Garmin Ltd. (GRMN) Q4 2022 Earnings Call Transcript

Garmin Ltd. (NYSE:GRMN) Q4 2022 Earnings Conference Call February 22, 2023 10:30 AM ET

Company Participants

Teri Seck - Director IR

Clifton Pemble - President and CEO

Doug Boessen - CFO

Conference Call Participants

Paul Chung - JPMorgan

George Wang - Barclays

David MacGregor - Longbow Research

Benjamin Bollin - Cleveland Research Company

Erik Woodring - Morgan Stanley

Ivan Feinseth - Tigress Financial Partners

Operator

Good morning, and convey you for opinionated by. Welcome to nan Garmin Ltd. Fourth Quarter 2022 Conference Call. [Operator Instructions] Please beryllium advised that today's convention telephone is being recorded.

I would now for illustration to manus nan convention telephone complete to your speaker today, Teri Seck. Please spell ahead.

Teri Seck

Good morning. We would for illustration to invited you to Garmin Ltd. Fourth Quarter and Fiscal Year-end 2022 Earnings Call. Please statement that nan net property merchandise and related slides are disposable astatine Garmin's Investor Relations tract connected nan Internet astatine www.garmin.com/stock. An archive of nan webcast and related transcript will besides beryllium disposable connected our website. .

This net telephone includes projections and different forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our early financial position, revenues, conception maturation rates, earnings, gross margins, operating margins, early dividends aliases stock repurchases, marketplace shares, merchandise introductions, early request for our products and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed successful this net telephone whitethorn not occur, and existent results could disagree materially arsenic a consequence of consequence factors affecting Garmin. Information concerning these consequence factors is contained successful our Form 10-K revenge pinch nan Securities and Exchange Commission. In particular, location is important uncertainty astir nan long and effect of nan COVID-19 pandemic.

This intends that results could alteration astatine immoderate time, and immoderate connection astir nan effect of COVID-19 connected nan company's business results and outlook is nan champion estimate based connected nan accusation disposable arsenic of today's date.

Presenting connected behalf of Garmin Ltd. this greeting are Cliff Pemble, President and Chief Executive Officer; and Doug Boessen, Chief Financial Officer and Treasurer.

At this time, I would for illustration to move nan telephone complete to Cliff Pemble.

Clifton Pemble

Thank you, Teri, and bully morning, everyone. As reported earlier today, consolidated 4th fourth gross came successful astatine $1.3 billion, which is down 6% from nan anterior twelvemonth and accordant pinch trends we knowledgeable for astir of 2022. There are respective factors that influenced our results, including nan year-over-year strengthening of nan U.S. dollar, macroeconomic and geopolitical concerns affecting Europe, and nan capacity of retailers who focused connected inventory control.

One agleam spot is nan capacity of our nonstop income channel, including garmin.com, which accrued by beardown double digits and accounted for greater than 10% of full nett sales. While our privilege is to service nan needs of third-party unit partners, our nonstop channels are an progressively important pillar of our go-to-market strategy.

Another agleam spot is our gross separator performance, which improved 150 ground points complete nan anterior twelvemonth and exceeded expectations arsenic we benefited from little freight costs. Our capacity successful 2022 was coagulated contempt facing a operation of persistent and emerging headwinds affecting nan wide business situation and user behaviors. We reported gross of $4.86 billion, a 2% diminution year-over-year.

Revenue was negatively impacted by astir $228 cardinal owed to nan strengthening of nan U.S. dollar comparative to different currencies. Excluding this impact, gross would person accrued astir 2% complete nan anterior year. Our gross separator capacity was beardown astatine 57.7% for nan year, and operating separator exceeded 21%.

As announced earlier this morning, we've mixed nan merchandise categories of nan user car conception pinch outdoor. I'll supply much discourse successful a moment, but factors considered see nan existent size and scope of nan Consumer Auto conception arsenic good arsenic nan expected maturation of nan Auto OEM segment.

We're cautiously optimistic arsenic we move our attraction to 2023. We person a awesome line-up of caller products and further merchandise launches are planned passim nan year. We expect consolidated gross will summation astir 3% to $5 cardinal for nan year. In nan first quarter, we expect that gross will diminution successful statement pinch caller trends arsenic we comparison against nan beardown merchandise launches from nan anterior year.

We expect to return to maturation starting successful nan 2nd 4th arsenic we use from planned caller merchandise introductions. It's important to retrieve that we are not focused connected quarter-by-quarter aliases category-by-category performance. Rather, we're focused connected delivering coagulated results twelvemonth aft twelvemonth by creating highly differentiated products and leveraging our diversified business model.

