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iRobot Reports Third-Quarter 2012 Financial Results
Restructures to invest in high growth business

BEDFORD, Mass., Oct 23, 2012 (BUSINESS WIRE) --iRobot Corp. (NASDAQ: IRBT), a leader in delivering robotic technology-based solutions, today announced its financial results for the third quarter ended September 29, 2012.

  • Revenue for the third quarter of 2012 was $126.3 million, compared with $120.4 million for the same quarter one year ago. Revenue for the first nine months of 2012 was $335.6 million compared with $334.7 million last year.
  • Net income in the third quarter of 2012 was $15.2 million, compared with $14.1 million in the third quarter of 2011. For the first nine months, net income was $23.2 million, compared with $29.6 million a year ago. Net income included a one-time tax benefit of $3.5 million in the third-quarter and nine-month periods in 2011.
  • Quarterly earnings per share were $0.54, compared with $0.50 in the third quarter last year. Nine-month earnings per share were $0.82 in 2012, compared with $1.06 in 2011. EPS included a one-time tax benefit of $0.12 in the third-quarter and nine-month periods in 2011.
  • Adjusted EBITDA for the third quarter of 2012 was $29.2 million, compared with $20.2 million in the third quarter of 2011. For the first nine months of 2012 Adjusted EBITDA was $51.5 million, compared with $51.7 million for the same period a year ago.
  • During the third quarter of 2012, there were a number of items recorded, one of which resulted in a $7.7 million revenue increase. The positive net impact of these items was $0.10 in earnings per share and $5.2 million in Adjusted EBITDA.

“During the third-quarter we made several strategic decisions to strengthen the company. We announced our acquisition of Evolution Robotics (ER), hired key senior leaders and began to implement significant actions in our D&S business. Our Home Robot unit has had an outstanding year and we expect continued growth in that business. The 2012 outlook for D&S has deteriorated and we expect further declines in 2013. To right-size the business we have restructured D&S and taken costs out. These moves will result in a fourth quarter 2012 restructuring charge of $4-5 million,” said Colin Angle, chairman and chief executive officer of iRobot. “We are taking these actions in order to invest in our high growth Home Robot business as well as our emerging high potential remote presence business, while meeting our commitment to profitable growth,” he added.

Business Highlights

  • Home Robot revenue increased 33 percent in the third quarter 2012 fueled by strong growth in both U.S. and international markets.
  • Our Home Robot product return experience has improved as the result of our sustained investment in product quality. In the third quarter we adjusted our accrual rates for Home Robot product returns, resulting in a benefit to revenue and earnings.
  • We hired three seasoned executives, Frank Wilson, Senior Vice President & General Manager of D&S, Youssef Saleh, Vice President of Remote Presence, and Paolo Pirjanian, formerly CEO of Evolution Robotics, as CTO.
  • In Q4 2012, the total negative impact on earnings per share of acquiring Evolution Robotics and restructuring D&S is expected to be between ($0.28) – ($0.32). The negative impact on Adjusted EBITDA is expected to be ($5) – ($6) million. These are reflected in our Q4 and full year 2012 expectations.

Financial Expectations

Management provides the following expectations with respect to the fourth quarter and full year ending December 29, 2012.

Q4 2012*:

Revenue $98 - $102 million
Loss Per Share ($0.39) – ($0.33)
Adjusted EBITDA loss ($4) – ($2) million

Fiscal Year 2012:

Current*

Prior

Revenue $434 - $438 million $465 - $485 million
Earnings Per Share $0.44 - $0.50 $0.90 - $1.00
Adjusted EBITDA $47 - $49 million $59 - $63 million

Full-Year 2012 BU Revenue:

Current

Prior

Home Robots $355 - $360 million* $365 - $375 million
Defense & Security Robots $75 - $80 million $100 - $110 million

Preliminary 2013 Revenue Expectations

Home Robots $425 - $435 million*
Defense & Security Robots $45 - $55 million
*Including Evolution Robotics

Fourth-Quarter Conference Call

iRobot will host a conference call tomorrow at 8:30 a.m. ET to discuss its results for the third fiscal quarter 2012, business outlook, and outlook for 2012 financial performance. Pertinent details include:

Date: Wednesday, October 24, 2012
Time: 8:30 a.m. ET
Call-In Number: 847-413-3362
Passcode: 33524566

A live, audio broadcast of the conference call will also be available at http://investor.irobot.com/phoenix.zhtml?c=193096&p=irol-eventDetails&EventId=4249338. An archived version of the broadcast will be available on the same website shortly after the conclusion of the live event. A replay of the telephone conference call will be available through October 31, and can be accessed by dialing 630-652-3042, passcode 33524566#.

About iRobot Corp.

iRobot designs and builds robots that make a difference. The company’s home robots help people find smarter ways to clean, and its defense & security robots protect those in harm’s way. iRobot’s consumer and military robots feature iRobot Aware® robot intelligence systems, proprietary technology incorporating advanced concepts in navigation, mobility, manipulation and artificial intelligence. For more information about iRobot, please visit www.irobot.com.

For iRobot Investors

Certain statements made in this press release that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This press release contains express or implied forward-looking statements relating to, among other things, iRobot Corp.’s expectations regarding future financial performance and growth, demand for our robots, operating performance, restructuring charges to be incurred during the fourth quarter ending December 29, 2012, the impact on earnings per share and Adjusted EBITDA for the fourth quarter ending December 29, 2012 of the acquisition of Evolution Robotics, Inc., and Defense & Security restructuring, anticipated mix of revenue for the fourth quarter ending December 29, 2012 and fiscal year 2013, anticipated revenue, earnings per share and Adjusted EBITDA for fiscal year 2012 and the fourth quarter ending December 29, 2012, anticipated business unit revenue for the fiscal year 2012 and fiscal year 2013. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. In particular, the risks and uncertainties include, among other things: our ability to operate in an emerging market, the financial strength of our customers and retailers, general economic conditions, our dependence on the U.S. federal government and government contracts, the timing of government contracts and orders, market acceptance of our products, changes in government policies or spending priorities, and competition. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. iRobot Corp. undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances or otherwise. For additional disclosure regarding these and other risks faced by iRobot Corp., see the disclosure contained in our public filings with the Securities and Exchange Commission.

This press release includes Adjusted EBITDA, Adjusted net income and Adjusted net income per share, each of which is a non-GAAP financial measure as defined by SEC Regulation G. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, merger and acquisition expenses, net intellectual property litigation expenses, restructuring expenses, and non-cash stock compensation. We define Adjusted net income and Adjusted net income per share as net income and net income per share, respectively, excluding the impact of a one-time tax benefit. Reconciliations between net income and Adjusted EBITDA, net income and Adjusted net income, and net income per share and Adjusted net income per share are provided in the financial tables at the end of this press release.

iRobot Corporation
Consolidated Statement of Income
(in thousands, except per share amounts)
(unaudited)
For the three months ended For the nine months ended
September 29, October 1, September 29, October 1,
2012 2011 2012 2011
Revenue
Product revenue $ 121,174 $ 109,993 $ 320,676 $ 304,100
Contract revenue 5,124 10,380 14,874 30,632
Total 126,298 120,373 335,550 334,732
Cost of Revenue
Product revenue 67,008 63,670 184,078 177,695
Contract revenue 4,388 6,660 13,110 21,004
Total 71,396 70,330 197,188 198,699
Gross Margin 54,902 50,043 138,362 136,033
Operating Expense
Research & development 8,406 8,948 26,797 25,823
Selling & marketing 12,436 14,553 45,128 40,301
General & administrative 11,326 10,962 32,390 31,659
Total 32,168 34,463 104,315 97,783
Operating income 22,734 15,580 34,047 38,250
Other income (expense), net 197 (92 ) 477 258
Pre-tax income 22,931 15,488 34,524 38,508
Income tax expense 7,724 1,436 11,289 8,955
Net income $ 15,207 $ 14,052 $ 23,235 $ 29,553
Net income per common share:
Basic $ 0.55 $ 0.52 $ 0.84 $ 1.11
Diluted $ 0.54 $ 0.50 $ 0.82 $ 1.06
Shares used in per common share calculations:
Basic 27,650 26,902 27,520 26,568
Diluted

28,321

27,940 28,323 27,823
Stock-based compensation included in above figures:
Cost of product revenue $ 306 $ 344 $ 892 $ 915
Cost of contract revenue 129 115 320 365
Research & development 219 162 773 481
Selling & marketing 158 174 574 513
General & administrative 1,796 1,401 5,464 4,112
Total $ 2,608 $ 2,196 $ 8,023 $ 6,386
iRobot Corporation
Condensed Consolidated Balance Sheet
(unaudited, in thousands)
September 29, December 31,
2012 2011
Assets
Cash and equivalents $ 169,658 $ 166,308
Short term investments 20,061 17,811
Accounts receivable, net 53,379 43,338
Unbilled revenues 1,693 2,362
Inventory 32,592 31,089
Deferred tax assets 14,882 15,344
Other current assets 4,608 7,928
Total current assets 296,873 284,180
Property, plant and equipment, net 24,838 29,029
Deferred tax assets 10,424 6,127
Other assets 18,599 12,877
Total assets $ 350,734 $ 332,213
Liabilities and stockholders' equity
Accounts payable $ 38,317 $ 48,406
Accrued expenses 18,713 17,188
Accrued compensation 9,037 17,879
Deferred revenue and customer advances 2,118 1,527
Total current liabilities 68,185 85,000
Long term liabilities 3,940 4,255
Stockholders' equity 278,609 242,958
Total liabilities and stockholders' equity $ 350,734 $ 332,213
iRobot Corporation
Consolidated Statement of Cash Flows
(unaudited, in thousands)
For the three months ended For the nine months ended
September 29, October 1, September 29, October 1,
2012 2011 2012 2011
Cash flows from operating activities:
Net income $ 15,207 $ 14,052 $ 23,235 $ 29,553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,868 2,597 8,181 7,237
Loss on disposal of property and equipment 612 3 778 476
Stock-based compensation 2,608 2,196 8,023 6,386
Deferred income taxes, net 1,375 1,961 (2,855 ) 6,449
Tax benefit of excess stock based compensation deductions (426 ) (347 ) (1,461 ) (6,002 )
Non-cash director deferred compensation 22 44 64 126
Changes in operating assets and liabilities — (use) source
Accounts receivable (13,852 ) (6,871 ) (10,041 ) (7,344 )
Unbilled revenue 380 135 669 (3,887 )
Inventory 2,005 2,213 (1,503 ) (4,829 )
Other assets 3,644 (1,763 ) 3,266 (6,572 )
Accounts payable (6,895 ) 7,249 (10,089 ) 1,833
Accrued expenses 4,848 1,359 1,596 (530 )
Accrued compensation (701 ) 1,951 (8,842 ) (2,782 )
Deferred revenue 236 318 591 (1,176 )
Change in long term liabilities (129 ) (123 ) (315 ) 143
Net cash provided by operating activities 11,802 24,974 11,297 19,081
Cash flows from investing activities:
Purchase of property and equipment (1,111 ) (3,149 ) (4,067 ) (10,357 )
Change in other assets - - (6,000 ) -
Purchases of investments - - (5,086 ) (5,000 )
Sales of investments - - 2,500 5,000
Net cash used in investing activities (1,111 ) (3,149 ) (12,653 ) (10,357 )
Cash flows from financing activities:
Proceeds from stock option exercises 2,000 801 4,022 9,398
Income tax withholding payment associated with restricted stock vesting (2 ) (36 ) (777 ) (845 )
Tax benefit of excess stock based compensation deductions 426 347 1,461 6,002
Net cash provided by financing activities 2,424 1,112 4,706 14,555
Net increase in cash and cash equivalents 13,115 22,937 3,350 23,279
Cash and cash equivalents, at beginning of period 156,543 108,725 166,308 108,383
Cash and cash equivalents, at end of period $ 169,658 $ 131,662 $ 169,658 $ 131,662
iRobot Corporation
Supplemental Information
(unaudited)
For the three months ended For the nine months ended
September 29, October 1, September 29, October 1,
2012 2011 2012 2011
Revenue: *
Home Robots $ 96,291 $ 72,341 $ 273,887 $ 204,116
Domestic $ 32,925 $ 17,961 $ 85,921 $ 58,415
International $ 63,366 $ 54,380 $ 187,966 $ 145,701
Defense & Security $ 30,007 $ 48,032 $ 61,663 $ 130,616
Domestic $ 27,872 $ 45,930 $ 53,271 $ 119,509
International $ 2,135 $ 2,102 $ 8,392 $ 11,107
Product $ 24,883 $ 37,652 $ 46,789 $ 99,984
Contract $ 5,124 $ 10,380 $ 14,874 $ 30,632
Product Life Cycle $ 15,023 $ 12,286 $ 24,785 $ 31,606
Gross Margin Percent:
Home Robots 50.6 % 45.1 % 49.4 % 44.9 %
Defense & Security 20.5 % 36.2 % 4.8 % 33.9 %
Total Company 43.5 % 41.6 % 41.2 % 40.6 %
Units shipped:
Home Robots * 416 337 1,234 1,014
Defense & Security 76 194 263 500
Average gross selling prices for robot units:
Home Robots $ 223 $ 222 $ 221 $ 203
Defense & Security * $ 130 $ 131 $ 84 $ 137
Defense & Security Funded Product Backlog * $ 11,944 $ 28,036 $ 11,944 $ 28,036
Days sales outstanding 40 37 40 37
Days in inventory 44 46 44 46
Headcount 590 689 590 689
* in thousands
iRobot Corporation
Adjusted EBITDA Reconciliation to GAAP
(unaudited, in thousands)
For the three months ended For the nine months ended
September 29, October 1, September 29, October 1,
2012 2011 2012 2011
Net income $ 15,207 $ 14,052 $ 23,235 $ 29,553
Interest income, net (289 ) (214 ) (815 ) (755 )
Income tax expense 7,724 1,436 11,289 8,955
Depreciation 2,601 2,388 7,480 6,615
Amortization 267 209 701 622
EBITDA 25,510 17,871 41,890 44,990
Stock-based compensation expense 2,608 2,196 8,023 6,386
Merger and acquisition expense 661 30 687 30
Net intellectual property litigation expense 58 (11 ) 129 171
Restructuring expense 367 101 774 101
Adjusted EBITDA $ 29,204 $ 20,187 $ 51,503 $ 51,678
Use of Non-GAAP Financial Measures

In evaluating its business, iRobot considers and uses Adjusted EBITDA as a supplemental measure of its operating performance. The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, merger and acquisition expenses, net intellectual property litigation expenses, restructuring expenses and non-cash stock compensation. The Company also presents Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance.

The term Adjusted EBITDA is not defined under U.S. generally accepted accounting principles, or U.S. GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and when assessing the Company's operating performance, investors should not consider Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Among other things, Adjusted EBITDA does not reflect the Company's actual cash expenditures. Other companies may calculate similar measures differently than iRobot, limiting their usefulness as comparative tools. iRobot compensates for these limitations by relying primarily on its GAAP results and using Adjusted EBITDA only supplementally.

iRobot Corporation
Adjusted Net Income and Earnings Per Share Reconciliations to GAAP
(in thousands, except per share amounts)
(unaudited)
For the three months ended For the nine months ended
September 29, October 1, September 29, October 1,
2012 2011 2012 2011
GAAP net income $ 15,207 $ 14,052 $ 23,235 $ 29,553
Less one-time net income tax benefit associated with Section 199 deductions and R&D tax credit true-ups - (3,455 ) - (3,455 )
Adjusted net income $ 15,207 $ 10,597 $ 23,235 $ 26,098
GAAP net income per common share:
Basic $ 0.55 $ 0.52 $ 0.84 $ 1.11
Diluted $ 0.54 $ 0.50 $ 0.82 $ 1.06
Less one-time net income tax benefit associated with Section 199 deductions and R&D tax credit true-ups:
Basic $ - $ (0.13 ) $ - $ (0.13 )
Diluted $ - $ (0.12 ) $ - $ (0.12 )
Adjusted net income per common share:
Basic $ 0.55 $ 0.39 $ 0.84 $ 0.98
Diluted $ 0.54 $ 0.38 $ 0.82 $ 0.94
Shares used in Per Common Share Calculations:
Basic 27,650 26,902 27,520 26,568
Diluted

28,321

27,940 28,323 27,823

In evaluating its business, iRobot also considers and uses Adjusted net income and Adjusted net income per common share as supplemental measures of its operating performance. The Company defines Adjusted net income and Adjusted net income per share as net income and net income per share, respectively, excluding the impact of a one-time tax benefit.

The terms Adjusted net income and Adjusted net income per common share are not defined under U.S. generally accepted accounting principles, or U.S. GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. When assessing the Company's operating performance, investors should not consider Adjusted net income, Adjusted net income per common share or both in isolation, or as a substitute for net income, net income per common share or other consolidated income statement data prepared in accordance with U.S. GAAP.

SOURCE: iRobot Corp.

iRobot Corp.
Elise Caffrey, 781-430-3003
Investor Relations
ecaffrey@irobot.com
or
iRobot Corp.
Matt Lloyd, 781-430-3720
Media Relations
mlloyd@irobot.com