iRobot Corporation (IRBT)

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iRobot Corporation (IRBT)

Acquisition of Evolution Robotics Call

September 18, 2012 8:30 am ET


Elise Caffrey – Investor Relations

Colin M. Angle – Chairman and Chief Executive Officer

John J. Leahy – Executive Vice President, Chief Financial Officer, Principal Accounting Officer and Treasurer


Jim A. Ricchiuti – Needham & Co. LLC

Adam Fleck – Morningstar Research

Paul Coster – JPMorgan

Brian W. Ruttenbur – CRT Capital Group LLC

Scott H. Miller – Thompson, Siegel & Walmsley LLC



Good day everyone, and welcome to the iRobot Investor Conference Call. This call is being recorded. At this time for opening remarks and introduction’s, I'd like to turn the call over to Elise Caffrey of iRobot Investor Relations. Please go ahead.

Elise P. Caffrey

Thank you, and good morning. Before I introduce the iRobot management team, I’d like to note that statements made on today’s call that are not based on historical information are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information on these risks and uncertainties can be found in our public filings with the Securities and Exchange Commission. iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, or circumstances.

During this conference call, we will also disclose non-GAAP financial measures as defined by SEC Regulation G, including adjusted EPS impact, which we define as earnings per share impact excluding amortization, merger and acquisition expenses, ASC805 inventory markup and stock compensation.

I’ll now turn the call over to Colin Angle, iRobot Chairman and CEO for a brief discussion of iRobot’s acquisition of Evolution Robotics. Then we’ll open the call for questions with Colin and John Leahy, Chief Financial Officer.

Colin M. Angle

Good morning and thank you for joining us. As you know, last night we announced that we had signed a definitive agreement to acquire Evolution Robotics, Inc., developer of Mint and Mint Plus automatic floor cleaning robot. Evolution Robotics operates in a business which we understand very well. Its products, customers and channels are adjacent and complementary to our floor care business. And we look at the potential for the combined entity with our resources and brand. Mint and Mint Plus offer different approaches to cleaning hard floor surfaces at lower market entry price points than iRobot’s products. There's a tremendous opportunity for us to take Evolution's products into overseas markets, first to Europe and then Japan.

This acquisition expands iRobot's technology leadership through a combination of intellectual property, engineering talent, and new products that will broaden iRobot's global portfolio of practical robot solutions. Specifically, Evolution brings visual navigation and simultaneous localization and mapping technology that can be deployed in future iRobot products to deliver greater customer value.

With iRobot developed technology plus that acquired through Evolution and license from InTouch Health, we've built a formidable robotic IP portfolio that further widens our competitive mount. With this transaction we're gaining a world class Chief Technology Officer; Paolo Pirjanian, Evolution Robotics, CEO, who will join iRobot as CTO. This team of robotic engineers will augment our existing engineering talent. And by maintaining capacity in the California office, we expand our West Coast presence, which will also give us access to new perspective employees.

From a financial perspective, we're paying $74 million in cash, by take two adjustments. We're also acquiring approximately $6 million of net operating losses, which will reduce the net cash outlay to $68 million or about three times 2013 revenue. We will integrate Evolution Robotics over the next 12 months and expect the transaction to be accretive on a non-GAAP basis in Q4 of 2013, while fully realizing the benefits in 2014.

In summary, I’m very excited about the opportunities for expanding our global robotics floor care footprint and incorporating the technology that this acquisition provides us.

With that, we’ll take your questions.

Question-and-Answer Session


Thank you. We’ll now begin the question-and-answer session. (Operator Instructions) And our first question comes from Jim Ricchiuti from Needham & Company. Please go ahead.

Jim A. Ricchiuti – Needham & Co. LLC

Hey, good morning. Just some questions on the revenues for ER, from published reports it appeared that they had – been doing about $20 million of revenue in 2011. Is that in the ballpark and does that imply some slowing in their growth rate, they had been growing pretty rapidly, so I wonder if you can comment first on that?

Colin M. Angle

So that we believe that Evolution will do 2012 revenue in the ballpark of 2011 revenue based on a maturation of their retail strategy and we see significant growth opportunities in North America and internationally on a go forward basis, based on the synergies and putting the iRobot’s resources behind their product line. Their same store sales are up significantly 2011 to 2012. So that there is very good evidence of growth in the North American marketplace in their key accounts.

Jim A. Ricchiuti – Needham & Co. LLC

Got it. And within the U.S. retail channel where there is the overlap I guess about roughly 65% overlap, I guess overlap. Colin can you comment about that other 35%, is that a meaningful part of their revenues? And by the day, is the revenue all coming from the consumer business for them?

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