Operator: Hello, everyone. Thank you for joining us, and welcome to the Garmin Limited Second Quarter 26 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. To withdraw your question, press 1 again. I will now hand the conference over to Teri Seck, Director of Investor Relations. Please go ahead.
Teri Seck: Good morning. We would like to welcome you to Garmin Limited's second quarter 26 Earnings Call. Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/investors. 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 Limited and its business. Any statements regarding our future financial position revenues, segment growth rates, earnings, gross margins, operating margins, future dividends or share repurchases, market shares, product introductions, foreign currency, tariff impacts, 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 filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pemble, president and chief executive officer and Douglas Gerard Boessen, chief financial officer and treasurer. At this time, I would like to turn the call over to Cliff Pemble.
Clifton Albert Pemble: Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin achieved another quarter of record breaking financial results in a continuation of the positive trends we have been experiencing over the long term. Consolidated revenue increased 11%, to $2.02 billion We experienced robust expansion in consolidated gross and operating margins, the majority of which is attributable to favorable product mix. Margins also benefited from a $21 million tariff refund recognized in the second quarter. Even when excluding this benefit, our gross margin performance was impressive by any historical comparison reflecting the strength of our product lines, our vertically integrated business model, exceptional execution by our global team. Operating income increased 30% to $616 million. And pro forma EPS increased 29% to $2.81. Our first half performance exceeded expectations and gives us confidence to raise our full-year 2026 guidance. We now expect 2026 revenue of approximately $8.05 billion pro forma EPS of $10 per share. Services have been an area of strategic focus in recent years with each business segment pursuing unique opportunities to grow service revenue over the long term. We recently announced the strategic acquisition of Training Peaks, and TrainHeroic, which are leading endurance and strength training platforms connecting coaches to athletes who wish to maximize the impact of their training effort. We are very excited to welcome the Training Peaks and TrainHeroic teams to our fitness segment, and look forward to all that we can accomplish together. Douglas will discuss our financial results in greater detail in a few minutes, but first, I will provide a few remarks on the performance of each business segment. Starting with business, revenue increased 25% to $757 million a new second quarter record driven by growth across all product categories led by continued strong demand for advanced wearables. Gross and operating margins expanded to 64%, 37%, respectively, resulting in operating income of $277 million. During the quarter, we launched the Forerunner 70, bringing comprehensive running features and a bright AMOLED display to our entry level running lineup. And the Forerunner 175 with additional running and training features. We also released our global annual global running and data report that provides insights into the fitness activities of our customers and their athletic performance. More recently, we announced the CIRQL Smart Ring, screenless wearable that offers rich wellness and fitness insights without requiring a subscription. Which further expands the addressable market for our wellness devices. The fitness segment has achieved outstanding performance over the long term, We are very pleased with these results. And continue to expect the fitness segment will be the strongest contributor to 2026 consolidated growth. Moving to outdoor, revenue decreased 2% to $483 million primarily due to consumer auto, and adventure watch product categories. Gross and operating margins expanded to 69%, 34%, respectively, resulting in operating income of $164 million. The segment delivered improved profitability and operating income growth through favorable product mix, and disciplined execution. We recently expanded our golf lineup with the launch of the Approach Z10, a compact laser rangefinder that sends precise distances to compatible devices, bringing a high fidelity experience to gameplay. We also published our annual trends in golf data report, highlighting that participation in the sport is up and players are improving in nearly every shot category. Looking forward, we expect to achieve stronger revenue performance in the back half of 2026 due to the timing of product launches. Resulting in improved full year growth when compared to 2025. Looking next at aviation, revenue increased 8% to $269 million reflecting growth in both OEM and aftermarket product categories. Gross and operating margins were 75%, 27%, respectively, resulting in operating income of $72 million. For the 11th consecutive year, we were named best supplier of the year by Embraer, who recognized us for outstanding performance as a supplier of electrical and electronic systems for their phenom business jets. This recognition validates the long term investments we have made to create innovative products and build strong relationships with our customers. During the quarter, we