Garmin Ltd

NASDAQ:GRMN

Earnings Call Transcript 2018-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Garmin Ltd. Third Quarter 2018 Earnings Conference Call. At this time all participants are in the listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. And as a reminder, this conference call is being recorded.

I would now like to introduce your host for today's call, Ms. Teri Seck, Manager of Investor Relations. Ma'am, you may begin.

[Teri Seck, Garmin Ltd.]

Good morning. We would like to welcome you to Garmin Limited third 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 standards in the first quarter 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.

[Clifton A. Pemble, Garmin Ltd.]

Thank you, Teri, and good morning, everyone.

I'd like to begin by mentioning a couple of important milestones we recently celebrated. During the third quarter, we shipped our 200 millionth product, which is a testament to our ability to design, manufacture and sell unique applications of technology for active lifestyles. Equally as exciting, we started production in our new aviation manufacturing facility located in Olathe, Kansas. This new facility more than doubles our production capacity, allowing us to serve our growing aviation business for many years to come.

Moving now to the quarterly results, earlier today Garmin reported strong third quarter consolidated revenue of $810 million, up 8% over the prior year. Marine, aviation, fitness and outdoor collectively increased 16% year-over-year and contributed 80% of total revenues. Gross margin improved to 59.4% compared to the prior year, operating income improved to $196 million, up 13% over the prior year. This resulted in GAAP EPS of $0.97, and pro forma EPS of $1 in the quarter. We are pleased with our performance in the first three quarters of 2018, and these strong results give us confidence to raise our full year EPS 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 marine segment, revenue increased 28% as we saw strong sales continue well into the summer boating season. Approximately half of the growth was organic, while the other half came from acquisitions. Gross and operating margins were 59% and 14% respectively. We recently announced our GPSMAP 8600 series of chartplotters. This is the first product line to use our new G3 maps, which combine the best of Garmin and Navionics content.

We've been very intentional about investing in our marine segment and the industry is taking notice. For the fourth consecutive year, we were recognized by the National Marine Electronics Association as manufacturer of the year and Panoptix LiveScope won their prestigious technology award.

We were also recognized as one of the top 10 most innovative marine companies in 2018 by Soundings Trade Only, which is a B2B news and information provider for the recreational boating industry. It's an honor to be recognized by the marine industry and we will continue to invest in this segment to maximize its potential.

Turning next to aviation, revenue increased 17% driven by broad-based growth within this segment. Gross and operating margins increased to 76% and 35% respectively, resulting in operating income growth of 49% over the prior year. During the quarter, we completed the acquisition of FltPlan.com and have began integrating these new services into Garmin's existing apps. Also, we recently announced that our ADS-B solution was selected by Gulfstream for the G280 aircraft. Finally, we announced the teaming agreement with Bell to supply avionics for on-demand mobility vehicles. While this project is in its early stages, it's an important first step towards creating a viable urban air transport system.

Turning next to the fitness segment, revenue increased 14% primarily driven by growth of our wearable products. Gross and operating margins were 54% and 20% respectively and operating income grew 12% over the prior year. During the third quarter, we launched the vívosmart 4, a slim smart activity tracker that includes a pulse ox sensor. In addition to providing blood oxygen saturation levels, this device also provides users with advanced sleep monitoring and a new Body Battery feature that helps individuals understand and manage their energy levels throughout the day. We also added Disney Princess and Marvel's Spider Man bands to our popular vívofit jr. product line along with new mobile app adventures.

Turning next to the outdoor segment, revenue increased 13% on a year-over-year basis, driven primarily by growth in wearables. Gross and operating margins improved year-over-year to 65% and 38% respectively, resulting in operating income growth of 16%. We recently announced the integration of Spotify with the fēnix 5 Plus series and just this morning, the Forerunner 645 Music was added to the list of Spotify-compatible wearables. This gives our customers the ability to download Spotify playlists to the watch via the Spotify app, which is available from the Connect IQ store. The app is already proving to be very popular with customers. During its first full day of availability, Spotify set a record for the most downloads of a new app from our Connect IQ store. Finally, we recently announced Instinct, a rugged and reliable GPS smartwatch, designed to expand the market for outdoor wearables.

Looking finally at the auto segment, revenues decreased 16% due to the ongoing decline of the PND market. Gross and operating margins declined year-over-year to 43% and 9% respectively. Our global market share position in the PND category remains very strong. We recently announced that we've been selected by the Chinese auto group, Geely, to provide camera and driving recorder systems beginning in model year 2020. This award demonstrates the progress we are making as a tier 1 auto supplier.

