UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ¨ | Definitive Proxy Statement |
| x | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to §240.14a-12 |
iRobot Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing Party: |
| (4) | Date Filed: |
|
|
iRobot
Driving Growth and Value for Shareholders
April 26, 2016
|
|
Forward-Looking Statements
Certain statements made in this communication that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified with words like “believe,” “may,” “could,” “would,” “might,” “should,” “expect,” “intend,” “plan,” “target,” “anticipate” and “continue,” the negative of these words, other terms of similar meaning or the use of future dates. This communication contains express or implied forward-looking statements relating to, among other things, iRobot’s expectations regarding future financial performance, future operating performance and growth, our strategic actions to continue revenue growth, demand for our robots, strategic investments to diversify Home revenue, the impact of the divestiture of our Defense & Security business, the impact of our strategic actions to enhance stockholder value, and anticipated revenue, earnings per share and Adjusted EBITDA for fiscal year 2016. 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 these forward-looking statements. In particular, the risks and uncertainties include, among other things: our ability to operate in an emerging market, the financial strength of our customers and retailers, our ability to enhance stockholder value through our strategic actions, including the sale of our Defense & Security business, general economic conditions, market acceptance of our products, and competition. Existing and prospective 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 the information contained in this communication, whether as a result of new information, future events or circumstances or otherwise. For additional disclosure regarding these and other risks faced by iRobot, see the disclosure contained in our public filings with the SEC.
2
|
|
Important Stockholder Information
iRobot Corporation (“iRobot”, or the “Company”) will hold its 2016 Annual Meeting of stockholders on May 25, 2016. The Company has filed with the Securities and Exchange Commission (the “SEC”) and mailed to its stockholders a definitive proxy statement and form of WHITE proxy card in connection with the 2016 Annual Meeting. The definitive proxy statement contains important information about the Company, the 2016 Annual Meeting and related matters.
COMPANY STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ THE DEFINITIVE PROXY STATEMENT, THE ACCOMPANYING WHITE PROXY CARD, AND ANY OTHER RELEVANT SOLICITATION MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THESE DOCUMENTS CONTAIN IMPORTANT INFORMATION.
The Company and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of the Company in connection with the matters to be considered at the 2016 Annual Meeting. Information regarding the Company’s directors and executive officers is contained in the Company’s annual report on Form 10-K filed with the SEC on February 19, 2016, and definitive proxy statement filed with the SEC on March 29, 2016.
The proxy statement and other relevant solicitation materials (when they become available), and any and all documents filed by the Company with the SEC, may be obtained by investors and security holders free of charge at the SEC’s web site at www.sec.gov. In addition, the Company’s filings with the SEC, including the proxy statement and other relevant solicitation materials (when they become available), may be obtained, without charge, from the Company by directing a request to the Company at 8 Crosby Drive, Bedford, MA 01730, Attention: Investor Relations. Such materials are also available at www.irobot.com.
3
|
|
Executive Summary
iRobot is The Leader in Consumer Robotics
Leading share of robotic vacuum market segment
Over the past five years, iRobot’s consumer product revenue has grown 2.5x the rate of its peers
IP moat: 1,200+ patents & patents pending
Outstanding growth prospects
iRobot’s Management and Board Have Thoughtfully and Proactively Transformed Business
Acquisition of Evolution Robotics (2012), Roomba 880 (2013), Roomba 980 (2015), and Braava jet (2016)
Hired an investment bank to sell Defense & Security in 2014
Updated Board to add software and consumer technology products expertise
iRobot Has Superior Shareholder Returns Versus Its Peer Group, S&P 500, NASDAQ, and S&P Technology Hardware & Equipment Industry Indices Since 1/1/2013 • iRobot is Shareholder-Friendly, with World-Class Board and Corporate Governance Best Practices
Have returned > $100 million (including current ASR program) of excess capital since 2015
Refreshed Board composition: five independent directors added in last five years
Updated governance under leadership of new Lead Independent Director
Red Mountain Has Offered No New Ideas and Would Not Add Value to iRobot
Before Red Mountain bought stock, iRobot was already executing on the items in Red Mountain’s “plan”
Red Mountain has demonstrated a poor understanding of iRobot’s business and market
Red Mountain rejected offer to add Lawrence Peiros to the Board and refused to settle unless Willem Mesdag is added to the Board. Willem Mesdag’s demand for a Board seat appears to be personally-driven
Willem Mesdag brings no new operational or investment expertise
4
|
|
Table of Contents
I The Leader in Consumer Robotics 6
Management and Board Have Thoughtfully and Proactively II 15 Transformed Business, Driving Superior Shareholder Returns
Shareholder-Friendly with World-Class Board and Corporate III 24 Governance Best Practices
Red Mountain Has Offered No New Ideas and Would Not
IV 31 Add Value
Recommendation: VOTE The WHITE Proxy Card FOR iRobot’s
V 37 Highly-Qualified Nominees
VI Appendix: Red Mountain’s Assertions Versus Reality 40
5
|
|
I. The Leader in Consumer Robotics
|
|
iRobot: Consumer Robotics Leader with an Outstanding Growth Track Record and Future Growth Prospects
25
YEARS OF GLOBAL ROBOTIC-TECHNOLOGY MARKET LEADERSHIP
Consumer Product Growth
(2009 – 2015)
1,200+
PATENTS & PATENTS PENDING
4x
NEAR-TERM U.S. HH PENETRATION
POTENTIAL
6.1x
2.5x
GREATER REVENUE GREATER REVENUE
GROWTH RATE GROWTH RATE
THAN PEERS THAN S&P 500
>60%
SHARE OF THE GLOBAL ROBOTIC VACUUM MARKET SEGMENT (1)
AWARD-WINNING TECHNOLOGY & PRODUCTS
The leading global consumer robotics company, focused on bringing practical, affordable robots to the connected home market
(1) Segment of Vacuum Market with retail prices over $200.
