iRobot(IRBT) - 2021 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION This section covers iRobot's unaudited financial statements, notes, and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (unaudited) This section provides iRobot Corporation's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed accounting notes Consolidated Balance Sheets This section presents the consolidated balance sheets of iRobot Corporation as of April 3, 2021, and January 2, 2021 | ASSETS (in thousands) | April 3, 2021 | January 2, 2021 | | :-------------------- | :------------ | :-------------- | | Cash and cash equivalents | $500,754 | $432,635 | | Accounts receivable, net | $67,918 | $170,526 | | Inventory | $233,113 | $181,756 | | Total current assets | $843,154 | $881,221 | | Total assets | $1,157,891 | $1,189,728 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | April 3, 2021 | January 2, 2021 | | Accounts payable | $150,769 | $165,779 | | Accrued expenses | $105,810 | $131,388 | | Total current liabilities | $263,873 | $307,567 | | Total liabilities | $333,907 | $385,294 | | Total stockholders' equity | $823,984 | $804,434 | | Total liabilities and stockholders' equity | $1,157,891 | $1,189,728 | Consolidated Statements of Operations This section details iRobot Corporation's consolidated statements of operations for the three months ended April 3, 2021, and March 28, 2020 | (in thousands, except per share amounts) | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :--------------------------------------- | :------------------------------- | :-------------------------------- | | Revenue | $303,261 | $192,535 | | Cost of revenue | $180,317 | $114,580 | | Gross profit | $122,944 | $77,955 | | Operating expenses | $116,555 | $98,180 | | Operating income (loss) | $6,389 | $(20,225) | | Income (loss) before income taxes | $6,229 | $(20,244) | | Net income (loss) | $7,443 | $(18,135) | | Net income (loss) per share: | | | | Basic | $0.26 | $(0.64) | | Diluted | $0.26 | $(0.64) | Consolidated Statements of Comprehensive Income (Loss) This section presents iRobot Corporation's consolidated statements of comprehensive income (loss) for the three months ended April 3, 2021, and March 28, 2020 | (in thousands) | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :------------- | :------------------------------- | :-------------------------------- | | Net income (loss) | $7,443 | $(18,135) | | Other comprehensive income (loss): | | | | Net foreign currency translation adjustments | $(5,883) | $(914) | | Net unrealized gains on cash flow hedges, net of tax | $12,967 | $5,674 | | Net losses (gains) on cash flow hedge reclassified into earnings, net of tax | $391 | $(1,468) | | Net unrealized losses on marketable securities, net of tax | $(4) | $(17) | | Total comprehensive income (loss) | $14,914 | $(14,860) | Consolidated Statements of Stockholders' Equity This section outlines iRobot Corporation's consolidated statements of stockholders' equity, detailing changes for the period ended April 3, 2021 | (in thousands) | Common Shares | Common Stock Value | Additional Paid-In Capital | Retained Earnings | Other Comprehensive Income (Loss) ("AOCI") | Stockholders' Equity | | :------------- | :------------ | :----------------- | :------------------------- | :---------------- | :----------------------------------------- | :------------------- | | Balance at January 2, 2021 | 28,184 | $282 | $205,256 | $599,389 | $(493) | $804,434 |\n| Issuance of common stock under employee stock plans | 67 | $1 | $2,588 | | | $2,589 |\n| Stock-based compensation | | | $6,782 | | | $6,782 |\n| Net income | | | | $7,443 | | $7,443 |\n| Balance at April 3, 2021 | 28,395 | $284 | $209,890 | $606,832 | $6,978 | $823,984 | Consolidated Statements of Cash Flows This section provides iRobot Corporation's consolidated statements of cash flows for the three months ended April 3, 2021, and March 28, 2020 | (in thousands) | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :------------- | :------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $28,694 | $40,734 | | Net cash provided by (used in) investing activities | $43,708 | $(5,370) | | Net cash used in financing activities | $(2,167) | $(25,882) | | Net increase in cash and cash equivalents | $68,119 | $9,376 | | Cash and cash equivalents, at end of period | $500,754 | $248,768 | Notes to Consolidated Financial Statements This section provides detailed notes explaining the significant accounting policies and financial disclosures supporting the consolidated financial statements 1. Description of Business iRobot Corporation designs and builds consumer robots, primarily floor cleaning robots, leveraging proprietary technologies for connected homes, including advanced cleaning, mapping, navigation, and human-robot interaction. The company generates revenue mainly from product sales through various global distribution channels - iRobot Corporation designs and builds consumer robots, primarily