Good day, ladies and gentlemen, and welcome to the Garmin Limited Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference call may
be recorded. Would now like to turn
the conference over to Terry Sac. Ma'am, you may begin.
Good morning. We would like to welcome you to Garmin Limited Second 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/stock. 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, growth and operating margins and future dividends, market shares, product introductions, future demand for our products 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 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.
Thank you, Terry, and good morning, everyone. As announced earlier today, Garmin reported Second Quarter consolidated revenue of $817,000,000, up 1% over the prior year. Outdoor Aviation, marine and fitness collectively increased 8% year over year and contributed 74% of total revenues. Gross margin improved to 58.5 percent compared to the prior year due to favorable segment revenue mix. As a result of our increased revenue and gross margins, our operating margin improved to 24.9%.
This resulted in GAAP EPS of $0.91 and pro form a EPS of $0.88 in the quarter. Our results were positively impacted by growth in Advanced Wearables. Our Connect IQ App Store is a direct reflection of end user engagement with our wearables. During the past 12 months, there have been over 17,000,000 downloads of an app watch base or data field from our connect IQ store. And the total downloads increased to over $30,000,000 since inception.
Doug will discuss our financial results in greater detail in a few minutes, but first I'd like provide a few brief remarks on the performance of each business segment. Beginning with the outdoor segments, revenue grew 46% on a year over year basis, driven by strong growth of our Phoenix line of smartwatches. Gross and operating margins expanded to 66% 38% respectively, while operating income grew 53% over the prior year. We experienced strong demand for the Phoenix 5 watch series and anticipate it will continue to have a positive impact on our outdoor segment for the remainder of the year. In addition, we continue to Finally, we launched the Approach S60, a premium watch for the golf enthusiasts and we recently announced the newest members of our Fortrex and Rhino product lines.
Looking forward, we are focused on opportunities in wearables and in reach. Turning next to Aviation, we reported strong revenue growth of 15% driven by growth in aftermarket products. We also experienced positive contributions from our OEM product categories. Gross and operating margins remained strong at 75% and 32% respectively, resulting in operating income growth of 28% over the prior year. During the quarter, we introduced our first head up display, which was designed specifically for aircraft with integrated flight decks.
Are pleased that the Assessment Citation Longitude will be the launch platform for this new product category. We also received European approval our G1000 NXI system, expanding the reach of this aftermarket offering for King Air 200, 300, 350 aircraft models. Looking forward, we are focused on maximizing ADS B mandate opportunities and gaining share in the OEM market. Looking next at Marine, revenue declined 3%. However, the segment is performing as expected on a year to date basis, with 10% revenue growth.
Gross and operating margins were 57% 22% respectively. During the quarter, we completed the acquisition of Active Captain the developer of crowdsourced content for voters. In addition, we launched our next generation Quotix wearable. Looking forward, we are focused on product innovations and gaining share in the inland fishing category. Looking next to fitness revenue declined 15% driven by the rapidly maturing market for basic activity trackers and the timing of new product introductions.
Gross margin was steady at 56%, while operating margin decreased year over year to 21%. While the quarter has been challenging for fitness, we remain positive about the opportunities in this segment. We expect these trends to continue into Q3. However, we anticipate ending the year on a stronger note as our product refresh cycle is completed. Looking forward, we are focused Looking finally at the auto segment, revenues were down 15% due to the ongoing decline of the PND market, partially offset by growth in several niche categories such as fleets, cameras and RVs.
Gross and operating margins declined year over year 45% 13% respectively. Our global market share position in the P and D category remains very strong. During the quarter, we launched the VERT 360, a compact full spherical immersive camera built for adventure. Vurb 360 is an amazing device that captures video up to 5 K 30 frames per second and makes it easy to share memories on the go. Looking forward, we are focused on disciplined execution to bring desired innovation to the market and to maximize profitability in the segment.
Turning finally to guidance, we are pleased with our consolidated performance in the first half of twenty seventeen and believe we are well positioned for the remainder of the year. As a result, we are raising our projected revenue for the year to $3,040,000,000, up about 1% over 2016. We project gross margin to increase to approximately 57.5 percent due to segment mix and we project operating margin of approximately 21% for the full year. Assuming a pro form a effective tax rate of approximately 22% pro form a earnings per share is expected to be approximately $2.80 Looking at our annual revenue outlook by segment, we have increased our growth expectations for the outdoor segment to 25% and the aviation segment to 10%. Marine and auto are unchanged while the outlook for fitness has been revised to down 5% due to the continued decline in activity tracker category.
That concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug?
Thanks, Cliff. Good morning, everyone. I'd like to begin by reviewing our second quarter financial results. Move the comments on the balance sheet cash flow statement and taxes. We posted revenue of $817,000,000 for the 2nd quarter, representing 1% increase year over year.
Gross margin was 58.5 percent, 150 basis point increase from the prior year, driven by the shift towards segments with higher margin. Operating expense as a percentage of sales was 33.6 percent, 130 basis point increase from the prior year. Operating income was $203,000,000, 1 percent increase year over year. Operating margin was 24.9 percent, 20 basis point increase in the prior year, the increase in gross margin more than offset the increase in operating expenses. Our GAAP EPS was $0.91, Reforma EPS was $0.88, 1% increase from the prior year.
Next, we'll look at our 2nd quarter revenue by segment. During the quarter, we achieved 1% consolidated growth led by double digit growth in our Outdoor And Aviation segments. This growth was partially offset by the Cliner Fitness segment, resulted in a significant decline activity tracker category that continued decline in the auto PND business. Collectively, outdoor, aviation, marine and fitness were up 8% compared to prior year quarter. Looking next at 2nd quarter revenue and operating income.
Collectively, the Outdoor, Aviation, Marine And Fitness segments contribute 74% of total revenue in the second quarter of 2017 compared to 70% prior to quarter. Afterward grew from 17% to 24% and Aviation grew from 13% to 15%. Can see from the charts illustrate our profit mix by segment, the outdoor aviation, marine and fitness segments, collectively, delivered 86% of operating income in the second quarter of 2017 compared to 80% second quarter of 2016. Gapdoor And Aviation segments, a year over year increase in both operating income dollars and operating margin. Looking next at operating expenses.
Our 2nd quarter operating expenses increased by $12,000,000 or 5%. Research development increased $13,000,000 year over year 150 basis points to 50.6 percent of sales. The continued investment in innovation increasing resources focused on fitness, outdoor, marine, aviation segments where we see long term growth opportunities. SG and A was up $1,000,000 compared to prior year quarter, was up really flat as a percent of sales. Our advertising expense was $2,000,000 less than the prior year quarter, So additional spend to the outdoor segment was more than offset by decreases in the fitness and auto segments.
Few highlights on the balance sheet and cash flow statement. We ended the quarter with cash and marketable securities for approximately $2,300,000,000. Councilcebo increased sequentially year over year to $515,000,000. Our inventory balance decreased sequentially to $525,000,000 we exit a seasonally strong second quarter. During the second quarter of 2017, we generated free cash flow of $129,000,000 a $6,000,000 decrease for the prior year quarter.
Also during the quarter, we paid dividends of $96,000,000 to purchase $36,000,000 of company stock $11,000,000 remaining per purchase through December 2017. During the second quarter of 2017, we reported an effective tax rate of 25 percent. Includes $7,000,000 of income tax expense, built from a new accounting standard related to the expiration of share based awards. Excluding the $7,000,000 of income tax expense, 2nd quarter of 2017 pro form a effective tax rate was 21.9% compared to 21% in the prior year quarter. 90 basis point year over year increase of pro form a effective tax rate is primarily due to the company's election to line certain Switzerland corporate tax positions international tax initiatives, partially offset income mix by tax jurisdictions.
We continue to expect our full year 2017 pro form a effective tax rate to be approximately 22%. This concludes our formal remarks. Takeda, could you please open the line for Q And A?
Thank you. For questions. Our first question comes from the line of Charlie of Dougherty And Company. Your line is now open.
Cliff, I want to start with, I noticed that APAC revenue growth had accelerated versus Q1. I wonder if you could just talk about what's going on there. I think maybe Phoenix is playing a part there. I just wonder as we think about distribution and in opportunities in Asia for some of your products, kind of where we set? And then I had a follow-up for Doug.
Yes, good morning, Charlie. Definitely Asia has been doing well. It is growing a smaller base. Wearables are definitely popular in that market as well, but we're also seeing growth in some of our other segments such as marine and outdoor.
