台灣國際航電 (GRMN) 2011 Q4 法說會逐字稿

Good day everyone, and welcome to the Garmin fourth quarter 2011 earnings conference call.

Today's conference is being recorded.

At this time, I would like to turn the call over to Ms.

Kerri Thurston.

Please go ahead, ma'am.

Thank you.

Good morning, we'd like to welcome you to Garmin Ltd's fourth 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 March 28, and a transcript of the call will be available on the website under the Events Calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Ltd, and its business.

Any statements regarding our future financial position, revenues, earnings, market share, 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, filed with the Securities and Exchange Commission.

Our 2011 10-K will be filed on February 29.

Attending on behalf of Garmin, Ltd, this morning are Dr.

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

The presenters for this morning's call are Cliff and Kevin.

At this time, I'd like to turn the call over to Cliff.

Thank you, Kerri, and good morning everyone.

As we announced earlier this morning, Garmin delivered strong results in the fourth quarter, with consolidated revenues increasing 9% year-over-year to $910 million.

This growth was broad-based with each of our business segments contributing.

Gross margins improved year-over-year, up 240 basis points to 47.7%.

Revenue growth, combined with improved gross margins, resulted in both operating income and EPS growth.

Operating income for the quarter grew 8%, while pro forma EPS came in at $0.96, a 16% improvement over the prior year.

As a group, our traditional market segments of Aviation, Marine, Outdoor, and Fitness contributed 61% of our total operating income for the quarter, and revenue from these segments grew nearly 19%.

We sold 6.1 million units in the quarter, which was flat year-over-year.

Auto PND unit volume was down slightly.

However, this was offset by higher volumes in Outdoor, Fitness, and Marine.

We generated $213 million in free cash flow during the quarter, resulting in a cash balance of just under $2.5 billion.

Looking at highlights for the full year, consolidated revenue increased 3% as new product categories increased market share and emerging market opportunities delivered results that exceeded the expectations we established at the beginning of the year.

As a group, our traditional market segments grew 14%, contributing $1.2 billion in total revenue for the year.

The revenue growth in these segments, combined with their strong margin profiles, generated 71% of our operating income.

We delivered over 15.8 million units in 2011, a decline of only 1% year-over-year.

Weakness in the North American PND market was partially offset by stronger PND shipments to the EMEA and APAC markets.

Unit growth in the Outdoor, Fitness, and Marine markets also helped close the gap.

From a geographical perspective, the EMEA region grew 19%, outpacing all other geographies.

All market segments contributed to the growth, including PND.

We generated $784 million of free cash flow in the year, which was partially used to fund our quarterly dividend and to complete numerous acquisitions aimed at further diversifying our revenue base.

Next, we will review each of our business segments, highlighting 2011 performance, outlook for 2012, and a summary of long-term strategic initiatives.

Starting with the Marine segment, we reported year-over-year revenue growth of 12%, driven by improved market conditions and share gains across our product portfolio.

We experienced strong market share gains in the OEM segment, and expanded our presence in the inland market with the introduction of our new Echo Fishfinders.

During the year, we expanded our product portfolio with sonar and autopilot solutions that brought new innovation to the Marine market, and enhanced our ability to serve the sail and large boat market.

Throughout the year, we invested heavily in the Marine segment with increased research and development, and we built additional support infrastructure to serve our growing base of OEM customers.

This has compressed margins in the near term.

However, we are confident that these investments are critical to growing revenue and market share going forward.

For 2012, we are targeting revenue growth of 5% to 10% in the Marine segment, as market conditions continue to improve, and as recent OEM wins and product introductions provide revenue contributions for the full year.

At last week's Miami boat show, we announced the relationships with Teleflex and Viking, both of which will target the larger boat market and will contribute to revenue in 2012.

2012 will also be a year of significant investment, as we develop products and opportunities that will contribute to growth in 2013 and beyond.

In the coming years, we seek to increase our share in the mid- to large-size boat category.

Leveraging our relationships with Volvo Penta, we will create equipment that will embed us deeper into the boat with innovative new engine and navigation displays.

In addition, we will be working to expand our share of the inland market through innovative content and technologies, leveraging the recently announced acquisition of Interphase.

