Garmin Ltd. — Q1 2021 Form 10-Q
Reporting period: Unaudited 13 weeks ended March 27, 2021; comparison is the 13 weeks ended March 28, 2020. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1,072.3 million | $856.1 million | +25% |
| Gross profit / margin | $641.6 million / 59.8% | $506.9 million / 59.2% | +27%; margin +0.6 percentage points |
| Operating income / margin | $249.7 million / 23.3% | $177.5 million / 20.7% | +41%; margin +2.6 points |
| Net income / margin | $220.0 million / 20.5% | $161.2 million / 18.8% | +36% |
| Diluted EPS | $1.14 | $0.84 | +36% |
| Cash from operations | $368.4 million | $225.9 million | +$142.5 million |
Operating expenses were $391.9 million, up 19%; research and development rose 23% to $203.2 million. The effective tax rate increased to 12.2% from 9.3%, mainly because fewer uncertain-tax-position reserves were released.
Segments and material changes
- Fitness sales rose 38% to $308.1 million and outdoor rose 46% to $256.5 million, supported by cycling and advanced wearables, adventure watches, and broad outdoor demand.
- Marine sales rose 28% to $209.4 million, led by chartplotters and sonars. Auto sales increased 18% to $124.5 million, including growth in new OEM programs; consumer auto sales rose 6%.
- Aviation sales fell 8% to $173.9 million, primarily due to lower ADS-B product contributions.
- Fitness, outdoor, and marine operating income increased substantially. The auto OEM business had a $31.9 million operating loss, versus a $3.4 million loss a year earlier; auto OEM gross margin fell to 27% from 45%.
- Sales increased across all geographic regions: Americas $503.7 million, EMEA $399.5 million, and APAC $169.1 million. Total unit sales rose to 3.463 million from 2.931 million.
Cash, liquidity and balance sheet
Operating cash flow was $368.4 million. Investing activities used $104.1 million, including $36.9 million for property and equipment and $15.9 million for acquisitions; financing activities used $116.3 million, primarily for dividends. Cash and cash equivalents were $1.599 billion at quarter-end, and marketable securities totaled $1.555 billion, or approximately $3.2 billion combined. Management said cash balances and operating cash flow should cover projected working capital, capital spending, dividends, and other requirements.
Total assets were $7.000 billion and stockholders’ equity was $5.716 billion. Current assets were $3.558 billion versus current liabilities of $933.1 million. The balance sheet presents no borrowings or debt line item; operating lease liabilities are reported separately. Inventory increased to $837.9 million from $762.1 million. The filing reports $1.135 billion of open purchase orders and other commitments, but says the amount representing binding contractual obligations cannot be determined.
Outlook, risks and unusual items
- No quantified company-wide revenue or earnings guidance is provided in the filing. Management expects auto OEM operating losses and lower gross-margin trends to continue through 2021; it also expects higher auto OEM R&D costs, most of which will not be contractually reimbursable.
- Management said COVID-19’s negative effects on aviation and auto eased in Q1, while demand shifts benefited fitness, outdoor, and marine. The persistence of those demand changes remains uncertain.
- Component shortages and high electronics demand have created supply constraints; management expects procurement challenges to continue and warns they could hurt financial performance.
- COVID-19 risks include demand and operating disruption, supplier delays and higher component costs, facility closures, inventory obsolescence, and potential receivable collection issues.
- Foreign-currency losses were $8.3 million, versus $15.4 million a year earlier; interest income declined to $7.7 million from $12.0 million. Marketable securities had $9.0 million of gross unrealized losses, which the company attributed largely to economic conditions rather than credit losses; no credit-loss allowance was recorded.
- Management did not believe aggregate legal contingencies were reasonably likely to result in a material loss. No material off-balance-sheet arrangements were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether component availability and related costs constrain production, sales, or margins.
- Whether elevated fitness, outdoor, and marine demand persists as pandemic-related behavior changes.
- Progress and economics of auto OEM programs, including the expected duration of operating losses, margin pressure, and unreimbursed R&D.
- Underlying drivers of segment growth and the aviation recovery, including the impact of reduced ADS-B contributions.
- Composition and liquidity of the securities portfolio, and the nature of the $1.135 billion in open purchase orders and commitments.
- Updates to legal contingencies, currency exposure, and COVID-19-related risks.