Garmin Ltd. (GRMN) Q4 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Garmin Ltd. Fourth Quarter 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Teri Seck, Manager of Investor Relations.

Good morning, everyone. We would like to welcome you to Garmin Ltd. Fourth Quarter of 2019 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 transcripts will also be available on our website. This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenues, earnings, growth and operating margins and future dividends, market shares, product introduction, 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 Ltd. 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, we finished 2019 strong, with revenue for the quarter increasing 18% over the prior year to $1.1 billion. Fitness, aviation, marine and outdoor collectively increased 24% over the prior year. Gross margin was 58% compared to 58.9% during the prior year. Operating margin improved to 25.1%, and operating income increased 24% over the prior year. These results generated GAAP EPS of $1.89 and pro forma EPS of $1.29 in the quarter, an increase of 26%. Looking briefly at our full year performance. 2019 was a remarkable year of accomplishments. Revenue increased 12% to over $3.7 billion, representing a new record for Garmin. Combined revenue from fitness, aviation, marine and outdoor increased 18%. Gross margin improved to 59.5%. Operating margin improved to 25.2%, and operating income increased 21% to $946 million, another record achievement. This resulted in GAAP EPS of $4.99 and pro forma EPS of $4.45, an increase of 21% over the prior year. In light of these strong results, at our upcoming annual meeting, we'll be asking shareholders to approve an annual dividend of $2.44 a share, representing a 7% increase. Doug will discuss financial results in greater detail in a few minutes, but first, I'd like to highlight some achievements from the past year and our outlook in each of our 5 business segments. 2019 was an outstanding year for our fitness segment, with each product category performing well. During the year, we launched sweeping updates to our running, wellness and cycling product lines, and these products were strong contributors in the final quarter of the year. In addition, our recent acquisition of Tacx brought new revenue to the segment and expanded our ability to serve cycling customers indoors and outdoors all year long. For the year, revenue from fitness increased 22%, exceeding the $1 billion threshold for the first time. Gross and operating margins were 51% and 18%, respectively, and operating income increased 6% over prior year. In 2020, we plan to build on this momentum by launching new feature-rich products while also expanding the distribution of Tacx products. As a result, we anticipate revenue from the fitness segment will increase approximately 10% for the year. 2019 was an extraordinary year for our aviation segment. ADS-B was a significant contributor to growth, but on a combined basis, other categories contributed even more. We experienced growth in aftermarket systems as customers recognize the strong value proposition of modern cockpit electronics. We also experienced growth in OEM systems driven by popular new aircraft and from increasing demand for trainer aircraft. For the year, revenue from aviation increased 22%. Gross and operating margins were 74% and 34%, respectively, and operating income increased 24% over the prior year. For 2020, we anticipate that revenue for aviation will be comparable to that of 2019 as growth in aftermarket systems is offset by declining ADS-B revenues. Trends in the broader OEM market should be in line with those of 2019. We anticipate that the early part of the year will be the strongest driven by residual ADS-B demand, followed by a weaker back half as we move past the inevitable peak of the ADS-B cycle. We are focused on opportunities that lie ahead, and we are confident in the long-term growth prospects for our aviation business. Our marine segment delivered another year of impressive results, and market growth and market share gains boosted our performance. From time to time, we've highlighted our HALO products and technologies, achievements that speak for themselves and cast a positive glow across the entire Garmin brand. Our Panoptix LiveScope sonar system is one example that is generating excitement and strong sales across a broad range of products. We also introduced our first electric trolling motor, which is a new product category for us and bring game-changing new features to the market. For the year, revenue from marine increased 15%, exceeding the $500 million threshold for the first time. Gross and operating margins improved to 60% and 22%, respectively, and operating income increased 73%. Looking forward, interest in our products remained very strong, entering the 2020 boating season. In addition, our market share in the OEM category will grow as some of the most respected boat brands adopt our products as standard equipment on their 2020 models. With this in mind, we anticipate revenue from the marine segment will increase approximately 10% for the year. Outdoor delivered another strong year of product achievements and revenue growth. During the year, we launched the MARQ luxury watch series, and we completely refreshed the fenix adventure watch series. We also introduced versions of the fenix with passive solar recharging technology, which has resonated positively with the market. For the year, revenue from outdoor increased 13%. Gross and operating margins were 65% and 36%, respectively, and operating income increased 15% over the prior year. Looking ahead, we believe that the adventure watch category will continue to grow driven by further innovation in new utility. We also believe that inReach will continue to grow as more people appreciate the convenience and life-saving potential of two way remote communication. With these things in mind, we anticipate revenue from the outdoor segment will increase approximately 10% for the year. Our auto segment also delivered many strong achievements in 2019. We integrated the Alexa digital assistant into our PND product line, and we entered a new product category with the launch of the Overlander navigation device. At the recent Consumer Electronics Show, we announced the new Dash Cam Tandem that captures quality video both inside and outside the vehicle, regardless of lighting conditions. During the year, we also secured a significant backlog of new business as a Tier 1 supplier to the world's most respected automakers. For the year, revenue from auto decreased 14%. Gross and operating margins improved to 47% and 10%, respectively, and operating income increased 50% over the prior year. Looking ahead, we believe that the negative trends in auto will moderate as contributions from specialty categories increase and as previously announced OEM programs contribute in the back half of the year. 2020 will also be a year of accelerated investment to support recently awarded programs. We are equipping our manufacturing facility in Olathe for auto OEM production. We are opening a new manufacturing facility in Europe that will be dedicated to auto OEM production. We also plan to hire additional resources in engineering and operations to support these complex, intensive development programs. With these things in mind, we anticipate that revenue from the auto segment will decrease 5% for the year. In summary, we are excited about the opportunities we see in every business segment. For 2020, we anticipate consolidated revenue will reach approximately $4 billion, up 6% year-over-year as growth in fitness, outdoor and marine more than offset a slight decline in the auto segment. We anticipate that revenue in aviation will be comparable to that of 2019. We anticipate gross margin of approximately 59.2% and operating margin of approximately 23.5%, reflecting our plans for an increased level of investment to support long-term growth initiatives. We anticipate a full year pro forma effective tax rate of approximately 10%, resulting in a pro forma earnings per share of approximately $4.60. Our estimated tax rate will be favorably impacted by an intercompany transaction to migrate the ownership of a consumer intellectual property from Switzerland to the United States over the next several years. Doug will be providing more details on this in a few moments. So that concludes my remarks. Next, Doug will walk you through additional details on our financial results and outlook. Doug?