In summary, we are pleased with our results in the first three quarters of 2018. In light of the strong third quarter results, we are making some adjustments to our guidance. We anticipate our fourth quarter revenue to be relatively flat on a year-over-year basis with full year revenue of approximately $3.3 billion and a gross margin of 58.5%. We are raising our full year operating margin to approximately 22% and lowering our full year pro forma effective tax rate to approximately 16%, resulting in pro forma earnings per share of approximately $3.45.

That concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug?

[Douglas G. Boessen, Garmin Ltd.]

Thanks Cliff. Good morning everyone. Let's begin by reviewing our third quarter financial results (09:06) comments on the balance sheet, cash flow statement and taxes. We posted revenue of $810 million for the third quarter, representing an 8% increase year over year. Gross margin was 59.4%, a 120-basis-point increase from the prior year. Operating expense as a percentage of sales was 35.2%, consistent with the prior year. Operating income was $196 million, a 13% increase year-over-year. Operating margin was 24.2%, 110-basis-point increase from the prior year. Our GAAP EPS was $0.97, pro forma EPS was $1, a 30% increase from the prior year.

Next, look at our third quarter revenue by segment. During the quarter, we achieved 8% consolidated growth led by double-digit growth in four of our five segments. This growth was partially offset by decline in our auto segment as a result of continued decline in the auto PND business. Combined basis, marine, aviation, fitness and outdoor were up 16% compared to the prior-year quarter.

Looking next at third quarter revenue and operating income. On a combined basis, marine, aviation, fitness, and outdoor segments contributed 80% of total revenue in the third quarter of 2018 compared to 74% in the prior-year quarter. Auto declined from 26% to 20%, while every other segment grew. Marine grew from 10% to 12%, and fitness grew from 22% to 24%. As you can see from the charts illustrate our profit mix by segment, combined basis, the marine, aviation, fitness and outdoor segments delivered 92% operating income in third quarter of 2018 compared to 89% in third quarter of 2017. The aviation and outdoor segments had year-over-year increase in both operating income dollars and operating margin.

Looking next to operating expenses. Our third quarter operating expenses increased by $21 million, or 8%. Research and development increased $9 million year-over-year due to investments in engineering resources and recent acquisitions. Our advertising expense was down $1 million from the prior year quarter. SG&A was up $13 million compared to prior-year quarter, increased 60 basis points as a percentage of sales. The increase was primarily due to personnel related expenses, incremental costs associated with recent acquisitions.

A few highlights on the balance sheet and cash flow statement. We ended the quarter with cash and marketable securities of approximately $2.5 billion. Accounts receivable have decreased sequentially due to seasonal trends and increased year-over-year on stronger sales. Inventory balance increased on a sequential basis to $557 million to prepare for the seasonally strong fourth quarter.

In the third quarter 2018, we generated free cash flow of $234 million, $81 million increase from the prior quarter. Also during the quarter, we paid dividends of $100 million. During the third quarter of 2018, we reported an effective tax rate of 8.5% compared to the effective tax rate of 20.5% in the prior-year quarter. The decrease in effective tax rate is primarily due to the benefits from U.S. tax reform, increased benefit from U.S. R&D tax credits. We expect our full year 2018 pro forma effective tax rate to be approximately 60%.

This concludes our formal remarks. Miranda, could you please open the line for Q&A?

[Operator]

Thank you. Our first question comes from Charlie Anderson from Dougherty & Company. Your line is open.

Charlie Lowell Anderson - Dougherty & Co. LLC

Yeah. Thanks for taking my questions. It looks like on the guidance you guys have kept pretty much everything with the exception of the operating margin a little bit higher, so maybe if you could just add a little color on why you're seeing the better operating margin despite looks like mix is going to be fairly similar. And then as a follow on question, Cliff, I just would be curious on your thoughts on the geopolitical situation in terms of its impact on your business. So, are you seeing anything changing in terms of consumer behavior in Asia, and then I don't think you want to be a contract manufacturer, but people scrambling to move outside of China, are there any opportunities for you guys? Thanks.

Clifton A. Pemble - Garmin Ltd.

