台灣國際航電 (GRMN) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Garmin first-quarter 2014 earnings conference call.

Today's call is being recorded.

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

Please go ahead.

Thank you.

Good morning, everyone.

We'd like to welcome you to Garmin Limited's first-quarter 2014 earnings call.

Please note that the earnings press release and the related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/stock.

An archive of the webcast and the related transcript will also be available on our website later today.

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, 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 filed with the SEC.

Presenting on behalf of Garmin Limited this morning, Cliff Pemble, President and CEO; and Kevin Rauckman, CFO and Treasurer.

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

Thank you, Kerri, and good morning, everyone.

As announced earlier this morning, Garmin reported strong first-quarter revenue and margin performance, with revenue, operating income, and pro forma EPS growth.

Consolidated revenues increased 10% year over year, with revenue from aviation, fitness, marine, and outdoor growing 22% on a combined basis.

These segments contributed 58% of the total revenue, and 75% of the operating profit in the first quarter.

Gross margins improved year over year to 57% from 52% in 2013, due to the amortization of previously deferred revenue and improve segment mix.

Operating margins were 21%, an increase from 15% in the prior year.

This resulted in operating income growth of 51% on a consolidated basis, with each segment contributing.

These strong results allowed us to generate $0.55 of pro forma EPS in the quarter, an increase of 38% over 2013.

Kevin will discuss our financial results in greater detail in a few minutes, but first I'll walk through a review of our results segment by segment.

Beginning with the fitness segment, revenue grew 38% on a year-over-year basis, as our new running products performed well and we began shipping our vivofit activity tracker.

We delivered gross and operating margins of 64% and 33%, respectively.

Operating income grew 68% in the quarter, as the operating margin expanded by almost 600 basis points due to higher sales.

The launch of the vivofit in the first quarter has gone well, and we expect it to be a driver of growth for the remainder of the year as the wellness market rapidly expands.

In cycling, we announced the Edge 1000, a high-end solution that sets a new standard for cycling computers.

The Edge 1000 features a large, semi-readable color display, capacitive touch, competitive cycling capabilities and smartphone connectivity.

Finally, while we are currently experiencing a period of strong growth fueled by new products, we see additional opportunities we can capture in both the short and long term.

With this outlook in mind, we have increased our R&D investment in fitness to support future innovation, and a robust pipeline of new products and services that are yet to come.

In aviation, we posted revenue growth of 19%, with both OEM and aftermarket product categories contributing to the growth.

Operating income grew 38% in the quarter, ahead of revenue growth, due to the improvement in both gross and operating margins.

While these are strong results, we continue to face a challenging market, as new aircraft sales remain below historical levels.

Throughout the quarter, we extended our aftermarket product portfolio to include portable weather receivers, angle-of-attack technology, and additional radar altimeter solutions.

These additions have allowed us to expand the addressable market for Garmin in the aftermarket space.

Another introduction in the quarter was the G3X touch, designed for the light sport aircraft market.

The G3X has already achieved strong acceptance at light sport OEMs, with five partners offering the product on 13 different models.

Finally, we also expanded our relationship with Cessna to include the CJ3+ and the Alpine Edition CJ2+, which will now offer Garmin's G3000 cockpit system.

Revenue in the marine segment grew 19% in the quarter, due to the introduction of new products and a weak comparable from the first quarter of 2013.

Profitability improved in the first quarter; however, the pricing environment remains competitive, resulting in margins below historical levels.

I'm pleased to report that we delivered our new products for 2014 ahead of the buying season, and anticipate gaining market share with these strong offerings.

While industry activity is far below historical levels, we remain committed to innovation that will lead to long-term improvements in market share and profitability.

Looking at outdoor, revenues grew 10%, with each major product category contributing.

Gross and operating margins remained strong in the segment, at 61% and 28%, respectively.

During the quarter, we introduced the fenix 2 to in the PRO series of dog training collars.

The fenix 2 builds on the capabilities of the original fenix by adding advanced fitness training features and smartphone connectivity.

The PRO series of dog training collars expands our offerings for the sport dog category, with the integration of proven Tri-Tronics technology and new features for the dog trainer.

Finally, in outdoor, we wanted to provide an update on our progress in the action camera market.

To date, market share gains have developed more slowly than planned, due to the relative maturity of the market, and the existence of strong, well-entrenched competitors.

However, we entered this market because we believe we have unique innovations to offer customers pursuing active lifestyles.

With this in mind, we are increasing promotional activities to support our current offerings, and we are also stepping up our R&D investment to develop the next generation of action cameras.

In our auto/mobile segment, revenues were down 4% in the quarter, with PND unit volumes declining at a global rate of almost 20%, which is in line with our expectations.

This decline was partially offset by growth in OEM, as well as the amortization of previously deferred revenues.

The segment remains highly profitable, with gross and operating margins of 47% and 13%, respectively, and we continued to experience gains in global market share.

As indicated in our February guidance, we expect the 2014 PND market to decline approximately 20% on a global basis.

This will be partially offset by growth opportunities in OEM, RVs, dash cameras, and other specialty automotive products.

As a final note for this segment, the Garmin-equipped Mercedes E class is now shipping.

The selection of Garmin navigation in Mercedes vehicles is a strong vote of confidence in our offerings and capabilities as an OEM supplier.

We plan to build on this momentum as we pursue additional opportunities for our OEM software and hardware solutions.

Finally, while results in the first quarter exceeded our expectations, it is also the weakest quarter, with a large portion of the year still ahead.

With this in mind, we will update guidance after the second quarter according to our typical practice, when we anticipate having true visibility on the PND market trends and our progress in new product categories.

I'd like to touch briefly on the CFO transition.

As you will recall, in February, Kevin announced his plan to leave the CFO role by the end of this year.

Speaking generally, I feel good about our progress so far, and I'm confident in our ability to effect a smooth transition, as we had planned since the beginning.

That concludes my remarks.

Kevin will now walk through our Q1 financial results in more detail.

Kevin?

Thank you, Cliff, and good morning, everyone.

I'd like to begin by reviewing our financial results and then move to summary comments on both the balance sheet and the cash flow.

We posted revenue of $583 million for the quarter, with pro forma net income of $108 million.

Our pro forma EPS was $0.55 per share, excluding the effects gained during the quarter.

Our revenue represents an increase of 10% year over year, as previously highlighted by Cliff.

Gross margin was strong, at 57%, a 480 basis point increase from prior year, driven by segment mix, with improved margins in each segment and the amortization of previously deferred revenues.

Operating margin was 21%, an increase of 560 basis points from the prior year.

This is a result of the gross margin favorability of 480 basis points, as well as the operating expense favorability of 80 basis points, though total operating expenses did increase by $14 million, or 7%.

Each of the operating expense categories will be discussed in detail on a later slide.

Our effective tax rate increased to 16.6% in the quarter, with the prior year rate positively impacted by a $6.3 million benefit from the retroactive reinstatement of the federal R&D tax credit, which, again, expired at the end of December 2013.

Our pro forma EPS, which is adjusted for the foreign currency gains of $0.55, representing a 38% increase year over year.

And we shipped 2.5 million units during the quarter, basically flat from our 2013 results.

Total Company average selling price was $234 per unit, up 10% from $213 in Q1 2013, driven primarily by segment mix and reduced revenue deferrals.

Next, you can see how our first-quarter revenue breaks down by segment.

I'd just like to briefly highlight the charts on this page, which illustrate the auto/mobile segment, representing 43% of our total revenue during Q1 of 2014, as each of the non-auto/mobile segments grew double digits during the quarter.

You can see from the profitability mix by segment that our non-auto/mobile segments delivered 75% of operating income in the quarter, equivalent to Q1 2013, due to the margin improvement in auto/mobile.

I'd like to briefly discuss year-over-year gross margin changes by segment.

Auto/mobile gross margin increased 47% from 42% in the prior year, due primarily to the amortization of high margin deferred revenues.

In addition, we posted gross margin improvement in each of the non-auto/mobile segments.

This margin improvement was primarily related to product mix shifting toward new products in marine, outdoor, and fitness.

In addition, ASP improvement also contributed in marine, and outdoor and aviation margin improvement was primarily due to increased software sales.

Total corporate operating margin improved to 21%, due to the increase in gross margin and revenue growth outpacing the 7% growth of operating expenses, which I will highlight next.

Q1 operating expenses increased by $14 million, or 7%, on a year-over-year basis in Q1, while decreasing 80 basis points to percentage of sales as revenue growth outpaced expense growth.

R&D increased $8 million year over year, while remaining consistent year over year at 16.5% of sales.

We continue to invest in innovation and grow our engineering workforce, with resources focused on aviation, outdoor, and fitness segments.

Our advertising spending increased $2 million over the year-ago quarter, while being consistent as a percentage of sales.

The additional spending was focused on outdoor and marine to support new products and categories.

We will continue to manage advertising expense and price segment to match the market opportunities presented by our diverse products.

SG&A was up $4 million compared to the year-ago quarter, increasing 80 basis points as a percentage of sales.

We will continue to manage these expense -- these costs to align with the changing dynamics of our business.

Finally, we ended the quarter with cash and marketable securities at over $2.8 billion.

Accounts receivable decreased sequentially to $427 million following the holiday quarter.

Our inventory balance increased to $442 million on a sequential basis, as we built inventory levels to support the launch of new product categories and in preparation for the seasonally stronger second quarter.

We continued to generate strong free cash flow across our business, as cash from operations was $71 million during Q1; CapEx was $15 million.

Therefore, we generated free cash of $56 million in the quarter.

And, we also repurchased $33 million of Company stock, and now have $208 million still authorized to repurchase through December of 2014.

This ends our formal remarks on Q1 results.

Operator, please open the phone lines for questions at this time.

Thank you.

(Operator Instructions)

And our first question is from Yair Reiner with Oppenheimer.

Thank you.

Congrats, first of all, on the strong results.

A question on the deferred revenue.

It seemed as though it came in -- the net amount of deferred revenue -- a bit higher than I was forecasting.

Was there any change in the way that you account for the deferred revenue?

No.

We do have -- expected higher deferred revenue in Q1 because of this being the seasonally weaker period.

There really wasn't any major changes to what we've deferred from the past.

And as we go through the year, we'll see less of a dramatic impact as what we had in Q1.

Okay.

And then, still trying to figure out the trajectory of the auto/mobile business.

Can you give us a sense of what the total non-PND sales were in 2013, and how those non-PND sales might trend this year, so we can back into what to expect for the PND market.

Are you referring to just the auto/mobile segment specifically?

Exactly.

How much of the auto/mobile is non-PND, and what is the absolute trend in 2014 versus 2013?

I think what you're getting at is, you want us to document what our auto OEM business is, and we just don't make that public.

But I will say, the auto OEM revenues did grow.

And we are still expecting our units to decline and PND to be around 17% year over year, which is what we've said in the past.

As we go forward through the full year, I think you'll see our auto/mobile segment in total still come down between 10% and 15% on revenue.

So, really no major changes from what we communicated at the last quarterly earnings call.

Okay.

Thank you.

Thank you.

Our next question is from Mark Sue with RBC Capital Markets.

Thank you.

Just a question on the fitness market, particularly with vivofit.

It is a very fluid market.

It has a lot of sub-segmentation and changing dynamics related to competition.

Some people leaving, some people coming in.

Just your working assumptions for vivofit and unit growth, and how we should also think about ASP that might actually stimulate the demand further?

Well, as Cliff commented, we got off onto a really good start with vivofit.

We believe the market is a sizable market, roughly about 10 million -- probably at close to 10 million units this year.

Being a new player in the fitness area, the fitness activity trackers, this is a key part of our growth business in our fitness segment.

However, I do want to also just remind people that, while vivofit got off to a great start, the rest of our fitness business also did well, especially in the running category.

