Garmin Reports Second Quarter 2015 Results and Updated 2015 Guidance

Garmin Ltd. (NASDAQ:GRMN) today announced results for the quarter ended
June 27, 2015.

Summary items for the quarter include:

• Total revenue of $774 million in the second quarter of 2015 with
  fitness, outdoor, aviation and marine delivering 61% of total revenue
  and collectively growing 11% over the year ago quarter
• The relative strength of the US Dollar compared to other major
  currencies negatively impacted revenue by approximately $59 million,
  or 8%, in the second quarter of 2015
• Gross and operating margins were 54% and 22%, respectively, and were
  impacted by unfavorable currency movements and the higher mix of
  promotional products sold during the quarter
• Shipped over 4 million units in the quarter, an 8% increase over the
  year ago quarter
• GAAP and pro forma EPS of $0.72 for second quarter 2015
• Launched the Forerunner® 225 with wrist-based heart rate monitoring,
  camera enabled nüvi^® and dēzl™ models, and the Edge^®
  20/25, the world’s smallest GPS enabled bike computers

Executive Overview from Cliff Pemble, President
and Chief Executive Officer:

“Like many global companies, Garmin has experienced downward revenue and
profit pressure due to recent unfavorable currency movements. In light
of this reality, we feel positive about our first half revenue
performance,” said Cliff Pemble, president and chief executive officer
(CEO) of Garmin Ltd. “With our ongoing research and development efforts
and exciting advertising plans, we believe that the foundation for
long-term success is being established now.”

Fitness:

The fitness segment posted revenue growth of 5% in the quarter driven by
activity trackers and multisport products. While the growth rate is
below that of recent quarters, we experienced significant sell-in during
the second quarter of 2014 as we established our retail presence in the
mass-market activity tracker category. Gross margin fell to 56% in the
quarter, while operating margin declined to 21%. The gross margin
decline was driven by both the unfavorable currency movements and
competitive pricing dynamics in the activity tracker category. The
operating margin decline reflects the significant investment in
advertising and research and development to support our long-term goals
in the segment. We believe these investments are appropriate and timely
given the sizeable opportunity that exists in the global fitness and
wellness industries. During the quarter we introduced the Edge 520 which
adds Strava segment integration and smart notifications when paired to a
smart phone. We also introduced the Varia family of cycling products,
including smart lights and radar, which are new product categories for
Garmin.

Outdoor:

The outdoor segment posted revenue growth of 4% in the quarter,
accelerating as we had forecasted as supply constraints eased. Gross and
operating margins within the segment were largely consistent with the
prior year at 61% and 34%, respectively. While gross margin was
comparable to the prior year, it is below historical levels. In the
second quarter of 2015, unfavorable currency movements created downward
pressure, while the second quarter of 2014 was negatively impacted by
inventory reserves. During the quarter, we upgraded our best-selling
eTrex® series of outdoor handhelds, including the addition of affordably
priced touchscreen models, and our Rino® two-way radios, allowing for a
communication range of up to 20 miles.

Aviation:

The aviation segment posted revenue growth of 5% in the second quarter
of 2015 driven by solid aftermarket results. The gross margin in
aviation remains strong at 73%, while operating margin declined slightly
year-over year to 27% due to growth in research and development to
support future revenue opportunities. Aviation is largely unaffected by
unfavorable currency movements as most revenues and costs are
denominated in US Dollars. Overall industry trends continue to be
difficult with the General Aviation Manufacturers’ Association reporting
a first quarter decrease in new aircraft sales of 15%. Thus, we have
seen our growth rates slow in the first half of the year and are
reducing our full year revenue guidance to 5% growth. While this is not
ideal, our stronger market share positions us well if the industry
experiences near term weakness. We remain excited about the recent
certification of the Cessna Latitude and numerous other certifications
that will take place over the next few years, which will drive an
improved long-term position in this highly profitable segment.

Marine:

The marine segment posted revenue growth of 41% in the quarter as the
response to our new products was strong and we continued to benefit from
our third quarter 2014 acquisition of Fusion Electronics. Gross margin
declined year-over-year to 56% in the quarter as the effects of
unfavorable currency movements and the mix of lower margin Fusion
products were largely offset by a higher mix of new products with less
discounting and higher margin profiles. Even with the currency driven
gross margin pressure, operating income grew 35% in the segment. Given
the positive results in the first half of the year, we are raising our
full year revenue growth guidance for the marine segment to 15%.

