Garmin Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the Garmin LTD First Quarter of 2020 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Theresa Sec, Manager of Investor Relations. Please go ahead.

Good morning. We would like to welcome you to Garmin LTD's First Quarter 2020 earnings call. Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the Internet at .garmin.com. An archive of the webcasts 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, earnings, gross margins, operating margins, 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 and First Quarter 2020 Form 10-Q filed with the Securities and Exchange Commission. In particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic. This means that results could change at any time and any statement about the impact of COVID-19 on the company's business results and outlook is the best estimate based on the information available as of today's date. Presenting on behalf of Garmin LTD this morning are Cliff Pemble, 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 Pemble.

Thank you, Terri, and good morning, everyone. First quarter of 2020 continued the strong momentum we experienced in the back half of last year. Revenue increased 12%, resulting in a new record for the first quarter. Gross margin was stable to last year, and operating margin expanded, resulting in operating income growth of 17%. Late in the quarter, the landscape changed as the COVID-19 outbreak became a global pandemic and governments responded with drastic measures to slow the spread of the virus. This resulted in unprecedented economic changes affecting every company, and Garmin is no exception. Accordingly, we are withdrawing our fiscal 2020 guidance. However, we are optimistic for the long term, as the markets we serve and the products we offer are well positioned to succeed in a post-pandemic world. I'll explain why we are optimistic in just a moment. First, I want to share a few insights on how Garmin is approaching the most significant health and economic crisis of our time. First, I'll highlight our business priorities. The global awareness of the coronavirus is recent, but its impact was felt much earlier when parts of Asia were dramatically affected by its emergence and rapid spread. Since the beginning, employee safety has been our top priority, starting in Asia and expanding as the virus spread to other regions of the world. Most of our employees can work from home, and we've taken steps to protect those who continue to work within our facilities. Our employees adapted to these new circumstances with speed and resilience, and I'm super proud of their response to this challenge. Our second priority has been to strengthen our supply chain. In the early days of the virus outbreak, our supply chain teams were working hard to ensure we would not be affected by the widespread industrial shutdowns that were occurring in Asia. I'm pleased to report that our supply chain is healthy, and we've not missed any opportunities due to COVID-19 related disruptions. This is remarkable considering the unprecedented disruption occurring in global supply chains. Our third priority is to focus on opportunities. A crisis is often defined by its challenges, but we are looking through the lens of opportunity. We've accelerated efforts to increase our mix of online sales with business partners and on Garmin.com. We have plenty of inventory allowing us to capture market share. And finally, we'll be using this opportunity to refine our product roadmap priorities to make sure we have the right products now and after the crisis fades. Next, I will talk about the leadership model we've embraced during this time of global crisis and unprecedented disruption. First, we think to choose positively. In the contrast, constant rumble of negative, unthinkable headlines. There are positive things happening all over Garmin. All of us wonder what the new normal will be. No matter what happens, I feel good about the markets we serve and the product lines we offer. We believe every business segment has a bright future. Second, we are responding accordingly. We recognize the world is facing the most significant health and economic crisis of our time. We understand it could take some time before the global economy recovers from the effects of the virus and the actions taken to control its spread. With this in mind, we're taking pragmatic steps to maintain our strong financial position. And finally, we're focused on the long term. In this dynamic environment, aiming at what we see today will only cause us to miss the target. Instead, we're aiming for where we want to be when the crisis fades. Paraphrasing our company mission, we aspire to be an enduring company by creating superior products that are an essential part of our customers' lives. Our vision is to be a globally respected leader in every market we serve. We expect to emerge from this crisis as a stronger and more capable company. This isn't the first global crisis we've faced, and it won't be our last. During each task past and present, we rely on a set of unique strengths that help us through times of crisis. First, our highly diverse business model provides a rich set of opportunities and reduces our reliance on single markets and product lines. Each market we serve and each product line we offer has an important role to play, both now and in the future. We are also well diversified geographically, with roughly half of our revenue generated in the Americas, a third in Europe, and the remainder from Asia Pacific. Our revenue diversity will help us capture opportunities as the pandemic evolves from region to region. Second, we are a vertically integrated company. We control our own supply chain and are not overly reliant on outside partners to produce and distribute our products. This gives us a high degree of