Q4 2019 Earnings Call
Thank you operator. Good morning, everybody off $60 and CF elevated the spring before I set the agenda for today. I'd like to know that statements made on today's call that are not based on the store information are forward-looking statements to the safe harbor provisions of the private Securities litigation Reform Act in nineteen ninety-five. These forward-looking statements are subject to risks and uncertainties involved many factors that could cause actual results to differ materially from those expressed or implied by such statements additional information on these risks and uncertainties can be found in our public filings with the SEC. I will undertake no obligation to update these forward-looking statements, whether as a result of new information or circumstances during this call, we may also disclosed non-gaap Financial measures as defined by a sec regulation g. Yep.
Adjusted even know.
Yeah, cuz profit non-gaap operating income tax expense non-gaap. Net income and non-gaap net income per share are definitions of these non-gaap Financial measures off. Each of these non-gaap measures are providing the financial tables at the end of the fourth quarter and full-year 2019 results, press release. We issued Thursday evening, which is available on our website related to our financial disclosures. We have continued to take steps to expand our financial recordings provide additional transparency is that I revised underline authors and potential that process began a year ago, when we started to provide non-gaap financial markets and we have augmented those disclosures in today's press release by providing the specific totally wrong section 301 Terrier cost in addition. We've expanded our Outlook to include both gaap and non-gaap metrics and Reconciliation of these metrics to the full-year 5:20 and the first quarter of 12:00.
20 are available at the tend to be prepared.
No marks any impact non-cash items play stock based compensation and one-time exceptional item such as litigation costs can have on our performance Allison's review our 2020 Outlook. No problem. Although we are now providing the specific dollar value of section 301 share of cost. You cannot plan to adjust off on Camp gross and operating profit margins for this item to facilitate the transition in our reporting conventions. The last eight quarters of gaap to non-gaap reconciliation included in today's press release them directly from our our website, or during the school year 2019 results will focus on our Gap performance.
In terms of the agenda for today is called to review the company's performance and achievements to the fourth quarter and fiscal year 2019 review our top strategic priorities discuss our outlook for 2020 and address the CFO transmission amount that we issued yesterday, June 18th and share some for their color on twenty-twenty wrap up. Our prepared remarks to final observations about 20 20 and we'll open the call for questions at this point. I'll turn off all over the colony. Good morning and thank you for joining us 2019 on a positive note with fourth-quarter Revenue operating income and EPS that exceeds October charges for the revenue of 427 million to 11% strong showing the United States that a solid performance in the phone number.
higher revenue and discipline and
Better-than-expected operating profit margin and EPS for the full year 2019 you reported Revenue growth of 11% to over 1% $2 billion Berg operating profit. Margin is 70% of $2 87 lb that are operating profit margin would have beans three percentage points higher. In fact, we have benefited from a dollar 32 before taxes. How do you not paid really thirty-eight million dollars infection 301 terrorists in 2019.
2019 and all major elements that works better for navigating challenging market conditions in the US and intense price competition in the end as a result. We met a woman leadership took important steps to broaden our product portfolio in advanced your efforts to build out our smarter ecosystem. We will also pleased with our progress to get connected user base and diversify our supply chain in the US an aggressive price competition are expected to persist. We are confident if I execute them will emerge from twenty-twenty well position to drive accelerated Revenue growth improve operating profit margin and generate stronger operating cash flow the 2021 and Beyond let's take a closer look at a performance and accomplishments in 2019.
in terms of
We grew up in each major region International Revenue grew 15% in 2019 due to outstanding performance in Japan and solid execution in the US Revenue grew 8% dividend Park exit key for growth of 15%
2019 was the year of unprecedented Innovation highlighted by the introduction of the room the S9 and S9 plus and the hills of these new products come back with the 2019 International launch of the Roomba i7 theories drove our top-line growth in 2019 and represented 17% of total $20 a month also introduced new differentiated digital features for these platforms that enable customers to Taylor how when and where are robots clean.
What has been the category leader introduction 18 years ago geographically. We held our us segment share despite aggressive competition on Japan. We gain meaningful share thanks to solid go-to-market execution and while our share and immediate declined as expected given growth at the low end of the category month. We also need tangible progress to diversify Beyond vacuum for family of Bravo robot Mouse represent a second growth engine the initial selling success would help Drive total revenue growth of 28% last year and surpass our Target for 100 million dollars in annual revenue.
instructor
Can you drive a solid brother growth in 2020? We also conducted data Trials of our territory seven robot mower in both Germany and the US.
Additional steps to position silver position within a leveraging home understanding with our robots. He recently announced a partnership with it that much easier for users to benefit from the integration of our robots with other smartphone connected devices examples of this will include enabling the room that users to schedule back to me to begin. Once the home security system is activated or automatically train operates. Once you have completed looking at it very much more too, ma'am.
Over nine million connected robot to the past two years. We've made meaningful progress to transform our user base into a proofing more than four million room outfitted in to our digital communication. This represents nearly 200% off the 2018. We converted this engagement into higher in app and irobot.com sales last year and anticipate continued growth on this front internet.
