台灣國際航電 (GRMN) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Garmin Ltd.

Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Teri Seck.

Ma'am, you may begin.

Good morning.

We would like to welcome you to Garmin Ltd.

Second Quarter 2017 Earnings Call.

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

An archive of the webcast and related transcripts will also be available on our website.

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, gross and operating margins and future dividends, market shares, product introductions, future demand for our products and plans and objectives are forward-looking statements.

The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin.

Information concerning these risk factors is contained in our Form 10-K filed with the Securities and Exchange Commission.

Presenting on behalf of Garmin Ltd.

this morning are Cliff Pemble, President and Chief Executive Officer; and Doug Boessen, Chief Financial Officer and Treasurer.

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

Thank you, Teri, and good morning, everyone.

As announced earlier today, Garmin reported second quarter consolidated revenue of $817 million, up 1% over the prior year.

Outdoor, aviation, marine and fitness collectively increased 8% year-over-year and contributed 74% of total revenues.

Gross margin improved to 58.5% compared to the prior year due to favorable segment revenue mix.

As a result of our increased (inaudible) and gross margins, our operating margin improved to 24.9%.

This resulted in GAAP EPS of $0.91 and pro forma EPS of $0.88 in the quarter.

Our results were positively impacted by growth in advanced wearables.

Our Connect IQ app store is a direct reflection of end-user engagement with our wearables.

During the past 12 months, there have been over 17 million downloads of an app, watch face or data field from our Connect IQ store, and the total downloads increased to over 30 million since inception.

Doug will discuss our financial results in greater detail in a few minutes, but first, I'd like to provide a few brief remarks on the performance of each business segment.

Beginning with the Outdoor segment.

Revenue grew 46% on a year-over-year basis, driven by strong growth of our fenix line of smart watches.

Gross and operating margins expanded to 66% and 38%, respectively, while operating income grew 53% over the prior year.

We experienced strong demand for the fenix 5 watch series and anticipate it will continue to have a positive impact on our outdoor segment for the remainder of the year.

In addition, we continue to see solid growth of our new inReach devices and subscription-based services.

Finally, we launched the Approach S60, a premium watch for the golf enthusiasts, and we recently announced the newest members of our Foretrex and Rino product lines.

Looking forward, we are focused on opportunities in wearables and inReach.

Turning next to aviation.

We reported strong revenue growth of 15%, driven by growth in aftermarket products.

We also experienced positive contributions from our OEM product categories.

Gross and operating margins remain strong at 75% and 32%, respectively, resulting in operating income growth of 28% over the prior year.

During the quarter, we introduced our first head-up display, which was designed specifically for aircraft with integrated flight decks.

We are pleased that the Cessna Citation Longitude will be the launch platform for this new product category.

We also received European approval for our G1000 NXi system, expanding the reach of this aftermarket offering for King Air 200, 300 and 350 aircraft models.

Looking forward, we are focused on maximizing ADS-B mandate opportunities and gaining share in the OEM market.

Looking next at marine.

Revenue declined 3%.

However, the segment is performing as expected on a year-to-date basis with 10% revenue growth.

We believe that favorable weather earlier in the year accelerated buying, which impacted the results of the second quarter.

Gross and operating margins were 57% and 22%, respectively.

During the quarter, we completed the acquisition of Active Captain, the developer of crowd-sourced content for boaters.

In addition, we launched our next-generation quatix wearable.

Looking forward, we are focused on product innovations and gaining share in the inland fishing category.

Looking next at fitness.

Revenue declined 15%, driven by the rapidly maturing market for basic activity trackers and the timing of new product introductions.

Gross margin was steady at 56%, while operating margin decreased year-over-year to 21%.

While the quarter has been challenging for fitness, we remain positive about the opportunities in the segment.

We expect these trends to continue into Q3.

However, we anticipate ending the year on a stronger note as our product refresh cycle is completed.

Looking forward, we are focused on areas of opportunity, particularly in the advanced wearable category.

Looking finally at the auto segment.

Revenues were down 15% due to the ongoing decline of the PND market, partially offset by growth in several niche categories such as fleets, cameras and RVs.

Gross and operating margins declined year-over-year to 45% and 13%, respectively.

Our global market share position in the PND category remains very strong.

During the quarter, we launched the VIRB 360, a compact, full spherical, immersive camera built for adventure.

