iRobot Corp (IRBT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the iRobot first quarter 2010 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.

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 2010, the second quarter ended July 2, 2010, third quarter ending October 2, 2010, and the fourth quarter ending January 1, 2011; demand for the Company's products and services; the timing of funding and contract awards under the FCS program, now referred to as the Brigade Combat Team Modernization program; our plans for expansion and new product development; backlog and demand for our government and industrial robots and related parts and services; demand for our home robots; mix of product revenue; 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 noncash stock compensation expense.

A reconciliation between net income, the GAAP measure most directly comparable to adjusted EBITDA, and adjusted EBITDA is provided in the financial tables at the end of the Q1 2010 earnings press release issued last evening, which is available on our website, www.iRobot.com.

A live audio broadcast of this conference call is also available on the Investor Relations page of our website, and an archived version of the broadcast will be available on the same web page following the call.

In addition, a replay of this conference call will be available through May 6, 2010, and can be accessed by dialing 617-801-6888, access code 78238271.

On today's call iRobot Chairman and CEO Colin Angle will provide a review of the Company's operations and achievements for the first quarter of 2010, as well as our financial expectations and outlook for the business for the rest of 2010, and John Leahy, Chief Financial Officer, will review our financial results for the first quarter of 2010 and provide additional detail on our 2010 financial expectations.

Then we'll open the call for questions.

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

Good morning, and thank you for joining us.

I am very excited to report that we delivered revenue of $95 million for the first quarter, well in excess of our expectations and 67% greater than Q1 revenue in 2009.

Adjusted EBITDA and EPS of $14 million and $0.24, respectively, also far exceeded expectations.

As a result of outstanding performance by both divisions in the first quarter and good visibility on the rest of 2010, we are increasing our full-year financial expectations substantially.

We now expect full-year 2010 revenue of between $375 million and $385 million, an increase of more than 25% over 2009; adjusted EBITDA of $30 million to $34 million, an increase of more than 40% year over year; and EPS of $0.35 to $0.40, which is more than double our 2009 EPS.

The profitable growth was driven by both divisions.

Most of the home robot revenue increase was due to strong sell-through in the European markets driving greater demand as well as acceleration of orders from out quarters into Q1 and increased contribution from US domestic channels.

G&I's growth resulted from shipments of more FasTacs and spare parts than a year ago, as well as the sale of Small Unmanned Ground Vehicles and Seagliders, both new products since Q1 of 2009.

Our Q1 performance, couple with a solid backlog in our government division, will result in a stronger Q2 and full-year 2010 than we had anticipated in February.

Our continued focus on strengthening the balance sheet resulted in quarter end cash and investments of $85 million, up significantly from $55 million a year ago.

A critical component of improving our financial position over the past year has been driving adjusted EBITDA and operating cash flow.

Adjusted EBITDA was $14 million, or 14% of revenue, compared with a loss in Q1 2009.

And we generated $11 million of operating cash flow in the quarter.

We commemorated the 20th anniversary of the Company's founding in March, and I can't think of a better way to celebrate it than by delivering our first profitable Q1.

Demand for our products worldwide continues to grow, and we demonstrated our ability to achieve mid-teen adjusted EBITDA margin, consistent with our three-year financial plan.

The US economy is slowly recovering, and we are seeing growth in home robot domestic markets, while demand overseas continues to fuel total divisional growth.

In the military business, other government contractors are experiencing program delays, but continued demand for our robots from soldiers in theater is driving the military leaders in Washington to place orders with us through a variety of contracts and programs.

These dynamics position us well to deliver an even better year than we had anticipated in February.

In home robots, strong demand for our Roomba 500 robots in international markets continued to fuel home robot growth.

Home robot revenue overseas more than doubled in Q1 versus the prior year.

Very low inventory levels at year end, coupled with strong sell-through, have encouraged much more aggressive buying habits in our existing customer base.

We've begun selective expansion into Eastern European countries and are on track to enter Latin and South American markets for the year-end holiday season.

In the United States, we met our modest growth expectations, but, more importantly, we improved our domestic profit margins through more strategic placement of product in select channels.

As the marketplace matures and Roomba becomes better known and more widely accepted, customer value and are more willing to pay for our more fully featured, higher end, higher margin robots.

Consequently, we have pulled back from more discount-oriented channels.

Tremendous growth in our international business has afforded us the opportunity to pursue a strategy of profitable growth in the United States.

