Good day, ladies and gentlemen, and welcome to the Garmin Fourth Quarter 20 17 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Terry Sec, You may begin.
Good morning. We would like to welcome you to Garmin Limited's 4th quarter 2017 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/doc. 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, earnings, gross and operating margins and future dividend market shares, product introductions 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 the risk factors affecting Garmin. Information concerning these risk factors is contained 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 Doug Besson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pemble.
Thanks Terry, and good morning, everyone. As we announced earlier today, we delivered another quarter of revenue and profit growth. Revenue grew 3% on consolidated basis. Combined revenue from Outdoor, Aviation, marine and fitness increased 9% and represented 78% of our revenue in the holiday pay quarter. Gross margin improved year over year to 56% due to favorable shifts in both segment These strong results generated a GAAP $7.9 in the quarter.
Looking briefly at our full year performance. 2017 was our 2nd consecutive year of revenue and operating income growth. I believe this is a remarkable achievement considering the challenges that we faced The PND market continued its decline as it is done for nearly a decade. In addition, the basic activity tracker market rapidly mature and left additional gaps to fill. We fill these gaps and more because of the strength and diversity of our business.
Revenue increased from outdoor, aviation, marine and fitness increased 9% and generated 90% of our operating income. Gross improved to 58% 22%, respectively, while operating income grew 7%. This resulted in GAAP EPS of $3.68 and pro form a EPS of $2.94. Pro form a EPS grew 4% over the prior year. Doug will discuss our financial results in greater detail in a few minutes.
But first, I want to highlight that Garmin was recently included in the Forbes Global 2000 World's Best Employers list, placing 430th out of more than 300,000 companies that were surveyed. We also were ranked 4 1st in the Forbes Just 100 America's best corporate citizens list. This ranking considered companies focus on 7 metric including producing quality goods, treating customers well, minimizing environmental impact, supporting the communities we operate in commitment to ethical and diverse leadership and treating our workers well. We are honored by this recognition, and I want to thank all of our employees for your strong commitment our mission and values, which made this recognition possible. Next, I'll highlight 2017 performance and 28 seen outlook for each of our five segments.
Starting with Outdoor, revenue increased 28% on strong demand for outdoor wearables and growth in inreach subscription services. The segment posted gross and operating margins of 64% 36%, respectively, resulting in operating income growth of continued to show strong momentum driven by the new Phoenix 5 Series. There are many positive things that we can say about this product line, But one I'd like to highlight is that the variety of sizes and styles offered in the Phoenix 5 family has successfully broadened our customer base. In particular, the majority of customers registering Phoenix5S devices are women, which was a previously underrepresented demographic in Phoenix customer base. As we've mentioned in the past, our Connect IQ application platform has become an important differentiator for our Smart wearables.
Connect IQ now offers more than 3500 apps, widgets and watch faces and generated over 45,000,000 IQ, we will host our 2nd annual developers conference in mid April, offering workshops and tools that our developers can use leverage the Garmin wearable ecosystem. Looking ahead, we anticipate revenue in the outdoor segment will increase approximately 13% in 2018, We anticipate that growth will within the segment. Turning next to Aviation, we reported solid revenue growth of 14% with revenues categories. Gross and operating margins were strong at 74% 31%, respectively, resulting in operating income new Sesnes Sky career aircraft will be equipped with the Garmin G1000 NXI System. We are excited to expand our partnership with Textron Aviation and look forward to supporting the certification and delivery of this new aircraft.
Last week, we announced that our D2 Charlie Aviation Watch was selected by the United States Air Force such as pressure alerts and glanceable navigation information on the wrist. Our aviation team has a strong commitment to delivering quality and to Electric And Electronic Systems at the recent 2017 Embraer Suppliers Conference. This is a significant accomplishment considering the scope and complexity of Embraer's operation and the high expectations that their suppliers must meet. Also, for the 14th consecutive year, Garmin was ranked number 1 in Avionics support by professional pilot magazine by Aviation And International News. I congratulate our team on earning these awards, which is a testament to the quality of garment equipment, and the amazing way our associates care for our customers.