Okay. And then for Doug, I was wondering, I know the currencies have changed since we started the euros. You've updated your full year guidance. I wonder if you could update us on some of the FX assumptions? And then also, CapEx and free cash flow for the year?
Thanks.
Sure. Absolutely. It relates to FX for talking about the Q2 impact. We had about $10,000,000 headwind on revenue in Q2. And as it relates to the forecast in the guidance for the remainder of the year.
What we do is we update our FX assumptions based on the current trends So what the current FX rates we're currently seeing out there pretty similar to what we used in our guidance and our forecast. As it relates to free cash flow, right now for free cash flow for full year, we are expecting about $550,000,000 Of that, we're expecting CapEx to be about $130,000,000.
Great. Thanks so much.
Thank you.
Our next question comes from the line of Doug Clark of Goldman Sachs. Your line is now open.
Hi. Thanks for taking my question. My first one is on the fitness segment. Last quarter, you talked about the revenues from fitness trackers or activity trackers being about a half of sales. Can you talk about what that was this quarter given the declines that you saw?
Well, the market is down significantly. MPD shows that the market is down about 32% in Q2. And so our mix has definitely come down a lot. Our advanced wearables in running and GPS based trackers are a much bigger part of the segment now.
Okay. That makes sense. And just to be clear, that 32% decline is that that's for the activity tracker portion specifically?
Yes, that's the basic activity trackers in the U. S. Market.
Got it. And then my follow-up question was on the outdoor segment. Can you talk a little bit about the Phoenix sell in versus sell through in the quarter and where we are from a availability and distribution standpoint?
Well, we believe that availability is good right now. We are still expanding tail channels that are taking the product in their summer resets. But in general, it's fully available in most retail outlets out there. There definitely was some pent up demand for the device as we announced it at CES and delivered a few weeks later. So there's some pipeline effect for sure.
But we do see follow-up orders and strong interest in the product.
Okay, great. And then final one for me. Can you talk about just the the historic, I guess, the go forward refresh cadence of the Phoenix product line. I think last year, or this is actually 2 years between the Phoenix 3 and the 5. Is that what we might expect to see going forward?
Yes. I can't comment on our future plans, but we do have a very active roadmap in all of our wearables.
Got it. Thanks for taking my questions.
Thank you.
Thank you. Our next question comes from the line of Joe Whitting of Longbow Research. Your line is now open.
Hi, everybody. Great quarter.
Hi, Jeff.
Maybe I'll stick on Phoenix 5, just as a quick follow-up to that last question. Have you learned anything from a demographic perspective? Based on the various flavors you offer and smaller, and what many would consider more approachable case sizes any data that suggests you're expanding the tent?
Yes, for sure. So three case sizes, 4247 and 51, 51 was the size of the previous model of Phoenix. In the small size, we're definitely seeing a majority of those customers trend towards the female demographic. So that's a totally new demographic for us and very exciting to see us expand into the area of Lady Adventures on the larger side, adding the maps has really expanded the opportunity for the bigger products. So we're excited about that as well.
Makes sense. Shifting to fitness, I know the low end of fitness garners, completely outside share of investor questions for you. So can you talk about whether the most current segment guidance, represents for lack of a better word of kitchen sink, because I ask because the magnitude of the declines have obviously been a little bit of a surprise throughout the first half. So you may not want to use the word kitchen sink, but it's, is there some capitulation in your thoughts when you assemble the new guide? It seems like based on the magnitude of the decline that may be the case.
Well, certainly, we're counting on a steep decline in the activity tracker market. We're following the rising and falling tides in that area. So that's baked into our assumptions. And also we're comping against strong product introductions from last year. Our product introductions will take place a little later in this year in terms of refreshes.
So that's all brought into our guidance. That said, we do expect Q3 to continue the softer trends and moving into Q4, then we believe that things will improve.
Thanks. And then finally for me, automotive. Can you help us understand at all when segment declines could narrow? I mean, I guess you could look at the second quarter and say we saw a slight narrowing But there's a thought that eventually PNDs obviously should become less than anchor in your OEM business will become a bigger piece of the mix. So give us some maybe high level thoughts on potentially when that could happen.
