Ladies and gentlemen, thank you for standing by, and welcome to the Garmin Limited 4th Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would now like to hand the conference to your speaker today, Teri Seck, Manager of Investor Relations. Please go ahead, ma'am.
Good morning. We would like to welcome you to Garmin Limited's 4th quarter 2020 earnings call. Please note that the earnings press release and will also be available on our website. This earnings call includes projections and other forward looking statements regarding Garmin Limited and its business. Any statements regarding our future financial position, revenues, earnings, gross margins, operating margins, future dividends, market shares, product introductions, future demand for our products and plans and objectives are forward looking statements.
The forward looking events and circumstances discussed in this earnings call may not occur and actual results could differ materially as a result of risk factors Information concerning these risk factors is contained in our Form 10 ks filed with the Securities and Exchange Commission. In particular, there is significant uncertainty about the duration and impact of the COVID-nineteen pandemic. This means that results could change at any time and any statement about the impact of COVID-nineteen on the company's Results and outlook is a best estimate based on the information available as of today's date. 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 reported earlier today, our growth momentum accelerated in the final quarter of the year. Revenue increased 23 percent, exceeding $1,300,000,000 driven by strong double digit growth in our fitness, outdoor and Marine segments. Gross margin improved to 58.5%. Operating income increased 34% to $371,000,000 and operating margin expanded to 27.5%.
GAAP EPS was $1.73 and pro form a EPS was also 1.73 increasing 34% over the prior year. Looking back, I'm very proud of what we accomplished in 2020. The COVID-nineteen pandemic created unprecedented challenges affecting every company. And And of course, Garmin was no exception. Many of these challenges were the burden of employees, such as learning to work and collaborate remotely, while juggling new challenges in their personal lives.
Our employees were very resilient and faced these challenges with courage and determination as reflected in our outstanding performance throughout the year. The pandemic also created many new opportunities as interest in health, Fitness and active lifestyle surged. We were well positioned to seize these opportunities with a strong product lineup And our vertically integrated business model gave us flexibility to meet rapidly changing demands. During this crisis, we maintained our focus on R and D, which allowed us to introduce many innovative new products throughout the year. On a consolidated basis, revenue increased 11% to nearly $4,200,000,000 which is a new record for Garmin and our 5th consecutive year of growth.
Gross margin was 59.3 percent and operating margin was 25.2%. Operating income increased 11% to over $1,000,000,000 which is another record achievement. This resulted in GAAP EPS of $5.17 and pro form a EPS of $5.14 an increase of 16% over the prior year. Considering these strong results at our upcoming annual meeting, We'll ask shareholders to approve an annual dividend of $2.68 per share, representing a 10% increase over the current annual dividend amount. Doug will discuss our financial results in greater detail in a few minutes.
But first, I'd like to highlight some achievements from the past year and the outlook for each of our 5 business segments. Starting with the fitness segment, revenue increased 26% as strong demand for advanced wearables and cycling products fueled our growth. Gross and operating margins were 53% 24% respectively, resulting in operating income growth of 66% over the prior year. During the year, we launched innovative new wearables and cycling products such as the Venue SQ, The Forerunner 745 and the next generation of edge cycling computers. Looking forward, we are well positioned to capitalize on the broader trends in Health and Fitness.
We plan to leverage our recent acquisition of First Feed to offer products with unique health and fitness features. In addition, we intend to capitalize on the trends in indoor cycling with our strong lineup of Tacx products. With these things in mind, we anticipate revenue from the fitness segment will increase approximately 10% in 2021. In the Outdoor segment, revenue increased 23%, primarily driven by strong demand for adventure watches. Gross and operating margins were 66% and 39%, respectively, resulting in operating income growth of 32%.
During the year, we added solar charging technology to a broad range of Phoenix and Instinct models, extending our lead in low power technology and further differentiating ourselves in the highly competitive smartwatch market. Looking forward, we expect the broader trends in outdoor to continue. We plan to leverage this opportunity by offering compelling products that maximize the enjoyment of outdoor activity and adventure. We believe that inReach will continue to grow as more people appreciate the convenience and lifesaving potential of two way remote communication. Our recent acquisition of GEOS, a critical provider of emergency monitoring and incident response services, allows us to expand its scale and improved service levels for our growing base of inReach customers.
