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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 April 2, 2022
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 April 29, 2022 was 27,115,917.
        



iROBOT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 2022
INDEX
 Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
2





iROBOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
April 2, 2022January 1, 2022
ASSETS
Current assets:
Cash and cash equivalents$112,038 $201,457 
Short-term investments1,461 33,044 
Accounts receivable, net105,573 160,642 
Inventory331,085 333,296 
Other current assets96,749 61,094 
   Total current assets646,906 789,533 
Property and equipment, net71,877 78,887 
Operating lease right-of-use assets31,262 37,609 
Deferred tax assets50,995 37,945 
Goodwill169,964 173,292 
Intangible assets, net26,627 28,410 
Other assets38,834 38,753 
   Total assets$1,036,465 $1,184,429 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$172,908 $251,298 
Accrued expenses89,382 132,618 
Deferred revenue and customer advances13,298 11,767 
   Total current liabilities275,588 395,683 
Operating lease liabilities36,904 43,462 
Deferred tax liabilities3,187 3,250 
Other long-term liabilities25,584 25,311 
   Total long-term liabilities65,675 72,023 
   Total liabilities341,263 467,706 
Commitments and contingencies (Note 9)
Preferred stock, 5,000 shares authorized and none outstanding
  
Common stock, $0.01 par value, 100,000 shares authorized; 27,116 and 27,006 shares issued and outstanding, respectively
271 270 
Additional paid-in capital229,133 222,653 
Retained earnings455,304 485,710 
Accumulated other comprehensive income10,494 8,090 
   Total stockholders’ equity695,202 716,723 
   Total liabilities and stockholders’ equity$1,036,465 $1,184,429 
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 Ended
 April 2, 2022April 3, 2021
Revenue$291,969 $303,261 
Cost of revenue:
Cost of product revenue183,633 180,092 
Amortization of acquired intangible assets821 225 
Total cost of revenue
184,454 180,317 
Gross profit107,515 122,944 
Operating expenses:
Research and development42,529 41,920 
Selling and marketing61,065 50,990 
General and administrative26,698 23,440 
Amortization of acquired intangible assets510 205 
Total operating expenses130,802 116,555 
Operating (loss) income(23,287)6,389 
Other expense, net(16,746)(160)
(Loss) income before income taxes(40,033)6,229 
Income tax benefit(9,627)(1,214)
Net (loss) income$(30,406)$7,443 
Net (loss) income per share:
Basic$(1.12)$0.26 
Diluted$(1.12)$0.26 
Number of shares used in per share calculations:
Basic27,051 28,257 
Diluted27,051 29,086 
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 Ended
 April 2, 2022April 3, 2021
Net (loss) income$(30,406)$7,443 
Other comprehensive income:
Net foreign currency translation adjustments(4,015)(5,883)
Net unrealized gains on cash flow hedges, net of tax7,653 12,967 
Net (gains) losses on cash flow hedge reclassified into earnings, net of tax(1,234)391 
Net unrealized losses on marketable securities, net of tax (4)
Total comprehensive (loss) income$(28,002)$14,914 
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 January 1, 202227,006 $270 $222,653 $485,710 $8,090 $716,723 
Issuance of common stock under employee stock plans23  797 797 
Vesting of restricted stock units112 1 (1) 
Stock-based compensation7,208 7,208 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(25) (1,524)(1,524)
Other comprehensive income2,404 2,404 
Net loss(30,406)(30,406)
Balance at April 2, 202227,116 $271 $229,133 $455,304 $10,494 $695,202 
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 plans67 1 2,588 2,589 
Vesting of restricted stock units185 2 (2) 
Stock-based compensation6,782 6,782 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(41)(1)(4,755)(4,756)
Other comprehensive income7,471 7,471 
Directors' deferred compensation21 21 
Net income7,443 7,443 
Balance at April 3, 202128,395 $284 $209,890 $606,832 $6,978 $823,984 
The accompanying notes are an integral part of the consolidated financial statements.
6



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months Ended
 April 2, 2022April 3, 2021
Cash flows from operating activities:
Net (loss) income$(30,406)$7,443 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities, net of the effects of acquisition:
Depreciation and amortization11,241 7,501 
Loss on equity investment16,835  
Stock-based compensation7,208 6,782 
Deferred income taxes, net(15,571)(95)
Other 1,539 1,582 
Changes in operating assets and liabilities — (use) source
Accounts receivable54,299 101,459 
Inventory(1,688)(51,443)
Other assets(26,734)3,425 
Accounts payable(77,006)(15,438)
Accrued expenses and other liabilities(42,032)(32,522)
Net cash (used in) provided by operating activities(102,315)28,694 
Cash flows from investing activities:
Additions of property and equipment(3,113)(11,272)
Purchase of investments(500)(8,664)
Sales and maturities of investments16,213 63,644 
Net cash provided by investing activities12,600 43,708 
Cash flows from financing activities:
Proceeds from employee stock plans797 2,589 
Income tax withholding payment associated with restricted stock vesting(1,524)(4,756)
Net cash used in financing activities(727)(2,167)
Effect of exchange rate changes on cash and cash equivalents1,023 (2,116)
Net (decrease) increase in cash and cash equivalents(89,419)68,119 
Cash and cash equivalents, at beginning of period201,457 432,635 
Cash and cash equivalents, at end of period$112,038 $500,754 
The accompanying notes are an integral part of the consolidated financial statements.
7



iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
iRobot Corporation ("iRobot" or the "Company") designs, builds and sells robots and home innovations that make life better. The Company's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. iRobot's durable and high-performing robots are designed using the close integration of software, electronics and hardware. The Company’s revenue is primarily generated from product sales through a variety of distribution channels, including chain stores and other national retailers, through the Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers and through value-added distributors and resellers worldwide.
2. Summary of Significant Accounting Policies
Basis of Presentation and Foreign Currency Translation
The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany balances and transactions. iRobot has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP").
In the opinion of management, all adjustments necessary to the unaudited interim consolidated financial statements have been made to state fairly the Company's financial position. Interim results are not necessarily indicative of results for the full fiscal year or any future periods. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the Securities and Exchange Commission on February 15, 2022.
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 Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board 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, standalone selling price, variable consideration and other obligations such as sales incentives and product returns; allowance for credit losses; accounting for business combinations; impairment of goodwill and long-lived assets; valuation of non-marketable equity investments; product warranties; loss contingencies; accounting for stock-based compensation including performance-based assessments; and accounting for income taxes and related valuation allowances. The Company bases its estimates and assumptions on historical experience, market participant fair value considerations, projected future cash flows, current economic conditions, including impact from COVID-19 pandemic and the uncertainty imposed by the conflict between Russia and Ukraine, and various other factors that the Company believes are reasonable under the circumstances. Actual results and outcomes may differ from the Company’s estimates and assumptions.
Short-Term Investments
The Company's short term investments include marketable equity securities with readily determinable fair value and debt securities. The fair value of investments is determined based on quoted market prices at the reporting date for those instruments. The change in fair value of the Company's investments in marketable equity securities is recognized as unrealized gains and losses in other income, net at the end of each reporting period.
As of January 1, 2022, the Company held 1.6 million shares of Matterport, Inc. ("Matterport") from the Matterport merger in 2021 with shares received subject to time based contractual sales restrictions that expired in January 2022. During the three months ended April 2, 2022, the Company sold these Matterport shares and received net proceeds of $16.2 million and recognized a loss of $16.8 million during the period. In addition, during the three months ended April 2, 2022, the Company received an additional 0.2 million shares of Matterport upon achievement of conditions set forth in the merger agreement and recorded an unrealized gain of $1.5 million in other income (expense), net during the period. As of April 2, 2022 and January 1,
8

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
2022, the Company had $1.5 million and $33.0 million, respectively, in short term investments related to these shares. Subsequent to April 2, 2022, the Company sold the remaining Matterport shares and received net proceeds of $1.2 million and recognized a loss of $0.3 million during the second quarter of fiscal 2022.
Allowance for Credit Losses
The Company maintains an allowance for credit losses for accounts receivable using an expected loss model that requires the use of forward-looking information to calculate credit loss estimate. The expected loss methodology is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, customer concentrations, current and future economic and market conditions and age of the receivable. As of April 2, 2022 and January 1, 2022, the Company had an allowance for credit losses of $4.1 million and $4.6 million, respectively.
Tariff Refunds
On March 23, 2022, the Company was granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. This tariff exclusion entitles the Company to a refund of approximately $29.8 million in tariffs comprised of $11.7 million in tariffs paid on Roomba robots imported after October 12, 2021 and sold during fiscal 2021, $5.9 million for tariffs paid during the first quarter of 2022 and $12.2 million for on-hand inventory imported after October 12, 2021. While tariff refund claims are subject to the approval of U.S. Customs, the Company currently expects to recover the entire balance of $29.8 million within the next twelve months. The refund receivable is recorded in other current assets on the consolidated balance sheet.
Inventory
Inventory primarily consists of finished goods and, to a lesser extent, components, which are purchased from contract manufacturers. Inventory is stated at the lower of cost or net realizable value with cost being determined using the standard cost method, which approximates actual costs determined on the first-in, first-out basis. Inventory costs primarily consist of materials, inbound freight, import duties, tariffs, and other handling fees. The Company writes down its inventory for estimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand. Net realizable value is the estimated selling price less estimated costs of completion, disposal and transportation. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue and have not been significant for the periods presented.
Strategic Investments
The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. These investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. The Company monitors non-marketable equity investments for impairment indicators, such as deterioration in the investee's financial condition and business forecasts and lower valuations in recent or proposed financings. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. Changes in fair value of non-marketable equity investments are recorded in other expense, net on the consolidated statement of operations. At April 2, 2022 and January 1, 2022, the Company's equity securities without readily determinable fair values totaled $15.3 million and $16.3 million, respectively, and are included in other assets on the consolidated balance sheets.
Net (Loss) Income Per Share
Basic income per share is calculated using the Company's weighted-average outstanding shares of common stock. 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.
9

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 Ended
 April 2, 2022April 3, 2021
Net (loss) income$(30,406)$7,443 
Basic weighted-average common shares outstanding27,051 28,257 
Dilutive effect of employee stock awards 829 
Diluted weighted-average common shares outstanding27,051 29,086 
Net (loss) income per share - Basic$(1.12)$0.26 
Net (loss) income per share - Diluted$(1.12)$0.26 
Employee stock awards representing approximately 0.6 million and nil shares of common stock for the three months ended April 2, 2022 and April 3, 2021, respectively, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.

3. Revenue Recognition
The Company primarily derives its revenue from the sale of consumer robots and accessories. The Company sells products directly to consumers through online stores and indirectly through resellers and distributors. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns and other credits and incentives. Revenue is recognized only to the extent that it is probable that a significant reversal of revenue will not occur and when collection is considered probable. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Shipping and handling expenses are considered fulfillment activities and are expensed as incurred.
Frequently, the Company’s contracts with customers contain multiple promised goods or services. Such contracts may include any of the following, the consumer robot, downloadable app, cloud services, accessories on demand, potential future unspecified software upgrades, premium customer care and extended warranties. For these contracts, the Company accounts for the promises separately as individual performance obligations if they are distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. The Company’s consumer robots are highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a single performance obligation. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one performance obligation to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services"). Other services and support are considered distinct and therefore are treated as separate performance obligations.
The Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices ("SSPs"). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the facts and circumstances related to each performance obligation including, market data or the estimated cost of providing the products or services. The transaction price allocated to the robot is recognized as revenue at a point in time when control is transferred, generally as title and risk of loss pass, and when collection is considered probable. The transaction price allocated to the Cloud Services is deferred and recognized on a straight-line basis over the estimated term of the Cloud Services. Other services and support are recognized over their service periods. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of April 2, 2022 and January 1, 2022 was $21.3 million and $20.9 million, respectively.
The Company’s products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under ASC 460, "Guarantees." For contracts with the right to upgrade to a new product after a specified period of time, the Company accounts for this trade-in right as a guarantee obligation under ASC 460. The total transaction price is reduced by the full amount of the trade-in right's fair value and the remaining transaction price is allocated between the performance obligations within the contract.
10

