Garmin Q3 2021 Earnings Results & Report

Garmin EPS Results

• Actual EPS: $1.41
• Consensus EPS: $1.27
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: $1.58
• EPS Beat Rate: 6 of last 8 quarters

Garmin Revenue Results

• Actual Revenue: $1.19 billion
• Expected Revenue: $1.16 billion
• Beat/Miss: Beat by +$32.42 million
• YoY Revenue Growth: +7.40%

Garmin (NYSE:GRMN) (NYSE: GRMN) designs and manufactures GPS-enabled technology and smart devices for fitness, outdoor recreation, aviation, marine, and automotive markets. Its product portfolio includes smartwatches, cycling computers, sports and activity trackers, satellite communication devices, navigation systems, and related sensors and accessories.

The company also develops aviation systems and avionics, marine chartplotters and sonar equipment, and navigation and infotainment solutions for vehicle manufacturers. Garmin sells its products through retailers, distributors, original equipment manufacturers, and direct channels in markets around the world.

Garmin was founded in 1989 by Gary Burrell and Min Kao, with the company name derived from their first names. It was initially established as ProNav and later adopted the Garmin name. The company is incorporated in Switzerland, maintains operational headquarters in the United States, and serves customers globally.

Garmin Q3 2021 Earnings Call Transcript

Key Takeaways

• Record Q3 revenue of $1.192 billion, up 7% year-over-year, with full-year revenue guidance raised to approximately $4.95 billion (up 18%).
• Supply chain challenges persist with tight component availability and elevated freight costs, though a new Taiwan production facility is now operational to help meet holiday demand.
• Broad-based segment growth drove automotive up 7%, fitness up 4%, aviation up 19%, and marine up 25%, leading to higher full-year growth targets of 12%–30% across key units.
• Key innovations and partnerships include the Dexcom real-time glucose app on smartwatches, the Approach R10 golf monitor, SmartGlide autopilot safety feature, and Surround View marine camera system.
• Strong financial position with $3.2 billion in cash and marketable securities, $204 million in free cash flow in Q3, and increased inventory to support Q4 selling season.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Garmin Ltd. Third Quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Ms. Teri Seck. Ma'am, please go ahead.

[Teri Seck, Director of Investor Relations at Garmin]

Good morning. We would like to welcome you to Garmin Ltd.'s third quarter 2021 earnings call. Please note that the earnings, press release, and related slides are available at Garmin's investor relations site at www.garmin.com/stock. An archive of the webcast and related transcript will also be available on our website. This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenues, earnings, gross margins, operating margins, future dividends, market shares, product introductions, future demand for our products and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K and Form 10-Q filed with the Securities and Exchange Commission.

[Teri Seck, Director of Investor Relations at Garmin]

In particular, there is significant uncertainty about the duration and impact of the COVID-19 pandemic. This means that results could change at any time, and any statement about the impact of COVID-19 on the company's business results and outlook is a best estimate based on the information available as of today's date. Presenting on behalf of Garmin Ltd. this morning are Clifton Pemble, President and Chief Executive Officer, and Douglas Boessen, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Clifton Pemble.

[Clifton Pemble, President and CEO at Garmin]

Thank you Teri and good morning everyone. As announced earlier today, Garmin reported record revenue of $1.2 billion for the third quarter, increasing 7% over the pandemic-fueled levels we achieved in the prior year. Operating income declined year-over-year to $283 million due to a combination of higher freight costs affecting gross margin and increased expenses as we invest in R&D, information technology, and marketing initiatives. Operating margin was very strong at 23.7%. There are two things to consider when looking at our performance in the back half of the year. First, financial comparisons to the prior year are more challenging due to the pandemic-driven demand and retail disruptions of 2020. Also, we are facing one of the most challenging supply chain environments in history.