And within that, if you could update us on what's happening with OEM, today from a volume perspective, so exiting out the impact of the deferred rev rec? Thanks.
Yes. So P and D has been a slowly declining market for the last 8 to 9 years. And it's been a little difficult to predict when is the bottom We continue to believe that there is a base of business out there, a certain class of customer that likes this kind of products and will continue to be a reasonable category going forward, but certainly not mass market levels like it was in the past. The predicting has been very difficult and we probably a better position of doing that today than we were in the past. In terms of OEM, we're continuing to build a business base there.
There's a lot of dynamics with OEM in terms of the wins, the timeframe it takes to get those to market as well as the revenue recognition model that take place, a lot of our revenue taking place right now is being deferred because of software based revenue recognition rules. So it's we're excited about the progress in terms of wins. We believe that it will contribute growth in the future. But as of right now, it's still a smaller part of our overall auto category. Thanks, John.
Thank you. Our next question comes from the line of UGI Anderson of Morgan Stanley. Your line is now open.
Great. Thanks for taking my question. The question on the running watches, how did it do this quarter year over year? And are you seeing kind of like the similar strengths in weak there where the advanced models are driving demand versus the entry level watches? And then, a question on operating margins for fitness generally.
How should we think about potential expense management in that category given the current weaknesses you're seeing And then just balancing that against your coming product launches, is there some opportunity to kind of realize some savings there? Thanks so much.
Yes. So in our 4 runner category, which is what I would call, are made for running product line. We're seeing double digit growth strength in that product line. So we feel very good about that category of the market, if you will. In terms of the expense structure overall and in fitness, certainly there's been a big increase year over year.
Much of that is due to kind of a comping effect of adding resources over the year and they're just now being recognized on a full year basis. We believe we're pretty well situated when it comes to overall resources in the segment. And we do think there's opportunities to fine tune our investments, particularly in marketing and advertising as the categories category mix is changing.
Thank you. Our next question comes from the line of Ben Bollin of Cleveland Research. Your line is now open.
Good morning. Thanks for taking my question. The first one I wanted to circle around on the outdoor business. If you look at the first half performance, I think the overall business up 35% year on year, and the implied or the guide for the year are now at $25, would imply kind of lower than seasonal back half relative to what you've seen in the last couple of years.
So I'm curious
how you think about the seasonality in the back half and how much maybe channel flow benefit you got in the near term? And then I have a follow-up. Thanks.
Yes. So, definitely, 25 for the year does imply a back half rate that's different than what we've seen in the first half. As I mentioned earlier, the pipeline effect at Phoenix definitely had an impact. So we recognize that those pipeline sales occur once in a product introduction. But that said, we're also comping against very strong growth rates of Phoenix 3 HR last year.
So we're just trying to look at all those factors and come up with a guide that we feel is achievable for the entire year.
Okay. And then looking at the aviation business, obviously, the retrofit opportunity has been pretty good on ADS B and maybe incremental attachment there. But could you talk a little bit about each subset and the degree of visibility you feel you have from both OEM and retrofits and what type of progress do you think you're making on a market share front? Thank you.
Yes. So continued, strong interest in ADS B and it's growing as we move into, towards the mandate deadline, which is the end of 2019. People basically say beginning of 2020. We believe we'll continue to see that kind of momentum as the mandate approaches and people realize that that they need to equip in order to be, legal in their flying going forward. In terms of other product categories, ESV is definitely a strong category, but I've mentioned before in the past that we see pull through on other categories, particularly the aftermarket navigators and communication navigation, those kinds of things as people think about upgrading their entire panel.
So we believe that would that is a positive trend and we believe it will continue to go that direction as ADS B moves towards the mandate. In terms of OEM, we're incrementally positive, I guess, about what's going on in the industry, but I would point out that that the industry growth on the OEM side has lacked any kind of conviction. And so as a result, we're remaining conservative, but But overall, we're pleased with what we see so far.
Thank you. Our next question comes from the line of Travis McP of Raymond James. Your line is now open.
Hey everybody, thanks for taking my questions. Cliff, I just had one for you and then a couple of clarifications for Doug. In your commentary around the auto business class, you mentioned managing it for profitability. It looks like this year you'll get pretty close to that 10% EBIT margin level and that may end up below it depending on costs in the back half of the year. And obviously if the revenue growth continues to decline 10% or more next year, that will definitely cover next year.
