Friday, April 30, 2010

iRobot Delivers Blockbuster First Quarter Earnings, Stock Soars

iRobot crushed first quarter estimates for revenue and profits with strength in every division and category and saw the best stock day in the company's history, rising a cool $5 a share. The press release is at this link.

The company also dramatically raised its full year guidance for both revenue and profit. It now expects $375-$385 million on the top line and 35 to 40 cents in earnings. For all the long-suffering longs, congratulations, you now own a real company generating real profits for the first time! (The value proposition has always been better than the bottom line earnings, of course, something longtime readers of this blog know well. But the company seems to have crossed that inflection point where earnings can slingshot higher because they are finally at scale.)

The company increased its cash and investment position a fabulous $31 million over the past year, including $11 million in free cash flow in the quarter. That's the kind of momentum that should scare the crap out of the 2 million shorts out there. Indeed, volume spiked to over a million shares -- likely shorts desperate to head for the exits.

I didn't sell. Now that the company has some momentum, there are lots of reasons why this time, it's different from past quarters when a halfway decent report led to a short-term bounce. For starters, this quarter was truly an unprecedented blowout for the company the likes of which we simply haven't seen before.

Every, and I mean EVERY, line in the financials is better than last year. Government revenue up 70 percent, backlog doubling. International home robots sales ON FIRE, more than doubling for the second straight year and now dwarfing domestic ($37M to $16M)! Average selling prices of BOTH government and home robots going UP.

The weakest item on the sheet was U.S. home robots, but even there, sales were up about $1 million from last year's depressed levels even without any new products. BTW, whatever they are doing overseas, maybe they should bring that marketing strategy back home!

Another question is what this does for my theory of the company being an excellent takeover target. I think that's still true, but the price just went up dramatically. An acquiring company now has more reasons to own IRBT but will no longer get it on the cheap.

The only thing that I'm still concerned about for the longer term is the development of new home robots. The company basically hasn't introduced much for the past three years. That may have been the wise strategy, but at some point, it would be nice to see what they've had cooking in their labs...

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3 comments:

Charles said...

Hi Thorn,
I agree with you - I didn't sell either. IRBT does appear to be at the inflection point that all of us who have been around for a long time (it has been since Sep 2006 for me) have waited for.

I personally think they are going light on the estimate based on their presentation & Q&A with analysts. There is S. America and also the domestic market will not stay depressed forever (I'm actually glad that they have some room to grow it).

With $90M (as much as when they went public) in cash, they have the ability to consider some M&A plus, they said that organic growth is first for them. Organic growth may not just be new products as they take some time to "kick in", I think they are talking about continual upgrades to Roombas as well as the software upgrades for the in-service military robots (they specifically mentioned the latter could happen in the 2nd half - the margins for software upgrades has to be much higher than all the hardware).

They definitely appear to be at the inflection. Let's see if they can hold it together and the stock price can keep up this time (it does have a very bad habit of dropping after a big increase like this). Either way, I've seen this go from $20 to $24 to $7 to $20 in a little over 3 years, I sure in the heck won't sell now!

By the way, thanks for all of your blogs on robotics - I truly have learned so much from you over the years.

Good luck to you and other longs - may our robotic ship come in!

Potts2233

an said...

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