In March, we entered into a manufacturing agreement with Jabil Circuit, Inc.

under which they will produce our Roomba 500 Series robots.

The addition of a third home robot manufacturing partner will provide iRobot with numerous benefits, including diversifying key elements of our supply chain, providing flexibility and expansion of overall capacity.

Jabil has been supplying our G&I division with circuit boards for our PackBot robots since 2006 and will now provide reliable and cost-effective solutions for iRobot's consumer products.

We are often asked about the competitive landscape and how we view the competition.

There has been considerable press about several Korean competitors entering the European market.

We actually view this as healthy for the category, since overall penetration and awareness are still quite low.

We will continue to focus our energy on designing and producing the high quality of robots on which we have built our worldwide brand, while making sure that we have the right mix of pricing, channels, distributors to support our leadership position.

We also have a robust patent portfolio.

By innovating and carefully monitoring competition trends, we continue to invest in additional patent assets that we believe provide a competitive advantage for our growing business.

I'm very excited about our opportunity for home robots.

Our strong Q1 results are especially significant in this highly seasonal business and could represent a shift in the model, as international demand for consumer electronics tends to be less seasonal.

We are confident about our increased full-year expectations despite the continuing concerns over a recession in Western Europe.

Our government and industrial division's results were also very strong for the quarter, as we delivered 154 PackBot FasTac robots ordered under contracts we received in Q3 last year from the Robotics Joint Program Office.

In addition, we shipped 69 Small Unmanned Ground Vehicles, or SUGVs, primarily SUGV 310s, under existing contracts, and we anticipate additional orders this year.

At this point we have greater than 50% visibility of G&I's annual revenue contemplated by our full-year guidance.

This compares favorably to 40% at the same point last year.

Visibility is defined as shipped products, services rendered, executed contracts to be performed and funded product backlog expected to ship this year.

Because the landscape in Washington continues to change, I'd like to take a minute to provide you with our view of it and our current expectations for robot orders in 2010, beginning with the Army Brigade Combat Team Modernization, or ABCTM, program.

The Defense Department -- Department of Defense 2011 procurement budget increased over last year's, and the Joint IED Defeat Organization, a major funding source for robot development and procurement, was one of the winners.

Specifically, the Army's procurement budget increased by approximately $3.5 billion in 2011, to $33.7 billion.

First on the list of the Army's development priorities is the restructured FCS ABCTM program, with funded development of $1.6 billion.

The program has two increments.

The first increment is for three early infantry brigade combat teams and will involve 124 SUGVs.

The second increment will field equipment for additional brigade combat teams.

We've been given an authorization to proceed for a low-rate initial production, or LRIP, contract, to support the first increment and will deliver 45 LRIP robots in 2010.

Procurement budgets for our other two prime customers, the Navy and the Marine Corps, are also up year over year.

It is difficult to find the specifics on robot funding within the publicly available DOD budget, but the macro trends are positive.

Even more encouraging, the informal planning guidance we are receiving from our customers is positive and reflects the utility of our smaller, lighter robots operating in Afghanistan.

I should also note an important sea change in our government procurements.

With the beginning of the LRIP we are seeing a change in the source of our procurement funding from wartime supplemental to program of record funding.

Programs of record are much more sustainable over the long haul, and this reflects the priority the U.S.

government is placing on unmanned systems.

This view is consistent with our outlook in February, and we continue to expect roughly equal revenue contributions from SUGV and PackBot for the full year, with the vast majority of SUGV revenue coming from the sale of the SUGV 310 robot.

A key component and growth driver of our government business is product life cycle revenue, or PLR.

Our rapidly growing installed base of robots requires spare parts, support, maintenance and training.

PLR, which is difficult to predict quarter to quarter given the uncertain timing of government orders, grew 82% year over year in the first quarter.

Providing software-enabled solutions through upgrades to robots in the field is an emerging opportunity, and we are expecting a significant opportunity to provide upgrades in the second half of the year.

Beyond supplying robots to the US government, we continued to make inroads in international markets.

International revenue in the first quarter increased 88% over the same quarter last year, and we are now doing business in more than 20 countries, 10 which we've added as customers in the past year alone.

In summary, both of our businesses are performing well in an uncertain environment while we continue to invest in and build upon our robot technology base and future products.

