UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________

FORM 10-Q

______________________________________________



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~September 30, 2017~~October 2, 2021



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-36414

______________________________________________

iROBOT CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________________



Delaware			~~77-0259 335~~77-0259335
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

8 Crosby Drive

Bedford, MA 01730

(Address of principal executive ~~offices)~~offices, including zip code)

(781) 430-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	IRBT	The Nasdaq Stock Market LLC

______________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ýx No ¨o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ýx No ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~


Large accelerated filer		☒			Accelerated filer		☐

~~Large accelerated filer~~		ý	~~Accelerated filer~~	¨

Non-accelerated filer	¨~~(Do not check if a smaller reporting company)~~ ☐		Smaller reporting company			¨☐

					Emerging growth company		¨ ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ýx

The number of shares outstanding of the Registrant’s Common Stock as of October ~~30, 2017~~29, 2021 was ~~27,874,550.~~

26,958,286.

~~Table of Contents~~

iROBOT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~OCTOBER 2, 2021

INDEX


			Page
PART I: FINANCIAL INFORMATION

			~~Page~~
~~PART I: FINANCIAL INFORMATION~~

Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of ~~September 30, 2017~~October 2 , 2021 and ~~December 31, 2016~~January 2, 2021			3
Consolidated Statements of Income for the three and nine months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016~~2 6 , 2020			4
Consolidated Statements of Comprehensive Income for the three and nine months ended October 2 , 2021 and September ~~30, 2017 and October 1, 2016~~2 6 , 2020			5
Consolidated Statements of Stockholders' Equity for the three and nine months ended October 2, 2021 and September 2 6 , 2020			6
Consolidated Statements of Cash Flows for the nine months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016~~26 , 2020			68
Notes to Consolidated Financial Statements			79
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2017
Item 3. Quantitative and Qualitative Disclosures about Market Risk			28
Item 4. Controls and Procedures			2829

PART II: OTHER INFORMATION

Item 1. Legal Proceedings			2930
Item 1A. Risk Factors			2930
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 5. Other Information			3031
Item 6. Exhibits			3133
Signatures			3234
~~Exhibit Index~~			33

~~Table of Contents~~

iROBOT CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share ~~data)~~amounts)

(unaudited)


	September 30, 2017		December 31, 2016				October 2, 2021		January 2, 2021
ASSETS	ASSETS					ASSETS
Current assets:						Current assets:
Cash and cash equivalents	$	241,786	$	214,523		Cash and cash equivalents	$	218,012	$	432,635
Short term investments	36,442		39,930			Short term investments	29,909		51,081
Accounts receivable, net of allowances	76,956		72,909
Unbilled revenue	1,668		139
Accounts receivable, net						Accounts receivable, net	240,722		170,526
Inventory	92,813		50,578			Inventory	353,724		181,756

Other current assets	18,395		5,591			Other current assets	46,367		45,223
Total current assets	468,060		383,670			Total current assets	888,734		881,221
Property and equipment, net	37,093		27,532			Property and equipment, net	80,227		76,584
Operating lease right-of-use assets						Operating lease right-of-use assets	39,096		43,682
Deferred tax assets	35,088		30,585			Deferred tax assets	39,778		33,404
Goodwill	41,041		41,041			Goodwill	121,909		125,872
Intangible assets, net	15,315		12,207			Intangible assets, net	8,348		9,902
Other assets	14,064		12,877			Other assets	31,542		19,063
Total assets	$	610,661	$	507,912		Total assets	$	1,209,634	$	1,189,728
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:						Current liabilities:
Accounts payable	$	88,798	$	67,281		Accounts payable	$	259,396	$	165,779
Accrued expenses	28,949		19,854			Accrued expenses	130,958		131,388
Accrued compensation	23,773		21,015

Deferred revenue and customer advances	4,607		4,486			Deferred revenue and customer advances	11,076		10,400

Total current liabilities	146,127		112,636			Total current liabilities	401,430		307,567
Long term liabilities	8,042		6,320
Operating lease liabilities						Operating lease liabilities	45,206		50,485
Deferred tax liabilities						Deferred tax liabilities	118		705
Other long-term liabilities						Other long-term liabilities	22,344		26,537
Total long-term liabilities						Total long-term liabilities	67,668		77,727
Total liabilities	154,169		118,956			Total liabilities	469,098		385,294
Commitments and contingencies (Note 7)
Preferred stock, 5,000,000 shares authorized and none outstanding	—		—
Common stock, $0.01 par value, 100,000,000 shares authorized; 27,874,351 and 27,237,870 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	279		272
Commitments and contingencies (Note 10)						Commitments and contingencies (Note 10)	0		0
Preferred stock, 5,000 shares authorized and none outstanding						Preferred stock, 5,000 shares authorized and none outstanding	—		—
Common stock, $0.01 par value, 100,000 shares authorized; 26,954 and 28,184 shares issued and outstanding, respectively						Common stock, $0.01 par value, 100,000 shares authorized; 26,954 and 28,184 shares issued and outstanding, respectively	270		282
Additional paid-in capital	182,786		161,885			Additional paid-in capital	215,592		205,256
Retained earnings	273,368		226,950			Retained earnings	517,221		599,389
Accumulated other comprehensive income (loss)	59		(151		)	Accumulated other comprehensive income (loss)	7,453		(493)
Total stockholders’ equity	456,492		388,956			Total stockholders’ equity	740,536		804,434
Total liabilities and stockholders’ equity	$	610,661	$	507,912		Total liabilities and stockholders’ equity	$	1,209,634	$	1,189,728

The accompanying notes are an integral part of the consolidated financial statements.

~~Table of Contents~~

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Revenue $ 205,399
$ 168,610
$ 557,014
$ 448,110
Cost of revenue (1) 103,016
87,550
277,397
235,437
Gross margin 102,383
81,060
279,617
212,673
Operating expenses:
Research and development (1) 28,843
19,672
80,518
57,944
Selling and marketing (1) 28,646
17,925
91,344
66,972
General and administrative (1) 21,002
16,012
58,137
48,919
Total operating expenses 78,491
53,609
229,999
173,835
Operating income 23,892
27,451
49,618
38,838
Other income, net 2,601
523
4,290
2,142
Income before income taxes 26,493
27,974
53,908
40,980
Income tax expense 4,411
8,462
7,565
12,722
Net income $ 22,082
$ 19,512
$ 46,343
$ 28,258
Net income per share:
Basic $ 0.80
$ 0.72
$ 1.68
$ 1.01
Diluted $ 0.76
$ 0.70
$ 1.61
$ 0.99
Number of weighted average common shares used in calculations per share
Basic 27,739
27,237
27,520
27,878
Diluted 28,916
27,778
28,719
28,423

~~__________________________~~


~~(1)~~	~~Total stock-based compensation recorded in the three and nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~October 1, 2016~~ ~~included in the above figures breaks down by expense classification as follows:~~


										Three Months Ended				Nine Months Ended
	Three Months Ended				Nine Months Ended					October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
Cost of revenue	$	274	$	184	$	751	$	555
Revenue									Revenue	$	440,682	$	413,145	$	1,109,539	$	885,563
Cost of revenue:									Cost of revenue:
Cost of product revenue									Cost of product revenue	277,703		214,079		684,190		429,060
Amortization of acquired intangible assets									Amortization of acquired intangible assets	225		225		675		1,695
Total cost of revenue									Total cost of revenue	277,928		214,304		684,865		430,755
Gross profit									Gross profit	162,754		198,841		424,674		454,808
Operating expenses:									Operating expenses:
Research and development	1,261		1,028		3,508		2,598		Research and development	40,262		38,613		120,859		111,929
Selling and marketing	728		444		1,869		1,316		Selling and marketing	59,055		50,488		186,722		136,144
General and administrative	2,771		2,247		7,941		7,312		General and administrative	22,688		28,490		72,587		74,919
Amortization of acquired intangible assets									Amortization of acquired intangible assets	251		256		661		764
Total operating expenses									Total operating expenses	122,256		117,847		380,829		323,756
Operating income									Operating income	40,498		80,994		43,845		131,052
Other income, net									Other income, net	26,585		42,240		26,139		41,837
Income before income taxes									Income before income taxes	67,083		123,234		69,984		172,889
Income tax expense									Income tax expense	9,867		29,982		8,083		39,156
Net income									Net income	$	57,216	$	93,252	$	61,901	$	133,733
Net income per share:									Net income per share:
Basic									Basic	$	2.09	$	3.33	$	2.22	$	4.76
Diluted									Diluted	$	2.06	$	3.27	$	2.17	$	4.69
Number of shares used in per share calculations:									Number of shares used in per share calculations:
Basic									Basic	27,413		28,031		27,923		28,084
Diluted									Diluted	27,803		28,539		28,475		28,502

The accompanying notes are an integral part of the consolidated financial statements.

~~Table of Contents~~

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended				Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net income	$	22,082		$	19,512		$	46,343		$	28,258	Net income	$	57,216	$	93,252	$	61,901	$	133,733
Other comprehensive income:												Other comprehensive income:
Net foreign currency translation adjustments	3			—			(3		)	—		Net foreign currency translation adjustments	(3,974)		5,600		(8,743)		6,864
Net unrealized gains (losses) on cash flow hedges, net of tax	(95		)	—			126			—		Net unrealized gains (losses) on cash flow hedges, net of tax	5,181		(8,418)		18,113		(5,379)
Net losses on cash flow hedge reclassified into earnings, net of tax	17			—			36			—
Net unrealized gains (losses) on marketable securities, net of tax	21			(66		)	51			216
Net gains on cash flow hedge reclassified into earnings, net of tax												Net gains on cash flow hedge reclassified into earnings, net of tax	(878)		(745)		(1,420)		(3,533)
Net unrealized losses on marketable securities, net of tax												Net unrealized losses on marketable securities, net of tax	—		(30)		(4)		(10)
Total comprehensive income	$	22,028		$	19,446		$	46,553		$	28,474	Total comprehensive income	$	57,545	$	89,659	$	69,847	$	131,675

The accompanying notes are an integral part of the consolidated financial statements.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income ("AOCI")		Stockholders’ Equity
	Shares	Value
Balance at July 3, 2021	28,050	$	281	$	216,375	$	557,452	$	7,124	$	781,232
Issuance of common stock under employee stock plans	1	—		27						27

Vesting of restricted stock units	105	1		(1)						—
Stock-based compensation				2,073						2,073
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(4)	—		(362)						(362)
Other comprehensive income								329		329
Directors' deferred compensation				21						21
Stock repurchases	(1,198)	(12)		(2,541)		(97,447)				(100,000)

Net income						57,216				57,216
Balance at October 2, 2021	26,954	$	270	$	215,592	$	517,221	$	7,453	$	740,536



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")		Stockholders’ Equity
	Shares	Value
Balance at January 2, 2021	28,184	$	282	$	205,256	$	599,389	$	(493)	$	804,434
Issuance of common stock under employee stock plans	122	1		5,156						5,157

Vesting of restricted stock units	338	3		(3)						—
Stock-based compensation				16,195						16,195
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(45)	—		(5,161)						(5,161)
Other comprehensive income								7,946		7,946
Directors' deferred compensation				64						64
Stock repurchases	(1,645)	(16)		(5,915)		(144,069)				(150,000)
Net income						61,901				61,901
Balance at October 2, 2021	26,954	$	270	$	215,592	$	517,221	$	7,453	$	740,536

The accompanying notes are an integral part of the consolidated financial statements.

~~Table~~

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")		Stockholders’ Equity
	Shares	Value
Balance at June 27, 2020	27,998	$	280	$	184,436	$	492,802	$	4,544	$	682,062
Issuance of common stock under employee stock plans	10	—		358						358

Vesting of restricted stock units	113	1		(1)						—
Stock-based compensation				9,843						9,843
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(1)	—		(29)						(29)
Other comprehensive loss								(3,593)		(3,593)
Directors' deferred compensation				21						21

Net income						93,252				93,252
Balance at September 26, 2020	28,120	$	281	$	194,628	$	586,054	$	951	$	781,914



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss) ("AOCI")		Stockholders’ Equity
	Shares	Value
Balance at December 28, 2019	28,352	$	284	$	196,455	$	452,321	$	3,009	$	652,069
Issuance of common stock under employee stock plans	122	1		4,047						4,048

Vesting of restricted stock units	356	3		(3)						—
Stock-based compensation				20,904						20,904
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(46)	—		(1,845)						(1,845)
Other comprehensive loss								(2,058)		(2,058)
Directors' deferred compensation				63						63
Stock repurchases	(664)	(7)		(24,993)						(25,000)
Net income						133,733				133,733
Balance at September 26, 2020	28,120	$	281	$	194,628	$	586,054	$	951	$	781,914

The accompanying notes are an integral part of ~~Contents~~the consolidated financial statements.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Nine Months Ended
September 30,
2017 October 1,
2016
Cash flows from operating activities:
Net income $ 46,343
$ 28,258
Adjustments to reconcile net income to net cash provided by operating activities, net of the effects of acquisitions:
Depreciation and amortization 14,523
10,171
Loss on disposal of property and equipment 46
205
Loss on equity method investment 32
—
Impairment on cost method investment 155
—
Gain on sale of business unit —
(433 )
Gain on sale of cost method investment (1,056 ) (634 )
Gain on business acquisition (2,243 ) —
Stock-based compensation 14,069
11,781
Deferred income taxes, net (3,226 ) 6,314
Tax benefit of excess stock based compensation deductions —
(1,115 )
Non-cash director deferred compensation 49
66
Changes in operating assets and liabilities — (use) source
Accounts receivable (9,429 ) 30,781
Unbilled revenue (1,528 ) 198
Inventory (23,944 ) (11,472 )
Other assets (11,099 ) (1,579 )
Accounts payable 20,824
(2,261 )
Accrued expenses 6,085
(2,046 )
Accrued compensation 949
1,990
Deferred revenue and customer advances (965 ) (193 )
Long term liabilities 1,513
(2,997 )
Net cash provided by operating activities 51,098
67,034
Cash flows from investing activities:
Additions of property and equipment (16,630 ) (8,352 )
Change in other assets (1,374 ) (435 )
Proceeds from sale of business unit —
23,520
Cash paid for business acquisition, net of cash acquired (16,524 ) —
Purchases of investments (7,034 ) (16,556 )
Sales and maturities of investments 10,500
11,502
Proceeds from sale of cost method investment 1,056
634
Net cash provided by (used in) investing activities (30,006 ) 10,313
Cash flows from financing activities:
Proceeds from stock option exercises 8,990
4,496
Income tax withholding payment associated with restricted stock vesting (2,974 ) (1,300 )
Stock repurchases —
(97,021 )
Tax benefit of excess stock-based compensation deductions —
1,115
Net cash provided by (used in) financing activities 6,016
(92,710 )
Effect of exchange rate changes on cash and cash equivalents 155
—
Net increase (decrease) in cash and cash equivalents 27,263
(15,363 )
Cash and cash equivalents, at beginning of period 214,523
179,915
Cash and cash equivalents, at end of period $ 241,786
$ 164,552
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 18,338
$ 11,818
Non-cash investing and financing activities:
Transfer of inventory to property and equipment $ —
$ 5
Additions of property and equipment included in accounts payable $ 2,058
$ 694


	Nine Months Ended
	October 2, 2021		September 26, 2020
Cash flows from operating activities:
Net income	$	61,901	$	133,733
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	23,978		25,705
Gain on equity investment	(26,929)		(43,480)
Stock-based compensation	16,195		20,904
Deferred income taxes, net	(8,190)		10,939
Other	4,496		4,785
Changes in operating assets and liabilities — (use) source
Accounts receivable	(71,368)		(32,572)
Inventory	(173,986)		(61,006)
Other assets	(5,851)		(20,718)
Accounts payable	93,530		46,098
Accrued expenses and other liabilities	(4,551)		12,358
Net cash (used in) provided by operating activities	(90,775)		96,746
Cash flows from investing activities:
Additions of property and equipment	(25,302)		(25,031)

Purchase of investments	(9,641)		(3,729)

Sales and maturities of investments	63,976		10,500
Net cash provided by (used in) investing activities	29,033		(18,260)
Cash flows from financing activities:
Proceeds from employee stock plans	5,157		4,048
Income tax withholding payment associated with restricted stock vesting	(5,161)		(1,845)
Stock repurchases	(150,000)		(25,000)
Net cash used in financing activities	(150,004)		(22,797)
Effect of exchange rate changes on cash and cash equivalents	(2,877)		2,125
Net (decrease) increase in cash and cash equivalents	(214,623)		57,814
Cash and cash equivalents, at beginning of period	432,635		239,392
Cash and cash equivalents, at end of period	$	218,012	$	297,206

The accompanying notes are an integral part of the consolidated financial statements.

~~Table of Contents~~

iROBOT CORPORATION

~~Notes To Consolidated Financial Statements~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business

iRobot Corporation ("iRobot" or the "Company") designs and builds robots that empower people to do more. iRobot's consumer robots help people find smarter ways to clean and accomplish more in their daily lives. The ~~Company develops robotic technology~~Company's portfolio of floor cleaning robots features proprietary technologies for the connected home and ~~applies it~~advanced concepts in cleaning, robot-based artificial intelligence, mapping and navigation, machine vision, home understanding, human-robot interaction and physical solutions. Leveraging this portfolio, the Company's engineers are building an ecosystem of robots to ~~produce and market consumer robots.~~help realize the smart home's potential. The Company’s revenue is primarily generated from product ~~sales.~~sales through a variety of distribution channels, including chain stores and other national retailers, through the Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers and through value-added distributors and resellers worldwide.

2. Summary of Significant Accounting Policies

Basis of Presentation and Foreign Currency Translation

The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany ~~accounts~~balances and transactions. iRobot has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States ~~(GAAP)~~of America ("GAAP").

~~The accompanying~~In the opinion of management, all adjustments necessary to the unaudited interim consolidated financial ~~data as~~statements have been made to state fairly the Company's financial position. Interim results are not necessarily indicative of ~~September 30, 2017, and~~results for the ~~three and nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~October 1, 2016~~ ~~have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain~~full fiscal year or any future periods. The information ~~and footnote disclosures normally~~ included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. These consolidated financial statementsthis Form 10-Q should be read in conjunction with the ~~Company’s~~Company's audited consolidated financial statements and ~~the~~ notes thereto included in its Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016~~,January 2, 2021, filed with the ~~SEC~~Securities and Exchange Commission on February ~~17, 2017.~~16, 2021.

~~In the opinion of management, all adjustments necessary to state fairly the Company's statement of financial position as of~~ ~~September 30, 2017~~ ~~and results of operations, comprehensive income and cash flows for the periods ended~~ ~~September 30, 2017~~ ~~and~~ ~~October 1, 2016~~ have been made. The results of operations, comprehensive income and cash flows for any interim period are not necessarily indicative of the operating results, comprehensive income and cash flows for the full fiscal year or any future periods.

~~Use of Estimates~~

The preparation of these financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates these estimates and judgments, in particular those related to revenue recognition (specifically sales returns and other allowances); valuation allowances; assumptions used in valuing goodwill and intangible assets; assumptions used in accounting for business combinations; assumptions used in valuing stock-based compensation instruments, evaluating loss contingencies; and valuation allowances for deferred tax assets. Actual results may differ from the Company’s estimates. The Company bases these estimates and judgments on historical experience and various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty.

~~Fiscal Year-End~~

The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, the Company’s fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter.

~~Recent~~Recently Adopted Accounting ~~Pronouncements~~

Standards

In ~~August 2017,~~December 2019, the Financial Accounting Standards Board ~~(FASB)~~("FASB") issued Accounting Standards Update ~~(ASU)~~("ASU") No. ~~2017-12, "Derivatives and Hedging,~~2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." that was created to better align accounting rules with a company’s risk management activities, better reflect the economic results of hedging in the financial statements, and simplify hedge accounting treatment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

year of adoption. The amendments to presentation guidance and disclosure requirements are required to be adopted prospectively. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

~~In May 2017, the FASB issued~~ ASU No. 2017-09, "Stock Compensation – Scope of Modification Accounting," that clarifies that all changes to share-based payment awards are not necessarily accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. This guidance is effective prospectively beginning January 1, 2018, with early adoption permitted. This guidance will apply to any future modifications. The Company does not believe the standard will have a material effect on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other." ASU 2017-04 eliminates step 2 from the goodwill impairment test, instead requiring that an entity recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit's fair value. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company does not believe the standard will have a material effect on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations; Clarifying the Definition of a Business." ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory." ASU 2016-16 clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 refines how companies classify certain aspects of the cash flow statement in regards to debt prepayment, settlement of debt instruments, contingent consideration payments, proceeds from insurance claims and life insurance policies, distribution from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

~~In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which~~ simplifies ~~several aspects of the accounting for share-based payment transactions, including~~ the accounting for income taxes ~~forfeitures, and statutory tax withholding requirements,~~by removing certain exceptions to the general principles as well as ~~classification in the statement of cash flows.~~clarifying and amending existing guidance to improve consistent application. The ~~Company adopted~~amendments to this ASU 2016-09 effective January 1, 2017. As of the adoption date, this standard did not have a material impact on the Company's consolidated financial statements. Upon the adoption, the Company elected to account for forfeitures of share-based payments as they occur prospectively. For the three and nine months ended September 30, 2017, the Company recorded a tax benefit of $4.7 million and $10.7 million, respectively, related to share-based compensation in accordance with ASU 2016-09.

In February 2016, the FASB issued ASU No. 2016-02, "Leases." ASU 2016-02 requires lessees to recognize the assets and liabilities on their balance sheet for the rights and obligations created by most leases and continue to recognize expenses on their income statements over the lease term. It will also require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance isare effective for ~~annual reporting periods beginning after December 15, 2018~~fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The Company ~~is currently evaluating the impact of~~adopted the standard ~~on its consolidated financial statements.~~

~~In July 2015,~~in the ~~FASB issued ASU No. 2015-11, "Inventory: Simplifying the Measurement~~first quarter of ~~Inventory." ASU 2015-11 applies only to inventory for which cost is determined by methods other than last-in, first-out~~2021 and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~adopted ASU 2015-11 effective January 1, 2017. The~~ adoption ~~of this standard did not have a material~~had no impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance was originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. In July 2015, the FASB voted to defer the effective date of the new accounting guidance related to revenue recognition by one year to December 17, 2017 for annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The standard will be effective for the Company beginning in the first quarter of 2018. The Company will adopt the standard using the modified retrospective method.

The Company has and is continuing to conduct a comprehensive analysis of the provisions of the new standard and the impact it will have on the Company's processes, policies, and consolidated financial statements. The Company is currently finalizing its conclusions on the number of its performance obligations. Once the Company has concluded, it will finalize the standalone selling price for each performance obligation and assess the allocation of discounts and variable consideration to each. The new revenue standard is expected to have a minor impact on the timing of revenue recognized in the Company’s consolidated financial statements.

The Company does not expect the provisions of the new standard to impact the manner in which it treats certain costs to fulfill contracts (i.e., shipping and handling costs) and costs to acquire new contracts (i.e., commissions). Under the new standard, the Company will elect the practical expedient on shipping and handling costs and continue to treat these costs as fulfillment costs and expense as incurred. Further, commissions will continue to be expensed as incurred as the impact to the consolidated financial statements is immaterial. The new standard will also result in enhanced revenue related disclosures.

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

~~Revenue Recognition~~Use of Estimates

The preparation of these financial statements in conformity with GAAP requires the Company ~~primarily derives~~to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses. These estimates and judgments include, but are not limited to, revenue recognition, including performance obligations, variable consideration and other obligations such as product returns and 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 including performance-based assessments; and accounting for income taxes and related valuation allowances. The Company bases its ~~revenue from product sales. Until the divestiture~~estimates and assumptions on historical experience, market participant fair value considerations, projected future cash flows, current conditions, including estimated economic implications of the defense and security business unit on April 4, 2016 (see Note 11), the Company also generated minimal revenue from government and commercial research and development contracts. The Company sells products directly to customers and indirectly through resellers and distributors. The Company recognizes revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer, net of estimated returns and allowances, provided that collection is determined to be reasonably assured and no significant obligations remain.

Beginning in the third quarter of 2015, the Company introduced its first connected robot. Each sale of a connected robot represents a multi-element arrangement containing the robot, an app and potential future unspecified software upgrades. Revenue is allocated to the deliverables based on their relative selling prices which have been determined using best estimate of selling price (BESP), as the Company has not been able to establish vendor specific objective evidence (VSOE) or obtain relevant third party evidence (TPE). Revenue allocated to the app and unspecified software upgrades is then deferred and recognized on a straight-line basis over the period in which the Company expects to provide the upgrades which is the estimated life of the robot.

Sales to retailers of consumer robots are typically subject to agreements allowing for limited rights of return, rebates and price protection. The Company also provides limited rights of returns for direct-to-consumer sales generated through its on-line stores and certain international distributors. Accordingly, the Company reduces revenue for its estimates of liabilities for these rights of return, rebates, and price protection, as well as discounts and promotions, at the time the related sale is recorded. The estimates for rights of return are directly based on specific terms and conditions included in the customer agreements, historical returns experienceCOVID-19 pandemic and various other ~~assumptions~~factors that the Company believes are reasonable under the circumstances. ~~In the case of new product introductions, the estimates for returns applied~~While there was not a material change to the ~~new products are based upon the~~consolidated financial statements related to these estimates as of and for the most similar predecessor products until such time that the Company has enough actual returns experience for the new products, which is typically two holiday return cycles. At that time, the Company incorporates that data into the development of returns estimates for the new products. The Company updates its analysis of returns on a quarterly basis. If actual returns differ significantly fromnine months ended October 2, 2021, the Company's ~~estimates, or if modifications to individual customer agreements are entered into that impact their rights~~future assessment of ~~returns, such differences~~the magnitude and duration of the COVID-19 pandemic as well as other factors, could result in ~~an adjustment~~material impacts to ~~previously established reserves~~the Company's consolidated financial statements in future reporting periods.The extent and ~~could have a~~

continued impact of COVID-19 has been taken into account by management in making the significant assumptions and estimates related to the above. Actual results may differ from the Company’s estimates.

iROBOT CORPORATION

~~Notes~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Credit Losses

The Company is exposed to ~~Consolidated Financial Statements - (Continued)~~

credit losses primarily through sales of its products. The Company assesses each customer's ability to pay by conducting a credit review which includes consideration of established credit ratings or an internal assessment of the customer's creditworthiness based on an analysis of their financial information when a credit rating is not available. The Company monitors the credit exposure through active review of customer balances. The Company's expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current and future economic and market conditions and age of the receivable. Although the Company historically has not experienced significant credit losses as it relates to trade accounts receivable, the COVID-19 pandemic has caused uncertainty in some customer accounts. The Company did not have an adjustment to its estimate of credit losses during the three months ended October 2, 2021. The Company recorded a decrease to the reserve and bad debt expense of $2.1 million during the nine months ended October 2, 2021. As of October 2, 2021 and January 2, 2021, the Company had an allowance for credit losses of $2.7 million and $4.8 million, respectively.

Inventory

~~material impact, either favorably~~Inventory is stated at the lower of cost or ~~unfavorably,~~net realizable value with cost being determined using the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue and have not been significant for the periods presented. Inventory primarily consists of finished goods at October 2, 2021 and January 2, 2021.

Strategic Investments

The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes. These investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. At October 2, 2021 and January 2, 2021, the Company's equity securities without readily determinable fair values totaled $15.1 million and $17.4 million, respectively, and are included in other assets on the ~~Company’s results~~consolidated balance sheets.

On July 1, 2020, Teladoc Health, Inc. ("Teladoc") closed on its previously announced acquisition of ~~operations for the period in~~InTouch Health, of which the ~~actual returns become known or the agreement is modified.~~Company held non-marketable equity securities. In ~~2016,~~exchange for its shares of InTouch Health, the Company ~~began selling~~received 0.2 million shares of Teladoc and recorded a gain of $38.6 million to ~~one domestic distributor under an agreement that provides product return privileges.~~other income, net during the second quarter of 2020. The Teladoc shares received were subject to time based contractual sales restrictions which expired in January 2021. These shares were accounted for as marketable equity securities and measured at fair value with unrealized gains and losses recognized in other income, net at the end of each reporting period. As a result, the Company ~~recognizes revenue from sales~~entered into an economic hedge in July 2020 to this distributor when the product is resold by the distributor. The estimates and adjustments for rebates and price protection are based on specific programs, expected usage and historical experience. Actual results could differ from these estimates. As of September 30, 2017, the Company had reserves for product returns of $28.4 million, discounts and promotions of $20.0 million and price protection of $3.2 million. As of December 31, 2016, the Company had reserves for product returns of $27.7 million, discounts and promotions of $21.9 million and price protection of $1.5 million.

~~Prior to~~reduce the Company's divestiture of the defense and security business unit on April 4, 2016 (see Note 11), the Company generated minimal revenue from government contracts. Under cost-plus-fixed-fee (CPFF) type contracts, the Company recognized revenue based on costs incurred plus a pro rata portion of the total fixed fee. Costs incurred included labor and material that were directly associated with individual CPFF contracts plus indirect overhead and general and administrative type costs based upon billing rates submitted by the Companyexposure to the Defense Contract Management Agency (DCMA). Annually, the Company submits final indirect billing rates to DCMA based upon actual costs incurred throughout the year. In the situation where the Company’s final actual billing rates are greater than the estimated rates used, the Company records a cumulative revenue adjustment in the period in which the rate differential is collected from the customer. These final billing rates are subject to audit by the Defense Contract Audit Agency (DCAA), which can occur several years after the final billing rates are submitted and may result in material adjustments to revenue recognized based on estimated final billing rates. As of September 30, 2017, fiscal years 2015 and 2016 are open for audit by the DCAA. In the situation where the Company’s anticipated actual billing rates will be lower than the provisional rates used, the Company records a cumulative revenue adjustment in the period in which the rate differential is identified. Revenue on firm fixedstock price (FFP) contracts was recognized using the percentage-of-completion method. For government product FFP contracts, revenue was recognized as the product was shipped or in accordance with the contract terms. Costs and estimated gross margins on contracts were recorded as revenue as work was performed based on the percentage that incurred costs compared to estimated total costs utilizing the most recent estimates of costs and funding. Revenue earned in excess of billings, if any, was recorded as unbilled revenue. Billings in excess of revenue earned, if any, were recorded as deferred revenue.

~~Stock-Based Compensation~~

The Company accounts for stock-based compensation through recognition of the fair value of the stock-based compensation as a charge against earnings. Stock-based compensation cost for stock options is estimated at the grant date based on each option's fair value as calculated by the Black-Scholes option-pricing model. Stock-based compensation cost for restricted stock awards, time-based restricted stock units and performance-based restricted stock units is measured based on the closing fair market value of the Company's common stock on the date of grant. For performance-based restricted stock units, the compensation costs will be subsequently adjusted for assumptions of achievementfluctuations during the ~~period in which the assumption of achievement changes, as applicable. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service~~restricted period. ~~The Company has elected to account for forfeitures as they occur, rather than applying an estimated forfeiture rate, following its adoption of ASU 2016-09 in~~During the first quarter of ~~2017.~~2021, the Company received net proceeds of $51.5 million related to the sale of Teladoc shares with gross proceeds of $60.1 million, net of settlement payment of $8.6 million for the related economic hedge.

On July 22, 2021, Matterport, Inc. ("Matterport"), of which the Company held non-marketable equity securities, completed a merger with a special purpose acquisition company and began trading on Nasdaq under the symbol "MTTR." Prior to the merger, the Company accounted for the shares in Matterport as equity securities without readily determinable fair value. Upon consummation of the merger, the Company received 1.6 million shares of MTTR and recorded a gain of $20.3 million to other income, net. The post merger Matterport shares received are subject to time based contractual sales restrictions which expire in January 2022. These shares are accounted for as marketable equity securities and measured at fair value with unrealized gains and losses recognized in other income, net at the end of each reporting period. During the three months ended October 2, 2021, the Company recorded gains of $6.7 million associated with marking the shares to fair value. As of October 2, 2021, the shares in MTTR were valued at $29.8 million and are recorded in short term investments on the consolidated balance sheet.

Net Income Per Share

Basic income per share is calculated using the Company's weighted-average outstanding common shares. Diluted income

per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock

awards as determined under the treasury stock method.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The following table presents the calculation of both basic and diluted net income per ~~share:~~share (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net income	$	57,216	$	93,252	$	61,901	$	133,733
Basic weighted-average common shares outstanding	27,413		28,031		27,923		28,084
Dilutive effect of employee stock awards	390		508		552		418
Diluted weighted-average common shares outstanding	27,803		28,539		28,475		28,502
Net income per share - Basic	$	2.09	$	3.33	$	2.22	$	4.76
Net income per share - Diluted	$	2.06	$	3.27	$	2.17	$	4.69

Three Months Ended Nine Months Ended
(In thousands, except per share amounts)
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Net income $ 22,082
$ 19,512
$ 46,343
$ 28,258
Basic weighted-average shares outstanding 27,739
27,237
27,520
27,878
Dilutive effect of employee stock options and restricted shares 1,177
541
1,199
545
Diluted weighted-average shares outstanding 28,916
27,778
28,719
28,423
Basic income per share $ 0.80
$ 0.72
$ 1.68
$ 1.01
Diluted income per share $ 0.76
$ 0.70
$ 1.61
$ 0.99

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~Restricted~~Employee stock ~~units and stock options~~awards representing approximately ~~0.0~~0.2 million and ~~0.5~~0.1 million shares of common stock for the ~~three-month periods~~three months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016, respectively,~~26, 2020, and approximately ~~0.0~~0.1 million and ~~0.6~~0.2 million shares of common stock for the ~~nine-month periods~~nine months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016,~~26, 2020, respectively, were excluded from the computation of diluted earnings per share ~~for these periods because~~as their effect would have been antidilutive.

~~Income~~

3. Revenue Recognition

The Company primarily derives its revenue from the sale of consumer robots and accessories. The Company sells products directly to consumers through online stores and indirectly through resellers and distributors. Revenue is recognized upon transfer of control of promised products or services to customers, generally as title and risk of loss pass, in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized only to the extent that it is probable that a significant reversal of revenue will not occur and when collection is considered probable. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Shipping and handling expenses are considered fulfillment activities and are expensed as incurred.

