台灣國際航電 (GRMN) 2017 Q3 法說會逐字稿

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

Third Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host today, Teri Seck.

You may begin.

Good morning.

We would like to welcome you to Garmin Ltd.

Third 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 transcript 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.

Thanks, Teri, and good morning, everyone.

As announced earlier today, Garmin reported third quarter consolidated revenue of $743 million, up 3% over the prior year.

Outdoor, aviation, marine and fitness collectively increased 9% year-over-year and contributed 75% of total revenues.

Gross margin improved to 58.4%, and operating margin improved to 22.8%.

GAAP EPS was $0.78, and pro forma EPS was $0.75 in the quarter.

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

Beginning with the outdoor segment.

Revenue grew 31% on a year-over-year basis, driven by strong demand for wearables.

Gross and operating margins expanded to 64% and 37%, respectively, while operating income grew 38% over the prior year.

We experienced strong demand for the fenix 5 watch series and expect this trend to continue throughout the holiday quarter.

In addition, we experienced solid growth of inReach devices and subscription services.

We recently announced our entry into 2 new product categories with the introduction of Descent, our first wearable for the dive market, and the Impact bat sensor, our first product for the baseball market.

The Descent is a beautifully designed smart watch with integrated dive computer functions and electronic logs managed through Garmin Connect.

The Impact bat sensor delivers instantaneous feedback on the device while coaches and players can see further details using the Impact mobile app.

Looking forward, we remain focused on the wearable opportunity and expanding into new product categories.

Turning next to aviation.

We reported strong revenue growth of 16%, driven by growth in both OEM and aftermarket categories.

Gross and operating margins came in at 73% and 27%, respectively, resulting in operating income growth of 12% over the prior year.

We recently announced the TXi series of touchscreen flight displays that offer enhanced integration features and target a broad range of aftermarket aircraft from light signals -- singles to business jets.

We also started shipping the GFC 600, our first aftermarket autopilot solution.

These new products are welcome additions to our lineup and further expand addressable market opportunities.

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

Looking next at marine.

Revenue increased 10% year-over-year, driven by growth in multiple product lines and led by strong demand for our fishfinders and chartplotter combos.

Gross and operating margins were 58% and 24%, respectively.

We recently completed the acquisition of Navionics, a leading worldwide provider of electronic marine content and mobile applications.

Combining content from both Navionics and Garmin will result in best available breadth and depth of coverage for our marine customers.

For the third consecutive year, we were recognized by the National Marine Electronics Association as Manufacturer of the Year.

This award, along with 8 product of excellence awards, affirms our commitment to designing, manufacturing and selling industry-leading products for the marine market.

Consistent with that commitment, we announced the 2018 lineup of marine electronics, which include updated echoMAP and STRIKER models with WiFi capability, enabling connected boating experiences.

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

Moving next to fitness.

Revenue declined 12%, driven by the rapidly maturing market for basic activity trackers and product introduction timing, partially offset by strong growth in our running product line.

Gross margin improved to 58%, while operating margin decreased year-over-year to 20%.

Our product lineup is very strong as we enter the holiday quarter.

Recent product launches include the vívoactive 3 with wrist-based payments, the vívomove HR analog watch with wrist heart rate and smart notifications and the ultraslim vívosport activity tracker with built-in GPS and smart notifications.

In addition, we launched our vívofit jr.

2, featuring Disney, Star Wars and Marvel team bands and mobile app adventures.

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

Looking finally at the auto segment.

Revenue declined 12% due to the ongoing PND market contraction, partially offset by solid growth in OEM and niche product categories such as cameras, truck fleet and RV.

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

Gross and operating margins declined year-over-year to 44% and 8%, respectively.

We recently launched Garmin Speak with Amazon Alexa, which is the first digital assistant with integrated turn-by-turn navigation.

We also started shipping the eLog device in time for the upcoming electronic data logging mandate for truck operators.

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

Well, with 3 quarters of the year behind us, we're updating our projected revenue for the year to $3.07 billion, an increase of about 2% over 2016.

Projected gross margin remains at approximately 57.5%, but we are raising our projected operating margin to approximately 21.5% for the full year.

