iRobot 2011 Annual Report Download - page 76

Form 10-K
As of December 31, 2011, we had 619 full-time employees. We have developed expertise in the disciplines
necessary to build durable, high-performance and cost-effective robots through the close integration of software,
electronics and hardware. Our core technologies serve as reusable building blocks that we adapt and expand to
develop next generation and new products, reducing the time, cost and risk of product development. Our
significant expertise in robot design and engineering, combined with our management team’s experience in
military and consumer markets, positions us to capitalize on the expected growth in the market for robots.
Although we have successfully launched consumer and government and industrial products, our continued
success depends upon our ability to respond to a number of future challenges. We believe the most significant of
these challenges include increasing competition in the markets for both our consumer and government and
industrial products, our ability to obtain U.S. federal government funding for research and development
programs, and our ability to successfully develop and introduce products and product enhancements.
Revenue
We currently derive revenue from product sales, government research and development contracts, and
commercial research and development contracts. Product revenue is derived from the sale of our various home
cleaning robots and government and industrial robots and related accessories. Research and development revenue
is derived from the execution of contracts awarded by the U.S. federal government, other governments and a
small number of other partners. In the future, we expect to derive increasing revenue from product maintenance
and support services due to a focused effort to market these services to the expanding installed base of our robots.
We currently derive a majority of our product revenue from the sale of our home cleaning robots, and our
PackBot and SUGV tactical military robots. For the fiscal years ended December 31, 2011 and January 1, 2011,
product revenues accounted for 91.6% and 89.9% of total revenue, respectively. For the fiscal years ended
December 31, 2011 and January 1, 2011, our funded research and development contracts accounted for
approximately 8.4% and 10.1% of our total revenue, respectively. We expect to continue to perform funded
research and development work with the intent of leveraging the technology developed to advance our new
product development efforts. In the future, based on changes in operational needs from U.S. armed forces, and
significant pressures on U.S. spending levels, we anticipate that revenue from product sales to the U.S. armed
forces could remain flat or decrease in the near term. In addition, we expect that revenue from funded research
and development contracts could decrease on an absolute dollar basis.
For the fiscal years ended December 31, 2011 and January 1, 2011, approximately 74.0% and 65.7%,
respectively, of our home robot product revenue resulted from sales to 15 customers. For fiscal 2011 and fiscal
2010, the customers were comprised of both U.S. retailers and international distributors. Direct-to-consumer
revenue generated through our domestic and international on-line stores accounted for 9.6% of our home robot
product revenue for the fiscal year ended December 31, 2011 compared to 11.5% in the fiscal year ended
January 1, 2011. We typically sell our recently launched products direct on-line, and then subsequently offer
these products through other channels of distribution. In addition, 88.4% and 87.6% of military product revenue,
and 95.7% and 96.5% of funded research and development contract revenue, resulted from orders and contracts
or subcontracts with the U.S. federal government in the fiscal years ended December 31, 2011 and January 1,
2011, respectively.
For the fiscal years ended December 31, 2011 and January 1, 2011, sales to non-U.S. customers accounted
for 45.5% and 42.1% of total revenue, respectively.
Our revenue from product sales is generated through sales to our retail distribution channels, our distributor
network and to certain U.S. and foreign governments. We recognize revenue from the sales of home robots under
the terms of the customer agreement upon transfer of title and risk of loss to the customer, net of estimated
returns, provided that collection is determined to be reasonably assured and no significant obligations remain.
Revenue from our military robot sales and revenue from funded research and development contracts are
occasionally influenced by the September 30 fiscal year-end of the U.S. federal government. In addition, our
revenue can be affected by the timing of the release of new products and the size and timing of contract awards
from military and other government agencies. Historically, revenue from consumer product sales has been
significantly seasonal, with a majority of our consumer product revenue generated in the second half of the year
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