launched the D2 Mach 1 Pro, our first aviator smartwatch with inReach technology. We recently announced AXIS, an all-new family of highly integrated and scalable cockpit display solutions for a broad range of certified and experimental aircraft models. AXIS combines navigation, communication, and audio functions into a single platform reducing installation time, complexity, and cost while delivering a modern cockpit experience. AXIS reflects decades of Garmin innovation and sets a new standard for integrated flight displays. We are very pleased with the performance of aviation during the first half of the year and expect to achieve continued growth throughout the remainder of the year. Turning to the marine segment. Revenue increased 14% to $341 million. With growth across multiple product categories. Gross and operating margins expanded to 61%, 29%, respectively, resulting in operating income of $100 million. The primary driver of margin expansion was the tariff refund recognized during the quarter. Although product margins improved even when excluding this benefit. During the quarter, we launched the Garmin Signal VHF marine radio. Which offers a color touch screen and new features to enhance communication on the water. We recently announced the next generation LiveScope Plus sonar system. Which offers improved range, and clarity over previous LiveScope systems. LiveScope Plus received the best electronics award at the recent ICAST trade show, validating our superior LiveScope technology and further separating us from others in the market. We are pleased with the performance of marine during the first half of the year, and believe we are on track to achieve full year growth that is consistent with that of the prior year. And moving finally to the auto OEM segment, revenue increased 1% to $172 million, with growth primarily driven by domain controllers. Gross and operating margins were 22% and 2%., The gross margin expansion was primarily due to year to date cost recoveries that were recognized as revenue during the quarter. Operating income was positive on a GAAP accounting basis at $3 million in the quarter, driven by improved gross profit and lower research and development expenses. While we are excited about the positive quarter, we are expecting revenue to decline and the return to an operating loss in the back half of 2026. Leading up to the launch of our next major program with Mercedes-Benz in 2027. Wrapping up, I am very proud of what our team has accomplished. We delivered strong growth, expanded profitability, invested in innovation, completed a strategic acquisition, and introduced new products across nearly every segment of our business. As we look to the back half of 2026, our product portfolio is strong, and we are confident in the opportunities that lie ahead. We believe our success is driven by our commitment to create products, that are essential to our customers and supporting them with industry leading quality, reliability, and innovation. That concludes my remarks. Next, Douglas will walk you through additional details of our financial results. Douglas?
Douglas Gerard Boessen: Thanks, Cliff. Good morning, everyone. I will begin by reviewing our second quarter financial results, provide comments on the balance sheet, cash flow statement taxes, updated guidance. We closed to revenue of $2.022 billion for second quarter. representing an 11% increase year over year. Gross margin was 62.4%, a 360 basis point increase from the prior-year quarter. The increase was primarily driven by favorable product mix and tariff refunds of approximately $21 million Operating expense as a percentage of sales was 32%, an 80 basis point decrease. Operating income increased 30% to $616 million, and operating margin expanded to 30.4%, a 440 basis point increase compared to the prior-year quarter. Our GAAP EPS was $2.80, and pro forma EPS was $2.81. Next, let's look at our second quarter revenue by segment and geography. During the second quarter, we achieved consolidated double digit growth led by the Fitness segment with 25% growth, followed by marine segment with 14% growth. By geography, we achieved growth in all 3 regions, led by 13% growth in EMEA, followed by 12% growth in Americas, and 7% growth in APAC. Looking next at operating expenses. Research and development expense increased $27 million or approximately 10%. While SG&A expenses increased $25 million, or approximately 8%. The increases were primarily driven by personnel related expenses. A few highlights on the balance sheet. cash flow statement, and taxes. We ended the quarter with cash, marketable securities of approximately $4.4 billion Accounts receivable increased both year over year and sequentially to approximately $1.2 billion on the seasonally strong sales in the second quarter. Inventory increased year-over-year and sequentially to approximately $2 billion During the second quarter of 2026, we generated free cash flow of $276 million, a $148 million increase from the prior quarter. Capital expenditures for second quarter 2026 were $128 million, approximately $82 million higher than the prior-year quarter. We expect full year 2026 free cash flow to be approximately $1.4 billion with capital expenditures of approximately $550 million. During the second quarter of 2026, we paid dividends of approximately $202 million and purchased $43 million of company stock. At quarter end, we had approximately $448 million remaining share repurchase program, authorized