[Clifton Pemble, President and CEO at Garmin]

Our vertically integrated business model and commitment to safety stock was a key factor driving revenue growth for the quarter. Supplies are tight, and we expect freight costs to remain elevated as we rush to fill retail shelves in time for the important holiday selling season. I'm pleased with what we've accomplished in this tough environment, and I'm very proud of our team, who've worked tirelessly to maintain continuity of supply from our factories to customers. Last time, I mentioned that we invested in a fourth production facility in Taiwan. I'm pleased to report that this facility is operational and will help us fill more orders during the important holiday selling season. Given our strong performance in the first three quarters of the year, we're updating our full year guidance.

[Clifton Pemble, President and CEO at Garmin]

We now anticipate revenue of approximately $4.95 billion, up 18% over the prior year, with double-digit growth expected in each of our five business segments. In a moment, Doug will provide more details on our financial results and updated guidance, but first, I'll provide a few highlights for each business segment. Starting with Fitness, revenue increased 4% to $342 million, with growth driven primarily by cycling products and advanced wearables. Our Connect IQ development platform is a strong differentiator for us, and we are deploying it across a broader range of Garmin devices. We recently held our fifth annual developer conference, where we announced a partnership with Dexcom to deliver real-time glucose information via a Connect IQ app on selected smartwatches and cycling computers, even during activities.

[Clifton Pemble, President and CEO at Garmin]

Fitness segment revenue has grown 26% year to date, and we are maintaining our revenue growth estimate of 17% for the year. Moving to Outdoor, revenue decreased 3% to $324 million. The decrease in revenue is due to the strong sell-in activity associated with the launch of our solar adventure watches in the prior year quarter and limited supplies of traditional handheld and dog products in the current quarter. During the quarter, we launched the Approach R10, our first portable golf monitor. The R10 can be used on course or at home to help golfers improve their game with more than a dozen key metrics shown in real time. Customers are very enthusiastic about the R10, and it's on its way to becoming another halo product for Garmin.

[Clifton Pemble, President and CEO at Garmin]

Outdoor segment revenue has grown 26% year-to-date, and we are maintaining our growth estimate of 17% for the year. Looking next at aviation, revenue increased 19% to $180 million with growth in both OEM and aftermarket product categories. During the quarter, we were ranked number one in avionics product support by Aviation International News for the 18th consecutive year. Being consistently recognized for unrivaled support year after year clearly shows our strategic focus on taking care of customers and standing behind our products. We launched Smart Glide, a game-changing safety feature inspired by Autoland technology that will help pilots manage loss of engine power by automatically flying the optimal glide ratio and navigating to the best available airport. Also, in the quarter, we announced the certification of the GFC 600H flight control system on the Bell 505 helicopter.

[Clifton Pemble, President and CEO at Garmin]

This advanced autopilot includes state-of-the-art safety features, such as electronic stability control and a hover assist mode. We are pleased with how the aviation segment has recovered so far this year and now expect full-year revenue guidance to increase approximately 12%. Turning next to the marine segment, revenue increased 25% to $208 million, with growth across multiple categories led by chartplotters. We continue to be recognized for innovation and achievements in the marine industry. For the seventh consecutive year, the National Marine Electronics Association named Garmin Manufacturer of the Year, and we also received five Product of Excellence awards. During the quarter, we introduced Surround View, the industry's first intelligent camera system that provides a 360-degree bird's-eye view around the vessel. We also announced our partnership with Malibu Boats.

[Clifton Pemble, President and CEO at Garmin]

Our seven inch touchscreen displays will be standard equipment across the Malibu Axis boat line beginning with the 2022 model year. Given the strong year-to-date performance of the marine segment, we are raising our revenue growth estimate to 30% over the year. Looking finally at auto, revenue increased 7% to $138 million, with growth primarily driven by OEM programs. During the quarter, we began production shipments of the BMW computing module from our Olathe, Kansas, manufacturing facility, and we delivered prototypes of the next generation BMW system from our new manufacturing facility located in Poland. We also recently announced a refreshed lineup of drive navigators for the consumer auto segment. These devices offer larger, higher resolution displays as well as enhanced connected features.

