Good day, ladies and gentlemen, and welcome
to the Garmin LTV Third Quarter 20 15 Earnings Conference Call. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Terry Sec, Manager of Investor Relations. Please go ahead.
Good morning. We would like to welcome you to Garmin Limited's third quarter 2015 earnings call. Please note that the earnings press release and related slides are available at Garmin investorrelations site on the internet at www.garmin.com/stock, an archive of the web test and related transcript will also be available on our website. This earnings call includes projections and other forward looking statements regarding Guardant Limited And Its Business. Any statements regarding 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 garments. Information concerning these risk factors is contained in our Form 10 K, which is 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 previously announced, Garmin reported 3rd quarter revenue decreased 4% year over year. Aviation, fitness, marine and outdoor contribute 61% of total revenues and 75% of the operating profit in the 3rd quarter. We continue to see our revenue base diversify broadly across our business segments. Gross margin was 53% and operating margin came in at 18.5%.
The reduction in margins from the prior year reflects a combination of factors, including downward pressure unfavorable currency movements, a more competitive pricing environment, particularly in the fitness market, and continued investments in advertising and R&D, These factors, combined with a higher effective tax rate, resulted in pro form a EPS of 51 in the quarter. Throughout the year, we have highlighted that the strong U. S. Dollar created revenue headwinds and geographies with weaker currencies. In contrast, unit deliveries were up 4% for the quarter and 10% for the year due to the contribution from growth segment.
While our primary yardstick is financial performance, we are encouraged by the underlying trends reflected in unit growth. Doug will discuss our financial results in greater detail in a few minutes. But first, I'll provide a few comments on each business segment. Beginning with the this segment, revenue grew 23 percent on a year over year basis, with the sequential acceleration driven by strength in activity trackers, multi sport and site products. It's interesting to note that currency headwinds disproportionately impact the business segment due to the geographical revenue mix.
These headwinds have softened revenue growth while unit deliveries have remained strong. We believe this indicates that the underlying business case remains sound, Gross and operating margins were 54% and 19% respectively. Gross margin was impacted by unfavorable currency movements and competitive dynamics in the market. Operating margin was impacted by global advertising. We believe these investments are strategically important in order to maximize the opportunity in this high growth segment.
We recently introduced a new family of 400 products, which includes 3 models, the 400 230, $235,000,000 $6.30. Notably, the $400,000,000 $235,000,000 is our first wearable to incorporate Garmin Elevate technology. Garmen Elevate is a risk based heart rate sensor we specifically developed to serve a broad range of use cases from all day heart rate tracking to intense workouts. All of the new 4 runners are compatible with our Connect IQ application framework, enabling users to personalize their watches with host of interesting watch faces, custom data fields and useful applications developed by third parties. We also recently introduced an exciting new activity tracker called Vivo Smart HR, which also features Garmin Elevate technology for all day heart rate tracking and activity intensity monitoring.
Garmin Elevate Technology combined with an always on display and smart notifications make the Vivo Smart HR one of the most capable activity trackers available on the market. To support these products and many others, we have released a major update of Garmin Connect Mobile. This update features a completely new user interface making it to view important activity information at a glance and providing even more customizations to fit individual needs. All of these new products are shipping now and we will soon launch a major new advertising campaign to support sales during the upcoming holiday shopping season. Looking at outdoor, revenue declined 5% year over year as the revenue mix shifted to geographies weaker currencies.
Gross and operating margins were stable sequentially, but declined year over year driven primarily by currency weakness in product mix The Phoenix 3 has been an exciting success story this year. During the quarter, we expanded the available choices for Phoenix 3, with new color and material options in time for the holiday shopping season. Turning next to Aviation. Revenue declined 5% as the industry has been impacted by lower strong to 74% and 25% respectively, though operating margin declined on a year over year basis due to R and D growth, supporting future revenue opportunities. While the industry slowdown is disappointing, we remain confident in our certification of additional aircraft platforms as previously announced.
