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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 October 2, 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 October 29, 2021 was 26,958,286.
        



iROBOT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 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)
 
October 2, 2021January 2, 2021
ASSETS
Current assets:
Cash and cash equivalents$218,012 $432,635 
Short term investments29,909 51,081 
Accounts receivable, net240,722 170,526 
Inventory353,724 181,756 
Other current assets46,367 45,223 
   Total current assets888,734 881,221 
Property and equipment, net80,227 76,584 
Operating lease right-of-use assets39,096 43,682 
Deferred tax assets39,778 33,404 
Goodwill121,909 125,872 
Intangible assets, net8,348 9,902 
Other assets31,542 19,063 
   Total assets$1,209,634 $1,189,728 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$259,396 $165,779 
Accrued expenses130,958 131,388 
Deferred revenue and customer advances11,076 10,400 
   Total current liabilities401,430 307,567 
Operating lease liabilities45,206 50,485 
Deferred tax liabilities118 705 
Other long-term liabilities22,344 26,537 
   Total long-term liabilities67,668 77,727 
   Total liabilities469,098 385,294 
Commitments and contingencies (Note 10)
Preferred stock, 5,000 shares authorized and none outstanding
  
Common stock, $0.01 par value, 100,000 shares authorized; 26,954 and 28,184 shares issued and outstanding, respectively
270 282 
Additional paid-in capital215,592 205,256 
Retained earnings517,221 599,389 
Accumulated other comprehensive income (loss)7,453 (493)
   Total stockholders’ equity740,536 804,434 
   Total liabilities and stockholders’ equity$1,209,634 $1,189,728 
The accompanying notes are an integral part of the consolidated financial statements.
3



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 
 Three Months EndedNine Months Ended
 October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Revenue$440,682 $413,145 $1,109,539 $885,563 
Cost of revenue:
Cost of product revenue277,703 214,079 684,190 429,060 
Amortization of acquired intangible assets225 225 675 1,695 
Total cost of revenue
277,928 214,304 684,865 430,755 
Gross profit162,754 198,841 424,674 454,808 
Operating expenses:
Research and development40,262 38,613 120,859 111,929 
Selling and marketing59,055 50,488 186,722 136,144 
General and administrative22,688 28,490 72,587 74,919 
Amortization of acquired intangible assets251 256 661 764 
Total operating expenses122,256 117,847 380,829 323,756 
Operating income40,498 80,994 43,845 131,052 
Other income, net26,585 42,240 26,139 41,837 
Income before income taxes67,083 123,234 69,984 172,889 
Income tax expense9,867 29,982 8,083 39,156 
Net income$57,216 $93,252 $61,901 $133,733 
Net income per share:
Basic$2.09 $3.33 $2.22 $4.76 
Diluted$2.06 $3.27 $2.17 $4.69 
Number of shares used in per share calculations:
Basic27,413 28,031 27,923 28,084 
Diluted27,803 28,539 28,475 28,502 
The accompanying notes are an integral part of the consolidated financial statements.
4