Turning next to Aviation, we reported year-over-year revenue growth of 9%, which we view as a significant accomplishment in light of the ongoing challenges facing the general aviation industry.

The General Aviation Manufacturers Association reported a 10% decline in aircraft shipments through the first three quarters of 2011.

This decline is in addition to the already depressed shipment levels of 2009 and 2010.

Despite the ongoing negative trends, revenues generated from OEM customers were relatively flat for the year, out-performing the general market.

During 2011, we've made significant progress in securing wins in the Part 23 and Part 25 business jet market.

Cessna selected our G3000 system for the Citation M2, a Part.

23 aircraft that will enter the market in 2013.

Additionally, Cessna selected the G5000 for the Citation Latitude, a Part 25 aircraft that will enter the market in 2015.

We also made additional in-roads into the OEM helicopter market, where our primary flight display system was integrated into the Bell 407GX.

Last year we introduced the GTN650 and 750, which are the first panel-mounted products that feature touchscreen operation.

These new products have been well received by the market, and were a significant contributor to the growth we experienced in 2011.

In 2012, we are targeting revenue growth of 5% to 10% in the Aviation segment, as recovery for the industry continues to lag that of the overall economy.

We are hopeful that the OEM market will stabilize in 2012.

However, we do not expect to see meaningful growth from OEMs this year.

Despite this soft outlook, we see many opportunities in the years ahead, and we will continue to invest in certifications with our business jet partners that will result in significant growth opportunities when the market begins to recover in 2013 and beyond.

In light of these opportunities, our growth initiatives are focused on continued development of our G3000 and G5000 platforms with OEM partners, which will be the foundation of growth in 2013 and beyond; identifying and capitalizing on additional retrofit opportunities; further expansion into the helicopter market -- with recent announcements at the Heli-Expo naming Garmin as the standard avionics provider on the Bell Relentless, which will launch in 2016; and an optional avionics provider on two Eurocopter models launching in 2013.

We are well-positioned for opportunities created by the FAA's transformation of the national airspace system from a ground-based system of air traffic control to a satellite-based system of air traffic management.

In the Outdoor segment we reported year-over-year revenue growth of 14%, which was primarily driven by new product introductions, expansion into new categories, and contributions from recent acquisitions.

A few highlights from the year include the acquisition of TriTronics, which expands our offerings to include training devices for both sport dogs as well as household pets; capturing significant share in the GPS-enabled golf category with unique products, such as our Approach S1 golf watch; and offering a range of products and price points with something for every customer.

Our new Montana series is a premium device offering advanced features and improved versatility over existing hand-helds in the market.

Our totally refreshed eTrex series is perfect for customers looking for a more basic device, and has been well received by the market.

Looking at 2012, we expect revenue growth of 5% to 10%, driven by ongoing momentum from recently introduced products, and we will leverage opportunities in the dog training market through the TriTronics acquisition.

Our growing market share in the GPS-enabled golf category presents an opportunity to expand our distribution channels both domestically and abroad, as more shops wish to stock our products.

Long-term, we will create new opportunities by identifying adjacent markets and product categories as we have done in the past.

We will maintain our focus on utility, content, and innovative form factors to engage both new and repeat customers in the segment.

In the Fitness segment we reported year-over-year revenue growth of 24%, as the market expanded and we maintained our leadership position in the GPS-enabled Fitness category.

We remain focused on offering a broad range of products appealing to both elite athletes as well as recreational participants.

We refreshed our premium Forerunner product line in 2011 with the 610 touchscreen watch.

This product offers unmatched utility, ease of use, and innovation, and has been very well received by athletes around the world.

In the cycling market, we introduced the Edge 200, which appeals to value-oriented cyclists who wish to experience the benefits of GPS-enabled cycling computers.

In 2012, we are targeting revenue growth of 20% to 25% in the Fitness segment.

One of our key initiatives for the year is the completion of the Vector power meter, which we expect to deliver this summer.

Across each of the Fitness categories we serve, we plan to offer a broad range of products that appeals to all athletes.

Looking beyond 2012, we believe the Fitness segment will continue to grow as society becomes increasingly aware of the important role that Fitness plays in the pursuit of a healthy lifestyle.

We will focus on delivering compelling and useful products to the market with a complete solution, including devices, wireless connectivity, measurement sensors and a well-developed web portal.

We will continue to build the Garmin Connect community, which has logged over 1.5 billion miles, by delivering a satisfying and complete user experience that complements our devices and our mobile applications.

We plan to increase our share in the cycling market by offering a broad range of innovative products and by leveraging opportunities created by Vector power meter.

Longer term, we seek to capitalize on the profitable opportunities within the wellness space where we can leverage our knowledge of hardware, software, and connectivity.

Turning to the Auto/Mobile segment, we are pleased with our financial performance in light of the ongoing challenges in the PND market, with revenues up 4% for the quarter.

For the year, we posted a 5% revenue decline while maintaining strong profitability.

When normalizing for the deferral of high margin revenue associated with bundle PNDs, our full year 2011 operating margin in the segment was 17%.

In addition, we grew our market share during the year, thereby strengthening our position.

Notably, we exited 2011 with greater than 60% share in North America, and approximately 30% share in the EMEA.

In 2011, we introduced a simplified family of Nuvi products, offering something for every lifestyle and budget, beginning with the Essential series, followed by the Advanced series, and finally the Prestige series.

This new product family was well received by both our retail partners and consumers during the holiday shopping season.

Also in 2011, we acquired Navigon.

We will continue the integration of Navigon in 2012, building from the foundation that made the acquisition important to us -- their OEM customer base and well-respected technology, their European PND market share, and their strength in the mobile applications space.

Looking at highlights from the Auto OEM market, we were pleased to be recognized by JD Power and Associates for the highest customer satisfaction with factory-installed navigation during our first year of eligibility.

The Garmin navigation system in the 2011 Dodge Charger ranked first, with the Chrysler 300 system ranking third.

This recognition confirms consumers value a seamless navigation experience that is intuitive and feature-rich, an experience that Garmin has successfully delivered to our markets for over 20 years.

Additional programs announced and delivered during the past year include the Volkswagen Up compact vehicle, where Navigon was selected as the exclusive provider of navigation; and the Suzuki Grand Vitara and SX4, which features a semi-installed version of our nuLink 2390 connected navigator.

Looking ahead, we expect PND unit deliveries to continue to decline in 2012, driving revenues down 7% to 10%.

We will look for opportunities to grow in emerging markets and to profitably gain market share to offset the continued declines we foresee in the North American and European markets.

We will continue to invest in Auto OEM opportunities in 2012, leveraging our broad capabilities as an OEM and consumer electronics supplier.

In addition, mobile applications provide a near-term opportunity for growth as the smartphone segment continues to expand, and we will realize a full year of contributions from Navigon's popular smartphone applications.

Beyond 2012, we will be focusing on expanding our Auto OEM business through additional program wins, as navigation becomes an integral part of the dashboard, and maximizing profitability in the PND market as the market leader.

Given our revenue outlook and expectations for each segment, we are projecting revenues of $2.7 billion to $2.8 billion in 2012, with gross margins stable to slightly increasing from 2011 levels.

We are projecting operating income between $520 million and $540 million, with operating margins of 19% to 20%.

The decline in operating margins is a result of increased investments in strategic long-term growth initiatives mentioned earlier.

Factoring in an effective tax rate of 13% results in forecasted 2012 earnings per share of $2.45 to $2.60.

In summary, we are pleased to have delivered strong results in the fourth quarter, highlighted by revenue growth in each business segment and geographical area we serve.

During 2011 we were able to increase our share in several key markets, we delivered desirable new products, and we're able to leverage the growing market segments in order to achieve better-than-anticipated results.

Looking forward, we see significant opportunities ahead as we anticipate improving economic conditions, and we are well-positioned to serve with a strong lineup of new products.

With confidence in our business and the improving conditions we see around us, we are pleased to announce a proposal to increase our quarterly dividend to $0.45 per share, which will be considered at our annual shareholders meeting in June.

Kevin will provide more details on our dividend proposal in just a moment.

Finally, I wish to take this opportunity to thank our dedicated associates for their efforts during the past year.

While there were many uncertainties around us, you maintained a focus and worked hard to make 2011 a great year.

Thanks so much for your contributions.

This concludes my remarks.

I'll turn the call over to Kevin, who will walk us through the financial results in more detail.