I am cautiously optimistic about a slow but steady recovery of the US economy that will support our home robot strategic initiatives to improve domestic margins.

Our international growth will be fueled by demand from existing customers and expansion into new markets.

An urgent need for our government robots in theater is fueling near-term demand, while their successful use in Iraq and Afghanistan has changed military doctrine, a positive indicator for the long term.

Because of our confidence in delivering better results than we discussed in February, we are increasing our financial expectations for the full year.

We expect revenue to be between $375 million and $385 million, roughly 25% growth over 2009.

For full year 2010 we expect EPS to be between $0.35 and $0.40 and adjusted EBITDA to be between $30 million and $34 million.

In the second quarter of 2010, which will be stronger than we anticipated in February, we expect revenue of $90 million to $95 million, EPS of $0.06 to $0.08 and adjusted EBITDA of $6 million to $8 million.

I will now turn the call over to John to review our first quarter results in more detail.

John?

Thank you, Colin.

Our performance in the first quarter was outstanding, with our first profitable Q1 on record and revenue at the highest Q1 level in our history.

Revenue, earnings per share and EBITDA all exceeded expectations.

Revenue of $95 million was up 67% year over year.

Growth in our international home robot business continued to be robust, more than doubling for the quarter year over year.

Likewise, our government business was up 76% for the quarter and had a $35 million backlog coming into the second quarter.

As a reminder, this follows a very strong Q4 in which quarterly revenue was the highest in the Company's history.

Earnings per share for the quarter were $0.24, compared with a loss of $0.07 in Q1 2009.

EBITDA for Q1 was $14 million, up from a small loss last year.

Operating cash flow of $11 million has driven our cash and investments position to $85 million, up $30 million from Q1 last year.

Our focus on driving EBITDA and cash flow has clearly produced strong results.

In the home robot division, shipments of 287,000 units generated $53 million in revenue during Q1, compared to 183,000 units and $33 million in revenue a year ago.

International revenue increased 108% in the quarter year over year and comprised 69% of home robot revenue.

Improvements in home robot gross margins were partly due to this increase in international as a percentage of total revenue and to more strategic placement of product in domestic channels, as Colin discussed.

In the G&I division, total revenue was $42 million in the quarter, compared with $24 million a year ago.

This increase was due to higher product shipments, primarily PackBot FasTacs, and higher contract revenue generated under the FCS development program.

Contract revenue comprised 21% of G&I revenue for the quarter, compared with 30% last year, and was up 22% year over year.

G&I product revenue was $34 million in the first quarter, compared with $17 million last year.

Product life cycle revenue was $8 million, or 24% of G&I product revenue, up from $4 million in 2009.

We expect PLR to average 25% to 30% of G&I product revenue annually, although it can vary significantly quarter to quarter.

Product backlog at the end of the quarter was $35 million, compared with $12 million at the end of Q1 2009.

This backlog position, coupled with our strong performance in Q1, gives us the opportunity to deliver a very strong first half and mitigate the historical seasonality in the back half of the year.

For the total company, gross margin for the quarter was 34.5%, compared with 28.5% last year.

The year-over-year increase was driven primarily by the improved home robot mix I mentioned earlier and overhead leverage in G&I.

Operating expenses improved as a percentage of revenue to 24% this year, from 35% Q1 last year.

The improvement resulted primarily from operating expense leverage and the deferral of some marketing expenditures until later this year.

Q1 operating cash flow was nearly $11 million, compared with $14 million last year.

Inventory was $30 million at quarter end, relatively flat from a year ago, and DII, or days in inventory, improved significantly over last year.

Accounts receivable continued to be well managed, as evidenced by our DSO of 28 days, compared with 42 days a year ago.

Over the past several quarters we have delivered significant improvements in operating cash flow resulting from our focus on managing working capital and, in particular, improvements in our inventory levels.

Operating cash flow in 2010 and beyond will be much more dependent, however, on improved EBITDA rather than further working capital gains.

At the end of Q1 we had cash including investments totaling $85 million, compared with $55 million a year ago.

Now I'd like to briefly provide you with additional detail for the financial expectations Colin discussed, as well as color on how we see the rest of the year unfolding.

For the full year, our expectations for home robot revenue have improved due to the strength of international, and we now anticipate a range of $205 million to $215 million in revenue.

G&I revenue expectations are unchanged for the full year, at $165 million to $175 million.

