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Garmin, Ltd. NASDAQ: GRMN $46.22 ( as of 4/5) Initiating Coverage at SELL Price Target = $43.50

Garmin, Ltd. NASDAQ: GRMN $46.22 ( as of 4/5) Initiating Coverage at SELL Price Target = $43.50. Agenda. Declining Core Business Growth Opportunities Not Enough Sum-of-the-Parts Valuation. Agenda. Declining Core Business Growth Opportunities Not Enough Sum-of-the-Parts Valuation. Agenda.

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Garmin, Ltd. NASDAQ: GRMN $46.22 ( as of 4/5) Initiating Coverage at SELL Price Target = $43.50

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  1. Garmin, Ltd.NASDAQ: GRMN$46.22 (as of 4/5)Initiating Coverage at SELLPrice Target = $43.50

  2. Agenda

    Declining Core Business Growth Opportunities Not Enough Sum-of-the-Parts Valuation

  3. Agenda

    Declining Core Business Growth Opportunities Not Enough Sum-of-the-Parts Valuation

  4. Agenda

    Declining Core Business Growth Opportunities Not Enough Sum-of-the-Parts Valuation
  5. Personal Navigation Devices
  6. PND Segment Decline… $2.6B $1.5B millions
  7. PND Segment Decline…Not Over $2.6B $1.5B millions $650MM
  8. Disruptive Technology Google Android iPhone iPad
  9. Garmin Stock Price & Events 6/09 – 4/05/2012 GRMN Nasdaq End of Day 4/05/2012
  10. Google Navigation Announcement& Tom-Tom slashes pricesGarmin down 16.4% Oct 28, 2009 GRMN
  11. Q1 2011 Earnings & T-Mobile DealGarmin Down 14% May 5, 2010 GRMN
  12. GRMN Underperformed the Market June 2010 – Aug 2011 Nasdaq GRMN
  13. Dividends & Growth?Garmin up 67% from 8/11 – 4/05/12 Aug 2011 – Apr. 5, 2012 GRMN Nasdaq
  14. FUTURE
  15. PND EBITDA Erosion -$320 Mm
  16. Mixed Product Success Garmin unsuccessful in markets they do not create Smartphone “Nuvifone” Infotainment? Dominant in markets they create General Aviation Runners’ Watch
  17. Mixed Product Success Garmin unsuccessful in markets they do not create Smartphone “Nuvifone” Infotainment? Dominant in markets they create General Aviation Runners’ Watch
  18. 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
  19. 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
  20. 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
  21. 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
  22. 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
  23. Marine Gained small Marine market share 15%-20% of market Market is currently in downturn No signs of short term recovery
  24. Marine Gained small Marine market share 15%-20% of market Market is currently in downturn No signs of short term recovery

  25. Garmin Outdoor

  26. 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
  27. 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
  28. 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

  29. Garmin Fitness

  30. 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
  31. 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
  32. Historical Dominance Industry leader in quality and ASP’s ($219) Highly profitable FY 2011 Gross Margins 61% Few competitors Nike/TomTom partnership announced Q2 2011
  33. 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
  34. 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
  35. 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
  36. FY2012 Will Be Most Costly Year for Fitness Segment
  37. Higher Costs + Lower ASP’s Margin Pressure
  38. 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
  39. 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
  40. Auto OEM / Infotainment Segment Future Growth Strategy Fully Integrated Infotainment console Partnering with Panasonic and Kenwood Reason for optimism in industry – 10%+ CAGR Aggressive action in FY2011
  41. Auto OEM / Infotainment Segment Future Growth Strategy Fully Integrated Infotainment console Partnering with Panasonic and Kenwood Reason for optimism in industry – 10%+ CAGR Aggressive action in FY2011
  42. “K2/Everest” Prototype 2012 CES Conference in Las Vegas
  43. Economic Forces against Growth Entrenched Competition with Dominant Market Shares
  44. Economic Forces against Growth 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
  45. Economic Forces against Growth 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
  46. $136Mm EBITDA Shortfall!
  47. 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%
  48. 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
  49. Valuation Sum-of-the-Parts Most Accurate Method Different segment markets Different competitive landscapes Different growth rates for segments
  50. Valuation Sum-of-the-Parts Most Accurate Method Different segment markets Different competitive landscapes Different growth rates for segments
  51. Valuation Sum-of-the-Parts Most Accurate Method Different segment markets Different competitive landscapes Different growth rates for segments
  52. Segment Contributions to $43.50 Price Target
  53. Segment Contributions to $43.50 Price Target
  54. Segment Contributions to $43.50 Price Target
  55. Segment Contributions to $43.50 Price Target
  56. Segment Contributions to $43.50 Price Target
  57. Segment Contributions to $43.50 Price Target
  58. Segment Contributions to $43.50 Price Target
  59. Segment Contributions to $43.50 Price Target Total $43.62

  60. Summary

    Declining Core Business Growth Opportunities Not Enough Sum-of-the-Parts Valuation
  61. Q & A Valuation Methods Sensitivity Analysis Outline Appendices Other Valuations International Declining Core Stock Graph Growth Opportunities Outdoor Fitness Aviation Marine Infotainment Valuation Sum of Parts Total PND/Infotainment Assumptions Outdoor/Fitness Assumptions Marine Assumptions Aviation Assumptions Pro Forma Income Statement Segment Contribution Summary
  62. Outdoor DCF with 1% terminal growth rate Fitness DCF with 1.5% terminal growth rate Auto OEM/Infotainment DCF with 1% terminal growth rate

    Valuation Methods

    PND 7x TEV/EBITDA multiple Competitor: TomTom Aviation DCF with 0.5% terminal growth rate Marine 8.4x TEV/EBITDA multiple Competitors: Johnson Outdoor, Raymarine (FLIR) and Lowrance

  63. Sensitivity Analysis

  64. Other Valuation Methods

  65. PND/Infotainment Segment Assumptions
  66. Outdoor/Fitness Segment Assumptions

  67. Marine Segment Assumptions

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

  69. Competition

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

  70. International Opportunities

  71. Pro Forma Income Statement

  72. Segment Contributions and Margins
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