7
|
|
iRobot is Poised for Continued Growth and Success
Sustained Market Segment Leadership
Portfolio of Innovative Robots from Disciplined R&D Investment
Software Development Widening iRobot’s Competitive Moat
Actionable Near-Term Revenue Growth Opportunities
Strategic Focus to Achieve 3-Year Financial Targets
8
|
|
Sustained Market Segment Leadership
Dry Floor Care
2015 Market Segment Leadership
North America
Others 11%
iRobot 89%
EMEA
Others 28%
iRobot 72%
APAC
iRobot 37%
Others 63%
iRobot has maintained > 60% global market share of RVC segment over last 4 years, despite increased competition
Source: 2015 NPD, Gfk, and iRobot Internal data; Robotics Vacuum Cleaners >$200 retail prices, includes China online.
9
|
|
Disciplined Research and Development Allocation Process
Rigorous Process to Allocate Capital to R&D
R&D is allocated against key technologies and specific product development within bounds of profitability targets
New product opportunities assessed for revenue, margin, profitability, and return
Expected cash flows are risk adjusted based upon each specific program’s characteristics
Roadmaps designed to have regular new product introduction cadence
Management and Board regularly review performance of major programs
Disciplined Investing in R&D
13% 13%
12% 12% 12% 11% 10% 11%
2012 2013 2014 2015
(1)
IRBT R&D Spend % of Revenue Peer R&D Spend % of Revenue
SW Development Competitive Enabler
Roomba 880
Roomba 980
50,000 Lines of Code
500,000 Lines of Code
4x Increase in Software Developers to Enable Focus Shift to Consumer Market
83
52 38
22
2013 2014 2015 2016
Management has focused the Company’s R&D efforts to drive topline growth and build on iRobot’s history of industry-leading technology
Source: Company filings, Capital IQ.
(1) Peer set is comprised of 3D Systems, AeroVironment, Alphabet, Apple, Cognex, Dolby, Electrolux, Fitbit, Garmin, Intuitive Surgical, InvenSense, Koninklijke Philips, Logitech, Microsoft, Nautilus, Netgear, Plantronics, TiVo, Trimble Navigation, Universal Electronics, and Whirlpool.
10
|
|
Continuous Innovation Drives Sustained Market Leadership
Roomba
2002
Original Series
Autonomous vacuuming robot with cliff sensors
2007 500 Series
Improved battery life and easy scheduling
2011 700 Series
New cleaning system and touch screen UX
2013 800 Series
Debris extractors
2015 900 Series
Wi-Fi connected, iRobot app and vSLAM navigation
Wet Floor Care
2005
Scooba 300 Floor Scrubbing
Autonomous floor mopping robot capable of cleaning larger spaces
2011
Scooba 200 Floor Scrubbing
Discontinued due to shifting demand to Braava mopping and sweeping
2013
Braava 300 Mopping & Sweeping
Rebranded Mint product acquired from ER into a global sweeping solution
2016
Braava jet Mopping & Sweeping
Designed for bathrooms and high traffic areas, 3 cleaning methods, consumable pads
Next Growth Opportunities
Robotic Lawn Mower
Other Connected Home Products
Mapping Technologies (vSLAM) enabling Consumer IoT
More than 15 million home robots sold since 2002, each generation accelerating with advances in functionality
11
|
|
Market Leadership Requires Technology Leadership
IEEE Top 10 Electronic Patent Powerhouses—2015
Rank
Company
Headquarters
1
Apple Inc.
US
2
Canon Inc.
Japan
3
Sony Corp.
Japan
4
LG Electronics Inc.
South Korea
5
Xerox Corp.
US
6
US
7
Koninklijke Philips NV
Netherlands
8
TCL Corp.
