Good morning ladies and gentlemen and welcome to the 3rd Quarter 20 17 Earnings Conference As a reminder, this conference call
is being recorded. I would now like
to turn the conference over to your host today, Terry Suck. You may begin.
Good morning. We would like to welcome you to Garmin Limited's 3rd quarter 2017 earnings call. Please note that the earnings press release related slides are available at Garmin's Investor Relations site on the internet at www.garmin.com/stock. An archive of the webcast and related transcripts 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, growth and operating margins and future dividends 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 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 Cymbl, 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 Himble.
Thanks, Terry, and good morning, everyone. As announced earlier today, Garmin reported 3rd quarter consolidated revenue of 743,000,000 up 3% over the prior year. Outdoor Aviation Marine And Fitness collectively increased 9% year over year. And contributed 75% of total revenues. Gross margin improved to 58.4%, and operating margin improved to 22.8 percent.
GAAP EPS was $0.78 and pro form a EPS was $0.75 in the quarter. Doug will discuss our financial results in greater detail in a few minutes, but first, I'd like to make a few brief remarks on the performance of each business segment. Beginning with the Outdoor segment, revenue grew 31% on a year over year basis, driven by strong demand for wearables. Gross and operating margins expanded to 64% 37%, respectively, while operating income grew 38% over the prior year. Expect this trend to continue throughout the holiday quarter.
In addition, we experienced solid growth of Enreach devices and subscription services. We recently announced our entry into 2 new product categories with the introduction of descent, our first wearable for the dive market, and the impact VAC sensor, our first product for the baseball market. The descent is a beautifully designed smartwatch with integrated dive computer functions, and electronic logs managed through Garmin Connect. The impact that sensor delivers instantaneous feedback on the device, while coaches and players can see further details using the Impact mobile app. Looking forward, we remain focused on the wearable opportunity, and expanding into new product categories.
Turning Aviation, we reported strong revenue growth of 16%, driven by growth in both OEM and aftermarket categories. Gross and operating margins came 12% over the prior year. We recently announced the TFI series of touch screen flight displays that offer enhanced integration features. And target added solution. These new products are welcome additions to our lineup and further expand addressable market opportunities.
Looking forward, we are focused on maximizing ADSD mandate opportunities and gaining share in the OEM market. Looking next at marine, revenue increased 10% year over year. Driven by growth in multiple product lines and led by strong demand for our fish finders and sharp water combos. Gross and operating margins were 58% 24%, respectively. We recently completed the acquisition of Navionics, a a leading worldwide provider of electronic marine content and mobile applications.
Combining content both Navionics and Garmin will result in best available breadth and depth of coverage for our marine customers. For the 3rd consecutive year, we were recognized by the Merene Electronics Association as manufacturer of the Year. This award, along with 8 product of Excellence Awards affirms our commitment to designing 2018 lineup of marine electronics, which include updated echo map and striker models with WiFi capability enabling connected boating experiences. Looking forward, we are focused on product innovations and gaining share in the inland fishing category. Moving next to fitness revenue declined 12%, driven by the rapidly maturing market for basic activity trackers, and product introduction timing, partially offset by strong growth in our running product line.
Gross margin improved to 58%, while operating margin decreased year over year to 20%. Our product line up is very strong as we enter the holiday quarter. Recent product launches include the Vivo active 3 with risk based payments, the Vivo Move HR analog watch with risk heart rate and smart notifications, and the Ultra slim Vivo Sport activity tracker with built in GPS and smart notifications. In addition, we launched our Vivo Fit Junior 2, featuring Disney Star Wars and Marvell theme bands and mobile app adventures. Looking forward, we're focused on areas of opportunity, particularly in the wearable category.