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 Three Months EndedNine Months Ended
 October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net income$57,216 $93,252 $61,901 $133,733 
Other comprehensive income:
Net foreign currency translation adjustments(3,974)5,600 (8,743)6,864 
Net unrealized gains (losses) on cash flow hedges, net of tax5,181 (8,418)18,113 (5,379)
Net gains on cash flow hedge reclassified into earnings, net of tax(878)(745)(1,420)(3,533)
Net unrealized losses on marketable securities, net of tax (30)(4)(10)
Total comprehensive income$57,545 $89,659 $69,847 $131,675 
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 ("AOCI")Stockholders’
Equity
SharesValue
Balance at July 3, 202128,050 $281 $216,375 $557,452 $7,124 $781,232 
Issuance of common stock under employee stock plans1  27 27 
Vesting of restricted stock units105 1 (1) 
Stock-based compensation2,073 2,073 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(4)— (362)(362)
Other comprehensive income329 329 
Directors' deferred compensation21 21 
Stock repurchases(1,198)(12)(2,541)(97,447)(100,000)
Net income57,216 57,216 
Balance at October 2, 202126,954 $270 $215,592 $517,221 $7,453 $740,536 
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 plans122 1 5,156 5,157 
Vesting of restricted stock units338 3 (3) 
Stock-based compensation16,195 16,195 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(45)— (5,161)(5,161)
Other comprehensive income7,946 7,946 
Directors' deferred compensation64 64 
Stock repurchases(1,645)(16)(5,915)(144,069)(150,000)
Net income61,901 61,901 
Balance at October 2, 202126,954 $270 $215,592 $517,221 $7,453 $740,536 
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 June 27, 202027,998 $280 $184,436 $492,802 $4,544 $682,062 
Issuance of common stock under employee stock plans10  358 358 
Vesting of restricted stock units113 1 (1) 
Stock-based compensation9,843 9,843 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(1) (29)(29)
Other comprehensive loss(3,593)(3,593)
Directors' deferred compensation21 21 
Net income93,252 93,252 
Balance at September 26, 202028,120 $281 $194,628 $586,054 $951 $781,914 
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 plans122 1 4,047 4,048 
Vesting of restricted stock units356 3 (3) 
Stock-based compensation20,904 20,904 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(46)— (1,845)(1,845)
Other comprehensive loss(2,058)(2,058)
Directors' deferred compensation63 63 
Stock repurchases(664)(7)(24,993)(25,000)
Net income133,733 133,733 
Balance at September 26, 202028,120 $281 $194,628 $586,054 $951 $781,914 
The accompanying notes are an integral part of the consolidated financial statements.
7



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended
 October 2, 2021September 26, 2020
Cash flows from operating activities:
Net income$61,901 $133,733 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization23,978 25,705 
Gain on equity investment(26,929)(43,480)
Stock-based compensation16,195 20,904 
Deferred income taxes, net(8,190)10,939 
Other 4,496 4,785 
Changes in operating assets and liabilities — (use) source
Accounts receivable(71,368)(32,572)
Inventory(173,986)(61,006)
Other assets(5,851)(20,718)
Accounts payable93,530 46,098 
Accrued expenses and other liabilities(4,551)12,358 
Net cash (used in) provided by operating activities(90,775)96,746 
Cash flows from investing activities:
Additions of property and equipment(25,302)(25,031)
Purchase of investments(9,641)(3,729)
Sales and maturities of investments63,976 10,500 
Net cash provided by (used in) investing activities29,033 (18,260)
Cash flows from financing activities:
Proceeds from employee stock plans5,157 4,048 
Income tax withholding payment associated with restricted stock vesting(5,161)(1,845)
Stock repurchases(150,000)(25,000)
Net cash used in financing activities(150,004)(22,797)
Effect of exchange rate changes on cash and cash equivalents(2,877)2,125 
Net (decrease) increase in cash and cash equivalents(214,623)57,814 
Cash and cash equivalents, at beginning of period432,635 239,392 
Cash and cash equivalents, at end of period$218,012 $297,206 
The accompanying notes are an integral part of the consolidated financial statements.
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, robot-based artificial intelligence, mapping and navigation, machine vision, home understanding, human-robot interaction and physical solutions. Leveraging this portfolio, the Company's engineers are building an ecosystem of robots to 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 its estimates and assumptions on historical experience, market participant fair value considerations, projected future cash flows, current conditions, including estimated economic implications of the COVID-19 pandemic and various other factors that the Company believes are reasonable under the circumstances. While there was not a material change to the consolidated financial statements related to these estimates as of and for the nine months ended October 2, 2021, the Company's future assessment of the magnitude and duration of the COVID-19 pandemic as well as other factors, could result in material impacts to the Company's consolidated financial statements in future reporting periods.The extent and continued impact of COVID-19 has been taken into account by management in making the significant assumptions and estimates related to the above. Actual results may differ from the Company’s estimates.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

