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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 3, 2021
OR
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)
 ______________________________________________
Delaware77-0259335
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueIRBTThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 30, 2021 was 28,051,025.
        



iROBOT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JULY 3, 2021
INDEX
 Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
2





iROBOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
July 3, 2021January 2, 2021
ASSETS
Current assets:
Cash and cash equivalents$415,841 $432,635 
Short term investments 51,081 
Accounts receivable, net74,759 170,526 
Inventory276,517 181,756 
Other current assets48,816 45,223 
   Total current assets815,933 881,221 
Property and equipment, net81,161 76,584 
Operating lease right-of-use assets40,551 43,682 
Deferred tax assets34,076 33,404 
Goodwill123,735 125,872 
Intangible assets, net8,927 9,902 
Other assets29,436 19,063 
   Total assets$1,133,819 $1,189,728 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$166,779 $165,779 
Accrued expenses104,538 131,388 
Deferred revenue and customer advances11,445 10,400 
   Total current liabilities282,762 307,567 
Operating lease liabilities47,014 50,485 
Deferred tax liabilities1,458 705 
Other long-term liabilities21,353 26,537 
   Total long-term liabilities69,825 77,727 
   Total liabilities352,587 385,294 
Commitments and contingencies (Note 10)
Preferred stock, 5,000 shares authorized and none outstanding
  
Common stock, $0.01 par value, 100,000 shares authorized; 28,050 and 28,184 shares issued and outstanding, respectively
281 282 
Additional paid-in capital216,375 205,256 
Retained earnings557,452 599,389 
Accumulated other comprehensive income (loss)7,124 (493)
   Total stockholders’ equity781,232 804,434 
   Total liabilities and stockholders’ equity$1,133,819 $1,189,728 
The accompanying notes are an integral part of the consolidated financial statements.
3



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 Three Months EndedSix Months Ended
 July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Revenue$365,596 $279,883 $668,857 $472,418 
Cost of revenue:
Cost of product revenue226,395 100,686 406,487 214,981 
Amortization of acquired intangible assets225 1,185 450 1,470 
Total cost of revenue
226,620 101,871 406,937 216,451 
Gross profit138,976 178,012 261,920 255,967 
Operating expenses:
Research and development38,677 36,557 80,597 73,316 
Selling and marketing76,677 49,062 127,668 85,656 
General and administrative26,459 21,856 49,899 46,429 
Amortization of acquired intangible assets205 254 409 508 
Total operating expenses142,018 107,729 258,573 205,909 
Operating (loss) income(3,042)70,283 3,347 50,058 
Other expense, net(286)(384)(446)(403)
(Loss) income before income taxes(3,328)69,899 2,901 49,655 
Income tax (benefit) expense(570)11,283 (1,784)9,174 
Net (loss) income$(2,758)$58,616 $4,685 $40,481 
Net (loss) income per share:
Basic$(0.10)$2.10 $0.17 $1.44 
Diluted$(0.10)$2.07 $0.16 $1.42 
Number of shares used in per share calculations:
Basic28,100 27,923 28,178 28,110 
Diluted28,100 28,280 28,908 28,414 
The accompanying notes are an integral part of the consolidated financial statements.
4



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
 
 Three Months EndedSix Months Ended
 July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Net (loss) income$(2,758)$58,616 $4,685 $40,481 
Other comprehensive income (loss):
Net foreign currency translation adjustments1,114 2,178 (4,769)1,264 
Net unrealized (losses) gains on cash flow hedges, net of tax(36)(2,634)12,932 3,040 
Net (gains) losses on cash flow hedge reclassified into earnings, net of tax(932)(1,321)(542)(2,789)
Net unrealized gains (losses) on marketable securities, net of tax 37 (4)20 
Total comprehensive (loss) income$(2,612)$56,876 $12,302 $42,016 
The accompanying notes are an integral part of the consolidated financial statements.
5



