Garmin Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 31, 2024

There are 13 speakers on the call.

Operator

Thank you for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Garmin Limited Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker 1

Thank you.

Operator

I will now turn the floor over to Teri Sek, Director of Investor Relations. Teri, you may begin.

Speaker 2

Good morning. We would like to welcome you to Garmin Limited's Q2 2024 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 Limited and its business.

Speaker 2

Any statements regarding our future financial position, revenues, segment growth rates, earnings, gross margins, operating margins, future dividends or share repurchases, 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 ks filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Humboldt, President and Chief Executive Officer and Doug Besson, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Kimball.

Speaker 3

Thank you, Terry, and good morning, everyone. As announced earlier today, Garmin delivered another quarter of outstanding results with double digit growth in consolidated revenue and operating income. Consolidated revenue increased 14% to $1,510,000,000 a new 2nd quarter record with 3 business segments reporting strong double digit growth. Gross margin was 57.3 percent, operating margin expanded to 22.7 percent, resulting in operating income of $342,000,000 up 20% year over year. We reported pro form a EPS of $1.58 up 9% over the prior year, which is a remarkable result considering the significantly higher effective tax rate.

Speaker 3

During the quarter, our global employment surpassed 20,000 associates, and we were recognized as a top employer by Forbes, as well as U. S. News and World Report. We are proud of our associates who dedicate themselves to delivering growth through innovative and highly differentiated products. Given our strong performance in the first half of the year, we are updating our full year guidance.

Speaker 3

We now anticipate revenue of approximately $5,950,000,000 and pro form a EPS of $6 Doug will discuss our financial results and outlook in greater detail in a few minutes. But first, I'll provide a few remarks on the performance of each business segment. Starting with fitness, revenue increased 28% to $428,000,000 primarily driven by wearables. Gross and operating margins improved to 57% 25% respectively, resulting in operating income of $108,000,000 During the quarter, we launched the Edge 10 50 premium cycling computer with a vivid color touchscreen display, a built in speaker for audible feedback and Garmin Pay mobile payments. Also during the quarter, we celebrated Global Running Day with Garmin users running nearly 11,000,000 miles, beating last year by more than 2,000,000 miles.

Speaker 3

Given the strong performance of the fitness segment, we are raising our revenue growth estimate to 20% for the year. Moving to outdoor, revenue decreased 2% to $440,000,000 primarily driven by lower revenue from adventure watches following the anniversary of the Phoenix and Epix Pro Series launch. Gross and operating margins were 65% 31%, respectively, resulting in operating income of $136,000,000 During the quarter, we launched the Approach Z30 Smart Laser Rangefinder with the range relay feature, which sends distance measurements to a compatible Garmin smartwatch or the Garmin Golf smartphone app. We also launched our 1st cellular based dog tracking collar, the Alpha LTE. This small rugged device attaches to existing dog collars and pairs with the Alpha app, so users can view their dog's movements from a smartphone or an alpha handheld device.

Speaker 3

The outdoor segment has performed as we anticipated so far this year and we expect growth to accelerate in the back half of the year with new product launches. As such, we are maintaining our 7% revenue growth estimate for 2024. Looking next to aviation, revenue was relatively flat in the 2nd quarter at $218,000,000 We continue to see growth in OEM product categories, while the aftermarket decline in an ongoing normalization following the somewhat uneven results of the prior year. Gross and operating margins were 74% 23% respectively, resulting in operating income of $50,000,000 For the 9th consecutive year, we were recognized by Embraer as a best supplier, most recently in the electrical and electrical systems category for our G3000 Prodigy Touch Flight Deck in the Phenom 100 EV and Phenom 300 EV. The Aviation segment has performed as expected so far this year and we are maintaining our estimate of flat revenue in 2024.

Speaker 3

Turning to the Marine segment, revenue increased 26% to $273,000,000 primarily driven by the acquisition of JL Audio. Excluding JL Audio, revenue increased approximately 7%, outperforming widely reported market trends. Gross and operating margins improved at 54% and 22% respectively, resulting in operating income of $60,000,000 We recently expanded the Forrest Kraken trolling motor series, adding a 48 inches shaft length to accommodate a broader range of boat sizes. We also expanded our ice fishing offerings with the Panoptix PS22 ice fishing bundle, an ultra portable live sonar solution for winter fishing, which won a Best of Category award at this year's Icast, the world's largest sport fishing trade show. This is our 4th consecutive win in the ice fishing category and 7th consecutive award at Icast.