[Clifton Pemble, President and CEO at Garmin]

Given the strong year-to-date performance of the auto segment, we are raising our revenue growth estimate to 17% for the year. That concludes my remarks. Next, Doug will walk you through additional details on our financial results and updated guidance. Doug?

[Douglas Boessen, CFO and Treasurer at Garmin]

Thanks, Cliff. Good morning everyone. I'd like to begin by reviewing our third quarter financial results, provide comments on the balance sheet, cash flow statement, taxes, our updated guidance. We posted revenue of $1.192 billion for the third quarter, representing a 7% increase year-over-year. Gross margin was 58.4%, 180 basis point decrease compared to prior quarter. The decrease was primarily due to higher freight costs. Operating expense as a percentage of sales was 34.7%, 310 basis point increase the prior quarter. Operating income was $283 million, 11% decrease. Operating margin was 23.7%, a 490 basis point decrease. Our GAAP EPS was $1.34. Pro forma EPS was $1.41.

[Douglas Boessen, CFO and Treasurer at Garmin]

Next, look at our third quarter revenue by segment. We have a highly diverse business model, providing a rich set of opportunities, reducing our reliance on single markets and product lines. In the third quarter, we achieved growth in four of five segments, double-digit growth in both Marine and Aviation. Fitness is our largest segment, contributing 29% of the sales in the third quarter, followed by Outdoor at 27%. Looking at revenue by geography. The Americas and EMEA regions grew 10% and 9%, respectively, with the APAC region decreased 2%. The Americas region contributed nearly one-half of our revenue, the remaining coming from the EMEA and APAC regions. Looking next, operating expenses. Third quarter operating expenses increased by $62 million or 18%. Research and development increased $39 million year-over-year, primarily due to engineering personnel costs.

[Douglas Boessen, CFO and Treasurer at Garmin]

SG&A increased $21 million compared to prior quarter, primarily due to increase in personnel-related expenses, information technology costs. Our advertising expense increased approximately $3 million due to higher media spend. A few highlights on the balance sheet, cash flow statement, and taxes. We ended the quarter with cash and marketable securities worth $3.2 billion. Accounts receivable decreased sequentially year-over-year to $639 million. Inventory balance increased both on a sequential year-over-year basis to $1.1 billion, primarily due to raw material requirements in preparation for the seasonally strong fourth quarter. During the third quarter of 2021, we generated free cash flow of $204 million, a $32 million decrease compared to prior quarter. Capital expenditures for the third quarter were $41 million.

[Douglas Boessen, CFO and Treasurer at Garmin]

We expect full year 2021 free cash flow to be approximately $750 million. Capital expenditures, approximately $325 million. During Q3 2021, we had an effective tax rate of 5.9% compared to 6.9% the prior year. Decrease was primarily due to impact of return provision adjustments associated with filing the U.S. tax return. Turning next to our full year guidance. We estimate revenue of approximately $4.95 billion, increase of 18% the prior year. Double-digit growth each of our segments. We expect gross margin to be approximately 58.2%, which is lower than our previous guidance, 58.5%, due to higher freight costs. We expect an operating margin of approximately 24%. Also expect the full year 2021 pro forma effective tax rate to be approximately 11.5%, which results in pro forma earnings per share of approximately $5.60. This concludes our formal remarks. Rachel, could you please open the line for Q&A?

[Operator]

Thank you. As a reminder, to ask a question, just press star and then the number one on your telephone keypad. To withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Paul Chung from JPMorgan. Please proceed with your question.

[Paul Chung, VP and Equity Research Analyst at JPMorgan Chase & Co.]

Hi, thanks for taking my question. Just on aviation, you know, 4Q implied guide kind of suggests, you know, a sequential downtick. You typically see an uptick in 4Q, so what's going on there? Is that an impact from, you know, supply chain headwinds? Then on op margins, you know, it's stabilized in 3Q, but, you know, you still remain well below that, low 30s range you've seen historically. Is this the right level to think about moving forward, or is there also some, you know, transitory hits in the near term?