The Company’s consumer robots are highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a single performance obligation, and the revenue is recognized at a point in time when the control is transferred to distributors, resellers or directly to end customers through online stores. For certain consumer robots with Wi-Fi capability ("connected robots"), each sale represents an arrangement with multiple promises consisting of the robot, downloadable free app, cloud services and potential future unspecified software upgrades. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one promised service to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services").

~~Deferred taxes are determined~~For contracts that contain multiple performance obligations, the transaction price is allocated to each performance obligation based on a relative standalone selling price ("SSP"). The Company estimates SSP for items that are not sold separately, using market data if available or analysis of the cost of providing the products or services plus a reasonable margin. The transaction price allocated to the robots is recognized as revenue at a point in time when control is transferred and when collection is considered probable. The transaction price allocated to the Cloud Services is deferred and recognized on a straight-line basis over the estimated term of the Cloud Services. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of October 2, 2021 and January 2, 2021 was$17.8 million and $11.5 million, respectively. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.

The Company’s products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under ASC 460, "Guarantees." During the fourth quarter of 2020, the Company began offering its customers the option to purchase an extended warranty for a fee. Amounts paid for the extended warranty plans are deferred and recognized as revenue on a straight-line basis over the service period.

The Company provides limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns. In addition, the Company may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Overall, these reserves reflect the Company’s best estimates, and the actual amounts of

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

consideration ultimately received may differ from the Company’s estimates. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of October 2, 2021, the Company has reserves for product returns of $54.9 million and other credits and incentives of $75.3 million. As of January 2, 2021, the Company had reserves for product returns of $64.3 million and other credits and incentives of $142.2 million. Revenue recognized during the three and nine months ended October 2, 2021 and September 26, 2020 related to performance obligations satisfied in a prior period was not material.

Disaggregation of Revenue

The following table provides information about disaggregated revenue by geographical region (in thousands):


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
United States	$	216,542	$	206,276	$	528,138	$	428,389
EMEA	132,130		114,477		339,918		252,184
Japan	66,823		65,490		154,652		136,215
Other	25,187		26,902		86,831		68,775
Total revenue	$	440,682	$	413,145	$	1,109,539	$	885,563

Contract Balances

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):


	October 2, 2021		January 2, 2021
Accounts receivable, net	$	240,722	$	170,526
Contract liabilities	21,001		17,700

The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include deferred revenue associated with the Cloud Services and extended warranty plans as well as prepayments received from customers in advance of product shipments. The change in the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the ~~financial statement~~Company’s performance and ~~tax basis of assets and liabilities using enacted tax rates in effect in~~ the years in which the differences are expected to reverse in each jurisdiction. A valuation allowance is provided if, based upon the weight of available evidence, it is more likely than not that the related benefits will not be realized. In determining the amount of the valuation allowance, each quarter, the Company considers future reversals of existing taxable temporary differences, estimated future taxable income and taxable income in prior carryback year(s), as well as feasible tax planning strategies in each jurisdiction to determine if the deferred tax assets are realizable. The Company's income tax provision and its assessment of the ability to realize its deferred tax assets involve significant judgments and estimates. As of September 30, 2017 and December 31, 2016, the Company did not record a valuation allowance against its deferred tax assets.

The Company recorded a tax provision of $4.4 million and $8.5 million for the three months ended September 30, 2017 and October 1, 2016, respectively. The $4.4 million provision for the three months ended September 30, 2017 resulted in an effective income tax rate of 16.6%. The $8.5 million provision forcustomer’s payment. During the three months ended October ~~1, 2016 resulted in an effective income tax rate of 30.2%. The difference between~~2, 2021 and September 26, 2020, the effective income tax rate of 16.6% for the three months ended September 30, 2017 and 30.2% for the three months ended October 1, 2016 was primarily due to a $4.7 million tax benefit related to share-based compensation in accordance with ASU 2016-09, adopted in the first quarter of 2017, and the jurisdictional mix of earnings.

~~The~~ Company ~~recorded a tax provision of $7.6~~recognized $6.6 million and ~~$12.7~~$1.8 million, ~~for~~respectively, of the contract liability balance as revenue upon transfer of the products or services to customers. During the nine months ended October 2, 2021 and September ~~30, 2017~~26, 2020, the Company recognized $10.5 million and $4.6 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers.

4. Leases

The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and marketing and research and development offices and equipment under various non-cancelable lease arrangements. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease obligation at the present value of lease payments over the term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease term. The Company's leases typically include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and nonlease components of contracts and excludes all variable lease payments from the measurement of right-of-use assets and lease liabilities. The Company's variable lease payments generally include usage based nonlease components. The Company's lease agreements do not contain any residual value guarantees or restrictive covenants.

The Company's existing leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments. At October ~~1, 2016, respectively.~~ 2, 2021, the Company's weighted average discount rate was 3.58%, while the weighted average remaining lease term was 7.79 years.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The ~~$7.6 million provision for~~components of lease expense were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Operating lease cost	$	2,181	$	2,287	$	6,315	$	6,932
Variable lease cost	837		823		2,765		2,827
Total lease cost	$	3,018	$	3,110	$	9,080	$	9,759

Supplemental cash flow information related to leases was as follows (in thousands):


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,150	$	2,750	$	6,529	$	7,516
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	744	$	—	$	2,310

Maturities of operating lease liabilities were as follows as of October 2, 2021 (in thousands):



Remainder of 2021	$	1,598
2022	8,561
2023	7,627
2024	6,571
2025	6,600
Thereafter	28,525
Total minimum lease payments	$	59,482
Less: imputed interest	7,985
Present value of future minimum lease payments	$	51,497
Less: current portion of operating lease liabilities (Note 6)	6,291
Long-term lease liabilities	$	45,206

5. Goodwill and Other Intangible Assets

The following table summarizes the ~~nine months ended September 30, 2017 resulted~~activity in ~~an effective income tax rate~~the carrying amount of ~~14.0%. The $12.7 million provision~~goodwill and intangible assets for the nine months ended October ~~1, 2016 resulted in an effective income tax rate~~2, 2021 (in thousands):


	Goodwill		Intangible assets
Balance as of January 2, 2021	$	125,872	$	9,902
Amortization	—		(1,336)
Effect of foreign currency translation	(3,963)		(218)
Balance as of October 2, 2021	$	121,909	$	8,348

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

6. Accrued Expenses

Accrued expenses consisted of ~~31.0%. The difference between~~ the effective income tax rate of 14.0% for the nine months ended September 30, 2017 and 31.0% for the nine months ended October 1, 2016 was primarily due to a $10.7 million tax benefit related to share-based compensation in accordance with ASU 2016-09, adopted in the first quarter of 2017, and the jurisdictional mix of earnings.following at (in thousands):


	October 2, 2021		January 2, 2021
Accrued manufacturing and logistics cost	$	28,967	$	20,093
Accrued warranty	28,061		24,392
Accrued compensation and benefits	17,471		17,635
Accrued income taxes	10,777		3,806

Accrued bonus	8,617		31,523
Current portion of operating lease liabilities	6,291		6,315
Accrued sales and other indirect taxes payable	5,343		15,480
Derivative liability	3,799		4,268





Accrued other	21,632		7,876
	$	130,958	$	131,388

~~The statute of limitations for examinations by the Internal Revenue Service is closed for tax years prior to 2014.~~

~~Financial~~7. Derivative Instruments and Hedging Activities

The Company utilizes derivative instruments to hedge specific financial risks including foreign exchange risk. The Company does not engage in speculative hedging activity. In order to account for a derivative instrument as a hedge, specific criteria must be met, including: (i) ensuring at the inception of the hedge that formal documentation exists for both the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge and (ii) at the inception of the hedge and on an ongoing basis, the hedging relationship is expected to be highly effective in achieving offsetting changes in fair value attributed to the hedged risk during the period that the hedge is designated. Further, an assessment of effectiveness is required whenever financial statements or earnings are reported. Absent meeting these criteria, changes in fair value are recognized in other income, net, in the consolidated statements of income. Once the underlying forecasted transaction is realized, the gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive income (loss) to the statement of income, in revenue. Any ineffective portion of the derivatives designated as cash flow hedges is recognized in current earnings.

~~Fair Value Measurements~~

The authoritative guidance for fair value establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~The Company’s financial assets and liabilities measured at fair value on a recurring basis at~~ ~~September 30, 2017, were as follows:~~

Fair Value Measurements as of
September 30, 2017
Level 1 Level 2 (1) Level 3
(In thousands)
Description
Assets:
Cash and cash equivalents
Money market funds $ 10,998
$ —
$ —
Short term investments
Corporate and government bonds —
36,442
—
Other current assets
Derivative instruments (Note 6) —
849
—
Total assets measured at fair value $ 10,998
$ 37,291
$ —

Liabilities:
Accrued expenses
Derivative instruments (Note 6) $ —
$ 315
$ —
Total liabilities measured at fair value $ —
$ 315
$ —

~~The Company’s financial assets and liabilities measured at fair value on a recurring basis at~~ ~~December 31, 2016, were as follows:~~

Fair Value Measurements as of
December 31, 2016
Level 1 Level 2 (1) Level 3
(In thousands)
Description
Assets:
Cash and cash equivalents
Money market funds $ 156,980
$ —
$ —
Short term investments
Corporate and government bonds —
39,930
—
Other current assets
Derivative instruments (Note 6) —
180
—
Total assets measured at fair value $ 156,980
$ 40,110
$ —

Liabilities:
Accrued expenses
Derivative instruments (Note 6) $ —
$ 43
$ —
Total liabilities measured at fair value $ —
$ 43
$ —


~~(1)~~	Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~3. Inventory~~

~~Inventory consists of the following:~~

September 30, 2017 December 31, 2016
(In thousands)
Raw materials $ 2,928
$ 4,717
Finished goods 89,885
45,861
$ 92,813
$ 50,578

~~4. Stock Option Plans and Stock-Based Compensation~~

The Company has options outstanding under three stock incentive plans: the 2005 Stock Option and Incentive Plan (the "2005 Plan"), the Evolution Robotics, Inc. 2007 Stock Plan (the "2007 Plan") and the 2015 Stock Option and Incentive Plan (the "2015 Plan" and together with the 2005 Plan and the 2007 Plan, the "Plans"). The Company also has restricted stock units outstanding under the 2005 Plan and the 2015 Plan. The 2015 Plan is the only one of the three plans under which new awards may currently be granted. Under the 2015 Plan, which became effective May 20, 2015, 3,100,000 shares were initially reserved for issuance in the form of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock units, unrestricted stock awards, cash-based awards, performance share awards and dividend equivalent rights. Stock awards returned to the Plans, with the exception of those issued under the 2007 Plan, as a result of their expiration, cancellation or termination are automatically made available for issuance under the 2015 Plan. Eligibility for incentive stock options is limited to those individuals whose employment status would qualify them for the tax treatment associated with incentive stock options in accordance with the Internal Revenue Code of 1986, as amended. The grant of any full value award (e.g., restricted stock units) under the 2015 Plan is counted against the share reserve for future grants under the 2015 Plan as 1.61 shares for every one share actually subject to such award. As of September 30, 2017, there were 895,418 shares available for future grant under the 2015 Plan.

Options granted under the Plans are subject to terms and conditions as determined by the compensation committee of the board of directors, including vesting periods. Options granted under the Plans are exercisable in full at any time subsequent to vesting, generally vest over four years, and expire five or ten years from the date of grant or, if earlier, 60 or 90 days from employee termination. The exercise price of stock options is equal to the closing price on the NASDAQ Global Select Market on the date of grant. Other awards granted under the Plans generally vest over periods from one to four years.

~~On September 8, 2017, the Company issued 79,300 time-based restricted stock unit grants to certain employees.~~

~~5. Accrued Expenses~~

~~Accrued expenses consist of the following:~~

September 30, 2017 December 31, 2016
(In thousands)
Accrued warranty $ 10,279
$ 8,464
Accrued sales and other taxes payable 5,569
482
Accrued customer deposits and payables 3,016
4,682
Accrued sales and marketing 2,911
404
Accrued accounting fees 1,030
686
Accrued direct fulfillment costs 634
1,722
Accrued federal and state income taxes 476
1,059
Accrued other 5,034
2,355
$ 28,949
$ 19,854

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~Accrued compensation consists of the following:~~

September 30, 2017 December 31, 2016
(In thousands)
Accrued bonus $ 15,079
$ 14,226
Accrued other compensation 8,694
6,789
$ 23,773
$ 21,015

~~6. Derivative Instruments~~

The Company operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency of the Company's operations, primarily the British Pound, Canadian Dollar, Euro and Japanese ~~Yen, Canadian dollar and the Euro.~~Yen. The Company uses derivative instruments that are designated in cash flow hedge relationships to reduce or eliminate the effects of foreign exchange rate ~~changes~~change on ~~purchases and~~ sales. These contracts typically have maturities ~~of ten months~~of three years or ~~less.~~less. At ~~September 30, 2017~~October 2, 2021 and ~~December 31, 2016,~~January 2, 2021, the Company had outstanding cash flow hedges with a total notional value of ~~$17.7~~$381.5 million ~~and $0.0~~and $431.9 million, respectively.

The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts typically have maturities of ~~two~~twelve months or less. At ~~September 30, 2017~~October 2, 2021 and ~~December 31, 2016, we~~January 2, 2021, the Company had outstanding foreign currency economic hedges with a total notional value of ~~$27.5~~$299.1 million and ~~$8.1~~$192.2 million, respectively.

As described in Note 2, during July 2020, the Company entered into a forward sale contract as an economic hedge to reduce the Company's exposure to stock price fluctuations on one of its marketable equity securities. The contract had a maturity date of January 2021 and was settled during the first quarter of 2021. The total notional value of this economic hedge was $51.5 million at January 2, 2021.

The fair values of derivative instruments are as ~~follows:~~follows (in thousands):


		Fair Value
	Classification	October 2, 2021		January 2, 2021
Derivatives not designated as hedging instruments:

Foreign currency forward contracts	Other current assets	$	5,658	$	261
Foreign currency forward contracts	Other assets	2,931		—
Foreign currency forward contracts	Accrued expenses	3,171		2,176
Forward sale contract	Other current assets	—		3,904
Derivatives designated as cash flow hedges:
Foreign currency forward contracts	Other current assets	$	3,258	$	362
Foreign currency forward contracts	Other assets	5,639		679
Foreign currency forward contracts	Accrued expenses	628		2,092
Foreign currency forward contracts	Long-term liabilities	591		8,554

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Fair Value
Classification September 30, 2017 December 31, 2016
(In thousands)
Derivatives not designated as hedging instruments:
Foreign currency option contracts Other current assets $ —
$ 180
Foreign currency forward contracts Other current assets 711
—
Foreign currency forward contracts Accrued expenses 315
43
Derivatives designated as cash flow hedges:
Foreign currency forward contracts Other current assets $ 138
$ —

~~Gains (losses)~~Losses associated with derivative instruments not designated as hedging instruments are as ~~follows:~~follows (in thousands):


		Three Months Ended				Nine Months Ended
	Classification	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Loss recognized in income	Other income, net	$	(1,606)	$	(2,232)	$	(11,229)	$	(3,475)

Three Months Ended Nine Months Ended
Classification September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
(In thousands)
Gain (loss) recognized in income Other income, net $ 9
$ (18 ) $ (495 ) $ (392 )

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

The following tables reflect the effect of ~~foreign exchange forward contracts that are~~derivatives designated as cash flow hedging ~~instruments for the three and nine months ended September 30, 2017 and October 1, 2016~~ (in thousands):


	Gain (loss) recognized in OCI on Derivative (1)
	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Foreign currency forward contracts	$	6,851	$	(11,230)	$	23,959	$	(7,177)

(1)The amount represents the change in fair value of derivative contracts due to changes in spot rates.