flexibility, efficiency, and effectiveness while operating in a highly dynamic business environment. And finally, we have a strong balance sheet with no debt and over $2.6 billion in cash and marketable securities. We are often asked why we maintain such a strong balance sheet, and our answer remains the same. Our balance sheet provides stability to our investors through our commitment to an attractive dividend and allows us to invest for the future when others are pulling back. In summary, our balance sheet is the cornerstone of our ability to face a crisis such as this. With these things in mind, I'd like to spend a few minutes providing a market update for each of our segments. Fitness had a strong quarter, driven by advanced wearables and our tax indoor bike trainers, which continue to experience strong demand during the current -at-home orders. A positive outcome of this crisis is the increasing focus on personal fitness, health, and wellness. People recognize that good health is an important defense against contracting the virus, and they're looking for tools that can help them improve their health. Our fitness products are highly relevant today and will remain so in the future. Marine posted a strong first quarter, driven by our strong lineup of chart plotters and game-changing sonar technology. We were recognized as supplier of the year by Independent Boat Builders, Inc. for the second year in a row, and our sponsored anglers swept the top three spots at the recent 2020 Bassmaster Classic. Boating is an active lifestyle pursuit that promotes family time, relaxation, and a sense of freedom. In the long term, we believe that the current crisis will increase consumer interest in boating and fishing. Certain restrictions have prevented some boats from coming out of storage as planned, which could impact the marine season. Once restrictions are eased, we expect to see strong demand for our products. Regardless of how things play out, we believe compelling innovation is driving market share gains, and we will continue to deliver innovation for the future. Outdoor posted strong operating results, driven by adventure watches. Time in the outdoors is highly compatible with healthy social distancing, and we believe that interest in outdoor activities will increase in the future. We already have a great lineup of products that support a broad range of outdoor activities, and in coming months, we will strengthen our position by introducing compelling new products and new categories. Aviation delivered strong operating results for the first quarter. We saw additional growth in the ADS-V category, but at a lower rate than last year, which was expected. Retrofit systems were strong, while OEM categories were roughly flat. The aviation market has been significantly impacted by the pandemic and economic damage caused by measures to contain the spread. First, travel has been brought to a near standstill by -at-home orders and international border closings. This has impacted both commercial and general aviation. Business confidence has been shaken by stock market volatility and rapidly declining economic activity. From history, we know that aviation takes longer to recover from severe economic shocks. Even so, we are optimistic about the future. We believe more people will seek transportation options that are secure, flexible, and convenient. These are the enduring qualities that general aviation has been known for throughout the decades. We are ready for this opportunity with industry-leading cockpit systems for every aircraft, from light board airplanes to large business jets. We will continue to invest for the future, and disruptive new cockpit technologies are on the way. Revenue from auto decreased 17 percent in the first quarter, and the segment was essentially break even. The first quarter of the year is seasonally slower for our consumer products, and some of our top-performing OEM products are at a mature point of their life cycle. As I mentioned earlier, people will seek transportation options that are secure, flexible, and convenient. For this reason, we believe personal autos will remain an important part of the future. To prepare for this opportunity, we have been making significant progress transforming ourselves to be a Tier 1 auto supplier. New vehicles are launching this year with Garmin hardware and software solutions, which will lead to revenue growth for the OEM category. In addition, we will be introducing new specialty product categories that will appeal to automotive adventurers. Finally, I want to make a few remarks about our plans for guidance. The impact of the coronavirus and the economic damage caused by efforts to contain and spread are unprecedented. The ultimate outcome remains unpredictable, causing us to withdraw our fiscal 2020 guidance, as I mentioned earlier. While the long term is difficult to predict, we want to share insights on what we have seen so far in Q2. On a consolidated basis, our April sales are trending about 40 percent lower than last year, as many retailers have curtailed operations and consumer activity has been severely limited by government restrictions. We expect these trends to continue throughout the second quarter, as restrictions remain in place across much of the globe. We anticipate being profitable in Q2, provided that our revenue development follows the trends we have been seeing so far. We have taken near-term measures to defer discretionary expenses, prioritize uses of cash for critical capex and acquisitions, and we have sharpened our focus in R&D. We look forward to providing annual guidance once economic volatility subsides and when consumer behaviors are better understood after restrictions are eased and the crisis passes. That concludes my remarks. Next, Doug will walk us through additional details on our financial results. Doug?