[Clifton Pemble, President and CEO at Garmin]

Yeah, thanks, Paul. I think certainly there's some noise associated with aviation in the prior year versus this year as well. Part of it is timing of shipments that occurred from year-to-year. Also lead times on equipment in aviation is getting longer. We're accounting for that and wanting to make sure that we're taking into account all of those factors that might affect Q4 revenue.

[Paul Chung, VP and Equity Research Analyst at JPMorgan Chase & Co.]

Thanks. As we think about next year in the context of, you know, pretty strong business jet demand, do you see this business growing along with the industry or at a faster pace, given kind of you know, the new certifications, Autoland and Smart Glide that you've introduced?

[Clifton Pemble, President and CEO at Garmin]

Yeah, I think we have the most innovative product line for sure. Across aftermarket and OEM, we're well positioned with our products and on the platforms that are the most popular. The most significant interest in business jet demand right now is in the sweet spot of where our products are installed. I would expect that we would continue to perform well as the industry performs.

[Paul Chung, VP and Equity Research Analyst at JPMorgan Chase & Co.]

Okay, great. Lastly, you know, inventory balances have increased as you signal. You know, how comfortable are you heading into the holiday season with supply, components, logistics? Separately, as we head into fiscal year 2022, you know, how should we think about working cap, particularly in the inventory? Are you gonna have a bigger harvest? The pace of CapEx in 2022 would be helpful as well. Thank you.

[Clifton Pemble, President and CEO at Garmin]

Yeah, I'll just make a comment on the general inventory and then ask Doug to finish the other parts of your question. In this environment, I think inventory is definitely a positive thing. We've been able to secure the kind of inventory that we feel we need to make for a successful year. I think nobody would ever say they have too much in this environment. With shipping delays that are taking place that we hear of every day in the news, definitely a higher level of inventory is required. Doug?

[Douglas Boessen, CFO and Treasurer at Garmin]

Yeah. First regarding free cash flow and inventory levels. As Cliff mentioned, you know, we'll be continuing to, you know, keep our inventory levels at the appropriate level to meet our demands. There will be, you know, increased levels at year end with that. As it relates to CapEx, you know, our forecast for the current year is $325 million. There's a number of projects that we do have in place, you know, for that. We do expect some elevated CapEx, you know, going into 2022. Those things will need to be factored into free cash flow when we come up to, you know, 2022 relating to the inventory levels as well as CapEx.

[Paul Chung, VP and Equity Research Analyst at JPMorgan Chase & Co.]

Thank you.

[Clifton Pemble, President and CEO at Garmin]

Thank you.

[Operator]

Thank you. Your next question comes from the line of Ben Bollin from Cleveland Research. Your line is open.

[Ben Bollin, Analyst at Cleveland Research]

Good morning. Thanks for taking the question. Cliff, I was hoping we could talk a little bit about how you think about the advanced wearables business near term, longer term, within fitness and outdoor in particular. Any thoughts you have on, you know, maybe you saw some pull forward during COVID, you know, how significant do you think that might have been versus, you know, kind of broader secular category growth? Also interested in any thoughts you have on, you know, sell-in inventory stocking versus like sell-through performance and where channel inventory you feel is today versus maybe history?

[Clifton Pemble, President and CEO at Garmin]

Yeah. I would say in terms of the general performance of those categories over the past nearly two years now, certainly there was a lot of pandemic-related interest in those products in the early part of the pandemic cycle. That interest, of course, still remains very strong, and we believe, as the industry has reported, that there's still a lot of growth potential in the wearables market. I think we're positioned really well in that market because we are differentiating ourselves around the active lifestyles theme. Everything we do with our products has a purpose and is built for purpose.

[Clifton Pemble, President and CEO at Garmin]

In terms of sell-in versus sell-through, I think we can definitely see those trends with our product re-registrations, and we feel like the sell-in and sell-through is matched very well at this point, and the inventory levels in the channel are better than they have been, although, again, depending on product lines, there can be pockets of imbalances here and there.

