iRobot Corp (IRBT) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to the iRobot fourth quarter and full year 2013 conference call.

This call is being recorded.

At this time for opening remarks and introductions I would like to turn the call over to Miss Elise Caffrey of iRobot Investor Relations.

Please go ahead, miss.

Thank you and good morning.

Before I introduce the iRobot Management Team, I would like to note that statements made on today's call that are not based on historical information are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements.

Addition information on these risks and uncertainties can be found in our public filings with the SEC.

IRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information or circumstances.

During this conference call we will also disclose non-GAAP financial measures as defined by SEC Regulation G, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, merger and acquisition expenses, restructuring expenses, net intellectual property litigation expenses and noncash stock compensation.

A reconciliation of GAAP and non-GAAP metrics can be found in the financial tables at the end of the fourth quarter and full year 2013 earnings press release issued last evening, which is available on our website.

On today's call iRobot Chairman and CEO Colin Angle will provide a review of the Company's operations and achievements for the fourth quarter and full year 2013 as well as our outlook on the business for 2014.

Alison Dean, Chief Financial Officer, will review our financial results for the fourth quarter and full year 2013, and Colin and Alison will also provide our financial expectations for the first quarter ending March 29, 2014, and fiscal 2014.

Then we will open the call for questions.

At this point I will turn the call over to Colin Angle.

Good morning, and thank you for joining us.

2013 was a great year for iRobot.

Last evening we reported Q4 and full-year results in line with our expectations.

Home Robot revenue grew 20%, driving full year 2013 Company revenue up 12% to $487 million despite the anticipated 30% decline in D&S revenue.

Earnings per share were $0.94.

Adjusted EBITDA was $62 million or 13% of revenue.

All three of our businesses met our expectations and made significant progress against their strategic plans, setting us up well for 2014.

In 2014 our financial performance will continue to be driven by our Home Robot business.

Home Robot revenue is expected to grow 17% to 20% in 2014 and comprise 90 percent of total Company revenue.

Our Defense & Security business is expected to perform at 2013 levels, and our Remote Presence business will be shipping product into two markets.

For 2014 we expect revenue of $560 million to $570 million, EPS of between $1 and $1.15, and adjusted EBITDA of $74 million to $78 million or roughly 14% of revenue.

These expectations are a strong next step in progressing toward our three year target of mid-to-high teen revenue CAGR, high teen adjusted EBITDA margin, and high single digit operating cash flow.

Now I will take you through some of the details of 2013 and our expectations for 2014.

Our Home Robot business had a phenomenal year.

Revenue grew 20% for the full year over 2012 and comprised 88% of the Company's total revenue for the year.

Our Defense & Security business delivered results consistent with our expectations while continuing to reduce reliance on the Department of Defense.

And our Remote Presence business began shipping our RP-VITA telemedicine robots for use in hospitals to our partner InTouch Health, and we signed a marketing agreement with Cisco to sell our Ava 500 video collaboration robots.

Full year Home Robot revenues were driven by strong growth in both domestic and international markets.

Expanded distribution of Roomba 700 and 600 series and the introduction of Braava overseas were the primary drivers.

In the fourth quarter we launched our next-generation Roomba, the 880, with revolutionary Arizona AeroForce technology that we think will change the way the world vacuums.

The brushless design with counter-rotating debris extractors, coupled with significantly greater vacuum power makes ours a truly differentiated and superior product.

Sales of the product to date from our website have exceeded those of all other new products over the same timeframe.

At CES in January of this year we introduced our first major new large format Scooba floor washing robot in nearly eight years.

The Scooba 450 model addresses customer feedback we received since we launched the product first in 2006.

It delivers improved cleaning performance through its recycle cleaning process and significantly improves usability through technology and easy to clean design.

We think there is a large addressable market, both domestically and overseas for the Scooba.

Our continued investment in marketing programs to generate greater brand awareness helped drive full year domestic revenue growth of more than 30% over last year.

Likewise, our commitment to continuous improvement resulted in a reduction to product returns accrual that positively impacted revenue and profit for the year.

