Good day, ladies and gentlemen. And welcome to the Garmin’s Fourth Quarter 2017 Earnings Call. At this time, all participants are in a listen only mode. Later we will conduct the question-and-answer Session and instructions to be given at that time [Operator Instructions]. As a reminder, this call is being recorded. I would now like to turn the call over to Teri Seck. You may begin.

Good morning. We would like to welcome you to Garmin Limited's fourth quarter 2017 earnings call. Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/stock. An archive of the webcast and related transcript will also be available on our Web site. 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 dividend, 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.

Thanks, Teri, and good morning, everyone. As we announced earlier today, we delivered another quarter of revenue and profit growth. Revenue grew 3% on a consolidated basis. Combined revenue from outdoor, aviation, marine and fitness increased 9%, and represented 78% of our revenue in the holiday quarter. Gross margin improved year-over-year to 56% due to favorable shifts in both segment and product mix. Operating margin improved to 20%, resulting an operating income growth of 12%. These strong results generated GAAP EPS of $0.73 and pro forma EPS of $0.79 in the quarter. Looking briefly at our full year performance, 2017 was our second consecutive year of revenue and operating income growth. I believe this is a remarkable achievement considering the challenges that we faced. The PND market continued its decline as it is done for nearly a decade. In addition, the basis activity tracker market rapidly matured and left additional gaps to fill. We filled these gaps and more because of the strength and diversity of our business. Revenue increased 2% over 2016 to nearly $3.1 billion. Combined revenue from outdoor, aviation, marine and fitness increased 9% and generated 90% of our operating income. Growth in operating margins improved to 58% and 22% respectively while operating income grew 7%. This resulted in GAAP EPS of $3.68 and pro forma EPS of $2.94. Pro forma EPS grew 4% over the prior year. Doug will discuss our financial results in greater detail in a few minutes, but first, I want to highlight that Garmin was recently included in the Forbes Global 2000 world's best employers list, placing 430th out of more than 300,000 companies that were surveyed. We also were ranked 41st in the Forbes Just 100 Americas best corporate citizens list. This ranking considered Company’s focus on seven metrics, including producing…

Thanks, Cliff. Good morning, everyone. I'll begin by reviewing our fourth quarter and full year financial results. To move to comments on the balance sheet, cash flow statement, taxes impacts from new revenue recognition standard. We posted revenue of $888 million for the fourth quarter, representing 3% increase year-over-year. Gross margin was 56.2%, 150 basis point increase from the prior year driven by segment and product mix. Operating expense as a percentage sales is 36%, consistent with the prior year. Operating income was $179 million, 12% increase over the prior year. Operating margin was 20.2%, 160 basis point increase from the prior year. Our GAAP EPS was $0.73 and our pro forma EPS was $0.79. Looking at full year results. We posted revenue of about $3.1 billion for the year, representing 2% percent increase year-over-year. Gross margin was 57.8%, a 220 basis point increase from the prior year. Operating expense as a percentage of sales was 36.1%, 110 basis point increase over the prior year. Operating income was $669 million, a 7% increase over the prior year. Operating Margin was 21.7%, increase of 100 basis points from the prior year, driven by the increase in gross margin. Our GAAP EPS was $3.68 pro forma EPS was $2.94. Next to look at the fourth quarter and full year revenue by segment. During the fourth quarter, we achieved double digit growth in three of our five segments, led by the Marine segment with 24%, fitness returned to growth in the fourth quarter. For the full year 2017, we achieved 2% consolidated growth led by robust growth in our outdoor segment and solid double digit growth in our Aviation and Marine segments. Looking next to fourth quarter revenue and operating income. Collectively, the Outdoor, Aviation, Marine and Fitness segments contributed 78% total revenue…

[Operator Instructions] Our first question comes from Charlie Anderson of Dougherty Markets.

So I want to start with aviation kind of a two part question. Cliff, you mentioned environment getting a little bit better I think some of your peers have expressed a similar sentiment. So I just wonder what you’re seeing, is it feel sustainable in terms of the outlook for that market. And then as it relates to ADS-B upgrades, I wonder if you view 2018 or 2019 as the peak year for you guys in terms of that contribution from those upgrades? And then I've got a follow-up on the Marine?

In terms of the aviation environment, I think we're all seeing that it's incrementally better. Of course we’re coming off a very low bottom and the numbers are somewhat smaller in terms of the overall growth. But I think most in the industry are very encouraged by that. In terms of its sustainability, I think things look good for the foreseeable future. Somebody recently commented to me though that some of these markets like aviation, marine are one economic bump away from downturn. So we have to recognize that they are somewhat fragile due to their nature. But in general, we feel good about that. In terms of ADS-B and which year would be the peak year, we would certainly see acceleration in unit deliveries going forward. I think I would anticipate that 2019 would probably be even bigger than 2018 as people get serious about retrofitting their aircraft, but it's still somewhat early days and the number of aircrafts that have been equipped so far is still on the low side, less than half. So we're waiting to see more people step forward.