Kevin, are you finding that consumers will elect one or the other, a watch or a band, or are you finding that there's market growth in both segments?

How should we think about that on a going-forward basis?

I think we're seeing both.

We've introduced, for example, the recent Forerunner 220 and 620, which have done very well, which is the watch category.

And then, of course, the vivofit being the band.

We think there's a lot of upside there, too, so it's not either/or.

We're going to get growth from both of those sub-segments.

Okay.

That's helpful.

In outdoor, it seems the outdoor camera, the VIRB, we are rebooting that.

Maybe some of the lessons learned from the initial launch on how we've not actually gained some share in this market.

What happens to the existing products?

Are we clearing those up through the channel as we get ready for the new products?

Maybe if you could give us some sense of that, it would be helpful.

Thank you.

Well, Mark, as I mentioned in my remarks, we know that the market is mature, and we know that there's entrenched competitors in the market.

And, therefore, it does take some time to penetrate the market.

We're viewing this as a marathon rather than a sprint.

And so, as I mentioned, we're increasing our promotional activities.

We're also increasing our R&D activities to be able to have a robust product pipeline.

At this stage, we are focusing on our existing offerings.

In the future, we'll have additional innovations that we'll bring to the market.

Okay.

That's helpful.

Thank you, and good luck, gentlemen.

Thanks, Mark.

We will take our next call from John Bright with Avondale Partners.

Thank you, Cliff, Kevin, Kerri.

Aftermarket demand in marine and aviation versus the peak periods, where does it stand today?

Those markets, John, have been down anywhere from 40% to 50% from their highest to their lows.

They're coming off their lows from where they were, but, obviously, in speaking just generally about the industry, the industry took a massive hit as part of the financial crisis.

We've been able to outperform that market by taking share, as well as new product offerings that are stimulating demand in those areas.

In the marine segment, last year, if I recall right, the new products weren't in the market for this quarter, but they then actually picked up nicely in the June quarter, and you had good acceptance for the marine products.

Does that make a meaningfully tough comparison for June?

Yes.

I mentioned in my remarks that the first quarter of this year was strong, and compared to last year, it was a very weak comparable.

So going forward, we do face the stronger comparables of last year that we're comping against.

On the auto side of the equation, you mentioned growth in OEM in the quarter.

And then in the prepared text talk, it seemed like you were talking about some optimism around the OEM business looking forward.

Is there any additional tactical information that you can share with us?

We don't have any substantive information that we can share at this time.

We continue to manage a robust pipeline of business development, and we do have progress that we're making in the segment, as well, with our credibility as a Tier 1 software and entertainment supplier.

So, it's a slow-moving industry, but in general, I feel positive about the progress we've made to date.

Final question.

Geographically, it looked like EMEA was the strongest market for you.

What were the products that were leading that strength?

It was very interesting.

EMEA did well across all of the different segments.

Maybe one positive surprise is the PND decline in the EMEA was a little bit lower than what we had anticipated going in, but even in the outdoor, the fitness, and the marine businesses, all did well in Europe.

Thank you.

Thank you.

Thanks, John.

(Operator Instructions)

Our next question is from Jonathan Ho with William Blair.

Hey, guys.

Just wanted to understand a little bit better, you talked in, I believe, both the fitness, outdoor, and auto segments, about increasing some of the investments around R&D, as well as marketing spend.

Can you give us a sense around magnitude for that spending increase, as well as where you expect to redirect that spending?

Generally speaking, we're trying to manage the investment within the sales growth that we're experiencing.

Obviously, in some areas that are very new, we have to ramp it up much more aggressively, but on average, that's what we're trying to accomplish.

Got it.

And then, in terms of the progress with the VIRB, what's been the feedback that you've gotten from the channel?

Is this fully deployed in all of the mass-market channels at this point?

Just wanted to get a sense from you as to what you think are some of the issues that will help accelerate that growth over time?

I feel that our deployment at mass market is probably light, compared to where we had wished to be.

