Garmin Ltd.

Thank you for standing by, and welcome to the Garmin Limited Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touchtone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference to your host, Ms. Terri Seck, Director of Investor Relations. And you may begin.

Good morning. We would like to welcome you to Garmin Limited's Fourth Quarter and Fiscal Year 2021 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 margins, operating margins, future dividends or share repurchases, 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. 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 a best estimate based on the information available as of today's date. 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 reported earlier today, we ended 2021 with fourth quarter revenue of $1.39 billion, up 3% over the prior year, representing a new record for Garmin. During 2021, quarter-by-quarter comparisons to the prior year have been difficult to interpret due to pandemic-driven swings of 2020. It's interesting to note that revenue grew 12% on a CAGR basis compared to Q4 of 2019. We believe this comparison better reflects the underlying strength of the business, and we are very pleased with our development over these past two years. Operating profit came in at $315 million, down 15% over the prior year. Gross margin declined due to pressure that every business is facing. notably higher freight costs. In addition, operational expenses increase for a variety of reasons, including higher associate headcount, increased compensation costs, and the increase of certain operational expenses as business activities normalize. Even with these headwinds, operating margin remained very strong at 22.6%. 2021 was our sixth consecutive year of revenue and operating income growth, establishing new records for the company. Revenue increased 19% to nearly $5 billion, and operating income grew 16%, exceeding $1.2 billion. Each segment delivered strong double-digit revenue growth. I'm very proud of what we accomplished, especially considering the challenging operating environment everyone is facing. The availability of electronic components has been a major topic of conversation over the past year. While we are not always able to get everything we need, we believe we've been very effective in managing the situation as evidenced by our results. Our vertically integrated business model gives us greater levels of agility and flexibility in this dynamic supply chain environment. However, it's the creativity, determination, and teamwork of our associates that made these accomplishments possible. I'm very proud of our associates, and I'm grateful for all they have done. Looking forward, we are encouraged by the opportunities of the new year. We have a great lineup of recently introduced products with additional introductions planned throughout the remainder of the year. We anticipate consolidated revenue will increase approximately 10% to $5.5 billion, driven by new product introductions and strong market trends in many of our segments. Our results and outlook for the new year give us confidence to propose a 9% dividend increase, which will be considered by shareholders at the upcoming annual meeting. Before moving on to segment highlights, it's important to share context on how we see the business and markets evolve in 2022. The pandemic drove additional demand in certain product categories, which is starting to normalize from peak levels. This will create additional dynamics to consider for the coming year, and I will note these as I cover each segment. The nuances of individual categories are not a major concern for us. Rather, it's our strategic focus on diversification that brings many opportunities for growth. which is the basis for our outlook for 2022. Starting with the fitness segment, revenue increased 16% for the year, as strong demand for advanced wearables and cycling products fueled our growth. Full year gross and operating margins were 53% and 24%, respectively, resulting in operating income growth of 17% over the prior year. In the fourth quarter, fitness revenue was flat over the prior year as growth in wearables was offset by lower revenue in cycling. Product differentiation is a key factor in our ability to compete in the market for wearables. Lilly is a great example with its small form factor, appealing design, and unique display that hides when not in use. Customers buying Lilly are overwhelmingly new to the Garmin brand demonstrating the power of differentiation to attract new customers. The cycling category has more than doubled over the past two years, fueled by pandemic-driven demand for both indoor and outdoor cycling products. The market is starting to normalize at levels below recent peaks, but well above pre-pandemic levels. With this in mind, we expect fitness revenue to be flat year over year, as growth in wearables is offset by lower revenue in cycling products. In addition, we expect revenue to decline in the first half as we compare against stronger periods from the prior year. In the back half of the year, we expect a