Business Wire | Oct 28, 2020 07:00AM EDT

Garmin reports record third quarter operating results; issues fiscal 2020 guidance

Oct. 28, 2020

SCHAFFHAUSEN, Switzerland--(BUSINESS WIRE)--Oct. 28, 2020--Garmin Ltd. (Nasdaq: GRMN) today announced results for the third quarter ended September 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(r) 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(tm), 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

(inthousands,except per 13-Weeks Ended 39-Weeks Endedsharedata)

September 26, September YoY September 26, September 28, YoY 28,

2020 2019 Change 2020 2019 Change

Net sales $ 1,109,194 $ 934,383 19 % $ 2,835,168 $ 2,655,273 7 %

Marine 165,437 107,694 54 % 486,269 393,070 24 %

Fitness 328,446 243,099 35 % 846,688 675,007 25 %

Outdoor 334,844 258,294 30 % 716,146 622,748 15 %

Auto 129,355 137,722 (6 )% 320,215 422,132 (24 )%

Aviation 151,112 187,574 (19 )% 465,850 542,316 (14 )%



Gross 60.2 % 60.7 % 59.6 % 60.1 % margin %



Operating 28.6 % 28.0 % 24.1 % 25.2 % income %



GAAPdiluted $ 1.63 $ 1.19 37 % $ 3.44 $ 3.10 11 %EPS

Pro formadiluted $ 1.58 $ 1.27 24 % $ 3.41 $ 3.16 8 %EPS^(1)



(1) See attached Non-GAAP Financial Information for discussion andreconciliation of non-GAAP financial measures, including pro forma diluted EPS

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."

Marine:

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(tm) 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(tm) solid-state marine radar offering industry leading power in the solid-state RADAR market.

Fitness:

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(r) 745, adding daily suggested workouts helping competitors reach their goals, and the Garmin Clipboard(tm) app that offers an integrated solution for coaches to manage team training and performance. We also launched the Venu(r) Sq, an entry-level smart watch with GPS capability that combines daily style with industry-leading health monitoring.

Outdoor:

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(r) series, combining the flexibility of on or off-road navigation with global messaging and SOS alerts via inReach(r) satellite technology.

Auto:

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.

Aviation:

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(1), and paid a quarterly dividend of approximately $117 million. We ended the quarter with cash and marketable securities of approximately $2.7 billion.

(1) See attached Non-GAAP Financial Information for discussion and reconciliation of non-GAAP financial measures, including free cash flow.

2020 Guidance (2):

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%.

2020 Guidance Segment 2020 Revenue Growth Estimates

Revenue ~$4.0B Marine ~25%

Gross Margin ~59.0% Fitness ~20%

Operating Margin ~24.0% Outdoor ~15%

Tax Rate ~10.0% Aviation ~(17%)

EPS ~$4.70 Auto ~(20%)

(2) See attached discussion on Forward-looking Financial Measures

Webcast Information/Forward-Looking Statements:

The information for Garmin Ltd.'s earnings call is as follows:

When: Wednesday, October 28, 2020 at 10:30 a.m. Eastern

Where: https://www.garmin.com/en-US/investors/events/

How: Simply log on to the web at the address above or call to listen in at 855-757-3897

An archive of the live webcast will be available until October 28, 2021 on the Garmin website at www.garmin.com. To access the replay, click on the Investors link and click over to the Events Calendar page.