through December 2028. We reported an effective tax rate of 16.8%, compared to 16.5% in the prior-year quarter. Increase in effective tax rate primarily due to income mix by jurisdictions. Turning next to our full year guidance. Based on our performance during the first half of 2026, our positive outlook for the remainder of the year, we now estimate revenue of approximately $8.05 billion compared to our previous guidance of $7.9 billion As a result of year to date performance, we have increased our gross margin estimate to approximately 59.7%, which is 120 basis points higher than our previous guidance and is 100 basis points higher than the full year 2025 gross margin. Year to date results have not been significantly impacted by higher memory costs. However, we do expect higher memory costs to impact the second half, Which has been factored into our full year gross margin guidance. Updated gross margin guidance does not include any additional benefit related to tariff refunds besides a benefit already recorded in the second quarter. We expect our operating margin to be approximately 27%, which is 150 and 50 basis points higher than our previous guidance. Also, we expect a pro forma effective tax rate of 16.5%, compared to our previous guidance of 16%. Increases due to income mix by jurisdiction. Expected pro forma earnings per share is approximately $10 from our previous guidance of $9.65. To conclude our formal remarks, Rebecca? Could you please open the line for Q&A?
Operator: We will now begin the question-and-answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. First question comes from Erik Woodring with Morgan Stanley. Please go ahead.
Erik Woodring: Great. Good morning, guys. Thank you very thank you very much for taking my questions and really nice performance in guide. Cliff, congrats on the CIRQL launch last week. Clearly, you are taking the kind of broad based and risk based wearables and expanding it to new kind of form factors or adjacencies. Just maybe 2 questions. 1, a clarification. Just I want to make sure to get the kind of most advanced features excuse me, AI software features on the CIRQL, the user still needs a subscription to Connect Plus. I just want to make sure that is correct. And then second, how far are you willing to go when we think about adjacent form factors? Just as I think about the broad wearables market, there are other wearable form factors having success Is it your intention to expand to other form factors? And just kind of your thoughts on why you would or why you would or would not go that direction. Thanks so much.
Clifton Albert Pemble: Yes. Thank you, Erik, and good morning. In terms of CIRQL and the features, what we are trying to communicate there is that CIRQL comes with all of the features that people have expected and get in any Garmin wearable on Garmin Connect. They can certainly add the additional features of Connect Plus, including the AI and the nutrition tracking and other features that we will add in the future. I think our main point and 1 of the things that we felt was a unique differentiator for us is the fact that our product is so richly featured right out of the box. Compared to competitors. In terms of other form factors, you know, I will not comment specifically on our product roadmap, but as we have demonstrated over time, we tend to move into categories and explore new things, and so our product roadmap is very rich, and I would expect that we will see additional new products in the future just like you have always seen from us. Okay. Alright. that is helpful. And then maybe just as my follow-up, I guess maybe the broad question is just how sustainable is kind of this broad based margin expansion that we are seeing? it is incredibly impressive, obviously, even when you exclude the tariff refund. And what I am really trying to understand is you talk a lot about mix as a tailwind. Can you just be a little bit more specific? When you say mix, is this kind of lower cost products mixing in? Is this higher price products mixing in? Is there anything within mix that is kind of notable that you would call out that is more of a sustainable tailwind I just want to make sure I understand when we are talking about mix. I understand just how sustainable that trend could be as we think not only a quarter or beyond, but like 1, 2, 3 years beyond where we are from now. Thanks so much. With regard to margin, I would I would say that it is never our strategy to go backwards. But that said, you know, everyone is facing higher costs especially in the area of memory. And so we recognize that is a headwind. We are going to use the same playbook with memory as we did with tariffs in managing the business and trying to provide outstanding performance. So we do not rule anything out, and we will continue to leverage everything we have in our toolbox to be able to mitigate the cost of memory. In terms of mix, I think it is somewhat of a generic term, you know, on the obvious side of that, it is when we release or release new products in our families that come out at higher margins. And so when those new products start to be a greater part of the overall sales mix, we see higher margins in the segments because of that. And then there is also some improvements in the basic product cost side of things as well. That we have been able to achieve through our vertical integration and leveraging our scale. Okay. Incredibly helpful. Thank you, guys, and best of luck to you guys.
