.

This concludes today's conference call. Thank you for your participation. You may now disconnect

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