Garmin Ltd.

Good day, ladies and gentlemen, and welcome to the Garmin Limited fourth quarter 2018 earnings conference call. At this time, our participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require further assistance during the conference, please press the star and the zero on your touch-tone telephone. I would now like to introduce our host for today's conference, Ms. Terri Seck, Manager of Investor Relations. May we begin?

Good morning. We would like to welcome you to Garmin Limited's fourth quarter 2018 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 transcripts will also be available on our website. As a reminder, we adopted the new U.S. GAAP revenue standard in the first quarter of 2018. The prior periods presented here have been restated to reflect adoption of this standard. This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, earnings, gross and operating margins, and future dividends, 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-K filed with Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pimble, 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 Cliff Pimble.

Thank you, Terri, and good morning, everyone. As announced earlier today, we finished 2018 strong, with revenue for the quarter increasing 4% over the prior year to $932 million. Aviation, marine, outdoor, and fitness collectively increased 13% over the prior year. Gross margin improved to 58.9%, driven by both product and segment mix. Operating margin improved to 23.9%, and operating income increased 21% over the prior year. These results generated GAAP EPS of $1 and pro forma EPS of $1.02 in the quarter, an increase of 26%. Looking briefly at full year performance, 2018 was our third consecutive year of revenue and operating income growth. We launched many innovative products, some of which have become halo products in their respective markets. I will highlight accomplishments in each of our business segments in a moment, but looking back at 2018, I'm very pleased with everything we accomplished. For the year, revenue increased 7% to over $3.3 billion. Combined revenue from aviation, marine, outdoor, and fitness increased 16%. Gross margin improved to 59.1%. Operating margin improved to 23.3%. And operating income increased 14%. This resulted in GAAP EPS of $3.66 and pro forma EPS of $3.69, an increase of 22% over the prior year. The growth in EPS and cash generation gives us confidence in proposing an 8% increase in the quarterly dividend. We shift nearly 15 million units during the year, bringing our total to over 205 million since inception, which includes over 1 million certified aviation products. Doug will discuss our financial results in greater detail in a few minutes. But first, I would like to highlight some achievements from the past year and outlook in each of our five business segments. Starting with aviation, revenue increased 20% driven by growth in both aftermarket and OEM product categories. ADS-B continues to be a driver of solid performance in the aftermarket. while new platforms and favorable market conditions led to growth in the OEM category. Gross and operating margins were 75% and 34%, respectively, and operating income increased 33% over the prior year. During the year, Tactical Air selected us to equip their fleet of F-5 fighter aircraft, which is the second program win for our tandem integrated flight deck. Also during the year, we were recognized by Airbus Helicopters and Embraer as Outstanding Supplier of the Year. And most recently, Garmin was ranked number one in avionics product support by Professional Pilot Magazine and by Aviation International News for the 15th consecutive year. The recognition we are receiving is significant because the aviation industry demands strong performance from those that participate in the market. I congratulate our team on earning these awards, which is a testament to the quality of Garmin equipment and the amazing way our associates care for our customers. Looking ahead, positive market conditions, contributions from new products and platforms, and ADS-B provide growth opportunities in both OEM and aftermarket product categories. With these things in mind, we anticipate revenue in the aviation segment will increase approximately 10% in 2019. Looking next at marine, revenue increased 18%, driven by strength in a broad range of product lines. During the year, we launched Panoptix LiveScope, a sonar system that generates real-time video-like images underwater. LiveScope was quickly recognized by the marine industry as disruptive new technology and has become a halo product in our marine portfolio. Gross and operating margins improved to 59% and 14%, respectively. and operating income increased 26%. We recently introduced newer versions of our flagship GPS map and ECO map chartplotters, which include a new map combining the best of Garmin and Navionics content. This marks the achievement of a major objective we established for the Navionics acquisition. We continue to gain market share in the OEM category. During the year, we were named as an exclusive supplier to several boat manufacturers. We enter 2019 confident in our portfolio of strong products, such as Panoptic Flyscope and our Flagship GPS Map and Ecomap series. We anticipate revenue in the marine segment will increase approximately 10% for the year. Turning next to outdoor, revenue increased 16% on strong demand for outdoor adventure watches, golf products, and in-reach subscription services. Gross and operating margins were 65% and 36% respectively, and operating income increased 16% over the prior year. During the year, we built on the momentum in the Adventure Watch category with the introduction of the Phoenix 5 Plus series with streaming music, built-in maps, and mobile payments. We also expanded the category with the introduction of Instinct and Descent. Looking ahead, we anticipate revenue in the outdoor segment will increase approximately 10% in 2019, driven primarily by growth in watches and in-reach subscriptions. Looking next at fitness, revenue increased 13%, driven by growth in all product categories. Gross and operating margins were 55% and 21%, respectively, and operating income increased 24% over the prior year. In 2018, we launched new music-enabled wearables and added seven music providers into our Connect IQ app store, including Spotify, Deezer, and KKBox. Last week, we signed an agreement to purchase Tax, a leading provider of indoor bike trainers, and we expect this acquisition to be completed sometime in the second quarter. In 2019, we anticipate revenue growth of approximately 13%, which includes the acquisition of tax as well as organic growth within the segment. Looking finally at the auto segment, revenue decreased 19% for the full year due to the ongoing decline of the P&D market and lower auto OEM sales driven by program timing. Gross and operating margins were 43% and 6% respectively. Our global P&D market share remains very strong And at the recent Consumer Electronics Show, we announced our new Drive P&Ds with simplified road trip ready features. In the OEM category, we were awarded new business that will contribute starting in 2020. Looking at 2019, we anticipate revenue will decrease approximately 18%, driven by the ongoing decline of the P&D market, as well as softness in OEM due to program timing mentioned earlier. In summary, we begin our 30th year of operations with opportunities in all segments. We anticipate revenue of approximately $3.5 billion, up 5% year over year. Our plan calls for stronger growth in the second half of the year due to the timing of product launches. We anticipate gross margin of approximately 59.5% and operating margin of approximately 22.7%. We anticipate a full-year pro forma effective tax rate of approximately 16.5%, resulting in pro forma earnings per share of approximately $3.70. That concludes my remarks. Next, Doug will walk you through additional details on financial results. Doug?