We expect roughly equal revenue contributions from SUGV and PackBot, with most of the SUGV revenue to come from the sale of the 310 robot.

We expect Q2 to be another strong quarter, and stronger than we forecast in February, fueled by greater than anticipated demand for home robots overseas and accelerated orders in G&I.

We anticipate revenue in the range of $90 million to $95 million, EPS of $0.06 to $0.08, and EBITDA of between $6 million and $8 million for Q2.

Our expectations for the second half of the year are for revenue to be relatively flat sequentially from Q2 to Q3.

Q4 revenues should be slightly higher than Q3, but lower than our record-setting fourth quarter last year.

This more even distribution of revenue between the first and second halves of the year greatly improves the probability of meeting our financial expectations.

We now expect improved full-year gross margins of 33% to 34% as a result of favorable mix management and savings in product cost realized through supply chain management in home robots and through overhead expense leverage in G&I.

We expect sales and marketing expense to increase between $4 million and $5 million in each of the third and fourth quarters over last year's spending to support the holiday season.

As a result, EBITDA and EPS will be lower year over year and sequentially when compared to our very strong first half this year.

Finally, we expect our increased full-year earnings to translate into stronger operating cash flow.

For the full year, operating cash flow will be roughly $25 million, and our cash and investments will be more than $90 million at year end.

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

I'm very excited to be talking to you today following great first quarter results, with the confidence to increase our full year financial expectations for both revenue and profitability.

Just to reiterate those expectations, we anticipate revenue of $375 million to $385 million, a year-over-year increase of 25% to 30%; EPS of $0.35 to $0.40, nearly triple over 2009; adjusted EBITDA $30 million to $34 million, up approximately 45% to 65% from last year.

We have weathered the worst of the storm but must continue to make robust and long-term investments in building for our future and maintain our market-leading position.

With that, we'll take your questions.

(Operator instructions).

And our first question comes from the line of Jim Ricchiuti, with Needham & Company.

Please proceed.

Hi.

Good morning.

Good morning.

Congratulations.

Quite a quarter.

I would like to understand a little better about the strength you're seeing in Europe, and I wonder if you could talk a little bit more about it in terms of the country strength, and if it's possible if you can give us some sense as to how many retail stores you may be in Europe and how that compares with, say, a year ago.

Sure.

So, the strongest performing regions internationally were grouped in Europe, and specifically you're looking at France, Italy, Spain and Canada -- well, Canada's not in Europe, but those are the regions where we're seeing the most favorable performance over expectations at the beginning of the year.

The way that we work with our distributors, we don't have the same type of data on true number of stores, but there is -- I can safely say we've seen a strong increase in the number of doors that we are currently in across those regions.

But primarily the driver is increase in same-store sales as we have been able to put more marketing dollars against raising awareness and as our international distributors are provided with better tools for communicating the benefits and the effectiveness of our products and that's turned into better conversion of customers into -- prospective customers into actual customers.

Colin, if I could just follow up, as well, in your commentary you talked about an acceleration of orders from some of the out quarters into Q1.

Can you talk a little bit more about that?

I'm assuming that you're focusing there again on Europe, and I wonder if you could just comment about that.

Well, what we have seen is because of the acceleration in demand, you have customers who are anxious to make sure that they have product to keep their -- keep the stores full, and so they are getting more aggressive such that their order profile is commensurate with their expectations of future demand, so that we see that as them being more aggressive and wanting more product sooner relative to the plans they submitted at the beginning of the year.

And as it relates to your guidance for the second half, it sounds as though you're assuming it may not keep up at quite that robust a pace.

And I don't want to put words in your mouth, but I'm just trying to reconcile the way you guys are looking at the second half of the year.

Well, remember that the buying profile in Europe is less seasonal than the buying profile here in North America.

And since most of the growth, the incremental growth that we saw in the first half, came from international markets, we're assuming continued strength internationally but not that traditional ramp in the back half that we see more typically in the US markets, so that it -- we're not saying it's going to let off, but it's -- we're not predicting the type of growth that we've seen in the past because of that changing customer base.

Okay.

Fair enough.

Thanks a lot.

Sure.

And our next question comes from the line of Paul Coster, with JPMorgan.

Please proceed.

Yes, thanks.

Colin, on the home robot side, can you -- is your hunch that the penetration level, the sort of adoption in Europe, is going to be stronger than in North America?