floor cleaning robots, utilizing proprietary technologies for connected homes, including advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions[22] - Revenue is primarily generated from product sales through a variety of distribution channels, including chain stores, national retailers, the Company's website and app, e-commerce sites, and value-added distributors and resellers worldwide[22] 2. Summary of Significant Accounting Policies This section outlines iRobot's accounting policies, including the basis of presentation, foreign currency translation, recently adopted and issued accounting standards, and the use of estimates. It also details policies for credit losses, inventory valuation, strategic investments, and net income per share calculation, noting the increased judgment required for estimates due to the COVID-19 pandemic - The Company adopted ASU No. 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes," in Q1 2021, with no material impact on consolidated financial statements[24] - The impact of the COVID-19 pandemic remains dynamic, requiring increased judgment and carrying a higher degree of variability and volatility for certain estimates and assumptions, such as allowance for credit losses and valuation of non-marketable equity securities[26][27] Allowance for Credit Losses (in thousands) | Metric | April 3, 2021 | January 2, 2021 | | :----- | :------------ | :-------------- | | Allowance for credit losses | $2.7 million | $4.8 million | | Decrease in reserve and bad debt expense (Q1 2021) | $2.1 million | N/A | - During the three months ended April 3, 2021, the Company received net proceeds of $51.5 million from the sale of Teladoc shares, which were acquired in exchange for non-marketable equity securities of InTouch Health[30] Net Income (Loss) Per Share Calculation (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :--------------------------------------- | :------------------------------- | :-------------------------------- | | Net income (loss) | $7,443 | $(18,135) | | Basic weighted-average common shares outstanding | 28,257 | 28,297 | | Dilutive effect of employee stock awards | 829 | — | | Diluted weighted-average common shares outstanding | 29,086 | 28,297 | | Net income (loss) per share - Basic | $0.26 | $(0.64) | | Net income (loss) per share - Diluted | $0.26 | $(0.64) | 3. Revenue Recognition Revenue is primarily derived from the sale of consumer robots and accessories, recognized when control is transferred. For connected robots, revenue is allocated between the robot (point-in-time) and Cloud Services (deferred and recognized straight-line). The company also offers extended warranties and manages product returns and incentives through reserves - Revenue is recognized upon transfer of control of products or services, generally at the point of sale for robots and deferred over the estimated term for Cloud Services and extended warranty plans[35] Disaggregated Revenue by Geographical Region (in thousands) | Geographical Region | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :------------------ | :------------------------------- | :-------------------------------- | | United States | $114,772 | $81,967 | | EMEA | $116,233 | $66,659 | | Japan | $40,575 | $26,464 | | Other | $31,681 | $17,445 | | Total revenue | $303,261 | $192,535 | Contract Balances (in thousands) | Metric | April 3, 2021 | January 2, 2021 | | :----- | :------------ | :-------------- | | Accounts receivable, net | $67,918 | $170,526 | | Contract liabilities | $14,986 | $17,700 | - As of April 3, 2021, the Company had reserves for product returns of $51.8 million and other credits and incentives of $78.3 million[36] 4. Leases The Company's leasing arrangements primarily consist of operating leases for facilities. Lease expense is recognized on a straight-line basis, and right-of-use assets and lease obligations are recorded for terms greater than 12 months. The weighted average discount rate is 3.57% with a remaining lease term of 8.14 years as of April 3, 2021 - As of April 3, 2021, the Company's weighted average discount rate for leases was 3.57%, and the weighted average remaining lease term was 8.14 years[41] Components of Lease Expense (in thousands) | Lease Component | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :-------------- | :------------------------------- | :-------------------------------- | | Operating lease cost | $1,987 | $2,355 | | Variable lease cost | $895 | $1,122 | | Total lease cost | $2,882 | $3,477 | Maturities of Operating Lease Liabilities as of April 3, 2021 (in thousands) | Period | Amount | | :----- | :----- | | Remainder of 2021 | $5,896 | | 2022 | $8,590 | | 2023 | $7,651 | | 2024 | $6,595 | | 2025 | $6,621 | | Thereafter | $28,562 | | Total minimum lease payments | $63,915 | | Less: imputed interest | $8,955 | | Present value of future minimum lease payments | $54,960 | | Less: current portion of operating lease liabilities | $6,222 | | Long-term