Garmin Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the government limited third quarter 2019 earnings conference call. At this time, we'll put this on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star, then the one key on your touch-tone telephone. Please be advised that today's conference is being recorded. If you require offer assistance, please press star, then zero. I would like to hand the conference over to your speaker today. Teresa Sachs, Head of Investor Relations. Please go ahead.

Good morning. We would like to welcome you to Garmin Limited's third quarter 2019 earnings call. Please note that the earnings, press releases, 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, Terry, and good morning, everyone. Earlier today, Garmin reported another strong quarter of revenue growth of 15% to $934 million. Aviation, fitness, outdoor, and marine collectively increased 24%. and contributed 85% of total revenues. Gross margin improved to 60.7%. Revenue growth and expanding margins resulted in significant operating leverage in the business. Operating income increased 33% year-over-year to $261 million. And operating margin expanded to 28%. This resulted in GAAP EPS of $1.19 and Performa EPS of $1.27 in the quarter. We are pleased with our performance in the first three quarters of 2019, and these strong results give us confidence to raise our full-year guidance, which I'll explain in a moment. So I 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 28%, driven by growth in both OEM and aftermarket systems. Growth in operating margins remained strong at 74% and 35%, respectively, resulting in operating income growth of 30% over the prior year. Growth in OEM systems was driven primarily by the recent certification of the Citation Longitude, featuring our G5000 integrated flight deck. However, the strength was broad-based as other aircraft platforms also contributed to the growth. Growth in aftermarket systems was driven by strong ADS-B sales and the recently certified G5000 integrated flight deck for the Citation XL and XLS. During the quarter, the G1000H NXI was certified in the Bell 407 GXI helicopter, representing the first IFR certification for this advanced helicopter flight deck. I'd like to highlight this morning's Autoland announcement. This new safety technology is designed to return an aircraft and its passengers safely to the ground in the event a pilot is unable to do so. We believe Autoland is disruptive new technology that will change the way people think about safety in general aviation aircraft. Autoland will soon be available as part of the G3000 integrated flight deck on the Cirrus VisionJet and the Piper M600 pending final FAA certification. Turning next to the fitness segment, revenue increased 28%, primarily driven by growth in wearables and contributions from tax. Gross and operating margins were 52% and 20% respectively, resulting in operating income growth of 33% over the prior year, At EPO, which is Europe's leading consumer electronics trade show, we announced a sweeping update to our line of consumer wearable products, including new versions of the Vivo Active series in two sizes, the Vivo Move 3 hybrid smartwatch series, and the all-new Venue smartwatch, featuring a brilliant AMOLED color touchscreen display, comprehensive health and fitness features, and long battery life. We also announced the Tacx Neo2T Smart Trainer featuring enhanced drive design and performance analytics to simulate an outdoor ride as realistically and quietly as possible. Turning next to the outdoor segment, revenue increased 23% on a year-over-year basis with growth in multiple product categories led by adventure smartwatches. Gross and operating margins improved year-over-year to 66% and 41% respectively, resulting in strong operating income growth for the segment. At the recent UTMB trail running event, we launched the Phoenix 6 Adventure smartwatch series with larger displays and innovative performance features. We also introduced the Phoenix 6X Pro Solar, the first of its kind with our exclusive solar harvesting technology. We've often mentioned that inReach technology has been a growth driver for the outdoor segment, and that was definitely the case in this most recent quarter. I'm pleased to report that inReach recently passed a significant milestone facilitating over 4,000 SOS incidents since its launch in 2011, demonstrating the crucial importance of satellite-based two-way messaging wherever our customers need assistance. We believe InReaps has room to grow in the future as more people recognize its potential to change outcomes and save lives. Turning next to the marine segment, revenue increased 9% as we saw solid sales across multiple product categories led by chart plotters. Gross and operating margins improved year-over-year to 60% and 19% respectively, resulting in strong operating income growth for the segment. During the quarter, we were named Manufacturer of the Year by the National Marine Electronics Association for the fifth consecutive year, reflecting the strength of our innovative products and our leading market position. We were also named the Exclusive Marine Electronics Provider by both Regulator Marine and Sea Hunt, solidifying our leadership in the premier center console boat market. Looking finally at the auto segment, revenue decreased 17%, primarily driven by declines in our OEM business and the ongoing P&D market contraction. Our global market share position in the P&D category remains very strong. Gross and operating margins improved year-over-year to 48% and 15% respectively, resulting in operating income growth of 39%. During the quarter, we began shipping the Overlander all-in-one navigation device which is a new product category designed for the growing community of overland adventure enthusiasts. So in summary, we're very pleased with the results in the first three quarters of 2019. Given this strong performance, we're raising our projected full-year revenue to approximately $3.65 billion. We're maintaining our full-year gross margin at approximately 59.5% and raising our full-year operating margin to approximately 24.3%. We're also updating our full-year perform-effective tax rate to approximately 16%, resulting in pro forma earnings per share of approximately $4.15. So looking quickly at guidance by segment, we've increased growth expectations for aviation to 20%, fitness to 16%, and the outdoor segment to 11%. Guidance for the auto and the marine segments are unchanged. That concludes my remarks. Next, Doug will walk you through additional details on our financial results.