Operator: Hello, everyone. Thank you for joining us, and welcome to the Garmin Limited Q3 2026 Earnings. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Teri Seck, Director of Investor Relations. Please go ahead.
Teri Seck: Good morning. We would like to welcome you to Garmin Limited's Q3 2026 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/investors. An 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 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, foreign currency, tariff impacts, future demand for our products, and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin.
Teri Seck: 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 Officer, and Doug Boessen, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pemble.
Cliff Pemble: Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin achieved another quarter of record-breaking financial results in a continuation of the positive trends we've been experiencing over the long term. Consolidated revenue increased 12% to nearly $2 billion, with gross margin of 63.3%. We experienced a robust expansion in consolidated gross and operating margins, the majority of which is attributable to favorable segment mix and lower product costs. Margins also benefited from tariff refunds of $33 million recognized in Q3. Even when excluding this benefit, our gross margin performance was impressive by any historical comparison, reflecting the strength of our product lines and the efficiency of our vertically integrated business model. Through strong operational execution, we delivered significant leverage to the bottom line. Operating income increased 34% to $612 million, and pro forma EPS increased 39% to $2.76.
Cliff Pemble: With most of 2026 behind us and considering the momentum we are experiencing entering the important Q4 holiday season, we anticipate delivering another record year of double-digit growth in revenue and profits. We now anticipate revenue of $8.15 billion, an increase of $100 million over the prior guidance, and an increase of 12% over the prior year. We expect gross margin of 61% for the full year, which assumes higher costs for raw materials, particularly memory, which I will expand upon in a moment. We further expect an operating margin of 29%, an extension from our prior estimate, and a tax rate of 16.5%, which is unchanged from our prior estimate. These assumptions result in pro forma EPS of $10.80, an increase of $0.80 over the prior guidance, and a 26% increase over the prior year.
Cliff Pemble: Before covering segment highlights, I want to provide additional context on supply chain matters. As previously mentioned, our results will soon reflect the higher cost of memory and other raw materials, which have increased significantly since last year, driven by both high demand and limited supplies. Our results have benefited from our safety stock of memory purchased at lower prices. New supplies are being purchased at current market prices, which are significantly higher than last year. This represents a headwind going forward and drives higher inventory amounts on our balance sheet. Additionally, our inventory strategy is focused on product availability, which translates to higher inventory levels of certain critical components. From time to time, we make prepayments to secure additional supplies.
Cliff Pemble: While it is too early to offer a comprehensive outlook for 2027, we expect our consolidated gross margin profile will return to a historical range, primarily due to higher memory costs. We believe a return to historical gross margin levels represents impressive performance given the unusual supply chain circumstances affecting many companies. As we formulate our 2027 plan, we will look for every opportunity to offset this headwind by leaning heavily on our vertical integration and scale of operations, and through strategic and selected mitigations, which we have successfully used in the past. Doug will discuss our financial results in greater detail in a few minutes, but first, I will provide a few remarks on the performance of each business segment. Starting with fitness, revenue increased 16% to $694 million, a new Q3 record primarily driven by broad-based wearable growth.
Cliff Pemble: Gross and operating margins expanded to 63% and 33% respectively, resulting in operating income of $231 million. During the quarter, we launched the CIRQA smart band, a screenless wearable offering rich wellness and fitness insights that expands our addressable market for wellness devices. Initial demand for CIRQA has been very strong, and feedback from customers has been positive. We recently announced the next generation Edge cycling computers. The Edge 1060 features a built-in microphone and speaker for hands-free voice control. The easy-to-use Edge Explore 3 is designed for riders of all levels. The fitness segment has achieved outstanding performance throughout the year, and we expect this trend to continue in the Q4. We are very pleased with these results and expect that the fitness segment will be the strongest contributor to our full-year consolidated growth.
Cliff Pemble: Moving to Outdoor, revenue increased 20% to $597 million, primarily driven by strong demand for adventure watches following the launch of the fēnix 9 series. Gross and operating margins expanded to 68% and 39% respectively, resulting in operating income of $233 million. During the quarter, we launched the fēnix 9 and the fēnix 9 Pro series with an all-titanium watch case option and the largest available AMOLED screen in our flagship adventure watch lineup. We also launched the Garmin Drive navigators that feature high-resolution, ultrawide displays and an elevated, all-new user experience. Looking forward, we expect growth momentum to continue in Q4, primarily driven by the fēnix 9 series, resulting in improved full-year growth rates when compared to 2025. Looking next at Aviation, revenue increased 5% to $253 million, with growth primarily driven by OEM product categories.
Cliff Pemble: Gross and operating margins expanded to 78% and 26% respectively, resulting in $66 million of operating income. We recently announced that the G1000 integrated flight deck for the iconic King Air aircraft has surpassed 1,000 systems in the field, marking a significant milestone as one of the most successful retrofit flight deck programs in Aviation history. We also announced that more than 2,500 aircraft are now equipped with our revolutionary Autoland system. Autoland is available in more than 15 models, from piston-powered aircraft to twin-engine jets, bringing added peace of mind to a growing number of pilots and passengers across the Aviation industry. Just this quarter, Pilatus Aircraft and Epic Aircraft announced the certification of Garmin Autoland on the PC-12 Pro and the E1000 airplanes. During the quarter, we introduced the G2000 PRIME, bringing PRIME flight deck functionality to the high-performance piston and electric aircraft market.
Cliff Pemble: Also during the quarter, we announced the certification of an all-glass retrofit cockpit for the original Cessna Citation jet. Finally, we made important updates to Garmin Pilot, adding smart charts coverage for Canada and Mexico, as well as mobile clearance delivery, which allows pilots to obtain clearances electronically through the Garmin Pilot app. We are pleased with the performance of Aviation during the first three quarters of the year, and we expect Q4 year-over-year growth to be similar to that of Q3. Turning to the Marine segment, revenue increased 16% to $310 million, with broad-based growth across multiple product categories led by sonar products following the launch of LiveScope 2 sonar systems. LiveScope is widely considered to be one of the most consequential innovations in modern fishing electronics. LiveScope 2 builds on this legacy of disruptive innovation by offering improved range and unprecedented image clarity.
Cliff Pemble: Gross and operating margins expanded to 64% and 30% respectively, resulting in operating income of $94 million. The primary driver of margin expansion was the tariff refund recognized during the quarter, although margins improved even when excluding this benefit. During the quarter, we expanded our sailboat product lineup with the GMI 40 instrument display and the SmartDrive steering actuator. We also launched the JL Audio A60 head unit series and the M200 speaker system. We were recently named Manufacturer of the Year by National Marine Electronics Association for the 12th consecutive year, an honor that is particularly meaningful because it reflects the opinions of the broader NMEA community for innovation, product quality, service, and support. We also received six Product of Excellence awards for multiple product categories as selected by NMEA dealers, certified installers, and industry professionals.
Cliff Pemble: We are pleased with the performance of Marine during the first three quarters of the year and believe we are on track to achieve full-year growth that is consistent with the prior year. Moving finally to the Auto OEM segment, revenue decreased 20% to $132 million, primarily driven by domain controllers. Gross margin was 16%, and the operating loss narrowed year-over-year to $12 million as we shifted R&D resources to other segments. We expect Q4 revenue to decrease year-over-year, consistent with Q3, as domain controllers continue to decline as expected. We look forward to the launch of our next major domain controller program with Mercedes-Benz, which we expect will drive significant growth in 2027. Wrapping up, I am very proud of what our team has accomplished. We delivered strong growth, expanded profitability, we invested in future innovation, and introduced new products across nearly every segment of our business.
Cliff Pemble: As we look forward, our product portfolio is very strong, and we are confident in the opportunities that lie ahead. We believe success is driven by our commitment to create products that are essential to our customers and supporting them with industry-leading quality, reliability, and innovation. That concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug?
Doug Boessen: Thanks, Cliff. Good morning, everyone. I begin by reviewing our Q3 financial results by comments on the balance sheet, cash flow statement, taxes, updated guidance. Revenue closed to $1,986,000,000 for Q3, representing 12% increase year-over-year. Gross margin was 63.3%, 120 basis point increase in the prior year quarter. The increase was primarily due to favorable segment mix, lower product costs due to the weakening of the Taiwan dollar, approximately $33 million in refunds of previously paid tariffs. Operating expense to percentage sales is 32.5%, 80 basis point decrease. Operating income increased 34% to $612 million. Operating margin expanded to 30.8%, 500 basis point increase compared to prior year quarter. Our GAAP EPS was $2.80. Our pro forma EPS, $2.76. Next, we will look at our Q3 revenue by segment and geography.
