Garmin Limited held an earnings call for the second quarter of 2023, during which they reported a 6% increase in revenue from the previous year. The increase was driven by growth in three of the five business segments, and gross and operating margins were reported at 57.5% and 21.5% respectively. The call was led by President and Chief Executive Officer Cliff Pemble and Chief Financial Officer and Treasurer Doug Boessen.

In the first quarter, the company generated $284 million of operating income and $1.50 of GAAP EPS and $1.45 of pro forma EPS, up 1% from the prior year. The fitness segment saw a 23% increase in revenue, driven by growth in product categories, and the outdoor segment saw a 3% decrease in revenue. The company launched the Edge 540 and 840 cycling computers, the next generation fenix 7 Pro Series, the epix Pro Series, and the Approach S70 premium golf smartwatch. They now expect revenue of $5.05 billion and EPS of $5.15 for the full year.

The Outdoor segment is expected to remain flat in terms of revenue compared to the prior year. The Aviation segment saw an increase of 6% in revenue and strong gross and operating margins, and recently announced the certification of Autoland and Autothrottle systems. The Marine segment saw a decrease of 11% in revenue due to the timing of promotions, but the Marine market has seen significant growth due to increased interest in boating and fishing driven by the pandemic. The Aviation segment is maintaining its 5% growth estimate for 2023, and the Marine segment recently launched the Force Kraken trolling motor.

In the second quarter, the company posted revenue of $1.32 billion, a 6% increase year-over-year. Gross margin was 57.5% and operating income was $284 million, a 3% decrease. The Marine segment revenue is expected to decrease by 7% in 2023, while the Auto OEM segment revenue is expected to grow by 35%. Operating expense as a percent of sales increased by 90 basis points.

In the second quarter of 2023, three of the five segments achieved double-digit growth, with the Americas region declining 1%. Operating expenses increased by $39 million, research and development increased $22 million, SG&A increased $13 million, and advertising expense increased $3 million. The company ended the quarter with $2.8 billion in cash and marketable securities, $717 million in accounts receivable, and $1.4 billion in inventory. Free cash flow increased to $221 million, capital expenditures were $53 million, dividends were paid out at $140 million, and $26 million was spent on company stock. The reported effective tax rate was 8.9%.

Clifton Pemble of the company discussed the full year guidance for outdoor and fitness, noting that the two segments should be viewed differently due to different dynamics. For the Fitness segment, the strong first half performance was due to new product sell-in, which will not repeat as much in the second half. In outdoor, the company was comping against a strong first half from the prior year and expects stronger results with their new products in the back half. So far, there are no signs of consumer behavior that are present in other segments.

In response to a question about gross margin benefits from moderating headwinds from components and freight, Doug Boessen explains that the year-over-year decrease is due to a segment mix with lower gross margins, and that there are various factors that are impacting the gross margin, including a product mix within the segments and lower freight rates and a larger percentage of products being shipped by ocean instead of air.

Clifton Pemble discusses the profitability glide path of the auto OEM business, which has seen remarkable year-over-year growth but not much movement on the EBIT line. Doug Boessen then explains that there is global minimum tax legislation that could set the tax rate to at least 15%, should it be enacted.

Clifton Pemble discussed the dynamics of the marine market, noting that the weakness is more from the mid-range to lower end and that there is a return of seasonality that hasn't been seen in nearly four years. He believes the market is still very good and they will focus on new products and driving growth through innovation. George Wang asked about buyback prospects given the increased free cash flow and healthy business profile.

Doug Boessen and Clifton Pemble answered a question from George Wang regarding the company's share repurchase strategy and the backlog and channel inventory in the industrial business. Boessen explained that the company would evaluate their share repurchase based on business and market conditions and that they have a $300 million authorization until the end of 2023 with $26-$27 million remaining. Pemble added that backlogs have decreased due to easing supply chains, dealers were interested in keeping safety stock but have relaxed their concern as lead times have decreased, and channel inventory is mostly healthy.

Clifton Pemble discussed the profitability of the automotive OEM business and the start-up and ramp-up costs associated with it. He also mentioned that the company raised their guidance outlook for the full year due to the strength and acceleration of the business. Pemble also discussed the possibility of adding more controller programs and the promotional expectations for the rest of the year.

Clifton Pemble discusses the company's expectations for promotional programs and discounts in the second half of the year, which is expected to return to a normal level. He also discusses the opening of the first B analytics lab, which reflects the company's commitment to research and innovation in the area of biometrics and performance for athletes. He also talks about the use of AI techniques in their products and algorithms, which is a trend they continue to develop.

Clifton Pemble discussed the company's strategy to increase revenue from subscription-based sources, such as their golf app, tax trainers, inReach, aviation databases, and outdoor maps. He also reported that the launch of the epix Pro and fenix 7 Pro series went well and gave an overall read on the customer, including their reception to the new products, demand, and pricing sensitivity.

Cliff Pemble notes that there are pockets of strength in the marine market, but there is also hesitancy from customers who previously had more money to spend but are now facing higher interest rates when financing a purchase. He attributes this to macroeconomic concerns and recent data that has changed their view from the market growing to the market declining.

Clifton Pemble discussed the macro environment in Europe and Asia, noting that sales in both regions were up year-over-year. He mentioned that Asia is a big place and that the diversity of markets allows for better results, while Europe is on a different timeline when it comes to economic progress. He also noted that while some countries in Asia are doing well with new releases, China is not doing as well economically.

In the final question of the conference call, Doug Boessen and Clifton Pemble discussed the increase in advertising spend, which is primarily related to the new product launch. The advertising is related to the promotion of the product, not the discounting of the product. Teri Seck then thanked everyone for their time and said that she and Doug were available for callbacks.

This summary was generated with AI and may contain some inaccuracies.