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Company provides limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns. In addition, the Company may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Overall, these reserves reflect the Company’s best estimates, and the actual amounts of consideration ultimately received may differ from the Company’s estimates. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of April 2, 2022, the Company had reserves for product returns of $44.7 million and other credits and incentives of $63.7 million. As of January 1, 2022, the Company had reserves for product returns of $56.8 million and other credits and incentives of $101.6 million. The Company regularly evaluates the adequacy of its estimates for product returns and other credits and incentives. Future market conditions and product transitions may require the Company to take action to change such programs and related estimates. When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, the Company would be required to increase or reduce revenue to reflect the impact. During the three months ended April 2, 2022 and April 3, 2021, changes to these estimates related to performance obligations satisfied in prior periods were not material.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by geographical region (in thousands):
Three Months Ended
April 2, 2022April 3, 2021
United States$153,174 $114,772 
EMEA65,661 116,233 
Japan50,521 40,575 
Other22,613 31,681 
Total revenue$291,969 $303,261 
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
April 2, 2022January 1, 2022
Accounts receivable, net$96,357 $155,659 
Unbilled receivables9,216 8,747 
Contract liabilities24,219 22,996 
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables represent revenue recognized in excess of billings Contract liabilities include deferred revenue associated with the Cloud Services and extended warranty plans as well as prepayments received from customers in advance of product shipments. During the three months ended April 2, 2022 and April 3, 2021, the Company recognized $4.7 million and $7.3 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. The operating leases expire at various dates through 2030.

11

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The components of lease expense were as follows (in thousands):
Three Months Ended
April 2, 2022April 3, 2021
Operating lease cost$851 $1,987 
Variable lease cost918 895 
Total lease cost$1,769 $2,882 
Supplemental cash flow information related to leases was as follows (in thousands):
Three Months Ended
April 2, 2022April 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,039 $2,279 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$ $ 
At April 2, 2022, the Company's weighted average discount rate was 3.99%, while the weighted average remaining lease term was 7.30 years.
Maturities of operating lease liabilities were as follows as of April 2, 2022 (in thousands):
Remainder of 2022$5,687 
20237,392 
20246,099 
20255,838 
20265,858 
Thereafter18,976 
Total minimum lease payments$49,850 
Less: imputed interest6,900 
Present value of future minimum lease payments$42,950 
Less: current portion of operating lease liabilities (Note 6)6,046 
Long-term lease liabilities$36,904 
During January 2022, the Company amended its lease on the corporate headquarters to reduce square footage. The reduction decreased the Company's future right-of-use assets and lease liabilities by $5.6 million.

5. Goodwill and Other Intangible Assets
The following table summarizes the activity in the carrying amount of goodwill and intangible assets for the three months ended April 2, 2022 (in thousands):
GoodwillIntangible assets
Balance as of January 1, 2022$173,292 $28,410 
Purchase accounting adjustments(1,152) 
Amortization— (1,331)
Effect of foreign currency translation(2,176)(452)
Balance as of April 2, 2022$169,964 $26,627 
12

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. Accrued Expenses
Accrued expenses consisted of the following at (in thousands):
April 2, 2022January 1, 2022
Accrued warranty$30,239 $32,019 
Accrued compensation and benefits17,319 19,029 
Accrued manufacturing and logistics cost6,567 23,038 
Current portion of operating lease liabilities6,046 6,220 
Accrued sales and other indirect taxes payable4,922 9,599 
Derivative liability2,198 2,600 
Accrued bonus1,991 11,375 
Accrued income taxes642 1,788 
Accrued other19,458 26,950 
$89,382 $132,618 

7. Derivative Instruments and Hedging Activities
The Company enters into derivative instruments that are designated as cash flow hedges to reduce its exposure to foreign currency exchange risk in sales. These contracts typically have maturities of three years or less. At April 2, 2022 and January 1, 2022, the Company had outstanding cash flow hedges with a total notional value of $497.6 million and $423.3 million, respectively.
The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce foreign currency exchange risk related to short term trade receivables and payables. These contracts typically have maturities of twelve months or less. At April 2, 2022 and January 1, 2022, the Company had outstanding foreign currency economic hedges with a total notional value of $249.0 million and $325.4 million, respectively.
The fair values of derivative instruments were as follows (in thousands):
Fair Value
ClassificationApril 2, 2022January 1, 2022
Derivatives not designated as hedging instruments:
Foreign currency forward contractsOther current assets$9,807 $8,362 
Foreign currency forward contractsOther assets994 1,627 
Foreign currency forward contractsAccrued expenses2,198 2,377 
Derivatives designated as cash flow hedges:
Foreign currency forward contractsOther current assets$10,221 $4,110 
Foreign currency forward contractsOther assets11,549 9,610 
Foreign currency forward contractsAccrued expenses 223 
Foreign currency forward contractsLong-term liabilities74 407 

Gain (loss) associated with derivative instruments not designated as hedging instruments were as follows (in thousands):
Three Months Ended
ClassificationApril 2, 2022April 3, 2021
Gain (loss) recognized in incomeOther expense, net$2,064 $(10,013)

13

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following tables reflect the effect of derivatives designated as cash flow hedging (in thousands): 
Gain recognized in OCI on Derivative (1)
Three Months Ended
April 2, 2022April 3, 2021
Foreign currency forward contracts$10,257 $17,154 
(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 Ended
April 2, 2022April 3, 2021
Revenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded$291,969 $303,261 
Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain (loss) reclassified from AOCI into earnings$1,639 $(517)

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
April 2, 2022
Level 1Level 2 (1)Level 3
Assets:
Money market funds$11,606 $ $ 
Marketable equity securities, $0 at cost (2)
1,461   
Derivative instruments (Note 7) 32,571  
Total assets measured at fair value$13,067 $32,571 $ 
Liabilities:
Derivative instruments (Note 7)$ $2,272 $ 
Total liabilities measured at fair value$ $2,272 $ 
14

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
 Fair Value Measurements as of
January 1, 2022
 Level 1Level 2 (1)Level 3
Assets:
Money market funds$33,003 $ $ 
Marketable equity securities, $23,286 at cost
33,044   
Derivative instruments (Note 7) 23,709  
Total assets measured at fair value$66,047 $23,709 $ 
Liabilities:
Derivative instruments (Note 7)$ $3,007 $ 
Total liabilities measured at fair value$ $3,007 $ 
(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 expense, net was $1.5 million for the three months ended April 2, 2022. Marketable equity securities are included in short-term investments on the consolidated balance sheet.

