IRBT - Earnings call transcript Q2 2019

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Operator

Good day, everyone, and welcome to the iRobot Second Quarter 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 Elise Caffrey of iRobot Investor Relations. Please go ahead.

Elise Caffrey

Thank you and good morning.

know my you at earnings of iRobot. many today last is call As Kramer, about a the and successor, joined My Andy company been together we working a to transition. ensure smooth have ago, month over the value with and I've I the greatly relationships years. our built analysts investors

I'll call the turn to Andy. now over

Andy Kramer

Thank help starting you, again, the at your and all thanks, company. Elise, for since

Reform statements from cause materially Litigation and actual statements risks that Securities involve Before made information Act subject uncertainties statements statements. differ to made that those like Private to of I expressed note historical Safe the XXXX. forward-looking introduce and could the to on results are today's pursuant iRobot or are call These many Harbor management are implied the that factors based team, forward-looking such to I would by of not on provisions

revise can Additional found to and Commission. and iRobot be undertakes the or as circumstances. new in information our or forward-looking information risks obligation Securities on filings with a result Exchange these these no of statements whether uncertainties public update

and tax per we non-GAAP this non-GAAP financial by defined operating as gross G, disclose non-GAAP EBITDA, SEC also share. Regulation income, income During measures the including income profit, income non-GAAP net adjusted may non-GAAP call, net non-GAAP expense,

of is quarter the non-GAAP last available issued provided non-GAAP in of financial press of financial Our the which directly end reconciliations definitions GAAP earnings website. these these second are measure, on financial at release measures, of evening, most each and measures comparable to the XXXX tables our we the

also XXXX, Alison the financial to our fiscal review operations questions. the business we'll financial who Officer, XXXX. for second provide Chairman Dean, a Then will On the Chief and provide the second and Angle, our of and Colin Financial of open for achievements iRobot will Alison Colin call for today's call, quarter and expectations quarter. results company's and CEO, will review

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

Colin Angle

for growing you strong XXXX. another quarter joining us. We thank with morning revenue QX over XX% Good and had

XX% Our growth in growth was than XX% with EMEA the more and growth by growth followed States. United led by Japan with XX%

operating spending. Our than due manage higher and anticipated carefully to EPS in part efforts our were to QX large income results

in Japan segment segment not the erosion line due second accelerate and our segment with this The Year-to-date as expected, have region any seeing and generally expectations. are was EMEA our but maintained competition. in did quarter growth we in had share U.S. not we in to share

navigating segment anticipated, U.S.-China more and is indirect a are, had impacts and We market originally of direct driven by that the the U.S. related growing however, than ongoing tariffs. we slowly war trade

that achieved whenever ultimately expectations optimistic and be we for longer are term, U.S. category will a remain although Nevertheless, U.S. benefit short-term positioned we impediment segment to we growth tariffs that the robust return expansion. second-half revenue well and our We So lowering to stronger view target, as more occurs. region. this iRobot QX to will that over our the medium

XX%. full-year segment year-over-year growth on roughly or revenue, XX% billion, growth. for As the of XX% we increased and represents half in $X.XX In resulting implementation not following materially XXXX the XX% April, were May to did of would on reminder, now which our growth segment that billion reaffirmed tariffs February, Today, think expectations the impact U.S., to in we a expectations. we XXth our $X.X those expect XXXX of tariffs slower-than-expected to based of revenue

operating stakeholders. EPS income spending million now have million of believe help to impact To gross that of preserve in to to our ability profitability pressure, will we in mitigate value anticipate ways margin long-term recalibrate all our increasing We the for $X.XX and $X.XX to XXXX. expand innovate, create $XX business of and of near-term begun and the without revenue lower-than-expected we compromising $XXX

new jet take the you the successfully quarterly in year. multiple some Roomba Roomba two the through May, large sX/sX+, In with rest revolutionary the U.S., the expectations rooms most robots which we Braava I’ll and mX launched of the and our business Now cleaning mapping to advanced and highlights, for the tackle can mop, robot deepest powerful, intelligent, spaces capabilities. cleaning navigation date, and of

Together, any robots from these each Technology automatically can two effort user. the vacuuming mopping then Link to other, Imprint use to talk and without

intelligent have technology about toward the the together home. in smart next leveraging step mapping and robots talked time working your for realizing dream as some We of home, our the navigation

our the other event, Following smart well the for Home. mower, robotics launch, The the I our-soon-to-be-launched in home in I & as robotic and Amazon’s presented vision and working with AI as in robot sX+ Smart products Terra, iRobot where home. Alexa keynote was conjunction automation re:MARS, were speaker at mX,

