Garmin Ltd. (GRMN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Garmin Ltd. Annual General Meeting of Shareholders. I would now like to hand the conference over to your speaker today, Andrew Etkind. Please go ahead.

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. I will be acting as Chairman of this meeting. I would like to welcome you to our 2021 Annual General Meeting. Unfortunately, due to the extraordinary situation in connection with the COVID-19 pandemic, it has, again, not been possible this year to hold our annual meeting in the usual format. In accordance with the Swiss Federal Council Ordinance 3 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, however, made available a live audio webcast of this meeting, and we've published the link to this webcast in our proxy statement for this meeting and on our website. We've also provided a means for shareholders to submit questions in advance to be answered by our management at a question-and-answer session at the end of this Annual General Meeting. As stated in the invitation to this meeting that was published in the Swiss Official Gazette of Commerce and as also stated in the proxy statement for this meeting, registered shareholders could submit questions by e-mailing investor.relations@garmin.com by May 28, 2021, and shareholders who hold their shares through a United States broker or bank could submit questions in advance of the webcast by visiting www.proxyvote.com by May 28, 2021. No pertinent questions from shareholders have been submitted. The following people are present in person with me in Zurich at this meeting. Mr. Jascha Preuss, who is a partner in the law firm, Wuersch & Gering LLP, which was appointed as independent voting rights representative by shareholder vote at our 2020 Annual General Meeting. Also present with me in Zurich is Ms. Michaela Held, who is here as representative of Garmin's statutory audit firm in Switzerland, Ernst & Young Ltd. Also present in Zurich with me are Mr. David Oser, a partner in the Homburger Ltd. law firm; and Ms. Margrit Marti, an associate attorney with the Homburger Ltd. law firm. I've appointed Mr. Oser as vote counter at this meeting and Ms. Marti as Secretary of this meeting to keep the minutes of the meeting. Also participating in this meeting by conference telephone from the United States is Mr. Cliff Pemble, Garmin's President and CEO; and Mr. Doug Boessen, Garmin's Chief Financial Officer and Treasurer. Later in the meeting, Doug will be making a presentation on the company's fiscal year 2020 financial results. At this time, I'd like to turn the meeting over to Cliff to say a few words.

Thank you, Andrew, and welcome to our shareholders who are attending this webcast of our Annual General Meeting. 2020 was a year like no other in our history with the COVID-19 pandemic bringing unprecedented business challenges. Despite these challenges, 2020 was the best year in Garmin's history so far, and we have continued to see strong growth in our business in the first quarter of 2021. As the world begins to emerge from the pandemic, we remain optimistic about the future and look forward to another successful year. We believe that we have a very strong portfolio of products and a strong new product pipeline. And we believe that every market we serve is rich with opportunity. I want to thank Garmin's amazing employees for their unwavering dedication and hard work. I'd also like to thank our loyal customers for trusting Garmin to provide essential products and services that you rely on to monitor your health and pursue your passions. And finally, I want to thank our shareholders for your long-term commitment to our company. Thank you again for joining today. I'll now turn the meeting back over to Andrew in Zurich.

Thank you, Cliff. I will now report on the organization of this Annual General Meeting and the presence of a quorum. The Board of Directors has 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 invitations of 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 fixed the close of business on April 9, 2021, 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. In accordance with Swiss Law, any additional shareholders who were registered in our share register on May 25, 2021, 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. 2020 annual report to shareholders, which contains the consolidated financial statements of Garmin Ltd. for the fiscal year ended December 26, 2020; the Swiss statutory financial statements of Garmin Ltd. for the fiscal year ended December 26, 2020; a compensation report pursuant to Swiss law; and the auditor's reports has been made available for inspection by the shareholders at Garmin Ltd.'s registered office in Switzerland as of May 14, 2021. I received an affidavit from Computershare Communication Services, 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 Computershare Communication Services to all shareholders of record as of the April 9, 2021, record date. There were no additional shareholders registered in our share register between April 9 and May 25, 2021. The affirmative vote of a majority of the votes cast by proxy, excluding unmarked, invalid and non-exercisable votes and abstentions, is required for all of the proposals on the agenda for this meeting. We will now ascertain 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 25, 2021, there were 192,144,510 shares of Garmin Ltd. issues -- issued and outstanding, which excludes 5,932,908 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 167,966,818 shares or 87.42% of the issued and outstanding shares of Garmin Ltd. entitled to vote at this Annual General Meeting.