lease liabilities | $48,738 | 5. Goodwill and Other Intangible Assets This section summarizes the changes in the carrying amount of goodwill and intangible assets for the three months ended April 3, 2021, showing decreases primarily due to amortization and foreign currency translation effects Activity in Goodwill and Intangible Assets (in thousands) | Metric | Goodwill (April 3, 2021) | Intangible assets (April 3, 2021) | | :----- | :----------------------- | :-------------------------------- | | Balance as of January 2, 2021 | $125,872 | $9,902 | | Amortization | — | $(430) | | Effect of foreign currency translation | $(2,599) | $(160) | | Balance as of April 3, 2021 | $123,273 | $9,312 | 6. Accrued Expenses This note provides a detailed breakdown of accrued expenses, including warranty, manufacturing and logistics costs, compensation and benefits, bonus, operating lease liabilities, income taxes, sales and other indirect taxes, and other accrued amounts, comparing balances as of April 3, 2021, and January 2, 2021 Accrued Expenses (in thousands) | Accrued Expense Category | April 3, 2021 | January 2, 2021 | | :----------------------- | :------------ | :-------------- | | Accrued warranty | $23,904 | $24,392 | | Accrued manufacturing and logistics cost | $19,374 | $20,093 | | Accrued compensation and benefits | $17,452 | $17,635 | | Accrued bonus | $6,817 | $31,523 | | Current portion of operating lease liabilities | $6,222 | $6,315 | | Accrued income taxes | $6,136 | $3,806 | | Accrued sales and other indirect taxes payable | $5,631 | $15,480 | | Accrued other | $20,274 | $12,144 | | Total | $105,810 | $131,388 | 7. Derivative Instruments and Hedging Activities iRobot uses derivative instruments, including cash flow hedges and economic hedges, to manage foreign currency exchange rate fluctuations. The notional value of outstanding cash flow hedges was $397.8 million and economic hedges was $140.5 million as of April 3, 2021. The section also details the fair values and associated gains/losses of these instruments - As of April 3, 2021, the Company had outstanding cash flow hedges with a total notional value of $397.8 million and outstanding foreign currency economic hedges with a total notional value of $140.5 million[51] Fair Values of Derivative Instruments (in thousands) | Derivative Type | Classification | April 3, 2021 | January 2, 2021 | | :-------------- | :------------- | :------------ | :-------------- | | Derivatives not designated as hedging instruments: | | | | | Foreign currency forward contracts | Other current assets | $1,258 | $261 | | Foreign currency forward contracts | Accrued expenses | $764 | $2,176 | | Forward sale contract | Accrued expenses | — | $3,904 | | Derivatives designated as cash flow hedges: | | | | | Foreign currency forward contracts | Other current assets | $6,073 | $362 | | Foreign currency forward contracts | Other assets | $5,750 | $679 | | Foreign currency forward contracts | Accrued expenses | $1,124 | $2,092 | | Foreign currency forward contracts | Long-term liabilities | $2,633 | $8,554 | Gains (Losses) Associated with Derivative Instruments (in thousands) | Type of Gain (Loss) | Classification | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :------------------ | :------------- | :------------------------------- | :-------------------------------- | | Loss recognized in income (not designated as hedging) | Other expense, net | $(10,013) | $(545) | | Gain (loss) recognized in OCI on Derivative (cash flow hedging) | | $17,154 | $7,566 | | Amount of (loss) gain reclassified from AOCI into earnings (cash flow hedging) | | $(517) | $1,957 | 8. Fair Value Measurements This section details the fair value measurements of the Company's financial assets and liabilities on a recurring basis, categorized into Level 1 and Level 2 based on the observability of inputs. Money market funds are classified as Level 1, while derivative instruments and corporate/government bonds are Level 2 Fair Value Measurements as of April 3, 2021 (in thousands) | Category | Level 1 | Level 2 | Level 3 | | :------- | :------ | :------ | :------ | | Assets: | | | | | Money market funds | $338,868 | — | — | | Derivative instruments | — | $13,081 | — | | Total assets measured at fair value | $338,868 | $13,081 | — | | Liabilities: | | | | | Derivative instruments | — | $4,521 | — | | Total liabilities measured at fair value | — | $4,521 | — | Fair Value Measurements as of January 2, 2021 (in thousands) | Category | Level 1 | Level 2 | Level 3 | | :------- | :------ | :------ | :------ | | Assets: | | | | | Money market funds | $47,529 | — | — | | Marketable equity securities | $47,576 | — | — | | Corporate and government bonds | — | $3,505 | — | | Derivative instruments | — | $5,206 | — | | Total assets measured at fair value | $95,105 | $8,711 | — | | Liabilities: | | | | | Derivative instruments | — | $12,822 | — | | Total liabilities measured at fair value | — | $12,822 | — | 