Kevin?

Thanks, Cliff.

Good morning, everyone.

I'd like to begin the financial update with a walk-through of our income statements, followed by a review of our margins, and to conclude with our balance sheet and cash flow positions.

During Q4 we posted revenue of $910 million, with net income of $166 million.

Our pro forma EPS was $0.96 per share, which excludes the foreign currency loss.

Our revenue represents an increase of 9% year-over-year.

Gross margin came in at 47.7% which was a 240 basis point improvement from the prior year.

For the first time in six quarters, we experienced year-over-year operating income expansion, growing from $185 million to $200 million.

Operating margin was 22%, flat from the prior year.

The components of our operating margin were gross margin being 240 basis points favorable, offset by our advertising, which was 90 basis points unfavorable, up $12 million on a year-over-year basis, as we utilized TV advertising in the holiday quarter, combined with increased co-op expenses.

SG&A was 80 basis points unfavorable, up $14 million on a year-over-year basis, due primarily to the acquisitions.

R&D, 70 basis points unfavorable, up $13 million on a year-over-year basis, due primarily to acquisitions as well.

Our pro forma EPS of $0.96 represents a 16% increase year-over-year, driven by increasing revenues and a slightly lower effective tax rate.

Our units shipped were flat year-over-year, as 6.1 million units were delivered during the quarter, and our total Company average selling price was $150 per unit, up 9% from 2010, driven by product mix.

For the full year, we posted revenue of $2.76 billion, with net income of $521 million.

Our pro forma EPS was $2.73 per share, which also excludes our foreign currency losses.

Our revenue increased 3% year-over-year, while our pro forma EPS decreased 5% when excluding FX, and a $0.50 per share one-time tax adjustment we posted in 2010.

Our gross margin at 48.5% was a 150 basis point decline over the prior year, due to warranty adjustments during 2010, which contributed 160 basis points.

Operating income fell 13% to $554 million, compared to $637 million in 2010.

Our operating margin was 20.1%, down 360 basis points from 23.7% last year.

Gross margin was 150 basis points favorable; advertising, 10 basis points favorable, and flat on a year-over-year basis.

Our SG&A was 170 basis points unfavorable, up $53 million on a year-over-year basis, driven primarily by acquisitions, our web-based commissions, product support, and legal costs.

R&D was 50 basis points unfavorable, up $22 million on a year-over-year basis due primarily to the acquisitions.

Our pro forma EPS of $2.73 was a 4% decrease year-over-year on increasing revenue and slightly lower effective tax rate, offset by declining gross and operating margins.

Units shipped were down 1% year-over-year, as 15.8 million units were delivered during the year.

The decrease in North American PND volume was partially offset by growth in other geographies in our other segment.

Our total Company average selling price was $175 per unit, up 4% from 2010 due to product mix.

The non-GAAP measures that we reported represent net income per share excluding the effects of foreign currency translation and a one-time tax adjustment booked in Q3, as I mentioned.

The Q4 2011 GAAP impact from foreign currency loss was $0.11.

The Q4 2010 GAAP impact from foreign currency loss was $0.15.

The full year 2011 GAAP impact from foreign currency loss was $0.06, while the 2010 loss impact was [$0.38], offset by a $0.50 gain related to the large one-time tax adjustment.

According to US GAAP, we must defer revenue on certain products, and this table summarizes the net impact of the deferral and amortization of revenue and related costs in the fourth quarter and full year 2011 and 2010.

First, in the current quarter we deferred approximately $0.26 of EPS into future periods, compared to $0.19 in the fourth quarter of 2010.

Most of these revenues and costs will be amortized straight line over a three-year period.

For the full year, we deferred approximately $0.66 of EPS in 2011, compared to $0.42 in 2010.

While we are deferring revenue according to US GAAP, we are collecting the cash at time of sale, which is reflected positively in our statement of cash flows, which I'll review a in a minute.

In total, our revenues increased 9% during the fourth quarter and 3% for the full year.

During Q4, we experienced a 4% revenue increase within the Auto/Mobile segment, as volume declines were offset by improved pricing due to product mix.

Our Outdoor segment posted accelerating growth at 35%, due to pent-up demand for new products and market share gains within the GPS-enabled golf market.

