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?