Garmin Ltd. Q1 2008 Earnings Call Transcript

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Garmin Ltd. (GRMN)

Q1 2008 Earnings Call

April 30, 2008 11:00 am ET

Executives

Kerri Thurston - IR

Dr. Min Kao - Chairman and CEO

Cliff Pemble - President and COO

Kevin Rauckman - CFO and Treasurer

Andrew Etkind - General Counsel

Analysts

Rich Valera - Needham and Company

Ron Epstein - Merrill Lynch

Amer Rosolowsky

Aaron Husock - Morgan Stanley

Yair Reiner - Oppenheimer & Company

Jeff Evanson - Dougherty & Company LLC

Peter Fritzler

Jim Duffy - Thomas Weisel Partners

Bennett Notman - Davenport and Company

Scott Sutherland - Wedbush Morgan Securities

Jeff Rath - Cannacord Adams

Operator

Good morning, my name is Leticia and I will be your conference operator today. At this time I would like to welcome everyone to the Q1 2008 Earnings Call for Garmin Limited Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Ms. Kerri Thurston, you may begin your conference.

Kerri Thurston

Thank you. Good morning. We would like to welcome you to Garmin Limited's first quarter 2008 earnings call. Please note that a copy of the press release concerning this earnings call is available at Garmin's Investor Relations site on the internet at www.garmin.com/stock.

Additionally this call is being broadcast live on the Internet. Please note that this webcast does include slides which can be viewed during this call. An archive of the webcast will be available until May 30th, 2008. A telephone recording will be available two business days following this call, and a transcript of the call will be available on the website within 48 hours at www.garmin.com/stock under the Events Calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, earnings, market shares, product introduction, and future demand for our products, products 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 for the fiscal year ended December 29, 2007, filed with the Securities and Exchange Commission.

Attending the call this morning on behalf of Garmin Limited are Dr. Min Kao, Chairman and Chief Executive Officer; Cliff Pemble, President and Chief Operating Officer; Kevin Rauckman, Chief Financial Officer and Treasurer; and Andrew Etkind, General Counsel. The presenters for this morning's call are Cliff Pemble and Kevin Rauckman.

At this time, I would like to turn the call over to Cliff Pemble.

Cliff Pemble

Good morning and welcome to our Q1 call. As you've read from our press release this morning, Garmin has achieved another record quarter of revenue and earnings. Financial highlights from Q1 include revenue growth of 35% to $664 million with the strong double-digit growth across all business segments, strong gross margin of 48.2% which was essentially flat year-over-year but increase sequentially by over 600 basis points from Q4. We also achieved strong operating margins of 26%, which was better than expected. As a result our operating income grew 25% to $173 million for the quarter and earnings grew 17% to $0.69 per share excluding the effects of foreign currency.

Some notable business highlights for the quarter. We maintained our strong market position in the US and increased market share in Europe, which further solidifies our worldwide leadership position in the PND market. We announced the nüvifone early in the quarter, which has generated significant interest in both carriers and resellers around the world. We delivered innovative new devices to the market like our H series, which features a color display and detailed street level maps with automatic routine tailored to cyclist.

We also delivered the new Colorado series, which offers innovative new features for the outdoor markets such as 3D, topographic map, presentations, and wireless data transfer between devices. And we completed the acquisition of our Danish distributor, the fifth distributor acquired to date and consistent with our strategy to improve European market share and presence.

We are pleased to report healthy double-digit revenue growth in every business segment. In the Automotive and Mobile segment revenues grew 43% as the unit volume more than doubled resulting in improved European market share and continuation of the global market leadership we established in 2007. Aviation revenues grew 19% with strong growth in both our retrofit and G1000 product lines. Revenues from the Outdoor/Fitness segment grew 16%, driven by recent product introductions. And finally Marine revenues grew an impressive 30% on a continued strength of our Network Chartplotter series and industry-leading, Vision Cartography System.

Many of you are wondering how we view the current market and economic trends which have been emerging in recent months. The slowing of the PND market growth has been well established, with the US market doubling in size year-over-year and Europe growing at approximately 40% year-over-year. These growth rates are down from approximately 300% and 100% respectively from the prior year. While this leveling of growth is expected, we also see that customers are becoming increasingly sensitive to price and we believe the economic factors are at least partly responsible for this.

However, the PND market is still one of the fastest growing categories of consumer electronics, and we continue to see strong opportunities in this segment.

Garmin continues to experience strong market share in North America. According to MTB our monthly share ranges from 40% to 50%. We have also increased our market share in Europe. While the overall European market grew at 40%, our unit volume more than doubled, which resulted in improved market share.

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