This release includes projections and other forward-looking statements regarding Garmin Ltd. and its business that are commonly identified by words such as "anticipates," "would," "may," "expects," "estimates," "plans," "intends," "projects," and other words or phrases with similar meanings. Any statements regarding the Company's expected fiscal 2020 GAAP and pro forma estimated earnings, EPS, and effective tax rate, and the Company's expected segment revenue growth rates, consolidated revenue, gross margins, operating margins, potential future acquisitions, currency movements, expenses, pricing, new products to be introduced, statements relating to possible future dividends, statements related to the ongoing impact of the COVID-19 pandemic, and the Company's plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this release may not occur and actual results could differ materially as a result of risk factors and uncertainties affecting Garmin, including, but not limited to, the risk factors that are described in both the Annual Report on Form 10-K for the year ended December 28, 2019 and the Quarterly Report on Form 10-Q for the quarter ended September 26, 2020 filed by Garmin with the Securities and Exchange Commission (Commission file number 0-31983). A copy of Garmin's 2019 Form 10-K and the Q3 2020 Form 10-Q can be downloaded from https://www.garmin.com/en-US/investors/sec/. All information provided in this release and in the attachments is as of October 28, 2020. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.

This release and the attachments contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the Company's use of these measures are included in the attachments.

Garmin, the Garmin logo and the Garmin delta, Forerunner, Venu, inReach and Montana are trademarks of Garmin Ltd. or its subsidiaries and are registered in one or more countries, including the U.S. Garmin Catalyst, Fantom, Garmin OnDeck, and Panoptix, are trademarks of Garmin Ltd. or its subsidiaries. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share information)



13-Weeks Ended 39-Weeks Ended

September September September 26, September 28, 26, 28,

2020 2019 2020 2019

Net sales $ 1,109,194 $ 934,383 $ 2,835,168 $ 2,655,273



Cost of goods sold 441,211 366,925 1,144,816 1,060,752



Gross profit 667,983 567,458 1,690,352 1,594,521



Advertising 33,866 32,668 90,031 101,808 expense

Selling, generaland administrative 142,134 124,769 411,335 380,289 expense

Research anddevelopment 174,882 148,561 506,013 443,361 expense

Total operating 350,882 305,998 1,007,379 925,458 expense



Operating income 317,101 261,460 682,973 669,063



Other income (expense):

Interest income 7,777 12,309 30,258 39,748

Foreign currency 10,113 (16,296 ) (9,802 ) (12,568 )gains (losses)

Other income 1,726 294 8,515 3,567 (expense)

Total other income 19,616 (3,693 ) 28,971 30,747 (expense)



Income before 336,717 257,767 711,944 699,810 income taxes



Income tax 23,300 29,901 53,168 108,115 provision



Net income $ 313,417 $ 227,866 $ 658,776 $ 591,695



Net income per share:

Basic $ 1.64 $ 1.20 $ 3.45 $ 3.12

Diluted $ 1.63 $ 1.19 $ 3.44 $ 3.10



Weighted averagecommon shares outstanding:

Basic 191,234 190,102 191,021 189,853

Diluted 191,998 190,962 191,760 190,790

Garmin Ltd. And Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except per share information)

September 26 2020

December 28 2019

Assets

Current assets:

Cash and cash equivalents

$

1,223,516

$

1,027,567

Marketable securities

430,164

376,463

Accounts receivable, net

658,000

706,763

Inventories

821,377

752,908

Deferred costs

21,067

25,105

Prepaid expenses and other current assets

187,746

169,044

Total current assets

3,341,870

3,057,850

Property and equipment, net

813,561

728,921

Operating lease right-of-use assets

74,949

63,589

Restricted cash

293

71

Marketable securities

1,058,103

1,205,475

Deferred income taxes

247,502

268,518

Noncurrent deferred costs

17,676

23,493

Intangible assets, net

818,781

659,629

Other assets

177,934

159,253

Total assets

$

6,550,669

$

6,166,799

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

235,467

$

240,831

Salaries and benefits payable

137,859

128,426

Accrued warranty costs

40,002

39,758

Accrued sales program costs

76,255

112,578

Deferred revenue

88,042

94,562

Accrued royalty costs

15,389

15,401

Accrued advertising expense

25,905

35,142

Other accrued expenses

105,731

95,060

Income taxes payable

48,342

56,913

Dividend payable

349,964

217,262

Total current liabilities

1,122,956

1,035,933

Deferred income taxes

124,746

114,754

Noncurrent income taxes

75,186

105,771

Noncurrent deferred revenue

52,715

67,329

Noncurrent operating lease liabilities

58,416

49,238

Other liabilities

12,309

278

Stockholders' equity:

Shares, CHF 0.10 par value, 198,077 shares authorized and issued; 191,237 shares outstanding at September 26, 2020 and 190,686 shares outstanding at December 28, 2019

17,979

17,979

Additional paid-in capital

1,872,519

1,835,622

Treasury stock

(326,294

)

(345,040

)

Retained earnings

3,421,159

3,229,061

Accumulated other comprehensive income

118,978

55,874

Total stockholders' equity

5,104,341

4,793,496

Total liabilities and stockholders' equity

$

6,550,669

$

6,166,799

Garmin Ltd. And Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except per share information)



September 26 December 28 2020 2019

Assets

Current assets:

Cash and cash equivalents $ 1,223,516 $ 1,027,567

Marketable securities 430,164 376,463

Accounts receivable, net 658,000 706,763

Inventories 821,377 752,908

Deferred costs 21,067 25,105

Prepaid expenses and other current assets 187,746 169,044

Total current assets 3,341,870 3,057,850



Property and equipment, net 813,561 728,921

Operating lease right-of-use assets 74,949 63,589



Restricted cash 293 71

Marketable securities 1,058,103 1,205,475

Deferred income taxes 247,502 268,518

Noncurrent deferred costs 17,676 23,493

Intangible assets, net 818,781 659,629

Other assets 177,934 159,253

Total assets $ 6,550,669 $ 6,166,799



Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 235,467 $ 240,831

Salaries and benefits payable 137,859 128,426

Accrued warranty costs 40,002 39,758

Accrued sales program costs 76,255 112,578

Deferred revenue 88,042 94,562

Accrued royalty costs 15,389 15,401

Accrued advertising expense 25,905 35,142

Other accrued expenses 105,731 95,060

Income taxes payable 48,342 56,913

Dividend payable 349,964 217,262

Total current liabilities 1,122,956 1,035,933



Deferred income taxes 124,746 114,754

Noncurrent income taxes 75,186 105,771

Noncurrent deferred revenue 52,715 67,329

Noncurrent operating lease liabilities 58,416 49,238

Other liabilities 12,309 278



Stockholders' equity:

Shares, CHF 0.10 par value, 198,077 sharesauthorized and issued; 191,237shares outstanding at September 26, 2020 and 17,979 17,979 190,686 shares outstandingat December 28, 2019

Additional paid-in capital 1,872,519 1,835,622

Treasury stock (326,294 ) (345,040 )

Retained earnings 3,421,159 3,229,061

Accumulated other comprehensive income 118,978 55,874

Total stockholders' equity 5,104,341 4,793,496

Total liabilities and stockholders' equity $ 6,550,669 $ 6,166,799

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

39-Weeks Ended

September 26, 2020

September 28, 2019

Operating Activities:

Net income

$

658,776

$

591,695

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

57,141

52,503

Amortization

32,969

25,112

Gain on sale of property and equipment

(1,815

)

(5

)

Unrealized foreign currency losses

4,384

14,653

Deferred income taxes

14,353

18,012

Stock compensation expense

53,515

47,553

Realized gain on marketable securities

(1,316

)

(213

)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable, net of allowance for doubtful accounts

59,474

15,244

Inventories

(56,063

)

(178,121

)

Other current and non-current assets

(27,019

)

(86,538

)

Accounts payable

(11,939

)

27,523

Other current and non-current liabilities

(18,299

)

(54,401

)

Deferred revenue

(21,148

)

(7,750

)

Deferred costs

9,855

6,326

Income taxes payable

(53,419

)

(7,423

)

Net cash provided by operating activities

699,449

464,170

Investing activities:

Purchases of property and equipment

(137,072

)

(91,469

)

Proceeds from sale of property and equipment

1,965

370

Purchase of intangible assets

(1,643

)

(1,862

)

Purchase of marketable securities

(702,487

)

(333,320

)

