Garmin Ltd.
Q4 2020 Earnings Call Transcript

Published: 17 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Garmin Limited Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be question-and-answer session. I would now like to hand the conference to your speaker today, Teri Seck, Manager of Investor Relations. Please go ahead, ma’am.

[Teri Seck:]

Good morning. We would like to welcome you to Garmin Limited’s fourth quarter 2020 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/doc. An archive of the webcast and related transcript will also be available on our website.

[Cliff Pemble:]

Thank you, Teri, and good morning, everyone. As reported earlier today, our growth momentum accelerated in the final quarter of the year. Revenue increased 23%, exceeding $1.3 billion driven by strong double-digit growth in our Fitness, Outdoor and Marine segments. Gross margin improved to 58.5%. Operating income increased 34% to $371 million and operating margin expanded to 27.5%. GAAP EPS was $1.73 and pro forma EPS was also $1.73 increasing 34% over the prior year. Looking back, I am very proud of what we accomplished in 2020. The COVID-19 pandemic created unprecedented challenges affecting every company, and of course, Garmin was no exception. Many of these challenges were the burden of employees, such as learning to work and collaborate remotely, while juggling new challenges in their personal lives. Our employees were very resilient and faced these challenges with courage and determination as reflected in our outstanding performance throughout the year. The pandemic also created many new opportunities as interest in health, Fitness and active lifestyles surged. We were well-positioned to seize these opportunities with a strong product lineup and our vertically integrated business model gave us flexibility to meet rapidly changing demands. During this crisis, we maintained our focus on R&D, which allowed us to introduce many innovative new products throughout the year.

[Doug Boessen:]

Thanks, Cliff. Good morning, everyone. I’d begin by reviewing our fourth quarter and full year financial results, move to comments on the balance sheet, cash flow statement and taxes. We posted revenue of $1.3 billion for the fourth quarter, representing a 23% increase year-over-year. Gross margin was 60.2%, 50 basis point decrease from the prior year. Operating expense as a percentage of sales was 31.1%, 180-basis-point decrease. Operating income was $371 million, 34% increase. Operating margin was 27.5%, 240-basis-point increase from the prior year. Our GAAP pro forma EPS was $1.73, 34% increase from the prior year pro forma EPS. Looking at full year results, we posted revenue of $4.1 billion, representing 11% increase year-over-year. Gross margin was 59.3%, 20-basis-point decrease from the prior year. Operating expense as a percentage of sales was 34.1%, 20-basis-point decrease. Operating income was $1.054 billion, 7% increase. Operating margin was 50% or 20% -- 5.2%, consistent with the prior year. Our GAAP EPS was $5.17 and pro forma EPS was $5.14, 16% increase from the prior year. Next, we will report fourth quarter revenue by segment and geography. Our fourth quarter achieved a double-digit growth for our five segments, led by the Marine segment with a growth of 48%, followed by the Outdoor segment, 40% growth, Fitness segment, a 26%. By geography, we achieved growth in all three regions led by strong growth of 32% both EMEA and APAC. Americas grew 13%, which is more heavily impacted by the decline in Aviation. Excluding Aviation, Americas growth was more in line to other regions. For the full year 2020, we achieved 11% consolidated growth with strong double-digit growth in three of our five segments, Marine, Fitness and Outdoor each grew in excess of 20%. By geography, we achieved growth in all three regions led by 17% growth in EMEA, 8% growth both Americas and APAC. Looking next to operating expenses. Fourth quarter operating expenses increased by $57 million or 16%. Research and development increased $38 million year-over-year, primarily due to engineering personnel costs, other expenses related to Auto OEM programs. Our advertising expense decreased approximately $2 million with the prior year quarter.

[Operator:]

Thank you. Our first question comes from Robert Spingarn with Crédit Suisse. Your line is now open.

[Robert Spingarn:]

Hi. Good morning.

[Cliff Pemble:]

Good Morning.

[Robert Spingarn:]

Cliff, Doug, very good numbers. I wanted to dig in a little bit in a couple of things, but just starting off, the guidance on the operating margin for ‘21, if we could just bridge that from ‘20, the decline in the operating margin, is that just more R&D on the auto side?