With these things in mind, we anticipate revenue from the outdoor segment will increase Approximately 10% in 2021. Looking next at the Aviation segment, revenue decreased 15 percent due to lower revenue from OEM product categories and the expected decline of the ADS B market. Gross and operating margins were 73% 22%, respectively. While the pandemic created some headwinds, particularly in the OEM market, We see positive signs in the smaller aircraft segment, especially in owner flown aircraft. In addition, when adjusting for the impact of ADS B, There are encouraging signs in the aftermarket as aircraft owners embrace the latest cockpit technologies.
Autoland is being recognized as game changing new safety technology for general aviation and recently was named 1 of 2020's greatest innovations by Popular Science. Autoland also won a top light award from Aviation International News. During the year, Autoland achieved certification on 3 aircraft models, including the Cirrus Vision Jet, the Piper M600 and the DACHER TBM 940. Over 150 autoland equipped aircraft are now in service, a number that continues to grow every day. We believe the general aviation market is stabilizing.
And during 2021, We expect the segment to grow approximately 5% with contributions from both OEM and aftermarket categories. We expect revenue from the segment to decline in the Q1 as we compare against strong residual ADS B numbers from last year, followed by growth as the year over year comparisons become much more favorable. We are focused on certifying safety enhancing technologies such as autoland in additional aircraft models and we will continue to invest in future growth opportunities. Moving on to marine, the segment delivered another year of impressive results as the pandemic created an opportunity for people to rediscover boating and fishing. Revenue increased 29% with growth in multiple product categories led by strong demand for chartplotters.
Gross and operating margins were 58% 27% respectively, resulting in operating income growth of 60%. We continue to be recognized for innovation and achievement in the marine industry. We were named Supplier of the Year by Independent Boat Builders Incorporated, Manufacturer of the Year by the National Marine Electronics Association and recently we were recognized as one of the top 10 most innovative marine companies by Sounding Straight Only, which is a B2B news and information provider for the recreational boating industry. Looking forward, we anticipate that interest in boating and fishing will remain strong. Many boat builders have already sold out of their 2021 models and our retail partners are preparing for another year of strong growth.
We plan to capitalize on these trends by offering a compelling lineup of products with innovative features and disruptive new technologies. With this in mind, we anticipate revenue from the Marine segment will increase approximately 15% in 2021. Moving finally to the Auto segment, I want to highlight that we are now providing expanded disclosures for the segment. Specifically, we are disclosing separate financial information for the 2 operating segments within auto, the Consumer segment, which includes P and D and Specialty Products and the OEM segment, which is focused on hardware and software solutions for vehicle manufacturers. We believe these expanded disclosures will help investors better understand the mix of revenue, the level of investment and the profit profile of each profit segment.
Now looking at the year end results for the auto segment. Revenue decreased 16% as the decline in P and Ds was partially offset by growth in Specialty Products and Revenue from New OEM Programs. Gross margin was 45% And we recorded an operating loss of $19,000,000 driven by investments in auto OEM programs. Our auto OEM business has reached an inflection point as we ramp up new programs over the next few years. Prior to the most recent wins, we've been successful on various software, navigation and infotainment programs with several top tier OEMs such as Honda, Toyota, Daimler and Peugeot to name just a few.
We are currently in production with a full infotainment system for the Daimler Vito van And we recently began production on the current BMW program, where we are Tier 1 build to print supplier. Also, we are developing the next generation program for BMW as the lead supplier, which expands our role to encompass all aspects of the design, including hardware, complex operating system development and system integration. Moving into this lead supplier role on future programs is a testament To the progress we've made as a Tier 1 supplier to the auto industry, these programs require a significant investment in R and D prior to realizing revenue And not all costs are reimbursed by the customer. With these things in mind, we expect total auto revenue to grow approximately 5% in 2021, driven by growth in specialty consumer products and new OEM programs. We also expect additional losses from the OEM operating segment as we invest in the development of future programs expected to launch in late 2022.
Well, in summary, I'm very proud of what we accomplished in 2020, while facing challenges that no one could have anticipated just 1 year ago. The indicators for 2021 look positive and we are excited about the opportunities in every business segment. With this in mind, we anticipate 2021 revenue will be approximately $4,600,000,000 We expect gross margin to be approximately 59.2 percent and operating margin at approximately 23.5%. Assuming a pro form a effective tax rate of 10.5 percent, pro form a earnings per share are expected to be approximately 5 point and $0.15 That concludes my remarks. Next Doug will walk us through additional details on our financial results.
Doug?
Thanks, Cliff. Good morning, everyone. I'd begin by reviewing our Q4 and full year financial results, submitted comments on the balance sheet, Cash flow statement and taxes. Post revenue over $1,300,000,000 for the 4th quarter, representing a 23% increase year over year. Gross margin was 58.5%, 50 basis point increase from the prior year.
