iRobot Corporation (IRBT)
Q22012 Earnings Call
July 25, 2012 8:30 am ET
Colin Angle – Chairman and Chief Executive Officer
John Leahy - Chief Financial Officer
Elise Caffrey - Investor Relations
James Ricchiuti - Needham & Company
Josephine Millward - The Benchmark Company
Adam Fleck – Morningstar
Alex Hamilton – Early Bird
Paul Coster - JPMorgan
Brian Ruttenbur - CRC Capital
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Good day, everyone and welcome to the iRobot second 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.
Thank you, and good morning. Before I introduce the iRobot management team, I would 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 stock compensation. A reconciliation of GAAP and non-GAAP metrics can be found in the financial tables at the end of the second 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 second quarter of 2012, as well as our business outlook for rest of 2012 and John Leahy, Chief Financial Officer, will review our financial results for the second quarter and provide our financial expectations for the full year 2012 and the third quarter ending September 29, 2012. Then we’ll open the call for questions.
At this point, I’ll turn the call over to Colin Angle.
Good morning and thank you for joining us. I am pleased to report that the company’s second-quarter performance was very good given the challenging environment. Total Q2 revenue of $111 million was at the high end of our expectations for the quarter while Adjusted EBITDA of $16 million and EPS of $0.26 for the quarter, both far exceeded our expectations.
Our continuing investment to improve Home Robot product quality resulted in an adjustment to our product returns accrual which positively impacted revenue and profit by approximately $3 million. Yesterday we announced, with InTouch Health, the unveiling of the RP-VITA telemedicine robot. The robot combines InTouch Health’s state-of the-art telemedicine solutions with iRobot’s autonomous navigation capabilities, mobility, interactive communication and situational awareness from the Ava program. It’s the first commercial robot based on our Ava technology and our most significant technological system since SUGV.
Our Home Robot business unit had an outstanding quarter and the outlook for that business is excellent. Strong growth in both our international and U.S. markets fueled a 50% year-over-year increase in Home Robot revenue. We are successfully expanding our distribution of new products and increasing our market penetration. In both the third and fourth quarters, expanded product distribution and strong demand both domestically and overseas will drive year-over-year revenue growth of more than 20%.
U.S. government funding and program delays, however, continue to negatively impact our expectations for the Defense & Security business unit. We have received notification of contract delays for both FirstLook and the two BCTM combat brigades which we expected to drive second half revenue in that business unit.
Our steadily increasing Home Robot global reach is enabling us to substantially offset the impact of U.S. government spending issues on our Defense & Security business. Therefore, we are reaffirming our expectations for full year 2012 revenue, which we provided in February and affirmed in April and are increasing our expectations for full year 2012 EPS and Adjusted EBITDA.
We anticipate full year 2012 revenue of between $465 million and $485 million, EPS of between $0.90 and $1.00 and Adjusted EBITDA of between $59 million and $63 million. For the third quarter we anticipate revenue of $125 million to $130 million, EPS between $0.30 and $0.36 and Adjusted EBITDA of $17 million to $20 million.
Now, I would like to take you through some of the details of the second quarter and our expectations for the rest of 2012.
In Home Robots, expanded distribution of our Roomba 700 domestically and very strong demand overseas, particularly in Japan, continued to fuel revenue growth. Asia Pacific grew more than 85% in the second quarter and totaled approximately 30% of Home Robot revenue in Q2. Our business continues to thrive in Europe despite the negative news that has dominated the headlines. Total EMEA revenue grew 42% in Q2 over last year and Western Europe, which comprised approximately 30% of Home Robot revenue, grew 40%.
Overall international Home Robot revenue increased 56% year-over-year. We have partnered with distributors who understand their markets and our products well and we expect international Home Robot demand to contribute significantly to revenue for the remainder of 2012.