Garmin Sales Presentation University of Kansas Growth Opportunities Not Enough ValuationDeclining Core

Garmin Sales PresentationUniversity of Kansas

Growth Opportunities Not

EnoughValuationDeclining Core

Garmin, Ltd.NASDAQ: GRMN

$46.22 (as of 4/5)

Initiating Coverage at SELLPrice Target = $43.50




Agenda

1. Declining Core Business2. Growth Opportunities Not Enough3. Sum-of-the-Parts Valuation





Agenda





Agenda




Personal Navigation Devices

Segment Data (as of FY2011)

Revenue Contribution

(% of Total)

Income Contribution

(% of Total)

PND 56.7% 39.6%

Aviation 11.2% 13.4%

Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%




PND Segment Decline…

$2.6B

$1.5B

FY 2008A

FY 2009A

FY 2010A

FY 2011A

FY 2012E

FY 2013E

FY 2014E

FY 2015E

$0

$1,000

$2,000

$3,000

millions




PND Segment Decline…Not Over

$2.6B

$1.5B

$650MM

FY 2008A

FY 2009A

FY 2010A

FY 2011A

FY 2012E

FY 2013E

FY 2014E

FY 2015E

$0

$1,000

$2,000

$3,000

millions




Disruptive Technology

GoogleAndroid

iPhone

iPad




Jun-09 Feb-10 Oct-10 Jun-11 Feb-12$15

$25

$35

$45

$55

Garmin Stock Price & Events 6/09 – 4/05/2012

End of Day 4/05/2012

Nasdaq

GRMN




Google Navigation Announcement& Tom-Tom slashes prices

Garmin down 16.4%

Oct 28, 2009

GRMN


$25

$35

$45

$55




Q1 2011 Earnings & T-Mobile DealGarmin Down 14%

May 5, 2010

GRMN


$25

$35

$45

$55




June 2010 – Aug 2011


$25

$35

$45

$55

GRMN Underperformed the Market

Nasdaq

GRMN




Aug 2011 – Apr. 5, 2012

Nasdaq

GRMN

Dividends & Growth?Garmin up 67% from 8/11 – 4/05/12


$25

$35

$45

$55




FUTURE




PND Segment Incremental EBITDA Erosion ($Mm)

FY 2012E EBITDA ($29)




Cumulative EBITDA Total ($326)

PND EBITDA Erosion

-$320 Mm

Erosion Gain $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000 326050.373657199

Cumulative EBITDA Erosion for PND Segment through FY2015E

PND

EBIT

DA (M

m)

Declining CoreGrowth

Opportunities Not Enough

ValuationGarmin Sales Presentation

University of Kansas

Mixed Product Success

• Garmin unsuccessful in markets they do not create– Smartphone “Nuvifone” – Infotainment?

• Dominant in markets they create– General Aviation– Runners’ Watch





Mixed Product Success

• Garmin unsuccessful in markets they do not create– Smartphone “Nuvifone” – Infotainment?

• Dominant in markets they create– General Aviation– Runners’ Watch





Aviation

• Steady cash flows• Market share

– 80% in retrofit– 70% in OEM

• Slow growth for General Aviation

• Highly entrenched competitors in cargo and commercial

• Disproportionate amount of R&D spending

Segment Data (as of

FY2011)

Revenue Contribution (% of Total)

Income Contribution (% of Total)

PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%





Aviation






Segment Data (as of

FY2011)



PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%





Aviation










Aviation










Aviation










Marine

• Gained small Marine market share– 15%-20% of market

• Market is currently in downturn– No signs of short term

recovery

Segment Data (as of

FY2011)



PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%





Marine

• Gained small Marine market share– 15%-20% of market

• Market is currently in downturn– No signs of short term

recovery

Segment Data (as of

FY2011)



PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%





Aviation & Marine Incremental EBITDA Gain ($Mm)