[Doug Boessen:]

Yeah. So, I’d give you a little bit of a color on that. Yeah. It’s primarily due to our operating expense as a percentage of sales increasing. If we look at the gross margin was relatively comparable maybe at 10 basis points lower there. But to give you a little bit a color on the operating expenses, yeah, it was -- we are anticipating 2021 to be about 160 basis points higher as a percentage of sales. Looking at each of the pieces, advertising we anticipate target that to be relatively flat as a percentage of sales year-over-year. SG&A will be slightly up we think. That’s primarily due to increased IT expense, as well as other personnel-related expenses. And then the increase, as you mentioned, really is driven by R&D. So, if you look at the R&D, we are anticipating that as a percentage of sales to be about 150 basis points higher year-over-year in there. It’s really driven by a big piece of that relating to Auto OEM investments but other investments that we see in other parts of our segments.

[Robert Spingarn:]

Okay. And then, Cliff, on the topline strength in the year, is there any way by segment to parse just market growth versus the market share improvement? I am thinking specifically about Marine. I mean it was just outstanding. But it -- just in general, is there a way to think about those two different factors?

[Cliff Pemble:]

Yeah. And I think, looking specifically at Marine, there’s definitely a combination of market size increase, as well as market share gains. If you look broadly at the boat builders in Marine, they are experiencing anywhere from high-single digits to double digits increase in their business and so probably underlying the business, the market is increasing at those kinds of rates. And then on top of that, our product line and our growth in terms of the market share has been strong and so we have been able to essentially double leverage those things.

[Robert Spingarn:]

Okay. And then just as a final question. Have you been constrained at all by semiconductor shortages anywhere?

[Cliff Pemble:]

Yeah. I would say that…

[Robert Spingarn:]

Okay.

[Cliff Pemble:]

…that we are experiencing some levels of tightness in the supply, it’s spotty. It depends on the component and the supplier. We have generally been able to work through those kinds of constraints with our safety stock inventory strategy and also because we are agile with our vertical integration we can find substitutes and keep things going. But definitely noticeably more challenging in this environment of course and there’s lots of headlines about that and we operate in that same environment. So those are factors for us too. But so far we believe that we have been able to manage that okay.

[Robert Spingarn:]

So there’s nothing in the guide that anticipates any significant pressure there, you are assuming you will work through it?

[Cliff Pemble:]

I think if you look at the high level at our guidance, we are a company that’s heavily influenced by consumer trends and it’s very early in the year. So, I would say, that that we always try to make sure that we factor in just the general dynamics of the kinds of markets that we serve. But as far as component supply or capacity constraints or anything like that, we haven’t necessarily taken any kind of significant haircuts because of those things.

[Robert Spingarn:]

Okay. Thank you, both.

[Cliff Pemble:]

Thank you.

[Operator:]

Thank you. Our next question comes from Nik Todorov with Longbow Research. Your line is now open.

[Nik Todorov:]

Yeah. Hi, guys. Congrats on the great results, really impressive. Cliff, I was wondering, how are you thinking about the potential normalization in the world in the second half with vaccine rolling out and everything going on? Do you believe a recovery in the travel and leisure industries will have any impact on the demand for your products?

[Cliff Pemble:]

Well, I think that’s still a highly speculative thing that nobody really knows the answer to. I would say that, for myself, I believe that any kind of normalization is going to take some time as we have been in this situation now for about a year and people have adjusted lifestyles. And consequently some of their priorities probably have changed probably permanently. And it still remains to be seen how much the vaccine really makes people feel free to do those kinds of activities. There’s still a lot of guidance coming out that the vaccines have, they help, but they don’t necessarily ensure that people won’t get sick or couldn’t infect someone else. So, these are all things that people are still processing. It’s early days. And so right now we are believing that the trends that we have been seeing in the business over the past year are solid and will continue.

[Nik Todorov:]

Okay. Great. And then I really appreciate the breakdown and the detail for the Auto segment. If we look at the OEM side, how should we think about linearity throughout the year? Do you guys have new programs that will start ramping up in calendar year ‘21?

[Cliff Pemble:]

Yeah. We are ramping up really on two programs, I mentioned, the Daimler Vito has not yet anniversaried to start a production there. So there will be a significant ramp associated with that. And then the BMW, the current program that we are supplying. As the builder can supplier again we are in the early days on production in that, so we will experience a full year of production on those two programs.

[Nik Todorov:]

Okay. Great. And the last question for me. On the Fitness side, you had a pretty good year for -- on your gross margin, I think, you expanded that a couple of hundred basis points. How should we think about Fitness gross margin as we go forward? Do you anticipate to maintain the current level, I know mix has been a tailwind for you this year?