China
9
Hitachi Ltd.
Japan
10
Lightning Science Group Corp.
US
iRobot’s focus on innovation- and technology-enabled features drives sustained market leadership
Source: IEEE Spectrum, “Interactive: Patent Power 2015”.
12
|
|
Actionable Near-Term Revenue Growth Opportunities
China
70% sales growth in 2015
Market expected to grow at higher rate than U.S. and Japan
Further RVC Adoption
U.S.:
Build upon successful
2015 marketing
campaigns
ROW:
Export proven U.S.
demand generation
programs overseas
Wet Floor Care
Leverage RVC success for wet expansion
Trend towards hardwood floors
Newly released Braava jet
Mopping aligned with Asian consumer cleaning behavior
China RVC market in 5 years est. > $1B annually
China presents a tremendous growth opportunity with the potential to be iRobot’s largest market
Drive further RVC HH penetration through targeted marketing campaigns
The market opportunity for wet floor care increases iRobot’s TAM substantially
Source: Parthenon analysis; Global market size for vacuum cleaners with retail prices greater than $200 (NPD, GfK, Euromonitor, HBU estimates & analysis); Global hard floor care market (mops, brooms, chemicals) (Mintel, HBU estimates & analysis).
13
|
|
Summary of 3-Year Financial Targets
FY16
FY17
FY18
Home Revenue Growth
12-13%
Mid Teens
High Teens
(Excludes D&S Business)
Opex % of Rev
38-39%
Leverage vs. PY
Leverage vs. PY
Adjusted EBITDA Margin
13-14%
14-15%
14-15%
Driving accelerated revenue growth; improving profitability
14
|
|
II. Management and Board Have Thoughtfully and Proactively Transformed Business, Driving Superior Shareholder Returns
|
|
iRobot Management and Board Decisively Addressed Dynamic Business Changes, Successfully Mitigating Business Risk
Defense Significant Value Driver
(2006 – 2011)
Critical Transition Period
(2012)
Focus on Consumer
(2013 – 2015+)
($ in millions)
$428
$357 $279
$
$279 $229
$229
$229
$174 $229$174$166 $174 $166 $160$166 $160 $175
$144
$144
$144
$112
$112
$112
$130 $102 $130$123 $130 $123
$123
$174
$$102166 $102
$160
$175
$76 $130 $76
$123 $76
$102
$71
$
2006
20062007 200620072008 200720082009 200820092010 200920102011
2007
2008
2009 Consumer 2010 Consumer Product Consumer RevenuPr2011duct RevenProduct2012 Defensee RevenueD&2013
Consumer Product Revenue
Defense & Security Revenue
$560
$560
$560
$560 $507
$507
$507
$507 $428
$428
$428
$357
$357
$279
$175
$71
$71
$71
$50
$50$46 $50$46 $55 $46 $55
$55
$46
$55
201120122013
201220132014 201320142015
20142015
2015
Defense Revenue Security2014 &Revenue Security 2015 Revenue
Acquired
Introduced
Introduced
Evolution
Braava and
Roomba 980
Robotics
Roomba 880
Early recognition of a fundamental D&S business change allowed the Company to launch a critical strategy shift at the end of 2012, beginning a new phase of iRobot evolution
Source: Company filings, Company management.
16
|
|
iRobot Has Generated Superior Returns for Shareholders Versus a Wide Range of Indices
70.0%
64.1%
62.5%
53.3%
38.9%
iRobot
NASDAQ
Peer Index (1)
S&P 500 Index
S&P Tech. Hardware & Equipment Industry Group
Despite the wind-down and sale of its Defense & Security business, iRobot has generated superior total shareholder returns, compared to its peers and the broader market over the past three years
Source: Capital IQ.
Note: Market data as of 1/1/2013 to 4/22/2016.
(1) Peer Index is equal weighted for its constituents. Peer Index is comprised of 3D Systems, AeroVironment, Alphabet, Apple, Cognex, Dolby, Electrolux, Garmin, Intuitive Surgical, InvenSense, Koninklijke Philips, Logitech, Microsoft, Nautilus, Netgear, Plantronics, TiVo, Trimble Navigation, Universal Electronics, and Whirlpool. Defense & Security peers excluded.