FY 2012E EBITDA $3

FY 2013E EBITDA $22

FY 2014E EBITDA $27

FY 2015E EBITDA $36

Cumulative EBITDA Total

$88

Erosion Gain $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000 326050.373657199

$87,968

Cumulative EBITDA Gain for Aviation & Marine Segments

through FY2015E

Aviation/Marine

PND

EBIT

DA (M

m)





Garmin Outdoor



(% of Total)

Income Contribution

(% of Total)

PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%





Garmin Outdoor

• Industry leader in product innovation & quality

• Highest ASP’s ($223)• 75% market share

– Healthy Foothold

• Slow-growth industry– Unit Sales 2.5% Y/Y





Garmin Outdoor









Garmin Outdoor









Garmin Fitness



(% of Total)

Income Contribution

(% of Total)

PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%





Historical Dominance

• Industry leader in quality and ASP’s ($219)

• Highly profitable – FY 2011 Gross Margins 61%

• Few competitors– Nike/TomTom partnership enter space Q2 2011








• Few competitors– Nike/TomTom partnership enter space Q2 2011








• Few competitors– Nike/TomTom partnership announced Q2 2011





Nike + TomTom = Profit Erosion

• Nike’s brand name with TomTom as technological competitor will erode customer base

• Smartphone Apps and Nike +

• Nike advertising campaign will dominate GRMN efforts





















Garmin

Nike

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

$145

$2,448

Nike vs. Garmin 2010 Advertising Budget

Series1

Ad

Budg

et (M

m)





FY2012 Will Be Most Costly Year for Fitness Segment

FY 2011E FY 2012E FY 2013E FY 2014E FY 2015E $-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Fitness Advertising Expense Fitness Selling, General, & Admin ExpenseFitness R & D Expense

$107 Mm





Higher Costs + Lower ASP’s Margin Pressure

FY 2011E FY 2012E FY 2013E FY 2014E FY 2015E0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

58.0% 58.0%55.0%

52.0%50.0%

22.7% 22.2%20.5%

18.7% 17.6%

Fitness Gross Margin Fitness Operating Margin





Erosion Gain $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

326050.373657199

26000

$87,968

Cumulative EBITDA Erosion for Outdoor & Fitness Segments through

FY2015E

outdoor/fitness

PND

Aviation/MarineEBIT

DA

(Mm

)

Outdoor & Fitness Incremental EBITDA Erosion

(Mm)FY 2012E EBITDA $1.2

FY 2013E EBITDA ($3.6)

FY 2014E EBITDA ($9.5)

FY 2015E EBITDA ($14.0)

Cumulative EBITDA Total

($25.9)





Auto OEM / Infotainment Segment

• Current Strategy– OEM Software/ maps

packages – Chrysler, Dodge, Jeep

& VW models

– ASPs ~ $130– Operating Margins ~

20%– 1 million units = $26

million in Op. Income

Segment Data (as of

FY2011)



PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%






• Current Strategy– OEM Software/ maps

packages – Chrysler, Dodge, Jeep

& VW models

– ASPs ~ $130– Operating Margins ~

20%– 1 million units = $26

million in Op. Income

Segment Data (as of

FY2011)



PND 56.7% 39.6%


Marine 8.5% 12.2%

Outdoor 13.2% 24.2%

Fitness 10.4% 10.5%

Auto OEM 0% 0%






• Future Growth Strategy– Fully Integrated Infotainment console– Partnering with Panasonic and Kenwood– Reason for optimism in industry – 10%+ CAGR

• Aggressive action in FY2011






• Future Growth Strategy– Fully Integrated Infotainment console– Partnering with Panasonic and Kenwood– Reason for optimism in industry – 10%+ CAGR

• Aggressive action in FY2011





“K2/Everest” Prototype 2012 CES Conference in Las Vegas

http://www.autoblog.com/2012/01/17/we-cant-show-you-the-most-impressive-infotainment-system-at-ces/