Redemption of marketable securities

808,554

333,783

Acquisitions, net of cash acquired

(148,648

)

(275,310

)

Net cash used in investing activities

(179,331

)

(367,808

)

Financing activities:

Dividends

(333,975

)

(308,905

)

Proceeds from issuance of treasury stock related to equity awards

15,202

12,982

Purchase of treasury stock related to equity awards

(13,074

)

(12,972

)

Net cash used in financing activities

(331,847

)

(308,895

)

Effect of exchange rate changes on cash and cash equivalents

7,900

(11,834

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

196,171

(224,367

)

Cash, cash equivalents, and restricted cash at beginning of period

1,027,638

1,201,805

Cash, cash equivalents, and restricted cash at end of period

$

1,223,809

$

977,438

Garmin Ltd. And Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



39-Weeks Ended

September 26, September 28, 2020 2019

Operating Activities:

Net income $ 658,776 $ 591,695

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 57,141 52,503

Amortization 32,969 25,112

Gain on sale of property and equipment (1,815 ) (5 )

Unrealized foreign currency losses 4,384 14,653

Deferred income taxes 14,353 18,012

Stock compensation expense 53,515 47,553

Realized gain on marketable securities (1,316 ) (213 )

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable, net of allowance for 59,474 15,244 doubtful accounts

Inventories (56,063 ) (178,121 )

Other current and non-current assets (27,019 ) (86,538 )

Accounts payable (11,939 ) 27,523

Other current and non-current liabilities (18,299 ) (54,401 )

Deferred revenue (21,148 ) (7,750 )

Deferred costs 9,855 6,326

Income taxes payable (53,419 ) (7,423 )

Net cash provided by operating activities 699,449 464,170



Investing activities:

Purchases of property and equipment (137,072 ) (91,469 )

Proceeds from sale of property and equipment 1,965 370

Purchase of intangible assets (1,643 ) (1,862 )

Purchase of marketable securities (702,487 ) (333,320 )

Redemption of marketable securities 808,554 333,783

Acquisitions, net of cash acquired (148,648 ) (275,310 )

Net cash used in investing activities (179,331 ) (367,808 )



Financing activities:

Dividends (333,975 ) (308,905 )

Proceeds from issuance of treasury stock 15,202 12,982 related to equity awards

Purchase of treasury stock related to equity (13,074 ) (12,972 )awards

Net cash used in financing activities (331,847 ) (308,895 )



Effect of exchange rate changes on cash and 7,900 (11,834 )cash equivalents



Net increase (decrease) in cash, cash 196,171 (224,367 )equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at 1,027,638 1,201,805 beginning of period

Cash, cash equivalents, and restricted cash at $ 1,223,809 $ 977,438 end of period

Garmin Ltd. And Subsidiaries

Net Sales, Gross Profit and Operating Income by Segment (Unaudited)

(In thousands)

Reportable Segments

Marine

Fitness

Outdoor

Auto

Aviation

Total

13-Weeks Ended September 26, 2020

Net sales

$

165,437

$

328,446

$

334,844

$

129,355

$

151,112

$

1,109,194

Gross profit

100,423

177,794

223,704

58,135

107,927

667,983

Operating income

50,482

87,083

147,477

3,462

28,597

317,101

13-Weeks Ended September 28, 2019

Net sales

$

107,694

$

243,099

$

258,294

$

137,722

$

187,574

$

934,383

Gross profit

64,275

126,835

170,846

65,814

139,688

567,458

Operating income

20,008

49,831

105,051

20,857

65,713

261,460

39-Weeks Ended September 26, 2020

Net sales

$

486,269

$

846,688

$

716,146

$

320,215

$

465,850

$

2,835,168

Gross profit

288,103

446,936

469,150

147,393

338,770

1,690,352

Operating income

134,195

190,075

262,057

(6,837

)

