Good day, ladies and gentlemen, and welcome to the Garmin Ltd 4th Quarter 2016 Earnings Conference 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, today's program may be recorded. I would now like to introduce your host for today's program, Terry Sac.
Please go ahead.
Good morning. We would like to welcome you to Garmin Limited's 4th quarter 2016 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 financial, our future financial position, revenues, earnings, market shares, product introductions, future demand for our products 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 Pimble, President and Chief Executive Officer and Doug Lesson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pimble.
Thank you, Terry, and good morning, everyone. As announced earlier today, Garmin finished 2016 on a strong note. Revenue for the Outdoor, fitness, marine and aviation collectively increased 25% year over year and contributed 74% of total revenues. Gross margin improved year over year to 54.7 percent, operating margin was essentially flat at 18.6%. While operating income increased 10%.
These strong results generated GAAP EPS of $0.72 and pro form a EPS of team was a remarkable year as we delivered 4 consecutive quarters of revenue and profit growth. Revenue increased 7% over 2015, and exceeded $3,000,000,000 for the first time since 2008. Outdoor, fitness, marine and aviation increased 21% on a combined basis, contributing over $2,100,000,000 in revenue for the year or 71% of the total and generated 84% of our operating income. Gross and operating margins improved to 55.6% and 20.7%, respectively, while operating income grew 14%. This resulted in and pro form a EPS of $2.83, both representing strong increases over the prior year Unit deliveries increased 4 percent to $16,800,000, which is the 2nd highest in our history and brought our total unit shipped to over $173,000,000 since Garmen's inception.
Doug will discuss our financial results in greater detail in a few minutes But first, I'd like to highlight the 2016 performance and 2017 outlook for each of our five segments. Pay, starting with outdoor revenue increased 33 percent on strong demand for outdoor wearables, contributions from Delorne, and growth in all other product categories. Segment generated strong gross and operating margins of 62% 34%, respectively, while operating income grew 32% over the prior year. Looking back at 2016, our Phoenix line of adventure watches continue to show strong momentum while high end Kronos variations are opening new retail channels and watch stores and specialty retailers. Our connect IQ application platform has become an important differentiator for our smart wearables.
Connect IQ now features over 2500 apps widgets, and watch faces, and has generated more than 24,000,000 downloads since inception. To further promote the power and utility of Connect IQ, we will host our first ever developer conference in mid April, offering workshops and tools that developers can use to leverage the Garmin wearable ecosystem. Looking ahead, we anticipate revenue growth of approximately 10% in 2017. We anticipate that wearables will continue to be strong led by the new Phoenix 5 Series. Phoenix 5 comes in 3 different sizes and features our new quick fit band replacement system, allowing users to quickly change the style of their watch.
We are also expanding our handheld device portfolio with Inreach satellite communication technology, we will introduce inreach devices into new geographic markets. Looking next at fitness, we reported robust revenue growth of 24%, driven by strong demand for wearables with Garmin Elevate risk heart rate technology. In addition, Vielift Junior was well received by retailers and customers during the holiday shopping season. Gross and operating margins were 53% and 20%, respectively. Gross margin was impacted by product mix, while operating margin was relatively flat to the prior year, resulting in operating income growth of 19%.
Much specifically basic activity trackers. However, demand for products with more advanced features, particularly those with GPS capability, was very strong in the holiday quarter. One possible explanation is that customers want more than just a basic activity tracker We believe we are well positioned to capitalize on this trend with the broadest portfolio of activity trackers, many of which include GPS capability. In 2017, we are targeting revenue growth of approximately 5% in the fitness segment, with strength in cycling and advanced wearables offsetting anticipated softness in basic activity trackers. Looking next at the Marine segment, revenue grew 16% ahead of the overall market, pointing towards market share gains, driven primarily by strong demand fishfinders and shark plotters.
Gross margin was steady at 55%, while operating margin improved to 16%. Resulting in operating income growth of 82% over the prior year. Marine season is off to a great start and we are ready to serve with a strong portfolio of products for every voting pursuit. For 2017, we are targeting revenue growth of approximately 10% for the Marine segment. Turning next to Aviation, we reported solid revenue growth of 10% driven by ADS B and retrofit upgrades as well as growth in our OEM categories.
