IRBT

iRobot Corporation (IRBT)

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iRobot Corporation (IRBT)

Q3 2012 Earnings Call

October 24, 2012 8:30 am ET

Executives

Colin Angle – Chairman, Chief Executive Officer

John Leahy – Chief Financial Officer

Elise Caffrey – Investor Relations

Analysts

Jim Ricchiuti – Needham & Co.

Josephine Millward – Benchmark

Adam Fleck – Morningstar

Paul Coster – JP Morgan

Patrick Wu – (Unknown)

Brian Ruttenbur – CRT Capital

Presentation

Operator

Good day everyone and welcome to the iRobot Third Quarter 2012 financial results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Elise Caffrey of iRobot investor relations. Please go ahead.

Elise 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 EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, merger and acquisition expenses, restructuring expenses, net intellectual property litigation expenses, and non-cash compensation. A reconciliation of GAAP and non-GAAP metrics can be found in the financial tables at the end of the third quarter 2012 earnings press release issued last evening, which is available on our website.

On today’s call, iRobot Chairman and CEO Colin Angle will provide a review of the company’s operations and achievements for the third quarter of 2012, our business outlook for the rest of 2012, and the preliminary revenue expectations for 2013. John Leahy, Chief Financial Officer will review our financial results for the third quarter and provide our financial expectations for the full year 2012 and the fourth quarter ending December 29, 2012. Then we’ll open the call for questions.

At this point, I’ll turn the call over to Colin Angle.

Colin Angle

Good morning and thank you for joining us. Last night we reported total revenue of $126 million for the third quarter driven by impressive growth in our home robot business. Earnings per share of $0.54 and adjusted EBITDA of $29 million for the quarter both far exceeded our expectations. During the quarter, there were a number of adjustments, the positive net impact of which was $7.7 million in revenue, $0.10 in EPS, and $5.2 million in adjusted EBITDA. John will provide additional details.

Our home robot business unit had an outstanding quarter. Total home robot revenue increased 33% year-over-year fueled by strong growth in both international and domestic markets. Our defense and security business had its best performance of the year, delivering revenue of $30 million. U.S. government funding and program delays, however, continued to negatively impact our near-term expectations for this business unit. With home robots accounting for more than 80% of the company’s total revenue, iRobot’s financial performance will be driven by growth in the consumer business and less impacted by the ups and downs in the defense business.

During the third quarter, we made a number of moves which we expect will extend our market-leading position. We announced an acquisition in support of our home robots business unit, hired key senior leaders across the organization, and began to implement significant strategic initiatives in our D&S business. Each of these actions will have a financial impact on Q4 and full-year 2012 results, as well as on 2013 results. We have revised our full-year 2012 expectations to reflect these actions and now anticipate full-year 2012 revenue between 434 million and 438 million, EPS between $0.44 and $0.50, and adjusted EBITDA of 47 to $49 million.

For the fourth quarter, we anticipate revenue of 98 to $102 million, loss per share of between $0.39 and $0.33, and adjusted EBITDA loss of 4 to $2 million. Both Q4 and full-year expectations include the impact of Evolution Robotics, which we acquired on October 1, 2012.

Now I’d like to take you through some of the details of the third quarter and our expectations for the rest of 2012. Expanded retail distribution of Roomba 700 domestically fueled total home robot revenue growth of 33% in the quarter. In the third quarter, our domestic revenue was up 85% over 2011 and 39% if you exclude the positive impact of a returns adjustment. Total EMEA revenue growth was 33% in Q3 and comprised almost 50% of home robot revenue in the quarter. Overall, international home robot revenue increased 16% year-over-year.

In addition to successful expansion of the Roomba 700, we introduced our Roomba 600 robot into select worldwide markets. Revenue from the Roomba 600 and 700 comprise more than 60% of home robot revenue in the third quarter. Our home robot business will grow between 25 and 30% in 2012 and we expect continued growth in 2013.

On September 17, we announced the signing of a definitive agreement to acquire Evolution Robotics. ER’s Mint products will expand our automated floor care offerings while we expect its technology deployed in future iRobot products to deliver even greater customer value. I am pleased to report that we closed the transaction on October 1 and we are working to quickly integrate the business. Paolo Pirjanian, ER’s former CEO and iRobot’s new Chief Technology Officer is on board and assisting in the process. Our domestic sales team is in discussions with iRobot retailers regarding the addition of Mint products to their floor care lines. Our operations team is working with ER contract manufacturers and (inaudible) suppliers to explore savings opportunities resulting from our combined purchasing power. Expectations for the financial impact of the acquisition remain unchanged at this point for 2012 and 2013. Underlying those expectations are the assumption that full integration of the acquisition will be complete by the end of 2013 and we will achieve higher revenue growth and improved margins in 2014.

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