GARMIN LTD 10-Q

Item 2. Management’s Discussion and Analysis o f Financial Condition and Results of Operations The discussion set forth below, as well as other portions of this Quarterly Report on Form 10-Q, contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by management, as of the date of this Quarterly Report on Form 10-Q, including assumptions about risks and uncertainties faced by the Company. Readers can identify these forward-looking statements by their use of such words as "future", "expects", "anticipates", "believes", “estimates”, “would”, “could”, “can”, “may,” or other similar words or other comparable terms. If any of the Company’s assumptions prove incorrect or should unanticipated circumstances arise, actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified in Part II, Item 1A of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 27, 2025. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company. These forward-looking statements are made as of the date hereof, and the Company disclaims any obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q to reflect future events or developments, except as required by law. The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 27, 2025. Unless the context otherwise requires, references in this document to "we", "us", "our", the "Company" and similar terms refer to Garmin Ltd. and its subsidiaries. Unless otherwise indicated, amounts set forth in the discussion below are in thousands. Company Overview The Company is a leading worldwide provider of wireless devices, many of which feature location technology such as Global Positioning System (GPS), and applications that are designed for people who live an active lifestyle. Garmin is organized in the five operating segments of fitness, outdoor, aviation, marine, and auto OEM, which represent the primary markets served by the Company. Garmin designs, develops, manufactures, markets, and distributes a diverse family of GPS-enabled products and other navigation, communications, sensor-based and information products and services for these markets, as well as products installed by original equipment manufacturers (OEMs) and for aftermarket applications. Garmin products are sold through a variety of indirect distribution channels, including a large worldwide network of independent retailers, dealers, distributors, installation and repair shops, and OEMs. Garmin also sells its products and services directly through the Garmin online webshop (garmin.com), subscriptions for connected services, and Garmin retail stores. Business Environment Update Global economic and geopolitical conditions impact our operations and financial results, although we believe our vertically integrated and diversified business model enables us to be resilient and flexible in a dynamic business environment. Foreign currency fluctuations and rapidly changing global trade policies, particularly those affecting the United States (“U.S.”), increase the economic and operational uncertainties that could significantly impact our business and results of operations. On February 20, 2026, the U.S. Supreme Court ruled that the tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were unauthorized. As of March 28, 2026, we had not recognized a benefit or receivable related to any potential refund related to previously paid IEEPA tariffs. Refer to Part II, Item 1A, “Risk Factors” of this Quarterly Report for further discussion of the risks and uncertainties facing our Company. 15 Results of Operations The following tables and discussion provides an analysis of our results of operations for the first quarter of 2026 compared to the first quarter of 2025. Comparison of 13-Weeks Ended March 28, 2026 and March 29, 2025 Net Sales Net Sales 13-Weeks Ended March 28, 2026 Year-over-Year Change 13-Weeks Ended March 29, 2025 Fitness $ 546,822 42 % $ 384,722 Percentage of Total Net Sales 31 % 25 % Outdoor 417,530 (5 %) 438,496 Percentage of Total Net Sales 24 % 29 % Aviation 263,841 18 % 223,114 Percentage of Total Net Sales 15 % 14 % Marine 355,016 11 % 319,438 Percentage of Total Net Sales 20 % 21 % Auto OEM 170,280 1 % 169,329 Percentage of Total Net Sales 10 % 11 % Total $ 1,753,489 14 % $ 1,535,099 Net sales (or “revenue”) increased 14% for the 13-week period ended March 28, 2026 when compared to the year-ago quarter. Total unit sales in the first quarter of 2026 increased by approximately 9% to 4,765 when compared to total unit sales of 4,362 in the first quarter of 2025, which differs from the percent increase in revenue primarily due to shifts in segment and product mix. Fitness was the largest portion of our revenue mix in the first quarter of 2026 at 31%, while outdoor was the largest portion of our revenue mix in the first quarter of 2025 at 29%. The increase in fitness revenue was driven by growth across all product categories, led by strong demand for advanced wearables. The increase in aviation revenue was driven by sales growth in OEM and aftermarket product categories. The increase in marine revenue was driven by sales growth across multiple product categories. The increase in auto OEM revenue was primarily driven by growth in infotainment programs. Outdoor revenue decreased primarily due to the adventure watch product category comparing against a strong prior year product launch. Gross Profit Gross Profit 13-Weeks Ended March 28, 2026 Year-over-Year Change 13-Weeks