Doug Boessen: During Q3, we achieved consolidated double-digit growth led by the Outdoor segment with 20% growth, followed by the Fitness and Marine segments with 16% growth. By geography, we achieved growth in all three regions, led by 15% growth in Americas, followed by 12% growth in EMEA, and 4% growth in APAC. APAC sales growth is lower than Americas and EMEA due to the challenging market conditions in China. Excluding China, the APAC sales growth would have been more comparable to the other regions. Looking next at operating expenses. Research and development expenses increased $26 million, approximately 9%, primarily driven by personnel-related expenses. SG&A expenses increased $30 million, approximately 10%, primarily driven by personnel-related expenses and advertising expense. A few highlights on the balance sheet, cash flow statement, and taxes. We ended the quarter with cash and marketable securities approximately $4.1 billion.
Doug Boessen: Accounts receivable increased year-over-year to approximately $1.1 billion on the strong sales in Q3. Inventory increased year-over-year and sequentially to approximately $2.3 billion. We are executing our strategy to increase inventory of certain components to mitigate the risk of supply constraints. Also, the cost of certain components has increased significantly year-over-year. During Q3 2026, we generated free cash flow of $293 million, a $132 million decrease from the prior quarter. The decrease is primarily due to an increase in on-hand inventory, prepayments of inventory to secure future deliveries of strategic components, primarily offset by improved operating results. Capital expenditures for Q3 2026 were $101 million, approximately $40 million higher than the prior quarter. We expect full year 2026 free cash flow to approximately $1.1 billion. Capital expenditures approximately $500 million.
Doug Boessen: The decrease in our free cash flow estimate compared to the previous estimate is primarily due to increase in on-hand inventory, prepayments for inventory. During Q3 2026, we paid dividends of approximately $202 million and purchased $41 million of company stock. At quarter end, we had approximately $407 million remaining in the share purchase program, authorized through December 2028, for an effective tax rate of 18.1% compared to 21.2% in the prior quarter. The decrease in effective tax rate is primarily driven by an increase in U.S. deductions to certain provisions of the U.S. tax legislation enacted in 2025, which became effective in 2026. Turning next to our full year guidance. Based on our performance during the first three quarters of 2026, and our positive outlook for Q4, we now estimate revenue approximately $8.15 billion, compared to our previous guidance of $8.05 billion.
Doug Boessen: As a result of year-to-date performance, we have increased our gross margin to approximately 61%, which is 130 basis points higher than our previous guidance, and is 230 basis points higher than the full year 2025 gross margin. We expect higher memory costs to impact Q4, which has been factored in our full year gross margin guidance. We received the majority of our expected tariff refunds, and our updated gross margin guidance only include the benefit of tariff refunds already recorded in the year-to-date results. We expect our operating margin to be approximately 29%, which is 200 basis points higher than our previous guidance. Also, we expect a pro forma effective tax rate of 16.5%, consistent with our previous guidance. The expected pro forma earnings per share is approximately $10.80, compared to our previous guidance of $10. This concludes our formal remarks.
Doug Boessen: Christy, could you please open the line for Q&A?
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tim Long with Barclays. Tim, your line is now open.
Tim Long: Thank you. Maybe two, if I could. Could you touch a little on some of the newer launches, the fēnix 9s and CIRQA? Sounds like initial feedback is positive, but could you just give us a sense of how you are viewing the ramp of those products over the next several quarters? Second, I just did want to follow up on the gross margin. It sounds like this is largely memory, and it is hitting you a little later since you had some advanced buys. Maybe as we look into next year, I am assuming you are talking 58% to 59% as the more historic gross margins. If you could just clarify that and let us know the other puts and takes there. Thank you.
Cliff Pemble: Hi, Tim. Good morning. In terms of the newer launches, we believe those were very successful. We are still catching up on some of the initial demand, especially on CIRQA, although fēnix is also very strong, so we are working hard to fill that backlog of demand we have for those new products. Doug, maybe you can answer the question on the gross margin.