[Cliff Pemble:]

Yeah. We mostly transitioned our product line to the more advanced wearables and so the highly competitive low end bands really aren’t influencing our businesses as much there. So, we have said before and we continue to believe that, the Fitness business is a mid- to upper-50s kind of percent margin on the gross margin line, and of course, targeting 20% plus in operating margin for the segment.

[Nik Todorov:]

Okay. Got it. Thanks, guys. Good luck.

[Operator:]

Thank you. Our next question comes from Paul Chung with JPMorgan. Your line is now open.

[Paul Chung:]

Hi. Thanks for taking my questions and great quarter. So just a follow-up on operating margin guidance, if you could get more granular by segment, Auto OEM, you mentioned, increasing investments there, but on Fitness, do you kind of return to that low-20s or high-teens on tax expansion? Outdoor and Marine maybe come down after a strong ‘20 and on Aviation, do we stay in this low-20s range or does that begin to normalize maybe in 2Q and then as some longer term R&D investments kind of weighing a bit? Any thoughts would be helpful and I have a follow up. Thanks.

[Cliff Pemble:]

Yeah.

[Doug Boessen:]

Yeah. Go ahead. As relates 2021 on operating margins, we see most of the segments probably being relatively consistent year-over-year. A couple of them will probably be a little bit lower or some lower, I should say, and one of which is Auto OEM. As we continue to make the investments in Auto OEM, also we will see there the gross margin came down some as some of our newer programs have a lower gross margin. So, in Auto OEM you will some decline there. And then, in Aviation, all depending upon the growth we have and expansion there, so depends upon how the revenue growth relates to our operating expenses.

[Paul Chung:]

Okay. Thanks for that. And then, as we think more about kind of a recurring base of revenues kind of across your portfolio, you have inReach plans with hefty kind of monthly premiums across products. But -- and then you also have tech subscriptions for video trails, et cetera, though. These are smaller in scale relative to your whole revenue base. But if you could just expand on where you see those kind of subscription services going and then it sounds like you expect some nice contribution in ‘21. But then where do you see potential, though, maybe drive kind of higher subscription service type offerings maybe across other parts of your portfolio? Thank you.

[Cliff Pemble:]

inReach continues to have a lot of potential. It’s a unique capability that especially appeals to the customer base that we have and so we believe there’s a lot more potential to grow that both in 2021 and into the future. But, as far as other opportunities, I would say that, we are targeting areas like inReach that would be recurring revenue opportunities, that would appeal to the kind of customer base and the products that we make and so there is more things in the works that will come out within the future, but we do have an intentional focus on that.

[Paul Chung:]

Thanks, guys.

[Cliff Pemble:]

Thank you.

[Operator:]

Thank you. Our next question comes from Ben Bollin with Cleveland Research. Your line is now open.

[Ben Bollin:]

Good morning, everyone. Thank you for taking the question. Cliff, could you start a little bit by talking about Auto OEM, any operating margin performance over time? Maybe talk a little bit about how you see that scaling? What happens to that business as you bring on new programs? Is it absorbed or is there some incremental expenses? Just the right way to think about how you can scale that business over the next several years?

[Cliff Pemble:]

Yeah. I think you are hitting definitely the nail on the head there. I feel that’s -- we are in a period of significant investment right now and the programs that we have won definitely establish a base of credibility. But I think what we are working towards now is building the scale that we need. This business, of course, is a different kind of margin profile overall than the rest of our business and so we recognize that it will be lower gross margins and lower operating margins, which are consistent with the industry. But we are also witnessing one of the biggest transformations in personal transportation taking place right now. And as a result, there’s many, many companies that are trying to get into the opportunity presented by this turnover of technology. And so we have things that we are bringing to the market and so we are continuing to invest. And as we bring on new programs, definitely there will be some incremental investments that we have to make. But our belief is that we would be able to leverage the scale of the infrastructure that we are putting in place now.

[Ben Bollin:]

Okay. Another item I am interested in is, any thoughts you have on current product availability across channels, for instance, where channel inventory stands today, supply demand balance for Fitness, Outdoor and Marine and then a last follow up?

[Cliff Pemble:]

Yeah. I think, for the most part, we believe that the retail channels are very clean. We are entering the New Year with a significant level of backlogs as we do have some capacity constraints and as one of the motivations we have for investing in the business in the coming year. And so we do see strong demand for our products right now and the channel inventory does not appear to be excessive at this point.