Thank you, Mr. Oser. A majority of the outstanding shares entitled to vote at this meeting is therefore represented, so we have a quorum present. We will now proceed with the formal business of this meeting. May I please ask Mr. Preuss to submit now his ballot, which tabulates the voting instructions we 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 2020 annual report, including the consolidated financial statements and statutory financial statements of the company for the 2020 fiscal year. Ms. Held of Ernst & Young Ltd., who is present here today, has informed me that Ernst & Young does not have anything to add to their audit reports. I'll now ask Doug Boessen, our Chief Financial Officer, who is on the telephone link from the U.S.A. to present a report on Garmin's financial results for the 2020 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. The forward-looking statements are based on current expectations and subject to various risks and uncertainties. I can briefly review our 2020 financial results and review the 5 segments of our business. 2020 was another remarkable year. Despite the challenges that came from the pandemic, delivered our fifth consecutive year of revenue and operating income growth. Revenue increased 11% to $4.1 billion, it's a new record for Garmin. Operating margin of 25% resulted in operating income for $1 billion, it's another record achievement. 2020 was an outstanding year for our fitness segment, with strong demand for our advanced wearables and cycling products. Fitness revenue increased 26%, exceeded $1.3 billion. Operating income increased 66% over the prior year. During the year, we launched innovative new wearables and cycling products with the Venu Sq, Forerunner 745, next generation of Edge cycling computers. Outdoor also had an outstanding year. In 2020, revenue grew 23% and exceeded $1 billion for the first time. It's impressive growth was driven by multiple product categories, led by strong demand for adventure watches. Operating income increased 32% over the prior year. In the year, we added solar charging technology to a broader range of fenix Instinct models, extending our lead in low-power technology and further differentiating ourselves in the highly competitive smartwatch market. Looking next, our aviation segment. 2020 aviation revenue decreased 15% due to lower revenue from OEM product categories and expected decline of the ADS-B market. During the year, the Autoland system was certified on 3 aircraft models. Autoland is being recognized as game-changing new safety technology for general aviation. It's won several awards, including being named one of the greatest innovations 2020 by Popular Science. And this week, Garmin Autoland was awarded a 2020 Collier Trophy for the greatest aeronautical or astronautical achievement of the year. Turning next to the marine segment. Marine delivered another year of impressive results. We remain the global leader in recreational marine electronics. 2020, we posted our seventh consecutive year of double-digit growth, achieving over $650 million in revenue. Operating income increased 6% over the prior year. There was growth across multiple product categories, when the pandemic created an opportunity to rediscover boating and fishing. Finally, looking at the auto segment. Revenue decreased 16% due to ongoing decline in the PND market, partially offset by growth in specialty products and revenue from new OEM programs. Recording operating loss of $19 million, driven by investments in auto OEM programs. During the year, we'll be in production in the current BMW program, where we are a Tier 1 build-to-print supplier. In closing, we're confident in our long-term strategy and the opportunities ahead. We're committed to innovation and believe that we are developing world-class technologies that are required to compete in our various markets. Our strong balance sheet provides stability to our investors through 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. Mr. Oser, please could you now report the vote count on proposal #1?

Proposal #1 has been approved with 99.79% 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 the 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 been approved with 99.25% of the votes cast.

Thank you. We now turn to proposal #3 on the agenda, which is the proposal for approval of a cash dividend in the aggregate amount of $2.68 per outstanding share to be paid out of the company's reserve from capital contribution in 4 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. Ms. Held 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 99.35% of the votes cast.

Thank you. And we'll now turn 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 2020 fiscal year. It is customary for Swiss companies to include such a proposal on the agenda for their 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 the executive management cannot vote on the discharge of liability. Mr. Oser, please, could you report the vote count on proposal #4?

Proposal #4 has been approved with 76.47% of the votes cast.

Thank you. The next proposal on the agenda is proposal #5, 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 2022. Mr. Oser, please, could you report the vote count on proposal #5?

Each of the nominees has been reelected with no less than 83.09% of the votes cast.