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 October 2, 2021. The Company recorded a decrease to the reserve and bad debt expense of $2.1 million during the nine months ended October 2, 2021. As of October 2, 2021 and January 2, 2021, the Company had an allowance for credit losses of $2.7 million and $4.8 million, respectively.
Inventory
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 October 2, 2021 and January 2, 2021.
Strategic Investments
The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes. These investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. At October 2, 2021 and January 2, 2021, the Company's equity securities without readily determinable fair values totaled $15.1 million and $17.4 million, respectively, and are included in other assets on the 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. ("Matterport"), of which the Company held non-marketable equity securities, completed a merger with a special purpose acquisition company and began trading on Nasdaq under the symbol "MTTR." Prior to the merger, the Company accounted for the shares in Matterport as equity securities without readily determinable fair value. Upon consummation of the merger, the Company received 1.6 million shares of MTTR and recorded a gain of $20.3 million to other income, net. The post merger Matterport shares received are subject to time based contractual sales restrictions which expire in January 2022. These shares are accounted for as marketable equity securities and measured at fair value with unrealized gains and losses recognized in other income, net at the end of each reporting period. During the three months ended October 2, 2021, the Company recorded gains of $6.7 million associated with marking the shares to fair value. As of October 2, 2021, the shares in MTTR were valued at $29.8 million and are recorded in short term investments on the consolidated balance sheet.
Net Income Per Share
Basic income per share is calculated using the Company's weighted-average outstanding common shares. Diluted income
per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock
awards as determined under the treasury stock method.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents the calculation of both basic and diluted net income per share (in thousands, except per share amounts): 
 Three Months EndedNine Months Ended
 October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net income$57,216 $93,252 $61,901 $133,733 
Basic weighted-average common shares outstanding27,413 28,031 27,923 28,084 
Dilutive effect of employee stock awards390 508 552 418 
Diluted weighted-average common shares outstanding27,803 28,539 28,475 28,502 
Net income per share - Basic$2.09 $3.33 $2.22 $4.76 
Net income per share - Diluted$2.06 $3.27 $2.17 $4.69 
Employee stock awards representing approximately 0.2 million and 0.1 million shares of common stock for the three months ended October 2, 2021 and September 26, 2020, and approximately 0.1 million and 0.2 million shares of common stock for the nine months ended October 2, 2021 and September 26, 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 October 2, 2021 and January 2, 2021 was $17.8 million and $11.5 million, respectively. The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
The Company’s products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under ASC 460, "Guarantees." During the fourth quarter of 2020, the Company began offering its customers the option to purchase an extended warranty for a fee. Amounts paid for the extended warranty plans are deferred and recognized as revenue on a straight-line basis over the service period.
The Company provides limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns. In addition, the Company may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Overall, these reserves reflect the Company’s best estimates, and the actual amounts of
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
consideration ultimately received may differ from the Company’s estimates. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of October 2, 2021, the Company has reserves for product returns of $54.9 million and other credits and incentives of $75.3 million. As of January 2, 2021, the Company had reserves for product returns of $64.3 million and other credits and incentives of $142.2 million. Revenue recognized during the three and nine months ended October 2, 2021 and September 26, 2020 related to performance obligations satisfied in a prior period was not material.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by geographical region (in thousands):
Three Months EndedNine Months Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
United States$216,542 $206,276 $528,138 $428,389 
EMEA132,130 114,477 339,918 252,184 
Japan66,823 65,490 154,652 136,215 
Other25,187 26,902 86,831 68,775 
Total revenue$440,682 $413,145 $1,109,539 $885,563 
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
October 2, 2021January 2, 2021
Accounts receivable, net$240,722 $170,526 
Contract liabilities21,001 17,700 
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include deferred revenue associated with the Cloud Services and extended warranty plans as well as prepayments received from customers in advance of product shipments. The change in the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended October 2, 2021 and September 26, 2020, the Company recognized $6.6 million and $1.8 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers. During the nine months ended October 2, 2021 and September 26, 2020, the Company recognized $10.5 million and $4.6 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers.