Higher quality robots and improved operational performance coupled with a premium ad campaign have proven to be a successfully formula.

We will continue to invest in these and other initiatives that expand our competitive moat and secure our market-leading position.

Our 2013 international Home Robot revenue grew 14% year-over-year.

Revenue in Asia-Pacific, driven by strong demand in Japan and China, increased more than 40%.

As anticipated, EMEA declined approximately 5%, driven by regional macros, slightly offsetting the strong APAC growth.

As I mentioned last quarter, our European distributors are reporting improved demand in EMEA, and we expect the region to contribute to 2014 growth.

For 2013 APAC and EMEA each comprised roughly 30% of Home Robot revenue.

We expect strong 2014 growth in each of our three markets -- US, APAC and EMEA -- to be driven by expanded distribution of the Roomba 880, Braava and Scooba 450,deeper penetration of existing markets, and further expansion in China.

Growth in APAC will continue to be driven by Japan and China.

In EMEA we are expecting increasing demand from long time Western European distributors to fuel growth in that region.

The robot vacuum cleaning market grew roughly 30% from 2010 through 2012 and represents approximately 15% of vacuum cleaner sales.

Net revenue share is comparable to the level of other disruptive household appliances, such as the microwave oven and dishwasher, at the same stage of their life cycles; ten to 15 years following introduction.

We believe that as awareness of the category continues to expand, we could see an adoption rate similar to those other appliances.

We are optimistic about our ability to capture an increasing slice of the global robotic floor care market and expect our Home Robot business to drive the Company's targeted mid-to-high teen growth through 2016.

Our go-to-market strategies have served us well and will not change in 2014.

As always we will balance continued investments to support growth initiatives with generating increased profitability.

Now turning to our Defense & Security business, full-year results were in line with our overall expectations.

Roughly 50% of the revenue was Product Lifecycle Revenue and 40% was robot sales, primarily PackBot and FirstLook robots.

The remaining 10% was from externally funded research and development.

International revenue increased to roughly 30% of full year D&S revenue from approximately 10% in 2012, while the DOD comprised 60% of total 2013 revenue compared with 87% last year.

Visibility into the DOD market remains poor.

In 2014 we will continue to focus on the international and first responder markets as well as continuing to sell spares, service and support for the installed base of more than 5,000 iRobot unmanned ground vehicles.

In 2013 we began shopping our FDA-approved Ava robot to InTouch Health.

They in turn integrate their proprietary technology for telemedicine on the robots and shipped the RP-VITAs to hospitals across the United States and Mexico for use in remote diagnosis and treatment.

During the fourth quarter we sold roughly $1 million of product, and we are very excited about our progress in this segment.

We believe that as more and more hospitals, doctors and patients recognize the value of RP-VITA its use will continue to expand.

During the year we announced a joint -- a very exciting joint marketing agreement with Cisco to bring the enterprise-grade Ava 500 video collaboration robot to market.

We also signed an agreement with KBZ, a major Cisco distributor.

Ava 500 is in beta with several Global 2000 companies from various industries.

All is going to plan, and we are anticipating a product launch in the first half of 2014.

IRobot views indoor mapping as a long-term strategic technology asset of the Company.

Our Ava platform is the first of many products for which we are monetizing this capability.

In summary, 2013 was a very successful year following a challenging transitional 2012.

In 2014 Home Robot revenue will continue to grow in both domestic and overseas markets and comprise roughly 90% of total Company revenue.

We will continue to invest in marketing programs and ongoing quality initiatives that drive profitable Home Robot growth.

We will expand our reach in healthcare telepresence and video collaboration markets.

We will continue to track developments in Washington and elsewhere that impact our Defense & Security business, and we will continue to invest in key technologies that extend our market-leading position in practical robots.

I will now turn the call over to Alison to review our fourth quarter and full-year results in more detail.

Thanks, Colin.

Our fourth quarter revenue, earnings per share and adjusted EBITDA were in line with our expectations.

Revenue of $126 million increased 25% from Q4 last year driven by growth in Home Robot revenue.

EPS was $0.11 for the quarter, compared with a loss of $0.21 for the same period last year.

