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iROBOT Corporation (NASDAQ:IRBT)

Q3 2009 Earnings Call

October 22, 2009 8:30 am ET

Executives

Elise Caffrey - Investor Relations

Colin Angle - Chairman, Chief Executive Officer and Co-Founder

John Leahy - Chief Financial Officer

Analysts

Jim Ricchiuti - Needham & Company

Mark Strauss - JPMorgan

Alex Hamilton - Jesup & Lamont

Josephine Millward - Dougherty & Company

Chris O’Brien - MFC Global Investments

Operator

Good day, everyone and welcome to the iRobot Third Quarter 2009 Financial Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Elise Caffrey of iRobot Investor Relations. Please go ahead.

Elise Caffrey

Thank you, and good morning. Before I introduce the iRobot management team, I'd 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.

This conference call may contain express or implied forward-looking statements relating to the company's financial results, operations and tax rate for fiscal 2009 and the fourth quarter ending January 2, 2010, our financial position at the end of fiscal 2009, demand for the company's products and services, the timing of the FCS Program, our plans for expansion and new product development, backlog for our Government and Industrial robots and business conditions.

These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in the forward-looking statements.

In particular, the risks and uncertainties include those contained in our public filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or circumstances or otherwise.

During this conference call, we will also disclose various 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 and non-cash stock compensation expense. A reconciliation between net income and loss, the GAAP measure most directly comparable to adjusted EBITDA and adjusted EBITDA is provided in the financial tables at the end of the Q3, 2009 earnings press release issued last evening, which is available on our website www.irobot.com.

A live audio broadcast of this conference call is available on the Investor Relations page of our website and an archived version of the broadcast will be available on the same webpage, shortly. In addition, a replay of this conference call will be available through October 29, 2009 and can be accessed by dialing 719-457-0820, access code 7344142.

On today's call, iRobot Chairman and CEO, Colin Angle will provide a review of the company's operations and achievements for the third quarter of 2009 and year-to-date, as well as our outlook for the business for the rest of the year. And John Leahy, Chief Financial Officer, will review our financial results for the third quarter of 2009. Then we'll open the call for questions.

At this point, I'll turn the call over to Colin Angle.

Colin Angle

Good morning and thank you for joining us. I'm pleased to report that we delivered another solid quarter in a very challenging environment. Revenue of $79 million was near the top end of our expectations for the third quarter. Earnings per share of $0.10 and adjusted EBITDA of $8.4 million, significantly exceeded expectations for the third quarter.

Based on our performance for the first nine months, we are reaffirming our full year revenue expectations and increasing our expectations for earnings per share and adjusted EBITDA.

For the full year, we expect revenue to be in the range of $295 million to $305 million, earnings per share between $0.02 and $0.06 and adjusted EBITDA between $15 million and $18 million. Our quarterly and year-to-date results demonstrate the underlying strength of our business and reflect our success in managing costs and working capital in a difficult environment, and delivering on our commitment of improved profitability and operating cash flow.

At the end of the quarter, our cash position improved significantly to $63 million from $27 million a year ago. Inventory levels improved and now stand at $25 million versus $43 million last year reflecting better co-ordination of home robot sales and production planning and our laser focus on working capital management.

A critical component of improving our financial position over the past year has been driving adjusted EBITDA and operating cash flow. Year-to-date, adjusted EBITDA has increased $9 million and we've generated $25 million of operating cash flow.

Strong demand for our Roomba 500 robots in international market continues to fuel home robot growth overseas. In the United States, stronger retailers are our best customers and we benefited from their accelerating orders into Q3.

We started our peak holiday season with limited visibility and a great deal of uncertainty. However, we have executed well in the third quarter by tightly managing inventory, while meeting customer demands, and are well-positioned to deliver our full-year expectations.

In our Government & Industrial division, we've now captured 100% of G&I's annual revenue that is contemplated by our full year revenue expectations, as a result of orders received for our PackBot robots from the U.S. military during the quarter and are well on our way towards building backlog for 2010.

