Teri Seck - Garmin Ltd. Clifton A. Pemble - Garmin Ltd. Douglas G. Boessen - Garmin Ltd.

Charlie Lowell Anderson - Dougherty & Co. LLC Simona K. Jankowski - Goldman Sachs & Co. Tavis C. McCourt - Raymond James & Associates, Inc. Joe H. Wittine - Longbow Research LLC Paul Coster - JPMorgan Securities LLC Yuuji Anderson - Morgan Stanley & Co. LLC Ben J. Bollin - Cleveland Research Co. LLC Brad D. Erickson - Pacific Crest Securities Rich F. Valera - Needham & Co. LLC

Good day, ladies and gentlemen, and welcome to the Garmin First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a quick question-and-answer session, and instructions will be given at that time. I would now like to introduce your host for today's conference, Teri Seck, Investor Relations. Please go ahead, ma'am. Teri Seck - Garmin Ltd.: Good morning. We would like to welcome you to Garmin Limited's first 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 webcasts and related transcript will also be available on our website. 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, growth 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 the 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 Limited 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. Clifton A. Pemble - Garmin Ltd.: Thanks, Teri, and good morning, everyone. As announced earlier today, Garmin recorded first quarter consolidated revenue of $639 million, up 2% over the prior year. Marine, outdoor, aviation and fitness collectively increased 12% year-over-year and contributed 75% of total revenues. Gross margin improved to 58.3% as both segment and product mix were favorable. As a result of our increased revenues and gross margins, our operating margin improved to 18.2%, while operating income increased 12%. This resulted in GAAP EPS of $1.26, which includes a significant income tax benefit recognized during the quarter. Pro forma EPS which excludes this benefit grew 7% to $0.52 in the quarter. We are pleased with our first quarter results, which delivered growth in revenue, profits and earnings. However, since Q1 represents the lowest seasonal quarter of our financial year, we are maintaining the guidance issued in February. 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. Starting with marine, revenue grew 26%, ahead of the overall market resulting in market share gains. All major product categories performed well. Gross margin improved to 57% while operating margin improved to 17%, resulting in operating income growth of 76% over the prior year. Marine season is in full swing and we have seen strong demand for our latest product offerings. We started shipping our new GPSMAP chartplotters early in the season and the feedback from customers has been very positive. Looking forward, we remain focused on gaining market share through innovations that will clearly differentiate us in the market. Looking next at outdoor, revenue increased 20% on strong demand for outdoor wearables. The segment continue to generate strong gross margin and operating margin of 63% and 30%, respectively, while operating income grew 24% over the prior year. We began shipping the highly anticipated fēnix 5 adventure watch series late in the quarter. Orders have been very strong and we expect that it will take several weeks to catch up with demand. We also recently hosted our first Connect IQ Developer Summit, bringing together application developers and business partners to participate in hands-on workshops and breakout sessions with our product managers and engineers. At the event, we announced new capabilities for Connect IQ, including the ability for app developers to implement a revenue model. We also announced new integration partners including SmartThings, which gives us a strong presence in the emerging home automation market. Turning next to aviation, we reported solid revenue growth of 16%, driven by growth in aftermarket products and led by strong growth related to our ADS-B offerings. Gross and operating margins remained strong at 74% and 31%, respectively, resulting in operating income growth of 27% over the prior year. During the quarter, we started shipments of the G1000 NXi, the next generation integrated flight deck featuring wireless connectivity and enhanced safety features. We received European certification for the GTX 345, expanding the addressable market for this popular ADS-B transponder. In addition, we continue to support our OEM partners in the development and certification of new aircraft and helicopter platforms. Much has been said about the challenging market conditions, which remain a factor. However, we continue to believe that market share gains and new platforms provide opportunities for long-term growth. Looking next at fitness, revenue declined 3% driven by the rapidly maturing market for basic activity trackers, especially those which lack GPS capability. Despite this challenge, we are very pleased with the performance of advanced wearables with GPS capability, which experience robust growth during the quarter and nearly offset the steep decline of basic activity trackers. Gross margin increased to 56% as product mix shifted to the higher-margin devices. Operating margin increased to 13%, resulting in operating income growth of 11%. During the quarter, we launched the Forerunner 935, which is our most advanced multisport watch with new running dynamics features and enhanced performance and recovery monitoring. We also introduced our latest vívosmart 3, an ultra-slim smart activity