[Ben Bollin:]

Okay. My last one is related to capital structure. Could you give us any updates on where your priorities are with respect to dividend, CapEx, M&A, share repurchase and also interested any thoughts about factory utilization and some of the incremental investments you are making in ‘21 in terms of production expansion? Thanks.

[Cliff Pemble:]

Yeah. I think we have mentioned before, our priorities on our cash is for being a reliable pair of an attractive dividend. And so in our results today, again, we announced that we will be increasing that significantly in the coming year, which we are excited to do. We are also focused on M&A activity that enhances our business either through a technology that we don’t have ourselves or through a product line that that would be complementary to what we offer. So we are -- and that’s really our second priority. And then the third priority, of course, is investing in the business. And to that end, again today we mentioned that, we will be making some significant capital investments in our production capacity in ‘2021 and beyond. We want to significantly increase our Taiwan production capacity, as well as the ongoing investments that we have made here in Olathe. We will be restarting our office expansion to support more employees. We are building out the Tacx factory for trainers, and of course, the Auto OEM factory in Europe for BMW.

[Ben Bollin:]

Great. Thanks, guys.

[Cliff Pemble:]

Yeah. Thank you.

[Operator:]

Thank you. And our next question comes from Jeffrey Rand with Deutsche Bank. Your line is now open.

[Jeffrey Rand:]

Hi. Thanks for taking my question and congrats on a good quarter. Now that we are pretty much a year into the pandemic, can you maybe touch on how you have shifted or adjusted your strategy over the past year and whether there have been any changes in your M&A focus from the pandemic?

[Cliff Pemble:]

Well, M&A wise, really no shift and we were able to successfully complete some of those transactions even during the pandemic. So we had the Firstbeat on board, as well as GEOS. And so, again, as I have just mentioned, we will be continuing to look for opportunities, especially those that bring some kind of technology or product category to us that we don’t presently have. In terms of how we run the business, we have -- it’s been different. But we have been very successful in collaborating electronically. We do have many of our offices and employees coming in on a rotating basis. So we are seeing more and more faces of people, which is a good thing. But we don’t necessarily have full utilization of our space, because we are keeping people distant and making sure that everyone can stay safe. So, all of that kind of remains the same. I think the biggest thing for me is kind of stop predicting when it’s going to end and simply kind of manage through and do the best things for the business right now.

[Jeffrey Rand:]

Great. And then just as a follow-up, can you talk about the demand trends you are seeing in your indoor cycling business and if you are still running a backlog there?

[Cliff Pemble:]

Yeah. The demand is very strong for indoor cycling and so we are leveraging the new facility that we have built in the Netherlands for Tacx to increase our capacity. But even with increased output, we are seeing a very strong backlog for that product. So we are continuing to work very hard to fill those orders.

[Jeffrey Rand:]

Great. Thank you.

[Cliff Pemble:]

Thank you.

[Operator:]

Thank you. Our next question comes from Will Power with Baird. Your line is now open.

[Will Power:]

Great. Thanks. Yeah. Congratulations on the results. I guess a couple of questions. Yeah. Thanks again for the Auto breakdown. I know you already touched a bit on the OEM opportunities. I guess, on the consumer front, how do we think about what the growth looks like they are going forward? I think you actually, Cliff, have indicated you expected specialty consumer to grow year-over-year in ‘21. If I heard that right, I am just trying to understand the puts and takes from the consumer piece?

[Cliff Pemble:]

Yeah. So, you heard right. We are expecting all five of our business segments to contribute to growth in 2021 and specifically in Auto, both the OEM operating segment and the consumer operating segment are expected to achieve growth in the year.

[Will Power:]

And any other color as to what’s going to drive the consumer growth within Auto?

[Cliff Pemble:]

Well, these product categories that we have developed are very strong for some of the same reasons that we are seeing in other areas of the business. So we have developed products for overlanding and -- as well as specialty products from motorcycles and trucks, and all of these are very popular categories right now.

[Will Power:]

Okay. Great. And then my second question on Fitness, I think, in your prepared remarks you mentioned, integrating Firstbeat and now providing opportunities in ‘21. Maybe just remind us, where are you with respect to integration of that today in terms of some of those capabilities versus what’s the common. As you think about strategic M&A and the opportunities, are there -- what do you see as kind of big opportunities at Fitness?