I think we're in a few of the smaller outdoor retail stores, but we have yet to get placement in some of the larger big-box retailers.

Product placement has, obviously, been an issue, as well as, as I mentioned before, the existence of entrenched competitors in this market is a factor.

Great.

Thank you.

Thank you.

Our next call is from Charlie Anderson with Dougherty & Company.

Great.

Thank you.

Thanks for taking my questions.

Starting on fitness, I wonder if you guys could talk about channel fill and sell-in versus sell-through.

Obviously, it was a partial shipping of vivofit.

What was the dynamic there?

Was this a partial quarter?

Just all those dynamics to help us understand the growth rate versus we should see going forward.

I think our -- as you point out, our sell-in on vivofit had just started partially in the quarter.

It's still very early in the lifecycle in this product and in the year, but I would say that we're encouraged by the sell-through reports that we're hearing from the field.

I think, as Kevin mentioned, our strongest contributor to growth in the fitness segment was our strong running product line.

Of course, those have been out now for a while, and there's really no issue of sell-in/sell-through going on there.

We feel like it's a strong demand from customers that are pulling that product through.

Great.

You mentioned some pricing pressure in marine.

I wonder if this is a nagging issue or a structural issue, or if you feel like it's temporary and cyclical in nature?

I think it depends on what your time frame is for how you evaluate whether it's short term or long term.

The way we see it is that the market has experienced a lot of challenging conditions, and competitors are buying for the business that's there.

And that's put pressure on pricing.

We're seeing, as you've seen in our results, the margins come up as we've introduced new products and innovations.

We feel like over the long term, it can move back towards where we were, but we're not, at this point, overly optimistic that that will come in the short term.

Thanks so much.

Thanks, Charlie.

And our next question is from Ben Bollin with Cleveland Research.

Good morning.

Thanks for taking the call.

Morning, Kevin.

One question I had on vivofit, in particular, is when you look this market, the wellness opportunity, how do you view your position from either a market share standpoint, or how big do you think you can be within that?

And then, what's the backlog look like?

It looks like there's extended lead times today.

Is that going to have any impact on when this vivo key can launch?

And I had a follow-up, as well.

Okay.

We feel like the market is very fragmented, as you pointed out, but we enter these markets with the intention of being leaders.

We are cautious in terms of how much market share that we can get in both the short term and the long term, if the market's very fragmented.

Our experience from the PND market is that in a highly fragmented and growing market, your ability to capture large amounts of shares early is more challenging.

But we, again, feel like this is a market where we offer a lot of value and capability, and, therefore, we're going to be continuing to work on our innovation in the products that we're offering.

And maybe a follow-up, we're just a couple of months into the sell-in of the vivofit, and backlogs have continued to remain pretty strong, so we'll have to continue to manage that as we go forward in the next couple of quarters.

But so far, the trends look pretty positive.

Okay.

And then a follow-up.

You commented on new products, new categories within the prepared remarks.

Any detail you could provide as you think about new categories?

Not necessarily what they are, but any thoughts on how those [PAM] opportunities may compare with some of the recently introduced products and markets that you've entered?

Are these comparable opportunities?

How do you think about those market sizes?

I think really no specifics at this time.

We continue to search for opportunities in closely related adjacent spaces to where we are.

As you know, many of our businesses are niche-focus, in general, and so we're continuing to search for those kind of opportunities.

Thank you.

Thanks, Ben.

Our next question is with Ron Epstein with Bank of America Merrill Lynch.

Good morning, guys.

It's actually Kristine Liwag calling in for Ron.

Hi, Kristine.

A few quarters ago, you guys have said that it may take a few years to get aviation margins to the 30%s level again.

And in this quarter, aviation margins were at 30%.

Can you give us more color on what drove aviation margin strength?

Is it volume, timing of R&D spend, sales mix, and how should we think about the cadence of these items through the year?

I think it's all three.

It's all of the above.

When you see a 19% growth rate that's above what our full-year guidance is.

