UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________

FORM 10-Q

______________________________________________


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

FOR THE QUARTERLY PERIOD ENDED ~~July 2, 2022~~April 1, 2023


☐			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			77-0259335
(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, 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 x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x 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.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	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 x

The number of shares outstanding of the Registrant’s Common Stock as of ~~July 29, 2022~~April 28, 2023 was ~~27,229,605.~~27,594,072.

iROBOT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~JULY 2, 2022~~APRIL 1, 2023

INDEX


			Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of ~~July~~April ~~2, 2022~~1, 202 3 and ~~January 1,~~December 31 , 2022			3
Consolidated Statements of Operations for the three ~~and six~~ months ended ~~July~~April 1, 2023 and April 2, 2022 ~~and~~ ~~July~~ ~~3, 2021~~			4
Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the three ended April 1, 2023 and ~~six~~ ~~months ended~~ ~~July~~April 2, 2022 ~~and~~ ~~July~~ ~~3, 2021~~			5
Consolidated Statements of Stockholders' Equity for the three ~~and six~~ months ended ~~July~~April 1, 2023 and April 2, 2022 ~~and~~ ~~July~~ ~~3, 2021~~			6
Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~July~~April 1, 2023 and April 2, 2022 ~~and~~ ~~July~~ ~~3, 2021~~			87
Notes to Consolidated Financial Statements			98
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			29
Item 4. Controls and Procedures			2930

PART II: OTHER INFORMATION

Item 1. Legal Proceedings			2930
Item 1A. Risk Factors			30
~~Item 5. Other Information~~			33
Item 6. Exhibits			34
Signatures			35

iROBOT CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)


		July 2, 2022		January 1, 2022			April 1, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	63,409	$	201,457	Cash and cash equivalents	$	47,915	$	117,949
Short-term investments		—		33,044

Accounts receivable, net	Accounts receivable, net	87,766		160,642		Accounts receivable, net	29,645		66,025
Inventory	Inventory	397,012		333,296		Inventory	229,688		285,250

Other current assets	Other current assets	111,654		61,094		Other current assets	56,987		59,076
Total current assets	Total current assets	659,841		789,533		Total current assets	364,235		528,300
Property and equipment, net	Property and equipment, net	69,294		78,887		Property and equipment, net	55,774		60,909
Operating lease right-of-use assets	Operating lease right-of-use assets	29,875		37,609		Operating lease right-of-use assets	25,443		26,084
Deferred tax assets	Deferred tax assets	62,698		37,945		Deferred tax assets	15,226		16,248
Goodwill	Goodwill	164,869		173,292		Goodwill	169,570		167,724
Intangible assets, net	Intangible assets, net	24,072		28,410		Intangible assets, net	10,919		11,260
Other assets	Other assets	59,312		38,753		Other assets	23,460		24,918
Total assets	Total assets	$	1,069,961	$	1,184,429	Total assets	$	664,627	$	835,443
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	192,388	$	251,298	Accounts payable	$	74,014	$	184,016
Accrued expenses	Accrued expenses	91,084		132,618		Accrued expenses	100,902		98,959

Deferred revenue and customer advances	Deferred revenue and customer advances	13,645		11,767		Deferred revenue and customer advances	12,084		13,208
Short-term notes payable	Short-term notes payable	35,000		—		Short-term notes payable	27,000		—

Total current liabilities	Total current liabilities	332,117		395,683		Total current liabilities	214,000		296,183
Operating lease liabilities	Operating lease liabilities	35,066		43,462		Operating lease liabilities	31,581		33,247
Deferred tax liabilities	Deferred tax liabilities	2,904		3,250		Deferred tax liabilities	526		931
Other long-term liabilities	Other long-term liabilities	23,098		25,311		Other long-term liabilities	23,081		29,366
Total long-term liabilities	Total long-term liabilities	61,068		72,023		Total long-term liabilities	55,188		63,544
Total liabilities	Total liabilities	393,185		467,706		Total liabilities	269,188		359,727
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)	0		0		Commitments and contingencies (Note 10)
Preferred stock, 5,000 shares authorized and none outstanding	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; 27,229 and 27,006 shares issued and outstanding, respectively		272		270
Common stock, $0.01 par value, 100,000 shares authorized; 27,594 and 27,423 shares issued and outstanding, respectively						Common stock, $0.01 par value, 100,000 shares authorized; 27,594 and 27,423 shares issued and outstanding, respectively	276		274
Additional paid-in capital	Additional paid-in capital	239,369		222,653		Additional paid-in capital	263,837		257,498
Retained earnings	Retained earnings	411,883		485,710		Retained earnings	118,303		199,415
Accumulated other comprehensive income	Accumulated other comprehensive income	25,252		8,090		Accumulated other comprehensive income	13,023		18,529
Total stockholders’ equity	Total stockholders’ equity	676,776		716,723		Total stockholders’ equity	395,439		475,716
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,069,961	$	1,184,429	Total liabilities and stockholders’ equity	$	664,627	$	835,443

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

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Revenue	Revenue	$	255,351	$	365,596	$	547,320	$	668,857	Revenue	$	160,292	$	291,969
Cost of revenue:	Cost of revenue:									Cost of revenue:
Cost of product revenue	Cost of product revenue	173,531		226,395		357,164		406,487		Cost of product revenue	123,459		183,633
Amortization of acquired intangible assets	Amortization of acquired intangible assets	875		225		1,696		450		Amortization of acquired intangible assets	282		821
Total cost of revenue	Total cost of revenue	174,406		226,620		358,860		406,937		Total cost of revenue	123,741		184,454
Gross profit	Gross profit	80,945		138,976		188,460		261,920		Gross profit	36,551		107,515
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	41,937		38,677		84,466		80,597		Research and development	41,934		42,529
Selling and marketing	Selling and marketing	76,017		76,677		137,082		127,668		Selling and marketing	44,765		61,065
General and administrative	General and administrative	26,380		26,459		53,078		49,899		General and administrative	30,971		26,698
Amortization of acquired intangible assets	Amortization of acquired intangible assets	525		205		1,035		409		Amortization of acquired intangible assets	178		510
Total operating expenses	Total operating expenses	144,859		142,018		275,661		258,573		Total operating expenses	117,848		130,802
Operating (loss) income		(63,914)		(3,042)		(87,201)		3,347
Operating loss										Operating loss	(81,297)		(23,287)
Other expense, net	Other expense, net	(2,182)		(286)		(18,928)		(446)		Other expense, net	(1,077)		(16,746)
(Loss) income before income taxes		(66,096)		(3,328)		(106,129)		2,901
Loss before income taxes										Loss before income taxes	(82,374)		(40,033)
Income tax benefit	Income tax benefit	(22,675)		(570)		(32,302)		(1,784)		Income tax benefit	(1,262)		(9,627)
Net (loss) income		$	(43,421)	$	(2,758)	$	(73,827)	$	4,685
Net (loss) income per share:
Net loss										Net loss	$	(81,112)	$	(30,406)
Net loss per share:										Net loss per share:
Basic	Basic	$	(1.60)	$	(0.10)	$	(2.72)	$	0.17	Basic	$	(2.95)	$	(1.12)
Diluted	Diluted	$	(1.60)	$	(0.10)	$	(2.72)	$	0.16	Diluted	$	(2.95)	$	(1.12)
Number of shares used in per share calculations:	Number of shares used in per share calculations:									Number of shares used in per share calculations:
Basic	Basic	27,161		28,100		27,106		28,178		Basic	27,467		27,051
Diluted	Diluted	27,161		28,100		27,106		28,908		Diluted	27,467		27,051

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

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

(in thousands)

(unaudited)

Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net (loss) income $ (43,421) $ (2,758) $ (73,827) $ 4,685
Other comprehensive income:
Net foreign currency translation adjustments (7,360) 1,114 (11,375) (4,769)
Net unrealized gains (losses) on cash flow hedges, net of tax 24,934 (36) 32,587 12,932
Net gains on cash flow hedge reclassified into earnings, net of tax (2,816) (932) (4,050) (542)
Net unrealized gains on marketable securities, net of tax — — — (4)
Total comprehensive (loss) income $ (28,663) $ (2,612) $ (56,665) $ 12,302


	Three Months Ended
	April 1, 2023		April 2, 2022
Net loss	$	(81,112)	$	(30,406)
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustments	1,720		(4,015)
Net unrealized (losses) gains on cash flow hedges, net of tax	(1,823)		7,653
Net gains on cash flow hedge reclassified into earnings, net of tax	(5,403)		(1,234)

Total comprehensive loss	$	(86,618)	$	(28,002)

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")		Total Stockholders’ Equity			Common Stock			Additional Paid-In Capital					Retained Earnings		Accumulated Other Comprehensive Income ("AOCI")		Total Stockholders’ Equity
		Shares	Value				Retained Earnings								Value	Additional Paid-In Capital				Accumulated Other Comprehensive Income ("AOCI")
Balance at April 2, 2022		27,116	$	271	$	229,133		$	455,304	$	10,494	$	695,202
Balance at December 31, 2022														Balance at December 31, 2022	27,423						$	274	$	257,498			$	199,415	$	18,529	$	475,716
Issuance of common stock under employee stock plans	Issuance of common stock under employee stock plans	61	1		2,290							2,291		Issuance of common stock under employee stock plans	9	—		9									9

Vesting of restricted stock units	Vesting of restricted stock units	54	—		—							—		Vesting of restricted stock units	199	2		(2)									—
Stock-based compensation	Stock-based compensation				8,023							8,023		Stock-based compensation				7,932									7,932
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(2)	—		(77)							(77)		Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(37)	—		(1,600)									(1,600)
Other comprehensive income										14,758		14,758
Other comprehensive loss														Other comprehensive loss											(5,506)		(5,506)

Net loss	Net loss							(43,421)				(43,421)		Net loss									(81,112)				(81,112)
Balance at July 2, 2022		27,229	$	272	$	239,369		$	411,883	$	25,252	$	676,776
Balance at April 1, 2023														Balance at April 1, 2023	27,594	$	276	$	263,837				$	118,303	$	13,023	$	395,439

Common Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income ("AOCI") Total Stockholders’
Equity
Shares Value
Balance at January 1, 2022 27,006 $ 270 $ 222,653 $ 485,710 $ 8,090 $ 716,723
Issuance of common stock under employee stock plans 84 1 3,087 3,088
Vesting of restricted stock units 166 1 (1) —
Stock-based compensation 15,231 15,231
Stock withheld to cover tax withholdings requirements upon restricted stock vesting (27) — (1,601) (1,601)
Other comprehensive income 17,162 17,162
Net loss (73,827) (73,827)
Balance at July 2, 2022 27,229 $ 272 $ 239,369 $ 411,883 $ 25,252 $ 676,776



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income ("AOCI")		Total Stockholders’ Equity
	Shares	Value
Balance at January 1, 2022	27,006	$	270	$	222,653	$	485,710	$	8,090	$	716,723
Issuance of common stock under employee stock plans	23	—		797						797

Vesting of restricted stock units	112	1		(1)						—
Stock-based compensation				7,208						7,208
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(25)	—		(1,524)						(1,524)
Other comprehensive income								2,404		2,404


Net loss						(30,406)				(30,406)
Balance at April 2, 2022	27,116	$	271	$	229,133	$	455,304	$	10,494	$	695,202

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

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS' EQUITY~~CASH FLOWS

(in thousands)

(unaudited)
Common Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income ("AOCI") Total Stockholders’
Equity
Shares Value
Balance at April 3, 2021 28,395 $ 284 $ 209,890 $ 606,832 $ 6,978 $ 823,984
Issuance of common stock under employee stock plans 54 1 2,541 2,542
Vesting of restricted stock units 48 — — —
Stock-based compensation 7,340 7,340
Stock withheld to cover tax withholdings requirements upon restricted stock vesting — — (43) (43)
Other comprehensive income 146 146
Directors' deferred compensation 21 21
Stock repurchases (447) (4) (3,374) $ (46,622) (50,000)
Net loss (2,758) (2,758)
Balance at July 3, 2021 28,050 $ 281 $ 216,375 $ 557,452 $ 7,124 $ 781,232

Common Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) ("AOCI") Total 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 121 1 5,130 5,131
Vesting of restricted stock units 233 2 (2) —
Stock-based compensation 14,122 14,122
Stock withheld to cover tax withholdings requirements upon restricted stock vesting (41) — (4,799) (4,799)
Other comprehensive income 7,617 7,617
Directors' deferred compensation 42 42
Stock repurchases (447) (4) (3,374) (46,622) (50,000)
Net income 4,685 4,685
Balance at July 3, 2021 28,050 $ 281 $ 216,375 $ 557,452 $ 7,124 $ 781,232


	Three Months Ended
	April 1, 2023		April 2, 2022
Cash flows from operating activities:
Net loss	$	(81,112)	$	(30,406)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,542		11,241
Loss on equity investment	—		16,835
Stock-based compensation	7,932		7,208
Deferred income taxes, net	647		(15,571)
Other	(3,562)		1,539
Changes in operating assets and liabilities — (use) source
Accounts receivable	37,147		54,299
Inventory	52,947		(1,688)
Other assets	53		(26,734)
Accounts payable	(109,930)		(77,006)
Accrued expenses and other liabilities	(6,171)		(42,032)
Net cash used in operating activities	(94,507)		(102,315)
Cash flows from investing activities:
Additions of property and equipment	(1,456)		(3,113)

Purchase of investments	(73)		(500)

Sales and maturities of investments	—		16,213
Net cash (used in) provided by investing activities	(1,529)		12,600
Cash flows from financing activities:
Proceeds from employee stock plans	9		797
Income tax withholding payment associated with restricted stock vesting	(1,600)		(1,524)

Proceeds from borrowings	27,000		—
Net cash provided by (used in) financing activities	25,409		(727)
Effect of exchange rate changes on cash and cash equivalents	593		1,023
Net decrease in cash and cash equivalents	(70,034)		(89,419)
Cash and cash equivalents, at beginning of period	117,949		201,457
Cash and cash equivalents, at end of period	$	47,915	$	112,038

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

iROBOT CORPORATION

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

~~(unaudited)~~

Six Months Ended
July 2, 2022 July 3, 2021
Cash flows from operating activities:
Net (loss) income $ (73,827) $ 4,685
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities, net of the effects of acquisition:
Depreciation and amortization 19,715 15,635
Loss on equity investment 18,814 —
Stock-based compensation 15,231 14,122
Deferred income taxes, net (35,467) 210
Other 2,844 3,286
Changes in operating assets and liabilities — (use) source
Accounts receivable 70,372 94,477
Inventory (70,400) (94,918)
Other assets (31,657) (7,554)
Accounts payable (58,520) 2,071
Accrued expenses and other liabilities (43,617) (30,215)
Net cash (used in) provided by operating activities (186,512) 1,799
Cash flows from investing activities:
Additions of property and equipment (4,894) (21,924)
Purchase of investments (3,090) (9,606)
Sales and maturities of investments 17,383 63,644
Net cash provided by investing activities 9,399 32,114
Cash flows from financing activities:
Proceeds from employee stock plans 3,088 5,131
Income tax withholding payment associated with restricted stock vesting (1,601) (4,799)
Stock repurchases — (50,000)
Proceeds from borrowings 35,000 —
Net cash provided by (used in) financing activities 36,487 (49,668)
Effect of exchange rate changes on cash and cash equivalents 2,578 (1,039)
Net decrease in cash and cash equivalents (138,048) (16,794)
Cash and cash equivalents, at beginning of period 201,457 432,635
Cash and cash equivalents, at end of period $ 63,409 $ 415,841

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

~~iROBOT CORPORATION~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ~~Description~~Nature of the Business

iRobot Corporation ("iRobot" or the "Company") designs, builds and sells robots and home innovations that make life better. The Company's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. iRobot's durable and high-performing robots are designed using the close integration of software, electronics and hardware. The Company’s revenue is primarily generated from product 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.