Doug Boessen: Yeah. Maybe I will talk a little about the gross margins here in the quarter, then we are expecting Q4, then in the future. Yeah, in Q3, there are three big drivers of that year-over-year improvement. One of which was favorable segment mix, as auto OEM is a lower percentage of our total this year versus last year. The second of which is lower product costs, primarily due to the weakening Taiwan dollar, and then we did have some benefits relating to tariff refunds.
Doug Boessen: We did receive majority of our tariff refunds. There are some that we will hopefully receive here in Q4 next year, but we will record those as they are realized or realizable. The other thing relating to memory costs, we did see a small impact of increased memory costs in Q3, but there will be more impact in Q4, and that is primarily due to our inventory turns from a standpoint. As we get into 2027, there are a lot of moving parts relating to the gross margin from a standpoint. We will have a segment mix, a situation where we have the ramp of Mercedes coming in, so therefore, there will probably be some unfavorable segment mix. We will have the continued higher increased costs of memory that go through there also.
Doug Boessen: But then also, there is a lot of other moving parts in our gross margin between FX, product mix, and such from their standpoint. We will give you a better feel for that when we get into 2027.
Tim Long: Okay. Thank you.
Operator: The next question comes from the line of Erik Woodring with Morgan Stanley. Erik, your line is now open.
Erik Woodring: Great. Thank you very much for taking my question, guys. Cliff, I would love to maybe step back from the quarterly results. Could you just maybe riff a little bit on how you are seeing the competitive landscape evolve across the broader wearables market? Traditional smartwatch players increasingly emphasizing fitness and performance. You have new competitors with specialized health and wellness use cases. Just where is Garmin's competitive positioning strengthening? Do you see any areas where you see greater competitive pressure? Then a quick follow-up, please. Thanks so much.
Cliff Pemble: Well, good morning, Erik. It is a very competitive market for sure. It is also a very market that has been around a while now, so I think the players are fairly well-entrenched in terms of their positions in the market. I think many of them are catching up to what we have known all along, that health and fitness are very important drivers of interest in wearables. We are continuing to lead, I believe, in terms of product features and sensor capabilities and the ability to help a user on their journey, whether it is a health and wellness focus or a fitness focus. I believe that trend is very durable.
Cliff Pemble: I believe that trend is something that is always going to be of interest to people, especially as there is more and more focus on health and wellness across every level, whether it is from the government side and also cohorts of generations that are more interested in their health. So we are very excited about it. We believe there is lots of opportunity ahead of us.
Erik Woodring: Okay, awesome. I appreciate that, Cliff. Thank you. Then maybe this is a Doug question, but if we take a step back realizing that you guys do keep a lot of safety stock inventory, but we are in probably the most inflationary component environment we have seen in a long time. That is not just memory, but you just expanded Aviation gross margins 200 basis points year over year. Marine ex-tariff refunds is up 200 basis points year over year. Outdoor and Fitness both expanding very strong. When you talk about product cost reductions, can you just maybe be a little bit more specific or granular on exactly not just what is happening, but why this is happening now, why maybe you couldn't execute on this a year or 2 years ago, just given we are kind of in like it is just very counterintuitive given the environment we are in.
Erik Woodring: Just trying to understand exactly what it is and why now.
Cliff Pemble: Yeah.
Erik Woodring: Please.
Cliff Pemble: Yeah, maybe I will start it, and Doug can certainly add to it. As I mentioned in my remarks, our vertical integration is really paying off, both in terms of our flexibility and ability to bring in the right components and build the right products at the right time. Also, the scale is really important. Our volumes have increased a lot, and so we have a lot of scales, which is helping in our overall efficiency. We did get some benefit from the Taiwan dollar. That is part of our product cost. Also, our products, many of our new ones especially, are premium in nature and have a lot of desirable features and capability. So, we are able to command higher margins for those products as well, which become a higher part of our mix.
Erik Woodring: Awesome. Thank you so much, Cliff. Best of luck, guys.
Cliff Pemble: Thank you.
Operator: The next question comes from the line of Joseph Cardoso with JPMorgan. Joseph, your line is now open.