We're proposing a dividend of $2.92, accordant pinch nan anterior year, which will beryllium considered by shareholders astatine nan upcoming Annual General Meeting. Doug will talk financial results successful greater item successful a fewer minutes, but first, I'll supply highlights connected nan capacity and outlook for each business segment.

Starting pinch Fitness, gross decreased 28% for nan twelvemonth pinch declines crossed each categories. Full twelvemonth gross and operating margins were 50% and 9%, respectively, resulting successful operating income of $105 million. During nan quarter, we launched our first LTE-connected kids smartwatch disposable exclusively astatine garmin.com.

Bounce offers two-way matter and sound messaging arsenic good arsenic real-time location tracking. Bounce besides tracks activities and steps passim nan day, offers games and allows parents to delegate chores and springiness rewards. We proceed to research caller verticals successful wellness and wellness and precocious received U.S. FDA support for a clinically validated ECG app for nan Venu 2 Plus smartwatch. This app allows users to grounds their bosom rhythms and checks for signs of AFib. We judge this is an important measurement towards providing a afloat statement of devices for managing a assortment of wellness conditions. For 2023, we expect gross to beryllium down astir 5% successful nan conception arsenic it stabilizes and arsenic we expect nan use of caller merchandise introductions.

Moving to Outdoor. Full twelvemonth gross accrued 17% resulting successful grounds gross of astir $1.5 cardinal for nan year. We knowledgeable maturation crossed aggregate merchandise categories, led by beardown request for escapade watches. Full twelvemonth gross and operating margins were 65% and 37%, respectively, resulting successful operating income of $556 million.

During nan quarter, we launched nan second-generation MARQ luxury smartwatch featuring a agleam AMOLED touchscreen show and premium Grade 5 titanium materials. We besides expanded nan Instinct merchandise statement pinch nan caller Crossover, a unsocial hybrid smartwatch that is afloat analoged and afloat digital. Looking ahead, we expect nan Outdoor conception to turn astir 2%, which includes contributions from Consumer Auto. We expect nan first 4th of 2023 to beryllium challenging arsenic we comparison against nan beardown results from nan anterior year, which were driven by nan motorboat of nan flagship fēnix 7 Series, nan Instinct 2 Series and nan each caller epix. We expect maturation to resume starting successful nan 2nd quarter, driven erstwhile again by caller merchandise introductions.

Looking adjacent astatine Aviation, afloat twelvemonth gross accrued 11%, pinch contributions from some aftermarket and OEM categories and arsenic proviso concatenation constraints eased. 2022 was a grounds twelvemonth for our Aviation conception pinch gross approaching $800 cardinal and exceeding nan levels achieved during nan ADS-B mandate, which demonstrates our expertise to present semipermanent maturation successful halfway merchandise categories, specified arsenic autopilots, GPS NAVCOM, show systems and services.

Full twelvemonth gross and operating margins were 72% and 27%, respectively, resulting successful operating income of $213 million. During nan quarter, we announced that L3Harris Technologies has chosen nan G3000 tandem integrated formation platform arsenic portion of nan U.S. Special Operations Command Armed Overwatch Program. The G3000 strategy will supply nan latest communication, navigation, surveillance and aerial postulation guidance capabilities for nan Sky Warden aircraft. Also, we received EASA support for nan G5000 retrofit integrated formation platform successful nan Cessna Citation XL and nan XLS. We besides received FAA supplemental type certificate for nan GI 275 physics formation instrumentality successful nan Dassault Falcon 7X business jet. These approvals grow nan addressable marketplace for integrated formation decks and standby instrumentation successful business jets. The Aviation conception continues to use from beardown request for some aftermarket products and caller craft equipped pinch integrated cockpit systems. We expect these trends to thrust gross maturation of astir 5% for nan year.

Turning to Marine. The conception delivered its 10th consecutive twelvemonth of gross growth, starting from astir $200 cardinal successful 2012 and exceeding successful $900 cardinal successful 2022, which is simply a caller grounds and represents a compounded yearly maturation complaint of 15%, driven by some marketplace maturation and important marketplace stock gains. For 2022, gross accrued 3%, pinch maturation crossed aggregate categories, led by beardown request for sonar systems.

Full twelvemonth gross and operating margins were 54% and 24%, respectively, resulting successful operating income of $215 million. During nan quarter, we announced that Garmin Navionics+ is now preloaded successful definite flagship GPSMAP chartplotters, combining nan best-in-class charts from some Navionics and Garmin.

Throughout nan year, we received aggregate accolades and awards, astir precocious nan prestigious IBEX Innovation Award, The National Boating Industry Safety Award and nickname arsenic 1 of nan astir innovative marine companies by Soundings Trade Only. Looking forward, we expect gross from nan Marine conception will summation astir 5% for nan year, arsenic we leverage our beardown marketplace stock position pinch emblematic marine maturation patterns.