Yeah. So, in terms of guidance, basically each segment that comprises our guidance has a different set of circumstance that we're looking at there. So, we took each one of those into consideration when we constructed our guidance, and the result came up to essentially relatively flat last year. With the product mix and the overall trends we're seeing, we felt confident to upgrade our operating income estimate as well.

In terms of geopolitical issues, right now, we don't really see anything that's moving the needle in terms of concerns. The Asia demand still appears to be very strong. I think there's increasing competition in some of the product lines there, particularly in wearables, but we are very competitive with our product line. I would say we probably don't have the vision to become a contract manufacturer given the situation around tariffs. We actually feel like our capacity is really quite constrained with our own demand right now. So, we probably don't have the ability to look for other opportunities like that.

Charlie Lowell Anderson - Dougherty & Co. LLC

Great. Thanks so much.

Clifton A. Pemble - Garmin Ltd.

Yeah. Thanks, Charlie.

[Operator]

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

Robert M. Spingarn - Credit Suisse Securities (USA) LLC

Good morning. Just quick on that last thing, on the op margin guide, you talked about it overall kind of flattish with last year's almost 22%. Automotive is clearly coming down a bit this year, so where do you see the strength that's offsetting that? Should we just follow the trends that we've seen for the first nine months, is there anything different about the fourth quarter?

Clifton A. Pemble - Garmin Ltd.

Well, I think segment mix as auto comes down, we get improvements from some of the other segments, which are typically higher than auto and there's variables within each segment as well, in terms of product mix, but for the most part, it's segment mix.

Robert M. Spingarn - Credit Suisse Securities (USA) LLC

Okay. I was just thinking, auto is down from last year, so is there one particular segment where you see more momentum in the margin strength out of the other non-auto segments?

Clifton A. Pemble - Garmin Ltd.

Well, we're doing well as you said in outdoor, I think our fēnix line continues to be an increasing part of the overall outdoor segment mix and the new fēnix 5 Plus series has a strong margin profile. And also in aviation, obviously we're doing well there, a large part of benefit there with product warranty, which has been very good and our products are very reliable in aviation, so we're getting some benefit on the margin side with that?

Robert M. Spingarn - Credit Suisse Securities (USA) LLC

Okay. And then just lastly on marine, your organic growth is, I guess solidly in the mid-teens now and I wanted to ask how that compares with the overall marine market. Obviously, you're quite innovative across the product line. How would you say your market share movement has been? Is there a way to quantify?

Clifton A. Pemble - Garmin Ltd.

Yeah. I think it's harder to quantify in marine. It's a fairly small industry in the recreational boating category, but by our estimates and I think based on financial estimates that we see from other players that have to be reported publicly, we are taking share and the overall market is probably growing in the 4% range, while we're growing, as you said kind of in the low to mid-teens organically.

Robert M. Spingarn - Credit Suisse Securities (USA) LLC

Yeah. Okay, well thank you very much.

Clifton A. Pemble - Garmin Ltd.

Right. Thanks, Robert.

[Operator]

Our next question comes from Joe Wittine from Longbow Research. Your line is open.

Joe H. Wittine - Longbow Research LLC

Thank you. Good morning. First off in automotive, can you help us understand the scope of the Geely agreement. Are you going to be included in every Geely car in China, or is it kind of an option, and if you could address timing of both that agreement as well as a reminder of the BMW China timing? Thanks.

Clifton A. Pemble - Garmin Ltd.

Yes. So, the camera solutions that we're providing to Geely are across most of their models in China, there is regulation around having camera systems in vehicles, so it is equipment that is required in the vehicle. Timing will be the model year 2020 when the first model start rolling out, so we'll start ramping up in later 2019 and that happens to also coincide with the BMW China supply agreement as well.

Joe H. Wittine - Longbow Research LLC

So, Cliff, do you anticipate those rolling on are enough that people like us will notice a change in the trajectory of the segment which has been pretty constant over the last couple of years?

Clifton A. Pemble - Garmin Ltd.

Yeah. I think definitely that will change the trajectory around auto OEM for sure and we also have additional wins in there that will come online in the 2020 timeframe as well, so we anticipate that that will be a strong building year for us.

Joe H. Wittine - Longbow Research LLC

Okay. And then second in aviation, in the aftermarket portion, and I know there's good things happening on the OEM side, but can you update us on what you're seeing in terms of incremental capacity additions. It's been 90 days or so since we last surveyed that channel, so curious what you're seeing and hearing and obviously I'm just trying to modulate whether we should be expecting much growth in 2019 off of 2018 given those potential capacity constraints.