Thanks, Cliff. Good morning, everyone. Let's begin by reviewing our fourth quarter and full year financial results and give comments on the balance sheet, cash flow statement and taxes. We posted revenue over $1.1 billion for the fourth quarter, representing 18% increase year-over-year. Gross margin was 58%, a 90 basis point decrease from the prior year. Operating expense as a percentage of sales was 32.9%, 210 basis point decrease from the prior year. Operating income was $277 million, a 24% increase from the prior year. Operating margin was 25.1%, 120 basis point increase from the prior year. Our GAAP EPS was $1.89, and pro forma EPS was $1.29, a 26% increase from the prior year. Looking at the full year results, we posted revenue of over $3.7 billion, representing a 12% increase year-over-year. Gross margin was 59.5%, 40 basis point increase from the prior year. Operating expense as a percentage of sales was 34.3%, 160 basis point decrease from the prior year. Operating income was $946 million, a 21% increase over the prior year. Operating margin was 25.2%, increase of 190 basis points from the prior year. Our GAAP EPS was $4.99. Pro forma EPS was $4.45, a 21% increase from prior year. Next, look at fourth quarter and full year revenue by segment. During the fourth quarter, we achieved strong double-digit growth in 4 of our 5 segments led by fitness segment at 34% growth, followed by the aviation and marine segments with growth of 22% and outdoor with growth of 16%. For the full year 2019, we achieved 12% consolidated growth, double-digit growth in 4 of our 5 segments. Looking next to fourth quarter revenue and operating income. On a combined basis, the fitness, aviation, marine and outdoor segments contributed 89% of total revenue in the fourth quarter 2019 compared to 84% in the prior year quarter. Fitness grew from 30% to 34%. Aviation grew from 17% to 18%. Let's see these charts to illustrate our profit mix by segment. Fitness, aviation, marine and outdoor segments collectively delivered 99% of operating income in the fourth quarter of 2019 compared to 97% in the fourth quarter of 2018. All segments besides the auto segment had year-over-year increases in operating income dollars. Looking next to full year charts. For the full year, fitness, aviation, marine and outdoor segments made up 85% of total revenue compared to 81% in 2018. All segments had year-over-year increases in operating income dollars. Looking next to operating expenses. Fourth quarter operating expenses increased by $36 million or 11%. Research and development increased $17 million year-over-year due to investments in engineering resources, incremental costs associated with recent acquisitions. Our advertising expense increased approximately $8 million from the prior year quarter due to higher fitness and outdoor expenses, represented 5.7% of sales, 20 basis point decrease compared to prior year. SG&A increased $12 million compared to prior year quarter but decreased as a percentage of sales to 12.5%, 100 basis point decrease compared to prior year. Increase was primarily due to personnel-related expenses, incremental costs associated with the recent acquisitions. A few highlights on the balance sheet, cash flow statement and dividend payments. We ended the quarter with cash and marketable securities of $2.6 billion. Accounts receivable increased sequentially year-over-year to $707 million due to strong sales in the holiday quarter. Inventory balance increased year-over-year to $753 million. Increase is due to our strategy to increase data supply to support our increasingly diversified product lines and the acquisition of Tacx. During the fourth quarter 2019, we generated free cash flow of $208 million. For the full year 2019, we generated free cash flow of approximately $581 million, $183 million decrease from the prior year due to increased working capital needs. For 2020, we expect free cash flow to be approximately $750 million, approximately $225 million of capital expenditures. We announced our plans to seek shareholder approval for an increase in our dividend beginning with the June 2020 payment. Proposal, the cash dividend of $2.44 per share or $0.61 per share per quarter, it's a 7% increase from the current quarterly dividend of $0.57 per share. For full year 2019, we reported income tax expense of $35 million, which includes an income tax benefit of $118 million due to revaluation and step-up of certain Switzerland deferred tax assets as a result of the Switzerland tax reform. Excluding the $118 million income tax benefit, the full year 2019 pro forma effective tax rate was 15.5%, 20 basis point decrease from the prior year. The fiscal year 2020 forma effective tax rate is expected to decrease 10%, primarily due to the migration of intellectual property ownership from Switzerland to United States. Taking into consideration the recent major tax reform in Switzerland and United States, the migration maintained an efficient tax structure and responds to the changing global tax landscape. Migration includes an intercompany license agreement that shifts intellectual property ownership for our consumer products from Switzerland to United States through royalty payments. This results in a favorable shift of income by jurisdiction, reduces our level expense related to uncertain tax positions. And at the multiyear license agreement, higher percentage of income were recognized in the United States, which concludes our formal remarks. Mike, can you please open the line for Q&A?