Speaker 3

Additionally, in the quarter, we were once again selected as an exclusive supplier to Independent Boat Builders Incorporated through 2029 for both traditional marine electronics as well as audio equipment. Given the strong performance of the marine segment, we are raising our revenue growth estimate to 15% for the year. And moving finally to the auto OEM segment, revenue increased 41% to $147,000,000 primarily driven by growth in domain controllers. Gross margin was 16% and the operating loss decreased to $12,000,000 Our auto OEM segment continues to be recognized as an outstanding partner. We recently received the 2024 Global Award for Excellence in Technology and Development from Yamaha Motor for our motorcycle infotainment solutions.

Speaker 3

Auto OEM has performed as expected so far this year, and we are maintaining our 50% revenue growth estimate for 2024. So that concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug?

Speaker 4

Thanks, Cliff. Morning, everyone. I'll begin by reviewing our Q2 financial results, our comments on the balance sheet, cash flow statement, taxes, updated guidance. We posted revenue of $1,507,000,000 for the 2nd quarter, representing a 14% increase year over year. Gross margin was 57.3%, a 20 basis point decrease from the prior year quarter.

Speaker 4

Operating expense, percentage of sales, was 34.6 percent, 140 basis point decrease. Operating income was $342,000,000 a 20% increase. Operating margin was 22.7%, 120 basis point increase. Our GAAP EPS was $1.56 pro form a EPS was $1.58 Next, look at our 2nd quarter revenue by segment and geography. During the 2nd quarter, we achieved double digit growth in 3 of our 5 segments, led by the auto OEM segment with 41% growth.

Speaker 4

The fitness marine segments at 28% and 26% growth, respectively. By geography, we achieved double digit growth of 18% in EMEA region and 15% in Americas region. APAC region growth was 1%. Looking next at operating expenses. 2nd quarter operating expense increased by $46,000,000 or 10%.

Speaker 4

Research and development increased approximately $19,000,000 year over year, primarily due to engineering personnel costs. SG and A increased approximately $27,000,000 compared to prior year quarter, primarily due to increases in personnel related expenses, including the impact of the acquisition of JL Audio. A few highlights on the balance sheet, cash flow statement and taxes. End of the quarter with cash and marketable securities of approximately $3,400,000,000 Accounts receivable increased both year over year and sequentially to $808,000,000 following seasonally strong sales in the 2nd quarter. Inventory balance decreased year over year and increased sequentially to approximately $1,300,000,000 During Q2 2024, we generated free cash flow of $218,000,000 $3,000,000 decrease in the prior year quarter.

Speaker 4

Capital expenditures for Q2 of 2024 were $37,000,000 approximately $15,000,000 lower than the prior year quarter. We expect full year 2024 free cash flow to be approximately $900,000,000 capital expenditures approximately $350,000,000 During Q2 2024, we paid dividends of approximately $144,000,000 and purchased $10,000,000 of company stock. At quarter end, we had approximately $290,000,000 remaining a share purchase program to authorize through December 2026 for an effective tax rate of 17.9% compared to 8.9% in the prior year quarter. Increase in effective tax rate is primarily due to the increase in the combined Switzerland tax rate response to global minimum tax requirements. Turning next to our full year guidance.

Speaker 4

We estimate revenue approximately $5,950,000,000 compared to our previous guidance of $5,750,000,000 We expect gross margin to be approximately 57%, higher than our previous guidance, 56.5% the year to date performance. We expect an operating margin of approximately 21.3% compared to our previous guidance of 20%. Also expect pro form a effective tax rate of 16%, which is higher than our previous guidance of 15.5% to projected full year income mix by tax jurisdiction. This results in expected pro form a earnings per share of approximately $6 an increase of $0.60 for our previous guidance of $5.40 Concludes our formal remarks. Christina, could you open the line for Q and A?

Operator

Yes. Thank

Speaker 1

Thank you. Your first question comes from

Operator

the line of Joseph Cardoza from JPMorgan. Your line is open.