We remain confident in our market position and the opportunities for long term growth. Looking next at Marine, revenue was flat in the third quarter as the voting season ended and we passed the 1st anniversary of the July new products with higher margin profiles. Our investment in innovation has resulted in increased market share and industry wide recognition. Garmen was recently honored as a manufacturer of the year by the National Marine Electronics Association. We also won 4 products specific awards in the autopilot, multifunction display and smartphone applications categories.
We intend to build on this momentum in the coming year with additional innovation and market share gains. In the auto segment, revenues were down 14% in the quarter, driven by the secular decline in the PND market as expected. However, our worldwide market share remains stable and strong. The PND market is an important part of our business and we remain focused on delivering a superior in vehicle experience. The most recent example is Baby Camp, which was announced earlier this month.
Baby Cam is a back seat monitoring system that streams wireless video to compatible Garmin PNDs. This system provides front seat passengers the ability to safely monitor the well-being of other passengers or cargo at a glance. As previously announced, we've updated our full year guidance and now anticipate revenues of $2,800,000,000 outlook has been adjusted in fitness, Outdoor and Aviation, which are the segments most impacted by the economic and competitive factors mentioned previously. We expect gross margin to be approximately 53.5 percent, down slightly from previous guide due to unfavorable geographic revenue mix and competitive pricing dynamics Due to the revenue and gross margin revisions, we now expect operating margins to be approximately 18.5%. Finally, we anticipate pro form a EPS of approximately $2.25, which also reflects the higher anticipated tax rate for the full year.
While it's disappointing to revise our guidance, we believe that the underlying business trends remain positive and our investments in R&D And Advertising will create long term opportunities. That concludes my remarks. Next, Doug will walk you through additional details on our
balance sheet and cash flow statement. We posted revenue of $680,000,000 for the quarter, both form a net income of $97,000,000. Pro form a EPS was $0.51 per share. During the quarter, we faced significant exposure to foreign currency fluctuation resulted in a revenue headwind of $52,000,000 or 7 percent of revenue. Gross margin declined to 53 percent, a 310 basis point decrease from prior year.
Operating margin was 18.5%, a 640 basis point decrease in the prior year. Finally, effective tax rate increased to 27.7% in the current quarter compared to a pro form a rate of 21% in the prior year. This created earnings pressure of $0.05 per share. We'll discuss gross margin, operating expenses, and effective tax rate in more detail later. Next, we look at 3rd quarter revenue by segment.
Percent for a total Q3 2015 revenue compared to 44% in the third quarter of 2014. We continue to diversify our revenue base with fitness increasing to 21% of our total Q3 2015 revenue. Next, I'd like to discuss gross margin. This decreased to 53.3% driven largely by the currency headwind, which reduced revenue by $52,000,000 on a constant currency basis. As well as pricing dynamics in the fitness segment.
Total corporate operating margin was 18.5% due to gross margin pressure 3rd quarter operating expense increased by $14,000,000 or 6 percent. This a 330 basis point increase as a percent of sales. Research and development increased $7,000,000 year over year or 150 basis points to 15.6 percent of sales. Continue to invest in innovation with increasing resources focused primarily on aviation, fitness, outdoor. Where we see long term growth opportunities.
Our advertising expense increased $4,000,000 for the prior year quarter and represented 5.4% of sales, a 70 basis point increase. Additional spending was focused on fitness of investments in media, point of sale presence with key retailers and cooperative advertising. SG and A was up $3,000,000 compared to the prior quarter, increasing 100 basis points as a percent of sales to 13.8 percent. Increased spending was driven primarily by IT expenses and product support costs as our customer Just a few quick highlights on the balance sheet and cash flow statement. Dollars.
Contract received both sequentially and year over year to $432,000,000. Inventory balance increased to $503,000,000 to prepare for the 4th quarter and launch a number of new products simultaneously. 18, we generated free cash flow of $124,000,000. Also in the quarter, we paid dividends of $97,000,000, repurchased $51,000,000 of company stock with $192,000,000 remaining for purchase through December 2016. Finally, as I mentioned percent in the current quarter compared to a pro form a rate of 21% in the third quarter of 2014.