103,483

682,973

39-Weeks Ended September 28, 2019

Net sales

$

393,070

$

675,007

$

622,748

$

422,132

$

542,316

$

2,655,273

Gross profit

234,014

352,805

403,842

198,012

405,848

1,594,521

Operating income

88,212

118,369

218,340

53,978

190,164

669,063

Garmin Ltd. And Subsidiaries

Net Sales, Gross Profit and Operating Income by Segment (Unaudited)

(In thousands)



Reportable Segments

Marine Fitness Outdoor Auto Aviation Total

13-WeeksEnded September26, 2020



Net sales $ 165,437 $ 328,446 $ 334,844 $ 129,355 $ 151,112 $ 1,109,194

Gross 100,423 177,794 223,704 58,135 107,927 667,983profit

Operating 50,482 87,083 147,477 3,462 28,597 317,101income



13-WeeksEnded September28, 2019



Net sales $ 107,694 $ 243,099 $ 258,294 $ 137,722 $ 187,574 $ 934,383

Gross 64,275 126,835 170,846 65,814 139,688 567,458profit

Operating 20,008 49,831 105,051 20,857 65,713 261,460income



39-WeeksEnded September26, 2020



Net sales $ 486,269 $ 846,688 $ 716,146 $ 320,215 $ 465,850 $ 2,835,168

Gross 288,103 446,936 469,150 147,393 338,770 1,690,352profit

Operating 134,195 190,075 262,057 (6,837 ) 103,483 682,973income



39-WeeksEnded September28, 2019



Net sales $ 393,070 $ 675,007 $ 622,748 $ 422,132 $ 542,316 $ 2,655,273

Gross 234,014 352,805 403,842 198,012 405,848 1,594,521profit

Operating 88,212 118,369 218,340 53,978 190,164 669,063income

Garmin Ltd. And Subsidiaries

Net Sales by Geography (Unaudited)

(In thousands)

13-Weeks Ended

39-Weeks Ended

September 26,

September 28,

YoY

September 26,

September 28,

YoY

2020

2019

Change

2020

2019

Change

Net sales

$

1,109,194

$

934,383

19

%

$

2,835,168

$

2,655,273

7

%

Americas

521,869

439,113

19

%

1,372,360

1,289,409

6

%

EMEA

407,859

344,010

19

%

1,042,928

942,625

11

%

APAC

179,466

151,260

19

%

419,880

423,239

(1

)%

EMEA - Europe, Middle East and Africa; APAC - Asia Pacific and Australian Continent

Non-GAAP Financial Information

To supplement our financial results presented in accordance with GAAP, this release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: pro forma net income (earnings) per share, pro forma effective tax rate and free cash flow. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies, limiting the usefulness of the measures for comparison with other companies. Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company, as described in more detail by category below.

The tables below provide reconciliations between the GAAP and non-GAAP measures.

Pro forma effective tax rate

The Company's income tax expense is periodically impacted by discrete tax items that are not reflective of income tax expense incurred as a result of current period earnings. Therefore, management believes disclosure of the effective tax rate and income tax provision before the effect of certain discrete tax items are important measures to permit investors' consistent comparison between periods. In the first 39 weeks of 2019, there were no such discrete tax items identified.

Garmin Ltd. And Subsidiaries

Net Sales by Geography (Unaudited)

(In thousands)



13-Weeks Ended 39-Weeks Ended

September September YoY September September YoY 26, 28, 26, 28,

2020 2019 Change 2020 2019 Change

Net $ 1,109,194 $ 934,383 19 % $ 2,835,168 $ 2,655,273 7 %sales

Americas 521,869 439,113 19 % 1,372,360 1,289,409 6 %

EMEA 407,859 344,010 19 % 1,042,928 942,625 11 %

APAC 179,466 151,260 19 % 419,880 423,239 (1 )%



EMEA - Europe, Middle East and Africa; APAC - Asia Pacific and AustralianContinent

Non-GAAP Financial Information

To supplement our financial results presented in accordance with GAAP, this release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: pro forma net income (earnings) per share, pro forma effective tax rate and free cash flow. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies, limiting the usefulness of the measures for comparison with other companies. Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company, as described in more detail by category below.

