The operator welcomes listeners to the Garmin Limited Fourth Quarter 2023 Earnings Conference Call. Teri Seck, Director of Investor Relations, introduces the call and reminds listeners that it is being recorded. The call will include forward-looking statements and potential risk factors. Presenting on behalf of Garmin Limited are Cliff Pemble, President and CEO, and Doug Boessen, CFO and Treasurer. Pemble highlights the company's strong performance in the fourth quarter.

In 2023, Garmin experienced record-breaking growth in revenue and operating income, with multiple segments delivering double-digit growth. This trend continued into 2024, with a projected 10% increase in revenue. The company also plans to increase their annual dividend and has approved a share repurchase program. Additionally, Garmin was recently recognized as the second best large employer in America by Forbes.

Garmin has been recognized for creating a great workplace and their associates are passionate about their work and serving customers. In the fitness segment, revenue increased by 21% and operating margins more than doubled. The Venu 3 was recognized with three awards for its outstanding engineering. In the outdoor segment, revenue decreased by 4% but gross and operating margins remained strong. Garmin introduced new products, including the Descent G1 Solar Ocean Edition made with recycled ocean-bound plastics and the eTrex Solar, their first handheld GPS with solar charging technology. They expect fitness revenue to increase by 7% for the year.

Garmin's new handheld device, which can operate indefinitely using solar power, is expected to drive a 7% revenue growth for the company in the outdoor product category. In the aviation segment, revenue increased by 7% due to growth in OEM categories and the selection of Garmin's G3000 integrated flight deck by Eve Air Mobility. The company was also ranked number one in Professional Pilot's Avionics Manufacturers Product Support Survey for the 20th consecutive year. However, they expect flat revenue in the aviation segment due to a slowdown in aftermarket sales. In the marine segment, revenue increased by 1% and the recent acquisition of JL Audio contributed approximately $42 million. Excluding this, marine revenue decreased by 3%, but Garmin outperformed competitors in a slow market.

In 2023, the company's marine segment performed well despite a soft market, with a 10% increase in revenue expected for the year. The launch of new products, such as the ECHOMAP Ultra 2 chartplotter series and GSD 28 sonar, contributed to this success. The auto OEM segment also saw significant growth, with a 49% increase in revenue and a new contract with a premium automaker for domain controllers. The company is also winning new business in other categories, such as motorcycle entertainment solutions. In the coming year, the company expects a 50% increase in revenue and to reach profitability in the back half of the year.

The speaker provides an overview of the company's financial results for the fourth quarter and full year, including revenue, gross margin, operating expenses, and operating income. They note that three of the five segments achieved double-digit growth, and the Americas and EMEA regions saw significant growth. They also mention that operating expenses increased by 10% in the fourth quarter.

In the fourth quarter of 2023, the company saw increases in research and development, SG&A, and advertising expenses. Cash and marketable securities totaled $3.1 billion, while accounts receivable increased due to strong sales. Inventory balance decreased due to inventory optimization, and free cash flow increased due to lower use of cash for inventory purchases. Capital expenditures decreased compared to the previous year. In 2024, the company expects free cash flow of approximately $750 million and plans to make investments in growth platforms, facilities, and IT projects. Dividends of $559 million were paid in 2023, and there are plans to seek shareholder approval for an increase in the annual dividend beginning in June 2024.

The company is proposing a cash dividend of $3 or $0.75 per share per quarter, which is a 3% increase from their current dividend. They used $99 million in cash to purchase company shares in 2023 and have approved a new $300 million share repurchase program. The effective tax rate for 2023 was 8.5% and is expected to increase to 15.5% in 2024. The company expects revenue to increase by 10% in 2024, with a decrease in gross margin due to a shift in segment mix. The expected pro forma earnings per share for 2024 is $5.40. The company's auto OEM business saw a $150 million increase in revenue in 2023 and is targeting another $200 million increase in 2024.

The speaker discusses their target of $800 million in revenue by 2025 and their ability to overachieve on it. They also mention the expected margin profile and how it may be affected by a new customer win. They clarify that their projections are based on input from manufacturers and may change as production dates near. They also mention that their target margin for the segment is in the mid-20% range, but it is dependent on a mix of high and low volume, high and low margin products. The speaker is unsure if the new customer win will result in increased expenses or headwinds to margins.

Clifton Pemble, CEO of Garmin, discusses the company's significant new win with a global automaker that will require lower investment in R&D. He also mentions the company's authorization of an additional $300 million for share buybacks over the next three years. Pemble notes that the company's revenue is approaching 10% growth, aided by the auto OEM business, and that there is good momentum in both the outdoor and fitness segments.

The company has become more positive on their two products due to their current lineup and future roadmap. The fourth quarter holiday sales season had a strong response from consumers and resulted in good sell-through and increased production. The company is taking market share in both marine and wearables. There has been a positive response to higher-end products in the recent quarters. The automotive business is expected to turn profitable in the second half.

During the earnings call, analysts asked Garmin CEO Clifton Pemble about the company's exit run rate and segment margins. Pemble stated that they expect gross margins to be in the mid- to upper teens and operating margins in the mid-single-digits on a run rate basis. He clarified that they expect to be profitable in the back half of 2023 and into 2025. When asked about the lower revenue in aviation aftermarket, Pemble attributed it to supply chain challenges and dealers burning off excess inventory. Analysts also noted that Garmin's historical focus on premiumization and high gross margins has been a key part of the company's success.

The analyst asks about the impact of the auto OEM market on Garmin's business model and how it will affect profitability. The CEO explains that Garmin will continue to serve niche markets while also leveraging their strengths in vertical integration and supply chain to capitalize on new opportunities. The analyst also asks about the balance between product launches in the outdoor and fitness segments, and the CEO states that they aim for an even cadence between the two.

Clifton Pemble, CEO of Garmin, talks about the unpredictability of product development and how the outdoor and fitness segments may switch in terms of activity levels in the future. He also mentions that the marine market is softer and that Garmin has gained market share. Revenue from JL Audio is expected to offset any softness in 2024. The tax rate for the full year is estimated to be 15.5% due to changes in combined Switzerland tax rates and global minimum taxes.

In December of 2023, Garmin passed legislation that increased the combined Switzerland tax rates to 15%, which will go into effect at the beginning of 2024. The majority of Garmin's registrations are still from new customers, with some variations between product lines. In China, the economic situation has been challenging, but overall performance is satisfactory. Garmin has a mix of retail partners and its own shops in Asia and is working on improving its approach in India with a new distribution partner.

During a recent earnings call, Garmin's CEO Clifton Pemble stated that India is currently a small market for the company. He also mentioned that Garmin has gained market share in smart wearables, potentially due to a competitor dropping a feature. The company is also considering implementing premium tiers for its Connect app to monetize its user base. In terms of automotive OEM, the new customer they are onboarding will not require much R&D.

Clifton Pemble, CEO of Garmin, discusses the company's strong product momentum and future prospects. He mentions leveraging their existing technologies for new customers and a recent product release, but does not reveal any upcoming releases. Analyst Ivan Feinseth asks about profitability and potential new products, to which Pemble responds positively. The call ends with closing remarks from Teri Seck, Garmin's CFO.

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