The VIRB 360 is an amazing device that captures video up to 5K/30 frames per second and makes it easy to share memories on the go.

Looking forward, we are focused on disciplined execution to bring desired innovation to the market and to maximize profitability in the segment.

Turning finally to guidance.

We are pleased with our consolidated performance in the first half of 2017 and believe we are well positioned for the remainder of the year.

As a result, we are raising our projected revenue for the year to $3.04 billion, up about 1% over 2016.

We project gross margin to increase to approximately 57.5% due to segment mix, and we project operating margin of approximately 21% for the full year.

Assuming a pro forma effective tax rate of approximately 22%, pro forma earnings per share is expected to be approximately $2.80.

Looking at our annual revenue outlook by segment.

We have increased our growth expectations for the outdoor segment to 25% and the aviation segment to 10%.

Marine and auto are unchanged, while the outlook for fitness has been revised to down 5% due to the continued decline in activity tracker category.

That concludes my remarks.

Next, Doug will walk you through additional details on our financial results.

Doug?

Thanks, Cliff.

Good morning, everyone.

I'll begin by reviewing our second quarter financial results and move to comments on the balance sheet, cash flow statement and taxes.

We posted revenue of $817 million for the second quarter, representing 1% increase year-over-year.

Gross margin was 58.5%, a 150 basis point increase from the prior year, driven by the shift towards segments with higher margin.

Operating expense as a percentage of sales is 33.6%, a 130 basis point increase from the prior year.

Operating income was $203 million, a 1% increase year-over-year.

Operating margin was 24.9%, a 20 basis point increase from the prior year.

The increase in gross margin more than offset the increase in operating expenses.

Our GAAP EPS was $0.91.

Pro forma EPS was $0.88, a 1% increase from the prior year.

Next, we'll look at our second quarter revenue by segment.

During the quarter, we achieved 1% consolidated growth, led by double-digit growth in our outdoor and aviation segments.

This growth was partially offset by a decline in our fitness segment, which resulted in a significant decline in activity tracker category and continued decline in the auto PND business.

Collectively, outdoor, aviation, marine and fitness were up 8% compared to prior year quarter.

Looking next at second quarter revenue and operating income.

Collectively, outdoor, aviation, marine and fitness segments contributed 74% of total revenue in the second quarter of 2017 compared to 70% the prior year quarter.

Outdoor grew from 17% to 24% and aviation grew from 13% to 15%.

As you can see from the charts illustrating our profit mix by segment, the outdoor, aviation, marine and fitness segments collectively delivered 86% of operating income in the second quarter of 2017 compared to 80% the second quarter of 2016.

The outdoor and aviation segments had a year-over-year increase in both operating income dollars and operating margin.

Looking next at operating expenses.

The second quarter operating expenses increased by $12 million or 5%.

Research and development increased $13 million year-over-year or 150 basis points to 15.6% of sales.

We continue to invest in innovation, increasing resources focused on fitness, outdoor, marine and aviation segments, where we see long-term growth opportunities.

SG&A was up $1 million compared to prior year quarter.

It was relatively flat as a percent of sales.

Our advertising expense was $2 million less than the prior year quarter, as additional spend in outdoor segment was more than offset by decreases in the fitness and all the segments.

A few highlights on the balance sheet and cash flow statement.

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

Accounts receivable increased sequentially year-over-year to $515 million.

Our inventory balance decreased sequentially to $525 million as we exit the seasonally strong second quarter.

During the second quarter of 2017, we generated free cash flow of $129 million, a $6 million decrease from the prior year quarter.

Also during the quarter, we paid dividends of $96 million and purchased $36 million of company stock, $11 million remaining for purchase through December 2017.

In the second quarter of 2017, we reported an effective tax rate of 25%, which includes $7 million of income tax expense resulting from a new accounting standard related to the expiration of share-based awards.

Excluding the $7 million of income tax expense, the second quarter 2017 pro forma effective tax rate was 21.9% compared to 21% in the prior year quarter.

The 90 basis point year-over-year increase in pro forma effective tax rate is primarily due to the company's election to align certain Switzerland corporate tax positions with international tax initiatives, partially offset by income mix by tax jurisdiction.

We continue to expect our full year 2017 pro forma effective tax rate to be approximately 22%.