Looking finally at the auto segment, revenue declined 12% due to the ongoing PMD market contraction partially offset by solid growth in OEM and niche product categories such as cameras, truck, fleet, and RV. Our global market share in the P and D category remains very strong. Gross and operating margins declined year over year to 44% 8% We recently launched Garmin Speak with Amazon Alexa, which is the 1st digital assistant with integrated turn by turn navigation. We also started shipping the E Log device in time for the upcoming electronic data logging mandate for truck operators. Looking forward, we are focused on disciplined execution to bring desired innovation to the market and to optimize profitability in the segment.
Well, with 3 quarters of the year behind us, we're updating our projected revenue for the year to $3,070,000,000 an increase of about 2% over 2016. Projected gross margin remains at approximately 57.5%, but we are raising our projected operating margin to approximately 21.5 percent for the full year. Pro form a earnings per share is expected to be approximately $2.90, assuming an updated pro form a effective tax rate of approximately 21.5%. Looking at guidance by segment, we've increased growth expectations for outdoor aviation and auto by 200 to 300 basis points. Our outlook for Marine is unchanged, while the outlook for fitness has been reduced slightly by 200 basis points.
That concludes my remarks. Next, Doug will walk us through additional details of our financial results. Doug?
Thanks, Cliff. Good morning, everyone. I begin by reviewing our 3rd quarter financial results and make the comments on the balance sheet, cash flow statement, and taxes. Posted revenue of $743,000,000 for the 3rd quarter, representing 3% increase year over year. Gross margin was 58.4% 20 basis point increase from the prior year driven primarily by segment and product mix.
Operating expense as a percentage of sales was 35.5 percent, a 140 basis point increase from the prior year. Operating income was $170,000,000, a 6% increase year over year. Operating margin was 22.8 percent, a 70 basis point increase from the prior year as an increase in gross margin with an offset increase in operating expenses. Our GAAP EPS was $0.78, our pro form a EPS was $0.75, consistent with prior year. Next, look at our 3rd quarter revenue by segment.
During the quarter, we achieved 3% consolidated growth led by double digit growth in 3 of our 5 segments. For third quarter 2017, afterward grew 31%, while aviation grew 16%, marine grew 10%. This growth was partially offset by the continued decline in the auto P and D business and decline in our fitness segment, which was primarily due to a significant decline in the basic activity tracker category. Collectively, outdoor, aviation, marine and fitness were up 9% compared to the prior year quarter. Looking next at 3rd quarter revenue and operating income.
Collectively, the Outdoor, Aviation, Marine and fitness segments contributed 75 percent of total revenue in third quarter 2017 compared to 70% in the prior year quarter. Afterward grew from 19% to 25%, and aviation grew from 15% to 17%. The Consumer charts illustrate our profit mix by segment, the Outdoor, Aviation, Marine And Fitness segments, collectively, delivered 91% of operating income in the third quarter of 2017 compared to 84% in the third quarter 2016. Looking next at operating expenses. Our 3rd quarter operating expenses increased by $18,000,000 or 7%.
Research and development increased to $130,000,000 or 17.4 percent of sales, 130 basis point increase year over year. We continue to invest in innovation, increasing resources, focused on our fitness, Outdoor, marine, aviation segments, where we see long term growth opportunities. SG and A was up $5,000,000 compared to prior year quarter increased 30 basis points as a percent of sales to 13.7%. Our advertising expense is relatively flat to the prior quarter, so additional spend in the Outdoor segment was offset by decreases in all other segments. Few highlights on the balance sheet and cash flow statement.
We ended the quarter with cash and marketable securities approximately $2,400,000,000. Contract receivable decreased sequentially to $457,000,000, relatively flat year over year. Inventory balance increased sequentially $575,000,000, compared for the fourth quarter and was higher year over year due to several new product launches at the end of third quarter of 2017. During the third quarter of 2017, we generated free cash flow $153,000,000. Also during the quarter, we paid dividends of $96,000,000 and purchased approximately $11,000,000 of company stock, about $1,000,000 remaining for purchase December 2017.