The Fitness segment continued to grow with a 17% revenue increase when compared to Q4 2010, on the strength of our Fitness products during the holiday quarter.

Aviation segment revenues increased 1% compared to Q4 2010, as retrofit growth was largely offset by program contributions related to our business jet cockpit wins.

Marine segment revenues increased 16% compared to Q4 2010, as both the aftermarket and OEM markets improved for Garmin.

During Q4, all geographies were stable or growing, with EMEA posting the strongest growth at 28%.

For the full year, EMEA grew 19%, while Asia-Pacific grew 13%.

These geographies were partially offset by a 7% decline in the Americas, driven by the PND volume declines.

For 2011, the Americas represent 55% of revenue.

EMEA increased to 31% of total revenue in 2010, to 36% in 2011, and Asia from 8% to 9% in the same period.

The Auto/Mobile segment represented 64% of our total revenue during the fourth quarter, down from 67% in Q4 2010.

Outdoor grew to 13% of revenues in the quarter, and increased from 11% a year ago.

The operating income contribution of the Outdoor and Fitness segments increased to 30% and 20% respectively, or 50% of our total business.

In total, the traditional segments contributed 61% of our fourth quarter operating income.

On a full year basis, Auto/Mobile revenue contribution declined from 62% to 58% in 2011, with gains in Outdoor, Fitness, and Marine, which contributed 13%, 11%, and 8%, respectively.

The operating income contribution of the Auto/Mobile segment shrank to 29% in 2011, compared to 39% a year ago.

Our traditional segments contributed 71% of the full year operating income with strong gains in both our Outdoor and Fitness segments.

Looking next at the margin by segment, our fourth quarter Auto/Mobile gross margin and operating margin were 38% and 13%, respectively.

The year-over-year improvement in gross margins was primarily driven by improved average selling prices due to product mix shifting toward higher-priced bundled offerings.

Operating margins in the quarter were 13%, or 20% when adjusted for deferral.

This is slightly higher than the normalized operating margin of 19% fourth quarter of 2010.

Q4 Outdoor gross margin was 68%, consistent with Q4 of 2010.

Operating margin was 49%, a decline from 53% in the year-ago quarter, due to increased allocation of advertising and SG&A expenses for this segment.

Q4 Fitness gross margin was 64%, stable from the year-ago quarter, and operating margin was 43%, again consistent to the year-ago quarter, as both revenue and expense growth were evenly paced.

Q4 Marine gross margin was 60%, compared to 63% in the year-ago quarter, as product mix shifted toward lower-margin products.

Operating margin was 22%, down from 29% a year ago, driven by the gross margin decline and increased R&D and SG&A expenses to support our long-term Marine OEM strategy.

Finally, Q4 Aviation gross margin was 65%, down from 70% in Q4 of 2010, due to OEM program contributions.

Operating margin was 18% for the quarter, down from 26% in the prior year due to the declining gross margin and increased R&D expense associated with our new OEM programs that will begin to contribute to revenue in 2013.

Moving next to the balance sheet.

We ended the quarter with cash and marketable securities of almost $2.5 billion.

Our accounts receivable balance increased sequentially to $607 million, due to sales growth during the holiday quarter.

Accounts receivable accounted for approximately 81 days of sales when calculated on a trailing four quarters, compared to 101 days of sales in the fourth quarter of 2010.

We have already collected approximately $350 million of our year-end balance.

Our inventory balances decreased to $398 million on a sequential basis at the close of the fourth quarter.

Our days of inventory metric was 102 days, compared to 119 days in the fourth quarter of 2010.

We ended the quarter with the following amounts and number of days of inventory -- $129 million in raw materials, representing 31 days; $52 million in work-in-process and assemblies, or 13 days; and $246 million in finished goods, or 58 days of inventory.

We closed the year with $29 million in inventory reserves.

You also notice on our balance sheet that we show a $78 million dividend payable to be paid on March 31, 2012.

We continue to generate strong cash flow across our business, as cash from operations was $225 million during the quarter.

Our CapEx spending was $12 million during Q4.

Therefore, we generated free cash flow of $213 million.

Cash flow invested during the fourth quarter was $164 million including the $12 million in CapEx, and $157 million net purchase of marketable securities offset by a $4 million gain on the sale of property, plant, and equipment.

