Garmin Ltd. — Q1 2022 Form 10-Q
Reporting period: 13 weeks ended March 26, 2022; comparative period ended March 27, 2021. Amounts below are U.S. dollars unless noted.
Business context
Garmin designs and sells GPS-enabled devices and related applications through fitness, outdoor, aviation, marine, consumer auto, and auto OEM businesses. Outdoor, aviation, marine, and fitness are separately reported segments; consumer auto and auto OEM are included in “auto” for segment reporting.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,172.7 million | $1,072.3 million | +9% |
| Gross profit / margin | $662.5 million / 56% | $641.6 million / 60% | Profit +3%; margin −330 bps |
| Operating income / margin | $228.6 million / 19% | $249.7 million / 23% | −8% |
| Net income | $211.6 million | $220.0 million | −4% |
| Diluted EPS | $1.09 | $1.14 | −4% |
| Operating cash flow | $185.6 million | $368.4 million | −50% |
| Capital expenditures | $59.7 million | $36.9 million | Increased |
Operating cash flow less capital expenditures was approximately $125.9 million, calculated from reported figures; the filing does not label this as free cash flow. Cash, cash equivalents, and marketable securities totaled approximately $3.03 billion at quarter-end. Cash and cash equivalents were $1.42 billion, versus $1.50 billion at December 25, 2021. The balance sheet lists no interest-bearing debt balance. Current assets were $4.08 billion and current liabilities $1.15 billion.
Material changes and segment trends
- Revenue growth was led by outdoor (+50%), marine (+21%), and auto OEM (+18%). Fitness revenue fell 28%, reflecting normalization in cycling demand after pandemic-related strength. Total unit sales dipped to 3.438 million from 3.463 million; mix contributed to revenue growth despite lower units.
- Outdoor was the largest revenue segment at 33% of sales and operating income rose to $149.0 million from $92.0 million. Fitness operating income fell to $0.6 million from $70.7 million. Auto OEM recorded a $23.8 million operating loss, narrower than the prior-year $30.0 million loss.
- Consolidated gross margin weakened mainly from higher freight costs and U.S. dollar strength. Operating expenses increased 11% in dollars, broadly unchanged as a share of sales.
- Net income fell despite higher sales; lower operating income was partly offset by lower foreign-currency losses and a lower effective tax rate (10.3% versus 12.2%).
Cash, liquidity, risks, and outlook
- Operating cash flow declined as inventory purchases increased to support greater product-line supply, while accounts-receivable collections were lower than in the prior-year quarter. Investing cash outflow was $135.9 million; financing cash outflow was $123.3 million, primarily dividends.
- Management said cash balances and operating cash flow should be sufficient for projected working capital, capital expenditures, and other cash requirements. The company reported approximately $1.21 billion of inventory purchase obligations, including $941.7 million due within 12 months, and $549.4 million of other purchase obligations.
- Management expected supply-chain challenges—including component shortages, longer lead times, cost fluctuations, and logistics constraints—to continue through at least year-end 2022. It cited continuing COVID-19 effects, Russia’s invasion of Ukraine, and inflationary pressure as sources of disruption and uncertainty.
- Management expected auto OEM operating losses to continue through 2022 as it invests in certain programs. The filing provides no broader numerical full-year revenue or earnings guidance.
- About 80% of the marketable-securities portfolio was in an unrealized loss position; gross unrealized losses were $72.4 million. Management attributed declines mainly to economic conditions, reported no credit-loss allowance, and said it did not intend, and was not likely required, to sell before recovery.
- Management did not expect legal matters to have a material adverse effect, while noting outcomes cannot be predicted with certainty. On April 22, 2022, the board authorized up to $300 million in share repurchases through December 29, 2023.
Important facts for investors to verify
- Whether supply constraints, freight costs, currency movements, and inflation persist as management anticipated, and their effects on gross margin.
- Whether elevated inventory and purchase commitments support demand or increase working-capital and obsolescence risk.
- Whether fitness demand stabilizes and outdoor growth continues; monitor auto OEM investment losses and program economics.
- How marketable-securities values change with interest rates and credit conditions, and whether the board-authorized buyback is executed.