Increased tax rate primarily a result of forecasted income mix by tax jurisdiction, which is negatively impacted by the overall reduction in forecasted taxable income resulting catch up expense for the first half of twenty fifteen. Our full year effective tax rate is now expected to be approximately 21.5% due to change in income mix or tax jurisdiction. Consistent with last year, the full year effective tax rate forecast assumes a passage to the R and D tax credit. This concludes our formal remarks. Jonathan, can you please open the line for Q And A?
Certainly. Our first question comes from the line of James from Morgan Stanley. Your question please. James, you might have your phone on mute. There,
can you hear me now? Yes. Okay. Thank you. I wanted to ask a couple of larger, bigger picture questions.
As you as we go into the end of this year and we start to think about 2016. How are you thinking about the appropriate levels of
investment into efforts like fitness
bands, etcetera?
Clearly that has hasn't done as well as you would have thought and you're still hopeful there and looking to invest. But when do you think about starting to rationalize that or reevaluate that first? And second, I guess, is more of a backwards looking question, but As we've gone through this year, we've seen you revise your expectations are related to And the impact from exchange rates a few times. First, it was just on the pure translation and then later it's been on demand. How are you feeling about where we're at from that perspective?
And do you think that the lower levels of demand given the higher price the U. S. Dollar persistent to next into 2016? Or do you need to make pricing adjustments to address that better going into next year? Thank you.
Yes. Thanks, James. In terms of 2016, it's certainly too early to comment, but I would say that, that's, on this fourth quarter is obviously very crucial in terms of gauging the overall market. And we believe that at this point, we have a very strong product lineup that we'll read a lot into our plans for 2016. So our approach would be to plan our 2016 based on on, of course, how we do the market towards the end of this year.
In terms of the revisions, and kind of commenting on where we're at. I think our situation with the currency is not so much an issue of lower demand or lower quantities, but it really is pressure on the revenue side in the translation of currency. We've had some particularly strong results in some of those currency affected areas, which is actually a good problem to have. But from the pricing point of view, it's very difficult to change the pricing in a short term basis. So we're doing what we can in the short term to to increase prices where we have some ability to do that, but the longer term solution is really, with products, new products and innovation.
Thank you very much. And then just last follow-up question for me. Can you give an update on Endash and where we're at with Honda, that seemed to be a good opportunity for you. And where are you thinking about the rollout potential with that partner?
Well, Honda is currently rolling out in North America now. So we're on quite a few platforms there including the pilot, civics, CRV and the courts. So we're excited about what's going on there and it is rolling out per plan.
Thank you. Our next question comes from the line of Simona Chankowski from Goldman Sachs. Your question please.
Hi. I'm just had a couple of questions on fitness as well. Can you help us understand the relative impacts to pricing and margins from FX versus the competitive elements. And then I was curious if the products you just introduced the Forerunner, the VIVOS Smart. Is that the lineup for the holidays or are there others in the pipeline?
And are you looking at expanding into a adjacent categories as well? And then just lastly, any thought on hedging? I know you historically hadn't, but just given the moves we've been seeing, that something that you're now considering?
Yes, this is Doug. I'll talk about the breakout of the fitness gross margin year over year decline about 360 basis points of that decline year over year is due to FX The remainder is due to the product mix change as well as the competitive pricing dynamics. And as it relates to hedging. No hedging is something where we've seen the fluctuations in the currency, all through our corporate history, both from a a favorable as well as unfavorable. We look to put that in the past.
Our current plans are not to hedge since there has been large fluctuation in that currency that already taken place.
Yes. And in terms of the product lineup, Simona, We're basically in place now with our fourth quarter holiday plans with all of the introductions that we had planned for the year. So I think percent.
And Cliff, in addition to the holiday lineup, are you investing in adjacent categories within fitness or outdoor beyond the existing categories?
In terms of what way?
Just new product
categories, so other than say fitness watches
or, out door devices, are there any adjacencies that we may not be thinking of that are on your internal roadmap?
Well, we always have things on our internal roadmap and we don't share those publicly, but one of the recent examples of course in the automotive area was baby cam intend to continue to do that across all of our segments.