Merger Agreement

On August 4, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, Amazon.com, Inc., a Delaware corporation ("Parent" or "Amazon") and Martin Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will merge with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent. As a result of the Merger, each share of common stock of the Company, par value $0.01 per share ("Common Stock"), outstanding immediately prior to the effective time of the Merger (the "Effective Time") (subject to certain exceptions, including shares of Common Stock owned by the Company, Merger Sub, Parent or any of their respective direct or indirect wholly owned subsidiaries and shares of Common Stock owned by stockholders of the Company who have validly demanded and not withdrawn appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will, at the Effective Time, automatically be cancelled and converted into the right to receive $61.00 in cash, without interest and subject to applicable withholding taxes. If the Merger is consummated, the Company’s Common Stock will be delisted from the Nasdaq Stock Market LLC and deregistered under the Securities Exchange Act of 1934.

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 balances and transactions. iRobot has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP").

In the opinion of management, all adjustments necessary to the unaudited interim consolidated financial statements have been made to state fairly the Company's financial position. Interim results are not necessarily indicative of results for the full fiscal year or any future periods. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022, filed with the Securities and Exchange Commission on February ~~15, 2022.~~14, 2023.

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.

Liquidity

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

The Company has a long history of profitable operations, positive operating cash flows and substantial liquidity that was further strengthened during the first year of the COVID-19 pandemic as consumer demand for iRobot's products increased considerably. For the three months ended April 1, 2023, the Company’s revenue declined 45% from the three months ended April 2, 2022 due in part by a scheduled shift of certain orders with a customer which occurred in the first quarter of 2022 and are scheduled to ship in the second quarter of 2023 for their annual promotional event. In addition, revenue was impacted by lower orders from retailers and distributors largely resulting from a decline in consumer sentiment, and resultant spending, driven by high inflation, rising interest rates, rising energy costs, the potential recessionary outlook and geopolitical instability, which was exacerbated by the Russia-Ukraine war. The lower revenue has resulted in operating losses of $81.3 million and operating cash outflows of $94.5 million for the three months ended April 1, 2023. As a result, the Company's cash and cash equivalents have declined from $117.9 million as of December 31, 2022 to $47.9 million as of April 1, 2023.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

As of April 1, 2023, the Company had $27.0 million in outstanding borrowings from its $100.0 million revolving line of credit, which expires on September 17, 2024.

Management has considered and assessed its ability to continue as a going concern for the one year from the date that the unaudited consolidated financial statements are issued. Management’s assessment included the preparation of cash flow forecasts taking into account actions already implemented. Management considered additional actions within its control that it would implement, if necessary, to maintain liquidity and operations in the ordinary course. Management has already undertaken the following actions to improve profitability and operating cash flows and align the organization to the lower revenue level:

•In August 2022, the Company initiated a restructuring of its operations designed to better realign its cost structure with near-term revenue and cash flow generation, advance key strategic priorities, increase efficiencies and improve its profitability going forward (the "August 2022 Restructuring Plan"). As part of the August 2022 Restructuring Plan, the Company reduced its workforce and terminated approximately 100 employees, which represented 8% of its workforce and eliminated a number of open positions entering the third quarter of 2022. As a follow-on action to the Company’s August 2022 Restructuring Plan and in anticipation that market conditions will remain challenging in 2023, the Company initiated a new restructuring program at the beginning of February 2023 and reduced its workforce by approximately 85 employees, which represented 7% of the Company's global workforce as of December 31, 2022 (the "February 2023 Restructuring Plan"). In addition to the reduction in force, iRobot’s 2023 operating plan incorporates scaled back working media and other demand-generation activities, limited investment in non-robotic product categories and minimal new hiring plans in 2023. At April 1, 2023, the Company had 1,156 employees, a total reduction of 216 employees since the end of fiscal 2021. In addition to the reduction of its headcount, the Company signed a sublease agreement for a portion of its headquarters during the fourth quarter of fiscal 2022 and plans to further consolidate its global facilities footprint during fiscal 2023. iRobot currently anticipates that its August 2022 and February 2023 restructuring actions will deliver net cost savings of approximately $42.0 million in 2023, including actions associated with the facilities consolidation.

•Inventory has consumed a significant amount of cash and the Company continues to manage its inventory level carefully. As of April 1, 2023, the inventory balance was $229.7 million, or 169 days, a reduction of $55.6 million, from the end of fiscal 2022. In 2023, the Company will continue to manage its inventory to a level that aligns with current run rates of the business. As such, iRobot temporarily reduced robot production during the first quarter of 2023 from its contract manufacturing partners in China and Malaysia and began increasing production in April 2023.

While management estimates such actions will be sufficient to allow it to maintain liquidity and its operations in the ordinary course for at least 12 months from the issuance of these financial statements, there can be no assurance the Company will generate sufficient future cash flows from operations due to potential factors, including, but not limited to, further inflation, the continued rising interest rates, ongoing recessionary conditions or continued reduced demand for the Company’s products. If the Company is not successful in increasing demand for its products, or if macroeconomic conditions further constrain consumer demand, the Company may continue to experience adverse impacts to revenue and profitability. Additional actions within the Company’s control to maintain its liquidity and operations include optimizing its production volumes with contract manufacturers by reducing inventory supply forecast for cancellable purchase orders, further reducing discretionary spending in all areas of the business, decreasing working media spending and realigning resources through ongoing attrition without rehiring activity. Should the Company require further funding in the future, there can be no assurance that it will be able to obtain additional debt financing on terms acceptable to the Company, or at all.

The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

Recently Adopted Accounting Standards

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-08, "Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The ASU improves the accounting for acquired revenue contracts with customers by providing specific guidance on recognition of contract asset and liability from revenue contracts in a business combination. The amendments to this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company adopted the standard in the first quarter of 2023 and the adoption had no impact on the Company's consolidated financial statements.

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the ~~Financial Accounting Standards Board~~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.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 revenue and expenses. These estimates and judgments, include but are not limited to, revenue recognition, including performance obligations, standalone selling price, variable consideration and other obligations such as sales incentives and product returns; allowance for credit losses; ~~accounting for business combinations;~~ impairment of goodwill and long-lived assets; valuation of non-marketable equity investments; product warranties; inventory excess and obsolescence; loss contingencies; ~~accounting for stock-based compensation including performance-based assessments;~~ and accounting for income taxes and related valuation allowances. The Company bases its estimates and assumptions on historical experience, market participant fair value considerations, projected future cash flows, current economic conditions, ~~including impact from COVID-19 pandemic and the uncertainty imposed by the conflict between Russia and Ukraine,~~ and various other

~~iROBOT CORPORATION~~

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

factors that the Company believes are reasonable under the circumstances. Actual results and outcomes may differ from the Company’s estimates and assumptions.

~~Short-Term Investments~~

~~The Company's short term investments include marketable equity securities with readily determinable fair value and debt securities.~~ The fair value of investments is determined based on quoted market prices at the reporting date for those instruments. The change in fair value of the Company's investments in marketable equity securities is recognized as unrealized gains and losses in other expense, net at the end of each reporting period.

As of January 1, 2022, the Company had $33.0 million in short term investments made up of 1.6 million shares of Matterport, Inc. ("Matterport") from the Matterport merger in 2021 with shares received subject to time based contractual sales restrictions that expired in January 2022. During the first quarter of 2022, the Company sold these Matterport shares and received net proceeds of $16.2 million. In addition, during the first quarter of 2022, the Company received an additional 0.2 million shares of Matterport upon achievement of conditions set forth in the merger agreement. During the three months ended July 2, 2022, the Company sold the remaining Matterport shares and received net proceeds of $1.2 million. During the three and six months ended July 2, 2022, the Company recognized losses of $0.3 million and $17.1 million, respectively, in other expense, net related to the sales of these shares. As of July 2, 2022, the Company did not have any short term investments.

Allowance for Credit Losses

The Company maintains an allowance for credit losses for accounts receivable using an expected loss model that requires the use of forward-looking information to calculate credit loss estimate. The expected loss methodology is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, customer concentrations, current and future economic and market conditions and age of the receivable. The Company reviews and adjusts the allowance for credit losses on a quarterly basis. Accounts receivable balances are written off against the allowance when the Company determines that the balances are not recoverable. As of ~~July 2, 2022~~April 1, 2023 and ~~January 1,~~December 31, 2022, the Company had an allowance for credit losses of ~~$6.4~~$2.7 million and ~~$4.6~~$4.7 million, respectively.

Tariff Refunds

OnIn March ~~23,~~ 2022, the Company was granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion, ~~eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing~~which was subsequently extended until ~~December 31, 2022. As of July 2, 2022, this tariff exclusion entitles~~September 30, 2023, entitled the Company to a refund of approximately $32.0 million in tariffs paid. During the first quarter of 2022, the Company recognized a benefit of $11.7 million offrom tariff refunds as ~~operating income (reduction~~a reduction to cost of product ~~revenue)~~revenue related to tariffs paid on ~~Roomba robots~~products imported after October 12, 2021 and sold during fiscal 2021. ~~While~~As of April 1, 2023, the Company had received $28.0 million of the tariff refund ~~claims are subject to~~and the ~~approval~~outstanding refund receivable of ~~U.S. Customs, the Company currently expects to recover the entire balance of $32.0~~$4.0 million ~~within the next twelve months. The refund receivable~~ is recorded in other current assets on the consolidated balance sheet.

Inventory

Inventory primarily consists of finished goods and, to a lesser extent, components, which are purchased from contract manufacturers. Inventory is stated at the lower of cost or net realizable value with cost being determined using the standard cost method, which approximates actual costs determined on the first-in, first-out basis. Inventory costs primarily consist of materials, inbound freight, import duties ~~tariffs,~~ and other handling fees. The Company writes down its inventory for estimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand. Net realizable value is the estimated selling price less estimated costs of completion, disposal and transportation. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue and have not been significant for the periods presented.

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 in orderly transactions for identical or similar investments of the same issuer. 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 Company monitors non-marketable equity investments for impairment indicators, such as deterioration in the investee's financial condition and business forecasts and lower valuations in recent or proposed financings. 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. The Company performs an assessment on a quarterly basis to assess whether triggering events for impairment exist and to identify any observable price changes. Changes in fair value of non-marketable equity investments are recorded in other expense, net on the consolidated statement of operations. At ~~July 2, 2022~~both April 1, 2023 and ~~January 1,~~December 31, 2022, the Company's equity securities without readily determinable fair values totaled ~~$16.2~~$15.1 million, ~~and $16.3 million, respectively,~~ and are included in other assets on the consolidated balance sheets.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Restructuring Charges

In August 2022, the Company initiated a restructuring of its operations designed to realign its cost structure with near-term revenue and cash flow generation, advance key strategy priorities, increase efficiencies and improve its profitability going forward. The August 2022 Restructuring Plan included a termination of approximately 100 employees and consolidation of certain facilities. As a result of the August 2022 Restructuring Plan, the Company recorded restructuring charges of $5.2 million for employee severance costs during the third quarter of 2022 and a non-cash impairment loss of $3.4 million for the consolidation of certain facilities during the fourth quarter of 2022. As a follow-on action to the Company’s August 2022 Restructuring Plan and in anticipation that market conditions remain challenging in 2023, the Company initiated a new restructuring program at the beginning of February 2023 to further reduce its workforce by approximately 85 employees, which represented 7% of the Company's global workforce as of December 31, 2022. During the three months ended April 1, 2023, the Company recorded restructuring charges of $3.7 million for employee severance and benefit costs related to the February 2023 Restructuring Plan. As of April 1, 2023, the Company had outstanding restructuring liability related to these plans of approximately $1.9 million and expects the remaining balance to be substantially paid during the second quarter of 2023. These restructuring charges are recorded in the consolidated statement of operations.

Net ~~(Loss) Income~~Loss Per Share

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

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

Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net (loss) income $ (43,421) $ (2,758) $ (73,827) $ 4,685
Basic weighted-average common shares outstanding 27,161 28,100 27,106 28,178
Dilutive effect of employee stock awards — — — 730
Diluted weighted-average common shares outstanding 27,161 28,100 27,106 28,908
Net (loss) income per share - Basic $ (1.60) $ (0.10) $ (2.72) $ 0.17
Net (loss) income per share - Diluted $ (1.60) $ (0.10) $ (2.72) $ 0.16


	Three Months Ended
	April 1, 2023		April 2, 2022
Net loss	$	(81,112)	$	(30,406)
Weighted-average shares outstanding	27,467		27,051


Basic and diluted loss per share	$	(2.95)	$	(1.12)

Employee stock awards representing approximately ~~1.3~~1.0 million and 0.8 million shares of common stock for the three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021, and approximately 1.0 million and 0.1 million shares of common stock for the six months ended July 2, 2022 and July 3, 2021,~~ respectively, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.

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 in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns and other credits and incentives. 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.

Frequently, the Company’s contracts with customers contain multiple promised goods or services. Such contracts may include any of the following, the consumer robot, downloadable app, cloud services, accessories on demand, potential future unspecified software upgrades, premium customer care and extended warranties. For these contracts, the Company accounts for the promises separately as individual performance obligations if they are distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. 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. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one performance obligation to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services"). Other services and support are considered distinct and therefore are treated as separate performance obligations.

The Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices ("SSPs"). When available, the Company uses observable prices to determine SSPs. When observable prices are not available,

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the facts and circumstances related to each performance obligation including market data or the estimated cost of providing the products or services. The transaction price allocated to the robot is recognized as revenue at a point in time when control is transferred, generally as title and risk of loss pass, 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. Other services and support are recognized over their service periods. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of ~~July 2, 2022~~April 1, 2023 and ~~January 1,~~December 31, 2022 was ~~$21.3~~$21.4 million and ~~$20.9~~$23.2 million, respectively.

~~iROBOT CORPORATION~~

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

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." For contracts with the right to upgrade to a new product after a specified period of time, the Company accounts for this trade-in right as a guarantee obligation under ASC 460. The total transaction price is reduced by the full amount of the trade-in right's fair value and the remaining transaction price is allocated between the performance obligations within the contract.

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 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 ~~July 2,~~April 1, 2023, the Company had reserves for product returns of $21.7 million and other credits and incentives of $56.8 million. As of December 31, 2022, the Company had reserves for product returns of ~~$42.8~~$49.2 million and other credits and incentives of ~~$64.3 million. As of January 1, 2022, the Company had reserves for product returns of $56.8 million and other credits and incentives of $101.6~~$106.5 million. The Company regularly evaluates the adequacy of its estimates for product returns and other credits and incentives. Future market conditions and product transitions may require the Company to take action to change such programs and related estimates. When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, the Company increases or reduces revenue to reflect the impact. During the three ~~and six~~ months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ changes to these estimates related to performance obligations satisfied in prior periods were not material.

Disaggregation of Revenue

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


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
United States	United States	$	139,377	$	196,824	$	292,551	$	311,596	United States	$	71,986	$	153,174
EMEA	EMEA	55,922		91,559		121,583		207,790		EMEA	46,681		65,661
Japan	Japan	38,929		47,254		89,450		87,829		Japan	32,894		50,521
Other	Other	21,123		29,959		43,736		61,642		Other	8,731		22,613
Total revenue	Total revenue	$	255,351	$	365,596	$	547,320	$	668,857	Total revenue	$	160,292	$	291,969

Contract Balances

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


		July 2, 2022		January 1, 2022			April 1, 2023		December 31, 2022
Accounts receivable, net	Accounts receivable, net	$	81,318	$	155,659	Accounts receivable, net	$	24,891	$	60,268
Unbilled receivables	Unbilled receivables	8,799		8,747		Unbilled receivables	5,284		6,569
Contract liabilities	Contract liabilities	24,062		22,996		Contract liabilities	21,741		24,140

The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables represent revenue ~~and trade-in liability~~ recognized in excess of billings. 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. During the three months ended ~~July~~April 1, 2023 and

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

April 2, 2022, ~~and July 3, 2021,~~ the Company recognized ~~$5.8~~$4.2 million and ~~$3.4~~$4.7 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers. During the six months ended July 2, 2022 and July 3, 2021, the Company recognized $7.6 million and $8.9 million, respectively, of the contract liability balance as revenue upon transfer of the product 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. The operating leases expire at various dates through 2030.