9. 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. Accordingly, the Company had no liabilities recorded for these agreements as of April 2, 2022 and January 1, 2022, respectively.
Warranty
The Company provides warranties on most products and has established a reserve for warranty obligations based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 6) in the accompanying consolidated balance sheets.    
Activity related to the warranty accrual was as follows (in thousands):
 Three Months Ended
 April 2, 2022April 3, 2021
Balance at beginning of period$32,019 $24,392 
Provision6,036 10,185 
Warranty usage(7,816)(10,673)
Balance at end of period$30,239 $23,904 

10. Income Taxes
Ordinarily, the Company’s interim provision for income taxes is determined using an estimate of the annual effective tax rate. The Company records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items. However, for the first quarter of 2022, the Company concluded that the estimated
15

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
annual effective tax rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate due to the range of potential impacts of the ongoing global COVID-19 pandemic, heightened inflation and reduced consumer confidence stemming from the Russia-Ukraine war may have on its business and results of operations. Accordingly, the Company has computed the tax provision using the actual effective tax rate for the three months ended April 2, 2022.
The Company recorded an income tax benefit of $9.6 million and $1.2 million for the three months ended April 2, 2022 and April 3, 2021, respectively. The $9.6 million income tax benefit for the three months ended April 2, 2022 resulted in an effective income tax rate of  24.0%. The $1.2 million income tax benefit for the three months ended April 3, 2021 resulted in an effective tax rate of (19.5)%. The change in effective income tax rate was primarily driven by a discrete tax item of excess stock-based compensation windfalls recognized for the three months ended April 3, 2021 compared to stock-based compensation shortfalls recognized during the current period.
The Company's 24.0% effective rate of income tax for the three months ended April 2, 2022 was higher than the federal statutory tax rate of 21% primarily because of the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.
11. Industry Segment, Geographic Information and Significant Customers
The Company operates as one operating segment. The Company's consumer robots are offered to consumers through a variety of distribution channels, including chain stores and other national retailers, through the Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers, and through value-added distributors and resellers worldwide.
Significant Customers
For the three months ended April 2, 2022 and April 3, 2021, the Company generated 26.6% and 17.0%, respectively, of total revenue from one of its retailers.
12. Subsequent Event
Credit Facility
On May 4, 2022, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of America N.A. (the "Amendment") with an effective date of March 31, 2022. The Amendment waives the quarterly tested leverage and interest coverage covenants in the Credit Agreement for the first, second and third quarters of 2022. The interest coverage ratio calculation for the fourth quarter of 2022 was changed to a trailing nine months. Additionally, a new liquidity covenant was added for all of fiscal 2022. The Amendment also increases the borrowing rate under the facility for 2022 to LIBOR plus 1.5%. With this Amendment, as of April 2, 2022, the Company is in compliance with the covenants under the Credit Agreement.

16



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 new product sales, product development and offerings, ability to address consumer needs, the expansion of our addressable market, factors for differentiation of our products, product integration plans, our consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, revenue recognition, our profits, growth of our revenues, composition of our revenues, our cost of revenues, units shipped, average selling prices, the impact of promotional activity and tariffs, operating expenses, selling and marketing expenses, general and administrative expenses, research and development expenses, and compensation costs, our projected income tax rate, our credit and letter of credit facilities, our valuations of investments, valuation and composition of our stock-based awards, efforts to mitigate supply chain challenges, availability of semiconductor chips, 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 and negative forms of such terms. Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. We urge you to consider the risks and uncertainties discussed in greater detail under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and in Part 1, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended January 1, 2022 in evaluating our forward-looking statements. We have no plans to update our forward-looking statements to reflect events or circumstances after the date of this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.
Overview
iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more. With over 30 years of artificial intelligence ("AI") and advanced robotics experience, we are focused on building thoughtful robots and developing intelligent home innovations that help make life better for millions of people around the world. iRobot's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio, we plan to add new capabilities and expand our offerings to help consumers make their homes easier to maintain, more efficient, more secure and healthier places to live.
As of April 2, 2022, we had 1,415 full-time employees. Since our founding in 1990, we have developed the expertise necessary to design, build, sell and support durable, high-performance and cost-effective robots through the close integration of software, electronics and hardware. Our core technologies serve as reusable building blocks that we adapt and expand to create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs, time and other risks associated with product development. These capabilities are amplified by our Genius Home Intelligence ("Genius") platform, which leverages our considerable expertise and ongoing investment in AI, home understanding and machine vision technologies to provide consumers with greater control over our products, simple integration with other smart home devices, recommendations that further enhance the cleaning experience and the ability to share and transfer home knowledge across multiple iRobot robots. We believe that the capabilities within Genius will support our ability to build out a larger ecosystem that encompasses a broader range of adjacent robotic and smart home categories. We believe that our significant expertise in robot design, engineering, and smart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to expand our total addressable market and capitalize on the anticipated growth in a wider range of robotic and smart home categories.
To continue expanding our business globally and increase our profitability in a highly competitive marketplace, we have continued to make progress on each key element of our strategy: innovate, get, keep and grow. In March 2022, iRobot released Genius 4.0 Home Intelligence, which adds a number of new pragmatic, convenient new experiences, makes Imprint Smart Mapping available for Roomba i3 and i3+ customers, and increases the range of objects that our Roomba j7 robot can identify and avoid. In addition, we continued to expand our connected customer base, focus on ways to keep customer use of our products and overall satisfaction levels high, and advance key commercial activities aimed at increasing existing customer revenue, especially through our direct-to-consumer channel.
In March 2022, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. The tariff exclusion entitles us to a refund of approximately $29.8 million in tariffs comprised of $11.7 million in tariffs paid on Roomba robots imported after October 12, 2021 and sold during fiscal 2021, $5.9 million for tariffs paid during the first quarter of 2022 and $12.2 million for on-hand inventory imported after October 12, 2021.
17



In addition to the ongoing impact of the COVID-19 pandemic, we anticipate potential disruptions in the consumer marketplace, particularly in EMEA, primarily driven by a combination of heightened inflation that threatens to curb consumer spending and reduced consumer confidence stemming from the Russia-Ukraine war. In March 2022, in response to the Russian invasion of Ukraine, we halted all new sales of our products to Russia. Revenue from our Russian distributor in 2021 was not material to our business.

