UPDATED 11/7 WITH NOTES: Looks like we'll hear in the next few weeks whether iRobot will be awarded the $286 million XBot contract, although iRobot CEO Colin Angle noted at a JP Morgan investor conference yesterday that only 100 robots in the contract has funding at this point. He also made clear that iRobot refused to get into a bidding war with Robotic FX and made a bid that it felt would have resulted from a negotiated contract rather than a reverse auction.
Here are my notes. I've moved up the talk on the Robotic FX Contract:
JP Morgan's Paul Coster: Xbot?
Angle: The Xbot fills the gap before SUGV, urgent need. Very unusual procurement. Awarded to a very small company created by a former iRobot employee. Strongly feel stole our trade secrets and infringed on our patents. Army set aside the contract based on ability of contractor to be responsible. Judge issued extraordinary relief, a preliminary injunction stopping Robotic FX from selling the robot, citing the track design being the result of stolen trade secrets as well as finding the CEO, Mr. Ahed not to be a credible witness.
Small Business Administration -- 2 week maximum review of ability of Robotic FX to be responsible. If that judgment doesn't somehow reverse, then iRobot will be the winner.
Coster: $286M bid? Can we realistically expect 3,000 robots to be shipped in the next 24 months?
Angle: No. First 100 are funded, and believe some funding beyond that. We do not believe the program as it currently exists as funding for 1,000 additional robots. SUGV could meet that same urgent need. May be some combination of xBots and also possibly further acceleration of the SUGV Early. There is a desire for large numbers going forward to the infantry and two potential vehicles to get there: XBot and FCS Sugv, and we would have contracts with both of them. Our strategy was to reject the reverse auction. (Robotic FX robot) more cheaply made. More than $20K less than our product. We knew going into a bidding war was a foolish endeavor. Price was price we thought we would achieve on a proper negotiation on a best value contract. We did not chase Mr. Ahed down. Feel we made an aggressive and fair bid.
Coster also had high praise for the company:
This is one of my top picks. I think we're at the top of a very sizable growth story. Long-term. Short-term investors can get hurt.
Colin Angle: 40 patents/50 pending. Formidable intellectual property. Shown a willingness to protect our intellectual property when we feel it has been infringed upon.
Just beginning. 1-2 percent market penetration so far in vacuums. No reason it could not grow 20-40 fold. Scrubbing floors, cleaning gutters. Similar market potential on government and industrial.
New Roomba 500 designed for cleaning every single day. Made to run every day for an hour or more for 3.5 years. All you need to do is empty the robot once or twice a week depending on your dirt generation. Most people only get to vacuum once a week.
Reducing return rates with higher reliability. Much more acceptable for the international market.
Two new robots. The iRobot Looj. Attacks a very widespread problem that is not as frequently recognized because it is so frequently neglected -- cleaning your gutters. Tracks are scaled down for the military PackBot.
The iRobot ConnectR a virtual visiting robot. Robot/webcam/speakerphone accessible from anywhere on the web. Better than a cell phone conversation for a 3.5 year old. Also for pet owners, and for security. Anytime you want to be in more than one place at the same time.
Pilot program is oversubscribed by 30-40 fold. Very substantial reaction.
PackBot: Driving revenues. Over 1,200. New PackBot 510 faster, stronger more easy to use device. Explosive Ordnance Disposal, but a platform. It's modular. Can add new technology very easily. Software architecture -- have a developer's conference for additional payloads. Paid off in 2007 for bomb-sniffing FIDO PackBots. Stop vehicles one blast radius away from checkpoints to minimize damage from carbombs. Deployed over 150 this year. Doing a lot more partnerships. Taser and MetalStorm and Lockheed Martin on weaponization.
The real payoff is in the infantry starting in 2008. SUGV/SUGV Early.
iRobot Warrior -- one of the largest robots that you can easily drive around a building/up stairs.
Future years -- larger scale robotic vehicles, tens of thousands of robots.
Coster: Warrior more expensive, what about SUGV?
Angle: SUGV same cost outlook as PackBot, but depends on add-ons. Can be "well into the $100,000s."
Every day robots are in the field more missions are being designed for them. Asymmetric combat. Not firepower -- identifying who is the good guy and who is the bad guy.
Iraq -- up and downside for iRobot. Downside: Transformational programs less well funded because money going to urgent needs.
CFO Geoff Clear talked briefly about the legal expenses and shift in Roomba sales from third to fourth quarter. Very strong direct sales/recurring revenues/higher margins.
$240-250M revenue guidance. Up from $233-243M. 27-32% y/y. 35% gross margin. Nickel prices have come down 40% and will very shortly be locking in price for 2008.
Still $3-5M pretax profits. 50% growth in Roomba sell-through so far, needs to continue through the holiday season. Need production to continue at current rates from China.
Consumables on Roomba 500? Colin: Yes, batteries, filters. Seeing significant sales of batteries on original Roombas, brushes. About 10% of sales. Clear: Even more important on military side.
Angle talked about ability of robots to increase operational tempo in clearing buildings. Can work as tripwires, and as armed sentries with deterrent capability.
MetalStorm -- Hardly a moving part, very reliable firing.
Coster? Three laws of robotics, that's history now?
Colin: Well, a human in the loop making the decision to fire the weapon. Not likely to change. Probably 30 years away from a robot sophisticated enough to understand the three laws and have a consciousness of guilt.
Clear: G&I revenue locked in for the year, $40 million backlog at beginning of the quarter. Angle: Expect about $100 million quarter, heavily skewed toward home robots.
Coster: Acquired by Boeing, Lockheed or independent 5 years from now? Angle: Would certainly entertain offers. I do think we are going to be an independent company.
You can listen to the webcast here.
Editor's Note: They also appear to be having difficulty keeping up with Looj demand, at least on their web site, which quotes a 3-4 week shipping time. Is this a production issue or a demand issue, or both? (I only expect sales of 5,000-15,000 Looj robots this quarter, so it's not that big a deal compared to the Roomba issue, as Roombas are by far the most important product for the company).