[Operator Instructions]. Your first question comes from the line of Robert Spingarn from Crédit Suisse.

Cliff, I wanted to dig into aviation just a little bit here. And now that you -- I think you're through some of the tough compare with your guide for '20, but how do we think about the relative size of ADS-B in '19 versus '20? That's the first question. And then the second question, we've been getting a lot of from investors as to what extent was ADS-B driving associated retrofit activity when aircraft were in the shop for the mandate upgrade. And is -- how do you contemplate any fade in those associated revenues looking forward?

Yes. So as we exited the year, there were approximately 118,000 airplanes that had been equipped out of a total park, if you will, of about 160,000. So ideally, that would mean there's something over 40,000 aircraft that could be left to equip. We don't think that all of those will be. Some of those are probably airplanes that maybe aren't in the best shape and might be scrapped, so there's going to be some fallout from those, for sure. We expect that most of the activity would take place in Q1 and some in Q2. And then the activity would tend to go down in Q3 and Q4. In terms of the retrofit activity, while it's true that ADS-B probably prompted people to come in and look at other things as we got towards the end of the mandate, particularly most of '19, I would say, shop capacity has been a real issue. So as a result, people may not have been able to do everything that they wanted to. And meanwhile, we've been introducing a lot of great new products, and these are generating a lot of interest. So we would expect that people will come back and do more. And the reality is that not everybody wants to put down the big bill for all of their retrofit needs at one time, too. So they may shop and continue to watch and then do more later. So we're optimistic about the retrofit market. We think that it still has a lot of room to grow.