~~iROBOT CORPORATION~~

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

At April 1, 2023, the Company's weighted average discount rate wa
s 4.03%, while the weighted average remaining lease term was 6.53 years.

The components of lease expense were as follows (in thousands):


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Operating lease cost	Operating lease cost	$	2,163	$	2,147	$	3,014	$	4,134	Operating lease cost	$	1,715	$	851
Variable lease cost	Variable lease cost	1,010		1,033		1,928		1,928		Variable lease cost	825		918
Total lease cost	Total lease cost	$	3,173	$	3,180	$	4,942	$	6,062	Total lease cost	$	2,540	$	1,769

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

Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,995 $ 2,100 $ 4,034 $ 4,379
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ — $ — $ — $ —

~~At July 2, 2022, the Company's weighted average discount rate wa~~s ~~4.01%~~, ~~while the weighted average remaining lease term~~ w~~as 7.16 years.~~


	Three Months Ended
	April 1, 2023		April 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,008	$	2,039
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	—

Maturities of operating lease liabilities were as follows as of ~~July 2, 2022~~April 1, 2023 (in thousands):


Remainder of 2022		$	3,582
2023		7,315
Remainder of 2023				Remainder of 2023	$	5,279
2024	2024	6,034		2024	6,618
2025	2025	5,781		2025	5,794
2026	2026	5,806		2026	5,816
2027				2027	5,890
Thereafter	Thereafter	18,930		Thereafter	13,048
Total minimum lease payments	Total minimum lease payments	$	47,448	Total minimum lease payments	$	42,445
Less: imputed interest	Less: imputed interest	6,291		Less: imputed interest	5,356
Present value of future minimum lease payments	Present value of future minimum lease payments	$	41,157	Present value of future minimum lease payments	$	37,089
Less: current portion of operating lease liabilities (Note 6)		$	6,091
Less: current portion of operating lease liabilities (Note 7)				Less: current portion of operating lease liabilities (Note 7)	$	5,508
Long-term lease liabilities	Long-term lease liabilities	$	35,066	Long-term lease liabilities	$	31,581

~~5. Goodwill and Other Intangible Assets~~

~~The following table summarizes the activity in the carrying amount of goodwill and intangible assets for the six months ended July 2, 2022 (in thousands):~~

Goodwill Intangible assets
Balance as of January 1, 2022 $ 173,292 $ 28,410
Purchase accounting adjustments (583) —
Amortization — (2,731)
Effect of foreign currency translation (7,840) (1,607)
Balance as of July 2, 2022 $ 164,869 $ 24,072

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

~~6. Accrued Expenses~~

~~Accrued expenses consisted of the following at (in thousands):~~

July 2, 2022 January 1, 2022
Accrued warranty $ 26,814 $ 32,019
Accrued compensation and benefits 20,713 19,029
Current portion of operating lease liabilities 6,091 6,220
Accrued manufacturing and logistics cost 6,083 23,038
Derivative liability 5,593 2,600
Accrued sales and other indirect taxes payable 3,830 9,599
Accrued bonus 3,493 11,375
Accrued income taxes 1,665 1,788
Accrued other 16,802 26,950
$ 91,084 $ 132,618

~~7. Working Capital Facility~~

~~Credit Facility~~

The Company has a $150.0 million unsecured revolving line of credit which expires in June 2023. On May 4, 2022, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of 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 all of fiscal 2022. The Amendment also increases the borrowing rate under the facility for 2022 to LIBOR plus 1.5%.

During the three months ended July 2, 2022, the Company had borrowings of $35.0 million under the revolving credit facility, with $115.0 million available for borrowing at July 2, 2022. As of July 2, 2022, the Company was in compliance with the covenants under the Credit Agreement.

~~8. Derivative Instruments and Hedging Activities~~

~~The Company enters into derivative instruments that are designated as cash flow hedges to reduce its exposure to foreign currency exchange risk in sales. These contracts typically have maturities o~~f ~~three years or less. At July 2, 2022 and January 1, 2022, the Company had outstanding cash flow hedges with a total notional value of $509.2 million and $423.3 million, respectively.~~

The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce foreign currency exchange risk related to short term trade receivables and payables. These contracts typically have maturities of twelve months or less. At July 2, 2022 and January 1, 2022, the Company had outstanding foreign currency economic hedges with a total notional value of $305.2 million and $325.4 million, respectively.

~~iROBOT CORPORATION~~

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

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

Fair Value
Classification July 2, 2022 January 1, 2022
Derivatives not designated as hedging instruments:
Foreign currency forward contracts Other current assets $ 15,306 $ 8,362
Foreign currency forward contracts Other assets 847 1,627
Foreign currency forward contracts Accrued expenses 5,593 2,377
Derivatives designated as cash flow hedges:
Foreign currency forward contracts Other current assets $ 18,211 $ 4,110
Foreign currency forward contracts Other assets 30,477 9,610
Foreign currency forward contracts Accrued expenses — 223
Foreign currency forward contracts Long-term liabilities — 407

~~Gain (loss) associated with derivative instruments not designated as hedging instruments were as follows (in thousands):~~

Three Months Ended Six Months Ended
Classification July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Gain (loss) recognized in income Other expense, net $ 4,168 $ 391 $ 6,232 $ (9,623)

~~The following tables reflect the effect of derivatives designated as cash flow hedging (in thousands):~~

Gain (loss) recognized in OCI on Derivative (1)
Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Foreign currency forward contracts $ 33,204 $ (47) $ 43,461 $ 17,107

~~(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 Six Months Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Revenue Revenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded $ 255,351 $ 365,596 $ 547,320 $ 668,857
Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings $ 3,742 $ 1,231 $ 5,381 $ 717

~~iROBOT CORPORATION~~

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

9.5. 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 July 2, 2022							Fair Value Measurements as of April 1, 2023
		Level 1		Level 2 (1)		Level 3			Level 1		Level 2 (1)		Level 3
Assets:	Assets:							Assets:
Money market funds	Money market funds	$	2,113	$	—	$	—	Money market funds	$	33,482	$	—	$	—

Derivative instruments (Note 8)		—		64,841		—
Derivative instruments (Note 9)								Derivative instruments (Note 9)	—		1,878		—
Total assets measured at fair value	Total assets measured at fair value	$	2,113	$	64,841	$	—	Total assets measured at fair value	$	33,482	$	1,878	$	—

Liabilities:	Liabilities:							Liabilities:
Derivative instruments (Note 8)		$	—	$	5,593	$	—
Derivative instruments (Note 9)								Derivative instruments (Note 9)	$	—	$	9,038	$	—
Total liabilities measured at fair value	Total liabilities measured at fair value	$	—	$	5,593	$	—	Total liabilities measured at fair value	$	—	$	9,038	$	—


		Fair Value Measurements as of January 1, 2022							Fair Value Measurements as of December 31, 2022
		Level 1		Level 2 (1)		Level 3			Level 1		Level 2 (1)		Level 3
Assets:	Assets:							Assets:
Money market funds	Money market funds	$	33,003	$	—	$	—	Money market funds	$	79,005	$	—	$	—
Marketable equity securities, $23,286 at cost		33,044		—		—

Derivative instruments (Note 8)		—		23,709		—

Derivative instruments (Note 9)								Derivative instruments (Note 9)	—		5,619		—
Total assets measured at fair value	Total assets measured at fair value	$	66,047	$	23,709	$	—	Total assets measured at fair value	$	79,005	$	5,619	$	—

Liabilities:	Liabilities:							Liabilities:
Derivative instruments (Note 8)		$	—	$	3,007	$	—
Derivative instruments (Note 9)								Derivative instruments (Note 9)	$	—	$	13,793	$	—
Total liabilities measured at fair value	Total liabilities measured at fair value	$	—	$	3,007	$	—	Total liabilities measured at fair value	$	—	$	13,793	$	—

(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.

6. Goodwill and Other Intangible Assets

The following table summarizes the activity in the carrying amount of goodwill and intangible assets for the three months ended April 1, 2023 (in thousands):


	Goodwill		Intangible assets
Balance as of December 31, 2022	$	167,724	$	11,260

Amortization	—		(460)
Effect of foreign currency translation	1,846		119
Balance as of April 1, 2023	$	169,570	$	10,919

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

7. Accrued Expenses

Accrued expenses consisted of the following at (in thousands):


	April 1, 2023		December 31, 2022
Accrued warranty	$	24,618	$	27,379
Accrued compensation and benefits	16,095		17,620
Accrued returns and sales incentives	14,909		1,312
Accrued merger related liabilities	11,791		10,895
Derivative liability	7,202		7,310
Current portion of operating lease liabilities	5,508		5,415
Accrued manufacturing and logistics cost	4,516		970
Accrued bonus	4,190		4,538
Accrued sales and other indirect taxes payable	2,898		7,683






Accrued income taxes	350		5,070
Accrued other	8,825		10,767
	$	100,902	$	98,959

8. Working Capital Facility

Credit Facility

As of April 1, 2023, the Company had a $100.0 million secured revolving line of credit which expires in September 2024. On January 17, 2023, the Company entered into a Fourth Amendment (the "Fourth Amendment") to the Amended and Restated Credit Agreement (as amended, the "Credit Agreement") with Bank of America N.A., which reduced the amount of the facility from $150.0 million to $100.0 million and increased the interest rate of (1) Term SOFR Loans to 4.50%, (2) Base Rate Loans to 3.50%, and (3) unused Commitments (as defined in the Credit Agreement) to 3.50%. In addition, the Fourth Amendment established a borrowing base for the revolving facility equal to the total of 80% of eligible receivables, 50% of eligible inventory, and upon the satisfaction of certain conditions, up to 30% of eligible in-transit inventory, all subject to any applicable reserves. Additionally, the Fourth Amendment requires the Company to maintain $25.0 million of cash in the U.S. at all times, which is tested monthly, and replaced the requirement that the borrowing under the Credit Agreement be under $75.0 million (1) on December 30, 2022 and (2) for ten consecutive days during the first quarter in 2023 with a requirement that the borrowing under the Credit Agreement be $25.0 million or less (1) on December 29, 2023 and (2) for thirty consecutive days between January 17, 2023 and September 17, 2024. The Fourth Amendment also extended the maturity date of the Credit Agreement from June 30, 2023 to September 17, 2024, and continues to be secured by substantially all of its U.S. assets.

As of April 1, 2023, the Company had outstanding borrowings of $27.0 million under the revolving credit facility, with $73.0 million available for borrowing. As of April 1, 2023, the Company was in compliance with the covenants under the Credit Agreement.

9. Derivative Instruments and Hedging Activities

The Company enters into derivative instruments that are designated as cash flow hedges to reduce its exposure to foreign currency exchange risk in sales. These contracts have historically had a maturity of three years or less. During the first quarter of 2023, the Company terminated foreign currency forward contracts with a notional value of $151.7 million, resulting in a net cash payment of $2.5 million which was recognized within cash used in operating activities in the consolidated statement of cash flows. Amounts previously recorded in AOCI were frozen at the time of termination, and will be recognized in earnings when the original forecasted transaction occurs. At April 1, 2023 and December 31, 2022, the Company had outstanding cash flow hedges with a total notional value of $181.7 million and $362.9 million, respectively. The outstanding contracts have average maturities of 1.5 years or less.

The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce foreign currency exchange risk related to short term trade receivables and payables. These contracts typically have maturities of twelve months or less. At April 1, 2023 and December 31, 2022, the Company had outstanding foreign currency economic hedges with a total notional value of $124.9 million and $242.0 million, respectively.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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


		Fair Value
	Classification	April 1, 2023		December 31, 2022
Derivatives not designated as hedging instruments:

Foreign currency forward contracts	Other current assets	$	1,878	$	4,288

Foreign currency forward contracts	Accrued expenses	1,525		3,249

Derivatives designated as cash flow hedges:

Foreign currency forward contracts	Other assets	$	—	$	1,331
Foreign currency forward contracts	Accrued expenses	5,677		4,061
Foreign currency forward contracts	Long-term liabilities	1,836		6,483

(Loss) gain associated with derivative instruments not designated as hedging instruments were as follows (in thousands):


		Three Months Ended
	Classification	April 1, 2023		April 2, 2022
(Loss) gain recognized in income	Other expense, net	$	(811)	$	2,064

The following tables reflect the effect of derivatives designated as cash flow hedging (in thousands):


	(Loss) gain recognized in OCI on Derivative (1)
	Three Months Ended
	April 1, 2023		April 2, 2022
Foreign currency forward contracts	$	(1,823)	$	10,257

(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
	April 1, 2023		April 2, 2022
	Revenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded	$	160,292	$	291,969

Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings	$	5,403	$	1,639

10. Commitments and Contingencies

Legal Proceedings

From time to time and in the ordinary course of business, the Company 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 condition or results of operations.

Outstanding Purchase Orders

As of April 1, 2023, the Company had outstanding purchase orders aggregating approximately $228.7 million. The purchase orders are typically related to marketing and media spend and the purchase of inventory in the normal course of business. Included in these outstanding purchase orders is $82.5 million related to inventory purchases at the Company's contract manufacturers, of which $43.1 million are not cancellable without penalty.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The Company utilizes contract manufacturers to build its products and accessories. These contract manufacturers acquire components and build products based on a forecasted production plan, which typically covers a rolling 24-month period. If the Company cancels all or part of the orders, or materially reduces forecasted orders, in certain circumstances the Company may be liable to its contract manufacturers for the cost of the excess components purchased by its contract manufacturers. During the first quarter of 2023, the Company paid $3.9 million to its contract manufacturers for such liabilities and recorded as inventory components.

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. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company had no liabilities recorded for these agreements as of ~~July 2, 2022~~April 1, 2023 and ~~January 1,~~December 31, 2022, respectively.

Warranty

The Company provides warranties on most products and has established a reserve for warranty obligations based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 6)7) in the accompanying consolidated balance sheets.

~~iROBOT CORPORATION~~

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

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


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Balance at beginning of period	Balance at beginning of period	$	30,239	$	23,904	$	32,019	$	24,392	Balance at beginning of period	$	27,379	$	32,019

Provision	Provision	4,000		10,236		10,036		20,421		Provision	3,477		6,036
Warranty usage	Warranty usage	(7,425)		(9,422)		(15,241)		(20,095)		Warranty usage	(6,238)		(7,816)
Balance at end of period	Balance at end of period	$	26,814	$	24,718	$	26,814	$	24,718	Balance at end of period	$	24,618	$	30,239

Merger Contingencies

On August 4, 2022, the Company entered into the Merger Agreement with Amazon.com, Inc., subject to the terms of which Amazon has agreed to acquire the Company. The Merger is conditioned upon, among other things, the expiration of the applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), certain other approvals, clearances or expirations of waiting periods under other antitrust laws and foreign investment laws, and other customary closing conditions. On September 19, 2022, the Company and Amazon each received a request for additional information and documentary material (the "Second Request") from the Federal Trade Commission ("FTC") in connection with the FTC's review of the transactions contemplated by the Merger Agreement. The effect of the Second Request is to extend the waiting period imposed by the HSR Act, until 30 days after the Company and Amazon have substantially complied with the Second Request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC. The Company and Amazon continue to work cooperatively with the FTC staff in its review of the Merger. Completion of the Merger remains subject to the expiration or termination of the waiting period under the HSR Act.

At a special meeting of stockholders of the Company on October 17, 2022, stockholders approved the Merger. In connection with the transaction, the Company expects to incur professional fees and expenses of approximately $30.0 million that are contingent upon consummation of the Merger.