It's a very much a volume-dependent business, and since we had strong revenue growth, that helped, but our gross margins also grew.

And then, pricing and the new business opportunities have helped us hit 30%.

We want to be cautious in the fact that we were excited about that type of profitability, but it doesn't necessarily mean it's a trend.

We'll have to just see how aviation progresses throughout the rest of this year.

Would it be fair to say that if business jet volumes actually do recover, then 30% is the new watermark for aviation margins?

I think it probably requires more than just that.

Of course, that would be helpful, but the retrofit market needs to continue to perform well.

Again, from our expense point of view, we're growing R&D, and we're also comping against Qs 2 through 4 last year, which were very strong.

All of those are factors that are in the mix.

Thank you.

Thanks, Kristine.

And our next call is -- question is from Tavis McCourt with Raymond James.

Hey, guys.

Thanks for taking my question, and great quarter, start to the year.

Thank you.

Kevin, I know it's kind of difficult to predict the deferred revenue, but if we look at last year, Q1, you pulled off a significant amount of revenue from the balance sheet in Q1.

And then the deferred revenue balance stabilized through the rest of the year.

Is that a reasonable case scenario for this year, or is there some other pattern that we should be thinking about as we try to forecast this auto/mobile segment?

Yes, I think it's -- excuse me -- I think it is similar to that, because Q1 being our lightest quarter from a PND shipment, that has an impact on the results.

We also hit a threshold where about 80% of all of our PND units now have lifetime map, lifetime traffic, so we defer that percentage.

That really hasn't changed.

So, as we go through Q2, 3, and 4, we should see a decrease in the amount of amortized revenues that we're going to experience.

So I think it's pretty -- I think your trend's probably pretty close.

And I appreciate you don't want to give the OEM revenues, but I was hoping to ask around the question a little bit and maybe get a little more clarification.

The shipments into the Mercedes, that is for turn-by-turn navigation app, correct?

And I just wanted to make sure that that was revenue-booked in the first quarter related to that.

Or is that happening starting in the second quarter?

The revenue was booked in the first quarter for Mercedes.

It is a software application.

And then the revenue rec for that is upon the shipment from the OEM?

No, it's when we ship it.

Right.

Revenue recognition is when we sell into the channel.

Okay.

And then, are you willing to give an aggregate percentage of the auto/mobile business that's made up, not just of OEM, but also of some of the specialty PND products that you think there's some growth, and in dash cam and other products that there might be growth in?

Well, we really won't break it down below that.

The PND still makes up the vast majority of our auto/mobile segment.

Auto OEM, as we said, did grow, and then you mentioned dash cam.

Those are more, I would say, niche opportunities for us to grow that segment, but we won't quantify how much that is.

Great.

And final question.

Cliff, I think you guys run the business from an investment standpoint on a project-by-project basis, but I was wondering if there is an operating margin target or level that we should be thinking about in fitness and outdoor?

Given what appears to be all kinds of new opportunities for growth, given the improvements in sensor technology and wireless and excitement about wearables, et cetera.

Well, I think for the traditional businesses and product segments that we've served in fitness and outdoor, we still target the margin profile that we've historically had in those businesses, with gross margins in the 60%s range and operating margins in the 30%s range.

As those market segments have new categories, and also there's some expansion of the market size as we move down to do more beginning customers, if you will, especially in fitness, the margin profile will definitely come down.

Especially in the fitness market as wellness market, it gets competitive.

And pricing, we would expect to come down in the long term.

That will tend to weigh on the margins in fitness.

But no specific target operating margin level?

So, when you are investing in R&D and sales and marketing, it's not around an envelope of operating margin target, it's more project by project?

No, it's really, I would call it opportunities, and the ability to penetrate new segments in the market and serve more customers.

Great.

Thanks a lot.

Thank you.

And just to clarify, Tavis, to your one question on the auto OEM, just to make sure everyone understands revenue recognition.

We recognize revenue on any of our auto OEM deals on a vehicle by vehicle.

So, with Mercedes, for example, we take revenue for the number of cars that they're selling in.