17
|
|
Since 2012, iRobot’s Management and Board Have Led the Company’s Strategic Transformation into the Leading Pure-Play Consumer Robotics Company
April 2013 / April 2014
Two directors with defense experience step off Board
February 2015
Red Mountain buys its first share of iRobot
2H 2014 / 1H 2015
29 parties contacted, 5 indications of interest for sale of Defense & Security business
April 2015
Red Mountain states iRobot should sell Defense & Security business
February 2016
Announced sale of Defense & Security Business to Arlington Capital Partners for up to $45 million
April 2016
Sale of Defense & Security business completed
October 2012
Acquired Evolution Robotics to add additional consumer products, such as Braava, and new technologies, such as the VSLAM used in the Roomba 980
May 2014
Blackstone Advisory/PJT
Partners retained by iRobot to sell iRobot’s Defense
& Security business
August 2014
Added third director with consumer products expertise
June 2015
Two final letters of intent received for Defense & Security business
Director with defense experience steps off Board
November 2015
Revised Arlington Capital
Partners’ LOI received
Q4 2015
Reallocated R&D resources from Remote Presence platform to focus on home opportunities
Ongoing
Executing on plan to focus on the consumer home market
Management proactively implemented a plan to transition into the pure-play consumer robotics company
Source: iRobot management.
18
|
|
The Leading Pure-Play Consumer Robotics Company
iRobot Consumer Products Revenue
($ in millions)
$560
‘09-’15 iRobot Consumer
Products Revenue CAGR: 23%
$507
2.5x
greater
‘09-’15 Peer Set
revenue
$428
Revenue CAGR: 9%
growth
rate than
‘09-’15 S&P 500
$357
Revenue CAGR: 4%
peers
$279
6.1x
$229
greater
revenue
$166
growth
rate than
the S&P
500
2009
2010
2011
2012
2013
2014
2015
(1)
(1,2)
S&P 500 Revenue
Peer Set Revenue
IRBT Consumer Product Revenue
Strategic Actions
Capitalizing on large and growing opportunity in the home robotics market
Divested the declining Defense & Security business
Reallocated Remote Presence R&D resources to home opportunities
“You have a long history of disciplined business triage in which you have refocused your limited resources on the opportunities with the highest commercial potential.”
–Willem Mesdag, Red Mountain Capital, 5/16/2015
iRobot Consumer Products revenue growth has dramatically outperformed revenue growth of peers and index companies since 2009
Source: iRobot Management, Company Filings, Capital IQ, Bloomberg. (1)S&P 500 and Peer Set Revenue growth rates are applied to iRobot’s 2009 revenue. (2)Assumes median growth rate. Peer set is comprised of 3D Systems, AeroVironment, Alphabet, Apple, Cognex, Dolby, Electrolux, Fitbit, Garmin, Intuitive Surgical, InvenSense, Koninklijke Philips, Logitech, Microsoft, Nautilus, Netgear, Plantronics, TiVo, Trimble Navigation, Universal Electronics, and Whirlpool.
19
|
|
Track Record of Disciplined Capital Allocation and Returning Excess Capital
Year
Authorization
Plan Design
Outcome
Ability to Repurchase At
$0M, Floor Pricing Not
2013
$
25M
Low Trading Values
Realized
Ability to Repurchase At
$0M, Floor Pricing Not
2014
$
50M
Low Trading Values
Realized
Ability to Repurchase At
$37M; Elevated Trading
2015
$
50M
Low Trading Values; Floor
Floor
Elevated
Designed to Offset
$12M Prior to
2016 (1)
$
40M
Dilution of New Equity
Termination 3/29/16
Accelerated Share
2016 (2)
$
85M
$85M
Repurchase
iRobot’s management and Board have a disciplined capital allocation process, which includes a regular review of internal investments, potential acquisitions, and the return of excess capital to shareholders
(1) Original 2016 Plan.
(2) Revised 2016 Plan post D&S divestiture.
20
|
|
iRobot Has Outperformed Consumer and Applied Technology Peers on Key Operating Metrics
Revenue CAGR EBITDA Margin Expansion (2012—2015) (1) (2012—2015)
190% FIT 24% FIT 33% INVN 23% TIVO 24% DDD 7% NLS 20% NLS 3% IRBT 18% GOOGL 3% CGNX 17% TIVO 2% WHR 16% IRBT 1% PHIA 13% AAPL 1% UEIC 12% CGNX 1% LOGN
9% UEIC (0%) ELUX B
6% MSFT (0%) AAPL
5% PLT (1%) NTGR
5% WHR (2%) PLT
4% ELUX B (2%) TRMB
4% TRMB (2%) GOOGL
3% ISRG (3%) GRMN
3% PHIA (5%) MSFT
1% DLB (6%) ISRG
1% GRMN (9%) AVAV
1% NTGR (10%) DDD
(0%) LOGN (11%) DLB (4%) AVAV (14%) INVN
Median: 5% Median: (1%)
Applied Technology (2) Technology Leaders (3) Consumer Technology (4)
iRobot has far outperformed its peers on historical revenue growth and EBITDA margin improvements
Source: Capital IQ, Company Filings. (1) Revenue growth is consumer only.
(2) Applied Technology peer set includes 3D Systems, AeroVironment, Cognex, Dolby, Intuitive Surgical, InvenSense, and Trimble Navigation.