Moving to nan Auto segment. Full twelvemonth gross decreased 4% arsenic maturation successful car OEM was much than offset by declines successful Consumer Auto categories. As mentioned earlier, we precocious mixed nan merchandise categories of Consumer Auto pinch Outdoor. As galore know, we were an early innovator successful nan user automotive marketplace and nan hyper maturation we knowledgeable successful nan mid-2000s allowed america to put successful caller opportunities and go nan strong, highly diversified institution that we are today.

Looking backmost successful 2008, gross from nan Automobile conception exceeded $2.5 cardinal and represented much than 70% of our consolidated revenue. Since that time, we've diversified our gross guidelines and nan Consumer Auto conception has evolved into a postulation of important specialty categories, galore of which target escapade and off-road vehicles that complement nan strategical attraction of nan Outdoor segment.

Separately, we judge that nan Auto OEM conception has reached a captious inflection constituent arsenic caller programs move into production, driving important maturation complete nan adjacent fewer years. We will study car OEM arsenic a standalone conception starting pinch fiscal twelvemonth 2023.

This alteration successful conception statement provides an opportunity to talk why we person chosen to participate successful nan car OEM market. The automotive marketplace is undergoing important translator arsenic electrification gains momentum. While nan manufacture has galore tin suppliers, not each are equipped to meet nan request arsenic nan physics and package contented successful vehicles quickly evolves.

Our imagination is to beryllium recognized arsenic a starring world supplier of integrated physics solutions to nan car industry. To execute this vision, we intend to leverage our exertion portfolio, our vertically integrated business exemplary and our world manufacturing footprint.

Auto OEM gross is generated from 3 merchandise categories: Domain Controllers, Infotainment Units and each Other. Explaining a small spot astir these categories, domain controllers are distant computing modules that power various systems passim nan vehicle. The BMW programme consists chiefly of domain controllers for infotainment, instrumentation and rear-seat entertainment.

Infotainment units are self-contained systems that see a show and nan personification power strategy for functions specified arsenic navigation, audio, multimedia and Internet-based apps. We presently proviso infotainment units to automakers successful Asia and Europe.

And finally, nan Other class includes a postulation of software, representation database, cameras, wearables and different gross lines. Our existent customer guidelines includes immoderate of nan astir respected world automakers including BMW, Toyota, Yamaha, Honda, Daimler, Ford and Geely. We are moving pinch these and galore different OEMs connected early opportunities.

During 2022, Auto OEM gross accrued 11% to $284 million, pinch maturation driven by contributions from caller programs. Full twelvemonth gross separator was 32%, and we recorded an operating nonaccomplishment of $79 million, driven by ongoing investments to complete caller programs. This operating nonaccomplishment was $29 cardinal little than nan anterior twelvemonth and was amended than expectations owed to higher income and a simplification successful improvement expenses.

Late past year, nan BMW Group recognized Garmin pinch a Supplier Innovation Award for our activity connected nan Theatre Screen rear-seat intermezo strategy offered connected nan flagship 7 Series automobile. This is simply a important accomplishment considering nan complexity of nan program, nan precocious expectations of our customer and nan truth that we're a comparative newcomer to nan industry.

I'm besides pleased to study that during 2022, we secured further commitments from BMW that accrued our full awarded measurement by astir 50% and expanded our proviso footprint, which now encompasses nan North American region, Europe and China.

Looking forward, we expect Auto OEM gross to summation 30% successful 2023. We expect nan first 4th to beryllium astir level to nan anterior twelvemonth pinch important maturation starting successful Q2, driven by nan timing of caller exemplary launches.

Many are wondering astir our semipermanent outlook for nan Auto OEM conception and importantly, nan pathway to profitability. While we do not supply guidance beyond nan existent year, we tin stock our imagination for wherever nan Auto OEM conception goes from here. Our semipermanent projections see programs presently awarded on pinch galore different assumptions that whitethorn aliases whitethorn not materialize.

Based only connected nan business already secured, our projections bespeak that we could acquisition a compound yearly maturation complaint of astir 40% complete nan adjacent fewer years, which, if achieved, would consequence successful 2025 gross of astir $800 million. We expect overmuch of this maturation will beryllium driven by domain controllers that transportation a little gross separator profile, but besides make important measurement leverage arsenic we purpose for profitability successful 2024.

We scheme to build connected this occurrence pinch invention that leads to caller opportunities specified arsenic nan highly acclaimed unified compartment conception we showcased astatine nan caller Consumer Electronics Show.

In summary, 2023 marks nan opening of a caller era for our Auto OEM segment. The opportunity is significant, nan way guardant is clear and we're focused connected delivering maturation and profits successful nan Auto OEM segment.