Operator: Thank you. Your next question comes from David MacGregor with Longbow Research. Please go ahead.
Joe Nolan: Hi. Good morning. This is Joe Nolan on for David. I just wanted to ask, a follow-up on the cost there. You talked about memory chips briefly. You guys obviously put up a strong margin performance in Q2, but can you just talk about how to think about price cost as we move into the second half? And you have higher memory chip costs. chip cost. But if there is any other raw materials or other buckets to keep in mind.
Clifton Albert Pemble: I think we have benefited from having a strategic inventory of memory that we have been using throughout the year. So the higher costs that are in the market today have not yet impacted our financials. We do expect that to start to impact us in the back half, and we have included that in our guidance But in terms of other components, you know, I think everything's under pressure right now. We are seeing far less attention in some of those other component categories, far less movement, but I think everything is certainly under pressure because of the AI demand But, again, we are managing that the same way we manage any other ripple in the dynamics. Again, I would call people's attention to our response around the tariffs. And how we have been able to manage the business to be able to provide outstanding performance.
Joe Nolan: Got it. And then on the auto OEM business, you have the current air pocket between contracts. Just wondering if you could talk about how to think about second half quarterly cadence on revenues and just remind us on the timing of the upcoming contract, if an anything's changed there.
Clifton Albert Pemble: Yes. So we do expect back half revenue to decline versus 2025, as we have reached the peak of our BMW volumes. And are on track and preparing for the launch of the next program, a major program with Mercedes Benz in early 2020 as those products start to come off of our production line. So we expect 2027 would be a year that auto OEM would again return to growth. Got it. Thanks. I will pass it on.
Operator: Your next question comes from Joseph Cardoso with JPMorgan. Please go ahead.
Joseph Cardoso: Yes. This is actually Joe Cardoso from JPMorgan. Yeah. Sure. So maybe for my first question, you know, I was just curious, I think late last year you announced the partnership around, health savings accounts and I am just curious if you are actually starting to see any tangible traction in terms of that driving any demand across your product portfolio? And how you guys are thinking about that opportunity unfolding and whether we can start to see any near term benefits from that. Then I do have a follow-up Good morning.
Clifton Albert Pemble: Sorry. I think the line was a little garbled when you mentioned the partnership Could you clarify again?
Joseph Cardoso: Yes. The HSA reimbursement partnership. I believe October of last year, maybe, you announced some partnerships on that front.
Clifton Albert Pemble: Yes. The TrueMed partnership. And, that has been a great new distribution channel for our products. And we do not quantify, you know, results by customer. But it was a great way to expand our reach especially for people that want to purchase a high quality wearable using HSA funds. Got it.
Joseph Cardoso: And then maybe, Cliff, just wanted to get you to talk about the acquisitions you mentioned in your prepared remarks. Training Peaks and TrainHeroic. How should we think about these 2 in terms of your long term strategy for the company? Like how are you thinking about the synergies across these platforms playing out in the context of both your product portfolio as well as potentially connect Plus and how you are thinking about that unfolding for the company?
Clifton Albert Pemble: Well, it is early days. And in terms of traditional synergies, we are really not thinking about any of those. The synergies we are thinking about in Training Peaks and TrainHeroic really has to do with our product line and the ability to offer what I would call a 360-degree experience for our customers where using our devices, they record information that is then loaded into the training platform and coaches are able to review that and provide recommendations which then modifies the behaviors of the user. So we feel like that is a fantastic thing to achieve, to be able to give a full experience to our customers of training and improvement. Got it. Thank you.
Operator: Thank you. Your next question comes from Noah Zatzkin with KeyBanc Capital Markets. Please go ahead.
Noah Zatzkin: Hi. Thanks for taking my questions. I guess just to follow-up on CIRQL. Any early feedback? I know it is super early. From retail partners or consumers you would like to share. And I noticed on the website, it seemed on your website, it seems that the product sold out and now the ship wait time is 5 to 8 weeks. So just wondering if that is kind of demand or supply driven or how we should think about that. Thanks.