And then as it relates to marine, I wonder how much benefit you guys got from acquisition in Q4 and then how much of the 18% growth anticipates, the inorganic portion?

So Charlie, related to the 2018 guidance we gave, we’re basically expecting about half of that to come from Navionics.

Our next question comes from Doug Clark of Goldman Sachs. Your line is open.

First one on the auto segment, the 2018 guide implies an acceleration and decline. So I'm wondering if you can talk about what's driving that acceleration after a few years of what seems like moderation.

So in terms of our overall outlook in the Auto segment, I think PND is pretty much on the same trajectory that we've been on before. We did see some improvement in 2017 due to mandate categories such as ELD, which drove some of our fleet products as well as a new ELD categories. In 2018, the OEM part of our business is not expected to grow as fast as what it has been because we're seeing year-over-year comps in some of our major customers that have come on board like Honda.

And then my other two questions, first on OpEx, so using your guidance it looks like implied OpEx is expected to be about $1.2 billion or up 8% year-on-year. So can you talk about the acceleration in OpEx spend? And then a financial question, I'm curious what the FX impact to fourth quarter ’17 revenues was and what the expectation for FX benefit in 2018 is?

As it relates to OpEx for 2018, we’re expecting about 8% type of increase about a third of that really is relating to Navionics, so we have had acquisition that we'll be hitting in 2018. Also looking at some of the different OpEx lines for ’18 as it relates to advertising as percent of sales, we would expect to keep that relatively flat. And then in R&D obviously we're adding some additional headcount investments in our business and then also have some additional costs relating to new aviation manufacturing and consumer distribution facility, some additional costs related to that. Then as it relates to FX, the FX impact on revenue for Q$ was about a tailwind of $28 million and then for the full year it was about $25 million of tailwind, primarily driven by the strength of euro.

And then are you assuming any -- within your guidance for 2018, any FX impact?

There's impact to that in the guidance, because for the average for the year I think the euro was probably about [113], it's quite a bit higher and now it is probably about $75 million of FX tailwind that's in the guidance, assuming the current type of euro rate.

Our next question comes from Joe Wittine of Longbow Research.

I guess, I'll ask on wearables here, so first off in the wearables portion of outdoor. Do you expect you can maintain your average selling prices in 2018 based on your product roadmap?

So we believe so, that's in our plan. We believe this fēnix line is generally very strong and we have product roadmaps that allow us to be able to bring in our newer products, such as the fēnix 5 and to be able to offer some discounting on the older products, which helps to promote them and sell more volumes. So in general, we feel like the ASP situation is fairly stable.

And then I wanted to ask on availability for two new products Forerunner 645 still isn’t available and then vívomove HR seems to be pretty limited. So just wondering if there is anything to note on production just given the fact that both have somewhat new Garmin technology, when we could expect those be in consumers’ hands?

So the 645 is eminent, we're making our final adjustment on some features and performance. So that should be coming very soon. With vívomove HR, we took a very conservative view of that as we launched the product based on our experience on the original Vivomove, which was more of a niche product. But we've been pleasantly surprised by the reception to the vívomove HR. So we've been chasing supply chain and trying to increase our volumes on that product as well. So we feel pretty good about that as a contributor but we've not been able to supply all the demand.

Then finally just on the same topic here, you got a very active six months of new product introductions in fitness, especially when you also include cycling on top of wearables. But looking forward on variables, I know you won't tip individual products. But is it reasonable to expect perhaps a lighter number of new announcements ahead in the spring given that momentum of announcements exiting 2017?

I can’t really comment on the timing of introductions, so we do have a very active roadmap of new wearables that are coming in 2018 and beyond. So we're still very much developing the product line and introducing new products and features.

Our next question comes from Yuuji Anderson of Morgan Stanley.

As depicted on pack the outdoor outlook there how much of that can you give us a better sense of how much that would be attributable to products that are yet to be launched versus products that's obviously you already have.

Well, I think we said in our comments that the primary driver of the growth is certainly fēnix as it's grown in the overall contribution to the segment. It's the single largest product category within the segment. But in terms of the details around new product contributions and such we won't comment on that.

And then on Fitness with the flat revenue guidance and just with the recent product launches. Is it -- assume that Fitness would decline towards the end of the year just given the timing of product launches there? Or is this going to be more scaled throughout the year?

Well, certainly we will be competing against tougher numbers in the fourth quarter of 2018 as we anniversary the launch of quite a few new products in the advanced wearable wellness category, as well as vívomove HR and others. But in general, we anticipate that the advanced wearables will do well throughout the year and then our big headwind will be the basic trackers.