Q4 EBITDA was $13 million, compared with $1 million last year.

Domestic Home Robot revenue growth was 50% for Q4 and 31% for the year, further evidence that our advertising investments, product and channel strategies, and quality initiatives are yielding positive results.

Q4 domestic revenue was partially impacted by another favorable adjustment to the product return accrual of $3.6 million.

It was $4.4 million in total.

We have seen favorable adjustments on and off over the last few years as we have seen our return rates declining.

International revenue grew 14% for the full year driven by APAC growing more than 40%, partially offset by a year-over-year decline in EMEA of 5%.

I'm happy to report that after our first full year post-acquisition of Evolution Robotics, we achieved our revenue and gross margin targets for the year as well as the planned EBITDA accretion in Q4.

As we have now fully integrated this business into our home business units, we will no longer report on it separately.

Defense & Security revenue of $16 million in Q4 was flat year-over-year.

Roughly 70% of this quarterly revenue was from PLR, and the balance was from robot sales.

For the total Company gross margin was 47% for the fourth quarter and 45% for the full year.

As a reminder, the returns adjustments carry 100% gross margin.

Q4 operating expenses were 43% of revenue, down from 53% in Q4 last year when we recorded acquisition costs associated with Evolution Robotics and booked the majority of our D&S restructuring charges.

Full year 2013 operating expenses came in at 39%, roughly flat with last year.

EBITDA for the quarter was $13 million, compared with $1 million last year, with full-year results of $62 million or almost 13%, compared with $52 million or 12% last year.

EPS in Q4 was $0.11 and $0.94 for the full year.

Our full year annualized tax rate for 2013 was 15% and was impacted by the 2012 and 2013 investment tax credits as well as a one-time tax benefit on extraterritorial income from 2000 to 2006.

The combination of these three items was approximately $0.18 favorable impact on 2013 EPS.

Q4 operating cash flow was $31 million, resulting in full year OCF of $42 million, 9% of full year revenue.

We ended the year with $187 million in cash, up from $139 million a year ago, and with $46 million in inventory or 63 days, compared with $37 million or 61 days last year.

Now I would like to provide you with additional detail and some of the underlying assumptions for our Q1 and full year 2014 financial expectations.

The outlook for Home Robot business remains very strong, with growth drivers identified for the next couple of years.

For the Defense & Security business our visibility is again limited in 2014.

However, we expect our continued focus on international first responder markets and PLR to result in revenues comparable to 2013.

We expect Remote Presence revenue to increase in 2014 but to not contribute materially to growth.

We expect full year revenue of $560 million to $570 million, comprised of Home Robot revenue of $500 million to $515 million and D&S revenue of roughly $50 million.

We anticipate increased revenue from Remote Presence to contribute approximately $5 million.

We anticipate our quarterly revenue pattern to differ from 2013, with roughly 55% coming in the second half the year as we steadily roll out our new Home Robots.

We anticipate Home Robot revenue to grow 13% to 15% in Q1 over last year, while D&S is expected to decline in the first quarter.

As a result we expect total Company Q1 revenues to increase roughly 5% to $110 million to $113 million and to increase sequentially quarter to quarter throughout the remainder of the year.

In Home Robots growth will be driven by further penetration of long time overseas markets, coupled with expansion in China and wider distribution of the Roomba 800, Scooba 450 and Braava.

Overall we expect Home Robots to grow 17% to 20% in 2014.

We expect approximately 45% of D&S revenue to come from robot sales, 50% from PLR to support the installed base of robots, and the balance from contract revenue.

Because it is expected to be nominal, contract revenue will be reported as part of total D&S revenue beginning with our Q1 2014 earnings release.

We expect Q1 EPS of $0.13 to $0.17 and full year EPS of $1 to $1.15.

EBITDA in Q1 is expected to be $13 million to $15 million and for the full year is expected to be $74 million to $78 million.

Consistent with our commitment to improve profitability through OpEx leverage, we expect 2014 operating expenses to decrease to approximately 36% of revenue for the full year, down from 39% in 2013.

