The paragraph is an introduction to Garmin Limited's First Quarter 2025 Earnings Conference Call. The operator announces the format of the call, including a question-and-answer session following the speakers' remarks. Teri Seck, Director of Investor Relations, welcomes participants and mentions that the earnings press release and slides are available online, along with an archive of the webcast. The call includes forward-looking statements related to Garmin's financial outlook and potential risks, as detailed in their SEC filings. Presenting on behalf of Garmin are Cliff Pemble, President and CEO, and Doug Boessen, CFO and Treasurer. Cliff Pemble is then introduced to begin the presentation.

In the first quarter of 2025, Garmin achieved record-breaking financial results with an 11% increase in consolidated revenue to $1.54 billion and substantial growth in three business segments. Gross and operating margins stood at 57.6% and 21.7%, respectively, leading to a 12% year-over-year rise in operating income and a 13% increase in pro forma EPS. In light of these strong results and the dynamic global trade environment influenced by U.S. trade policy changes, Garmin has updated its full-year 2025 guidance. With approximately 25% of revenue derived from U.S. sales of products manufactured primarily in Taiwan, the company has factored in a 10% baseline tariff on these products, despite some temporary tariff exemptions, to form a conservative outlook.

The paragraph discusses the company's financial strategy and performance amidst the current trade environment. The company anticipates a 145% tariff on imports from China, although it sources minimal materials from there. The weakened U.S. dollar benefits the company's revenue and profit margins, with 40% of revenue coming from non-U.S. dollar currencies. The company is implementing mitigation strategies but expects a slight decrease in demand, forecasting a $100 million cost increase from tariffs in 2025. Despite this, the pro forma EPS remains at $7.80 due to positive foreign exchange effects and mitigations. The company is optimistic due to its diversified business model and strong product lines. In the fitness segment, revenue grew 12% to $385 million, driven by demand for wearables, and the company gained market share as the only global smartwatch provider that grew in 2024.

During the quarter, Garmin announced Garmin Connect+, offering AI-based health insights, and launched the vívoactive 6 smartwatch. The Fitness segment's strong performance and favorable currency shifts led Garmin to raise its revenue growth estimate to 15% for the year. In the Outdoor segment, revenue grew 20% to $438 million, driven by adventure watches, particularly the new Instinct 3 series. Garmin also released its inReach SOS Report, emphasizing its global emergency response services. Despite strong performance, Garmin expects Outdoor segment growth to slow due to the fenix 8 anniversary and economic uncertainty, maintaining a 10% revenue growth estimate. Aviation segment revenue increased 3% to $223 million, supported by OEM product growth.

The paragraph discusses the financial performance and product announcements across three segments of a company. In Aviation, gross and operating margins were 75% and 22%, with operating income of $48 million. Key developments include the launch of the G3000 Prime flight deck for Pilatus Aircraft and recognition as Supplier of the Year by Cirrus Aircraft. Despite the success, the company maintains a 5% revenue growth estimate for 2025. In the Marine segment, revenue decreased by 2% to $319 million due to promotion timing, but margins improved, resulting in an operating income of $87 million. They launched the Force Pro trolling motor and were named Supplier of the Year by Independent Boat Builders. The expectation for 2025 revenue is now flat due to market softness. Finally, in the Auto OEM segment, revenue rose 31% to $169 million with growth from increased shipments to BMW, leading to a narrowed operating loss of $9 million; notable milestones include Honda's announcement of a new Gold Wing motorcycle featuring Garmin's infotainment system.

In the first quarter, the company reported a revenue of $1,535 million, an 11% increase from the previous year, though there was a slight decrease in gross margin due to segment mix. Operating expenses as a percentage of sales decreased, with the operating income reaching $333 million, a 12% increase. GAAP EPS was $1.72, while pro forma EPS was $1.61. Revenue growth was strong in the Auto OEM (31%), Outdoor (20%), and Fitness (12%) segments, with significant growth in EMEA (23%), APAC (9%), and moderate in the Americas (4%). Operating expenses rose by $48 million due to higher personnel costs. The cash and marketable securities at the end of the quarter were $3.9 billion, with an increase in inventory and a sequential decline in cash receivables to $787 million.

