Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Revenue | 100.0 | % | | 100.0 | % | | | | |
Cost of revenue: | | | | | | | |
Cost of product revenue | 62.9 | | | 59.4 | | | | | |
Amortization of acquired intangible assets | 0.3 | | | 0.1 | | | | | |
Total cost of revenue | 63.2 | | | 59.5 | | | | | |
Gross profit | 36.8 | | | 40.5 | | | | | |
Operating expenses: | | | | | | | |
Research and development | 14.6 | | | 13.8 | | | | | |
Selling and marketing | 20.9 | | | 16.8 | | | | | |
General and administrative | 9.1 | | | 7.7 | | | | | |
Amortization of acquired intangible assets | 0.2 | | | 0.1 | | | | | |
Total operating expenses | 44.8 | | | 38.4 | | | | | |
Operating (loss) income | (8.0) | | | 2.1 | | | | | |
Other expense, net | (5.7) | | | — | | | | | |
(Loss) income before income taxes | (13.7) | | | 2.1 | | | | | |
Income tax benefit | (3.3) | | | (0.4) | | | | | |
Net (loss) income | (10.4) | % | | 2.5 | % | | | | |
|
| | | | | | | | | | | |
| 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 September 30, 2017April 2, 2022 and October 1, 2016April 3, 2021
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| | | (Dollars in thousands) | | | | | | | | |
Revenue | $ | 291,969 | | | $ | 303,261 | | | $ | (11,292) | | | (3.7) | % | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| 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 revenue | $205,399 | | $168,610 | | $36,789 | | 21.8% | | $557,014 | | $448,110 | | $108,904 | | 24.3% |
Total revenueRevenue for the three months ended September 30, 2017 increasedApril 2, 2022 decreased $11.3 million to $205.4$292.0 million, or 21.8%3.7%, compared to $168.6from $303.3 million for the three months ended October 1, 2016. Revenue increased approximately $37.4April 3, 2021. Geographically, in the three months ended April 2, 2022, international revenue decreased $49.7 million, or 22.3%26.4%, which primarily reflected a 43.5% decrease in our consumer business.
EMEA largely due to an exceptionally strong quarter in the EMEA region a year ago. The $37.4decrease was slightly offset by a $9.9 million, or 24.5% increase in Japan, while domestic revenue from our consumer businessincreased $38.4 million, or 33.5%, compared to the three months ended April 3, 2021. The decrease in revenue was also impacted by a 10.5% decrease in total robots shipped offset by a 4.4% increase in gross average selling price for the three months ended September 30, 2017April 2, 2022, compared to the three months ended April 3, 2021. Despite the decrease in total revenue, our direct-to-consumer revenue growth of 16.8% to $40.8 million, or 14.0% of total revenue, reflected continued expansion of this channel as we invested in enhancing the online buying experience and upgrading our digital marketing capabilities.
Cost of Product Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Cost of product revenue | $ | 183,633 | | | $ | 180,092 | | | $ | 3,541 | | | 2.0 | % | | | | | | | | |
As a percentage of revenue | 62.9 | % | | 59.4 | % | | | | | | | | | | | | |
Cost of product revenue increased to $183.6 million in the three months ended April 2, 2022, compared to $180.1 million in the three months ended April 3, 2021. The increase in cost was driven by higher supply chain cost continuing from the second half of fiscal 2021 and a 16.3%one-time action associated with the consolidation of warehouses in the U.S. These increases in cost of product revenue are mostly offset by lower product cost driven by a 3.7% decrease in revenue and lower Section 301 tariff expense during the three months ended April 2, 2022. In March 2022, we were granted a temporary exclusion from Section 301 List 3 tariffs which eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. As a result of this exclusion, we recognized approximately $11.7 million as a benefit to cost of product revenue related to tariffs expensed in fiscal 2021 during the three months ended April 2, 2022, compared to $3.4 million in tariff expense during the three months ended April 3, 2021.
Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Gross profit | $ | 107,515 | | | $ | 122,944 | | | $ | (15,429) | | | (12.5) | % | | | | | | | | |
Gross margin | 36.8 | % | | 40.5 | % | | | | | | | | | | | | |
Gross margin decreased to 36.8% in the three months ended April 2, 2022, compared to 40.5% in the three months ended April 3, 2021. Gross margin decreased 3.7% driven by continuing supply chain headwinds with increases in freight and material costs, along with price reductions and higher promotional activities for certain products of varying magnitudes across regions. The decrease is offset by lower warranty expense and tariff cost as we were granted temporary exclusion from Section 301 List 3 which eliminates the 25% tariffs on Roomba products imported from China as previously described. In addition, gross margin was favorably impacted from $11.7 million recognized as a benefit from tariff refunds during the three months ended April 2, 2022 related to tariffs expensed in fiscal 2021. 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.
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Research and development | $ | 42,529 | | | $ | 41,920 | | | $ | 609 | | | 1.5 | % | | | | | | | | |
As a percentage of revenue | 14.6 | % | | 13.8 | % | | | | | | | | | | | | |
Research and development expenses increased $0.6 million, or 1.5%, to $42.5 million (14.6% of revenue) in the three months ended April 2, 2022 from $41.9 million (13.8% of revenue) in the three months ended April 3, 2021. This increase was primarily due to a $2.4 million increase in total units shippedpeople-related costs associated with additional headcount, offset by lower short-term incentive compensation cost of $2.0 million.
Selling and Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Selling and marketing | $ | 61,065 | | | $ | 50,990 | | | $ | 10,075 | | | 19.8 | % | | | | | | | | |
As a percentage of revenue | 20.9 | % | | 16.8 | % | | | | | | | | | | | | |
Selling and marketing expenses increased $10.1 million, or 19.8%, to $61.1 million (20.9% of revenue) in the three months ended April 2, 2022 from $51.0 million (16.8% of revenue) in the three months ended April 3, 2021. This increase was primarily attributable to higher marketing spend of $7.0 million associated with increased use of working media to drive sales growth, $2.0 million increase in people-related costs associated with additional headcount as well as $0.9 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 $0.8 million.
General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
General and administrative | $ | 26,698 | | | $ | 23,440 | | | $ | 3,258 | | | 13.9 | % | | | | | | | | |
As a percentage of revenue | 9.1 | % | | 7.7 | % | | | | | | | | | | | | |
General and administrative expenses increased $3.3 million, or 13.9%, to $26.7 million (9.1% of revenue) in the three months ended April 2, 2022 from $23.4 million (7.7% of revenue) in the three months ended April 3, 2021. This increase was primarily due to a $1.6 million increase in legal fees driven by higher intellectual property litigation costs and a 8.7%$1.2 million increase in average selling priceenterprise software maintenance, support and services. In addition, during the three months ended April 2, 2022, the allowance for credit loss decreased $0.5 million as compared to a decrease of $2.1 million during the three months ended April 3, 2021. These increases were partially offset by lower vesting expectations related to our performance-based stock-based compensation and lower short-term incentive compensation cost of $1.9 million.
Amortization of Acquired Intangible Assets
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| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Cost of revenue | $ | 821 | | | $ | 225 | | | $ | 596 | | | 264.9 | % | | | | | | | | |
Operating expense | 510 | | | 205 | | | 305 | | | 148.8 | % | | | | | | | | |
Total amortization expense | $ | 1,331 | | | $ | 430 | | | $ | 901 | | | 209.5 | % | | | | | | | | |
As a percentage of revenue | 0.5 | % | | 0.1 | % | | | | | | | | | | | | |
The increase in amortization of acquired intangible assets in the three months ended April 2, 2022 as compared to the three months ended October 1, 2016. InApril 3, 2021, was primarily related to the acquired intangible assets as part of the acquisition of Aeris Cleantec AG in the fourth quarter of 2021.
Other Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Other expense, net | $ | (16,746) | | | $ | (160) | | | $ | (16,586) | | | 10,366.3 | % | | | | | | | | |
As a percentage of revenue | (5.7) | % | | — | % | | | | | | | | | | | | |
During the three months ended September 30, 2017, domestic consumer revenue increased $22.2April 2, 2022, other expense, net primarily consists of a realized loss of $16.8 million or 33.8%, and international consumer revenue increased $15.2 million, or 14.9%, as compared to the three months ended October 1, 2016. Total consumer robots shipped in the three months ended September 30, 2017 were approximately 906,000 units compared to approximately 779,000 units 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%, 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 ofassociated with 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
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 million in the three months ended September 30, 2017, compared to $87.6 million in the three months ended October 1, 2016. The increase in cost of revenue for the three months ended September 30, 2017 is primarily due to the increase in revenue compared to the three months ended October 1, 2016,Matterport shares. Other expense, net includes interest income, interest expense, foreign currency gains (losses) as well as the impactgains (losses) from our acquisitionstrategic investments.
Income Tax Benefit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | Dollar Change | | Percent Change | | | | | | | | |
| (Dollars in thousands) | | |
Income tax benefit | $ | (9,627) | | | $ | (1,214) | | | $ | (8,413) | | | 693.0 | % | | | | | | | | |
Effective income tax rate | 24.0 | % | | (19.5) | % | | | | | | | | | | | | |
We recorded an income tax benefit 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 to $277.4 million in the nine months ended September 30, 2017, compared to $235.4 million in the nine months ended October 1, 2016. Cost of revenue increased $42.6 million, or 19.8%, in our consumer business. The increase in cost of revenue for the nine months ended September 30, 2017 is primarily due to the increase in revenue compared to the 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 $2.9 million of amortization expense of acquired intangible assets. For the nine months ended September 30, 2017, defense and security business cost of revenue decreased approximately $2.6 million as compared to the nine 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 million, or 26.3%, to $102.4 million (49.8% of revenue) in the three months ended September 30, 2017 from $81.1 million (48.1% of revenue) in the three months ended October 1, 2016. The increase in gross margin is primarily related to favorable product and region mix, partially offset by an increase in promotional support to our customers for the upcoming holiday seasons.
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% | | | | |
Research and development expenses increased $9.2 million, or 46.6%, 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$9.6 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 million (10.9% of revenue) in the nine months ended October 1, 2016. This increase was attributable to higher people-related costs of $4.3 million, legal and consulting costs of $3.5 million mainly 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.
Other Income, Net
|
| | | | | | | | | | | | | | | |
| 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 income, net, amounted to $2.6 million and $0.5$1.2 million for the three months ended September 30, 2017April 2, 2022 and October 1, 2016,April 3, 2021, respectively. OtherThe $9.6 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 benefit 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, 2017April 2, 2022 resulted in an effective income tax rate of 16.6%24.0%. The $8.5$1.2 million provisionincome tax benefit for the three months ended October 1, 2016April 3, 2021 resulted in an effective income tax rate of 30.2%(19.5)%. The difference between thechange in effective income tax rate was primarily driven by a discrete tax item of 16.6%excess stock-based
compensation windfalls recognized for the three months ended September 30, 2017 and 30.2%April 3, 2021 compared to stock-based compensation shortfalls recognized during the current period.
Our 24.0% effective rate of income tax for the three months ended October 1, 2016April 2, 2022 was primarily due to a $4.7 million tax benefit related to share-based compensation in accordance with ASU 2016-09, adopted inhigher than the first quarter of 2017, and the jurisdictional mix of earnings.
We recorded a tax provision of $7.6 million and $12.7 million for the nine months ended September 30, 2017 and October 1, 2016, respectively. The $7.6 million provision for the nine months ended September 30, 2017 resulted in an effective incomefederal statutory tax rate of 14.0%. The $12.7 million provision for21% primarily because of the nine months ended October 1, 2016 resulted in an effective income tax raterecognition 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,R&D credits and the jurisdictional mix of earnings.benefit associated with Foreign-Derived Intangible Income.
The statute of limitations for examinations by the Internal Revenue Service is closed for tax years prior to 2014.
Liquidity and Capital Resources
At September 30, 2017,April 2, 2022, our principal sources of liquidity were cash and cash equivalents totaling $241.8$112.0 million. Our working capital, which represents our total current assets less total current liabilities, was $371.3 million short-term investmentsas of $36.4April 2, 2022, compared to $393.9 million as of January 1, 2022. Cash and accounts receivablecash equivalents held by our foreign subsidiaries totaled $51.2 million as of $77.0 million.April 2, 2022. We expect the cash held overseas to be permanently reinvested outside of the United States, and our U.S. operation to be funded through its own operating cash flows, cash, and if necessary, through borrowing under our working capital credit facility.
