Garmin Ltd. (GRMN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Garmin Ltd. Annual Shareholder Meeting. At this time, I would like to turn the conference over to Mr. Andrew Etkind, Vice President and General Counsel. Sir, please begin.

Thank you. Good morning to those listening in North America, and good evening to those listening here in Europe. I am Andrew Etkind, Vice President, General Counsel and Corporate Secretary of Garmin Ltd., and I will be acting as Chairman of this meeting. I would like to welcome you to our 2020 Annual General Meeting. Unfortunately, due to the extraordinary situation in connection with the COVID-19 pandemic, it's not possible this year for us to hold our annual meeting in the usual format. In accordance with the Swiss Federal Council Ordinance on measures to combat the coronavirus, we are, therefore, holding this annual meeting at the offices of the law firm, Homburger Ltd. in Zurich Switzerland, without the possibility for shareholders to attend in person. We have made available a live audio webcast of this meeting and we have published a link to this webcast in our proxy statement for this meeting and on our website. The following people are present in person with me here in Zurich at this meeting. Mr. Harald Amag, who is a Swiss lawyer, based in Switzerland and whom Wuersch & Gering LLP has appointed to act on its behalf as the independent voting rights representative for the shareholders at this meeting. Wuersch & Gering was appointed as the independent voting rights representative by shareholder vote at our 2019 Annual General Meeting. Wuersch & Gering is based in New York City and was unfortunately not able to send a member of their firm to attend this meeting due to the COVID-19 travel and health restrictions. Also present with me in Zurich are Mr. Rico Fehr, who is an audit partner of Garmin's Statutory Audit firm in Switzerland and Ernst & Young Ltd.; and Mr. Martin Holliger, who is a notary in the Canton of Zurich. Mr. Holliger is present at this meeting because the proposals to be voted on include an amendment to the Articles of Association of Garmin Ltd. to renew the authorized share capital. And under Swiss law, such amendment must be made in the form of a deed authenticated by a Swiss notary public. Finally, also present with me in Zurich and Mr. David Oser, a partner in the Homburger law firm; and Ms. Margrit Marti, an associate attorney with the Homburger law firm. I've appointed Mr. Oser as void vote counter at this meeting and Ms. Marti, as Secretary of the meeting to keep the minutes of the meeting. Also participating in this meeting by conference telephone from the United States are Cliff Pemble Tambal, Garmin's President and CEO; and Mr. Doug Boessen, Garmin's Chief Financial Officer and Treasurer. Later in the meeting, Mr. Boessen will be making a presentation on the company's fiscal year 2019 financial results. At this time, I'd like to turn the meeting over to Cliff to say a few words.

Thank you, Andrew, and good morning, everyone. Welcome to Garmin's virtual shareholders meeting. We're certainly glad you have joined. These are unprecedented times for companies around the world as the COVID-19 pandemic and the measures taken to slow its spread have deeply impacted the global economy. I want to thank Garmin's amazing employees for their unwavering dedication and hard work during this challenging time. I would also like to thank our loyal customers for trusting in Garmin to provide essential products and services that you rely on to pursue your passions. And finally, I want to thank our shareholders for your long-term commitment to Garmin. While the coronavirus pandemic has been a major topic of conversation, it's important to note the remarkable growth that Garmin achieved in 2019. It was a record-breaking year for Garmin, and our employees should be extremely proud of this accomplishment. I am certainly proud of what they have done. The economic fallout caused by the COVID-19 pandemic has impacted many companies, and Garmin is no exception. However, we remain optimistic about the future because every market we serve is rich in opportunity. With a strong product lineup and more new products on the way, we are well positioned to seize these opportunities as the world emerges from this crisis. Thank you again for joining us today. I'll now turn the meeting back to Andrew in Zurich. Andrew?