Gross and operating margin remained strong, at 75% 28%, respectively, resulting in operating income growth of 12% for the year. In recent developments, Textron Airland announced that this corp again light attack aircraft will be equipped with Garmin Avionics, expanding the addressable market for our commercial off the shelf equipment into military and government applications. We are excited about our expanding partnership with Textron, and we look forward to serving on the scorpion aircraft. I also wanna mention that for the 13th consecutive year, Garmen was ranked number 1 in Avionics support by professional pilot magazine and by Aviation International News. I want to congratulate our team on earning this award once again, which is a testament to the quality of garment equipment and the amazing way our associates care for our customers.
In 2017, we are targeting revenue growth of approximately 5% in the Aviation segment, While industry dynamics remain a factor, market share gains, new platforms, and the ADS B mandate provide opportunities for growth. Looking finally at the auto segment, revenues were down 17% for the 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% 12%, respectively. While the downward trend of the consumer P and D market is well understood, We do see incremental growth opportunities in certain product categories, including trucking, RV, cameras, and in our OEM business.
We are focused on maximizing profits in this segment while leveraging these opportunities. Earlier today, we announced that BMW selected Garmin as a tier 1 supplier of infotainment computing modules for future E and W models produced in China. This is 17%, driven by the ongoing decline of the PND market. We remain focused on disciplined execution, in order to bring pragmatic innovation to the market and to maximize profitability segment. Summary, we see many opportunities ahead in each market we serve, and we are well positioned with a strong product lineup.
With this in mind, we are projecting revenue of approximately $3,020,000,000, flat year over year as growth in fitness, outdoor aviation, and marine. Is offset by anticipated declines in the auto segment. We are projecting steady gross margin of approximately 56% and operating margin of approximately 20%. We expect a pro form a effective tax rate of approximately 22% for the year resulting in pro form a earnings per share of approximately $2.65. So that concludes my remarks.
Next Doug will walk you through additional details on our financial results. Doug?
Thanks, Cliff. Good morning, everyone. I begin by reviewing our 4th quarter and full year financial results and move to comments on our balance sheet, cash flow statement, and taxes. We posted revenue of $861,000,000 for the 4th quarter, representing a 10% increase year over year. Gross margin was 54.7 percent, a 180 basis point increase from the prior year, driven by the shift towards segments with higher margin.
Operating expense as a percentage of sales was 36.1 percent, 200 basis point increase from the prior year. Operating income was $160,000,000, 10% increase for the prior year. Operating margin was 18.6%. Our GAAP EPS was $0.72, our pro form a EPS was $0.73. Looking at full year results posted revenue of over $3,000,000,000 for the year, representing a 7% increase year over year.
Gross margin was 55.6%, 100 basis point increase in the prior year. Operating expense as a percentage of sales was 35%, consistent with prior year. Operating income was $624,000,000, 14% increase over the prior year. Operating margin was 20.7%, increase of 100 basis points from the prior year, driven by gross margin increase. Our GAAP EPS was $2.70, 13% increase over the prior year, pro form a EPS was $2.83, a 14% increase from the prior year.
Discuss gross margin, operating expenses in more detail later. Next, we look at 4th quarter and full year revenue by segment. In the 4th quarter, we achieved double digit growth in 4 of our five segments, led by the Outdoor segment at 46%. Collectively, these four segments were up 25% compared to the prior year quarter. For the full year 2016, we achieved 7% consolidated growth led by robust growth in our Outdoor and Fitness segments, and solid double digit growth in Marine And Aviation segments.
Looking next to 4th quarter revenue charts. During the quarter, fitness grew to be our largest segment as it grew to 32% of revenue in the current period compared to 29% in the prior year. Appdoor grew from 16% to 20%. The auto segment represented 26% of our total 4th quarter 2016 revenue. Compared to 35% in fourth quarter 2015.
You can see from the charts illustrate profit mix by segment, outdoor, fitness, marine, aviation collectively, delivered 80% of operating income, 4th quarter 2016. Compared to 74% in fourth quarter 2015. Outdoor operating income as a percentage of total operating income increased from 27% 36%. Total corporate operating margin was relatively flat year over year as gross margin improvement was offset by increased operating expenses. Okay, next, the full year charts.