Diversifying our manufacturing supply-chain was another priority in 2019 in addition to balancing production across multiple contract manufacturers in China. We also offer Roomba production in Malaysia in late 2019 ahead of schedule.
A 2019 and 14 and your category Gross Road more than originally anticipated and proactively manage our cost structure to reduce spending partially offsetting the impact of margin looking at the 2026 competition will remain in him in our largest Geographic markets with no change to 25% on that impacts room. As long as all other imported from China into the US these factors will continue to weigh on our profitable jump from 20 20 nevertheless. We believe that executing our plans for 2020 will set the stage for better performance in 20 21, MB are the top 10 songs in 2020 include the following.
first
Reply to continue taking the steps necessary to negate the impact of carrots without compromising our category leadership entry-level. Roomba robots negative Malaysia are now being shipped in New York producing second room of product in Malaysia in the second half of 2028 Malaysian volume will represent up to a third of our total package 2023 trying to accelerate and expand Malaysia production to cover most of our leasing portfolio by the end of 2021. We also think which three exemptions which would help defray the costs associated with ramping Malaysia and remain more competitive during this transition.
Getting these activities. We believe we can generate tens of millions of dollars of improvements to our gross profit. They giving in 20 21 in the interim. We are focused on preventing terrorists and their impact on the profitability from impairing our ability to defend our category leadership and you've continued to adjust our pricing and promotional activities month.
We are committed to continue advancing Innovation amplifying a differentiation and diversifying our portfolio the current market penetration around 12 a.m. And well below that level of major International Market investing to capitalize on the substantial growth Runway that remains in front of I'm going to software Center functionality. It takes further advantage of our events and machine learning capabilities will enable Roomba and brought to improve their performance and off for their owners are smart home plans are aimed at complementing these activities consistent winner, the last quarter they planned to introduce one new Roomba model in 2012, in addition to expect to further progress commercializing Terror during 20/20. We plan to begin limited online sales and Tara which is an important step to a larger scale wage.
for lunch in conjunction
The 2021 having cultivated a vibrant growing Global user Community. We are now focused on building a stronger direct consumer sales Pipeline and establishing new recurring revenue streams last year. We tested several new sales models including a limited very successful subscription life and trial in Japan that appeal to consumers or interested in our premium robot. We believe that offering greater flexibility consumers purchasing higher price range and marketing directly to a user Community will help us grow a core and premium and share cross-sell complementary products and accessories and doing install and further improve profitability diligent in managing your cost structure.
Well continue to fund the initiative to help us drive long-term value-creation. What was the minimum uplift to overall headcount this year? We have to focus on adding a software engineering and data signed Talent into our our organization.
For we believe that consumer demand more urgency of remains healthy. However, near-term challenges in the form of high chairs in our expectations of moderate category growth in the US along with aggressive price competition expected to impact on performance in twenty-twenty and make it a year of transition for us nevertheless. We are focused on executing against our 2028 priorities ways and fuel near term Revenue growth preserve our profitability and fortify a leadership setting this up to capitalize on a broad range of exciting longer-term opportunities.
In terms of twenty-twenty expectation as outlined in a press release we anticipate 20/20 Revenue growth in the range of 9 to 11% an international anticipated to grow slightly faster than the US.
He said October the combination of our pricing and promotional activities and to a lesser extent incremental costs will put further pressure on our gross margin about what we think the partially offset the anticipated. I really hope that these Dynamics really previously discussed track in the lower twenty-twenty operating income any PS especially in the first half of the year, but the challenges we face in twenty20s significant. I am confident that the team and I am more than ready to rise to the occasion in order to make 20 20 another successful year is that end that we moved to 2020? We accept that some of the transitory issues impacting the performance package maybe rent reduction in Malaysia and continue to drive Innovation and execution across the organization. Well apparently managing spending level.
we believe that our success is
2024 table us to exit the year the better Prospect for Accelerated Run Road improved profitability and robust cash flow from operations.
Lastly we also issued a press release announcing a CFO transition with the assignments during the coming CFO in early May working as part of our life out and played an instrumental role for the company's success as a senior plan through the throughout her fifteen years that I Robot including the past seven as our CFO Denver. Can you hear she's becoming trusted partner really appreciate it up in education including your commitment to support a seamless transition over the next few months with respect your decision to take some much deserved time off before pursuing your ambition outside of are you
Allison will be leaving our finance organization in very capable. They were three years that I Robot overseeing our financial planning and Analysis and treasury functions. Julie has worked closely with the senior leadership team helping to further scale the business and I am confident that she is the right Finance leader to help us Propel. Our company's global.
I'll turn the call over to Allison and return after firmware has to offer some additional comments leaving a robot would be easy the past fifteen years at the company have been a wonderfully fulfilling experience in large part because of the great people. I worked with Julie and I have worked closely over the past three years and I believe she still experience and business Acumen to lead our finance organization and help guide I grow back to its next stage of growth. And while I am looking forward to spending extended quality time with my family before I figure out what might come next professionally it is incredibly important to me that we complete a successful transition of responsibilities, and I'm confident that will occur but that said I'd like to proceed with this is a hand in review our recent results.