return to growth as the cycling market stabilizes and with contributions from new products. In the outdoor segment, full year revenue increased 14% with growth across multiple categories driven by strong demand for adventure watches. Full year growth and operating margins were 65% and 38%, respectively, resulting in operating income growth of 9%. In the fourth quarter, outdoor revenue decreased 8%, primarily due to component constraints in our traditional handheld and dog product categories. We ended the year with unusually high back orders, which were pushed into the new year. On January 18th, we announced sweeping updates to our Phoenix Adventure Watch series, featuring a distinctive new design and a touchscreen display. We also announced the all-new Epyx with a bright AMOLED touchscreen display and class-leading battery life up to 16 days. Last week, we announced the all-new Instinct 2 series in two sizes, which will expand the addressable market for this unique adventure watch. Select Instinct 2 models with solar technology can operate indefinitely using only the power of the sun, which is a breakthrough achievement in the smartwatch market. Demand for these new products has been very strong, and we expect them to be a significant catalyst for growth in the coming year. With these things in mind, we anticipate outdoor revenue will increase approximately 20% for the year. Looking next at the aviation segment, full-year revenue increased 14% due to contributions from both OEM and aftermarket categories. Full-year gross and operating margins were 73% and 27%, respectively, resulting in operating income growth of 40%. In the fourth quarter, aviation revenue was up 13%, driven by growth in OEM categories. Aftermarket sales were flat due to component supply constraints. Aviation also ended the year with unusually high levels of backorders, which carried into the new year. The pandemic highlighted the unique value proposition of general aviation. Aircraft OEMs are reporting robust orders from both new and existing customers. Aftermarket demand is also strong, as customers invest in new cockpit systems. We expect these trends to drive revenue growth of 10% for the year, with revenue exceeding the peak we experienced during the ADS-B mandate. We expect incrementally stronger growth in the back half as production levels increase over the course of the year. Moving to marine, the segment delivered another year of impressive results. Revenue increased 33%, with broad-based growth across all categories, led by strong demand for chart plotters. We benefited from both market expansion and share gains driven by our strong product portfolio. Full-year gross and operating margins were 57% and 28%, respectively, resulting in operating income growth of 39%. In the fourth quarter, marine revenue increased 14% as the strong trends we experienced throughout the year continued. We recently acquired Vesper Marine, a company specializing in the design of modern VHF radio systems for the marine market. Looking forward, we anticipate that strong interest in boating and fishing will remain strong. Boat builders continue to report strong sales and retail partners are preparing for another year of growth. With these things in mind, we anticipate revenue from the marine segment will increase 15%, surpassing the $1 billion threshold for the year. Moving finally to the auto segment, full-year revenue increased 26% with contributions from both auto OEM and consumer auto categories. Full year gross margin was 39%, and we recorded an operating loss of $71 million, driven by investments in auto OEM programs. In the fourth quarter, auto revenue was up 21%, with contributions from consumer specialty categories and new OEM programs. In consumer auto, we continue to launch new specialty categories that lead to growth opportunities. At CES, we announced the Tread series for the side-by-side vehicles, bringing off-road specific features and in-reach communications to the side-by-side market. Last week, we announced the Instinct Diesel Edition, the first smartwatch designed specifically for the trucking market. BMW recently unveiled their vision for in-car entertainment, bringing a truly cinematic experience into the vehicle. This immersive entertainment system is powered by a multimedia computing platform designed and built by Garmin. We continue to invest heavily to bring this and other BMW systems to market. The investment has been more significant than anticipated, and these investments are expected to continue throughout the remainder of the year as we fulfill our obligations to BMW. This will result in AutoEM operating loss for the year, that is roughly comparable to that of 2021. We expect to start production of the next generation BMW computing platform later this year at low volumes with a more meaningful production ramp occurring in 2023. With these things in mind, we expect total auto revenue to grow approximately 5% for the year. So that concludes my remarks. Next, Doug will walk through additional details on financial results and our updated guidance. Doug?