For the full year, the non Huddl segments made up 71% total revenue compared to 62% down 15. Similar shift occurred operating income with 84 percent of 20 16 operating income collectively coming from The Outdoor, Fitness, Marine, Aviation segments compared to 75% in 2015. Looking next at operating expenses. 4th quarter operating expense increased by $44,000,000 or 16%. Research and development increased $23,000,000 year over year, 140 basis points to 15% of sales.
We continue to invest innovation, increasing resources focused primarily at aviation, fitness, Outdoor Marine, where we see long term growth opportunities. Fourth quarter of 2016 was also impacted by the additional weaker expense in the addition of the Loring business. Advertising expense increased $11,000,000 for the prior year quarter represented 7.9% of sales, a 60 basis point increase. Additional spending was focused on the outdoor fitness segments to support growth in wearables. SG and A was up $9,000,000 compared to the prior quarter, but decreased 10 basis points, percent of sales, 13.3%.
Free spending and SG and A, which are primarily by additional weak expense in addition to the Loring business, partially offset by year over year decrease litigation related costs. A few highlights from the balance sheet and cash flow statement. We ended the quarter with cash and market securities of approximately $2,300,000,000. Camposcebo increased sequentially due to holiday quarter decreased year over year to $527,000,000. Inventory balance decreased year over year $485,000,000 through actually the seasonally strong 4th quarter.
During the fourth quarter of 2016, we generated free cash flow of $165,000,000, a $34,000,000 increase in the prior year quarter. Also during the quarter, resulting additional week, we paid 2 quarterly dividends of approximately $96,000,000, for a total of $192,000,000 repurchased $28,000,000 of company stock. We extended the expiration date for share purchase program through December 2017 have approximately $75,000,000 remaining for purchase. We expect to repurchase as business and market conditions warrant. Assuming our dividend payments were normalized before dividends totaling $385,000,000 returning $478,000,000 cash to our shareholders through dividend payments to share repurchase through 2016.
Effective tax rate was 19% in the current quarter, compared to 13.2% in the prior quarter. Increase is primarily due to the full year impact of the U. S. R and D tax credit being recorded in the fourth quarter of 2015, compared to being spread over all 4th quarters in 2016. Our full year 2016 effective tax rate was 18.9%, seventy basis point decrease in the prior year, primarily due to income mix by tax jurisdiction.
We expect our full year 2017 form a tax rate to be approximately 22%. Switzerland is in the process of aligning the corporate tax rules, the evolving international tax initiatives. We've elected at this time to align certain Switzerland tax position with these initiatives, resulting in a year over year increase performance tax rate. The utilization of a deferred tax asset will reduce our cash tax liability so we do not expect to pay any additional cash taxes in Switzerland 2017. We announced that we plan to seek shareholder approval for a dividend of $2.04 per share, came on 4 installments of $0.51 per share per quarter, beginning with the June 2017 calendar quarter.
This concludes our formal remarks. Johnson, please open the line for Q
Our first question comes from the line of Joe Whitney from on Bo Research. Your question, please.
Hi, thanks. First off, I want to be clear on fitness specifically trackers, but because the guidance is a lot better than many had feared and and would kind of suggest you intend to take share, at least relative to the main competitor in 2017. So the key driver from your perspective is that you're seeing consumers adopt GPS enabled more strongly. Is that right?
Yes, we saw, Joe, particularly strengthened and more advanced trackers, as I said in my remarks, particularly those with GPS.
How would you, Cliff, how would you
expect the GPS equip products set to evolve? And I don't know if you have data to show it or not, but are you seeing your dedicated running customers moved from traditional forerunners to products like Vivo Active HR and or the forerunner 35.
Oh, I think, probably we see more of the other direction where people who got started and more, basic activity tracker or something in our Vivo line might wish to move up into more advanced, running devices as they explore the the sport, but But, I think Vivo, you know, its quality is is daily wear. So it certainly wouldn't preclude people from from moving the other direction, but we think mostly it's an upward movement.
Okay, great. And then on Phoenix, in what quarter will Phoenix V, which obviously looks great? By the way, in what quarter will the channel still occur? Will it happen mostly in March or end of the second quarter?
Yes, thank you on that. Definitely, we'll start in late in Q1. So it'll be mostly a full impact in Q2.
Okay. I'll start with that. Congrats.
Thank you.
Thank you. Our next question comes from the line of Paul Coster from JP Morgan. Your question please.