Now, let's look at our results in detail. In home robots, revenue totaled $44 million for the quarter compared with $54 million for the comparable quarter last year. Our international business, which increased 55% year-over-year and is up 39% year-to-date, continues to demonstrate the strength we anticipated coming into the year. This growth partially offset the year-over-year recession-driven decline in domestic retail and direct revenue.

Building on the success we've experienced in Europe and Asia, we are preparing for expansion into the South American markets in 2010. We plan to enter that market through relationships with distributors consistent with our current international operating structure.

Domestic retail and direct sales for the quarter were down from the same period last year as anticipated in part due to comparison with a particularly strong Q3 in 2008. We are working closely with our customers to support a number of holiday programs.

In addition, we will set up kiosks in Atlanta and Indianapolis for the upcoming holiday season based on the success we had with our pilot holiday kiosk last year. At this point, it is still difficult to say whether the decline in customer spending has hit bottom, but I am optimistic about our prospects for the holiday.

In the G&I division, we generated $34 million in Q3 revenue, compared with $39 million a year ago. Approximately three-quarters of the 159 government robots shipped during the quarter were PackBot 510 EODs, the enhanced version of PackBot we began to deliver in the second quarter of this year.

We received orders totaling more than $55 million, during the quarter, including a $35 million order for 486 PackBots with FasTac Kits, the single largest order we have ever received from the military, and an order for 90 SUGV 310s, also referred to as the mini-EOD. We did not issue a press release for the SUGV order at the customer's request.

The delivery schedule for the robots will enable us to meet our 2009 G&I revenue expectations and start the New Year with product backlog between $20 million and $25 million. This compares very favorably to the $8 million backlog at the beginning of 2009.

The timing and procurement structure for the FCS program is becoming more clear. First, the FCS program has not been officially renamed, but is referred to by the Army as Brigade Combat Team Modernization. The program has two increments. The first increment, for three early Infantry Brigade Combat Teams will involve 124 SUGVs, Small Unmanned Ground Vehicles.

The second increment will field equipment for additional Brigade Combat Teams. We are currently working a Low Rate Initial Production proposal to support the first increment. We expect to be on contract for this effort in the first quarter of 2010.

In addition to supplying robots to the U.S. Government, we continue to make inroads in international markets. Through the third quarter, international revenue increased 54% to $9 million, or 10% of G&I product revenue compared with $6 million or 6% last year. We added three new international customers this quarter including Iraq. The Iraq order was the largest international order we've received for both PackBot FasTac and PackBot 510 EOD configurations. We see Iraq and Afghanistan as major growth opportunities moving forward.

We'll continue to invest in areas where we see opportunity to create high value products with high software and IP content that leverage our platforms, in order to improve competitive positioning and drive increased product margins over time.

In our G&I division, we're developing advanced capability robots for military missions requiring more autonomy, such as automatic route clearance. Efforts in our Maritime Programs are focused on long duration underwater missions, such as those enabled by Seaglider. And we are pursuing development of new sophisticated home robots that will meet our customers needs in growth areas, such as healthcare.

In summary, both of our businesses performed well in a difficult environment, while we continued to invest and build upon our competitive advantages.

Over the past year, we acquired Nekton to enter the unmanned underwater space, delivered our first SUGV 310 the mini-EOD and Seaglider units. Increased headcount by 7%, primarily in government funded research and development and engineering since year end. Ramped up two new contract manufacturers and filled several key management positions with seasoned financial and operations executives.

We are successfully executing our plan for 2009 and are on track to meet our increased expectations.

I will now turn the call over to John to review our third quarter financial results.

John Leahy

Thank you, Colin. Our performance in the third quarter was near the top end of the range for expected revenue, while earnings per share and adjusted EBITDA far exceeded our expectations. Revenue of $79 million was down 15% from a very strong third quarter last year when revenue grew 45%, however growth in our international home robot business continued to be robust, up 55% from a year ago.

