Reviewing iRobot's (NASDAQ:IRBT) second-quarter earnings news yesterday puts me in mind of the culminating moment in the movie The Shining. You know, the scene when Shelley Duvall discovers that Jack Nicholson has spent countless hours typing countless pages ... every line of which reads: "All work and no play makes Jack a dull boy."
Yeah, well: All sales growth and no cash makes iRobot an increasingly dull stock.
Headline news
At first glance, iRobot's news looks mighty good. As CEO Colin Angle put it: "First half results ... were substantially better than the guidance we provided for the period." Sales for the year to date now stand at $124.5 million (up 44% year over year), and the company has lost its owners "only" $0.35 per share (which sounds bad, but is better than the worst-case scenario previously outlined -- $0.45 per share).
Much of the credit for the less-bad-than-expected results goes to iRobot's home robots division, which brought in nearly twice the revenue in the first half of 2008 as it did in the first half of 2007 -- $71.8 million in all. What's more, it's no longer sufficient for me to ascribe this success to the phenomenon of Roombas "flying off the shelves at retail outlets such as Best Buy (NYSE:BBY), Target (NYSE:TGT), and Sears (NYSE:SHLD)." Turns out, domestic retailers aren't the whole story here anymore. As the company pointed out: "International home robot revenue ... comprised approximately 40 percent of total home robot revenue in [Q2]."
So what's wrong with that?
Nothing, so far as it goes. What's more, iRobot seems to be getting some real traction on its work on the military's SUGV program, in cooperation with SAIC (NYSE:SAI) and Boeing (NYSE:BA). What irks me is that even with sales going gangbusters, iRobot seems incapable of cashing in on its success -- and I'm not even talking about the reported GAAP loss here.
Three months ago, I chastised the firm for burning through $3.8 million in cash over the course of a pretty miserable quarter. Well, Q2 proved a much better quarter from a sales perspective... yet iRobot burned through more than $8 million this time around. Adding comparative insult to pocketbook injury, the company had actually managed to post positive free cash flow in last year's Q2 -- so we're headed in the wrong direction in more ways than one.
Sure, with $16 million in cash and short-term investments, and nearly $14 million more in longer-term investments, iRobot has breathing room before insolvency looms. But if management doesn't start generating free cash flow soon, I may well find myself locked alone in a small room, scrawling "REDRUM" on the walls.
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