	Gain recognized in earnings on cash flow hedging instruments
	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
	Revenue				Revenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded	$	440,682	$	413,145	$	1,109,539	$	885,563

Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings	$	1,161	$	993	$	1,878	$	4,711

8. Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):


	Fair Value Measurements as of October 2, 2021
	Level 1		Level 2 (1)		Level 3
Assets:
Money market funds	$	95,501	$	—	$	—
Marketable equity securities, $23,286 at cost (2)	29,909		—		—


Derivative instruments (Note 7)	—		17,486		—
Total assets measured at fair value	$	125,410	$	17,486	$	—

Liabilities:
Derivative instruments (Note 7)	$	—	$	4,390	$	—
Total liabilities measured at fair value	$	—	$	4,390	$	—

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Effective Portion Ineffective Portion
Gain (loss) recognized in OCI on Derivative (1) Gain (loss) reclassified from accumulated OCI into income (2) Gain (loss) recognized in income (3)
Three months ended Three months ended Three months ended
September 30, 2017 October 1, 2016 Classification September 30, 2017 October 1, 2016 Classification September 30, 2017 October 1, 2016

Foreign currency forward contracts $ (21 ) $ —
Revenue $ (39 ) $ —
Other income, net $ —
$ —


	Fair Value Measurements as of January 2, 2021
	Level 1		Level 2 (1)		Level 3
Assets:
Money market funds	$	47,529	$	—	$	—
Marketable equity securities, $46,578 at cost	47,576		—		—
Corporate and government bonds, $3,498 at cost	—		3,505		—

Derivative instruments (Note 7)	—		5,206		—
Total assets measured at fair value	$	95,105	$	8,711	$	—

Liabilities:
Derivative instruments (Note 7)	$	—	$	12,822	$	—
Total liabilities measured at fair value	$	—	$	12,822	$	—

(1)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Effective Portion Ineffective Portion
Gain (loss) recognized in OCI on Derivative (1) Gain (loss) reclassified from accumulated OCI into income (2) Gain (loss) recognized in income (3)
Nine months ended Nine months ended Nine months ended
September 30, 2017 October 1, 2016 Classification September 30, 2017 October 1, 2016 Classification September 30, 2017 October 1, 2016

Foreign currency forward contracts $ 200
$ —
Revenue $ (58 ) $ —
Other income, net $ (5 ) $ —


~~(1)~~	~~The amount represents the change in fair value of derivative contracts due to changes in spot rates.~~


~~(2)~~	~~The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.~~


~~(3)~~	~~The amount represents the change in fair value of derivative contracts due to changes in the forward rates. No gains or losses were reclassified as a result of discontinuance of cash flow hedges.~~

~~7. Commitments and Contingencies~~

~~Lease Obligations~~

~~Rental expense under operating leases~~(2)The related unrealized gain recorded in other income, net was $6.6 million for the three months ended October 2, 2021. Marketable equity securities are included in short term investments on the consolidated balance sheet.

9. Stockholders' Equity

Share Repurchase Activity

The Company's Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases from time to time until September ~~30, 2017 and~~5, 2021 which was extended until March 31, 2022. As of October ~~1, 2016 were $2.2~~2, 2021, $25.0 million remained available for further repurchase under the program.

On August 2, 2021, the Company entered into an accelerated share repurchase ("ASR") agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which the Company paid $100.0 million and ~~$1.6~~received an aggregate initial share delivery of 943,285 shares of its common stock, which were immediately retired. In September 2021, Wells Fargo delivered an additional 254,933 shares of the Company's common stock to complete settlement of the ASR agreement. Under this agreement, the Company repurchased a total of 1,198,218 shares of its common stock at an average price of $83.46, totaling $100.0 million respectively, and for the nine months ended September 30, 2017 and October 1, 2016 were $6.1 million and $4.4 million, respectively. Future minimum rental payments under operating leases were as follows as of September 30, 2017:

Operating
Leases
(In thousands)
Remainder of 2017 $ 1,287
2018 5,279
2019 5,146
2020 5,120
2021 5,259
Thereafter 39,275
Total minimum lease payments $ 61,366

~~During~~during the three months ended ~~September 30, 2017,~~October 2, 2021. The final number of shares repurchased was based on the volume-weighted average price of its common stock over the duration of the ASR agreement, less a discount.

On March 11, 2021, the Company ~~amended its lease for its corporate headquarters~~entered into a Rule 10b5-1 plan to repurchase $50.0 million of common stock and ~~extended the lease term until 2030.~~

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~Outstanding Purchase Orders~~

~~At September 30, 2017,~~ the Company ~~had outstanding purchase orders aggregating approximately $181.2 million. These purchase orders,~~repurchased 446,954 shares of its common stock at an average price of $111.85, totaling $50.0 million during the ~~majority~~second quarter of ~~which are with contract manufacturers for~~2021.

On March 10, 2020, the ~~purchase~~Company entered into a Rule 10b5-1 plan to repurchase $25.0 million of ~~inventory~~common stock and the Company repurchased 663,602 shares of its common stock at an average price of $37.65, totaling $25.0 million in March 2020.

10. Commitments and Contingencies

Legal Proceedings

From time to time and in the ~~normal~~ordinary course of business, ~~are for manufacturing and non-manufacturing related goods and services, and are generally cancelable without penalty. In circumstances where~~ the Company ~~determines that it has~~is subject to various claims, charges and litigation. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial ~~exposure associated with any~~condition or results of ~~these commitments, the Company records a liability in the period in which that exposure is identified.~~operations.

Guarantees and Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses incurred by the indemnified party, generally the Company’s customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification ~~agreements.~~agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Accordingly, the Company has no liabilities recorded for these agreements as of ~~September 30, 2017~~October 2, 2021 and ~~December 31, 2016,~~January 2, 2021, respectively.

Warranty

The Company provides warranties on most products and has established a reserve for ~~warranties~~warranty obligations based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 5)6) in the accompanying consolidated balance sheets.

Activity related to the warranty accrual was as ~~follows:~~follows (in thousands):


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Balance at beginning of period	$	24,718	$	13,769	$	24,392	$	13,856

Provision	10,913		5,525		31,334		13,395
Warranty usage	(7,570)		(4,633)		(27,665)		(12,590)
Balance at end of period	$	28,061	$	14,661	$	28,061	$	14,661

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
(In thousands)
Balance at beginning of period $ 10,505
$ 6,622
$ 8,464
$ 6,907
Liability assumed (1) —
—
2,186
—
Provision 2,433
2,823
6,051
5,619
Warranty usage (2) (2,659 ) (1,598 ) (6,422 ) (4,679 )
Balance at end of period $ 10,279
$ 7,847
$ 10,279
$ 7,847


~~(1)~~	~~Warranty assumed as part of the acquisition of the iRobot-related distribution business of Sales On Demand Corporation (see Note 9).~~


~~(2)~~	Warranty usage includes costs incurred for warranty obligations and, for the nine month period ended October 1, 2016, the release of warranty liabilities associated with the divestiture of the defense and security business unit.

~~Sales~~11. Income Taxes

The Company ~~collects~~recorded an income tax expense of $9.9 million and ~~remits sales~~$30.0 million for the three months ended October 2, 2021 and September 26, 2020, respectively. The $9.9 million income tax expense for the three months ended October 2, 2021 resulted in ~~jurisdictions~~an effective income tax rate of 14.7%. The $30.0 million income tax expense for the three months ended September 26, 2020 resulted in ~~which it has~~an effective tax rate of 24.3%. The decrease in the effective income tax rate was primarily due to the greater impact of tax benefits, such as the research and development tax credit, on a ~~physical presence or it believes nexus exists, which therefore obligates~~lower pretax income base.

The Company's 14.7% effective rate of income tax expense for the ~~Company to collect~~three months ended October 2, 2021 was lower than the federal statutory tax rate of 21% primarily because of the impact of tax benefit from foreign derived intangible income ("FDII") and ~~remit sales tax.~~ research and development tax credits.

The Company ~~continually evaluates whether it has established nexus~~recorded an income tax expense of $8.1 million and $39.2 million for the nine months ended October 2, 2021 and September 26, 2020, respectively. The $8.1 million income tax expense for the nine months ended October 2, 2021 resulted in ~~new jurisdictions with respect~~an effective tax rate of 11.5%. The $39.2 million income tax expense for the nine months ended September 26, 2020 resulted in an effective tax rate of 22.6%. The decrease in the effective income tax rate was primarily due to ~~sales tax.~~ the recognition of discrete tax benefits related to stock-based compensation as well as the greater impact of tax benefits, such as the research and development income credit, on a lower pretax income base.

The ~~Company has recorded a liability~~Company's effective income tax rate of 11.5% for ~~potential exposure in states where there is uncertainty about~~ the ~~point in time at which~~nine months ended October 2, 2021 differed from the ~~Company established a sufficient business connection~~federal statutory tax rate of 21% primarily due to ~~create nexus. The Company continues~~the recognition of discrete tax benefits related to ~~analyze possible sales~~stock-based compensation as well as the impact of tax exposure, but does not currently believe that any individual claim or aggregate claims that might arise will ultimately have a material effect on its consolidated results of operations, financial position or cash flows.benefits from FDII and research and development tax credits.

8.12. Industry Segment, Geographic Information and Significant Customers

Prior to completing the sale of the Company's defense and security business (see Note 11), the Company’s reportable segments consisted of the home business unit and the defense and security business unit. Following this divestiture, which was completed on April 4, 2016, theThe Company ~~now~~ operates as ~~one business segment, consumer robots, the results of which are~~

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~included in the Company's consolidated statements of income and comprehensive income.~~1 operating segment. The Company's consumer robots products are offered to consumers through a ~~network~~variety of ~~retail businesses~~distribution channels, including chain stores and ~~one distributor throughout~~other national retailers, through the ~~United States, to various countries through international distributors~~Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers, and through ~~the Company's on-line store.~~value-added distributors and resellers worldwide.

~~Geographic Information~~Significant Customers

For each of the three months ended October 2, 2021 and September 30, 2017 and October 1, 2016, sales to non-U.S. customers accounted for 57.3% and 60.9% of total revenue, respectively, and sales to non-U.S. customers for the nine months ended September 30, 2017 and October 1, 2016 accounted for 51.5% and 62.4% of total revenue, respectively.

~~Significant Customers~~

~~For the three months ended September 30, 2017,~~26, 2020, the Company generated ~~14.3% of total revenue from a network of affiliated European distributors (Robopolis SAS) and 11.0%~~26.6% of total revenue from one of its domestic retailers (Amazon). For the three months ended October 1, 2016, the Company generated 13.3% and 12.0% of total revenue from its distributor in Japan (Sales On Demand Corporation) and a network of affiliated European distributors (Robopolis SAS), respectively. On April 3, 2017, the Company acquired the iRobot-related distribution business of Sales On Demand Corporation (see Note 9). On October 2, 2017, the Company acquired Robopolis SAS (see Note 12).retailers.

For the nine months ended October 2, 2021 and September ~~30, 2017,~~26, 2020, the Company generated ~~13.2%~~25.9% and 26.4% of total revenue, ~~from a network of affiliated European distributors (Robopolis SAS) and 11.9% of total revenue~~respectively, from one of its domestic retailers (Amazon). For the nine months ended October 1, 2016, the Company generated 13.5% and 13.1% of total revenue from its distributor in Japan (Sales On Demand Corporation) and a network of affiliated European distributors (Robopolis SAS), respectively. On April 3, 2017, the Company acquired the iRobot-related distribution business of Sales On Demand Corporation (see Note 9). On October 2, 2017, the Company acquired Robopolis SAS (see Note 12).retailers.

~~9. Business Combination~~

On April 3, 2017, the Company closed its acquisition of the iRobot-related distribution business of Sales On Demand Corporation (SODC) for approximately $16.6 million in cash, equal to the book value of the acquired assets. The acquisition will better enable the Company to maintain its leadership position and accelerate the growth of its business in Japan through direct control of pre- and post-sales market activities including sales, marketing, branding, channel relationships and customer service. It also expands the Company's presence and customer outreach opportunities in Japan. The acquisition was a stock purchase. The results of operations for this acquisition have been included in the Company's operating results since the acquisition date. The Company has not separately presented revenue or the results of operations for this acquisition, from the date of acquisition, as the impact is neither material nor significant to the consolidated financial results. The Company has also not furnished pro forma financial information related to this acquisition because such information is not material, individually or in the aggregate, to the financial results.

During the three months ended September 30, 2017, the Company finalized the purchase price allocation and made measurement period adjustments to the provisional amounts reported as the estimated fair values of assets acquired. Compared to the provisional value reported as of July 1, 2017, the fair values presented in the table below reflect a decrease to the returns reserve of $7.4 million, a decrease to related inventory of $3.6 million and a decrease to related deferred tax assets of $1.3 million. These adjustments resulted in a $2.2 million non-taxable gain on business acquisition which represents the excess of the fair value of the net assets acquired over the purchase price. The gain on business acquisition was recorded within other income, net in the consolidated statements of income during the three months ended September 30, 2017. The Company believes that the gain on business acquisition was due to the transaction not being subjected to a competitive bidding process and the purchase price being determined based on the net book value of the net assets acquired.

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~The following table summarizes the final allocation of the purchase price (in thousands):~~

Cash $ 125
Accounts receivable, net (1) (5,496 )
Inventories 18,290
Other assets 2,065
Deferred tax assets, net 409
Goodwill —
Intangible assets 8,640
Total assets acquired 24,033

Accrued expenses and other current liabilities (4,450 )
Other liabilities (691 )
Total liabilities assumed (5,141 )
Net assets acquired $ 18,892
Gain on business acquisition (2,243 )
Total purchase price $ 16,649

~~(1) The accounts receivable balance reflects reserves for product returns, discounts and promotions assumed as part of the acquisition.~~

~~The following table reflects the fair value of the acquired identifiable intangible assets and related estimates of useful lives:~~

Useful Life Fair Value
(in thousands)
Customer relationships 13 Years $ 4,490
Reacquired distribution rights 9 Months 4,150
Total
$ 8,640

~~10. Goodwill and Other Intangible Assets~~

~~Goodwill~~

~~The carrying amount of the Company's goodwill was $41.0 million at September 30, 2017 and December 31, 2016.~~

~~Other Intangible Assets~~

Other intangible assets include the value assigned to completed technology and a trade name acquired with the acquisition of Evolution Robotics, and the value assigned to customer relationships and the reacquired distribution rights acquired with the acquisition of the iRobot-related distribution business of SODC. The estimated useful lives for all of these intangible assets are ~~nine~~ ~~months to~~ ~~thirteen~~ ~~years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized.~~

~~iROBOT CORPORATION~~

~~Notes to Consolidated Financial Statements - (Continued)~~

~~Intangible assets at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~consisted of the following:~~

September 30, 2017 December 31, 2016
Cost
Accumulated
Amortization
Net Cost
Accumulated
Amortization
Net
(In thousands)
Completed technology $ 26,900
$ 17,286
$ 9,614
$ 26,900
$ 14,693
$ 12,207
Tradename 100
100
—
100
100
—
Customer relationships 4,490
173
4,317
—
—
—
Reacquired distribution rights 4,150
2,766
1,384
—
—
—
Total $ 35,640
$ 20,325
$ 15,315
$ 27,000
$ 14,793
$ 12,207

Amortization expense related to acquired intangible assets was $2.3 million and $0.9 million for the three months ended September 30, 2017 and October 1, 2016, respectively. Amortization expense related to acquired intangible assets was $5.5 million and $2.6 million for the nine months ended September 30, 2017 and October 1, 2016, respectively. The estimated future amortization expense is expected to be as follows (in thousands):

Remainder of 2017 $ 2,334
2018 3,803
2019 3,163
2020 1,245
2021 1,245
Thereafter 3,525
Total $ 15,315

~~11. Divestiture~~

On April 4, 2016, the Company completed the sale of its defense and security business unit to iRobot Defense Holdings, Inc., a portfolio company of Arlington Capital Partners. The final purchase price, including adjustments for working capital and indebtedness, was $24.5 million. The Company recognized a gain of $0.4 million on the sale of assets. The sale of its defense and security business did not meet the criteria for discontinued operations presentation as it did not represent a strategic shift that had a major effect on the Company's operations and financial results.

The Company and iRobot Defense Holdings, Inc. also entered into a Transition Services Agreement (TSA), pursuant to which the Company continued to perform certain functions on iRobot Defense Holdings Inc.’s behalf during a transition period not to exceed 12 months. The TSA provided for the reimbursement of the Company for direct costs incurred in order to provide such functions and was recorded as a component of other income. The transition period was completed during the three months ended April 1, 2017.

~~12. Subsequent Event~~

On October 2, 2017, the Company closed the previously-announced acquisition of its largest European distributor, Robopolis SAS (Robopolis), through the acquisition of the issued and outstanding capital shares of Robopolis. At the closing, the Company paid approximately $170.1 million in cash offset by acquired cash of approximately $31.6 million held by Robopolis and its subsidiaries at closing, resulting in a net cash outlay of approximately $138.4 million. Pursuant to the Share Purchase Agreement, $16.0 million of the purchase price was placed into an escrow account to settle certain claims for indemnification for breaches or inaccuracies in Robopolis’ and its shareholders’ representations and warranties, covenants and agreements, and approximately $2.4 million of the purchase price was deposited in escrow to satisfy, in part, any payments due to iRobot for certain post-closing purchase price adjustments.