Great. Thank you.
Thank you.
Our next question comes from the line of Mark Sou from Mark Your question please.
Thank you. Maybe just some further details on the competitive dynamics and pricing in What was actually cutting prices and how does Garmin respond in a market where price elasticity of demand is quite high? And you're also at the disadvantage of your price is being higher because of the FX. So maybe how we should think about how you stem the market share loss and also how you might reverse that since everyone has new products. We're just trying to get a sense of how you might be able to improve those mix going forward?
Thank you.
Well, I think a couple of things, Mark, in terms of the pricing, last year, we selling, our basic entry level tracker, the Vivo fit at $129 in this year and in terms of product lifecycle and overall market, the situation has changed where that's a sub $99 or sometimes even sub $79 product. We have other products that are filled in towards the upper end, but the situation is just different this year than last year. In terms of FX, we aren't really out of pricing disadvantage because of FX. It doesn't make our prices higher, but it makes it and the impact is on the revenue we recognize in U. S.
Dollars once the currencies are translated. So So that's really the factor. And then the other thing I would mention is that the overall fitness market also includes running and the running dynamics have changed in the past year due to the advent of the risk based heart rate a key features that customers want. And consequently, our product line until we started introducing our products at 400 to 25 2.35 have been a little softer in the market because of the absence of that feature.
That's helpful. As it relates to your balance sheet, you have a very healthy balance sheet, and you're opportunity is actually quite depressed. If we look at next year, we look at all the positive trends that are going to happen as it relates to new products, new market entry. Any thoughts on doing a big ASR at this point adding some debt to the balance sheet so that you can we can retire quite a bit of stock to treasury and make up for some of the EPS that we lost as we started the year?
At this point in time, you're right. We do have a very strong balance sheet as well as still have significant into cash flow. But as we look at that, our stock buyback situation, we'll continue to monitor that depending upon the different conditions that are out there.
That's helpful. Thank you and good luck.
Thank you.
Thank you. Our next question comes from the line of Jeremy David from Citigroup. Your question please.
Good morning. Thanks for taking my question. Congratulations on the introduction as you elevate risk based heart rate monitoring technology. How accurate is that technology versus other risk based HRM technology available in the market today, if you could compare that on maybe differentiated versus other technologies? Then I wanted to clarify, when the new 4002-thirty 5 in the VIVOS Smart HR, when we're expecting to see the ramp of these products, like it's more Q1 than Q4 based on accounts, some of the bunk rates you've used in the press releases, but I wanted to check that with you.
Yes. In terms of the Harvey technology, Jeremy, you know that we are a company that comes from the technical running side of things. So, heart rate accuracy is very important to us. And one of the things that we did with our new technologies is ensure that it works very well for both the demanding athlete as well as the less demanding requirements of all day tracking. So We feel very good about the accuracy of our solution.
We feel like it's very versatile and allows us to widely deploy it across our product line. In terms of ramp up of the new products. These products, as I mentioned in my comments, are available shipping now and they should be VivoSmart HR should be available the 1st November at Best Buy and the $2.35 is also shipping now. So we think that they will have a meaningful impact on our Q4.
Okay. That's very helpful. Thank you. If I can have a follow-up on the you've been mentioning currency headwinds for over quarters now. If I look at your revenue breakdown by regions, most of the growth is coming from outside of the U.
S. APAC is performing very strongly, up double digits year over year, but the U. S. Revenue was down 10% year over year and there was no currency impact there. So first, what are the drivers of growth in APAC and then why are sales in the U.
S. Pretty weak?
Well, we've been doing very well in APAC in some countries like China and Taiwan, particularly with wearables. That's a big growth area there. But one thing I would like to highlight is that last year, Q3, the Americas region had its strongest performance of the year up 12%. And so we are comping again a little stronger performance in the Americas region as
cash flow for the year. So far, 1st 3 quarters of 2016, you spent more on the dividends than generated free cash flow. How do you how should we think about dividend growth going forward and dividend sustainability?