Effective tax rate was 20.8% in the current year quarter, created 16.5% in the prior quarter, increasing effective tax rate, primarily due to the company's election to align certain Switzerland corporate tax positions international tax initiatives and income mix by tax jurisdiction, partially offset by the release of income tax reserves in the third quarter of 2017. We expect our full year 2017 pro form a effective tax rate to approximately 21.5%. Concludes our formal remarks. Jody, can you please open the line for Q And A?
Your first question comes from the line of Doug Clark of Goldman Sachs. Your line is open.
Hi, thanks for taking my question. My first one is on the auto business. Talked about, growth in the OEM and and other niche products. Can you help quantify that a bit? Did OEM see an inflection?
And if so, What was that driven by?
Yes. So we don't quantify any of the particular categories within our segments, but I would say that auto has been performing well this year, particularly around new programs such as the Honda programs as well as our existing grams of Time Warner and others.
Okay, okay. My other question was in the fitness category. Lots quarter, we kind of talked about the declines in the activity tracker market. Did the activity tracker business decline again sequentially? And if so, does that put it kind of below 1 third of fitness sales?
And then a quick question, just on the impact of FX, can you quantify what that was or how that impacted growth on year on year basis in third quarter, and what your expectation is for the contribution in the fourth quarter as well?
So activity trackers decline on a year over year basis. We don't really track, sequentially, but a year over year as we said in our remarks, they continue to decline. In terms of quantifying what those represented, we don't comment on specific categories, but But, as the decline has been fairly steep, I would say that that, the basic tractors have become much less less of an influence in our overall results.
Yes, this is Doug. Regarding the, FX impact, for Q3, there was about a $13,000,000 tailwind. Assuming that we have a similar FX levels, currently, we would expect the Q4 tailwind to be similar to what we saw in Q3.
Perfect. Thanks for taking my question.
Your next question comes from the line of Rich Valera of Needham And Company. Your line is open.
Thank you. I was hoping you could give a little more color on the drivers of the aviation growth it sounds like it's it's pretty balanced between OEM and aftermarket. But if you could talk about the prospects for growth and the two pieces of that and if there's anything you could say about maybe the growth prospects for that into 'eighteen, that would be helpful.
Yes. So, as we remarked, you know, OEM and aftermarket categories, both grew in the quarter. I think that, we have been fairly hesitant to to call a growth inflection on OEM because, I think seeing trends in the market and trying to establish those has been difficult in in this, in this market, but it is encouraging in terms of the aftermarket side, as we remarked. ADSB is a significant driver of of growth in that area, and there's also, pull through effects of other equipment that we're selling as people upgrade their aircraft that will continue into 2018 2019 as well as the mandate that operators have to comply with is at the end of 2019.
Got it. And then, on the marine segment, can you talk about, Navionics? What kind of what the revenue run rate was there, how much we think that might contribute in the fourth quarter or sort of on an annualized basis on a trailing basis. If you could do that
Yeah. On an annualized basis, it's approximately $30,000,000. In Q4, it's the seasonally lowest quarter for any marine we're not expecting any significant impact on our Q4.
Got it. And then in terms of tax rate, again, looking out to next year, Any reason to assume a meaningful deviation from the tax rate you just provided for for this year?
Yes. We'll give you more color on that in February when we give our 2018 guidance, but we expect it to be relatively similar to what you're seeing currently. And we'll update you if anything changes while we're going through our planning process with that.
Your next question comes from the line of Ronald Epstein of Bank of America Merrill Lynch. Your line is open. Hi. Good morning, guys. This is a Christine Liwag in for Ron.
I was wondering, when you think about industry investments in autonomous systems, Can you discuss any technology that you have in any aviation that you are introducing or can introduce into the autos market?
Well, I think, you know, there's a lot of investment going on in the auto market for sure. Our focus has really been in in other categories such as aviation and marine. We do have, you know, sensor technology and and attitude technologies that that could be useful, but our focus is really on our primary markets.
Great. And in Aviation, can you quantify the market opportunity for ADS B and what your market share is today?