Financing activities were a $160 million use of cash during Q4, due primarily to the dividend payments we made on both September 30 and December 31.

We earned an average of 1.5% on all cash and marketable securities balances during the quarter, and our full year operating cash was $822 million, with free cash flow of $784 million.

We expect our strong free cash flow generation to continue in 2012, and with it we plan to continue to fund a strong dividend.

As Cliff mentioned, we will ask shareholders to approve a $0.45 per share quarterly dividend at our June annual meeting, representing a 4% yield at the stock price of $45.

We will also continue to pursue acquisitions in adjacent niche markets, or tuck-in technology which fit with our core markets.

As has been our practice, acquisitions will be evaluated by technology, values compatibility, and strategic fit within Garmin.

Our tax rate for the full year 2011 was 10.8%.

We do expect the 2012 rate to be approximately 13%, and the increase in this forecast effective tax rate is attributable to revenue mix by different tax jurisdictions.

Finally, Cliff has reviewed our 2012 guidance, but I would just further highlight that we have four solid growth segments, and we will continue to invest for long-term growth across the entire business.

Our strong profitability and market diversity position us well for both 2012 and the future.

This conclude our formal remarks for the morning.

We will now move to a period of Q&A.

Thank you.

(Operator Instructions)

Yair Reiner, Oppenheimer and Company.

Great.

Congrats on the very strong quarter.

First question, you mentioned that you expect the Auto/Mobile to be down about 7% to 10% next year.

How much are you figuring in terms of deferrals next year compared to this year?

Well, I think the deferrals as we made a change in estimates at the end of the third quarter will be -- have been coming down on a per-unit basis.

We will not comment, quantify how much, just given the fact that there's a lot of variables into 2012, but in general we would see a little bit lower amount as we go through the 2012 year.

Then on the Outdoor segment, it was very strong, and I think unusually strong kind of a seasonal sense.

Is that reflective of any one-time factors, or does that reflect the fact that have a different mix of golf products and training products, and maybe more gifty than your prior product portfolio?

Yair, this is Cliff.

There's probably a combination of factors.

I think in the last call we mentioned that we were unable to deliver all of the Montana products in Q3 that we had hoped to deliver, so we went into Q4 with some backlog that we were able to catch up on.

We also had strong interest in our golf products, as well as our new eTrex line, which helped drive growth.

Simona Jankowski with Goldman Sachs.

Hi.

Thanks so much.

Just wanted to make sure I understand your guidance a little bit better.

Your EPS in the quarter you just reported was up 16% year-on-year, but then the guidance you're giving is for a mid- to high-single-digit decline for 2012.

Can you just expand a little bit on what drove that conservatism?

Then just as a follow-up, in terms of the PND units in the quarter itself, if you can just give us a bit of a sense of what drove that strength, and how much the extra week in the quarter might have contributed.

I think the first question is, when we look at each of our business segments, we did have a very strong Q4, but looking forward we do see still see the North American market declining on PND next year, which is driving a lot of our overall PND expectation of down 7% to 10%.

As we said in the formal remarks, the Fitness business is going to continue to perform quite strongly, and the other businesses will be in the single digits, 5% to 10%.

Those are the primary reasons that we want to continue to and we need to continue to invest in some new opportunities, primarily in the Auto OEM and the Aviation and Marine OEM segments.

That will pull us to the roughly $2.45 to $2.60 EPS number we commented on.

In terms of the PND strength, I think primarily we saw market share gains in Europe.

I think Cliff mentioned the Navigon business having -- we did see a pretty decent Q4 in the holiday -- Q4 in the US market, which helped our overall PND numbers for the quarter.

Jonathan Goldberg, Deutsche Bank.

Hi, can you guys hear me now?

Yes.

Good morning, thanks for taking my questions.

I was just hoping you could give us some more color on Outdoor and Fitness.

There are a lot of -- I know you have a lot of product lines in those categories.

I was just hoping you could give us a little bit more details, some of the highlights by category, and also if you could help us understand your share position in some of the key segments in that, in those products?

Thanks.

Well, we don't typically break it down by product category.

As I mentioned earlier, we did have some strength in backlog products that we came out of Q3 with orders for Montana that we were able to fulfill.