So if there's -- reflecting back on what you just said, if Q1 and Q2 see a little bit of ADS-B activity and probably a lower rate than the quarters of 2019, is it fair to say that you're anticipating a decline of something like, I don't know, let's call it, 60% or so, maybe a little more?

Yes. We don't have guidance specific on that. I would tell you that ADS-B is not a market that goes to 0 because transponders need to be replaced. There's new features, new products that are introduced. So there will always be an underlying market for ADS-B out there. And of course, new airplanes always need ADS-B. So there will be a run rate of ADS-B going forward.

Okay. And then just -- I wanted to ask you if -- to what extent you've factored coronavirus into the guide? And that's it for me.

Yes. So coronavirus, I think it's still an emerging situation, and the cases seem to be peaking, but we're watching that. I would say it's also early in the year, so we don't -- even if there's some short-term impact, we feel like there's a lot of room to make up for that. So far, our impact has been minimal, and our safety stock situation has helped us there. If the outbreak continues to go on, then, of course, that would change the game for us and a lot of other people. But for now, we're optimistic that things are coming back online. Our suppliers seem to be coming back although, obviously, there's a ramp-up period that we're managing through all of it.

[Operator Instructions]. Your next question comes from Charles Anderson from Dougherty & Company.

Congrats on stellar 2019. I want to start with automotive. A few things. I think number one, Q4 was a little bit lower operating income, looks like higher R&D. Was that just the start-up ahead of the BMW? I was curious there. And then you did make some comments in your prepared remarks, Cliff, about production in the U.S. and then in Europe. I know you talked about the Ford deal recently, but I wonder if there are any others to highlight that drives putting those facilities together. And then lastly, on automotive. I know PND has kind of continued probably to be a headwind. I'm assuming we're not basing there. So maybe just kind of curious what you're embedding in the guidance in terms of the rate of decline in the PND business.

Yes. So in terms of the lower operating income in Q4, there was a mix of some onetime items there as well as increased R&D associated with noncapitalized projects. So both of those kind of came together to generally lower the overall auto operating income. The PND side is very profitable. And so that's something we're not as worried about. We do see that the market will continue to decline in 2020, although at a moderated pace as specialty products become a bigger part of the mix. And we also see a shift in terms of buying behaviors to the more advanced products that we offer. So that's all good news in our view. In terms of the production plan in the U.S., we're equipping our factory here to be able to supply the BMW program that we won a few years back for North American production. And then the European investment is for the most recent BMW win that will supply the European factories for BMW.

Okay. Perfect. And then for my follow-up, with the change that you made that influences the tax rate, I'm just sort of curious how that impacts where cash is accessible to corporate -- for corporate purposes. I wonder if you could just sort of update us on kind of where everything stands, in terms of where cash isn't accessible, and if there's any change there.

Sure. Well, thanks, Charlie. So as it relates to where the cash is, it does not change that. So let me give you a little bit of a little more detail or color on the transaction that we went through. So this relates to intercompany license agreement between Switzerland and the United States. And so the situation is that United States is going to be paying a royalty payment to Switzerland for the use of certain consumer IP we have in Switzerland. So as a result of that, that lowers the amount of income recognized in the United States, increases it in Switzerland. And so as result of that, that gives us a favorable income mix by jurisdiction during that license period. So during the license period, the situation is that a higher percentage of the income will be going to the U.S.

Your next question comes from Nick Todorov from Longbow Research.

Congrats on great 2019 results.

Thanks, Nick.

Cliff, you talked about expanding distribution of tax in 2020. And I think you're also having some additional capacity coming up online for tax specifically in 2020. In your view, can you give us some sense on how should we think about overall fitness gross margin in 2020? We see that fourth quarter gross margin dipped below 50% for the first time, I believe, since 2010 or before. So can you give us some color how should we think about that?

Yes. So the fitness gross margin, that is influenced by product mix. And in the fourth quarter, we had a lot of products that were sold, obviously, for the holiday season, particularly promotional. Products and tax itself is a product line, as we've said before, that is slightly dilutive to the overall gross margins of the segment. And so just under 50% was obviously a result of all of that mix. We would expect that to go up and down as the year progresses depending on the seasonality and the kind of products that we offer. And generally, we're targeting around a 50% gross margin for the segment. And mid- to high-teens operating margin for the segment.