Is that 10% EBIT margin levels a line in the sand or are you willing to run it for any level of reasonable profitability as the revenues scale down? And, and, Doug, I'll just mention while I've got the line a couple for you. The full year tax rate, 22%, is that what we should be making for Q3 and Q4 as well. You also you mentioned capital spending, I think, $130,000,000 for the year. That's a pretty significant uptick, especially in the back half of the year here.
Just wondering if there's any specific projects that's that that's related to. I think that's it. Thanks.
That as
Yes. So, Tavis, on the profitability of the auto side, we've said for a while that our goal is to manage segment for maximum profitability and that continues to be our mindset. I believe that as we move into the back half of the year and holiday buying season, we'll see some uptick in overall seasonality that will allow us to leverage our expense base there. I think it's hard to speculate on what ifs, but 10% profit on a business like this is still good profit dollars. So we continue to try to maximize those opportunities through the right levels of innovation and also focusing on niche categories that bring more margin to segment.
Great. And regarding first item regarding the CapEx. So yes, the project that we have that's going to increase the CapEx in 2007 probably going into 2018 is some of the expansion we have here at late regarding our distribution center as well as manufacturing for aviation. We announced that last year. So we'll see some spend here some heavy spend come in the back half of the year that gets back up to to 1.30 type of number.
As it relates to a tax rate, yes, our full year guide is 22%. For the first half where somewhere close to that. Q3 and Q4 is going to be dependent upon what kind of reserve releases we have in that time, we don't factor those in until the actual release has happened. But I think right now, our purpose is probably for your purpose is probably a 22% full year in each quarter is probably fair.
Got you. And on the
free cash flow guidance, Doug, are you expecting any meaningful change in working capital, ending the year versus where you were last year?
Yes. So last year, we had quite a bit of favorability in working capital, primarily on the inventory side. So this year, if you look at the numbers getting into the $5.50, we do expect some operating income improvement year over year and increased CapEx, but also we won't see as much improvement year over year in our CapEx are in our system working capital as we saw in 2016 primarily because of inventory. We expect inventory probably to be up year over year probably maybe a similar type of year over year change that we saw in Q2, we should expect to see at year end.
Great. Very helpful. Thanks guys.
Sure.
Thank you. Our next question comes from the line of Brad Erickson of KeyBanc Capital Markets. Your line is now open.
Hi guys, thanks. So back to the fitness margins real fast. Does the commentary you gave about the basic wearable declines, does that let and the margin headwinds over time on the fitness segment or should margin erosion just generally be sort of the working expectation for going forward at least for the foreseeable future?
Definitely. The basic trackers have a lower margin profile. So as they're becoming smaller mix of the segment. It will improve our overall segment margin performance. We're relatively flat on a year on year basis.
And the reason for that is that our overall product line is more mature this year. So there's some margin erosion that naturally occurs and that's that's why we had fairly flat margin even though we had a lower mix of activity trackers.
Got it. And then in terms of the holiday, can you just kind of talk about what you're targeting for marketing and promotional activity, particularly for outdoor and fitness relative to the year ago period Thanks.
I think you'll see us do similar types and sizes of campaigns in the holiday buying season to support our overall revenue plan and our retailers as they carry our products.
Got it. Thanks.
Thank you.
Thank you. Our next question comes from the line of Ronald Epstein of Bank of America Merrill Lynch. Your line is now open.
Hey, good morning guys. It's Kristine Liwag for Ron. In Aviation, what was the growth in business jet OEMs in the quarter? And also could you provide more color on which programs contributed to this growth? Is it light jets, medium sized jets or the Supermids?
I think generally the industry has already kind of reported single digit kind of growth in aircraft deliveries. And I would say that we're heavily indexed into the small to midsize area of the market. So the light shed market, as you know, has been fairly weak, but the mid size has been more robust.
And then maybe switching gears, Boen recently announced a new business unit focused on Avionics. What do you think Boeing's foray into Evionics could mean for the industry? And how do you think this could trickle down for the large jets and affect you I mean, a lot of your competitors in business jets also are suppliers to large aircraft like Boeing And Air Buses.
