An Interview with iRobot CEO Colin Angle | 7investing
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iRobot Podcast

An Interview with iRobot CEO Colin Angle

Advisor: Steve Symington

There’s no doubt the pandemic has helped accelerate the growth story for iRobot (NASDAQ: IRBT). Best known for its Roomba robotic vacuums, iRobot’s revenue soared 43% year over year in the third quarter, buoyed by a 70% increase in e-commerce sales and an 86% jump in sales of its premium ($500 or above) robots.

But iRobot’s ambitions extend well beyond its flagship vacuum line. In this exclusive interview with 7investing Lead Advisor Steve Symington, iRobot Chairman, co-founder, and CEO Colin Angle covers everything from iRobot’s efforts to build stronger direct relationships with consumers to the recent launch of their Genius Home Intelligence Platform, the challenges of tariffs and international trade tensions, the status of their Terra robotic lawnmower project, and the company’s longer-term vision for smart homes and the home-robotics industry.

Watch the full interview in the video below:


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Interview Timestamps:

0:00 – Introduction

1:00 – Online/Direct to Consumer Sales vs Brick and Mortar

2:24 – Navigating Tarrifs and manufacturing in Malaysia

6:15 – iRobot vs their competitors

8:50 – Genius Home Intelligence

10:26 – Spatial intelligence into the smart home

14:05 – Terra

17:03 – The future of iRobot

19:50 – Closing

 

Transcript:

Steve Symington  

Hey everyone, and welcome to 7investing. I’m 7investing Lead Advisor Steve Symington, and you’re in for a treat. Today, I’m being joined by the chairman, CEO and co founder of iRobot. Colin Angle. Colin, your accolades are too many to list, I followed your vision for the robotics market and personally owned shares of iRobot for more than a decade. Thank you so much for joining me today.

Colin Angle  

Excited to be here to chat with you.

Steve Symington  

So first things first, I wanted to start by talking about some of your more recent results and challenges. So your latest quarter, by any measure was really phenomenal. And even if the market’s reaction didn’t indicate as much, but one of the most striking stats for me was that while total revenue was up 43%, online sales jumped 70% to represent 60% of total revenue. So obviously, the pandemic has helped contribute to e-commerce growth. But I’d like to know as your success in online and direct to consumer sales changed how you think about your brick and mortar strategy?

Colin Angle  

So iRobot is moving to emphasize our direct relationship with our customers to a greater degree. So it’s, the ship is definitely partially driven by more people working from home, but it’s also being driven by investments we’re making in the type of products we’re building and the tools we have to reach out and serve customers online. Going forward, our goal is to continue to have great growth in retail, but also support great growth online. So what work from home and COVID did was accelerate our strategy, and really put some rocket fuel against the percentage of revenues that iRobot can transact with directly with the customers.

Steve Symington

Okay.  So I know tariffs have posed kind of a unique challenge, I guess, moving that direction for your business over the last several months. I know you guys were able to secure an exemption that’s currently valid through the end of 2020. Correct?

Colin Angle  

That’s correct.

Steve Symington  

Yeah. So some of those trade policies could obviously change with the new presidential administration, which looks like that’s what’s going to happen. But how do you think about navigating tariffs and that unique challenge going forward?

Colin Angle  

You know, both the current administration and the future administration have indicated a desire to remain tough with their trade policies with respect to China. What we don’t expect is for the Biden administration to immediately roll back tariffs. You know, we were given guidance that reiterated the fact that the tariffs are coming back on January 1, and that’s going to create a gross margin headwind for us in 2021. We are committed to moving and in the midst of moving manufacturing to Malaysia. And so that by the end of 2021, the tariff challenges we’re currently facing we think are going to be largely mitigated irregardless of whether there’s an opportunity to get an additional exemption on an on a go forward basis.

Steve Symington  

Okay, so yeah, and you started in Malaysia, I believe, with some of your entry level robots, correct?

Colin Angle  

Yes, and still is where we are today, because unfortunately, there are travel restrictions of even getting into Malaysia. So we’re doing everything we can outside of Malaysia to try to make sure that once travel is allowed, we’re able to go and stand up lines that we honestly are pre building so that they can be ready to be deployed as quickly as we can. But the pandemic is very, very real. And has certainly slowed down that shift the manufacturing by at least six months.

Steve Symington

Yeah. So harder challenge than it it would seem from an investors perspective, and then really complicated by the pandemic, really, so that will be interesting to watch it play out. Now shifting gears a little bit to iRobots business on the whole. One of the more common skepticisms, or criticisms that I see from bearish investors is that iRobot might be too narrowly focused on Roomba, specifically in the robotic vacuum cleaner market. Now, some worry that’s a crowded space. But you can also make the argument that that alone leaves you guys a pretty decent runway for growth. But since divesting your defense and security business and the more recently spun off Ava telepresence segment, how do you, how do you answer the skeptics that you might be too narrowly focused right now?