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The ~~following discussion of the financial condition and results of operations of iRobot Corporation should be read~~information contained in ~~conjunction with the~~this section has been derived from our consolidated financial statements and ~~the~~should be read together with our consolidated financial statements and related notes ~~thereto~~ included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016,which has been filed with the SEC.10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the ~~“safe harbor”~~"safe harbor" created by those sections. In particular, statements contained in ~~this Quarterly Report on Form 10-Q, and in the documents incorporated by reference into~~ this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to statements concerning the impact of COVID-19 on our business, new product sales, product development and offerings, ~~including~~ our ~~Roomba and Braava products,~~consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, revenue recognition, ~~(including our expectations related to the impact of adoption of new revenue recognition standards),~~ our profits, growth of our revenues, composition of our revenues, our cost of revenues, units shipped, average selling prices, the impact of promotional activity and tariffs, the impact of semiconductor chip availability, operating expenses, diversification of our manufacturing supply chain, selling and marketing expenses, general and administrative expenses, research and development expenses, and compensation costs, our projected income tax rate, our credit and letter of credit facilities, our valuations of investments, ~~the impact of our acquisition of Robopolis,~~ valuation and composition of our stock-based awards, and liquidity, constitute forward-looking statements and are made under these safe harbor provisions. Some of the forward-looking statements can be identified by the use of forward-looking terms such as ~~“believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,”~~"believes," "expects," "may," "will," "should," "could," "seek," "intends," "plans," "estimates," "anticipates," or other comparable terms. Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking ~~statements, including those~~statements. We urge you to consider the risks and uncertainties ~~described~~discussed in greater detail under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as elsewhere in this Quarterly Report on Form 10-Q. We urge you to consider the risks and uncertainties discussed in our Annual Report on Form 10-K and in Item 1A contained hereinJanuary 2, 2021 in evaluating our forward-looking statements. We have no plans to update our forward-looking statements to reflect events or circumstances after the date of this ~~Quarterly Report on Form 10-Q.~~report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Overview

iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more. Our consumer robots help people find smarter ways to clean and accomplish more ~~both inside and outside of the home.~~in their daily lives. iRobot's portfolio of ~~solutions~~floor cleaning robots features proprietary technologies for the connected home and advanced concepts in cleaning, robot-based artificial intelligence, mapping and ~~navigation.~~navigation, machine vision, home understanding, human-robot interaction and physical solutions. Leveraging this portfolio, our engineers are building an ecosystem of robots to help realize the smart home’s potential. For more than 2530 years, we have been a pioneer and leader in ~~the~~consumer robotics, robotic floor care and consumer products industries. We sell our robots through a variety of distribution channels, including chain stores and other national retailers, through our on-line store, and through value-added distributors and resellers worldwide.robotic artificial intelligence.

As of ~~September 30, 2017,~~October 2, 2021, we had ~~798~~1,343 full-time employees. WeSince our founding in 1990, we have developed expertise in the disciplines necessary to design, build, sell and support 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,~~create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the ~~time, cost~~costs and ~~risk of~~risks associated with product development. ~~Our~~These capabilities are amplified by the integration of a range of software-centric capabilities spanning artificial intelligence, home understanding and machine vision technologies that further improve cleaning performance and help personalize the cleaning experience, enabling customers to have greater control over where, when and how our robots clean. We believe that our significant expertise in robot design, engineering, and ~~engineering~~smart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to capitalize on the anticipated growth ~~we expect~~ in the market for robot-based consumer products.

OnFrom September 2018 until April 2020, our Roomba products were subject to Section 301 tariffs. In April 2020, we were granted a temporary exclusion from Section 301 List 3 ~~2017, we closed~~tariffs by the ~~acquisition~~United States Trade Representative ("USTR"). This exclusion, as extended in August 2020, eliminated the 25% tariff on Roomba products imported from China until December 31, 2020 and entitled us to a refund of approximately $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed. Effective January 1, 2021, the 25% Section 301 tariff again applies to our Roomba products imported from China. For the three and nine months ended October 2, 2021, the incremental Section 301 tariff cost was $14.1 million and $29.2 million, respectively. We expect this incremental cost will continue to impact our gross profit for the remainder of fiscal 2021. To diversify our manufacturing and help offset the adverse financial impact on our business of the ~~iRobot-related distribution~~25% Section 301 tariff, we are focused on scaling the manufacture of our products in Malaysia. We commenced production of our products in Malaysia in late 2019 and we remain on track to have Malaysia manufacturing at scale by the end of 2021.

To continue expanding our business globally and increase our profitability in a highly competitive marketplace, we have continued to make progress on each key element of ~~Sales On Demand Corporation (SODC). The final purchase price, equal~~our strategy: 1) differentiating the iRobot experience; 2) building strong relationships with the consumer; and 3) nurturing the lifetime value of our customer relationships.

We strive to differentiate the iRobot experience through the ongoing innovation of our existing product offerings and by bringing new products and services to market. During the first quarter of 2021, we enhanced the iRobot Genius Home Intelligence Platform ("Genius"), a powerful AI-based robot platform that gives users greater personalization and control over their cleaning robots. In September 2021, we introduced the latest upgrade to the ~~book value~~Genius platform and launched our Roomba j7 Series robots featuring PrecisionVision Navigation technology in the U.S. and EMEA. Roomba j7 Series robots, powered by

Genius, learn how to navigate the home, understand the owner's cleaning preferences and even recognize and avoid specific objects. The Roomba j7 Series with Genius provides greater levels of personalization, object detection and avoidance, new home automations and the ability to get smarter over time as it learns the home environment through the AI capabilities within Genius and receives over-the-air updates, allowing the robot to deliver a more intuitive cleaning experience.

To continue building strong relationships with our consumers worldwide, we are focused on enhancing all aspects of the ~~acquired assets, was $16.6 million. Through direct control of sales,~~consumer experience, including investing in our digital marketing ~~branding, channel relationships~~ and ~~customer service, we expect to maintain our leadership position in the consumer-robots market and accelerate growth of our business in Japan.~~

~~On October 2, 2017, we closed the previously-announced acquisition of our largest European distributor, Robopolis SAS (Robopolis).~~e-commerce capabilities. At the ~~closing, we paid approximately $170.1 million in cash offset by acquired cash~~end of approximately $31.6 million held by Robopolis and its subsidiaries at closing, resulting in a net cash outlay of approximately $138.4 million. We anticipate that the acquisition will enhance our distribution network, ensure global brand consistency and better serve the needs of European consumers. We expect to drive continued growth in the region through a consistent approach to all market activities including sales, marketing, branding, channel relationships and customer service.

Our continued success depends upon our ability to respond to a number of challenges in the consumer robots market. We believe the most significant of these include increasing competition, and our ability to successfully develop and introduce products and product enhancements into both new and existing markets.

During the nine month period ended September 30, 2017, we launched the Roomba 890 and 690, bringing Wi-Fi connectivity to our lower price point robots. During the nine month period ended October 1, 2016, we launched the Braava jet mopping robot. The Braava jet was available on our website and retail locations in the U.S during the second quarter of 2016, and became available in China, Japan and EMEA in the third quarter of ~~2016.~~2021, our connected customer base grew 60% from the same period one year ago to 12.5 million customers who have opted in to our digital communications.

We also continued to make important progress in nurturing the lifetime value of our customer relationships. In early April 2021, we introduced our new iRobot H1 handheld vacuum, enabling customers to purchase a complementary vacuum to clean in areas that our Roomba or Braava robots are typically unable to reach. In addition, we are now offering extended warranty plans to customers who purchase our products directly from us. During the third quarter of 2021, the Roomba j7+ joined the Roomba i7+ as one of two Roomba robots available for customers to choose when they join iRobot Select, a subscription-based membership program in which members may pay an initiation fee and a recurring monthly fee to use their robot along with dedicated customer support, automatic accessory replacement services, premium protection services and eligibility for robot upgrades every three years. Since the start of the pandemic over 18 months ago, more consumers are buying our products online. Our direct-to-consumer, or DTC, sales were $39.7 million and $119.7 million, 9.0% and 10.8% of total revenue, for the three and nine months ended October 2, 2021, respectively. DTC sales grew 13.0% and 45.2% during the three and nine months ended October 2, 2021, respectively, compared to the same periods a year ago. We continue to invest in initiatives aimed at increasing the frequency and range of products, services and accessories that customers purchase directly from us.

In addition to the pandemic's positive impact on accelerating demand for a wide range of consumer products including ours, it has also stressed the global supply chain involved in manufacturing these products. More specifically, semiconductor chip suppliers have been unable to keep pace with demand, the cost of raw materials such as resins has risen meaningfully along with oceanic transport and air freight costs. In addition to higher costs, it is also taking longer to transport products, regardless of the mode of transportation. We are taking a range of actions to manage through these supply chain challenges, from entering into longer-term supply agreements, qualifying new suppliers and leveraging our relationships with our contract manufacturers to efficiently export our products. During the third quarter of 2021, ocean transportation and air freight costs rose even higher than anticipated. We expect the higher transportation costs to remain elevated through at least the first three quarters of next year. We will continue to assess and implement measures to mitigate resulting adverse impacts on our operations and financial results.

~~Table of Contents~~

Key Financial Metrics

~~During~~In addition to the ~~three- and nine- month periods ended September 30, 2017, strong growth in both the domestic and international markets for consumer products drove increases~~measures presented in our ~~consumer business revenue~~consolidated financial statements in accordance with accounting principles generally accepted in the United States of ~~22.3%~~America ("GAAP"), we use the following key metrics, including non-GAAP financial measures, to evaluate and ~~25.5%~~analyze our core operating performance and trends, and to develop short-term and long-term operational plans. A summary of key metrics for the three and nine months ended October 2, 2021, as compared to the ~~three-~~three and ~~nine-month periods~~nine months ended ~~October 1, 2016. Domestic consumer revenue increased 33.8%~~September 26, 2020, is as follows:


	Three Months Ended						Nine Months Ended
	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020
	(dollars in thousands, except average gross selling prices)
	(unaudited)
Total Revenue	$	440,682		$	413,145		$	1,109,539		$	885,563

Non-GAAP Gross Profit	$	162,993		$	199,397		$	426,008		$	417,636
Non-GAAP Gross Margin	37.0		%	48.3		%	38.4		%	47.2		%

Non-GAAP Operating Income	$	47,981		$	93,125		$	71,885		$	119,255
Non-GAAP Operating Margin	10.9		%	22.5		%	6.5		%	13.5		%

Total robot units shipped (in thousands)	1,543			1,538			3,945			3,301
Average gross selling prices for robot units	$	322		$	312		$	322		$	311

Use of Non-GAAP Financial Measures

Our non-GAAP financial measures reflect adjustments based on the following items. We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and ~~38.4%~~comparisons to our past operating performance. These items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities. In addition, we believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared with our peer companies. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results, provided below, should be carefully evaluated.

Amortization of acquired intangible assets: Amortization of acquired intangible assets consists of amortization of intangible assets including completed technology, customer relationships, and reacquired distribution rights acquired in connection with business combinations. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.

Tariff Refunds: iRobot was granted a Section 301 List 3 Tariff Exclusion in April 2020, which temporarily eliminated tariffs on the Company’s products imported from China until December 31, 2020 and entitled the Company to a refund of all related tariffs previously paid since September 2018. We exclude the refunds for tariff costs expensed during fiscals 2018 and 2019 from our fiscal 2020 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the ~~three-~~past have no impact to our current period earnings.

Net Merger, Acquisition and ~~nine-month periods ended September 30, 2017 compared to the three-~~Divestiture (Income) Expense: Net merger, acquisition and ~~nine-month periods ended October 1, 2016, resulting~~divestiture (income) expense primarily ~~from successful marketing programs. International consumer revenue increased 14.9%~~consists of transaction fees, professional fees, and ~~15.3% in the three-~~transition and ~~nine-month periods ended September 30, 2017 compared to the three-~~integration costs directly associated with mergers, acquisitions and ~~nine-month periods ended October 1, 2016, largely driven by the growth in Europe as well as in Japan~~divestitures. It also includes business combination adjustments after the ~~acquisition of SODC, which provides us with more direct control over sales in the region.~~measurement period has ended.

~~During the three-month period ended September 30, 2017, we recorded~~Stock-Based Compensation: Stock-based compensation is a non-cash charge relating to stock-based awards.

IP Litigation Expense, Net: IP litigation expense, net ~~benefit~~relates to ~~revenue~~legal costs incurred to litigate patent, trademark, copyright and ~~income before income taxes of $1.4 million~~false advertising infringements, or to oppose or defend against interparty actions related to intellectual property. Any settlement payment or proceeds resulting from these infringements are included or netted against the costs.

Gain/Loss on Strategic Investments: Gain/loss on strategic investments includes fair value adjustments, ~~to our product returns reserves, compared to a net benefit to revenue~~realized gains and ~~income before income taxes~~losses on the sales of ~~$0.1 million during~~these investments and losses on the ~~three-month period ended October 1, 2016. During the nine-month period ended September 30, 2017, we recorded a net benefit to revenue~~impairment of these investments.

Restructuring and ~~income before income taxes of $1.9 million~~Other: Restructuring charges are related to one-time actions associated with workforce reductions, including severance costs, certain professional fees and other costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.

Income tax adjustments: Income tax adjustments ~~to our product returns reserves, compared to a net benefit to revenue~~include the tax effect of the non-GAAP adjustments, calculated using the appropriate statutory tax rate for each adjustment. We reassess the need for any valuation allowance recorded based on the non-GAAP profitability and ~~income before income taxes~~have eliminated the effect of ~~$2.3 million during~~ the ~~nine-month period ended October 1, 2016. The adjustments~~valuation allowance recorded in the ~~three-~~U.S. jurisdiction. We also exclude certain tax items, including impact from stock-based compensation windfalls/shortfalls, that are not reflective of income tax expense incurred as a result of current period earnings.

The following table reconciles gross profit, operating income, net income and ~~nine-month periods ended September 30, 2017 resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods. The adjustments recorded in~~net income per share on a GAAP and non-GAAP basis for the ~~three-~~three and ~~nine-month periods~~nine months ended October ~~1, 2016 resulted from lower product returns experience as compared to estimates used to establish reserves~~2, 2021 and September 26, 2020 (dollars in ~~prior periods, as well as the transition of a customer to a contractual fixed rate of return.~~thousands, other than per share data):

During the three-month period ended September 30, 2017, we recorded a net benefit to revenue and income before income taxes of $0.1 million related to adjustments to estimated price protection based upon quarterly sales activity, historical experience and customer inventory sell-through and $0.2 million related to customer-specific price protection. During the nine-month period ended September 30, 2017, we recorded a net benefit to revenue and income before income taxes of $0.3 million related to adjustments to estimated price protection based upon quarterly sales activity, historical experience and customer inventory sell-through and a net reduction to revenue of $1.9 million related to customer-specific price protection.


	Three Months Ended						Nine Months Ended
	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020

GAAP Gross Profit	$	162,754		$	198,841		$	424,674		$	454,808
Amortization of acquired intangible assets	225			225			675			1,695
Stock-based compensation	284			331			929			1,150
Tariff refunds	(270)			—			(270)			(40,017)
Non-GAAP Gross Profit	$	162,993		$	199,397		$	426,008		$	417,636
Non-GAAP Gross Margin	37.0		%	48.3		%	38.4		%	47.2		%

GAAP Operating Income	$	40,498		$	80,994		$	43,845		$	131,052
Amortization of acquired intangible assets	476			481			1,336			2,459
Stock-based compensation	2,073			9,843			16,195			20,904
Tariff refunds	(270)			—			(270)			(40,017)
Net merger, acquisition and divestiture expense (income)	635			—			1,274			(566)
IP litigation expense, net	4,569			1,607			9,292			3,360
Restructuring and other	—			200			213			2,063
Non-GAAP Operating Income	$	47,981		$	93,125		$	71,885		$	119,255
Non-GAAP Operating Margin	10.9		%	22.5		%	6.5		%	13.5		%

GAAP Net Income	$	57,216		$	93,252		$	61,901		$	133,733
Amortization of acquired intangible assets	476			481			1,336			2,459
Stock-based compensation	2,073			9,843			16,195			20,904
Tariff refunds	(270)			—			(270)			(40,017)
Net merger, acquisition and divestiture expense (income)	635			—			1,274			(1,241)
IP litigation expense, net	4,569			1,607			9,292			3,360
Restructuring and other	—			200			213			2,063
Gain on strategic investments	(27,141)			(43,480)			(26,929)			(43,567)
Income tax effect	8,749			11,829			3,066			16,730
Non-GAAP Net Income	$	46,307		$	73,732		$	66,078		$	94,424

GAAP Net Income Per Diluted Share	$	2.06		$	3.27		$	2.17		$	4.69
Dilutive effect of non-GAAP adjustments	(0.39)			(0.69)			0.15			(1.38)
Non-GAAP Net Income Per Diluted Share	$	1.67		$	2.58		$	2.32		$	3.31

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with ~~generally accepted accounting principles in the United States~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, ~~and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of~~ revenue and ~~expenses during the reporting periods. On an ongoing basis, we evaluate our~~expenses. These estimates and judgments, ~~in particular those related~~include but are not limited to, revenue recognition ~~(specifically sales~~including performance obligations, variable consideration and other obligations such as product returns and ~~other allowances);~~incentives; allowance for credit losses; product warranties; valuation ~~allowances; assumptions used in valuing~~of goodwill and acquired intangible assets; ~~assumptions used in accounting for business combinations; assumptions used in valuing stock-based compensation instruments;~~valuation of non-marketable equity investments; evaluating loss contingencies; accounting for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation ~~allowances for deferred tax assets. Actual amounts could differ significantly from~~allowances. We base these ~~estimates. Our management bases its~~ estimates and judgments on historical experience, market participant fair value considerations,

projected future cash flows and various other factors that we believe are ~~believed to be~~ reasonable under the ~~circumstances, the~~circumstances. Actual results ~~of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent~~may differ from ~~other sources.~~our estimates. Additional information about these critical accounting policies may be found in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section included in our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016~~.January 2, 2021.