Yes, I can't really speculate on all of their reasons for doing that. I think certainly there's some hurdles to understand and going from 0 to full avionics capability And so it does require significant investment, significant staff, but at this point, it's hard to speculate on what they have in mind.
Thank you.
Thank you, Christine.
Thank you. Our next question comes from the line of Ivan Feinseth of Tigris Financial. Your line is now open.
Hi, thank you for taking my questions and congratulations on another great quarter. My first question is on new product rollout. Can you give us some idea of what kind of new products we expect to see in the second half of this year. And then I have a question about automotive
Yes. So, can't provide any additional details. We'll be making announcements as we're ready. On the new products.
Is there any area specifically we could hope to see certain products in?
Again, I can't comment beyond what we've already provided.
Okay. And then on, the automotive and OEM side, since, you know, many companies like Apple and Google and even Microsoft are getting involved in supplying either some kind of software or data to, the self driving car. How do you envision your role concerning EMA cameras, auto pilot systems, GPSs, and you have extensive OEM relationships in the bigger picture, where do you see your role in the enabling of the self driving car?
Well, I think the car of the future definitely has lots of components and a huge amount of technology that's rolled in. There probably won't be one clear supplier or clear winner and all of that, we have our areas of expertise as you pointed out and that's where we're focusing our effort in terms of finding opportunity.
Okay. And also like for example, one of the apps you have available for the Phoenix is the remote control for the Tesla. Which by the way seems to be an incredible app and people that own Tesla's that hear about it, don't even know Garmin makes a watch, they've been buying the watch and are impressed with the app. Are you now that app happens to be made by a third party developer on your platform? Do you envision working with some of the OEM manufacturers to develop apps for your wearables, such as the Tesla app?
Certainly one of the great strengths of our wearables is our app platform is something we've invested in early. And as I mentioned, we've got a very positive amount of momentum locations for our devices, wearable and other devices as well using our connect IQ. But in terms of specifics and working specifically with them, I can't comment this time. Okay. Thank you very much.
Thanks, Adam.
Thank you. Our next question comes from the line of Paul Coster of JP Morgan. Your line is now open.
Hi, this is Paul Chung on for Casa. Thanks for taking my question. So, just to go back to Outdoor, can you confirm the breakout between the long versus Phoenix and other products and on Phoenix. How much of that growth was from the smaller form factor targeted at women? And then finally on the operating margins was the increased margin function scale at Alarm or was it something more structural?
Thank you.
Yes. So in terms of breakout by categories, we don't do that in detail. Certainly with the growth of Phoenix, it's becoming a bigger part of our overall outdoor segment revenue and the delorm as well, the growth there is is making a positive contribution, although from a smaller base.
Operating margin?
Yes. The operating margin situation definitely there's leverage when you have significant revenue growth, such as what we did. And as I mentioned earlier, we believe generally our investments in terms of engineering and to some extent marketing and advertisement, we're getting some leverage benefit out of those. Thank you. Thank
Our next question comes from the
follow ups. Just coming back to Aviation, you raised guidance there for the year. I know you had continued ADS strength, but maybe just any further color on where the upside surprise has been relative to your expectations? And then I guess second one.
Yes. So upside on Aviation definitely stronger growth in the aftermarket area than we anticipated.
Okay. And any key particular products, I guess, within that?
Well, again, ADS B devices are a strong growth area. And we are seeing the positive benefit of additional products being pulled into purchasing decisions as people retrofit their aircraft.
Okay. And then I just wanted to ask on the gross margin front, based on the full year guidance, it applies slightly lower gross margins in the second half of the year versus the first half. I assume that's principally a function of mix, but any other color there would be helpful.
Yes, it's really blaced to the fourth quarter, but you see basically really into a promotional activity in the 4th quarter. But in gross margin, yes, the improvement we saw in the first half of the year, a lot of that was due to a segment mix, just having a higher percentage of our business in Outdoor And Aviation, which have higher margins and then the decrease in the activity tracker business and the auto P and D business.
Okay. Thank you. Thanks Will.
Thank you. I'm showing no further questions at this time. I would like to turn the conference back over Terry Sec for any closing remarks.
Thanks everyone. Doug and I are available for callbacks this afternoon. Have a great day. Bye.