What Does This Contract Win Mean for iRobot?

On Thursday, iRobot (NASDAQ: IRBT  ) announced it has been awarded a new four-year, $30 million indefinite delivery/indefinite quantity (IDIQ) contract by the U.S. Army's Robotic Systems. The contract, which replaces an expiring IDIQ, enables the delivery of PackBot FasTac robotic units and their respective spare parts.

To start, an initial $3 million order has already been placed under the contract for spares to be used with the Army's existing fleet of thousands of PackBot robots, which iRobot expects to deliver by the end of the fourth quarter.

iRobot Fasttac training, Image Source: Wikimedia Commons

Remember, this is the third such defense-related contract iRobot has won over the past few months, with previous announcements including a $14.4 million boost in March to provide an unspecified number of their throwable FirstLook robots to the military, and a $7.2 million win to provide 510 PackBot robots to the Brazilian government in May. 

The folks at iRobot, for their part, also took the opportunity to note that they've delivered more than 5,000 robots to military and civil defense forces around the globe so far. For those of you keeping track, that total includes more than 3,500 PackBots, despite stiff competition in the space from enormous defense stalwarts including Northrop Grumman (NYSE: NOC  ) .

Remember, in April, Northrop boasted of its own efforts of selling more than 2,000 unmanned ground vehicles to date, while simultaneously launching its CUTLASS unmanned ground vehicle in April. The CUTLASS, for reference, directly competes with larger systems like iRobot's Warrior bots.

As I suggested at the time, however, iRobot's Warrior weighs in at around half as much as the CUTLASS, can lift more weight with its arm fully extended, has a faster top speed, and can right itself when flipped thanks to its unique treaded design. In short, these kinds of technological advantages represent just a few reasons iRobot's portfolio of defense-centric products have such a wide lead over the competition to date.

Of course, the $20 billion Northrop Grumman also stays busy working in many other significant defense markets -- but regardless, it's still impressive the comparatively small $1.1 billion iRobot has managed to hold its own with the big boys.

Don't call it a comeback...
It's also important to remember iRobot's defense and security business struggled mightily last year in the face of uncertain defense budgets, and remained one of the primary reasons iRobot shareholders had to endure a nearly 35% drop in 2012.

Thankfully, however, iRobot intelligently scaled back its that segment, in the meantime choosing instead to focus on its thriving consumer business, through which it's most notably responsible for the wildly popular Roomba robotic vacuums. In fact, iRobot management stated last quarter they expect its consumer division to grow another 20% in 2013, by the end of which it should represent a whopping 90% of total sales.

That's why, given iRobot's diversification efforts away from unpredictable defense and security spending, any significant defense-related contract wins should only serve as icing on the cake for iRobot investors.

But iRobot hasn't been the only one to benefit from the government's recent spending spree. You see, two small-cap companies with long-term government deals are reaping the rewards... and securing some monstrous, guaranteed profits. While at the same time limiting any risk exposure they have. We outline how they're taking advantage in our special, 100% FREE report, "Too Small to Fail: 2 Small Caps the Government Won't Let Go Broke." Just click here to get instant access to the names of both companies, and start reaping the profits right alongside them!


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