~~Table of Contents~~

Overview of Results of Operations

The following table sets forth our results of operations as a percentage of ~~revenue for the three and nine month periods ended~~ ~~September 30, 2017~~ ~~and~~ ~~October 1, 2016~~:revenue:


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue:
Cost of product revenue	63.0		51.8		61.6		48.5
Amortization of acquired intangible assets	0.1		0.1		0.1		0.1
Total cost of revenue	63.1		51.9		61.7		48.6
Gross profit	36.9		48.1		38.3		51.4
Operating expenses:
Research and development	9.1		9.3		10.9		12.6
Selling and marketing	13.4		12.2		16.8		15.4
General and administrative	5.1		6.9		6.5		8.5
Amortization of acquired intangible assets	0.1		0.1		0.1		0.1
Total operating expenses	27.7		28.5		34.3		36.6
Operating income	9.2		19.6		4.0		14.8
Other income, net	6.0		10.2		2.3		4.7
Income before income taxes	15.2		29.8		6.3		19.5
Income tax expense	2.2		7.2		0.7		4.4
Net income	13.0	%	22.6	%	5.6	%	15.1	%

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 50.2
51.9
49.8
52.5
Gross margin 49.8
48.1
50.2
47.5
Operating expenses
Research and development 14.0
11.7
14.5
13.0
Selling and marketing 14.0
10.6
16.4
14.9
General and administrative 10.2
9.5
10.4
10.9
Total operating expenses 38.2
31.8
41.3
38.8
Operating income 11.6
16.3
8.9
8.7
Other income, net 1.3
0.3
0.8
0.4
Income before income taxes 12.9
16.6
9.7
9.1
Income tax expense 2.1
5.0
1.4
2.8
Net income 10.8 % 11.6 % 8.3 % 6.3 %

Comparison of Three and Nine Months Ended October 2, 2021 and September ~~30, 2017~~ ~~and~~ ~~October 1, 2016~~26, 2020

Revenue


	Three Months Ended								Nine Months Ended
	October 2, 2021		September 26, 2020		Dollar Change		Percent Change		October 2, 2021		September 26, 2020		Dollar Change		Percent Change
			(Dollars in thousands)								(Dollars in thousands)
Revenue	$	440,682	$	413,145	$	27,537	6.7	%	$	1,109,539	$	885,563	$	223,976	25.3	%

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total revenue $205,399 $168,610 $36,789 21.8% $557,014 $448,110 $108,904 24.3%

~~Total revenue~~Revenue for the three months ended October 2, 2021 increased $27.5 million to $440.7 million, or 6.7%, from $413.1 million for the three months ended September ~~30, 2017 increased~~26, 2020. The $27.5 million increase in revenue was partially driven by 14.4% growth in sales of our mid and premium tier floor cleaning robots, which contributed to ~~$205.4 million, or 21.8%, compared to $168.6 million~~a 3.2% increase in gross average selling price for the three months ended October ~~1, 2016. Revenue increased approximately $37.4 million, or 22.3%, in our consumer business.~~

The $37.4 million increase in revenue from our consumer business for the three months ended September 30, 2017 was driven by a 16.3% increase in total units shipped and a 8.7% increase in average selling price as2, 2021 compared to the three months ended ~~October 1, 2016.~~September 26, 2020. In the three months ended ~~September 30, 2017, domestic consumer~~October 2, 2021, international revenue increased ~~$22.2~~$17.3 million, or ~~33.8%~~8.3%, which primarily reflected 15.4% growth in EMEA and ~~international consumer~~a 2.0% increase in Japan, while domestic revenue increased ~~$15.2~~$10.3 million, or ~~14.9%~~5.0%. Our DTC revenue growth of 13.0% to $39.7 million, or 9.0% of total revenue, reflected continued expansion of this channel as we invested in enhancing the online buying experience and upgrading our digital marketing capabilities.

Revenue for the nine months ended October 2, 2021 increased $224.0 million to $1,109.5 million, or 25.3%, ascompared to $885.6 million for the nine months ended September 26, 2020. The $224.0 million increase in revenue was primarily attributable to a 19.5% increase in units shipped and a 3.5% increase in gross average selling price for the nine months ended October 2, 2021 compared to the ~~three~~nine months ended September 26, 2020. The increase in gross average selling price was primarily driven by a 33.7% growth in sales of our mid and premium tier floor cleaning robots. In the nine months ended October ~~1, 2016. Total consumer robots shipped~~2, 2021, international revenue increased $124.2 million, or 27.2% due primarily to 34.8% growth in ~~the three months ended September 30, 2017 were approximately 906,000 units compared~~EMEA and a 13.5% increase in Japan, while domestic revenue increased $99.7 million, or 23.3%. Our DTC revenue growth of 45.2% to ~~approximately 779,000 units~~$119.7 million, or 10.8% of total revenue, contributed to these increases.

Cost of Product Revenue


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Cost of product revenue	$	277,703		$	214,079		$	63,624	29.7	%	$	684,190		$	429,060		$	255,130	59.5	%
As a percentage of revenue	63.0		%	51.8		%					61.6		%	48.5		%

Cost of product revenue increased to $277.7 million in the three months ended October ~~1, 2016. The increase in sales of our consumer robots resulted primarily from increased sales of our Roomba 900 and Roomba 600 series robots.~~

~~Total revenue for the nine months ended September 30, 2017 increased to $557.0 million, or 24.3%,~~2, 2021, compared to $448.1 million for the nine months ended October 1, 2016. Revenue increased approximately $113.0 million, or 25.5%, in our consumer business. For the nine months ended September 30, 2017, defense and security business revenue decreased approximately $3.1 million as compared to the nine months ended October 1, 2016 as a result of the sale of our defense and security business unit on April 4, 2016.

The $113.0 million increase in revenue from our consumer business for the nine months ended September 30, 2017 was driven by an 17.8% increase in units shipped and an 8.3% increase in average selling price as compared to the nine months ended October 1, 2016. In the nine months ended September 30, 2017, domestic consumer revenue increased $74.9 million, or 38.4%, and international consumer revenue increased $38.1 million, or 15.3%, as compared to the nine months ended October 1, 2016. Total consumer robots shipped in the nine months ended September 30, 2017 were approximately 2,358,000

~~Table of Contents~~

units compared to approximately 2,002,000 units in the nine months ended October 1, 2016. The increase in sales of our consumer robots resulted primarily from increased sales of our Roomba 900 series robots.

~~Cost of Revenue~~

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total cost of revenue $103,016 $87,550 $15,466 17.7% $277,397 $235,437 $41,960 17.8%
As a percentage of total revenue 50.2% 51.9% 49.8% 52.5%

~~Total cost of revenue increased to $103.0~~$214.1 million in the three months ended September ~~30, 2017, compared~~26, 2020. The $63.6 million increase in cost of product revenue is due to ~~$87.6 million~~the 6.7% increase in revenue. In addition, cost of product revenue during the three months ended October ~~1, 2016.~~2, 2021 included $14.1 million in tariff costs, whereas last year, we did not have any tariff costs as we were granted temporary exclusion from Section 301 List 3 tariffs. The increase in cost of product revenue ~~for~~was also impacted by higher warranty costs and global supply chain challenges associated with increased oceanic transport and air freight expenses and higher raw materials and component costs associated with limited semiconductor chip availability.

Cost of product revenue increased to $684.2 million in the ~~three months ended September 30, 2017 is primarily due to the increase in revenue compared to the three~~nine months ended October ~~1, 2016, as well as the impact from our acquisition of the iRobot-related distribution business of SODC in April 2017 including $1.5 million of amortization expense of acquired intangible assets.~~

~~Total cost of revenue increased~~2, 2021, compared to ~~$277.4~~$429.1 million in the nine months ended September ~~30, 2017,~~26, 2020. The $255.1 million increase in cost of product revenue is due to the 25.3% increase in revenue. In addition, cost of product revenue during the nine months ended October 2, 2021 included $29.2 million in tariff costs, whereas last year, we recognized a benefit of $40.0 million from tariff refunds. The increase in cost of product revenue was also impacted by higher warranty costs and global supply chain challenges associated with increased oceanic transport and air freight expenses and higher raw materials and component costs associated with limited semiconductor chip availability.

Gross Profit


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Gross profit	$	162,754		$	198,841		$	(36,087)	(18.1)	%	$	424,674		$	454,808		$	(30,134)	(6.6)	%
Gross margin	36.9		%	48.1		%					38.3		%	51.4		%

Gross margin decreased to 36.9% in the three months ended October 2, 2021, compared to ~~$235.4~~48.1% in the three months ended September 26, 2020. Gross margin decreased 11.2% driven by Section 301 List 3 tariff costs of $14.1 million included in the three months ended October 2, 2021 compared to no tariff costs during the same period last year. The remainder of the decrease in gross margin was driven by supply chain headwinds with increases in freight and material costs, pricing and promotional activity and higher warranty expense. We expect gross margin pressure to continue over the next few quarters as we anticipate continued elevated costs associated with increased raw materials, oceanic transport and air freight expenses as well as higher component costs associated with limited semiconductor chip availability.

Gross margin decreased to 38.3% in the nine months ended October ~~1, 2016. Cost of revenue increased $42.6 million, or 19.8%,~~2, 2021 compared to 51.4% in ~~our consumer business. The increase in cost of revenue for~~ the nine months ended September ~~30, 2017 is primarily due to the increase~~26, 2020. Gross margin decreased 13.1% driven by Section 301 List 3 tariff costs of $29.2 million included in ~~revenue compared to~~ the nine months ended October ~~1, 2016, as well as the impact~~2, 2021, while we recognized a benefit of $40.0 million from ~~our acquisition of the iRobot-related distribution business of SODC in April 2017 including $2.9 million of amortization expense of acquired intangible assets. For~~tariff refunds during the nine months ended September ~~30, 2017, defense~~26, 2020. The remainder of the decrease in gross margin was mainly driven by supply chain headwinds with increased component costs and ~~security business cost~~transportation fees, pricing and promotional activity and product mix.

Research and Development


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Research and development	$	40,262		$	38,613		$	1,649	4.3	%	$	120,859		$	111,929		$	8,930	8.0	%
As a percentage of revenue	9.1		%	9.3		%					10.9		%	12.6		%

Research and development expenses increased $1.6 million, or 4.3%, to $40.3 million (9.1% of ~~revenue decreased approximately $2.6 million as compared to~~revenue) in the ~~nine~~three months ended October ~~1, 2016 as a result of completing the sale of our defense and security business unit on April 4, 2016.~~

~~Gross Margin~~

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total gross margin $102,383 $81,060 $21,323 26.3% $279,617 $212,673 $66,944 31.5%
As a percentage of total revenue 49.8% 48.1% 50.2% 47.5%

~~Gross margin increased $21.3~~2, 2021 from $38.6 million ~~or 26.3%, to $102.4 million (49.8%~~(9.3% of revenue) in the three months ended September ~~30, 2017 from $81.1~~26, 2020. This increase is primarily due to a $2.8 million ~~(48.1% of revenue) in the three months ended October 1, 2016. The~~ increase in ~~gross margin is primarily related to favorable product~~program-related costs and ~~region mix, partially~~$3.8 million higher people-related costs

associated with additional headcount. These increases were offset by ~~an increase~~lower short-term incentive compensation cost of $4.5 million resulting from changes in ~~promotional support to our customers for the upcoming holiday seasons.~~assessments driven by supply chain challenges as further discussed elsewhere in this Quarterly Report on Form 10-Q.

Gross margin increased $66.9 million, or 31.5%, to $279.6 million (50.2% of revenue) in the nine months ended September 30, 2017 from $212.7 million (47.5% of revenue) in the nine months ended October 1, 2016. The increase in gross margin is primarily related to favorable product mix in the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016.

~~Research and Development~~

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total research and development $28,843 $19,672 $9,171 46.6% $80,518 $57,944 $22,574 39.0%
As a percentage of total revenue 14.0% 11.7% 14.5% 13.0%

~~Table of Contents~~

Research and development expenses increased ~~$9.2~~$8.9 million, or ~~46.6%~~8.0%, to $28.8 million (14.0% of revenue) in the three months ended September 30, 2017 from $19.7 million (11.7% of revenue) in the three months ended October 1, 2016. This increase was primarily attributable to higher people-related costs of approximately $5.6 million driven by headcount growth, material and supplies of $1.1 million and other program spend of approximately $2.0 million.

Research and development expenses increased $22.6 million, or 39.0%, to $80.5 million (14.5% of revenue) in the nine months ended September 30, 2017 from $57.9 million (13.0% of revenue) in the nine months ended October 1, 2016. This increase was primarily attributable to higher people-related costs of approximately $13.6 million driven by headcount growth, material and supplies of $2.3 million and other program spend of approximately $6.0 million.

~~Selling and Marketing~~

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total selling and marketing $28,646 $17,925 $10,721 59.8% $91,344 $66,972 $24,372 36.4%
As a percentage of total revenue 14.0% 10.6% 16.4% 14.9%

Selling and marketing expenses increased by $10.7 million, or 59.8%, to $28.6 million (14.0% of revenue) in the three months ended September 30, 2017 from $17.9 million (10.6% of revenue) in the three months ended October 1, 2016. This increase was driven by higher direct marketing spend of $6.1 million, people-related costs of $3.0 million including additional headcount from our SODC acquisition, and customer service costs of $0.5 million.

Selling and marketing expenses increased by $24.4 million, or 36.4%, to $91.3 million (16.4% of revenue) in the nine months ended September 30, 2017 from $67.0 million (14.9% of revenue) in the nine months ended October 1, 2016. This increase was driven by higher direct marketing spend of $16.9 million, people-related costs of $4.6 million including additional headcount from our SODC acquisition, and customer service costs of $1.8 million.

~~General and Administrative~~

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total general and administrative $21,002 $16,012 $4,990 31.2% $58,137 $48,919 $9,218 18.8%
As a percentage of total revenue 10.2% 9.5% 10.4% 10.9%

General and administrative expenses increased by $5.0 million, or 31.2%, to $21.0 million (10.2% of revenue) in the three months ended September 30, 2017 from $16.0 million (9.5% of revenue) in the three months ended October 1, 2016. This increase was attributable to higher people-related costs of $2.7 million and legal and consulting costs of $2.0 million mainly driven by litigation expense as we continued to defend and protect our intellectual property.

~~General and administrative expenses increased by $9.2 million, or 18.8%, to $58.1 million (10.4% of revenue) in the nine months ended September 30, 2017 from $48.9~~$120.9 million (10.9% of revenue) in the nine months ended October ~~1, 2016.~~2, 2021 from $111.9 million (12.6% of revenue) in the nine months ended September 26, 2020. This increase is primarily due to a $7.7 million increase in program-related costs and a $7.0 million increase in people-related costs associated with additional headcount offset by lower short-term incentive compensation of $5.2 million resulting from changes in assessments driven by supply chain challenges as further discussed elsewhere in this Quarterly Report on Form 10-Q.

Selling and Marketing


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Selling and marketing	$	59,055		$	50,488		$	8,567	17.0	%	$	186,722		$	136,144		$	50,578	37.2	%
As a percentage of revenue	13.4		%	12.2		%					16.8		%	15.4		%

Selling and marketing expenses increased $8.6 million, or 17.0%, to $59.1 million (13.4% of revenue) in the three months ended October 2, 2021 from $50.5 million (12.2% of revenue) in the three months ended September 26, 2020. This increase was primarily attributable to higher marketing spend of $5.9 million associated with increased use of working media to support our new launches and drive sales growth, $4.0 million increase in people-related costs associated with additional headcount as well as $2.0 million higher technology related cost including cloud service and maintenance and support fees as we continue to invest in our digital marketing and e-commerce capabilities. These increases were offset by lower short-term incentive compensation of $2.2 million resulting from changes in assessments driven by supply chain challenges as further discussed elsewhere in this Quarterly Report on Form 10-Q.

Selling and marketing expenses increased $50.6 million, or 37.2%, to $186.7 million (16.8% of revenue) in the nine months ended October 2, 2021 from $136.1 million (15.4% of revenue) in the nine months ended September 26, 2020. This increase was primarily attributable to higher marketing spend of $35.2 million associated with increased used of working media to drive sales growth and new launches, $10.0 million higher people-related costs associated with additional headcount as well as $5.7 million higher technology related cost including cloud service and maintenance and support fees as we continue to invest in our digital marketing and e-commerce capabilities. These increases were offset by lower short-term incentive compensation of $2.5 million resulting from changes in assessments driven by supply chain challenges as further discussed elsewhere in this Quarterly Report on Form 10-Q.

General and Administrative


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
General and administrative	$	22,688		$	28,490		$	(5,802)	(20.4)	%	$	72,587		$	74,919		$	(2,332)	(3.1)	%
As a percentage of revenue	5.1		%	6.9		%					6.5		%	8.5		%

General and administrative expenses decreased $5.8 million, or 20.4%, to $22.7 million (5.1% of revenue) in the three months ended October 2, 2021 from $28.5 million (6.9% of revenue) in the three months ended September 26, 2020. This decrease is primarily due to lower vesting expectations related to our performance-based stock-based compensation and lower short-term incentive compensation cost of $11.3 million resulting from changes in assessments driven by the supply chain challenges discussed elsewhere in this Quarterly Report on Form 10-Q. This decrease is offset by increases in legal fees of $3.5 million driven by higher intellectual property litigation costs, people-related costs of ~~$4.3~~$1.2 million ~~legal and~~associated with additional headcount as well as higher consulting services costs of ~~$3.5~~$1.1 million.