We full demonstrate is power key is robots the how software of the for are architecture product spatial digital The continuing a that understanding differentiator. to fundamental is our our on harnessing increasingly proprietary enabling to visibility home The our part home is very home from ecosystem raised we’re reality the in Amazon a as smart the ecosystem. smart making the gratifying. event smart the like and re:MARS getting support of partners

parties smart sold a progress that in X we This iRobot’s have for the and the home begun million details some with permission. program one event’s building third moment, the XXXX, we enables top-selling understanding smart the our in are cited Amazon about Day Prime developer but to success connected it’s end growing robots deals millions foundation Roomba a Amazon smart worth and By as home. devices demonstrates category. role that that of a homeowner’s home in share expect to will of the specifically have that sold leverage strong over of our we home day noting I

saturation, second-quarter revenue is believe that creating In higher expected. segment speed last by a region, growth compounded share we XX% year-to-date tariffs, that in international U.S. we revenue maintained a rather our competitive to the in year-over-year to that the trajectory. believe bump did estimated while turning lack category’s We we’ve the category’s performance delivered than the growth year, we at the rate Now of States, comparable as XX%. not United increased increase by even growth are market had investment,

and into this earlier year’s perspective. invitation SKU validate performance prior this Amazon Day entry for years. consecutive Xth Amazon included in Prime our versus on level Day year Prime only three helps SKUS Our one

Prime which U.S. our Day the continued interest for SKU the Roomba out XXX, Roomba demand on For premium-priced believe event, and promoted the sold robots. most our day, expensive consumer demonstrates Day, Prime first ever we’ve on we

U.S. was XX% nearly XX% grew our retail increasing revenue by where versus increase units consecutive the a with yielded it second XX%. with a Day. retail Day, total, units increase revenue by Internationally, In year’s Prime invitation Prime in in XX% event last into

holiday was thrilled are to in expectations. may Day to quite know it's vibrant the but how these with We RVCs results, still success performance current early retailer's it this influence -- on Prime similar illustrates our Nevertheless, underlying how before buying remains that demand too tariffs. year for

new on excited our been the In Interest home. we Terra in to category this with robot has to buyers other expected be to is the are closely-controlled The very robots for of potential mower, news, our and limited begin program QX. remain participants and coincide Germany. overwhelming, we for in beta launch for launching timing track from Terra, U.S. beta program

which RVC grew second competition. in in the revenue segment the driven growing region, attracting for XX% by is robustly primarily the iX+. quarter is iX enthusiasm year-over-year more EMEA, The In and

shifting more landscape and to responding We are with promotional a pricing programs.

us growth with the eX, Looking next sX+ scheduled we share and year. performing driven better EMEA quarter and iX+ in mX iRobot in sX+ all by robots delivered introduction in ahead, of product increase early market strong the on QXXX believe build momentum. are and we upcoming the can iX which more our and revenue and expected. and launches believe further another this are sX Japan, launching The XX%, our launching July that will mX And continues to which in quarter, sX versus by the this for up segment, than differentiation. our and we are is gain help than

expect we digit full-year to double domestically overseas. revenue Globally, growth, continue and

of our target in XXXX of XX% on products revenue. iX New markets, are international iX+ which track and include total with

couple on of tariffs. A additional notes

of to tariffs Washington tariffs, appeared from our seen, exemption some We that an believe As exclusion applied have the for times case. I is gain in formally compelling. from the may our have to iRobot you present position several has and

given application will timing on However, front. our select products of partially some the forthcoming. retailers offset be higher on certain will from provide nature the impacting is that unclear raised detail order process, decision a when the of We are and tariffs. on week also this prices to further Higher tariffs Alison impact it earlier

are excellent XXXX with our We progress initiatives. manufacturing making

to of against move Malaysia, are our manufacturing China across our various our product XXXX. diversify line manufacturers we of initial the robots to tracking end in to continue also expect and to by plans well be We manufacturing where we contract

originally In U.S., of innovation and experiencing resetting competition summary, we that remarkable foundation. from more impact still home bar piece are anticipated driving significant new than a although, track, are we our product in to laying year. situation is worsening launches be up the XXXX shaping on proceeding With our we the the for another is tariff smart

healthy, environment, Even to global expect generate segment our and XXXX, we growth higher for a still leadership. operate double-digit as fortify in year very full tariff we substantial top-line

the the many achievements will company’s way on longer-term and for and us Our role pave exciting in to quarters the evolving smart the home. the progress and coming opportunities capitalize our products over medium

that, to With in I turn detail. call over results more Alison to second-quarter our the will review

Alison Dean

Colin. Thank you,

by revenue below performance with relatively from Operating slightly million QX was was in driven EMEA QX for Canada. of and Revenue $XXX shortfalls of income XX% year. last $X quarterly expectations Our compared last increase an million was Quarterly growth overseas. due year, second to XX% was $XX strong. small our quarter million,

additional included in $X.XX windfall. by was tax charge of $X.X release a last $X.X tax or million, of EPS EPS driven discrete an $X.XX. company. of a compares the quarter, tax of the establishment charge the which The reserve our net compensation with U.K. $X.XX principal for along last net stock benefit reserve exit $X.XX, included with year, was with which year million, This charge driven by conjunction discrete or of a

half, the year; half last million, was $XX and $XXX million with million, For in million first EPS the Operating $X.XX first $XXX with revenue with compared compared XXXX. year. was was last income compared $X.XX $XX of

the to a QX due $X.X was X.X%, million Our negative effective tax benefits. discrete of XXXX rate

rate still be items before tax between QX XX%. we before rate discrete and expect was XX% XX%, tax items our Our full-year discrete to and

of of Revenue full-year growth for of to XX%, growth that QX segment reduction RVC accelerated by we second in revenue half the U.S. expectations is of year. originally has generated the rate The in the expected. more primarily XX% not driven of roughly We than our XX% and revenue anticipate EMEA still domestic growth annual of XX%, be growth included growth XX%. Japan our at

that to As anticipate a be U.S. the the high-teens we low in expected. double-digit result, we is now the likely growth revenue previously versus in range

mX sX+ The initial sX, and jet our the with of consistent and launches are are well going previous Roomba expectations. Braava

in XXXX. the of Braava to we fall the for driven to year-over-year on still the expect mX, XXXt such total However, of growth U.S. the segment significant is family range revenue level. expect category the in overall we next take our by growth weighing slower-than-anticipated XX% XX% for of category that believe Nevertheless, mopping in the can Braava globally which particular, to target the XX% the now category, we company the short the of Braava

primarily from in as promotional last the Due Gross decrease the last with tariffs did year. to was XXX-basis as second with coupled the for discussed, gross increased Colin and impact pricing compared year quarter, and increased of margin to EMEA year, in the approximately XX% to The activity promotional the second our XX% activity year XX%. the tariffs well we the be of to we pricing XX% QX expect have not margin now to point due for half was XX% that XXXX. for

primarily July on partially increases of year; the expected incremental to our to the the cost tariff offset the increase, tariff full the only spending. $XX we in effect price estimate versus to went QX to of the due million $XX recalibrate previous U.S. implementing The to range expenses were down will last $XX cost. actions XX tariff to $XX Due now XX% million. revenue, from our expect in into year direct that operating in that the million, we of for began million XX% are QX be

at value impact was the million half. Recall our increase We cash, inventory increase will tariffs further to ended XXX built in that of our year-end, the year. launches $XXX now XXXX $XXX with or the as QX second days, we value of inventory last inventory to product from million or $XXX days QX with million, million, U.S. planned. down XX compared U.S. that and includes tariffs ending as in $XXX we May support XX% expect inventory

and roll-out will as Given expect April we the diversification cadence chain be year end, conference average. quarter global next our elevated for inventory we We DII strategy, levels our higher discussed that previous call. at new XXX-day XXXX before still the expect the on for products for than supply average declining

to like some and I’d assumptions full-year color. you the Now provide additional detail XXXX some financial our with underlying and for expectations of quarterly

continuing revised disruption neither possible As that assumed trade exclusion, situation than has is slower that our of we Colin while could market some anticipated. fluid talks a resulting The growth our tariff we see we expectations. for from iRobot in an discussed, are U.S. is positive experiencing and it’s or remains impact in XXXX

we dollars, which past top-line X.XX trends revenue billion year-over-year we of several expect half in Consistent the XXXX, heavily years, to of For revenue growth be second XX%. billion of full-year more to year. weighted during the expect is XX% now X.X with the will

euro roughly line minus rates, rates, in exchange with expectations plus contemplate yen revenue or Our current X%. and

$X.XX. now $X.XX the scale operating point of million operating of to we to now We full to revenue year, expect expenses over as million $XXX full-year of of lower XXX-basis a impact margin. EPS expect XXXX, spending XX% the mitigate roughly $XX total we For gross and back and to revenue, income improvement

introductions perspective. full-year annual expectations by region product is our financial as our As the product a overall changing of we new a tariffs, including and current viewed our of revenue we full-year reflect today year-over-year manage a plans. best costs this our diversification expectations quarterly prior calls, vary from as further, the should and tariff basis and be growth environment Likewise, have The can on rates, of business discussed on results, due factors well of greatly financial transitions. impact number manufacturing as to estimate our exacerbating

From order as is exposure. Amazon, potential from a most navigate activity part quarterly to notably second-half perspective, efforts anticipated the retailers, certain of their tariff shifting

percentage shipped year, came large from example, quarter contract imported Amazon’s with manufacturer. approximately the a second-half For of of third by directly in and orders our two-thirds domestic revenue to, Amazon, those last being

the concerns. have operations sourcing of we year, XX% just generated as be This third tariffs timing from by quarter, U.S. expect to of complicated the revenue second-half further and in orders been Amazon’s second-half

expected result of fourth QX a years. expect show than the revenue prior these year-over-year are decline. year-over-year QX growth Amazon’s shifts, now be of revenue this to more expected As slight second-half in we quarter in we ship a now Since to substantially substantial expect of year, more to orders

between quarter respond gross margin QX our to Gross to to result overseas. a comparable margin in and full-year XX% gross-margin we be QX QX, out pressures roll expected as now in lowest continue new products would and be expect our We XX%, to which at is competitive XX%. approximately to

out XX% tariff to those year. updated relates and XX% expectations, updated our to in be it Due updated conjunction tariff targets longer increase last early longer-term will those XXXX current point results were is XXXX important in to and the targets, a full-year to with that are our next XXXX reporting recent it environment. As no our

year full expected for double-digit QX In regions delivered revenue growth do as the are so to summary, and all well.