[Cliff Pemble:]

Yeah. So, firstly, it is -- it was purely a software technology company and so -- and a company that we had been working with previously in terms of incorporating their technology into our wearables and recycling products. And so with the acquisition we have been able to accelerate the incorporation of features across the product line that broadens our feature list for our customers. And so that’s underway and for the most part, many of our new products already have some of the expanded feature sets that we wanted them to have thanks to the Firstbeat acquisition. And in terms of the other opportunities there, I mean, again, you probably can’t comment on specifics, but we see a few pop-up here and there. And as we have done, historically, we look at each of those and make sure that what we engage in really matches our criteria for a technology or product category that that would be beneficial to us.

[Will Power:]

Okay. Thank you.

[Cliff Pemble:]

Thank you.

[Operator:]

Thank you. Our next question comes from Ron Epstein with Bank of America. Your line is now open.

[Ron Epstein:]

Hey. Good morning, all.

[Cliff Pemble:]

Good morning.

[Ron Epstein:]

Just a couple of questions, maybe some detailed ones and then maybe a bigger picture one. So when we think about the tax rate for ‘21 and then going forward, how should we think about that, I think the tax rate that you guys were talking about is a little bit lower than what I was thinking.

[Doug Boessen:]

Yeah. So, the tax rate we have for 2021 is consistent with what we had for 2020. So we think not a lot of change from that standpoint. Now we do not give any guidance for future years. There’s a lot of things that really play into that, Ron, depending upon our operating income, income by segment, income by jurisdiction, reserve releases, as such. But I think it would probably be in that same type of a range we think in the next -- in the future depending upon, obviously, things that may change with the tax laws and enactments and those type of things in there. But I think it’s relatively consistent in between ‘21 and ‘20.

[Ron Epstein:]

Got it. Got it. And then, Cliff, you mentioned about Aviation growth, if you pro forma that for ADS-B, how big a headwind is -- was ADS-B?

[Cliff Pemble:]

Well, it was definitely a significant once in a generation opportunity to equip every aircraft with technology. And so we worked very hard to supply every aircraft with ADS-B that we possibly could and we were wildly successful, which is demonstrated by the fact that we have some headwinds right now, but those are headwinds that I am very proud of.

[Ron Epstein:]

No. Yeah. I am not questioning, I mean that, obviously, I mean, it’s all good stuff. But I guess what I am trying to get at, if you -- when you remove that ADS-B and we think about Aviation into ‘21 and maybe into ‘22, right? I mean, it seems that grew were potentially in a recovery in business Aviation as evidenced by the capacity utilization of business, that’s mean it hit, they got hit far less than other parts of Aviation and the business piece of private Aviation really haven’t come back yet. So if we were to get into a more meaningfully robust upturn in business private Aviation, I am just trying to get, like, what that would mean for you guys. So it’s sort of like, do you understand the question?

[Cliff Pemble:]

Yeah. For sure. And we mentioned last year at this time as the pandemic was erupting that we believe that general aviation had a bright future throughout this because of the flexibility and the options that it provides people that might have concerns about how they travel and we have definitely seen that play out. As I mentioned in my remarks, the smaller aircraft segment, especially on owner-flown and also we are hearing the news from charter and fractional companies that they are seeing an uptick in their demand and so that’s playing out exactly as we thought. And as we look forward, again, the demand is just super strong in the smaller aircraft segment and we are strongly positioned in every one of those platforms to take advantage of that. We are in all the right places in the light jet market up through medium jets on the Piston side for the owner-flown people as well and so we are ideally positioned in all of those categories to be able to meet the demand.

[Ron Epstein:]

Got you. And then shifting maybe to customers and stickiness, Garmin Connect, do you have a sense of once folks are kind of in that universe, does that keep them locked into a Garmin product?

[Cliff Pemble:]

Well, for sure. I have a decade of history on Garmin Connect that I wouldn’t ever want to lose and I know that there’s many other customers that feel that way and it’s a place where you store the most important data about yourself and to be able to manage your health. And so the features that are in Garmin Connect are super sticky and are useful tools for people and it’s something that they continue to use.

[Ron Epstein:]

Got you. And then maybe one last question, a balance sheet question. So you guys have your net cash of $3 billion. I mean, clearly, that’s not the most efficient ways to use the balance sheet. I think someone else earlier asked you about capital deployment so on and so forth. But I mean, sitting around with $3 billion of balance sheet, I mean, how do you think about that? And isn’t -- should that be deployed someplace else either in a new product, back to shareholders or somewhere?