(3) Technology Leaders peer set includes Alphabet, Apple, and Microsoft. 21 (4) Consumer Technology peer set includes Electrolux, Fitbit, Garmin, Koninklijke Philips, Logitech, Nautilus, Netgear, Plantronics, TiVo, Universal Electronics, and Whirlpool.
21
|
|
Rewarded for High-Growth and Strong Track Record of Shareholder Returns
3-Year Total Price / 2016E EPS
Shareholder Returns (1)
55.8x DDD 397% NLS 31.2x CGNX 261% UEIC 30.8x ISRG 141% LOGN 26.9x IRBT 105% MSFT 25.6x INVN 104% GOOGL 21.7x GOOGL 97% CGNX 20.6x TRMB 86% WHR 20.0x UEIC 70% IRBT 19.4x TIVO 44% AAPL 19.2x MSFT 44% DLB 19.0x GRMN 44% ELUX B 18.5x DLB 36% PHIA 17.7x PLT 30% AVAV 16.2x NLS 28% ISRG 16.1x LOGN 17% GRMN 15.9x PHIA 8% PLT 15.1x ELUX B (2%) NTGR 14.8x NTGR (16%) TRMB 13.5x FIT (26%) TIVO 12.5x WHR (30%) INVN 11.9x AAPL (50%) DDD NM AVAV N/A FIT
Median: 18.8x Median: 40%
Applied Technology (2) Technology Leaders (3) Consumer Technology (4)
iRobot’s premium P/E multiple is based in part on shareholders’ confidence in its long-term growth plans and ability to drive superior shareholders returns
(1) Shareholder returns calculated from 1/1/2013 – 4/22/2016.
(2) Applied Technology peer set includes 3D Systems, AeroVironment, Cognex, Dolby, Intuitive Surgical, InvenSense, and Trimble Navigation. (3) Technology Leaders peer set includes Alphabet, Apple, and Microsoft.
(4) Consumer Technology peer set includes Electrolux, Fitbit, Garmin, Koninklijke Philips, Logitech, Nautilus, Netgear, Plantronics, TiVo, Universal Electronics, and Whirlpool.
22
|
|
Delivering Profitable Growth
FY13 FY14 FY15
Revenue $487M $557M $617M 13% CAGR
Quality, Scale & Gross Margin 45% 46% 47% Process Opex % of Rev. 39% 37% 37% Opex Discipline
Adjusted EBITDA $ $62M $80M $92M
Continuous Profit Adjusted EBITDA Improvement
13% 14% 15%
Margin
EPS $0.94 $1.25 $1.47
Delivered improved profitability through 2015; strategic investments planned for 2016
Note: Results include Defense and Security business.
23
|
|
III. Shareholder-Friendly with
World-Class Board and Corporate Governance Best Practices
24
|
|
As Business Needs Changed, the Nominating &
Governance Committee Adjusted the Board Composition
Board Additions: Consumer Technology, Software, and Finance Expertise
Board Exits: Founders, Early Board Members, and Defense Experts
As the Company has grown over the last five years and its business mix has shifted, iRobot has proactively refreshed the Board as part of its standard Board membership review process
25
|
|
iRobot’s Most Recent Board Additions – World-Class, Technology Thought Leaders
Mohamad Ali Michael Bell
President and Chief Former Chief Vice President President and Chief Former Former Executive Officer Strategy Officer (Mar. 2005— Executive Officer Vice President Vice President
(Dec. 2014— (Sept. 2012—Jul. 2009) (Sept. 2015 – (Jul. 2010— (1991 – 2007) Present) Dec. 2014) Present) Sept. 2015)
Professional Experience Professional Experience
Carbonite Silver Spring Networks
Took over Carbonite during a period of transition and reset its Took over Silver Spring Networks to lead the Company’s next phase of growth strategy growth and innovation
Repositioned Carbonite for SMB opportunity, moving R&D and marketing to higher return on investment business Accelerated Silver Spring Networks’ innovation into smart utility
Executed EVault acquisition, strengthening Carbonite’s position at the networks, smart cities, and broader Internet of Things opportunities high end of the SMB market Intel
HP Inc.
Extremely successful tenure as Chief Strategy Officer driving high Led technology groups focused on new devices, mobility, and shareholder returns communications; determined which products and R&D efforts to pursue based on end-market opportunities and Intel’s core strengths
“We are enthusiastic about the recent appointment of
Mohamad Ali to the board. Mr. Ali served as Chief Strategy Helped lead Intel’s development efforts in connected devices
Officer of Hewlett-Packard when HP separated its PC and printer business from its server, services and software business and Apple returned over 50% of its free cash flow to shareholders. HP’s
Made significant product decisions and contributions to the iMac, share price more than doubled during his tenure. We expect Mr.
Ali to bring relevant experience to the board and help to drive Apple TV, and iPhone programs shareholder value.”