And can you say anything about the demographics of your purchasers or anything that might help us sort of understand the dynamics versus North America?

Well, I think the most fundamental point is that in both North America and Europe the penetration levels for Roomba are tiny, and so that the concept of saturation is very premature, so that what we're seeing is our distributors in Europe honing in on an effective strategy for turning -- well, (a) creating awareness for the products, and then turning those skeptics into purchasers, and they're doing it very effectively.

And in fact we're looking at some of the ways those distributors are doing it in Europe and applying some of those techniques here in the United States.

In the US, last year we saw some decreases in sales volume, but that we attributed to the devastating recession that we've all been slogging through.

And as the -- we fight our way out of that recession we're seeing new life and health in the domestic Roomba business, as well.

So from the perspective of demographics, I think that it is similar.

As far as the skew, I think, in the US, we may skew a little more female than we are in Europe.

But it's also the international markets are newer than the US markets, so that as you look at a total installed base, we're probably seeing demographics skewed a little more male in Europe because of the skewing of early adopters tends to have that type of gender skew to it.

Okay.

Got it.

The guidance, slightly sort of more balanced second half versus the first half, also applies to the military robots.

And the way I'm reading this is from your commentary is that, okay, you've had the LRIP requirement come through and you've got some -- obviously some excellent momentum near term.

And then either you're being a little bit conservative or you're saying then there's a little bit of a lull until the fiscal year '11 budgets really get sort of bound in and we start to see the real implications of pull-through demand from theater in Afghanistan and the growth will then resume in 2011.

Is that the right way to think about it, or am I off base there?

Well, I think that we're guiding to, even on the military side, to nearly 20% growth year over year.

So we view that 2010 is a very strong year for us.

Certainly, as we look at what is driving the growth in 2010, it's less procurement of the SUGV 320s under the Brigade Combat Modernization Program and more in the [COTS] version of the SUGV, the 310, and so that we're certainly not fully ramped up to be providing robots under that Brigade Combat Team Modernization.

But we still have that strong growth and launch of the SUGV representing nearly half of our G&I revenues, as well as the uptick in upgrades to the installed fleet.

So we think it's a great year.

We took up our guidance not based on the G&I dramatically improving over what we thought it would do in February but due to the international growth we saw on the home robot side.

So G&I healthy and as predicted, HRD, or home robots, substantially over-performing expectations.

Okay.

Paul, I would just add on G&I the year-over-year growth is somewhat skewed, actually, from how the revenue played out in 2009.

If you may recall, for G&I our revenue was very much loaded in the back half, in part due to the administration change and slow decisionmaking by the government.

And so the revenue performance is fairly steady in our projections for 2010, but the growth that that implies is skewed by the fact that so much of G&I revenue was in the back half last year.

Got it.

Okay.

On the BCTM, the modernization program, your original expectations were 3,600 units.

Is there any reason to think it's going to be materially different from that?

I'm suspecting here there's upside.

And do you think 2011 you'll see material acceleration in unit shipments for that program?

We believe that that program continues to be a program through which the largest orders will come.

And, as we've talked about, that program is just getting underway in 2010.

So it is reasonable to assume that in 2011 there'll be more significant orders.

But it's going to be a multiyear procurement program.

But, yes, that should be driving our revenues far more materially than they are in 2010, Paul.

And the 3,600 number is still a good sort of [model]?

That's what we've got.

We tried to explain in February how -- why we believe there's a 10,000- to 20,000-unit marketplace for infantry robots over the next seven years or so.

And certainly the Brigade Combat Team Modernization program represents a substantial portion of that logic, and we think that logic still holds.

Thank you.

And our next question comes from the line of Adam Fleck with Morningstar.

Please proceed.

Hey, guys, good morning.

Good morning.

Hey, question for you guys, I noticed the head count continues to climb here both sequentially and year over year, and I'm just curious, is that primarily on the engineering side or the marketing side and if you guys have a kind of target in mind there.

Well, you're right, Adam.

The head count -- we have not broadcast this heavily, but the head count has grown all through '09 based upon our confidence in the business, and versus Q1 of last year head count is up somewhere around 80 heads, up to, well, almost 570 heads.

So we see that as a good signal, and we expect that head count will likely continue to grow through the year.

Most of that head count growth is in engineering, supporting our R&D efforts in both businesses.

Okay, great.