General and administrative expenses decreased $2.3 million, ~~mainly~~or 3.1%, to $72.6 million (6.5% of revenue) in the nine months ended October 2, 2021 from $74.9 million (8.5% of revenue) in the nine months ended September 26, 2020. This decrease is primarily due to lower vesting expectations related to our performance-based stock-based compensation and lower short-term incentive compensation cost of $9.6 million from changes in assessments driven by ~~acquisition expense and litigation expense where we continued to defend and protect our intellectual property, and software maintenance, support and services of $1.0 million.~~the supply chain challenges

~~Table~~

discussed elsewhere in this Quarterly Report on Form 10-Q. We also saw a decrease in allowance for credit loss of ~~Contents~~$7.6 million. These decreases were offset by an increase in legal fees of $6.5 million driven by higher intellectual property litigation costs, an increase in people-related cost of $4.3 million associated with additional headcount, and higher consulting services cost of $1.6 million. During the nine months ended October 2, 2021, the allowance for credit loss decreased $2.1 million as a result of improved financial conditions and credit rating for certain customer accounts. During the nine months ended September 26, 2020, the allowance for credit loss increased by $5.5 million due to concerns about certain customers' ability to successfully navigate the pandemic.

Amortization of Acquired Intangible Assets


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Cost of revenue	$	225		$	225		$	—	—	%	$	675		$	1,695		$	(1,020)	(60.2)	%
Operating expense	251			256			(5)		(2.0)	%	661			764			(103)		(13.5)	%
Total amortization expense	$	476		$	481		$	(5)	(1.0)	%	$	1,336		$	2,459		$	(1,123)	(45.7)	%
As a percentage of revenue	0.1		%	0.1		%					0.1		%	0.3		%

The decrease in amortization of acquired intangible assets in the nine months ended October 2, 2021 as compared to the nine months ended September 26, 2020, was primarily related to the acquired technology intangible asset that was fully amortized in the second quarter of 2020.

Other Income, Net


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Other income, net	$	26,585		$	42,240		$	(15,655)	(37.1)	%	$	26,139		$	41,837		$	(15,698)	(37.5)	%
As a percentage of revenue	6.0		%	10.2		%					2.3		%	4.7		%

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total other income, net $2,601 $523 $2,078 397.3% $4,290 $2,142 $2,148 100.3%
As a percentage of total revenue 1.3% 0.3% 0.8% 0.4%

~~Other~~During the three and nine months ended October 2, 2021, other income, net ~~amounted~~primarily consists of a gain of $20.3 million associated with our Matterport investment when Matterport completed a merger and we received shares in MTTR, and a gain of $6.7 million associated with marking the shares to ~~$2.6~~fair value. During the three and nine months ended September 26, 2020, other income, net primarily consists of a gain of $43.5 million associated with our InTouch Health investment when Teladoc Health, Inc., or Teladoc, acquired InTouch Health and exchanged our shares of InTouch Health for shares of Teladoc during the third quarter of 2020.

Income Tax Expense


	Three Months Ended										Nine Months Ended
	October 2, 2021			September 26, 2020			Dollar Change		Percent Change		October 2, 2021			September 26, 2020			Dollar Change		Percent Change
	(Dollars in thousands)										(Dollars in thousands)
Income tax expense	$	9,867		$	29,982		$	(20,115)	(67.1)	%	$	8,083		$	39,156		$	(31,073)	(79.4)	%
Effective income tax rate	14.7		%	24.3		%					11.5		%	22.6		%

We recorded an income tax expense of $9.9 million and ~~$0.5~~$30.0 million for the three months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016,~~26, 2020, respectively. ~~Other~~The $9.9 million income net, amounted to $4.3 million and $2.1 million for the nine months ended September 30, 2017 and October 1, 2016, respectively. Other income, net, for the three- and nine-month period ended September 30, 2017 included a $2.2 million gain on business acquisition related to our acquisition of SODC, which represents the excess of the fair value of the net assets acquired over the purchase price. Other income, net, for the nine months ended September 30, 2017 also included a $1.1 million earn-out payment received from a sold cost method investment. Other income, net,tax expense for the three months ended October 1, 2016 consisted primarily of defense and security transition services income of $0.4 million. Other income, net, for the nine months ended October 1, 2016 primarily consisted of transition services income of $0.8 million, a gain on sale of cost method investment of $0.6 million and a gain on the sale of our defense and security business unit of $0.4 million. All periods contain interest income and foreign currency changes which are not material.

~~Income Tax Expense~~

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
September 30, 2017 October 1, 2016
Dollar
Change

Percent
Change
(In thousands) (In thousands)
Total income tax expense $4,411 $8,462 $(4,051) (47.9)% $7,565 $12,722 $(5,157) (40.5)%
As a percentage of income before income taxes 16.6% 30.2% 14.0% 31.0%

We recorded a tax provision of $4.4 million and $8.5 million for the three months ended September 30, 2017 and October 1, 2016, respectively. The $4.4 million provision for the three months ended September 30, 20172, 2021 resulted in an effective income tax rate of ~~16.6%~~14.7%. The ~~$8.5~~$30.0 million ~~provision~~income tax expense for the three months ended ~~October 1, 2016~~September 26, 2020 resulted in an effective income tax rate of ~~30.2%~~24.3%. The ~~difference between~~decrease in effective tax rate was primarily due to the greater impact of tax benefits, such as the research and development tax credit, on a lower pretax income base.

Our 14.7% effective rate of income tax ~~rate of 16.6% for the three months ended September 30, 2017 and 30.2%~~expense for the three months ended October ~~1, 2016~~2, 2021 was lower than the federal statutory tax rate of 21% primarily ~~due to a $4.7 million~~because of the impact of tax ~~benefit related to share-based compensation in accordance with ASU 2016-09, adopted in the first quarter of 2017,~~benefits from foreign derived intangible income ("FDII") and ~~the jurisdictional mix of earnings.~~research and development tax credits.

We recorded aan income tax ~~provision~~expense of ~~$7.6~~$8.1 million and ~~$12.7~~$39.2 million for the nine months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016,~~26, 2020, respectively. The ~~$7.6~~$8.1 million ~~provision~~income tax expense for the nine months ended ~~September 30, 2017~~October 2, 2021 resulted in an effective income tax rate of ~~14.0%~~11.5%. The ~~$12.7~~$39.2 million ~~provision~~income tax expense for the nine months ended ~~October 1, 2016~~September 26, 2020 resulted in an effective income tax rate of ~~31.0%~~22.6%. The ~~difference between~~decrease in the effective income tax rate was primarily due to the recognition of ~~14.0% for~~discrete tax benefits related to stock-based compensation as well as the ~~nine months ended September 30, 2017~~greater impact of tax benefits, such as the research and ~~31.0%~~development income credit, on a lower pretax income base.

Our effective income tax rate of 11.5% for the nine months ended October ~~1, 2016 was~~2, 2021 differed from the federal statutory tax rate of 21% primarily due to the recognition of a ~~$10.7 million~~discrete tax ~~benefit~~benefits related to ~~share-based~~stock-based compensation ~~in accordance with ASU 2016-09, adopted in~~as well as the ~~first quarter~~impact of ~~2017,~~tax benefits from FDII and ~~the jurisdictional mix of earnings.~~research and development tax credits.

The ~~statute~~effective tax rate for interim periods is determined based upon our estimated annual effective tax rate, adjusted for the effect of ~~limitations for examinations by~~discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a quarter, based upon the ~~Internal Revenue Service is closed for tax years prior to 2014.~~geographic mix and timing of our actual earnings or losses versus annual projections.

Liquidity and Capital Resources

At ~~September 30, 2017,~~October 2, 2021, our principal sources of liquidity were cash and cash equivalents totaling ~~$241.8~~$218.0 million. Our working capital was $487.3 million ~~short-term investments~~as of ~~$36.4~~October 2, 2021, compared to $573.7 million ~~and accounts receivable~~as of ~~$77.0 million.~~January 2, 2021.

We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We believe ~~that~~ this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels. By leasing our office facilities, we also minimize the cash needed for ~~expansion.~~expansion, although we invest periodically in upgrading these facilities, a portion of which investment will be reimbursed by the landlords of these facilities. Accordingly, our capital spending is generally limited to machinery and tooling, leasehold improvements, ~~computers, office furniture, product-specific~~

~~Table of Contents~~

~~production tooling, internal use~~business applications software and ~~test~~computer and equipment. In the ~~nine~~three months ended October 2, 2021 and September ~~30, 2017 and October 1, 2016,~~26, 2020, we spent ~~$16.6~~$25.3 million and ~~$8.4~~$25.0 million, respectively, on capital ~~equipment.~~expenditures.

Our strategy for delivering consumer products to our distributors and retail customers gives us the flexibility to provide container shipments directly from our contract manufacturers in Southern China and Malaysia to ~~retailers from China~~our customers and, alternatively, allows our distributors and certain retail ~~partners~~customers to take possession of product ~~in the customer's~~on a domestic ~~market.~~basis. Accordingly, our ~~consumer product~~ inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our contract manufacturers are also responsible for purchasing and stocking ~~the majority of the~~ components required for the production of our products, and they typically invoice us when the finished goods are shipped.

As of September 30, 2017, we held cash, cash equivalents and short-term investments of $278.2 million, primarily the result of our increased profitability, as well as our on-going focus on managing working capital. Cash used in operating activities

Net cash ~~provided by our operations~~used in operating activities for the nine ~~month period~~months ended ~~September 30, 2017,~~October 2, 2021 was ~~$51.1~~$90.8 million, of which the principal components were the cash outflow of $162.2 million from change in working capital, partially offset by our net income of ~~$46.3~~$61.9 million and non-cash charges of ~~$22.3~~$9.6 million. The change in working capital was driven by increases in inventory of $174.0 million and accounts receivable of $71.4 million. This was partially offset by ~~a net increase in operating assets and liabilities of $17.6 million. The increase in net operating assets and liabilities includes~~ an ~~increase in accounts receivable and unbilled revenue of $11.0 million, an increase in inventory of $23.9 million, an increase in other assets of $11.1 million, partially offset by a~~ increase in accounts payable and accrued ~~expenses~~liabilities of ~~$27.9 million primarily related to~~$89.0 million.

Cash provided by investing activities

Net cash provided by investing activities for the timing of payments. As of September 30, 2017, we did not have any borrowings outstanding under our working capital line of credit and had $1.0 million in letters of credit outstanding under our revolving letter of credit facility.

nine months ended October 2, 2021 was $29.0 million. During the nine months ended ~~September 30, 2017,~~October 2, 2021, we ~~acquired SODC~~received $64.0 million from the sales and maturities of our investments while we paid $9.6 million for ~~$16.5 million, net~~the purchases of ~~cash acquired, and~~investments. We invested ~~$16.6~~$25.3 million in the purchase of property and equipment, including machinery and tooling for new ~~products. We also purchased $7.0 million of marketable securities, while sales~~products and ~~maturities of marketable securities amounted to $10.5 million. In addition, we received an earn-out payment of $1.1 million from a sold cost method investment.~~manufacturing expansion in Malaysia.

~~During~~Cash used in financing activities

Net cash used in financing activities for the nine months ended ~~September 30, 2017, we received $9.0~~October 2, 2021 was $150.0 million, ~~from~~which primarily reflects the ~~exercise~~repurchase of 1,198,218 shares of our common stock ~~options. Shares issued upon vesting~~for $100.0 million under an accelerated share repurchase agreement during the three months ended October 2, 2021, and the repurchase of ~~restricted~~446,954 shares of our common stock ~~were net~~for $50.0 million under the stock repurchase program during the second quarter of ~~51,229 shares retained by us to cover employee tax withholdings of $3.0 million.~~2021.

Working Capital Facilities

Credit Facility

~~We have an unsecured revolving credit facility~~In June 2018, we entered into a new agreement with Bank of America, N.A., ~~which~~increasing the amount of our unsecured revolving line of credit from $75.0 million to $150.0 million and extending the term of the credit facility to June 2023. As of October 2, 2021, we had no outstanding borrowings under our revolving credit facility. The revolving line of credit is available to fund working capital and other corporate purposes. ~~As of September 30, 2017, the total amount of our credit facility was $75.0 million and the full amount was available for borrowing.~~ The interest on loans under our credit facility accrues, at our election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on our ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender’s base rate. The lender’s base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender’s prime rate and (3) the Eurodollar Rate plus 1.0%. ~~The credit facility will terminate and all amounts outstanding thereunder~~In the event that LIBOR is discontinued as expected in 2023, we expect the interest rates for our debt following such event will be ~~due and payable in full~~based on ~~December 20, 2018.~~

~~As of September 30, 2017,~~either alternate base rates or agreed upon replacement rates. While we ~~had no outstanding borrowings under our revolving credit facility. This credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on~~do not expect a LIBOR discontinuation would affect our ability to ~~incur~~borrow or guaranty additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or merge with other entities.maintain already outstanding borrowings, it could result in higher interest rates.

In addition, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.

This credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, our obligations under the credit facility may be accelerated.

~~As of September 30, 2017, we were in compliance with all covenants under the revolving credit facility.~~

~~Letter of Credit Facility~~

We have an unsecured revolving letter of credit facility with Bank of America, N.A. The credit facility is available to fund letters of credit on our behalf up to an aggregate outstanding amount of $5.0 million. We may terminate at any time, subject to proper notice, or from time to time permanently reduce the amount of the credit facility.

We pay a fee on outstanding letters of credit issued under the credit facility of up to 1.5% per annum of the outstanding letters of credit. The maturity date for letters of credit issued under the credit facility must be no later than 365 days following the maturity date of the credit facility.

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~~As of September 30, 2017, we had letters of credit outstanding of $1.0 million under our revolving letter of credit facility.~~ The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on our ability to incur or ~~guaranty~~guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or merge with other entities. In addition, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.

The credit facility ~~also~~ contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, ~~the lender may accelerate the~~our obligations under the credit ~~facility.~~facility may be accelerated.

As of ~~September 30, 2017,~~October 2, 2021, we were in compliance with all covenants under the revolving credit facility.

Lines of Credit

We have an unsecured letter of credit ~~facility.~~facility with Bank of America, N.A., available to fund letters of credit up to an aggregate outstanding amount of $5.0 million. As of October 2, 2021, we had letters of credit outstanding of $0.7 million under our letter of credit facility and other lines of credit with Bank of America, N.A.

We have an unsecured guarantee line of credit with Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount of 250.0 million Japanese Yen. As of October 2, 2021, we had no outstanding balance under the guarantee line of credit.

Working Capital and Capital Expenditure Needs

~~On October 2, 2017, we closed on the previously-announced acquisition of our largest European distributor, Robopolis SAS, resulting in a net cash outlay of approximately $138.4 million.~~ We currently have no material cash commitments, except for normal recurring trade payables, expense accruals, capital expenditures and operating leases, all of which we anticipate funding through working capital and funds provided by operating ~~activities and our existing working capital line of credit.~~activities. We ~~do not currently anticipate significant investment in property, plant and equipment, and we~~ believe ~~that~~ our outsourced approach to manufacturing provides us with flexibility in both managing inventory levels and financing our inventory. We believe our existing cash and cash equivalents, short-term investments, ~~cash provided by operating activities,~~ and funds available through our ~~working capital line of~~ credit facility will be sufficient to meet our working capital and capital expenditure needs over at least the next twelve months. In the event ~~that~~ our revenue plan does not meet our expectations, we may eliminate or curtail expenditures to mitigate the impact on our working capital. Our future capital requirements will depend on many factors, including our rate of revenue growth or decline, the expansion or contraction of our marketing and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new products and enhancements to existing products, the acquisition of new capabilities or technologies, ~~and~~ the continuing market acceptance of our products and ~~services.~~services, and the impact of COVID-19 on our business. Moreover, to the extent ~~that~~ existing cash and cash equivalents, ~~short-term investments,~~ cash from operations, and cash from short-term borrowing are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. As part of our business strategy, we may consider additional acquisitions of companies, technologies and products, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

Share Repurchases

Our Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases from time to time until September 5, 2021 which was extended until March 31, 2022. As of October 2, 2021, $25.0 million remained available for further repurchase under the program.

On August 2, 2021, we entered into an accelerated share repurchase ("ASR") agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which we paid $100.0 million and received an aggregate initial share delivery of 943,285 shares of our common stock, which were immediately retired. In September 2021, Wells Fargo delivered an additional 254,933 shares of our common stock to complete settlement of the ASR agreement. Under this agreement, we repurchased a total of 1,198,218 shares of our common stock at an average price of $83.46, totaling $100.0 million during the three months ended October 2, 2021. The final number of shares repurchased was based on the volume-weighted average price of our common stock over the duration of the ASR agreement, less a discount.

Contractual Obligations

~~We generally do not enter into binding purchase commitments.~~The disclosure of our contractual obligations and commitments is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the year ended January 2, 2021. Our principal commitments generally consist of obligations under our ~~working capital line of~~ credit facility, leases for office space and minimum contractual ~~obligations for materials.~~obligations. Other obligations primarily consist of ~~software licensing arrangements.~~subscription services. There have been no material changes in our contractual obligations and commitments since January 2, 2021.