We also had strong up-take on our golf watch in the Outdoor segment, so we're growing market share there and we feel good about our position in that market.

Fitness in general has been broadly strong across both running and bike products, and so it just continues to grow as the market expands, and we're able to maintain leadership position there.

Do you have a sense of what your growth rate in the Fitness category was versus the overall market?

Will you grow at double the rate of the market?

I think it's difficult to say.

There's not a lot of good research in the market.

I think the dynamics of the market are such that there's a lot of sales driven out of small shops, and it's not the kind of thing that can be tracked easily like big-box retailers.

James Faucette, Pacific Crest.

Thanks very much.

Wanted to touch on a couple things also related to Outdoor and Fitness.

First, I think in the prepared comments it was mentioned that Vector power meter would be shipping in the summer.

Is this a push-out from kind of the March, April time frame that we had understood you were looking for, firstly?

Secondly, can you talk a little bit about what the margin outlook is for the Outdoor and Fitness segments going forward?

Should we -- are you expecting margins to be sustained, or do you expect there to be some more competitive pressures there?

Thank you.

Yes, James, I'll handle the first part of the question.

I'll turn it over to Kevin for the second.

Regarding Vector, yes, we did push out the Vector deliveries by approximately three months.

The development is going well and still ongoing.

There's some manufacturing issues we're resolving, but we have confidence that we'll be able to deliver.

Then from a margin perspective, I think we do expect strong margins across both Outdoor and Fitness in general.

I think we can still see gross margins in the mid-60s% and above 40% on operating margin in the Outdoor segment and our projection right now is that we would still be above 30% operating margin within the Fitness segment in 2012.

Thank you.

Scott Sutherland, Wedbush Securities.

Great, thank you.

Good morning, congratulations on the quarter.

Good morning.

Scott.

First of all, maybe talk about the deferrals.

It has been a drag on the EPS line.

Are you still expecting that to start to turn neutral or positive this year or into next year?

Yes, we've been saying for quite some time that we would expect that dynamic to change, and at this point it looks like we will start to get some tailwind.

It's very difficult to know whether that's going to be Q1 or Q2 or the back half of the year, but we would expect it to be less of a year-over-year drag than we've seen in the past.

Okay, and a two part question.

When you look at the Fitness segment, can you talk about how you view competition from smartphones, seeing a lot of that applications there at CES.

Maybe where you can drive growth -- is it new categories?

Is there still some global expansion opportunities, or other areas that you can drive growth here in the Fitness segment?

Yes, Scott.

We definitely see what's going on with the smartphones in Fitness.

I think particularly bikes is a popular area to use a phone.

We offer applications on the phones as well, and are beginning to get a sense of what that market is.

I would say that we feel that those applications tend to complement the devices and people that maybe get introduced to Fitness through applications are interested in using a dedicated device, as they continue to be serious going forward.

We have not really seen that that's been a major impact.

J.B.

Groh, D.A.

Davidson.

Good morning, guys.

Kevin, I'm sorry if I missed this.

Did you give an organic growth rate for the quarter?

No, we did not.

I think what we would have experienced is we picked up, due to acquisitions, about $60 million within the quarter, so we would have had -- would have been lower single-digit growth, but still growth.

Then the vast majority of that shows up in the PND area?

That's correct.

Okay.

That's all I had.

Thanks a lot, Kevin.

Thanks, J.B.

Tavis McCourt, Morgan Keegan.

Thanks for taking my question.

I wonder if you could quantify the Navigon impact in Q4, either in terms of revenue contribution or maybe the share contribution in EMEA?

Even if you can't get real detailed, just some qualitative would help.

Also, in terms of the PND trends, you said US was -- had a strong quarter in Q4.

I was wondering if you could talk a little bit about kind of the divergent trends, if there are any, between kind of the US market and Europe for PNDs.

Okay.

The first question on Navigon, as I said, we experienced about a $60 million benefit due to the acquisitions -- most of that came from Navigon.

They were -- we won't give ultra details, but they did have a little bit of a drag on EPS for the fourth quarter.

Looking next at the PND in the fourth quarter, I think we did see -- again, we saw very strong performance in EMEA, and also the US market was still in decline, but at a much less rate than we had projected going into the quarter.