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss) ("AOCI")Stockholders’
Equity
SharesValue
Balance at April 3, 202128,395 $284 $209,890 $606,832 $6,978 $823,984 
Issuance of common stock under employee stock plans54 1 2,541 2,542 
Vesting of restricted stock units48 — —  
Stock-based compensation7,340 7,340 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting— — (43)(43)
Other comprehensive income146 146 
Directors' deferred compensation21 21 
Stock repurchases(447)(4)(3,374)(46,622)(50,000)
Net loss(2,758)(2,758)
Balance at July 3, 202128,050 $281 $216,375 $557,452 $7,124 $781,232 
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
Stockholders’
Equity
SharesValue
Balance at January 2, 202128,184 $282 $205,256 $599,389 $(493)$804,434 
Issuance of common stock under employee stock plans121 1 5,130 5,131 
Vesting of restricted stock units233 2 (2) 
Stock-based compensation14,122 14,122 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(41)— (4,799)(4,799)
Other comprehensive income7,617 7,617 
Directors' deferred compensation42 42 
Stock repurchases(447)(4)(3,374)(46,622)(50,000)
Net income4,685 4,685 
Balance at July 3, 202128,050 $281 $216,375 $557,452 $7,124 $781,232 
The accompanying notes are an integral part of the consolidated financial statements.









6



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
Stockholders’
Equity
SharesValue
Balance at March 28, 202027,876 $279 $175,790 $434,186 $6,284 $616,539 
Issuance of common stock under employee stock plans72 1 2,755 2,756 
Vesting of restricted stock units50 — — — 
Stock-based compensation5,870 5,870 
Other comprehensive loss(1,740)(1,740)
Directors' deferred compensation21 21 
Net income58,616 58,616 
Balance at June 27, 202027,998 $280 $184,436 $492,802 $4,544 $682,062 
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
Stockholders’
Equity
SharesValue
Balance at December 28, 201928,352 $284 $196,455 $452,321 $3,009 $652,069 
Issuance of common stock under employee stock plans112 1 3,689 3,690 
Vesting of restricted stock units243 2 (2) 
Stock-based compensation11,061 11,061 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(45)— (1,816)(1,816)
Other comprehensive income1,535 1,535 
Directors' deferred compensation42 42 
Stock repurchases(664)(7)(24,993)(25,000)
Net income40,481 40,481 
Balance at June 27, 202027,998 $280 $184,436 $492,802 $4,544 $682,062 
The accompanying notes are an integral part of the consolidated financial statements.
7



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months Ended
 July 3, 2021June 27, 2020
Cash flows from operating activities:
Net income$4,685 $40,481 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,635 17,784 
Stock-based compensation14,122 11,061 
Deferred income taxes, net210 2,579 
Other 3,286 3,162 
Changes in operating assets and liabilities — (use) source
Accounts receivable94,477 17,891 
Inventory(94,918)24,137 
Other assets(7,554)(57,813)
Accounts payable2,071 (20,576)
Accrued expenses and other liabilities(30,215)(10,549)
Net cash provided by operating activities1,799 28,157 
Cash flows from investing activities:
Additions of property and equipment(21,924)(18,968)
Purchase of investments(9,606)(2,125)
Sales and maturities of investments63,644 7,000 
Net cash provided by (used in) investing activities32,114 (14,093)
Cash flows from financing activities:
Proceeds from employee stock plans5,131 3,690 
Income tax withholding payment associated with restricted stock vesting(4,799)(1,816)
Stock repurchases(50,000)(25,000)
Net cash used in financing activities(49,668)(23,126)
Effect of exchange rate changes on cash and cash equivalents(1,039)404 
Net decrease in cash and cash equivalents(16,794)(8,658)
Cash and cash equivalents, at beginning of period432,635 239,392 
Cash and cash equivalents, at end of period$415,841 $230,734 
The accompanying notes are an integral part of the consolidated financial statements.
8



iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
iRobot Corporation ("iRobot" or the "Company") designs and builds robots that empower people to do more. iRobot's consumer robots help people find smarter ways to clean and accomplish more in their daily lives. The Company's portfolio of floor cleaning robots features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio, the Company's engineers are building an ecosystem of robots to help realize the smart home's potential. 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.
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 2, 2021, filed with the Securities and Exchange Commission on February 16, 2021.
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.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles as well as clarifying and amending existing guidance to improve consistent application. The amendments to this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The Company adopted the standard in the first quarter of 2021 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 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.
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, variable consideration and other obligations such as product returns and incentives; allowance for credit losses; product warranties; valuation of goodwill and acquired intangible assets; valuation of non-marketable equity investments; evaluating loss contingencies; accounting for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation allowances. The Company bases these estimates and judgments on historical experience, market participant fair value considerations, projected future cash flows and various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from the Company’s estimates.
As of July 3, 2021, the impact of the COVID-19 pandemic remains dynamic and the nature and extent of its full impact on the Company's financial and operational results will depend on several factors, including but not limited to, the duration and severity of the pandemic, advances in treatment and prevention, as well as the macroeconomic impact resulting from global responses to slow the spread of the pandemic. As a result, certain of our estimates and assumptions, including the allowance for credit losses and the valuation of non-marketable equity securities, including our impairment assessment, require increased
9