4. Leases
The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and marketing and research and development offices and equipment under various non-cancelable lease arrangements. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease obligation at the present value of lease payments over the term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease term. The Company's leases typically include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and nonlease components of contracts and excludes all variable lease payments from the measurement of right-of-use assets and lease liabilities. The Company's variable lease payments generally include usage based nonlease components. The Company's lease agreements do not contain any residual value guarantees or restrictive covenants.
The Company's existing leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments. At October 2, 2021, the Company's weighted average discount rate was 3.58%, while the weighted average remaining lease term was 7.79 years.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The components of lease expense were as follows (in thousands):
Three Months EndedNine Months Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Operating lease cost$2,181 $2,287 $6,315 $6,932 
Variable lease cost837 823 2,765 2,827 
Total lease cost$3,018 $3,110 $9,080 $9,759 
Supplemental cash flow information related to leases was as follows (in thousands):
Three Months EndedNine Months Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,150 $2,750 $6,529 $7,516 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$ $744 $ $2,310 
Maturities of operating lease liabilities were as follows as of October 2, 2021 (in thousands):
Remainder of 2021$1,598 
20228,561 
20237,627 
20246,571 
20256,600 
Thereafter28,525 
Total minimum lease payments$59,482 
Less: imputed interest7,985 
Present value of future minimum lease payments$51,497 
Less: current portion of operating lease liabilities (Note 6)6,291 
Long-term lease liabilities$45,206 

5. Goodwill and Other Intangible Assets
The following table summarizes the activity in the carrying amount of goodwill and intangible assets for the nine months ended October 2, 2021 (in thousands):
GoodwillIntangible assets
Balance as of January 2, 2021$125,872 $9,902 
Amortization— (1,336)
Effect of foreign currency translation(3,963)(218)
Balance as of October 2, 2021$121,909 $8,348 


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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. Accrued Expenses
Accrued expenses consisted of the following at (in thousands):
October 2, 2021January 2, 2021
Accrued manufacturing and logistics cost$28,967 $20,093 
Accrued warranty28,061 24,392 
Accrued compensation and benefits17,471 17,635 
Accrued income taxes10,777 3,806 
Accrued bonus8,617 31,523 
Current portion of operating lease liabilities6,291 6,315 
Accrued sales and other indirect taxes payable5,343 15,480 
Derivative liability3,799 4,268 
Accrued other21,632 7,876 
$130,958 $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 October 2, 2021 and January 2, 2021, the Company had outstanding cash flow hedges with a total notional value of $381.5 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 October 2, 2021 and January 2, 2021, the Company had outstanding foreign currency economic hedges with a total notional value of $299.1 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
ClassificationOctober 2, 2021January 2, 2021
Derivatives not designated as hedging instruments:
Foreign currency forward contractsOther current assets$5,658 $261 
Foreign currency forward contractsOther assets2,931  
Foreign currency forward contractsAccrued expenses3,171 2,176 
Forward sale contractOther current assets 3,904 
Derivatives designated as cash flow hedges:
Foreign currency forward contractsOther current assets$3,258 $362 
Foreign currency forward contractsOther assets5,639 679 
Foreign currency forward contractsAccrued expenses628 2,092 
Foreign currency forward contractsLong-term liabilities591 8,554 

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Losses associated with derivative instruments not designated as hedging instruments are as follows (in thousands):
Three Months EndedNine Months Ended
ClassificationOctober 2, 2021September 26, 2020October 2, 2021September 26, 2020
Loss recognized in incomeOther income, net$(1,606)$(2,232)$(11,229)$(3,475)

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 EndedNine Months Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Foreign currency forward contracts$6,851 $(11,230)$23,959 $(7,177)
(1)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
Gain recognized in earnings on cash flow hedging instruments
Three Months EndedNine Months Ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
RevenueRevenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded$440,682 $413,145 $1,109,539 $885,563 
Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings$1,161 $993 $1,878 $4,711 

8. Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 Fair Value Measurements as of
October 2, 2021
Level 1Level 2 (1)Level 3
Assets:
Money market funds$95,501 $ $ 
Marketable equity securities, $23,286 at cost (2)
29,909   
Derivative instruments (Note 7) 17,486  
Total assets measured at fair value$125,410 $17,486 $ 
Liabilities:
Derivative instruments (Note 7)$ $4,390 $ 
Total liabilities measured at fair value$ $4,390 $ 
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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.
(2)The related unrealized gain recorded in other income, net was $6.6 million for the three months ended October 2, 2021. Marketable equity securities are included in short term investments on the consolidated balance sheet.

