Good morning. My name is Julie, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Garmin Limited Second Quarter 2018 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. And as a reminder, today' call is being recorded on August 1, 2018. Thank you. Teri Seck, you may begin.

Good morning. We would like to welcome you to Garmin Limited second quarter 2018 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. As a reminder, we adopted the new U.S. GAAP revenue standard in the first quarter of 2018. The prior periods presented here have been restated to reflect adoption of this new standard. 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, gross and operating margins, and future dividends, market shares, product introductions, future demand for our products and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of 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.

Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin reported strong second quarter consolidated revenue of $894 million, up 8% over the prior year. Fitness, marine, aviation and outdoor collectively increased 17% year over year and contributed 80% of total revenues. Gross margin improved to 58.5% compared to the prior year due to segment mix. Operating income improved to $218 million, up 4% over the prior year. This resulted in GAAP EPS of $1 and pro forma EPS of $0.99 in the quarter. We are pleased with our performance in the first half of 2018, and these strong results give us confidence to raise our full-year guidance. Doug will discuss our financial results in greater detail in a few minutes. But first, I'd like to provide a few brief remarks on the performance of our business segments. Starting with the fitness segment, revenue increased 24% driven by growth in advanced wearables and in cycling. Gross and operating margins were 56% and 23% respectively, and operating income grew 40% over the prior year. During the second quarter, we launched the vívoactive 3 music, expanding our music offerings into the advanced wellness category. We also launched new Edge cycling computers and the next-generation Varia radars targeting the cycling safety market. The basic activity tracker category continued to decline during the first half of 2018. However, the impact on our fitness segment was more than offset by growth in other categories. Looking forward, we believe, we are well-positioned in this segment, with a strong line-up of wearables and cycling products. Looking next at marine, revenue increased 24% as weather conditions improved and boats were brought out of storage for the season. Approximately half of the growth came from our recent acquisition of Navionics, while the other half was organic across…

Thanks, Cliff. Good morning, everyone. I'd like to begin by reviewing our second quarter financial results, including (11:15) comments on the balance sheet, cash flow statement and taxes. We posted revenue of $894 million for the second quarter, representing an 8% increase year over year. Gross margin was 58.5%, 30-basis-point increase from the prior year. Operating expense as a percentage of sales was 34.2%, 120-basis-point increase from the prior year. Operating income was $218 million, a 4% increase year over year. Operating margin was 24.3%, 90-basis-point decrease from the prior year. Our GAAP EPS was $1 and our pro forma EPS was $0.99, a 9% increase from the prior year. Next, I'd like to look at our second quarter revenue by segment. During the quarter, we achieved 8% consolidated growth led by robust double-digit growth in our fitness, marine and aviation segments. This growth was partially offset by decline in our auto segment, which resulted a continued decline in the auto PND business. On a combined basis, fitness, marine, aviation, and outdoor were up 17% compared to the prior-year quarter. Looking next at second quarter revenue and operating income. On a combined basis, fitness, marine, aviation and outdoor segments contributed 80% of total revenue in the second quarter of 2018 compared to 73% in the prior-year quarter. Fitness grew from 22% to 25%, aviation grew from 15% to 17%, marine grew from 13% to 15%. As you can see from the charts, illustrate our profit mix by segment. On a combined basis the fitness, marine, aviation and outdoor segments delivered 94% operating income in the second quarter of 2018 compared to 84% in the second quarter of 2017. The fitness and aviation segments, year-over-year increase in both operating income dollars and operating margin. Looking next in operating expenses, second quarter…

Your first question comes from the line of Joe Wittine from Longbow Research. Joe, your line is open.

Hey, good morning. Congrats on the results. In aviation, I appreciate the color Cliff, and we've heard of the tight capacity too. Can you just take it a step further and help us understand how this may play out in your reported results in 2019 and 2020? Like, let's say, the FAA's conservative scenario plays out, so the 100,000 total sales and you do get that modest increase in shop capacity to, let's say, allow the industry to meet a 100,000 by the end of 2019. So the question is would you still see healthy growth in 2019 versus 2018? And then if it were to drop off there and be "complete" at January 1, 2020 would that be enough of a drop off to potentially drive Garmin aviation down in 2020? Just a little more help taken into the model would be great, thanks.

