Garmin Ltd.

Good day, and thank you for standing by. Welcome to the Garmin Limited Third Quarter 2021 Earnings Conference Call. At this time, all participants are in 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 star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Ms. Terri Seck. Ma'am, please go ahead.

Good morning. We would like to welcome you to Garmin Limited's third quarter 2021 earnings call. Please note that the earnings press release and related slides are available at Garmin's investor relations site at www.garmin.com. An archive of the webcast and related transcript 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 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 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 Limited this morning are Cliff Pimbles, 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 Pimbles.

Thank you, Terry, and good morning, everyone. As announced earlier today, Garmin reported record revenue of $1.2 billion for the third quarter, increasing 7% over the pandemic fuel levels we achieved in the prior year. Operating income declined year over year to $283 million due to a combination of higher freight costs affecting gross margin and increased expenses as we invest in R&D, information technology, and marketing initiatives. Operating margin was very strong at 23.7%. There are two things to consider when looking at our performance in the back half of the year. First, financial comparisons to the prior year are more challenging due to the pandemic-driven demand and retail disruptions of 2020. Also, we are facing one of the most challenging supply chain environments in history. Our vertically integrated business model and commitment to safety stock was a key factor driving revenue growth for the quarter. But supplies are tight, and we expect freight costs to remain elevated as we rush to fill retail shelves in time for the important holiday selling season. I'm pleased with what we've accomplished in this tough environment, and I'm very proud of our team. who've worked tirelessly to maintain continuity of supply from our factories to customers. Last time I mentioned that we invested in a fourth production facility in Taiwan. I'm pleased to report that this facility is operational and will help us fill more orders during the important holiday selling season. Given our strong performance in the first three quarters of the year, we're updating our full year guidance. We now anticipate revenue of approximately $4.95 billion, up 18% over the prior year, with double-digit growth expected in each of our five business segments. In a moment, Doug will provide more details on our financial results and updated guidance, but first I'll provide a few highlights for each business segment. Starting with fitness, revenue increased 4%. to $342 million, with growth driven primarily by cycling products and advanced wearables. Our ConnectIQ development platform is a strong differentiator for us, and we are deploying it across a broader range of Garmin devices. We recently held our fifth annual developer conference, where we announced a partnership with Dexcom to deliver real-time glucose information via a ConnectIQ app on selected smartwatches and cycling computers, even during activities. Fitness segment revenue has grown 26% year to date, and we are maintaining our revenue growth estimate of 17% for the year. Moving to outdoor, revenue decreased 3% to $324 million. The decrease in revenue is due to the strong sell-in activity associated with the launch of our solar adventure watches in the prior year quarter and limited supplies of traditional handheld and dog products in the current quarter. During the quarter, we launched the Approach R10, our first portable golf monitor. The R10 can be used on course or at home to help golfers improve their game with more than a dozen key metrics shown in real time. Customers are very enthusiastic about the R10, and it's on its way to becoming another halo product for Garmin. Outdoor segment revenue has grown 26% year-to-date, and we are maintaining our growth estimate of 17% for the year. Looking next at aviation revenue increased 19% to $180 million this year, with growth in both OEM and aftermarket product categories. During the quarter, we were ranked number one in avionics product support by Aviation International News for the 18th consecutive year. Being consistently recognized for unrivaled support year after year clearly shows our strategic focus on taking care of customers and standing behind our products. We launched Smart Glide, a game-changing safety feature inspired by Autoland technology that will help pilots manage loss of engine power by automatically flying the optimal glide ratio and navigating to the best available airport. Also in the quarter, we announced the certification of the GFC 600H flight control system on the Bell 505 helicopter. This advanced autopilot includes state-of-the-art safety features such as electronic stability control and a hover assist mode. We are pleased with how the aviation segment has recovered so far this year and now expect full-year revenue guidance to increase approximately 12%. Turning next to the marine segment, revenue increased 25% to $208 million, with growth across multiple categories led by chart plotters. We continue to be recognized for innovation and achievements in the marine industry. For the seventh consecutive year, the National Marine Electronics Association named Garmin Manufacturer of the Year, and we also received five Product of Excellence awards. During the quarter, we introduced Surround View, the industry's first intelligent camera system that provides a 360-degree bird's-eye view around the vessel. We also announced our partnership with Malibu Boats. Our seven-inch touchscreen displays will be standard equipment across the Malibu Access boat line, beginning with the 2022 model year. Given the strong year-to-date performance on the marine segment, we are raising our revenue growth estimate to 30% over the year. And looking finally at auto, revenue increased 7% to $138 million with growth primarily driven by OEM programs. During the quarter, we began production shipments of the BMW computing module from our Olathe, Kansas, manufacturing facility, and we delivered prototypes of the next-generation BMW system from our new manufacturing facility located in Poland. We also recently announced a refreshed lineup of drive navigators for the consumer auto segment. These devices offer larger, higher-resolution displays, as well as enhanced connected features. Given the strong year-to-date performance of the auto segment, we are raising our revenue growth estimate to 17% for the year. That concludes my remarks. Next, Doug will walk you through additional details on our financial results and updated guidance.