This concludes our formal remarks.

Tachia, could you please open the line for Q&A?

(Operator Instructions) Our first question comes from the line of Charlie Anderson of Dougherty & Company.

Cliff, I wanted to start with -- I noticed that APAC revenue growth had accelerated versus Q1.

I wonder if you could just talk about what's going on there.

I think maybe fenix is playing a part there.

And I just wonder, as we think about distribution and opportunities in Asia for some of your products, kind of where we sit.

And then I had a follow-up for Doug.

Yes.

Definitely, Asia has been doing well.

It is growing from a smaller base.

Wearables are definitely popular in that market as well, but we're also seeing growth in some of our other segments, such as marine and outdoor.

Okay.

And then for Doug, I was wondering -- I know currencies have changed since we started the year.

As you've updated your full year guidance, I wonder if you could update us on some of the FX assumptions and then also CapEx and free cash flow for the year?

Sure, absolutely.

As it relates to FX for -- talking about the Q2 impact, we had about a $10 million headwind on revenue in Q2.

And as it relates to the forecast and the guidance for the remainder of the year, what we do is we update our FX assumptions based on the current trends.

So what the current FX rates we're currently seeing out there are pretty similar to what we used in our guidance and our forecast.

As it relates to free cash flow, right now, for free cash flow for full year, we are expecting about $550 million.

Of that, we're expecting CapEx to be about $130 million.

Our next question comes from the line of Doug Clark of Goldman Sachs.

My first one is on the fitness segment.

Last quarter, you talked about the revenues from fitness trackers or activity trackers being about 1/2 of sales.

Can you talk about what that was this quarter given the declines that you saw?

Well, the market is down significantly.

NPD shows that the market is down about 32% in Q2, and so our mix has definitely come down a lot.

Our advanced wearables in running and GPS-based trackers are a much bigger part of the segment now.

Okay.

That makes sense.

And just to be clear, that 32% decline, that's for the activity tracker portion specifically?

Yes, that's the basic activity trackers in the U.S. market.

Got it.

And then my follow-up question was on the outdoor segment.

Can you talk a little bit about the fenix sell-in versus sell-through in the quarter and where we are from an availability and distribution standpoint?

So we believe that availability is good right now.

We are still expanding some retail channels that are taking the product in their summer recess.

But in general, it's fully available in most retail outlets out there.

There definitely was some pent-up demand for the device as we announced it at CES and delivered a few weeks later, so there's some pipeline effect, for sure.

But we do see follow-up orders and strong interest in the product.

Okay, great.

And then final one for me.

Can you talk about just the, I guess, the go-forward refresh cadence of the fenix product line?

I think last year -- or this is actually 2 years between the fenix 3 and the fenix 5. Is that what we might expect to see going forward?

Yes.

I can't comment on our future plans, but we do have a very active road map in all of our wearables.

Our next question comes from the line of Joe Wittine of Longbow Research.

Maybe I'll stick on fenix 5 just as a quick follow-up to that last question.

Have you learned anything from a demographic perspective based on the various flavors you offer and smaller -- and what many would consider more approachable case sizes?

Any data that suggests your expanding the tent?

Yes, for sure.

So 3 case sizes: 42, 47 and 51.

51 was the size of the previous model of fenix.

In the small size, we're definitely seeing a majority of those customers trend towards the female demographic.

So that's a totally new demographic for us and very exciting to see us expand into the area of lady adventurers.

On the larger size, adding the masses has really expanded the opportunity for the bigger products, so we're excited about that as well.

Makes sense.

Shifting to fitness, I know the low end of fitness garners completely outsized share of investor questions for you.

So can you talk about whether the most current segment guidance represents, for lack of a better word, a kitchen sink?

Because -- I ask because the magnitude of the decline have obviously been a little bit of a surprise throughout the first half.

So you may not want to use the word kitchen sink, but is there some capitulation in your thoughts when you assembled the new guide?

It seems like, based on the magnitude of the decline, that, that may be the case.

Well, certainly, we're counting on a steep decline in the activity tracker market.

We're following the rising and falling tides in that area, so that's baked into our assumptions.

And also, we're comping against strong product introductions from last year.

Our product introductions will take place a little later in this year in terms of refreshes, so that's all brought into our guidance.

That said, we do expect Q3 to continue the softer trends.