11. Income Taxes

~~Ordinarily, the~~The Company’s interim provision for income taxes is determined using an estimate of the annual effective tax rate. The Company records any changes affecting the estimated annual effective tax rate in the interim period in which the change ~~occurs, including~~occurs. The Company also records the tax effects of certain discrete ~~tax items. For~~items during the ~~first quarter of 2022, the Company concluded that the estimated annual effective tax rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate~~interim period in light of the wide range of potential impacts on its business and results of operations from the ongoing global COVID-19 pandemic and evolving macroeconomic conditions and geopolitical events around the world, including heightened inflation, rising energy costs, slowing growth, reduced consumer confidence and the Russia-Ukraine war. Accordingly, the Company computed its interim provision for income taxes forwhich they occur.

For the three months ended April ~~2, 2022 using the actual effective tax rate for the period. For the three months ended July~~1, 2023 and April 2, 2022, the Company determined that the ongoing external factors cited above had a less distortive impact on its estimated annual effective tax rate. Accordingly, the Company calculated its interim provision for income taxes for the six-month period ended July 2, 2022 using an estimate of the annual effective tax rate. The Company’s provision for income taxes for the three-month period ended July 2, 2022 reflects the change from using the actual effective rate in the first quarter of 2022 to using the estimated annual effective tax rate in the first half of 2022.

~~The~~ Company recorded an income tax benefit of ~~$22.7~~$1.3 million and ~~$0.6~~$9.6 million, respectively. The Company’s effective income tax rates were 1.5% and 24.0% for the three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ respectively. ~~The $22.7 million income tax benefit for~~For the three months ended July 2, 2022 resulted in an effective income tax rate of 34.3%. The $0.6 million income tax benefit for the three months ended July 3, 2021 resulted in an effective tax rate of 17.1%. The increase inApril 1, 2023, the effective income tax rate ~~was primarily driven by~~reflected the ~~change in the expected~~ mix of geographic earnings as well as the impact of full valuation allowance against the Company's U.S. net deferred tax assets, which was initially established during the third quarter of 2022.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In assessing the realizability of its U.S. deferred tax assets, the key factors used to determine positive and negative evidence included its recent losses resulting in cumulative loss for the three-year period ended December 31, 2022, current macroeconomic trends, and expected future reversals of existing taxable temporary differences. Such objective negative evidence limits the Company's ability to consider other subjective evidence, such as its projections for future growth. Given the weight of objectively verifiable historical losses from the Company's U.S. operations, the Company established a full valuation reserve against its net U.S. federal and state deferred tax ~~attributes during~~assets and recorded a valuation allowance of $57.5 million in the third quarter of fiscal 2022. During the three months ended ~~July 2, 2022 as well as discrete~~April 1, 2023, the Company determined that this conclusion continued to be appropriate. A valuation allowance is a non-cash charge, and does not limit the Company’s ability to utilize its deferred tax ~~expense recognized~~assets, including its ability to utilize tax loss and credit carryforward amounts, against future taxable income. The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the ~~three months ended July 3, 2021.~~

~~The Company's 34.3% effective rate~~form of ~~income tax~~cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for the three months ended July 2, 2022 was higher than the federal statutory tax rate of 21% primarily because of the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.

The Company recorded an income tax benefit of $32.3 million and $1.8 million for the six months ended July 2, 2022 and July 3, 2021, respectively. The $32.3 million income tax benefit for the six months ended July 2, 2022 resulted in an effective tax rate of 30.4%. The $1.8 million income tax benefit for the six months ended July 3, 2021 resulted in an effective tax rate of (61.5)%. The change in the effective income tax rate was primarily due to the recognition of discrete tax benefits related to stock-based compensation during the six months ended July 3, 2021 compared to discrete tax expense during the current year.

The Company's effective income tax rate of 30.4% for the six months ended July 2, 2022 differed from the federal statutory tax rate of 21% primarily due to the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.future growth.

12. Industry Segment, Geographic Information and Significant Customers

The Company operates as 1one operating segment. The Company's consumer robots are offered to consumers 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.

Significant Customers

For the three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ the Company generated ~~27.1%~~12.0% and ~~32.5%~~26.6%, respectively, of total revenue from one of its retailers.

~~For~~ The decrease in concentration is largely due to timing of certain orders with this customer, which occurred in the ~~six months ended July 2,~~first quarter of 2022 and ~~July 3, 2021, the Company generated 26.8% and 25.5%, respectively, of total revenue from one of its retailers.~~

~~iROBOT CORPORATION~~

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

~~13. Stock-Based Compensation~~

~~Employee Stock Purchase Plan~~

In May 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan ("ESPP"). Eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods beginning November 15 and May 15 of each year. An employee’s payroll deductions under the ESPP are limited to 15% of the employee’s compensation, up to $4,000 each period, for the purchase of common stock not to exceed 1,000 shares per offering period. As of July 2, 2022, there were 452,345 shares reserved for future issuance under the ESPP. The current offering period under the ESPP is scheduled to close on November 15, 2022 unless the closing of the Merger occurs sooner (the "Final Offering"), and under the terms of the Merger Agreement, no additional offering period may be commenced. Each participant’s contributions under the ESPP shall be used to purchase shares of the Company’s common stock in accordance with the terms of the ESPP at the end of the Final Offering, and the Company will terminate the ESPP immediately prior to, but contingent upon the occurrence of, the closing of the Merger.

~~14. Subsequent Events~~

On August 3, 2022, the Company began implementing cost-reduction actions to manage its operating expenses and restructure its operations. As part of this restructuring, the Company is accelerating actions to shift certain non-core engineering functions to lower-cost regions and increasingly leverage its joint design manufacturing (JDM) partners; better balancing global and regional commercial and marketing resources to support go-to-market plans while driving efficiencies and achieving economies of scale; realigning other operational areas to best support current needs of the business; and reducing its global facilities footprint. These actions are expected to include an overall reduction of approximately 140 employees, which represents 10% of our workforce as of July 2, 2022. In conjunction with the workforce reduction, we expect to record restructuring charges totaling between $5 million and $6 million over the next two quarters with the majority of the restructuring charges anticipatedship in the ~~third~~second quarter of ~~2022.~~

On August 4, 2022, the Company entered into the Merger Agreement, by and among the Company, Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. As a result of the Merger, each share of the Common Stock, outstanding immediately prior to the Effective Time (subject to certain exceptions, including shares of Common Stock owned by the Company, Merger Sub, Parent or any of2023 for their respective direct or indirect wholly owned subsidiaries and shares of Common Stock owned by stockholders of the Company who have validly demanded and not withdrawn appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will, at the Effective Time, automatically be cancelled and converted into the right to receive $61.00 in cash, without interest and subject to applicable withholding taxes. If the Merger is consummated, the Company’s Common Stock will be delisted from the Nasdaq Stock Market LLC and deregistered under the Securities Exchange Act of 1934. iRobot expects to incur professional fees and expenses of approximately $30.0 million that are contingent upon consummation of the Merger.

The Merger is conditioned upon, among other things, the approval of the Merger Agreement by the Company’s stockholders, the expiration of the applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, certain other approvals, clearances or expirations of waiting periods under other antitrust laws and foreign investment laws, and other customary closing conditions.annual promotional event.

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

The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 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" created by those sections. In particular, statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to, statements concerning our pending acquisition by Amazon, expectations regarding the timing of the Merger, new product sales, product development and offerings, ability to address consumer needs, the expansion of our addressable market, factors for differentiation of our products, ~~product integration plans,~~ our consumer robots, our competition, our strategy, our market position, market acceptance of our products, ~~seasonal factors,~~ revenue recognition, 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 timing of and ability to recover tariff refund claims, operating expenses, 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, valuation and composition of our stock-based awards,~~ efforts to mitigate supply chain challenges, ~~availability of semiconductor chips,~~ liquidity and the impact of cost-control measures and the amount of restructuring charges and cost savings related to such activities, 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," or other comparable terms and negative forms of such terms. Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. We urge you to consider the risks and uncertainties discussed in greater detail under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and in Part 1, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended ~~January 1,~~December 31, 2022 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 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. With over 30 years of artificial intelligence ("AI") and advanced robotics experience, we are focused on building thoughtful robots and developing intelligent home innovations that help make life better for millions of people around the world. iRobot's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio, we plan to add new capabilities and expand our offerings to help consumers make their homes easier to maintain, more efficient, more secure and healthier places to live.

As of ~~July 2, 2022,~~April 1, 2023, we had ~~1,438~~1,156 full-time employees. Since our founding in 1990, we have developed the expertise necessary to design, build, sell and support durable, high-performance and cost-effective robots through the close integration of software, electronics and hardware. Following the introduction of the Roomba robotic vacuum cleaner in 2002, we have sold nearly 50 million consumer robots worldwide to become a global, market-leading consumer robotics innovator with a strong presence in a number of major geographic regions worldwide. Our core technologies serve as reusable building blocks that we adapt and expand to create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs, time and other risks associated with product development. These capabilities are amplified by iRobot OS, an evolution of our Genius Home Intelligence ~~platform, which leverages~~platform. The software intelligence of iRobot OS powers our portfolio of connected robotic floor care products, enabling an expanding range of new features and thoughtful digital experiences that improve overall cleaning performance, personalization and control. By leveraging our considerable expertise and ongoing investment in AI, home understanding and machine vision technologies, ~~to provide~~iRobot OS provides consumers with greater control over where, when and how our ~~products,~~robots work, simple integration with other smart home devices, thoughtful recommendations ~~that~~to further enhance the cleaning experience, and the ability to share and transfer home knowledge across multiple iRobot robots. We believe that the capabilities within iRobot OS will support our ~~ability to build~~long-term vision of building out a larger ecosystem that encompasses a broader range of adjacent robotic and smart home categories. We believe that our significant expertise in robot design, engineering, and smart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to expand our total addressable market and capitalize on the anticipated growth in a wider range of robotic and smart home categories.

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 our strategy: innovate, get, keep and grow. In ~~May~~September 2022, ~~iRobot~~we introduced the Roomba Combo j7+, an advanced floor cleaning robot that can vacuum and mop, in the U.S. and EMEA, along with thoughtful iRobot OS ~~an evolution~~updates globally. During the first quarter of ~~our Genius Home Intelligence platform that delivers a new level of customer experience for a cleaner, healthier and smarter home.~~2023, we also introduced Roomba Combo j7+ in Japan. In addition, we continued to expand our connected customer base, maintained overall high levels of customer satisfaction and product utilization, and advanced key commercial activities aimed at increasing existing customer revenue, especially through

our direct-to-consumer channel. During the ~~second~~first quarter of ~~2022,~~2023, our connected customers who have opted-in to our digital communications grew to ~~15.7~~18.3 million, an increase of ~~35%~~23% from the ~~second~~first quarter of ~~2021.~~2022.

~~In March 2022, we were granted~~Our total revenue for the three months ended April 1, 2023 was $160.3 million, declining 45.1% from revenue of $292.0 million for the three months ended April 2, 2022. Geographically, domestic revenue declined by $81.2 million, or 53.0%, and international revenue declined by $50.5 million, or 36.4%. Revenue during the first quarter of 2023 was impacted by a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. Asscheduled shift of ~~July 2, 2022, this tariff exclusion entitles us to~~certain orders with a ~~refund of approximately $32.0 million~~customer which occurred in ~~tariffs paid. During~~ the first quarter of 2022 ~~we recognized $11.7 million of refunds as operating income (reduction~~and are scheduled to cost of product revenue) related to tariffs paid on Roomba robots imported after October 12, 2021 and sold during fiscal 2021. While tariff refund claims are subject to the approval of U.S. Customs, we currently expect to recover the entire balance of $32.0 million within the next twelve months.

~~During~~ship in the second quarter of ~~2022,~~2023 for their annual promotional event. In addition, our ~~results were~~revenue was impacted by unanticipated order delays, cancellations and reductions from retailers in both EMEA and North America. Market conditions in these regions have been difficult. In EMEA, consumer confidence further eroded during the second quarter of 2022 as the region faces an economic recession and the Russia-Ukraine war continues. In the U.S., retailers are addressing an uncertain consumer spending environment on the heels of high inflation, rising energy costs and slowing growth. We believe these macroeconomic trends and geopolitical events in these regions are likely to influence near-termlower orders from retailers and distributors ~~as well as purchasing decisions~~largely resulting from a decline in consumer sentiment, and resultant spending, driven by ~~consumers.~~high inflation, rising interest rates, rising energy costs, the potential recessionary outlook and geopolitical instability, which was exacerbated by the Russia-Ukraine war. In response to the challenging market conditions since the third quarter of 2022, we ~~are in the process of initiating~~initiated various cost reduction plans. In August 2022, we initiated a restructuring of our operations designed to better ~~align~~realign our cost structure with near-term revenue ~~expectations,~~and cash flow generation, advance key strategic priorities, increase efficiencies and ~~generate profitable growth in 2023.~~improve our profitability going forward. As part of this August 2022 restructuring, we ~~are accelerating actions to shift certain non-core engineering functions to lower-cost regions~~reduced our workforce and increasingly leverage our joint design manufacturing (JDM) partners; better balancing global and regional commercial and marketing resources to support go-to-market plans while driving efficiencies and achieving economies of scale; realigning other operational areas to best support current needs of the business; and reducing our global facilities footprint. These actions are expected to include an overall reduction ofterminated approximately ~~140~~100 employees, which ~~represents 10%~~represented 8% of our workforce asand eliminated a number of July 2, 2022. In conjunction with the workforce reduction, we expect to record restructuring charges totaling between $5 million and $6 million over the next two quarters with the majority of the restructuring charges anticipated inopen positions entering the third quarter of 2022. As a follow-on action to our August 2022 restructuring of operations and in anticipation that market conditions will remain challenging in 2023, we initiated a new restructuring program at the beginning of February 2023 and reduced our workforce by approximately 85 employees, which represented 7% of our global workforce as of December 31, 2022. In addition to the reduction in force, our 2023 operating plan incorporates scaled back working media and other demand-generation activities, limited investment in non-robotic product categories and minimal new hiring plans in 2023. At April 1, 2023, we had 1,156 employees, a total reduction of 216 employees since the end of fiscal 2021. In addition to the reduction of our headcount, we signed a sublease agreement for a portion of our headquarters during the fourth quarter of fiscal 2022 and plan to further consolidate our global facilities footprint during fiscal 2023. We currently anticipate that our August 2022 and February 2023 restructuring actions will deliver net cost savings of approximately $42.0 million in 2023, including actions associated with the facilities consolidation. In addition, we continue to carefully manage our inventory to a level that aligns with current run rates of the business. During the first quarter of 2023, we temporarily reduced robot production from our contract manufacturing partners in China and Malaysia and used our on-hand inventory to fulfill first-quarter 2023 orders. As of April 1, 2023, our inventory balance was $229.7 million, a reduction of $55.6 million, from the end of fiscal 2022. As anticipated, we began increasing production in April 2023.

Merger Agreement

On August 4, 2022, the Company entered into the Merger Agreement, by and among the Company, Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. As a result of the Merger, each share of the Common Stock, outstanding immediately prior to the Effective Time (subject to certain exceptions, including shares of Common Stock owned by the Company, Merger Sub, Parent or any of their respective direct or indirect wholly owned subsidiaries and shares of Common Stock owned by stockholders of the Company who have validly demanded and not withdrawn appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will, at the Effective Time, automatically be cancelled and converted into the right to receive $61.00 in cash, without interest and subject to applicable withholding taxes. If the Merger is consummated, the Company’s Common Stock will be delisted from the Nasdaq Stock Market LLC and deregistered under the Securities Exchange Act of 1934.