Colin Angle  

Well, first, looking at the robot vacuuming market, we’re still at very low penetration rates. You know, 10% of the US plus or minus, a lower penetration outside of the United States and Europe and Japan are the major markets. And as the popularity and the inevitable future that floorcare is going to be Roomba and a hand vac continues to grow in momentum. We’re incredibly excited about the growth prospects within our core category. And the technology we’re bringing to market in our new products. And with our iRobot Genius intelligence platform, we feel like we have a framework for actually extending the the lead we have over our competition, because our customers are asking us “we want more control over where the robot cleans, autonomous is not good enough, it needs to be interactive.” And this is where iRobots deep investments in machine learning and AI are starting to really pay off for us because we can give that to the customer. And so there’s a lot of differentiated runway in front of us on dry floor care or wet floor care with Braava. And this direct relationship with the customer that I mentioned earlier, as of the Q3 call, we had 7.8 million opt in direct relationships with  our installed base. We’re creating an increasingly large population of iRobot users to sell other things directly to. What we found when we launched the Braava floor mopping robot was just the expense behind building yet another new product category was really challenging. But if I can sell directly to an ever growing installed base, if I can sell a robot that on the day you pick it out of the package will already understand your home and know how you like to clean and where the problems spots and so forth. We’re going to have a very rapidly scalable opportunity for diversification. So Roombas healthy, probably healthier than it’s been in years, plus Braava, and plus this direct opportunity to transact that we’re building.

Steve Symington  

Yeah. So, you know, you essentially answered what would have been my next question. You’re talking about your strategic priorities. I mean, that’s fantastic. So and you touched on that during during the call last quarter, when I listened in, really a matter of differentiating, your cleaning experience.  That Genius launching, you only just launched, it was the Genius Home Intelligence platform, I think is what the name is, in September, correct?

Colin Angle  

Right. It’s, it’s, um, it’s very new. But within a couple months, we’ll have the next version. I mean, this is an area where iRobot is investing a substantial percentage of our R&D budget. And in iRobot, users should expect Genius, major Genius updates every three months on a go forward basis. And so that, well, that initial launch is incredibly exciting with precision clean zones, when you’re on tables and many more ways to schedule. It’s really only the beginning of what we’re going to be rolling out.

Steve Symington  

Yeah. And that’s that’s one of those things that I’ve always admired and something that I think investors should really look for is how much of your money is going toward R&D, especially for a company in, in a robotics, you know, high innovation business like yours. I think in years past, if memory serves, you guys, we’re putting in at least 12% of revenue every year into R&D. So, you know, and that adds up fast and the network effects of that that growing group of consumers, it’ll be exciting to see. So back to Genius, specifically, you launch Genius in September, that stands out to me, as there is a really big step toward allowing Roomba to serve as a sort of unifying intelligence to insert spatial intelligence into the smart home now that that’s a mouthful. But can you elaborate on that idea that have kind of a unifying intelligence with spatial awareness?

Colin Angle  

Sure. One of the challenges of making a smart home actually smart, is the complexities of programming. Right now, you can get a smart light bulb or a smart thermostat, having the devices sort of work as  precisely intended to, you know, thermostat to change the heat. Um, that’s pretty straightforward. But when you think about how can these different smart devices work together to make an environment that is responsive to you, the occupant of that house? Well, that’s really hard and beyond the reach of most consumers. With Genius, we’re starting to do some really interesting things. One of the key parameters of a good vacuuming robot is what it is, what is its mission completion success? That means when the robot leaves the dock, what percentage of the time is it going to successfully come back? One of the amazing things that we found was, by far, the number one reason a robot would fail to come back is that the user turned it off. That’s, and that’s a really big problem, right? Because not only, you know, worse than getting stuck, the robot is annoying you, and you killed it. So as we thought about how do we solve this problem, we’ve been developing technology to say, “well, what else is going on in the home that we could learn about or keep track of with the permission of the user to find better times to clean” and so if your home has thermostats, which actually have room occupancy sensors, or if you have a connected alarm system, or a garage door opener, Roomba can actually find these things and and recognize that there might be an opportunity to do something better. And say, you know, if it’s between 10am and 3pm, and the alarm is set, you’re probably out of the house? Should I clean them? And you can say yes, and the right thing will happen with the Genius software. But that’s the first step in doing something even cooler, because we’re now suggesting Smart Home automations which all you need to say is yes to, and the technology does the rest. And suddenly your house has new capabilities. And right now we’re focusing them on the robot, but as we move forward, there’s no reason why we could do things beyond the robot which gets me back to your question. iRobots developing the technology to allow Roomba to help the Smart Home program itself.