Yeah. So, in terms of overall market, we believe there's somewhere around 100 to 120,000 aircraft that that will be equipped over time. We're approximately 20 to 25 percent through that cycle. And, up to this point, we've been commanding in terms of unit share approximately 75% of the market.
Your next question comes from the line of UGI Anderson of Morgan Stanley. Your line is open.
Great. Thanks for taking my question. Another follow-up on aviation. The full year guidance, it looks pretty conservative for Q4. So just curious to hear what are the puts and takes we should be thinking about there?
Yes. So Q4, we are up against a stronger comparable from last year. So that's factored into our thinking. Also, you know, at the end of the year, so while we, you know, aviation tends to be a little more steady business, Certainly, some of that business will slow down in terms of overall activity as people think about holidays and so forth. So we're putting something out there that we believe is is achievable and and, that's the situation as we see it right now.
Okay. That makes sense. And on aviation margins, just on the downtick we're seeing there, is it related to your investments in that area? And If so, over what kind of horizon should we expect to see regained operating leverage?
Yes, I think in terms of of the gross margin, there, you know, there's some puts and takes, quarter to quarter. But we did we did have some additional warranty expenses for the quarter that impacted our gross margin, but we would expect that to normalize as we go forward.
Got it. Thanks so much.
Thank you.
Your next question comes from the line of Joe Wittine of Longbow Research. Your line is open.
Hey, good morning. Congrats on the quarter.
Thank you, Jeff.
I want to start with Doug on operating expenses. Doug, to the extent you're willing, can can you talk through the go forward trajectory? Specifically, I'm wondering whether the R and D and SG and A trajectory has changed. So this year, R and D is is up by about $50,000,000 SG and A by about $10,000,000. So is that 2017 inflation rate the reasonable go forward growth assumption or does to 'seventeen contain any kind of exceptional or one time investments?
Yes. Well, obviously we'll go through to give you a little bit more color on that. In or in February of 2018, but we expect similar type of run rates going forward.
Okay. Can you remind us of the impact of last year's 4Qs, 14th
week on OpEx?
Did you run through a couple of extra week?
Yes. Sure. Give you a little impact on the 53rd week. On the revenue line item, there was about $18,000,000 related to that 1 week. And then as it relates to operating expenses, there's about $10,000,000 of operating expenses.
Great. And then Cliff, quickly, do you have any early insights on Vivoactive 3 from kind of a market perception or you know, from the perception of discussions with your partners, the the influencer reviews look look decent. So so talk perception and and maybe some view on selling dynamics as well. Since it looks like supply is still pretty limited here in early November, especially for the high end variance.
Yeah. So I think, so far, the the feedback has been favorable, on the device. I think people appreciate the device for its size. For, the features and and what we brought to the market. We're still rolling out additional features in the product as well.
Uh-uh, Garmin Pay will launch later this month. So, you know, there's still more work to be done. In terms of channel sell in, we're still shipping products into the channel. So, probably some constraints that are still out there, but we're still filling in in in anticipation of the Q4 selling season.
Okay. And finally, also on wearables, do you expect to feel any quantifiable impact from TomTom's exit, especially in Europe?
Yeah. I think particularly they were strong in in certain European countries. And, we've positioned ourselves in that market able to try to pick up as much of that share as possible.
Your next question comes from the line of Ben Bollin of Cleveland Research. Your line is open.
Good morning. Cliff, I wanted to start I wanted to start when you look at the outdoor performance and notably with with Phoenix, How much of, the growth you're seeing do you feel is organic versus refresh to existing? A couple of other parts to that. How much do you channel expansion do you think is left? And what are your thoughts on hearing of the portfolio from here?
Can pricing keep going higher? Can you continue to in that? And then a follow-up for for Doug. Thanks.