The tables below provide reconciliations between the GAAP and non-GAAP measures.

Pro forma effective tax rate

The Company's income tax expense is periodically impacted by discrete tax items that are not reflective of income tax expense incurred as a result of current period earnings. Therefore, management believes disclosure of the effective tax rate and income tax provision before the effect of certain discrete tax items are important measures to permit investors' consistent comparison between periods. In the first 39 weeks of 2019, there were no such discrete tax items identified.

Garmin Ltd. And Subsidiaries

Pro Forma Effective Tax Rate

(In thousands, except effective tax rate (ETR) information)



13-Weeks Ended 39-Weeks Ended

September 26, September 26,

2020 2020

$ ETR^(1) $ ETR^(1)

U.S GAAP income tax provision $ 23,300 6.9 % $ 53,168 7.5 %

Pro forma discrete tax item:

Uncertain Tax Reserve Release^(2) 14,308

Pro forma income tax provision $ 23,300 6.9 % $ 67,476 9.5 %

(1) Effective tax rate is calculated by taking the income tax provision divided by income before taxes, as presented on the face of the Condensed Consolidated Statements of Income.

(2) In second quarter 2020, the Company recognized a $14.3 million income tax benefit due to the release of uncertain tax position reserves associated with the 2014 intercompany restructuring, which was a pro forma adjustment in 2014. The second quarter 2020 impact of the reserve release is not reflective of income tax expense incurred as a result of current period earnings and therefore affects period-to-period comparability.

The net release of other uncertain tax position reserves, amounting to approximately $22.9 million and $23.3 million in the 39 weeks ended September 26, 2020 and September 28, 2019, respectively, have not been identified as pro forma adjustments as such items tend to be more recurring in nature.

Pro forma net income (earnings) per share

Management believes that net income (earnings) per share before the impact of foreign currency gains or losses and certain discrete income tax items, as discussed above, is an important measure in order to permit a consistent comparison of the Company's performance between periods.

(1) Effective tax rate is calculated by taking the income tax provision dividedby income before taxes, as presented on the face of the Condensed ConsolidatedStatements of Income.

(2) In second quarter 2020, the Company recognized a $14.3 million income taxbenefit due to the release of uncertain tax position reserves associated withthe 2014 intercompany restructuring, which was a pro forma adjustment in 2014.The second quarter 2020 impact of the reserve release is not reflective ofincome tax expense incurred as a result of current period earnings andtherefore affects period-to-period comparability.

The net release of other uncertain tax position reserves, amounting to approximately $22.9 million and $23.3 million in the 39 weeks ended September 26, 2020 and September 28, 2019, respectively, have not been identified as pro forma adjustments as such items tend to be more recurring in nature.

Pro forma net income (earnings) per share

Management believes that net income (earnings) per share before the impact of foreign currency gains or losses and certain discrete income tax items, as discussed above, is an important measure in order to permit a consistent comparison of the Company's performance between periods.

Garmin Ltd. And Subsidiaries

Pro Forma Net Income (Earnings) Per Share

(In thousands, except per share information)



13-Weeks Ended 39-Weeks Ended

September September September September 26, 28, 26, 28,

2020 2019 2020 2019

GAAP net income $ 313,417 $ 227,866 $ 658,776 $ 591,695

Foreign currency gains / (10,113 ) 16,296 9,802 12,568 losses^(1)

Tax effect of foreigncurrency gains / losses^ 700 (1,890 ) (929 ) (1,942 )(2)

Pro forma discrete tax - - (14,308 ) - item^(3)

Pro forma net income $ 304,004 $ 242,272 $ 653,341 $ 602,321



GAAP net income per share:

Basic $ 1.64 $ 1.20 $ 3.45 $ 3.12

Diluted $ 1.63 $ 1.19 $ 3.44 $ 3.10



Pro forma net income per share:

Basic $ 1.59 $ 1.27 $ 3.42 $ 3.17

Diluted $ 1.58 $ 1.27 $ 3.41 $ 3.16



Weighted average common shares outstanding:

Basic 191,234 190,102 191,021 189,853

Diluted 191,998 190,962 191,760 190,790

(1) Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar and the related exchange rate impact on the significant cash, receivables, and payables held in a currency other than the functional currency at a given legal entity. However, there is minimal cash impact from such foreign currency gains and losses.