Operating expense as a percentage of sales 31.1 percent, 180 basis point decrease. Operating income was $371,000,000 a 34% increase. Operating margin was 27.5 percent, 2 40 basis point increase from the prior year. Our GAAP pro form a EPS was $1.73 34% increase from the prior year pro form a EPS. Looking at full year results, posted revenue of $4,100,000,000 representing 11% increase year over year.
Gross margin was 59.3%, 20 basis point decrease from the prior year. Operating expense as a percentage of sales 34.1 percent, 20 basis point decrease. Operating income was $1,054,000,000 7 percent increase. Operating margin was 25.2 percent consistent with the prior year. Our GAAP EPS was $5.17 Performance EPS is $5.14 16% increase from the prior year.
Next, We'll get 4th quarter revenue by segment and geography. In our 4th quarter, we achieved double digit growth for our 5 segments, Led by Marine segment, the growth of 48%, followed by the Outdoor segment, 40% growth and Fitness segment, 26% growth. Our geography achieved growth in all three regions, led by strong growth of 32% both EMEA and APAC. Americas grew 13%, which is more heavily impacted by the decline in Aviation. Excluding Aviation, America's growth was more in line with other regions.
For the full year 2020, we achieved levered and consolidated growth with strong WGrowth In 3 of our 5 segments, marine, fitness and outdoor, each grew in excess of 20%. By geography, We achieved growth in all three regions, led by 17% growth EBA, 8% growth in both Americas and APAC. Looking next, operating expenses. 4th quarter operating expenses increased by $57,000,000 or 16%. Research and development increased $38,000,000 year over year, primarily due to engineering personnel costs and other expenses related to auto OEM programs.
Advertising expense decreased approximately $2,000,000 with prior year quarter. SG and A increased $21,000,000 compared to prior quarter, A decrease in Sunnage sales to 11.8%, 70 basis point decrease compared to the prior year. The increase in SG and A is primarily due to Increases in information technology costs and personnel related expenses. A few highlights on the balance sheet, Cash flow statement and dividends. We ended the quarter with cash and marketable securities approximately $3,000,000,000 Accounts receivable increased sequentially year over year to 8 $849,000,000 due to strong sales in the 4th quarter.
Inventory balance increased year over year to $762,000,000 During Q4 2020, we generated free cash flow of $387,000,000 For the full year 2020, We generated free cash flow of approximately $950,000,000 $369,000,000 increase from the prior year due to improved earnings, decreased Operating capital needs. For 2021, we expect free cash flow to be approximately $725,000,000 approximately $350,000,000 of capital expenditures. The expected year over year increase in capital expenditures due to investments and platforms for growth, including expansion of our Taiwan manufacturing facilities Restarting the Olathe expansion project, which includes the renovation of the previous Olathe manufacturing and distribution facility to increase workspace capacity, The auto OEM manufacturing facility in Europe and IT related projects. We announced our plans to seek shareholder approval For an increase in our dividend beginning with the June 2021 payment, proposal is a cash dividend $2.68 per share or $0.67 per share per quarter. This is a 10% increase from our current quarterly dividend of $0.61 per share.
For full year 2020, we reported an effective tax rate of 10.1%. Former effective tax rate is 10.4%, 5 10 basis point decrease from the prior year, primarily due to the migration intellectual property ownership from Switzerland to United States. The fiscal year 2021 pro form a effective tax rate is expected to be 10.5%, relatively flat year over year. This concludes our formal remarks. Joelle, could you please open the line for Q and A?
Thank you. Our first question comes from Robert Spingarn with Credit Suisse. Your line is now open.
Hi, good morning.
Good morning.
Cliff, Doug, very good numbers. I wanted to Digging a little bit in a couple of things, but just starting off the guidance on the operating margin for 2021, If we could just bridge that from 2020, the decline in the operating margin, is that just more R and D on the auto side?
Yes. So I'll give you a little bit of color on that. Yes, it's primarily due to operating expense as a percentage of sales increasing. Look at the gross margin was relatively comparable, maybe 10 basis points lower there. But give you a little bit A color on the operating expenses.
Yes, we're anticipating 2021 to be about 160 basis points Higher as a percentage of sales. Looking at each of the pieces, advertising, we anticipate or target that To be relatively flat as a percentage of sales year over year. SG and A will be slightly up, we think. That's primarily due to increased IT expense as well as other personnel aid expenses. And then the increase as you mentioned really is driven by R and D.