9. Stockholders' Equity
Share Repurchase Activity
The Company's Board of Directors approved a stock repurchase program authorizing up to $200.0 million in share repurchases from time to time until September 5, 2021 which was extended until March 31, 2022. As of October 2, 2021, $25.0 million remained available for further repurchase under the program.
On August 2, 2021, 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. In September 2021, Wells Fargo delivered an additional 254,933 shares of the Company's common stock to complete settlement of the ASR agreement. Under this agreement, the Company repurchased a total of 1,198,218 shares of its common stock at an average price of $83.46, totaling $100.0 million during the three months ended October 2, 2021. The final number of shares repurchased was based on the volume-weighted average price of its common stock over the duration of the ASR agreement, less a discount.
On March 11, 2021, the Company 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 the second quarter of 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.

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.
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.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Accordingly, the Company has no liabilities recorded for these agreements as of October 2, 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 EndedNine Months Ended
 October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Balance at beginning of period$24,718 $13,769 $24,392 $13,856 
Provision10,913 5,525 31,334 13,395 
Warranty usage(7,570)(4,633)(27,665)(12,590)
Balance at end of period$28,061 $14,661 $28,061 $14,661 

11. Income Taxes
The Company recorded an income tax expense of $9.9 million and $30.0 million for the three months ended October 2, 2021 and September 26, 2020, respectively. The $9.9 million income tax expense for the three months ended October 2, 2021 resulted in an effective income tax rate of  14.7%. The $30.0 million income tax expense for the three months ended September 26, 2020 resulted in an effective tax rate of 24.3%. The decrease in the effective income tax rate was primarily due to the greater impact of tax benefits, such as the research and development tax credit, on a lower pretax income base.
The Company's 14.7% effective rate of income tax expense for the three months ended October 2, 2021 was lower than the federal statutory tax rate of 21% primarily because of the impact of tax benefit from foreign derived intangible income ("FDII") and research and development tax credits.
The Company recorded an income tax expense of $8.1 million and $39.2 million for the nine months ended October 2, 2021 and September 26, 2020, respectively. The $8.1 million income tax expense for the nine months ended October 2, 2021 resulted in an effective tax rate of 11.5%.  The $39.2 million income tax expense for the nine months ended September 26, 2020 resulted in an effective tax rate of 22.6%. The decrease in the effective income tax rate was primarily due to the recognition of discrete tax benefits related to stock-based compensation as well as the greater impact of tax benefits, such as the research and development income credit, on a lower pretax income base.
The Company's effective income tax rate of 11.5% for the nine months ended October 2, 2021 differed from the federal statutory tax rate of 21% primarily due to the recognition of discrete tax benefits related to stock-based compensation as well as the impact of tax benefits from FDII and research and development tax credits.
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 each of the three months ended October 2, 2021 and September 26, 2020, the Company generated 26.6% of total revenue from one of its retailers.
For the nine months ended October 2, 2021 and September 26, 2020, the Company generated 25.9% and 26.4% of total revenue, respectively, from one of its retailers.