Earnings per share for the quarter was $0.10 compared with $0.15 per share in Q3 last year. EBITDA for Q3 was $8 million, down about $1 million from a year ago, but on a year-to-date basis EBITDA has improved $9 million over 2008.

Operating cash flow of nearly $25 million year-to-date has driven our cash position to $63 million, up $36 million from Q3 last year. Our focus on driving EBITDA and cash flow has produced strong year-to-date results.

In the Home Robot division, shipments of 289,000 units generated $44 million in revenue during Q3, compared to 355,000 units and $54 million in revenue a year ago.

International revenue increased 55% in the quarter year-over-year and comprised approximately, 50% of home robot revenue for the quarter. All five of our top international markets have delivered strong growth year-to-date.

In the G&I division, total revenue was $34 million in the quarter compared with $39 million a year ago. This year-over-year decrease was expected given order timing.

Revenue was driven primarily by fulfillment of orders for the PackBot 510s. As Colin mentioned, our product backlog at the end of the quarter was $71 million, up from $18 million at the end of Q2 and nearly double the level at the end of Q3, 2008. Backlog is sufficient to meet 100% of G&I’s 2009 revenue expectations, and we will start the New Year with product backlog between $20 million and $25 million.

Contract revenue increased 84% in the quarter, due largely to funding under the FCS development contract. G&I product revenue was $25 million in the quarter, compared with $34 million last year. Product Lifecycle Revenue was $5 million or 22% of product revenue, compared with 18% of G&I product revenue last year.

For the total company, gross margin for the quarter was 30.8%, about even with last year. Operating expenses improved $2.9 million year-over-year in Q3. Expenses in the quarter totaled 25% of revenue, unchanged from last year.

The overall reduction in operating expenses was driven by tight spending controls across the company. On a year-to-date basis, operating expenses are 30.5% of revenue, improving from 32.6% in the comparable period in 2008.

Our tax rate for Q3 was 38.5% versus 29.5% in Q2. For Q4, we are forecasting a 35% tax rate, and 29% for the full year.

Operating cash flow was nearly $13 million compared with a use of cash of 500,000 in Q3 last year. This significant improvement resulted from continued reductions in inventory levels. Over the past nine months, we've generated operating cash flow of $25 million as a result of our focus on managing working capital, and improved EBITDA.

Days sales outstanding were 54 days, compared with 52 at the end of the second quarter, and 48 at the end of Q3 last year. The increase in DSO was largely due to the timing of orders late in the quarter.

Inventory levels improved further to 25 million, down from 29 million at the end of the second quarter, and improved 18 million from 43 million a year ago. Inventories typically grow in the third quarter due to seasonality, so this is a significant accomplishment for our operations teams.

At the end of the third quarter, we had cash and investments totaling $63 million compared with $27 million a year ago.

To summarize, we performed well against expectations in a difficult environment and continued to strengthen the company's financial position. We will continue to aggressively manage the key drivers of valuation, EBITDA and operating cash flow, while continuing to invest in our future.

Now I'd like to turn the call back to Colin.

Colin Angle, Chairman, Chief Executive Officer and Co-Founder

Thank you. We had a very strong third quarter, and we are on track to meet our increased full year expectations. I feel confident about our ability to deliver results that continue to move us toward our long-term revenue goal, adjusted EBITDA and cash flow goals, while investing in our future.

In summary, we ended the third quarter with nearly $63 million in cash and generated year-to-date operating cash flow of $25 million, as John has said. We grew our international home robot business substantially. We received our largest single order from the military and near-term and long-term outlooks for our G&I business are excellent. And we are focused on delivering on our commitment to improving profitability through leveraging our operating model and investing in higher value, higher margin robots.

Before we take your questions I’d like to provide you with our financial expectations for the fourth quarter. We are expecting Q4 revenues to be in the range of $98 million to $108 million.

