iRobot Investor Day update

iRobot's leadership is currently webcasting a 3-hour analyst day. Everybody should probably listen to this at some point.

iRobot Chairwoman Helen Greiner: Have about 400 Employees. Global company. Home and military. Over 2.5 million home units. A better way to get the job done. Under couches, under beds, and oh by the way, you don't have to push them around. Over 900 PackBot robots. Saving dozens and dozens of soldiers' lives. Taking on dull, dirty and dangerous jobs. "This is really just the beginning of a whole new industry in robotics."
Vacuums alone are a $3.4 billion market segment, half over $150. Congress: Half of all ground vehicles should be unmanned. $4 billion market.
A whole line of home and military robots that will come out in the 2008 time frame.
Homeland security, law enforcement, light industrial applications. Future industrial applications. (I wonder what?)

Colin Angle talked initially about the company being cutting edge and "designed as an innovation engine," with 40 patents and 50 more pending, with a "team of roboticists second to none." And 15-18 percent of revenue going to R&D.
On the military side, he noted having consistent controls, etc., across platforms ranging from the 30 pound SUGV to the 1500 pound R-Gator.
The plan is to broaden uses from bomb disposal and checkpoints to core Army.
Excited about Boeing SUGV Early partnership.
Work with many of the leading military contractors.
Global company. Substantial investments all around the globe.
On the consumer side, Angle bragged on Roomba. Deeper penetration.
"For your routine maintenance of your home, you are a neanderthal if you clean your home with an upright."
Will not discuss mysterious 2 new products due in second half, but said they will discuss later outdoor products and "even light commercial applications."
"Our challenge is picking and choosing among our opportunities.
"Committed not just on top line growth but growing bottom line profit."
Solid with Roomba and PackBot leading the way. Just the beginning.
"I like where we are today, I love where we are going to be in a very short amount of time."

Military panel:

Vice Admiral (Ret.) Joe Dyer, Capt. Robert "Knob" Moses (former director of contracts at Naval Air Systems Command), Jim Rymarcsuk (former Lockheed and Rolls Royce) Exec.

Dyer talked about the Unmanned Aerial Vehicles coming on quicker now, and Unmanned Ground Vehicles are coming on faster, growing quicker and following in time with unmanned underwater systems and unmanned service system.
Embracing of aerial and underwater systems and "be a player in the integration of all of those systems going forward."
Talks about "Crossing the Chasm." First adopters buying iPhone. Government labs, thinktanks, etc. are in the first adopter category. But to cross the chasm, need reliability, supply chain, et al boring stuff but required. "We are building bridges across the chasm."
Eventually annuity develops. The vast majority of the money -- up to 60 percent -- in sustaining lifetime support.
Army experimentation well to influence procurement systems.
Fort Benning experiments. In 2005, 30 technologies at play. UAVs, UGVs, et al. In 2006, over 40 technologies used in mock battlefield.
Great question posed in 2005 to the young captain in command of the experimental force:
"Of all these technologies and all of these systems, if you could pick just one, what would you take directly into service? His answer without a moment's hesitation, was 'Sir, the iRobot PackBot.'"
In 2006, which three systems would you take into service?: The answer this time was the Raven, the xx buster?, and the PackBot.
"I wanted situational awareness, I wanted it from the air, I wanted it from the ground and I wanted it reliable."

Knob Moses: Customer focus. The bomb disposal mission is really scratching the surface. We see the potential to go well beyond bomb disposal to many new markets. Next closest -- combat engineers, chem/bio and others. Very similar to EOD and order of magnitude larger than EOD. Another order of magnitude growth in overall infantry. See robot in every infantry squad and every SWAT team. Growing additional payloads onto the PackBot platform. First 100 FIDO bomb sniffing PackBots for Iraqi police this quarter. New Engineer robot. Can do many roles that combat engineers do. RedOwl sniper detection. New platforms -- SUGV and iRobot Warrior that open up larger applications. Expanding foothold in international marketplace. Europe. Asia.

Company slide sees potential for 5-year sales of 10,000-20,000 SUGVs (!!!), 2,000-3,000 PackBots, 500-1,000 Warriors, and 200-400 Intelligent Vehicles including R-Gator and "unmanned small boats." (!)

Dyer: Points out "hand-held bomb sniffer" as an oxymoron. Made for robots.
By the end of 2008, the company will go from 4 military products to 10 military products (!) "Much, much more robust" product line with iRobot Warrior (capable of running a 3 minute mile for over 25 miles) and SUGV: "This is the robot that takes military robots from hundreds to thousands." Stresses modularity, upgradeability, future upgrades to controllers, etc.
Stresses iRobot Aware robotic development software architecture, willing to license to competitors. Others have to waste time building systems from scratch.
There is a sea chance in Future Combat Systems. From transformation to modernization. Take the things that really work.
Army Chief of Staff testified to the House Armed Services Committee, the iRobot SUGV was in the room between the Members and the Chief of Staff.
SUGV accelerated from 2012 to potentially 2008.
Several video testimonials from soldiers. "Next time we need to bring some of this equipment with us, especially the SUGVs." "I don't know what this robot costs, but I know how much a soldier costs, and you can't put an amount of money on that."

Home Robots:

Parts of Scooba 380 infomercial shown. Launched at end of April. 28 minutes. 30 second spots don't fully explain Scooba. Enhanced consumer awareness and benefit, drive direct sales and help secure 2nd Half Placement. "Very Strong Results."

