Kaufman Brothers Conference Notes

Not a whole lot of news, but worth a look. Main tidbit is it looks like speculators took advantage of iRobot on nickel, as they locked in high nickel prices for all of 2007, so the recent drop in nickel prices will not benefit them in 2007. Although that could set the stage for profit growth next year. Total of $5 million in extra nickel costs baked into the full year results, but we knew that. There was also new talk of light-commercial Roombas. They also said they do not anticipate capacity problems if they get PackBot orders or growth in Roomba demand.

Highlights of the Kaufman Brothers Conference:

iRobot Chairwoman Helen Greiner and CFO Geoff Clear

Greiner: Does that Roomba product really work? Yes it really works. We're taking that product and expanding it.

Competitive advantage in tight integration of many different attributes.

Home Robots: "Own the floor."

Will be launching products direct: Trains customers to visit web page to buy products, tests the market. 35% now direct sales, but will fall in second half.

Roomba 500 series first Roomba with the durability to be morphed into Light Commercial Applications.

Roomba 500 targeted not to early adopters, not technophiles, but "Chief Household Officer."

Used to build for 1 to 2 years. Now 3 to 5 years. Easy service modules. Anti-tangle technology. Persian rugs, electrical cords no problem. Clean multiple rooms. Channel fill.

In long term intelligent vehicles will be a big market for us.

PackBot: Key feature is modularity. New 501 model better, stronger.
Explosives sniffing payload. They are now deployed. Tasers.

SUGV with Boeing strategic relationship

Short-term demand:
PackBot: 2000-3000 units.

SUGV: 3600 in combat teams alone.

Warrior: 500-1000, higher price.

Intelligent vehicles: a few in short term, a lot in long term.

Very successful in winning government R&D contracts. 18 percent R&D last quarter.

Future: Landscaping, elder care, commercial cleaning. We look at all of that as our target market.

Industry leader, Huge market potential. Sustainable growth for many years to come.

Geoff: 12th consecutive quarter of growth. Stats from last quarter. Good momentum going into 2008. Some rebates on old products in second quarter. Nickel costs tripled. Total impact about $5 million in 2007. Good news is price of nickel has come back down again. Good news as we go into 2008, but we did have to lock in our nickel prices which were substantially higher. (OUCH!) Direct margins 60%+!!!!! Will help get to overall margins of 40-42%. Spares for military robots will also boost margins.

Growth: Next generation Roombas will drive growth. G&I some of the newer products, PackBot 510 and Fido. "Both of those are expected to continue substantially to back half revenues." (Where are the contracts, Geoff?)

Leverage in SG&A: cut from 28 percent to 16 percent. Military sales force now 12 versus 2 a year ago. Sarbanes Oxley costs going down margin wise in future.

Consumer Reports say about your robots? Greiner: Great review, Roomba at the top of the list (Ed: Last generation, Roomba 500 hasn't been reviewed). First looks at Roomba and Scooba, reviewers didn't get it, questioned how long it takes. With Scooba, they put a blob of ketchup right in front of it. You certainly wouldn't do that with a mop and bucket! That's something it wasn't designed for. For people who take our robots home and use them, our reviews on the products have just been tremendously positive for many years now.

Japan? Great demonstrations of technology, few sales.

Geoff: All production is outsourced. China, Ohio (military). Consumer side can increase capacity in a matter of days. Military, has the ability to ramp as well. Five plants. Don't anticipate any capacity problems. Locked in nickel below the peak but above where it is today. We have locked in this year's supply. Not 2008. (Ed: This means no benefit from any nickel cuts for now).

Consumer Reports review of Roomba 500? Greiner, a different magazine. (Can't just pitch to them). But we've got a strong relationship with them and they know the Roomba 500 series is now getting into the stores.

"They are not going to go back to sending a soldier up to a roadside bomb." After SUGV test, it was hard to get the soldiers to give the robots back after the exercise.