For Q4, we are expecting earnings per share between $0.09 and $0.13. And we expect our adjusted EBITDA for Q4 to be between $7 million and $10 million. We are reaffirming our full year 2009 revenue expectations and increasing expectations for earnings per share and EBITDA. For 2009, we anticipate revenue to be in the range of $295 million to $305 million, earnings per share between $0.02 and $0.06, and adjusted EBITDA to be between $15 million and $18 million.

With that, I will open the call to your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we’ll go first to Jim Ricchiuti of Needham & Company.

Jim Ricchiuti - Needham & Company

Question on the guidance for Q4, and in general, the mix of business. It sounds like it’s going to be more heavily skewed toward the military market, and I would assume that’s also the implication for gross margins being lower than Q3 levels. Is that correct?

John Leahy

Well, Jim, for Q4 we expect with the range of guidance we’ve given for revenue, we expect both businesses to perform well. Revenue wise in Q4 both divisions will have relatively the same level of revenue, although, of course, as you know, the seasonality is more skewed with HRD to the back half. But the forecast does not call for revenue performance from either division out of line with about a 50-50 split.

Jim Ricchiuti - Needham & Company

Okay. I guess what I’m trying to get my arms around, John, as I look at the guidance for Q4, what’s the outlook for gross margins? Or possibly are we seeing some change in operating expense levels relative to Q3? For instance, your R&D actually came in a good deal lower than I was anticipating. Is there any guidance you can give or any sense as to where you see some of these expense items going in Q4?

John Leahy

Well, I think that, obviously, our EBITDA has been aided by tight control over expenses throughout the year and you saw that in Q3 as well. We would expect for continued tightness in Q4. Although one thing to keep in mind is that within HRD, Q4 is heavily influenced by direct sales, and the fulfillment costs for direct do run through the sales and marketing line and operating expenses.

So with our expectations for HRD revenue in Q4, the variable component of that tied to direct will increase in the quarter. So that would be an uptick in run rate from what you would have seen in Q3 or earlier.

Colin Angle

We are predicting a record quarter for the G&I division and so, well, typically the split between divisions is not 50-50 in the fourth quarter. And so you will see relative to prior years a higher G&I content in the fourth quarter, which causes our margins to shift somewhat relative to past years. But both divisions, we are anticipating to have strong fourth quarters.

Operator

And we’ll take our last question from Paul Coster, JP Morgan.

Mark Strauss - JPMorgan

It’s actually [Mark Strauss] on behalf of Paul. Could you just give a little more color on where we are in the European channel fill, and then maybe expand a little bit more on the international home robot kind of roadmap I guess? So maybe expand a little bit more on the South America opportunity.

Colin Angle

Okay. So first, the European channel fill question, we don’t believe that I think we are well beyond channel fillers as a major driver of business and are seeing reorders driving all of the gains we are currently seeing. So that is a robust business and mature business and one that is strongly growing as we roll out. So I think that’s a good, sustainable steady state opportunity.

The South American business, the way it’s likely to grow in 2010 is similar to what we saw in the early stages of Europe. So I wouldn’t expect a giant filling of the stores. I’d think it’s going to be more incremental, where we choose a limited set of distributors, understand how to best position the market and the product for sale in the marketplace, and gradually ramp up over time. So if you remember back when we introduced a new generation of product into a mature market in North America, you had a huge inflow of new product. That’s not what we are anticipating in South America. We view it as incremental and good business.

Mark Strauss - JPMorgan

Got you. Okay. So in South America, you’d be targeting more of the holidays?

Colin Angle

We will be there for the holidays next year. But we will be talking about it as we ramp up and giving indications as to how that’s going throughout the year.

Mark Strauss - JPMorgan

And then can you just explain the pretty dramatic jump in military ASPs during the quarter?

Colin Angle

I think that all has to do with channel mix. And the 510 robots that we were able to ship are higher price point robots and the FasTac robots, which were the majority of the robots sold earlier in the year.