In the first quarter of 2025, the company generated $381 million in free cash flow, a decrease of $21 million compared to the previous year. Capital expenditures were $40 million, which is $7 million higher than the prior year. They paid dividends of $145 million and repurchased $27 million of stock, with $210 million remaining in the share repurchase program. The effective tax rate decreased to 14.5% from 15.6% primarily due to tax benefits from stock-based compensation. The company raised its full-year revenue guidance to $6.85 billion, mainly due to favorable foreign currency impacts, although demand is slightly weakening. Approximately 40% of sales are in non-U.S. dollar currencies, with the euro comprising about half, benefiting revenue when the U.S. dollar weakens. Expected gross margin is 58.5%, with operating margin at 24.8%, both slightly lower than previous estimates due to increased tariffs. The pro forma effective tax rate is unchanged at 16.5%, with anticipated earnings per share of $7.80, consistent with prior guidance.

In a Q&A session, Joseph Cardoso from J.P. Morgan inquires about potential demand shifts due to customer behaviors amid a volatile tariff situation. Cliff Pemble responds that, aside from a consistently soft marine market, there's no sign of demand weakness or excessive inventory stocking. He explains that natural financial constraints prevent overstocking. Cardoso then shifts the topic to the release of Connect Plus, asking why it was launched now despite past hesitations about pricing.

In the article paragraph, Cliff Pemble discusses Garmin's approach to introducing a premium offering on Garmin Connect. He highlights the importance of developing AI-based insights for users and indicates that this investment is part of a long-term strategy within their Fitness segment. Pemble assures that existing features will not be removed from non-premium users and notes that the initial response to the premium offering, Connect Plus, has been positive. He emphasizes that Garmin is not measuring success in the short term but is committed to enhancing both Garmin Connect and its devices. Later, Erik Woodring from Morgan Stanley asks for clarification on Garmin's 2025 revenue guide, specifically questioning how much demand weakness and FX tailwinds are factored into it.

In the conversation between Cliff Pemble and Erik Woodring, Cliff highlights that while the foreign exchange impact is straightforward to understand, more specific details on demand shifts and mitigations are complex and not disaggregated. Overall, demand is stable with only a slight potential decrease anticipated. Mitigations and foreign exchange benefits are expected to neutralize any financial impact. Erik asks for more information on short-term mitigation strategies for tariffs and whether the tariff situation may influence the company's manufacturing strategy. Cliff responds that all options are being considered, with actions evaluated on a case-by-case basis. Short-term sourcing actions were already underway before the current trade issues arose.

The paragraph discusses the company's focus on both short-term and long-term strategies to optimize results, particularly highlighting the benefits of its global footprint. The company generates 25% of its revenue in the U.S. from products manufactured outside the U.S., and 75% of its products are sold elsewhere, necessitating a global presence. Although there might be considerations to optimize supply chains, a significant change in the global footprint and vertical integration strategy is not expected. Joe Nolan asks about the impact of mitigation actions on margins and their timing, to which Doug Boessen responds that the timing will be based on appropriateness, taking into account factors like tariff timings and existing inventory without tariffs.

The paragraph discusses the challenges and strategies of a company in managing inventory, promotions, and tariffs, particularly in the second quarter. Joe Nolan inquires about specific promotional activities in the Marine sector, and Cliff Pemble explains that a major promotion initially planned for the first quarter shifted to the second quarter, affecting inventory purchasing timing and overall performance. George Wang from Barclays then questions the company about its outlook on consumer demand for the second half of the year, considering the changing tariff policies and the company's diverse portfolio, especially in the wearables sector. The conversation focuses on understanding the potential risks and opportunities in consumer demand going forward.