U.S. our to does supply execute rollouts pulling uncertain continue continued XXXX levers Our well initiative of growth. new plan. our continue, chain we product profitable are Outside within against our the to to market, as strategic deliver we diversify and the our control

turn to now Colin. I’ll back call the

Colin Angle

the market. we challenges current year in about excited address U.S. the am ahead the I you. as Thank

Roomba home our moat, our the strengthen to our extend and diversify our advance competitive chain, portfolio vacuuming, continue drive strategy widen beyond supply Our decision-making and planning leadership, smart goals to processes.

conditions, market of As way drive choppier value. growth is we most shareholder and navigate that execution the effective this build believe consistent to we sustainable strategy

as for today and confident we as our year be is not direction field Although, iRobot. will the strategic another believe XXXX would playing otherwise prefer, optimal in we remain successful

like thank and XX of well for and the work her at publicly Finally, and us her over to behalf her the years I’d past Elise on in contributions of many iRobot, endeavors. post-iRobot company to all Alison hard wish

With your questions. we that take said, now will

Operator

question of Instructions] [Operator first Frank you. Sidoti. from Our comes Thank Camma

line Your open. now is

Frank Camma

taking Hey, good morning, guys. Thanks call. the for

Alison Dean

Frank. morning, Good

Colin Angle

Frank. morning, Good

Frank Camma

thank to I'd years. like help to Elise lots over of the

more they demand. First question time in is just how the rationalizing you're I how guess? like totally itself, head, impacted get hard just cost lot I sounds granted affect that here impact kind on of have you -- I your view just am still explain tariffs having issue, I It a just U.S. did a mean, on in structure. tariffs getting little how I of the of But But consumers' demand impact can my a category? the category of, growth the mean,

Colin Angle

So of there And demand tariffs And the is the have caused and others growth their slowed in rate associated the pricing. a has to that down to category iRobot -- increase industry. the an in elasticity with price.

on price So in compelling Prime a what Day, with very to proof point demand degree I doing success we're the than is of a subsidized to larger think Day. pricing market elasticity of Prime that regular powerful where classic and we

So a And in again, Day Prime XX% the if in success vacuuming. growth we prices tariffs, of America for would be there tariff which, is dollars much demand for healthy North And still fact not think growing that XX% growth less volume I place. impacted. saw speaks and and in to vibrant more were units, the robot

seen-- ahead. We go also have

Frank Camma

your this that that trained perhaps that that pretty some they're you own some the to do add have it year? where you talking otherwise if that at the get for event of some pulled that year of Do a realize just actual while. given they in would here I the two. spend sold month wait of I'll a that your Prime June the impacted two-day almost just could are think a going to but the fifth a granted number, consumers Day, you much buy Do of like deal think consumers sales totally was earlier better units have think the well-publicized are about also think or products could discretionary in now No, and -- now it's your that you

Colin Angle

Day on and success in having Day growth I Prime XX% resulted day of that So think rate dollars. Prime of the that the growth is a in of what

So demand without in grown saying that we're XX%. not would tariffs have Roomba the for XXXX

No, as well is year. seen growth I more robot think not price of the expectations and in impact beginning clearly competitors so we're products category. on demand suggest last believe as And vibrant the the to it drive as QX. being demand is of there region. that situation that's a for for they we've that of we're went growth that we dark like did Day completely modest far do given change attributable And But -- had who in expecting as I of some behavior the Prime elasticity market did North on the success in still at vacuuming different that seeing spending top And tariff one American generation year a well. the

Alison Dean

well it's that also Frank, consumers just price a also our I increases factor. not recognize on is facing many that important it's that as RVCs. products And think belief are to

Frank Camma

clear. Day so wanted Yeah, make Andy was sales Prime abundant in even was for Is it to QX. though your July just the correct? buy that that be just I in clear, no, I that very to accounted that. And

Andy Kramer

Yes.

Colin Angle

Yes.

Frank Camma

Okay.

just with U.S. brings guidance. next your year-over-year bit. on well. Okay. your that? little to which alone, that -- for a revenue or to mostly issue explained drag Amazon that of is to is you Am alone grabble assume Which QX just number trying negative on a so breakeven. enough pretty I'm correct I my sort I me -- But mean, I so to cadence question is it the

Alison Dean

it Yes, Yeah. is.

substantial. down certainly Amazon that So second very and the QX overall. timing and between breaks can be QX And is purchases significant for half how of their is customer us a significant component

is swing would over a it a make to what So kind expected that of previously would've enough growth quarter. be we

Colin Angle

tremendous is a XX:XXs. dollars. That of there moves from mean, I one-third huge to a number shift two-thirds,

Frank Camma

Sure. Yeah.

to international Okay. follow-up And well? for that. last you customer as Amazon an Is

Alison Dean

was only focus the was more acquisition more became Yes. two few It is. for the internationally. distributors our has that Amazon to It a subsequent of of last years that in important us It overseas. become

Frank Camma

Okay.

Okay. you. Great. Thank

Colin Angle

Yeah. Thank you.