Thanks, Cliff. Good morning, everyone. I'd like to begin by reviewing our fourth quarter and full-year financial results. I'd like comments on the balance sheet, cash flow statement, taxes, and our 2022 guidance. We posted revenue over $1.3 billion for the fourth quarter, representing a 3% increase year-over-year. Gross margin was 55.5%, 300 basis point decrease in the prior year quarter. The decrease was primarily due to higher freight costs and favorable impact of foreign exchange rates. Operating expense to percentage of sales was 32.8%, 170 basis point increase. Operating income was $315 million, a 15% decrease. Operating margin was 22.6%, 480 basis point decrease in the prior year. Our GAAP EPS was $1.48. Our FORMA EPS was $1.55, a 10% decrease in the prior year for FORMA EPS. Looking at the full year results, we posted revenue over $4.9 billion, representing a 19% increase year-over-year. Gross margin was 58%, 430 basis point decrease in the prior year. The decrease was primarily due to higher freight costs. Operating expense, percentage of sales, was 33.6%, a basis point decrease. Operating income was $1.2 billion, a 16% increase. Operating margin was 24.5%, a 70 basis point decrease in the prior year. Our GAAP EPS was $5.61, Performa EPS was $5.82, a 13% increase from the prior year Performa EPS. Next, we look at fourth quarter revenue by segment and geography. During the quarter, we achieved consolidated growth of 3%, with double-digit growth in the aviation, marine, and auto segments, partially offset by decline in the outdoor segment. The fitness segment was relatively flat year-over-year. By geography, 8% growth in APAC and 5% growth in Americas was partially offset by a decline of 2% in EMEA, which was negatively impacted by foreign exchange rates during the quarter. For the full year 2021, we achieved 19% consolidated growth with solid double-digit growth in all of our five segments. By geography, we achieved double-digit growth in all three regions, led by 21% growth in APAC, followed by 19% in Americas and 18% in EMA. Looking at operating expenses, fourth quarter operating expenses increased by $37 million for 9%. Research and development increased $22 million year-over-year, primarily due to engineering personnel costs. S&A increased $15 million for the prior year quarter, primarily due to increases personnel-related expenses, information technology costs. Advertising expense was consistent with the prior year quarter. A few highlights on the balance sheet, cash flow statement, and dividends. We ended the quarter with cash and marketable securities approximately $3.1 billion. Account receivable increased sequentially to $343 million. It was strong sales in the fourth quarter and was relatively flat year over year. Inventory increased year-over-year to $1.2 billion, increases due to several factors, including preparation for first quarter product launches, increased levels of indoor cycling products, expansion of our global manufacturing footprint, and executing our strategy to increase days of supply to support our increasingly diversified product lines. During 2022, we expect our inventory balance to continue to grow as we work to optimize the mix of ocean versus air freight shipments, carry sufficient levels of safety stock to mitigate increased lead times, and generally manage the supply of raw materials. During the fourth quarter of 2021, we generated free cash flow of $49 million. For the full year of 2021, we generated free cash flow of approximately $705 million, a $245 million decrease from the prior year, primarily due to increased inventory levels and higher capital expenditures. For 2022, we expect free cash flow to be approximately $725 million, with approximately $310 million of capital expenditures. For 2022, we expect to continue to make investments in platforms for growth, including our Taiwan manufacturing facilities, continued renovation of our Latha facilities to increase workspace capacity, and IT-related projects. Also, we announced our plans to seek share approval for an increase in our dividend, beginning with the June 2022 payment. Proposal of the cash dividend of $2.92 per share or 73 cents per share per quarter. It's a 9% increase from our current quarterly dividend of 76 cents per share. For full year 2021, report an effective tax rate of 10.3%. Turning next to our full year guidance. We estimate revenue of approximately $5.5 billion an increase of 10% over the prior year. It doubled as it grew in three of our five segments. We expect gross margin to be approximately 57.5%, which is lower than our full-year 2021 gross margin, primarily due to higher supply chain costs and less favorable foreign exchange rates, partially offset by increases in selling prices. We expect an operating margin of approximately 22.8%. The full-year pro forma effective tax rate is expected to be approximately 10.5%. This results in expected pro forma earnings per share of approximately $5.90. Finally, I've discussed the changes in our methodology for classification of certain expenses and allocation of certain expenses among the segments. I plan to reflect these changes in our reporting for the first quarter of 2022, and prior periods will be recast to conform to the revised presentation. The new expense classification will result in less indirect SG&A costs being classified as R&D expense. which we believe will provide a more meaningful representation of the costs incurred to support R&D activities, consistent with the way management will use the information in decision-making. We estimate that approximately $61 million of expense, as classified as R&D in 2021, will be reclassed as SG&A. Future reports will also reflect a refined methodology to allocate certain SG&A expenses to the segments in a more direct manner, based on analysis of activities supported by those expenses. We believe this refined allocation approach will result in more meaningful representation of segment operating income. We estimate that fitness and outdoor will be allocated more SG&A expenses, resulting in lower operating margin, while other segments will be allocated less SG&A expenses, resulting in higher operating margin. These changes have no impact on our consolidated operating income or net income. We conclude our forum remarks. Valerie, please open the line for Q&A.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touchstone telephone. Again, to ask a question, please press star then 1. One moment, please. Our first question comes from Nick Torodo of Longbow Research. Your line is open.