[Ben Bollin, Analyst at Cleveland Research]

The other question I have is just in regards to calendar 4Q this year versus prior years. Have you seen any notable changes either in timing around, you know, retailer commitments as they prepare for the holidays? Any thoughts around the promotional environment versus prior years? Anything along the lines with consumer behavior? Do you think they're shopping earlier versus prior? That's it. Thank you.

[Clifton Pemble, President and CEO at Garmin]

Yeah. In terms of our Q4 versus prior years last year, I think the market was still very distorted with many retailers starting to reopen or figure out how to open in light of the pandemic, and their inventories and online warehouses were very much depleted. We're still seeing that pandemic-driven spike on a year-over-year comparison basis. In terms of promotional environment this year, I would say that things feel like they're getting a little bit back to normal, although you know it remains to be seen. I would say that you know there is not a rush as far as we can see that everyone's trying to shop early. There's obviously reports of that in light of the general inventory situation you see with products on the market. In general, I would say that it's looking more normal in the seasonality of the business.

[Ben Bollin, Analyst at Cleveland Research]

Thank you.

[Operator]

Your next question comes from the line of Will Power from Baird. Please proceed with your question.

[Will Power, Senior Research Analyst at Baird]

Okay, great. Yeah, I guess a couple of questions. First, I was hoping to come back just to some of the supply chain commentary, and I guess just trying to better understand it, if possible, you know, where you're seeing the primary impacts, you know, what segments, I guess, in particular, and how you're thinking about, you know, the overall impact in Q4 versus what you saw in Q3. Do you expect it to get worse? Is it stabilizing? Just, you know, some broader views on that front would be great.

[Clifton Pemble, President and CEO at Garmin]

Okay. Yeah, I would say that the supply chain environment, as I mentioned earlier in my remarks, is really tough. We're handling thousands of components on a day-to-day basis and the inflow and the use of those components, and in some cases allocating how they're allocated to product manufacturing. But in terms of our Q3, I would say that definitely we saw an impact in the outdoor segment with regard to those products I mentioned, the dog products and the traditional handhelds. But for the most part, across the business, we're doing okay and managing it again on a day-to-day basis. That's generally what we see.

[Will Power, Senior Research Analyst at Baird]

Okay, thanks. And a question on auto. I guess maybe two-part. You know, as you think about the OEM segment, you know, what's the current thought process on margin outlook there? I know, you know, there have been investments as programs ramp up, but any thoughts as to how to think about the cadence of margins from here? And then I guess on the consumer side, you know, margins down a bit year-over-year, operating margins down a bit year-over-year. I assume that's just something tied to mix, but any color there would be helpful too. Thanks.

[Clifton Pemble, President and CEO at Garmin]

Yeah. Auto OEM in the margin outlook as our business transitions to the tier one manufacturing opportunities that we've been talking about, of course, those have a thinner margin on the gross margin line. That will definitely impact our gross margin. As we develop the scale and get these programs into production, then of course what we're working towards is profitable bottom line. Again, you should think of those in terms of traditional auto OEM margin structures. On the consumer side, definitely we saw some impact on margin there. Part of that is freight, but we also had some component costs in the consumer auto side that impacted the gross margin.

[Will Power, Senior Research Analyst at Baird]

Okay. Thank you.

[Operator]

Thank you. Your next question comes from the line of Ivan Feinseth from Tigress Financial Partners. Please proceed with your question.

[Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners]

Hi, thank you for taking my call, and congratulations on good performance in a difficult time.

[Clifton Pemble, President and CEO at Garmin]

Thank you.

[Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners]

Some of the headwinds you spoke about, freight, things like that, are you starting to see them abate, or what is your near-term outlook on some of these?

[Clifton Pemble, President and CEO at Garmin]

In the near term, we would say it's an ongoing thing. We probably don't see anything in the near to intermediate term that really changes what's happening right now until there's really more capacity brought into the system and some of these bottlenecks get solved.

[Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners]

Maybe you have a slight increase in cost, but it's not really disrupting your manufacturing process, right?

[Clifton Pemble, President and CEO at Garmin]

Like I've mentioned, we've managed the situation very well, probably as well as anyone could ever imagine. I would say in this environment, of course, we're very sensitive to the profitability. We're using this situation to reevaluate pricing of both existing products as well as new product introductions and promotions that we do in order to adjust.

[Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners]

Right. In your CapEx spending, you said you're gonna increase spending on R&D, IT, and marketing. In what kind of R&D areas can you give some idea of what you're working on or see like new opportunities also in your IT? What areas are you looking to invest in and improve, and what type of marketing initiatives could we expect to see going forward?

[Clifton Pemble, President and CEO at Garmin]

Well, in terms of R&D, one of the bigger pieces of the increase in Q3 was the investment in the auto OEM programs to bring the next generation BMW system to market, which we'll launch later next year. Across the business, we've had higher personnel costs as we work to retain our people and also general growth as we invest in new product categories and new markets across our segments. IT, you know, our business is very much driven around the cloud and the online component of our products and the things that we offer, and so we're investing in the IT infrastructure that we need to support all of that business.

[Clifton Pemble, President and CEO at Garmin]

Marketing-wise, again, we've got exciting product roadmaps, and so we're working on all of those and getting ready to launch new products.

[Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners]

I really like the Dexcom partnership, the integration into your app and wearables there. What other kind of areas can you give some idea of stuff that you're looking at?

[Clifton Pemble, President and CEO at Garmin]

I think Connect IQ is a very versatile platform that allows people to tap into, you know, by far the best hardware-based platform for wearables and purpose-driven devices that we have in cycling and outdoor, traditional, those kinds of products. It's a great asset for us, and we're constantly working on new opportunities to showcase Connect IQ apps with our devices.

[Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners]

Okay. Thank you.

[Clifton Pemble, President and CEO at Garmin]

Thank you.

[Operator]

Thank you. Once again, ladies and gentlemen, if you have a question, please press star and then one on your telephone keypad. Your next question comes from the line of Nik Todorov from Longbow Research. Please go ahead.

[Nik Todorov, Senior Research Analyst of Tech Hardware, Semiconductors and Supply Chain at Longbow Research]

Yeah, thanks good morning everyone. A question on Marine. I think you guys continued to perform exceptionally well there and even versus tougher comps, especially if you compare it to some of the other segments that benefited last year from COVID, like Fitness and Outdoor. Can you give us a little bit more details on what's driving the ability to address upside in Marine? Is it ability to have better supply than competitors in gaining share or what's the kind of some of the drivers there?

[Clifton Pemble, President and CEO at Garmin]

Well, there's a lot of moving pieces in all of that, for sure. I would say that our product line is superior and we're gaining market share with particularly some of the halo technologies that we have, such as LiveScope. The supply chain issue is, you know, again, across the business, but in marine, you know, we were able to benefit there by being able to continue to deliver products and take advantage of opportunities. On the OEM side of marine, they're of course ramping up their production lines to meet the boat demand that is still very persistent and extends even now. We're hearing into 2023 in terms of their backlog. We're working to support those customers, those OEM customers and support the general growth of the market that's taking place right now.

[Nik Todorov, Senior Research Analyst of Tech Hardware, Semiconductors and Supply Chain at Longbow Research]

Okay. Thanks for that. Then a question on the model, Doug. I'm sorry if I missed this, but you took gross margin down for the year, but then the operating margin up. Can you share what is the offsetting factor there?

[Douglas Boessen, CFO and Treasurer at Garmin]

Yeah. It's really leveraging operating expenses. Looking at our operating expenses really gave that the difference between you know the operating margin as well as the gross margin decline there.

[Nik Todorov, Senior Research Analyst of Tech Hardware, Semiconductors and Supply Chain at Longbow Research]

Okay. Okay. Got it. Thanks. That's all the questions for me. Good luck, guys.