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, and only invest periodically in leasehold improvements a portion of which is often 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
production tooling, internal usebusiness applications software and testcomputer and equipment. InDuring the ninethree months ended September 30, 2017April 2, 2022 and October 1, 2016,April 3, 2021, we spent $16.6$3.1 million and $8.4$11.3 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 Chinaour customers and, alternatively, allows our distributors and certain retail partnerscustomers to take possession of product in the customer'son 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 operationsused in operating activities for the nine month periodthree months ended September 30, 2017,April 2, 2022 was $51.1$102.3 million, of which the principal components were the cash outflow of $93.2 million from change in working capital and our net incomeloss of $46.3 million and non-cash charges of $22.3$30.4 million, partially offset by a net increase in operating assets and liabilitiesnon-cash charges of $17.6$21.3 million. The increasechange 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 offsetworking capital was driven by a increasedecreases in accounts payable and accrued expensesliabilities of $27.9 million primarily related to$119.0 million. This was partially offset by a decrease in accounts receivable of $54.3 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.
three months ended April 2, 2022 was $12.6 million. During the ninethree months ended September 30, 2017,April 2, 2022, we acquired SODCreceived $16.2 million from the sales and maturities of our investments while we paid $0.5 million for $16.5 million, netthe purchases of cash acquired, andinvestments. We invested $16.6$3.1 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 and maturities of marketable securities amounted to $10.5
Cash used in financing activities
Net cash used in financing activities for the three months ended April 2, 2022 was $0.7 million. In addition,During the three months ended April 2, 2022, we received an earn-out payment of $1.1$0.8 million from a sold cost method investment.
During the nine months ended September 30, 2017, we received $9.0employee stock plans and paid $1.5 million from the exercise of stock options. Shares issued upon vesting of restricted stock where 25,213 shares were net of 51,229 shares retained by us to cover employee tax withholdings of $3.0 million.withholdings.
Working Capital Facilities
Credit Facility
We currently have ana $150 million unsecured revolving line of credit facility with Bankwhich expires in June 2023. As of America, N.A., whichApril 2, 2022, 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 thereunderIn the event USD LIBOR is discontinued as expected in June 2023, we expect the interest rates for our debt following such event will be due and payable in fullbased 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 ondo not expect a LIBOR discontinuation would affect our ability to incurborrow 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.
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 specifiedmaintain already outstanding borrowings, it could result in higher 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.
rates.
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 guarantyguarantee 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 theour obligations under the credit facility.
Asfacility may be accelerated. On May 4, 2022, we entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of September 30, 2017,America N.A. (the "Amendment") with an effective date of March 31, 2022. The Amendment waives the quarterly tested leverage and interest coverage covenants in the Credit Agreement for the first, second and third quarters of 2022. The interest coverage ratio calculation for the fourth quarter of 2022 was changed to a trailing nine months. Additionally, a new liquidity covenant was added for the remainder of 2022. The Amendment also increases the borrowing rate under the Credit Agreement for 2022 to LIBOR plus 1.5%. With this Amendment, as of April 2, 2022, we wereare in compliance with allthe covenants under the revolvingCredit Agreement.
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 April 2, 2022, we had letters of credit outstanding of $0.4 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 April 2, 2022, 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, funds provided by operating activitiesexisting cash and cash equivalents as well as through our existing working capital line of credit.credit facility. 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, the overall macro economic conditions due to heightened inflation and reduced consumer confidence stemming from the Russia-Ukraine war and the ongoing impact of the COVID-19 pandemic 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.
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 1, 2022. Our principal commitments generally consist of obligations under our working capital line of credit facility, leases for office space, inventory related purchase obligations, and minimum contractual obligations for materials.obligations. Other obligations consist primarily consist of software licensing arrangements.subscription services. There have been no material changes in our contractual obligations and commitments since January 1, 2022.
Off-Balance Sheet ArrangementsAt April 2, 2022, we had outstanding purchase orders aggregating approximately $327.4 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 cancellable without penalty.
AsRecently Adopted Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a discussion of September 30, 2017, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.recently adopted accounting pronouncements.