9. Stockholders' Equity This section details the Company's share repurchase activity. The Board of Directors approved a $200.0 million stock repurchase program, with $50.0 million repurchased in Q2 2021 under a Rule 10b5-1 plan, leaving $125.0 million available as of May 6, 2021 - The Company's Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases until September 5, 2021[61] - During the second quarter of 2021, the Company repurchased 446,954 shares of its common stock at an average price of $111.85, totaling $50.0 million, under a Rule 10b5-1 plan[61] - As of May 6, 2021, $125.0 million remained available for future repurchases under the program[61] 10. Commitments and Contingencies This note addresses legal proceedings, guarantees, indemnification obligations, and warranty accruals. The Securities Class Action was dismissed, and derivative litigations are seeking dismissal. The Company provides product warranties and maintains a reserve for these obligations - The U.S. District Court for the District of Massachusetts granted the Company's motion to dismiss the Securities Class Action on March 15, 2021[62] - On May 4, 2021, parties in the consolidated derivative litigations (In re iRobot Corporation Derivative litigation) filed a joint stipulation seeking dismissal of the case[64] Warranty Accrual Activity (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :----- | :------------------------------- | :-------------------------------- | | Balance at beginning of period | $24,392 | $13,856 | | Provision | $10,185 | $4,475 | | Warranty usage | $(10,673) | $(4,333) | | Balance at end of period | $23,904 | $13,998 | 11. Income Taxes The Company recorded an income tax benefit for the three months ended April 3, 2021, with an effective income tax rate of (19.5)%, primarily due to a discrete tax benefit related to stock-based compensation - The effective income tax rate for the three months ended April 3, 2021, was (19.5)%, compared to 10.4% for the three months ended March 28, 2020[68] - The change in the effective income tax rate was primarily due to the recognition of a discrete tax benefit related to stock-based compensation during the period[68] 12. Industry Segment, Geographic Information and Significant Customers iRobot operates as a single operating segment, focusing on consumer robot products distributed globally. The company notes a significant customer concentration, with one retailer accounting for a notable portion of total revenue - The Company operates as one operating segment, offering consumer robot products through various distribution channels worldwide[69] - For the three months ended April 3, 2021, one retailer generated 17.0% of total revenue, up from 13.4% in the prior year period[70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on iRobot's financial performance and condition, including an overview of the business, key metrics, non-GAAP financial measures, critical accounting policies, and a detailed comparison of results of operations for the three months ended April 3, 2021, versus March 28, 2020. It also discusses liquidity, capital resources, and forward-looking statements Overview iRobot is a global leader in consumer robotics, focusing on smart home floor cleaning robots with AI, mapping, and navigation technologies. The company is diversifying manufacturing to Malaysia to offset Section 301 tariffs and is executing a strategy to differentiate its experience, build customer relationships, and nurture lifetime value through innovation, digital marketing, and new services like iRobot Select - iRobot is a leading global consumer robot company, pioneering in consumer robotics, robotic floor care, and robotic artificial intelligence for over 30 years[72] - The company is focused on scaling manufacturing in Malaysia by the end of 2021 to diversify its supply chain and offset the 25% Section 301 tariff on Roomba products imported from China, which was reinstated on January 1, 2021[72] - Key strategic elements include differentiating the iRobot experience through innovation (e.g., iRobot Genius Home Intelligence Platform, Roomba i3 Series), building strong consumer relationships (e.g., 10.7 million connected customers, up 74% YoY), and nurturing lifetime value (e.g., iRobot H1 handheld vacuum, extended warranty plans, iRobot Select membership program)[72][73] - Direct-to-consumer sales grew 146% in the first quarter of 2021, generating 12% of total revenue[73] Key Metrics This section presents key financial and operational metrics for the three months ended April 3, 2021, compared to March 28, 2020, highlighting significant increases in total revenue, non-GAAP gross profit, and total robot units shipped, alongside an improvement in non-GAAP operating income Key Metrics (in thousands, except average gross selling prices) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :----- | :------------------------------- | :-------------------------------- | | Total Revenue | $303,261 | $192,535 | | Non-GAAP Gross Profit | $123,531 | $78,767 | | Non-GAAP Gross Margin | 40.7% | 40.9% | | Non-GAAP Operating Income (Loss) | $14,954 | $(14,380) | | Non-GAAP Operating Margin | 4.9% | (7.5)% | | Total robot units shipped | 1,088 | 721 | | Average gross selling prices for robot units | $319 | $315 | Use of Non-GAAP Financial Measures iRobot uses non-GAAP financial measures to evaluate operating performance, excluding items like amortization of acquired intangibles, tariff refunds, M&A expenses, stock-based compensation, IP litigation, strategic investment gains/losses, restructuring, and certain income tax adjustments. These adjustments aim to provide a clearer view of core operating results and facilitate peer comparisons - Non-GAAP financial measures exclude items such as amortization of acquired intangible assets, tariff refunds, net merger, acquisition and divestiture (income) expense, stock-based compensation, IP litigation expense, gain/loss on strategic investments, restructuring and other charges, and certain income tax adjustments[76][77] GAAP to Non-GAAP Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | | :----- | :------------------------------- | :-------------------------------- | | GAAP Gross Profit | $122,944 | $77,955 | | Non-GAAP Gross Profit | $123,531 | $78,767 | | GAAP Operating Income (Loss) | $6,389 | $(20,225) | | Non-GAAP Operating Income (Loss) | $14,954 | $(14,380) | | GAAP Net Income (Loss) | $7,443 | $(18,135) | | Non-GAAP Net Income (Loss) | $11,919 | $(9,162) | | GAAP Net Income (Loss) Per Diluted Share | $0.26 | $(0.64) | | Non-GAAP Net Income (Loss) Per Diluted Share | $0.41 | $(0.32) | Critical Accounting Policies and Estimates The preparation of financial statements requires management to make significant estimates and assumptions, including those related to revenue recognition, credit losses, product warranties, valuation of goodwill and intangibles, non-marketable equity investments, loss contingencies, stock-based compensation, and income taxes. These estimates are based on historical experience and various factors, with actual results potentially differing - Critical accounting policies and estimates include revenue recognition (performance obligations, variable consideration, product returns/incentives), allowance for credit losses, product warranties, valuation of goodwill and acquired intangible assets, valuation of non-marketable equity investments, evaluating loss contingencies, accounting for stock-based compensation, and accounting for income taxes and related valuation allowances[80] Overview of Results of Operations This section provides a detailed analysis of iRobot's financial performance, comparing results for the three months ended April 3, 2021, and March 28, 2020 Revenue Revenue for the three months ended April 3, 2021, increased significantly by 57.5% to $303.3 million, driven primarily by a 50.9% increase in units shipped and strong international growth, particularly in EMEA (74.4%) and Japan (53.3%) Revenue Performance (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Revenue | $303,261 | $192,535 | $110,726 | 57.5% | - The increase was primarily attributable to a 50.9% increase in units shipped and strong international revenue growth of 70.5%, with EMEA growing 74.4% and Japan increasing 53.3%[82] Cost of Product Revenue Cost of product revenue increased by 57.6% to $180.1 million for the three months ended April 3, 2021, mirroring the 57.5% increase in total revenue, maintaining a consistent percentage of revenue at 59.4% Cost of Product Revenue (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Cost of product revenue | $180,092 | $114,295 | $65,797 | 57.6% | | As a percentage of revenue | 59.4% | 59.4% | | | Gross Profit Gross profit increased by 57.7% to $122.9 million, with gross margin remaining consistent at 40.5% for the three months ended April 3, 2021. This consistency was due to higher sales leverage, lower tariff costs, and favorable channel mix offsetting increased air freight, component costs, and pricing/promotion changes. Future gross margin pressure is anticipated from rising raw material, freight, and component costs Gross Profit Performance (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Gross profit | $122,944 | $77,955 | $44,989 | 57.7% | | Gross margin | 40.5% | 40.5% | | | - Gross margin remained consistent at 40.5%, with higher sales leverage, lower tariff costs, and favorable channel mix offsetting increased air freight fees and higher component costs[85] - The Company expects gross margin pressure in the coming quarters due to anticipated increases in raw materials, freight, transportation, and component costs (e.g., semiconductor chip availability)[85] Research and Development Research and development expenses increased by 14.0% to $41.9 million for the three months ended April 3, 2021, primarily due to higher people-related and program-related costs, though as a percentage of revenue, it decreased