台灣國際航電 (GRMN) 2011 Q1 法說會逐字稿

Good day everyone and welcome to today's Garmin Ltd.

First-quarter 2011 earnings call.

As a reminder, today's call is being recorded.

Now, at this time, I'd like to turn the call over to Ms.

Kerri Thurston.

Please go ahead, ma'am.

Good morning, we would like to welcome you to Garmin Ltd.'s I first-quarter 2011 earnings call.

Please note that a copy of the Press Release concerning this earnings call is available at Garmin's Investor Relations site on the Internet at www.garmin.com/stock.

Additionally, this call is being broadcast live on the Internet.

Please note that this Webcast does include slides which can be viewed during this call.

An archive of the webcast will be available until June 3, 2011.

A transcript of the call will be available on the website under the events calendar tab.

This earnings call includes fro projections and other Forward-looking statements regarding Garmin Ltd.

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 Garmin.

Information concerning these risk factors is contained in our Form 10-K for the year ended December 25, 2010 which was filed with the Securities and Exchange Commission in February.

Before beginning the call I wanted to make you aware that we have posted a supplemental schedule on our website at the IR events calendar entry for Q1 earnings.

The schedule provides the segregated 2010 quarterly financial data for our outdoor and fitness segments which were previously combined.

This will assist you in modeling for the remainder of 2011.

Attending today's call on behalf of Garmin Ltd.

are Dr.

Min Kao, Chairman and Chief Executive Officer; Cliff Pemble, President and Chief Operating Officer; and Kevin Rauckman, Chief Financial Officer and Treasurer.

Presenting today are Cliff and Kevin.

At this point, I'll turn the call over to Cliff.

Thank you, Kerri and good morning everyone.

Thanks for joining our call.

As you've read from our Press Release this morning Garmin's first quarter results include 18% revenue growth and pro forma earnings per share growth of 13%.

All business segments contributed to revenue growth with the auto/mobile segment achieving 20% revenue growth and our traditional segments of aviation, marine, outdoor and fitness posting 16% revenue and 10% operating income growth on a combined basis.

Strong revenue growth coupled with lower effective tax rate allowed us to post $0.43 of pro forma EPS, which is a 13% increase over first quarter 2010.

We sold 2.5 million units during the quarter, which is an 18% increase of prior year levels, driven primarily by the fitness and auto/mobile segments.

In addition, we generated $200 million in free cash flow during the quarter, resulting in a cash and marketable securities balance of just under $2.3 billion.

Next, we will take a closer look at the first-quarter performance within each business segment, as well as provide a market and product update.

Beginning with our Marine segment, we posted strong revenue growth of 24% as the industry is in recovery mode and sales are seasonally stronger heading into the boating season.

Operating income grew 69% to $15 million, as both gross and operating margins improved in the segment.

We are excited to see our 2010 OEM announcements contributing to the growth and look forward to building on the momentum.

Throughout 2011, we will continue to invest in research and development to expand our OEM presence.

We will begin to leverage our strategic alliance with Global Penta and new product offerings will target the large boat market such as the recently announced GSM 23 and 24 black box digital sonars, which provide dramatically better performance through improved target separation and bottom tracking.

We are confident we are well-positioned for the future in the marine market with strong product offerings and improved market share as the industry continues in recovery mode.

Next, turning to Aviation, we reported year-over-year revenue growth of 5%, which is in line with our full-year expectations.

The recovery of the OEM market continues to lag that of the broader economy, particularly for single engine and turbo prop aircraft.

Our growth was driven by higher-end product sales within our retrofit and portable markets.

Operating income declined 6%, due to a slight decline in gross margins and increased research and development spending.

While we had hoped to deliver growth in operating income in this segment, increased investment in research and development is required to complete certification of our new integrated flight decks on a number of aircraft platforms.

This investment will be the foundation for growth in 2013 and beyond.

Looking ahead, we expect to see some improvement in the OEM market in the second half of the year.

We also expect new product launches such as the GTN 650 and 750 to be a significant contributor to our growth initiatives this year.

These innovative new systems build on our highly successful GNS 430 and 530 product line and are the first panel mounted products to offer touch screen controls in the cockpit, setting a new standard for ease of use and performance in general aviation avionics.

Also announced in the first quarter was the G2000 integrated flight deck, which builds on everything that pilots love about our G 1000 system while integrating new advanced features not previously available, including touch screen controls.

In addition, we had a number of notable OEM wins in the Helicopter market, including MV, and Bell Helicopters and after-market certifications for Robinson and Eurocopter.

We anticipate that these new OEM opportunities and after-market certifications will begin to contribute revenue later this year.

In the Outdoor segment, we posted revenue growth of 12% and operating income growth of 2%.

Note that this is the first quarter where we have separated the results for our fitness and outdoor segments.

The operating income growth was due to lower gross margins and higher operating costs, which Kevin will discuss in more detail.

Contributing to growth in the first quarter were the GPS Map 62, a high end hand-held that was introduced last summer, and our Astro dog tracking system which continues to grow in popularity with hunters in both North America and Europe.

We continue to focus on long-term growth opportunities by regularly updating our product lines with exciting new capabilities and by exploring new adjacent product opportunities such as our recently launched GTU 10 tracking system.

Next, we look at our rapidly growing fitness segment, which reported 30% revenue growth and 9% operating income growth.

Similar to the Outdoor segment, operating margins were impacted by lower gross margins and increased operating costs.

We were particularly pleased to see our strong demand for high-end cycling products in the European market, where the 2011 cycling season is off to a great start.

We expect growth to continue for the remainder of 2011 as the global penetration of GPS enabled running and cycling devices grows, and Garmin maintains our market leadership.

Our newest product introduction in the running segment, the touch screen based Forerunner 610 is expected to further expand our strong market position with serious runners.

It offers an innovative design recognized by Red Dot and is packed with the best-in-class features.

Turning next to the Auto/mobile segment, in the first quarter we reported revenue growth of 20%, driven primarily by OEM products and sales of the remaining mobile handset inventory.

We are pleased that the P&D category did show growth slightly over the depressed levels experienced in the first quarter of 2010.

Profitability in the quarter was negatively impacted by low volumes and the deferral of high margin revenues, but we do expect profitability to improve as the year progresses.

At the Geneva Auto Show in February, Garmin had strong positioning with five auto manufacturers including Fiat, Aston Martin, Mini, Peugeot, and Honda.

Garmin is positioned as a Tier 1 supplier on the Aston Martin Virage where we provide a customized version of our GBM 54 black box navigation system.

The Fiat Lancia Thema is based on the Chrysler 300 and features the you-connect system.

In addition, we announced the opening of an office in the Detroit area, dedicated to serving auto OEM customers.

The office will be led by Matthew Munn, an industry veteran with 25 years of Tier 1 experience and a wealth of knowledge in the auto OEM market.

We are excited about our expanding presence in Detroit as it will help us better serve existing opportunities and will be a key part of winning new opportunities in the future.

And finally, in the P&D market, we introduced a new line of truck products, the diesel navigator series.

The diesel is specifically designed for over-the-road trucking customers providing unique content and features such as the National Truck and Trailer Services Breakdown Directory as well as fuel and mileage logging capabilities.

While we experienced both revenue and unit growth in the P&D market during the first quarter, this growth was largely due to relatively easy comparable's from Q1 of last year.

Market trends do remain negative, and we do not expect this growth to continue.

As previously forecast, we expect full-year segment revenue to decline 20%, which includes the impact of revenues we must defer as part of our map and traffic content programs.

However, we are focusing on improved profitability over Q1 levels as the year progresses.

As we look forward to the remainder of the year, we plan to build on our strong market leadership position in the P&D market.

Canalist reported Garmin's Q4 2010 global market share at 38%, which was a sequential improvement from the Q3 of 2010.

We are confident we can gain share in both Europe and emerging markets as the market continues to consolidate.

Finally, I'd like to recognize our associates, many of whom listen to this call, so thanks for your hard work and dedication which enabled us to achieve these results.

This concludes my update for Q1, and Kevin will now walk us through the details of first quarter.

Kevin?

Thanks, Cliff, and good morning everyone.

During this portion of the this morning's call, I'd like to begin by walking through the income statement, then move to both segment revenue and margin, talk about our operating expenses during the quarter, and finally, end with the balance sheet and the cash flow.

First on the income statement, we posted revenue of $508 million for the quarter, with net income of $96 million.

Our pro forma EPS was $0.43 per share, which excludes a $12 million foreign currency gain.

The revenues represent an increase of 18% year-over-year.

Our gross margin came in at 46.9%, which was a 670 basis point decline from the prior year.

Gross margin strength in the prior-year quarter was primarily related to the refined warranty estimates that reduced our costs by $22 million or 510 basis points.

Deferral of high margin revenues accounted for an additional 70 basis points of gross margin decline during the quarter.

Our operating margin was reported at 14.7%, down 460 basis points from 19.3% last year.

This margin was driven by gross margin, which was 670 basis points unfavorable; our advertising which was 10 basis points favorable, but up $3 million on a year-over-year basis; SG&A costs, which were 130 basis points favorable, up $4 million on a year-over-year basis due primarily to our product support and marketing costs; and finally, R&D which came in at 60 basis points favorable, up $8 million on a year-over-year basis due to headcount additions during the second quarter of last year.

Our pro forma EPS of $0.43 represents a 13% increase year over year driven by revenue growth and a reduction in our effective tax rate to 1.5%, compared to 18% in the prior year.

Finally, our units shipped were up 18% year-over-year as 2.5 million units were delivered during the quarter.

Total Company average selling price was $201 per unit, basically flat from $202 in the prior year.

The non-GAAP measures that we reported this morning represent net income per share excluding the effects of foreign currency translation.

This impact was $0.06 per share unfavorable during Q1 of 2011 and $0.19 per share favorable for Q1 2010.

As mentioned in the fourth quarter, a larger percentage of our P&Ds now include lifetime map updates, and we must defer revenue on these units according to US GAAP.

This table summarizes the net impact of deferral and amortization of revenue and related costs in the first quarter of 2011 and 2010.

In the current quarter, we deferred approximately $0.09 of EPS into future periods compared to $0.05 in the first quarter of 2010.

While we are deferring revenue according to US GAAP, we are also collecting the cash each year which is reflected positively in the statement of cash flows that I will review shortly.

Moving next to revenue by segment and geography, beginning in Q1 2011, we've now reported on 5 segments with the previously combined Outdoor/fitness becoming 2 independent segments.

This decision reflects the ongoing growth in both markets and the management structure within our organization.

During Q1, we experienced a 20% revenue increase within the auto/mobile segment, driven primarily by growth in our OEM business and sales of remaining mobile handset inventory.

However, P&D revenue grew at 3% during the period.

Our Outdoor segment continued to grow with a 12% revenue increase when compared to Q1 of 2010.

Business revenues grew 30% when compared to Q1 2010 as global penetration in both running and cycling continues.

Marine segment revenues increased 24% compared to Q1 2010 as our OEM wins contributed to solid growth heading into the boating season.

Finally, Aviation segment's revenues increased 5% compared to Q1 of 2010.

So in total, revenues increased 18% during the quarter.

Looking at the results by geography, we posted double-digit growth in all 3 regions, with Europe and Asia outperforming the North American markets.

There was no significant change in the mix of our revenues between the regions, compared to 2010.

The Auto/mobile segment represented a similar percent of revenues in both Q1 of 2011 and 2010, but the profitability of the segment changed due to the positive warranty entry in Q1 of 2010.

Therefore, Auto/mobile contributed only 3% of our operating income in Q1 2011, compared to 20% in the year-ago quarter.

Each of the other segments contributed similar percentages of revenue when comparing 2011 to 2010, but each contributed more operating income than the prior year.

The largest increase was Marine, which contributed 20% of the operating income this year, compared to only 11% in 2010.

We expect our operating income to continue to be weighted toward our non-auto/mobile segments going forward, but not as dramatically as was seen in Q1.

We expect the operating margins for auto/mobile to improve as we progress through the year due to increased volume leverage.

Looking next at our margin by segment.

Q1 Auto/mobile gross margin and operating margin were 31% and 1%, respectively.

This was a significant decline to 2010 levels due the 2010 warranty refinement and the deferral of high margin revenues.

Q1 Outdoor gross margin was 62%, a decline from 65% in Q1 of 2010.

Again, driven by the 2010 warranty refinement.

Operating margin was 37%, a decrease from 41% in the year-ago quarter, due primarily to the gross margin decline.

We expect improved margins as volumes increase in the second quarter within the Outdoor segment.

Q1 Fitness gross margin was 60%, a slight decline due to gross margin of 62% in Q1 2010, again, due to the 2010 warranty refinement.

Operating margin was 27%, a decrease from 33% in the year-ago quarter, due to the gross margin decline and the allocation of additional resources and associated costs in this high growth segment.

Similar to Outdoor, we expect margin improvement with volume growth in the second quarter.

Q1 Marine gross margin came in at 65% compared to 59% in the year-ago quarter.

Operating margin was 30%, up from 22% a year ago, driven primarily by the gross margin increase due to product mix and improved leverage of operating expenses due to the strong revenue growth in the segment.

Finally, our first quarter Aviation gross margin was 69%.

Operating margin was 26% for the quarter, flat sequentially, and down from 29% in Q1 of 2010.

The year-over-year decline was primarily driven by increased R&D cost as we worked toward certification of a number of new products on numerous aircraft platforms.

Our Q1 operating expenses increased $16 million on a year-over-year basis, to $164 million, but decreased 200 basis points as a percentage of sales due to the revenue growth.

R&D increased $8 million in Q1, due to headcount increases in the second quarter a year ago, but decreased 60 basis points to 14% of sales.

Our ad spending increased $3 million over the year-ago quarter and decreased by 10 basis points as a percentage of sales.

The increase was driven by cooperative advertising due to the volume growth in Q1.

SG&A increased $5 million compared to the year-ago quarter, but decreased 130 basis points to 14% of sales.

As previously mentioned, this increased expense was primarily related to both product support and marketing costs.

Moving next to the balance sheet.

We ended the quarter with cash and marketable securities of nearly $2.3 billion.

Our accounts receivable decreased to $435 million, as we collected on sales from the seasonally strong fourth quarter.

Accounts receivable accounted for approximately 58 days of sales, when calculated on a trailing 4 quarters, compared to 52 days of sales in first quarter of 2010.

Our inventory balances increased slightly to $411 million on a sequential basis as we move into the seasonally stronger second quarter.

During Q1, we increased our raw materials in response to the earthquake and tsunami in Japan.

Our days of inventory metric was 119 days, consistent with inventory days at the end of 2010.

We continue to take steps to slow production levels and ensure that working capital is maximized in 2011.

Therefore, we ended Q1 with the following amounts and number of days of inventory, $135 million in raw materials or 36 days; $42 million in work in process and assemblies or 12 days; and, $265 million in finished goods or 71 days.

We ended the quarter with $31 million in inventory reserves.

We do expect to show a dividend payable on our balance sheet at the end of Q2, assuming we receive shareholder approval at our upcoming June annual meeting.

As Cliff mentioned, we continue to generate strong cash flow across our business as cash from operations came in at $208 million during Q1.

We spent $7 million on CapEx during the quarter.

Therefore, we generated free cash flow of $201 million.

Cash flow from investing represented a $275 million use of cash during the quarter, with the primary drivers being the net purchase of marketable securities and the $7 million in CapEx.

Financing activities provided for $4 million of cash during Q1, and we earned an average of 1.3% return on all cash and marketable security balances during Q1.

We expect our strong free cash flow generation to continue throughout 2011.

We propose to use a portion of the cash flow to fund the dividend that will be decided at our June 3 shareholder meeting, representing approximately $310 million use of cash in 2011.

We also continue to focus on possible tuck-in acquisitions which fit with our core markets or serve adjacent markets.

We've recently announced the acquisition of our distributor in the emerging market of South Africa.

As has been Garmin's practice, acquisitions are evaluated by technology, values, compatibility, and strategic fit within Garmin.

As I mentioned earlier, our tax rate for Q1 was 1.5%.

The change in the effective tax rate and the decrease in income tax expense were driven by the release of uncertain tax positions for Garmin Europe following the conclusion of taxing authority reviews of the 2008, 2009 tax years and a change in methodology for uncertain tax position reserves following favorable audits in both 2010 and 2011.

We now expect our 2011 full-year tax rate to be approximately 12%.

I would like to conclude at this time on 2011 guidance.

At this time we are reiterating our full-year 2011 guidance.

Our revenue range is still expected to be between $2.4 billion and $2.5 billion, with earnings per share expectations between $2.25 and $2.50 per share.

We will continue to watch business trends throughout our seasonally stronger second quarter and update guidance if necessary at that point.

This concludes our formal remarks for the morning.

We will now move to the Q&A.

If you have a question, please indicate so and we would love to answer.

Thank you, sir.

The question-and-answer session will be conducted electronically.

(Operator Instructions)

We'll take our first question from Amir Rozwadowski at Barclays Capital.

Thank you very much, and good morning, folks.

Good morning.

I was wondering if we could touch upon some of the growth that you folks had seen in your auto/mobile business?

It seems as though you had some benefit from selling the last of the handsets as well as on the in-dash initiatives that you've been doing.

I was wondering if you could give us a little bit more color in terms of what the breakdown was, or how we should think about those other initiatives that have helped bolster that revenue growth?

Yes, you're right.

We did see growth in both the mobile handset as T-Mobile sold through the remainder of -- most of the remainder of that inventory.

We don't disclose that amount, but we had earlier planned on selling that in Q2 and actually got moved into Q1.

And then the OEM business continued to do well and grew over 20% -- the auto/mobile OEM grew over 20% on a year-over-year basis.

And then, as we mentioned in our formal remarks, the P&D space actually grew 3% on a year-over-year level.

So, growth in all three of those sub-segments of the auto/mobile business.

Okay.

That's helpful.

If we think about the cost structure with that business now, it seems as though you're investing in order to drive some of your in-dash initiatives.

How should we think about the cost structure versus the Q1 levels?

You expect them to grow, it seems like, through the course of the year, but I was wondering if you could give us a little bit of color, what type of band we should think about?

I think we don't expect to give margin guidance in each of our segments.

However, we expect that the Q1 margin in the auto/mobile in particular, are at the low point for the year.

I would say in general, if you want to model the entire auto/mobile segment it would be somewhere around low double digits for that entire segment, and that would be a combination of all three, primarily the OEM and then the P&D business.

Great.

Thanks very much for the incremental color, Kevin.

We'll take our next question from Charlie Anderson at Dougherty & Company.

Good afternoon, everyone.

Thanks for taking my questions.

Just to jump quick on the guidance, Kevin, you guys are going to benefit from a lower tax rate and you had a bigger Q1 here than some of us were thinking.

So, I wonder if you could tell us about some of the puts and takes there?

Do you have kind of lower margins baked into that guidance with the lower tax rate?

Yes, definitely the tax rate will help quite a bit on the full-year numbers but we're still within the band that we gave earlier, and it's pretty customary for us to wait until we get through, at least, the first half of the year before we adjust guidance.

So, we want to get through this seasonally stronger second quarter to confirm that we end up with a profitability that we would expect.

And again, we would -- with the increased volume, we're expecting operating margins pretty much across all segments to increase during Q2, and then we'll evaluate and communicate to you all where we stand after Q2.

Great.

Then, I've got a question for Cliff.

Cliff, you guys, you've continued to spend very healthy R&D dollars.

As I recall before the dawn of the P&D, you guys used to talk about number of new products each year.

I wonder if we could look at your traditional segments, where you guys are trending on a new products on a year-over-year basis.

Could you just give commentary on how you're doing on product development in each of your markets and if there's any adjacent markets you might enter this year?

Thanks.

Yes, I think our cadence in all of our traditional markets, Charlie, have been pretty much on pace or exceeding that of last year.

Our outdoor market, we've had a lot of refreshes this year.

We also introduced the GTU 10, which is an adjacent market entry and those are things that we continue to focus on in all of our markets in terms of finding new areas to apply our capabilities.

We don't have an exact number for you in terms of all the different market segments.

We could certainly follow up later with you, but we are continuing that trend in every market segment.

Great.

Thanks so much.

Thank you.

Next question from Yair Reiner at Oppenheimer.

Just first a clarification on the guidance, your operating income and operating margin guidance hasn't changed, but just calculating the difference in the taxes, it seems like just mathematically the EPS guidance should be $0.10 to $0.15 higher than it previously was.

Where is my math wrong here?

I think what we're -- again, to the point that I responded to Charlie is, that we would expect our operating margin to increase as we get into Q2 and beyond.

It's just too early for us to have the confidence to be able to raise any kind of guidance at this point, so you're not really wrong, it's just wait and see until we get through the seasonally strong Q2.

Got it.

Great.