Thanks, Cliff. Good morning, everyone. I begin by reviewing our first quarter financial results. I move to comments on the balance sheet, cash flow statement, and taxes. We posted revenue of $856 million for our first quarter, representing a 12 percent increase year over year. Our gross margin was 59.2 percent, a 20 basis point increase from the prior year. Operating expense to percentage of sales was 38.5 percent, a 70 basis point decrease from the prior year. Operating income was $177 million, a 17 percent increase year over year. Operating margin was 20.7 percent, a 90 basis point increase from the prior year. Our gap EPS was 84 cents, and our former EPS was 91 cents. Next, to look at our first quarter revenue by segment, we achieved record first quarter revenue of $856 million with four of our five segments posting double-digit growth. As seen on the charts, we have a diversified business model from both a segment and geography perspective. Looking next, operating expenses. First quarter operating expenses increased by $29 million, or 10 percent. Research and development increased $19 million year over year, to investments in engineering resources and incremental costs associated with recent acquisitions. Advertising expense decreased approximately $1 million for the prior quarter. S&A increased $10 million compared to prior quarter, but decreased its percentage of sales to 16 percent, a 60 basis point decrease compared to the prior year. Increase was primarily due to personnel related expenses and incremental costs associated with recent acquisitions. As Cliff mentioned, we're implementing expense control measures to defer discretionary spending and sharpening our focus in R&D. A few highlights on the balance sheet, cash flow statement, and taxes. We ended the quarter with cash market securities of approximately $2.6 billion and no debt. Accounts receivable decreased sequentially to $500 million, following a seasonally strong fourth quarter, and increased year over year in line with first quarter sales. Inventory balance increased on both a sequential year over year basis as we have been preparing for the seasonally strong second quarter. We are aligning production levels and inventory with anticipated demand. However, we expect incremental increases in inventory in the near term, so it takes time to scale the supply chain around near term demand. During the first quarter of 2020, we generated free cash flow of $185 million, a $50 million increase for the prior quarter. We took another look at our capital expenditures and now expect 2020 annual capital expenditures to be approximately $140 million. Two key capital expenditure projects for 2020 were the tax manufacturing facility and the auto oil manufacturing facility in Europe. Also during the quarter, we paid dividends of $109 million. Turning an attractive dividend to our shoulders is one of the current priorities for cash. During the first quarter of 2020, we reported an effective tax rate of .3% compared to .7% in the prior quarter. The increase is primarily due to the migration of intellectual property ownership from Switzerland to the United States. This concludes our phone remarks. Jonathan, can you please open the line for Q&A?

Certainly, ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Ben Ballen from Cleveland Research. Your question, please.

Good morning, everyone. Thanks for taking the question. Cliff, I wanted to start. I think back in 2008, 2009, you were, I believe, president and COO of the organization. Interested in any thoughts you have on how what you're seeing now is similar or different versus then? And, you know, if you kind of take out your crystal ball and look into the future, how are you thinking about things developing or what are you looking for in the business before you start thinking about providing guidance on the year or even on a forward-looking basis? And then I have a follow-up. Thanks.