Key Financial Metrics and Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following key metrics, including non-GAAP financial measures, to evaluate and analyze our core operating performance and trends, and to develop short-term and long-term operational plans. The most directly comparable financial measures to the following non-GAAP metrics calculated under U.S. GAAP are gross profit and operating (loss) income. During the three months ended April 2, 2022 and April 3, 2021, we had gross profit of $107.5 million and $122.9 million, respectively, and operating (loss) income of $(23.3) million and $6.4 million, respectively. A summary of key metrics for the three months ended April 2, 2022, as compared to the three months ended April 3, 2021, is as follows:
 Three Months Ended
 April 2, 2022April 3, 2021
(dollars in thousands, except average gross selling prices)
(unaudited)
Total Revenue$291,969 $303,261 
Non-GAAP Gross Profit$100,588 $123,531 
Non-GAAP Gross Margin34.5 %40.7 %
Non-GAAP Operating (Loss) Income$(18,516)$14,954 
Non-GAAP Operating Margin(6.3)%4.9 %
Total robot units shipped (in thousands)974 1,088 
Average gross selling prices for robot units$333 $319 
Our non-GAAP financial measures reflect adjustments based on the following items. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results, provided below, should be carefully evaluated.
Amortization of acquired intangible assets: Amortization of acquired intangible assets consists of amortization of intangible assets including completed technology, customer relationships, and reacquired distribution rights acquired in connection with business combinations.
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 including adjustments after the measurement period has ended.
Stock-Based Compensation: Stock-based compensation is a non-cash charge relating to stock-based awards.
Tariff Refunds: We were granted an exclusion from Section 301 List 3 in March 2022, which temporarily eliminates tariffs on our Roomba products imported from China beginning on October 12, 2021 until December 31, 2022. This temporary exclusion entitles us to a refund of all related tariffs previously paid since October 12, 2021. We exclude the refunds for tariff costs expensed during fiscal 2021 from our fiscal 2022 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the past have no impact to our current period earnings.
IP Litigation Expense, Net: IP litigation expense, net relates to legal costs incurred to litigate patent, trademark, copyright and false advertising infringements, or to oppose or defend against interparty actions related to intellectual property. Any settlement payment or proceeds resulting from these infringements are included or netted against the costs.
Restructuring and Other: Restructuring charges are related to one-time actions associated with realigning resources, enhancing operational productivity and efficiency, or improving our cost structure in support of our strategy. Such actions are
18



not reflective of ongoing operations and include costs primarily associated with severance costs, certain professional fees, costs associated with consolidation of warehouses, and other non-recurring costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.
Gain/Loss on Strategic Investments: Gain/loss on strategic investments includes fair value adjustments, realized gains and losses on the sales of these investments and losses on the impairment of these investments.
Income tax adjustments: Income tax adjustments include the tax effect of the non-GAAP adjustments, calculated using the appropriate statutory tax rate for each adjustment. We reassess the need for any valuation allowance recorded based on the non-GAAP profitability and have eliminated the effect of the valuation allowance recorded in the U.S. jurisdiction. We also exclude certain tax items, including impact from stock-based compensation windfalls/shortfalls, that are not reflective of income tax expense incurred as a result of current period earnings.
We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to our past operating performance. These items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities. In addition, we believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared with our peer companies.
19



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 months ended April 2, 2022 and April 3, 2021:
Three Months Ended
April 2, 2022April 3, 2021
(in thousands, except per share amounts)
 GAAP Gross Profit$107,515 $122,944 
   Amortization of acquired intangible assets821 225 
   Stock-based compensation441 362 
   Tariff refunds(11,727)— 
   Restructuring and other3,538 — 
 Non-GAAP Gross Profit$100,588 $123,531 
 Non-GAAP Gross Margin34.5 %40.7 %
 GAAP Operating (Loss) Income$(23,287)$6,389 
   Amortization of acquired intangible assets1,331 430 
   Stock-based compensation7,208 6,782 
   Tariff refunds(11,727)— 
   Net merger, acquisition and divestiture expense109 — 
   IP litigation expense, net3,487 1,140 
   Restructuring and other4,363 213 
 Non-GAAP Operating (Loss) Income$(18,516)$14,954 
 Non-GAAP Operating Margin(6.3)%4.9 %
 GAAP Net (Loss) Income$(30,406)$7,443 
   Amortization of acquired intangible assets1,331 430 
   Stock-based compensation7,208 6,782 
   Tariff refunds(11,727)— 
   Net merger, acquisition and divestiture expense109 — 
   IP litigation expense, net3,487 1,140 
   Restructuring and other4,363 213 
   Loss (gain) on strategic investments16,835 (38)
   Income tax effect(9,185)(4,051)
 Non-GAAP Net (Loss) Income$(17,985)$11,919 
 GAAP Net (Loss) Income Per Diluted Share$(1.12)$0.26 
   Dilutive effect of non-GAAP adjustments0.46 0.15 
 Non-GAAP Net (Loss) Income Per Diluted Share$(0.66)$0.41 
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates and assumptions are based on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results and outcomes may differ from our estimates and assumptions.
The critical accounting policies affected most significantly by estimates and assumptions used in the preparation of our consolidated financial statements are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the Securities and Exchange Commission on February 15, 2022. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements. There have been no material changes in these critical accounting policies and estimates.