And then you guys obviously are sitting on a pretty good pile of cash right now, and it sounds like the cash generation's going to continue.

I'm wondering if you can kind of outline maybe any planned use of that cash or any targets you guys are looking at right now.

Well, we have been very focused on managing working capital, and therefore our cash balance has grown, and the guidance I gave near the end of my remarks does reflect stronger cash performance than we projected in February, and so your assumption is right that cash will continue to grow.

Clearly that was critical over the last year for the viability of the business in allowing us to invest in the business.

We are starting to put more mind time behind M&A, because clearly that was not a priority in 2009.

So we've started to put more resource behind looking at M&A opportunities across the business.

That, as you know, takes some time for potential deals to unfold.

I would say that we will be very cautious from an M&A standpoint, in part because we have the luxury of being cautious due to the fact that we think we'll get good organic growth out of both of our businesses.

But I would say that for the first time in a couple of years M&A has moved up the priority list in terms of things we're spending time on.

Okay, great.

Thanks.

You're welcome.

And our next question comes from the line of Jim McIlree, with Merriman & Co.

Please proceed.

Yes, thank you.

Good morning.

Good morning.

Are there any more tests that you need to undergo in the BCT deployment, or is it just now that you've got LRIP the testing is all done and the next step would be [full-rate] production?

There's a kind of a continuous program.

We are a go on the LRIP.

We have specifications against which we're -- we need to assure performance, and we're comfortable with those specifications at this time.

There's ambition to increase functionality in future -- I talked about the Brigade Combat Modernizations as a program that has different phases, and in future phases the government wants to improve the capabilities or add capabilities to the SUGV, so that requires more testing.

As we develop upgrades for the fleet, those need to go through rigorous testing, as well.

So the LRIP is in good shape, the future procurements.

We're very excited about the fact that the government wants to continue to raise the bar and make these devices even more capable.

But it sort of goes hand in hand with these types of procurements.

Okay.

And then, secondly, on the PLR revenues, is that all based in the US, or do you have field service reps in theater that are performing those tasks?

The robots are supported in theater, so many of the spares that we -- that are purchased are sent overseas for use in depots in theater to repair the robots, and so that -- and then there's other situations where the robots are sent back to be repaired.

But certainly it is more efficient to do more of the repair in theater.

We don't send iRobot personnel to go do the repairs.

We just provide them materiel required for those repairs to take place.

Is there -- are there any plans to create a field service rep network in theater?

So far the Army has expressed -- well, the Pentagon has expressed a desire to handle that independently, and which is fine with us.

So we do not have current plans to put field reps in theater.

Okay.

Great.

Thank you very much.

You bet.

And our next comes from the line of Josephine Millward, with Benchmark.

Please proceed.

Good morning.

Good morning.

Congratulations on a phenomenal quarter, Colin.

Thank you.

Colin, it looks like you had new bookings in G&I of roughly $18 million.

Can you talk about what that order was?

Was that the SUGV 310 order you talked back in February?

The -- our revenue in -- over the -- in the quarter was driven by the SUGV 310 as well as PackBot FasTacs.

Right, but you had -- it looks like you had some new bookings during the quarter to drive the backlog.

I was just wondering if you can give us a little more color on what that order was.

We did receive some additional orders for the SUGV 310 and a number of other smaller orders.

So it was a mixture of things to continue to keep the backlog growing.

But certainly, as we've said, the bulk of the SUGVs sold in 2010 are going to be SUGV 310s.

So you should -- we will be shipping against our current backlog of 310 orders as well as getting -- as you say, in the quarter we got some additional orders, and we anticipate getting further orders for the 310 to make our number for the year.

That's helpful.

Can you talk about in terms of the PackBots and the SUGVs you are expecting to ship this year, can you talk about what's driving the demand, who the SUGV 310s are going to?

Is it going to infantry or EOD?

Can't talk about it in too much detail, but I would say that the increased pace of operations in Afghanistan has created incremental demand for the lighter weight SUGV 310s.

That's a theater where the use of vehicles to transport the robots is greatly diminished versus the style of utilization in Iraq.

And so a tremendous premium is placed on weight, and that's driving a real opportunity for us to accelerate the fielding of the SUGVs.

What about the PackBots you are expecting to ship this year?

Are they mostly FasTacs or the MTRS robot?

It's mostly the 510 model and the FasTac are the two robots that are being procured, yes.

Okay, so half and half.

