A transcript of the 2nd Quarter Conference Call has been posted at this link. (Thanks Micro)
My notes from the conference call:
Colin Angle:
Upgrade to $233-243M Revenue guidance, $3-5M full year profit.
New Roomba details to be announced in 3rd Quarter.
G&I 63 percent of revenue. 67 percent growth. 152 Packbots, new record. (249 6 months up 60 percent)
Y/Y Home Robot revenue up 3 percent, sell through flat, despite inventory transition to next generation Roombas. No details on new Roombas, but "this next generation Roomba is in production."
2 new products Sept. 27 Digital Life Conference in New York.
Not substantial 2007 revenue.
Scooba sales up due to infomercial, new Scooba 380 sparking growth.
Verro distribution expanded to HSN and Amazon ("very strong results" "exceeded pre-sale forecasts" "validates strategy")
Notes $17.5 million for 79 PackBots in two orders. New game-style hand controllers.
FIDO 101 unit order fulfilled. Chosen as one of greatest inventions of 2006, now have new 14 Fido order and "expect more to come."
Notes PackBot orders lumpy. Already captured 85 percent of expected G&I (military) revenue with contracts.
1,000th PackBot delivered.
Military mantra now is "do it remotely."
Multiple countries ordering. First international order to Australian Army via Boeing.
Excitement about SUGV growing. Boeing ordered 2 demo units. $4 million in funding for SUGV Early. Successfully completed major milestones on schedule, including prelim. design review.
External interest continues to grow in iRobot Warrior: detection, medical and state & local law enforcement interest.
"I remain committed to improved profitability."
Helen Greiner: Notes new Home Robot president Sandy.
Many opportunities to maintain homes.
Showers, countertops, etc.
New products for light commercial applications. Note some small businesses cleaning offices with Roombas. Can ruggedize. 1 to 2 year development effort would be needed. Not industrial cleaning. Light commercial.
Expanding military platform to police, engineers, chem-bio teams, first-responders, SWAT teams, HAZMat, etc.
New Product iRobot PackBot 510 with First Responder Kit. Less than $90K to fit local budgets. LA Sheriff's and St. Paul Police. Hostage barricades and bomb threats in subways dealt with.
Taser PackBot offers police chance to remotely engage and control dangerous suspects. Officer always in control of the firing mechanism. Leverage Taser contacts with 7500 police departments. SWAT, corrections, private security.
Will take a while to develop fragmented law enforcement market.
Modular PackBot useful in broad variety of apps.
CFO Geoff Clear: Revs up 36 percent to $47 M. Up 19 percent 1st Half.
32 vs 34 percent gross margins.
30.5 vs 32.9 last year first half. Less than guidance of 31 percent. Negatively impacted by Nickel prices. Largest cost in Roomba. Could be $5 million in reduced margin and earnings for the year, but have accounted for this impact.
To achieve 40-42 percent gross margin -- need better material management and increased customer satisfaction and reduced returns.
$4.8 m loss vs. $1.8 million last year.
10.3 m loss vs. 11-12 million guidance and 4.7 million last year
More than $1 million favorable profit versus guidance.
Home robots. 17.2 M vs. 16.7 million last year
107,000 to 99,000 units (drop) due to retailers preparing for new Roombas.
Direct sales now more than a third of home robot revenue!!!
88 percent increase in PackBot sales revenue in quarter.
$7 million of $17 million PackBot order was spare parts alone.
Operating expenses up 40 percent.
Internal R&D $4.2 million up from $3.8 million
Sales and marketing of $10.9 million on plan. Increase is result of two factors: Direct sales growth, and infomercial program costs.
Will increase especially in 4th Quarter. Expect full year sales and marketing to be 19 percent of revenue as expected.
"We affirm our commitment to improving profit margins."
$5.7 million loss vs. $2.7 million. $1.5 million stock compensation expense. Changed accounting for some options granted before IPO. $528,000 adjustment. $100K increase in stock compensation over next few quarters. Not cash.
Expect effective tax rate for the year of 30 percent.
No debt. Cash $70 million. Unchanged. 3-year unsecured $35M line of credit. 1-year $15 million Secured equipment lease line of credit.
37 days of inventory, down from 41. Inventory $22 million. 8 Turns.
Revenues likely to grow in second half 26-30 percent over 2006. 23-29 percent Revenue growth for full year.