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
judgment and carry a higher degree of variability and volatility, which could result in material changes to our estimates in future periods.
Credit Losses
The Company is exposed to credit losses primarily through sales of its products. The Company assesses each customer's ability to pay by conducting a credit review which includes consideration of established credit ratings or an internal assessment of the customer's creditworthiness based on an analysis of their financial information when a credit rating is not available. The Company monitors the credit exposure through active review of customer balances. The Company's expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current and future economic and market conditions and age of the receivable. Although the Company historically has not experienced significant credit losses as it relates to trade accounts receivable, the COVID-19 pandemic has caused uncertainty in some customer accounts. The Company did not have an adjustment to its estimate of credit losses during the three months ended July 3, 2021. The Company recorded a decrease to the reserve and bad debt expense of $2.1 million during the six months ended July 3, 2021. As of July 3, 2021 and January 2, 2021, the Company had an allowance for credit losses of $2.7 million and $4.8 million, respectively.
Inventory
Inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in, first-out method. The Company writes down its inventory for estimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue and have not been significant for the periods presented. Inventory primarily consists of finished goods at July 3, 2021 and January 2, 2021.
Strategic Investments
The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes. These investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. At July 3, 2021 and January 2, 2021, the Company's equity securities without readily determinable fair values totaled $18.1 million and $17.4 million, respectively, and are included in other assets on the consolidated balance sheets.
On July 1, 2020, Teladoc Health, Inc. ("Teladoc") closed on its previously announced acquisition of InTouch Health, of which the Company held non-marketable equity securities. In exchange for its shares of InTouch Health, the Company received 0.2 million shares of Teladoc and recorded a gain of $38.6 million to other income, net during the second quarter of 2020. The Teladoc shares received were subject to time based contractual sales restrictions which expired in January 2021. These shares were accounted for as marketable equity securities and measured at fair value with unrealized gains and losses recognized in other income, net at the end of each reporting period. As a result, the Company entered into an economic hedge in July 2020 to reduce the Company's exposure to stock price fluctuations during the restricted period. During the first quarter of 2021, the Company received net proceeds of $51.5 million related to the sale of Teladoc shares with gross proceeds of $60.1 million, net of settlement payment of $8.6 million for the related economic hedge.
On July 22, 2021, Matterport, Inc., an investee of the Company, completed a merger with a special purpose acquisition company ("SPAC") and began trading on Nasdaq under the symbol "MTTR." Prior to the merger, the Company held non-marketable equity securities in Matterport and accounted for the shares as equity securities without readily determinable fair value. The estimated gain of $20 million at closing is expected to be recorded during the third quarter of 2021. As the shares are now publicly traded, they will be accounted for as marketable equity securities and measured at fair value with unrealized gains and losses recognized in other expense, net at the end of each reporting period. The Matterport shares are subject to time based contractual sales restrictions which expire in January 2022.
Net (Loss) Income Per Share
Basic income per share is calculated using the Company's weighted-average outstanding common shares. Diluted income
per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock
awards as determined under the treasury stock method.
10