And moving into Q4, then, we believe that things will improve.

And then finally for me, automotive.

Can you help us understand at all when segment declines could narrow?

I mean, I guess you could look at the second quarter and say, we saw a slight narrowing.

But there's a thought that eventually, PNDs obviously should become less of an anchor and your OEM business will become a bigger piece of the mix.

So give us some maybe high-level thought on potentially when that could happen.

And within that, if you could update us on what's happening with OEM today from a volume perspective, so ex-ing out the impact of the deferred rev rec?

Yes.

So PND has been a slowly declining market for the last 8 to 9 years, and it's been a little difficult to predict when is the bottom.

We continue to believe that there is a base of business out there, a certain class of customer that likes these kind of products and will continue to be a reasonable category going forward, but certainly not mass-market levels like it was in the past.

The predicting has been very difficult, and we probably aren't in a better position of doing that today than we were in the past.

In terms of OEM, we're continuing to build a business base there.

There's a lot of dynamics with OEM in terms of the wins, the time frame it takes to get those to market as well as the revenue recognition model that take place.

A lot of our revenue taking place right now is being deferred because of software-based revenue recognition rules.

So it's -- we're excited about the progress in terms of wins.

We believe that it will contribute to growth in the future, but as of right now, it's still a smaller part of our overall auto category.

Our next question comes from the line of Yuuji Anderson of Morgan Stanley.

A question on the running watches.

How did it do this quarter, year-over-year?

And are you seeing kind of like the similar strengths and weaknesses there, where the advanced models are driving demand versus the entry-level watches?

And then a question on operating margins for fitness, generally.

How should we think about potential expense management in that category given the current weakness that you're seeing?

And then just balancing that against your coming product launches, is there some opportunity to kind of realize some savings there?

Yes.

So in our Forerunner category, which is what I would call our made-for-running product line, we're seeing double-digit growth, strength in that product line, so we feel very good about that category of the market, if you will.

In terms of the expense structure overall in fitness, certainly, there's been a big increase year-over-year.

Much of that is due to kind of a comping effect of adding resources over the year, and they're just now being recognized on a full year basis.

We believe we're pretty well situated when it comes to overall resources in the segment.

And we do think there's opportunities to fine-tune our investments, particularly in marketing and advertising, as the categories -- category mix is changing.

Our next question comes from the line of Ben Bollin of Cleveland Research.

The first one, I wanted to circle around on the outdoor business.

If you look at the first half performance, I think the overall business is up 35% year-on-year.

And the implied -- or the guide for the year now at 25% would imply kind of lower-than-seasonal back half relative to what you've seen in the last couple of years.

So I'm curious how you think about the seasonality in the back half and how much maybe channel fill benefit you got in the near term.

And then I have a follow-up.

Yes.

So definitely, 25% for the year does imply a back half rate that's different than what we've seen in the first half.

As I mentioned earlier, the pipeline effect of fenix definitely had an impact, so we recognize that those pipeline fills occur once in a product introduction.

But that said, we're also comping against very strong growth rates of fenix 3 HR last year.

So we're just trying to look at all those factors and come up with a guide that we feel is achievable for the entire year.

Okay.

And then looking at the aviation business, obviously, the retrofit opportunity has been pretty good on ADS-B and maybe incremental attachment there.

But could you talk a little bit about each subset and the degree of visibility you feel you have from both OEM and retrofits?

And what type of progress do you think you're making on a market share front?

Yes.

So continued strong interest in ADS-B, and it's growing as we move into -- towards the mandate deadline, which is the end of 2019.

People basically say beginning of 2020.

We believe we'll continue to see that kind of momentum as the mandate approaches and people realize that they need to equip in order to be legal in their flying going forward.

In terms of other product categories, ADS-B is definitely a strong category, but I've mentioned before in the past that we see a pull-through on other categories, particularly the aftermarket navigators and communication navigation and those kinds of things, as people think about upgrading their entire panel.

So we believe that is a positive trend, and we believe it will continue to go that direction as ADS-B moves towards the mandate.

In terms of OEM, we're incrementally positive, I guess, about what's going on in the industry.

But I would point out that industry growth on the OEM side has lacked any kind of conviction, and so as a result, we're remaining conservative.

But overall, we're pleased with what we see so far.

Our next question comes from the line of Tavis McCourt of Raymond James.