from 19.1% to 13.8% Research and Development Expenses (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Research and development | $41,920 | $36,759 | $5,161 | 14.0% | | As a percentage of revenue | 13.8% | 19.1% | | | - The increase was primarily due to a $3.3 million increase in people-related costs and a $1.8 million increase in program-related costs[86] Selling and Marketing Selling and marketing expenses rose by 39.3% to $51.0 million for the three months ended April 3, 2021, mainly driven by an $11.1 million increase in marketing spend to boost sales growth and support the direct-to-consumer channel, alongside a $3.2 million increase in people-related costs Selling and Marketing Expenses (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Selling and marketing | $50,990 | $36,594 | $14,396 | 39.3% | | As a percentage of revenue | 16.8% | 19.0% | | | - The increase was primarily attributable to an $11.1 million increase in marketing spend for sales growth and direct-to-consumer channel support, and a $3.2 million increase in people-related costs[87] General and Administrative General and administrative expenses decreased by 4.6% to $23.4 million for the three months ended April 3, 2021. This decrease was primarily due to a $2.1 million reduction in the allowance for credit loss, partially offset by higher people-related costs ($4.3 million) and increased legal fees ($1.2 million) General and Administrative Expenses (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | General and administrative | $23,440 | $24,573 | $(1,133) | (4.6)% | | As a percentage of revenue | 7.7% | 12.8% | | | - The decrease was primarily due to a $2.1 million decrease in the allowance for credit loss, offset by higher people-related costs ($4.3 million) and increased legal fees ($1.2 million)[88][89] Amortization of Acquired Intangible Assets Total amortization expense for acquired intangible assets decreased by 20.2% to $0.43 million for the three months ended April 3, 2021, and was immaterial as a percentage of revenue Amortization of Acquired Intangible Assets (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Cost of revenue | $225 | $285 | $(60) | (21.1)% | | Operating expense | $205 | $254 | $(49) | (19.3)% | | Total amortization expense | $430 | $539 | $(109) | (20.2)% | | As a percentage of revenue | 0.1% | 0.3% | | | Other Expense, Net Other expense, net, increased significantly to $0.2 million for the three months ended April 3, 2021, compared to a negligible amount in the prior year, encompassing interest income/expense, foreign currency gains/losses, and strategic investment gains/losses Other Expense, Net (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Other expense, net | $(160) | $(19) | $(141) | 742.1% | - Other expense, net, includes interest income, interest expense, foreign currency gains (losses), and gains (losses) from strategic investments[91] Income Tax Benefit The Company recorded an income tax benefit of $1.2 million for the three months ended April 3, 2021, resulting in an effective income tax rate of (19.5)%. This change from the prior year's $2.1 million benefit (10.4% rate) was primarily due to a discrete tax benefit related to stock-based compensation Income Tax Benefit (in thousands) | Metric | Three Months Ended April 3, 2021 | Three Months Ended March 28, 2020 | Dollar Change | Percent Change | | :----- | :------------------------------- | :-------------------------------- | :------------ | :------------- | | Income tax benefit | $(1,214) | $(2,109) | $895 | (42.4)% | | Effective income tax rate | (19.5)% | 10.4% | | | - The change in the effective income tax rate was primarily due to the recognition of a discrete tax benefit related to stock-based compensation during the period[92] Liquidity and Capital Resources As of April 3, 2021, iRobot's principal liquidity sources included $500.8 million in cash and cash equivalents, with working capital at $579.3 million. The company's outsourced manufacturing model provides flexibility, and capital expenditures were $11.3 million. Operating activities provided $28.7 million in cash, investing activities provided $43.7 million, and financing activities used $2.2 million. The company maintains a $150.0 million unsecured revolving line of credit with no outstanding borrowings and a $200.0 million share repurchase program, with $125.0 million remaining - As of April 3, 2021, principal sources of liquidity were cash and cash equivalents totaling $500.8 million, with working capital at $579.3 million[94] - Capital expenditures for the three months ended April 3, 2021, were $11.3 million, primarily for machinery, tooling, and manufacturing expansion in Malaysia[94][96] - Net cash provided by operating activities was $28.7 million, provided by investing activities was $43.7 million, and used in financing activities was $2.2 million for the three months ended April 3, 2021[95][96][97] - The Company has a $150.0 million unsecured