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents the calculation of both basic and diluted net (loss) income per share (in thousands, except per share amounts): 
 Three Months EndedSix Months Ended
 July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Net (loss) income$(2,758)$58,616 $4,685 $40,481 
Basic weighted-average common shares outstanding28,100 27,923 28,178 28,110 
Dilutive effect of employee stock awards 357 730 304 
Diluted weighted-average common shares outstanding28,100 28,280 28,908 28,414 
Net (loss) income per share - Basic$(0.10)$2.10 $0.17 $1.44 
Net (loss) income per share - Diluted$(0.10)$2.07 $0.16 $1.42 
Employee stock awards representing approximately 0.8 million and 0.2 million shares of common stock for the three months ended July 3, 2021 and June 27, 2020, and approximately 0.1 million and 0.3 million shares of common stock for the six months ended July 3, 2021 and June 27, 2020, 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, generally as title and risk of loss pass, in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized only to the extent that it is probable that a significant reversal of revenue will not occur and when collection is considered probable. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Shipping and handling expenses are considered fulfillment activities and are expensed as incurred.
The Company’s consumer robots are highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a single performance obligation, and the revenue is recognized at a point in time when the control is transferred to distributors, resellers or directly to end customers through online stores. For certain consumer robots with Wi-Fi capability ("connected robots"), each sale represents an arrangement with multiple promises consisting of the robot, downloadable free app, cloud services and potential future unspecified software upgrades. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one promised service to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services").
For contracts that contain multiple performance obligations, the transaction price is allocated to each performance obligation based on a relative standalone selling price ("SSP"). The Company estimates SSP for items that are not sold separately, using market data if available or analysis of the cost of providing the products or services plus a reasonable margin. The transaction price allocated to the robots is recognized as revenue at a point in time when control is transferred and when collection is considered probable. The transaction price allocated to the Cloud Services is deferred and recognized on a straight-line basis over the estimated term of the Cloud Services. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of July 3, 2021 and January 2, 2021 was $15.2 million and $11.5 million, respectively. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
The Company’s products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under ASC 460, "Guarantees." During the fourth quarter of 2020, the Company began offering its customers the option to purchase an extended warranty for a fee. Amounts paid for the extended warranty plans are deferred and recognized as revenue on a straight-line basis over the service period.
The Company provides limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns. In addition, the Company may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Overall, these reserves reflect the Company’s best estimates, and the actual amounts of
11

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
consideration ultimately received may differ from the Company’s estimates. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of July 3, 2021, the Company has reserves for product returns of $53.8 million and other credits and incentives of $74.6 million. As of January 2, 2021, the Company had reserves for product returns of $64.3 million and other credits and incentives of $142.2 million. Revenue recognized during the three and six months ended July 3, 2021 and June 27, 2020 related to performance obligations satisfied in a prior period was not material.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by geographical region (in thousands):
Three Months EndedSix Months Ended
July 3, 2021June 27, 2020July 3, 2021June 27, 2020
United States$196,824 $140,146 $311,596 $222,113 
EMEA91,559 71,048 207,790 137,707 
Japan47,254 44,262 87,829 70,726 
Other29,959 24,427 61,642 41,872 
Total revenue$365,596 $279,883 $668,857 $472,418 
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
July 3, 2021January 2, 2021
Accounts receivable, net$74,759 $170,526 
Contract liabilities20,141 17,700 
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include deferred revenue associated with the Cloud Services and extended warranty plans as well as prepayments received from customers in advance of product shipments. The change in the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended July 3, 2021 and June 27, 2020, the Company recognized $3.4 million and $3.8 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers. During the six months ended July 3, 2021 and June 27, 2020, the Company recognized $8.9 million and $4.3 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers.

4. Leases
The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and marketing and research and development offices and equipment under various non-cancelable lease arrangements. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease obligation at the present value of lease payments over the term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease term. The Company's leases typically include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and nonlease components of contracts and excludes all variable lease payments from the measurement of right-of-use assets and lease liabilities. The Company's variable lease payments generally include usage based nonlease components. The Company's lease agreements do not contain any residual value guarantees or restrictive covenants.
The Company's existing leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments. At July 3, 2021, the Company's weighted average discount rate was 3.57%, while the weighted average remaining lease term was 7.97 years.
12

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The components of lease expense were as follows (in thousands):
Three Months EndedSix Months Ended
July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Operating lease cost$2,147 $2,289 $4,134 $4,645 
Variable lease cost1,033 882 1,928 2,004 
Total lease cost$3,180 $3,171 $6,062 $6,649 
Supplemental cash flow information related to leases was as follows (in thousands):
Three Months EndedSix Months Ended
July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,100 $2,710 $4,379 $4,737 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$ $1,566 $ $1,566 
Maturities of operating lease liabilities were as follows as of July 3, 2021 (in thousands):
Remainder of 2021$3,759 
20228,582 
20237,648 
20246,592 
20256,617 
Thereafter28,555 
Total minimum lease payments$61,753 
Less: imputed interest8,464 
Present value of future minimum lease payments$53,289 
Less: current portion of operating lease liabilities (Note 6)6,275 
Long-term lease liabilities$47,014 

