Q2 Earnings: 3 Answers From iRobot

Last week, I posed three questions for iRobot (NASDAQ: IRBT  ) going into its second-quarter earnings report.

But even though the company answered each of my inquiries with its report yesterday after the market close, the stock traded down more than 13% today.

So what happened? Here's what iRobot had to say.

On meeting revenue and earnings expectations
First, I wondered whether iRobot could remain on track to meet its full-year 2013 revenue and earnings guidance, both of which the company raised last quarter, as it called for sales of between $485 million and $495 million, and earnings per share between $0.80 and $1.00.

After all, I noted, shares of iRobot jumped 10% in March, after the company raised its first-quarter guidance on both fronts, and then rose another 15% in a single day in April, when iRobot exceeded even those impressive numbers.

Sure enough, iRobot's revenue and earnings during the second quarter came in at $130.4 million and $0.28 per share, respectively, beating analysts' consensus estimates of earnings of $0.19 per share on $128.9 million in sales.

In addition, thanks largely to a one-time $0.07 tax benefit related to the prior period sale of government robots to the U.S. military, iRobot raised the lower end of its earnings per share guidance to $0.88, while at the same time maintaining the rest of its guidance numbers.

So why the drop?

For one, given iRobot's past streak of outperformance -- this marks the fifth time in as many quarters iRobot has exceeded expectations -- you can bet Mr. Market was hoping for an even bigger beat, with the stock trading before at around 44 times last year's earnings and 37 times next years' estimates. What's more, time will tell whether iRobot is simply being cautious, but shareholders can't help wondering why the company chose to raise only the bottom end of its EPS guidance.

After today's drop, though, it's worth noting that iRobot's valuation has come down to around 38 times last year's earnings and 32 times next year's estimates.

On Home Robot growth
Next, I wanted to know whether the world still loves iRobot's consumer offerings. 

Remember, earlier this year the company said it expected Home Robot segment sales to grow by around 20% by the end of 2013, ultimately accounting for around 90% of all sales.

As it turns out, thanks to 26% growth here in the U.S. and an 18% increase in consumer sales abroad, Q2 Home Robot revenue grew exactly 20% from the same year-ago period. Even so, while that's in line with iRobot's stated goals, the first quarter's 44% year-over-year rise in domestic consumer bot sales was certainly a tough act to follow.

Even so, iRobot CEO Colin Angle provided a nice little nugget for investors on the company's earnings conference call, saying:

We continue to expect overall home robot revenue to grow 20% to 25% from last year, but based on the strength of the domestic home robot market year-to-date and our outlook for the remainder of the year, we now expect that part of the business to grow 25% to 30%, and the international business to grow 15% to 20% for the full year.

On that "other" category
Last but not least, I was hoping for more clarity on some of iRobot's emerging segments, most notably including its newest telepresence robots such as the health care-centric RP-VITA and the enterprise-focused Ava 500, which is being created under a joint partnership with the help of tech giant Cisco (NASDAQ: CSCO  ) and its existing telepresence solutions.

While iRobot's earnings press release didn't provide anything new, Angle did provide some color on the platforms during its follow-up earnings conference call.

Specifically, Angle noted they have shipped more than 40 RP-VITA units to InTouch so far, half of which are already installed and in use. For those of you keeping track, that represents healthy progress from the roughly one dozen RP-VITA bots that were in already in use in hospitals by the end of last quarter.

Angle also reminded us that the Ava 500, for its part, still remains in the very early stages and was demonstrated at last month's InfoComm Conference as well as Cisco Live just a few weeks ago. Of course, while this particular partnership may not mean much in the near term for the $136 billion Cisco, iRobot management was also excited that the Cisco Live conference exposed the Ava 500 platform not only to thousands of Cisco's customers, but also the company's vast value-added reseller network.

As a result, and thanks to a positive reception at both events, Cisco and iRobot will be starting a beta program for the Ava 500 by the end of this year, targeting "limited availability through Cicso partners in 2014."

Foolish takeaway
In the end, this was still a solid quarter for iRobot, and nothing has changed the company's significant long-term growth story. As a result, and as I stated just last week, I have no plans to sell my shares of iRobot anytime in the near future. 

Remember, iRobot is still up more than 70% over the past year, so I don't think long-term shareholders should be particularly concerned about today's temporary plunge.

That said, we should also remember iRobot represents just one of many incredible growth stocks our market has to offer.

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  • Report this Comment On July 24, 2013, at 5:31 PM, jimmymason wrote:

    That was a good article Steve ! I listened to the conference call twice today trying to figure out why the stock came down so much today. I couldn't find a good reason so I bought some more shares here. I for one still don't think I-Robot is particularly overvalued and might be considered dirt cheap in relation to it's long term prospects.

    My only concern is how much the company is reliant on the subtle genius of Colin Angle ? It scares me to think what would happen if he were gone. I know that would be a black swan event but it is something we need to think about it.

    Other than that, if I had to pick one stock and hold forever it would be I-Robot.

  • Report this Comment On July 27, 2013, at 4:59 PM, Culvero wrote:

    IRBT is my next AAPL-Original basis @ $8.37 (and still playing long on AAPL) iAAPL has funded a lot of family living over the years. Original basis in IRBT $12.47....still playing-->AAPL dividends into IRBT when AAPL is expensive.

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