– Red Mountain letter to its limited partners, 9/18/2015
Mohamad Ali and Michael Bell each have a track record of creating shareholder value at consumer technology companies
26
|
|
iRobot Has an Experienced, Independent, and Diverse Board
Colin Angle Mohamad Ali
Chairman, CEO and President and CEO Co-Founder of iRobot of Carbonite, Inc.
Deep knowledge of iRobot technology, marketplace, Extensive vision and technology leadership in software, competitive landscape, and growth opportunities as co- cloud infrastructure, and data analytics; significant founder; brings over two decades of industry experience experience with capital allocation in technology companies
Michael Bell Dr. Ronald Chwang
President and CEO of Chairman and President of iD Silver Spring Networks Ventures America and Former CEO of Acer America
Pioneer of the Internet of Things, significant experience A Chinese native, Dr. Chwang brings experience in in R&D, technology innovation, and end-market robotics, technology, manufacturing, supply chain, and expansion; developer of product strategies and tightly business development, with particular depth in Asian-US integrated hardware / software products; created the first supply chain and operations ever consumer WiFi products (Apple AirPort)
iRobot’s Board draws on decades of leadership and operating excellence at major consumer product and IoT companies
27
|
|
iRobot Has an Experienced, Independent, and Diverse Board (Cont’d)
Gail Deegan Deborah Ellinger
Former CFO of Houghton Mifflin, Consumer Products Executive and former NYNEX New England and BCG Partner, with extensive investment Eastern Enterprises management and board experience
Deep experience with financial accounting matters for Served as CEO of The Princeton Review, President of complex organizations, capital allocation, business Restoration Hardware, and CEO of Wellness Pet Food – transformation, and oversight of corporate governance three private-equity backed companies which each requirements; extensive Board experience having served yielded three to seven times return on capital as a director for five public companies
Andrea Geisser Michelle Stacy
Senior Advisor to Zephyr Management Former President of Keurig, Inc.
Substantial experience in investment management, Deep consumer products and technology expertise and emerging markets, and company oversight; has served as global brand-building experience; drove dramatic an audit committee chair and compensation expansion at Keurig, growing revenues from $493 million committee chair in 2008 to $4.3 billion in 2013
iRobot’s Board draws on decades of leadership and operating excellence at major consumer product and IoT companies
28
|
|
iRobot Has an Experienced, Independent, and
Diverse Board, Dedicated to Best-in-Class Governance
Key Board and Governance Information:
7 of 8 Number of Independent Directors
59 Average Age of Directors
12 Board Meetings Held in Fiscal 2015
6 Average Tenure of Independent Directors (in years)
43% Independent Directors Added in the Last Three Years Proposed Annual Election of Directors (1) Proxy Access Majority Voting for Directors
Proposed Elimination of Supermajority Voting Requirements (2) Lead Independent Director Independent Directors Meet Without Management Present Director Stock Ownership Guidelines
Code of Business Conduct and Ethics for Directors, Officers, and Employees Director Self-Evaluation Program Early Termination of Rights Agreement / Poison Pill
Note: All Board of Directors data excludes George McNamee, who will retire following the 2016 annual meeting. (1) The Company is seeking shareholder approval at the 2016 annual meeting to declassify its Board of Directors.
(2) The Company is seeking shareholder approval at the 2016 annual meeting to eliminate supermajority voting requirements in its governing documents relating to removal of directors and amendments to the Company’s certificate of incorporation and bylaws.
29
|
|
Red Mountain’s Nominees Are Not Additive to iRobot’s Board
Experience
Red Mountain’s proposed directors would not add meaningful new experience to the Board
(1) Added to Board in last two years.
(2) Up for election at 2016 annual shareholder meeting.