tracker with wrist based heart rate and an innovative stress tracking feature. While we continue to see the market for basic activity trackers mature, we also see growth opportunities in advanced wearables with GPS, and we are confident in our product roadmap going forward. Looking finally at the auto segment, revenues were down 19% in the quarter due to the ongoing decline of the PND market and partially offset by growth in our Auto OEM product lines. Gross margin was 44%, which is consistent year-over-year while operating margin declined to 4%. During the quarter, we began shipping our next generation Drive family of PND devices, which has wireless connectivity and enhanced driver alerts. We also introduced the Dash Cam 45 and 55 offering high-quality recording in an ultra-compact form factor. We remain focused on disciplined execution to bring desired innovation to the market and to maximize profitability in the segment. Okay, finally, before turning the call over to Doug, I wanted to mention the recognition we recently received from Forbes Magazine ranking us among the Top 100 Most Reputable Companies In America. I'm pleased to work very hard to make Garmin the best at everything we do and to operate the business with integrity. It's a special honor for all of us to be recognized in this way. So, that concludes my remarks. Next, Doug will walk you through additional details of our financial results. Douglas G. Boessen - Garmin Ltd.: Thanks, Cliff. Good morning, everyone. I'll begin by reviewing our first quarter financial results to move the comments on the balance sheet, cash flow statement and taxes. We posted revenue of $639 million for the first quarter representing a 2% increase year-over-year. Gross margin was 58.3%, a 380-basis point increase from the prior year created by the shift towards segments with higher margin as well as product mix within certain segments. Operating expense as a percentage of sales is 40.1%, 230 basis points increase from the prior year. Operating income was $116 million, a 12% increase year-over-year. Operating margin was 18.2%, 160 basis points increase from the prior year. And the increase in gross margin was an offset to increase in operating expenses. Our GAAP EPS was $1.26 to include a $169 million income tax benefit due to reevaluation of certain Switzerland deferred tax assets. Our pro forma EPS was $0.52, a 7% increase from the prior year. Next, we'll look at our first quarter revenue by segment. In the first quarter, we achieved 2% consolidated growth led by double-digit growth in three of our five segments. Collectively, marine, outdoor, aviation and fitness were up 12% compared to the prior-year quarter. Looking next, the first quarter revenue charts. Collectively, the marine, outdoor, aviation and fitness segments contributed 75% total revenue in the first quarter 2017 compared to 69% the prior quarter. Marine grew from 13% to 16%, while aviation grew from 17% to 19%, and outdoor grew from 16% to 18%. You can see in the charts where we illustrate profit mix by segment. Marine, outdoor, aviation, fitness segments collectively delivered 94% of operating income in the first quarter of 2017 compared to 82% first quarter of 2016. Marine, outdoor, aviation, fitness segments had a year-over-year increase in both operating income dollars and operating margin. Looking next to the operating expenses. First quarter operating expenses increased by $20 million or 8%. Research and development increased $14 million year-over-year or 180 basis points to 19.1% of sales. We continued to invest in innovation, increasing resources focused primarily on aviation, fitness, outdoor, marine, where we see long-term growth opportunities. SG&A was up $6 million compared to prior quarter, and increased 70 basis points as a percent of sales to 16%. Increased spending in SG&A was primarily driven by increased legal-related expenses and information technology costs. Advertising expense was relatively flat compared to prior-year quarter, representing 4.9% of sales. A few highlights from the balance sheet and cash flow statement. We ended the quarter with cash and marketable securities of approximately $2.3 billion. Accounts receivable had decreased as expected sequentially and year-over-year, $391 million. Our inventory balance increased over the prior year sequentially to $533 million as we prepare for the seasonally strong second quarter. In the first quarter of 2017, we generated free cash flow of $95 million, a $21 million decrease from the prior year quarter. Also during quarter, we paid dividends of $96 million. We purchased $28 million of company stock, with $47 million remaining for purchase through December 2017. In the first quarter of 2017, we reported income tax benefit of $150 million, which includes a $160 million (sic) [$169 million] (12:22) income tax benefit due to revaluation of certain Switzerland deferred tax assets. Excluding the $160 million (sic) [$169 million] (12:28) income tax benefit, the first quarter 2017 pro forma effective tax rate was 21.3% compared to 18.1% the prior quarter (sic) [prior year quarter] (12:37). The 320 basis point year-over-year increase in the pro forma effective tax rate is primarily due to the company's election to align certain Switzerland tax positions with international tax initiatives. We continue to expect our full year 2017 pro forma effective tax rate to be approximately 22%. This concludes our formal remarks. Christy, could you please open the line for Q&A?