Yes. Thanks for taking the question. First one is the revenue outlook for 2017 looks pretty conservative to me. I'm just wondering kind of whether you'd be kind enough to share the assumptions, sort of big macro assumptions that have gone into that guidance. Then I've got a couple of small follow ups.
Well, I think some would say it's conservative. Others might say, it's not, but, as you know, there's a lot of dynamics going on in the market right now. I think, you know, everybody's focused on fitness and and what the dynamic will be there. I think, it is an area where there is uncertainty because of everything that's going on, but we believe that we still have ability to grow. Outdoor, we see, ongoing opportunities for Phoenix, as we mentioned in our remarks, as well as expansion of the the alarm opportunity.
Marine is off to a great start, and we do think our product line is strong. We should be able to have a strong year in marine. And then finally, aviation is an industry that has had ongoing challenges with the economic situation. That's not really changing in our view, but we do see these opportunities that we've been pursuing adding to incremental growth. And then finally in auto, there's not much more to say there, except the PND market decline, continues as you're well aware.
And, we are excited because we are to a point now in the business where the growth in the other segments are offsetting declines in P And D.
And there is competitors in fitness is very visible with headlines regarding, corporate relationships. You're, I think, less so. How important is that market to the growth of that category or a garment
Well, we're investing in that category as well. We have had our own sets of successes which has been published out there, some of them, and some of them have not, we don't break it out by, categories in that area, but We are investing there. We have dedicated teams both on the sales and engineering side that are working on product customizations and engagements with customers that allow us to win deals there.
Okay. Last question is on the P and D side. You obviously are still investing because otherwise you wouldn't win such key accounts as BMW in China. But, why bother investing? Isn't it time to just harvest the cash from that segment and that it kind of stay the way where you can cut it at some point?
Well, there's still opportunities in T and D. And one thing I'd like to clarify is that the BMW opportunity is not PND, that's auto OEM, and that's a different category of products within our overall auto segment. But PND, we do still see, opportunities there as mentioned some of the specialty opportunities in RV, and truck, are things that we're investing in as well as camera technology. And we're taking a pragmatic approach, as I mentioned in my remarks, we we believe there's still customers that are interested in those products and, with the right amounts of innovation, we can keep the category healthy.
Okay. Congratulations on a good print.
Thank you, Paul.
Thank you. Our next question comes from the line of Charlie Anderson from Dougherty and Company. Your question please.
For taking my questions and my congrats on the strong results and the BMW win. Thank you. I wanted to start with on BMW. I wonder if you could talk to us about timing of when we may see the first revenue there. And then also scope, I think there's a lot of ways you guys approach that market via the hardware software anything you can, give us in terms of additional color, then maybe even, you know, roughly ASP per vehicle, is it measured in the tens of dollars, 100 of dollars, any additional color there would
So on BMW, we anticipate the program will be starting in the 2020 model year, which means late 1919 or 2019, excuse me, for, production and revenue. Started revenue ramp. It is for vehicles, in the China market. So, this is local production for local vehicles. It is a hardware based Tier 1 opportunity.
So we invested in our factory capability in order to be qualified as a tier 1 supplier, to BMW. And as such, because it's a hardware opportunity, the ASPs are definitely much higher than what typical software opportunities are. Although, I I can't share the details of what those are.
Okay. Great. And then I just have a couple of follow ups for Doug. Number 1 on the FX, I think your original guidance for the year was 0 at 110. I wonder where you finished and then what you're implying in the guide for 'seventeen.
I don't know if I missed this, but CapEx for 'seventeen, if you could share that.
So what we are anticipating for our FX assumptions, which are down 17, are basically the current rates that are out there. About 10.5.40. Then as it relates to our CapEx, we anticipate the CapEx to increase in 2017. Primarily due to the Eleta expansion probably between total CapEx of between $130,000,000 $140,000,000.
Perfect. Thanks so much.
Thank you.
Thank you. Our next question comes from the line of Ben Bollin from Research.
Good morning. Thanks for taking my question. Doug, could you tell us a little bit more about what's happening with the Swiss tax position? What exactly are you doing is this one time in 'seventeen and the rate, you know, declines going forward or is 22% kind of the new baseline? And then I have a follow-up for Cliff.
