Garmin Ltd. — FY2022 Form 10-K
Business context and reporting period. Garmin designs, manufactures and sells GPS-enabled products and services across fitness, outdoor, aviation, marine and automotive markets. This annual report covers the fiscal year ended December 31, 2022, a 53-week year, versus 52 weeks in FY2021; results are therefore not fully comparable. The filing is not a standalone fourth-quarter report.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $4.860 billion | $4.983 billion |
| Gross profit / margin | $2.807 billion / 57.7% | $2.890 billion / 58.0% |
| Operating income / margin | $1.028 billion / 21.2% | $1.219 billion / 24.5% |
| Net income / diluted EPS | $973.6 million / $5.04 | $1.082 billion / $5.61 |
| Operating cash flow | $788.3 million | $1.012 billion |
| Capital expenditures | $244.3 million | $307.6 million |
Revenue declined 2% and units sold fell approximately 9% to 15.0 million. Gross margin was broadly stable, but operating margin fell as operating expenses rose 6% while sales declined. Net income decreased 10%. FY2022 other income included $40.8 million of interest income and an $11.3 million foreign-currency loss; FY2021 included a $45.3 million currency loss.
Segment results: Outdoor sales rose 17% to $1.495 billion, with operating income up 17% to $556.4 million. Aviation sales increased 11% to $792.8 million and operating income rose 10% to $213.2 million. Marine sales grew 3% to $904.0 million, while operating income fell 14% to $215.3 million. Fitness sales fell 28% to $1.109 billion and operating income fell 71% to $104.7 million. Auto sales declined 4% to $558.9 million; the combined segment reported a $61.8 million operating loss. Consumer auto remained profitable, while auto OEM recorded a $78.7 million operating loss.
Liquidity, capital and balance sheet
- Cash, cash equivalents and marketable securities totaled approximately $2.7 billion at year-end; cash and cash equivalents alone were $1.279 billion.
- Current assets were $3.955 billion and current liabilities $1.212 billion. Inventory increased to $1.515 billion from $1.228 billion.
- Garmin reported no outstanding long-term debt. Management said available cash and operating cash flow should cover projected working capital, capital spending and other cash needs.
- Cash used in financing was $840.6 million, including $679.1 million of dividends and $201.0 million of share repurchases. The company repurchased 2.26 million shares for $206.5 million under its $300 million program; $93.5 million remained authorized at year-end.
- FY2022 dividends were $2.92 per share, versus $2.68 in FY2021. The year included five dividend payments because of payment timing.
- Year-end purchase obligations included $760.0 million for inventory, $395.8 million of other purchases and $161.3 million of lease payments; $520.7 million, $173.3 million and $30.7 million, respectively, were payable within 12 months.
Material changes, outlook and risks
- Management cited inflation, rising interest rates, U.S. dollar strength, component shortages, longer lead times and logistics constraints. It expects some of these challenges to persist into 2023. The stronger dollar was a primary factor in the revenue decline.
- Management expects auto OEM to continue operating at a loss in 2023 as it invests in programs. It cautions that auto OEM margins can weigh on consolidated margins as the business grows. No quantified company-wide FY2023 guidance is provided in the supplied filing text.
- In January 2023, Garmin announced that consumer auto would be combined with outdoor; beginning in FY2023 reporting, operating segments will be fitness, outdoor, aviation, marine and auto OEM. Prior periods will be recast.
- Cash paid for taxes is expected to increase in 2023, including due to U.S. tax rules requiring capitalization and amortization of certain R&D costs, and taxes payable in arrears related to the transfer of certain intellectual property from Switzerland to the U.S.
- Key risks include reliance on suppliers for some single- or limited-source components; manufacturing concentration in Taiwan; foreign-exchange volatility; intense competition and changing wearable-device demand; cybersecurity and data-protection exposure; product defects and certification delays; and tax uncertainty, including transfer-pricing negotiations and potential global minimum-tax legislation.
- Garmin reported that it did not expect pending legal matters, individually or in aggregate, to materially affect results, financial position or cash flows. The auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified goodwill valuation and uncertain tax-benefit measurement as critical audit matters; no separate opinion was given on those matters.
Important facts for investors to verify
- Whether the sharp FY2022 fitness decline continues and whether outdoor growth offsets weakness elsewhere.
- Auto OEM contract growth, investment requirements, and progress toward reducing operating losses.
- Inventory levels, cash conversion and operating cash flow as supply and demand conditions normalize.
- Effects of currency movements and the outcome of the intercompany transfer-pricing agreement and related tax matters.
- Execution of the segment realignment and the resulting recast historical comparisons.