Operator

Needham Thank & you. comes our question And next from Ricchiuti of Jim Company.

Your now open. line is

Mike Cikos

on last get I on QX for understand but that talking already Jim customer speaker. is seen a on able had sequential just the supply understanding from in that movement growth This we're team. I the Hi, largest record. I that you to better think guys to the following question that I noise, first about to confidence have is Mike within you've for their as And apologize from the to wanted we're Ricchiuti. conversations steep any all advance from chain? in been Amazon, QX, wanted the is background I'll instill sequential QX ramp growth have sequential seeing ramp? guess, Cikos that

Alison Dean

to that we've and the and with follow. the retailers So of the and timing conversations shipments regarding our would driven had that ramp QX distributors their by the expected is timing QX orders

as sit how two view quarters the to we So best here today as play our that's out. will

Colin Angle

Yeah.

Without that years. Amazon I customers to helps. QX, QX quite our extraordinary top prior for it this like would look similar think shift

behavior. And be a is focused in we're retailers causing driven or seeing an when purchase so tariffs to customer more not behavior they retail product arrive. This that by in our ramp the want disruption to extraordinary our back-end

in purchase guidance expecting is of not beyond are far choosing as demand the So goes. our anything unusual as holidays. customer the anticipation how retailers This to we're

Alison Dean

a as in opposite reminder, QX. last phenomenon we the and QX faced year just exact And

that when happened. it than one take it normally last in much was it we direct had decided QX. talked last was our Amazon And So to from shipment QX because year growth year higher and our manufacturers do about a of rate contract

Mike Cikos

I the you you I then guys, erosion environment I that. the could right gross And helpful. margin are where see lost in understand promotional guys Do or regain I that of pricing tariffs, wanted the question the this get to like feeling you from also you for further promotional guess seen? discuss now. feel that you are much. some you at Thank impact guys that follow-up we've Okay. had, but That's we recapture down in this And understanding that margin the road? Thank a can of environment? Or just are you guys point? better instated you is very environment

Alison Dean

Well for XXXX in guidance provided, and it's expect which margins typical QX to a certainly further promotional the is here based we QX then period. on slight gross QX, flat I've fairly decline heavy our

that will be environment, XXXX. here in expect So certainly we

us The stays promotional has second putting the Europe also of competitive in quite place there environment strong. specifically in half as more that programs year

Colin Angle

launch margins products that that lot thing would have say when typically mature more the product replacing our I time. a is initially, impacting gross a is that history revenue margins improve of we products. other And gross then from the is they're lag we of over recently a coming the launched and

up that So of tariffs have a aggressively of impact new margins. and stack in Europe act desire to a and the products, bit little of a combining to go we more lot gross a little

a I is something time. position maturity both competitive going and not improve of And is competition that a that -- think product to tariffs go away. bit is the the little over

aggressive price in our more at So situations lower I think points portfolio. will some we have product that

Alison Dean

will creating of with as we more distance a we that between the our competitors So us be products do products, expect these new launch rollout on basis. and global the

Operator

question comes Jensen you. Piper from Troy our Thank Jaffray. And next of

Your line is now open.

Troy Jensen

Colin. Maybe for my quick here there. of couple Hi, question. taking Thanks a ones for

Colin Angle

Sure.

Troy Jensen

tariffs forced you with right? historically -- a here to ceiling price of with think some So, threshold a a vacuums Colin to the been you've me -- of I above or may really I the $X,XXX that think wanted it just your And that's avoid.

with -- price to just market? the on get that would still the increases price your growth in I $XXX seeing thought obviously you Are a there's the just there tariffs been lower sub like because industry in of of kind So in category? less

Colin Angle

that to I that being -- certain to which not me broken will is despite but demand definitely they've have be barrier, could the very fact products that's the higher successful great in I features we'd be what we're doing have So and living the those prices and the are well But $X,XXX. right we it's am world sX imagine that price that those $X,XXX now. that not only of robots doing and could dream if below

Relative to to of is below clear iRobot's. focus market this be $XXX, the not a

the point. operating above on but some $XXX focused are promotions that general occasionally due and to we're So, in below price premium

and So we've the talked share interested $XXX. margins pursuing. it's there are of that make above little opportunity types all to Below $XXX is in very we

in an the particular It's premium growth In in have higher there. the That been segment availability there've we than more continue of vacuuming below that to said, the as new down category -- been couple years points. price the industry growth see the do of in price $XXX. a much and of world relatively is there growth past product the

growth be the present point products seeing it's price which market of China up. price will actually And so to been the recognizing at in points. only value these as price of the higher on points deceleration Where we're some available a at catching that the longer, extent is has features low

and it $XXX won't still price. we're be below So

dynamic is right a margin pretty But healthy Our very it robot segment is place now. vacuuming but volume of unhealthy place. a

Troy Jensen

be -- raised because would but to of think will tariffs the my Thank you detail. do intend not okay. in have me guys the XXX you you for guess prices correct the And and I just then wrong, if I I'm you XXX, for Right, just the future question? the eX? And

Alison Dean

the price, across prices iX/iX+ really when on the board. we increase So, the tariffs the this Roomba increase we remainder the prices We we further but price didn't did XX% increase across products. iX/iX+. originally it did only of the Earlier increased week, was

Troy Jensen

You did.