Well, I think, our cash flow situation, of course, has been impacted by all the factors that we've mentioned particularly the reduction in revenues due to currency as well as the increased tax rate. So this is not the ideal situation that we would have planned. And of course, we plan for higher levels of cash flow generation in the future with new product introductions as things normalize around the currency rates.
Appreciate it. Thanks.
Thank you. Our next question comes from the line of Charlie Anderson from Dougherty and Company. Your question please.
Yes, thanks for taking my questions. I wonder if you could take a stab at how fitness grew on a constant currency basis in the quarter and then sort of that exit rate for the year would be helpful. And then secondly, on fitness, you're spending more on advertising owner, if we should think about a certain number for sort of percent of sales as you go forward, if there's a change there versus the past, what that number might be?
Yes, in terms of the growth on and currency, we've kind of headlined our overall situation on a consolidated basis, but we haven't been focusing on that on the individual segments. We feel like the situation is going to quickly clear as we exit the year because if you remember, the currency took a major nosedive, the international currencies did, around the 1st the year. So a lot has changed between then and now because we're introducing new products. We're adjusting pricing. And so to comment on constant currency, things start to get a little bit intermingled and difficult to isolate.
In terms of advertising, we are spending at a higher level strategically in fitness and we will continue to do so in the future in order to take advantage of the opportunity. So I would expect that in the coming year that we would have an increased level of advertising over historical levels probably similar in terms of percentage of sales and as to where we are today.
Great. And then my follow-up relates to aviation. It was a couple of years ago. You guys won a number of new platforms. It's we haven't seen a lot of new platforms, being announced the last couple of years.
I wonder how that pipeline looks today as we close out the year. We've got MBA in a month or so.
Well, we still are working on some new platforms that haven't yet reached the market. As you know, the Honda Jet and the Sirius SF-fifty and so those have been programs that are still in the works. And of course, we're constantly working on new business, but at this time, we don't have anything to report.
Thanks so much.
All right. Thank you.
Thank you. Our next question comes from the line of Travis Macquarie from Raymond James.
Hey guys, thanks for taking my question. Cliff, my product question is on the, the auto business and kind of the aftermarket specifically. This year, you've launched a lot of enhancements to kind of the classic PND line, whether it was the baby cam or dash cam or some units with forward collision warning partial warning. And as more technology kind of gets baked into cars at the OEM level, it would seem to create an opportunity for aftermarket sales. What I'm getting at is, have you done any advertising around new features or any sense of the demand levels for them yet?
Is that part of the advertising increase in Q4? Is the advertising increased corporate wide really just focused on the on the fitness side of the business?
Well, I think for specifically for auto, we have done some appropriate level of advertising around some of these new features that you mentioned. But as you know, category is mature and has been in secular decline. So we're judiciously investing there based on the opportunity In terms of where we're focused strategically, the fitness market and to some extent outdoor categories of where we're focusing our advertising spend.
Got you. And then Doug, you mentioned specifically $52,000,000 of FX headwind this quarter, although like you said, I suspect it's kind of tough to nail down exactly because of price changes and things like that. And then you mentioned, I think, $185,000,000 on the year. What is that implied headwind in Q4. And I suspect in Q1, that gets pretty de minimis, but just wanted to make sure of that.
Yes. So basically Yes, we had $148,000,000 year to date of headwinds. So, the $185,000,000 is the amount difference from that standpoint. Yeah, as we move into Q1, as Cliff previously mentioned, some of the exchange rates fully will kind of be more level year over year from a standpoint. But yes, we'll have to see how the currencies move over the next 3 months or so.
And from a cost perspective, does the change in the time dollars the last couple of months impact you guys positively or negatively?
Impacting us positively right now as it's been swinging weaker. So that's reflected in our overall results.
Great. Thanks very much. Thank you.
Thank you. Our next question comes from the line Ben Bowling from Cleveland Research. Your question please.
First question I had for you is when you look at the sustainability of these investments you're making, you commented advertising probably runs a little hotter into next year. But when you look at R&D, it's increased in absolute terms, total dollars for the last several years. And growing again as a percentage of revenue this year. Should that pattern persist or how should we think about R and D growth on a look forward basis?