20



Overview of Results of Operations
The following table sets forth our results of operations as a percentage of revenue:
 Three Months Ended
 April 2, 2022April 3, 2021
Revenue100.0 %100.0 %
Cost of revenue:
Cost of product revenue62.9 59.4 
Amortization of acquired intangible assets0.3 0.1 
Total cost of revenue63.2 59.5 
Gross profit36.8 40.5 
Operating expenses:
Research and development14.6 13.8 
Selling and marketing20.9 16.8 
General and administrative9.1 7.7 
Amortization of acquired intangible assets0.2 0.1 
Total operating expenses44.8 38.4 
Operating (loss) income(8.0)2.1 
Other expense, net(5.7)— 
(Loss) income before income taxes(13.7)2.1 
Income tax benefit(3.3)(0.4)
Net (loss) income(10.4)%2.5 %
Comparison of Three Months Ended April 2, 2022 and April 3, 2021
Revenue
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
  (Dollars in thousands) 
Revenue$291,969 $303,261 $(11,292)(3.7)%
Revenue for the three months ended April 2, 2022 decreased $11.3 million to $292.0 million, or 3.7%, from $303.3 million for the three months ended April 3, 2021. Geographically, in the three months ended April 2, 2022, international revenue decreased $49.7 million, or 26.4%, which primarily reflected a 43.5% decrease in EMEA largely due to an exceptionally strong quarter in the EMEA region a year ago. The decrease was slightly offset by a $9.9 million, or 24.5% increase in Japan, while domestic revenue increased $38.4 million, or 33.5%, compared to the three months ended April 3, 2021. The decrease in revenue was also impacted by a 10.5% decrease in total robots shipped offset by a 4.4% increase in gross average selling price for the three months ended April 2, 2022, compared to the three months ended April 3, 2021. Despite the decrease in total revenue, our direct-to-consumer revenue growth of 16.8% to $40.8 million, or 14.0% of total revenue, reflected continued expansion of this channel as we invested in enhancing the online buying experience and upgrading our digital marketing capabilities.
Cost of Product Revenue
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Cost of product revenue$183,633 $180,092 $3,541 2.0 %
As a percentage of revenue62.9 %59.4 %
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Cost of product revenue increased to $183.6 million in the three months ended April 2, 2022, compared to $180.1 million in the three months ended April 3, 2021. The increase in cost was driven by higher supply chain cost continuing from the second half of fiscal 2021 and a one-time action associated with the consolidation of warehouses in the U.S. These increases in cost of product revenue are mostly offset by lower product cost driven by a 3.7% decrease in revenue and lower Section 301 tariff expense during the three months ended April 2, 2022. In March 2022, we were granted a temporary exclusion from Section 301 List 3 tariffs which eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. As a result of this exclusion, we recognized approximately $11.7 million as a benefit to cost of product revenue related to tariffs expensed in fiscal 2021 during the three months ended April 2, 2022, compared to $3.4 million in tariff expense during the three months ended April 3, 2021.
Gross Profit
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Gross profit$107,515 $122,944 $(15,429)(12.5)%
Gross margin36.8 %40.5 %
Gross margin decreased to 36.8% in the three months ended April 2, 2022, compared to 40.5% in the three months ended April 3, 2021. Gross margin decreased 3.7% driven by continuing supply chain headwinds with increases in freight and material costs, along with price reductions and higher promotional activities for certain products of varying magnitudes across regions. The decrease is offset by lower warranty expense and tariff cost as we were granted temporary exclusion from Section 301 List 3 which eliminates the 25% tariffs on Roomba products imported from China as previously described. In addition, gross margin was favorably impacted from $11.7 million recognized as a benefit from tariff refunds during the three months ended April 2, 2022 related to tariffs expensed in fiscal 2021. We expect gross margin pressure to continue over the next few quarters, as we anticipate continued elevated costs associated with increased raw materials, oceanic transport and air freight expenses as well as higher component costs associated with limited semiconductor chip availability.
Research and Development
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Research and development$42,529 $41,920 $609 1.5 %
As a percentage of revenue14.6 %13.8 %
Research and development expenses increased $0.6 million, or 1.5%, to $42.5 million (14.6% of revenue) in the three months ended April 2, 2022 from $41.9 million (13.8% of revenue) in the three months ended April 3, 2021. This increase was primarily due to a $2.4 million increase in people-related costs associated with additional headcount, offset by lower short-term incentive compensation cost of $2.0 million.
Selling and Marketing
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Selling and marketing$61,065 $50,990 $10,075 19.8 %
As a percentage of revenue20.9 %16.8 %
Selling and marketing expenses increased $10.1 million, or 19.8%, to $61.1 million (20.9% of revenue) in the three months ended April 2, 2022 from $51.0 million (16.8% of revenue) in the three months ended April 3, 2021. This increase was primarily attributable to higher marketing spend of $7.0 million associated with increased use of working media to drive sales growth, $2.0 million increase in people-related costs associated with additional headcount as well as $0.9 million higher technology related cost including cloud service and maintenance and support fees as we continue to invest in our digital marketing and e-commerce capabilities. These increases were offset by lower short-term incentive compensation of $0.8 million.
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General and Administrative
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
General and administrative$26,698 $23,440 $3,258 13.9 %
As a percentage of revenue9.1 %7.7 %
General and administrative expenses increased $3.3 million, or 13.9%, to $26.7 million (9.1% of revenue) in the three months ended April 2, 2022 from $23.4 million (7.7% of revenue) in the three months ended April 3, 2021. This increase was primarily due to a $1.6 million increase in legal fees driven by higher intellectual property litigation costs and a $1.2 million increase in enterprise software maintenance, support and services. In addition, during the three months ended April 2, 2022, the allowance for credit loss decreased $0.5 million as compared to a decrease of $2.1 million during the three months ended April 3, 2021. These increases were partially offset by lower vesting expectations related to our performance-based stock-based compensation and lower short-term incentive compensation cost of $1.9 million.
Amortization of Acquired Intangible Assets
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Cost of revenue$821 $225 $596 264.9 %
Operating expense510 205 305 148.8 %
Total amortization expense$1,331 $430 $901 209.5 %
As a percentage of revenue0.5 %0.1 %
The increase in amortization of acquired intangible assets in the three months ended April 2, 2022 as compared to the three months ended April 3, 2021, was primarily related to the acquired intangible assets as part of the acquisition of Aeris Cleantec AG in the fourth quarter of 2021.
Other Expense, Net
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Other expense, net$(16,746)$(160)$(16,586)10,366.3 %
As a percentage of revenue(5.7)%— %
During the three months ended April 2, 2022, other expense, net primarily consists of a realized loss of $16.8 million associated with the sale of Matterport shares. Other expense, net includes interest income, interest expense, foreign currency gains (losses) as well as gains (losses) from strategic investments.
Income Tax Benefit
 Three Months Ended
 April 2, 2022April 3, 2021Dollar
Change
Percent
Change
 (Dollars in thousands)
Income tax benefit$(9,627)$(1,214)$(8,413)693.0 %
Effective income tax rate24.0 %(19.5)%