Yeah. So, in terms of of, I think maybe your question was around how much of our sales are going to, perhaps existing customers who are upgrading. We definitely see some of that, especially people that that bought into early generations of Phoenix, but we're also expanding the base quite a bit. And I think Phoenix is becoming a a brand name that's associated with both, adventure lifestyles and aspirational lifestyles. And so we're we're seeing some expansion because of that.
In terms of of our future roadmap and and pricing, certainly, we we have a very active roadmap. So I I can't comment on the details of that. But but our goal is to be able to continue to bring innovation to the market and to be able to to keep an established price point as we go forward.
And Cliff, I'm sorry, and Doug, when you look at, the Aviation capacity expansion, could you remind us How much CapEx is left? When does that capacity come online? And how quickly do you expect to to fill that capacity? Thanks.
Yes. So as it relates to a CapEx that we have, so basically, we have about $130,000,000 that we're expecting for a CapEx this year, about 70,000,000 or so of that is related to the late expansion here. And then expect to continue with expansion for the next couple of years.
Your next question comes from the line of Charlie Anderson of Dougherty And Company. Your line is open.
Yeah. Thanks for taking my question. So just looking at Outdoor, the sort of 200 basis point guide up on the growth rate and then fitness the 200 basis point sort of downtick. I wonder if you could just speak to, you know, what's outperforming in outdoor relative to your earlier expectations and what's underperforming in fitness relative to your earlier expectations. And I've got a follow-up.
Yeah. So so outdoor, you know, Phoenix, again, as we've remarked, has has been doing very well. Also our inreach devices and subscription based services that have been doing very well. So that's that's the primary drivers behind increase in outdoor. In fitness, as we've been saying, the basic activity tracker market has been in steep decline, so that's been an impact on us.
Throughout this year. And our, also, our product introduction timing came later this year versus what it did in 2016. And so those 2 factors impacted both the outdoor and fitness. I would I would mention that if you combine those 2 and look the combined revenues and the growth, on a year to date basis, we're up 7% in in both outdoor and fitness combined, which reflects, I think, a better picture of the overall wearable category and where it's going.
Great. And then sort of my follow-up is related to fitness. So I think the guidance calls for, and it sort of always has stabilization to a degree in q 4. And then there's new product introductions that are helping that. But I wonder as you look out over the next few years, is it your view that with sort of the mix changing that you are going to start to stabilize there?
And then what's your long term on sort of the margin profile of that business? Thanks.
Yes. So naturally, we we are looking for and hope for stabilization out there. I would remind people that this is a consumer market so we don't know exactly where where it goes and it can change rapidly as we've seen in the activity tracker market, but our our strategic focus is on a healthy growing market. And the second part of your question, I'm sorry.
Was the long term margin profile of that business?
Yeah. So I I think for fitness, we're targeting, you know, mid fifties and, 20% kind of range in terms of operating margin.
Okay, great. Thank you.
Your next question comes from the line of Brad Erickson of KeyBanc Capital. Your line is open.
Hi, good morning. This is Elliot Arnson on the line for Brad Erickson. Thanks for taking our questions. I'm just wondering on on auto with the, with the implied, well, with the improved guidance for this year. I was wondering if that implies better or I guess muted declines of PNDs going forward?
Yes, we still see PNDs running in the same trajectory as what we've been seeing. The improved outlook is really around, the OEM outperformance. As well as, some of the new categories that we're shipping into the market such as speak and e log.
That's helpful. Thanks. And then just another question kind of around fitness. I was wondering, if you guys are seeing you guys are planning, like, a similar product evolution and fitness is kind of their is what they're what there's been in the outdoor segment kind of with, more fashion type form factor figures with those products?
Yes, I can't really comment on the future plan, but as I mentioned with Outdoor, we've got a very active product roadmap in fitness as well. And so we'll continue to introduce new products as we go forward.
Got it. Thanks.
Your next question comes from the line Ivan Feinseth of Tigris Financial. Your line is open.