Clifton A. Pemble - Garmin Ltd.

Yeah. I don't think we really see anything different in terms of the trends of capacity. We're selectively adding some shops to our list as we see qualified shops out there that can bring on Garmin equipment, but in general, it's still fairly linear right now, which is one of the constraints that we face I think going forward in aviation, it's really not demand limited, it's capacity limited.

Joe H. Wittine - Longbow Research LLC

So, it's fair to say that where capacity is a problem in 2019 therefore some of this demand on the regulation side will spill into 2020 is still your base case.

Clifton A. Pemble - Garmin Ltd.

That's our belief. I think we could reach the low end of the equipage estimates based on today's capacity rates, but nobody probably believes at this point that the low end is the most likely case. We think that there's upside potential beyond the 2020 deadline.

Joe H. Wittine - Longbow Research LLC

Okay, very helpful. Thank you.

Clifton A. Pemble - Garmin Ltd.

Thank you, Joe.

[Operator]

Our next question comes from Yuuji Anderson from Morgan Stanley.

James E. Faucette - Morgan Stanley & Co. LLC

Thanks very much. This is James Faucette sitting in for Yuuji. Just wanted to dig in a little bit on the December quarter, and how you're looking at that on a year-over-year. And wondering on the fitness specifically, how much of the year-over-year growth in Q3 was attributable to new launch timing versus what was really existing vivoactive and Forerunner growth, just trying to look and see if how much timing of launches may have had an impact on Q3 and Q4?

Clifton A. Pemble - Garmin Ltd.

Well, I think timing definitely had an impact on Q3, if you look back where we were last year. We had not yet delivered our new product lines into the market. So it's a very easy comp versus Q3 of last year. In terms of what we're looking at for Q4, there's really two dynamics that we see. One is the year-over-year comp with particularly the vivoactive 3 which is a very popular line last year as well as this year. And then the rotation of the product mix within fitness from basic trackers to advanced trackers is another dynamic that's shifting things around within this segment.

So, all that coming together we feel like our implied guide is basically what it is fairly flat to slightly down, but we feel very good about the product positioning within the segment and where we're at this year. And I think looking forward into the coming year we'll have a strong product portfolio that we can build on.

James E. Faucette - Morgan Stanley & Co. LLC

And then maybe a question for Doug. Just wondering on costs associated with the new facility, are the fixed costs now fully built-in to the implied Q4 guidance or will there continue to be incremental fixed cost that still need to be layered in before we get to the sustained run rate there.

Douglas G. Boessen - Garmin Ltd.

Yes. So basically we're only partial way through our facility build. So the current situation is that we have opened, we're running our aviation manufacturing piece. In 2019 we'll be moving over our distribution center. Then after that's complete we'll be renovating our existing facilities in office space. So there will be continued CapEx spend as well as cost in there. But we factored those into the guides, we gave you what the depreciation for Q4 and then when we get to next year, we'll be factoring in that depreciation expense at that point in time.

James E. Faucette - Morgan Stanley & Co. LLC

And that's great. And just from a timing perspective, how long until you get to fully installed and you'll be done building out this new space and facility.

Douglas G. Boessen - Garmin Ltd.

Yeah, it'll probably be once all is said and done, like I said the distribution center will have moved in 2019 and probably be a couple of years after that by the time we'll be fully built out on the renovation of new facility. We're doing it over a period of time depending on what our needs are.

James E. Faucette - Morgan Stanley & Co. LLC

Okay. Great, thank you very much, gentlemen.

Clifton A. Pemble - Garmin Ltd.

Thanks, James.

[Operator]

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

Ben J. Bollin - Cleveland Research Co. LLC

Good morning everyone. Thanks for taking my question. Cliff, could you talk a little bit about the wearables market overall, what do you think about the organic growth in high end wearables, how much of your growth would you characterize as expansion of the base versus refresh, trade up. And any thoughts you have on kind of the competitive environment overall and then a follow up. Thanks.

Clifton A. Pemble - Garmin Ltd.

Yeah. So, in terms of organic growth, we still see the smartwatch market as being a growth market, especially as people who have been in basic trackers over the years, start to look to trade up and do more. I think there's a lot of awareness around this space right now. So that's helping as well. So we're getting some benefits from organic growth but also as we expand our product line like we've done with the Instinct that helps expand our reach to other customers who otherwise may not be ready to go or make that kind of commitment to like a fēnix watch for example. In terms of competition, it's definitely getting stronger. There's a lot of competitors out there and some coming into this space from China. So that is a dynamic especially in the Asia market, but also even other areas as they start to play the market like what is typically done from those players that play typically on price. So that's the way we see things right now.