We recorded an income tax benefit of $9.6 million and $1.2 million for the three months ended April 2, 2022 and April 3, 2021, respectively. The $9.6 million income tax benefit for the three months ended April 2, 2022 resulted in an effective income tax rate of 24.0%. The $1.2 million income tax benefit for the three months ended April 3, 2021 resulted in an effective income tax rate of (19.5)%. The change in effective tax rate was primarily driven by a discrete tax item of excess stock-based
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compensation windfalls recognized for the three months ended April 3, 2021 compared to stock-based compensation shortfalls recognized during the current period.
Our 24.0% effective rate of income tax for the three months ended April 2, 2022 was higher than the federal statutory tax rate of 21% primarily because of the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.
Liquidity and Capital Resources
At April 2, 2022, our principal sources of liquidity were cash and cash equivalents totaling $112.0 million. Our working capital, which represents our total current assets less total current liabilities, was $371.3 million as of April 2, 2022, compared to $393.9 million as of January 1, 2022. Cash and cash equivalents held by our foreign subsidiaries totaled $51.2 million as of April 2, 2022. We expect the cash held overseas to be permanently reinvested outside of the United States, and our U.S. operation to be funded through its own operating cash flows, cash, and if necessary, through borrowing under our working capital credit facility.
We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We
believe this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels. By leasing our office facilities, we also minimize the cash needed for expansion, and only invest periodically in leasehold improvements a portion of which is often reimbursed by the landlords of these facilities. Accordingly, our capital spending is generally limited to machinery and tooling, leasehold improvements, business applications software and computer and equipment. During the three months ended April 2, 2022 and April 3, 2021, we spent $3.1 million and $11.3 million, respectively, on capital expenditures.
Our strategy for delivering consumer products to our distributors and retail customers gives us the flexibility to provide container shipments directly from our contract manufacturers in Southern China and Malaysia to our customers and, alternatively, allows our distributors and certain retail customers to take possession of product on a domestic basis. Accordingly, our inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products, and they typically invoice us when the finished goods are shipped.
Cash used in operating activities
Net cash used in operating activities for the three months ended April 2, 2022 was $102.3 million, of which the principal components were the cash outflow of $93.2 million from change in working capital and our net loss of $30.4 million, partially offset by non-cash charges of $21.3 million. The change in working capital was driven by decreases in accounts payable and accrued liabilities of $119.0 million. This was partially offset by a decrease in accounts receivable of $54.3 million.
Cash provided by investing activities
Net cash provided by investing activities for the three months ended April 2, 2022 was $12.6 million. During the three months ended April 2, 2022, we received $16.2 million from the sales and maturities of our investments while we paid $0.5 million for the purchases of investments. We invested $3.1 million in the purchase of property and equipment, including machinery and tooling for new products.
Cash used in financing activities
Net cash used in financing activities for the three months ended April 2, 2022 was $0.7 million. During the three months ended April 2, 2022, we received $0.8 million from employee stock plans and paid $1.5 million upon vesting of restricted stock where 25,213 shares were retained by us to cover employee tax withholdings.
Working Capital Facilities
Credit Facility
We currently have a $150 million unsecured revolving line of credit which expires in June 2023. As of April 2, 2022, we had no outstanding borrowings under our revolving credit facility. The revolving line of credit is available to fund working capital and other corporate purposes. The interest on loans under our credit facility accrues, at our election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on our ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender’s base rate. The lender’s base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender’s prime rate and (3) the Eurodollar Rate plus 1.0%. In the event USD LIBOR is discontinued as expected in June 2023, we expect the interest rates for our debt following such event will be based on either alternate base rates or agreed upon replacement rates. While we do not expect a LIBOR discontinuation would affect our ability to borrow or maintain already outstanding borrowings, it could result in higher interest rates.
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The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on our ability to incur or guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or merge with other entities. In addition, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio.
The credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, our obligations under the credit facility may be accelerated. On May 4, 2022, we entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of America N.A. (the "Amendment") with an effective date of March 31, 2022. The Amendment waives the quarterly tested leverage and interest coverage covenants in the Credit Agreement for the first, second and third quarters of 2022. The interest coverage ratio calculation for the fourth quarter of 2022 was changed to a trailing nine months. Additionally, a new liquidity covenant was added for the remainder of 2022. The Amendment also increases the borrowing rate under the Credit Agreement for 2022 to LIBOR plus 1.5%. With this Amendment, as of April 2, 2022, we are in compliance with the covenants under the Credit Agreement.
Lines of Credit
We have an unsecured letter of credit facility with Bank of America, N.A., available to fund letters of credit up to an aggregate outstanding amount of $5.0 million. As of April 2, 2022, we had letters of credit outstanding of $0.4 million under our letter of credit facility and other lines of credit with Bank of America, N.A.
We have an unsecured guarantee line of credit with Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount of 250.0 million Japanese Yen. As of April 2, 2022, we had no outstanding balance under the guarantee line of credit. 
Working Capital and Capital Expenditure Needs
We currently have no material cash commitments, except for normal recurring trade payables, expense accruals, capital expenditures and operating leases, all of which we anticipate funding through existing cash and cash equivalents as well as through our credit facility. We believe our outsourced approach to manufacturing provides us with flexibility in both managing inventory levels and financing our inventory. We believe our existing cash and cash equivalents, short-term investments, and funds available through our credit facility will be sufficient to meet our working capital and capital expenditure needs over at least the next twelve months. In the event our revenue plan does not meet our expectations, we may eliminate or curtail expenditures to mitigate the impact on our working capital. Our future capital requirements will depend on many factors, including our rate of revenue growth or decline, the expansion or contraction of our marketing and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new products and enhancements to existing products, the acquisition of new capabilities or technologies, the continuing market acceptance of our products and services, the overall macro economic conditions due to heightened inflation and reduced consumer confidence stemming from the Russia-Ukraine war and the ongoing impact of the COVID-19 pandemic on our business. Moreover, to the extent existing cash and cash equivalents, short-term investments, cash from operations, and cash from short-term borrowing are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. As part of our business strategy, we may consider additional acquisitions of companies, technologies and products, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.