Yeah, thanks, and good morning, everyone, and congrats on great execution and results. Cliff, I think I heard you mention during the prepared remarks that you're raising prices in some segments. Can you talk in which categories or segments are you able to mitigate the rising input cost, and how should we think about the cadence of that mitigation throughout the year? I'm assuming in some segments it's harder to pass through to increase prices immediately.

Yeah, Nick, we have a diversified business, and so each segment and sometimes within each segment's different product categories have have different considerations when it comes to pricing. We're looking at a combination of both more broad price increases where we are able as well as resetting product pricing as we introduce new products. I think that's most of what I would probably comment on right now, and I think it will take some time for some of these changes, of course, to come through, but I'm confident that we'll be able to see a difference as time goes on.

Okay. And as a follow-up, can you talk about how are you navigating through the component constraints? I think particularly in aviation, something we've heard is that obviously component lead times have stretched quite a bit, but some components that are used in avionics have been announced as end-of-life. So I'm just curious, are you facing any redesigning activity, and how should we think about potentially that impacting aviation margins in the near term?

Yeah, I think component constraints have been a challenge for a while now. As I mentioned in my remarks, vertical integration is a huge differentiating factor for us because we're able to use alternative components and we're able to redesign things when we need to. And we have maintained very good relationships with suppliers. They're under a lot of pressure at this time, too, and they certainly get a lot of people beating them up. We try to focus on relationships But that said, particularly in aviation, you mentioned end of life as a potential issue. That's really not a new thing in aviation. I think avionics designs tend to have longer life cycles. So consequently, we've dealt with that issue for a long time, and we manage through that mostly through a combination of redesigns and also safety stock. So again, I think we're able to handle this situation better than most because of our our strong R&D and our focus on vertical integration.

Got it. Very helpful. And Doug, if I can sneak one in for you, just can you talk about OPEX puts and takes in 2022? I know you mentioned you're going to be changing and reallocating expenses, but based on the current reported basis, how should we think about OPEX parts moving as a percent of sales?

Sure. So, yeah, the percentage of sales for the full year and looking at the different categories. Yeah, I'll talk about it. on the new methodology from that standpoint. That's the way we're reporting in 2022 and we're casting 21. So, we expect, you know, on overall operating expenses of sales year-over-year, probably about 120 basis point increase year-over-year. And looking at the various categories, first, advertising. We expect advertising sales to be up slightly, maybe about 10 basis points. Then looking at R&D, we expect that to be up probably about 40 basis points, percentage of sales. There, you know, we're continuing to make investments in headcount as well as compensation-related items impacting R&D. Then in SG&A, we expect that to be up about 70 basis points, percentage of sales year-over-year. There, you know, the big driver is primarily IT costs, but also we'll see increased costs in other areas, parts of our business such as product support, operations, just because of increased volume as well as more consumers and users.

Got it. Very helpful. Thanks, guys.

Thank you.

Thank you. Our next question comes from Paul Chong of JP Morgan. Your line is open.

Hi. Thanks for taking my questions and very nice print. So just on margins, you know, given the very strong kind of outdoor aviation industry, you know, revenue guide would have thought that kind of overall margins would have seen some benefits there, even with the kind of negative auto contribution this year. So, can you quantify maybe the freight components kind of headwind baked in the margin guide?

Yeah, this is Doug. We don't give a breakout of the different components of, you know, gross margin on freight. A little bit of background on what's driving that. You know, the 50 basis point decline. So we do expect, you know, to see higher supply chain costs year over year. You know, freight, you know, increased during the year in 2021. So we're going up against, you know, tougher comps in freight the first part of the year. Also, we'll see some headwinds relating to FX also for an exchange rate. in there, too, that will give us some headwinds in there, too. So, and then, as Cliff mentioned, you know, we're looking to increase selling prices where we can, but as you mentioned, you know, there's a lot of puts and takes, a lot of moving parts, and that gross margin you have, like you've mentioned, you know, some different things relating to segment mix, and there we factored in, you know, new product launches, but, you know, there overall is still some headwinds, you know, in the supply chain side of things, and FX that are bringing that, I'll say, from an overall basis, down about 50 basis points.

Gotcha. And then just on outdoor, you know, with handhelds and, you know, dog products maybe pushing into 22, should we expect a little less seasonality in 1Q as a result? And then if you could expand on the outdoor guide, which is quite impressive, what's driving the confidence in that guide? And, you know, how has the Phoenix refresh been received?