Well, I think just to shed some light on that specific category of ADS-B, it's only one category within our broader aviation segment. So if we just speak generally about that, I would say that with some additional shop capacity, of course that would drive additional sales in that category. As I mentioned in my remarks, there is a follow-through trend with customers adding additional equipment to their aircrafts when they bring in the aircraft in for work. A lot of times it makes sense to add other things that they want to have in the aircraft. So, we're seeing compounding effect from that, and we would expect that to continue as the mandate approaches. In terms of specific numbers around aviation for 2019 and 2020, we can't really provide specific color on that. As I said in my remarks, we're working on more than one opportunity. So, we believe that we have growth paths beyond the ADS-B cycle. And given what we see playing out with ADS-B, we do anticipate more of a soft landing than a hard cliff of revenues in terms of that category.

Perfect. Thanks. And I wanted to move to fitness where the numbers were very impressive. I think the product cycle is, obviously, your friend today, looking to the second half, should we anticipate, I don't want to say a pause, but simply an easing in the timing of new product introduction, especially in advanced wearables? Or do you have these things based out to the point, where you'd have us expect a "typical slate of new product announcements" into the holidays?

We do have some additional announcements that will come in the back half of the year, but for the most part our product line-up is set. We do have a very refreshed product line-up this year. So, we feel good about our positioning and of course last year, we did have the introductions of some of our advanced wearables and new categories in wellness in the back half of the year. So, we're comping against that. The fitness market, you know, has shown that it has been a little more dynamic, so we're taking a more cautious view on the back half that we believe there's strong reason that our products and our business should perform well.

Thanks. And then last one for me. Doug, can you help us on ad spend at all, especially modeling the second half here on a year-over-year basis. Your ad dollars were kind of flattish, a little bit up in the second quarter, but you're still down for the first half in total, so how will the second half look year-over-year, especially considering I think you pulled back some in last year's fourth quarter?

Yeah. So as it relates to advertising, to give you a full year perspective on it. Yeah, we expect full-year advertising dollars to be relatively flat year-over-year as well as percentage of sales. So, second half will even out, so that we're basically a situation that will be flat, hopefully, for year-over-year.

Great. Thank you so much.

Your next question comes from the line of Yuuji Anderson from Morgan Stanley. Yuuji, your line is open. Yuuji Anderson - Morgan Stanley & Co. LLC: Great. Thanks so much and good morning. My question is on the auto's guidance. It seems to imply some accelerated declines at the end of the year. So, hoping to get a little bit more color on that? And similarly, on that point, how should we think about the mix between PND and the other categories exiting the year?

Yeah. So in terms of auto and as we – it's been our practice really for years as we do take a fairly conservative view of that given the situation of the market. We do see the ongoing decline of PND. During the quarter, we did experience strength in both truck and camera products, so we're offsetting some of those declines with new categories. And in terms of OEM, we are seeing some programs roll off like Chrysler and other new programs, which have not contributed yet, such as BMW. So, we'll see some ups and downs in the OEM portion of the contributions, but that's our outlook for the remainder of the year and then, of course, as we move into future years, we'll be able to update that as we see new programs coming on and as the categories change. Yuuji Anderson - Morgan Stanley & Co. LLC: Got it. And then just a quick clarification on the prepared remarks for the outdoor segment there, with the guidance and it looks like there should be some acceleration off of Q2. Is that building in some additional product launches there? Thanks so much.

Yeah. So in outdoor, we do have additional launches in the back half of the year, but for the most parts, our major categories are set. And I think we're right where we expected to be in the segment, and so that's why we left our guidance unchanged. Okay. Thank you. I guess, move on to the next question.

All right. Your next question comes from the line of Brad Erickson from KeyBanc Capital Markets. Brad, your line is open.

Thanks. Just a few follow-ups here. First, on the fitness business, I guess it's kind of interesting, if you look at that business, it's like, I don't know $160 million or so higher than it was three years ago or so, margins seem to be tracking kind of in line though, or below where you were at those levels. Talk about just overall fixed cost leverage you start to get, particularly as you get some of these nice channel fill quarters, it seems like you've returned a little bit of margin expansion. Just what should be the expectation around fitness margins there?