Economic Forces against Growth

• Entrenched Competition with Dominant Market Shares






• Entrenched Competition

• Integration, Execution, and Regulatory Risks – Achieving Tier 1 Supplier status– Long sales cycles with Auto Manufacturers– Safety Issues and Concerns

• Substitutable / Disruptive Technologies– In-dash bracket + mobile tablet device

+ FREE Navigation App = Value Proposition






• Entrenched Competition

• Integration, Execution, and Regulatory Risks – Achieving Tier 1 Supplier status– Long sales cycles with Auto Manufacturers– Safety Issues and Concerns

• Substitutable / Disruptive Technologies– In-dash bracket + mobile tablet device

+ FREE Navigation App = Value Proposition





Auto OEM / Infotainment Incremental EBITDA Gain ($Mm)

FY 2012E EBITDA -

FY 2013E EBITDA $30

FY 2014E EBITDA $44

FY 2015E EBITDA $54

Cumulative EBITDA Total $128

Erosion Gain $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

326050.373657199

26000

$87,968

$128,255

Cumulative EBITDA Gain for Infotainment Segment through FY2015E

Aviation/Marine PNDInfotainment outdoor/fitness

EBIT

DA (M

m)





Erosion Gain $-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

326050.373657199

26000

$87,968

$128,255

Cumulative EBITDA Erosion vs Gain for All Garmin segments through FY2015E

Aviation/Marine PND Infotainment outdoor/fitness

EBIT

DA (M

m)

$136Mm EBITDA

Shortfall!





How does Garmin overcome the $136Mm EBITDA shortfall over the next four years?

• Innovation: Auto OEM segment– ASPs ~ $400– Operating Margins ~ 10%– 1 million vehicle units = $40M Op. Income

• Unrealistic market share expectations– $264Mm EBITDA = 6.6 million units– 3.3Mm units annually = 65% addressable market share– We project between 15%-20%





How does Garmin overcome the $136Mm EBITDA shortfall over the next four years?

• Innovation: Auto OEM segment– ASPs ~ $400– Operating Margins ~ 10%– 1 million vehicle units = $40M Op. Income

• Unrealistic market share expectations– $264Mm EBITDA = 6.6 million units– 3.3Mm units annually = 65% addressable market share– Aggressively projecting between 15%-20% share by 2015





Valuation

• Sum-of-the-Parts Most Accurate Method– Different segment markets– Different competitive landscapes– Different growth rates for segments