And then, could you comment on what you're seeing in terms of channel inventories for the P&D segment?

Are they at levels that you're comfortable with?

And then looking past that, any early indications of retailers commitments and plans for the P&D segment for the holiday season?

Well, we did see on the -- across the board, both North America, Europe and Asia, an increase in the sell-in.

If you recall, Q1 last year in the P&D market was very weak, so I think that the sell-through data that we're seeing from our major retailers is, in fact, still declining.

So, I think what we've seen is a sell-in outpacing sell-through just due to the Q1 timing last year to this year.

In terms of the retailers, you want to comment on that, Cliff?

Yes.

Retailers are planning for Q4 promotions and they seem committed to the category, although as you know, many of them are reducing the amount of shelf space that they offer, but it's still a very strong category for them and there's a lot of activity to plan for Q4.

At the store level, we're hearing a lot of feedback, particularly in North America, that inventory is somewhat light and we're moving into Dads and Grads season where they will be additional sell-in and stocking for the gift buying season.

Thank you.

Thank you.

(Operator Instructions) We'll take our next question from Scott Sutherland at Wedbush Securities.

Great.

Thank you and good morning.

Good morning, Scott.

First, on the outdoor and the fitness segments, with your margins there, and mainly in the fitness, seeing some competitive products out there, what do you think your long-term sustainability of margins are in that segment?

I think our sustainability is good.

We will see the category probably come down some as we introduce lower-end products.

I would point out, though, that we offer products today that are in the $130, $140 range in the fitness segment, which are competing very nicely out there and are below the levels of where the competition is coming in.

So, we feel confident in the category that we can have strong margins and continue with market share leadership.

And, just one other follow-up point to that, Scott.

If you look at the numbers that Kerri mentioned that we now posted out to our website, they suggest that our fitness operating margin last year was just a little under 39%.

We're still expecting operating margins in the high 30%s as we go through 2011 in that segment.

Okay.

You had good growth in the auto OEM segments.

I think you said greater than 20%, but how material is that now into auto/mobile?

I think the last -- during our last earnings call, we commented that it was somewhere around just a little under $100 million business.

It's still growing rapidly and we have some new business that we're excited about, some that's been announced and some that's been unannounced.

Okay.

Last question for you, Kevin.

The tax rate's going to be 12% total this year, so it looks like around closer to 15% for the remainder of the year.

How should we model looking out to 2012 for taxes?

I would just put that in evenly, that same rate throughout each Q2 to Q4.

Okay.

Great.

Thank you.

Next, take a question from Mark Sue at RBC Capital Markets.

Thank you.

The P&D segment seems to be showing some resilience, so I'm just wondering what's behind some of that stabilization and what's the working assumptions for the balance of the year?

And also, if there's some thoughts of leading the consolidation in that business in that segment for the industry?

So, again, Mark, we did face some pretty easy comparables from Q1 of last year where the channel inventory was much higher than what we had this year, and so that's distorting the situation a little bit.

As Kevin mentioned, the sell-through at the retailer level continues to show decline, particularly in the North American market, more severely than the European market.

I would say that our situation in Europe, they probably don't have the same kind of Q4 dynamic as what we have here in the US, so as a result, our sell-in in Europe has actually been positive growth in single digits, but that is probably a reflection of market share gain in that market.

One other comment there, our expectations on the overall market really hasn't changed.

We're still looking at the overall industry to be down on units about 10% year over year and the ASPs that we communicated, I think in our fourth quarter conference call, somewhere in the single digits, 5% to 10% decline on ASPs.

So, there's really no change that we see in the overall market at this point.

Any thoughts of -- any benefits of consolidating the market or at this point, it's more about just seeing if you can improve the margins for the business?

Well, there are third tier players that are struggling and leaving the market in various places, and we do expect to pick up share from them as well as overall market share gains as the market moves towards two main players.

Got it.

And then on the automotive segment, is the process still model by model or can we get to a point where you can win a large OEM all at once?

And, just your long-term thoughts of scaling the business in automotive?

I think the business can be either way.

I think that the business that we've talked about so far with Chrysler, for example, is really more than model by model.

It's across a range of models, but it can also be within a model.

But so far, what we've experienced is more broader business.

Got it.

Thank you, and good luck, gentlemen.

Thanks.

Next, take a question from Thomas Lee at Goldman Sachs.