We expect operating cash flow to continue to run in the high single digits as a percent of revenue.

We are also assuming gross margin of roughly 45%, stock comp expense of roughly $15 million, depreciation and amortization expense of approximately $15 million, and diluted share counts of approximately 30 million shares.

We are estimating a tax rate of 32% to 35% for 2014.

The lower end of this range would require a 2014 investment tax credit to be approved.

I will now turn the call back to Colin.

Thank you.

We expect our Home Robot business to deliver robust results in 2014.

Our stable Defense business will be flat year-over-year, and our Remote Presence business will contribute $5 million to revenue in 2014.

With our Home Robot business comprising roughly 90% of our revenue, we expect to deliver mid-to-high teen Company growth, consistent with our three-year financial targets.

With that we will take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Josephine Millward from the Benchmark Company.

Please go ahead, miss.

Good morning.

Good morning.

Colin, can you give us a sense of the Roomba 800 contribution during the quarter?

You said that online sales have been better than -- much better than other new product launches, and if you can just give us a sense of roughly how much it was during the quarter.

And can you talk about the rollout for the new Roomba and Scooba in terms of geography?

Sure.

So to remind you when we -- our process for new product introduction is to first launch on our website and then bring in some specialty retail, the mission to make sure that again we're coming at the high-end of the market and we have very good ties to every customer that purchases these robots, so we can be in touch with them and understand their reactions.

And then over time we gradually expand distribution into big box retail, and then toward the end of the product's lifecycle move into larger discount chains.

And so it is a very systematic rollout.

So with the 880 and with the Roomba 450 we're at the stage where they're available on our website, which means that we're at the earliest stage of that funnel of distribution expansion.

But on the 880 we have seen an extremely strong response relative to other new product launches that followed that same trajectory.

And Scooba 450 as well, though we didn't call it out explicitly in the call.

So as far as materiality in the fourth quarter, let me Alison answer that one.

Yes, it wasn't overall material to our Q4 total Company revenue, Josephine.

We only expected it do -- the Roomba 880 to do a limited amount of contribution, given the time that it was available on the website and the overall other components of the revenue for the quarter.

Our next question comes from Jim Ricchiuti from Needham & Company.

Hi.

Good morning.

I wonder if you could give the same color that you -- for the quarter that you gave for the year in terms of the revenues that you're seeing in regions and countries, just to get a sense as to how that business progressed in Q4?

So for the full year 2013 Home Robot revenue was roughly 30% US, EMEA and APAC.

So they're all contributing roughly equal proportions to the total Company -- or the total Home performance for the year.

We definitely had strong growth in North America and Asia-Pacific, both in the quarter and for the year, and EMEA as we said earlier was down about 5% year-over-year, but it is still representing about 30% of our total Home Robot profile.

So no major changes from our exit ratios in 2014, but as we signaled last year, we saw North America catching up to Europe and Asia.

It certainly -- we call out China as an increasingly material growth driver, and so the race is on between Asia and North America, but we definitely have seen, again as we mentioned in the call, Europe starting to pick up again, which is very good.

Our next question comes from Adam Fleck from Morningstar.

Hi.

Good morning.

Morning, Adam.

Really solid revenue growth again as we were discussing, but do you have a sense of maybe the channel inventory or the sell-through by region, and is it more or less than what you consider normal for the end of the year?

Channel inventories were in line with what we expected.

There really were no surprises there.

We think we're entering 2014 in a very health position from a channel inventory perspective.

Yes, I want to point out that we are seeing a little bit more growth through the year.

That is not a channel inventory issue.

That is a function of our product introduction strategy, which I described earlier.

We have two major new products as well as continuing to see the Braava product rolled out more globally and so that we've got a lot of exciting new products coming in.

We are very happy to be able to report such strong growth, even on a larger base, but the natural rollout implications of putting two major products out at the end of the year are being seen in the quarterization of the -- of our revenue growth.

D&S has always been lumpy and continues to be lumpy.

Lumpiness on a smaller revenue base can exacerbate that, and so the way it -- the cards play out, based on our expectations for 2014, is a little less in Q1 and a little more later in the year.

