Switzerland-based Garmin Ltd. today announced results for the third quarter ended Sept. 26.
Highlights for third quarter 2020 include:
- Total revenue of over $1.1 billion, a 19% year-over-year increase, led by robust growth in marine, fitness and outdoor
- Gross margin and operating margin were 60.2% and 28.6%, respectively
- Operating income of $317 million, increasing 21% over the prior year quarter
- GAAP diluted EPS was $1.63 and pro forma diluted EPS(1) was $1.58, increasing 24% over the prior year quarter
- Named Manufacturer of the Year by the National Marine Electronics Association for the sixth consecutive year
- Since its launch in 2011, Garmin inReach has provided remote communication and rescue facilitation in over 5,000 SOS incidents, demonstrating the crucial importance of satellite based two-way messaging wherever our customers need assistance
- Began production shipments of the BMW MGU 2020 computing module, expanding our role as a tier-one supplier for BMW automobiles
- Launched the Garmin Catalyst, an industry-first coaching tool to optimize motorsports driving performance
- Garmin Autoland has achieved Federal Aviation Administration (FAA) certification in a total of three aircraft to-date with the latest being the Cirrus Vision Jet, the first jet aircraft to be certified with this game-changing safety technology
Executive Overview from Cliff Pemble, President and Chief Executive Officer:
“Demand for active lifestyle products fueled strong revenue growth resulting in record revenue and profits for the quarter,” said Cliff Pemble, President and CEO of Garmin. “Interest in our products remains high as we move into the important holiday selling season, and we are prepared with a strong lineup of products that offer the innovation and uniqueness that consumers want.”
Revenue from the marine segment grew 54% in the third quarter across multiple categories led by chartplotters. Gross margin and operating margin were 61% and 31%, respectively, resulting in 152% operating income growth. For the sixth consecutive year, Garmin was recognized as the Manufacturer of the Year by the National Marine Electronics Association (NMEA) and was also awarded four Product of Excellence awards. We launched the new OnDeck™ system, Garmin’s first remote connectivity solution for boaters to track, monitor, and remotely control switches on their vessel from virtually anywhere. We also refreshed our Fantom™ solid-state marine radar offering industry leading power in the solid-state RADAR market.
Revenue from the fitness segment grew 35% in the third quarter driven by strong demand for our advanced wearables and cycling products. Gross margin and operating margin were 54% and 27%, respectively, resulting in 75% operating income growth. We launched the new Forerunner® 745, adding daily suggested workouts helping competitors reach their goals, and the Garmin Clipboard™ app that offers an integrated solution for coaches to manage team training and performance. We also launched the Venu® Sq, an entry-level smart watch with GPS capability that combines daily style with industry-leading health monitoring.
Revenue from the outdoor segment grew 30% in the third quarter across all categories led by strong demand for our adventure watches. Gross margin and operating margin were 67% and 44%, respectively, resulting in 40% operating income growth. We recently refreshed the popular Montana® series, combining the flexibility of on or off-road navigation with global messaging and SOS alerts via inReach® satellite technology.
Revenue from the auto segment declined 6% during the third quarter as declines in personal navigation devices were partially offset by growth in specialty categories and new OEM programs. Gross and operating margins were 45% and 3%, respectively. We launched Garmin Catalyst, a new product category and an industry-first real-time coaching tool to help drivers achieve their full potential on the track. We began production shipments of the BMW MGU 2020 computing module expanding our role as a tier-one supplier for BMW automobiles. In addition, we began shipments of a complete infotainment solution for the Daimler Vito vehicle.
Revenue from the aviation segment declined 19% in the third quarter due to fewer shipments to OEM customers and reduced contributions from ADS-B products. Gross margin and operating margin were 71% and 19%, respectively. During the quarter, Autoland achieved FAA certification on the Cirrus Vision Jet, becoming the first jet aircraft to incorporate Autoland technology. This latest certification brings the Autoland equipped aircraft to three models including the previously certified Piper M600 and Daher TBM 940.
Additional Financial Information:
Total operating expenses in the third quarter were $351 million, a 15% increase over the prior year. Research and development increased by 18%, primarily due to engineering personnel costs. Selling, general and administrative expenses increased 14%, driven primarily by information technology costs and personnel related expenses. Advertising increased 4%, driven primarily by higher spend in the outdoor segment.
The effective tax rate in the third quarter of 2020 was 6.9% compared to 11.6% in the prior year quarter. The decrease in the effective tax rate is primarily due to the migration of intellectual property ownership from Switzerland to the United States.
In the third quarter of 2020, we generated approximately $236 million of free cash flow, and paid a quarterly dividend of approximately $117 million. We ended the quarter with cash and marketable securities of approximately $2.7 billion.
We expect full year 2020 revenue of approximately $4.0 billion with growth in the marine, fitness, and outdoor segments partially offset by declines in the auto and aviation segments. We expect our full year pro forma EPS to be approximately $4.70 based upon gross margin of approximately 59.0%, operating margin of approximately 24.0% and a full year pro forma effective tax rate of approximately 10.0%.