(2) The tax effect of foreign currency gains and losses was calculated using the pro forma effective tax rate of 6.9% and 9.5% for the 13-weeks and 39-weeks ended September 26, 2020, respectively, and an effective tax rate of 11.6% and 15.4% for the 13-weeks and 39-weeks ended September 28, 2019, respectively.

(3) The discrete tax item is discussed in the pro forma effective tax rate section above.

Free cash flow

Management believes that free cash flow is an important financial measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flows less capital expenditures for property and equipment. Management believes that excluding purchases of property and equipment provides a better understanding of the underlying trends in the Company's operating performance and allows more accurate comparisons of the Company's operating results to historical performance. This metric may also be useful to investors, but should not be considered in isolation as it is not a measure of cash flow available for discretionary expenditures. The most comparable GAAP measure is net cash provided by operating activities.

(1) Foreign currency gains and losses for the Company are driven by movementsof a number of currencies in relation to the U.S. Dollar and the relatedexchange rate impact on the significant cash, receivables, and payables held ina currency other than the functional currency at a given legal entity. However,there is minimal cash impact from such foreign currency gains and losses.

(2) The tax effect of foreign currency gains and losses was calculated usingthe pro forma effective tax rate of 6.9% and 9.5% for the 13-weeks and 39-weeksended September 26, 2020, respectively, and an effective tax rate of 11.6% and15.4% for the 13-weeks and 39-weeks ended September 28, 2019, respectively.

(3) The discrete tax item is discussed in the pro forma effective tax ratesection above.

Free cash flow

Management believes that free cash flow is an important financial measure because it represents the amount of cash provided by operations that is available for investing and defines it as operating cash flows less capital expenditures for property and equipment. Management believes that excluding purchases of property and equipment provides a better understanding of the underlying trends in the Company's operating performance and allows more accurate comparisons of the Company's operating results to historical performance. This metric may also be useful to investors, but should not be considered in isolation as it is not a measure of cash flow available for discretionary expenditures. The most comparable GAAP measure is net cash provided by operating activities.

Garmin Ltd. And Subsidiaries

Free Cash Flow

(In thousands)



13-Weeks Ended 39-Weeks Ended

September September September September 26, 28, 26, 28,

2020 2019 2020 2019

Net cash provided by $ 274,339 $ 188,952 $ 699,449 $ 464,170 operating activities

Less: purchases of (38,802 ) (30,974 ) (137,072 ) (91,469 )property and equipment

Free Cash Flow $ 235,537 $ 157,978 $ 562,377 $ 372,701

Forward-looking Financial Measures

The forward-looking financial measures in our 2020 guidance provided above do not consider the potential future net effect of foreign currency exchange gains and losses, certain discrete tax items and any other impacts that may be identified as pro forma adjustments in calculating the non-GAAP measures described above.

The estimated impact of foreign currency gains and losses cannot be reasonably estimated on a forward-looking basis due to the high variability and low visibility with respect to non-operating foreign currency exchange gains and losses and the related tax effects of such gains and losses. The impact on diluted net income per share of foreign currency gains and losses, net of tax effects, was $0.05 per share for the 39-weeks ended September 26, 2020.

At this time, management is unable to determine whether or not additional significant discrete tax items will occur in fiscal 2020 or anticipate the impact of any other events that may be considered in the calculation of non-GAAP financial measures.

Category: Corporate, Earnings

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CONTACT: Investor Relations Contact: Teri Seck 913/397-8200 investor.relations@garmin.com Media Relations Contact: Carly Hysell 913/397-8200 media.relations@garmin.com