[Clifton Pemble, President and CEO at Garmin]

Thanks, Nik.

[Operator]

Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press the star and then the one key on your touchtone telephone. Again, just press star and then the one on your telephone keypad. Our next question comes from the line of Erik Woodring from Morgan Stanley. Your line is open.

[Erik Woodring, Vice President of Equity Research at Morgan Stanley]

Thank you, and good morning everyone. Cliff, I guess this one's just for you. I just wanna be clear. Would you say as you sit here today, you know, obviously, we know about the supply chain challenges, but do you feel confident right now in Garmin's ability to have products on the shelf for the holiday season? I just wanna start with that one, then I have a follow-up.

[Clifton Pemble, President and CEO at Garmin]

Yes.

[Erik Woodring, Vice President of Equity Research at Morgan Stanley]

Easy enough. APAC was noticeably.

[Clifton Pemble, President and CEO at Garmin]

I'm not sure. I'm not sure you heard me correctly. You said, are you confident? I said yes.

[Erik Woodring, Vice President of Equity Research at Morgan Stanley]

Yep, no, that's perfect. Second question was just, you know, if we look by geographies, APAC was noticeably weaker than North America and EMEA. Just curious if you could share some color there why that would be. Thanks.

[Clifton Pemble, President and CEO at Garmin]

Yeah, in APAC, there's really two factors. One was the rolling progress of the pandemic as Delta swept through various countries across the region. We had some impact in the markets generally as there were more stringent lockdowns and measures taken to control the Delta spread. The other major factor was the timing of product introductions, particularly in outdoor. The APAC market is definitely reliant on those product introductions, and so they're comping against a very strong introduction of our solar products that we did last year in Q3.

[Erik Woodring, Vice President of Equity Research at Morgan Stanley]

Got it. Thanks. If I could just sneak one last one in there. Just, you know, you made those comments about the boating market, specifically the OEM market. You know, I guess with that, you know, the fact that backlog is potentially extending out to 2023, is it accurate to say that, you know, there might not be as weak of an off-season this year similar to last year? Is that a fair thing to say?

[Clifton Pemble, President and CEO at Garmin]

Well, I think the OEM part of the business is a smaller percentage compared to aftermarket.

[Erik Woodring, Vice President of Equity Research at Morgan Stanley]

Mm-hmm.

[Clifton Pemble, President and CEO at Garmin]

Even if it swings to a greater degree, it's less influential on the overall business just because of the mix of that. That said, I would say that the seasonality of marine is a little bit more normal in the current year versus where we saw last year. We would expect as economies and business activity tends to normalize around the pandemic and endemic behaviors of this virus, that the marine industry would also return to its normal seasonality, and we've seen some of that in Q3 and Q4.

[Erik Woodring, Vice President of Equity Research at Morgan Stanley]

Okay. Perfect. Thank you, guys.

[Clifton Pemble, President and CEO at Garmin]

Yep. Thank you.

[Operator]

Thank you once again, ladies and gentlemen. If you have a question, just press star and then the number one on your telephone keypad. I'm showing no further questions at this time. I would now like to turn the conference back to Teri. Please go ahead.

[Teri Seck, Director of Investor Relations at Garmin]

Thanks, everyone, for your time today. Have a great day. Bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Clifton Pemble, President and CEO
• Douglas Boessen, CFO and Treasurer
• Teri Seck, Director of Investor Relations

Analysts

• Ben Bollin, Analyst at Cleveland Research
• Erik Woodring, Vice President of Equity Research at Morgan Stanley
• Ivan Feinseth, Partner, CIO, and Director of Research at Tigress Financial Partners
• Nik Todorov, Senior Research Analyst of Tech Hardware, Semiconductors and Supply Chain at Longbow Research
• Paul Chung, VP and Equity Research Analyst at JPMorgan Chase & Co.
• Will Power, Senior Research Analyst at Baird