Joseph Cardoso: Hi, good morning, and thanks for the question here. Maybe just wanted to start first on fitness. Obviously, you had very strong growth in the quarter. Maybe against you guys setting very high standards for yourselves over the last couple of quarters and maybe more robust growth. Just wanted to touch on the trends you are seeing in Q3 and obviously into Q4 today. Just relative to registrations, sell-through, inventory, new users, that whole gambit of kind of KPIs that we all kind of like to hear about. How are you thinking about maybe the durability here as we are heading into the holiday season? Then I do have a follow-up.
Cliff Pemble: Yeah, I think in terms of registrations, that is something we watch very closely, and it is really a near real-time pulse on the overall market. Our registrations did outpace our sell-in, so there is some implication there that the channel is de-stocking a little bit, probably because people are getting ready to bring in more stocks for the holiday season. But the demand for our products and the pull-through at the registration level is very strong. In terms of durability, again, I have mentioned before that there is a lot of opportunity in this market, and we have demonstrated over the long term that we have delivered strong double-digit growth rates across segments that are highly influenced by wearables, particularly fitness and outdoor. Looking at Q4, we see more of the same of that. Also the feedback from our retailers and their plans are very strong.
Cliff Pemble: As I mentioned, we have significant backlog we are working to fill for the fourth quarter, so that is our objective in the coming weeks.
Joseph Cardoso: Got it. Appreciate the color there, Cliff. Maybe just switching gears here, wanted to touch on Garmin Connect Plus traction, and what you are seeing, maybe an update there. Just particularly just given as you think about when the product was launched and maybe cycling past in a more mature way, customers who are enjoying early free trials, how has that trended? Also curious to hear what you guys are seeing around maybe implications around new products potentially having features only available via Connect Plus, and how you are thinking about the opportunity around that. Thank you.
Cliff Pemble: Yeah, Connect Plus has outgrown the general rates of the underlying segments where those products can benefit from Connect Plus. Of course, that is probably to be understood because it has grown from a smaller base, but Connect Plus has outpaced our expectations and the renewals and the commitments after the free periods have been very strong for those people that sign up for it. Even products that you would not suspect would be of interest for Connect Plus, particularly CIRQA. People are also signing up for Connect Plus to get more out of CIRQA. So we feel very good about Connect Plus, and we have a long-term roadmap to further expand that. In terms of just offering features of new products only through Connect Plus, we are already doing that today in terms of features like nutrition that is available with Connect Plus.
Cliff Pemble: In general, our approach to the market has always been to offer rich features on our products that delight our customers and satisfy them, and if they want more, we will offer more with Connect Plus.
Joseph Cardoso: Got it. Thanks for the color, Cliff.
Cliff Pemble: Thank you.
Operator: The next question comes from the line of David MacGregor with Longbow Research. David, your line is now open.
David MacGregor: Yes, good morning, everyone. Thanks for taking the questions. I guess I wanted to just ask about channel inventories and the preseason sell-in. You touched on this in response to a previous question, but how are you seeing that seasonal sell-in? Do you sense retailers and dealers are maybe just staying lean ahead of the election, or is there some other reason why maybe we are seeing a little bit of an aberration from what has historically been a pattern there?
Cliff Pemble: Yeah, I do not think there is any aberration at all, and I certainly could not figure out how to tie it to elections.
David MacGregor: Yeah
Cliff Pemble: As I mentioned in some other comments that retailer interest in Q4 promotions is very strong, and we are working on filling all of their orders for the holiday season.
David MacGregor: Okay. I guess second question, just on Thailand. Any update on the manufacturing facility there, and is production still expected to begin in Q1 2027? I guess when does the capitalization of costs end and the expensing begin?
Cliff Pemble: Yeah, I'll maybe make a comment on the timelines, Doug can respond to the capitalization. We're on track to open the new facility, expected to start producing new products in the first quarter of 2027. It's something we desperately need, as our volumes have basically reached our capacity. We're excited to bring more capacity online.
Doug Boessen: Yeah. As it relates to when it starts hitting the P&L, when base gets into production, that point in time, it'll go through the goods at that point in time.
David MacGregor: Q1 2027?
Doug Boessen: Yes.
Cliff Pemble: Yes.
David MacGregor: Okay, terrific. Thanks very much. Good luck with everything.
Doug Boessen: Thank you.