Yeah, thanks, Ben. Good morning. I think 2008, 2009 was a totally different set of circumstances. I think Garmin was a much different company back then. About 70-plus percent of our revenue came from literally one product line, and we were not as well diversified then as we are now in terms of facing a crisis. So we had a lot to worry about at that time, and we were facing also not only an economic crisis but a declining market. I feel like things are totally different now. Our company is very well diversified, and our product lines target all of the areas where we believe people are going to have a lot of interest in, especially as these restrictions are removed. So one thing we learned in the past is that certainly you have to have great new products. You have to be able to continue to invest. We're doing all of those things today, but we're a much different company than we were back then. In terms of how things develop for guidance, as I mentioned, we're going to be looking for changes around these restrictions. I think there's still a lot of uncertainty that's happening as every locale seems to have a different approach to removing restrictions, and every locale has a different approach when it comes to how much things they allow. So all of these things probably impact consumer behavior. That's a big wild card. And then just trying to see how the economic volatility shakes out, once we get a feel for that, we believe we'll be in a good position to be able to predict the business going forward.

Thank you. To follow up, if you look at your retail footprint, my understanding is you have a little more exposure to smaller specialty stores versus perhaps some other OEMs. What is your approximate exposure to maybe smaller mom and pops, smaller specialty retailers that don't have perhaps the same type of balance sheet as the larger big box stores, and any concerns on receivables from those partners? Thanks.

Yeah, I don't have a number I can share in terms of mix, but what I would tell you is that the execution of retail partners has been varied. The smaller shops are looking for ways to be successful and to try to keep their businesses open. Some of the larger retailers have taken a more conservative approach, and that's impacted obviously the retail sellout and the availability of products for consumers. But we've seen a great improvement in terms of online sales, so we're really excited about that, and we're working with our business partners to be able to enhance their online sales as well as our own carmen.com.

Regarding receivables, Ben, we are getting some requests from some of our customers regarding extended payment terms, and we're granting some of those. Our DSO probably will increase in Q2, but I do want to remind everybody that we do have trade credit insurance to limit some of our exposure with our receivables.

Thank you. Thank

you.

Thank you. Our next question comes from the line of Nick Totoro from Longbow Research. Your question, please.

Thanks. Good morning, everyone. I hope everyone is safe and well. Doug, can you comment on our clip on the current state of the channel inventories in each of the segments, maybe relative to historical norms? What do you think is going to be the retailer's strategy for channel inventory for the remainder of the year? I understand second quarter there's going to be a lot of distocking, but do you have any visibility of how your partners are thinking about the second half?

Yeah, I think we don't have a lot of direct feedback. I would tell you this, that we believe that the channel inventory is actually low. Where we see less restrictions in some of the locales, we actually see sell-through as indicated by our Garmin Connect indications as being very strong. With the sell-in situation being much lower, we believe that channel inventory is being depleted.

Okay. The second question, can you help us actually think about decremental margins? It's very unusual to see revenue declines on a sequential basis for you. I think historically it's been the -30% range, but any color on how should we think about decrementals that will be helpful here?

Yeah, I think it's not surprising that we see revenue declines in this environment. Today GDP for the quarter was down 5%, and most of the economic activity impact was in the last couple of weeks of the quarter. There's a severe economic impact taking place out there, and we certainly cannot defy that gravity. In terms of our margin impact, it all depends on product mix. We think some of the online sales will be accretive, and of course our key product lines are still a strong part of the overall mix. We're not anticipating any gross margin impact to any significant degree.

Okay. The last question before I jump back into Q. Can you help us think about OPEX? A lot of companies have seen increased expenses related to COVID-19. Are you seeing any? What is the impact of that? I know you originally planned to scale up R&D and SGA, but at the same time, I'm assuming that some discretionary spending is going to go down. Any color on how should we think about operating expenses in the near future?

Sure. This is primarily as we look at what's happening with our demand. We've taken a close look at our expenses across the board and put in place various expense control measures, some of those of which we're slowing our hiring, the second of which is taking a look at all of our discretionary spend just to make sure that that's appropriate. Also, as it relates to advertising, with the lower demand there, we're flexing our advertising down in response to some of that lower demand that's out there. As it relates to capex, I was pretty much mentioned that. We took a look at all of our capex also and making sure that's all the critical capex we have. As it relates to Q2, looking at each one of those, probably R&D and SGA, we'd expect that to probably be up a dollar amount year over year just due to our analyzing or annualizing some of the 2019 headcount additions. As it relates to advertising, that's one that we would expect that to be down a year over year just due to the flexing that down on our demand. We're constantly looking at our expense structure and seeing how we want to make that fit the current environment we're at.