So if you look at R and D, we're anticipating that as a percentage of sales to be about 150 basis points higher year over year in there. It's really driven by A big piece of that relating to auto OEM investments, but other investments that we see in other parts of our segments.
Okay. And then Cliff, on the top line strength in the year, is there any way by segment to parse just market growth versus market Share improvement. I'm thinking specifically about marine. I mean, it was just outstanding. But just in general, is there a way to think about those 2 different factors.
Yes. I think looking specifically on marine, there's definitely a combination of market size increase as well as market share gains. If you look broadly at the boat builders in marine, they're experiencing anywhere from high single digits To double digits increase in their business and so probably underlying the business the market is increasing at those kinds of rates. And then on top of that, our product line and our growth in terms of the market share has been strong. And so we've been able to Essentially double leverage those things.
Okay. And then just as a final question, have you been constrained at all by semiconductor shortages anywhere?
Yes, I would say that we're experiencing some levels of tightness in supply. It is spotty. It depends on the component and the supplier. We've generally been able to work through Those kinds of constraints with our safety stock inventory strategy and also because we're agile with our vertical integration, We can find substitutes and keep things going. But it's definitely noticeably more challenging in this environment, of course, and there's lots of headlines about that.
And we operate in that same environment. So those are factors for us too. But so far, we believe that we've been able to manage that okay.
So there's nothing in the guide that anticipates any significant pressure there? You're assuming you work through it?
Well, I think if you look at a high level at our guidance, We are a company that's heavily influenced by consumer trends and it's very early in the year. So I would say That we always try to make sure that we factor in just the general dynamics of the kinds of markets that we serve. But as far as component supply or capacity constraints or anything like that, we haven't necessarily taken any kind of significant haircuts because of those things.
Okay. Thank you both.
Thank you.
Thank you. Our next question comes from Nick Todorov with Longbow Research. Your line is now open.
Yes. Hi, guys. Congrats on the great results, really impressive. Cliff, I was wondering how you're thinking about the potential normalization in the world in the second half with The vaccine rolling out and everything going on, do you believe a recovery in the travel and leisure Industries will have any impact on the demand for your products?
Well, I think that's still a highly speculative thing That nobody really knows the answer to. I would say that for myself, I believe that Any kind of normalization is going to take some time as we've been in this situation now for about a year And people have adjusted lifestyles and consequently some of their priorities probably have changed probably permanently. And it still remains to be seen how much the vaccine really makes people feel free to do Those kinds of activities, there's still a lot of guidance coming out that the vaccines have They help, but they don't necessarily ensure that people won't get sick or Couldn't infect someone else. So these are all things that people are still processing. It's early days.
And so right now, we're believing that the trends that we've been seeing in the business over Past year are solid and will continue.
Okay, great. And then really appreciate the breakdown, the detail for the auto If you look at the OEM side, how should we think about linearity throughout the year? Do you guys have new Programs that will start ramping up in calendar year 2021?
Yes. We're ramping up really on 2 programs. I mentioned the Daimler Vito has Not yet anniversaried the start of production there, so there will be a significant ramp associated with that. And then the BMW, The current program that we're supplying as the build to print supplier again, we're in early days on production in that. So we'll experience a full year No production on those 2 programs.
Okay, great. And last question for me. On the fitness side, you had a pretty good year for Margin, I think they expanded a couple of 100 basis points. How should we think about fitness gross margin as we go forward? Do you anticipate to maintain the current level?
I know mix has been a tailwind for you this year.
Yes. We've mostly transitioned our product line to the more advanced wearables. And so The highly competitive low end bands really aren't influencing our business as much there. So we have said before and we continue to believe that The fitness business is a mid to upper 50s kind of percent margin on the gross margin line and of course targeting 20 plus percent in operating margin for the segment.
Okay. Got it. Thanks guys. Good luck.
Thank you. Our next question comes from Paul Chung with JPMorgan. Your line is now open.
Hi. Thanks for taking my questions and great quarter. So just a follow-up on operating margin guidance. If you could get more granular by segment. Auto OEM, you mentioned increase in investments there.
And on fitness, do we kind of return to that low 20s or high teens on tax expansion? Outdoor marine maybe come down after a strong 20. And on Aviation, do we stay in this low 20s range? Or does that begin to normalize maybe in 2Q and then as some longer term R and D investments kind of wane a bit? Any thoughts would be helpful.
And I have a follow-up. Thanks.