Recently Issued Accounting Pronouncements
See FootnoteNote 2 to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
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 RenmimbiRenminbi, Euros, Japanese Yen and Euros.Swiss Franc. 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 purchasesales in Euros and sales, primarily in Japanese Yen. These contracts typically have maturities of three years or less. At September 30, 2017April 2, 2022 and December 31, 2016,January 1, 2022, we had outstanding cash flow hedges with a total notional value of $17.7$497.6 million and $0.0$423.3 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 twotwelve months or less. At September 30, 2017April 2, 2022 and December 31, 2016,January 1, 2022, we had outstanding economic hedges with a total notional value of $27.5$249.0 million and $8.1$325.4 million, respectively.
A hypothetical changeAt April 2, 2022, assuming all other variables are constant, if the U.S. Dollar weakened or strengthened by 10%, the fair market value of 10% in exchange ratesour foreign currency contracts would not have a material impact on our financial results.increase or decrease by approximately $50.9 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.
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 timeThis information is included in Note 9, Commitments and Contingencies, in the ordinary courseaccompanying 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 1, 2022, 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 1, 2022, 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. On March 23, 2022, the USTR announced that it had reinstated a tariff exclusion for both robot vacuums and certain air purifiers, effective from October 12, 2021, through December 31, 2022. We do not currently believe that additional exclusions will be available after December 31, 2022.
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 extended, 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, 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.
Global economic conditions and any associated impact on consumer spending could have a material adverse effect on our business, results of operations and financial condition.
Continued economic uncertainty and reductions in consumer spending, particularly in certain international markets such as the European Union, China and Japan, may result in reductions in sales of our consumer robots. Additionally, disruptions in credit markets may materially limit consumer credit availability and restrict credit availability of our retail customers, which would also impact purchases of our consumer robots. Any reduction in sales of our consumer robots, resulting from reductions in consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely affect our business, results of operations and financial condition.
Moreover, in recent months, inflation has increased significantly in the United States, the European Union and in many of the countries where we conduct business. Inflation impacts consumer spending and increases the costs of many aspects of our business, including the costs of our products sold, transportation and travel costs, and labor costs. If inflation decreases consumer demand or we are unable to increase our prices to sufficiently offset the increased costs of doing business, our results of operations and profitability may be adversely impacted.
Because we are an increasingly global business that in the three month ended April 2, 2022 and April 3, 2021 generated approximately 47.5% and 62.2%, respectively, of our total revenue from sales to customers outside of the United States, we are subject to a number of additional risks including foreign currency fluctuations. These foreign currency fluctuations may make
our products more expensive to our distributors and end customers, which in turn may impact sales directly or the ability or willingness of our partners to invest in growing product demand.
Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar could adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings, and lead us to raise international pricing, which may reduce demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the strengthening of the U.S. dollar, or for any other reason, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, incur losses on our foreign currency derivative instruments, and incur increased operating expenses, thereby limiting any benefit. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.
We use derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or only a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. In addition, our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting counterparties to major financial institutions and by spreading the risk across several major financial institutions.
Business disruptions resulting from international uncertainties could negatively impact our profitability.
We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various European and Asian markets, and Canada. For the three months ended April 2, 2022 and April 3, 2021, sales to non-U.S. customers accounted for 47.5% and 62.2%, respectively. We expect that international revenues will continue to account for a significant percentage of our revenues for the foreseeable future. Our international revenue and operations are subject to a number of material risks, including, but not limited to:
•difficulties in staffing, managing and supporting operations in multiple countries;
•difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;
•fewer legal protections for intellectual property;
•foreign and U.S. taxation issues, tariffs, and international trade barriers;
•difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;
•potential fluctuations in foreign economies;
•government currency control and restrictions on repatriation of earnings;
•fluctuations in the value of foreign currencies and interest rates;
•general economic and political conditions in the markets in which we operate;
•domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future, including the invasion of Ukraine by Russia, the possibility of military action in countries near or adjacent to Ukraine, and the sanctions and other actions taken by the European Union, the United States and other governments around the world in response;
•changes in foreign currency exchange rates;
•different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future; and
•our relationships with international distributors, some of whom may be operating without written contracts.
Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales to customers outside the United States are primarily denominated in Euro and
Japanese Yen and fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.
The conflict in the Ukraine has, and we anticipate will continue to have, an adverse impact upon our business operations. In March 2022, in response to the Russian invasion of Ukraine, we halted all new sales of our products to Russia. It is unclear whether we will resume shipments to Russia in 2022. As this conflict continues, we have seen, and believe we will continue to see, an impact to consumer spending in other regions.
The United Kingdom’s exit from the EU, commonly referred to as "Brexit," has caused significant political and economic uncertainty in the United Kingdom, EU, and elsewhere. The impact of Brexit and the resulting turmoil on the political and economic future of the United Kingdom and the EU is uncertain, and we may be adversely affected in ways we cannot currently anticipate. The United Kingdom and the EU have signed a EU-UK Trade and Cooperation Agreement (the "TCA"), which became provisionally applicable on January 1, 2021 and will become formally applicable once ratified by both the United Kingdom and the EU. The ultimate effects of Brexit will depend, in part, on how the terms of the TCA take effect in practice and on any other agreements the United Kingdom may make with the EU. Brexit also may result in significant changes in the British regulatory environment, now that legislation can diverge from EU legislation in many areas, which could increase our compliance costs. We may find it more difficult to conduct business in the United Kingdom and the EU, as Brexit will result in increased regulatory complexity and increased restrictions on the movement of capital, goods and personnel. Any of these effects of Brexit, and other similar referenda that we cannot anticipate, could disrupt our operations and adversely affect our operating results.
Cybersecurity risks could adversely affect our business and disrupt our operations.
The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber attacks such as viruses and worms, phishing attacks, distributed denial-of-service attacks, ransomware, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence. In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. These threats may be increased due to the work-from-home policies implemented by us and our customers, suppliers and distributors as a result of mitigation measures related to the COVID-19 pandemic. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation. Our cyber insurance may not protect against all of the costs and liabilities arising from a cyber attack.
On February 21, 2022, we were informed by our primary North American third-party logistics (3PL) partner that it had suffered a major cyber incident shutting down a significant portion of its ability to perform 3PL services on our behalf. While iRobot’s systems were not impacted in the incident, we took certain actions to mitigate the lack of 3PL services.
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 directorsdirectors (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""Plans") covering periods after the date of this quarterly reportQuarterly Report on Form 10-Q in accordance with Rule 10b5-110b5-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-l10b5-1 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-l10b5-1 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.
Entry into a Material Definitive Agreement, Termination of a Material Definitive Agreement, and Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On May 4, 2022, iRobot Corporation (the "Company") entered into a Second Amendment to Amended and Restated Credit Agreement (the "Credit Facility Amendment") to its existing unsecured revolving credit facility (the "Credit Facility") with Bank of America, N.A. (the "Lender") dated December 20, 2013, (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of June 29, 2018) and a Second Amendment to Amended and Restated Reimbursement Agreement (the "Reimbursement Agreement Amendment") to its existing reimbursement agreement with the Lender dated December 20, 2013 (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of June 29, 2018). The Credit Facility Amendment provides for the suspension of compliance with certain covenants, inter alia, those related to debt to EBITDA ratios in 2022, and the addition for fiscal year 2022 of a covenant requiring the company to maintain certain minimum cash balances ranging from $40 million to $75 million.
Item 6. Exhibits
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Exhibit Number | | Description |
| | |
Exhibit
| | Description |
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2.1 | | Share PurchaseManufacturing Services 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,Jabil Circuit, Inc., dated as of July 5, 2017March 18, 2010 (as amended to date) |
| | |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | |
| | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
101*101.SCH* | | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formattedInline 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.*) |
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* | Filed herewith |
** | Furnished herewith |
# | Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission. |
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: May 5, 2022 | iROBOT CORPORATIONBy: | /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) |
EXHIBIT INDEX
|
| | |
Exhibit
Number
| | Description |
| | |
| | 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)
|
| | Sixth Amendment to Lease between the Registrant and DIV Bedford, LLC, dated as of July 5, 2017 |
| | |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | |
| | Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 |
| | |
| | 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 |