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 3, 2021 (in thousands):
GoodwillIntangible assets
Balance as of January 2, 2021$125,872 $9,902 
Amortization— (859)
Effect of foreign currency translation(2,137)(116)
Balance as of July 3, 2021$123,735 $8,927 


13

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. Accrued Expenses
Accrued expenses consisted of the following at (in thousands):
July 3, 2021January 2, 2021
Accrued warranty$24,718 $24,392 
Accrued compensation and benefits19,341 17,635 
Accrued manufacturing and logistics cost14,331 20,093 
Current portion of operating lease liabilities6,275 6,315 
Accrued bonus5,692 31,523 
Accrued sales and other indirect taxes payable5,385 15,480 
Derivative liability5,302 4,268 
Accrued income taxes1,135 3,806 
Accrued other22,359 7,876 
$104,538 $131,388 

7. Derivative Instruments and Hedging Activities
The Company operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency of the Company's operations, primarily the British Pound, Canadian Dollar, Euro and Japanese Yen. The Company uses derivative instruments that are designated in cash flow hedge relationships to reduce or eliminate the effects of foreign exchange rate change on sales. These contracts typically have maturities of three years or less. At July 3, 2021 and January 2, 2021, the Company had outstanding cash flow hedges with a total notional value of $427.0 million and $431.9 million, respectively.
The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts typically have maturities of twelve months or less. At July 3, 2021 and January 2, 2021, the Company had outstanding foreign currency economic hedges with a total notional value of $294.5 million and $192.2 million, respectively.
As described in Note 2, during July 2020, the Company entered into a forward sale contract as an economic hedge to reduce the Company's exposure to stock price fluctuations on one of its marketable equity securities. The contract had a maturity date of January 2021 and was settled during the first quarter of 2021. The total notional value of this economic hedge was $51.5 million at January 2, 2021.
The fair values of derivative instruments are as follows (in thousands):
Fair Value
ClassificationJuly 3, 2021January 2, 2021
Derivatives not designated as hedging instruments:
Foreign currency forward contractsOther current assets$6,326 $261 
Foreign currency forward contractsOther assets3,493  
Foreign currency forward contractsAccrued expenses3,465 2,176 
Forward sale contractAccrued expenses 3,904 
Derivatives designated as cash flow hedges:
Foreign currency forward contractsOther current assets$1,936 $362 
Foreign currency forward contractsOther assets2,847 679 
Foreign currency forward contractsAccrued expenses1,837 2,092 
Foreign currency forward contractsLong-term liabilities2,227 8,554 

14

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Gains (losses) associated with derivative instruments not designated as hedging instruments are as follows (in thousands):
Three Months EndedSix Months Ended
ClassificationJuly 3, 2021June 27, 2020July 3, 2021June 27, 2020
Gain (loss) recognized in incomeOther expense, net$391 $(701)$(9,623)$(1,247)

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 EndedSix Months Ended
July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Foreign currency forward contracts$(47)$(3,512)$17,107 $4,053 
(1)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
Gain (loss) recognized in earnings on cash flow hedging instruments
Three Months EndedNine Months Ended
July 3, 2021June 27, 2020July 3, 2021June 27, 2020
RevenueRevenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded$365,596 $279,883 $668,857 $472,418 
Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings$1,231 $1,761 $717 $3,718 

8. Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 Fair Value Measurements as of
July 3, 2021
Level 1Level 2 (1)Level 3
Assets:
Money market funds$217,800 $ $ 
Derivative instruments (Note 7) 14,602  
Total assets measured at fair value$217,800 $14,602 $ 
Liabilities:
Derivative instruments (Note 7)$ $7,529 $ 
Total liabilities measured at fair value$ $7,529 $ 
15