That concludes my remarks. Next, Doug will locomotion you done further specifications connected our financial results and our 2023 guidance. Doug?

Doug Boessen

Thanks, Cliff. Good morning, everyone. I'll statesman by reviewing our 4th fourth and afloat twelvemonth financial results and supply comments connected nan equilibrium sheet, rate travel statement, taxes and 2023 guidance.

We posted gross of complete $1.3 cardinal for nan 4th quarter, representing a 6% alteration year-over-year. Gross separator was 57%, a 150 ground constituent summation from nan anterior quarter. Increase was chiefly owed to little freight costs. Operating disbursal arsenic a percent of income was 36.5%, a 370 ground constituent increase.

Operating income was $267 million, 15% year-over-year decrease. Operating separator was 20.5%, 210 ground constituent alteration from nan anterior year. Our GAAP EPS was $1.53, and our pro forma EPS was $1.35, a 13% alteration from nan anterior twelvemonth pro forma EPS.

Looking astatine nan afloat twelvemonth results, we posted gross of $4.860 cardinal representing a 2% alteration year-over-year. Gross separator was 57.7%, 30 ground constituent alteration from nan anterior year. Operating disbursal arsenic a percent of income was 36.6%, 300 ground constituent increase.

Operating income was $1.028 billion, a 16% decrease. Operating separator was 21.1%, 340 ground constituent alteration from nan anterior year. Our GAAP EPS was $5.04, pro forma EPS was $5.13, 12% alteration from nan anterior twelvemonth pro forma EPS.

Next, our 4th fourth gross by conception and geography. In nan 4th quarter, maturation successful nan Aviation, Marine and Outdoor segments was much than offset by declines successful nan Fitness and Auto segments, resulting successful 6% consolidated decline.

By geography, nan 4% maturation successful Americas was much than offset by 17% diminution successful EMEA, a 9% diminution successful APAC, which was negatively impacted by overseas speech rates during nan quarter. For nan afloat twelvemonth 2022, consolidated gross declined 2% pinch maturation successful nan Outdoor, Aviation and Marine segments much than offset declines successful nan Fitness and Auto segments.

By geography, we achieved 3% maturation some successful Americas and APAC, but these increases were much than offset by a 12% diminution successful EMEA.

Looking next, operating expenses. Fourth 4th operating expenses accrued by $21 cardinal aliases 5%. Research and improvement accrued astir $11 cardinal year-over-year, chiefly owed to engineering unit costs. SG&A accrued astir $13 cardinal compared to anterior twelvemonth quarter, chiefly owed to increases successful personnel-related expenses, formation, exertion costs. Advertising disbursal decreased astir $3 cardinal owed to little co-op advertising.

A fewer highlights connected nan equilibrium sheet, rate travel statement, dividends and stock repurchase. We ended nan 4th pinch rate and marketable securities of astir $2.7 billion. Accounts receivable accrued sequentially to $657 cardinal to seasonally beardown income successful nan 4th fourth and decreased year-over-year. Inventory accrued year-over-year to astir $1.5 billion. The year-over-year summation owed to executing our strategy to trim freight costs done higher operation water versus aerial shipments arsenic good arsenic implications of navigating a challenging proviso concatenation environment, which we've been operating in.

As nan business situation continues to evolve, we're moving to optimize our inventory. As such, we expect our 2023 ending inventory equilibrium to beryllium comparatively level year-over-year. The expected declines successful our user inventory offset by expected increases associated pinch nan maturation of our Auto OEM business.

During nan 4th fourth of 2022, we generated free rate travel of $309 million, $260 cardinal summation from nan anterior twelvemonth quarter. For nan afloat twelvemonth 2022, we generated free rate travel of astir $544 million, a $161 cardinal alteration from nan anterior year, which was chiefly owed to a higher usage of rate for inventory income taxes. For 2023, we expect free rate travel to beryllium astir $700 cardinal aliases astir $275 cardinal of superior expenditures. For 2023, we expect to proceed to make investments successful platforms for maturation including continued renewal of our accommodation successful Taiwan and Olathe IT-related projects.

As a consequence of nan further week successful nan 4th fourth 2022, we paid 2 quarterly dividends totaling astir $280 million. Also, we announced our scheme to activity shareholder support for an yearly dividend of $2.92 aliases $0.73 per stock per 4th pinch our June 2023 payment.

2022, we purchased $207 cardinal of institution stock, had astir $93 cardinal remaining arsenic of year-end, nan stock repurchase program, which is authorized done December 2023. For afloat twelvemonth 2022, we reported an effective taxation complaint of 8.6%. Pro forma effective taxation complaint was 7.9%, a 240 ground constituent alteration from nan anterior year, chiefly owed to favorable income operation by taxation jurisdiction, summation successful U.S. taxation deductions and credits.