It's not one lump sum payment that we get, it's a vehicle by vehicle.

Next question?

(Operator Instructions)

Our next question is from Simona Jankowski with Goldman Sachs.

Great.

Thanks.

It's Doug Clark for Simona Jankowski.

One more question on the deferral impact.

Last quarter you had mentioned that you expect deferral impact on the EPS basis to be about $0.20 to $0.30.

It's probably about $0.30.

It looks like on my math, the deferral impact on the first quarter was pretty much $0.20.

So for the full year, do you expect the impact to be larger than the former guidance?

And again, if so, really why was the first quarter so outsized?

No, actually, the first-quarter impact was about $0.16, after net income, tax effect.

As I said earlier, we're expecting that number to decline over the next couple of quarters.

There's really no major change from our earlier expectations of up to as much as $0.30 for the year.

Okay, great.

Thanks.

That's helpful.

And then one more follow-up on the VIRB.

In association with the promotion and advertising spending that's going on, does that mean that you'll expand the channel and distribution ahead of the next generation VIRB product?

Or would that be something that you'd wait to do until the next generation comes out?

No, we're working to expand the distribution.

Great.

Thanks.

And then one more quick follow-up, actually.

With about $200 million left in the repurchase, do you expect to fully execute that by the end of 2014?

It's hard to predict what the rest of the year is going to look like.

But we have been in the market pretty much every day, so we will likely be more aggressive, as we said earlier, to buy back stock this year.

Whether we get all the way through it, it's hard to predict at this point.

Great.

Thank you very much.

Thank you.

Our next question is from Jeremy David with Citi.

Hi, good morning, guys.

Two questions.

First, on the outdoor, margins were very strong in Q1.

To me, that's confirming that the categories you've been in for a while are doing well, but that VIRB is not doing that well.

But excluding VIRB, what really drove the trends in your auto portfolio in Q1, and are you expecting that trends to last for the rest of the year?

And, finally, considering the weaker VIRB revenue that you're now expecting, is 10% to 15% growth for outdoor in 2014 still on the table, or that's [man of the etchutable]?

Thank you.

I think if you look at the entire categories of our outdoor segment, dog tracking and training to golf products, just the traditional hand held markets, excluding the VIRB, those are all very high-margin products.

That's really what drove the operating margin results for the quarter.

In terms of your question on full-year guidance, as we said earlier, we're not planning to give any adjustment to our earlier expectations.

Outdoor came in at plus 10%, we've said 10% to 15% for the full year, so we will plan to update, not only our total Company, but also the outdoor segment after Q2.

Okay.

Fair enough.

And if I can have a follow-up?

Could you comment on the inventory situation across your businesses?

I think Tom-Tom had a good Q1 yesterday.

Part of it was channel fill for PNDs.

Could you comment about PND inventory, broadly speaking?

And maybe anything out of the normal in terms of inventory for your other products across all businesses?

Thank you.

No real changes to the inventory cycles.

PND is a mature business.

We're very much watching both sell-in and sell-through.

We don't have any major risks there.

And in inventory in general, I think the key driver of our inventory entries was really preparing ourselves for the, as I said, seasonally strong Q2 with the new product categories that we're bringing to market, like vivofit, the marine products, and others.

Okay.

Thanks a lot.

Jeremy.

And our next question is with Andrew Spinola with Wells Fargo.

Thank you.

Cliff, I was hoping you could expand on your comments about the action camera market being mature.

It seemed like to me that one of the opportunities -- big opportunities for Garmin in this market is as that niche product in the extreme sport arena expanded into more mass markets, like aviation, marine, swimming, cycling, where you're so strong.

There was an opportunity for you to capture share, without necessarily having to take share from the existing markets.

So I'm a little confused by the use of the word mature.

Do you not see any underlying market growth in action cameras, or why do you describe it as mature?

Well, you're probably touching on a couple of different dynamics there.

The action camera market has existed for several years now.

Right now there's really no credible documentation on what the market size is and what the growth is.