Hi.

Thanks for taking my call.

A few questions, so one, I was just wondering if you're seeing any impact from Japan and how much of this is baked into your guidance?

Yes, Thomas, I think we've seen some impact from components that are in tighter supply because of the Japanese earthquake situation.

We've mostly been able to mitigate that through our safety stock strategy, and there are some longer lead times on some of our products as a result, but mostly we've been able to work through that without a lot of impact.

And which segments does that mostly impact?

There's been some impact in aviation, as well as auto OEM.

Got you.

And then moving to outdoor/fitness, I think Kevin you mentioned on the last earnings call that you expect outdoor to grow about 5% for this year and then fitness, 25%.

Just curious, is that still --

Yes, yes.

The target?

Our expectation -- the fact we haven't changed our full year guidance really holds that those numbers are still intact.

So, outdoor we still expect to be a 5% growth business and fitness 25% revenue growth.

Got you.

And then, two questions on your auto/mobile business.

So, I know you said last year for automotive was about $100 million.

Just curious, for the quarter it seemed like that was, at least the way I looked at it -- that exceeded your internal expectations.

I was just wondering if that's true and how big do you think that business can be this year?

Well, I think what we had -- we hadn't given a detailed breakdown of that.

I'd say in general, our auto OEM business was on track with what we had expected going in and really what we're working now is to generate new business for the future.

Many of the deals that we're going after now, however, wouldn't impact 2011.

It would be two years down the road, or two to three years down the road, but in general, we're on track, if not a little bit ahead of our expectations going into Q2.

Got it.

And then are margins materially higher for that segment than, let's say, P&D?

Perhaps, maybe even closer to some of your other segments?

They have been historically, but in Q1 there was not a significant difference between those two, no.

Got you.

And then just last question, more broadly, I was just wondering -- obviously it was a tough margin quarter for auto/mobile.

I just was wondering what gives you the confidence that business won't turn into a loss making business?

Obviously, I know you said you expect somewhere low double digits for this year, but it seemed like it was teetering on edge of breakeven this quarter.

I think what we typically see -- first of all, we have a pretty good handle on the operating expenses within the business and then it's just down to the seasonally stronger volumes, so I think that always helps.

If you look at what we've seen Q1 to Q2, typically, we do get a margin pickup, not just in auto/mobile but in many of our other segments, so that's what we're expecting going into -- as we close out Q2.

Got you.

Okay.

Well, thank you very much.

Thank you.

And next we'll go to Matt McKee from Morgan Keegan.

Thanks, guys.

It's actually been answered.

Okay.

Thank you.

Thanks, Matt.

(Operator Instructions)

We'll go next to James Faucette at Pacific Crest.

Thank you very much.

I wanted to ask a question quickly on marine.

Obviously, showing reasonably good growth there and consistent with your outlook coming into the year.

I'm wondering if you can help us separate out how much of that growth is coming from just the seasonal increase and improvement in marine and versus how much is due to ramping at OEM design wins that you won previously?

I think with the strong marine growth, we actually saw growth in both segments or sub-segments of that business.

So we, as we mentioned and Cliff mentioned, the auto OEM -- excuse me, the marine OEM strategy appears to be working.

We've had some pretty good wins that have contributed to a significant increase.

The overall marine segment still is dominated by the after-market, so the retrofit market, but we have seen increases in the OEM business from Q1 to Q1.

I think we're pleased with the growth in both of those, and we have high expectations that our marine OEM will continue to generate a higher mix or higher percentage of our results in the future.

Great.

And then how are -- how are you feeling about and what are your -- the retailers, et cetera, talking about in terms of going into this boating season?

Seems like historically that business has been pretty correlated to fuel prices and with fuel prices all-time high, it would seem like -- that there might be a little more caution than there is right now.

I'm just looking for a little color as to where their confidence lies and what they're looking for, either positively or negatively.

I think, James, that's probably a concern of ours.

So far, our retailers and customers have not raised any flags on that, so far.

The one explanation that we've heard is that consumers got over the initial shock of $4-plus gas, 3 years ago and are shrugging this one off a little bit more than what they did back then.

I think though there's some practical limit in terms of when it will really start to have an impact and so that is a factor that we're concerned about.

Great.

Finally, lastly, more of an accounting question.