Fiscal twelvemonth 2023 pro forma effective taxation complaint is expected to beryllium 8% level year-over-year. Turning adjacent to our afloat twelvemonth guidance. We estimate gross of astir $5 billion, an summation of astir 3% for nan anterior year.

We expect gross separator to beryllium astir 57.5%, which is comparatively accordant to our afloat twelvemonth 2022 gross margin. We expect an operating separator of astir 20.3%. In nan afloat year, pro forma effective taxation complaint expected to beryllium astir 8% results successful expected pro forma net per stock of astir $5.15.

This concludes our general remarks. [Corey], tin you please unfastened nan statement for Q&A?

Question-and-Answer Session

Operator

[Operator Instructions] First up, we person Paul Chung pinch JPMorgan.

Paul Chung

So conscionable first up connected Outdoor. Can you talk astir immoderate of nan drivers that could supply immoderate upside to your guidance present of 2%? I cognize you person immoderate benignant of reliable comps successful nan first half, truthful if you could benignant of grow connected value versus volume, benefits, merchandise operation would beryllium helpful?

And past Outdoor finishes nan twelvemonth benignant of exceeding 50% of operating profit arsenic mix, wherever do you spot that operation trending this year? And arsenic we furniture successful Consumer Auto, I cognize this is small, but presume we support margins benignant of successful nan precocious 30% moving forward? And I person a follow-up.

Clifton Pemble

Yes. Good morning, Paul. In position of imaginable drivers for upside, we're really not reasoning astir forecasting immoderate of those. I would conscionable constituent group backmost to nan history successful position of nan conception and our merchandise preamble cadence astir wearables, successful particular, we person a very progressive merchandise roadworthy representation for nan year. So we're factoring that in, but besides recognizing that 2022 was a banner twelvemonth for maturation successful those merchandise lines. So that's really what's affecting our thinking, and that's what we usage to create nan guidance that we've offered. In position of Consumer Auto, yes, those merchandise lines are going to proceed to person nan separator profiles that person historically been disclosed, though we won't beryllium talking astir that going guardant anymore.

But I would opportunity that arsenic Consumer Auto products move to much specialty-driven applications, nan margins will decidedly travel up arsenic we person much unsocial products there.

Paul Chung

And past conscionable connected wide gross margins, I would person thought to spot immoderate benefits present from benignant of little constituent inflation, FX and freight. Can you quantify nan effect successful '22 benignant of related to those costs? And expectations for '23 related to that? And wherever could you benignant of spot immoderate upside to first guideline of benignant of flattish margins?

And past akin mobility connected operating margins. immoderate betterment successful Fitness, possibly immoderate unit connected Marine, Auto is still astir apt a large drag, but wherever could you spot immoderate upside to flattish separator guideline here?

Clifton Pemble

Yes. Yes, I'll commencement possibly pinch a remark and past manus it complete to Doug. But I would opportunity that nan 57.5 is simply a very bully first separator guideline and it reflects a batch of benefits that we're seeing successful nan proviso chain, peculiarly freight, but it's offset besides by nan increasing operation of car OEM products.

So that's benignant of nan highest level position of really we came up pinch that 57.5, and past Doug astir apt has further comments that you tin make connected nan details.

Doug Boessen

Yes. So yes, Cliffs is correct connected nan large picture, that's right. So we are expecting immoderate favorability successful '23 owed to freight costs. We've made a concerted effort to vessel a larger percent of our products connected water versus aerial arsenic good arsenic we're seeing nan wide freight rates travel down.

So we did spot that travel down passim '22. So there'll astir apt beryllium a small spot much favorability successful nan first portion than nan second portion of nan year. And past nan different large facet impacting '23 is nan conception mix.

As Cliff mentioned, nan Auto OEM business does person a little gross separator than average. So arsenic that becomes a larger portion of our full that will origin nan gross separator to travel down arsenic such.

As it relates to FX, if you look astatine FX euro rate, nan mean during 2022 was astir 1.06, that's astir wherever we are today. It's really difficult to foretell that FX successful location from that standpoint, but that's conscionable benignant of a constituent of reference arsenic it relates to nan FX that successful there. And truthful that benignant of gives you a flavor.

And possibly I'll springiness you a small spot besides connected operating expenses since you person mentioned things astir nan operating margin. So arsenic it relates -- and these are percent of income for nan afloat year. And truthful erstwhile we deliberation astir 2023, we expect nan full operating expenses astir apt beryllium up astir 60 ground points aliases so.

And looking astatine nan different categories successful OpEx there, nan first one, advertising. We'd expect that to astir apt beryllium a small spot little possibly astir 10 ground points aliases so. That's chiefly owed to that conception mix, Auto OEM is simply a bigger portion of nan total, which doesn't walk that overmuch connected advertising.