Yeah, I think that the handheld and dog products, as I mentioned, Paul, the back orders for those, of course, push into the new year, and those were driven by supply constraints that we experienced at the end of last year. Those are getting incrementally better, although we still are taking a wait-and-see attitude, but we're building and shipping everything that we can. I think that those categories are meaningful, but small in the overall range. scheme of the outdoor segment, so I don't think you're really going to notice a lot of seasonality effect because of that. In terms of the guide and the potential impact from the new adventure watches that we introduced, the reception to those watches has been very strong, as I mentioned. And, of course, the interest in those products and the momentum from them is behind our 20%. estimate growth for the year. So we're very pleased with that and we think we'll have a very good year in outdoor.

And then lastly on aviation, your guide implies revenues now well above the record 19 levels on ADS-B, but what's driving the guide this year? How has the product portfolio evolved? And then how should we think about operating margins for 22 in aviation? Can we end the year kind of approaching that 30% or exceed that? Thanks.

Yeah, so definitely we've recovered a lot of revenue that went away after the ADS-B mandate. We expected that revenue to go away because it was a once-in-a-generation mandate from the FAA to equip every general aviation aircraft, which once that's done, that opportunity, of course, is gone. But we've been able to recover those revenues through a strong product line, particularly our flight control systems, are very strong, very well received in the market, and that's driven upgrades in cockpits. And as I mentioned in my remarks, the general sentiment around OEM aircraft makers is that order books are strong, customer interest is very strong, and, of course, we're in the bell curve of general aviation, which gives us the ability to grow along with the market there.

Thank you. Our next question comes from Jeffrey Rand of Deutsche Bank. Your line is open. Hi.

Thanks for taking my question, and congrats on a good quarter and a year. Your auto OEM business is clearly a good growth opportunity for you going forward, but at a lower margin compared to some of your other businesses. How do you think about the revenue growth opportunity versus the headwind to gross margin for the overall company for this business?

Well, I think, Jeffrey, the opportunity in AutoEM, of course, is the large scale that comes with these big programs. So that's what we've been investing to bring to market, as I mentioned. They do come with a different margin profile. That hasn't really been our concern relative to the rest of the business because we're focusing on the revenue growth and the scale opportunity. But the challenge for us going forward, of course, is, is proving that we can get that scale and also be profitable in the business.

Great. Thank you. And as a follow-up, you noted a reduction in your cycling products and your prepared comments, and there have been some demand concerns at one of the largest indoor cycling companies recently. How do you think about this business going forward? And if there was some pull-in during the earlier part of the pandemic, how long do you think this takes to work through before the business kind of returns to typical growth?

Yeah, I think your question is interesting. We're not here, of course, to talk about specific names, but I think I understand your comment, and I would say that our indoor cycling products are very different from some of the headline companies that have been talked about a lot recently. Our products are focused on athleticism and performance, and we're not really in the spin bike business, which has been hit pretty hard by people returning to gyms. But in terms of pull-in, there probably was some. People got interested in those kinds of products, so they did equip their bikes. They did equip their homes with training devices. But as I mentioned, we're seeing the market sell out, normalize around levels above that of 2019, which was the last normal year in that cycle. So there's some high-channel inventory right now, not necessarily specific to our product lines, but every trainer... maker rushed into the market and filled the channels, and so that will take some time to work through. We expect probably the better part of this year before things really normalize.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Ben Bolin of Cleveland Research. Your line is open.

Good morning, everyone. Thanks for taking the question. Cliff, I guess it's been danced around a little bit, but when you look at the spread of in terms of your 2022 guidance for outdoor and fitness. You know, it's the widest gap we've seen since, I guess, 2017, and it ended up being about a 35-point spread between the two in terms of year-over-year growth. But I guess I'm interested in your thoughts on the high-end wearables within the segments. Do you see any secular changes out there which are, you know, moving the difference between the two outlooks in the growth rates, or – Going back to that last question, do you think it's just inventory and cycling? What's driving that spread?

Well, lots of moving pieces, Ben, and you've kind of hit on the major ones. The one thing I would just highlight in addition is that product lifecycle differences between the two segments can definitely impact the growth patterns between the segments. We're coming off a super strong launch in outdoor, as I mentioned, with the new Phoenix, the Epics, and the Instinct products. And the cadence of introductions in fitness is a little bit different. Combine that with the overall normalizing of the cycling market, that's why there's the difference between outdoor and fitness.