Operator: The next question comes from Ivan Feinseth with Tigress Financial Partners. Ivan, your line is now open.
Ivan Feinseth: Hi, thank you for taking my questions, and congratulations on another record quarter.
Cliff Pemble: Thank you.
Ivan Feinseth: Starting with the fēnix. What kind of uptake on the fēnix are you seeing from people who are new to Garmin and new to the fēnix versus people who are upgrading from existing watches? What model have they been upgrading the most from?
Cliff Pemble: In terms of new versus existing, as has been the history of the fēnix launches, initial demand, particularly, is very strong from existing users who are upgrading mostly from more than one generation old. It can vary. The response has been very positive, and then, of course, as the product makes its way further out into the channel, we start to see more new users come to the platform.
Ivan Feinseth: Based on the fact that you are looking for price increases on components, but I feel you have pricing power. How do you feel about your pricing power, especially considering that a lot of your customers buy based on features versus price?
Cliff Pemble: I think definitely pricing is something that, when I mention the mitigations that we can use, it is one of the things that we can look at. It is one of the tools that we have, but we do not over-focus on one particular thing, and we try to get the best balance of all the different ways that we can mitigate cost increases in our supply chain in order to achieve an outstanding result. I would probably just remind people that a little more than a year ago now, everyone was faced with higher supply chain costs really driven by tariffs, and that was something that we were able to navigate successfully because of the diversity of our business and our vertical integration and our ability to create products that people want.
Ivan Feinseth: You said that you have had strong demand for the CIRQA, but on some supply constraint, and only for like $50 more, you could get the Lily with the screen or even $100 more for the vívoactive. Are you seeing customers who are you getting feedback that they are going into the store, looking at the CIRQA and saying, "Only for just a little bit more, I can get a lot more functionality"? Do you see some upgrades there?
Cliff Pemble: Well, I think we certainly see a lot of demand for something like vívoactive. It is a very, very popular product. I think people that are looking at CIRQA are looking at it for a specific reason, which is the screenless approach, and they want the ability to have flexibility with other devices that they might wear. We do not necessarily have strict data points around how it is driving people into other products. But the demand that we have been experiencing for CIRQA is very strong and definitely exceeded our expectations, which is what I like to call a happy problem. We are working hard to expand our production and to fill all of the orders that we have.
Ivan Feinseth: I just have, what kind of feedback are you getting that people are looking at the CIRQA and if they are going for a screenless product that people are considering a ring, let us say, versus a watch? Where are people thinking about the functionality of the two?
Cliff Pemble: Yeah. I think, again, it really boils down to personal choice. We are not necessarily hearing people make those kind of trade-offs, at least in ways that we can really dig that signal out of the noise. But I think by offering a broad range of products, that is really been our approach all along, is to have broad ranges of products that allow people to select something that is right for them.
Ivan Feinseth: I have two other quick questions. On the Autoland hitting 2,500 planes, is that still just original equipment on a brand-new plane, or do you have now an upgrade process that you can retrofit an existing plane?
Cliff Pemble: Well, it is really also retrofit because our King Air line includes Autoland option. We are applying Autoland technology to both original equipment as well as retrofit.
Ivan Feinseth: Okay, and then one last quick. When in 2027 will we start to see the impact of Mercedes? Will that be on the 2028 models that come out in late 2027 or on the 2027 models that will start to come out next year?
Cliff Pemble: Yeah, I think in terms of precise timelines, I probably cannot really say. I would say that it will be early in the year than later. We are basically having to follow, of course, the Mercedes direction in terms of ramp up and supplies that they need for their new model year. So we are expecting early in the year, but again, something that we are following the orders of Mercedes.
Ivan Feinseth: Thank you very much, and looking, hoping for a strong Q4.
Cliff Pemble: Thank you.
Operator: The next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Noah, your line is open.
Noah Zatzkin: Hi. Thanks for taking my questions. I guess just to circle back on tariffs, I think there were $33 million of refunds in the quarter. Would you expect to receive additional refunds in Q4 or beyond? If you could just provide any thoughts around the run rate impact that you are experiencing and maybe any opportunity for further offset looking to 2027. Thanks.