Speaker 5

Good morning and thanks for the question. So maybe first question here is just on the guide. When I take a look at the updated full year guide, the implied second half outlook suggests maybe a more muted revenue flow through to earnings than maybe we are accustomed seeing for Garmin. Can you maybe just walk through the puts and takes there and perhaps what's driving the pressures on the incremental margins into the second half? And then I have a follow-up.

Speaker 5

Thank you.

Speaker 4

Yes. So when we think about that, yes, related to the gross margin, I mean, back half versus what we've seen in the first half, we'll continue to see segment mix have an impact. That will have an impact to reduce that to gross margin in the back half. As it relates to expenses, yes, we'll continue to make investments in R and D primarily to support our innovation.

Speaker 5

Got it. And then maybe just as my second question. Marine on an organic basis continues to outperform the broader market trends that you guys have been highlighting. And so I was just curious if you could double click on the outperformance there. Like what are you seeing broadly as the drivers of the share gains Garmin has experienced, for example?

Speaker 5

Is it broadly across the portfolio? Or are you seeing better trends more in a particular area of the portfolio? And then maybe just curious what other factors could be contributing here? And any thoughts on how sustainable this could be from your advantage? Thanks for the questions, guys.

Speaker 3

Yes, Joe. I think our performance in the aftermarket is definitely much better than the overall market. And even in the OEM channels that we serve, our performance is much better than the broader markets been reporting. I think we attribute this to really our product lines, highly innovative and very broad. We're doing very well in chartplotters.

Speaker 3

We have the best mapping and sonar systems, radar and autopilot and trolling motors are somewhat of a newer category for us. It's expanding and helping us to take share.

Operator

And your next question comes from the line of Eric Woodring from Morgan Stanley. Your line is open.

Speaker 6

Hey, guys. Good morning. Thank you for taking my call. Doug or Cliff, either one of you, I just want to kind of get your viewpoint. As we think about the guidance increase, obviously, nice outperformance in 1Q, so you were tracking above and now we've seen you raise guidance.

Speaker 6

Would you say that that increase in guidance is solely a reflection of the better first half? Or are you seeing some of that sustain into the second half relative to your expectations? Just want to kind of get a sense, is this kind of reflection just of 1Q outperformance? Or is the second half of the year better than you thought as well? And then I have a follow-up.

Speaker 6

Thank you so much.

Speaker 3

Yes, Eric, I think there's a lot of moving pieces that go into the guide. In some cases, as in fitness, I think very optimistic and encouraged by our performance. And so there's a little more optimism in that guide as we anniversary the launches of the major products that we had last year. And then in marine, I think we're mostly taking a wait and see approach. We're rolling forward certainly the higher performance.

Speaker 3

But as already been noted, the marine market is generally stabilizing and so we're simply just

Speaker 4

Marie, we are anniversarying the JL Audio acquisition end of Q3 also.

Speaker 6

Okay. No, that's very helpful. And then Doug, maybe for you, your free cash flow kind of seasonality historically has been a bit volatile. But more often than not, you do about 35% to 40% of annual free cash flow in the first half of the year. If we take your updated viewpoint on free cash flow, I believe it was of $900,000,000 for the year, it would imply first half free cash flow is actually more like, call it 70%, which would be at least near decade high.

Speaker 7

Can you maybe just help

Speaker 6

us understand some of the seasonality or moving pieces as it relates to free cash flow? Why the second half of the year would be so much weaker than we see historically for you guys? And that's it for me. Thanks so much.

Speaker 4

Yes, good question. There is a working capital consideration you take into consideration also. So one of which is inventory. So last year in the back half, we saw some benefit relating to our inventory being lower. This year, we expect in the back half that we would be increasing our inventory.

Speaker 4

On a year over year basis, we probably expect inventory decrease in line with sales. So there'll be a use of cash in the back half for inventory.

Operator

And your next question comes from the line of George Wang from Barclays. Your line is open.

Speaker 8

Hey, guys. Thanks for taking my question. Two parts. Firstly, can you give us an update thoughts on the capital allocation, especially given still elevated cash balance? Just the 2Q buyback was pretty small.