At October 2, 2021, we had outstanding purchase orders aggregating approximately $494.8 million. The purchase orders, the majority of which are with our contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and services, and are generally cancellable without penalty. In circumstances where we have determined that we have financial exposure associated with any of these commitments, we record a liability in the period in which that exposure is identified.

Off-Balance Sheet Arrangements

As of ~~September 30, 2017,~~October 2, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Recently Adopted Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements.

Recently Issued Accounting Pronouncements

See ~~Footnote~~Note 2 to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

~~Interest Rate Sensitivity~~

At September 30, 2017, we had unrestricted cash and cash equivalents of $241.8 million and short term investments of $36.4 million. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Some of the securities in which we invest, however, may be subject to market risk. This means that a change in prevailing interest rates may cause the fair market value of the investment to fluctuate. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents in a variety of securities, commercial paper, money market funds, debt securities and certificates of deposit. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. As of September 30, 2017, all of our cash and cash equivalents were held in demand deposits, money market accounts and corporate and government bonds.

Our exposure to market risk also relates to the increase or decrease in the amount of interest expense we must pay on any outstanding debt instruments, primarily certain borrowings under our working capital line of credit. The advances under the working capital line of credit bear a variable rate of interest determined at the time of the borrowing. At September 30, 2017, we had letters of credit outstanding of $1.0 million under our revolving letter of credit facility.

Exchange Rate Sensitivity

Our international revenue and expenses are denominated in multiple currencies, including ~~Japanese Yen,~~British Pounds, Canadian Dollars, Chinese ~~Yuan Renmimbi~~Renminbi, Euros and ~~Euros.~~Japanese Yen. As such, we have exposure to adverse changes in exchange rates associated with the revenue and operating expenses of our foreign operations. Any fluctuations in other currencies will have minimal direct impact on our international revenue.

In addition to international business conducted in foreign currencies, we have ~~a significant amount of~~ international revenue denominated in U.S. ~~Dollars.~~dollars. As the U.S. dollar strengthens or weakens against other currencies, our international distributors may be impacted, which could affect their profitability and our ability to maintain current pricing levels on our international consumer products.

We regularly monitor the forecast of non-U.S. dollar revenue and expenses and the level of non-U.S. dollar monetary asset and liability balances to determine if any actions, including possibly entering into foreign currency ~~forward~~ contracts ~~or swaps,~~ should be taken to minimize the impact of fluctuating exchange rates on our results of operations. Periodically, we enter into forward exchange contracts to hedge against foreign currency fluctuations. These contracts may or may not be designated as cash flow hedges for accounting purposes. We use cash flow hedges primarily to reduce the effects of foreign exchange rate changes on ~~purchase~~sales in Euros and ~~sales, primarily in~~ Japanese Yen. At ~~September 30, 2017~~October 2, 2021 and ~~December 31, 2016,~~January 2, 2021, we had outstanding cash flow hedges with a total notional value of ~~$17.7~~$381.5 million and ~~$0.0~~$431.9 million, respectively.

We also enter into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts have maturities of ~~two~~twelve months or less. At ~~September 30, 2017~~October 2, 2021 and ~~December 31, 2016,~~January 2, 2021, we had outstanding economic hedges with a total notional value of ~~$27.5~~$299.1 million and ~~$8.1~~$192.2 million, respectively.

~~A hypothetical change~~At October 2, 2021, assuming all other variables are constant, if the U.S. Dollar weakened or strengthened by 10%, the fair market value of ~~10% in exchange rates~~our foreign currency contracts would ~~not have a material impact on our financial results.~~increase or decrease by approximately $42.1 million.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the ~~Securities~~ Exchange Act ~~of 1934, as amended, or the Exchange Act)~~ as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at a reasonable assurance level in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

~~From time to time~~This information is included in Note 10, Commitments and Contingencies, in the ~~ordinary course~~accompanying notes to the unaudited consolidated financial statements and is incorporated herein by reference from Item 1 of business, we are subject to various claims, charges and litigation. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations.Part I.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended ~~December 31, 2016,~~January 2, 2021, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. There are no material changes to the Risk Factors described in our Annual Report on Form 10-K for the year ended January 2, 2021, as supplemented by the Risk Factors described in our Quarterly Report on Form 10-Q for the quarter ended July 3, 2021, other than as set forth below:

Significant developments in U.S. trade policies have had, and we expect will continue to have, a material adverse effect on our business, financial condition and results of operations.

The U.S. government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries. Effective September 24, 2018, the U.S. government implemented a 10% tariff on certain goods imported from China, which include the majority of those imported by the Company. These tariffs were increased to 25% on May 10, 2019 and were slated to further increase to 30% in October 2019 until a last-minute interim deal was reached between the United States and China. Although the United States and China signed a new trade agreement in January 2020, most of the previously-implemented tariffs on goods imported from China remain in place (including the tariffs described above), and uncertainty remains as to the short-term and long-term future of economic relations between the United States and China.

From September 2018 until April 2020, our Roomba products were subject to Section 301 tariffs. On April 24, 2020, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion, as extended in August 2020, eliminated the 25% tariff on Roomba products until December 31, ~~2016.~~ 2020 and entitled us to a refund of $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed.

Effective as of January 1, 2021, the 25% Section 301 tariff again applies to our Roomba products imported from China.Although we have begun relocating a meaningful portion of our supply chain from China to Malaysia, we again face compression on our margin on products sold and pricing pressures on our products. The already-implemented, and any additional or increased, tariffs have caused, and may in the future cause, us to further increase prices to our customers which we believe has reduced, and in the future may reduce, demand for our products.

On October 4, 2021, the USTR announced its decision to establish a new process for importers to apply for exclusions from Section 301 tariffs in 549 product categories, including robotic vacuum cleaners. Beginning October 12, 2021, the USTR started accepting comments on whether or not reinstating certain tariff exclusions will impact or result in severe economic harm to companies or other interests of the United States. The USTR will accept comments through December 1, 2021. We have submitted comments prior to the deadline. However, the timing for action by the USTR is uncertain. Therefore, we cannot say definitively when, or even if, iRobot will be granted additional tariff relief on our products still manufactured in China, nor can we guarantee the terms upon which any tariff relief ultimately may be granted.

These tariffs, and other governmental action relating to international trade agreements or policies, have directly or indirectly adversely impacted demand for our products, our costs, customers, suppliers, distributors, resellers and/or the U.S. economy or certain sectors thereof and, as a result, have adversely impacted, and we expect will continue to adversely impact, our business, financial condition and results of operations. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs, international trade agreements and policies on a short-term or long-term basis. We cannot predict future trade policy, whether exclusions will be reinstated, or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to further adversely impact demand for our products, our costs,

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our customers, our suppliers, and the U.S. economy, which in turn could further adversely impact our business, financial condition and results of operations.

In response to international trade policy, as well as other risks associated with concentrated manufacturing in China, we have begun relocating a meaningful portion of our supply chain from China to Malaysia. Such relocation activities increase costs and risks associated with establishing new manufacturing facilities.

Surges in demand impacting the cost and availability of transportation have had, and we expect will continue to have, an adverse impact on our business, financial condition and results of operations.

Surges in demand related to COVID-19, as well as other factors, have continued to strain the global supply chain network, which has resulted in carrier-imposed capacity restrictions, carrier delays, and longer lead times. Demand for Chinese imports has caused shipment receiving and unloading backlogs at many U.S. ports that have been unable to keep pace with unprecedented inbound container volume. The situation has been further exacerbated by COVID-19 illness and protocols at many port locations. Due to the backlog and increasing trade imbalance with China, many shipping containers are not being sent back to China, or are being sent to China empty. With continued increases in demand for containers, limited supply and freight vendors bearing the cost of shipping empty containers, the market cost of inbound freight has increased by several multiples compared to calendar year 2020 averages. To the extent that transportation costs and interruptions continue, we may face increased pressure on gross margins, product delivery delays and an inability to fulfill orders for our products.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following is a summary of our repurchases of our common stock during the three months ended October 2, 2021:


	Total number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
Fiscal month beginning July 4, 2021 and ended July 31, 2021	—	$	—	—	$	125,000,000
Fiscal month beginning August 1, 2021 and ended August 28, 2021	943,285	83.46		943,285	46,000,000
Fiscal month beginning August 29, 2021 and ended October 2, 2021	254,933	83.46		254,933	25,000,000
Total	1,198,218	$	83.46	1,198,218	$	25,000,000

__________________________

(1) Consists of shares of our common stock. All repurchases were made in open market transactions and pursuant to our previously-announced stock repurchase program as further discussed below and elsewhere in this Quarterly Report on Form 10-Q.

(2) As previously disclosed on March 10, 2020, our Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases through September 2021. Our Board of Directors modified the existing stock repurchase program for the remaining $125.0 million to permit an accelerated share repurchase ("ASR") transaction and extended the authorization until March 31, 2022. On August 2, 2021, we entered into an ASR agreement with Wells Fargo Bank, National Association ("Wells Fargo") to repurchase an aggregate of $100.0 million of our common stock. Pursuant to the ASR agreement, we paid Wells Fargo $100.0 million in August 2021 and received an initial delivery of 943,285 shares of our common stock. In September 2021, we received an additional 254,933 shares upon settlement. The calculation of the average price per share for the period July 4, 2021 to October 2, 2021 in the table above is based solely on the result of dividing the $100.0 million we paid towards the ASR by the total shares received under the plan of 1,198,218.

Item 5. Other Information

10b5-1 Trading Plans

Our policy governing transactions in our securities by our directors, officers, and employees permits our officers, directors, funds affiliated with our directors, and certain other persons to enter into trading plans complying with Rule 10b5-l under the ~~Securities~~ Exchange ~~Act of 1934, as amended.~~Act. We have been advised that certain of our officers and directors (including Colin Angle, ~~CEO, Russell J. Campanello, EVP, Human Resources & Corporate Communications,~~Chief Executive Officer and Glen Weinstein, EVP &and Chief Legal ~~Officer)~~Officer, as well as Mohamad Ali and Deborah Ellinger, each a director of the Company) have entered into trading plans (each a "Plan" and collectively, the "Plans") covering periods after the date of this ~~quarterly report~~Quarterly Report on Form 10-Q in accordance with Rule ~~10b5-1~~10b5-l and our policy governing transactions in our securities. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving ~~our company.~~

the Company.

We anticipate that, as permitted by Rule ~~10b5-l~~10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of our executive officers and directors who establish a trading plan in compliance with Rule ~~10b5-l~~10b5-1 and the requirements of our policy

governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. We ~~however,~~ undertake no obligation to update or revise the information provided herein.

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Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number		Description

~~Exhibit~~ ~~Number~~10.1 *†		~~Description~~

~~2.1~~	Accelerated Share ~~Purchase~~Repurchase Agreement ~~dated as of July 25, 2017,~~ by and among the Registrant, iRobot UK Ltd., Robopolis SAS, the shareholders of Robopolis named therein, and the Shareholders’ Representative named therein (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 26, 2017 and incorporated by reference herein)

10.1*	~~Sixth Amendment to Lease~~ between the Registrant and ~~DIV Bedford, LLC,~~Wells Fargo, National Association, dated ~~as of July 5, 2017~~August 2, 2021

31.1*		Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

31.2*		Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934

32.1**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101101.SCH		~~The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted~~Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

104*		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statementsExhibits 101.*)

__________________________



*			Filed herewith
**			Furnished herewith
†			Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or confidential.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		iROBOT CORPORATION

Date: November 4, 2021		~~iROBOT CORPORATION~~By:	/s/ Julie Zeiler
			Julie Zeiler
~~Date: November 3, 2017~~		~~By:~~	~~/s/ Alison Dean~~
	~~Alison Dean~~
	Executive Vice President and Chief Financial Officer ~~(Duly Authorized Officer and Principal~~(Principal Financial Officer)

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~~EXHIBIT INDEX~~



~~Exhibit~~ ~~Number~~		~~Description~~

~~2.1~~		Share Purchase Agreement, dated as of July 25, 2017, by and among the Registrant, iRobot UK Ltd., Robopolis SAS, the shareholders of Robopolis named therein, and the Shareholders’ Representative named therein (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 26, 2017 and incorporated by reference herein)
10.1*		~~Sixth Amendment to Lease between the Registrant and DIV Bedford, LLC, dated as of July 5, 2017~~

31.1*		~~Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934~~

31.2*		~~Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934~~

32.1**		~~Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

101*		The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements

~~__________________________~~



*	~~Filed herewith~~
**	~~Furnished herewith~~



	Nine Months Ended
	September 30, 2017			October 1, 2016
Cash flows from operating activities:
Net income	$	46,343		$	28,258
Adjustments to reconcile net income to net cash provided by operating activities, net of the effects of acquisitions:
Depreciation and amortization	14,523			10,171
Loss on disposal of property and equipment	46			205
Loss on equity method investment	32			—
Impairment on cost method investment	155			—
Gain on sale of business unit	—			(433		)
Gain on sale of cost method investment	(1,056		)	(634		)
Gain on business acquisition	(2,243		)	—
Stock-based compensation	14,069			11,781
Deferred income taxes, net	(3,226		)	6,314
Tax benefit of excess stock based compensation deductions	—			(1,115		)
Non-cash director deferred compensation	49			66
Changes in operating assets and liabilities — (use) source
Accounts receivable	(9,429		)	30,781
Unbilled revenue	(1,528		)	198
Inventory	(23,944		)	(11,472		)
Other assets	(11,099		)	(1,579		)
Accounts payable	20,824			(2,261		)
Accrued expenses	6,085			(2,046		)
Accrued compensation	949			1,990
Deferred revenue and customer advances	(965		)	(193		)
Long term liabilities	1,513			(2,997		)
Net cash provided by operating activities	51,098			67,034
Cash flows from investing activities:
Additions of property and equipment	(16,630		)	(8,352		)
Change in other assets	(1,374		)	(435		)
Proceeds from sale of business unit	—			23,520
Cash paid for business acquisition, net of cash acquired	(16,524		)	—
Purchases of investments	(7,034		)	(16,556		)
Sales and maturities of investments	10,500			11,502
Proceeds from sale of cost method investment	1,056			634
Net cash provided by (used in) investing activities	(30,006		)	10,313
Cash flows from financing activities:
Proceeds from stock option exercises	8,990			4,496
Income tax withholding payment associated with restricted stock vesting	(2,974		)	(1,300		)
Stock repurchases	—			(97,021		)
Tax benefit of excess stock-based compensation deductions	—			1,115
Net cash provided by (used in) financing activities	6,016			(92,710		)
Effect of exchange rate changes on cash and cash equivalents	155			—
Net increase (decrease) in cash and cash equivalents	27,263			(15,363		)
Cash and cash equivalents, at beginning of period	214,523			179,915
Cash and cash equivalents, at end of period	$	241,786		$	164,552
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	18,338		$	11,818
Non-cash investing and financing activities:
Transfer of inventory to property and equipment	$	—		$	5
Additions of property and equipment included in accounts payable	$	2,058		$	694



	September 30, 2017		December 31, 2016
	(In thousands)
Raw materials	$	2,928	$	4,717
Finished goods	89,885		45,861
	$	92,813	$	50,578



	Effective Portion											Ineffective Portion
	Gain (loss) recognized in OCI on Derivative (1)					Gain (loss) reclassified from accumulated OCI into income (2)						Gain (loss) recognized in income (3)
	Three months ended						Three months ended						Three months ended
	September 30, 2017			October 1, 2016		Classification	September 30, 2017			October 1, 2016		Classification	September 30, 2017		October 1, 2016

Foreign currency forward contracts	$	(21	)	$	—	Revenue	$	(39	)	$	—	Other income, net	$	—	$	—



	Operating Leases
	(In thousands)
Remainder of 2017	$	1,287
2018	5,279
2019	5,146
2020	5,120
2021	5,259
Thereafter	39,275
Total minimum lease payments	$	61,366



Cash	$	125
Accounts receivable, net (1)	(5,496		)
Inventories	18,290
Other assets	2,065
Deferred tax assets, net	409
Goodwill	—
Intangible assets	8,640
Total assets acquired	24,033

Accrued expenses and other current liabilities	(4,450		)
Other liabilities	(691		)
Total liabilities assumed	(5,141		)
Net assets acquired	$	18,892
Gain on business acquisition	(2,243		)
Total purchase price	$	16,649



	Useful Life	Fair Value
		(in thousands)
Customer relationships	13 Years	$	4,490
Reacquired distribution rights	9 Months	4,150
Total		$	8,640



	September 30, 2017						December 31, 2016
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
	(In thousands)
Completed technology	$	26,900	$	17,286	$	9,614	$	26,900	$	14,693	$	12,207
Tradename	100		100		—		100		100		—
Customer relationships	4,490		173		4,317		—		—		—
Reacquired distribution rights	4,150		2,766		1,384		—		—		—
Total	$	35,640	$	20,325	$	15,315	$	27,000	$	14,793	$	12,207



Remainder of 2017	$	2,334
2018	3,803
2019	3,163
2020	1,245
2021	1,245
Thereafter	3,525
Total	$	15,315