Doug Boessen: Yeah. So we have received the majority of our tariff refunds. We have applied for some of those, and they find some of that. So it all depends upon how quickly the government process those and receive those. But we do have a smaller amount that we still have not received yet, when we do expect to receive either in Q4 or 2027. The run rate for those really depends upon how those are processed through the system.
Noah Zatzkin: Thanks. Cliff, maybe just one on Marine, another very strong quarter. Now sitting in the off-season, how are you feeling about the end market, the trajectory there? Any thoughts would be helpful. Thanks.
Cliff Pemble: Yeah. If I think about the end market broadly, I would say it is probably a little bit soft right now. It is not necessarily a concern, but the market in general is probably just a tad bit softer. We have still found ways to be successful and grow, again, based on innovation and probably some benefit from people refitting existing boats as opposed to purchasing new boats from time to time. But there is still strong demand for the newer boat segment, particularly in the mid-range of the market. So there are bright spots there as well, but certainly, I think high fuel prices have probably had more of an impact in Marine than maybe some of the other segments. People, since it is kind of the off-season now, they are probably in a wait-and-see mode.
Noah Zatzkin: Thank you.
Cliff Pemble: Thank you.
Operator: Your next question comes from the line of Ben Bollin with Cleveland Research. Ben, your line is now open.
Ben Bollin: Thank you. Good morning, everyone. I appreciate you taking the question. Cliff, you made a reference to fēnix around refresh and also talked to registration trends. Could you share any perspective on how you think about new users versus refresh opportunity outside of fēnix when you look at Forerunner, vívo, and even CIRQA, how it fits in? Just any thoughts on user expansion versus net new, and then I have a follow-up for Doug.
Cliff Pemble: Yeah, I think the new user profile outside of fēnix is very strong, heavily weighted towards new users. Products like CIRQA, products like vívoactive, the entry-level running products like the Forerunner 70 and 170 all attract significant numbers of new users to the Garmin ecosystem.
Ben Bollin: Okay. Doug, I was hoping you could share a little bit about the inventory prepayments. Just any ways to think about the structure of these agreements, how variable, how material, just any flex or how locked in you are, that would be helpful. Thank you.
Doug Boessen: Yeah. Relating to the inventory prepayments, it is really related to the memory supply constraint situation and just negotiating with those suppliers there and just basically ensuring that we are going to be able to get the supply whenever we need that from a standpoint. So it is kind of on a one-by-one basis, depending upon that situation.
Operator: The next question comes from the line of Ronald Epstein with Bank of America, Merrill Lynch. Ronald, your line is now open.
Ronald Epstein: Hey, good morning, guys. Maybe just two quick ones. Cliff, in the avionics business, one of the things we have heard is there has been issues across the industry getting printed circuit boards and other components. How have you guys been managing that, and how has it been for avionics, be it that that supply chain is different than your consumer supply chain out of Taiwan?
Cliff Pemble: I think there is definitely second-order effects driven by the memory situation and the overall AI build-out that creates both availability supply issues as well as some pricing issues in other areas. For example, you mentioned PCBs. That is very true, that there are some concerns there, as well as even things you would not think of, like cabling, and being able to find the cable supplies that we need. But I think that is one of the secret sauces of Garmin’s business, is leveraging the scale and the relationships we have across the entire business in order to serve the needs of things like aviation, which are more niche-y and lower volume. We are able to successfully do that by, again, leveraging all of those things in our business to be able to create a good result for aviation.
Ronald Epstein: Got it. Then maybe just a follow-up on a question I asked a couple of years back. You had said there has been a change in the law. We can no longer import Chinese drones. Given Garmin’s expertise in navigation and aviation, is there an opportunity there for Garmin in the drone market?
Cliff Pemble: Well, I think some of the drones you might be referring to are more the consumer drones, and that market is mature and kind of saturated. I think a lot of interest in drones right now, of course, is around military uses, and there are a lot of companies focusing on that. We do not really see that as being our area of total expertise, so we are focused on the markets where we serve, where we feel like there is lots of opportunity to advance technology and innovation.
Ronald Epstein: Got it. Thank you very much.
Doug Boessen: Thank you.
Operator: There are no further questions at this time. I will now turn the call back to Teri Seck for closing remarks.
Teri Seck: Thank you all for joining us today. As typical, Doug and I are available for callbacks, and we hope you have a nice day. Bye.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