And then I have a follow-up.
Well, certainly has increased in the past years. And part of that is that the product lines have become more complicated than they used to be in the past. It used to be that we could sell a device that was engineered kind of as a standalone unit. But today, we not only have to do the device, but we also have to do the cloud and the mobile application So the development has become more complicated and thus requires more investments, just kind of the reality of the current state of the market. But that said, we do wish to leverage our R and D investments and over time try to equalize that with the opportunity, but it would definitely be at a higher level than what we've seen historically.
Okay. Second part, lots of discussion about the emphasis and the push into the fitness business. And if you look at the margin performance in fitness, In the quarter, it was essentially at the corporate operating margin level. Obviously, there's some implicit mix shift towards the fitness wearables. But as you see a larger percentage of sales from fitness wearables, capabilities improve, the margins get better in that business?
Or how should we think about the margin performance within fitness over time?
Well, certainly it would be our goal to try to, bring it back towards, where it was. But I think it is kind of the state of the new reality in the market. There's a lot of emphasis on fitness, a lot of competition out there. And so I would not expect to be able to certainly quickly or maybe even ever be able to get back to the very high levels that we had when the product mix was only specialty products. Thank you.
All right. Thank you, Ben.
Thank you. Our next question comes from the line of Will Power from Robert W. Baird. Your question please.
Great, yes. Thanks for taking the question. Yes, I guess a couple of questions. First, maybe on the door segment. I don't want to commentary there yet.
And I think in the release, you alluded to growth opportunities in 2016. So I guess I wondered if you could elaborate that? What do you think might help grow that category for you next year? And I guess along those lines, any updates perhaps on the golf market camera market, etcetera?
Yes. In terms of outdoor, the opportunity there is particularly in wearables and also dog products have been doing very well. And so again, next year we would intend to leverage those categories to be able to sustain and possibly even grow the overall category of Outdoor. In terms of cameras, we've just recently introduced Verve X and Verve XE. And we've taken an approach there of being more of a niche player, particularly appealing to the other segment customers in in our product line, particularly marine and aviation.
And we feel, reason positive about how that's been going as more of an niche category. We've had a lot of good feedback from those markets. And it's been getting a specialty distribution that that seems to be good.
Okay. And the second question, just coming back to Aviation a bit, it feels like visibility is limited and there have been some macro headwinds. I mean, are there any green shoots on the horizon that you see at this point from a macro standpoint or I guess you referenced market and energy prices as being a limiting factor? Does that continue to be the principal headwind? And I guess along with that, I guess I'm just curious how you kind of how do you frame your energy market exposure?
How big of an issue is that?
In terms of the macro side, we don't really see anything in the near term that reverses the trends. I think aviation tends to be a long term play. So, as a result, as the macro conditions ebbs and flow tends to impact the market and the market reacts over a period of months or years. But in terms of the oil side of things, the biggest impact for us has been on the helicopter side particularly where the oil services companies and of course the providers of equipment to those in both the OEM and aftermarket have been challenged in that environment. And the other secondary factor is the oil producing countries, the people there probably aren't buying as many aircraft or retrofitting as many aircraft in that environment.
But that will equalize over time oil prices tend to go up and down. So it's something we're particularly worried about in the longer term.
Thank you. Our next question comes from the line of Brad Erickson from Pacific Press Securities.
Just following up on fitness, I guess it seems like your unit growth here in Europe has been obviously a lot better than in the U. S. Lately. Is that something you see continuing or will those growth rates sort of converge as we look out into 2016?
Well, I think it's probably hard to predict how the different markets perform. Europe and the international scene is probably a year or 2 behind in terms of the overall adoption of business and wellness based product. But they're in a little more of a growth curve at this moment.
Got it. And then just on the aviation front, can you just talk about just briefly the cadence of kind of new certifications you have coming out over the next year or year 2 perhaps and how that compares to this past year or 2?