John Leahy

It’s also influenced, for example, with the SUGV, the fact that right now, we are at lower volumes, and so therefore we enjoy a higher price point. As those volumes ramp up, the government will get some improved pricing due to scale. But we are benefiting from the lower volumes at this point relative to pricing.

Operator

We’ll go next to Alex Hamilton of Jesup & Lamont.

Alex Hamilton - Jesup & Lamont

Question, you have a new focus on profitability, which is, obviously, driving results. I guess can you explain why the kiosks is in, what did you say, Atlanta and Indianapolis? And I would assume those are pretty profitable, why there and why not elsewhere?

Colin Angle

Well, we want to get the recipe right before we blow this out in a huge way. And so that, like we treat other direct opportunities, we do it once. We learn from it. We get some promising ideas about how to do it better. We try it again, and then we expand distribution further.

And so that the learnings that we got from the first experiment with kiosks were very promising, but I don’t think we believe we had all of the recipe appropriately polished for a global or at least a full national rollout. So this is another year where we think we’re going to have a nice result from kiosks. And you should expect if we have the success we hope for, a much larger program next year. So it’s us being methodical.

Alex Hamilton - Jesup & Lamont

Okay. And then just one other question. I know it was answered, but I was kind of running around here. It’s earnings. Our hair is on fire. I mean, once again you guys are concentrating on profitability, and I understand that. R&D came down. Is that sort of the run rate we should expect going forward? Or how is R&D looked at now?

Colin Angle

Well, let’s remind ourselves that 2009 was one of the worst recessions since the Great Depression. And we are very focused on making sure that we operate this company in a prudent fashion, so that we were less aggressive in investing in R&D than we might have been in a different year. But we still put substantial dollars in both internal research and development and supported research into the development of new products.

So I think that on an absolute dollar basis we were relatively consistent with what we’ve done in the past. And I think that you’ll see IR&D on a absolute basis and on a percentage basis increase over time as we benefit from improving economic circumstances and have more predictability about the U.S. government’s appetite for our robots improves.

John Leahy

And Alex, just to add to that, a metric, which we track carefully is our total R&D on a rolling four quarter basis. In Q3, ‘09 versus Q3, ‘08 total R&D, so that’s both internal and then funded by the government, was up almost $5 million year-over-year and was up as a percentage of revenue about 300 basis points year-over-year to about 15.5%.

So as Colin said, we’ve been managing our internal expenditures, obviously, very carefully and aggressively. But at the same time, we’ve invested in the capability to go out and continue to win contract revenue from the government. So we’ve seen good success there, and it certainly helped boost our overall R&D spend year-over-year.

Colin Angle

Part of the cool aspect of our business model is that we don’t have to invest IR&D. And as we continue to be successful finding government support, we can maintain a very large commitment to inventing future products and improving current products.

Alex Hamilton - Jesup & Lamont

Great. Thanks. And then can you just expand on one thing? You made a comment that kind of picked up my ears that you think you are going to benefit from Iraq and Afghanistan. Can you just talk about that maybe in 30 seconds? I thought that was interesting, considering, I mean right now Obama is re-looking at his strategy and, obviously, the operational tempo there seems to be drastically different than where it was at the beginning of the year. So can you talk to that sort of with all these moving parts, where do you see you coming out in a year or two?

Colin Angle

Well, the comments about Iraq and Afghanistan were in the section concerning international sales. And so was less to do with our current administration’s view of operational tempo in those nations and more to do with those countries’ own military forces acquiring the capability to deal with roadside bombs and IEDs organically.

And it’s taken a while to have those governments have sufficient stability and organization to purchase this type of equipment. But we are starting to have some success there and, as I mentioned, have a recent significant sale to the Iraqi government of our PackBot robots. So this is a new front for our sales and marketing teams, and we believe it will be a fruitful one to continue to pursue over time.

Operator

And we’ll go next to Josephine Millward of Dougherty & Company.