Looking ahead, we anticipate 13% in 20 agories due to improving market conditions, contributions from new products and platforms, and opportunities related to the ADS B mandate. Looking next at the by growth margin improved to 57% while operating margin declined to 13% due to litigation related costs. At the Miami Boat Show, we announced that Sea Hunt Boat Company, 1 of the top selling saltwater boat brands in the United States, is now offering Garmin Electric and their are entering 2018 with a broad portfolio of strong products and technologies. We anticipate revenue in the Marine segment will increase approximately 18% consisting of both organic growth, Turning next to fitness, revenue declined 7% driven by the rapidly maturing market for basic activity trackers, partially offset by growth in a wearables and our children's line of activity trackers. Gross and operating margins were 55% and 19%, respectively.
Gross margin improved due to product mix, while operating margin declined from the prior year. In 2018, we are targeting revenue to be flat in the fitness segment as growth in Advanced Wearables, Cycling and Children's lines in basic activity trackers. Full year as expected due to the ongoing decline of the PND market. However, our global market share remains very strong. Gross and operating margins were 44% and 9% respectively.
While the downward trend of the consumer PND market is well understood, we see incremental growth opportunities in certain product categories, including trucking, RV and cameras. We are focused on maximizing profits in the segment, while leveraging these opportunities Looking at 2018, we expect revenue to decline approximately 17%, driven by the ongoing decline of the PND market. We remain focused on disciplined execution to bring pragmatic innovation to the market and to maximize profitability in the segment. In summary, we were entering 2018 with a strong product lineup and we see many opportunities ahead. With this in mind, we are projecting revenue of approximately $3,200,000,000 up 3% year over year as growth in outdoor Aviation And Marine is partially offset by ongoing declines in the auto segment.
We are projecting improved gross margin approximately 58.5 percent, operating margin of approximately 21% and full year pro form a effective tax rate approximately 19%, resulting in pro form a earnings per share of approximately $3.05. That concludes my remarks. Next, Doug will walk you through additional details on our financial results.
Doug? Thanks, Cliff. Good morning, everyone. I'll begin by reviewing our fourth quarter and full year financial results to move to comments on the balance sheet, cash flow statement, taxes, impacted new revenue recognition standard. Post of revenue of $888,000,000 for the 4th quarter, representing a 3% increase in year over year.
Gross margin was 56.2 percent, 150 basis point increase from the prior year driven by segment and product mix. Operating expense as a percentage of sales was 36%, consistent with the prior year. Operating income was $179,000,000, a 12% increase over the prior year. Operating margin was 20.2 percent, 160 basis point increase in the prior year. Our GAAP EPS was $0.73, Our pro form a EPS was $0.79.
Looking at full year results, we posted revenue of about $3,100,000,000 for the year, representing 2% increase year over year. Gross margin was 57.8 percent, a 220 basis point increase in the prior year. Operating expense was assumptive sales was 36.1 percent, 110 basis point increase over the prior year. Operating income was $669,000,000 a 7% increase from the prior year. Operating margin was 21.7%, an increase of 100 basis points from the prior year, driven by the increase in gross margin.
Our GAAP EPS was $3.68 to perform EPS was $2.94. Next, we look at 4th quarter and full year revenue by segment. During the 4th quarter, we achieved double digit growth in 3 of our five segments, led by marine segment of 24%. Fitness returned to growth in the 4th quarter. For the full year 2017, we achieved 2% consolidated growth led by robust growth in our Outdoor segment and solid double digit growth in our aviation and marine segments.