Ben J. Bollin - Cleveland Research Co. LLC

Okay. And then within the aviation business, what are your thoughts when you look through the ADS-B cycle, past even spill over demand. Do you have any high level thoughts, is this where maybe you start to segue into more targeted commercial aviation opportunities? Any concerns on pull forward of demand potentially sapping consumption in future years. What are your high level thoughts on, what the cycle means once you kind of get through it? Thanks.

Clifton A. Pemble - Garmin Ltd.

I think definitely there will be some slack to take up once the cycle is complete. I think if there's any good news in the capacity issue, it's that we believe it'll be more of a soft landing than what past mandates have been.

In terms of segueing to other areas, we definitely have new categories and new opportunities that we're pursuing, and the activity in aviation really is very strong right now in terms of the overall market. So, we anticipate that there are other opportunities that we can leverage. Pull forward is certainly a concern in a situation like this, particularly as we see a lot of people updating their cockpits along with ADS-B, but we do believe we have a strong product line that should be able to continue those upgrades, especially for people that might have been cautious early on and are now coming forward to maybe complete a panel upgrade after they did some basic work with ADS-B earlier.

Ben J. Bollin - Cleveland Research Co. LLC

Thank you.

Clifton A. Pemble - Garmin Ltd.

Thank you.

[Operator]

Our next question comes from Ron Epstein from Bank of America. Your line is open.

Ronald J. Epstein - Bank of America Merrill Lynch

Yeah. Good morning, guys. What are you seeing, Cliff, in terms of, how can I say, the sell into the aviation channel OE next year, right. Are you starting to see – I mean, I would imagine you would, the pick up in OE demand particularly sort of in the business jet segment?

Clifton A. Pemble - Garmin Ltd.

Well, I think it's little early to give specifics. But I would say that some of the platforms we're on that have been very strong like latitude, we continue to feel very positive of that going forward with the longitude coming on for Garmin that will be – represent an incremental market share gain for us. So, that should be a growth driver in 2019.

And in general, the industry as you know has had a lot of activity. So, barring some kind of an economic shock that might change the calculus of everything, I would say that our view is optimistic for the future.

Ronald J. Epstein - Bank of America Merrill Lynch

Okay. Great. And then just maybe a couple other points shifting gears here. When you think about the sell-in to the channel into the holiday season? How is that going, particularly when we think about Black Friday, Cyber Monday and all that? Do you guys have any promotions going on, and I mean, what's your thoughts going into the holiday season?

Clifton A. Pemble - Garmin Ltd.

Well, I think it's just like past years, definitely we have a lot of promotional activity that we're planning in terms of both cooperation with our retailers on sales as well as advertising. In terms of just overall activity, I would say it's about where we expect it to be. I think there's really no surprises, and if anything, we're chasing demand and keeping our factories busy. So, I think right now we feel optimistic about the quarter.

Ronald J. Epstein - Bank of America Merrill Lynch

Okay, then maybe just one last financial question. When you think about your balance sheet, do you think you're effectively capitalized, I mean, are you using the balance sheet the best you can. And then finally, what are you going to do with all the cash?

Douglas G. Boessen - Garmin Ltd.

Yeah. So, yeah, going to cash, and looking at that, our primary uses for cash, one of which is paying reliable dividends, that's very important for us. We did increase our dividend this last year. The second of which is investments back into our business, an example of that is the facility expansion that we did here relates to our aviation manufacturing, our distribution center as well as building out some existing space for office there. But then also acquisitions – acquisitions we've done in the past to DeLorme, then Navionics and such, so look at – those are really the priorities for our cash on a go forward basis.

Ronald J. Epstein - Bank of America Merrill Lynch

Okay. Great. Thank you very much.

Clifton A. Pemble - Garmin Ltd.

Thanks, Ron.

[Operator]

Our next question comes from Paul Coster from JPMorgan. Your line is open.

Paul J. Chung - JPMorgan Securities LLC

Hi, thanks. This is Paul Chung on for Coster. Thanks for taking my question. So, just on your operating margins, they're usually seasonally weaker in 3Q, but it came in pretty strong. I know aviation was a big contributor, but anything else you want to point out?