Key Financial Metrics and Non-GAAP Financial Measures

In addition to the measures presented in our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following key metrics, including non-GAAP financial measures, to evaluate and analyze our core operating performance and trends, and to develop short-term and long-term operational plans. The most directly comparable financial measures to the following non-GAAP metrics calculated under U.S. GAAP are gross profit and operating ~~(loss) income.~~loss. During the three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ we had gross profit of ~~$80.9~~$36.6 million and ~~$139.0~~$107.5 million, respectively, and operating loss of ~~$63.9~~$81.3 million and $3.0 million, respectively. During the six months ended July 2, 2022 and July 3, 2021, we had gross profit of $188.5 million and $261.9 million, respectively, and operating (loss) income of $(87.2) million and $3.3$23.3 million, respectively. A summary of key metrics for the three ~~and six~~ months ended ~~July 2, 2022,~~April 1, 2023, as compared to the three ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, is as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
		July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021				April 1, 2023			April 2, 2022
		(dollars in thousands, except average gross selling prices)													(dollars in thousands, except average gross selling prices)
		(unaudited)													(unaudited)
Total Revenue	Total Revenue	$	255,351		$	365,596		$	547,320		$	668,857		Total Revenue	$	160,292		$	291,969

Non-GAAP Gross Profit	Non-GAAP Gross Profit	$	82,888		$	139,484		$	183,476		$	263,016		Non-GAAP Gross Profit	$	37,931		$	100,588
Non-GAAP Gross Margin	Non-GAAP Gross Margin	32.5		%	38.2		%	33.5		%	39.3		%	Non-GAAP Gross Margin	23.7		%	34.5		%

Non-GAAP Operating (Loss) Income		$	(53,300)		$	8,951		$	(71,816)		$	23,905
Non-GAAP Operating Loss														Non-GAAP Operating Loss	$	(62,224)		$	(18,516)
Non-GAAP Operating Margin	Non-GAAP Operating Margin	(20.9)		%	2.4		%	(13.1)		%	3.6		%	Non-GAAP Operating Margin	(38.8)		%	(6.3)		%

Total robot units shipped (in thousands)	Total robot units shipped (in thousands)	865			1,314			1,839			2,402			Total robot units shipped (in thousands)	436			974
Average gross selling prices for robot units	Average gross selling prices for robot units	$	331		$	325		$	332		$	322		Average gross selling prices for robot units	$	402		$	333

Our non-GAAP financial measures reflect adjustments based on the following items. 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.~~combinations as well as any non-cash impairment charges associated with intangible assets in connection with our past acquisitions. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.

Net Merger, Acquisition and Divestiture (Income) Expense: Net merger, acquisition and divestiture (income) expense primarily consists of transaction fees, professional fees, and transition and integration costs directly associated with mergers, acquisitions and ~~divestitures.~~divestitures, including with respect to the Merger. It also includes business combination adjustments including adjustments after the measurement period has ended.

Stock-Based Compensation: Stock-based compensation is a non-cash charge relating to stock-based awards.

Tariff Refunds: Our Section 301 List 3 Tariff Exclusion was reinstated in March 2022, which temporarily eliminates tariffs on our Roomba products imported from China beginning on October 12, 2021 until December 31, 2022. This temporary exclusion, which was subsequently extended until September 30, 2023, entitles us to a refund of all related tariffs previously paid since October 12, 2021. We exclude the refunds for tariff costs expensed during fiscal 2021 from our ~~fiscal~~ 2022 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the past have no impact to our current period earnings.

IP Litigation Expense, Net: IP litigation expense, net relates to legal costs incurred to litigate patent, trademark, copyright and 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.

Restructuring and Other: Restructuring charges are related to one-time actions associated with realigning resources, enhancing operational productivity and efficiency, or improving our cost structure in support of our strategy. Such actions are not reflective of ongoing operations and include costs primarily associated with severance costs, certain professional fees, costs associated with consolidation of facilities, warehouses and any other leased properties, and other non-recurring costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.

Gain/Loss on Strategic Investments: Gain/loss on strategic investments includes fair value adjustments, realized gains and losses on the sales of these investments and losses on the impairment of these investments.

Income tax adjustments: Income tax adjustments 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 have eliminated the effect of the valuation allowance recorded in the 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.

We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and 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.

The following table reconciles gross profit, operating ~~(loss) income,~~loss, net ~~(loss) income~~loss and net ~~(loss) income~~loss per share on a GAAP and non-GAAP basis for the three ~~and six~~ months ended ~~July~~April 1, 2023 and April 2, ~~2022 and July 3, 2021:~~2022:


		Three Months Ended						Six Months Ended							Three Months Ended
		July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021				April 1, 2023			April 2, 2022
		(in thousands, except per share amounts)													(in thousands, except per share amounts)

GAAP Gross Profit	GAAP Gross Profit	$	80,945		$	138,976		$	188,460		$	261,920		GAAP Gross Profit	$	36,551		$	107,515
Amortization of acquired intangible assets	Amortization of acquired intangible assets	875			225			1,696			450			Amortization of acquired intangible assets	282			821
Stock-based compensation	Stock-based compensation	585			283			1,026			646			Stock-based compensation	586			441
Net merger, acquisition and divestiture expense														Net merger, acquisition and divestiture expense	321			—
Tariff refunds	Tariff refunds	—			—			(11,727)			—			Tariff refunds	—			(11,727)
Restructuring and other	Restructuring and other	483			—			$	4,021		$	—		Restructuring and other	191			3,538
Non-GAAP Gross Profit	Non-GAAP Gross Profit	$	82,888		$	139,484		$	183,476		$	263,016		Non-GAAP Gross Profit	$	37,931		$	100,588
Non-GAAP Gross Margin	Non-GAAP Gross Margin	32.5		%	38.2		%	33.5		%	39.3		%	Non-GAAP Gross Margin	23.7		%	34.5		%

GAAP Operating (Loss) Income		$	(63,914)		$	(3,042)		$	(87,201)		$	3,347
GAAP Operating Loss														GAAP Operating Loss	$	(81,297)		$	(23,287)
Amortization of acquired intangible assets	Amortization of acquired intangible assets	1,400			430			2,731			859			Amortization of acquired intangible assets	460			1,331
Stock-based compensation	Stock-based compensation	8,023			7,340			15,231			14,122			Stock-based compensation	7,932			7,208
Tariff refunds	Tariff refunds	—			—			(11,727)			—			Tariff refunds	—			(11,727)
Net merger, acquisition and divestiture expense	Net merger, acquisition and divestiture expense	171			640			280			640			Net merger, acquisition and divestiture expense	6,784			109
IP litigation expense, net	IP litigation expense, net	435			3,583			3,922			4,724			IP litigation expense, net	91			3,487
Restructuring and other	Restructuring and other	585			—			4,948			213			Restructuring and other	3,806			4,363
Non-GAAP Operating (Loss) Income		$	(53,300)		$	8,951		$	(71,816)		$	23,905
Non-GAAP Operating Loss														Non-GAAP Operating Loss	$	(62,224)		$	(18,516)
Non-GAAP Operating Margin	Non-GAAP Operating Margin	(20.9)		%	2.4		%	(13.1)		%	3.6		%	Non-GAAP Operating Margin	(38.8)		%	(6.3)		%

GAAP Net (Loss) Income		$	(43,421)		$	(2,758)		$	(73,827)		$	4,685
GAAP Net Loss														GAAP Net Loss	$	(81,112)		$	(30,406)
Amortization of acquired intangible assets	Amortization of acquired intangible assets	1,400			430			2,731			859			Amortization of acquired intangible assets	460			1,331
Stock-based compensation	Stock-based compensation	8,023			7,340			15,231			14,122			Stock-based compensation	7,932			7,208
Tariff refunds	Tariff refunds	—			—			(11,727)			—			Tariff refunds	—			(11,727)
Net merger, acquisition and divestiture expense	Net merger, acquisition and divestiture expense	171			640			280			640			Net merger, acquisition and divestiture expense	6,784			109
IP litigation expense, net	IP litigation expense, net	435			3,583			3,922			4,724			IP litigation expense, net	91			3,487
Restructuring and other	Restructuring and other	585			—			4,948			213			Restructuring and other	3,806			4,363
Loss on strategic investments	Loss on strategic investments	1,979			250			18,814			212			Loss on strategic investments	—			16,835
Income tax effect	Income tax effect	21,350			(1,632)			12,165			(5,683)			Income tax effect	16,248			(9,185)
Non-GAAP Net (Loss) Income		$	(9,478)		$	7,853		$	(27,463)		$	19,772
Non-GAAP Net Loss														Non-GAAP Net Loss	$	(45,791)		$	(17,985)

GAAP Net (Loss) Income Per Diluted Share		$	(1.60)		$	(0.10)		$	(2.72)		$	0.16
GAAP Net Loss Per Diluted Share														GAAP Net Loss Per Diluted Share	$	(2.95)		$	(1.12)
Dilutive effect of non-GAAP adjustments	Dilutive effect of non-GAAP adjustments	1.25			0.37			1.71			0.52			Dilutive effect of non-GAAP adjustments	1.28			0.46
Non-GAAP Net (Loss) Income Per Diluted Share		$	(0.35)		$	0.27		$	(1.01)		$	0.68
Non-GAAP Net Loss Per Diluted Share														Non-GAAP Net Loss Per Diluted Share	$	(1.67)		$	(0.66)

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,

revenue, expenses and related disclosures. Our estimates and assumptions are based on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results and outcomes may differ from our estimates and assumptions.

The critical accounting policies affected most significantly by estimates and assumptions used in the preparation of our consolidated financial statements are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022, filed with the Securities and Exchange Commission on February ~~15, 2022.~~14, 2023. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements. There have been no material changes in these critical accounting policies and estimates.

Overview of Results of Operations

The following table sets forth our results of operations as a percentage of revenue:


		Three Months Ended				Six Months Ended					Three Months Ended
		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021			April 1, 2023		April 2, 2022
Revenue	Revenue	100.0	%	100.0	%	100.0	%	100.0	%	Revenue	100.0	%	100.0	%
Cost of revenue:	Cost of revenue:									Cost of revenue:
Cost of product revenue	Cost of product revenue	68.0		61.9		65.3		60.7		Cost of product revenue	77.0		62.9
Amortization of acquired intangible assets	Amortization of acquired intangible assets	0.3		0.1		0.3		0.1		Amortization of acquired intangible assets	0.2		0.3
Total cost of revenue	Total cost of revenue	68.3		62.0		65.6		60.8		Total cost of revenue	77.2		63.2
Gross profit	Gross profit	31.7		38.0		34.4		39.2		Gross profit	22.8		36.8
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	16.4		10.6		15.4		12.0		Research and development	26.2		14.6
Selling and marketing	Selling and marketing	29.8		20.9		25.0		19.1		Selling and marketing	27.9		20.9
General and administrative	General and administrative	10.3		7.2		9.7		7.5		General and administrative	19.3		9.1
Amortization of acquired intangible assets	Amortization of acquired intangible assets	0.2		0.1		0.2		0.1		Amortization of acquired intangible assets	0.1		0.2
Total operating expenses	Total operating expenses	56.7		38.8		50.3		38.7		Total operating expenses	73.5		44.8
Operating (loss) income		(25.0)		(0.8)		(15.9)		0.5
Operating loss										Operating loss	(50.7)		(8.0)
Other expense, net	Other expense, net	(0.9)		(0.1)		(3.5)		(0.1)		Other expense, net	(0.7)		(5.7)
(Loss) income before income taxes		(25.9)		(0.9)		(19.4)		0.4
Loss before income taxes										Loss before income taxes	(51.4)		(13.7)
Income tax benefit	Income tax benefit	(8.9)		(0.1)		(5.9)		(0.3)		Income tax benefit	(0.8)		(3.3)
Net (loss) income		(17.0)	%	(0.8)	%	(13.5)	%	0.7	%
Net loss										Net loss	(50.6)	%	(10.4)	%

Comparison of Three ~~and Six~~ Months Ended ~~July~~April 1, 2023 and April 2, 2022 ~~and July 3, 2021~~

Revenue

Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 Dollar
Change Percent
Change July 2, 2022 July 3, 2021 Dollar
Change Percent
Change
(Dollars in thousands) (Dollars in thousands)
Revenue $ 255,351 $ 365,596 $ (110,245) (30.2) % $ 547,320 $ 668,857 $ (121,537) (18.2) %


	Three Months Ended
	April 1, 2023		April 2, 2022		Dollar Change		Percent Change
			(Dollars in thousands)
Revenue	$	160,292	$	291,969	$	(131,677)	(45.1)	%

Revenue for the three months ended ~~July 2, 2022~~April 1, 2023 decreased ~~$110.2~~$131.7 million to ~~$255.4~~$160.3 million, or ~~30.2%~~45.1%, from ~~$365.6~~$292.0 million for the three months ended ~~July 3, 2021.~~April 2, 2022. Geographically, in the three months ended ~~July 2, 2022,~~April 1, 2023, domestic revenue decreased ~~$57.4~~$81.2 million, or ~~29.2%~~53.0%, and international revenue decreased ~~$52.8~~$50.5 million, or ~~31.3%~~36.4%, which ~~primarily~~ reflected ~~a 38.9% decrease~~decreases of 34.9% in ~~EMEA. These decreases were due to ongoing order softness from distributors~~Japan and 28.9% in EMEA, ~~and the timing of expected orders that had shifted to the second half of 2022, compounded by unanticipated order reductions, delays and cancellations from retailers in North America and EMEA.~~respectively. The decrease in revenue also reflected a ~~34.2%~~55.2% decrease in total robots shipped, ~~slightly~~ offset by a ~~1.8%~~20.7% increase in gross average selling price for the three months ended ~~July 2, 2022,~~April 1, 2023, compared to the three months ended ~~July 3, 2021.~~April 2, 2022. The decrease in revenue and robots shipped during the first quarter of 2023 was impacted by a scheduled shift of certain orders with a customer which occurred in the first quarter of 2022 and are scheduled to ship in the second quarter of 2023 for their annual promotional event. In addition, our revenue was impacted by lower orders from retailers and distributors largely resulting from a decline in consumer sentiment, and resultant spending, driven by high inflation, rising interest rates, rising energy costs, the potential recessionary outlook and geopolitical instability, which was exacerbated by the Russia-Ukraine war.

2324

Revenue for the six months ended July 2, 2022 decreased $121.5 million to $547,320, or 18.2% from $668.9 million for the six months ended July 3, 2021. Geographically, in the six months ended July 2, 2022, international revenue decreased $102.5 million, or 28.7%, which primarily reflected a 41.5% decrease in EMEA, and domestic revenue decreased $19.0 million, or 6.1%. Whereas revenue for the first six months of 2021 benefited from stronger pandemic-driven consumer demand and a relatively unconstrained supply chain environment, revenue for the first six months of 2022 was impacted by order softness from distributors in EMEA and the timing of expected orders that had shifted to the second half of 2022, compounded by unanticipated order reductions, delays and cancellations from retailers in North America and EMEA. These decreases in revenue reflected a 23.4% decrease in total robots shipped, slightly offset by a 3.1% increase in gross average selling price for the six months ended July 2, 2022, compared to the six months ended July 3, 2021.

Cost of Product Revenue


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Cost of product revenue	Cost of product revenue	$	173,531		$	226,395		$	(52,864)	(23.4)	%	$	357,164		$	406,487		$	(49,323)	(12.1)	%	Cost of product revenue	$	123,459		$	183,633		$	(60,174)	(32.8)	%
As a percentage of revenue	As a percentage of revenue	68.0		%	61.9		%					65.3		%	60.7		%					As a percentage of revenue	77.0		%	62.9		%

Cost of product revenue decreased to ~~$173.5~~$123.5 million in the three months ended ~~July 2, 2022,~~April 1, 2023, compared to ~~$226.4~~$183.6 million in the three months ended ~~July 3, 2021.~~April 2, 2022. The decrease in cost was primarily driven by the 30.2% decrease in revenue. In addition, we benefited from lower tariff cost of $0.5 million during the three months ended July 2, 2022, compared to $11.6 million in tariff cost during the same period last year. These decreases were offset by higher supply chain costs continuing from the second half of fiscal 2021.