Looking next at 4th quarter revenue and operating income. Collectively, the outdoor, aviation, marine and fitness segments contributed 78% of total revenue in the 4th quarter 2017 compared to 74% in the prior year quarter. Outdoor grew from 20% to 23%. Stephen and charts illustrate our profit mix by segment, the Outdoor Aviation And Refinit segments, collectively, delivered 90% of operating income in the 4th quarter 2017 compared to 88% in 4th quarter 2016. Outdoor operating income as a percentage of total operating income increased from 36% to 41%.
Looking next to the full year tier charts. For the full year, the Outdoor Aviation, Marine And Fitness segments, we 76% of total revenue compared to 71% in 2016. Similar shift occurred in operating income with 90% our 2017 operating income collectively coming from the Outdoor Aviation, Marine And Fitness segments compared to 84% in 2016. Looking next at operating expenses. 4th quarter operating expenses increased by $9,000,000 or basically flat to percent of sales.
Research and development increased $4,000,000 year over year due to investments in engineering resources and Avionics partially offset by an additional week of expense in 2016. Raveratizing expense decreased $9,000,000 for the prior year quarter represented 6.6 percent of sales, 130 basis point decrease. Decrease was due primarily to lower media spend and fitness segment. SG and A was up $15,000,000 compared to the prior year quarter, increased 120 basis points for incentive sales to 14.5%. This increase was primarily due to litigation related costs and Avionics acquisition.
Few highlights from the balance sheet and cash flow statement. In the quarter, with cash and marketable securities, approximately $2,300,000,000. Cash received will increase sequentially to $591,000,000 due to holiday quarter, an increase year over year due to stronger sales as the timing of cash receipts. Inventory balance decreased sequentially to $580,000,000 as we exit the seasonally strong 4th quarter increased year over year, primarily due to raw material requirements. During the fourth quarter of 2017, we generated free cash flow of $144,000,000.
Also during the quarter, we in beginning the June 2018 payment. Posal is a cash dividend of $2.12 per share, or $0.53 per share per quarter, 4% increase from our current quarterly dividend $0.51 per share. For full year 2017, reported an income tax benefit of $13,000,000, which includes $157,000,000 of pro form a net discrete items relating to a $180,000,000 of tax benefit related to the change in tax balance sheet accounts, result of the Switzerland corporate tax election, partially offset by $23,000,000 of tax expense resulting from a new accounting standard related to the expiration of share based awards. Excluding these pro form a discrete tax items, The full year 2017 pro form a effective tax rate is 21.2% compared to 18.9% in the prior year. The increase in the pro form a effective tax the evolving international tax initiatives.
We expect our full year pro form a effective tax rate 2018 to be approximately 19% decreases primarily due to the U. S. Tax reform. Finally, I'd like to walk you through the impact of the new revenue recognition standard. We adopted the new standard in the first quarter of 2018, were state the prior year financials.
The auto segment is the only segment impacted by the new revenue recognition standard, impact to our 2017 financial statement, with an increase in revenue of $35,000,000, which means we would have deferred less revenue under the new revenue standard all 2018 guidance is calculated off the restated 2017 amounts to available in the appendix to our earnings release. This concludes our formal remarks. Michelle, to please open the line for Q And A.
Our first question comes from Charlie Anderson of Dougherty Markets. Your line is open.
Yes, thanks for taking my questions and congrats on a strong year. So, I want to start with Aviation kind of a 2 part question. Cliff, you mentioned environment getting a little bit better. I think some of your peers have expressed a similar sentiment. So I just wonder what you're seeing does it feel sustainable in terms of the outlook for that market.
And then as it relates to ADS B upgrades, I wonder if you view 2018 or 2019 as the teaker for you guys in terms of, that contribution from those upgrades, but I've got a follow-up on marine.
Yes, so good morning, Charlie. In terms of the aviation environment, I think, we're all seeing that it's only better. Of course, we're coming off a very low bottom and the numbers are somewhat small in terms of the overall growth, but think most in the industry are very encouraged by that. In terms of its sustainability, I think things look good for the foreseeable future. Somebody recently commented to me though that some of these markets like aviation and marine are one economic bump away from downturn.
