Garmin Ltd.

Hello, everyone. Thank you for joining us and welcome to the Garmin Limited fourth quarter and full year 2025 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Terry Sec, Director of Investor Relations. Please go ahead.

Good morning. We would like to welcome you to Garmin Limited's fourth quarter full year 2025 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 transcript will also be available on our website. This morning's earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, segment growth rates, earnings, gross margins, operating margins, future dividends or share purchases, market shares, product introductions, foreign currency, tariff impacts, future demand for our products and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pimble, President and Chief Executive Officer, and Doug Besson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pimble.

Thank you, Terri, and good morning, everyone. As announced earlier today, Garmin achieved another quarter of outstanding financial results, driven by strong broad-based demand for our products. Consolidated revenue increased 17% to more than $2.1 billion, which is a new fourth quarter record and our first quarter to exceed $2 billion. We experienced strong double-digit revenue growth in three business segments, reflecting the strength of our highly diversified business model. Gross margin was comparable to the prior year at 59.2%, while operating margin expanded 60 basis points to 28.9%. This resulted in record fourth quarter operating income of $614 million, up 19% year over year. and record pro forma EPS of $2.79, up 16%. 2025 was another year of remarkable growth and achievement for Garmin, with record consolidated revenue, record operating income, and record revenue for all business segments. We attribute this strong performance to our strategic focus on market diversification and creating superior products that are essential to our customers' lives. This approach has been a winning strategy for us since we were founded more than 36 years ago. Consolidated revenue increased 15% to $7.25 billion, which is a new annual record and up nearly $1 billion over 2024. Gross margin of 58.7% was comparable to 2024, which is a significant achievement considering the impact of generationally high tariff structures that took effect early in the year. Operating margin expanded by 60 basis points to 25.9%, resulting in record full-year operating income of nearly $1.9 billion, up 18% year over year. Before sharing our full-year outlook, I want to provide insights on what is important to us when considering forward-looking guidance. Our primary objective is to deliver the best result for Garmin on a consolidated basis. There are many factors that influence individual segment results. And we have said before that the diverse nature of Garmin's business gives us multiple paths to achieving consolidated goals. This makes individual segment growth targets less relevant, especially when viewed in isolation. With this in mind, we will continue to provide consolidated guidance measures, and we will provide qualitative forward-looking insights for segments when it is helpful to do so. But we will no longer emphasize individual segment growth targets. This approach aligns with our primary objective to deliver the best results for Garmin on a consolidated basis. With this in mind, we anticipate 2026 to be another year of strong top and bottom line growth. we expect revenue to increase approximately 9% to $7.9 billion. And we expect operating income to exceed $2 billion for the first time. Many are wondering how industry-wide memory constraints will affect us. Our guidance considers everything we know about the supply chain environment, including recent cost pressures on memory components. It's our practice to continually seek efficiency throughout our entire supply chain by leveraging our vertically integrated business model and scale to optimize our cost structure. We've always used inventory as a business tool and we have intentionally increased inventory levels of certain components and products to ensure we can meet long-term demand. We also have strong relationships with our suppliers and are working closely with them to meet the expected demand for our products. While no one wishes to see supply chain challenges, we believe we are well prepared. Our strong results and positive outlook give us confidence to propose an annual dividend of $4.20 a share, reflecting a 17% increase over the current dividend amount, which will be considered by shareholders at the upcoming annual meetings. In addition, our board of directors recently approved a $500 million share repurchase program effective through December 2028. Doug will discuss our financial results and outlook in greater detail in a few minutes, but first I'll provide a few remarks on the performance of each business segment. Starting with fitness, 2025 was another exciting year of growth as customers embrace the healthy, active lifestyles our brand represents. For the year, fitness revenue increased 33% to $2.36 billion, surpassing $2 billion for the first time, and was driven by wearables as we continue to benefit from both market share gains and market growth. Gross margin was 60%, a 130 basis point improvement over the prior year. Operating income increased 50% year-over-year to $726 million, and operating margin expanded 360 basis points to 31%, reflecting both improved gross margin and operating leverage. During the quarter, we announced our collaboration with healthcare payments provider, TruMed, to assist customers using pre-tax health savings account and flexible savings account funds for qualifying purchases of select Garmin products. We recently published our annual Garmin Connect data report, which shows that on average, our users increased activity levels by 8% during the year, reflecting a high level of engagement with our products and app platforms. At the 2026 Consumer Electronics Shows, the Venufor and the Forerunner 970 received innovation awards for