Pro forma earnings per share is expected to be approximately $2.90, assuming an updated pro forma effective tax rate of approximately 21.5%.

Looking at guidance by segment.

We've increased growth expectations for outdoor, aviation and auto by 200 to 300 basis points.

Our outlook for marine is unchanged, while the outlook for fitness has been reduced slightly by 200 basis points.

That concludes my remarks.

Next, Doug will walk us through additional details of our financial results.

Doug?

Thanks, Cliff.

Good morning, everyone.

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

We posted revenue of $743 million for the third quarter, representing a 3% increase year-over-year.

Gross margin was 58.4%, 220 basis point increase from the prior year, driven primarily by segment and product mix.

Operating expense as percentage of sales was 35.5%, a 140 basis point increase from the prior year.

Operating income was $170 million, a 6% increase year-over-year.

Operating margin was 22.8%, a 70 basis point increase from the prior year as the increase in gross margin more than offset the increase in operating expenses.

Our GAAP EPS was $0.78.

Our pro forma EPS was $0.75, consistent with the prior year.

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

During the quarter, we achieved 3% consolidated growth, led by double-digit growth in 3 of our 5 segments.

For the third quarter 2017, outdoor grew 31%, while aviation grew 16% and marine grew 10%.

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

Collectively, outdoor, aviation, marine and fitness were up 9% compared to the prior year quarter.

Looking next at third quarter revenue and operating income.

Collectively, the outdoor, aviation, marine and fitness segments contributed 75% of total revenue in the third quarter 2017 compared to 70% in the prior year quarter.

Outdoor grew from 19% to 25%, and aviation grew from 15% to 17%.

You can see from the charts, illustrating our profit mix by segment, the outdoor, aviation, marine and fitness segments collectively delivered 91% of operating income in the third quarter 2017 compared to 84% in the third quarter 2016.

Looking next at operating expenses.

Our third quarter operating expenses increased by $18 million or 7%.

Research and development increased to $130 million or 17.4% of sales, a 130 basis point increase year-over-year.

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

SG&A was up $5 million compared to prior year quarter, increased 30 basis points as a percent of sales to 13.7%.

Our advertising expense was relatively flat to the prior year quarter as additional spend in the outdoor segment was offset by decreases in all the other segments.

Few highlights on the balance sheet and cash flow statement.

We ended the quarter with cash and marketable securities of approximately $2.4 billion.

Accounts receivable decreased sequentially to $457 million, relatively flat year-over-year.

Inventory balance increased sequentially to $575 million to prepare for the fourth quarter and was higher year-over-year due to several new product launches at the end of third quarter 2017.

During the third quarter 2017, we generated free cash flow of $153 million.

Also during the quarter, we paid dividends of $96 million and purchased approximately $11 million of company stock, about $1 million remaining for purchase through December 2017.

The effective tax rate was 20.8% at current-year quarter compared to 16.5% in the prior year quarter.

The increase in effective tax rate was primarily due to the company's election to align certain Switzerland corporate tax positions with international tax initiatives and income mix by tax jurisdiction, partially offset by the release of income tax reserves in the third quarter 2017.

We expect our full year 2017 pro forma effective tax rate to approximately 21.5%.

This concludes our formal remarks.

Jody, can you please open the line for Q&A?

(Operator Instructions) Your first question comes from the line of Doug Clark with Goldman Sachs.

My first one is on the auto business, talked about growth in the OEM and other niche products.

Can you help quantify that a bit?

Did OEMs see an inflection?

And if so, what was that driven by?

Yes, so we don't quantify any of the particular categories within our segments.

But I would say that auto has been performing well this year, particularly around new programs such as the Honda programs as well as our existing programs at Daimler and others.

Okay, okay.

My other question was in the fitness category.

Last quarter, we kind of talked about the declines in the activity tracker market.

Did the activity tracker business decline again sequentially?

And if so, does that put it kind of below 1/3 of fitness sales?

And then a quick question just on the impact of FX.

Can you quantify what that was or how that impacted growth on a year-on-year basis in third quarter?

And what your expectation is for it, for the contribution in the fourth quarter as well?

So activity trackers declined on a year-over-year basis.

We don't really track sequentially.