Thank you, Chris. I will now report on the organization of this Annual General Meeting and the presence of a quorum. The Board of Directors invited shareholders to this Annual General meeting in accordance with Swiss law and our Articles of Association by way of an invitation published in the Swiss Official Gazette of Commerce. The invitation to this Annual General Meeting contains the agenda items and the proposals of the Board of Directors. No shareholder has requested the inclusion of an item or proposal on the agenda for today's meeting. The Board of Directors has fixed the close of business on April 9, 2020, as the record date for this meeting. Shareholders registered in our share register with voting rights at the close of business U.S. Eastern Time on the record date are entitled to grant a proxy to the independent voting rights representative to vote their shares at this meeting. Also in accordance with Swiss law, any additional shareholders who were registered in our share register as of May 28, 2020, are also entitled to grant a proxy to the independent voting rights representative to vote their shares at this meeting. A copy of the Garmin Ltd. 2019 annual report to shareholders, which contains the consolidated financial statements of Garmin Ltd. for the fiscal year ended December 28, 2019. The Swiss statutory financial statements of Garmin Ltd. for the fiscal year ended December 28, 2019, the compensation report pursuant to Swiss law and the auditor's report has been made available for physical inspection by the shareholders at Garmin's registered office in Switzerland as of May 18, 2020. I have received affidavits from American Litho, Inc., the company's mailing agent, stating that notice of this Annual General Meeting, together with the proxy statement, proxy card, annual report and return envelope, were duly mailed by American Litho, Inc. to all shareholders of record as of the April 9, 2020, record date and also to the additional shareholders who were registered in our share register between April 9 and May 28. We affirm the vote of the majority of the votes cast by proxy, excluding unmarked, invalid and non-exercisable votes and abstentions, is required for the approval of proposals 1 through 12 on the agenda for this meeting. Proposal 13, which is the proposal for renewal of the authorized share capital, requires the affirmative vote of at least 2/3 of the votes and the absolute majority of the par value of the shares each as represented at the annual meeting, an abstention blank for invalid ballot will have the effect of a vote against proposal 13. We will now entertain whether a quorum is present. Under Garmin's Articles of Association, the quorum for a general meeting of shareholders is the presence in person or by proxy of at least the majority of the total number of shares entitled to vote at the general meeting of the shareholders. As of May 28, 2020, there were 191,17,727 shares of Garmin Ltd. issued and outstanding, excluding 7,059,691 treasury shares. Mr. Oser, please could you report the number of shares represented at this Annual General Meeting.

There are represented at this Annual General Meeting by proxy granted to the independent voting rights representative, shareholders holding 162,899,615 shares or approximately 80% of the issued outstanding shares of Garmin Ltd. entitled to vote at this Annual General Meeting.

Thank you, Mr. Oser. The majority of the outstanding shares entitled to vote at this meeting is represented, therefore, a quorum is present. We will now proceed with the formal business of this meeting. May I please ask Mr. Maag to submit now his ballot, which tabulates the voting instructions he received from shareholders prior to the meeting to Mr. Oser. Mr. Oser will then, at my request, report the vote count on each of the proposals on the agenda. The first item on the agenda is the proposal for approval of Garmin's 2019 Annual Report including the consolidated financial statements and the statutory financial statements of Garmin for the 2019 fiscal year. Ms. Adamson of Ernst & Young LLP and Mr. Fehr of Ernst & Young Ltd., who is present here today have both informed me that Ernst & Young does not have anything to add to their audit reports. And now Doug Boessen, who's our Chief Financial Officer, who is on a telephone in from the USA, to present a report on Garmin's financial results for the 2019 fiscal year.

Thanks, Andrew. Good morning, everyone. Before I begin, I'd like to mention that we may discuss future projections during the meeting today. Any forward-looking statements are based on current expectations, subject to various risks, uncertainties. I'd like to briefly review our 2019 financial results and review the 5 segments of our business. 2019 was a remarkable year, we delivered our fourth consecutive year of revenue and operating income growth. Revenue increased 12% to over $3.7 billion, representing a new record for Garmin. Operating margin improved to 25%, operating income increased 21% to $946 million, another record achievement. On combined basis, fitness, aviation, marine and outdoor, increased 18%, contributing over $3.2 billion in revenue. 2019 was an outstanding year for our fitness segment. With each product category performing well. Finished revenue increased 22%, and exceeded $1 billion for the first time. Suppressive growth was driven by wearables and contributions from tax. Operating income increased 6% over the prior year. During the year, we launched sweeping updates to our lineup of wearables. Also our acquisition of Tacx expanded our ability to serve cycling customers all year long. Aviation also had an outstanding year. In 2019, aviation achieved strong revenue growth, exceeding $700 million, contribution of both aftermarket and OEM categories. ASP was a significant contributor to growth. Operating income increased 24% for the prior year. During the year, we introduced the Autoland system for general aviation. This new safety technology is designed to return aircraft and its passengers, safely to ground in the event that the pilot wasn't able to do so. Marine delivered another year of impressive results. We remain the global leader in recreational marine electronics. In 2019, we posted our sixth consecutive year of double-digit growth, achieving over $500 million in revenue. During the year, we introduced our first trolling motor that brings, game-changing, new features to the market. Looking next outdoor. In 2019, revenue grew 13%, operating income grew 15%, due to strong demand for outdoor adventure watches and inReach subscription services. During the year, we launched the MARQ luxury watch series and completely refreshed the fenix adventure watch series. This refresh included the fenix 6x Pro Solar, our first wearable with solar technology. Looking at the auto segment. Decline in our auto segment due to ongoing decline in P&D market and lowered OEM sales. In the year, we were selected as the lead design and production partner, entertainment modules for the BMW Group. In closing, we're confident of our long-term strategy and opportunities ahead. We're committed to innovation and believe that we are developing world-class technologies required to compete in our various markets. Our strong balance sheet provides stability to our investors to our commitment to an attractive dividend allows us to invest for the future. Thank you for your time this morning. I appreciate your loyalty to Garmin.