Yes. I think the past couple of years, we've definitely seen a lot of new platforms, particularly in late 2013 2014 early 2015. We still have a couple of platforms are publicly announced out there, that are yet to be certified late this year, early next year. But in terms of the new business, of course, we can't comment on at this time.
Got it. And then finally, and I apologize, I think you may have already addressed this, but I missed it. The operating results leading to lower cash flows than we thought a few quarters ago. Can you kind of talk about how this might impact the dividend and just I guess more broadly the board thinks about changes to the dividend in light of weaker operations? Thank you.
Well, I think dividend is a high priority for us, particularly to be a reliable long term payer of dividends. So That's really our number one priority in terms of our overall uses of free cash flow. For us, at higher levels of cash flow. We also want to consider other investments like acquisitions and buybacks, but we'll tend to fill those in based on our available cash flow in order to make sure that we're able to manage our cash appropriately.
Got it.
That's super helpful. Thanks.
All right. Thank you.
Thank you. Our next question comes from the line of Ron Epstein from Bank of America Merrill Lynch. Your question please.
Hi. Good morning, everyone. This is actually Kristine Liwag calling in for Ron.
Hi, Christine.
When you think about the target customers for new products, they rolling out in fitness for activity trackers and baby monitors. First is your traditional customers for high end niche fitness watches and power meters. How much do you think the overlap is between the two groups?
Between new customers and existing customers.
I mean buyers of a newer products that seem to be a little bit more targeted to mainstream versus your legacy portfolio that's more of a activity tracker for marathon trainers and things like that?
Yes, I think that Well, running has traditionally been viewed as a niche. I think there's definitely a social movement going on now with increased activity, including running. So a lot of people are starting to be interested in it and pick up on it and a lot of people that are coming to the market, of course, are people that have been exposed to Garmin in some way. So we feel like we do have a broad brand recognition and the ability to serve those customers as they get interested in it.
Sure. And also, I understand that advertising dollars will pick up.
I mean, you've mentioned that
a few times, but then will you also have a in strategy, especially as I mentioned, right, it seems like you're moving a little bit more towards the mainstream customer?
Well, absolutely. I mean, we're advertising those products where we see the biggest market opportunity and that's particularly in the areas of activity trackers, fitness and some of our wearables and outdoor.
Sure. And last question for me. For my understanding, and please correct me if I'm wrong, aviation products are largely manufactured in Kansas while a lot of your consumer electronic parts are really in Taiwan. If there is a strategic decision to unlock value and split up the company? How easy is that to do on an operation and manufacturing perspective?
And then a follow-up to that would be Cliff, how often do you and the board discuss portfolio shaping?
Portfolio shaping?
Yes.
Okay. I understand. So I'll address the first question you mentioned about unlocking value. That's something that's not on our radar right now. We view our all of our segments as strategic components of our overall portfolio and something that we aren't considering.
In terms of portfolio shaping, I'm assuming what you mean by that is is the strategic direction of our product portfolio and that is something that we review on a regular basis with our board and it's something that we review internally on a constant basis within our company with each segment.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of Rich Valera from Needham And Company.
Thank you. Cliff, just in terms of your you mentioned sort of a plan to improve the operations of the company relative to the recent 4 results. And it wasn't clear to me if there was sort of anything any new elements to the plan, if you've made any sort of strategic decisions, as far as how you're going to approach the market based on the downturn? Or is it kind of more of the keep investing in new products and new adjacencies and go after the market that way? Just wanted to know if there's anything new or different and maybe in the way you're approaching the market based on the recent results?
Yes, I think the recent results are obviously challenging because on the financial yardstick point of view, we of course are experiencing pressure But as I mentioned in my comments on the unit side of things, our unit deliveries are up and we're seeing success in markets around the world. So it really isn't a time for us to strategically peel back on some of those things. In fact, it's probably a time to increase so that we can create more innovation out there and over the long term as I mentioned, before be able to reset the pricing and the market around new products and new innovation.
This does conclude the question and answer session of today's program. I'd like to hand the program back to Doug Besson, Chief Financial Officer.
Thanks everyone for attending today. Appreciate it.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.