Thank you. Our first question is from the line of Charlie Anderson of Dougherty & Company. Your line is open. Charlie Lowell Anderson - Dougherty & Co. LLC: ...for taking my questions, Cliff, I noticed in outdoor, marine and aviation, you're sort of well ahead of where you laid out the segment guidance for the year. So, I wonder if you could kind of talk about how that flows the rest of the year considering we started that these kind of high levels to begin the year and then I have a follow up. Clifton A. Pemble - Garmin Ltd.: Yeah, I think, for outdoor and marine, the first quarter tends to be the lowest quarter particularly in outdoor and marine it's a little higher. Aviation is more sequential. In aviation, we did see some benefit from increased mandate activity, some of which are expiring. So, just looking forward, we felt like it's best to maintain where we're at until we have more clarity around second quarter. Charlie Lowell Anderson - Dougherty & Co. LLC: Okay. Then on fēnix 5, I know it's very early right now. But I know part of the rationale for that product was to expand the market beyond the current users. I wonder if you have any data back yet on who's buying, are they existing Garmin owners or are they new people, are the demographics changing? Any color on that would be helpful. Thanks. Clifton A. Pemble - Garmin Ltd.: Yeah, definitely the demographics are changing, particularly around the fēnix 5S model, which was designed specifically around the female adventure audience. And the data we're getting back through our online registrations and of course our cloud platform, Garmin Connect, suggests that we're being very successful with that. Charlie Lowell Anderson - Dougherty & Co. LLC: Great. Thanks so much. Clifton A. Pemble - Garmin Ltd.: Thanks, Charlie.

Thank you. Our next question is from the line of Simona Jankowski of Goldman Sachs. Your line is open. Simona K. Jankowski - Goldman Sachs & Co.: Hi. Thank you very much. Can you give us a sense for the split within the fitness segment between the basic activity trackers and the advanced wearables? Clifton A. Pemble - Garmin Ltd.: It's about even. Simona K. Jankowski - Goldman Sachs & Co.: It's about even, okay. And then your inventory days are really high, 183, which I think may be an all-time record. And I did hear your comments about preparing for the seasonally strong second quarter. But it still seems like a high level of inventory. So, is that because you're seeing stronger than usual demand in the June quarter or is there something in there that like activity trackers that is maybe the result of some of those categories coming a bit short of expectations? Clifton A. Pemble - Garmin Ltd.: No, I wouldn't say it's due to shortness at all. We are preparing for what has become – Q2 has become nearly as big as Q4 in terms of its overall contribution. And we do have some new product ramps such as the fēnix 5, which are driving additional inventory. I think our goal is to have in-stock situation, so that we can ship to any customer that wants our products during high season. And we'll continue to manage it pragmatically then throughout the rest of the year. Simona K. Jankowski - Goldman Sachs & Co.: Thank you very much. Clifton A. Pemble - Garmin Ltd.: Thanks, Simona.