Thank you for taking my call and congratulations on another great quarter. And the introduction of a lot of great new products, those new marine products in the dive watch was incredible. Now the the new impact swing sensor to me, looks like a totally new direction for a product or a product line. Could you give us some idea of some of the things you're thinking about? What new areas you'd like to be going into?
Yes, so you're right. Impact definitely is a new category for us. It's a totally different market. I think like many products that we deliver here at Garmin, they're driven by our own passions within the company. So this is something we wanted to explore and we thought we had some innovation we could bring to the market.
In terms of other categories we're exploring, I really can't give any color on that right now, but I would say that we are actively working on some new things and we should have some new things to offer in the coming year.
Now would this be could impact be something you could also use on a tennis racket? Could you design something for the tennis, for example?
Yeah. I think the the physics are fundamentally similar. I think at this point, we we don't have any thoughts around that particular market, but I think the platform is something that could be extended to channels.
Then I have one more question about your app platform. Pretty much all the app you have an extensive number of apps that are available for a lot of your products, but, occasionally, like some of the developers, you could pay them if you want, but there's no form process. Do you plan on eventually having a more formal process for applications to be marketed and new partnerships and people, let's say, could buy apps and you can participate in the revenue for that?
Yes, I think you're probably talking about connect IQ on our watch platform. And and if so, the answer is, yes, we do have monetization in our roadmap for connect IQ and that's something we're working with our developers on.
Your next question comes from the line of Travis McCourt of Raymond James. Your line is open.
Hey guys, thanks for taking my questions. A couple of financial ones. First, as it relates to the, the jury verdict against you in the quarter, Was there any accrual related to that in q 3 or in the q 4 guidance, or, is is there no accrual because of the appeal?
Yeah. So, Travis, yes, we went through that process. And, right now, we have concluded that it's not probable. We have a loss based upon the accounting terms, and so we do not have an accrual recorded for any of the Navico. But, we did file our Q this morning to give full disclosure transparency to the situation.
And we did indicate that it's reasonably possible that we could incur a loss $114,000,000, but no accrual is probable this time.
Got it. And then the inventory balances, looked like they were up quite a bit year over year. And I know sometimes, September's can be a little tough to to gauge in that regard due to holiday shipping. Is that, I I guess, maybe give us an update on where we should expect inventory balances either in terms of days or or turnover over time.
Yes, sure. So, Tavis, you know, at the end of Q3, we had a few things, one of which, you know, we had strong demand for, you know, finished product, aviation products. Also, it was relating to the timing of some of the product launches. So we had a large number of product launches here at end of Q3, so we had to build up for that. So the inventory was higher here at Q3.
Sequentially going into, Q4, you know, we should expect that to go down. But year over year Q4 'seventeen versus Q4 'sixteen will still be up.
Gotcha. And then, when you referenced the foreign currency benefit, I think, $13,000,000, was that a relative to year over year sequential?
That's the year over year.
Okay. And then final question, it looks like the full year advertising expense gonna be pretty flattish after a a number of years of growth. Do you think you've kind of reached a run rate level there, or is that just kind of the result of the the fitness business business coming down and and not reallocating that spin somewhere else?
Yeah. I think it's it's probably a combination of of both Tavis. I I think definitely we've realigned our spending around, fitness in in terms of the opportunity there and targeting where we see potential for growth. And then also really kind of fixing our number around, what we think is a sustainable run rate going forward.
Great. And then I wanted to make sure I understood, one aspect of the the guidance in the auto, business to get to that, the full year kind of mid teens, I'm I'm I'm getting to about a mid teens Klein in Q4 as well, which I just wanna make sure that that's kind of what you guys expect because in answering one of the other questions, you kind of sounded a little more optimistic than that on that business?
Yeah. So, the implied Q4 is -14 percent, which is slightly ahead of where we had started the year.
Got you. Cool. Great. Thanks a lot.
Thanks, Travis.
Your next question comes from the line of Doug Clark of Goldman Sachs. Your line is open.
