iRobot Corporation

Key Reasons for Speculative Buy

1. Turnaround Strategy and Business Update: iRobot CEO Gary Cohen emphasized progress in the company’s turnaround strategy, noting substantial improvements in non-GAAP gross margin, which expanded by 590 basis points year over year, and better management of operating cash in the third quarter of 2024. Despite these gains, iRobot's overall results fell short of expectations set in August due to persistent market challenges and competitive pressures affecting sell-through performance. Cohen stated that stabilizing revenue trends will take more time but reiterated confidence in achieving operating expense targets for the year while continuing to invest in growth-oriented initiatives.
2. Restructuring and Operational Improvements: Cohen highlighted that ongoing restructuring efforts under the "iRobot Elevate" strategy have transformed the company’s approach to innovating, developing, and building robots. These changes aim to enhance performance and create long-term shareholder value. With reduced operating costs, iRobot expects to achieve improved margins and profitability by 2025. The CEO also stressed the company’s strong brand as a foundation for its turnaround strategy, positioning it to drive sustainable, profitable growth in the years ahead.
3. Third-Quarter 2024 Financial Performance: iRobot reported revenue of $193.4 million for the third quarter of 2024, up from $186.2 million in the same period of 2023. The GAAP gross margin increased to 32.2% from 25.8%, while the non-GAAP gross margin improved to 32.4% from 26.5%. GAAP operating expenses fell to $55.1 million from $107.5 million, while non-GAAP operating expenses declined to $47.7 million from $90.1 million. The company posted a GAAP operating income of $7.3 million, reversing a loss of $59.5 million in Q3 2023. Non-GAAP operating income rose to $15.1 million, compared to a loss of $40.6 million in the prior year.
4. Balance Sheet and Cash Position: As of September 28, 2024, iRobot held cash and cash equivalents totaling $99.4 million, down from $108.5 million at the end of Q2 2024. Additionally, the company had $41.1 million in restricted cash, largely earmarked for term loan repayment. Inventory levels decreased significantly to $149.2 million, compared to $244.5 million at the end of Q3 2023. During the quarter, iRobot raised $1.4 million by selling 0.2 million shares under its ATM offering program, leaving $79.6 million available under the $100 million program.
5. Regional and Product Sales Trends: Revenue in the U.S. increased by 23% year over year in the third quarter, while Japan and EMEA saw declines of 20% and 11%, respectively. Excluding unfavorable foreign currency impacts, Japan’s revenue decline was 15%. Mid-tier and premium robots accounted for 79% of total robot sales in Q3 2024, consistent with the prior-year period.
6. New Product Launches and Marketing Success: iRobot introduced the 2-in-1 Roomba Combo 2 Essential robot globally and the Roomba Vac 2 Essential robot in North America, both featuring enhanced cleaning power and automatic dustbin emptying. The Roomba Combo 10 Max was launched in Japan in August, receiving positive media coverage. iRobot's products, including the Roomba Combo Essential, gained recognition from outlets such as PCMag, CBS News, and Engadget. The brand also capitalized on visibility during Amazon’s Prime Big Deal Days event in October, with coverage in major media outlets.
7. Updated Fourth-Quarter and Full-Year 2024 Outlook: For Q4 2024, iRobot expects revenue between $175 million and $200 million and a gross margin of 24% to 27%. GAAP operating loss is projected at $43 million to $34 million, with non-GAAP adjustments narrowing this to $31 million to $22 million. Full-year 2024 revenue is forecasted at $685 million to $710 million, with a gross margin of 25% to 26%. GAAP net loss per share is anticipated to range from $4.27 to $3.96, while non-GAAP net loss per share is expected to fall between $4.91 and $4.60.
8. Focus on Long-Term Growth and Profitability: iRobot reiterated its commitment to long-term profitability through cost reductions, product innovation, and strategic investments. With restructuring initiatives and brand strength at the core of its turnaround strategy, the company aims to enhance its market position and deliver sustained shareholder value in the coming years.

Considering recent key business, financial updates, current trading levels, and key business risks, a ‘Speculative Buy’ recommendation has been given on the iRobot Corporation (NASDAQ: IRBT) at the closing price of USD 9.91, as on January 03, 2025.