Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion set forth below, as well as other portions of this Quarterly Report on Form 10-Q, contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by management, as of the date of this Quarterly Report on Form 10-Q, including assumptions about risks and uncertainties faced by the Company. Readers can identify these forward-looking statements by their use of such words as "future", "expects", "anticipates", "believes", “estimates”, “would”, “could”, “can”, “may,” or other similar words or other comparable terms. If any of the Company’s assumptions prove incorrect or should unanticipated circumstances arise, actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors identified in Part II, Item 1A of this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 27, 2025. Readers are strongly encouraged to consider those factors when evaluating any forward-looking statement concerning the Company. These forward-looking statements are made as of the date hereof, and the Company disclaims any obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q to reflect future events or developments, except as required by law.

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 27, 2025. Unless the context otherwise requires, references in this document to "we", "us", "our", the "Company" and similar terms refer to Garmin Ltd. and its subsidiaries.

Unless otherwise indicated, amounts set forth in the discussion below are in thousands.

Company Overview

The Company is a leading worldwide provider of wireless devices, many of which feature location technology such as Global Positioning System (GPS), and applications that are designed for people who live an active lifestyle. Garmin is organized in the five operating segments of fitness, outdoor, aviation, marine, and auto OEM, which represent the primary markets served by the Company. Garmin designs, develops, manufactures, markets, and distributes a diverse family of GPS-enabled products and other navigation, communications, sensor-based and information products and services for these markets, as well as products installed by original equipment manufacturers (OEMs) and for aftermarket applications. Garmin products are sold through a variety of indirect distribution channels, including a large worldwide network of independent retailers, dealers, distributors, installation and repair shops, and OEMs. Garmin also sells its products and services directly through the Garmin online webshop (garmin.com), subscriptions for connected services, and Garmin retail stores.

Business Environment Update

Global economic and geopolitical conditions impact our operations and financial results, although we believe our vertically integrated and diversified business model enables us to be resilient and flexible in a dynamic business environment. Recent global supply constraints of memory chips have increased operational complexities and costs, which may unfavorably impact our future gross margin. Foreign currency fluctuations and rapidly changing global trade policies, particularly those affecting the United States (“U.S.”), increase the economic and operational uncertainties that could significantly impact our business and results of operations.

Refer to Part II, Item 1A, “Risk Factors” of this Quarterly Report for further discussion of the risks and uncertainties facing our Company.

Results of Operations

The following tables and discussion provide an analysis of our results of operations for the second quarter of 2026 compared to the second quarter of 2025 and the first half of 2026 compared to the first half of 2025.

Comparison of 13-Weeks Ended June 27, 2026 and June 28, 2025

Net Sales

Net Sales		13-Weeks Ended June 27, 2026				Year-over-Year Change				13-Weeks Ended June 28, 2025
Fitness		$	756,823				25	%		$	605,425
Percentage of Total Net Sales			37	%							33	%
Outdoor			482,740				(2	%)			490,357
Percentage of Total Net Sales			24	%							27	%
Aviation			268,749				8	%			249,366
Percentage of Total Net Sales			13	%							14	%
Marine			341,369				14	%			299,262
Percentage of Total Net Sales			17	%							17	%
Auto OEM			172,411				1	%			170,154
Percentage of Total Net Sales			9	%							9	%
Total		$	2,022,092				11	%		$	1,814,564

Net sales (or “revenue”) increased 11% for the 13-week period ended June 27, 2026 when compared to the year-ago quarter. Total unit sales in the second quarter of 2026 increased by approximately 9% to 5,686 when compared to total unit sales of 5,203 in the second quarter of 2025, which differs from the percent increase in revenue primarily due to shifts in segment and product mix. Fitness was the largest portion of our revenue mix in the second quarter of 2026 at 37% compared to 33% in the second quarter of 2025.

The increase in fitness revenue was driven by growth across all product categories, led by strong demand for advanced wearables. The increase in aviation revenue was driven by growth in OEM and aftermarket product categories. The increase in marine revenue was driven by growth across multiple product categories. The increase in auto OEM revenue was primarily driven by growth in domain controllers. The outdoor revenue decrease was primarily due to declines in consumer auto and adventure watches.

