However, this announcement doesn’t necessarily mean revenue for 2006. The deal is what is called an “indefinite delivery, indefinite quantity” contract. This essentially means that the military has earmarked the dollars for the order, but various other arms of the military (such as procurement, logistics, training and deployment) will all need to get in line before the products are shipped and revenue is recognized. Motley Fool’s Tim Beyer had some good insight:
This could certainly be a huge deal for iRobot — but “could” is the operative word here. What iRobot actually received today is called an IDIQ, which is government-speak for “indefinite delivery, indefinite quantity.” That means the Navy likes PackBots. It thinks it wants to spend up to $64.3 million to get more of them. But when those orders will come is anyone’s guess…
Indeed, earlier today, iRobot Chief Financial Officer Geoff Clear told me that last year, the company was awarded a $95 million IDIQ. As of March, the Feds had made good on only $26 million worth of orders. Now that total is up to $43 million. For comparison, iRobot’s trailing-12-month revenues amounted to $163 million.
RobotStockNews has more on this news. (I really like this site - it has great in-depth analysis of the company and products. If you’re going to be an Irobot investor, it’s worth following this blog.)
Scooba Still Poses Greatest Risk
Even though the government dollars are all goodness, the single biggest risk in buying Irobot is their Scooba product. I still believe that this product is priced wrong, and its product complexity will translate to higher COGS. With retail prices on the Scooba dropping faster than Vonage’s stock price, margins for this product are likely to be less than stellar. The company’s current gross margin on their product revenue is about 34%, and I can’t see Scooba increasing the overall product margin blend.
More importantly, unlike the Roomba, the Scooba has mixed reviews. Apparently, people are using the Scooba to clean their bathrooms. And unlike large living rooms and bedrooms, the Scooba is too big to get behind all the nooks and crannies in a bathroom, such as behind the toilet. Without customers passionately using and evangelizing the Scooba, I question whether or not it will ever reach the “Early Majority” of the market. If you want to learn more about Scooba, here’s another great web resource for Scooba reviews.
Here's the press release from iRobot on the latest military deal:
iRobot Awarded $64.3 Million Contract for PackBot Robots
BURLINGTON, Mass., June 02, 2006 – iRobot Corp. (NASDAQ: IRBT) today announced that it has been awarded a $64.3 million Indefinite Delivery-Indefinite Quantity contract for iRobot PackBot® EOD robots, spare parts, training and repair services. The award was granted by the Naval Air Warfare Center Training Systems Division on behalf of the Robotic Systems Joint Project Office at Redstone Arsenal, Ala. Under the terms of the IDIQ contract, the military could order up to the full $64.3 million value in robots, spare parts, training and repair services.
The robots purchased under this contract will be used to support U.S. forces in Iraq, Afghanistan and elsewhere, to conduct the critical mission of identifying and disposing of Improvised Explosive Devices (IEDs). To date, iRobot has delivered more than 500 PackBot robots to a broad range of military and civilian customers around the world. These robots have performed tens of thousands of missions in Iraq and Afghanistan and are credited with saving scores of soldiers’ lives.
“This contract serves as a testament to the role the PackBot plays in soldiers’ lives as they face IED threats every day,” said Vice Admiral Joe Dyer (U.S. Navy, ret.), executive vice president and general manager, iRobot. “Warfighters have embraced the PackBot not just for its life-saving utility, but also for its superior ruggedness and versatility in combat.”
iRobot is a leading developer of robots for the U.S. military. The company is building and delivering PackBot robots to meet current orders of more than $43 million for the Naval Sea Systems Command’s Man Transportable Robotic System program. As a lead partner on the U.S. Army’s groundbreaking Future Combat Systems program, iRobot is developing the Small Unmanned Ground Vehicle, which is based upon the combat-proven PackBot platform, to meet the needs of 21st-century warfighters.