So we have to recognize that they are somewhat fragile due to their nature, but in general, we feel good about that. In terms of ADS fee, and which year would be the peak year. We would certainly see acceleration in unit deliveries going forward. I think I would anticipate that 2019 would probably be even bigger than 2018 as people get serious about retrofitting their aircraft. But it's still somewhat early days and the number of aircraft that have been equipped so far is still on the low side, less than half.
So we're waiting to see more people step forward.
Great. And then as it relates to Marine, I wonder how much benefit you guys got from acquisition in Q4? And then how much of the 18% growth anticipate the inorganic portion?
Yes. So, Charlie, related to the 2018 guidance that we gave, we're basically expecting about half of that to come from Navionics.
Our next question comes from Doug Clark of Goldman Sachs. Your line is open. Hi, thanks.
First one on the auto segment, 2018 guide implies kind of an acceleration in decline. So I'm wondering if you can talk about what's driving that acceleration after a few years of what seemed like moderation?
Yes. So in terms of our overall outlook in the auto segment, I think PND is pretty much on the same trajectory that we've been on before. We did see some improvement in 2017 due to a mandate category such as ELD, which drove some of our fleet product as well as new ELD categories. In 2018, the OEM part of our business is not expected to grow as fast as what it has been because we're seeing a year over year comps in some of our major customers that have come on board like Honda.
Okay, got it. That's helpful. And then my other two questions. First, first on OpEx, using your guidance, it looks like kind of implied OpEx is expected be about $1,200,000,000 or up 8% year on year. So can you talk about the acceleration in OpEx spend?
And then kind of a financial question. I'm curious what the FX impact to our fourth quarter 2017 revenues was and what the expectation for FX benefit in 2018 is?
Yes. As it relates to OpEx for 2018, we're expecting about a 8% type of increase about a third of that really is related to Navionics. So we have that acquisition that, will be hitting in 2018. Also looking at some of the different OpEx lines, for 2018 as it relates to advertising, as a percent of sales, we would expect to keep that relatively flat. Then in R And D, obviously, we're adding some additional headcount there investments in our business.
And then also have some additional costs relating to the new, aviation manufacturing and consumer distribution facility some additional costs related to that. And then as it relates to, FX, the FX impact on revenue for Q4 was about a tailwind of $28,000,000. And for the full year, it was about $25,000,000 of tailwind, primarily driven by the strength of euro.
Thanks. And then are you assuming any within your guidance for 2018 any FX impact?
Sure. There's impact to that in the guidance. Because you know, for the average for the year, I think the euro is probably about, 113. It's quite
a bit higher than that
now, there's probably about $75,000,000 of FX tailwind that's in the guidance. Assuming the current type of euro rate.
Got it. Thanks very much for that detail. I appreciate it.
Sure.
Our next question comes from Joe with team of Longbow Research. Your line is open.
Hey, guys. Nice quarter. I guess I'll ask on wearables here. So first off, in the wearables portion of Outdoor, do you expect you can maintain your average selling prices in 28 based on your product roadmap?
Yes. So, we believe so. That's in our plan. We believe that the Phoenix line is generally very strong. And we have product roadmaps that allow us to be able to bring in our newer product as the Phoenix 5 and to be able to offer some discounting on the older products, which helps promote them and sell more volume.
So in general, we feel like the ASV situation is fairly stable.
Thanks, Cliff. And then I wanted to ask on availability 2 new products, 400,645 still isn't available. And then Vivo move HR seems to be pretty limited. So just wondering if there's a note on production, just given the fact that both have somewhat new to carbon technology and when we expect those to be in consumer sense?
So the $6.45 is imminent. We're making our final adjustment on some features and performance. So that should be coming very soon. The Vivo move HR, we took a very conservative view about as we launched the product, based on our experience from the original Vivo move, which was more of a niche product, but we've been pleasantly surprised by the reception to the Vivo move HR. So we've been chasing supply chain and trying to increase our volumes on that product as well.