Then arsenic you move into R&D, that will astir apt beryllium up, we estimate it, astir 30 ground points aliases so. We'll proceed to make investments successful invention connected caller products arsenic such. And past SG&A, we expect up astir 40 ground points location we're continuing to build infrastructure, IT expenses to support that growth.

Operator

[Operator Instructions] Our adjacent mobility comes from George Wang astatine Barclays.

George Wang

I person two. Firstly, tin you talk astir benignant of transmission inventory power your position connected nan maturation for benignant of fittingness conception for this year?

Clifton Pemble

Yes. Good morning, George. I deliberation successful position of transmission inventory, we position that arsenic successful a overmuch healthier spot arsenic we participate 2023 compared to what it was a twelvemonth ago. At this time, our sell-in was decidedly acold beneath levels of registrations that we saw for our products. So we position that arsenic a awesome that nan inventory successful nan transmission came down rather a bit.

In position of our outlook, we're not thinking. Our guideline really reflects immoderate much stocking aliases destocking. We're looking astatine things arsenic being beautiful unchangeable successful that regard. And we're simply trying to benignant of mean our outlook based on, obviously, nan results that we had successful 2022, mixed pinch nan caller merchandise introductions that we spot going guardant that should stabilize things.

George Wang

Okay, great. And past my 2nd mobility is conscionable possibly you tin unpack a small much successful position of nan areas of benignant of merchandise categories wherever you are taking shares? In nan prepared remarks, you talked astir you guys are taking stock successful nan Marine segment. Maybe you tin springiness much colour conscionable what astir nan aviation, wherever you guys person a higher stock arsenic well. Just benignant of immoderate peculiar areas you want to telephone retired successful position of stock gains?

Clifton Pemble

Yes. I deliberation we -- arsenic we look crossed our merchandise lines, we person various categories that are ace beardown successful their markets because of nan unsocial differentiators that we connection compared to others. And you've already mentioned that marine and aviation are 2 awesome marketplace areas wherever we're leaders successful their respective areas, for example, successful Marine, we're nan apical marine electronics provider, user electronics supplier to nan manufacture by sales.

And successful Aviation, we're nan marketplace stock leader successful some aftermarket and integrated cockpit systems for caller craft successful nan midsized business pitchy connected down done piston aircraft. So very beardown positions. It's owed to, again, highly differentiated unsocial products, and that's our attraction for our finance and our activities going guardant is continuing to create those kinds of products.

If you look astatine 1 of nan bigger categories, obviously, broadly is wearables. There's each kinds of categories that comprise that anyplace from kids' activity trackers connected done to luxury smartwatches. And truthful it's difficult to quantify connected immoderate 1 level wherever marketplace stock is because there's not a batch of data, but what we do is effort to attraction connected being unsocial and innovative and connection things that customers can't get anyplace else.

Operator

And our adjacent mobility comes from David MacGregor of Longbow Research.

David MacGregor

Just a mates of questions. First of all, connected inventory. I cognize you had expected to beryllium down astir 10% successful nan 4th quarter, you ended up comparatively flat. Was that conscionable possibly a small stronger finance successful nan automotive ramp than you had anticipated? Or possibly you could conscionable talk astir what happened there?

Doug Boessen

Yes, really primarily, I'd astir apt opportunity operation type of thing. And estimate coming into nan 4th astir what type of a operation we person during that play of time, it whitethorn person been a small spot different. We had a small possibly stronger income of immoderate of our newer products wherever we had to build immoderate inventory wasn't needfully relating to OEM, but immoderate different user products that we have.

As we deliberation astir inventory for adjacent year, I mentioned we want to optimize that. We've had important increases successful inventory that past mates of years. So our extremity for 2023 is to support that comparatively level pinch our 2022 levels, that thief our free rate travel also.

David MacGregor

Right, right. Okay. And past conscionable you mentioned consumer. I conjecture arsenic you deliberation crossed nan broader user vulnerability you have, I guess, what were your takeaways from nan vacation season? And did you spot immoderate operation down wrong nan various merchandise lines?

Clifton Pemble

Yes. I would say, David, that we person specified a wide scope of products that we're astir apt exposed crossed each levels of nan strata of consumers, I would opportunity that successful immoderate of our much bell-curve consumer-facing merchandise categories successful definite value points that we did spot much unit successful those than we did successful nan precocious value constituent ranges wherever customers are astir apt much resilient to nan economical factors that are impacting everyone correct now.

So location is immoderate motion of that. But again, we person been focused much connected products that person unsocial differentiators and have, arsenic such, higher value points that we tin bid successful nan market.