Okay, perfect.

an So increased first never safe Even right? sX+ there have price in, is higher the and of because and the it sX tariffs? baked mX to a then price though tariffs assume were and and already just

Colin Angle

sX increased We the a as and and robots the tariffs. the of No. mX sX+ result on XX% price

Troy Jensen

Okay, luck do half at you the right. perfect. think least second All Good well. in and I

Operator

Northland question Thank you. Mike with Latimore And comes Capital. from our next

Your open. now line is

Unidentified Analyst

is This were market, Pavan they so? June in aggressive did most or May? which do the Were I to starting EMEA And two on for questions. they have Mike. Coming when aggressive? competitors

Alison Dean

really this been year. It's

has that So it's aggressive that. primarily Chinese been and companies Roborock, Ecovacs competition like particularly been

Unidentified Analyst

there you. it thank second are you other like to Okay, as your do any was my And players raised well? recently question prices

Colin Angle

will We North expect also other prices. players their raise in the America marketplace in

either players on margins business model, COGS margins and to are healthy operate structures XX% for market premium other a case increase either their also thin their company the twice. margins critical so in absorb in very, price are impacting without or premium The very -- where

So this across-the-board. be will

Unidentified Analyst

Thank have. all I That's you.

Colin Angle

Okay.

Operator

Thank from you. question of Dorsheimer Jed Canaccord next Genuity. our comes And

Your line open. is now

Jed Dorsheimer

my to of the having Elise for a guess it I sales. thanking also with that correctly. by volume and if success maybe the direct or want Prime. helpful the not It I thanks is virtue And question, Thanks. Hi. at looks mix of products taking or bit kind midrange the rephrase throw I seem into margin my I about of a greatest first this on me higher high-end looking the Two. It some first shift you're to have would of it questions. terms thinking of Amazon in to in and as pre-IPO whether could now. head quite from guess, just years the But ring the over tell been I'm

higher to of what that the for is mostly contributing the sort is shift midrange? mix So a the profitability guide? full that year contraction from volume Is high-end to of

Alison Dean

the been reductions of been U.S. across guidance. the QX. of actually eX XXX the remaining in through first half pretty No. baked coming kind is pretty level have XX% the where originally year. was for the XX% into and We in all categories our U.S. healthy series entry similar and be a XX% mix about category. and QX, had our in from expectations in There which change at mix so about our three sort really of a consistent the very We're volumes hasn't we from seeing price range. the year We that's were to our We in significant expecting our of this far revenue up to And had

Colin Angle

continuing our the are strategy given product product a unit level. we seeing on at demand improve to very are premium premium But SKUs. reduction in over some drive on series phenomenon of and from those margin which we because profitability above do time the introduction Jed focused we XXX will basis new And believe

think is I'm again is margin actually in product our promotional the trifecta current that the the in I new tariffs. quite EMEA with QX the the happy gross and So launches mix. But -- XXXX investment hitting

Jed Dorsheimer

Got it. That's you. Thank helpful.

this Colin It one question. probably a sort is Second level higher directed strategy. you. is for of

same to of As a Terra, at. of attributes Roomba is lot the as getting I'm what successful kind you it at look has be for

a the that got a a price you're You've Whereas different of have with you people dynamics. product high substitute most replacing. doing. chore don't Braava, that It's enjoy set very

you what if instead in kind redeployment and metrics of resource you allocation So my of the are looking is Braava more what a sort -- Terra you what and eggs basket will point point the put of at to do at question of basket?

Colin Angle

as go to iRobot our has improves. products scaled So new and grow ability launch

be mopping didn't failed that's years more partially web has the for say from have category we second mop and kitchen. more systematic So the benefit of to to navigation and because just kitchen being able the Roomba, the is coming many frankly sensitive

a overcomes. dollars is the markets some hurdles and But where the simply there to when the we markets go look at we're the So to have And get technical of investment getting is investment. build time Roomba continuing takes franchise that there point I not available the has suffered full while that spent and positive -- level also Braava ROI globally. you that mX to the think build and very dollar very,

very In happy. the believe drive Roomba resources and have to we launches, a -- XXXX, we so me my mX product we like mX. which favorite the have quote selling post marketing believe makes far the we And it's

I have a have us to where the it marketing. to willingness the and velocity like expect gets initial think in Terra market market Braava And move betas the you this our is to will for our need is will escape to point without and hope investments in through can profitably that mX mopping from and reached Braava these Terra. gotten segments growth grow continue to invest we the launches, and As

So product to the planful then product drive where next bringing it's very want move strategy curve. the a launch and up we and investing sequential to to profitability that we're the demand

Jed Dorsheimer

jump Got it. I'll in back queue. Thanks. helpful. the That's

Colin Angle

Okay.