I think we were pleased with the overall results in our North America or US PND sales.

In terms of the overall market for EMEA?

Overall market, looking -- are you looking next year, primarily?

No, I mean just in Q4 specifically.

Oh, okay.

I think that's where we were able to pick up some gain.

I think that was your other question is how much did Navigon help us.

It moved us from the mid-20s% on market share up to about 30% on overall market share in EMEA.

The market overall still continued to be down.

Great.

Then a follow-up for Kevin on the net deferred revenue that you kind of quote in the press release of $71 million or so for the quarter.

Is that net of what's being amortized from previous deferrals --?

Yes, we also record our numbers net of amortizations.

John Bright, Avondale Partners.

Thank you, good morning.

Kevin, assuming market share gains in the Marine, Auto, and Aviation OEM segments, can you characterize the ASPs and profitability expectations there?

Just during the quarter?

Looking forward.

Looking forward, okay.

Looking forward on PND, as we project 2012, we're really not projecting any kind of meaningful ASP change.

We're looking at about a flat ASP difference year-over-year.

There are some geographical differences between the various North America, EMEA, and APAC and rest of the world, but overall we see ASPs staying neutral.

Then for the rest -- for the other segments, we -- typically, pricing is not a big issue.

Our average selling prices have remained fairly consistent over the last couple of years, so no meaningful changes there, either.

Kevin, I was trying to refer to OEM market share gains.

OEM in Marine, OEM gains, Auto, Aviation.

What do the ASPs look like in those segments, and does the profitability differ dramatically from what you see today?

Yes, I think John to maybe address that question a little bit, this is Cliff.

The OEM market does tend to be a little bit more aggressive on pricing in order to be able to offer OEMs of value to bring the product through their channel.

We're factoring all that in, in terms of our overall results, and we can't specifically quantify obviously what that pricing is.

As Garmin transitions and Auto/Mobile declines as a percentage of revenue, how should investors expect Garmin to manage the allocation of their respective operating expenses?

Well, I think on the Auto/Mobile, we're still investing pretty heavily on Auto OEM for the future, but our other operating expenses, because the sales are expected to come down, we'll make some meaningful changes there on that segment, due to PND.

The other businesses, which are all growing, we're investing in increasing our operating expenses to be able to fund the growth in those other traditional segments.

Paul Coster, JPMorgan.

Yes, thanks for taking my question.

A quick one.

What channels are particularly working for you at the moment?

Is there a channel kind of expansion opportunity for you in Asia-Pacific?

In relation to that, can you also comment on channel inventory going into the new year?

Where do we stand in terms of the level?

Thanks.

Paul, are you primarily concerned around channels within the Auto/Mobile, or just in general?

I think PND in particular, although I'm also interested in the Fitness and Outdoor.

Well, I think we've had a full channel distribution channel for years.

This market has grown and now been in decline for a few years, but Garmin's distribution is quite strong.

I think from an emerging market, we're looking at Latin America as some opportunities to expand our growth opportunities in PND products.

Then as far as the channel inventories, I think we feel very comfortable with where not only our inventory end of the year, but also the inventory in the channel.

The retailers have done a reasonably good job of managing that inventory during the holiday season.

Yair Reiner, Oppenheimer and Company.

Yes.

First on the lawsuit that was dismissed from Triangle Software, what is that going to imply in terms of potentially lower SG&A cost going forward?

Yes, we've never given lawsuit settlements in terms of absolute dollars.

I would put it as a fairly small number in our total SG&A in 2012.

Okay.

Then in terms of the other big line there, R&D, should that $84 million that we saw in the fourth quarter be kind of the right go-forward rate?

I think there's always -- we had some one-time expenses in Q4, but in general, yes, going forward we're going to be at that level, if not a little bit above as we add some engineering head count during the year.

R&D for 2012 will be the one area that would have the most significant increase to our operating expenses.

Thank you.

We have no further questions in the queue at this time.

I'd like to turn the call back over to the speakers for any additional or closing remarks.

As Cliff said we're very pleased with the results and we thank you for your interest in Garmin, and look forward to a successful 2012.

Thanks everyone for participating.

That does conclude today's conference.

Thank you for your participation.