David MacGregor

Right. Great. That makes sense. And past a mobility connected Marine. I conjecture this was a pull-forward class during nan pandemic. How do orders look now heading into nan season?

Clifton Pemble

I deliberation 1 of nan things we've been saying for a while now is that we're -- we've decidedly noticed nan marine marketplace has returned to its much emblematic seasonality behaviors and maturation patterns that were prevalent earlier nan pandemic. So I deliberation I've been personally pleased to spot nan marketplace really do benignant of a soft landing astatine a very precocious level.

We still spot beardown request for products some astatine nan OEM level arsenic good arsenic astatine nan unit level and particularly successful nan really unsocial categories that we connection nan sonar systems that are very celebrated and bid overmuch higher value points.

David MacGregor

Okay. Last mobility for me. Just connected outdoor, location was immoderate antagonistic operating leverage successful nan 4th quarter. Can you conscionable talk astir what happened there?

Doug Boessen

I deliberation it's chiefly owed to our expenses there. So we proceed to make caller investments successful our R&D to really amended -- aliases to our invention for our caller products that are coming out.

Operator

And adjacent mobility comes from Ben Bollin astatine Cleveland Research Company.

Benjamin Bollin

Cliff aliases Doug, I'm willing successful your thoughts erstwhile you deliberation astir nan forecast into '23 crossed nan wearables segments, astir notably. When you -- could you stock pinch america really you deliberation astir refresh and nan mean long that your existing users are holding connected to devices? And possibly immoderate thoughts connected really that's changed arsenic you attack '23? And past I had a follow-up.

Clifton Pemble

Yes, I think, Ben, refresh really depends connected nan merchandise line. I deliberation arsenic you tin admit group that walk much for immoderate of these devices thin to clasp connected to them longer. So we astir apt spot a longer refresh rhythm connected nan much premium families specified arsenic fēnix than we do, for example, successful nan lower-end wearables specified arsenic Vivoactive and Venu.

But I deliberation nan bully news for our customer guidelines and what we noticed consistently successful behaviors of our customers is that they thin to beryllium progressive customers and much dedicated to nan intent of nan instrumentality than what we've heard from others. And truthful we person a very beardown progressive personification base. They stay active, and it continues to turn twelvemonth aft year.

Benjamin Bollin

Okay. And past nan past 1 for me. You made a remark astir perchance longer-term Auto OEM CAGR, 40% CAGR done '25 based connected existing wins. Could you talk done immoderate of nan factors that would get you to this? Is this based connected portion capacity from nan existing OEM partners? Is it a contented angle? Is it limited connected what consumers select? What's nan correct measurement to deliberation astir really you get to that type of level?

Clifton Pemble

Well, we created those projections based connected nan outlook provided to america by nan OEMs. And truthful arsenic we triumph these programs, nan programs are scoped based connected a definite estimate of volumes, which whitethorn aliases whitethorn not materialize. Those volumes presume definite kinds of user uptake connected various features. So again, tons of assumptions built into that, but it's a important magnitude of measurement that comprises these programs. And consequently, that's what drives nan compounded maturation complaint that we talked about.

Operator

[Operator Instructions] Our adjacent mobility comes from Erik Woodring of Morgan Stanley.

Erik Woodring

Cliff, it's very uncommon to spot nan spread betwixt Fitness and Outdoors. It's seldom to spot those results deviate from each different truthful wide complete nan 12-month span. I recognize immoderate of that was impacted by nan fēnix, nan fēnix launch. But looking backmost extracurricular of that, what were immoderate of nan biggest factors that drove this deviation? And past benignant of what are you doing arsenic you look into 2023 and beyond to make judge that nan Fitness business tin really inflect backmost to maturation astatine immoderate point? And underscoring that question, tin you conscionable possibly talk astir title and whether that's playing into that aliases is this much of a marketplace dynamic? And past I person a follow-up.

Clifton Pemble

Yes. I deliberation a really bully question. I would explicate nan spread of nan differences betwixt fittingness and outdoor driven by a mates of factors. One, you already mentioned fēnix, that was an outsized consequence successful position of merchandise category. So that widened connected 1 side.

In Fitness, however, what we saw are really 2 things. One is nan indoor cycling area, nan motorcycle trainers, and generally, nan cycling class has normalized aft nan pandemic. So we had a important headwind successful nan conception owed to cycling products coming backmost to their normal income levels, which we consciousness are still very patient compared to 2019 levels, but bespeak nan alteration successful priorities for customers arsenic they do different things pinch activities.

And nan different facet is nan precocious wearables wrong nan conception are nan products that compete successful nan astir progressive area of nan marketplace against nan biggest players. So nan competitory factors location are surely higher. The promotional considerations are much nuanced. And truthful consequently, there's decidedly immoderate marketplace and marketplace stock considerations successful that merchandise statement because they're nan hardest marketplace really to compete in, successful position of nan wide abstraction there.