Okay. And the last one for you is, If you look through the elevated auto OEM investments that are happening right now, when you're on the back end of this, when you're into 2023, any thoughts on what a normalized margin might look like within that business over time?

I think we've mentioned before and it's very typical in the auto business that the margins can be in the mid to high teens on on certain highest volume product lines. So that's what we're expecting. I think that's what we've communicated before to the market. Great. Thanks. Thank you.

Thank you. Our next question comes from Will Power of Bayard. Your line is open.

Okay, great. Thanks. Yeah, I guess a couple of questions. Maybe circling back on fitness, I know, you know, Cliff, you noted some of the cycling headwinds, which probably aren't a big surprise, but we'd love to get a bit more color on the confidence and key drivers within the wearable segment that you expect to, you know, help offset some of the cycling pressure. And I guess within that, any color on 4Runner and what you're seeing there, is that something that you think can grow as we kind of come out of the pandemic? Just thoughts there, too.

Yeah, I think, you know, we put out our view of the year, you know, based on a high level of confidence that we can achieve what we say. I think that, you know, we've seen a continual strength in the advanced wearable that's really all products with GPS smartwatch capability in our fitness product line. So that includes Runner, that includes Venue and Vivoactive and all those kinds of products. We're coming off of strong releases from last year and some of the advanced wearables consumer wearables, and then our running products have refreshes coming as well. So all of those things coming together we feel like will be positive things. And when you consider that events, particularly races like 10Ks, half marathons, marathons have been mostly canceled during the last two years. As some of those start to come online, we think it will drive additional interest in running products.

Okay. And it's just second question on Marine. How do we think about, you know, the potential pull forward impact you saw there? Obviously you're confident in a continuing strong, you know, growth outlook. So it feels like you're not expecting as much of a, you know, cop issue there, but we love any kind of color there. And then, you know, any thoughts on best Marine and the impact that would have on the 22 guidance?

In terms of a potential pull forward in marine, it's always a possibility, I suppose. But in general, the marine market has been very constrained with the supply of boats, whether it's new boats from manufacturers or used boats. People are not letting go of their boats. And so consequently, they're equipping their boats. There are a lot of boats out there in use that have very old equipment. These are long-lived boats. assets on the boats, so there's plenty of opportunity for retrofit in the market, and as the new boats are built, many of them are equipped with Garmin products, and so we believe that the growth opportunity in marine is still very good. In terms of Vesper, just quickly comment on that. I would say that it's a technology and engineering acquisition for us, so it's not material in terms of revenue or cost structure, but The group had very significant design capabilities in the area of VHF radios, and so that's an area we want to build our capability in. Great. Thank you. Thank you.

Thank you. Our next question comes from Eric Woodring of Morgan Stanley, Atlanta, Oakland.

Hey, guys, thanks for taking my question. Maybe if we just stay on marine for one second, you know, can you help us just better understand how the drivers of the marine business are changing at all? Meaning, you know, we know there are still backlogs that's, you know, in the OEM business, that's typically a smaller part of your marine business. But what are you just seeing in 2022 versus 2021 that give you the confidence in the 15% growth?

Yeah, I would say, Eric, it's really the same factors that drove 2021 carry forward into 2022. We see strong demand from the boat builders as they ramp up production to fill the demand. They've got historic back orders on their books as well, so they're increasing their production. That benefits us. And then generally, the enthusiasm around New technologies in marine, particularly the fishing area and the advanced sonars that we offer, continues to be strong, bringing new people into the market, causing them to replace their old equipment, including both sonars and chart plotters. So these trends have been the same for a while now, and we expect those to continue in 2022. Okay.

Thank you. And then maybe if we just touch on the cost side. you know, I guess based on the kind of the revenue and segment revenue and then total gross margin disclosure, we do have to assume that gross margins are down across most segments. Is that fair to think, or should it be more acute in certain segments? And then on the operating side, just, you know, is the pressure mostly blamed on investments in autos, or again, is their investment outside of autos that is going to be more elevated in 2022 relative to, say, 2021? Yeah.