Just wondering how much if any, deferred revenue there is on the auto specific products, particularly what's going into in-dash versus how much of the deferrals are from just the core P&D business, et cetera?

At this point, our deferred revenue's exclusive to the P&D, so we have not identified any deferred component on the auto, auto OEM team.

That's great.

Helpful.

Thanks very much.

Thank you.

Next, we'll go to Jonathan Goldberg at Deutsche Bank.

Hi.

Quick question on aviation.

I don't think we've touched on that yet.

Could you just give us an update there, and give us a sense of what's the largest plane you're selling into now and how is the overall market shaping up?

I think in terms of the largest OEM aircraft that we're in today is the Phenom's 300 class, which is considered a Part 23 Class IV.

It's technically equivalent to a Part 25 mid-sized business jet, and we also have some retrofit business in some Citation jets as well as larger King Air aircraft.

And could you give some color, further color on the market?

The OEM market in general has been -- continues to be soft.

I think we have always expected it to be something that lagged the broader economy.

People in the industry, aircraft OEMs and experts are feeling more confidence that by the end of the year, or into early 2012, there should be a notable or detectable increase in OEM activity that is encouraging.

So, we're still waiting for that turnaround.

And our earlier guidance was given 5% revenue growth for the year and that's what we achieved in Q1, so pretty much on track for the full-year expectations, at this point.

Are you seeing any divergence between the OEM market and the retrofit, the after-market sales or are the trends tracking each other?

Yes, the retrofit has been improving and of course some of that's driven by new products and technology innovations there, particularly our GTN series.

But, retrofit is definitely an early indicator that there's some increased activity.

Great.

Thank you.

Next we'll go to Charlie Anderson t at Dougherty & Company.

Just a couple quick follow-ups.

Kevin, on the tax rating you addressed the rest of the year, but 2012, did you have a thought there on where you head?

Anyone that can predict taxation past one year is pretty good.

No, we don't have any expectations at this point.

In the past, we've said we're going to remain between 15% and 20%, but I think it's too early to tell.

We'll give you further guidance as we go through the year.

Fair enough.

Seasonally in Q2, you're typically up anywhere between 30% and 40% sequentially in the outdoor/fitness piece, and then you've got a new product released by one of your competitors.

I just wondered how you think about that in Q2 relative to prior years?

Just between outdoor and fitness, the sequential growth?

Is that what you're talking about?

We've only seen consolidated in the past, up typically 30% to 40% sequentially Q2 versus Q1.

Just wondering this year how you feel about that typical seasonal pattern given the competitive runners' watch out there.

We don't have any plans to break down Q2 expectations on guidance.

Again, we do see sequential growth in every one of our segments, or flatter sequential growth, but I can't quantify whether 30% to 40% makes sense or not.

Fair enough.

Thanks so much.

Thank you.

We'll take our last question from Woo Jin Ho at Bank of America-Merrill Lynch.

Great.

Thank you.

Cliff, can you just talk a little bit about the P&D and the connected device mix versus the non-connected mix?

Yes, Woo Jin, the connected devices have been a smaller part of the overall market.

They're actually -- seem to be more attractive to customers in Europe where they're looking for improved reception of the traffic signal, which the RDS signal in some locations is not so good, but in North America, they haven't been a factor.

Got it.

And in terms of the auto OEM investment that you made recently, how should we read into that?

Is that more confidence that you had in terms of the pipeline that's developing there or is it more of an investment to develop the sales leads, develop the pipeline?

It's really definitely more investment in developing sales leads.

We do have a lot of activity with our local partners in Detroit, and even for those that aren't manufacturing-centric around the Detroit area, most major OEMs have offices there.

So, it's a way for us to be able to better serve those opportunities and be able to generate new business.

So, in that vein, should we expect the investments in auto OEM to increase, much like we're seeing in the marine, as well as the avionics side of the business?

Yes, I think that's a good way to think about it.

The investment in these programs is significant and some of them take years to develop, so they do require an up front investment.

Great.

Thank you.

Thank you.

With no further questions in the queue, I'd like to turn the call back over to our speakers for any additional or closing remarks.

Well, as usual, thank you all for participating.

We look forward to updating you on our business as we go forward and that concludes our remarks.

Take care.

Bye-bye.

That does conclude today's conference.

We thank everyone for their participation.