Ended March 29, 2025 Fitness $ 338,522 54 % $ 220,142 Percentage of Segment Net Sales 62 % 57 % Outdoor 277,943 (2 %) 282,536 Percentage of Segment Net Sales 67 % 64 % Aviation 197,309 18 % 167,902 Percentage of Segment Net Sales 75 % 75 % Marine 197,376 7 % 183,933 Percentage of Segment Net Sales 56 % 58 % Auto OEM 31,139 4 % 30,032 Percentage of Segment Net Sales 18 % 18 % Total $ 1,042,289 18 % $ 884,545 Percentage of Total Net Sales 59 % 58 % Gross profit dollars in the first quarter of 2026 increased 18%, primarily due to the increase in net sales when compared to the year-ago quarter, as described above. Consolidated gross margin as a percent of net sales increased 180 basis points when compared to the year-ago quarter, primarily due to favorable foreign currency impacts on sales. The fitness and outdoor gross margin percentage increases of 470 basis points and 210 basis points, respectively, were primarily attributable to favorable foreign currency impacts on sales when compared to the year-ago quarter. Gross margin remained relatively flat within the aviation and auto OEM segments when compared to the year-ago quarter. The marine gross margin percentage decrease of 200 basis points when compared to the year-ago quarter was primarily attributable to higher tariff costs. 16 Operating Expense Operating Expense 13-Weeks Ended March 28, 2026 Year-over-Year Change 13-Weeks Ended March 29, 2025 Research and development expense 295,818 10 % 268,120 Percentage of Total Net Sales 17 % 17 % Selling, general and administrative expenses 314,806 11 % 283,601 Percentage of Total Net Sales 18 % 18 % Total $ 610,624 11 % $ 551,721 Percentage of Total Net Sales 35 % 36 % Total operating expense in the first quarter of 2026 increased 11% in absolute dollars and decreased 110 basis points as a percent of revenue when compared to the year-ago quarter. Operating expense, as a percent of segment net sales, decreased in the fitness, aviation, and auto OEM segments by 390 basis points, 570 basis points, and 90 basis points, respectively, when compared to the year-ago quarter primarily due to increased sales and greater leverage of expenses. Operating expense, as a percent of segment net sales, remained relatively flat in the marine segment when compared to the year-ago quarter. Operating expense, as a percent of segment net sales, increased in the outdoor segment by 300 basis points when compared to the year-ago quarter as decreased sales and increased expenses were partially offset by improved gross margin percentage. Research and development expense increased 10% in absolute dollars when compared to the year-ago quarter. The absolute dollar expense increase was primarily due to higher engineering personnel-related expenses. Selling, general and administrative expenses increased 11% in absolute dollars when compared to the year-ago quarter. The absolute dollar expense increase was primarily due to higher personnel-related expenses. Operating Income Operating Income (Loss) 13-Weeks Ended March 28, 2026 Year-over-Year Change 13-Weeks Ended March 29, 2025 Fitness $ 157,620 103 % $ 77,712 Percentage of Segment Net Sales 29 % 20 % Outdoor 118,791 (8 %) 128,788 Percentage of Segment Net Sales 28 % 29 % Aviation 70,934 47 % 48,356 Percentage of Segment Net Sales 27 % 22 % Marine 90,757 4 % 86,865 Percentage of Segment Net Sales 26 % 27 % Auto OEM (6,437 ) NM (8,897 ) Percentage of Segment Net Sales (4 %) (5 %) Total $ 431,665 30 % $ 332,824 Percentage of Total Net Sales 25 % 22 % NM - Represents that the percentage change is not meaningful. Total operating income in the first quarter of 2026 increased 30% in absolute dollars and increased 290 basis points as a percent of revenue when compared to the year-ago quarter. The increase in operating income as a percent of revenue was driven by increased sales, gross margin improvements and lower operating expenses as a percent of revenue, as described above. The improved operating income dollar performance in fitness, aviation, marine and auto OEM was partially offset by the decrease in outdoor. Other Income (Expense) Other Income (Expense) 13-Weeks Ended March 28, 2026 13-Weeks Ended March 29, 2025 Interest income $ 35,974 $ 30,507 Foreign currency gains 3,122 24,760 Other income 1,768 987 Total $ 40,864 $ 56,254 The average interest rate return on cash and investments during the first quarter of 2026 was 3.3%, compared to 3.2% during the same quarter of 2025. 17 Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Polish Zloty and Swiss Franc. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash, receivables and payables held in a currency other than the functional currency at a given legal entity. The $3.1 million currency gain recognized in the first quarter of 2026 was primarily due to the U.S. Dollar strengthening against the Taiwan Dollar and the Swiss Franc, partially offset by the U.S. Dollar strengthening against the Euro, within the 13-week period ended March 28, 2026. During this period, the U.S. Dollar strengthened 2.0% against the Taiwan Dollar and 1.0% against the Swiss Franc, resulting in gains of $11.2 million and $3.4 million, respectively, while the U.S. Dollar strengthened 2.2% against the Euro, resulting in a loss of $10.8 million. The remaining net currency loss of $0.7 million was related to the impacts of other currencies, each of which was individually immaterial. The $24.8 million currency gain