Okay. Got it. And Doug, I believe you said our CapEx for 2020 is expected to be around $225 million, if I'm not mistaken. That's about 2x an increase. Am I assuming correctly, that's mostly coming from investments on the auto side and facilities and so forth? Or there is something else to that?

Yes. So let me give you -- yes, it is at an elevated level compared to 2019. So yes, 2020 will be an investment year for us as it relates to CapEx and probably going into 2021. So what's driving that is exactly what Cliff mentioned. We're making some investments relating to our auto OEM business. So we are equipping our facility here in Olathe to handle OEM. Also, we'll be opening a European facility, manufacturing facility for OEM. Also, we are building a new manufacturing facility for Tacx in Netherlands for that acquisition. Another piece relates to our overall Olathe facility expansion. If you remember, we built a new facility for our manufacturing as well as our distribution. We're complete with that. What we're doing now is actually renovating our previous manufacturing and operation facility there. We're renovating that to increase our work space because of increased headcount to support our R&D expansion as well as innovation, the big drivers we have.

Yes, I see. And last one for me. The implied guidance assumes about 100 basis points of increase in operating expenses as a percent of sales, Doug. Can you give us some color? Is it mostly coming up from higher R&D expenses? Or is it across the board?

Yes, sure. So as it relates to 2020 operating expense, to give you a little bit a flavor of that by category. First, on advertising. For advertising, a percentage of sales, we would expect our advertising to be relatively consistent year-over-year. We'll probably spend more advertising dollars, but we try to keep that in line with our sales growth. As it relates to R&D, yes, there will be increased R&D as a percentage of sales year-over-year. We expect that to probably be up maybe about 100 basis points. And then as it relates to SG&A as a percentage of sales, we expect that to be up about 50 basis points or so. So what's really driving that increased operating expenses really is to support our increased revenue growth, so one of which is the situation that we talked about for OEM business. So we're making some investments there. It occur -- increased R&D operations as well as IT for different systems there. From an R&D front, overall, we'll continue to invest in R&D to make sure that we have innovation in our products. And lastly, I would say is that there is some full year impact to some acquisitions, most notably Tacx that we did in 2019, and we'll have the full year impact of those items. So all of the expense items as well as the CapEx we talked about is really to support our increased top line growth into revenue.

Your next question comes from Will Power from Baird.

This is Charlie Erlikh on for Will. I wanted to ask about the fitness segment and the strength in the quarter. Could you talk a little more about what specifically drove that strength? And it's been a real standout in 2019, it looks like you're expecting another strong year in fitness next year. So how have you been able to successfully navigate the competitive environment where Apple continues to do really well as well?

I think for us, the strength, Charlie, for the year and also for the quarter was really around new products, our new Venu, vívoactive 4 product lines are very popular as well as the new running product lines that we introduced last year. We completely refreshed all of those product lines, so they did very well. And then separately, we got very promotional with some of the previous generation products, which drove a lot of sales activity in the holiday quarter. In terms of just drivers around the competitive landscape, I would say that we feel like the landscape has generally narrowed a lot. Of course, Apple is a big one out there just in terms of total wearables market share. We believe that we differentiate from Apple and others with our products that are built specifically for active lifestyles. And we focus on all-day, 24/7, wearability, long battery life and the ability to track detailed health metrics. So we're very focused on those categories, and we believe we're doing very well with our space.

Great. Yes. No, that makes sense. And congrats on surpassing $1 billion in revenue. That's quite an accomplishment.

Yes. Thank you.

[Operator Instructions]. Your next question comes from Erik Woodring from Morgan Stanley.

Just a quick procedural question here. As I think about the tax rate going forward, should we think about 10% as somewhat the normalized tax rate as this license is intact beyond 2020 basically into 2021 and out? Or how should we think about that beyond 2020? And I have a follow-up.

Yes. So as it relates to our tax rate, we do not give any detailed guidance beyond the current year. So there's a number of things that really impact that tax rate, all the way from the amount of income we have, the income by segment, income by country, reserve releases as such. But while -- from a high-level perspective is while we have the license agreement in that place, we will see that favorable income mix by jurisdiction. Then when we no longer have a license agreement at that point in time, we'll have a higher percentage of our income going to U.S. So that's directionally what it is. But like I said, there's a lot of puts and takes in that tax rate, but it's something that we looked at to make sure that we do maintain as efficient of a tax structure as possible.