But year-over-year, as we said in our remarks, they continue to decline.

In terms of quantifying what those represented, we don't comment on specific categories.

But as the decline has been fairly steep, I would say that the basic trackers have become much less of an influence in our overall results.

Yes, this is Doug.

Regarding the FX impact, for Q3, there was about a $13 million tailwind.

Assuming that we have similar FX levels currently, we would expect the Q4 tailwind to be similar to what we saw in Q3.

Your next question comes from the line of Rich Valera with Needham & Company.

I was hoping you could give a little more color on the drivers of the aviation growth.

It sounds like it's pretty balanced between OEM and aftermarket.

But if you could talk about the prospects for growth and the 2 pieces of that, if there's anything you could say about maybe the growth prospects for that into '18, that would be helpful.

Yes.

So as we remarked, OEM and aftermarket categories both grew in the quarter.

I think that we have been fairly hesitant to call a growth inflection on OEM because I think seeing trends in the market and trying to establish those has been difficult in this market, but it is encouraging.

In terms of the aftermarket side, as we remarked, ADS-B is a significant driver of growth in that area.

And there's also pull-through effects of other equipment that we're selling as people upgrade their aircraft.

That will continue into 2018 and 2019 as well as the mandate that operators have to comply with is at the end of 2019.

Got it.

And then on the marine segment, can you talk about Navionics, what -- kind of what the revenue run rate was there?

How much we think that might contribute in the fourth quarter sort of on an annualized basis, on a trailing basis, if you could do that?

Yes.

On an annualized basis, it's approximately $30 million.

In Q4, it's the seasonally lowest quarter for any marine business so we're not expecting any significant impact on our Q4.

Got it.

Then in terms of tax rate, again, looking out to next year, any reason to assume a meaningful deviation from the tax rate you just provided for this year?

Yes.

We'll you give more color on that in February when we give our 2018 guidance, but we expect it to be relatively similar to what you're seeing currently.

And we'll update you if anything changes while we're going through our planning process with that.

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

This is Kristine Liwag in for Ron.

I was wondering, when you think about industry investments in autonomous systems, can you discuss any technology that you have in aviation that you're introducing or can introduce into the autos market?

Well, I think there's a lot of investment going on in the auto market for sure.

Our focus has really been in other categories such as aviation and marine.

We do have sensor technology and attitude technologies that could be useful, but our focus is really on our primary markets.

Great.

And in aviation, can you quantify the market opportunity for ADS-B and what your market share is today?

Yes.

So in terms of overall market, we believe there's somewhere around 100,000 to 120,000 aircraft that will be equipped over time.

We're approximately 20% to 25% through that cycle.

And up to this point, we've been commanding in terms of unit share profitably 75% of the market.

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

Another follow-up on aviation.

The full year guidance, it looks pretty conservative for Q4.

So just curious to hear what are the puts and takes we should be thinking about there?

Yes.

So Q4 we are up against a stronger comparable from last year, so that's factored into our thinking.

Also, at the end of the year, so while we -- aviation tends to be a little more steady business, certainly some of that business will slow down in terms of overall activity as people think about holidays and so forth.

So we're putting something out there that we believe is achievable, and that's the situation as we see it right now.

Okay, that makes sense.

And on aviation margins, just on the downtick we're seeing there, is it related to your investments in that area?

And if so, over what kind of horizon should we expect to see regained operating leverage?

Yes.

I think in terms of the gross margin there, there are some puts and takes quarter-to-quarter.

But we did have some additional warranty expenses for the quarter that impacted our gross margin, but we would expect that to normalize as we go forward.

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

I want to start with Doug on operating expenses.

Doug, to the extent you're willing, can you talk through the go-forward trajectory?

Specifically, I'm wondering whether the R&D and SG&A trajectories changed.

This year, R&D is up by about $50 million, SG&A by about $10 million.

So is that 2017 inflation rate a reasonable go-forward growth assumption?

Or does the '17 contain any kind of exceptional or onetime investments?

Yes.

Well, obviously, we'll go through it to give you a little bit more color on that in February 2018.

But we expect similar type of run rates going forward.

Okay.