Clifton Albert Pemble: Well, I think it is demand and supply driven, but definitely outpaced anything that we had imagined We had expected that we would receive a good reception to that product when we introduced it. We had discussions with retailers and things in advance, and they all were very excited about it. But the actual result, once we announced the product, was very strong ahead of our expectations. So we will be chasing back orders for a while, but it is early days. But, you know, in the first few days of registration tracking, it was very, very strong. So the product is already getting out to customers. Great.
Noah Zatzkin: And maybe just 1 on the Thailand facility. Any updates there? And then maybe just how we should think about the opportunity from a cost perspective and a capacity perspective? Thanks.
Clifton Albert Pemble: Yeah. So Thailand is on track, and we are in probably the most intense of our capital expenditures to be able to build and equip that facility. We expect it to be finished towards the end of the year, and we will start utilizing it in early 27. Initially, we are building the product or the site out in phases, and so our first phase is about 400 thousand square feet, but it can in total, has a potential of doubling our capacity across all of Garmin. So we have a lot of room to grow there. The cost structure is probably the same or even slightly less than what we have globally right now, but in general, we are doing this out of the ability to differentiate and to kind of give us additional manufacturing options as we diversify our business. Thank you.
Operator: Thank you. Your next question comes from Ivan Feinseth with Tigress Financial Partners. Please go ahead.
Ivan Feinseth: Hi. Thanks for taking my question, and congratulations on the huge results and the increase in guidance. Thanks, Ivan. I have 2 questions. My first is on the JL Audio Primacy. What kind of uptake or reception are you seeing on that? And since this is not like a direct to consumer product, but it looks like you need professional install, What kind of inquiry are you getting from the professional install community about becoming a dealer for this? And getting training and stuff by you to sell it and install it?
Clifton Albert Pemble: Yes. We had a good reception to Primacy. We hosted large groups of home audio installers and custom audio outfitters in our facility down in Miramar, Florida, and we had a very good reception to that and very good reviews from them coming out of that. It is a specialty product a highly specialty product, and so it is going to take some time to really see the pull through of that, but the initial reactions and the feedback we got from people was strong.
Ivan Feinseth: And my second question on new AXIS displays. How does that compare to some of the competing products as far as cost and integration and what kind of reception are you getting to that?
Clifton Albert Pemble: The reception to AXIS is very strong. there is really nothing else like it out on the market, and it has basically been designed to address the ability to lower installation cost to simplify for both OEMs and homebuilders and to provide a level of integration that they just did not have access to before. So we are very excited about that, and we think it really resets the bar in terms of integrated flight displays. Alright. Thank you. Congratulations again. Thank you.
Operator: Your next question comes from Ronald Epstein with Bank of America. Please go ahead.
Alex: Hey. This is Alex Preston on for Ronald this morning. Thank you for taking the question. I just wanted to turn to aviation real quick. And I was wondering if you could talk a little the demand that you are seeing across end markets. Right? So it seems that business aviation has been strong maybe despite some macro concerns. Defense and government platforms have support. I am just curious if there is any sort of more detail you could give there.
Clifton Albert Pemble: Yes. I think business aviation continues to be strong. As you know, OEMs are sitting on pretty much record backlogs as they work through those. So there does not appear to be an excess capacity issue Customers still want these vehicles and appreciate them for what they do. And so the OEM side of things has been going very well. The aftermarket side has been resilient and strong even despite some of the bumps that we have seen in the near term with fuel prices and things like that. But good used airplanes are things that people invest in and they add equipment to, and so that market has been resilient.
Alex: And sort of, I guess, to follow-up, any changes to what you are thinking going forward into the second half, maybe into 2027 on those demand drivers?
Clifton Albert Pemble: No. Really, no changes at all. We see things kinda moving as they have been. Okay. Thank you very much. Appreciate the color. Thank you.
Operator: We have reached the end of the Q&A session. I will now turn the call back to Teri Seck for closing remarks.
Teri Seck: Thanks to all of you for joining us today. Douglas and I are available for callbacks. And we hope you have a great rest of your day. Bye.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