Steve Symington  

That’s fantastic. And I think that’s really what everyone’s asking for it whether they know it or not. And and I personally can’t wait to see you know, not only what new functionalities your platforms enable. But I also know I’m not alone in wishing I could see an iRobot Terra mower, kind of scuttling around my my lawn and taking care of it. And I know from following your efforts over the past few years, it was no easy task to build Terra, your robotic lawnmower, and you initially hoped to launch it on a limited basis this year. But 2020 being 2020, you’ve you’ve shifted gears a bit there on the lawn mowing opportunities. Can you elaborate a little on your thinking when it came to putting Terra on hold?

Colin Angle  

So at the beginning of the year, we had to go and make some hard choices as to where our priorities were going to be. And then, with work from home driving this acceleration in our online business, and the real value that gets unlocked as we see these rapidly growing numbers around our often connected user base, and the opportunity to invest more in monetizing that user base. We realized that we needed to take a breath, focus on the direct build this direct to consumer channel. So ultimately, products like Terra, could be sold and scale more efficiently. Yeah, so that, on our last call, we tried to make it clear that Terra’s  off the table. We’re not, you know, it’s at least, you know, a year out. And we are really focusing our energy on building this high leverage, direct to consumer channel, which is going to drive growth and gross margin around our Roomba platforms, as well as opening up a very efficient channel in the market.

Steve Symington

Sure. So that’s, that’s one of those things, you know, I’ve read some speculation from bearish investors saying, “Oh, you know, they just didn’t think Terra would be able to compete, it wasn’t differentiated enough.” You know, to be clear, that’s not the case. Just just, I think, an astute decision on your part to put it on hold and focus on things with higher promise in today’s environment. So as much as I want that lawnmower, I’m sure we can hurry up and wait for it. So one of the things you said a long time ago has stuck in my head as well, as I think about your strategy for commercializing robotics, and now home robotics specifically. But I think it was it was maybe 7-8 years ago, you said “we need to pick applications that have real concrete value to customers, deliver and exceed on their expectations and move on.” When it comes to potential new product categories, what other kinds of tasks and applications do you envision iRobot eventually tackling. Can you share? Even if it’s years or decades away? We won’t hold you to it.

Colin Angle  

Sure, I mean, I think that, you know, we started this conversation around this margin. And as I think about the smart home, I actually use the term met. So smart doesn’t really mean anything, in my mind what people actually are looking for homes that can maintain themselves, that are efficient, users of energy, that are secure, and that are healthier places to raise one’s family and by buildings that can deliver this automatic main is this efficiency, security and health. I think we’re finally going to see this smart home blossom into the potential that people had wanted it to have five years ago. So iRobot is incredibly focused on “okay, well, what do we need to do that?” And right now, it’s all about the intelligence of the robots and so that the iRobot Genius is focused on how do I become a better partner with my own? How do I learn the language of the home so that you can talk about “hey, can you go clean up the kitchen, can you go clean up in front of the couch in the TV room,” and have that trigger the right actions and by building this intelligence, we can apply it to many other different types of devices, more advanced robots, other kinds of household devices, and see, you know, incrementally over time, bring the intelligence of your home up. And so, ultimately, your home is a robot in effect, in service of your well being. And then you take the next step and say, your home is a place which will allow me as I get older to age gracefully at home for much longer than I could before, because ultimately in my mind, that’s going to be the largest application of consumer robots that the industry sees the extension of independent living at home.

Steve Symington  

That’s a, it’s a wonderful vision. A la Jetsons, right?  As we go on with the years and you know I’ve seen I’ve noticed your your marketing campaign on TV is focused a lot around those specific applications like clean up in front of the cat you know, spill some cereal on the floor, TV ads and everything should be an interesting holiday season. I think an opportunity for you to really build that base of connected consumers and and take advantage of that network effect to serve as kind of a cornerstone for your longer term vision. So looking forward to it. And  thanks again for iRobot Chairman, CEO, co founder Colin Angle, and for anyone listening out there iRobots ticker is $IRBT they trade on the NASDAQ exchange. Colin, thank you so much for taking the time today and sharing your vision with us.

Colin Angle  

My pleasure, great to talk to you.

Steve Symington  

Mmhmm. So for 7investing, I’m lead advisor Steve Symington, we’re here to empower you to invest in your future. Thanks for listening everyone.

 

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