Revenue back-end loaded to 4th Quarter. 35-36 percent margins. (again notes nickel)
$3-$5 million profit, $1 million higher than previously.
Q: Military? When phenomenal growth? '08? '09?
A: Helen: Largest military opportunity is FCS for infantry. Need of 3,600 units. Could be expected. Current forces need of 4,000-7,000 robots. Plus international. Colin Angle: SUGV Early mid-2008 on track. We should see that ramp from 08 to 09 and beyond.
Q: Warrior?
A: Helen: We expect the need to be 500-1,000 units over the next few years. Higher price tag. Colin: Sales next year growing in '09. A: Helen: R-Gator being evaluated. Continue to develop the technology and continue to see buyer interest.
Q: So mid-2008 for G&I growth?
A: Colin: Consistent with our understanding.
Q: ASPs up on G&I?
A: Geoff: Yes, Fido, up 30 percent. Sell for more than $160K per unit vs. $110-$120K for regular PackBot. Colin: Payload strategy, increased functionality and higher prices. That's a trend that's not an aberration. But SUGV Early and infantry robots at a lower price point. Offsetting factors at work. Geoff: 3 percent Higher Home Robot ASP impacted by new Scoobas and Verro pool robots.
Q: Could have had a blowout if it weren't for nickel, what about next 18 months?
A: Geoff: Nickel a major component of batteries. Started to increase a year ago. Did not anticipate would escalate as rapidly as it has. More than double. Colin: Use many different commodities. Will be trying to identify trends earlier. We wish it wouldn't have happened.
Q: Gus Richard, First Albany: International?
A: Geoff 20 percent international home robots, Highest ever. G&I 15 percent, highest ever. Colin: International sales force hitting their stride, Boeing aided in sales to Australia.
Q: Taser benefits?
A: Helen: Taser PackBots different from new PackBot 510 with First Responder Kit. Sold to 8500 police departments already.
Q: Material in 08?
A: Helen: Will take a while. It is a fragmented market. Over 450 local bomb squads. 2/3rds have robots, rest must have by 2009. 2,500 SWAT teams and less than 10 percent have robots. 400 Local Hazmat teams. There is a potential for a robot in the squad car of first responders. There is a significant longer term opportunity but I wouldn't see it as significant in 2008.
Q: Decline in OpEx in third quarter?
A: Yes as a percentage of sales. Up in dollars.
Q: Still targeting 19 percent marketing for year, what about 2 new consumer robots? Early 08 or some in Q4.
A: Colin: Largely in 2008. Announcing these products and being sold online. We have no plans to do a major national advertising program around these products. In 2008 you may see our national advertising programs incorporate these products to some degree.
Q: New Roomba ads?
A: Major focus of our national advertising. National TV, infomercials, coops and circulars. New generation Roomba will be the focus.
Q: Fido %?
A: Colin: Regular up, Fido down in 2nd Half: Helen: Lumpy.
Q: Product Life Revenue (PLR) with home robots? Verro?
A: Geoff: PLR higher as a percentage than it's been. About 15 percent up from 10 percent. Colin: Verro: Modest expectations, met and exceeded. Would like to do more of that in the future.
Q: Channel sales dropoff worry?
A: Colin: We are doing a major SKU transition. Still largely driven by Roomba. It's going to impact sell-through because you have to work down the inventory in the channel and orphan as few of the older SKUs as possible.
Q: Color on inventory in channel a year ago versus today.
A: Colin: No specific numbers. In middle of transition. Have not had to reduce pricing at this time. Effectively continuing to move product. Inventories are substantially down, and we are going to be shipping these new SKUs to retailers similar to Scooba launch.
Q: New storefronts?
A: Some, not major driver of growth.
Q: Q3 profitable standalone but not profitable enough to offset Q1?
A: Yep.
Q: Nickel increasing as much as they have? Lithium?
A: Colin: about a 30 percent premium for lithium. Nickel has come down. Lithium may be considered as a special premium high capacity accessory.
Q: Military growth capacity with Ohio supplier? Extra suppliers?
A: Colin: Our supplier has grown with us. Can meet both current and future and surge capacity. Continue to evaluate other options.
Q: Acquisitions? Profit plan?
A: Geoff: Difficult to predict. More than five years from IPO. Colin: Bit of an inflection point harvesting investments, increasing pretax income.
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