iRobot Corporation Hones Its Focus After a Strong Quarter

iRobot Corporation (IRBT -1.54%) announced its best ever fourth-quarter results Wednesday after the market close, but investors were none too pleased with the home-robotics specialist. After falling around 3% in Wednesday's regular session, shares of iRobot fell more than 12% early Thursday as investors mulled its seemingly worrisome forward guidance.

But before we go there, let's take a closer look at what iRobot accomplished.

iRobot results: The raw numbers

Data source: iRobot Corporation. 

What happened with iRobot this quarter?

• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) climbed 77.7% to $35 million.
• These results exceeded iRobot's Q4 guidance, which called for revenue of $200 million to $205 million, earnings per share of $0.53 to $0.58, and adjusted EBITDA of $32 million to $34 million.
• Earnings per share this quarter included a $0.05-per-share benefit from the enactment of the 2015 R&D credit in December. To be fair, this didn't skew comparable results much; last year's fourth quarter also included a $0.04 per share benefit after the R&D credit was enacted in December 2014.
• Overall home robot segment revenue grew 30.6% year over year to $175.2 million, including:
• 46% year-over-year growth in domestic home robot sales to $84.3 million, driven by investments in ad media, national promotions, and the September 2015 launch of iRobot's new Roomba 980 robotic vacuum.
• 19% growth in international home robot sales to $90.9 million, driven by 70% year-over-year growth in China thanks to successful execution of iRobot's e-commerce strategy in the country.
• Signed a definitive agreement subsequent to the quarter's end on Feb. 2, 2016, to sell the defense & security business to Arlington Capital Partners for a total consideration up to $45 million, including contingent payments based on achieving certain undisclosed milestones.
• The deal was the result of iRobot's decision to engage Blackstone Advisory Partners in early 2014 to review strategic alternatives for the D&S business.
• According to iRobot CEO Colin Angle, this will "maximize shareholder value by allowing us to focus on our much larger home segment."
• Announced $65 million addition to the 2016 share repurchase program, bringing iRobot's total 2016 authorization to over $100 million.

What management had to say 
As iRobot Co-founder and CEO Colin Angle elaborated:

Our Roomba marketing programs were highly successful in the United States, where Q4 sell through at our top 5 retailers was up more than 70% year on year, resulting in a significant return on our investment. We are highly confident that we have the right marketing mix to export overseas to accelerate growth in those markets, and we expect revenue in all three geographic regions to grow in the low to mid-teens in 2016.

Angle also added perspective on iRobot's investments aimed at longer-term growth:

Looking over a three-year horizon, it is critical that we make strategic investments today to drive diversification of Home revenue for the future. This will include product diversification through more significant contributions from wet floor care as well as future revenue opportunities from connected, mapping products. This will also include more significant regional diversification as China continues to ramp and Japan returns to growth. The capital allocation and investment decisions we are making today will pave the road for higher revenue acceleration in 2017 and 2018.

Looking forward 
For the current quarter, iRobot anticipates revenue of $125 million to $135 million -- or year-over-year growth of roughly 6% to 14.4% -- which should translate to adjusted EBITDA of $8 million to $11 million, and a bottom line ranging from a loss of $0.03 per share to net income of $0.04 per share.

Analysts, on average, were anticipating higher first-quarter 2016 revenue of $137.9 milion and earnings of $0.25 per share. But keep in mind iRobot's bottom-line guidance range, in particular, also includes $0.05 per share in one-time divestiture costs, and a per-share loss of $0.05 to $0.07 from the one-quarter "stub period" for the soon-to-be-divested D&S business.

Finally, for 2015, iRobot expects revenue of $630 million to $640 million, EPS of $1.20 to $1.40, and adjusted EBITDA of $80 million to $90 million. This includes $625 million to $635 million from the home robot business (or modest growth of 11.7% to 13.5% over home robot revenue in 2015), and $2 million to $7 million from other sources including D&S and its younger remote presence segment.

Of course, this could also be iRobot following its usual stance of under-promising with the intention of over-delivering. And iRobot does offer the guidance with the caveat that the year will be spent working to invest in its home robot business to accelerate growth going forward. For now, however, it's no surprise investors are taking a step back given iRobot's modest 2016 growth expectations after such a strong fourth quarter.