Auto:

The auto segment posted a revenue decline of 15% as PND sales continued
to decline and the contribution of amortization of previously deferred
revenue fell as expected. Gross and operating margins in the quarter
were 44% and 15%, respectively. The gross margin decline resulted from
unfavorable currency movements and a reduced contribution from deferred
revenue. The industry volume trends have been consistent with our
expectations and pricing continues to be stable on a constant currency
basis. The recently introduced nüviCam™ and dēzlCam™, including a
built-in dash cam and advanced alerts like forward collision and lane
departure awareness, have been positively reviewed by many in the media
and early indications are that these are also being well-received by
consumers.

Additional Financial Information:

Total operating expenses in the quarter were $253 million, a 12%
increase from the prior year. Research and development investment
increased 11% with growth primarily focused on aviation and active
lifestyle products in fitness and outdoor. Advertising increased 31%
driven primarily by our wearables advertising campaign and continued
growth in point-of-sale presence with key retailers. Selling, general
and administrative expense increased by 6% driven largely by legal
related expenses, product support and information technology costs.

The effective tax rate in the second quarter of 2015 was 20.6% compared
to 12.8% in the prior year, negatively impacting earnings per share by
$0.07. The increase in effective tax rate resulted from the reduced
income projection for 2015, which negatively impacts our geographic
income mix, and a $4 million reduction in favorable tax reserves
released on a year-over-year basis.

We continued to return cash to shareholders with our quarterly dividend
of approximately $92 million and our share repurchase activity which
totaled $41 million in the second quarter. We have $243 million
remaining in the share repurchase program authorized through December
31, 2016, and expect to actively purchase throughout the remainder of
the year as market conditions warrant. We ended the quarter with cash
and marketable securities of over $2.4 billion following the payment of
$183 million of tax liability associated with our inter-company
restructuring announced in third quarter of 2014.

2015 Guidance:

The global currency situation is expected to continue to create downward
pressure on revenue growth and profitability for the remainder of the
year. In addition, we expect to incur higher advertising costs in the
back half of 2015 in order to further solidify our position in key
markets. As pre-announced, we updated our guidance to reflect these
factors. We continue to anticipate revenues of approximately $2.9
billion which is unchanged from previous guidance despite the
approximately $160 million of currency driven impact that is now built
into our forecast. Due to unfavorable currency movements and competitive
pricing dynamics in fitness, we now expect gross margin in the range of
54-55% with additional advertising resulting in an expected operating
margin of 20-21%. The expected effective tax rate increases to 18-19%
due to lower operating income and geographic income mix. The result of
these changes is expected pro forma EPS of approximately $2.65.

Webcast Information/Forward-Looking Statements:

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

An archive of the live webcast will be available until October 30, 2015
on the Garmin website at www.garmin.com.
To access the replay, click on the Investor Relations 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 “would,” “may,” “expects,” “estimates,”
“plans,” “intends,” “projects,” and other words or phrases with similar
meanings. Any statements regarding the Company’s GAAP and pro
forma estimated earnings, EPS and revenue for fiscal 2015, the Company’s
expected segment revenue growth rates, margins, currency movements,
expenses, pricing, new products to be introduced in 2015 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 the Annual Report on Form
10-K for the year ended December 27, 2014 filed by Garmin with the
Securities and Exchange Commission (Commission file number 0-31983). A
copy of Garmin’s 2014 Form 10-K can be downloaded from http://www.garmin.com/aboutGarmin/invRelations/finReports.html.

Garmin, fēnix Forerunner, Edge, eTrex, nüvi and Rino are registered
trademarks and Varia, dēzl, dēzlcam and nüvicam 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.

Non-GAAP Financial Information

Pro Forma net income (earnings) per share

Management believes that net income per share before the impact of
foreign currency translation gain or loss and income tax adjustments
that materially impact the effective tax rate, as discussed below, is an
important measure. The majority of the Company’s consolidated foreign
currency gain or loss result from balances involving the Euro, the
British Pound Sterling and the Taiwan Dollar and from the exchange rate
impact of the significant cash and marketable securities, receivables
and payables held in a currency other than the functional currency at
one of the Company’s subsidiaries. However, there is minimal cash impact
from such foreign currency gain or loss. The Company’s income tax
expense is periodically impacted by material net releases of reserves
primarily related to completion of audits and/or the expiration of
statutes effecting prior periods. Thus, reported income tax expense is
not reflective of the income tax expense that is incurred related to the
current period earnings. The net release of other uncertain tax position
reserves, amounting to approximately $7 million and $11 million in first
half 2015 and 2014, respectively, have not been included as pro forma
adjustments in the following presentation of pro forma net income as
such amounts have been considered immaterial, tend to be more recurring
in nature and are comparable between periods. Accordingly, earnings per
share before the impact of foreign currency translation gain or loss and
income tax adjustments that materially impact the effective tax rate
permits a consistent comparison of the Company’s operating performance
between periods.

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 flow
plus one-time cash payments associated with our inter-company
restructuring less capital expenditures for property and equipment.