I was bit concerned that the share price drop on Feb 21 was related to something in the 10K which was released that morning, but after a detailed review, I can find no major issues, and a few positives:
1 . Product reliability continues to improve, such that even with increased sales, provision for warranty expense dropped from $6.4MM in 2010 to $4.1MM in 2011. This is very good news, and very important from a customer satisfaction standpoint.
2. The announced RIF was for 54 people in early Oct, but the actual reduction (presumably including attrition) was 70 people. Not a lot of open positions posted on the iRobot jobs board. I realize that this can be seen as a negative, but this still puts the headcount at what it was only 18 months ago.
3. YOY increase of $8.8MM in HRD internal R&D mostly due to increase in new product development (presumably AVA, but it’s also about time for a new full sized Scooba).
4. There is a potential $1.9MM tax benefit due to unrecognized tax benefits identified in 2011.
5. On the negative side, the 2011 Direct (online sales) HRD revenue was 9.6% of HRD, or about $26.74MM, substantially the same as in 2010 (11.5%; $26.32MM), which itself was a $2.2MM decrease from 2009. I would have expected a substantial increase in this area, which is important as ASP of robots sold through the Direct channel are MUCH higher than ASP sold through resellers. The good news is that there is substantial opportunity for improvement. I see that a job opening has been posted for Manager of Direct Marketing Operations.
General comment: HRD gross margin continues to come in above 45%, and per Leahy in the conference call Q&A, this may even further improve a bit. It was also mentioned that reseller inventories were low, which would help Q1 sales. Assuming an ~$2MM drop-off from Q4 (similar to what happened in 2011 & 2010), Q1 HRD sales can be reasonably estimated at ~$72.5MM. With the HRD margin, it starts getting quite difficult to envision an 8 cent loss, even with a catastrophic drop-off in Q1 G&I sales.