Got it. Thanks, guys. Good luck.

Thank you.

Thank you. Our next question comes from the line of Charlie Anderson from Doherty & Company. Your question, please.

Good morning. Thanks for taking my questions. I wanted to start on the comment around the April sales. I just wanted to double check that that was indeed a sell-in versus a sell-through comment. Then, within that, I wondered if it's one versus the other, if you could speak to the other. If it's a sell-in, what are you seeing in terms of sell-through trends? Then, you have all kinds of different businesses here. I wonder if you could speak to how uniform those declines are. What's better off versus what's worse off within the business unit? Then, I have a follow-up.

Okay. Yes. The April trends that we're seeing, everything that we're doing is, of course, sell-in to the extent that those sales came from our online mix. Of course, that's going more direct to consumer, but in general, it's more influenced by sell-in. Sell-out, again, as I mentioned earlier, our indications from our product registrations on Garmin Connect are strong in those regions where restrictions allow the kinds of activities our products are known for. We're encouraged by that. Because of that, we believe that the channel inventory is being depleted in some of those places as customers are looking for products and trying to find whatever they can. In terms of segment by segment, we're seeing right now in terms of the sell-in, stronger results in outdoor and fitness compared to the trends that I mentioned. Marine is about where we expect, and then aviation and auto are trending behind.

Okay, great. Then, as it relates to the auto OEM business, I wonder if you could speak to what you're seeing there. We have a few large projects on the horizon with BMW and Geli. If you could just update us on if those schedules are remaining on track. Thanks.

Yes, so our current sell-in situation to OEM is affected by those programs that are more mature, like I mentioned in the remarks. We're seeing some weakness there, and especially probably compounded by the fact that automakers are shut down right now and their inventories are high. As we look towards the back half of the year, we do have those newer programs launching, and those should be a boost to the overall auto OEM category. The projects, the major ones, especially the BMW project, is a very complicated and involved project, but it's going well. We're meeting all of the milestones there, including standing up our factories that we need to be able to support the program. Okay, great. Thank you so much. Yes, thank you, Charlie.

Thank you. Our next question comes from the line of Will Power from Baird. Your question, please.

Great, yes, thanks. I guess a couple of questions. Yes, I guess either Cliff or Doug, I guess I'd be curious as to trends you've seen in the Asia pack. I mean, it looked like lower growth in Q1, and obviously they would have had an earlier COVID impact, but what have you seen trend there from March into April, and how does that inform how you're thinking about some of the other geographies?

Yes, Asia continues to struggle right now. China, I think, was the first country that really was impacted from a virus outbreak perspective, and the retail channels there completely shut down due to the virus spread. And we've seen it kind of roll around from country to country, so some of the stronger countries, as they get impacted and implement their own measures, then of course we see the situation change. So in general, as a whole, APAC has struggled to regain their footing, even though they're theoretically a little more advanced in the overall development of the pandemic. But we see encouraging signs in those countries where the virus has either been well controlled and restrictions are lifting, or they haven't yet had the kind of spread that other countries have had.

Okay, and then Cliff, I guess separately you talked about one of the areas of focus going forward is looking at opportunities longer term, and I think you referenced the strong balance sheet and cash. So how should we think about potential M&A? Are you starting to see more opportunities? How aggressive might you be there? And are there particular verticals that could look interesting here, given some of the challenges of some of your competitors potentially in the markets?

Yeah, we're still looking for opportunities. Of course, we're very discriminating, but I would anticipate there would be some opportunities that would come our way in the near term. And I think generally, you know, our experience in the past has been that this tends to shake out more opportunities. So again, we're looking to leverage our cash for things that can help Carmen be stronger and grow in the future, and that's what we'll continue to do during this time.

Okay, great. Yeah, hope you all stay as safe and healthy as possible. Thanks.