Cost of product revenue decreased to $357.2 million in the six months ended July 2, 2022, compared to $406.5 million in the six months ended July 3, 2021. The decrease in cost was primarily driven by the 18.2%45.1% decrease in revenue, ~~lower Section 301 tariff expense and lower warranty costs during~~offset by the six months ended July 2, 2022 compared to the six months ended July 3, 2021. 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 ~~six~~three months ended July 2, 2022, compared to $15.0 million in tariff expense during the six months ended July 3, 2021. The decrease was offset by higher supply chain cost continuing from the second half of fiscal 2021 and a one-time action associated with the consolidation of warehouses of $4.0 million in the U.S during the six months ended JulyApril 2, 2022.

Gross Profit


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Gross profit	Gross profit	$	80,945		$	138,976		$	(58,031)	(41.8)	%	$	188,460		$	261,920		$	(73,460)	(28.0)	%	Gross profit	$	36,551		$	107,515		$	(70,964)	(66.0)	%
Gross margin	Gross margin	31.7		%	38.0		%					34.4		%	39.2		%					Gross margin	22.8		%	36.8		%

Gross margin decreased to ~~31.7%~~22.8% in the three months ended ~~July 2, 2022,~~April 1, 2023, compared to ~~38.0%~~36.8% in the three months ended ~~July 3, 2021.~~April 2, 2022. Gross margin decreased ~~6.3%~~14.0 percentage points driven by ~~changes in~~lower leverage on our fixed costs, increased pricing and promotion ~~higher supply chain cost continuing from the second half of fiscal 2021, as well as unfavorable changes in foreign exchange rates~~costs, and the ~~impact of lower revenue on our fixed costs.~~$11.7 million recognized benefit from tariff refunds during the three months ended April 2, 2022. The decrease is offset by ~~lower tariff cost as we were granted temporary exclusion~~favorable impact from ~~Section 301 List 3 which eliminates~~improved channel mix to our direct-to-consumer channel during the ~~25% tariffs on Roomba products imported from China as previously described, as well as lower warranty expense. We~~three months ended April 1, 2023.We expect gross margin pressure towill continue over the ~~next two quarters, but~~coming quarters. Although we have taken a wide range of actions to ~~improve by next year~~drive gross margin improvement through a multitude of product cost optimization, manufacturing and supply chain initiatives that have been implemented over the past few ~~quarters.~~

~~Gross~~quarters, our ability to deliver sustainable gross margin decreased to 34.4% in the six months ended July 2, 2022, compared to 39.2% in the six months ended July 3, 2021. Gross margin decreased 4.8% driven by changes in pricing and promotional activity, higher supply chain cost continuing from the second half of fiscal 2021, changes in foreign exchange rates and the impact of lower revenueimprovement will largely depend on our fixed costs. The decrease is offset by lower 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, and lower warranty expense. In addition, gross margin was favorably impacted from $11.7 million recognized as a benefit from tariff refunds during the first quarter of 2022 relatedability to ~~tariffs expensed in fiscal 2021.~~

drive revenue growth.

Research and Development


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Research and development	Research and development	$	41,937		$	38,677		$	3,260	8.4	%	$	84,466		$	80,597		$	3,869	4.8	%	Research and development	$	41,934		$	42,529		$	(595)	(1.4)	%
As a percentage of revenue	As a percentage of revenue	16.4		%	10.6		%					15.4		%	12.0		%					As a percentage of revenue	26.2		%	14.6		%

Research and development expenses ~~increased $3.3~~decreased $0.6 million, or ~~8.4%~~1.4%, to $41.9 million ~~(16.4%~~(26.2% of revenue) in the three months ended ~~July 2, 2022~~April 1, 2023 from ~~$38.7~~$42.5 million ~~(10.6%~~(14.6% of revenue) in the three months ended ~~July 3, 2021.~~April 2, 2022. This ~~increase~~decrease was primarily due to a ~~$2.6~~$3.1 million ~~increase~~decrease in people-related costs associated with ~~additional headcount.~~

~~Research and development expenses increased $3.9 million, or 4.8%, to $84.5 million (15.4% of revenue) in~~lower headcount during the ~~six~~three months ended ~~July 2, 2022 from $80.6 million (12.0% of revenue) in the six months ended July 3, 2021. This increase was primarily due to a $5.0~~April 1, 2023, offset by $1.7 million increase in ~~people-related~~short-term incentive compensation costs and $0.7 million increase in severance-related costs associated with ~~additional headcount, offset by a $1.4 million decrease in program-related costs, and a $1.0 million decrease in incentive compensation costs.~~restructuring activities.

Selling and Marketing


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Selling and marketing	Selling and marketing	$	76,017		$	76,677		$	(660)	(0.9)	%	$	137,082		$	127,668		$	9,414	7.4	%	Selling and marketing	$	44,765		$	61,065		$	(16,300)	(26.7)	%
As a percentage of revenue	As a percentage of revenue	29.8		%	20.9		%					25.0		%	19.1		%					As a percentage of revenue	27.9		%	20.9		%

Selling and marketing expenses decreased ~~$0.7~~$16.3 million, or ~~0.9%~~26.7%, to ~~$76.0~~$44.8 million ~~(29.8%~~(27.9% of revenue) in the three months ended ~~July 2, 2022~~April 1, 2023 from ~~$76.7~~$61.1 million (20.9% of revenue) in the three months ended ~~July 3, 2021.~~April 2, 2022. This decrease was primarily attributable to ~~lower marketing spend of~~scaled back working media and other demand-generation activities totaling approximately $12.0 million as well as a $3.9 million ~~associated with decreased use of working media, offset by a $2.6 million increase~~decrease in people-related costs associated with ~~additional headcount.~~

Selling and marketing expenses increased $9.4 million, or 7.4%, to $137.1 million (25.0% of revenue) in the six months ended July 3, 2021 from $127.7 million (19.1% of revenue) in the six months ended July 3, 2021. This increase was primarily driven by a $4.6 million increase in people-related costs associated with additionallower headcount ~~and higher marketing spend of $3.1 million associated with increased use of working media~~ during the first quarter of 2022. In addition, the increase was also attributable to a $1.2 million increase in technology related costs including cloud service and maintenance and support fees as we continue to invest in our digital marketing and e-commerce capabilities.

~~General and Administrative~~

Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 Dollar
Change Percent
Change July 2, 2022 July 3, 2021 Dollar
Change Percent
Change
(Dollars in thousands) (Dollars in thousands)
General and administrative $ 26,380 $ 26,459 $ (79) (0.3) % $ 53,078 $ 49,899 $ 3,179 6.4 %
As a percentage of revenue 10.3 % 7.2 % 9.7 % 7.5 %

~~General and administrative expenses of $26.4 million (10.3% of revenue) in the~~ three months ended July 2, 2022, remained relatively flat compared to $26.5 million (7.2% of revenue) in the three months ended July 3, 2021. During the three months ended July 2, 2022, legal fees decreased $3.1 million driven by lower intellectual property litigation cost, offset by increases of $2.0 million related to the allowance for credit losses and $0.8 million associated with people-related costs.

General and administrative expenses increased $3.2 million, or 6.4%, to $53.1 million (9.7% of revenue) in the six months ended July 2, 2022 from $49.9 million (7.5% of revenue) in the six months ended July 3, 2021. This increase was primarily attributable to increases of $3.6 million related to the allowance for credit losses and $1.7 million of enterprise software

~~maintenance, support and services cost. These increases were~~ended April 1, 2023. The decrease was slightly offset by a $1.5 million increase in severance-related costs associated with restructuring activities.

General and Administrative


	Three Months Ended
	April 1, 2023			April 2, 2022			Dollar Change		Percent Change
	(Dollars in thousands)
General and administrative	$	30,971		$	26,698		$	4,273	16.0	%
As a percentage of revenue	19.3		%	9.1		%

General and administrative expenses increased $4.3 million, or 16.0%, to $31.0 million (19.3% of revenue) in the three months ended April 1, 2023, from $26.7 million (9.1% of revenue) in the three months ended April 2, 2022. This increase was primarily driven by a $5.1 million increase in acquisition-related costs, including retention bonuses and legal fees, associated with the pending Merger, $1.3 million increase in short-term incentive compensation costs and $0.5 million increase in severance-related costs associated with restructuring activities. The increase was offset by a $2.8 million decrease in legal fees ~~of $1.5 million~~ driven by lower intellectual property litigation ~~costs.~~costs during the three months ended April 1, 2023.

Amortization of Acquired Intangible Assets


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Cost of revenue	Cost of revenue	$	875		$	225		$	650	288.9	%	$	1,696		$	450		$	1,246	276.9	%	Cost of revenue	$	282		$	821		$	(539)	(65.7)	%
Operating expense	Operating expense	525			205			320		156.1	%	1,035			409			626		153.1	%	Operating expense	178			510			(332)		(65.1)	%
Total amortization expense	Total amortization expense	$	1,400		$	430		$	970	225.6	%	$	2,731		$	859		$	1,872	217.9	%	Total amortization expense	$	460		$	1,331		$	(871)	(65.4)	%
As a percentage of revenue	As a percentage of revenue	0.5		%	0.1		%					0.5		%	0.1		%					As a percentage of revenue	0.3		%	0.5		%

The ~~increase~~decrease in amortization of acquired intangible assets in the three ~~and six~~ months ended ~~July 2, 2022~~April 1, 2023 as compared to the three ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, was primarily related to ~~the~~ acquired intangible assets ~~as part of the acquisition of Aeris Cleantec AG~~impaired in the ~~fourth~~third quarter of ~~2021.~~2022, resulting in lower amortization expense during the three months ended April 1, 2023.

Other Expense, Net


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Other expense, net	Other expense, net	$	(2,182)		$	(286)		$	(1,896)	662.9	%	$	(18,928)		$	(446)		$	(18,482)	4,143.9	%	Other expense, net	$	(1,077)		$	(16,746)		$	15,669	(93.6)	%
As a percentage of revenue	As a percentage of revenue	(0.9)		%	(0.1)		%					(3.5)		%	(0.1)		%					As a percentage of revenue	(0.7)		%	(5.7)		%

Other expense, net during the three months ended ~~July~~April 2, 2022 was ~~primarily driven by losses on strategic investments. Other expense, net during the six months ended July 2, 2022, primarily consists of a~~attributable to realized loss of ~~$17.1~~$16.8 million associated with the sale of ~~Matterport shares.~~a strategic investment. Other expense, net includes interest income, interest expense, foreign currency gains (losses) as well as gains (losses) from strategic investments.

Income Tax Benefit


		Three Months Ended										Six Months Ended											Three Months Ended
		July 2, 2022			July 3, 2021			Dollar Change		Percent Change		July 2, 2022			July 3, 2021			Dollar Change		Percent Change			April 1, 2023			April 2, 2022			Dollar Change		Percent Change
		(Dollars in thousands)										(Dollars in thousands)											(Dollars in thousands)
Income tax benefit	Income tax benefit	$	(22,675)		$	(570)		$	(22,105)	3,878.1	%	$	(32,302)		$	(1,784)		$	(30,518)	1,710.7	%	Income tax benefit	$	(1,262)		$	(9,627)		$	8,365	(86.9)	%
Effective income tax rate	Effective income tax rate	34.3		%	17.1		%					30.4		%	(61.5)		%					Effective income tax rate	1.5		%	24.0		%

We recorded an income tax benefit of ~~$22.7~~$1.3 million and ~~$0.6~~$9.6 million for the three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ respectively. The ~~$22.7~~$1.3 million income tax benefit for the three months ended ~~July 2, 2022~~April 1, 2023 resulted in an effective income tax rate of ~~34.3%~~1.5%. The ~~$0.6~~$9.6 million income tax benefit for the three months ended July 3, 2021 resulted in an effective income tax rate of 17.1%. The increase in the effective income tax rate was primarily driven by the change in expected mix of geographic earnings and tax attributes during the three months ended July 2, 2022 as well as discrete tax expense recognized in the three months ended July 3, 2021.

Our 34.3% effective rate of income tax for the three months ended July 2, 2022 was higher than the federal statutory tax rate of 21% primarily because of the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.

We recorded an income tax benefit of $32.3 million and $1.8 million for the six months ended July 2, 2022 and July 3, 2021, respectively. The $32.3 million income tax benefit for the six months ended JulyApril 2, 2022 resulted in an effective ~~tax rate of 30.4%. The $1.8 million income tax benefit for the six months ended July 3, 2021 resulted in an effective tax rate of (61.5)%.~~

~~The change in~~income tax rate of 24.0%. For the three months ended April 1, 2023, the effective income tax rate included the impact of full valuation allowance against our U.S. net deferred tax assets which was ~~primarily due to the recognition of discrete tax benefits related to stock-based compensation~~initially established during the ~~six months period ended July 3, 2021 compared to a discrete tax expense during the current year.~~

~~The Company's effective income tax rate~~third quarter of 30.4% for the six months ended July 2, 2022 differed from the federal statutory tax rate of 21% primarily due to the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.2022.

Liquidity and Capital Resources

At ~~July 2, 2022,~~April 1, 2023, our ~~principal sources of liquidity were~~ cash and cash equivalents ~~totaling $63.4 million.~~were $47.9 million and we had $27.0 million of outstanding borrowings under our $100.0 million secured revolving line of credit which expires in September 2024. Our working capital, which represents our total current assets less total current liabilities, was ~~$327.7~~$150.2 million as of ~~July 2, 2022,~~April 1, 2023, compared to ~~$393.9~~$232.1 million as of ~~January 1,~~December 31, 2022. Cash and cash equivalents held by our foreign subsidiaries totaled ~~$22.6~~$14.1 million as of ~~July 2, 2022. We expect the cash held overseas to be~~April 1, 2023. The undistributed earnings of our foreign subsidiaries remain permanently reinvested outside of the United States ~~and~~as of April 1, 2023. We believe our ~~U.S. operation to be funded through its own~~existing cash balance, expected future operating cash flows ~~cash,~~ and ~~if necessary, through borrowing under~~our credit facility will be sufficient to meet our working capital ~~credit facility.~~and capital expenditure needs for at least the next 12 months. See more detailed discussion below.

On August 4, 2022, we entered into the Merger Agreement with Amazon and Merger Sub, providing for the acquisition of iRobot by Amazon. We have agreed to various covenants and agreements, including, among others, agreements to conduct our business in the ordinary course of business between the execution of the Merger Agreement and the closing of the Merger. Outside of certain limited exceptions, we may not take certain actions without Amazon’s consent, including (i) acquiring businesses and disposing of significant assets, (ii) incurring expenditures above specified thresholds; (iii) incurring additional debt above specified thresholds, (iv) issuing additional securities, or (v) repurchasing shares of our outstanding common stock. We do not believe these restrictions will prevent us from meeting our ongoing costs of operations, working capital needs or capital expenditure requirements.

We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We believe 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, 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, business applications software and computer and equipment. During the ~~six~~three months ended ~~July~~April 1, 2023 and April 2, 2022, ~~and July 3, 2021,~~ we spent ~~$4.9~~$1.5 million and ~~$21.9~~$3.1 million, respectively, on capital 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 our customers or, alternatively, allows our distributors and certain retail customers to take possession of product on a domestic basis. Accordingly, our 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 components required for the production of our products, and they typically invoice us when the finished goods are shipped.

Cash used in operating activities

Net cash used in operating activities for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 was ~~$186.5~~$94.5 million, of which the principal components were our net loss of $81.1 million and the cash outflow of ~~$133.8~~$26.0 million from change in working capital, ~~and our net loss of $73.8 million,~~ partially offset by non-cash charges of ~~$21.1~~$12.6 million. The change in working capital was driven by ~~decreases~~net cash outflow of $109.9 million in accounts payable, ~~and accrued liabilities of $102.1 million and increases in inventory and other assets of $70.4 million and $31.7 million, respectively. This was~~ partially offset by anet cash inflow of $52.9 million from inventory and $37.1 million from accounts receivable. The decrease in ~~accounts receivable~~inventory was primarily due to temporarily reduced production during the first quarter of ~~$70.4 million.~~2023 and the use of our on-hand inventory to fulfill first-quarter 2023 orders.

