iRobot Corporation's Defense Business Just Secured 2 Big Contracts

Because home robots are expected to generate around 90% of iRobot Corporation 's revenue this year, it's all too easy for investors to forget about the company's promising government-centric Defense & Security, or D&S, business. But that segment just offered the market a big reminder of its influence.

In a press release Monday, iRobot Corporation announced its D&S business unit has been awarded two indefinite delivery/indefinite quantity, or IDIQ, contracts with a combined ceiling of $96 million. Both are multi-year contracts, and came from the Naval Surface Warfare Center, Indian Head Explosive Ordnance Disposal Technology Division. Initial orders under the contracts have already been placed totaling $7.9 million.

iRobot's 510 Packbot, Credit: iRobot Corporation

That includes a $7.5 million order to be completed by September 2016 under the first contract, a $46.7 million deal for support services, upgrades, and spare parts for iRobot's Man Transportable Robotic System, or MTRS, MK1 robots. The MTRS MK1, for its part, is modeled after iRobot's widely recognized 510 PackBot model, and can be used for potentially hazardous tasks including ordnance disposal, surveillance and reconnaissance, chemical and nuclear threat detection, and HazMat operations.

A separate initial order of $374,000 has been placed under the second contract, which is a $49.1 million deal to allow for the production of new MTRS MK1 robots, as well as associated repair parts, spares, consumables, and accessories "to support configuration management and engineering enhancements."

In retrospect, the timing is no coincidence. Last week marked the end of the U.S. government's fiscal year, which means funds for the new year are becoming available. And recall almost exactly one year ago , the same military division placed a $7.6 million order for 46 MTRS MK1 robots, with all deliveries to be complete by the second quarter of 2015. At the time, the Naval Surface Warfare Center simultaneously awarded iRobot a three-year IDIQ contract to cover upgrades and spares for those robots with a total ceiling of $13 million.

That said -- and keeping in mind iRobot Corporation is set to release third quarter results later this month -- iRobot's D&S contracts around this time last year came much earlier than the company anticipated, so helped drive a significantly better-than-expected third-quarter 2014 performance. And even though the effect was a zero-sum game with respect to iRobot's full-year models at the time, that report still helped drive a 14% single-day pop in iRobot stock last October.

This raises the question: Was iRobot Corporation anticipating these orders when management disappointed investors by "merely" reiterating existing full-year guidance in July?

Keeping in mind that guidance implied what one analyst described as a "healthy ramp" in D&S segment sales, the best answer at this point is "Maybe." In light of that ramp, when asked during the subsequent conference call for clarification on what was driving a sequential decline in iRobot's D&S funded product backlog, iRobot CEO Colin Angle explained:

The way the orders are playing out this year is that we have a number of relatively significant contracts that are in late stage negotiation. And we have confidence as to the timing as to when they are going to come through. But they are not at a point where we would put them as of this call into formal backlog. And so we'll have a couple big orders to get to our bogie this year rather than a larger number of smaller orders or a singular large order.

If anything, then, the initial orders placed under these two new large contracts appear to represent at least part of the funds on which iRobot Corporation was counting to meet its full-year guidance.

That said, note these contracts came on the heels of multiple significant D&S orders that have arrived since last quarter's report. The first came in early August in the form of a $9.8 million order from the U.S. Marine Corps Systems Command for 75 SUGV robot systems, which are effectively smaller versions of the Packbot. The second came around two weeks later in a $4 million order from the U.S. Navy for its throwable model 110 FirstLook robots and accessories. Then in mid-September, iRobot announced multiple orders totaling $7.2 million from unnamed "U.S. and international customers" for its 110 First Look robots, the 310 SUGV, the 510 PackBot, and its heavy-duty 710 Kobra robots.

Because iRobot Corporation hasn't fully disclosed the time frames for all of these orders, for now it remains to be seen whether their sum total will be enough to meet or exceed the guidance iRobot has provided. But you can be sure the market will be listening closely later this month for how the D&S business performed. In the meantime, as a longtime iRobot investor, I'm encouraged knowing iRobot's D&S customers are pleased enough with its current offerings to continue following up with multiple new contracts of this magnitude.

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The article iRobot Corporation's Defense Business Just Secured 2 Big Contracts originally appeared on

Steve Symington owns shares of iRobot. The Motley Fool owns shares of and recommends iRobot. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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