Gross Profit

Gross Profit		13-Weeks Ended June 27, 2026				Year-over-Year Change				13-Weeks Ended June 28, 2025
Fitness		$	480,723				32	%		$	364,670
Percentage of Segment Net Sales			64	%							60	%
Outdoor			332,319				2	%			324,429
Percentage of Segment Net Sales			69	%							66	%
Aviation			201,971				9	%			185,472
Percentage of Segment Net Sales			75	%							74	%
Marine			208,964				27	%			164,338
Percentage of Segment Net Sales			61	%							55	%
Auto OEM			38,045				35	%			28,103
Percentage of Segment Net Sales			22	%							17	%
Total		$	1,262,022				18	%		$	1,067,012
Percentage of Total Net Sales			62	%							59	%

Gross profit dollars in the second quarter of 2026 increased 18% when compared to the year-ago quarter primarily due to the increase in net sales as described above. Consolidated gross margin as a percent of net sales increased 360 basis points when compared to the year-ago quarter with higher margins across all segments. The consolidated gross margin increase was primarily attributable to favorable product mix within certain segments and a favorable 100 basis point impact related to approximately $21 million in refunds of previously paid tariffs, of which approximately $14 million was attributable to marine.

The fitness and outdoor gross margin percentage increases of 330 basis points and 270 basis points, respectively, were primarily attributable to favorable product mix when compared to the year-ago quarter. The aviation gross margin percentage remained relatively flat with an 80 basis point increase when compared to the year-ago quarter. The marine gross margin percentage increase of 630 basis points when compared to the year-ago quarter was primarily attributable to refunds of previously paid tariffs and favorable product mix. The auto OEM gross margin percentage increase of 560 basis points when compared to the year-ago quarter was primarily attributable to year-to-date cost recoveries recognized as revenue during the current quarter.

Operating Expense

Operating Expense		13-Weeks Ended June 27, 2026				Year-over-Year Change				13-Weeks Ended June 28, 2025
Research and development expense			303,940				10	%			276,663
Percentage of Total Net Sales			15	%							15	%
Selling, general and administrative expenses			342,574				8	%			318,054
Percentage of Total Net Sales			17	%							18	%
Total		$	646,514				9	%		$	594,717
Percentage of Total Net Sales			32	%							33	%

Total operating expense in the second quarter of 2026 increased 9% in absolute dollars and decreased 80 basis points as a percent of revenue when compared to the year-ago quarter. Operating expense, as a percent of segment net sales, decreased in the fitness, aviation, marine, and auto OEM segments by 70 basis points, 70 basis points, 190 basis points, and 170 basis points, respectively, when compared to the year-ago quarter primarily due to increased revenue and greater leverage of expenses. Operating expense, as a percent of segment net sales, increased in the outdoor segment by 100 basis points when compared to the year-ago quarter as decreased revenue and increased expenses were offset by improved gross margin percentage.

Research and development expense increased 10% in absolute dollars when compared to the year-ago quarter. The absolute dollar expense increase was primarily due to higher engineering personnel-related expenses.

Selling, general and administrative expenses increased 8% in absolute dollars when compared to the year-ago quarter. The absolute dollar expense increase was primarily due to higher personnel-related expenses.

Operating Income

Operating Income (Loss)		13-Weeks Ended June 27, 2026				Year-over-Year Change				13-Weeks Ended June 28, 2025
Fitness		$	277,039				40	%		$	197,630
Percentage of Segment Net Sales			37	%							33	%
Outdoor			163,583				4	%			157,881
Percentage of Segment Net Sales			34	%							32	%
Aviation			72,166				14	%			63,383
Percentage of Segment Net Sales			27	%							25	%
Marine			99,848				59	%			62,921
Percentage of Segment Net Sales			29	%							21	%
Auto OEM			2,872			NM					(9,520	)
Percentage of Segment Net Sales			2	%							(6	%)
Total		$	615,508				30	%		$	472,295
Percentage of Total Net Sales			30	%							26	%

NM - Represents that the percentage change is not meaningful.

Total operating income in the second quarter of 2026 increased 30% in absolute dollars and increased 440 basis points as a percent of revenue when compared to the year-ago quarter. The increase in operating income as a percent of revenue was driven by gross margin improvements and lower operating expenses as a percent of revenue, as described above. Operating performance improved across all segments when compared to the year-ago quarter.

Other Income (Expense)

Other Income (Expense)		13-Weeks Ended June 27, 2026				13-Weeks Ended June 28, 2025
Interest income		$	38,173			$	31,724
Foreign currency losses			(2,492	)			(23,512	)
Other (expense) income			(128	)			(256	)
Total		$	35,553			$	7,956

The average interest rate return on cash and investments during the second quarter of 2026 was 3.5%, compared to 3.2% during the same quarter of 2025.

Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Polish Zloty and Swiss Franc. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash, receivables and payables held in a currency other than the functional currency at a given legal entity.