Thank you. Our next question is from Tavis McCourt of Raymond James. Your line is open. Tavis C. McCourt - Raymond James & Associates, Inc.: Hey, guys. Thanks for taking my questions. Just a clarification, Cliff, on the roughly 50/50 split in fitness between basic and GPS-enabled given the ASP differences. Is that a unit split or a revenue split? Clifton A. Pemble - Garmin Ltd.: I think it's a revenue split. Tavis C. McCourt - Raymond James & Associates, Inc.: Okay. And then a couple of other follow-ups on cost structure. So, obviously, we've seen a big increase in memory prices the last six months or so. How has that impacted you guys in the first half of this year or is there an impact that we should expect in the second half of the year related to that? And then it looks like advertising expense was down year-over-year for the first time in a while, is that something you would expect to continue or was that timing related? Clifton A. Pemble - Garmin Ltd.: Yeah. So, on the memory prices, definitely, there's a tighter market and prices have been going up. We have some longer term buying arrangements that have allowed us to continue at more favorable pricing during the first part of the year. We do expect to see some impact towards the later half of the year, but we think the impact will be minimal. In terms of ad spending, Q1, we basically have reserved a lot of our activity until Q2. So, I would expect that to increase sequentially and possibly a little year-over-year as well. But since Q2 is one of the higher quarters, we're going to be promoting our more popular wearables particularly during the quarter. Tavis C. McCourt - Raymond James & Associates, Inc.: Great. And I just wanted to make sure I understood correctly your commentary around aviation given the strong Q1. Was it stronger than you had expected entering the quarter or did you expect a lot of the aftermarket strength and that will ebb and flow throughout the year? Clifton A. Pemble - Garmin Ltd.: Yeah, we were pleased. We outperformed our expectations for sure and, as I mentioned, there is some mandates particularly around EMS helicopters that drove some sales, plus we did have very popular aftermarket products that also performed well along with ADS-B. Tavis C. McCourt - Raymond James & Associates, Inc.: Great. Thanks very much. Clifton A. Pemble - Garmin Ltd.: Thanks so much.

Thank you. Our next question is from Joe Wittine of Longbow. Your line is open. Joe H. Wittine - Longbow Research LLC: Hi. Thanks. In fitness for the half of the segment that's non-GPS, Cliff, are you able to give some sense of the magnitude of the declines you're seeing in that market for simple devices? Clifton A. Pemble - Garmin Ltd.: Well, just to clarify, fitness consists of both the wearable fitness trackers as well as the running watches and then bike. But in terms of overall, its contribution, we saw sharply lower revenues in the quarter and offset by very strong growth in the running products. Joe H. Wittine - Longbow Research LLC: Are you able to provide any sort of idea of just the severity of those declines just to help us level set our models (19:08)? Clifton A. Pemble - Garmin Ltd.: Yeah. I think – we don't break it out by segment for sure but as we expected when we came into Q1 based on what we saw in the latter half of 2016, activity trackers were down sharply. I think there's probably lots of different reasons for that and I think there'll be obviously more color around that even as we move through the day. But it seems like there's a lot of inventory in the channel particularly with market leaders that's being worked through. And as that clears and as new products get in such as our vívosmart 3, we believe that it will moderate as the year goes forward. Joe H. Wittine - Longbow Research LLC: With that dichotomy between the low-end and the high-end, are you making any strategic changes to your development resources for the segment, either pulling back on the low end or reassigning to higher-end devices? Or is the strategy to remain every bit as committed to continuing to add features to the below GPS product set? Clifton A. Pemble - Garmin Ltd.: Yeah, we have a strong roadmap on the basic trackers, as we've evidenced by the release of our initial products this year. We have additional products coming but obviously, we're taking a pragmatic approach to the investment and applying it where we see the most opportunity. Joe H. Wittine - Longbow Research LLC: Okay. And then finally for me, fēnix 5, the availability remains pretty spotty, including through April, a bunch of big retailers still don't have it. I don't think you're selling it on garmin.com just yet. So, you referenced orders are strong. I just wanted to confirm there's no supply-side issues to be aware of. And I suppose it's more difficult to manage them prior launches given the higher number of individual SKUs than previously. Thanks. Clifton A. Pemble - Garmin Ltd.: Yeah. I think definitely we're pleased with the initial response, and it's not just a matter of low supply, we've been delivering in very nice quantities, for sure. But the orders and the reorders have been very strong. So, it's going to take some time to work through all of the orders that we have. Joe H. Wittine - Longbow Research LLC: Okay. That's helpful. Thanks a lot. Clifton A. Pemble - Garmin Ltd.: Thanks, Joe.