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
 Fair Value Measurements as of
January 2, 2021
 Level 1Level 2 (1)Level 3
Assets:
Money market funds$47,529 $ $ 
Marketable equity securities, $46,578 at cost
47,576   
Corporate and government bonds, $3,498 at cost
 3,505  
Derivative instruments (Note 7) 5,206  
Total assets measured at fair value$95,105 $8,711 $ 
Liabilities:
Derivative instruments (Note 7)$ $12,822 $ 
Total liabilities measured at fair value$ $12,822 $ 
(1)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

9. Stockholders' Equity
Share Repurchase Activity
The Company's Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases from time to time until September 5, 2021. On March 11, 2021, the Company entered into a Rule 10b5-1 plan to repurchase $50.0 million of common stock and the Company repurchased 446,954 shares of its common stock at an average price of $111.85, totaling $50.0 million during three months ended July 3, 2021.
On March 10, 2020, the Company entered into a Rule 10b5-1 plan to repurchase $25.0 million of common stock and the Company repurchased 663,602 shares of its common stock at an average price of $37.65, totaling $25.0 million in March 2020.
On August 2, 2021, the Company entered into an accelerated share repurchase ("ASR") agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which the Company paid $100.0 million and received an aggregate initial share delivery of 943,285 shares of its common stock, which were immediately retired. Pursuant to the terms of the ASR agreement, the final number of shares to be repurchased by the Company and the average price paid per share will be determined upon settlement of the agreement on or before October 4, 2021. The final number of shares to be repurchased will be based on the volume-weighted average price of its common stock over the duration of the ASR agreement, less a discount. Upon settlement, Wells Fargo may be required to deliver additional shares of common stock to the Company, or under certain conditions, the Company may be required to make a cash payment or deliver shares of common stock, at the Company's election, to Wells Fargo. The Company's Board of Directors modified the existing stock repurchase program for the remaining $125.0 million to permit an ASR transaction and extended the authorization until March 31, 2022. As of August 5, 2021, $25.0 million remained available for further repurchase under the program.

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. As of July 3, 2021, the Securities Class Action and the consolidated shareholder derivative actions captioned as In re iRobot Corporation Derivative litigation, No. 1:20-cv-10034, as described in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, have been dismissed.
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
16

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 3, 2021 and January 2, 2021, 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) in the accompanying consolidated balance sheets.    
Activity related to the warranty accrual was as follows (in thousands):
 Three Months EndedSix Months Ended
 July 3, 2021June 27, 2020July 3, 2021June 27, 2020
Balance at beginning of period$23,904 $13,998 $24,392 $13,856 
Provision10,236 3,396 20,421 7,870 
Warranty usage(9,422)(3,625)(20,095)(7,957)
Balance at end of period$24,718 $13,769 $24,718 $13,769 

11. Income Taxes
The Company recorded an income tax benefit of $0.6 million and income tax expense of $11.3 million for the three months ended July 3, 2021 and June 27, 2020, respectively. The $0.6 million income tax benefit for the three months ended July 3, 2021 resulted in an effective income tax rate of  17.1%. The $11.3 million income tax expense for the three months ended June 27, 2020 resulted in an effective tax rate of 16.1%. The Company recognized a tax benefit during the current quarter at a rate higher than the second quarter of 2020 primarily because of discrete tax benefits related to stock-based compensation.
The Company's 17.1% effective rate of income tax benefit for the three months ended July 3, 2021 was lower than the federal statutory tax rate of 21% primarily due to the recognition of a valuation allowance on certain non-U.S. earnings, as well as the jurisdictional mix of earnings taxed at different local rates.
The Company recorded an income tax benefit of $1.8 million and income tax expense of $9.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively. 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 $9.2 million income tax expense for the six months ended June 27, 2020 resulted in an effective tax rate of 18.5%. The decrease in the effective income tax rate was primarily due to the recognition of a discrete tax benefit related to stock-based compensation during the period compared to a discrete tax expense during prior year.
The Company's effective income tax rate of (61.5)% for the six months ended July 3, 2021 differed from the federal statutory tax rate of 21% primarily due to the recognition of a discrete tax benefit related to stock-based compensation.
12. Industry Segment, Geographic Information and Significant Customers
The Company operates as one operating segment. The Company's consumer robots products 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 3, 2021 and June 27, 2020, the Company generated 32.5% and 35.1% of total revenue, respectively, from one of its retailers.
For the six months ended July 3, 2021 and June 27, 2020, the Company generated 25.5% and 26.2% of total revenue, respectively, from one of its retailers.