Yes. Go ahead. As it relates to 2021 on operating Margins, we see most of the segments probably being relatively consistent Year over year, a couple of them will probably be a little bit lower or some lower, I should say, one of which is auto OEM. As we continue to make investments in auto OEM, you also will see there the gross margin It came down some as some of our newer programs have a lower gross margin. So in auto OEM, you will see some decline there.
And then aviation is all depending upon the growth we have and expansion there. So it depends upon how the revenue growth relates to our operating expenses.
Okay. Thanks for that. And then as we think more about Kind of a recurring base of revenues kind of across your portfolio. You have inReach plans with hefty kind of monthly premiums Across products, but and then you also have tax subscriptions for video trails, etcetera. These are smaller in scale relative to your whole revenue base, but if you could just expand on Where you see those kind of subscription services going?
And then it sounds like you expect some nice contribution in 2021, But then where do you see potential to maybe drive kind of the higher subscription service type offerings maybe across other parts of your portfolio? Thank you.
InReach continues to have a lot of potential. It's a unique capability that especially appeals to The customer base that we have and so we believe there's a lot more potential to grow that both in 2021 and into the future. But as far as other opportunities, I would say that we're targeting areas like inReach that would The recurring revenue opportunities that would appeal to the kind of customer base and the products that we make. And so there's more things in the works that we'll come out within the future, but we do have an intentional focus on that.
Thanks guys.
Thank you.
Thank you. Our next question comes from Ben Benbowen with Cleveland Research. Your line is now open.
Good morning, everyone. Thank you for taking the question. Cliff, could you start a little bit by talking about Auto OEM, any operating margin performance over time? Maybe talk a little bit about how you see that scaling? What happens to that business as you bring on new programs?
Is it absorbed or is there some incremental expenses? Just the right way to think about how you can scale that business over the next several years? Yes.
I think you're hitting definitely The nail on the head there. I feel that we're in a period of significant investment right now and the programs that we've won definitely establish Evasive credibility, but I think what we're working towards now is building the scale that we need. This business Of course, it is a different kind of margin profile overall than the rest of our business. And so we recognize That it will be lower gross margins and lower operating margins, which are consistent with the industry. But we're also witnessing one of the biggest transformations in Personal transportation taking place right now.
And as a result, there's many, many companies that are trying to get into the Opportunity presented by this turnover of technology. And so we have things that we're bringing to the market and so we're continuing to invest. And as we bring on new programs, definitely there'll be some incremental investments that we have to make, but our belief is that we would be able to leverage The scale of the infrastructure that we're putting in place now.
Okay.
Another item I'm interested in is Any thoughts you have on current product availability across channels? For instance, where channel inventory stands Today, supply demand balance for fitness, outdoor and marine? And then a last follow-up.
Yes. I think for the most part we believe that the retail channels are very clean. We are entering the new year with a significant level of backlogs as we do have some capacity constraints and is one of the motivations we have for investing in the business in the coming year. And so we do see strong demand for our products right now and the channel inventory does not appear to be Excessive at this point.
Okay. My last one is related to capital structure. Could you give us any updates on where your priorities are with respect to dividends, CapEx, M and A, share repurchase? And also interested in any thoughts about factory utilization and some of the incremental investments you're making in 2021 in terms of production expansion? Thanks.
Yes. I think we've mentioned before our priorities on our cash is for being a reliable payer of And so in our results today, again, we announced that we'll be increasing that significantly in the coming year, which we're excited to do. We're also focused on M and A activity that enhances our business either through technology that we don't Have ourselves or through a product line that would be complementary to what we offer. So we're that's really our second priority. And then the 3rd priority is investing in the business.
And to that end, again today we mentioned that we'll be making some significant capital investments in Our production capacity in 2021 and beyond, we want to significantly increase our Taiwan production capacity As well as the ongoing investments that we've made here in Olathe, we'll be restarting our office expansion to support more employees. We're building out tax factory for trainers and of course the auto OEM factory in Europe for BMW.
Great. Thanks guys.
Yes. Thank you.
Thank you. Our next question comes from Jeffrey Rand with Deutsche Bank. Your line is now open.
Hi. Thanks for taking my question and congrats on a good quarter. Now that we are pretty much a year into the pandemic, can you maybe touch on how you Have shifted or adjusted your strategy over the past year and whether there have been any changes in your M and A focus from the pandemic?