Thank you. Our next question is from Paul Coster of JPMorgan. Your line is open. Paul Coster - JPMorgan Securities LLC: Yeah. Thanks for taking my question. As the mix shift goes towards more ramps, devices in the fitness category, what should the impact on gross margins and operating margins in that segment be, please? Clifton A. Pemble - Garmin Ltd.: Well, it'll definitely mix up because the higher-end devices tend to have the higher gross margin. So, we would expect it will have an overall positive impact on gross margin percentage and operating margin percentage. Paul Coster - JPMorgan Securities LLC: Okay. And my second question is, you appear to be gaining market share again in marine and possibly in aviation. Can you just talk us through what's giving rise to that? How that's coming about and can it be sustained? Clifton A. Pemble - Garmin Ltd.: Well, I think our product lines particularly in marine and also I mentioned some strength in aviation too, but our product lines are very strong. We've been keeping them fresh and, as a result, we believe that customers are seeing the value and the differentiation that Garmin brings to the market. Keep in mind, these are both very niche segments, without a lot of dynamics in terms of the overall channel and the consumer. So, consequently, I think obviously there's some limit to what the potential growth trajectory looks like over the long term. But our goal is to be the market share leader and to continue to be able to grow with the market. Paul Coster - JPMorgan Securities LLC: Okay. Thank you. Clifton A. Pemble - Garmin Ltd.: Yeah. Thanks, Paul.

Thank you. Our next question is from Yuuji Anderson of Morgan Stanley. Your line is open. Yuuji Anderson - Morgan Stanley & Co. LLC: Great. Thanks for taking my question. A question on gross margins, just overall, you saw a good improvement year-over-year in Q1. But just kind of assuming things kind of trend back towards your 56% guidance for the year. Are there certain segments that are going to see more volatility than others? Just any color will be helpful there. Clifton A. Pemble - Garmin Ltd.: Yeah. I think a lot of it's going to depend again on product and segment mix. In Q1, we had the benefit of higher than expected growth in marine and aviation, which mixed to be overall consolidated up more. As we move into Q2, which is seasonally higher and sequentially higher, we'll see how that mix develops both in terms of segments and products. Yuuji Anderson - Morgan Stanley & Co. LLC: Got it. And then just a question on fitness, is it fair to say that – did you see a pause in shipments ahead of the new product launches in Q1? So, are you expecting to kind of make back a lot of that in Q2? Clifton A. Pemble - Garmin Ltd.: Yeah. So, we really didn't pre-announce any of the products in Q1. We were basically ready to ship when we announce the products. So, we didn't see any market impact from announcements that impacted order. That said with the new products, we've seen excitement around those and we're encouraged by the follow-through in the market on these new products. Yuuji Anderson - Morgan Stanley & Co. LLC: Great. Thanks so much. Clifton A. Pemble - Garmin Ltd.: Thanks, Yuuji.