revolving line of credit, with no outstanding borrowings as of April 3, 2021, and a $5.0 million unsecured letter of credit facility[98][100] - As of May 6, 2021, $125.0 million remained available under the $200.0 million share repurchase program[102] - Outstanding purchase orders aggregated approximately $545.1 million as of April 3, 2021, primarily for inventory with contract manufacturers[103] Item 3. Quantitative and Qualitative Disclosure About Market Risk iRobot is exposed to foreign currency exchange rate fluctuations due to international revenue and expenses denominated in multiple currencies. The company uses cash flow hedges and economic hedges to mitigate these risks. As of April 3, 2021, a 10% fluctuation in the U.S. Dollar would impact the fair market value of foreign currency contracts by approximately $39.1 million - The Company is exposed to fluctuations in foreign currency exchange rates, primarily from transactions denominated in British Pounds, Canadian Dollars, Euros, and Japanese Yen[105] - iRobot uses derivative instruments, including cash flow hedges (notional value of $397.8 million as of April 3, 2021) and economic hedges (notional value of $140.5 million as of April 3, 2021), to reduce the effects of foreign exchange rate changes[105] - As of April 3, 2021, a 10% weakening or strengthening of the U.S. Dollar would increase or decrease the fair market value of foreign currency contracts by approximately $39.1 million[105] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that iRobot's disclosure controls and procedures were effective at a reasonable assurance level as of April 3, 2021. There were no material changes in internal control over financial reporting during the period - Management, with the participation of the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of April 3, 2021[106] - There was no material change in internal control over financial reporting during the period covered by this report[106] PART II: OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, other disclosures, and exhibits Item 1. Legal Proceedings This section incorporates by reference the information on legal proceedings from Note 10, Commitments and Contingencies, in the consolidated financial statements - Information on legal proceedings is included in Note 10, Commitments and Contingencies, in the accompanying notes to the unaudited consolidated financial statements[107] Item 1A. Risk Factors This section highlights updates to the Company's risk factors, emphasizing the dependence on a limited number of manufacturers and suppliers, particularly for components like semiconductor chips. It details the risks associated with potential manufacturing disruptions, supply chain challenges, and international commerce, including tariffs and intellectual property protection - The Company depends on a limited number of manufacturers and suppliers for materials and components, with the majority of contract manufacturing in China and increasing capacity in Malaysia[109] - Global supply chain challenges, including limits on various semiconductor devices, have adversely impacted and are anticipated to continue impacting the Company's ability to meet product demand, potentially leading to additional costs and customer dissatisfaction[109] - Reliance on contract manufacturers involves risks such as lack of direct control over production, quality, and costs; risk of inventory loss in transit; and risks associated with international commerce, including changes in tariffs and trade policies[109] Item 5. Other Information This section discloses that certain officers and directors have entered into Rule 10b5-1 trading plans, which allow for pre-scheduled transactions in company securities. The company anticipates future trading plans by other personnel and intends to disclose names of executive officers and directors establishing such plans in future reports - Certain officers and directors (including Colin Angle, Glen Weinstein, Mohamad Ali, Deborah Ellinger, Elisha Finney, and Rueybin Kao) have entered into Rule 10b5-1 trading plans[111] - These plans allow individuals to relinquish control over transactions once the plan is in place, with sales potentially occurring at any time[111] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including certifications, XBRL taxonomy documents, and the cover page interactive data file - Exhibits include Certifications Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (31.1, 31.2), Certification Pursuant to 18 U.S.C. Section 1350 (32.1), and various Inline XBRL Taxonomy Extension Documents (101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[113] Signatures The report is duly signed on behalf of iRobot Corporation by Julie Zeiler, Executive Vice President and Chief Financial Officer, on May 6, 2021 - The report was signed on May 6, 2021, by Julie Zeiler, Executive Vice President and Chief Financial Officer (Principal Financial Officer) of iRobot Corporation[115]