As Andy mentioned earlier my review of the fourth quarter and full-year 2019 Financial results will be done on a gaap basis since we use that convention.
In the past year and all comparisons will be against the company. Of 2018 unless otherwise noted our fourth-quarter results, exceeded our October plans for revenues operating income and EPS quarterly Revenue, increased 11% to $420 billion due to strong holiday into a strong holiday season in the US which grew 15% off International group of six percent when stirred in by a 9% increase in a Mia while Revenue in Japan declined slightly as expected.
Also as we expected gross margin for the fourth quarter dropped nine percentage points to 40% the decline primarily reflected the impact of pricing changes and tariff cost of nearly fifty two million partially offset by ongoing progress to cost optimize production operating expenses decreased by 2% to 153 million representing 36% of Revenue versus 41% last year the decline in spending reflects ongoing fiscal discipline across the organization as well as lower incentive compensation expenses dead.
operating income
Before was 17 million and our operating margin was 4%
other income of more than eight million reflects a gain associated with the sale of one of our investments are two for effective tax rate.
What's 20% including approximately 3 million of discrete benefits are two for tax rate for four discrete items was 30.3% driven primarily by the establishment of a valuation allowance on certain tax credits.
EPS was $0.70 for the quarter which included less than 1/10 of a net discreet tax expense related to the impact of stock-based compensation shortfall last year's to age of eighty eight cents included the benefit of $0.04 related to stock compensation windfall from a full year 2019 Revenue cancel your perspective 2019 Revenue off 11% to just over one point two billion geographically. We generated 50% of our Revenue in the US which grew by 8% outside of the US International Church grew by 15% with Japan's having an excellent year at 21% r o y lamia increased by 15%
$20
16 gross margin of 45% declined by 6 percentage points as expected. The decrease was split relatively even length between pricing changes and terrorists nearly thirty-eight million dollars operating expenses grew by just 2% to 457 million due primarily to lower short-term and long-term incentive compensation expenses as well as the steps. We took to curb discretionary spending operating income in 2019 with 87 million and our operating margin was 7% versus 10% in 2018. Cost management helped mitigate the impacts of Laura Gross margins.
Our full year 2019 effective tax rate was 13.7% including eight point four million of discrete benefits the decline in our 2019 tax money aside percentage points was primarily driven by the impact of discrete items. 2019. EPS was $2.97 for the year vs. $3.07 off a 2018 or 2018 and 2019 EPS included a 23% discreet tax benefits related to the impact of stock-based compensation would fall.
We ended to 4 with $256 in cash an increase of $165 million since the end of Q3 and a year-over-year increase of 94 million consistent with our full inventory was 157 million or 56 days compared with 165 million or 76 days at the end of 2018. It is worth noting that aren't able to evaluate at the end of December reflects the impact of terrorists at the 25% level versus inventory levels a year ago in which only a relatively small portion of the inventory balance perfected by the 10% tariff level.
Before I provide additional detail regarding our full year twenty-twenty expectations. I'd like to reiterate and he's earlier comments that we will focus on our non-gaap performance going forward and we've taken off to facilitate this transition in our recording convention. We currently expect full-year 2020 revenue of 1.32 to 1.5 billion dollars, which equates to year over year growth of approximately 9 to 11 % We are planning for a similar Revenue Cadence to Prior years in which the majority of our Revenue will be generated in the second half with a 40/60 split. We expect you on Revenue will be down from the prior-year but anticipate showing low to mid-teens growth in each of the next three quarters.
Barry Collins comments we anticipate solid full-year Revenue expansion and all geographic regions with International having potential for slightly faster growth than the US.
As a reminder our Revenue expectations contemplate and Euro exchange rate roughly in line with current rates plus or minus 5%
In terms of gross. Margin, we anticipate non-gaap gross margin in the range of 38 to 39% versus 46% in 2019. The expected decline is large plans pricing and promotion activity including recent price reductions on certain member model that went into effect. Last month. A smaller factor is the incremental effect wage section 301 Terrace in total. We expect our full-year care of expense to be in the range of $47 to $50 million, which is a -4 percent headwind to our profitability.
I'm going product costs.
Issues with our Chinese contract manufacturers are expected to help us mitigate the higher costs resulting from our Malaysia manufacturing activities.
For the full year, we now expect non-gaap operating expenses to Total approximately 34 to 35% of Revenue. We will remain Vigilant with discretionary spending and anticipate minimum wage account expansion. All of which will help us mitigate normalized incentive compensation and increase R&D investment to support the opportunity to comment on details. We now expect to your 2029 gas operating income of approximately $55 to 75 million with a non-gaap operating margin between four and six percent sure. We anticipate other income of approximately 3 million.
In terms of our tax rate the estimate that our non-gaap effective tax rate will be in the range of 16 to 19% This is an expected improvement from the 2019 non-gaap tax rate of 15.4% due to the expected jurisdictional mix of profit combined with the effect of lower anticipated pre-tax income.
Plans, we currently anticipate non-gaap EPS to range from a dollar seventy.