Josephine Millward - Dougherty & Company

Colin, I was wondering if you can help me out. Since almost half of your government business is funded by money outside of the traditional defense space budget, we have very limited visibility other than the MTRS program and maybe the SUGV. Can you help us think about how you expect the SUGV to ramp next year? And what other areas are you looking at for growth?

Colin Angle

Okay. Well, the main areas where the SUGV is going to find purchase, at least, is this new Brigade Combat Team Modernization program with the two increments. That as I am sure you are aware is still quite nebulous. But the first increment is starting to solidify. We've got orders for 102 of these SUGVs. We've delivered 12, and we will be delivering most of the remaining 90 on that order in Q4. And then the increment one SUGVs will be coming next year. And the timing of increment two and the magnitude of increment two is still being worked out.

So we are going to have to live with a little bit of uncertainty. But to offset that uncertainty is the rapidly growing backlog that we've been able to book to date and believe will continue to increase through the end of the year. And so we like our bundle of contracts, and it gives us confidence about improving fortunes as the clock moves forward. But it's difficult to say definitive things, and it is not our habit to be overly speculative in pointing at we expect to get this contract or that contract. So it is a basket of potential that gives us the confidence we have, as well as our very large backlog.

Josephine Millward - Dougherty & Company

In terms of the first increment of the SUGV deployment, I understand the Army wants to deploy that to three brigades, but I think their target is to one brigade for next year. I mean is that consistent with what you’re hearing?

Colin Angle

That does not sound consistent with what I'm hearing. We are talking about equipping the three early Combat Brigade Teams as part of increment one. There is lot of excitement, there is a lot of momentum behind the acquisition of robots, and then the acquisition of the mini-EOD or the SUGV 310 continues to add on top of the 320s.

So we are currently working on a Low Rate Initial Production proposal to support the first increment. And as I said, we believe we will be under contract in the first quarter of 2010; and as that happens we'll have a lot more information for you.

Josephine Millward - Dougherty & Company

Okay. In terms of the Iraqi and opportunity in Afghanistan, are you referring to foreign military sales? Or is the Iraqi government actually funding the purchase of PackBots with their own money?

Colin Angle

It’s foreign military sales.

Operator

And we’ll go next to Chris O’Brien of MFC Global Investments.

Chris O’Brien - MFC Global Investments

I just want to follow up on Josephine’s questions on the Brigade Combat Team Modernization Program. I see that the program includes three brigades in the first increment. How many brigades are there? And what’s the potential for the second increment and future opportunities?

Colin Angle

Chris, I am not going to speculate on the size and timing of the second increment just because it is in flux and I don't want to set expectations. But it’s consistent with what we've said in the past. There is a tremendous opportunity and we’ll give you more information as it comes out.

The first increment is the three Early Combat Brigades. And there is a stated expectation from the SecDef that he believes that all of the combat brigades ultimately are going to have this type of capability. And so we are very excited about this, and we think that product and material is going to start to flow in 2010. And it's our expectation and our experience that as soon as the soldiers have this type of equipment their demand for it increases, the utility and uses of the robots in the military accelerate, and things grow very nicely. So we're excited about it.

Operator

And we’ll go next to our follow-up question from Jim Ricchiuti of Needham & Company.

Jim Ricchiuti - Needham & Company

Colin, you made a comment in your introductory remarks, when you talked about some development efforts for new robots, new home robots that would address healthcare. Are you talking about a consumer product here?

Colin Angle

One of our long-term beliefs, strongly held, is that robots play an important role in extending independent living. We have talked a little bit about it in Analyst Day and I'm actually giving a talk at TEDMED conference next week on the applicability of robots in this emerging area. So it's a continuing interest of the company and we believe that we have technology that could be very useful in it. But that's not to be confused with near-term product. But it is a very exciting emerging opportunity.

Jim Ricchiuti - Needham & Company

Okay. And then if I could ask one final question. Just with respect to the holiday season, you said you are optimistic, and I wonder, do you feel that the U.S. retail business has bottomed out in terms of looking at the business, the demand for the holiday season? Are you optimistic just, in general, with the international and domestic; international having performed so well this year?