Sure. You know, as I mentioned, Switzerland the process of aligning their corporate tax rules with Evolving international tax initiatives, You may have heard, you know, corporate tax reform in Switzerland was proposed and voted on recently, but it didn't pass. They're working on a new proposal by the time mindful that's not known at this time. So as a result of all that, we elected this time to align our certain, Switzerland tax positions with international tax initiatives. And also mention, you know, that we don't expect to pay an additional cash tax in Switzerland, 2017, since we have deferred taxes reduced our cash tax liability.
Relates to beyond, we anticipate, you know, this 22% or do we anticipate this 300 or so basis point increase to be in there? In the future and depending upon what other kind of initiatives that come up from Switzerland and such, but we think that will probably continue at that type of rate from a growth standpoint.
Okay. Cliff, you talked to about the roll up of your thoughts in fitness and a little bit in in outdoor with Phoenix and handheld on dorm. Do you have any thoughts on, you know, what you expect to see on golf and dog training in 2017? It looks like those grew organically in 2016. They're expecting more of the same there?
Thanks.
Yes. Ben, definitely, all of the categories in outdoor showed growth in 2016. Golf, and dogs are both, very niche categories in comparison to some of the the other categories. And and, there's been a lot said in the last year or 2 about the situation in the golf market and the declining interest and even some notable bankruptcies in golf specific retailers. But we're generally, believing that those will be flat in the in the coming year, again, their niche categories and and they have samples.
So, they'll generally be trending in line with what they have been.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Jerry Lu from Morgan Stanley. Your question please.
Hi. Thank you. Just, first on outdoor and fitness, could you give us a little bit color on this past holiday season. Some of the competitors had weaker than expected performance. So were you able to take share, gain shelf space?
Or are you able to use some promotional activities to help generate demand? Thank you.
Well, I think Jerry, many of our products that we offer in outdoor and fitness are beyond some of the notable, news that's been, circulating in terms of the overall activity tracker market. So our product lines were strong, particularly those with GPS, Phoenix was a good performer. And we see people wanting to step up to a more advanced smartwatch kind of a product, which Phoenix definitely falls in that category. Okay.
And when we look at 2017, I think you're looking at a 2nd straight year where outdoor is going to grow faster than fitness and outdoor again, 2 years of strong growth compared to at least the prior 3 years when you were roughly flat. So it seems like there's more than product cycles, there's some pretty strong secular trends for you. So other than some of your maybe existing customers moving up from the Vivo lines. Are you seeing even more retailers stock your outdoor products for the first time? Are you seeing sort of a higher level of new users coming to Garmin, coming to, especially the Phoenix products?
Yes, I think, we've talked about the secular trends in fitness, and we do anticipate that basic activity trackers are going to see, a maturing cycle starting now and going forward into the future. But with that said, you know, on the outdoor side, we we do see, positive response to our Phoenix 5 announcement and we anticipate starting deliveries of those soon. And we also do see increasing interest from retailers in the outdoor wearables. So for example, we're gaining additional shelf space in some of the key retailers, particularly in the U. S.
And and expanding our shelf space in in the US market. It is attracting different kinds of customers. There's certainly a strong running bias and and people to buy a Phoenix product that we're also seeing, people that are just generally, aspirational and and, love any kind of outdoor activity move up to the watch.
Understood. And lastly, when we look at channel inventories, both how it trended in the fourth quarter and what you're expecting for the first quarter?
We believe our channel inventories are reasonable exiting the year and into Q1. Many retailers, particularly in the US, try to manage their inventories very carefully as close out their year. But we believe our inventory situation is okay.
Thank you.
Thank you. Our next question comes from the line of Travis Macquarie from Raymond James. Your question please.
Hey, listen, Doug. A couple of quick follow ups on the BMW announcement. Is there any, upfront cost either expensed or or capitalized heading into that 2019 launch. And, is should we think of this as kind of a scalable solution that BMW could use for a range of cars or kind of specifically for for high end. And then secondly, on, on the wearables business, I wonder if you could give you a sense of, I guess, the mix of of the wearables business, or if you just wanna talk about it in terms of fitness terms of, products that do not have GPS at this point.
You know, how how how smaller portion is that is that of the, of the mix? And, if there's any chance we can get an update on, number of, Garmin Connect users active or otherwise, however you guys define them internally, that'd be helpful. Thanks.