Well, I think we've been targeting our margins around the mid upper 50s% and our operating margins in the low to mid-20s in the segment and as we see lumpiness around the seasonality as well as product launches, that can be up and down, but that's generally the long-term targets that we're shooting for.

Got it. And then just on the aviation, do you have any sense – can you give us a sense rather of what's the attach rate that your resellers are seeing for when they're selling ADS-B with, say, other avionics products?

I would say it's very high, probably close to all of them.

Got it. And then lastly just around FX, it seem like that should have been maybe a bit of a tailwind to start the year, probably neutralize as it becomes a headwind. What's the – any clarity you can give us on the net benefit your – or headwind you're contemplating owed to FX for the year in the updated guidance? Thanks.

Yeah. So for Q2, you're correct, there was a tailwind on revenue about the $20 million. And looking at the back half of the year, we expect very little, probably immaterial impact. The euro right now is pretty well consistent at what, I'll say, the average was sort of back half. So probably, it's everything stays the same as it is right now, a very little impact on the back half.

Got it. Thank you.

Thank you.

Your next question comes from the line of Charlie Anderson from Dougherty & Company. Charlie your line is open. Charlie Lowell Anderson - Dougherty & Co. LLC: Yeah. Thanks for taking my questions and congrats on the strong start to the year.

Thank you. Charlie Lowell Anderson - Dougherty & Co. LLC: I wanted to ask you about geographic again, I know I asked this last quarter, but Asia was very strong, again I wonder if there were any particular geos you could call out there that are doing well? And is that a sense where you're building there and you're in sort of an expansion phase or just kind of roughly what's going on there? And then also in Europe, it seems like there was one geo that slowed down. It was Europe a little bit, so wondered if you could maybe unpack, what's going on there? And then I've got a follow-up.

Yeah. So in Asia, there are some larger countries that are driving some growth there, particularly China and Japan have been superstars in terms of the overall APAC market that there are other markets as well that are doing very well. In terms of the Europe dynamic, I think our year-to-date performance there can be completely attributed to the fēnix effect from last year. They were super strong in their launch of fēnix from last year and they had almost really as a whole quarter of Q2 to be able to launch fēnix 5. This year, we announced the fēnix 5 with less than two weeks to go in the quarter. So consequently, they had very little opportunity in terms of their channel fill as compared to other markets. So I think the dynamics there can be completely attributed to fēnix. Charlie Lowell Anderson - Dougherty & Co. LLC: Got it. And then on the fitness, it's going to be up 10% in the year. I wonder to what degree do we attribute that to ASP relative to units? And I wonder, as you move to these higher-end wearables, does it feel like that's a multi-year trend or just kind of roughly how do you look at that going forward in terms of consumers willing to sort of pay up for more features? Thanks.

Yeah, definitely, the dynamic of the market is that customers are stepping up for more capability and for unique offerings like what we have. And so there's definitely an increase in the ASP that we see there. But we also see growth in units as well as we had super strong performance in our advanced wearables category. Okay?

Pardon me. Our next question comes from the line of Ben Bollin from Cleveland Research. Ben, your line is open.

Good morning, everyone. Thanks for taking my question. Could you talk a little bit, going back to fitness, were there any unique items in the quarter? Did you continue to see some selling benefits for Forerunner 645? Are you seeing any further box expansion or linear square foot expansion in your existing partners?

Well, we did announce the vívoactive 3 music and that product seemed to have been received well in terms of its unique design and capabilities adding to the vívoactive line of music. So that was one dynamic. In terms of overall distribution, I think for the most part our distribution is pretty well set. Although, we see some countries in some areas, some markets improving incrementally but for the most part it's what has been for a while.

Great. And then within fitness in the press release you talked about the potential for more high-end wearables or more high-end features in that product category. What is your assessment of what those characteristics or features are, what makes it a high-end wearable? And then last item would be, have you seen any benefits from TomTom exiting the market in the first half? And how do you think that opportunity could play out in the back half? Thank you.