Colin Angle

Well, I can say that instead of all of the reports back from retailers being depressing and gloomy, we're starting to see some of the stronger retailers showing some gains and movement in the right direction. So that's not to be confused with the bottom is here, but at least we're seeing some positive news in a situation where prior to this quarter, it was all bad.

So take that for what you will. We're optimistic because we think we have realistic expectations as to what we're going to sell in the fourth quarter. And we feel like based on the sales velocity we're seeing, we should be able to meet those. So, we see a great recovery, we're going to be short on product and will make us even more optimistic about 2010.

Operator

And we'll take our final follow-up from Josephine Millward of Dougherty & Company.

Josephine Millward - Dougherty & Company

The $35 million FasTac order you received, can you give us a little color on who those robots are going to, is going to infantry or combat engineers. Just the application behind those robots?

Colin Angle

The FasTac program is meant to give the soldiers an organic capability to address IEDs. The purpose of the FasTac program was because the regular infantry was finding itself increasingly threatened by the roadside bombs, it was a substantial impediment to the pace of operations to have to call in a EOD team at every instance. And so that by putting the FasTac robots in with the regular infantry, it allowed them to deal with that in some situations. So it's a motivation and the procurement contract most recently received continues to procure robots into the regular infantry to address that particular mission. They're going to be delivered before the end of March, so over the next six months. And that's we're at.

Josephine Millward - Dougherty & Company

What about mini-EOD robots? Are they going to a different area within the Army, because they have a different applications because they --?

Colin Angle

I'm sorry, I can't discuss the application of the mini-EOD robots. We were asked not to have a detailed press release on it, and we're able to talk about it on the call only because it was material.

Josephine Millward - Dougherty & Company

Okay. Can you give us an update on your contract R&D funded backlog? I understand you still have some funding left there from the FCS program; anything else that we should know about?

Colin Angle

We continue to be very successful writing and winning recent developments contracts. I think we had a press release for several million in new contracts recently announced. This is a long-term commitment from iRobot to look at both blue-sky research on technologies like the Amorphous, reconfigurable chemical robots to very applied research like the contracts we won to support the development of PackBot and SUGV.

So this is a long-term commitment, something that we have had success for a number of years winning and believe that, the rate of winning new contracts may not match the rate of growth of the company over time, it will always be an important part of our business model and how we're able to support such a large R&D efforts to keep our technology and our platforms at the cutting-edge of what is technically possible.

Josephine Millward - Dougherty & Company

One final question, can you give us an update on the undersea vehicle business and how that's tracking and in terms of new opportunities, growth areas that you're looking at for next year?

Colin Angle

Sure. The Seaglider is the main commercially available undersea robot that we're selling. We've sold nine of these systems so far. We have a healthy backlog, and we see continuing ramps in these orders. So it's a small but exciting opportunity for us and we continue to develop the [SeaRanger], although that is not expected to be a commercial product in 2010 at this time. And the Maritime division also is the recipient of significant number of research and development contracts that continue to fund our technology development. So it's a very good emerging dimension to our business.

Josephine Millward - Dougherty & Company

Colin, did you say you sold nine Seagliders to commercial customers so far? Did I understand that correctly?

Colin Angle

But they're sold mostly to universities at this point. But nine are ordered and we've delivered four and we have the rest in backlog.

Josephine Millward - Dougherty & Company

And the ASP on a Seaglider?

John Leahy

Josephine, it depends upon how it's outfitted, but roughly 150 to 200K per Seaglider.

Colin Angle

All right, well that concludes our third quarter earnings call. We appreciate your support and look forward to talking to you again in February when we'll provide Q4 results, full year 2009 results as well as our expectations for 2010.

Operator

And that concludes our call. Participants may now disconnect.

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Source: iROBOT Corporation Q3 2009 Earnings Call Transcript

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