Cliff, I just had one for you and then a couple of clarifications for Doug.

In your commentary around the auto business, Cliff, you mentioned managing it for profitability.

It looks like this year, you'll get pretty close to that 10% EBIT margin level and may end up below it, depending on cost in the back half of the year.

And obviously, if the revenue growth continues to decline 10% or more next year, that will be tougher next year.

Is that 10% EBIT margin levels a line in the sand?

Or are you willing to run it for any level of reasonable profitability as the revenues scale down?

And Doug, I'll just -- I'll mention, while I've got the line, a couple for you.

The full year tax rate, 22%, is that what we should be baking in for Q3 and Q4 as well?

Also, you mentioned capital spending, I think $130 million for the year.

That's a pretty significant uptick, especially in the back half of the year here.

Just wondering if there's any specific projects that's related to?

I think that's it.

Yes.

So Tavis, on the profitability on the auto side, we've said for a while that our goal is to manage the segment for maximum profitability, and that continues to be our mindset.

I believe that, as we move into the back half of the year and the holiday buying season, we'll see some uptick in overall seasonality that will allow us to leverage our expense base there.

I think it's hard to speculate on what-ifs, but 10% profit on a business like this is still good profit dollars.

So we continue to try to maximize those opportunities through the right levels of innovation and also focusing on niche categories that bring more margin to the segment.

Great.

And regarding -- first item regarding CapEx.

So yes, the project that we have that's going to increase the CapEx in 2017 and probably going into 2018 is some of the expansion we have here (inaudible) late regarding our distribution center, as well as manufacturing for aviation.

We announced that last year.

So we'll see some spend here, some heavy spend come in the back half of the year that gets back up to the $130 million type of number.

As it relates to tax rates, yes, our full year guide is 22%.

For the first half, we're somewhere close to that.

Q3 and Q4 is going to be dependent on what kind of reserve releases we have in that period of time.

We don't factor those in until the actual reserve releases happen.

But I think for right now, purpose is probably for -- your purpose is probably at 22% full year and each quarter, is probably fair.

Got you.

And on the free cash flow guidance, Doug, are you expecting any meaningful change in working capital ending the year versus where you were last year?

Yes.

So last year, we had quite a bit of favorability in working capital, primarily on the inventory side.

So this year, if you look at the numbers, getting to the $550 million, we do expect some operating income improvement year-over-year, then increased CapEx.

But also, we won't see as much improvement year-over-year in our CapEx or in our -- excuse me, our working capital as we saw in 2016 primarily because of inventory.

We expect inventory probably to be up year-over-year.

Probably maybe a similar type of year-over-year change that we saw in Q2, we should expect to see at year-end.

Our next question comes from the line of Brad Erickson of KeyBanc Capital Markets.

So back to the fitness margins real fast.

Does the commentary you gave about the basic wearable declines, does that lessen the margin headwinds over time on the fitness segment?

Or should margin erosion just generally be sort of the working expectation for going forward, at least for the foreseeable future?

Definitely, the basic trackers have a lower margin profile, so they're becoming a smaller mix of the segment.

It will improve our overall segment margin performance.

We're relatively flat on a year-on-year basis, and the reason for that is that our overall product line is more mature this year.

So there's some margin erosion that naturally occurs, and that's why we had fairly flat margin even though we had a lower mix of activity trackers.

Got it.

And then in terms of the holiday, can you just kind of talk about what you're targeting for marketing and promotional activity, particularly for outdoor and fitness, relative to the year-ago period?

I think you'll see us do similar types and sizes of campaigns in the holiday buying season to support our overall revenue plan and our retailers as they carry our products.

Our next question comes from the line of Ronald Epstein of Bank of America Merrill Lynch.

It's Kristine Liwag on for Ron.

In aviation, what was the growth in business jet OEMs in the quarter?

And also, could you provide more color on which programs contributed to this growth?

Is it light jets, medium-size jets or the super-mids?

I think generally, the industry has already kind of reported single-digit kind of growth in aircraft deliveries.

And I would say that we're heavily indexed into the small to midsize area of the market.

So the light jet market, as you know, has been fairly weak, but the midsize has been more robust.

And then maybe switching gears.

Boeing recently announced a new business unit focused on avionics.

What do you think Boeing's foray into avionics could mean for the industry?