[Cliff Pemble:]

Yeah. I think, we have obviously demonstrated that we are stepping up our spending on capital investments to support the business that we see going forward. So that’s one thing. We have been in an acquisition mode, so we have spent some money in the past year on that and we are increasing our dividend for sure. The business is growing, so definitely having a little more cash on hand is not a bad thing and a year ago as the economy was tanking everyone was concerned about the fact that some companies didn’t have enough cash to weather those things. So we have always been in a strong position and that’s where we will continue to be. We do have concerns and constraints around the capital structure. We want to make sure that we can distribute dividends to shareholders as efficiently as possible, which means that we have a certain amount of capital that we can deploy whether it’s dividends or buybacks and that’s done at a withholding tax free rate right now. And so we are being very careful with that to make sure that we can be reliable and attractive for people in the long-term.

[Ron Epstein:]

Got it. All right. Thank you.

[Cliff Pemble:]

Thank you.

[Operator:]

Thank you. Our next question comes from Ivan Feinseth with Tigress Financial. Your line is now open.

[Ivan Feinseth:]

Thank you for taking my question and congratulations on another quarter and a great year and congratulations on…

[Cliff Pemble:]

Thanks.

[Ivan Feinseth:]

… being selected by Joby for -- they are selecting your G3000. Were there or have you been incorporating unique functionality in the G3000 that supports the eval functionality in terms of the new types of planes?

[Cliff Pemble:]

Yeah. These e-vehicles that are being designed definitely have unique characteristics and so the avionics and the electronics, in general, onboard need to be specific for those platforms just like we have seen in every other kind of aircraft that we have -- that incorporated it into. So we are doing the same thing with Joby and the others we are working with.

[Ivan Feinseth:]

And what do you -- your competitive advantage is and was -- that you want this, and hopefully, keep winning these new mandates?

[Cliff Pemble:]

Well, we have the most capable avionics systems for these aircraft and so, obviously, that’s a major attractive point. We have a significant amount of experience as a company both in certified avionics and aircraft, as well as we are being a reliable production partner for our OEMs that use our equipment. And so all of these things are definitely pluses for Garmin as we sort of look at these new opportunities.

[Ivan Feinseth:]

Now is Autoland automatically included or can be included in this as well?

[Cliff Pemble:]

Yeah. I think Autoland would be a case-by-case basis for these new opportunities. I can’t comment specifically on Joby with that. But obviously we are amassing a strong base of autonomous technologies and safety technologies for aircraft that can be applied broadly across fixed-wing, as well as helicopters and e-vehicles as well.

[Ivan Feinseth:]

Okay. And then, on Firstbeat, what type of new functionality can we hope to see as you incorporate more of the Firstbeat acquisition into your new products?

[Cliff Pemble:]

Well, we have been really excited about Firstbeat, because they are a team of people focused on physiology especially exercise physiology but as well as basic health and wellness as well. And so we are leveraging their expertise to be able to improve a lot of capability on our products in terms of health sensing, health data feedback for people and providing guidance to people in terms of how they can modify their life in order to live healthier and to be more fit.

[Ivan Feinseth:]

And then, will -- what’s going on with your developer, are you going to have a developer or the IQ developer conference this spring or what is the plan for that? And then, are you going to open up opportunity for developers to work with Firstbeat functionality to develop new applications to use on your products?

[Cliff Pemble:]

Yeah. Last year we did a virtual. I would anticipate based on what we know today that that’s the same approach we will take this year. But actually many of our partners appreciated that, because it allowed them to participate when some of them wouldn’t otherwise be able to take the time or spend the money to travel. So we would anticipate that a virtual approach would be something that’s part of our approach for developers going forward. But in terms of what things are opened up on the platform, I probably can’t make a specific comment about Firstbeat, but we are continually adding capabilities that allow people to access the unique features of our hardware platforms and also our software stack.

[Ivan Feinseth:]

And there’s still any thoughts about making Connect IQ more of an e-commerce platform for those companies that, because there are some applications that a lot of for free, some you can pay through like PayPal, but there’s no real form of process -- formal process you see eventually creating this where it goes through Garmin and Garmin earns a commission, as well as helping to promote developers and quality number of apps available?

[Cliff Pemble:]

I would say that a high level it’s something that’s still of interest to us and something that we get requests for from our developers. So we are continuing to look at that and trying to determine the best way to work it into our ecosystem.