And so that just compounds things a little bit, but I think that we're very pleased to be able to be talking about continued strong growth.

Our next question comes from Paul Coster from JPMorgan.

Thanks for taking my question.

So gross margin outlook for 2014 is 45%.

I believe it was about that level in 2013, but that included some warranty reversals . What assumptions have done into 2014, please?

Well, as we have said for a while now, Paul, we don't -- as we look at our three-year targets, we don't think there is a lot of potential for substantial gross margin expansion in the next couple of years, and that's reflected in our 2014 expectations.

We expect most of the leverage we're going to get from an EBITDA perspective to be coming from OpEx.

There are various factors that go into gross margin, some of which are favorable, some of which are not, and at this point we think a flat year-on-year projection is the best view.

Does that include any assumptions around reversals and warranties or not?

Well, as we said in the past, we've -- the last few years we've had the benefit of lowered return rates, which have had positive impact for revenue and gross margin.

It's very hard to predict exactly when we're going to be able to take those adjustments on a go forward basis.

When we provide guidance ranges we're allowing for various factors to come into play such as order timing, these type of revenue adjustments, et cetera, but it's nothing that we can predict in a very specific time dimension.

Got it, okay.

Last question.

Colin, you have this fantastic portfolio intellectual property.

Any developments there in trying to monetize it?

I tried to speak to that a little bit in the call, where the strength of our navigating software technology is starting to get some play in driving revenue growth.

So the Ava 500 and RP-VITA robot are out there.

Strong IP around the navigation.

As a Company we're starting to see that navigation technology successfully rolled out in product as opposed to being demonstrated in research labs, and the expectation should be that we will see our navigating technology rolled out in more products and enable new business opportunities over time.

So the iRobot has a tremendous IP and technology base that our platforms and our business is getting to a point of maturity where we're starting to be able to take advantage of that more strongly, and you should expect to see over the next few years our ability to monetize that technology improve.

So you're just getting a brief look at the tip of the iceberg of what's coming, but it's a very exciting place to be.

Thank you.

Our next question comes from Tyler Hojo from Sidoti & Company.

Yes.

Hi.

Good morning.

Just wanted to hit on the Remote Presence guidance for a second.

$5 million equates to less than 1% of your overall sales guidance.

And just going back to your last call, you told us less than 3% of sales is where we should think of Remote Presence, so just wondering if your outlook for this product line or this product category has diminished over the last 90 days.

No, it hasn't.

I think that what you're seeing is startup conservatism, where we don't have great visibility prior to launching this product just what our ramp will look like.

And so that what we're trying to communicate is that we're excited about it, that we are -- for the video collaboration robot, which probably has the largest potential for rapid growth but is still pre-launch, what does that ramp look like.

And I would rather give ourselves the time that is necessary to correctly build and roll this product out than over-promise what is possible for this product line.

So we're very excited about it.

There have been no material changes in our outlook internally, but I think that if we can achieve $5 million and have a significant percentage of that come from our video collaboration robot, we will be setting ourselves up extremely well to have that be a strong contributor in 2015 and 2016 and beyond.

This is a very exciting but also very nascent new capability and new market.

Okay.

Thanks for that.

And maybe just as a follow-on, could you tell us what the RP-VITA shipments were in the fourth quarter?

That's not something that we break out explicitly, so sorry.

Okay.

That's fine.

Okay.

Maybe just one other for me.

As a follow-on to I think it was Josephine's question, when are you anticipating rolling out the 880 to international markets?

Is that a Q1 or Q2 event?

Tyler, it's going to start -- probably in the latter part of Q2 is when you would start seeing it in some select locations, but you shouldn't really expect it to be fully rolled out until the tail end of 2014.

Okay.

Perfect.

That's all I had.

Okay.

Our next question comes from Brian Gesuale from Raymond James.

Hey.

Good morning, guys.

Hi Brian.

Most of my questions have been asked, but wondering if you could talk a little bit about Braava and maybe growth expectations.

Kind of above the Home Robot growth rate, in line with kind of the Company average, or slightly below it in 2014?