Speaker 8

And also related questions on the CapEx, you guys have still guided pretty elevated CapEx full year being $350,000,000 with the 1H being smaller spend. Maybe you can walk me through how you think about these 2 parts?

Speaker 4

Sure. As it relates to capital allocation is consistent what we've had in the past. Priorities are really reliable dividends, investments back in our business as CapEx, also acquisitions such as JL Audio and then share buybacks. And share buybacks is really depending upon the market and the business conditions. We'll take a look at that every quarter.

Speaker 4

As it relates to CapEx, yes, the back half, those investments really relate to some investments in our manufacturing facilities. Also, we'll have some of the best IT projects to enhance some of our security infrastructure as well as we're continuing our renovations of our facilities here in Kansas.

Speaker 8

Okay. Just a quick follow-up, if I can squeeze in. I just want to kind of hone in on the auto OEM, especially kind of as we look beyond the BMW, the main controller. Last quarter, you guys alluded to 2 new wins just on the infotainment system side. I assume it's higher margin.

Speaker 8

Can you kind of give a bit more thoughts color if you can kind of I assume it's already ramp starting from 2026 kind of warm infotainment system, maybe kind of any kind of would be appreciated?

Speaker 3

Yes, George. We announced those additional awards last quarter. Nothing has really changed in that since then. We're working hard to bring those to market as we mentioned starting in 2026. In terms of the margin profile for those products, I would just point out that's still domain controller products and so that carries that typical mid teens kind of gross margin that we've been talking about with it as well.

Speaker 3

So it's very much in line with the business that we're currently seeing settled in, in terms of the auto OEM revenue structure.

Speaker 8

Okay, great. I'll go back to the queue.

Operator

Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.

Speaker 4

Yes. Good morning, everyone. Thanks for taking the questions. I guess I wanted

Speaker 9

to just pick up on the discussion around the OEM auto and congratulations on the progress there. You're obviously in the market with a product that is succeeding with customers and you're building on the BMW now with Yamaha and others. But I guess I'm a little confused on why there isn't a little more scale benefit in terms of your margin outlook. And so you mentioned there's still controllers and there's still that kind of gross margin profile that you've communicated in the past. But I would have thought maybe your EBIT contribution would build as you build scale in that business.

Speaker 9

So is it just not a scale? There's just more variable cost in this than we expected? Or how should we think about the longer term economics as you grow that business?

Speaker 3

Yes. I think, David, if you look where we are this quarter versus last year, there's been a big swing in product mix to that domain controller category, which what we've been saying for the past year is that that would definitely be a margin impact because of the profile of those products. And so that's what's driving our gross margin this year compared to last year and it pretty much put the gross margin dollars kind of even with last year. So there's a big transition point that we've already gone through. You saw our engineering and expense structure come down and so our loss decreased.

Speaker 3

And I would point out that auto OEM also absorbs a certain amount of allocated costs across the company, which would otherwise go to other segments. So we're starting to see that leverage. We're probably a little bit behind where we thought we'd be, although we're talking about very small numbers in terms of the difference. And so, we're looking forward to the additional volume ramp and seeing those leverages come into play as the efficiencies go up.

Speaker 9

Okay. Maybe I could just shift gears and ask about fitness and outdoor and just if you could talk about what you're seeing in retail conditions and retail inventories at this point?

Speaker 3

Yes, we watch that very closely. We're able to see our sell in versus our selling through at a very consistent rate with our sales in and the product seem to be very popular and people really appreciate them. So we're really excited about our performance in wearables in general.

Speaker 9

Okay. And just last for me on the marine guidance, up 15%. How much of the incremental growth there is coming from the addition of the trolling product offering and just expanding that out, having a product that maybe you didn't have to offer a year earlier?

Speaker 3

Yes, we don't break out specifics on that, but I would say that the trolling motors are contributing to that increased organic revenue. But it's not the only category. In fact, chartplotters were also very good. And that's an indicator basically of the market robustness and the strength of our product line as people are installing it on their boats.

Speaker 9

And did you say what organic growth in marine was excluding JL?

Speaker 3

Up 7% is what we said.

Speaker 9

Up 7%. Thank you very much. Good luck.

Speaker 3

Thank you.

Speaker 1

Your next question comes from

Operator

the line of Jordan Leonis from Bank of America. Your line is open.