But it would appear to us, based on the fact that these devices are used in a lot of highly active, extreme lifestyles, that the market being in existence for a while is probably more in a flatter growth right now than the hyper-growth type of a mode.

So that's one dynamic.

But in terms of share, that's a different dynamic.

Yes, it's true that we do serve all those different markets.

And we do see strong interest and acceptance of our product, particularly in those niche market areas, like aviation and marine, where we are very strong.

We see encouraging signs there, whereas a lot of the more mass-market distribution and the mass-market customer is weaker than we like.

So those are really the dynamics around the comments that I made.

Thank you very much.

And our next question is from Brad Erickson with Pacific Crest Securities.

Great.

Thanks for taking my questions.

First, the press release, and you guys have mentioned that the business generally exceeded expectations in -- your own expectations in Q1.

Can you just rank order the top couple of segments that contributed, in terms of being so meaningfully ahead of those initial expectations?

Well, clearly, fitness has performed very, very well, so that was one driver.

I think auto/mobile, as our largest segment, performed ahead of our expectations and made a big differences there, as well.

Aviation performed well.

So I'd say those are top three.

And of course, we are pleased with our performance in marine, as well, and outdoor did respectively.

Across the board, we feel positive about the results.

Great.

Thanks.

And then a follow-up on vivofit, can you remind us of where we are on the timeline in terms of being at full distribution on that product?

And if we're not, when we should expect to be at full distribution?

I think out of the gate, we were able to secure a lot of strong distribution for this product, so we feel very good about where we're at.

We still feel like there's more doors to capture.

And many of those retailers where we're currently not positioned are planning for resets in the future.

Let's say by the summer time frame and into the fall, we should be at a point where we feel like we're at full presence in the market.

Great.

That's helpful.

Thank you.

Thanks, Brad.

And we do have a follow-up call from Yair Reiner with Oppenheimer.

Thank you.

Just in terms of the CapEx, it expanded a little bit.

Are some of these growth opportunities here also requiring you to grow some of your equipment and install base?

What's the forecast for the year?

Yes.

We did raise our expectations on CapEx, because of the $15 million in Q1, to probably closer to $60 million for the year.

We are investing in several areas.

We're investing in a few facilities, but also service mount technology to production lines to capture these opportunities like vivofit.

There's several factors, but that's what's driving a slight increase in our CapEx expectation.

Great.

And then you also mentioned in your prepared remarks with respect to the aviation market, that it's still a difficult market out there.

Those remarks, obviously, have been echoed by others in the space.

Is there any worry that some of the shipments you are expecting in the new platforms on the OE side later this year could get pushed out?

Or are you still feeling okay about the OE deliveries you've had in your plan?

I think there's still some uncertainty around the planning and the OEM side because of the market conditions.

The business jet market remains weak, as we've been saying.

We simply need to watch as the year goes along to see how the OEM sales follow through.

Okay.

Thank you.

Thank you.

And a follow-up call from Mark Sue with RBC Capital Markets.

Kevin, with the slight increase in CapEx, how we should think about free cash flow for the full year, what your working capital requirements?

Also, your inclination to repurchase shares at these elevated levels, how you're thinking about the share repurchase?

Thank you.

Well, first of all, we haven't really changed our expectation on free cash flow, so we're still expecting between $550 million and $600 million, which is what we stated at the beginning, at our last earnings call.

And in terms of buyback, I think we're like many other investors.

We're price sensitive, but we're also wanting to be more aggressive to use our cash from a dilutive effect to take some of the shares out of the market.

We've proven over the last couple of quarters that we're willing to buy consistently.

Like I said, we've been in the market pretty much every day since our last earnings announcement.

We'll see how that progresses throughout 2014.

Okay.

Helpful.

Thank you.

Thanks, Mark.

Okay.

I think that concludes the questions for the day.

We want to thank everyone, again, for your contribution and for your questions, and look forward to updating you as we go through the remainder of the year.

Thanks very much.

This concludes today's conference.

Thank you for your participation.