Valuation






Valuation






Segment Contributions to $43.50 Price Target

PND 6.90$






PND 6.90$

Aviation 6.15$






PND 6.90$

Aviation 6.15$

Marine 2.85$






PND 6.90$

Aviation 6.15$

Marine 2.85$

Outdoor 9.06$






PND 6.90$

Aviation 6.15$

Marine 2.85$

Outdoor 9.06$

Fitness 3.20$






PND 6.90$

Aviation 6.15$

Marine 2.85$

Outdoor 9.06$

Fitness 3.20$

Auto OEM 2.86$






PND 6.90$

Aviation 6.15$

Marine 2.85$

Outdoor 9.06$

Fitness 3.20$

Auto OEM 2.86$

Cash 12.60$






Total $43.62

PND 6.90$

Aviation 6.15$

Marine 2.85$

Outdoor 9.06$

Fitness 3.20$

Auto OEM 2.86$

Cash 12.60$




Summary

1. Declining Core Business

2. Growth Opportunities Not Enough

3. Sum-of-the-Parts Valuation




Q & A

Outline1. Declining Core

– Stock Graph

2. Growth Opportunities– Outdoor– Fitness– Aviation– Marine– Infotainment

3. Valuation– Sum of Parts– Total

Appendices

Valuation Methods

Sensitivity Analysis

Aviation Assumptions

Marine Assumptions

Outdoor/FitnessAssumptions

International

PND/InfotainmentAssumptions

Other Valuations

Pro Forma Income Statement

Segment Contribution

Summary




PND7x TEV/EBITDA multiple

Competitor: TomTom

AviationDCF with 0.5% terminal growth rate

Marine8.4x TEV/EBITDA multiple

Competitors: Johnson Outdoor, Raymarine (FLIR) and Lowrance

Valuation MethodsOutdoor

DCF with 1% terminal growth rate

FitnessDCF with 1.5% terminal growth rate

Auto OEM/InfotainmentDCF with 1% terminal growth rate




Sensitivity Analysis

6.0x 7.0x 8.0xBear 5.48$ 6.39$ 7.30$ Base 5.92$ 6.90$ 7.89$

Bull 6.37$ 7.44$ 8.50$

Auto/Mobile Valuation

(in $ per share)times NTM EBITDA

0% 0.50% 1.00%

Bear 4.67$ 4.88$ 5.13$

Base 5.97$ 6.25$ 6.57$

Bull 7.45$ 7.81$ 8.21$

Aviation Valuation

(in $ per share)Terminal Growth Rate

1% 2.50% 3.50%Bear 7.71$ 8.17$ 8.30$ Base 11.61$ 12.33$ 12.51$

Bull 20.93$ 22.48$ 23.02$

Outdoor/Fitness Valuation

(in $ per share)Combined Growth Terminal Growth Rate

(in $ per share) 7.0x 8.4x 9.0x

Bear $1.82 $2.19 $2.34

Base $2.36 $2.83 $3.04Bull $2.58 $3.10 $3.32

times NTM EBITDA

Marine Valuation

0.5% 1.0% 2.0%Bear 2.23$ 2.37$ 2.68$ Base 2.70$ 2.86$ 3.25$

Bull 3.18$ 3.36$ 3.82$

Auto OEM Valuation

(in $ per share)Terminal Growth Rate




Other Valuation Methods

Price Undervalued

Relative Valuation (8x 2012E EBITDA) 31.77$ -31.3%DCF- Implied Terminal Grow th of 0.5% 45.29$ -2.0%DCF- Using 8x 2013E EBITDA 33.93$ -26.6%P/E Valuation (12.2x 2012E EPS) 30.41$ -34.2%

DDM (3% grow th) 27.56$ -40.4%

P/Sales Valuation (2.36x 2012 Sales) 30.56$ -33.9%Average Target Price 33.00$ -28.6%

+ Cash per Share 12.60$ Price Target 45.60$ -1.3%

VALUATION METHODS

Intrinsic Prices




PND/Infotainment Segment Assumptions

PND BASE ASSUMPTIONS

FY 2012E FY 2013E FY 2014E FY 2015E

Market Share 38% 39.0% 40.0% 40.0%

ASP $ 117.26 $ 107.87 $ 99.24 $ 91.31 Change ASP -6.5% -8.0% -8.0% -8.0%Change Unit Cost -10.1% -10.0% -10.0% -10.0%EBIT Margin 15.0% 15.0% 14.0% 14.0%EBIT Multiple 7.0x 7.0x 7.0x 7.0x

AUTO OEM ASSUMPTIONS

Vehicle Prod Growth 2.5% 2.5% 2.5% 2.5%

USA Manf % Units 32.0% 35.0% 37.0% 40.0%Market Share 19.0% 20.0% 20.0% 25.0%Non-US Units (Mm) 0.35 0.5 0.75 1

ASP $ 130.00 $ 120.00 $ 250.00 $ 225.00 Gross Margin 30.0% 30.0% 25.0% 25.0%Operating Margin 18.0% 18.0% 10.0% 10.0%