Hi guys. Thanks for taking my follow-up. I just had a question to the extent that you'll comment on sell in versus sell through dynamics on the Phoenix thus far?
I think for Phoenix, sell in and sell through is pretty much normalized. We spent part of Q2 and into Q3 billing the channel. And I think at this point, we feel like the channel is is mostly stabilized.
Okay. Perfect. And then my other question was, heading into the holiday season, how do you expect your store footprint to be this year fairly comparable to prior years?
I think we definitely have all of the same doors that we've had in the past for sure. In some cases, the shelf space within those, doors has been expanding. For example, at at Best Buy, our our overall shelf space has been expanding there. But we're also expanding into other, channels as well. For instance, we're in Macy's.
We're in several jewelry chains such as K's, Zales, and Jared. Will be in dealers and J. C. Penney as well.
Your next question comes from the line of Rob Spingarn of Credit Suisse. Your line is open.
Hi, this is actually Audrey on for Rob Spingarn. So thank you for taking my question. So I would just like to follow-up on avionics. So first, Could you quantify some of your market share going into the the OEMs? Like, I I know that you mentioned that your running around 75% of market share in aftermarket, but how much does that is that for the OEMs on the planes?
And do you have any outlook on that moving forward?
Yes. So in in terms of market share, the the previous comment was around specifically ADS B, which is one particular product category. Within the mostly the aftermarket segment. So that's where the 75% number came from. In terms of OEM, our market share really depends on the product or the the aircraft category.
So in in the smaller piston engine aircraft category, It's north of probably 90%. But as you move up into the various categories, particularly beyond live chats, then our share starts to come down.
Alright. Great. Thank you. And then just digging a little bit deeper on the margins as well. So And on the R and D spend, could we talk a little bit about how much of that R and D spend is allocated to avionics versus say outdoors?
And how much would that be impacting the margins?
Yes. So related to you explained to aviation versus outdoor. So we actually do break out the R and D, with each, with each of our segments in our queue. You can get that from our Q.
Okay, great. Thank you. And then just digging in a little bit more into the warranties, how much do you see that moving forward in terms of impacting margins, say, in in Q4 or out into 2018?
Yes, we probably think that was a one time hit on that warranty that hit in Q3. I expect that specific item that we referred to, return in Q4.
Your next question comes from the line of Paul Coster of JP Morgan. Your line is open.
Hi. This is Paul Chung on for Costa. Thanks for taking my question. So, I was just wondering if you could provide a split between the growth in outdoor, whether it's from the Phoenix and how much of that growth was from the inreach products? And on the and services.
Can you provide any metrics there and how material it was? And do you see that sales model potentially applied to other segments? Thank you.
Yeah. So we don't break out numbers by categories within segments. So I can't really provide specific color on that. Again, only commenting generally that that Phoenix, family and particularly Phoenix 5 has been a significant driver of growth. In outdoor.
And in terms of in reach, it's a very nice, incremental category for us. But that's probably not moving the needle same way that Phoenix Five is.
Your final question comes from the line of Jobo Tyne of Longbow Research. Your line is open.
Hey, thanks. Just a follow-up on cycling, which I know it's Paul, but I wanted to ask specifically on Alpha Mantis. Could you, talk through the strategy there? It's essentially a service provider. So is the strategy to add the service revenue stream?
Is it to perhaps benefit vectors market share or could it potentially lead to different hardware based products on
the bike? Thanks a lot.
Yes. South Amanda brings additional technology to our portfolio. Allowing us to create new product categories within our cycling area. I think as a company, they've been focus on, more the technical side of the business, particularly with, very technical and professional writers, but but it's our goal to be able try to bring that technology down into the mass market.
Could that be a new form factors or would that be in modifications to Edge, etcetera?
Could be new form factors.
There are no further questions in the queue at this time. I turn the call back over to Terry Sick for final remarks.
Thanks, everyone. Doug and I will be available for our callbacks today. Have a great day.
This concludes today's conference call. You may now disconnect.