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 the impact of COVID-19 on our business, new product sales, product development and offerings, our consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, revenue recognition, our profits, growth of our
17



revenues, composition of our revenues, our cost of revenues, units shipped, average selling prices, the impact of promotional activity and tariffs, the impact of semiconductor chip availability, operating expenses, diversification of our manufacturing supply chain, selling and marketing expenses, general and administrative expenses, research and development expenses, and compensation costs, our projected income tax rate, our credit and letter of credit facilities, our valuations of investments, valuation and composition of our stock-based awards, and liquidity, constitute forward-looking statements and are made under these safe harbor provisions. Some of the forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects," "may," "will," "should," "could," "seek," "intends," "plans," "estimates," "anticipates," or other comparable terms. Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. 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 I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended January 2, 2021 in evaluating our forward-looking statements. We have no plans to update our forward-looking statements to reflect events or circumstances after the date of this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Overview
iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more. Our consumer robots help people find smarter ways to clean and accomplish more in their daily lives. iRobot's portfolio of floor cleaning robots features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio, our engineers are building an ecosystem of robots to help realize the smart home’s potential. For more than 30 years, we have been a pioneer and leader in consumer robotics, robotic floor care and robotic artificial intelligence.
As of July 3, 2021, we had 1,321 full-time employees. Since our founding in 1990, we have developed expertise in the disciplines necessary to design, build, sell and support durable, high-performance and cost-effective robots through the close integration of software, electronics and hardware. Our core technologies serve as reusable building blocks that we adapt and expand to create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs and risks associated with product development. These capabilities are amplified by the integration of artificial intelligence, home understanding and machine vision technologies that further improve cleaning performance and help personalize the cleaning experience, enabling customers to have greater control over where, when and how our robots clean. We believe that our significant expertise in robot design, engineering, and smart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to capitalize on the anticipated growth in the market for robot-based consumer products.
From September 2018 until April 2020, our Roomba products were subject to Section 301 tariffs. In April 2020, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion, as extended in August 2020, eliminated the 25% tariff on Roomba products imported from China until December 31, 2020 and entitled us to a refund of approximately $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed. Effective January 1, 2021, the 25% Section 301 tariff again applies to our Roomba products imported from China. We expect this incremental cost will reduce our gross profit in fiscal 2021 unless we are once again granted relief from tariffs on goods imported into the United States from China. To diversify our manufacturing and help offset the adverse financial impact on our business of the 25% Section 301 tariff, we are focused on scaling the manufacture of our products in Malaysia. We commenced production of our products in Malaysia in late 2019 and we remain on track to have Malaysia manufacturing at scale by the end of 2021.
During the six months ended July 3, 2021, the global impacts of the COVID-19 pandemic have included challenges and increases in costs related to logistics, raw materials and components, such as increased port congestion, higher freight and ocean transportation fees, rising resin costs and delays and reductions from suppliers of semiconductor devices used in our products. Our efforts to mitigate some of the constraints associated with the semiconductor chip shortage involve negotiating longer-term supply agreements with existing suppliers as they expand capacity, purchasing certain components through third-party providers at materially higher costs and qualifying alternative suppliers, which is time consuming and requires additional technical resources. Although we expect these challenges to continue throughout 2021, we will continue to assess and implement measures to mitigate resulting adverse impacts on our operations and financial results.
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: 1) differentiating the iRobot experience; 2) building strong relationships with the consumer; and 3) nurturing the lifetime value of our customer relationships.
We strive to differentiate the iRobot experience through the ongoing innovation of our existing product offerings and by bringing new products to market. During the first quarter of 2021, we enhanced the iRobot Genius Home Intelligence Platform, a powerful AI-based robot platform that gives users greater personalization and control over their cleaning robots. In January 2021, we launched Roomba i3 Series in EMEA and Japan following a successful introduction of this product in North America in September 2020. We believe that the Roomba i3 Series will play an important role in strengthening the mid-tier of our
18