So in terms of customer preferences they do seem to be moving towards products with more features. It seems like smart features are table stakes if you will. Customers like the sensor technology and especially the additional features that that we bring to the table such as stress monitoring and sleep tracking. And then just in general, I think our products are very strong around the GPS side and the position, location focus of our watches, which make them very strong in the active lifestyles. Music, payments and maps are certainly adding to that. So, we see those as all positive points for the customer. In terms of shifts in the competitive landscape, I would say, you know in terms of TomTom to exit, there's probably some effect, depending on the country that you talked about. Some countries still report that there is strong inventory of competitive products in the market and so those areas probably haven't changed as much well as others. The channel is pretty much flushed through and so that does lead to increased opportunities for our products.

Thank you.

Thank you.

Your next question comes from the line of Ivan Feinseth from Tigress Financial. Ivan, your line is open.

Thank you. Congratulations on another great quarter and thank you for taking my questions.

Thanks, Ivan.

I have questions in three areas. First, congratulations on the F-5 win, can you give us some idea of the number of units and the price of that product?

Yeah. In terms of number of units, of course, you know these are very specialized aircrafts, so it's a small quantity, but we view it as a stepping stone into that market and it shows the capability of our cockpit systems to be able to be used in a very advanced specialized application like the F-5. In terms of our shipset prices, we can't talk about those details, but again, we're very excited about the opportunity and we believe that will be a stepping stone for us into more.

Okay. That's why I thought do you have – can you give us some color on some other potential wins in the pipeline?

In terms of things that haven't been announced like, we can't speak to those. Definitely there are a lot of exciting opportunities that are coming that have been announced. For instance, the Longitude is in its final stages of certification. Also, we have positions on the Cessna SkyCourier and the Denali as well.

Very good. Also, on your infotainment platform, can you give us any progress on potential OEM adoption?

Yeah. We're very encouraged by what we see in the deal pipeline and we believe that we'll have additional news to share this year in terms of more customers.

And I just have one last area, I see recently expanded the sleep monitoring function in the Connect app to work with your wearables. And I know that you had announced a partnership with University of Kansas to focus on sleep apnea. Are there some – did that come from some of that progress, or will you be expanding (30:28)? Can you give us some insight into what's happening with the research relationship there?

Yeah. We believe that our sensor technology shows a lot of promise in being able to play in the light medical device market. And so, participating in these studies is one way to start verifying the technology and proving that it can be used for certain applications. That's a long pathway in terms of our development there. It involves qualification of the product and certification of the product with various FDAs around the world. But it's a step in towards a growth opportunity in the future.

Yeah, I really like that, because sleep is probably the next frontier in improving health. And I also like the new oxygen sensor in the fēnix 5 Plus. So, congratulations, again, and thanks for taking my calls.

Thanks, Ivan.

Your next question comes from the line of Joe Wittine from Longbow Research. Joe, your line is open.

Thank you. No one wants to ask a fēnix question. I will. Can you talk us through what you've seen so far for Plus? So how does the launch compare to the F5 launch? And are there any interesting insights you've gathered on the current mix of Plus versus fēnix 5 purchases? It seems like you'll be selling them side by side?

Yeah, so early days, but we're very encouraged by what we see in terms of the market feedback, and the real-time information we get as people register their products. I think out of the gate, the higher-end versions, the fēnix 5X Plus have been very strong. And we're starting to see the momentum gather around the other versions as well.

Can you say how the channel fill will compare to the channel fill for the fēnix 5, which is pretty substantial in the last year's second quarter? Will it be a little bit smaller, because you'll be selling them side by side or not necessarily?

Well, definitely, there's the factor that that a very competent product is side by side with the fēnix 5 Plus, there's no question about that. We will use that in terms of our overall strategy in the market, in terms of pricing, the two different versions. But that said, it's still very early days with only just literally days in the back half of the quarter that that we had to ship products. We were very pleased with our overall contribution from the fēnix 5 Plus.

Okay. Understood. Thanks, Cliff.

Thank you.

There are no further questions in the queue at this time. I'll turn the call back over to Teri Seck.

Thanks, everyone. Doug and I will be available for callbacks today. Have a great day.