Cash ~~provided by~~used in investing activities

Net cash ~~provided by~~used in investing activities for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 was ~~$9.4 million. During the six months ended July 2, 2022, we received $17.4~~$1.5 million, ~~from the sales and maturities of our investments while we paid $3.1 million for the purchases of investments. We invested $4.9 million in~~primarily related to the purchase of ~~property and equipment, primarily related to~~ machinery and tooling for new products.

Cash provided by financing activities

Net cash provided by financing activities for the ~~six~~three months ended ~~July 2, 2022~~April 1, 2023 was ~~$36.5~~$25.4 million. During the ~~six~~three months ended ~~July 2, 2022,~~April 1, 2023, we ~~received $35.0 million~~drew from ~~borrowings under the~~our secured revolving credit ~~facility. We also received $3.1~~facility with net proceeds of $27.0 million ~~from employee stock plans~~ and paid $1.6 million upon vesting of restricted stock where ~~27,064~~36,700 shares were retained by us to cover employee tax withholdings.

Working Capital Facilities

Credit Facility

As of April 1, 2023, we had a $100.0 million secured revolving line of credit which expires in September 2024. On January 17, 2023, we entered into a Fourth Amendment to the Credit Agreement with Bank of America N.A., which reduced the amount of the facility from $150.0 million to $100.0 million and increased the interest rate of (1) Term SOFR Loans to

~~Working Capital Facilities~~

~~Credit Facility~~

~~We currently have a $150.0 million unsecured revolving line of credit which expires in June 2023. As of July 2, 2022, we had $35.0 million outstanding borrowings under our revolving credit facility.~~

~~The credit facility contains customary terms~~4.50%, (2) Base Rate Loans to 3.50%, and conditions for credit facilities of this type, including restrictions on our ability to incur or 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.

The 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.

On May 4, 2022, we entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of America N.A. (the "Amendment") with an effective date of March 31, 2022. The Amendment waives the quarterly tested leverage and interest coverage covenants(3) unused Commitments (as defined in the Credit ~~Agreement~~Agreement) to 3.50%. In addition, the Fourth Amendment established a borrowing base for the ~~first, second~~revolving facility equal to the total of 80% of eligible receivables, 50% of eligible inventory, and ~~third quarters~~upon the satisfaction of ~~2022. The interest coverage ratio calculation for~~certain conditions, up to 30% of eligible in-transit inventory, all subject to any applicable reserves. Additionally, the ~~fourth quarter~~Fourth Amendment requires us to maintain $25.0 million of ~~2022 was changed to a trailing nine months. Additionally, a new liquidity covenant was added for~~cash in the ~~remainder of 2022. The Amendment also increases~~U.S. at all times, which is tested monthly, and replaced the requirement that the borrowing ~~rate~~ under the Credit Agreement be under $75.0 million (1) on December 30, 2022 and (2) for ~~2022~~ten consecutive days during the first quarter in 2023 with a requirement that the borrowing under the Credit Agreement be $25.0 million or less (1) on December 29, 2023 and (2) for thirty consecutive days between January 17, 2023 and September 17, 2024. The Fourth Amendment also extended the maturity date of the Credit Agreement from June 30, 2023 to ~~LIBOR plus 1.5%.~~ September 17, 2024, and continues to be secured by substantially all of our U.S. assets.

As of ~~July 2, 2022,~~April 1, 2023, we had outstanding borrowings of $27.0 million under the revolving credit facility, with $73.0 million available for borrowing. As of April 1, 2023, we were in compliance with the covenants under the Credit Agreement.

Lines of Credit

We have an unsecured letter of credit 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 ~~July 2, 2022,~~April 1, 2023, 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 ~~July 2, 2022,~~April 1, 2023, we had no outstanding balance under the guarantee line of credit.

~~Working Capital and Capital Expenditure Needs~~Liquidity

We ~~currently~~ have ~~no material~~a long history of profitable operations, positive operating cash ~~commitments, except~~flows and substantial liquidity that was further strengthened during the first year of the COVID-19 pandemic as consumer demand for ~~normal recurring trade payables, expense accruals, capital expenditures~~our products increased considerably. For the three months ended April 1, 2023, our revenue declined 45% from the three months ended April 2, 2022, due in part to a scheduled shift of certain orders with a customer which occurred in the first quarter of 2022 and are scheduled to ship in the second quarter of 2023 for their annual promotional event. In addition, revenue was impacted by lower orders from retailers and distributors largely resulting from a decline in consumer sentiment, and resultant spending, driven by high inflation, rising interest rates, rising energy costs, the potential recessionary outlook and geopolitical instability, which was exacerbated by the Russia-Ukraine war. The lower revenue has resulted in operating losses of $81.3 million and operating ~~leases, all~~cash outflows of ~~which we anticipate funding through existing~~$94.5 million for the three months ended April 1, 2023. As a result, our cash and cash equivalents have declined from $117.9 million as ~~well~~of December 31, 2022 to $47.9 million as ~~through~~of April 1, 2023.

As of April 1, 2023, we had $27.0 million in outstanding borrowings from our $100.0 million revolving line of credit ~~facility.~~ which expires on September 17, 2024.

We ~~believe~~have considered and assessed our ~~outsourced approach~~ability to ~~manufacturing provides us~~continue as a going concern for the one year from the date that the unaudited consolidated financial statements are issued. Our assessment included the preparation of cash flow forecasts taking into account actions already implemented. We considered additional actions within our control that we would implement, if necessary, to maintain liquidity and operations in the ordinary course. We have already undertaken the following actions to improve profitability and operating cash flows and align the organization to the lower revenue level:

•In August 2022, we initiated a restructuring of our operations designed to better realign our cost structure with ~~flexibility~~near-term revenue and cash flow generation, advance key strategic priorities, increase efficiencies and improve our profitability going forward. As part of the August 2022 Restructuring Plan, we reduced our workforce and terminated approximately 100 employees, which represented 8% of our workforce and eliminated a number of open positions entering the third quarter of 2022. As a follow-on action to our August 2022 Restructuring Plan and in ~~both managing inventory levels~~anticipation that market conditions will remain challenging in 2023, we initiated a new restructuring program at the beginning of February 2023 and ~~financing~~reduced our ~~inventory.~~workforce by approximately 85 employees, which represented 7% of the Company's global workforce as of December 31, 2022. In addition to the reduction in force, our 2023 operating plan incorporates scaled back working media and other demand-generation activities, limited investment in non-robotic product categories and minimal new hiring plans in 2023. At April 1, 2023, we had 1,156 employees, a total reduction of 216 employees since the end of fiscal 2021. In addition to the reduction of our headcount, we signed a sublease agreement for a portion of our headquarters during the fourth quarter of fiscal 2022 and plans to further consolidate our global facilities footprint during fiscal 2023. We ~~believe~~currently anticipate that our ~~existing~~August 2022 and February 2023 restructuring actions will deliver net cost savings of approximately $42.0 million in 2023, including actions associated with the facilities consolidation.

•Inventory has consumed a significant amount of cash and ~~cash equivalents~~we continue to manage our inventory level carefully. As of April 1, 2023, the inventory balance was $229.7 million, or 169 days, a reduction of $55.6 million, from the end of fiscal 2022. In 2023, we will continue to manage our inventory to a level that aligns with current run rates of the business. As such, we temporarily reduced robot production during the first quarter of 2023 from our contract manufacturing partners in China and ~~funds available through our credit facility~~Malaysia and began increasing production in April 2023.

While we estimate such actions will be sufficient to ~~meet~~allow us to maintain liquidity and our ~~working capital and capital expenditure needs over~~operations in the ordinary course for at least 12 months from the ~~next twelve months. In~~issuance of these financial statements, there can be no assurance we will generate sufficient future cash flows from operations due to potential factors, including, but not limited to, further inflation, the ~~event~~continued rising interest rates, ongoing recessionary conditions or continued reduced demand for our ~~revenue plan does~~products. If we are not ~~meet~~successful in increasing demand for our ~~expectations,~~products, or if macroeconomic conditions further constrain consumer demand, we may ~~eliminate or curtail expenditures~~continue to experience adverse impacts to revenue and profitability. Additional actions within our control to maintain our liquidity and operations include optimizing our production volumes with contract manufacturers by reducing inventory supply forecast for cancellable purchase orders, further ~~to mitigate~~reducing discretionary spending in all areas of the ~~impact on our~~business, decreasing working ~~capital. We are optimistic~~media spending and realigning resources through ongoing attrition without rehiring activity. Should we require further funding in the future, there can be no assurance that ~~recent and anticipated drawdowns on our working capital credit facility~~we will be repaid through anticipated cash provided by operating activities over the coming quarters. 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 spendingable to support product development efforts, the timing of introductions of new products and enhancements to existing products, the acquisition of new capabilities or technologies, the continuing market acceptance of our products and 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 existing cash and cash equivalents, cash from operations, and cash from short-term borrowing are insufficient to fund our future activities, we may need to raiseobtain 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 availablefinancing on terms ~~favorable~~acceptable to us, or at all.

Contractual Obligations

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,~~December 31, 2022. Our principal commitments generally consist of obligations under our credit facility, leases for office space, inventory related purchase obligations, and minimum contractual obligations. Other obligations consist primarily of subscription services. There have been no material changes in our contractual obligations and commitments since ~~January 1,~~December 31, 2022.

As of ~~July 2, 2022,~~April 1, 2023, we had outstanding purchase orders aggregating ~~approximatel~~y ~~$368.8 million, $70.6 million of which are not cancellable without penalty.~~approximately $228.7 million. The purchase orders ~~the majority of which~~ are ~~with our contract manufacturers for~~typically related to marketing and media spend and the purchase of inventory in the normal course of ~~business,~~business. Included in these outstanding purchase orders is $82.5 million related to inventory purchases at our contract manufacturers, of which $43.1 million are not cancellable without penalty.

We utilize contract manufacturers to build our products and accessories. These contract manufacturers acquire components and build products based on a forecasted production plan, which typically covers a rolling 24-month period. If we cancel all or part of the orders, or materially reduce forecasted orders, in certain circumstances we may be liable to our contract manufacturers for ~~manufacturing~~the cost of the excess components purchased by our contract manufacturers. During the first quarter of 2023, we paid $3.9 million to our contract manufacturers for such liabilities and ~~non-manufacturing related goods and services.~~recorded as inventory components.

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

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Exchange Rate Sensitivity

Our international revenue and expenses are denominated in multiple currencies, including British Pounds, Canadian Dollars, Chinese Renminbi, Euros, Japanese Yen and 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 international revenue denominated in U.S. 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 contracts 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 sales in Euros and Japanese Yen. These contracts typically have maturities of ~~three~~1.5 years or less. At ~~July 2, 2022~~April 1, 2023 and ~~January 1,~~

December 31, 2022, we had outstanding cash flow hedges with a total notional value of ~~$509.2~~$181.7 million and ~~$423.3~~$362.9 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 twelve months or less. At ~~July 2, 2022~~April 1, 2023 and ~~January 1,~~December 31, 2022, we had outstanding economic hedges with a total notional value of ~~$305.2~~$124.9 million and ~~$325.4~~$242.0 million, respectively.

At ~~July 2, 2022,~~April 1, 2023, assuming all other variables are constant, if the U.S. Dollar weakened or strengthened by 10%, the fair market value of our foreign currency contracts would increase or decrease by approximately ~~$50.1~~$20.4 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 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

~~This information is included in Note 10, Commitments~~From time to time and ~~Contingencies,~~ in the ~~accompanying notes~~ordinary course of business, we are subject to ~~the unaudited~~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. SeeFootnote 1 0to our consolidated financial statements ~~and is incorporated herein by reference from Item 1~~for a description of ~~Part I.~~

certain of our legal proceedings.

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 ~~January 1,~~December 31, 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, as supplemented by the Risk Factors described in our Quarterly Report on Form 10-Q for the quarter ended April 2,~~December 31, 2022, other than as set forth below:

We face intense competition from other providers of robots, including diversified technology providers, as well as competition from providers offering alternative products, which could negatively impact our results of operations and cause our market share to decline.

A number of companies have developed or are developing robots that will compete directly with our product offerings. Our competition includes established, well-known sellers of floor cleaning robots such as Ecovacs, SharkNinja, Samsung, Roborock, as well as new market entrants. Many current and potential competitors are larger in size and more broadly diversified with substantially greater financial, marketing, research and manufacturing resources than we possess, and there can be no assurance that our current and future competitors will not be more successful than us. We also face competition from manufacturers of lower-cost devices, which has, and may continue to, further drive down the average selling price in the marketplace for floor cleaning products. Moreover, while we believe many of our customers purchase our floor vacuuming robots as a supplement to, rather than a replacement for, their traditional vacuum cleaners, we also compete with providers of traditional vacuum cleaners.

The global market for robots is highly competitive, rapidly evolving and subject to changing technologies, shifting customer needs and expectations and the likely increased introduction of new products. Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development, operating efficiency and customer support.

We expect that competition will continue to intensify as additional competitors enter the market and current competitors expand their product lines. Companies competing with us have, and may continue to, introduce products that are competitively priced, have increased performance or functionality, or incorporate technological advances that we have not yet developed or implemented. Increased competitive pressure has resulted and will continue to result in a loss of sales or market share or cause us to lower prices for our products, any of which would harm our business and operating results.

Many of our competitors have demonstrated an ability to rapidly replicate new features and innovations that we have introduced into the market, and therefore are able to offer a comparable suite of product offerings at lower prices or with additional functionality.For example, competitors in certain geographical regions have introduced products that include both vacuuming and mopping functionality (so called "2-in-1 robots"). These 2-in-1 robots have taken significant segment share in certain markets, including Europe and China, and we have not been able to effectively compete within this market segment.

In addition, some of our competitors aggressively discount their products and services in order to gain market share, which has resulted in pricing pressures, reduced profit margins and lost market share. In addition, new products may have lower selling prices or higher costs than legacy products, which could negatively impact our gross margins and operating results.

We cannot assure you that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering the markets in which we provide products. Our failure to compete successfully could cause our revenue and market share to decline, which would negatively impact our results of operations and financial condition.

~~If we do not effectively manage our inventory levels and product mix, we may incur costs associated with excess inventory~~.

If we are unable to ~~properly monitor~~attract and retain additional skilled personnel, we may be unable to grow our business.

To execute our growth plan, we must attract and retain additional, highly-qualified personnel. Competition for hiring these employees is intense, especially with regard to engineers with high levels of experience in designing, developing and integrating robots and engineers with expertise in artificial intelligence, machine learning, data science and cloud applications. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. If we fail to attract new technical personnel or fail to retain and motivate our current employees, our business and future growth prospects could be severely harmed.

In addition, we have experienced increased employee turnover as a result of general market conditions, the impact of reductions in force executed in August 2022 and February 2023, and the impact of uncertainties related to our proposed Merger with Amazon. Given the difficult market conditions, the steps we are taking to manage our ~~inventory~~costs and ~~maintain an appropriate level~~the ongoing uncertainty of the timing and ~~mix~~outcomes of ~~products~~the regulatory reviews required to complete our Merger with ~~our retail partners and distributors and within our sales channels,~~Amazon, we ~~may incur~~expect to continue to experience increased ~~and unexpected costs associated with this inventory, including additional costs of warehousing excess inventory and risks associated with excess inventory becoming unsellable.~~

We determine production levels based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which makes it difficult to forecast. We have experienced differences between our actual and our forecasted demand in the past and expect differences to ariseemployee turnover in the future. IfNew hires require significant training and, in most cases, take significant time before they achieve full productivity. New employees may not become as productive as we ~~improperly forecast demand for our products,~~expect, and we ~~could end up with too many products and~~may be unable to ~~sell the excess inventory in a timely manner, if at all. If these events occur,~~hire or retain significant numbers of qualified individuals. Moreover, we ~~could incur increased expenses associated with writing off excessive~~may be forced to adjust salaries or ~~obsolete inventory. Demand for our products~~other

compensation in order to retain key talent. If our retention efforts are not successful or our team member turnover rate continues to increase in the current fiscal year has turned out to be lower than we previously forecast, and therefore our excessive inventory has caused us to increase costs due to warehousing and increased the risk of additional costs for excess and obsolete inventory.