Well, M and A wise, really no shift and we were able to successfully complete Some of those transactions even during the pandemic, so we had First Feet on board as well as GEOS. And so again, as I just mentioned, we'll be Continuing to look for opportunities, especially those that bring some kind of technology or product category to us that we don't presently have. In terms of how we run the business, we've it's been different, but we've been very successful in collaborating electronically. We do have many of our offices and employees coming in on a rotating basis. So we're seeing more and more Faces of people, which is a good thing, but we don't necessarily have full utilization of our space because we're keeping people distant And making sure that everyone can stay safe.
So all of that kind of remains the same. I think the biggest thing for me is Kind of stop predicting when it's going to end and simply kind of manage through and do the best things for the business right now.
Great. And then just as a follow-up, can you talk about the demand trends you're seeing in your indoor cycling business and if you're still running a backlog there?
The demand is very strong for indoor cycling. And so we're leveraging the new facility that we have built in the Netherlands for tax to increase Our capacity, but even with increased output, we're seeing a very strong backlog for that product. So we're continuing to work very hard to Bill those orders.
Great. Thank you.
Thank you.
Thank you. Our next Question comes from Will Power with Baird. Your line is now open.
Great. Thanks. Yes, congratulations on the results. I guess a couple of questions. Yes, thanks again for the auto breakdown.
I know you retouched a bit on the OEM opportunities. I guess On the consumer front, how do we think about what the growth looks like there going forward? I think you actually, Cliff, maybe indicated you expected specialty consumer Grow year over year in 2021, if I heard that right, I'm just trying to understand the puts and takes of the consumer piece.
Yes. So you heard right. We're expecting all five of our Segments to contribute to growth in 2021 and specifically in auto, both the OEM Operating segment and the consumer operating segment are expected to achieve growth in the year.
And any other color as to what's going to drive the consumer growth within auto?
Well, these specialty product categories that we Developed are very strong for some of the same reasons that we're seeing in other areas of the business. So we've developed products for Overlanding and as well as specialty products from motorcycles and trucks and all of these are very popular categories right now.
Okay, great. And then my second question on fitness. I think in your prepared remarks, you mentioned integrating First Feed and that providing No opportunities in 2021. Maybe just remind us where are you with respect to integration of that today in terms of some of those capabilities versus what's to come. And as you think about strategic M and A and the opportunities, are there what do you see as kind of the big opportunities in fitness?
Yes. So, Firstbeat is it was purely a software technology company and so and a company that we had I've been working with previously in terms of incorporating their technology into our wearables and cycling products. And so with the acquisition, we've been able to accelerate the incorporation of features across the product line that broadens Our feature list for our customers and so that's underway and for the most part many of our new products already have some of the expanded feature sets That we wanted them to have. Thanks to the First Feed acquisition. And in terms of the other opportunities there, I mean, again, Probably can't comment on specifics, but we see a few pop up here and there.
And as we've done historically, we look at each of those and Make sure that what we engage in really matches our criteria for a technology or product category that would be beneficial to us.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Ron Epstein with Bank of America. Your line is now open.
Hey, good morning all. Just a couple of questions, maybe some detailed ones and then maybe a bigger picture one. So when we think about the tax rate for 2021 and then going forward, how should we think about that? Because I think The tax rate you guys were talking about is a little bit lower than what I was thinking.
Yes. So the tax rate we have for 2021 is Consistent with what we had for 2020. So we think not a lot of change from that standpoint. Now we do not give any guidance for Future years, there's a lot of things that really play into that, Ron, depending upon operating income, Income by segment, income by jurisdiction, reserve leases as such. But I think it'd probably be in that Same type of a range we think in the next in the future depending upon obviously things that may change with tax laws, enactments and those type of But I think it's relatively consistent in between 2021 2020.
Got it. Got it. And then Cliff, you mentioned about aviation growth, if you proform it at for ADS B. How big a headwind was ADS B?
Well, it was definitely a significant Once in a generation opportunity to equip every aircraft with technology. And so we worked very hard To supply every aircraft with ADS B that we possibly could and we were wildly successful which is demonstrated The fact that we have some headwinds right now, but those are headwinds that I'm very proud
of. No. Yeah, my question I mean that obviously it's all good stuff. But I guess what I'm trying to get at if you When you remove that ADS B piece and we think about aviation into 2021 and maybe into 2022, right, I mean, it seems like we were Potentially in a recovery in Business Aviation as evidenced by the Capacity utilization of business jets, I mean, it's they got hit far or less than other parts of aviation. And The business piece of Private Aviation really hasn't come back yet.
So if we were to get into a more Meaningfully robust upturn in Business Private Aviation. I'm just trying to get out like what that would mean for you guys. So it's sort of like you understand the question?