So we feel pretty good about that contributor, but we've not been able to supply all the demand.
Okay, great. And then finally, just on the same topic here, you've got a very active 6 months of new product introduction in fitness, especially when you also include cycling, I think on top of wearables, But looking forward on wearables, I know you won't tip individual products, but is it reasonable to expect perhaps a lighter number of new announcements ahead in the spring given that momentum of since exiting 2017?
Yes, I can't really comment on the timing of introductions, but we do have a very active roadmap of new wearables that are coming in 2018 and beyond. So we're still very, very much developing the product line and introducing new products and features.
Our next question comes from UGI Anderson of Morgan Stanley.
My question. If we could unpack the outdoor outlook there, how much of that can you give us of how much of that would be attributable to products that have yet to be launched, versus products that obviously you already have?
Well, I think we said in our comments that the primary driver of the growth is certainly Phoenix as it's grown in the overall contribution to the segment. It's the single largest product category within the segment. But in terms of details around new product attributions and such we won't comment on that.
Okay. Got it. And then on fitness, with the flat revenue guidance and just with the recent product launches, is it assumed that fitness would decline towards the end of the year, just given the timing of the product launches there, or is this going to be more even Kale throughout the year?
Well, certainly, we will be comping against, tougher numbers in the fourth quarter of 2018 as we anniversary, the launch of quite a few new products in the Advanced Wearable Wellness category as well as Vivo Move HR and others. But in general, we anticipate that, that the advanced wearables will do well throughout the year. And then our big headwind will be the basic tractors.
Our next question comes from Rob Spingarn of Credit Suisse.
So, Cliff, when we look at Outdoor from a high level, is there any risk that Phoenix or the other components with an outdoors start to hit that maturation level that we saw in fitness or is it just a different type of market with less competition?
Well, I think there's always risk in any of these consumer markets. So for sure, that's something that we're aware of. We believe the market though is still doing well and we believe there's opportunity for additional innovation and new products that can come to the market.
Okay. Just when I think about the change in the growth rates, as we go forward, I'm just wondering if this is a similar dynamic, just lagging by a couple years?
Well, I think we're lapping against a very strong launch of the Phoenix 5, which drove significant during 2017. So we're looking at 2018 and trying to be realistic about the overall growth prospects there and trying to make sure that we can deliver on what we say.
Okay. And then just on the margin guidance, maybe maybe this is for Doug. The gross margin ticks up a little bit. Is that simply, just because of the smaller contribution from automotive, or is there I think Cliff said a little bit earlier that, that ASPs are holding steady, but is that true from segment to segment? How do we think about that 58.5 that?
Yes. The 58% is primarily a segment mix, as you mentioned, just because we're having a situation where our growth is going into some of our higher margin areas. And then some of our declines, some of our lower margin areas such as the activity trackers and PNDs, but there may be some puts and takes, you know, by, each of the segments, but they'll be relatively comparable that we anticipate for the full year. A big driver that is the segment mix.
Okay. And then just you spoke to the higher operating expenses a little while ago. You did mention a facility. I was going to ask you if CapEx has been a little elevated and if that continues.
Yes. So, CapEx will go up a little bit. We anticipate 2018, probably to about $125,000,000 compared to the 40 that we had in 2017.
Our next question comes from Ben Bollin of Cleveland Research. Your line is open.
Good morning. Thanks for taking my question. I wanted to start, when you look at the fitness business and the guidance there, do you have any incremental share gain assumption built into your guidance following Tom Tom's exit of the category? And then I have a follow-up.
Yes, I think TomTom's contribution was fairly low on an overall market basis. And the primarily, primary impact of that would be Europe. So I think certainly that's in our overall view of the market, but it's not necessarily moving the needle in terms of the overall guidance.
Okay. And then a couple other items. How has tax reform in the U. S. Influenced?