Our next question comes from Rob Spingarn of Credit Suisse. Your line is open.

So Cliff, when we look at outdoor from a high level, is there any risk that fēnix or the other components with an outdoor start to hit that maturation level that we saw in fitness? Or is it just a different type of market with less competition?

Well, I think there's always risk in any of these consumer market, so for sure that's something that we're aware of. We believe the market though is still doing well and we believe there's opportunity for additional innovation and new products that can come to the market.

Just when I think about the change in growth rates as we go forward, I'm just wondering if this is a similar dynamic just lagging by a couple of years.

Well, I think, we're lapping against a very strong launch of the fēnix 5, which drove significant growth during 2017. So we're looking at 2018 and trying to be realistic about the overall growth prospects there and trying to make sure that we can deliver on what we say.

And then just on the margin guides, maybe this is for Doug. The gross margin picks up a little bit. Is that simply just because of the smaller contribution from automotive or is there -- and I think Cliff said a little bit earlier that ASPs are holding steady. But is that true from segment to segment, how do we think about that 58.5%?

The 58.5% is primarily a segment mix as you mentioned just because we're having a situation where our growth is going into some higher margin areas and then some of our declines some are lower margin areas such as the activity trackers and few of these things and maybe some puts and takes by each of those segments. But it will be relatively comparable to what we anticipate for the full year, but a big driver that is a segment mix.

And then just you spoke to the higher operating expenses a little while ago. You did mention the facility I was going to ask you if CapEx has been a little elevated and if that continues.

S CapEx will go up a little bit we anticipate 2018 probably to about $145 million compared to the $140 million that we had in 2017.

Our next question comes from Ben Bollin of Cleveland Research. Your line is open.

I wanted to start, when you look at the fitness business and the guidance there. Do you have any incremental share gain assumptions built into your guidance, following TomTom’s exit of the category? And then I have a follow up.

I think TomTom's contribution was fairly low on an overall market basis, and the primary impact of that would be to Europe. So I think certainly that's in our overall view of the market but it's not necessarily moving the needle in terms of the overall guidance.

And then a couple of other items. How has tax reform in U.S. influenced any thoughts you have on the domicile and the potential to adjust that? And working capital levels little elevated relative to last couple of years. How do you think about where working capital should be or could be over the course of the next 12 months? Thank you.

Regarding U.S. tax reform, yes there’s about -- as we talked about the big driver that we have in the tax rate year-over-year is the U.S. tax reform. And as it relates to where we’re domiciled, currently in Switzerland. If you compare Switzerland to U.S. even after the current changes in those corporate rates, Switzerland is still is at a lower statutory in our effective rates from that standpoint. And then follow-up question, Ben, was regarding?

Working capital little elevated relative to last year where that goes from here…

Working capital in 2017 primarily look in that inventory and receivables and. For '18, we would expect to see probably our inventory and receivables end of the year similar to what our growth in sales is. If you look that 2017 receivables did increase a little more than primarily due to some receipts there. So look at January receipts came back in line with some of our DSO comparisons that we have. But we would expect looking that our free cash flow for 2018, we probably would expect somewhere to be around $560 million of free cash flow, a piece of that would be some favorability due to less cash taxes due to tax reform we talked about. Also, we should see some favorability relating to working capital that you mentioned there, we shouldn’t expect to see the type of increases in AR that we saw in 17 continuing through ‘18 more in line probably with our revenue increases.

Our next question comes from Brad Erickson of KeyBanc Capital.

Just two quick housekeeping questions to start for Doug. One, just what was the litigation expense exactly from in Marine in Q4? And then you mentioned the revenue impacts from FX. Just curious if you can give the EBIT tailwinds to Q4 and for 2018 guide from FX?

So as it relates to the litigation, we have settlement agreements there that we would not be able to disclose at the number as it relates to that settlement agreement. Then as it relates to the EBIT impact, what you have in the situation there is in Q4 you have some things go against with the strengthening of the Taiwan dollars that partially to offset that and then for the full year in that period also.

On that Marine litigation expense question, maybe another way to ask it. Where would the margins have been historically normal for Marine have the expense been removed?

Yes, to put in there, I think we would have comparable type gross margins, yes.

And then just a higher level question on the Auto OEM business. I guess for years you’ve had pretty solid portfolio for that infotainment opportunity obviously with the shifts that are occurring in automotive towards data, autonomy, et cetera. How should we think about the investments you’re thinking about or making in your Auto OEM portfolio as you look to get centered there over the target of I guess what we’d call OEM’s highest priority content objectives in the coming years? Thanks.