I think that you should think about Braava as outperforming the baseline growth rate of Home because of the territory expansion that it will enjoy in 2014.

So it's a good product, it fits a niche, it delivered on the expectations we had for it in 2013, and we see some opportunities for continued expansion of it on a global basis as our distributors get a better sense of where it fits in alongside Roomba, how to market it alongside Roomba in retail and drive sales.

So it should outperform.

And, Colin, maybe just a follow-up to that.

Do you still -- or maybe the better question is does this mix -- or geographic mix, two-thirds international, one-third domestic -- is it going to track similarly to Roomba, or fundamentally is it just a different geographic mix for you guys?

Let me ask a clarifying question.

Are you talking about Braava in specific?

Yes.

Braava specifically.

Yes.

I don't necessarily believe it must follow Roomba.

I think that the question of -- in Asia does -- do the customers clean using this sweeping type of methodology as frequently as vacuuming.

We get actually fairly passionate opinions on both side of the ledger.

So I think we have to do a little bit of a wait and see to see how it end up.

We know it's strong in North America.

We have had strong positive response in EMEA, and it's still early.

We have the least amount of distribution for Braava in Asia, so that will be a great question in Q3, and I can give you a much better answer then.

Okay.

Okay.

Terrific.

Thanks very much.

You bet.

Our next question comes from Meghna Ladha from SIG.

Hi.

Thanks for taking my question.

Colin, you remain bullish on China.

Can you just highlight again, what are some of the growth drivers you see in that region, and what gives you confidence that it will be a big market someday for iRobot?

The -- so the robot vacuuming industry in China is actually experiencing good growth.

It is the only region in the world where iRobot was not first to market, and that is exciting because it means we don't have to go and build the market all ourselves.

We saw significant growth in 2013, where we have entered and started taking substantial market share from the players that were in China prior to our rolling out an expansion of our product line in China, and we see every indication of that continuing to be the case.

So we are -- still enjoy high growth percentages because of our relatively small base, but there is a general appreciation for robot vacuuming in China already, and we're able to leverage that.

Got it.

Thank you.

And can you give us a little bit more color -- so the European market, it was down 5% this year.

Can you give us more color on improving market conditions that you are seeing going into 2014?

I think that this has a lot to do with macros and that robot vacuuming in Europe is a -- at a scale where macros do come into play, which two or three years ago the growth of the category created some invulnerability to market conditions.

Last year we saw that flip, and now we are impacted.

So with the improving European economy, our distributors are reporting increasing demand, and we saw that demand improving toward the end of 2013, which gave us the confidence to talk about and incorporate in the guidance we gave today that Europe will be a growth market.

Additionally, we have new product introductions and the expansion of Braava into the European market, which again, allows us the confidence to talk about significant growth opportunities in Europe.

So an improving economy, new product introductions really are the two major drivers for that confidence.

Thank you so much.

You bet.

Our next question comes from Brian Ruttenbur from CRT Capital.

Thank you very much.

Total revenue you stated in the first quarter was $110 million to $113 million, and then you gave guidance for the total year of $560 million to $570 million, and you stated 55% of your revenue was going to be the second half of the year.

This guidance -- and I just want to make sure I'm checked okay here -- is implying around $150 million in revenue in the second quarter.

Is that correct?

That's the way that the -- yes, that's the way the numbers play out.

So what's driving the sequential 30% growth?

Is that all on the Home Robotic sales?

It's a mixture of lumpiness on the defense -- so that weak Q1, more strength in the remaining quarters -- and the natural impact of rolling out new products according to our product launch lifecycle throughout the year.

And so that those two drivers added to one another give this growth throughout the year dimension, which we didn't see last year because the lumpiness of the D&S business played out differently, and we did not have the material new product launches that we are enjoying this year.

So those are the two drivers.

Okay.

And then on operating expenses, just trying to understand the breakdown a little bit on it.

R&D I expect to be up, what, as a dollar amount $10 million-plus?

Is that the right ballpark?

And SG&A should also -- excuse me -- sales and marketing should also be up in that range?