Operator

& our Thank Company. Charlie comes of from you. question next And Dougherty Anderson

open. now is line Your

Charlie Anderson

in situation. the everything multilayer kind Yeah. start with best question my of and I to for a questions Elise. just taking luck of wanted tariff Thanks

of for So have back there product petition well? with expecting the hear looks them that to us companies Colin, here? applied retailers has And secondarily, in maybe then the dynamics walk too have of the move they you'll you then like as terms first, for are a decent that? It on conversations exclusion? you a follow-up. Obviously, batting When participating that want Thanks. average. have any could to of any in lot release been And a through

Colin Angle

Sure.

four from into tariffs imports exclusion and three that exclusion an Group had have the groups. were first divided is sorry an So has one, -- to granting group exclusions. imposed, -- process China

So it good reasonably is you batting correct are -- that and average.

been in No List And there and that's of an process. as process two two many applicants. approvals are exclusion list has yet. currently

fast I if we're not when is when So unsure about judgment, process. even that, being to successful, -- to are get as going a this talked we

in application its for exclusion list closed window for And two December.

I So any and think haven't two we seven yet. see batting them the average we expect hopefully will But approvals list months gotten continue. to

the three taking July. beginning requests of as List is of exclusion now

case. we submitted, be again, have have it before XXXX we we very and progress. believe into easily a see good -- could I we're But so reasonably we And think

there more on. work believe the issues, take, to be is some we would people that that that know indicative We reason so an timing less two but optimistic USTR putting hiring is these the head of be to that could list

if it's And excluded we're will retroactive. that, it be noting worth

all would about have so that's would the talked we certainly which tariffs that But on the of money sense expanded a nice outcome. spent And be of the timing. iRobot be refunded the to back

Charlie Anderson

Okay. on retailers? And then the

Colin Angle

are hard retailers hit. So getting

that and all back numbers can. is I so deciding it the give retailers to translating a into challenges so think do result the common that’s because sides they're with volumes that try of significant a of prices. are and them to -- And price margin move resultant facing But going points increases they suddenly and higher as what that and of request is they not in slowdown on

been -- that material a us. it's been not has for a sort well So has of

Charlie Anderson

and then it my for Got follow-up.

You've low in been those on QX. very obviously gross margins

I'm mature. You margin have backup, going that have talked about a the products about guess, little bit next here? Malaysia more online are curious should also trajectory coming year how we from think I you to be

we about When Malaysia you how before? gross when thinking we we from some incremental to Thanks. kind the that? can margins do China? cost Malaysia, to to of do in have you cutover back trajectory about did there think we have Or margin get Just should that be of here is

Alison Dean

will line expensive year. that that at the I've said least this products same But in produced XXXX and we going remind I'm be off products than be at I giving for not Malaysia to initially like-for-like communicate what China already the earlier about more beyond margins in will basis actually you So did initially. least coming comments

-- line our expensive, components rates a we the Malaysia our little more of importantly, the a labor will to those have for bit to rates rates more. are component additional -- And bit is supply get production. labor cost China little less labor of a in but most management The and are lot

So to be more least off at starting it's expensive. going

Colin Angle

to forth meaning clear. magnitude of on sort bound still of bit. a rough depending that on with But More is tariffs, expensive par the just than neutralish to better sort of little so tariffs XX% be order XX% volumes and

Charlie Anderson

Okay. helpful. you. Perfect, Thank that’s

Operator

our Ben of Rose next question from comes Thank Road Research. And Battle you.

is line now Your open.

Ben Rose

Yes, his echo thanks for luck in my good morning. Elisa as to well Colin. wish Question to role. and Andrew Wanted new

and the you the the constrain in at high international products higher half in won't the as just hitting a of price with the could products iX/iX+, we do Looking second because newer favor U.S.? have see product year markets mix of as the to newer the having them of tariffs, the not you

Colin Angle

of know our You the year. are unchanged for international to the models sales relative beginning

we're launching I think be these that new excited to products.

are the deliver We them communicated. that we've on on growth targets counting to

they're to. of are that that so are -- like I had stable, And them North behaving America we think good, things things outside wanted

material. that, that I America about be risk great we back asking to If going believe don't like of from think marketing you're Europe North to is or something

Ben Rose

-- from an the you of in question areas impact maybe Could at in to cost for mitigate standpoint the scaling Okay. some Alison. operational from that company tariffs? And is the back cite order least a standpoint

Alison Dean

it's Sure. type those that that, focused across all We're groups It's of will sacrifice don't the for longer-term mostly think across-the-board. plan, on really different spending discretionary we're reductions. we strategic looking but our really functional

Ben Rose

you Thank Okay. very much.