The $2.5 million currency loss recognized in the second quarter of 2026 was primarily due to the U.S. Dollar strengthening against the Euro and weakening against the Taiwan Dollar, partially offset by the U.S. Dollar strengthening against the Swiss Franc, within the 13-week period ended June 27, 2026. During this period, the U.S. Dollar strengthened 1.1% against the Euro and weakened 0.6% against the Taiwan Dollar, resulting in losses of $3.8 million and $2.7 million, respectively, while the U.S. Dollar strengthened 1.8% against the Swiss Franc, resulting in a gain of $4.6 million. The remaining net currency loss of $0.6 million was related to the impacts of other currencies, each of which was individually immaterial.

The $23.5 million currency loss recognized in the second quarter of 2025 was primarily due to the U.S. Dollar weakening against the Taiwan Dollar, partially offset by the U.S Dollar weakening against the Euro and British Pound Sterling, within the 13-week period ended June 28, 2025. During this period, the U.S. Dollar weakened 14.1% against the Taiwan Dollar, resulting in a loss of $67.7 million, while the U.S Dollar weakened 8.2% against the Euro and 6.0% against the British Pound Sterling, resulting in gains of $36.5 million and $2.9 million, respectively. The remaining net currency gain of $4.8 million was related to the impacts of other currencies, each of which was individually immaterial.

Income Tax Provision

The Company recorded income tax expense of $109.1 million in the 13-week period ended June 27, 2026, compared to income tax expense of $79.4 million in the 13-week period ended June 28, 2025. The effective tax rate was 16.8% in the second quarter of 2026, compared to 16.5% in the second quarter of 2025. The increase in effective tax rate between comparative periods was primarily due to changes in income mix by jurisdiction.

Net Income

As a result of the above, net income for the 13-week period ended June 27, 2026 was $541.9 million compared to $400.8 million for the 13-week period ended June 28, 2025, an increase of $141.1 million.

Comparison of 26-Weeks Ended June 27, 2026 and June 28, 2025

Net Sales

Net Sales		26-Weeks Ended June 27, 2026				Year-over-Year Change				26-Weeks Ended June 28, 2025
Fitness		$	1,303,646				32	%		$	990,147
Percentage of Total Net Sales			35	%							30	%
Outdoor			900,270				(3	%)			928,853
Percentage of Total Net Sales			24	%							28	%
Aviation			532,590				13	%			472,481
Percentage of Total Net Sales			14	%							14	%
Marine			696,385				13	%			618,699
Percentage of Total Net Sales			18	%							18	%
Auto OEM			342,691				1	%			339,483
Percentage of Total Net Sales			9	%							10	%
Total		$	3,775,582				13	%		$	3,349,663

Net sales increased 13% for the 26-week period ended June 27, 2026 when compared to the year-ago period. Total unit sales in the first half of 2026 increased by approximately 9% to 10,451 when compared to total unit sales of 9,565 in the first half of 2025, which differs from the percent increase in revenue primarily due to shifts in segment and product mix. Fitness was the largest portion of our revenue mix in the first half of 2026 at 35% compared to 30% in the first half of 2025.

The increase in fitness revenue was driven by growth across all product categories, led by strong demand for advanced wearables. The increase in aviation revenue was driven by growth in OEM and aftermarket product categories. The increase in marine revenue was driven by growth across multiple product categories. The increase in auto OEM revenue was primarily driven by growth in domain controllers. The outdoor revenue decrease was primarily due to declines in adventure watches.

Gross Profit

Gross Profit		26-Weeks Ended June 27, 2026				Year-over-Year Change				26-Weeks Ended June 28, 2025
Fitness		$	819,246				40	%		$	584,813
Percentage of Segment Net Sales			63	%							59	%
Outdoor			610,261				1	%			606,964
Percentage of Segment Net Sales			68	%							65	%
Aviation			399,279				13	%			353,374
Percentage of Segment Net Sales			75	%							75	%
Marine			406,340				17	%			348,271
Percentage of Segment Net Sales			58	%							56	%
Auto OEM			69,184				19	%			58,135
Percentage of Segment Net Sales			20	%							17	%
Total		$	2,304,310				18	%		$	1,951,557
Percentage of Total Net Sales			61	%							58	%

Gross profit dollars in the first half of 2026 increased 18% when compared to the year-ago period primarily due to the increase in net sales as described above. Consolidated gross margin as a percent of net sales increased 280 basis points when compared to the year-ago period with higher margins across all segments. The consolidated gross margin increase was primarily attributable to favorable product mix within certain segments.