Thank you. Our next question is from Ben Bollin of Cleveland Research. Your line is open. Ben J. Bollin - Cleveland Research Co. LLC: Good morning, everyone. Thanks for taking my question. Clifton A. Pemble - Garmin Ltd.: Good morning. Ben J. Bollin - Cleveland Research Co. LLC: I wanted to start on the aviation business. Could you talk a little bit about what you're seeing in the OEM category on the business jet side? Any expectations you have for how that develops through the year if visibility does improve and kind of your market share impressions? And then I have a follow-up. Clifton A. Pemble - Garmin Ltd.: Yeah. So, on the OEM side of aviation, I would say, it's business as usual from what we've been reporting for a while now. The overall OEM side of the business as has been widely reported by many players has been kind of lethargic in terms of the market. We're doing, I would say, okay. But, we kind of move along with the ups and downs of our OEM partners. We do have the benefit of some newer platforms that we're still comp-ing against from last year. So, that's an incremental benefit but in general OEM continues to be somewhat sluggish. Ben J. Bollin - Cleveland Research Co. LLC: And a broader question when you look at kind of the wearables category as a whole, how do you view the impact of what Apple has done with Watch? Last night they said, the units for their Apple Watch grew nearly 100% year-on-year. I'm curious if you think it's having any impact on your outdoor and fitness business. And then, a last housekeeping item, maybe for Doug. Could he talk about the FX impact to operating profit in the quarter before, including the FX hedges? Thank you. Clifton A. Pemble - Garmin Ltd.: Yeah, Ben, in terms of impact from the Apple Watch, we are also seeing steep growth in our advanced wearable category. It doesn't seem to us that there is an impact from the Apple Watch. We have said before that we believe the customer-base for the Apple Watch versus our devices are slightly different. So consequently, I think we're seeing a strong performance and even some pull through from their success as people see the opportunity for improved health and for pursuing active lifestyles. And they probably recognize then that Garmin offers strong products for those pursuits. Douglas G. Boessen - Garmin Ltd.: Yeah. And regarding the FX impact in Q1, there was a revenue headwind about $6 million, so not a significant amount of impact in the quarter. Ben J. Bollin - Cleveland Research Co. LLC: Thank you. Clifton A. Pemble - Garmin Ltd.: Thank you.

Thank you. Our next question is from Brad Erickson of Pacific Crest Securities. Your line is open. Brad D. Erickson - Pacific Crest Securities: Hi, guys. Thanks for taking the question. First, can you just lay out how much Q1 outdoor benefited from the fēnix 5 channel fill, or I guess how much it added to the overall outdoor growth rate in the quarter? Clifton A. Pemble - Garmin Ltd.: We don't break it out by product categories. But we were pleased with what we're able to deliver in Q1. Brad D. Erickson - Pacific Crest Securities: Got it. And then I guess a higher level question on fitness. Given the maturity in basic trackers you're calling out, is that a business Garmin really wants to be in longer term? We've always known that pricing and margins would inevitably sort of compress in that segment. But with calling out maturity, it seems like it's a headwind worth addressing now from a strategic standpoint. Any comment there? Clifton A. Pemble - Garmin Ltd.: Yeah, let's say, it's still a very large market. It's still a market that is adjacent to our interest in the overall active lifestyles. And so, it's an area that we still have a lot of interest in. Brad D. Erickson - Pacific Crest Securities: Got it. Thanks. Clifton A. Pemble - Garmin Ltd.: Thanks, Brad.

Thank you. Our next question is from Rich Valera of Needham & Company. Your line is open. Rich F. Valera - Needham & Co. LLC: Thank you. Cliff, I just wanted to try to clarify your comments about the basic trackers being – I think you said 50% of the wearables in fitness, but that would exclude the cycling products. Is that correct? Clifton A. Pemble - Garmin Ltd.: That's correct. Rich F. Valera - Needham & Co. LLC: And so, it's less than 50% of the total fitness category revenue, right? Clifton A. Pemble - Garmin Ltd.: Yes. Rich F. Valera - Needham & Co. LLC: And would you be willing to give any sense of how big the cycling piece is? Clifton A. Pemble - Garmin Ltd.: No. Sorry. We don't break it down more than that. Rich F. Valera - Needham & Co. LLC: Fair enough. And just on the marine category, obviously, you saw a very strong growth there. And I would guess you got some year-over-year benefit from the partial quarter contribution of the DeLorme in the first quarter of 2016. Would you be willing to give any sense of how much of year-over-year benefit you might have gotten from that sort of partial quarter DeLorme impact in the first quarter of 2017? Clifton A. Pemble - Garmin Ltd.: Yes. So, DeLorme is actually recognized in the outdoor segment and the majority of our growth in outdoor was driven by wearables with less than half of that really coming from DeLorme. Rich F. Valera - Needham & Co. LLC: Got it. Okay. Thank you. Clifton A. Pemble - Garmin Ltd.: All right. Thank you.

Thank you. And that concludes our Q&A session for today. I'd like to turn the call back over to Teri Seck for any further remarks. Teri Seck - Garmin Ltd.: Thanks, everyone. Doug and I will be available for callbacks today. Have a great day. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a great day.