iRobot Corporation (IRBT - Analyst Report) reported strong earnings and improved year over year revenues for the third quarter of 2014. Quarterly earnings came in at 48 cents per share, which surpassed both the Zacks Consensus Estimate of 33 cents and the year-ago quarter tally of 26 cents per share.

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Revenues

Revenues improved approximately 15.2% year over year to $143.5 million, higher than the Zacks Consensus Estimate of $135 million. The year-over-year increase was driven by improved demand in the Home Robot division of the company, which recorded a year-over-year growth of about 19%.  Revenues in the Defense & Security business were better than expected with $25 million in backlog orders.

Segment Details

The Home Robots segment generated revenues of $132.0 million, up 18.5% year over year, on the back of healthy performances in domestic as well as overseas markets. The healthy quarterly revenue improvement for the segment was lead by 31% rise in domestic revenues and 13% international revenues. The segment’s gross margin increased 310 bps year over year to 50.7%. Units shipped in the quarter increased 8.9% year over year to 573,000.

The Defense & Security segment’s revenues were $10.7 million, compared with $10.1 million in the year-ago quarter. The segment’s gross margin, increasing to 53.3% from 40.7% in the prior-year quarter, was up by 1,260 bps.

Margins/Costs

Overall gross margin was 47.3%, up 390 bps from 43.4% in the year-ago quarter. Operating expenses climbed 5% year over year to $45.2 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $29.7 million, compared with $17.2 million in the prior-year quarter.

Balance Sheet/Cash Flow
Exiting the quarter, iRobot had cash and cash equivalents of $148.4 million, compared with $165.4 million in the prior year quarter. Long-term debts stood at $4.2 million, down from $4.7 million in the year ago quarter.
In the first nine months of 2014, iRobot used $0.1 million cash for operating activities, versus net cash flow of $10.8 million in the year-ago comparable period. Capital expenditure was recorded at $9.2 million versus $5.3 million for the the first nine months of 2013.

Outlook
Management expects both Home Robots and Defense & Security segments to continue generating higher revenues. For fourth-quarter 2014, revenues are expected in the range of $158–$167 million, with earnings per share in the 26–31 cents range. Adjusted EBITDA is expected within $17–$20 million.
For 2014, iRobot has maintained its revenue guidance in a range of $555–$565 million. Management anticipates earnings per share to come within $1.20–$1.25, up from the prior range of $1.10–$1.20. The company reiterated its adjusted EBITDA guidance in the band of $77–$80 million.
The company intends to earn higher returns from its Home Robots segment in the upcoming year, on the back of increased Roomba robot sales. Additionally, as third-quarter revenues from the Defense & Security segment have exceeded expectations, speedy contract deliveries are further expected to maintain the growth momentum.

Other Stocks to Consider
With a market capitalization of $0.9 billion, iRobot currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Apple Inc. (AAPL -Analyst Report), sporting a Zacks Rank #1 (Strong Buy); and Alcoa Inc. (AA - Analyst Report) and Applied Optoelectronics, Inc. (AAOI - Snapshot Report), both carrying a Zacks Rank #2 (Buy).