Thank you very much, Doug. Thank you. Mr. Oser, please could you report the first count on proposal 1?

Thank you. Proposal #1 has been approved with approximately 99% of the votes cast.

Thank you. Proposal 2 on the agenda is the proposal to approve the appropriation of available earnings. The full text of this proposal is contained in our proxy statement and in the invitation to this Annual General meeting. Mr. Oser, please could you report the vote count on Proposal #2?

Proposal #2 has also been approved with approximately 99% of the votes cost.

Thank you. Proposal 3 on the agenda is the proposal for approval of a cash dividend in the aggregate amount of $2.44 per outstanding share to be paid out of the company's reserve from capital contribution in full equal installments on dates to be determined by the Board of Directors. The full text of this proposal is contained in our proxy statement and in the invitation to this Annual General Meeting. Mr. Fehr of Ernst & Young Ltd. has informed me that Ernst & Young Ltd. has no additional comments on its confirmation regarding the Board's dividend proposal. Ernst & Young Ltd. has confirmed that, in their opinion, the distribution proposed by the Board complies with Swiss law and with the company's Articles of Association. Mr. Oser, please could you report the vote count on Proposal #3?

Proposal #3 has been approved with 99 -- approximately 99% of the votes cast.

Thank you. We now move to proposal 4 on the agenda, which is the proposal to discharge the members of the company's Board of Directors and the Executive Management from liability for their activities during the 2019 fiscal year. It is customary for Swiss companies to include such a proposal on the agenda of the Annual General Meetings of shareholders. The discharge is only effective with respect to facts that have been disclosed to shareholders and it only binds shareholders who either voted in favor of the proposal or who subsequently acquired shares with knowledge that shareholders have approved this proposal. In accordance with Swiss law, members of the company's Board of Directors and of the Executive Management cannot vote on the discharge of liability. Mr. Oser, please, could you report the vote count proposal 4?

Proposal #4 has been approved with 73% of the votes cast.

Thank you. We turn now to proposal #5 on the agenda, which is the proposal to reelect each of the 6 directors. The Board of Directors has nominated Jonathan C. Burrell, Joseph J. Hartnett, Min H. Kao, Catherine A. Lewis, Charles W. Peffer and Clifton A. Pemble to stand for reelection for a term extending until completion of the Annual General Meeting in 2021. Mr. Oser, please could you report the vote count on proposal #5?

Each of the nominees have been reelected with no less than 83% of the votes cast.

Thank you. Proposal 6 on the agenda is the proposal for reelection of the Chairman. The Board has nominated Dr. Min Kao, who is currently the Executive Chairman of Garmin to stand for reelection as Executive Chairman for a new 1-year term. Mr. Oser, please, can you report the vote count on proposal 6?

Dr. Min Kao has been reelected with 91% of the votes cast.

Thank you. Proposal 7 on the agenda is the proposal for reelection of 4 members of the compensation committee of the Board of Directors. The Board has nominated Jonathan C. Burrell, Joseph J. Hartnett, Catherine A Lewis and Charles W. Peffer to stand for reelection as members of the compensation committee for a new 1-year term. Mr. Oser, please could you report the vote count on proposal #7?

Each of the nominees to the compensation committee has been reelected with no less than 91% of the votes cast.