The fitness and outdoor gross margin percentage increases of 380 basis points and 240 basis points, respectively, were primarily attributable to favorable product mix when compared to the year-ago period. The aviation gross margin percentage remained relatively flat with a 20 basis point increase when compared to the year-ago period. The marine gross margin percentage increase of 210 basis points when compared to the year-ago period was primarily attributable to refunds of previously paid tariffs. The auto OEM gross margin percentage increase of 310 basis points when compared to the year-ago period was primarily attributable to year-to-date cost recoveries recognized as revenue during the current period.

Operating Expense

Operating Expense		26-Weeks Ended June 27, 2026				Year-over-Year Change				26-Weeks Ended June 28, 2025
Research and development expense		$	599,758				10	%		$	544,783
Percentage of Total Net Sales			16	%							16	%
Selling, general and administrative expenses			657,379				9	%			601,655
Percentage of Total Net Sales			17	%							18	%
Total		$	1,257,137				10	%		$	1,146,438
Percentage of Total Net Sales			33	%							34	%

Total operating expense in the first half of 2026 increased 10% in absolute dollars and decreased 90 basis points as a percent of revenue when compared to the year-ago period. Operating expense, as a percent of segment net sales, decreased in the fitness, aviation, marine, and auto OEM segments when compared to the year-ago period by 180 basis points, 300 basis points, 110 basis points, and 130 basis points, respectively, due to increased revenue and greater leverage of expenses. Operating expense, as a percent of segment net sales, increased in the outdoor segment by 190 basis points when compared to the year-ago period as decreased revenue and increased expenses were offset by improved gross margin percentage.

Research and development expense increased 10% in absolute dollars when compared to the year-ago period. The absolute dollar expense increase was primarily due to higher engineering personnel-related expenses.

Selling, general and administrative expense increased 9% in absolute dollars when compared to the year-ago period. The absolute dollar expense increase was primarily due to higher personnel-related expenses.

Operating Income

Operating Income (Loss)		26-Weeks Ended June 27, 2026				Year-over-Year Change				26-Weeks Ended June 28, 2025
Fitness		$	434,659				58	%		$	275,344
Percentage of Segment Net Sales			33	%							28	%
Outdoor			282,373				(1	%)			286,668
Percentage of Segment Net Sales			31	%							31	%
Aviation			143,100				28	%			111,739
Percentage of Segment Net Sales			27	%							24	%
Marine			190,606				27	%			149,785
Percentage of Segment Net Sales			27	%							24	%
Auto OEM			(3,565	)		NM					(18,417	)
Percentage of Segment Net Sales			(1	%)							(5	%)
Total		$	1,047,173				30	%		$	805,119
Percentage of Total Net Sales			28	%							24	%

NM - Represents that the percentage change is not meaningful.

Total operating income in the first half of 2026 increased 30% in absolute dollars and increased 370 basis points as a percent of revenue when compared to the year-ago period. The increase in operating income as a percent of revenue was driven by gross margin improvements and lower operating expenses as a percent of revenue, as described above. Operating performance improvements, when compared to the year-ago period, in fitness, aviation, marine, and auto OEM were partially offset by a decline in outdoor.

Other Income (Expense)

Other Income (Expense)		26-Weeks Ended June 27, 2026				26-Weeks Ended June 28, 2025
Interest income		$	74,147			$	62,231
Foreign currency gains			630				1,248
Other income			1,640				730
Total		$	76,417			$	64,209

The average interest returns on cash and investments during the 26-week periods ended June 27, 2026 and June 28, 2025 were 3.4% and 3.2%, respectively.

Foreign currency gains and losses for the Company are driven by movements of a number of currencies in relation to the U.S. Dollar. The Taiwan Dollar is the functional currency of Garmin Corporation, the Euro is the functional currency of several subsidiaries, and the U.S. Dollar is the functional currency of Garmin (Europe) Ltd., although some transactions and balances are denominated in British Pounds. Other notable currency exposures include the Polish Zloty and Swiss Franc. The majority of the Company’s consolidated foreign currency gain or loss is typically driven by the significant cash, receivables and payables held in a currency other than the functional currency at a given legal entity.

The $0.6 million currency gain recognized in the 26-week period ended June 27, 2026 was primarily due to the U.S. Dollar strengthening against the Taiwan Dollar and Swiss Franc, partially offset by the U.S. Dollar strengthening against the Euro, within the 26-week period ended June 27, 2026. During this period, the U.S. Dollar strengthened 1.5% against the Taiwan Dollar and 2.8% against the Swiss Franc, resulting in gains of $8.5 million and $8.1 million, respectively, while the U.S. Dollar strengthened 3.3% against the Euro, resulting in a loss of $14.6 million. The remaining net currency loss of $1.4 million was related to the impacts of other currencies, each of which was individually immaterial.