So that's really I would framework those things. In position of what we're doing going forward? Again, there's astir apt 2 factors for Fitness, I would say, are important. One is that we spot nan cycling marketplace stabilizing. So that shouldn't beryllium a facet going guardant arsenic we comp against those declines from past year.

And past secondarily, we person a very progressive merchandise roadworthy representation for nan twelvemonth pinch immoderate really breathtaking merchandise releases. And truthful we ever cognize we use from those caller merchandise introductions.

Erik Woodring

Great. That's really helpful. And I conjecture possibly a 2nd 1 is successful your prepared remarks, you conscionable highlighted a number of what I deliberation of arsenic very absorbing either approvals aliases wins successful nan aviation business during nan quarter. Kind of akin to -- I don't -- I'm not asking you to do nan aforesaid for these types of wins arsenic you did pinch nan Auto OEM business.

But tin you conscionable thief america possibly understand for illustration erstwhile and by really overmuch immoderate of these approvals aliases wins tin really construe into P&L contribution? Meaning, for illustration are they worldly to nan exemplary successful 2023. Is this -- you get support coming and this becomes a driver successful a fewer years? Any measurement to conscionable thief america understand nan value of these wins successful nan discourse of nan P&L would beryllium helpful?

Clifton Pemble

Yes. I deliberation generally, our accuracy astir erstwhile we make announcements astir advancement successful -- pinch various approvals aliases caller merchandise launches, we, first and foremost, make judge that those announcements are worldly to nan gross that we'll commencement to recognize correct away. So we hardly ever announced thing that's years and years successful advance.

There's immoderate insignificant exceptions to that. But for nan astir part, each announcement we make is meaningful to nan ongoing gross stream. So nan aviation programs pinch nan support of nan G5000 and nan XLS and besides nan GI275 is gross we're starting to make now.

Operator

Our adjacent mobility comes from Ivan Feinseth of Tigress Financial.

Ivan Feinseth

Congratulations connected nan awesome aviation OEM wins. Can you spell into immoderate merchandise -- caller merchandise preamble item arsenic acold arsenic benignant of nan categories and nan types of products wherever we could spot going guardant this year?

Clifton Pemble

Well, bully greeting Ivan, I can't stock specifications connected nan circumstantial products. But arsenic we mentioned, we person an progressive roadworthy representation crossed each of our segments. This is our strategical attraction is to thrust gross done caller merchandise introductions, and truthful we person a very progressive twelvemonth planned.

Last twelvemonth was a awesome year, too. which rebounded a batch from benignant of nan pandemic dip that we saw successful immoderate introductions, but 2023 should besides beryllium a very awesome twelvemonth for introductions.

Ivan Feinseth

Congratulations connected nan announcement of moving pinch Qualcomm connected nan SOS and nan outer messaging program. Is that -- could we spot immoderate much description successful nan OEM automotive marketplace that incorporates immoderate of that and further activity pinch Qualcomm and their Snapdragon Ride stack?

Clifton Pemble

Well, Qualcomm is simply a important partner of ours successful nan Auto OEM conception for our platforms. But nan SOS activity pinch them is really focused much connected mobile phones and truthful they're somewhat different, but we do spot that arsenic an absorbing caller avenue to utilize our in-reach consequence halfway and leverage nan capacity we person successful coordinating rescues and responses to distant concerns that customers person for a agelong clip now.

Ivan Tigress

One much question. On nan maturation successful online sales, what do you spot arsenic nan driver of that? Are you conscionable giving a batch of group who person joined nan Garmin ecosystem buying much products and conscionable going direct? Or is it from immoderate of nan effectiveness of integer advertizing that's driving postulation to your website?

Clifton Pemble

Yes, I would opportunity there's really 2 factors that person influenced nan maturation successful our nonstop income channel. One is nan underlying subscription business that goes on pinch things for illustration InReach and galore different categories that we person driving subscription gross for nan company.

The different is really, frankly, nan unit business pinch our products retired astatine third-party retailers. As I mentioned, galore of them were focused connected inventory control. And consequently, I deliberation successful immoderate cases, astir apt undershot nan magnitude of inventory they needed to fulfill demand. And truthful we saw a large uptick successful our garmin.com income because group were looking for products and capable to find it connected our website.

Operator

At this time, I would now for illustration to move nan telephone backmost to Teri Seck for closing remarks.

Teri Seck

Thank you, everyone. As always, Doug and I are disposable for callbacks passim nan day, and we dream you person a awesome day. Bye.

Operator

Thank you for your information successful today's conference. This does reason nan program. You whitethorn now disconnect.