recognized in the first quarter of 2025 was primarily due to the U.S. Dollar weakening against the Euro and Polish Zloty, and strengthening against the Taiwan Dollar, within the 13-week period ended March 29, 2025. During this period, the U.S. Dollar weakened 3.8% against the Euro, 5.6% against the Polish Zloty, and strengthened 1.1% against the Taiwan Dollar, resulting in gains of $12.6 million, $3.2 million, and $6.0 million, respectively. The remaining net currency gain of $3.0 million was related to the impacts of other currencies, each of which was individually immaterial. Income Tax Provision The Company recorded income tax expense of $67.5 million in the 13-week period ended March 28, 2026, compared to income tax expense of $56.3 million in the 13-week period ended March 29, 2025. The effective tax rate was 14.3% in the first quarter of 2026, which is comparable to 14.5% in the first quarter of 2025. Net Income As a result of the above, net income for the 13-week period ended March 28, 2026 was $405.1 million compared to $332.8 million for the 13-week period ended March 29, 2025, an increase of $72.3 million. Liquidity and Capital Resources We primarily use cash flow from operations, and expect that future cash requirements may be used, to fund our capital expenditures, support our working capital requirements, pay dividends, fund share repurchases, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements. Cash, Cash Equivalents, and Marketable Securities As of March 28, 2026, we had approximately $4.3 billion of cash, cash equivalents and marketable securities. Management invests idle or surplus cash in accordance with the Company's investment policy, which has been approved by the Company’s Board of Directors. The investment policy’s primary objectives are to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin’s average interest rate returns on cash and investments during the first quarter of 2026 and 2025 were 3.3% and 3.2%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral, and in the credit performance of the underlying issuer, among other factors. See Note 4 – Marketable Securities in the Notes to Condensed Consolidated Financial Statements for additional information regarding marketable securities. Cash Flows Cash provided by operating activities totaled $536.0 million for the first quarter of 2026, compared to $420.8 million for the first quarter of 2025. The increase in cash received from customers primarily driven by higher net sales was partially offset by increases in cash paid for cost of goods sold and operating expenses, and an increase in cash paid for taxes in the first quarter of 2026 compared to the first quarter of 2025. 18 Cash used in investing activities totaled $252.4 million for the first quarter of 2026, compared to $132.6 million for the first quarter of 2025. The increase was primarily due to an increase in net purchases of marketable securities and an increase in purchases of property and equipment in the first quarter of 2026 compared to the first quarter of 2025. Cash used in financing activities totaled $260.1 million for the first quarter of 2026, compared to $204.8 million for the first quarter of 2025. This increase was primarily due to higher cash dividend payments, an increase in the purchase of treasury shares related to equity awards, and higher purchases of treasury shares under share repurchase plans in the first quarter of 2026 compared to the first quarter of 2025. Use of Cash Operating Leases The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, data centers, and retail. As of March 28, 2026, the Company had fixed lease payment obligations of $242.6 million, with $48.5 million payable within 12 months. Inventory Purchase Obligations The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company’s inventory purchase obligations are primarily noncancelable commitments. As of March 28, 2026, the Company had inventory purchase obligations of $1,116.1 million, with $862.5 million payable within 12 months. Other Purchase Obligations The Company’s other purchase obligations primarily consist of noncancelable commitments for capital expenditures and other indirect purchases in connection with conducting our business. As of March 28, 2026, the Company had other purchase obligations of $634.9 million, with $342.8 million payable within 12 months. Critical Accounting Policies and Estimates General Our discussion and analysis of financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The presentation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a description of the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements, refer to Note 1, “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Part II, Item 8 and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2025. There were no significant changes to the Company’s critical accounting policies and estimates in the 13-week period ended March 28, 2026. 19 Item 3. Quantitative and Qualitat ive Disclosures About Market Risk There are numerous market risks that can affect our future business, financial condition and results of operations. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 27, 2025. There have been no material changes during the 13-week period ended March 28, 2026 in the risks described in our Annual Report on Form 10-K related to market sensitivity, inflation, foreign currency exchange rate risk and interest rate risk.