30
|
|
IV. Red Mountain Has Offered No New Ideas and Would Not Add Value
31
|
|
Red Mountain Has Demonstrated a Poor Understanding of iRobot’s Business and Market
Red Mountain Claim: iRobot is NOT a Technology Company
Recommendation: Reduce R&D
Recommendation: Use ALL cash and equal levels of borrowing to repurchase shares
Red Mountain’s Current Investment Portfolio: No Technology Investments
Air Transport Deckers Outdoor Encore Capital Marlin Business Nature’s Sunshine
Destination XL
Services Group Corporation Group Services Corp. Products
Air cargo transportation and Designs, markets, and Specialty retailer of Debt recovery solutions Nationwide small ticket Multi-level marketer
related services to domestic distributes footwear big-and-tall clothing for consumer and equipment lessor of vitamins and
and foreign air carriers and apparel property owners across mineral supplements
a range of assets
Red Mountain has no technology-related expertise, resulting in a fundamental misunderstanding of the long-term value drivers of a consumer robotics company
32
|
|
iRobot Has Constructively Engaged with Red Mountain
Red Mountain
Willem Mesdag refused to enter
Red Mountain
announces that into short-term Red
announced a proxy
Four months Red Mountain Red Mountain will fight when iRobot Red confidentiality Mountain
after filing its commended not accept new would not Mountain agreement; rejected
13D, Willem the addition of capital, not make guarantee that rejected the insisted both iRobot’s offer
Mesdag says Red Mohamad Ali to new investments, Willem Mesdag opportunity Willem Mesdag to add
Mountain will sell Board and, in and will return would get a seat on to mutually and Lawrence Lawrence
its stake in iRobot fact, increased capital to its the Board as part of agree upon Peiros be on Peiros to
(it did not) its stake limited partners a settlement a director the Board the Board
Agreed to set up Offered Repeatedly Offered to add
process through which settlement of offered to enter Lawrence
Nominating and mutually agreed into confidentiality Peiros to the
Corporate Governance upon director agreements with Board as part
Committee would Red Mountain
evaluate Willem of settlement,
Mesdag and make after
recommendation in interviews with
advance of deadline the Board
for submitting
director nominees
Red Mountain refused multiple reasonable settlement proposals, insisting Willem Mesdag be appointed to the Board, without participating in the Company’s well-established director vetting process
33
|
|
Red Mountain Has Not Offered Any New Positive Ideas
Red Mountain’s iRobot Board and Management Actions Over Past Five Years
December 1, 2015 “Plan”
Executing a strategy focused on home robotics including the acquisition of Focus On The High-Growth
Evolution Robotics (October 2012 – present) Consumer Robotics Business
Engaged PJT Partners to sell D&S business (almost one year before Red
Mountain purchased a single share of iRobot stock) (May 2014) Divest D&S Business
Sold D&S to Arlington Capital Partners for up to $45 million (February 2016)
Executed multiple share repurchase programs (2013 – 2015)
Expanded share repurchase program to $100 million for 2016 (February 2016) Return Capital
Repurchased $85 million of the $100 million through an accelerated share To Shareholders
repurchase program (March – April 2016)
Refreshed the Board, adding 5 new directors since 2011 (2011 – present)
Removed shareholder rights plan/poison pill before its expiration (April 2014)
Recommended elimination of supermajority vote (March 2015) Refresh Board and Adopt
Approved bylaw amendments adopting proxy access and codifying a lead Corporate Governance
independent director; recommended shareholders adopt charter Best Practices
amendments at 2016 Annual Meeting to de-stagger the Board and eliminate
supermajority voting requirements (March 2016)
Besides the actions iRobot had already taken, Red Mountain has provided no
operational plan to drive long-term value for iRobot shareholders
34
|
|
iRobot Questions Whether Red Mountain’s Interests are
Aligned with other Shareholders
Fund Transition Red Mountain’s Interests
Disclosed a plan to transition to closed- Red Mountain is under pressure to
end fund structure, not accept new deliver improvements in its fund
capital, not make new investments, and performance, which may impact its
return capital to its limited partners as perspective on short-term expense
its seven pre-existing investments are reduction over long-term investment
realized (including iRobot) Original recommendations for iRobot
On March 18, 2016, CNBC reported that included using all cash and an equal
Red Mountain announced the transition amount of borrowing to repurchase
due to “losses” at the fund shares; this recommendation does not
drive long-term shareholder value
Red Mountain’s short-term perspective would impede the creation of long-term value for all shareholders
35
|
|
Red Mountain’s Selected Peer Group Demonstrates its Misunderstanding of iRobot
None of iRobot’s equity research analysts cover any companies in Red Mountain’s peer set
Companies in Red Mountain’s Peer
Set For iRobot iRobot Reality
Companies: Products:
83
500,000 Lines of Code in 4X Increase in Software Roomba 980 Developers Over Four Years
1,200+
Mapping and Navigation Patents & Patents Technologies (vSLAM) Pending enabling Consumer IoT
Red Mountain’s peer group excludes industry iRobot’s advanced technological innovation leaders in the connected home, consumer has enabled it to become the world’s technology, robotics, software, and leading pure-play consumer robotics vision / mapping company