Thank you. Moving now to proposal #8 on the agenda, which is the proposal for election of the independent voting rights -- reelection of the independent voting rights representative. The Board has proposed that the New York law firm of Wuersh & Gering LLP be reelected as the independent voting rights representative for a term extending until completion of the Annual General Meeting in 2021. Wuersh & Gering has lawyers who have experience in Swiss as well as U.S. legal matters. Wuersh & Gering does not perform any other services for Garmin. Mr. Oser, please, could you report the vote count on proposal 8?

Wuersh & Gering LLP has been reelected with approximately 99% of the votes cast.

Thank you. And now moving to proposal #9 on the agenda, which is the proposal to ratify the appointment of Ernst & Young LLP as Garmin's independent registered public accounting plan for the 2020 fiscal year, and to reelect Ernst & Young Ltd. as Garmin's statutory auditor for a further 1-year term. Mr. Oser, please could you report the vote count on proposal 9?

The appointment of Ernst & Young LLP has been ratified, and the appointment of Ernst & Young Ltd. has been -- the election of Ernst & Young Ltd. has been approved with 96% of the vote cast.

Thank you. And now proposal 10 on the agenda is the proposal for an advisory resolution, approving the compensation of Garmin's named executive officers as disclosed in the proxy statement for this Annual General Meeting. Mr. Oser, please to give you a report of the vote count on proposal #10?

Proposal #10 has been approved with 94% of the votes cast.

Thank you. Now moving to proposal #11 on the agenda. This is the proposal to approve fiscal year 2021, maximum aggregate compensation for the Executive Management as disclosed in the proxy statement for this Annual General Meeting. Mr. Oser, please could you report the vote count on Proposal 11?

Proposal 11 has been approved with approximately 97% of the votes cast.

Thank you. Turning now to proposal #12 on the agenda, which is the proposal to approve the maximum aggregate compensation for the Board of Directors, for the period between this 2020 Annual General Meeting and the 2021 Annual General Meeting, all as disclosed in the proxy statement at this Annual General Meeting. Mr. Oser, please could you report the vote count on Proposal 12?

Proposal 12 has been approved with 98% of the votes cast.

Thank you. And now moving to proposal #13, which is the last proposal on the agenda. Proposal 13 is the proposal to amend the company's Articles of Association to renew the authorized share capital and to authorize the Board of Directors at any time until June 5, 2022, to increase the share capital in an amount not to exceed CHF 1,980,774.10 through the issuance of up to 19,807,741 fully paid in registered shares with a nominal value of CHF 0.10 each. The complete text of the proposed shareholder resolution and the amendments to the Articles of Association are contained in Annex-1 to the invitations of this meeting and to the Proxy Statement. Under Swiss law, the power of the Board to issue shares from authorized share capital has to be renewed by approval of the shareholders every 2 years. The Board believes that it is customary for public companies incorporated in Switzerland to maintain an authorized share capital and that the renewal of the authorized share capital is prudent to ensure that Garmin maintains financial flexibility. The Board does not currently have any plans to issue shares out of the authorized share capital. The share capital would be only be increased if and when the Board makes use of this authorization. The authorized share capital will not be used in connection with any employee share incentive plans. Such an issuance of shares would be covered by the existing article 6 of our Articles of Association regarding conditional share capital, which will not be affected by this proposal 13. Mr. Oser, please could you now report the vote count on proposal #13?

Proposal #13 has been approved with approximately 98% of the votes cast. And therefore, the necessary 2/3 majority of the votes represented and the absolute majority of the nominal share capital represented at this meeting has been achieved.

Thank you, Mr. Oser. I confirm that all the agenda items, including agenda Item 13, for which a public deed must be established, have been approved by the Garmin shareholders with the required majority vote. A written certification of the vote count will be included in the minutes of this Annual General Meeting. The voting results on each of the proposals will be filed with the SEC on a Form 8-K report, which will be available on the Garmin website. This concludes the formal business at this meeting. On behalf of our Board of Directors, our Executive Chairman and our President and CEO, I would like to thank you very much for your online attendance at our Annual Meeting this year, and to express our sincere regret, we were not able to host a physical meeting with shareholders present as we've done in every previous year since our first Annual Meeting as a public company in 2001. We wish to thank you for your investment in Garmin, and we will continue to work hard to manage the company through the current world crisis on behalf of our shareholders, our employees and our customers. We very much hope that you're all in good health and we very much look forward to being able to host you in person at next year's Annual General Meeting. Thank you for your attention, and please do take care. Goodbye, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.