Thanks, Will.

Thank you. Our next question comes from the line of Paul Tung from JPMorgan. Your question, please.

Hi, guys. Thanks for taking my questions. So just first up, you know, retail shops are, you know, seeing some zero traffic essentially. So how big of a shift to online channels are you seeing as a result? You know, is there kind of a percentage of sales on your website and e-commerce site you can share, you know, pre-COVID? And then as we move forward post, are you thinking about kind of like a shift in strategy to kind of place more, you know, emphasis on direct to consumer e-commerce channels, you know, which would benefit margins, I assume? And then I have a follow-up.

Yeah, so online and web has been very strong during this time. I think it's a combination of the fact that many retailers, especially the bigger ones, have restricted access to their stores and customers are looking for ways to get products safely. So they're turning to online. For us, our website growth has been phenomenal during this period. And we've been adding to our capabilities on the website to be able to support sales strategies there With all of that said, our retailers remain very important to us. And as soon as they can come back online, we'll certainly be supporting them. But we do see a significant shift at this time. And I would anticipate that generally speaking, the shift to online that has been occurring broadly across all of the geographies is going to continue in the future.

Thanks. And then a follow-up on the marine side, you know, nice kind of growth to start the year. Sounds like some marine retailers are kind of seeing some positive trends in April, though. You know, sales are probably going to be down for the year. But now you have like the New York tri-state area kind of reopening marinas and, you know, boating arguably kind of suits social distancing. So usage, I assume, would be fine, possibly benefiting, you know, some accessory upgrades. Just want to get a sense for what you're seeing from your customers and how much, you know, how the month of April is evolving and anything you want to call out on the marine side. Thank you.

Yeah, I would say that it's a mixed situation for marine, depending on the locale and the retailer. Some retailers are doing very well and some have had to operate under more restrictive circumstances, even closing their stores. So this has hindered the access to marine products. And generally we've seen very strong end user demand for the products. Some of our top products, even on our own website, are marine products, which is somewhat counterintuitive because they're more complex and require installation, but people are buying those. So again, it's kind of a mixed bag. We would expect things would get better, as you say, as states open up for boating. Michigan has been a big one. You mentioned New York. That's also been a big one. We hope that boats can come out of storage soon. And we are hearing from the field that customers are excited about equipping their boats and getting them on the water. In terms of, you know, the opportunity going forward, we're very optimistic about marine. It's a great market. I think a crisis like this, when people are evaluating priorities, they tend to turn to things that inspire them. And I think boating and fishing is one of those things that will see a benefit in the future from people's evaluation of their priorities.

Thank you.

Thank you.

Thank you. Our next question comes from the line, Ivan Fintech from Tigris Financial Partners. Your question, please.

Thank you for taking my questions. And again, congratulations on another great quarter and really nicely managing the company during this difficult and crazy time. My first question is, Doug had spoken about CapEx, but something cut out on my phone. He said that investing in expanding the tax manufacturing, and then he said one other thing. It sounded like auto something. So what are the two big CapEx projects? Yeah,

Ivan, what it relates to is the tax facility. So when we acquired tax facility, we basically, at that point in time, made a decision to expand its manufacturing facility because of the increased demand we saw there. So we're in the process of actually building a brand new manufacturing facility of tax to handle the increased demand there. And the second one relates to auto AM manufacturing. So with that expanding, you know, with some of the additional programs we have, we're actually standing up a manufacturing facility in Europe.

Okay. Then, yeah, I think one of the things that when things go back to normal from my interaction and talking with people, I think the in-home fitness trend is going to be powerful. People seem to be willing to go to restaurants, theaters, all kinds of other venues that are crowded. The one thing is people seem to be reluctant to go back to the gym and are more interested in in-home fitness. So I think that's going to be a huge opportunity. How do you view addressing that opportunity further?

Well, that's what we're seeing. Ivan and the back orders on our tax products are very strong. We've not been able to supply all of the demand that we're seeing there. So we're working hard, as Doug said, to increase our capacity and hopefully then be able to get ahead of the demand curve that's occurring. We expect that there will be, people talk about a second cycling season, if you will, or indoor cycling season as people are more interested in staying indoors for a while. We expect strong sales to continue. And then, of course, as our factory comes online, we'll be able to deliver more volume.