Perfect. That's super helpful. And then, I guess, if I just think about the auto's business, I guess, what your guidance would imply and your commentary would imply that you're going to see more of a mix shift towards the OEM business away from the business in 2020. And so I guess what I'm trying to get at is, is this mix shift a tailwind to gross margins? A headwind to gross margins? Just would love to hear kind of the puts and takes as you think about auto gross margins in 2020.

Yes. So as it relates to gross margins, you're correct. In the auto segment as a total, OEM will be a higher percentage of the total. So that will be a situation where auto OEM gross margins are lower than the PND. So that will be something that will impact and decline the total auto gross margin in 2020.

Your next question comes from Paul Chung from JPMorgan.

So as we think about free cash flow for 2020, you had kind of a working cap drag in '19, and part of that was from Tacx. But how should we think about '20 working cap dynamics? And then what is your kind of free cash flow guide for the year? Should we expect kind of like a bounce back in conversion this year? And then as you think about seasonality for the business, you have some aviation flow-through in first half and then a pickup in the second half in auto OEMS, so a lot of moving pieces. But how should we think about kind of seasonal patterns from last year -- relative to last year and prior years? Or anything you want to call out. And then I have a follow-up.

Yes, sure. So as it relates to free cash flow for 2020, you're correct. First, we'll start with 2019. So yes, 2019, we did have some significant capital -- working capital needs, primarily in inventory area. That situation, as previously talked about, for 2019, we basically made a strategy to increase our days of supply, to increase our safety stock because of Tacx, mitigate Brexit, all those type of things as well as we had increased AR just because of the increase in our sales year-over-year. Now turning to page to 2020. We expect our free cash flow to bounce back. Our current estimates for free cash flow for 2020 are about $750 million. So with that, we're not anticipating to have the same type of year-over-year working capital needs that we had in 2019 and 2020. I should say, as it relates to inventory, we would expect inventory -- year-end inventory 2020 to increase from 2019 levels, but probably more in line with what the sales increase, not the type of a step function that we have. So we'll get some benefit in 2020 relating to that situation I have in working cap. As it relates to how it falls out through the year, the situation is we were building inventory throughout the year. So there'll probably be a situation where we may have -- a situation where we have inventory year-over-year higher than just the level of sales as we get through the year in the first few quarters. But by the end of the year, hopefully, it will be in line with that as we go forward. But then also, CapEx plays into that also. That's partially offsetting that to increased CapEx we have, which we previously talked about. So to go back to it, we're making some increased investments in there for building us for the revenue for the future.

Got you. And then your kind of seasonality of top line, if you could follow-up on that. And then also the increase in OpEx, is that going to be pretty measured throughout the year?

Yes. So as it relates to the top line, I'll give you some real high-level points on that. I think Cliff alluded to the situation in auto, the back half of the year, you'll see some of that increase relating to OEM. Also, I should mention, in the fitness side of our business related to the acquisition of Tacx. So Tacx was acquisitioned, that was first -- or the second quarter, so we'll get some benefit in Q1 relating to that. So that will kind of be the seasonality related to revenue. And then as it relates to OpEx, I said that will be something where we started to basically build some of those operating expenses here in Q4 moving into 2020. So that will be something that we'll see that build throughout the year.

Okay. And then last question on Tacx. What was the contribution in the quarter? And then as we lap it in 2Q, how should we think about the kind of growth in the second half in fitness for 2020? How much of that growth are you kind of baking in for expanding your distribution efforts for Tacx?

Yes. So the majority of the growth that we saw in fitness was organic. Tacx was less than half of the growth that we saw. And of course, we have 1 quarter in 2020 that we're basically comping until we comp against the acquisition of Tacx. So going forward then, the outlook would be for all organic growth, Tacx contributing to the expanded distribution and then, of course, we anticipate a strong year for our wearable products as we had in 2019.

I am showing no further questions at this time. I would now like to turn the conference back to Teri Seck.

Thanks, everyone. As always, Doug and I are available for calls throughout the day. We hope you have a wonderful day. Bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.