36
|
|
V. Recommendation: VOTE The WHITE Proxy Card FOR iRobot’s Highly-Qualified Nominees
37
|
|
iRobot is Poised for Continued Growth and Success
Sustained Market Segment Leadership
Portfolio of Innovative Robots from Disciplined R&D Investment
Software Development Widening iRobot’s Competitive Moat
Actionable Near-Term Revenue Growth Opportunities
Strategic Focus to Achieve 3-Year Financial Targets
38
|
|
Vote the WHITE Proxy Card Today
Red Mountain Has Offered No New Ideas and Would Not Add Value to iRobot
VOTE the White Proxy Card Today
39
|
|
VI. Appendix: Red Mountain’s Assertions Versus Reality
40
|
|
Red Mountain’s Assertions vs. Reality
Red Mountain’s latest investor presentation presents views and analyses which are inconsistent with reality and misleading
Red Mountain’s Assertion Reality
iRobot’s products have over 500,000 lines of software code,
iRobot’s Peer Set Should Include Companies That Make
VSLAM navigation, Internet of Things capabilities, and utilize
Coffee Makers, Crockpots, Grills, Hair Dryers, and
1,200+ proprietary patents and patents pending
1 Mattresses and Exclude Industry Leaders in the Connected Comparing a crockpot or mattress company to a fully
Home, Consumer Technology, Robotics, Software, and
autonomous robot firmly illustrates Red Mountain’s
Vision / Mapping
misunderstanding of iRobot and its business
Red Mountain recommends cuts of up to $31 million, which
would severely impact iRobot’s ability to undertake R&D
While R&D spending for a company that makes coffee machines
2 iRobot Should Cut Operating Expenses / R&D by 50% and crockpots should be 3-4% of its revenue, 10-12% is more
appropriate and vital for iRobot’s long-term success
iRobot’s R&D spending is in line with other consumer
technology companies
Starting in 2011, iRobot has proactively refreshed its BoD to
emphasize consumer technology and software expertise
iRobot purchased Evolution Robotics in October 2012 to begin
iRobot’s Transition to Consumer Robotics Company Began
3 its transition to consumer products
When Red Mountain Suggested it in April 2015 iRobot retained investment bankers in May 2014 to sell the
Defense & Security business; almost one year before Red
Mountain purchase a single share of iRobot stock
41
|
|
Red Mountain’s Assertions vs. Reality (Cont’d)
Red Mountain’s Assertion Reality
iRobot’s ROIC across its current product line exceeds it cost
of capital
4 ROIC is Below iRobot’s WACC The Company deploys capital only when potential ROIC is
greater than WACC, as demonstrated by iRobot’s cash-adjusted
ROIC consistently exceeding WACC over time
iRobot consumer revenue growth is 2.5x greater than its peers,
5 iRobot Has Poor Revenue Growth 3.5x greater than the NASDAQ, and 6.1x greater than the
S&P 500
iRobot has a long track record of strong shareholder
accountability and has adopted best corporate governance
iRobot Has Poor Shareholder Accountability and an practices to ensure accountability
6 Entrenched Board iRobot has refreshed its Board composition, adding 5 new
directors in the last 5 years for an average tenure of 6 years
All Board members other than the CEO are independent
Red Mountain has arbitrarily picked timeframes that tell the
story they want to tell, instead of telling the real story
Red Mountain picked a starting point to include the negative
7 Red Mountain’s Selected Measurement Period Includes the impact of the 2011-12 US military spending cuts on iRobot’s
2011 U.S. Military Spending Cuts and Ends in April 2015 share price (affecting a business iRobot is no longer in)
Red Mountain picked an ending point that is already one year
out of date, not giving iRobot credit for its shift to pure-play
consumer robotics
42
|
|
Red Mountain’s Assertions vs. Reality (Cont’d)
Red Mountain’s Assertion Reality
Both ISS and Glass Lewis supported our say-on-pay proposal
in 2015
Performance awards are tied to minimum levels of operating
income or earnings, in addition to other metrics, aligning
8 iRobot’s Executive Compensation Is Not Aligned with Its TSR compensation with profitability
Compensation committee has three new members on a 4-
person committee and uses an outside expert consultant
Board maintains an ownership threshold for executives and the
CEO; the CEO is in compliance
iRobot leadership is comprised of both veterans and recent hires
Management changes such as the departure of Admiral Joseph
9 iRobot Has Had Significant Management Turnover Dyer in 2012 and COO Jeff Beck in 2013 were part of iRobot’s
shift to a consumer-focused company, which began three years
before Red Mountain purchased a single share of iRobot stock
All of iRobot’s current Board members have expertise in
consumer products and consumer technology
10 iRobot Needs Additional Directors with Consumer Red Mountain’s nominee, Larry Peiros, has consumer products
Products Experience experience only from a single company over 32 years. Although
Clorox is a global leader, it makes extremely low-tech products at
low price points
iRobot successfully executed on its 3-year plan of transitioning
11 iRobot’s Management Does Not Have a Plan into the world’s leading pure-play consumer robotics company
Red Mountain’s ‘plan’ is rudimentary and offers no new ideas
Over the past three years, only one of Red Mountain’s other six
investments have outperformed the S&P 500 and NASDAQ
12 Willem Mesdag is a Successful Investor and Adds Value to Red Mountain is looking for cost cuts at iRobot for short-term
His Portfolio Companies gain to try to salvage Red Mountain’s fund performance
Red Mountain is winding down its fund and returning capital
to investors
43