Garmin Ltd.

Good day, ladies and gentlemen, and welcome to the Garmin Limited Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Terry Seck, Investor Relations Manager. You may begin. Thank you.

Good morning. We would like to welcome you to Garmin Limited's second quarter 2019 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. 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 the 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, Garmin reported strong results, including record revenue and operating income for the second quarter. Consolidated revenue for the quarter came in at $955 million, up 7% over the prior year. Aviation, marine, fitness, and outdoor collectively increased 12% year over year. Gross margin improved to 60.3%. Operating margin expanded to 26.8%. Operating income increased 18% to $256 million. This resulted in GAAP EPS of $1.17 and pro forma EPS of $1.16 in the quarter, up 17% over the prior year. We are pleased with our performance for the first half of 2019, and these strong results give us confidence to raise our full year guidance. Doug will discuss our financial results in greater detail in a few minutes, but first I'd like to provide a few brief remarks on the performance of our business segments. Starting with the aviation segment, revenue increased 20%, driven by growth in both aftermarket and OEM product categories. We experienced strong growth in our ADS-B product offerings. Gross and operating margins remained strong at 75% and 36%, respectively, resulting in operating income growth of 27% over the prior year. During the quarter, we achieved certification of the G5000 integrated flight deck for the Citation XL and XLS, bringing a state-of-the-art cockpit system to this popular family of aircraft. We also announced the availability of the NXI upgrade for Cessna and Beechcraft models equipped with the original G1000 system. We continue to see strong customer demand and appreciation for this upgrade program. As I mentioned earlier, ADS-B has been a significant driver of growth in our aviation business. According to the FAA, as of July 1, 2019, approximately 91,000 total aircraft have been equipped, of which approximately 7,000 are commercial aircraft. Of the remaining 84,000, Garmin has captured roughly 80% market share. Based on everything we see, it is likely that the ADS-B opportunities will continue into 2020. While ADS-V has been a significant opportunity, it's not the only opportunity for the aviation segment. New OEM platforms, retrofit cockpit systems, NXI upgrades, and the growing demand for trainer aircraft represent opportunities for growth beyond the ADS-V cycle. We are optimistic about the future of our aviation business. Looking next at marine, revenue increased 13%. as we experienced strong demand for our chartplotters and Panoptix LiveScope sonars. Growth and operating margins were 61% and 28%, respectively, resulting in strong operating income growth. Last quarter, we mentioned that the Independent Boat Builders Incorporated named Garmin its Supplier of the Year. I'm pleased to report that our relationship with IVVI has expanded and now includes audio equipment. Our fusion brand of marine electronic systems was selected by IBBI as a preferred choice for its members. New markets and new product categories are an area of strategic growth because they represent significant growth opportunities. In keeping with this strategy, at the recent ICAST fishing show, we introduced FORCE, our first entry into the freshwater trolling motor market. FORCE was named Best New Boating Accessory and won the coveted Best of Show Award for 2019 making Garmin a back-to-back best-of-show winner at ICAST. We are very proud of the accomplishments of our marine team, and we're excited about the new opportunity that force represents in the segment. Looking next at the fitness segment, revenue increased 12%, driven by growth in running products as well as contributions from our recent acquisition of tax. Growth and operating margins were 54% and 20%, respectively. During the quarter, we began shipping our refreshed line of forerunners, providing both smartwatch features and enhanced running dynamics for all capabilities of runners. We also completed the acquisition of tax and are now in the process of expanding the distribution of tax products through Garmin retailers. Turning next to the outdoor segment, revenue increased 4% on a year-over-year basis, driven by growth in our golf and in-reach products. We believe this is a remarkable accomplishment, considering the significant impact of the Fenix 5 Plus launch during the first half of 2018. Growth and operating margins were 64% and 34%, respectively. During the quarter, we began shipping the Mark Luxury Watch. In addition, we experienced strong demand for golf wearables and the Instinct Adventure Watch. We also introduced a refreshed line of handheld navigators adding in-reach satellite communication technology to our flagship handheld devices. Looking finally at the auto segment, revenue decreased 13% due to the ongoing decline of the P&D market. Gross and operating margins improved year over year to 48% and 16% respectively. Our global market share position in the P&D category remains very strong. We launched the DriveSmart 65 with integrated Alexa Personal Assistant, bringing enhanced voice control functionality to drivers. We also announced the Garmin Overlander, an all-terrain GPS navigator specifically designed to fit the needs of the growing overlanding community. This is a unique product offering for those looking to explore off the grid. In summary, we are very pleased with our results in the first half of 2019. Given this strong performance, we are raising our projected revenue to approximately $3.6 billion for the year, representing an 8% increase over the prior year. Gross margin is projected to be 59.5% for the year. Operating margin is projected to be 23.2%. Assuming a pro forma effective tax rate of 16.5%, Performa earnings per share is expected to be approximately $3.90. Looking at our annual revenue outlook by segment, we have increased our growth expectations for the aviation segment to 17%, the marine segment to 12%, and the auto segment to down 15%. Fitness and outdoor are unchanged. That concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug?