iRobot Q419, FY19 User Manual

Q4 & FY19 Results Conference Call Prepared Remarks

iRobot Q419 and FY19 Financial Results Conference Call

Prepared Remarks

February 6, 2020

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iRobot Fourth-Quarter and Full-Year 2019 Conference Call

Operator:

Good day everyone and welcome to the iRobot fourth-quarter and full-year 2019 financial results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Andrew Kramer of iRobot Investor Relations. Please go ahead.

Andrew:

Thank you operator, and good morning everybody. Joining me on today’s are iRobot Chairman & CEO Colin Angle; Executive Vice President and CFO Alison Dean; and Julie Zeiler, Vice President of Finance, who has been named to succeed Alison as CFO later this spring.

Before I set the agenda for today’s call, I would like to note that statements made on today’s call that are not based on historical information are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

This conference call may contain express or implied forward-looking statements relating to the company’s financial results, operations and performance for the full fiscal year 2020 and the reporting periods therein; the growth, performance, revenue impact and prospects of our business, including in the United States and internationally; our expectations regarding profitability; our expectations regarding revenue (and the components thereof), the rate of revenue growth, gross margins, non-GAAP gross margins, operating income, non-GAAP operating income, operating expenses, non-GAAP operating expenses, operating margin, non-GAAP operating margin, sales & marketing expenses, research and development expenses, general and administrative expenses, restructuring charges, stock compensation expenses, depreciation and amortization expenses, capital spending, inventory, DII, other income, tax rate, non-GAAP tax rate, earnings and loss per share, non-

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GAAP earnings and loss per share, tariff expenses, cash and cash flow; the seasonality and predictability of our business; the RVC category generally; our expectations regarding currency exchange rates; our expectations regarding the impact on us, our expectations for, an our plans relating to, tariffs on goods imported into the United States from China, as well as our efforts to pursue an exemption from those tariffs and the potential impact thereof; our expectations regarding our ability to penetrate further the robotic vacuum cleaner and wet floor care markets; the impact of our continued investments in R&D, technology and innovation; the impact of our efforts to manage costs; domestic and international demand for robotic vacuum cleaners (RVC) and our RVC products; competition and the impact thereof; demand for and revenue growth opportunities associated with our Braava family of floor mopping robots; new product features; customer engagement with digital communications; our expectations regarding our 2020 strategic priorities; our ability to improve financial performance in 2021 and beyond, our intent and timing expectations regarding the introduction and delivery of new products (such as Terra lawn mowing and Roomba robots), applications and product capabilities and functionality, and the timing and impact thereof; our intent to diversify our supply chain and manufacturing capabilities, and the timing of our manufacturing diversification efforts and impacts thereof; our market share and opportunity; and business conditions.

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 the forward-looking statements. In particular, the risks and uncertainties include those contained in our public filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or circumstances or otherwise.

During this conference call, we may also disclose non-GAAP financial measures as defined by SEC Regulation G, including Adjusted EBITDA, non-GAAP gross profit and non-GAAP gross profit margin, non-GAAP operating expenses, non-GAAP operating

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income and non-GAAP operating income margin, non-GAAP income tax expense, and non-GAAP earnings per share. Our definitions of these non-GAAP financial measures, and reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP measure along with a reconciliation between our non-GAAP and GAAP guidance, are provided in the financial tables at the end of the fourth-quarter and full-year 2019 results press release that we issued last evening, which is available on our website: https://investor.irobot.com/news-releases.

Related to our financial disclosures, we have continued to take steps to expand our financial reporting to provide additional transparency into iRobot’s underlying operating performance and potential. That process began a year ago when we started to provide non-GAAP financial metrics and we have augmented those disclosures in today’s press release by providing the specific quarterly Section 301 tariff costs. In addition, we have expanded our outlook to include both GAAP and non-GAAP metrics, and reconciliations of these metrics for full-year 2020 and the first quarter of 2020 are available at the end of these prepared remarks.

Given the impact of non-cash items like stock-based compensation and one-time exceptional items such as litigation costs have on our GAAP performance, Alison’s review of our 2020 outlook will focus primarily on our non-GAAP outlook. Related to our non-GAAP reporting, although we are now providing the specific dollar value of Section 301 tariff costs, we do not plan to adjust our non-GAAP gross and operating profit margins for this item. To facilitate this transition in our reporting conventions, the last eight quarters of GAAP to nonGAAP reconciliations included in today’s press release can be downloaded as an excel file directly from our IR website. Finally, since we have exclusively relied on GAAP reporting conventions throughout 2019, comments by both Colin and Alison about our fourth-quarter and full-year 2019 results will focus on our GAAP performance.

As a reminder, a live audio broadcast of this conference call is also available on the Investor Relations page of our website and an archived version of the broadcast will be available on the same Web page following the call. In addition, a replay of the telephone

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conference call will be available for one week through February 13, and can be accessed by dialing 404-537-3406, passcode 1873658.

In terms of the agenda for today’s call, Colin will briefly review the company’s performance and achievements for the fourth quarter and full fiscal year 2019, review our top strategic priorities, discuss our outlook for 2020 and address the CFO transition announcement that we also issued yesterday. Alison will detail our financial results for the fourth quarter and full year 2019, and share some further color on 2020. Colin will wrap up our prepared remarks with some final observations about 2020. Then we’ll open the call for questions.

At this point, I’ll turn the call over to Colin Angle.

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Colin:

Good morning and thank you for joining us.

We closed 2019 on a positive note with fourth-quarter revenue, operating income and EPS that exceeded our October targets. Fourth-quarter revenue of $427 million grew 11% due to a strong showing in the U.S. and a solid performance in EMEA. The combination of higher revenue and disciplined spending resulted in better-than- expected operating profit margin and EPS. For full year 2019, we reported revenue growth of 11% to over $1.2 billion, operating profit margin of 7% and EPS of $2.97. It’s worth noting that our operating profit margin would have been 3 percentage points higher and EPS would have benefited by $1.32 before taxes had we not paid nearly $38 million in Section 301 tariffs in 2019.

During 2019, we executed well on all major elements of our strategy while navigating challenging market conditions in the U.S. and intense price competition in EMEA. As a result, we maintained our Roomba leadership, took important steps to broaden our product portfolio, and advanced our efforts to build out our Smart Home ecosystem. We were also pleased with our progress to grow our connected user base and diversify our supply chain. Although high tariffs in the U.S. and aggressive price competition are expected to persist, we are confident that by executing on our strategic priorities, we will emerge from 2020 well positioned to drive accelerated revenue growth, improve our operating profit margin and generate stronger operating cash flow in 2021 and beyond.

Q419 and FY19 Highlights

Let’s take a closer look at our performance and accomplishments in 2019:

•Geographic Growth: In terms of our geographic revenue performance, we grew our business in each major region. International revenue grew 15% in 2019 due to outstanding performance in Japan and solid expansion in EMEA. In the U.S., revenue grew 8%, driven in part by excellent Q4 growth of 15%.

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