The $1.2 million currency gain recognized in the 26-week period ended June 28, 2025 was primarily due to the U.S. Dollar weakening against the Euro, British Pound Sterling, and Polish Zloty, offset by the U.S. Dollar weakening against the Taiwan Dollar, within the 26-week period ended June 28, 2025. During this period, the U.S. Dollar weakened 12.4% against the Euro, 9.0% against the British Pound Sterling, and 12.8% against the Polish Zloty, resulting in gains of $49.1 million, $4.4 million, and $3.6 million, respectively, while the U.S. Dollar weakened 12.8% against the Taiwan Dollar, resulting in a loss of $61.6 million. The remaining net currency gain of $5.7 million was related to the impacts of other currencies, each of which was individually immaterial.

Income Tax Provision

The Company recorded income tax expense of $176.6 million in the first half of 2026, compared to income tax expense of $135.7 million in the first half of 2025. The effective tax rate was 15.7% in the first half of 2026, compared to 15.6% in the first half of 2025. The increase in effective tax rate between comparative periods was primarily due to changes in income mix by jurisdiction.

Net Income

As a result of the above, net income for the 26-week period ended June 27, 2026 was $947.0 million compared to $733.6 million for the 26-week period ended June 28, 2025, an increase of $213.4 million.

Liquidity and Capital Resources

We primarily use, and expect to use, cash flow from operations to fund our capital expenditures, support our working capital requirements, pay dividends, fund share repurchases, and fund strategic acquisitions. We believe that our existing cash balances and cash flow from operations will be sufficient to meet our short- and long-term projected working capital needs, capital expenditures, and other cash requirements.

Cash, Cash Equivalents, and Marketable Securities

As of June 27, 2026, we had approximately $4.4 billion of cash, cash equivalents and marketable securities. Management invests idle or surplus cash in accordance with the Company's investment policy, which has been approved by the Company’s Board of Directors. The investment policy’s primary objectives are to preserve capital, maintain an acceptable degree of liquidity, and maximize yield within the constraint of low credit risk. Garmin’s average interest rate returns on cash and investments during the first two quarters of 2026 and 2025 were 3.4% and 3.2%, respectively. The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral, and in the credit performance of the underlying issuer, among other factors. See Note 4 – Marketable Securities in the Notes to Condensed Consolidated Financial Statements for additional information regarding marketable securities.

Cash Flows

Cash provided by operating activities totaled $939.5 million for the first half of 2026, compared to $594.0 million for the first half of 2025. The increase in cash received from customers, primarily driven by higher net sales, was partially offset by increases in cash paid for cost of goods sold and operating expenses in the first half of 2026 compared to the first half of 2025.

Cash used in investing activities totaled $396.7 million for the first half of 2026, compared to $246.1 million for the first half of 2025. This increase was primarily due to an increase in net purchases of marketable securities and an increase in purchases of property and equipment in the first half of 2026 compared to the first half of 2025.

Cash used in financing activities totaled $473.2 million for the first half of 2026, compared to $415.7 million for the first half of 2025. This increase was primarily due to higher cash dividend payments in the first half of 2026 compared to the first half of 2025.

Use of Cash

Operating Leases

The Company has lease arrangements for certain real estate properties, vehicles, and equipment. Leased properties are typically used for office space, distribution, data centers, and retail. As of June 27, 2026, the Company had fixed lease payment obligations of $258.8 million, with $48.9 million payable within 12 months.

Inventory Purchase Obligations

The Company obtains various raw materials and components for its products from a variety of third party suppliers. The Company’s inventory purchase obligations are primarily noncancelable commitments. As of June 27, 2026, the Company had inventory purchase obligations of $1,533.7 million, with $1,170.1 million payable within 12 months.

Other Purchase Obligations

The Company’s other purchase obligations primarily consist of noncancelable commitments for capital expenditures and other indirect purchases in connection with conducting our business. As of June 27, 2026, the Company had other purchase obligations of $540.4 million, with $277.9 million payable within 12 months.

Critical Accounting Policies and Estimates

General

Our discussion and analysis of financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The presentation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer sales programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a description of the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements, refer to Note 1 – Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements in Part II, Item 8 and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2025. There were no significant changes to the Company’s critical accounting policies and estimates in the 13-week and 26-week periods ended June 27, 2026.