Any thoughts you have on the domicile in the central to adjust, adjust that? And working capital levels, a little elevated relative to the last couple of years, how do you think about where working capital should be or could be over the course of the next 12 months?
Thank you.
U. S. Tax reform. Yeah, there's about, as we talked about, I think the big driver that we have in the tax rate year over year in the U. S.
Tax reform, And as it relates to a Radamus style, currently in Switzerland, if you compare Switzerland to U. S. Even at after the current changes in those corporate rates, Switzerland still have had a lower statutory and our effective rates. From that standpoint. And then, the follow-up question Ben was regarding
working capital, a little elevated relative to the last few years, just where
that goes
from here?
Yes, working capital. So a working capital in 2017, primarily looking at inventory and receivables, for 2018, we would expect to see probably inventory and receivables end of the year similar to what our growth in sales is. If you looked at 2017 receivables did increase a little bit more than that, primarily due to some receipts there. Looked at January receipts came back in line with some of our DSO comparisons that we have. But we would expect kind of looking at our free cash flow, for 2018, we probably would expect somewhere to be around $560,000,000 of free cash flow piece of that would be some, favorability due to less about.
Also, we should see some favorability relating to working capital that you mentioned there. We shouldn't expect see the type of increases in AR that we saw in 2017 continuing to be more in line probably with revenue increases.
Our next question comes from Brad Erickson of KeyBanc Capital. Line is open.
Hi, thanks. Just two quick housekeeping questions to start for Doug. 1, just what was the litigation events exactly from in marine in Q4. And then, you mentioned the revenue impacts from FX. Just curious if you can give the EBIT tailwinds to Q4 and the 2018 guide from FX?
Yes. So, as it relates to the litigation, we have a settlement agreement there that we will not be able to disclose that number. As it relates to that settlement agreement. Then as it relates to the EBIT impact, what you have in the situation there is in Q4, you have some things going against you with the strengthening of the Taiwan dollar. That's partially to offset that.
And then for the full year in that period also.
Got it. On that marine litigation expense question, maybe another way to ask it, would the margins have sort of historically normal from Marine had the expense been removed?
Yes, if you put it in there, I think we would have comparable type of margins
Got it. Helpful. Thanks. And then just a higher level question on the auto OEM business. I guess for years, you've had a pretty solid portfolio for that infotainment opportunity, obviously, with the shifts that are occurring in automotive towards ADAS and autonomy, etcetera, how should we think about kind of the investments you're thinking about or making in your auto OEM portfolios, you look to get centered over the target of, I guess, what we'd call OEMs highest priority content objectives in the coming years?
Thanks.
Yes, I think certainly, the content view is changing and in terms of what goes into the automobile. We're still seeing lots of interest though in infotainment systems. People still
need
those kinds of systems in the car. And we've seen a higher mix of software related business with what we've talked about with Honda and Daimler as well. But looking forward, we've announced and talked about our relationship with BMW where we'll be supplying more of what called the silver box, which is a generic computing platform in the vehicle, which can run all kinds of software stack associated with infotainment and clusters and other things in the vehicle. So there is some evolution like that, but there's still opportunity for computing in the vehicle and software.
Our next question comes from Will Power of Baird. Your line is open.
Great, thanks. Actually, just a couple of quick follow-up. So I know you talked about higher gross margins and some higher OpEx. Are there particular segments where you're seeing that the higher OpEx and perhaps lower operating margins. I guess that's question number 1.
And then I guess number 2, within the fitness category, we've got this ongoing basic activity tracker weakness. That just continuation of kind of the market trends? Is there any change in share there? And I guess I'd just be curious within the advanced section of that, what the forefront or outlook looks are you continuing to see growth there? Thanks.
Yes. Maybe I'll talk about the gross margins, first of all. As I mentioned, the gross margin solid days really from a segment mix standpoint. So we're anticipating, relatively comparable maybe a few puts and takes it for each one of the, segments are out there. As it relates to, OpEx, of what we'll see there is absolutely investment in where we have our advanced wearables, primarily in the outdoor area.