Regarding a gross margin, you know, it's a lot of factors take place there. You know, product launches, you know, new products take that into consideration. Some are more impacted, you know, on FX than other ones. And as Cliff mentioned, you know, some are related to selling prices. So, yeah, We do expect probably some kind of depressed overall consolidated, but I think it's going to be a mix among the various segments to get that overall one. I probably would say auto-emmo one, we probably would see that gross margins, we'd say that would be down year-over-year just because the BMW would be a bigger piece of that overall business, and then fitness also with some of the pressures that they have probably be down there too. Then other ones are probably dependent upon what the product launches and all those different things. Relating to the cost side, yes, you know, on AutoM's side, R&D expenses will probably be up, you know, over the previous year, 2021. But also, you know, we're seeing, you know, increased investments across all of our businesses. You know, R&D will make those investments to really drive innovation, as well as we'll see some, you know, from the SG&A side of things, you know, IT type of costs increasing. Those type of things, just higher levels of our business, you know, larger footprints. We have manufacturing operations. Those type of things are driving some expenses in there also.

Okay. Thanks, guys. I appreciate it.

Thank you.

Thank you. Our next question comes from Ron Epstein of Bank of America. Your line is open.

Hey. Yep. Good morning.

Good morning.

Ian. In your supply chain relative to aviation, the private aviation market is pretty much on fire. I would imagine the demand signals you're seeing from some of your OEM customers, if they're not really strong right now, they will be soon. How are you set up for that potential ramp?

We're prepared with plenty of factory capacity. We have always focused on a strong supply chain in aviation so that we can meet the needs of our customers. And as I mentioned in my remarks, absolutely we see the demand from the OEM side, and they're reporting robust orders. And so we feel like we're very prepared for the increases that they're looking at.

Great. And then in terms of, if you can even shed any light on it, because I know it's a sensitive thing to talk about, but What's going on on the new platform side? I mean, are you guys actively working with OEMs on potential new platforms?

Sure.

That's it? Sure?

Well, you know, we're always working on things, and, of course, we can't share anything in advance, but we're always working with new customers and new platforms.

Right. Fair enough. I know that's a tough question, but... And then with the Phoenix and the Epix, the Phoenix 7 and the new Epix, which are you seeing a better response to? Because they seem to be pretty similar products.

I suppose they're similar in some respects, but they're really very different, and they probably appeal to different users. But they've both been very strong. We're especially pleased, of course, with Epix. I think people have embraced that. very quickly, and in both of those product lines, we're seeing very strong demand, which exceeded our expectations.

Got it. And, I mean, the natural question is it exceeded your expectations. So do you have the supply chain to meet that demand?

We feel like we have plenty of contingencies, and we're working on increasing our supply.

Got it, got it, got it. And then maybe just one last question around, just logistics. Given that you've got a relatively complex supply chain, meaning you've got stuff coming from Asia, and then you've got stuff built here in the U.S., how are you seeing kind of the trans-Pacific logistics of product?

I think the situation is challenging, like everyone is reporting. So we are no different than that. We see the same things, and we're working on – Managing that situation the best we can, it's a pragmatic balance between product availability, which speaks to shorter, faster shipment methods, which, of course, are more expensive, versus inventory levels, which allow us to get inventory on slower modes of transportation, which are more affordable. So we're doing our best to balance, and I think we have a lot of levers that we can use in doing that.

Okay, great. Thanks, Chris.

Thank you. Thank you. Our next question comes from Derek Satterberg of Collier Securities. Your line is open.

Hey, guys. Thanks for taking my questions. Cliff, just curious if you could talk more about the retail channel broadly. There's been some reporting that a lot of Q4 growth came from inventory building. So if you could just share what you're seeing as it relates to, you know, sell-in, sell-through broadly, that'd be great.

I think retail channels were very dry for all the reasons that we know, and so certainly retailers wanted to have inventory available so that they could sell to customers. But at this moment, we feel like sell-through is very good. We can definitely track sell-through through our product registrations and our app platforms, and we feel good about what we see there. And we don't believe there's any imbalances that are material out in the channel except for the ones we've noted, which is really the trainer market.

Got it. And I also wanted to ask about supply. You know, you guys have done a really good job on inventory. It seems like you've done better than most. Now you have more capacity online with your new facility. Have you been, to any degree, benefiting at all from supply chain issues, relatively speaking, versus competitors? I guess in terms of Garmin, just getting more product on the shelves.

Yeah, I think we have been the beneficiary of some of the challenges that others have faced. So our investments in inventory, our investments in capacity, and our ability to be agile with our product designs has helped us a lot in several segments.

Got it. Thank you.

Thank you.

Thank you. I'm showing no further questions at this time. I could turn the call back over to Terri Speck for any closing remarks.

Thanks, everyone. As always, Doug and I are available for callbacks throughout the day. Have a good one.