And can you remind us of the impact of last year's 4Q's 14th week on OpEx?

Did you run through an extra week?

Sure.

Yes, should give you little impact on the 53rd week.

On the revenue line item, there was about $18 million relating to that 1 week.

And then as it relates to operating expenses, there's about $10 million of operating expenses.

Great.

And then, Cliff, quickly, do you have any early insights on vívoactive 3 from kind of a market perception or from the perception of discussions with your partners, the influencer reviews looked decent.

So talk perception and maybe some view on sell-in dynamics as well since it looks like supply is still pretty limited here in early November, especially for the high-end variants.

Yes.

So I think so far, the feedback has been favorable on the device.

I think people appreciate the device for its size, for the features and what we've brought to the market.

We're still rolling out additional features in the product as well.

Garmin Pay will launch later this month, so there's still more work to be done.

In terms of channel sell-in, we're still shipping products into the channels, so there's probably some constraints that are still out there that we're still filling in, in anticipation of the Q4 selling season.

Okay.

And finally, also on wearables, do you expect to feel any quantifiable impact from TomTom's, that includes especially in Europe?

Yes.

I think particularly, they were strong in certain European countries.

And we've positioned ourselves in that market to be able to try to pick up as much of that share as possible.

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

Cliff, I wanted to start -- when you look at the outdoor performance and notably with fenix, how much of the growth you're seeing do you feel is organic versus refresh to existing?

Couple other parts to that, how much do you -- channel expansion do you think is left?

And what are your thoughts on carrying of the portfolio from here?

Can pricing keep going higher?

Can you continue to expand that?

And then a follow-up for Doug.

Yes.

So in terms of -- I think maybe your question was around how much of our sales are going to perhaps existing customers who were upgrading.

We definitely see some of that, especially people that bought into the early generations of fenix, but we're also expanding the base quite a bit.

And I think fenix is becoming a brand name that's associated with both adventure lifestyles and aspirational lifestyles, and so we're seeing some expansion because of that.

In terms of our future road map and pricing, certainly, we have a very active road map, so I can't comment on the details of that.

But our goal is to be able to continue to bring innovation to the market and to be able to keep an established price point as we go forward.

And Cliff -- I'm sorry, and Doug, when you look at the aviation capacity expansion, could you remind us how much CapEx is left?

When does that capacity come online?

And how quickly do you expect to fill that capacity?

Yes.

So as it relates to CapEx that we have, so basically we have about $130 million that we're expecting for CapEx this year.

About $70 million or so of that is relating to the Olathe expansion here, and we expect to continue with the expansion for the next couple of years.

Your next question comes from the line of Charlie Anderson of Dougherty & Company.

So just looking at outdoor, the sort of 200 basis point guide up in the gross rate, and then fitness, the 200 basis point sort of downtick.

I wonder if you could just speak to what's outperforming in outdoor relative to your earlier expectations?

And what's underperforming in fitness relative to your earlier expectations?

And I've got a follow-up.

Yes.

So outdoor, fenix, again, as we've remarked, has been doing very well.

Also, our inReach devices and subscription-based services have been doing very well.

So that's the primary drivers behind the increase in outdoor.

In fitness, as we've been saying, the basic activity tracker market has been in steep decline, so that's been an impact on us throughout this year.

And our -- also, our product introduction timing came later this year versus what it did in 2016.

And so those 2 factors impacted both the outdoor and fitness.

I would mention that if you combine those 2 and look at the combined revenues and the growth on a year-to-date basis, we're up 7% in both outdoor and fitness combined, which reflects, I think, a better picture of the overall wearable category and where it's going.

Great.

And then sort of my follow-up is related to fitness.

So I think the guidance calls for and it sort of always has stabilization to a degree in Q4, and there's new product introductions that are helping that.

But I wonder as you look out over the next few years, is it your view that with sort of mix changing that you are going to start to stabilize there?

And then what's your long-term outlook on sort of the margin profile of that business?

Yes.

So naturally, we are looking for and hope for a stabilization out there.

I would remind people that this is a consumer market, so we don't know exactly where it goes and it can change rapidly as we've seen in the activity tracker market that our strategic focus is on a healthy, growing market.