Also, yet the, aviation will make R And D investments in there too. So given the decline that we're seeing in the auto areas. Hopefully, we're looking at, as we know, tightening up those expenses in those areas. And then as it relates to advertising as we looked at 2017, we actually cut back on our advertising in a the fitness area ladies activity tracker. So we'll continue to look at that where we really have some of the more advanced to wearable products like the
Okay. And then any color on the kind of basic activity tracker market? How much of that's just ongoing market trends versus any share loss and color on floor runner sales?
Our view is that most of that is really associated with the market trends, the customers are moving towards more advanced wearables. And so consequently, the basic market has matured and is declining rapidly. So our share assumptions are pretty equal to what they've been in the past in the basic side. We've typically said that on a global basis, roughly 10% market share as we look across the universe of what's going on around the world. In terms of impact on poor runner that falls into our advanced category.
So that's the area where we still see opportunity and we still see people moving towards the more advanced products. In the case of 4 Runner, it's more technical runners, but in the case of our Vivoactive, line, which is GPS enabled smartwatches, those are the folks that are coming off the basic trackers into a more advanced product.
Okay. Thank you.
Thank you.
Our next question comes from Ivan Feinseth of of Tigris Financial. Your line is open.
Thank you for taking my call and congratulations on end of the great quarter and a great year. On the new scalable infotainment platform, what kind of feedback are you getting from automakers? And can we expect any kind of announcement soon?
Well, we're getting good feedback and much of the work of selling into these automakers is to demonstrate capability. And so I think the news that you've been seeing from us is surrounding more of that prototyping and predevelopment work we're getting good feedback from them then, but in terms of specific announcements, we can't comment on that right now.
Okay. But the, as you've seen, to be getting some good feedback and interest in
it? Yes.
That's pretty much my question. Thanks.
Our next question comes from Ronald Epstein of Bank of America Merrill Lynch. Your line is open.
Good morning guys. It's Kristine Liwag calling in for Ron. There's discussion that Boeing may launch a new clean sheet middle of the market aircraft this year or next. And considering your avionics are certified now for part 25 aircraft. Does Boeing's shifting strategy and managing its Evionics supply chain provide an opportunity for you to provide content on the new middle of the market aircraft?
And if so, what would you need to do and how much would you need to spend in R&D in order to be competitive?
Well, certainly, I think any opportunity around Boeing would certainly be hypothetical. I would say that our G5000 system is, as you have said, Part 25 certified and we feel like it's the major building block that we need in order to be able to serve more advanced applications such as regional and commercial aviation But in terms of investing in a specific opportunity like that, it would require a significant investment in order to be able build up the other infrastructure we would need in the company to be able to serve a player like that. We're certainly prepared and have been taking steps to do that, but But again, it would be driven by specific opportunities.
And a follow-up to that. I mean, it seems like also Boeing and Embraer are considering a partnership And since you have a and if should they consider that partnership to create a new middle of the market aircraft, you've got content, a number of aircraft already today. So does that mean that if their partnership goes ahead, does that give you a higher likelihood of getting content on that plane? And then another follow-up would be how much would that investment be? Could you quantify, the timing and possibly the size if you pursue that opportunity?
Yes. So in terms of any hypothetical partnerships between Embraer and Boeing, I would say certainly we feel like we're well positioned because of our experience of Embraer. And as I mentioned, we've been winning consistently supplier awards with Embraer, so they seem to be happy with what we're doing. But again, it's all hypothetical because I think any particular partnership part would consider all the factors they have in hand at that time. In terms of timing and size of investment, really not prepared to be able to comment on that, but But as I said, I think there would be work to do, and we're certainly able to and willing to make those investments.
Thank you very much.
Thank you, Christine.
There are no further questions. I'd like to turn the call back over to Terry Sec for any closing remarks.
Thanks everyone. Doug and I are available for callbacks today. Have a great day. Bye.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.