~~Risks related to the implementation of our workforce reduction and restructuring.~~

As described in this Quarterly Report on Form 10-Q, we are in the process of initiating an array of cost-control measures including accelerating actions to shift certain non-core engineering functions to lower-cost regions and increasingly leverage our joint design manufacturing (JDM) partners; better balancing global and regional commercial and marketing resources to support go-to-market plans while driving efficiencies and achieving economies of scale; realigning other operational areas to best support current needs of the business; and reducing our global facilities footprint. These actions are expected to include an overall reduction of approximately 140 employees, which represents 10% of our workforce as of July 2, 2022. In conjunction with the workforce reduction, we expect to record restructuring charges totaling between $5 million and $6 million over the next two quarters with the majority of the restructuring charges anticipated in the third quarter of 2022.

The process to undertake these restructuring initiatives could take more time and be more costly than anticipated. These restructuring initiatives could place substantial demands on our management, which could lead to the diversion of management’s attention from other business priorities. These initiatives could also lead to unanticipated work stoppages, low employee morale, decreased productivity, and a failure to deliver under existing commitments to third parties, which could harm our business. As a result of these or any other factors, we could fail to realize the anticipated benefits associated with the workforce reduction and restructuring initiatives, which could in turn materially harm our business, financial condition and operating results.

~~Risks Related to the Merger~~

~~The Merger, the pendency of the Merger or our failure to complete the Merger could have a material adverse effect on~~future, our business, results of operations and financial condition could be materially and ~~stock price.~~adversely affected.

Any efforts to expand our product offerings beyond our current markets or to develop new products may not succeed, which could negatively impact our operating results.

Efforts to expand our product offerings beyond our current markets are limited and those efforts may not succeed and may divert management resources from existing operations and require us to commit significant financial resources to an unproven business, either of which could significantly impair our operating results. Any new product that we develop may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the market acceptance necessary to generate sufficient revenue. Moreover, efforts to expand beyond our existing markets may never result in new products that achieve market acceptance, create additional revenue or become profitable.

On ~~August 4, 2022,~~November 15, 2021, we ~~entered into the Merger Agreement with Amazon~~acquired Aeris Cleantec AG, a provider of premium air purifiers. This acquisition represents our first major expansion of product offerings beyond consumer robotics. Air purifiers represent a new market segment for us and ~~Merger Sub, providing for the acquisition of iRobot by Amazon. Completion of the Merger~~ is subject to the satisfaction of various conditions, including (1) the adoption of the Merger Agreement by a majority of the holders of the outstanding shares of our common stock, (2) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain other approvals, clearances or expirations of waiting periods under other antitrust laws and foreign investment laws, (3) the absence of any order, injunction or law prohibiting the consummation of the Merger, (4) the accuracy of the other party’s representations and warranties, subject to certain materiality standards set forthintense competition.

Our success in the Merger Agreement, (5) compliance in all material respects with the other party’s obligations under the Merger Agreement, and (6) no Material Adverse Effect (as defined in the Merger Agreement) having occurred since the date of the Merger Agreement that is continuing. There is no assurance that all of the various conditionsair purifier market will ~~be satisfied, or that the Merger will be completed~~depend on ~~the proposed terms, within the expected timeframe, or at all. Furthermore, there are additional inherent risks in the Merger, including the risks detailed below.~~

During the period prior to the closing of the Merger, our business is exposed to certain inherent risks due to the effect of the announcement or pendency of the Merger on our business relationships, financial condition, operating results and business, including:

•~~potential uncertainty in the marketplace, which could lead current and prospective customers, retailers and distributors to purchase products from others or reduce, delay or cancel purchasing from us;~~

•~~the possibility of disruption to our business and operations, including diversion of management attention and resources;~~

•the inability to attract and retain key personnel, and the possibility that our current employees could be distracted, and their productivity decline as a result, due to uncertainty regarding the Merger;

•~~the inability to pursue alternative business opportunities or make changes to our business pending the completion of the Merger, and other restrictions on our ability to conduct our business;~~

•~~our inability to solicit other acquisition proposals during the pendency of the Merger;~~

•~~the amount of the costs, fees, expenses and charges related to the Merger Agreement and the Merger; and~~

•~~other developments beyond our control, including, but not limited to, changes in domestic or global economic conditions that may affect the timing or success of the Merger.~~

~~The Merger may be delayed, and may ultimately not be completed, due to~~ a number of factors ~~including:~~including our ability to develop innovative solutions, integrate those solutions into our home ecosystem, and market and sell those solutions to our existing and new customers. Establishing a new market segment will require significant investment in R&D and sales & marketing in the near term, and currently those investments have been curtailed due to our financial constraints. These investments may not be successful, and our revenue and profitability may suffer. Because of our current fiscal constraints, our ability to support investments of this magnitude are limited, and a more limited level of investment in the near-term is unlikely to yield a meaningful return.

•If the ~~failure~~air purifier business – or any other business we acquire – does not perform as expected or we are unable to effectively integrate the acquired business into our operations or achieve the expected synergies of the acquisition, our operating results could be harmed. Expansion into new market segments involve risks and uncertainties, including, among other things, potential distraction of management from our core robotic floorcare business, greater than expected liabilities and expenses, inadequate return on capital, and unidentified issues not discovered in our investigations and evaluations of those acquisitions.

We spend significant amounts on advertising and other marketing campaigns, which may not be successful or cost effective.

We spend significant amounts on advertising and other marketing campaigns, such as television, print advertising, and social media, as well as increased promotional activities, to acquire new customers, and we expect our marketing expenses to increase as a percentage of revenue in the future as we continue to spend significant amounts to increase awareness of our consumer robot products. For fiscal 2022, 2021 and 2020, sales and marketing expenses were $293.3 million, $289.8 million, and $265.5 million, respectively, representing approximately 24.8%, 18.5% and 18.6%, of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to purchase our products, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing or to fully understand or estimate the conditions and behaviors that drive customer behavior. If any of our advertising campaigns prove less successful than anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products.

If critical components of our products that we currently purchase from a small number of suppliers become unavailable, we may incur delays in shipment, which could damage our business.

We and our outsourced manufacturers obtain hardware components, various subsystems, raw materials and batteries from a limited group of suppliers, some of which are sole suppliers. We do not have long-term agreements with these suppliers obligating them to continue to sell components or products to us. If we or our outsourced manufacturers are unable to obtain components from third-party suppliers in the ~~approval~~quantities and of the ~~Merger Agreement by~~quality that we require, on a timely basis and at acceptable prices, we may not be able to deliver our ~~stockholders;~~

•~~the failure~~products on a timely or cost-effective basis to our customers, which could cause customers to terminate their contracts with us, reduce our gross margin and seriously harm our business, results of operations and financial condition. Moreover, if any of our suppliers become financially unstable, we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to re-tool our products to accommodate components from different suppliers. We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain ~~regulatory approvals from various governmental entities (or~~replacement components within the ~~imposition of any conditions, limitations~~time frames that we require at an affordable cost, or ~~restrictions on such approvals);~~at all.

•~~potential future stockholder litigation~~In addition, our lack of long-term agreements with certain component suppliers has caused us to purchase certain long-lead-time components well in advance of consumer demand. This added inventory increases the strain on our liquidity, as well as the risk of inventory becoming excess and obsolete.

If we fail to protect, or incur significant costs in defending, our intellectual property and other ~~legal and regulatory proceedings, which could delay or prevent the Merger; and~~

•~~the failure to satisfy the other conditions to the completion of the Merger, including the possibility that a Material Adverse Effect on our business would permit Amazon not to close the Merger.~~

~~If the Merger does not close,~~proprietary rights, our business and ~~stockholders would~~results of operations could be ~~exposed~~materially harmed.

Our success depends on our ability to ~~additional risks, including:~~

•protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements and other contractual provisions, to ~~the extent that the current market price of~~protect our ~~common stock reflects an assumption that the Merger will be completed, the price of~~intellectual property and other proprietary rights. Significant technology used in our ~~common stock could decrease if the Merger~~products, however, is not ~~completed;~~

•~~investor confidence could decline, stockholder litigation could be brought against us, relationships with existing~~the subject of any patent protection, and ~~prospective customers, distributors, retailers, service providers, investors, lenders and other business partners may be adversely impacted,~~ we may be unable to ~~retain key personnel,~~obtain patent protection on such technology in the future. Moreover, existing U.S. legal standards relating to the validity, enforceability and ~~profitability~~scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be ~~adversely impacted due~~challenged by third parties. In addition, the laws of countries other than the United States in which we market our products may afford little or no effective protection of our intellectual property. Patents which may be granted to ~~costs incurred in connection with the pending Merger;~~

•~~the requirement that we pay a termination fee of $56.0 million if the Merger Agreement is terminated~~us in certain ~~circumstances, including~~foreign countries may be subject to opposition proceedings brought by ~~the Company~~third parties or result in suits by us, which may be costly and result in adverse consequences for us. Accordingly, despite our efforts, we may be unable to ~~enter into a superior proposal~~prevent third parties from infringing upon or ~~by Amazon because the Board withdraws its recommendation in favor of the Merger.~~

~~Even if successfully completed, there are certain risks~~misappropriating our intellectual property or otherwise gaining access to our ~~stockholders from the Merger, including:~~

•~~the amount of cash~~technology. Unauthorized third parties may try to ~~be paid under the Merger Agreement is fixed and will not be adjusted for changes in~~copy or reverse engineer our ~~business, assets, liabilities, prospects, outlook, financial condition~~products or ~~operating results or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock;~~

•~~the fact that receipt of the all-cash per share merger consideration under the Merger Agreement is taxable to stockholders that are treated as U.S. holders for U.S. federal income tax purposes; and~~

•~~the fact that, if the Merger is completed, our stockholders will forego the opportunity to realize the potential long-term value of the successful execution~~portions of our ~~current strategy as an independent company.~~

~~While the Merger Agreement is in effect, we are subject to restrictions on~~products or otherwise obtain and use our ~~business activities.~~

While the Merger Agreement is in effect, we are generally required to conduct our business in the ordinary course consistent with past practice, and are restricted from taking certain actions without Amazon’s prior consent, which is not to be unreasonably withheld, conditioned or delayed. These limitations include, among other things, certain restrictions on our ability to amend our organizational documents, acquire other businesses and assets, dispose of our assets, make investments, repurchase, reclassify or issue securities, make loans, pay dividends, incur indebtedness, make capital expenditures, enter into certain contracts, change accounting policies or procedures, settle litigation, change tax classifications and elections, or take certain actions relating to intellectual property. ~~These restrictions could prevent us from pursuing strategic business opportunities~~If we fail to protect our intellectual property and ~~taking actions with respect to our business that we may consider advantageous and may, as a result, materially and adversely affect~~other proprietary rights, our business, results of operations or financial condition could be materially harmed.

In addition, defending our intellectual property rights may entail significant expense. We believe that certain products in the marketplace may infringe our existing intellectual property rights. We have, from time to time, resorted to legal proceedings to protect our intellectual property and may continue to do so in the future. For example, on October 15, 2019, we initiated a patent infringement lawsuit in federal district court in Massachusetts against SharkNinja Operating LLC and its related entities ("SharkNinja") for infringement of five patents for technology related to robotic vacuum cleaners. In addition, we sought a preliminary injunction against SharkNinja for infringement of three U.S. patents. SharkNinja has in parallel sought declarations of non-infringement of thirteen U.S. patents owned by iRobot. On November 26, 2019, the federal district court in Massachusetts denied iRobot's motion for a preliminary injunction. On January 28, 2021, we initiated litigation against SharkNinja at the U.S. International Trade Commission ("ITC") as well as in federal district court in Massachusetts based on claims of patent infringement of five additional U.S. patents, and on January 5-12, 2022 the ITC held a trial on four of those patents. In March 2023, we received a favorable final determination in our patent infringement action against SharkNinja at the ITC. The ruling, which found that SharkNinja had infringed valid claims of iRobot’s asserted patents, recommends that the ITC issue an order barring the importation of various infringing SharkNinja robotic cleaning products.

There is no guarantee that we will prevail on other patent infringement claims against third parties. We may be required to expend significant resources to monitor and protect our intellectual property rights. In addition, any of our intellectual property rights may be challenged by others or invalidated through administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we were to prevail.

In addition, in the United States certain of our patents have been, and may continue to be, challenged by inter parte review or opposition proceedings. If our patents are subjected to inter parte review or opposition proceedings, we may incur significant costs to defend them. Further, our failure to prevail in any such proceedings could limit the patent protection available for our innovations.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past led and may in the future lead to market-wide liquidity problems. On March 10, March 12, and May 1, 2023, the Federal Deposit Insurance Corporation ("FDIC") took control and was appointed receiver of Silicon Valley Bank ("SVB"), Signature Bank, and First Republic Bank, respectively, after each bank was unable to continue its operations. We are unable to predict the extent or nature of the impacts of the failures of SVB, Signature Bank, and First Republic Bank and related circumstances at this time. Similarly, we cannot predict the impact that the high market volatility and instability of the banking sector more broadly could have on economic activity and our business in particular. The failure of other banks and financial ~~condition.~~institutions and measures taken, or not taken, by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.

~~Item 5. Other Information~~

~~10b5-1 Trading Plans~~

~~All trading plans entered into by our officers and directors~~If the financial institutions with which we do business enter receivership or become insolvent in ~~compliance with Rule 10b5-1 under~~ the ~~Exchange Act were terminated in connection with~~future, there is no guarantee that the ~~execution~~Department of the ~~Merger Agreement~~Treasury, the Federal Reserve and the FDIC will intercede to provide us and other depositors with ~~Amazon~~access to balances in excess of the $250,000 FDIC insurance limit, that we would be able to access our existing cash, cash equivalents and investments, that we would be able to maintain any required letters of credit or other credit support arrangements, or that we would be able to adequately fund our business for a prolonged period of time or at all, any of which could have a material adverse effect on ~~August 4, 2022.~~our current and/or projected business operations and results of operations and financial condition. In addition, if any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties' ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number						Description


10.1*#10.1						~~Second~~Fourth Amendment to Amended and Restated Credit Agreement by and between ~~the Registrant and~~ Bank of America, N.A. and iRobot Corporation, dated ~~as of May 4, 2022~~January 17, 2023. (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on January 20, 2023)

10.2*#10.2						~~Second~~Fourth Amendment to Amended and Restated Reimbursement Agreement by and between ~~the Registrant and~~ Bank of America, N.A. and iRobot Corporation, dated ~~as of May 4, 2022~~January 17, 2023. (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on January 20, 2023)

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.SCH*						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 Exhibits 101.*)

__________________________


*			Filed herewith
**			Furnished herewith
#			Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request.

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: ~~August 10, 2022~~May 9, 2023	By:	/s/ Julie Zeiler
		Julie Zeiler
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)


	Goodwill		Intangible assets
Balance as of January 1, 2022	$	173,292	$	28,410
Purchase accounting adjustments	(583)		—
Amortization	—		(2,731)
Effect of foreign currency translation	(7,840)		(1,607)
Balance as of July 2, 2022	$	164,869	$	24,072