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iRobot(IRBT) - 2019 Q3 - Earnings Call Transcript
iRobotiRobot(US:IRBT)2019-10-23 17:06

Financial Data and Key Metrics Changes - Revenue for Q3 2019 was $289 million, representing a 9% increase year-over-year, driven by strong international growth and a large shipment to Amazon [7][24] - Gross margin for Q3 was 47%, down 400 basis points year-over-year due to pricing and promotional activities, as well as tariff impacts [25][26] - Operating income for Q3 was $43 million, with an operating margin of 15%, up from 14% in the same quarter last year [26] - EPS for Q3 was $1.24, compared to $1.12 in the same quarter last year [26] Business Line Data and Key Metrics Changes - International revenue grew by 25%, with EMEA increasing by 27% and Japan by 40%, while U.S. revenue declined by 7% [9][24] - The Braava category is expected to surpass $100 million in annual revenue with at least 20% year-over-year growth [12] - The launch of the Roomba s9/s9+ and Braava jet m6 in EMEA contributed to the company's differentiation in the premium segment [10] Market Data and Key Metrics Changes - U.S. category growth has been subdued, with a 7% decline attributed to rising tariffs on Chinese imports [9][16] - The Asia-Pacific region, particularly Japan, experienced low double-digit revenue growth, driven by strong sell-through activity [11] - The company anticipates high single-digit growth in the U.S. and internationally for Q4 2019 [28] Company Strategy and Development Direction - The company is focusing on maintaining prices at pre-tariff levels to drive U.S. segment growth and protect market share [33] - iRobot is investing in software to differentiate its products and enhance user experience, aiming to make robots integral to smart home ecosystems [15][33] - The company is diversifying manufacturing outside of China, with plans to produce entry-level products in Malaysia starting in 2020 [19][35] Management's Comments on Operating Environment and Future Outlook - Management noted that U.S. market conditions remain challenging due to tariffs, but international growth dynamics are robust [22][32] - The company expects to deliver revenue and operating income at the lower end of revised 2019 financial targets, with EPS near the midpoint [22] - Management expressed optimism about future growth, citing strong demand and effective marketing strategies [58] Other Important Information - iRobot is actively pursuing an exemption from List 3 tariffs and has submitted an application for review [18] - The company has taken legal action against competitors for patent infringement to protect its innovations [20][21] - iRobot's inventory levels are expected to decline significantly by year-end, following a build-up in anticipation of the holiday season [27] Q&A Session Summary Question: Thoughts on producing more products outside of China and impact of tariffs - Management has a multilayer plan to mitigate tariff impacts, including pursuing exemptions and diversifying manufacturing to Malaysia [40][41] Question: U.S. market growth and inventory comfort - U.S. segment growth is expected to be in the low teens for the second half of the year, with inventory levels anticipated to normalize by year-end [45][46] Question: Consumer expectations and competitive positioning - Management believes there is significant opportunity to improve robot functionality and enhance consumer experience through reliable technology [47] Question: Resistance to higher prices and market share gains - iRobot gained market share in North America despite higher prices due to continued innovation and marketing efforts [50][51] Question: International growth expectations and macroeconomic concerns - Management remains confident in international growth, with EMEA conditions solid despite Brexit-related anxieties [54] Question: Update on Amazon seasonality and litigation impact - The company expects a similar sales pattern to previous years, with 70% of business done in Q3 [68][70]