Clifton A. Pemble - Garmin Ltd.

Well, as you said, segment mix is a big factor, so I think it's difficult to look year-over-year just at the number and draw a conclusion, you really have to look at how the pieces are moving within the segments.

Paul J. Chung - JPMorgan Securities LLC

Okay. So, then that would mean that your view on kind of seasonality in fiscal year 2019 is unknown at the moment based on product mix?

Clifton A. Pemble - Garmin Ltd.

Well, I think seasonality has got a different consideration, each segment has their own seasonality. And I think as the segments are growing and moving around each other that will impact obviously the overall combined margin of the business.

Paul J. Chung - JPMorgan Securities LLC

Okay. And then the next question is on auto. So, how should we think about longer term sustainable operating margins? Have we kind of hit trough levels or is there some kind of opportunity to cut OpEx in this segment, I mean judging by your new win in China it looks like you're still investing a bit?

Clifton A. Pemble - Garmin Ltd.

Yeah. I think we're investing in the Tier 1 side of auto OEM and we're also investing in keeping our consumer products fresh. We're investing in a third area which is creating niche applications of PND technology for other types of vehicles and navigation out there. So there is targeted things that we're doing, some ability to scale our expenses, but I think as the business transitions, especially if we get larger revenue contributions from OEM, the margin profile will obviously follow the mix of the segment and will tend to be in the kind of range that we're seeing now.

Paul J. Chung - JPMorgan Securities LLC

Okay. And then a quick modeling question. What should we model for tax rate for 2019? Thank you.

Douglas G. Boessen - Garmin Ltd.

Yeah. So, as it relates to 2019, we'll give that guidance in February, when we give all of 2019 guides, but I should mention that in 2018 we did see some favorable benefits that probably will not recur into 2019, one of which was the R&D tax credit. So when we were doing the tax (32:21) 2017 we identified some additional benefits. So, we rolled through some of those impacted from catch-up basically in 2017 to 2018, so I'll give you a little bit of color on that, but we'll give you a better idea on 2019 effective tax rate when we give all the guidance in February.

Paul J. Chung - JPMorgan Securities LLC

Appreciate it. Thank you very much.

Clifton A. Pemble - Garmin Ltd.

Thank you.

[Operator]

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

Will V. Power - Robert W. Baird & Co.

Okay, great. Thanks. Yeah, just a couple of additional questions. Continued strong growth in APAC, I guess, has been a kind of a running theme. I know Fenix has been a big driver of that. Is that still the principal driver of the growth there, are you seeing uptake of new products that are potentially helping that. And given, Cliff, some of the commentary on increasing competition out of China, do you think you can continue to grow that region double-digits?

Clifton A. Pemble - Garmin Ltd.

Yeah. So, in terms of driving growth in APAC, definitely Fenix is one part of that, each country and each market is probably different, but we've also been able to grow with some of our other categories such as golf and dive watches as an example.

In terms of China that's definitely a new factor that's going to put some dynamics into the market. But we believe that we have a strong product lineup and plans around our product line that will help us be competitive there. So at this moment, again, it's probably the normal course of competitiveness that we see.

Will V. Power - Robert W. Baird & Co.

Okay. All right. And then just coming back to fitness, I know you called out wearables is, I think, the key driver, is there any way to get any further granularity with respect to trackers versus smartwatches, Forerunner, what the kind of the key pieces of the growth were in the quarter?

Clifton A. Pemble - Garmin Ltd.

Yeah. I think a lot of the growth was driven around the advanced wearable category which is really our GPS-enabled vívo line of products. We also saw growth in what we call the basic tracker category which we have a more unique product lineup there compared to the rest of the market but our unique product offerings have helped us to grow that category as well.

In terms of what we call the pure running market, we are kind of at the end of a product life cycle there. And so I think going forward as we introduce new products we'll see upticks but we're relatively flat in terms of the quarter on running.

Will V. Power - Robert W. Baird & Co.

Great. Okay. Thank you.

Clifton A. Pemble - Garmin Ltd.

All right. Thank you.

[Operator]

I'm showing no further questions at this time. I would now like to turn the call back over to Teri Seck for closing remarks.

[Teri Seck, Garmin Ltd.]

Thanks, everyone, and have a great day. Doug and I will be available for your calls the rest of the day. Thank you. Bye.

[Operator]

Ladies and gentlemen thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.