And the second part of your question, I'm sorry?

Was the long-term margin profile of that business.

Yes.

So I think for fitness, we're targeting mid-50s and a 20% kind of range in terms of operating margin.

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

This is Elliot Arnson on the line for Brad Erickson.

Just wondering on auto, with the implied -- with the improved guidance for this year, was wondering if that implies better or I guess muted declines of PNDs going forward?

Yes.

We still see PNDs running in the same trajectory as what we've been seeing.

The improved outlook is really around the OEM outperformance as well as some of the new categories that we're shifting into the markets such as Speak and eLog.

That's helpful.

And then just another question kind of around fitness.

Was wondering if you guys are seeing kind of -- if you guys are planning like a similar product evolution in fitness?

Is it kind of what there's been in the outdoor segment, kind of with more fashion-type form factors with those products?

Yes.

I can't really comment on the future plan.

But as I mentioned, with outdoor, we've got a very active product road map in fitness as well.

And so we'll continue to introduce new products as we go forward.

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

The new Impact swing sensor to me looks like a totally new direction for a product or a product line.

Could you give us some idea of some of the things you're thinking about, what new areas you'd like to be going into?

Yes, so you're right, Impact definitely is a new category for us.

It's a totally different market.

I think like many products that we delivered here at Garmin, they're driven by our own passions within the company.

So this is something we wanted to explore, and we thought we had some innovation we could bring to the market.

In terms of other categories we're exploring, I really can't give any color on that right now, but I would say that we are actively working on some new things and we should have some new things to offer in the coming year.

Now would this be -- can Impact be something you could also use on a tennis racket?

Could you design something for tennis, for example?

Yes, I think the physics are fundamentally similar.

I think at this point, we don't have any thoughts around that particular market.

But I think the platform is something that could be extended to tennis.

Then I have one more question about your app platform.

Pretty much all the apps, you have an extensive number of apps that are available for all of your products.

But occasionally, like some of the developers, you could pay them if you want, but there's no formal process.

Do you plan on eventually having a more formal process for applications to be marketed and new partnerships and people, let's say, could buy apps and you can participate in the revenue for that?

Yes, I think you're probably talking about Connect IQ on our watch platform.

And if so, the answer is yes.

We do have monetization in our road map for Connect IQ, and that's something we're working with our developers on.

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

A couple of financial ones first.

As it relates to the jury verdict against you in the quarter, was there any accrual related to that in Q3 or in the Q4 guidance?

Or is there no accrual because of the appeal?

Yes.

So Tavis, yes, we went through that process.

And right now, we have concluded that it's not probable.

We have a loss based upon the accounting terms, and so we do not have an accrual recorded for Navico.

But we did file our Q this morning to give full disclosure transparency to the situation.

And we did indicate that it's reasonably possible that we could incur a loss up to $114 million, but no accrual is probable at this time.

Got it.

And then the inventory balances look like they were up quite a bit year-over-year.

And I know sometimes Septembers can be a little tough to gauge in that regard due to holiday shipping.

Is that -- I guess, maybe give us an update on where we should expect inventory balances either in terms of days or turnover over time.

Yes, sure.

So Tavis, at the end of Q3, we had a few things, one of which, we had strong demand for fenix product, the aviation products.

Also, it was relating to the timing of some of the product launches, so we had a large number of product launches here and then in Q3, so we have to buildup for that.

So the inventory was higher at Q3.

Sequentially, going into Q4, we should expect that to go down.

But year-over-year, Q4 '17 versus Q4 '16 will still be up.

Got you.

And then when you referenced the foreign currency benefit, I think $13 million, was that relative to year-over-year or sequential?

That's the year-over-year, yes.

Okay.

And then the final question, it looks like the full year advertising expense is going to be pretty flattish after a number of years of growth.

Do you think you've kind of reached a run rate level there?

Or is that just kind of the result of the fitness business coming down and not reallocating that spend somewhere else?

Yes.

I think it's probably a combination of both, Tavis.

I think definitely we've realigned our spending around fitness in terms of the opportunity there in targeting where we see potential for growth, and then also really kind of fixing our number around what we think is a sustainable run rate going forward.

Great.