Speaker 7

Hey, good morning. Thanks for taking my question. A few of your competitors have started launching Smart Rings. Is that something Garmin is interested in, would be working to expand to for the fitness line?

Speaker 3

Well, we're interested in all kinds of product categories, including that and others. So far, we've done very well with our wearables and I think it has the most utility, but there's certainly a group of people that like that kind of form factor. So we keep open minds to categories and we explore all possibilities.

Speaker 7

Got it. Thank you. And then just a follow-up too. Are you seeing any increases in promotions from you guys pushing it through retailers or anything else?

Speaker 3

I don't think the promotional activity is materially different. We have a yearly cadence around the calendar of our retailers most recently for example Prime Day. The mix of products that we offer can vary from year to year and that can probably affect whether it's more promotional or less. But in general, I would say shaping up to be a pretty typical year.

Speaker 7

Got it. Thank you. Thank you.

Speaker 1

Your next question comes from

Operator

the line of Ben Bollin from Cleveland Research. Your line is open.

Speaker 10

Good morning, everyone. Thanks for taking the question. Cliff, I'm interested in your thoughts on the year to date performance in fitness. Obviously, remarkable. How do you think about the drivers to what you've seen?

Speaker 10

You had certainly a product with Forerunner 165. I'm curious about that. Any thoughts on TAM? And then if you have any perspective on how a strong cohort of customers added during COVID, There bigger refresh opportunity? Any thoughts on that would be helpful.

Speaker 3

Yes. I think our year to date performance has been remarkable. We credit it to the strength of our product line. It's certainly not just the 400 165, we have the 965 and 265, which are also doing very, very well. The Vivoactive 5 on the low end of advanced wearables, as well as the Venue 3 and 3S, all of which has been popular.

Speaker 3

So we're seeing success across the range of products from high end to low end. In terms of the overall market, I would say that it's generally stable. It's not a huge growth market, but it's a huge market. And our opportunity is really share gains, which we see happening with the kind of results that we're driving. So we're excited about that.

Speaker 3

And then in terms of refresh opportunities, we track that new users versus existing users and what kinds of products that they go from and what they go to. And definitely, we see this refresh cycle that occurs with our customer base every 2 to 3 years and we're starting to see some of that especially as our new products really leapfrog the generation or 2 behind where they might have already had a product that they were using. So definitely there's ongoing opportunities with the existing customer base.

Speaker 10

Okay. The last one for me. Also curious how you think about potential AI opportunities for both internal and customer use cases. It seems like you have a very unique high fidelity data set in Connect. Just curious your thoughts on what you guys could be looking at or some options around AI?

Speaker 10

Thank you.

Speaker 3

Yes, I think we're no different than most companies. We look at AI as a potential business tool and we're doing some of that. Some of what we look at there, we take a wait and see approach because there's still a lot of claims that AI is making that have yet to be demonstrated. But in terms of product specific uses, I would say that a more constrained model around customer data and trends is something that we're very interested in and we continue to explore possible features that we would have in our products in the future driven by that technology.

Speaker 10

Thank you.

Speaker 1

Your next question comes from

Operator

the line of Ivan Feinseth from Tigress Financial Partners. Your line is open.

Speaker 11

Thank you. Congratulations on another great quarter and a great first half.

Speaker 5

Thank you.

Speaker 11

In the slides, you talk about the strength in fitness was driven by wearables, but the revenue decline in outdoor was driven by adventure watches. What is the difference between the what's driving the strength in the fitness wearables, let's say, versus the outdoor wearables?

Speaker 3

I think the outdoor wearables, Ivan, was really when we passed the pipeline fill of our Phoenix and Epix Pro releases from last year. And as we look forward, we're basically factoring in our additional product releases that we have for the rest of the year and we anticipate that will grow as we move forward.

Speaker 11

And then like some of the functionality like with the launch of the Pro models, you have the updated or the better ECG measurement and there's ongoing talk in Health Focus of the importance of HRV. Like can you talk about like how are these some things that are driving upgrades in sales? And what do you envision as far as future functionality?

