The operator welcomes listeners to the Garmin Ltd. Third Quarter 2023 Earnings Call and introduces Teri Seck, Director of Investor Relations. Seck discusses the availability of the earnings press release and related materials on Garmin's website and mentions that the call will include forward-looking statements. President and CEO Cliff Pemble and CFO Doug Boessen will be presenting on behalf of Garmin. Pemble then discusses the strong results of the third quarter, with 12% growth in revenue, driven by four out of five business segments. Gross and operating margins were also strong, resulting in an increase in operating income.

The company reported strong third quarter results, with GAAP EPS of $1.34 and pro forma EPS of $1.41, a 14% increase from the previous year. They have updated their full year 2023 guidance, expecting revenue of $5.15 billion and pro forma EPS of $5.25. The fitness segment saw a 26% increase in revenue, with growth in all categories and the introduction of new wearables with advanced health features. The outdoor segment also saw growth, with a 7% increase in revenue and strong margins resulting in operating income of $136 million.

The company launched the tactix 7 with impressive features and announced the MARQ Carbon premium smartwatch collection. The outdoor segment has faced challenges leading to a decrease in revenue for the year. However, the aviation segment has seen a 5% increase in revenue and has been ranked number one in avionics product support for the 20th consecutive year. The company has also entered into a long-term agreement with BETA Technologies. The marine segment has not been mentioned yet.

In the third quarter, Garmin's revenue decreased by 7% to $182 million due to a slowdown in the marine market. However, their performance exceeded expectations and they received multiple awards for their products. They also acquired JL Audio, a premium audio brand, and expect their marine segment revenue to be flat for the year. In the auto OEM segment, revenue increased by 59% and they experienced strong growth in infotainment categories.

In the paragraph, Doug Boessen discusses the company's third quarter financial results, including a 12% increase in revenue and a 14% increase in pro forma EPS. He also mentions record revenue and growth in 4 out of 5 segments, led by double-digit growth in the fitness and auto OEM segments. Operating expenses increased by 6%, with the majority of the increase coming from research and development and SG&A costs. The company ended the quarter with $2.8 billion in cash and marketable securities.

The company's accounts receivable increased due to the addition of JL Audio, which was in line with the increase in sales. Inventory also increased due to the company's strategy to optimize inventory, with reductions in consumer inventory offsetting increases in auto OEM inventory and the addition of JL Audio inventory. Free cash flow increased in the third quarter due to a lower use of cash for inventory purchases. The company expects full year free cash flow to be approximately $900 million. Dividends were paid and company stock was purchased during the quarter. The pro forma effective tax rate increased compared to the prior year quarter due to income mix by jurisdiction. The company's full year guidance for revenue and gross margin has been adjusted, primarily due to the expected impact of newly acquired JL Audio. The company expects a pro forma effective tax rate of 8.5% and earnings per share of $5.25, including a dilutive impact from JL Audio.

During a Q&A session, analyst Erik Woodring asks about the increase in auto OEM growth rate guidance and whether it implies that the company is ahead of its 2025 target. CEO Cliff Pemble explains that the demand from automakers can fluctuate throughout the year and the outlook is based on their estimates. Woodring also notes the improvement in auto OEM operating margins and asks if this trajectory could lead to an operating profit by midyear next year. Pemble responds that the company is seeing improvement, but cannot provide a specific timeline for when the business will turn to an operating profit.

The company's target for profitability in 2024 is still on track, but the linearity from quarter-to-quarter may not be accurate due to model changeovers and unpredictability. The CEO also discusses the softness in the marine business and how it has returned to pre-pandemic levels, with the market continuing to be challenging.

The speaker is asking about the company's plan to improve margins in their recently acquired JL business. The company plans to use leverage and operational efficiencies to improve margins, but it may still be lower than other categories. The speaker then asks about the company's buyback and capital allocation plans, noting that the buyback was not as large last quarter. The company's priorities for cash remain the same, with a focus on dividends, investments in the business, strategic acquisitions, and share repurchases. The company has an authorization for $18 million in share repurchases through the end of the year.

In the last paragraph, the speaker discusses the company's current backlog and channel inventory going into the holiday season. They mention that they do not have a long backlog since retailers tend to place orders closer to when they need them. However, retailers are indicating potential for a strong fourth quarter selling season.

The company is expecting a good shopping season and has sufficient inventory. They are focused on returning to pre-COVID gross margin levels and are exploring opportunities for recurring revenue through content and services. They are not currently considering M&A but are leveraging existing opportunities.

An unidentified analyst asks about the company's plans for 2024 and the impact of the UAW strike on their business. CEO Cliff Pemble cannot provide much information on 2024 as most of their business is focused on Q4, but he is optimistic based on current momentum. The UAW strike has not affected their business. Another analyst asks about the strong performance in fitness and Pemble attributes it to strong sales in wearables and other categories within the segment.

The company saw strength in their entire segment, with better-than-anticipated results due to the successful launch of new products. The decline in marine EBIT margins was attributed to lower sales and the addition of JL Audio, which has a lower gross margin. The company hopes to improve margins through synergies and opportunities. The acquisition of JL Audio also presents opportunities for expansion in automotive OEM audio and consumer product audio markets.

Garmin has a diverse product line that includes aftermarket audio, power sports, and home audio. They plan to invest in innovation for these areas and continue selling products like subwoofers for home theater systems. The new MARQ Carbon watch is part of their high-end product line and has been successful in attracting new customers and repeat customers. Garmin is pleased to offer a range of products at different price points to cater to a wide range of customers.

In a recent conference call, Garmin's CEO Cliff Pemble discussed the company's new ECG functionality on the fēnix and Pro line, which is made possible by their advanced sensor technology. He also hinted at potential future innovations, such as incorporating the SOS functionality of inReach into a watch. When asked about the company's visibility into consumer holiday demand, Pemble stated that retailers are positive and they are gearing up for a strong fourth quarter. However, the company's guidance suggests slightly lower growth than usual, which could be influenced by various factors.

The speaker explains that when providing estimates, they want to have high confidence in them. They then address a question about changes in demand for biz jet products, stating that all reports show strong activity and a large backlog to work through. They leave speculation about future demand to others and conclude the call.

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