17



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 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, robot-based artificial intelligence, mapping and navigation, machine vision, home understanding, human-robot interaction and physical solutions. Leveraging this portfolio, our engineers are building an ecosystem of robots to help realize the smart home’s potential. For more than 30 years, we have been a pioneer and leader in consumer robotics, robotic floor care and robotic artificial intelligence.
As of October 2, 2021, we had 1,343 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 a range of software-centric capabilities spanning artificial intelligence, home understanding and machine vision technologies that further improve cleaning performance and help personalize the cleaning experience, enabling customers to have greater control over where, when and how our robots clean. We believe that our significant expertise in robot design, engineering, and 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. For the three and nine months ended October 2, 2021, the incremental Section 301 tariff cost was $14.1 million and $29.2 million, respectively. We expect this incremental cost will continue to impact our gross profit for the remainder of fiscal 2021. To diversify our manufacturing and help offset the adverse financial impact on our business of the 25% Section 301 tariff, we are focused on scaling the manufacture of our products in Malaysia. We commenced production of our products in Malaysia in late 2019 and we remain on track to have Malaysia manufacturing at scale by the end of 2021.
To continue expanding our business globally and increase our profitability in a highly competitive marketplace, we have continued to make progress on each key element of our strategy: 1) differentiating the iRobot experience; 2) building strong relationships with the consumer; and 3) nurturing the lifetime value of our customer relationships.
We strive to differentiate the iRobot experience through the ongoing innovation of our existing product offerings and by bringing new products and services to market. During the first quarter of 2021, we enhanced the iRobot Genius Home Intelligence Platform ("Genius"), a powerful AI-based robot platform that gives users greater personalization and control over their cleaning robots. In September 2021, we introduced the latest upgrade to the Genius platform and launched our Roomba j7 Series robots featuring PrecisionVision Navigation technology in the U.S. and EMEA. Roomba j7 Series robots, powered by
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Genius, learn how to navigate the home, understand the owner's cleaning preferences and even recognize and avoid specific objects. The Roomba j7 Series with Genius provides greater levels of personalization, object detection and avoidance, new home automations and the ability to get smarter over time as it learns the home environment through the AI capabilities within Genius and receives over-the-air updates, allowing the robot to deliver a more intuitive cleaning experience.
To continue building strong relationships with our consumers worldwide, we are focused on enhancing all aspects of the consumer experience, including investing in our digital marketing and e-commerce capabilities. At the end of the third quarter of 2021, our connected customer base grew 60% from the same period one year ago to 12.5 million customers who have opted in to our digital communications.
We also continued to make important progress in nurturing the lifetime value of our customer relationships. In early April 2021, we introduced our new iRobot H1 handheld vacuum, enabling customers to purchase a complementary vacuum to clean in areas that our Roomba or Braava robots are typically unable to reach. In addition, we are now offering extended warranty plans to customers who purchase our products directly from us. During the third quarter of 2021, the Roomba j7+ joined the Roomba i7+ as one of two Roomba robots available for customers to choose when they join iRobot Select, a subscription-based membership program in which members may pay an initiation fee and a recurring monthly fee to use their robot along with dedicated customer support, automatic accessory replacement services, premium protection services and eligibility for robot upgrades every three years. Since the start of the pandemic over 18 months ago, more consumers are buying our products online. Our direct-to-consumer, or DTC, sales were $39.7 million and $119.7 million, 9.0% and 10.8% of total revenue, for the three and nine months ended October 2, 2021, respectively. DTC sales grew 13.0% and 45.2% during the three and nine months ended October 2, 2021, respectively, compared to the same periods a year ago. We continue to invest in initiatives aimed at increasing the frequency and range of products, services and accessories that customers purchase directly from us.
In addition to the pandemic's positive impact on accelerating demand for a wide range of consumer products including ours, it has also stressed the global supply chain involved in manufacturing these products. More specifically, semiconductor chip suppliers have been unable to keep pace with demand, the cost of raw materials such as resins has risen meaningfully along with oceanic transport and air freight costs. In addition to higher costs, it is also taking longer to transport products, regardless of the mode of transportation. We are taking a range of actions to manage through these supply chain challenges, from entering into longer-term supply agreements, qualifying new suppliers and leveraging our relationships with our contract manufacturers to efficiently export our products. During the third quarter of 2021, ocean transportation and air freight costs rose even higher than anticipated. We expect the higher transportation costs to remain elevated through at least the first three quarters of next year. We will continue to assess and implement measures to mitigate resulting adverse impacts on our operations and financial results.

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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 nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, is as follows:
 Three Months EndedNine Months Ended
 October 2, 2021September 26, 2020October 2, 2021September 26, 2020
(dollars in thousands, except average gross selling prices)
(unaudited)
Total Revenue$440,682 $413,145 $1,109,539 $885,563 
Non-GAAP Gross Profit$162,993 $199,397 $426,008 $417,636 
Non-GAAP Gross Margin37.0 %48.3 %38.4 %47.2 %
Non-GAAP Operating Income$47,981 $93,125 $71,885 $119,255 
Non-GAAP Operating Margin10.9 %22.5 %6.5 %13.5 %
Total robot units shipped (in thousands)1,543