Yes, for sure. And we mentioned last year at this time as the pandemic was erupting that We believe that general aviation had a bright future throughout this because of the flexibility And the options that it provides people that might have concerns about how they travel. And we've definitely seen that play out. As I mentioned in my remarks, The smaller aircraft segment, especially owner flown and also we're hearing the news from charter and fractional companies that they're seeing An uptick in their demand and so that's playing out exactly as we thought. And as we look forward, again, the demand is just super strong in the smaller aircraft segment And we're strongly positioned in every one of those platforms to take advantage of that.
We're in all the right places in the light jet market up through medium jets on the piston side for the owner flown people as well. And so we're ideally positioned in all of those categories to be able to meet the demand.
Got you. And then shifting maybe to customers and stickiness. Garmin Connect, Do you have a sense on once folks are kind of in that universe, does that keep them locked into a Garmin product?
Well, for sure, I have a decade of history on Garmin Connect that I wouldn't ever want to lose. And I know that there's many other customers that feel that way And it's a place where you store the most important data about yourself and to be able to manage your health. And so The features that are in Garmin Connect are super sticky and are useful tools for people and is something that they continue to use.
Got you. And then maybe one last question, a balance sheet question. So you guys have your net cash $3,000,000,000 I mean clearly that's not The most efficient ways to use the balance sheet. I think someone else earlier asked you about capital deployment, so on and so forth. But I mean, Around with $3,000,000,000 on the balance sheet, I mean, how do you think about that?
And shouldn't that be deployed someplace else either In a new product back to shareholders or somewhere?
Yes. I think we've obviously demonstrated that we're stepping up our spending on capital Investments to support the business that we see going forward. So that's one thing. We've been in an acquisition mode, so we've spent some money in the past year on that and we're increasing our dividend for sure. The business is growing, so definitely having a little more cash on hand is not a bad thing.
And a year ago as the economy was tanking, everyone was I'm concerned about the fact that some companies didn't have enough cash to weather those things. So we've always been in a strong position and that's where we'll We do have concerns and constraints around the capital structure. We want to make sure that we can distribute dividends Shareholders as efficiently as possible, which means that we have a certain amount of capital we can deploy whether it's dividends or buybacks And that's done at a withholding tax free rate right now. And so we're being very careful with that to make sure that we can be reliable and attractive for people in the long term.
Got it. All right. Thank you.
Thank you.
Thank you. Our next question comes from Ivan Feinseth with Tigress Financial. Your line is now open.
Thank you for taking my question and congratulations on another quarter and a great year. And congratulations on Being selected by Joby for selecting your G3000. Whether or have you been incorporating unique Functionality in the G3000 that supports the eval functionality of new types of planes?
Yes, these e vehicles that are being designed definitely have unique characteristics and so the avionics And the electronics in general on board need to be specific for those platforms just like we've seen in every other kind of aircraft that we've that incorporated into. So we're doing the same thing with Joby and the others we're working with.
And what
do you feel your competitive advantage is and what That you won this and hopefully keep winning the new mandates?
Well, we have the most capable avionics systems for these aircraft. And so obviously that's a major attractive point. We have a significant amount of Experience as a company both in certifying avionics and aircraft as well as being a reliable Production partner for our OEMs that use our equipment and so all of these things are definitely pluses for Garmin as we look at these new opportunities.
Now is Autoland automatically included or can be included in this as well?
Yes. I think Autoland would be a case by case basis For these new opportunities, I can't comment specifically on Joby with that, but obviously we're Amassing a strong base of autonomous technologies and safety technologies for aircraft that can be applied broadly across Fixed wing as well as helicopters and e vehicles as well.
Okay. And then on Firstbeat, what type of New functionality can we hope to see as you incorporate more of the First Speed acquisition into your products?
We've been really excited about Firstbeat because they are a team of people focused on physiology, especially exercise physiology, but as well as Basic health and wellness as well. And so we're leveraging their expertise to be able to improve a lot of capability on our Products in terms of health sensing, health data feedback for people and providing Guidance to people in terms of how they can modify their life in order to live healthier and to be more fit.
And then Will, what's going on with your developer? Are you going to have a developer the IQ Developer Conference this spring? Or What is the plan for that? And then are you going to open up opportunity for developers to work with for speed functionality to develop new applications to use on your products?