Speaker 3

Yes. I think we've really been a pioneer in those kinds of sensor measurements, particularly when you look at HRV which drives many of our metrics in our devices from performance condition to sleep quality, which are all very important things. And so we've been on the forefront of that and our practice has been and our history has been as we invent these features, we roll them across product lines and expand the functionality broadly and make it available to even more users.

Speaker 11

All right. Thank you and congratulations on the first half.

Speaker 4

Thank you.

Operator

Your next question comes from the line of Noah Zatkin from KeyBanc Capital Markets. Your line is open.

Speaker 12

Hi, thanks for taking my questions. First, kind of just a housekeeping question. Could you remind us how to think about the mix between aftermarket and OEM within the marine business post addition of JL? And then second, you guys have obviously been able to maintain strong margins in what's been a kind of choppy marine industry. So from a margin perspective, exiting this year assuming the industry is on more stable footing, like how do you kind of think about like the kind of longer term margin structure of the Marine business?

Speaker 12

Thanks.

Speaker 3

Yes. So our Marine business is mostly comprised of aftermarket, especially in this environment where boat building is at a reduced level as field inventory is worked down. With the addition of JL Audio, a lot of those sales we probably categorized more in the aftermarket area, although there is some that goes to OEM. It's a little harder to track in marine because some of the distribution channels are independent distributors who sell and turn to smaller boat builders. And so it isn't always possible to track exactly which products go where.

Speaker 3

But in general, we're seeing strength in the aftermarket channels as well as better than industry performance in the OEM side. In terms of the margin picture, I would say that other than the impact that we've talked about with JL Audio as a dilutive factor, overall, we don't see any change in the overall marine margin structure, especially as you mentioned towards the end of the year, we would see that the segment in the market really will continue to perform in the ranges that have been historically true.

Speaker 12

Thank

Operator

Your next question comes from the line of Eric Woodring from Morgan Stanley. Your line is open.

Speaker 6

Hey guys, thanks for taking my follow ups. Just two quick ones if I may. Maybe big picture, some of the questions have maybe alluded to this topic. But I'd say there have been some growing concerns around consumer spending. We're also hearing about some evidence of incremental, let's call it hardware spending in Europe hardware spending weakness in Europe, excuse me.

Speaker 6

Just given your significant exposure to each market, can you maybe just give us some detail on exactly what you're seeing from an end demand standpoint, related to the consumer? Are you seeing any trading down? It doesn't seem like it, but I just want to make sure we get your perspective given how kind of how wide your reach is? And then just a quick follow-up. Thanks.

Speaker 3

Yes. I think Eric, we would say that there's not any significant evidence that spending patterns for our product lines and our customer base are currently being impacted. A little hard to say it's not because we don't have control data to measure that against because we're doing so well. But we do tend to target a customer base and product ranges that are not at the commodity low end level. So we make premium products with clear differentiators and customers seem to appreciate them and step up for them.

Speaker 3

So it would appear that that is resonating with customers. Okay.

Speaker 6

That makes a lot of sense. And then maybe just last one. If you look at Garmin Connect MAUs, strength there, at least growth there has been very consistent in the mid teens on a monthly basis year over year. Is there any way that you can help us understand what of that growth is new customer additions versus prior Garmin customers just reengaging with the Connect app? And does that behavior look any different than past cycles or past periods?

Speaker 6

Just trying to understand kind of the strength of new users versus existing users that are just reengaging. And that's it for me. Thanks.

Speaker 3

Yes, our Connect registration behaviors, we've mentioned those from time to time that most of the new accounts and the new devices we see registered on Connect are from new customers. We do see a healthy number of existing customers that continue to engage with Garmin and they upgrade their devices. And we see frankly a robust secondhand market where people might sell one of their products and trade up to another one and somebody a brand new customer to Garmin comes into Connect, which gives us an opportunity to then upgrade them in the future. So in general, I would say it's a very healthy environment and mostly still driven by new customers.

Speaker 6

All right. That's perfect. Thanks so much.

Speaker 4

Thank you.

Operator

Thank you. With no further questions, Terri, I'll turn the floor back over to you.

Speaker 2

Thank you all for joining the call today. Doug and I are available for callbacks and we hope you have a great rest of your day. Goodbye.

Speaker 1

Thank you.

Operator

This does conclude today's conference call. You may now disconnect. Have a great day.

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