Then one of the other things I noticed, which was really good, is that you added a lot of features and functionality to the Connect app that supported the watches with downloadable exercise routines that you could do at home and use your watch for. Can you give us some color on how you were able to coordinate that, especially if people who normally were in the office and kind of collaborating together and they're working from home because they did a nice job to increase the features during this time?

Yeah, we've had the capability in our devices to be able to put custom workouts and even provide instruction on the device with some of the newer devices that are out there. And our Connect IQ platform has been a solid investment for us to be able to expand the interest that people have in the product through third-party apps and our own apps that can expand utility. So our teams have been able to be very agile in rolling new things out. And it's helped create more engagement and interest in our products, which we're really thrilled about.

I'm going to have one last question. I know it's a hard question to answer. But as this increased interest in home fitness grows, there's a lot of small companies that have interesting products that could benefit from, let's say, your expertise. Are you looking at growing through acquisition in that area further the way you did with acquiring Tacx?

Well, I think Tacx is a great example. We did see the opportunity for that. And that's where we put a big bet in terms of expanding into a new category. I would say generally our MO for acquisitions is that we look for things that are either a complementary product or a technology, enabling technology that can help us expand into new product categories. And so that's what we'll continue to do, not speaking specifically about fitness, but really across the board.

Thanks and congratulations again. And I hope everybody stays safe and well. And I look forward to hopefully a different environment on the next call.

Thanks, Ivan, same.

Thank you. Our next question comes from the line of Eric Woodring from Morgan Stanley. Your question, please.

Hey, guys. Thanks for taking the call and a great quarter here. So just curious if you could provide some color on just what you're seeing. Obviously, you spoke to Sell Through in the outdoor fitness segments. But obviously, your results kind of buck the trend that we've seen or heard with other consumer names. So just any high-level color on how coronavirus has had an impact. And then perhaps asking that question a little bit of a different way is, you know, how far in advance do your channel partners typically purchase inventory? And is that changing in the current environment? And then I have a follow-up. Thanks.

Yes. So we saw strength in our business through most of the first quarter, remarkably strong really through most of about mid-March. And then things started to come down as the panic over the crisis quickly spread into Western Europe and North America. So we were super strong. We believe that's encouraging because, again, our products, our product lines are very strong. And our business in general had a lot of momentum. In terms of retailer behavior, you know, even when times are good, they don't try to over-index on inventory. I think they're very cautious. They have a certain amount of open to buy dollars. So it isn't as if they had stocked up with a significant amount of inventory. I would say it was fairly manageable inventory levels. And as their businesses have scaled back as they respond to the crisis, we believe that the inventories are depleting.

Okay. That's super helpful. And then can you just provide some commentary on what you're hearing from your OEM partners in the aviation market? You know, if you look back to 08, 09, obviously those markets were, that market was very weak. So just curious how they're viewing the current crisis relative to, you know, to a little over a decade ago. Thanks.

I think for aviation, probably the situation is very similar to 08, 09, a significant economic downturn and loss of confidence, particularly in the business sector. So generally, you know, I think they're very concerned. And some of the more public things that have been announced, you know, you see some OEMs that have done some furloughs and different things like that. And they're trying to scale their production to demand. But again, that said, I feel like the longer term is that general aviation has a bright future. Even now, many communities are actually losing their commercial airline services, airliners scale back. And so the only options for getting certain kinds of transportation is through general aviation. And we think because of the security, the safety, the convenience, the flexibility of general aviation, that it can play a big role in the future in this kind of concern over viral spread.

Super. Thank you. And then just last question, just a clarification question. Did you say earlier that you still expect your auto OEM business to grow in 2020? Just want to clarify that point. No, I'm done. Thanks.

Yeah, I think it will be towards the back half as newer products launch from the OEMs. And of course, their schedules are more endowed as well as they face supply chain issues and also demand issues. But in general, all of the indications we have is that these new products are launching as they plan.