Yes, last year we did it virtual. I would anticipate based on what we know today that that's the same approach we'll Take this year, but actually many of our partners appreciated that because it allowed them to participate when some of them wouldn't otherwise be able to take the time or Send the money to travel. So we would anticipate that a virtual approach would be something that's part of our approach for developers going Forward. But in terms of what things are opened up on the platform, I probably can't make a specific comment about First Speed, but we are continually adding capabilities that allow people to access the unique features of our hardware platforms and also our software stack.
And is there still any thoughts about making Connect IQ more of an e commerce platform for those companies that Because there are some applications that a lot are for free, some you can pay through like PayPal, but there's no real formal process Formal process you see eventually creating this where it goes through Garmin and Garmin earns a commission as well as helping to promote Developers and quality number of apps available?
I would say at a high level it's something that's still of interest to us and something that we get Request for from our developers. So we're continuing to look at that and trying to determine the best way to work it into our ecosystem.
All right.
Thank you very much. Congratulations again and wishing you a great 2021.
Thank you, Ivan.
Thank you. Our next Question comes from Eric Woodring with Morgan Stanley. Your line is now open.
Thanks and good morning everyone. Congrats on the great quarter. I just want to start maybe if we take a step back and think high level. We've gone through this pandemic now for whatever it is, 10 plus months. What are some of the trends you believe will be more permanent even as the pandemic is behind us?
And then I guess how does that impact or influence your product roadmap as we sit here today?
Yes, I think people have for a long time now basically been conditioning themselves with new lifestyle choices. And many times, copy pot conversations basically will reveal that many of the changes people Actually are excited about and they love. And so, people say that it only takes 3 weeks to form a habit. And so as people have Focused on healthier lifestyles, on active lifestyles and adventure, These are things that are getting ingrained and embedded in their thinking and something that they value. So we believe that these kinds of trends are positive things for us and we believe that they will be More longer term things that we are experiencing and so that's how we're viewing this.
Okay. Thank you. And then, I guess just as we retouch on the auto OEM business, Is there anything to call out as we think about the quarterly cadence of revenue in terms of abnormal Seasonality, if that can even be a term or maybe lumpiness of revenue in a certain quarter in 2021?
Well, it's probably hard to say. I think in addition to the year on year effects of ramping up new programs, Automakers are experiencing their own challenges when it comes to production, supply chains and Constraints on components that they're needing for production. So unfortunately, it's probably going to be a little bit chaotic for I'm speaking in a general sense for automakers and we would expect that the ones that we serve will probably have to face those challenges as well.
Okay. Fair enough. And then maybe I guess last question, just on tax. I know we've gone through a bit of the supply constraints and then expanding production. But what are what have you seen in terms of customer But what are what have you seen in terms of customer reactions to longer wait times?
Do you find demand To be perishable or is Tac the name and the brand that consumers want And they're willing to wait however long it may be to get one of those products? Thanks.
I think the constraints are definitely not unique to us. The entire industry is and cycling in general is suffering from supply constraints right now. So people are anxious to get the equipment that they want to equip their houses with indoor cycling. And obviously most people aren't very happy when they have to wait a long time for sure. We don't expect them to be, but we're working very hard To fulfill the demand and the good news has been that as we've ramped up production, it seems like our back orders Have really also increased and so we believe that people love the product.
We believe it's superior to anything out there and they're willing to wait to have our product.
Okay. That's super helpful. Thank you, guys.
Thank you. Our next question comes from Nick Todorov with Longbow
A quick follow-up, Cliff, I think on the auto side. I heard that you said that new consumer products will experience growth, but I think then you clarified that you expect the whole auto consumer segment to If that's the case, I think that implies that the auto OEM sales had kind of In December of $62,000,000 was kind of a peak here for the near term. Am I thinking this correctly or am I missing something? Because I think you were talking about ramping up programs with Daimler and BMW. Is there any reason why December would be peak for the next 2, 3 quarters in auto OEM?
I know production is going to be down in March June, but I thought you would have seen a nice linearity going forward.
Yeah. I think the first half of the year is probably going to be favorable as we comp against some challenges from last year As automakers were reducing capacity and shutting down factories, but then it should even out towards The back half as we comp against these new program introductions.
Okay. So you expect to be down sequentially From December is what I'm trying to get in the first half and auto OEM specifically?
Yes, I would expect it actually to grow sequentially Into the first half and then level out from there.
Okay. So the whole consumer OEM will also see growth For 2021?
Yes. That's what we mentioned.
Okay. Okay. Thanks.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Teri Seck for closing remarks.
Thank you everyone for joining us today. Doug and I are available for callbacks and we will talk with a lot of you in the coming days weeks. Have a great day. Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.