novel features in digital health and fitness, and we announced exciting enhancements to our premium Connect Plus service with nutrition tracking and insights powered by AI-based active intelligence to help users achieve nutrition goals. Looking forward, we expect another year of strong performance for fitness. driven by demand for our current product lineup and contributions from new product introductions. We also expect that the fitness segment will be our strongest contributor to 2026 consolidated growth. Moving to outdoor, full-year 2025 revenue increased 5% to $2.05 billion, also exceeding $2 billion for the first time. Growth in outdoor was primarily driven by adventure watches, with a full year of contributions from the highly successful Phoenix 8 series that was launched in 2024, followed by the launch of the Phoenix 8 Pro with inReach technology in September of 2025. Gross and operating margins were 66% and 34% respectively, resulting in operating income of $690 million. During the quarter, we launched the inReach Mini 3 Plus satellite communicator with voice, text, and photo sharing. This compact and rugged communicator offers essential SOS safety features and reliable communication that explorers can use to stay connected with loved ones while adventuring beyond cell phone coverage. And with up to two weeks of battery life in the 10-minute tracking mode, the inReach Mini 3 Plus can be used on multi-day trips without added worry of battery charging. Several outdoor products also receive CES Innovation Awards, including the Phoenix 8 Pro MicroLED version, Blaze Equine Wellness System, and the Descent S1 Buoy, which highlights our commitment to exploring new product categories and developing groundbreaking innovation. Looking forward, we expect full year growth in outdoor to accelerate in 2026 compared to 2025, driven by a significant number of new product introductions. We also expect stronger performance in the back half of the year due to the timing of product launches. Looking next at aviation, full year 2025 revenue increased 13% to $987 million with growth contributions from both OEM and aftermarket product categories. Gross and operating margins expanded year over year to 75% and 26% respectively. Operating income increased 22% to $257 million. During the quarter, we launched the D2 Air X15 and the D2 Mach 2, our latest aviator smartwatches with cockpit connectivity and advanced aviation, health, fitness, and smartwatch features. We announced that the Garmin G5000H cockpit system was selected for the Brazilian Air Force UH-60 Black Hawk helicopter. part of a growing list of military modernization programs based on our advanced commercially available integrated cockpit systems. On December 20th, 2025, our Autoland system was used by a customer for the first time, returning the aircraft and crew safely to the ground following rapid depressurization while operating in instrument flight conditions over the Rocky Mountains. This incident illustrates how our cockpit systems can improve the safety margins of flight. We are very proud of our aviation team for creating our award-winning AutoLAM technology. Looking forward, we expect aviation revenue will continue to grow in 2026 in line with historical norms. Turning to the marine segment, full-year 2025 revenue increased 10% to $1.18 billion. driven by growth across multiple categories led by chartplotters. Gross and operating margins were 55% and 21%, respectively, resulting in operating income of $251 million. We recently introduced the flagship GPSMAP 9000 XSV lineup to further strengthen our offerings in the chartplotter category. The GPSMAP 9000XSV offers stunning 4K resolution displays, 5GHz Wi-Fi networking, and industry-leading sonar performance. Also during the quarter, we launched Garmin Onboard, a versatile man-overboard and engine cutoff system that uses wireless technology, offering users freedom to move around the boat while still enjoying the protection of this important safety system. Garmin Onboard was selected as the winner of the 2025 Dame Design Award in the Safety and Security Award category at the recent METS Trade Marine Exhibition in Amsterdam. During 2025, we received multiple awards, including being named Most Innovative Marine Company by Soundings Trade Only for the third consecutive year, NMEA Manufacturer of the Year for the 11th consecutive year, and we received the National Boating Safety Award for the fifth consecutive year. This is an unprecedented level of industry recognition, and we attribute our success to the outstanding products we offer and our strong commitment to serving customers. In 2026, we expect marine segment growth to be consistent with the prior year based on improving market conditions. Moving finally to the auto OEM segment, full year 2025 revenue increased 9% to $665 million, primarily driven by growth in domain controllers. Gross margin was 17% and the operating loss was $49 million for the year. At the recent Consumer Electronics Show, we introduced our next gen unified cabin domain controller, that adds digital key capability, seat-specific audio and video, and an AI assistant designed to make vehicle interactions more conversational and powerful. We also announced our collaboration with Meta to explore new ways of interacting with the vehicle. We continue to achieve important milestones leading up to the launch of our next domain controller program. I'm pleased to report that this program is with renowned global automaker Mercedes-Benz and will broadly apply across their portfolio passenger car models with significant volumes ramping up in 2027. In 2026, we expect revenue to decrease year over year as we have reached the peak of BMW domain controller volumes and as certain legacy programs approach end of life. We expect operating losses to narrow in 2026 as we shift certain auto OEM R&D resources to accelerate product roadmap development in other segments. That concludes my remarks. Next, Doug will walk you through additional details on our financial results.