Business Context and Reporting Period
This Form 8-K, dated October 29, 2003, reports the financial results for Garmin Ltd. for the fiscal third quarter ended September 27, 2003. Garmin designs, manufactures, and markets GPS-enabled navigation and communication devices for aviation, marine, automotive, and consumer markets. The company is incorporated in the Cayman Islands with principal subsidiaries in the United States, Taiwan, and the United Kingdom.
Key Financial Metrics
Quarter Ended September 27, 2003
- Revenue: $135.6 million (up 26% year-over-year).
- Net Income: $35.3 million ($0.32 diluted EPS).
- Gross Margin: 56.6% (up from 54.8% in the prior year).
- Free Cash Flow: $27.8 million.
- Liquidity: Cash and marketable securities balance of $515 million.
- Debt: Long-term debt is $0 (reduced from $20 million in the prior year).
- Units Sold: 517,000 (up 37% year-over-year).
Nine Months Ended September 27, 2003
- Revenue: $402.8 million (up 22% year-over-year).
- Net Income: $124.0 million ($1.14 diluted EPS).
- Units Sold: 1,476,000 (up 37% year-over-year).
Material Changes vs. Prior Period
Revenue growth was driven by a 32% increase in the consumer segment and an 8% increase in aviation revenue. Geographic revenue increased across all regions: North America (+27%), Europe (+26%), and Asia (+13%).
Net income decreased slightly year-over-year in the quarter ($35.3 million vs. $38.4 million) primarily due to a $9.0 million foreign currency loss resulting from a weaker U.S. dollar against the Taiwan dollar. Excluding this currency impact, diluted EPS was $0.39, compared to $0.29 in the prior year.
The company completed the acquisition of UPS Aviation Technologies for $38 million in cash late in the quarter, which contributed $3 million in revenue with no EPS impact.
Guidance, Outlook, and Risks
Revised Guidance
Garmin has revised its fiscal year 2003 guidance upward:
- Fiscal 2003 Revenue: $558 million to $563 million (previously $525 million to $540 million).
- Fiscal 2003 Diluted EPS (excl. FX): $1.65 to $1.67 (previously $1.54 to $1.60).
For the fourth quarter, the company estimates diluted EPS (excluding foreign currency effects) of $0.43 to $0.45 on revenues of $155 million to $160 million.
Dividend
The company will pay its first dividend as a public company in December at $0.50 per share.
Risks
Forward-looking statements are subject to risks including foreign currency fluctuations, which significantly impacted earnings in the reported period. Actual results may differ materially due to risk factors detailed in the company's Form 10-K.
Investor Verification Checklist
- Verify the impact of foreign currency exchange rates on future earnings, given the $9.0 million loss in Q3.
- Confirm the integration progress and revenue contribution of the UPS Aviation Technologies acquisition.
- Monitor the sustainability of the 32% growth rate in the consumer segment.
- Review the cash burn rate relative to the $38 million acquisition cost and the $515 million liquidity position.
- Validate the assumptions behind the revised full-year revenue guidance of $558 million to $563 million.