[Ivan Feinseth:]

All right. Thank you very much. Congratulations again and wish you a great 2021.

[Cliff Pemble:]

Thank you, Ivan.

[Operator:]

Thank you. Our next question comes from Erik Woodring with Morgan Stanley. Your line is now open.

[Erik Woodring:]

Thanks, and good morning, everyone. Congrats on the -- on a great quarter. I just want to start, maybe if we take a step back and think high level. We have gone through this pandemic now for whatever it is 10-plus months. What are some of the trends you believe are -- will be more permanent even as the pandemic is behind us and then I guess how does that impact or influence your product roadmap as we sit here today?

[Cliff Pemble:]

Yeah. I think people have for a long time now basically been conditioning themselves with new lifestyle choices. And many times coffee pot conversations basically will reveal that many of the changes people actually are excited about and they love. And so people say that it only takes three weeks to form a habit and so as people have focused on healthier lifestyles, on active lifestyles and adventure, these are things that are getting ingrained and embedded in their thinking and something that they value. So we believe that these kinds of trends are positive things for us and we believe that they will be more longer term things that we are experiencing and so that’s how we are viewing this.

[Erik Woodring:]

Okay. Thank you. And then, I guess, just as we retouch on the Auto OEM business, is there anything to call out as we think about the quarterly cadence of revenue in terms of abnormal seasonality, if that can even be a term or maybe lumpiness of revenue in a certain quarter in 2021?

[Cliff Pemble:]

Well, it’s probably hard to say. I think in addition to the year-on-year effects of ramping up new programs, automakers are experiencing their own challenges when it comes to production supply chains and the constraints on components that they are needing for a production. So, unfortunately, it’s probably going to be a little bit chaotic for and I am speaking in a general sense in work for automakers and we would expect that that the ones that we serve will probably have to face those challenges as well.

[Erik Woodring:]

Okay. Fair enough. And then, maybe, I guess, last question just on Tacx and I know we have gone through a bit of the supply constraints and then expanding production. But what are -- what have you seen in terms of customer reactions to longer wait times? Do you find demand to be perishable or is Tacx the name and the brand that consumers want and they are willing to wait however long it may be to get one of those products? Thanks.

[Cliff Pemble:]

I think the constraints are definitely not unique to us, like the entire industry is and cycling, in general, is suffering from supply constraints right now. So people are anxious to get the equipment that they want to equip their houses with indoor cycling. And obviously, most people aren’t very happy when they have to wait a long time for sure, we don’t expect them to be, but we are working very hard to fulfill the demand and the good news has been that as we have ramped up production it seems like our backorders have really also increased. And so we believe that people love the product, we believe it’s superior to anything out there and they are willing to wait to have our product.

[Erik Woodring:]

Okay. That’s super helpful. Thank you, guys.

[Operator:]

Thank you. Our next question comes from Nik Todorov with Longbow Research. Your line is now open.

[Nik Todorov:]

Yeah, guys. A quick follow up, Cliff, I think, on Auto side. I heard that you said that new consumer products who experienced growth, but I think then you clarified that you expect the whole Auto Consumer segment to see grow in 2021. If that’s the case, I think, that implies that the Auto OEM sales kind of in December of $62 million was kind of a peak year for the near-term. Am I thinking this correctly or am I missing something, because I think you are talking about ramping up programs with Daimler and BMW? Is there any reason why December would be peak for the next two, three quarters in Auto OEM? I know production is going to be down in March and June, but I thought you would have seen a nice linearity going forward?

[Cliff Pemble:]

Yeah. I think the first half of the year is probably going to be favorable as we comp against some challenges from last year as automakers were reducing capacity and shutting down factories. But then it should even out towards the back half as we comp against these new program introductions.

[Nik Todorov:]

Okay. So you expect to be down sequentially from December, is what I am trying to get in the first half in Auto OEM specially?

[Cliff Pemble:]

Yeah. I would expect that actually to grow sequentially into the first half and then level out from there.

[Nik Todorov:]

Okay. So the whole consumer OEM will also see growth for 2021?

[Cliff Pemble:]

Yeah. That’s what we mentioned.

[Nik Todorov:]

Okay. Okay. Thanks.

[Operator:]

Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Teri Seck for closing remarks.

[Teri Seck:]

Thank you, everyone, for joining us today. Doug and I are available for callbacks and we will talk with a lot of you in the coming days and weeks. Have a great day. Bye.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.