In the paragraph, Cliff Pemble acknowledges uncertainty about consumer behavior but notes that demand for their products remains strong, though they are cautious and allowing for potential slight weakening. The company is not anticipating major changes in overall demand, but is prepared for incremental softness. Regarding pricing, George Wang suggests small price increases might be feasible given a strong product following, and he questions the impact of tariffs. Pemble clarifies that tariffs always incur a cost, and the focus is on mitigating this impact rather than avoiding it entirely.

The paragraph discusses the company's approach to mitigating challenges through pricing actions, focusing on a market-specific and product line-specific strategy rather than a broad approach. The company aims to maintain market share and optimize profits, using opportunities to adjust prices where possible, while also dealing with competitive pressures that may prevent price increases. George Wang inquires about the Auto OEM segment's margin profile, asking if tariffs and macroeconomic factors are affecting the medium-term model. Cliff Pemble responds that they're maintaining a high-teens to 20% gross margin target for Auto OEM, despite ongoing tariff concerns, by collaborating with partners for cost recoveries and leveraging additional strategies. The discussion recognizes the strong performance execution, and a new question from Ben Bollin requests insight into geographic performance, noting growth in the Americas and strong performance in EMEA.

The paragraph is a discussion between Cliff Pemble and Ben Bollin about geographic dynamics and their impact on a company's performance. Cliff Pemble explains that the Americas region's lower growth in Marine and Aviation segments affected overall performance there. However, EMEA showed strong growth, particularly in the wearables segment, and European Auto OEM deliveries grew significantly due to new model productions from a Poland factory. Ben Bollin asks about the Fitness segment's guidance and future product impact. Pemble responds that Fitness will benefit from favorable foreign exchange and anticipated new product releases, which are expected to boost revenue. The operator then introduces the next question from Ivan Feinseth, who congratulates Pemble on their impressive results despite economic and global challenges. Pemble thanks him.

In the article paragraph, Ivan Feinseth asks Cliff Pemble about the potential for reporting subscription and software revenue separately as these products grow. Pemble states they will do so when it reaches 10% of their consolidated revenue. Feinseth also congratulates on Gold Wing infotainment adoption and inquires about the zūmo radar for motorcycles, questioning the opportunities in advanced rider safety systems. Pemble notes that the zūmo radar is new but anticipates OEM and aftermarket integration. Feinseth further asks about forward guidance and the impact of new product introductions. Pemble mentions their annual goal of about 100 new product releases and new categories, which are included in their outlook. The conversation then shifts to Ron Epstein from Bank of America, who questions product shipments.

In the conversation, Ron Epstein and Cliff Pemble discuss the company’s shipping practices, including the use of both air and sea freight, which have continued as usual. When asked about mitigating tariffs, Cliff indicates that everything is being considered, from supply chains to manufacturing locations, though specific strategies are not detailed due to competitive sensitivity. In aviation, tariffs have a limited impact because most manufacturing occurs in the U.S. Ron appreciates the insights. The operator then introduces a question from Noah Zatzkin, who asks about an adjustment to the Marine revenue growth outlook, inquiring if it reflects a different perspective on the market compared to earlier views.

In the article paragraph, Cliff Pemble discusses the impact of recent tariffs and market changes on customer behavior, particularly within the high-end boat segment, noting that some customers may pause purchases to "see what happens." Despite this, he expects the market to function normally, with only slight softness during the transition period. When asked about the Auto OEM sector experiencing a 31% growth in the quarter compared to the 7% annual forecast, Pemble attributes this to the continued benefit of additional models from the previous year and anticipates moderation as it becomes a stable situation. Additionally, carmakers are adjusting their outlooks due to tariff impacts, which informs their future production plans. The conversation concludes with Teri Seck thanking participants for joining the call.

The paragraph indicates that Doug and the speaker are available for follow-up calls and wish everyone a great day before the operator concludes the call and informs participants that they can now disconnect.

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