And how do you think this could trickle down from the large jets and affect you?

I mean, a lot of your competitors in business jets also are suppliers to large aircraft like Boeings and Airbuses.

Yes, can't really speculate on all of their reasons for doing that.

I think certainly, there's some hurdles to understand in going from 0 to full avionics capability, and so it does require significant investment, significant staff.

But at this point, it's hard to speculate on what they have in mind.

Our next question comes from the line of Ivan Feinseth of Tigress Financial.

My first question is on new product rollout.

Can you give us some idea of what kind of new products we can expect to see in the second half of this year?

And then I have a question about automotive.

Yes.

So, can't provide any additional details.

We'll be making announcements as we're ready on the new products.

Is there any area specifically we could hope to see certain products in?

Again, can't comment beyond what we've already provided.

Okay.

And then on the automotive and OEM side, since many companies like Apple and Google and even Microsoft are getting involved in supplying some kind of software or data to the self-driving car, how do you envision your role concerning you make cameras, autopilot systems, GPSs, and you have extensive OEM relationships.

In the bigger picture, where do you see your role in enabling the self-driving car?

Well, I think the car of the future definitely has lots of components and a huge amount of technology that's rolled in.

There probably won't be one clear supplier or clear winner in all of that.

We have our areas of expertise, as you pointed out, and that's where we're focusing our effort in terms of finding opportunity.

And also, like, for example, one of the apps you have available for the fenix is the remote control for the Tesla, which, by the way, seems to be an incredible app.

And people that own Teslas that hear about it don't even know Garmin makes a watch.

They've been buying the watch and are impressed with the app.

Are you -- now that app happens to be made by a third-party developer on your platform.

Do you envision working with some of the OEM manufacturers to develop apps for your wearables such as the Tesla app?

Well, certainly, one of the great strengths of our wearables is our app platform.

It's something we've invested in early.

And as I mentioned, we've got a very positive amount of momentum going on in our app store.

So people are able to create new utility and new applications for our devices, wearable and other devices as well using our Connect IQ.

But in terms of specifics and working specifically with them, I can't comment at this time.

Our next question comes from the line of Paul Coster of JPMorgan.

This is Paul Chung on for Coster.

So just to go back to outdoor, can you confirm the breakout between DeLorme versus fenix and other products?

And on fenix, how much of that growth was from the smaller form factor targeted at women?

And then finally, on the operating margin, was the increase more of a function of scale, DeLorme, or was it something more structural?

Yes.

In terms of breakout by categories, we don't do that in detail.

Certainly, with the growth of fenix, it's becoming a bigger part of our overall outdoor segment revenue.

And DeLorme as well, the growth there is making a positive contribution, although from a smaller base.

Operating margin?

Yes.

The operating margin situation, definitely there's leverage when you have significant revenue growth such as what we did.

And as I mentioned earlier, we believe, generally, our investments in terms of engineering and, to some extent, marketing and advertisement, we're getting some leverage benefit out of those.

(Operator Instructions) Our next question comes from the line of Will Power of Baird.

I guess a couple of quick follow-ups.

Just coming back to aviation, you raised guidance there for the year.

I know you had continued ADS-B strength, but maybe just any further color on where the upside surprise has been relative to your expectations?

And then I got a second one.

Yes.

So upside on aviation, definitely stronger growth in the aftermarket area than we anticipated.

Okay.

And any key particular products, I guess, within that?

Well, again, ADS-B devices are a strong growth area.

And we are seeing the positive benefit of additional products being pulled into purchasing decisions as people retrofit their aircraft.

Okay.

And then I just wanted to ask on the gross margin front.

Based on the full year guidance, it implies slightly lower gross margins in the second half of the year versus the first half.

I assume that's principally a function of mix, but any other color there would be helpful.

Yes.

This really relates to the fourth quarter.

What you see basically relates to our promotional activity in the fourth quarter.

But in gross margin, yes, the improvement we saw in the first half of the year, a lot of that was due to a segment mix, just having a higher percentage of our business in outdoor and aviation, which have higher margins, and then the decrease in the activity tracker business and the auto PND business.

I'm showing no further questions at this time.

I would like to turn the conference back over to Teri Seck for any closing remarks.

Thanks, everyone.

Doug and I are available for callbacks this afternoon.

Have a great day.

Bye.