Operator

comes Thank Merchant you. And next from question Citigroup. our of Asiya

line now open. Your is

Asiya Merchant

a increases lot would just happening of talked the price I of products revenue I iRobot, assumed of that, for other are understand about, a know that to not have questions. cadence wanted had as consumer I just asked. across just that quick you questions I hi. on But given already couple but well. just have One, been Yeah, have products,

in anticipated the the into have of of impact demand quarter the increases to price would've half. strength you of quarter before called have just saw price They That have would Prime second that I Day, thought some -- in some into are Amazon really ahead would that third take to inventory of increases likely that replenish would given that third sort and foot. the and tried

question. was So, first my that

for seems and of the partially for The then just margins like trajectory impacting, that's margins. gross gross on it only guide tariff are that this the year. And

of by kind most would likely felt we of is -- and it remainder fair offset of impact fair get Thank that it that increases, of going up, that extrapolate pressure be but forward, to go to So, as that margin likely to to see XXXX, XXXX? from then but, course, to the unlikely if we price into full assume is some some in the more you. downside the assume hereon

Colin Angle

prices cadence gone up. and already relative revenue thus of our So, to cadence retailers, have buying the the

and inventory would taking would XX% increases additional that of price it they carry there that anticipation be in with tariff. no is So

at least today. the environment, And is out some current only retailers certainty what so acknowledging exist what that you're that seeing in is holding the or hope

tariffs holding is be at what more with in away. that would that products, took So would a deferred product and in decision already they if go if would seeing, that example, cost be -- they post-tariffs. basis They to we're Amazon than they inventory had higher had they for brought

chain avoid against you retailer, inventories have than those products. to are to not supply a advantaged as exciting hand that having to access risk which want in balance levels to product of -- risk inventory said, the hot of and companies risks, that hold to So lower drive

this is And benefit of have the point a loading QX the happened. there they no already ahead But calculus. retailer at in increases, to so that's because up of price

Asiya Merchant

on Okay. gross And margins? then

Alison Dean

really Yeah. I from On said going comments beyond not second your to point as XXXX any before, I'm make margin a Asiya, gross perspective.

going of what that have be changes understand we we comments impacting before environment to But can to right like anything tariff to relative of been are plan once tariffs and our year entire in better to any what You're XXXX. that full structured about offset half XX% price year we cost. that our have make XXXX part do hopefully is incremental

Asiya Merchant

just Okay. Thank market more, I may, if And on you. then one the share.

the that flat that to surveys whether for point strength the iRobot there that clearly data, share cetera, you the much But Some of that is have for well brand pretty it's guys sales you et market any I've suggests in have. the region done as and that data that was iRobot?

Alison Dean

based said the doesn't seem of first competition are we've call held data year. that The anything share half the is our What the in Yeah. taken the seeing. the on we've to in have we earlier U.S. on

itself good anticipated. had segment a rolling So, as more the we than at of light look particularly sign, that slowly we in

Asiya Merchant

you. Thank Okay.

Operator

Thank with from you. question Mark And our next Strouse comes JPMorgan.

is line open. Your now

Mark Strouse

questions. taking for good Hey, our Thanks morning.

exclusion belief high a you Colin, just And a you is level for tariffs. why why case? be it's the it from of So, case will have for applied -- granted. think that compelling your overview talked Can give you about compelling compelling for case that you a guys a

Colin Angle

in industry is is a it think I interesting industry -- United robot appreciated The States. Washington to the Sure. that strategically the consumer

are interest is that so they to there of believe And so losers emerging and source leading prosper. we consumer non-China in company like are it's industry a we is particular this not -- of a at iRobot in so winners are recognized determined. moment the that and opportunity. robots would time that only that they And do when

is important So, growing rapidly growth that where industry this a is competition. particularly to relative

the down in iRobot And in us not those which tariffs relative China revenue revenue its over slows of circumstances to and of half which U.S. has of that competition so under is disproportionately our competition. impacted by has while its -- tariffs our most imposition our the

that exclusion. of pattern leads case fact so a And to compelling

So, iRobot, if our you to us primary want to competition. help don't market our relative slow on down

of I that's the gist think it.

Mark Strouse

Got it.

by you the be not and might of high-level SKUs, maybe the what maybe can that Thank that helpful. or you facility about talk down to from just some And mid-level And Malaysia of output relative in factory? but be to those coming the going demand of breaking the U.S.? out products kind scale for in you. that's about that just entry-level it then Okay, talked what's

Alison Dean

the plan the of is SKUs in it our to that be entry-level end it's So, Mark XXXX one for our current year. produced Malaysia be will targeted by of is --

all and volumes just the So, to it's up very that processes. limited stand this we year look as line associated

through we'll in how we see that that we put determine As how XXXX. to try much line goes, volume

guidance of give for will So, next be our year. that early XXXX we part

Mark Strouse

that be That Okay. manufactured? quick will if where sense. can. makes real Terra, I And just

Colin Angle

manufactured out of is of China. plans have any moving don't we and China in That

Mark Strouse

very much. Okay, great. Thank you

Colin Angle

You bet.

Operator

And Thank our call question-and-answer any does this session. conclude over ladies to Kramer and I back the you. gentlemen for to remarks. turn now closing Andy like would

Andy Kramer

certainly with in look Thank our QX your results. with We We concludes quarter the plan you XXXX support many to earnings to coming again appreciate of discuss over speaking our talk second we -- call. of you That you to you. our and October forward seeing to and months.

Operator

Participants Good That disconnect. concludes now the bye. call. may

iRobot (IRBT) 24 Jul 192019 Q2 Earnings call transcript