Perfect. Thanks, guys.

All right. Thank you.

Thank you. Our next question is a follow-up from the line. I have Nick Totoro from Longbow Research. Your question, please.

Sure. Thanks for taking my follow-ups. You mentioned an inability to meet the fully current tax demand. Can you try to quantify that and also remind us when the new capacity is expected to come online?

Well, it's hard to quantify because we haven't found where the demand is. It's been so strong. So we're chasing as much of that as we can and trying to serve our customers the best that we can. The new factory is scheduled to come online about mid-year and should start to ramp up into the fall as we prepare for the next indoor cycling season that occurs next winter.

Okay. And then you mentioned the channel inventories are depleted. And I'm assuming in fitness the trends are strongest among all the segments. Yet how do we – can you provide any additional colors other than just April orders are down 40%? How much are orders for fitness segment trends in year over year, if you can share? Fitness

and outdoor have been above that trend. And again, these, to clarify, are sell-in trends. So the sell-out is – everything is a -by-case basis. But in those regions and countries where restrictions allow, we see strong registration activity on our Garmin Connect platform. And in places where restrictions are very tight, of course, you see a very predictable downturn in what's going on. So we're optimistic that as restrictions ease, that things should get better.

Are those restrictions kind of implying more of a slattish environment or -over-year growth and sell-through? How should we think about this?

Well, every country, every region has a -by-case situation to look at. If you look at the countries with the strongest restrictions, such as Italy, Spain, and France, sell-out is very confined there. In some of the cases in those countries, you need permission to even go out of your house. In other places, such as the Nordics, which have been taking a different approach to how they manage the crisis, the sell-out is very strong and actually in strong growth mode over the last year. So it's a mixed situation. And everything that we're seeing points to the fact that the restrictions on people is impacting the sales more than anything right now.

Okay. And a last question for me. In the marine segment, can you compare and contrast? Obviously, it's a much different business and your over-exposure to aftermarket helps you here. But compare and contrast that to the 2009 period where it kind of took two years for the segment to reach the 2008 peak. It seems like this cycle is going to perform much better. But what specifically gives you confidence and allows you to be more positive from the marine segment here, given it's still a discretionary spending and they're rather high-priced products?

Yeah, so there's a few things that are different this time. In 2008 and 2009, the production capacity was so high that when the pullback occurred, there was simply no way to sustain that kind of production capacity in marine products. And so the marine market, especially the OEMs, felt a significant impact from the reduction in demand. There was also a lot of crazy financing going on with boats. And so the overall financial situation of people buying boats and the financers that were financing the boats was very, very precarious. Rolling forward to where we are today, the boat market has slowly recovered from those lows. And so it hasn't overbuilt in the same way that it was back in 2008 and 2009. And the kinds of products that are being offered are in the bell curve of where demand still exists. It tends to be in those mid-range center console type of boats that still remain popular. And many of our OEM partners that are shut down right now are very anxious to go back to work because they have customers that want their boats that have ordered them and are anxious to get them. So we're optimistic about that. We don't think it's the same situation. But I would also say that anytime there's economic shocks, that will take a certain number of customers out of the market. So there's bound to be some impact, but we hope it's not as bad as what it was before.

Got it. Thanks, guys. Good luck.

Yep. Thank you.

Thank you. Our next question is a follow-up from Eric Woodfin from Morgan Stanley. Your question, please.

Thanks, Seth. Just one last question here. My question was just wondering if you could detail kind of in the fitness and outdoor segments what the contribution to growth was from units versus pricing?

Yeah, we don't break out just in terms of ASV and units versus pricing, but we're seeing in the Q1 growth in both as we've had newer product lines in fitness and also our new product lines in outdoor, especially in the Phoenix area.

Okay. Great. Thanks, guys.

Yep. Thank you.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to the Tourista Sec for any further remarks.

Thank you all for joining us today. Doug and I are available for callbacks, and we hope you all stay safe and healthy. Bye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.