Well, we're definitely -- from an R&D perspective we target investments in the low double digits, and that's consistent with our expectations for 2014.

Both IR&D and sales and marketing on an absolute basis will grow year-on-year based on the guidance we have given.

We are over time trying to get leverage out of G&A and maybe a little less so from sales and marketing as you think through our three year targets, but on a year to year basis going into 2014 R&D sales and marketing will grow in absolute dollars.

R&D will probably stay in the low double digits as a percent of revenue.

Great.

Thank you very much.

You bet.

Our next question is a follow-up from Josephine Millward from the Benchmark Company.

Hi Colin.

I have a follow-up on China.

Do you have a sense of your Roomba market penetration in China?

And if you can give us revenue contribution from the Chinese market last year?

And finally, talk about how big do you think the Chinese market could get?

Josephine, in terms of 2013 that was a less than $10 million coming from China.

We do, again, as Colin mentioned earlier, expect that number will grow into 2014.

We're not giving specific guidance on China as an element, but given our limited distribution so far in that region, we do continue to see it as being a significant growth driver for us.

And if you ask what could it be, Josephine, again, we're early days in China.

We see a long and very positive growth runway ahead of us.

If you -- there's plenty of comparable premium consumer electronic goods stories which show very, very substantial success where China had become one of the top global markets for those premium consumer products.

So, again, that gives me more confidence that we are in fact early days and we do have a very positive runway for many years in front of us and should anticipate China growing into one of our major marketplaces.

Right.

I believe you are only in a few select cities currently.

Do you plan to double that or triple that in the coming year?

We haven't given information in that detail regarding our plans, but certainly yes, it is true we are only in select markets, and yes, it is our plan to grow those markets.

But we will do it in a controlled fashion such that we can maintain good controls on the ground, ensure that the experience that is delivered to our customer base in China is consistent.

It's very easy to grow too rapidly and watch price erosion and other things that would be negative to our overall global strategy occur in China.

So we have to be careful about it.

We have a great partner on the ground to help manage that, and caution of growing too quickly will certainly put a governor on just how rapidly revenue grow, but we should see it strongly grow for many years to come.

Very helpful.

Thank you.

Congratulations on I great year.

Thank you.

Our next question comes from Jim Ricchiuti from Needham & Company.

Thank you.

Last year I think at this time you talked about increasing your advertising spend, marketing spend in support of the brand.

Your OpEx is coming down as a percent of revenues this year it sounds like.

What can you say about your plans to spend in advertising?

And can you give any color in terms of how we might see that roll out quarterly?

Hi Jim.

We are definitely going to continue with the advertising campaign that we launched a couple of years ago.

That's definitely part of our plans for next year, and you should expect to see the fluctuations on a quarterly basis that we exhibited the last two years as well, and by that I mean higher proportion of the spend in Q2 and Q4 than Q1 and Q3.

We did some trials of some of the portions of the campaign in Europe in the latter part of 2013.

We're still assessing those results to see if we want to do something differently or more broadly with extending that campaign outside of the US, but we haven't reached that conclusion yet.

Okay.

Thank you.

You bet.

Next question from Adam Fleck from Morningstar.

Yes.

Thanks.

If I remember correctly, Alison, your $25 million repurchase authorization expires at the end of this quarter.

I believe it's gone unused, and I know it was meant to be more of an opportunistic type of program, but maybe could you update us on your thinking there, especially given the very large amount of cash on your balance sheet?

Yes, the facts you state are correct.

It does expire at the end of Q1, and we have not re purchased any shares under that program, and it was more of an opportunistic program when we put it into place.

We will discuss internally whether we want to launch another share repurchase program for either opportunistic reasons or for potential share dilution objectives, but we haven't reached that conclusion yet, and we will be taking that up at the end of the quarter when the current plan expires.

Okay.

Great.

Thank you.

That's helpful.

Okay.

That concludes our fourth quarter and full year 2013 earnings call.

We appreciate your support and look forward to talking with you again in April to discuss our Q1 results.

That concludes the call.

Participants may now disconnect.