product portfolio. In addition, we plan to introduce two new Roomba robots and deliver another major upgrade to our Genius Home Intelligence Platform during the second half of 2021.
To continue building strong relationships with our consumers worldwide, we are focused on enhancing all aspects of the consumer experience, including investing in our digital marketing and e-commerce capabilities. At the end of the second quarter of 2021, our connected customer base grew 67% from the same period one year ago to 11.6 million customers who have opted in to our digital communications.
We also continued to make important progress in nurturing the lifetime value of our customer relationships. In early April 2021, we introduced our new iRobot H1 handheld vacuum, enabling customers to purchase a complementary vacuum to clean in areas that our Roomba or Braava robots are typically unable to reach. In addition, we are now offering extended warranty plans to customers who purchase our products directly from us, and we advanced pilot programs for high-value services that offer customers greater flexibility with how they can purchase our products and accessories. High-value services currently being tested by consumers include iRobot Select, a membership program in which owners pay an initiation fee along with a recurring monthly fee to use their robot along with dedicated customer support and accessories on demand, and a maintenance program in which owners pay a monthly fee for personalized support and accessories. We expect our iRobot Select program to begin to scale later this year. Since the start of the pandemic over a year ago, more consumers are buying our products online. Our direct-to-consumer, or DTC, sales were $45.1 million and $80.0 million, 12.3% and 12.0% of total revenue, for the three and six months ended July 3, 2021, respectively. DTC sales grew 36.2% and 69.3% during the three and six months ended July 3, 2021, respectively, compared to same periods a year ago.

Key Financial Metrics
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. A summary of key metrics for the three and six months ended July 3, 2021, as compared to the three and six months ended June 27, 2020, is as follows:
 Three Months EndedSix Months Ended
 July 3, 2021June 27, 2020July 3, 2021June 27, 2020
(dollars in thousands, except average gross selling prices)
(unaudited)
Total Revenue$365,596 $279,883 $668,857 $472,418 
Non-GAAP Gross Profit$139,484 $139,472 $263,016 $218,239 
Non-GAAP Gross Margin38.2 %49.8 %39.3 %46.2 %
Non-GAAP Operating Income$8,951 $40,509 $23,905 $26,130 
Non-GAAP Operating Margin2.4 %14.5 %3.6 %5.5 %
Total robot units shipped (in thousands)1,314 1,044 2,402 1,763 
Average gross selling prices for robot units$325 $307 $322 $310 

Use of Non-GAAP Financial Measures
Our non-GAAP financial measures reflect adjustments based on the following items. We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to our past operating performance. These items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities. In addition, we believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared with our peer companies. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results, provided below, should be carefully evaluated.
Amortization of acquired intangible assets: Amortization of acquired intangible assets consists of amortization of intangible assets including completed technology, customer relationships, and reacquired distribution rights acquired in
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connection with business combinations. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.
Tariff Refunds: iRobot was granted a Section 301 List 3 Tariff Exclusion in April 2020, which temporarily eliminated tariffs on the Company’s products imported from China until December 31, 2020 and entitled the Company to a refund of all related tariffs previously paid since September 2018. We exclude the refunds for tariff costs expensed during fiscals 2018 and 2019 from our fiscal 2020 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the past have no impact to our current period earnings.
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. It also includes business combination adjustments after the measurement period has ended.
Stock-Based Compensation: Stock-based compensation is a non-cash charge relating to stock-based awards.
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.
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.
Restructuring and Other: Restructuring charges are related to one-time actions associated with workforce reductions, including severance costs, certain professional fees and other costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.
Income tax adjustments: Income tax adjustments 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.
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The following table reconciles gross profit, operating (loss) income, net (loss) income and net (loss) income per share on a GAAP and non-GAAP basis for the three and six months ended July 3, 2021 and June 27, 2020 (dollars in thousands, other than per share data):
Three Months EndedSix Months Ended
July 3, 2021June 27, 2020July 3, 2021June 27, 2020
 GAAP Gross Profit$138,976 $178,012 $261,920 $255,967 
   Amortization of acquired intangible assets225 1,185 450 1,470 
   Stock-based compensation283 292 646 819 
   Tariff refunds— (40,017)— (40,017)
 Non-GAAP Gross Profit$139,484 $139,472 $263,016 $218,239 
 Non-GAAP Gross Margin38.2 %49.8 %39.3 %46.2 %
 GAAP Operating (Loss) Income$(3,042)$70,283 $3,347 $50,058 
   Amortization of acquired intangible assets430 1,439