More international direct sales. Expand with retail partners overseas. Europe, Middle East and Africa. London iRobot office opened. Direct in Europe. Launch eCommerce for international. New Hong Kong office. Considering direct in Far East. Canada, expanding retail storefronts and warehousing. Costco Canada. Zeller's and The Bay in 2nd Half. 91% increase in Canada sales.

Verro pool cleaning robot. Asked by customers "Where is your pool cleaning robot?" Very strong positive initial results. Initial HSN 113 percent exceeding dollars per minute target. Exceeded Amazon's expectations. 8 Million pools in the U.S.

Focused on improving quality and life cycle, doubled investment. Roomba product life has doubled since 2004 (according to chart). 2nd Manufacturing facility in Far East in 3rd Quarter '07 with capacity of 35,000 per week(!) with Kin Yat Holdings Limited. Talking with other manufacturers as well. Chart shows improved cleaning shortly (ED: NEW ROOMBAS, I presume), and on Whole House Navigation. "We are working on it." Also improving interaction with people.

Sandy Lawrence, the new Home Robots director, talked of crossing the chasm on digital cameras and said she sees that happening with iRobot.

FINANCIAL:

CFO Geoff Clear noted focus of unexpected revenue will go to the bottom line instead of more R&D. Fairly high level of confidence "top range" of revenue number for first half. Leave in place 2nd half guidance. $225-235 Million overall. Anticipate direct sales could become 1/3rd or so given today's products. Quality improvements will cut return and warranty costs.

Q&A:
Q: Cleaning bottom of hulls of ships?
Joe: An area of interest, not been involved in so far.
Q: Licensing and royalties?
Colin: Guidance does not assume a major licensing of software revenue. Not modeled. Exciting.
Q: Sale of Aware?
Colin: Strategy -- Want third parties to work with us on our platform. Our partners can use it. It's an enabler for higher functioning robots. No announcements at this time of it being a standalone product.
Q: Cash guidance?
Geoff: Burned $5 million cash last year because of change in inventory to just-in-time. This year expect $70 million cash hoard to go down as second half inventory builds, then go back up for sales. Notes possibility of investment activity.
Q: SUGV and Iraq?
Joe: SUGV not tied to Iraq. EOD certainly is war related, though see international, domestic and reserves markets.
Q: Price sensitivity of military to cost of SUGV and PackBots. Selling price for SUGV?
Joe: Expect $100,000 price point for SUGV possible. Watching Army budget. Expect next spring, early summer before we see an identifiable budget line dealing with SUGV.
Q: Network warfare?
Joe: Working on robots having a better knowledge of the world around them.
Q:
Colin: Batteries, WiFi, User Interface changes -- PS2 game controllers in the soldiers' hands.
Q: Terms between IRBT and Boeing?
Geoff: Can't tell a lot. They will fund $3.6 million on SUGV Early over the next several quarters.
Q: Gross margin impact of nickel costs, Chinese currency strengthening?
Geoff: Quite focused on nickel. Meetings with battery suppliers. Trying to reduce nickel usage. Reflected in guidance. Clearly a risk point. Very fortunate in that all of our business is denominated in dollars.
Q: Dirt Dog? Father's Day?
Matt: Dirt Dog is going to be a focus for Father's Day. Some promotions with Dirt Dog, extending to Father's Day. Exploring different opportunities with retailers. "Forthcoming."
Q: Who trains soldiers on PackBots?
Knob: Do provide training and train the trainer program.
Q: Home robots higher Average selling prices expected? Increase in direct sales or newer products at higher price points?
Geoff: A number of offsetting factors. ASPs down $30 in first quarter substantially due to Scooba launch in 2006. Return rates could be favorable for ASPs. Verro will have some impact. Can't talk about new products ASPs. Longer term -- Bath Bots - probably lower ASPs. Core Roomba prices are pretty much holding.
Q: Roomba?
A: More sales of the higher priced Roombas, particularly direct.
Q: 50:50 military/home?
Geoff: Probably in 2nd Q, don't talk about 2nd Half breakdown...
Q: Low end of 2nd half vs. high end of 2nd half? What factors?
Geoff: Always shifts in shipping products. FIDO shiftments uncertain on timing. If in 2nd Qtr., could reduce 3rd Qtr.
Q: Long term PLR? Part of contract or add-on?
Jim: Add-on. Hand controller noted. Getting the robots to be used even more to boost aftermarket $$$.
Q: Synergies with home/military? Reasonable penetration for floor cleaning in next five years?
Helen: Synergies increasing. Military first to use technologies, consumer second. Susan: We have an insignificant share of vacuum. Some of leaders have 35-40 percent of the market. Certainly a lot more than we currently have.
Q: If you could really cut prices, could you really substantially increase penetration?
Susan: 1) How low can I go to interest more people. 2) Portfolio of products with different price points.
Colin: Dyson did not take the dominant position in the vacuum cleaning industry by cutting price. Death spiral of cheaper and cheaper and cheaper. Focused on what customers want and raising confidence that robots can do the job effectively. Over time have seen the ability to raise prices. "The vast majority of our robots are being sold at increasingly higher prices." We are clearly focused on making better robots and getting our customers to appreciate we have better robots.
Q: Weapons? Anti-suicide bomber? Sniper?
Joe: Military divided. Like putting a gun on a passenger airplane or not. Half think you should and half think you shouldn't. Think we will see armed robots. Robots give the infantry the potential to shoot second. Go into an area where they have to make a split second decision of whether to fire or not, can be wrong. Can take a better look before acting.
Q: Current year Roomba growth? Penetration or international?
Susan: Roomba penetration. We are at the tipping point.

More to come...

Tags: iRobot, robot