Certainly, the content view is changing and in terms of what goes into the automobile where we're still seeing market interest though in infotainment systems, people still -- those kinds of systems in the car. And we've seen a higher mix of software related business with what we’ve talked about with Honda and Daimler as well. But looking forward, we've announced and talked about our relationship with BMW where we’ll be supplying more of what's called the silver box, which is a generic computing platform in the vehicle, which can run all kinds of software stacks associated with infotainment and clusters and other things in the vehicle. So there is some evolution like that but there's still opportunity for computing in the vehicle and software.

Our next question comes from Will Power of Baird. Your line is open.

Actually just a couple of quick follow ups. So I know you talked about higher gross margins and some higher OpEx. Are there particular segments where you're seeing that the higher OpEx and perhaps lower operating margins, I guess that's question number one. And then I guess number two, within the Fitness category we've got this ongoing basic activity tracker weakness. Is that just continuation of the market trends? Is there any change in share there? And I guess I'd just be curious within the advanced section of that, what's the forerunner outlook looks likes do you continue to see growth there? Thanks.

Maybe I'll talk about the gross margins first of all. As I've mentioned, the gross margin consolidates really from a segment mix standpoint, so we're anticipating relatively comparable maybe a few puts and takes for each one of the segments that are out there. As relates to OpEx, what we'll see there is actually investment in where we have our advanced wearables, primarily in the outdoor area. Also, you have the Aviation we'll make R&D investments in there too. So given the decline that we're seeing in the auto areas hopefully we're looking at tightening up those expenses in those area. Then as relates to advertising as we looked at 2017, we actually cut back on our advertising in the fitness area related activity trackers so we'll need to look at that where we really have some of the more advanced wearable the products like the fēnix.

And then any color on the basic activity tracker market, how much of that is just ongoing market trends versus any share loss and any color on Forerunner sales?

Our view is that most of that is really associated with the market trends that customers are moving towards more advanced wearables. And so consequently, the basic market has matured and is declining rapidly. So our share assumptions are pretty equal to what they've been in the past and the basic side we've typically said that on a global basis, roughly 10% market share as we look across the universe of what's going on around the world. In terms of impact on Forerunner that falls into our advanced category, so that's the area where we still see opportunity and we still see people moving towards the more advanced products. In the case of Forerunner, it’s more technical runners but in the case of our vívoactive active line, which is GPS enabled smart watches, those are the folks that are coming off the basic trackers into a more advanced product.

Our next question comes from Ivan Feinseth of Tigress Financial. Your line is open.

My question is on the new scalable infotainment platform. What kind of feedback are you getting from automakers and can we expect any kind of partnership announcement soon?

We’re getting this feedback and much as the work of selling into these automakers is to demonstrate capability. And so I think the news you've been seeing from us is surrounding more of that prototyping and predevelopment work. We're getting good feedback from them but in terms of specific announcements, we can't comment on that right now.

But if you seem to be getting some good feedback and interest in it?

Yes.

[Operator Instructions] Our next question comes from Ronald Epstein of Bank of America Merrill Lynch. Your line is open.

It’s Kristine Liwag calling in for Ron. There’s discussion that Boeing may launch a new clean sheet middle of the market aircraft this year or next. And considering your avionics are certified now for Part 25 aircraft. Does Boeing shifting its strategy in managing its avionic supply chain provide an opportunity for you to provide content on the new middle of the market aircraft? And if so, what would you need to do and how much would you need to spend in R&D in order to be competitive?

Well, certainly I think any opportunity around Boeing would certainly be hypothetical. I would say that our G 5000 system is as you have said Part 25 certified and we feel like it's the major building block that we need in order to be able to serve more advance applications such as regional and commercial aviation. But in terms of investing in specific opportunity like that, it would require a significant investment in order to be able to build up the other infrastructure we would need in the company to be able to serve a player like that. We're certainly prepared in it and taking steps to do that. But again, it would be driven by specific opportunities.

And a follow-up to that and it seems like also Boeing and Embraer Air are considering a partnership. And so if you have -- and if should they consider that partnership to create any middle of the market aircraft, you've got content on Embraer aircraft already today. So does that mean that is their partnership goes ahead, is that give you a higher likelihood of gaining content on that plane? And then another follow-up would be, how much would that investment be, because you quantify the timing and possibly the size if you pursue that opportunity?

Yes, so in terms of any hypothetical partnerships between Embraer and Boeing, I would say certainly we feel like we're well positioned, because of our experience with Embraer. As I mentioned, we've been winning consistently supplier awards with Embraer so they seem to be happy with what we're doing. But again, it's all hypothetical because I think any particular partnership on their part would consider all the factors they have in hand at that time. In terms of timing and size of investment, really not prepared to be able to comment on that. But as I said, I think there would be work to do and we're certainly able to and willing to make those investments.

There are no further questions. I'd like to turn the call back over to Teri Seck for any closing remarks.

Thanks, everyone. Doug and I are available if there’re callbacks today. Have a great day. Bye.