Yeah. So starting first, on on BMW, there's for this program, there's not, any significant upfront investments for this particular program. We had already made investments in our factories in order to be able to accommodate this, kind of win and and, those those are already constantly incurred. For the solution, it's it's the media graphics unit, which actually as a, common architecture piece across the entire BMW line, not only in China but around the world. And so consequently, this is a production of that architecture for the the China market, but it's scalable, elsewhere.
In terms of of fitness, in terms of the mix there, as I mentioned, you know, we are seeing stronger interest in more advanced products in the wearable side. That includes what we would call our wellness line like Beboe as well as, obviously, 4 runners, which are all GPS products. We don't split those out by category, but but I would say that that GPS was the stronger performer and basic activity trackers were weaker.
And then any, any chance we can get an update on, number of Garmin Connect users?
We don't have, numbers to share right now, but we can certainly, prepare those and share them in the future.
Thank you. Our next question comes from the line of Simone with Genkowski from Goldman Sachs. Your question please.
Hi. Thank you. Another follow-up on the fitness segment. I think you mentioned in the prepared remarks that gross margins were impacted by product mix. But I would have thought that the weaker basic activity trackers would actually have helped margins.
So just wanted to clarify that point. And then curious to hear what any impact you saw from the new Apple Watch that included GPS?
Yes, so definitely product mix is still a factor, even though basic activity trackers were were weaker. Basic activity trackers have a very low, cost basis. So So their margin profile doesn't necessarily improve the overall fitness market if, if they're weaker. That said also the the the Vivo line in general, including those with GPS, they're feature rich products and they have to sell at a competitive price. So consequently, their margin profile is generally lower.
In terms of Apple and the specific impact on our market, by the series 2, I would say that, certainly, their initial results would appear like they're doing very well with series 2. But, we don't see the impact on our customers in our segment, from that device. I think that it's a very competent device and it does a lot of things, but, as we've said before in the past, we believe that it's attracting a slightly different customer base than what we speak to.
Thank you.
Thank you. Our next question comes from the line of Will Power from Baird. Your question please.
Yes, great. Thanks. Just a couple of questions. I guess within the Marine segment, you're looking at the growth outlook 17. How much of that is macro and maybe your thoughts on what you're seeing from the broader environment there versus share?
And specifically maybe any other color on what's helping drive the share gains? And then, Doug, just any color on how to think about free cash flow for 2017? You gave us the CapEx number, but as we kind of fold that in, any other frame into that for 2017 would be helpful. Okay.
Well, starting with the marine definitely, there's a component of our outlook that reflects the improving macroeconomic conditions surrounding marine. Marine has been kind of on a slow growth trajectory since the downturn, and and we continue to see that. So certainly, some of that is due to organic market growth. But certainly, the other part is is the momentum we see in our business, and particularly, we we believe we're taking share from the major, competitors. And and we believe the reason for that is our strong product lineup, and superior features and technologies that we have in our products.
Great. And regarding the free cash flow currently for 2017, based on the current guide, we have the retest paid free cash flow about 500,000,000 And as you mentioned, you know, that includes the increased CapEx as well as you saw in 2000 team, we had quite a bit of improvements in working capital probably won't see as much of those working capital improvements, inventory as well as the assumed year over year change in the operating income also.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Brad Anderson from Cifecrest Securities. Your question please.
Hi guys. This is Elliot Arntson on the line for Brad. Thanks for taking the questions. Two things. Just wondering if you can provide a little bit more color on the types of content you'll be providing for BMW or potential content.
And then I was also wondering if you could run through the OEM margin profile and profitability looking to 2017 and beyond. Thanks.
And so, as I mentioned on BMW, what we'll be supplying is a hardware component that drives the overall media system in the vehicle. So it is a higher dollar value type of product, which will definitely benefit on on the revenue side. I think in terms of margin profile and OEM, we don't break it down by category, but we've generally said that the margin profile, from the OEM businesses is generally lower than that of the overall auto business. So there would be some downward pressure as those revenues ramp up. Hi, thanks Elliot.
Thank you.
This does conclude the question and answer session. Today's program. I'd like to hand the program back to Terry Seck for any further remarks.
Thanks, everyone. Doug and I will be available for a callback. Have a great day.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.