I wouldn't say half --

The reason I'm asking, it's my understanding of the SUGV 310s is it's primarily an EOD robot, so, and the FasTac is primarily an infantry robot.

So, in essence, the more FasTac robots you ship, does that not potentially cannibalize the potential market for the SUGV 320s, which is designed for infantry?

Good question, but no.

The FasTac program was put in place as a bridge program between the current need for a robot for the infantry and the date when the SUGV was going to be available.

And so those robots are going into theater.

They are being used by the infantry.

They're also, frankly, being used by EOD teams.

And, but it is a program with an interval of effective performance, and so that the out year SUGVs will be coming in to replace the aging FasTac fleet.

So we don't view them as cannibalistic of one another.

It's something that we put together on a very rapid development schedule in order to meet a current need.

That's very helpful.

Thank you.

Can you tell us how many Seagliders you shipped during the quarter and what your expectations are for the Seaglider in the coming year?

We shipped -- so far this year we've shipped about 12 Seagliders, and we accept -- we expect future orders throughout the rest of the year.

But we're not -- [about] approximately similar figures.

We're not going to be in the high double digits this year.

Thank you very much.

You're welcome.

(Operator instructions).

And our next question comes from the line of Jim Ricchiuti, with Needham & Company.

Please proceed.

You continue to see very good growth in military robot sales overseas, and what I'm wondering is can you tell us how many of these robots, if you can, are being used currently in Afghanistan by our partners there?

Unfortunately, Jim, this is a number that we have very little visibility.

We've shipped millions of dollars of robots.

Some of our top customers -- Singapore, Sweden, France, UK, Australia, many of those have -- there are likely to be robots from those -- some of those countries overseas in Iraq and Afghanistan, but those countries are also very interested in developing a capability domestically to deal with improvised explosive devices.

So it's your sense that they're being used more domestically?

Yes, that is my sense.

Okay.

And just one final question for me, as we look out at 2011, given the success you've had in the international business, in the home robot business in Europe, and as you penetrate -- as you begin to penetrate Latin America, South America, Eastern Europe, is there any reason to think that you won't see similar kind of traction and momentum in these newer markets next year?

I'll be speculating here, of course.

We're doing it because we believe that this is a good business to be in, but I -- sometimes new markets take longer than anticipated to develop.

If you recall, it took us a couple of years in Europe before we cracked the code and figured out how to really make that market stand up and deliver.

We think we're smarter than we were when we first went into Europe.

But I'm not going to speculate, but we are doing it for a reason.

Okay.

Thanks very much.

And our next question comes from the line of Matt [Buchaman], with Raymond James.

Please proceed.

Yes, hi, guys.

Congrats on the quarter, guys.

Thank you.

Just, I guess, following on the most recent question with regards to the expansion into South America, I was just curious how that is parlayed into the guidance you guys put out--

I was going to say, we hope to have product in market for the holiday season this year.

However, we have included none of the potential revenue from that exercise in the guidance that we articulated today to give us maximum flexibility as to what might happen, or very little of the revenue.

So it's not material relative to 2010.

Okay.

And then just with regards to the I guess incremental selling and marketing expense in the back half of the year, is that in relation to what you guys are doing there in the South America region, or is that attributable just for overall just more selling and marketing expenses, whether that be domestically or in Europe?

That figure, the vast majority of that figure applies to the rest of our operations.

We have been -- in 2009 we were relatively black as far as marketing programs.

We ran things very, very efficiently.

And we think that given our performance we can turn that dial up and work on generating some more awareness.

Okay.

And, with regards to that, that selling and marketing expense, is that -- I know it's been -- I know you guys did in the past the whole -- the TV ads and the like, I'm just curious just as a sense of where you're looking to spend some of that incremental marketing expense.

We would consider doing more broadcast TV, but it's not a fully baked plan.

So I think that we're looking at many different options as to how we would most effectively use our spend, and that's certainly one of the ways that we've used in the past and we certainly would consider this year.

Okay.

All right.

Thanks very much.

You bet.

Ladies and gentlemen, this concludes today's question-and-answer session.

I would now like to turn the call back over to Mr.

Angle for closing remarks.

Well, that concludes our first quarter earnings call.

We appreciate your support and look forward to talking with you again in July to discuss our Q2 results.

Thank you very much.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes the presentation, and you may now disconnect.

Have a great day.