Outdoor/Fitness Segment Assumptions

Base Assumptions FY 2012E FY 2013E FY 2014E FY 2015E

Outdoor Unit Sales Growth 4.0% 2.5% 2.0% 2.0%

Outdoor Average Sales Price Growth -1.0% -1.0% -1.0% -1.0%

Outdoor COGS as % of Rev 38.0% 38.0% 38.0% 38.0%

Outdoor Advertising Expense as % of Gross Income 9.0% 10.0% 10.0% 10.0%

Outdoor S,G, & A Expense as % of Gross Income 22.0% 22.0% 22.0% 22.0%

Outdoor R & D Expense as % of Gross Income 8.5% 8.5% 8.5% 8.5%

Fitness Unit Sales Growth 10.0% 5.0% 3.5% 2.0%

Fitness Average Sales Price Growth -5.0% -5.0% -5.0% -5.0%

Fitness COGS as % of Rev 42.0% 45.0% 48.0% 50.0%

Fitness Advertising Expense as % of Gross Income 14.0% 14.0% 14.0% 14.0%

Fitness S,G, & A Expense as % of Gross Income 24.5% 24.5% 24.5% 24.5%

Fitness R & D Expense as % of Gross Income 16.0% 16.0% 16.0% 16.0%




Marine Segment Assumptions

Gross Margins………..50-60%Operating Margins….25-35%Sales Growth…………Stagnant to 10%Acquisition……………Bull CaseMultiple………………..Based on Lowrance/Navico deal (8.4x forward EBITDA)




Aviation Segment Assumptions

Assumptions Base Case Bear Case Bull Case

Growth as % of GA 1.0% 0% 2%

Growth in ASP $150 $120 $180

COGS as % of Revenue 32% 34% 30%

R&D as % of Revenue 35% 38% 32%




Competition•Aviation: Honeywell, Rockwell-Collins, Aspen•Marine: FLIR, Navico, Johnson Outdoors•Auto: TomTom, Harman, Continental, Bosch•Fitness: Nike, TomTom, Polar, Timex




International Opportunities

73% 72%

64%

3% 4%8%

24% 23%

28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2008 2009 2010

Geographic Revenue Contribution

America Asia Europe

FY 2009A FY 2010A

North America 767,696$ 537,214$

Asia 45,074 65,884

Europe 246,613 234,617 Total Revenues 1,059,383$ 837,715$

GEOGRAPHIC REVENUE




Pro Forma Income Statement

In Thousands FY 2009A FY 2010A FY 2011E FY 2012E FY 2013E FY 2014E FY 2015EOutdoor -$ 229,562$ 339,858$ 350,029$ 355,191$ 358,672$ 362,187$

Fitness - 159,475 267,216 279,406 278,708 274,039 265,544 Marine 177,644 198,860 219,345 230,312 241,828 253,919 266,615 Automotive/Mobile 2,054,127 1,668,939 1,456,906 1,276,557 1,036,591 831,399 650,154 Infotainment - - - 83,313 170,898 437,846 537,087 Aviation 245,745 262,520 286,652 298,374 321,319 344,923 369,760 Outdoor/Fitness 468,924 170,555 - - - - -

Total Revenue 2,946,440 2,689,911 2,569,977 2,517,990 2,404,535 2,500,799 2,451,348

COGS 1,502,329 1,343,536 1,361,679 1,255,441 1,235,221 1,325,802 1,297,801 Gross Income 1,444,111 1,346,375 1,208,297 1,262,549 1,169,314 1,174,997 1,153,547 Operating Expenses 658,100 709,698 747,974 759,768 730,979 767,745 752,564 Operating Income 786,011 636,677 460,324 502,781 438,335 407,251 400,983 Net Income 703,950 584,605 453,284 387,418 414,649 387,761 382,591

INCOME STATEMENT





Segment Contributions and Margins



(% of Total)

Gross Margins

Operating Margins

Income Contribution

(% of Total)

PND 56.7% 33.6% 15.0% 39.6%

Aviation 11.2% 67.5% 27.3% 13.4%

Marine 8.5% 57.6% 26.7% 12.2%

Outdoor 13.2% 64.0% 38.7% 24.2%

Fitness 10.4% 58.0% 20.5% 10.5%

Auto OEM 0% - - 0%

Documents

Garmin Sales Presentation University of Kansas Growth Opportunities Not Enough ValuationDeclining Core