And then I wanted to make sure I understood one aspect of the guidance in the auto business to get to the full year kind of mid-teens.

I'm getting to about a mid-teens decline in Q4 as well, which I just want to make sure that, that's kind of what you guys expect because in answering one of the other question, you kind of sounded a little more optimistic than that on that business?

Yes.

So the implied Q4 is minus 14%, which was slightly ahead of where we had started the year.

(Operator Instructions) Your next question comes from the line of Doug Clark of Goldman Sachs.

I just had a question to sort of comments on sell-in versus sell-through dynamics on the fenix thus far?

I think for fenix, sell-in and sell-through has pretty much normalized.

We spent part of Q2 and into Q3 filling the channel.

And I think at this point, we feel like the channel is mostly stabilized.

Okay, perfect.

And then my other question was heading into the holiday season, how do you expect your store footprint to be this year, fairly comparable to prior years?

I think we definitely have all of the same doors that we've had in the past for sure.

In some cases, the shelf space within those doors has been expanding.

For example, at Best Buy, our overall shelf space has been expanding there.

But we're also expanding into other channels as well.

For instance, we're in Macy's, we're in several jewelry chains such as Kay, Zales and Jared.

We'll be in Dillard's and JCPenney as well.

Your next question comes from the line of Rob Spingarn of Crédit Suisse.

This is actually Audrey on for Rob Spingarn.

So I would just like to follow-up on avionics.

So first, could you quantify some of your market share going into the OEMs?

I know that you mentioned that you're running around 75% of market share and aftermarket.

But how much of that is that for the OEMs on the planes?

And do you have any outlook on that moving forward?

Yes.

So in terms of market share, the previous comment was around specifically ADS-B, which is one particular product category within mostly the aftermarket segment.

So that's where the 75% number came from.

In terms of OEM, our market share really depends on the product or the aircraft category.

So in the smaller piston engine aircraft category, it's north of probably 90%.

But as you move up into the various categories, particularly beyond light jets, then our share starts to come down.

All right.

Great.

And then just digging a little bit deeper on the margins as well.

So on the R&D spend, could we talk a little bit about how much of that R&D spend is allocated to avionics versus, say, outdoors?

And how much would that be impacting the margins?

Yes.

So relating to -- you said aviation versus outdoor, so we actually do break out the R&D with each all of our segments in our Q. So you can get that from our Q.

Okay.

Great.

And then just digging in a little bit more into the warranties.

How much do you see that moving forward in terms of impacting margins, say, in Q4 or out into 2018?

Yes, we probably think that was a onetime hit on that warranty that hit in Q3.

We don't expect that specific item that we referred to recur in Q4.

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

This is Paul Chung on for Coster.

So I was just wondering if you could provide a split between the growth in outdoor, whether it's from the fenix, and how much of that growth was from the inReach products?

And on the subscription services, can you provide any metrics there and how material it was?

And do you see that sales model potentially applied to other segments?

Yes.

So we don't break out numbers by categories within segments, so I can't really provide specific color on that.

Again, only commenting generally that fenix family and particularly fenix 5 has been a significant driver of growth in outdoor.

And in terms of inReach, it's a very nice incremental category for us, but probably not moving the needle the same way that fenix 5 is.

And your final question comes from the line of Joe Wittine of Longbow Research.

Just a follow-up on cycling, which I know is small, but I wanted to ask specifically on Alphamantis.

Could you talk through the strategy there?

It's essentially a service provider.

So is the strategy to add the service revenue stream, is it to perhaps benefit Vector's market share?

Or could it potentially lead to different hardware-based products on the bikes?

Yes.

So Alphamantis brings additional technology to our portfolio, allowing us to create new product categories within our cycling area.

I think as a company, they've been focused on more the technical side of the business, particularly with very technical and professional riders.

But it's our goal to be able to try to bring that technology down into the mass market.

Could that be a new form factors or would that be in modifications to Edge, et cetera?

Could be new form factors.

There are no further questions in the queue at this time.

I turn the call back over to Teri Seck for final remarks.

Thanks, everyone.

Doug and I will be available for callbacks today.

Have a great day.

This concludes today's conference call.

You may now disconnect.