Contractual Obligations
The disclosure of our contractual obligations and commitments is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the year ended January 1, 2022. Our principal commitments generally consist of obligations under our credit facility, leases for office space, inventory related purchase obligations, and minimum contractual obligations. Other obligations consist primarily of subscription services. There have been no material changes in our contractual obligations and commitments since January 1, 2022.
At April 2, 2022, we had outstanding purchase orders aggregating approximately $327.4 million. The purchase orders, the majority of which are with our contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and services, and are cancellable without penalty.
Recently Adopted Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements.
Recently Issued Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Exchange Rate Sensitivity
Our international revenue and expenses are denominated in multiple currencies, including British Pounds, Canadian Dollars, Chinese Renminbi, Euros, Japanese Yen and Swiss Franc. As such, we have exposure to adverse changes in exchange rates associated with the revenue and operating expenses of our foreign operations. Any fluctuations in other currencies will have minimal direct impact on our international revenue.
In addition to international business conducted in foreign currencies, we have international revenue denominated in U.S. dollars. As the U.S. dollar strengthens or weakens against other currencies, our international distributors may be impacted, which could affect their profitability and our ability to maintain current pricing levels on our international consumer products.
We regularly monitor the forecast of non-U.S. dollar revenue and expenses and the level of non-U.S. dollar monetary asset and liability balances to determine if any actions, including possibly entering into foreign currency contracts should be taken to minimize the impact of fluctuating exchange rates on our results of operations. Periodically, we enter into forward exchange contracts to hedge against foreign currency fluctuations. These contracts may or may not be designated as cash flow hedges for accounting purposes. We use cash flow hedges primarily to reduce the effects of foreign exchange rate changes on sales in Euros and Japanese Yen. These contracts typically have maturities of three years or less. At April 2, 2022 and January 1, 2022, we had outstanding cash flow hedges with a total notional value of $497.6 million and $423.3 million, respectively.
We also enter into economic hedges that are not designated as hedges from an accounting standpoint to reduce or eliminate the effects of foreign exchange rate changes typically related to short term trade receivables and payables. These contracts have maturities of twelve months or less. At April 2, 2022 and January 1, 2022, we had outstanding economic hedges with a total notional value of $249.0 million and $325.4 million, respectively.
At April 2, 2022, assuming all other variables are constant, if the U.S. Dollar weakened or strengthened by 10%, the fair market value of our foreign currency contracts would increase or decrease by approximately $50.9 million.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at a reasonable assurance level in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
This information is included in Note 9, Commitments and Contingencies, in the accompanying notes to the unaudited consolidated financial statements and is incorporated herein by reference from Item 1 of Part I.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended January 1, 2022, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. There are no material changes to the Risk Factors described in our Annual Report on Form 10-K for the year ended January 1, 2022, other than as set forth below:
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Significant developments in U.S. trade policies have had, and we expect will continue to have, a material adverse effect on our business, financial condition and results of operations.
The U.S. government has indicated its intent to alter its approach to international trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries. Effective September 24, 2018, the U.S. government implemented a 10% tariff on certain goods imported from China, which include the majority of those imported by the Company. These tariffs were increased to 25% on May 10, 2019 and were slated to further increase to 30% in October 2019 until a last-minute interim deal was reached between the United States and China. Although the United States and China signed a new trade agreement in January 2020, most of the previously-implemented tariffs on goods imported from China remain in place (including the tariffs described above), and uncertainty remains as to the short-term and long-term future of economic relations between the United States and China.
From September 2018 until April 2020, our Roomba products were subject to Section 301 tariffs. On April 24, 2020, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion, as extended in August 2020, eliminated the 25% tariff on Roomba products until December 31, 2020 and entitled us to a refund of $57.0 million in tariffs paid since the date the Section 301 List 3 tariffs were imposed.
Effective as of January 1, 2021, the 25% Section 301 tariff again applies to our Roomba products imported from China. Although we have begun relocating a meaningful portion of our supply chain from China to Malaysia, we again face compression on our margin on products sold and pricing pressures on our products. The already-implemented, and any additional or increased, tariffs have caused, and may in the future cause, us to further increase prices to our customers which we believe has reduced, and in the future may reduce, demand for our products.
On October 4, 2021, the USTR announced its decision to establish a new process for importers to apply for exclusions from Section 301 tariffs in 549 product categories, including robotic vacuum cleaners. Beginning October 12, 2021, the USTR started accepting comments on whether or not reinstating certain tariff exclusions will impact or result in severe economic harm to companies or other interests of the United States. On March 23, 2022, the USTR announced that it had reinstated a tariff exclusion for both robot vacuums and certain air purifiers, effective from October 12, 2021, through December 31, 2022. We do not currently believe that additional exclusions will be available after December 31, 2022.
These tariffs, and other governmental action relating to international trade agreements or policies, have directly or indirectly adversely impacted demand for our products, our costs, customers, suppliers, distributors, resellers and/or the U.S. economy or certain sectors thereof and, as a result, have adversely impacted, and we expect will continue to adversely impact, our business, financial condition and results of operations. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs, international trade agreements and policies on a short-term or long-term basis. We cannot predict future trade policy, whether exclusions will be extended, or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to further adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could further adversely impact our business, financial condition and results of operations.
In response to international trade policy, as well as other risks associated with concentrated manufacturing in China, we have begun relocating a meaningful portion of our supply chain from China to Malaysia. Such relocation activities increase costs and risks associated with establishing new manufacturing facilities.
Global economic conditions and any associated impact on consumer spending could have a material adverse effect on our business, results of operations and financial condition.
Continued economic uncertainty and reductions in consumer spending, particularly in certain international markets such as the European Union, China and Japan, may result in reductions in sales of our consumer robots. Additionally, disruptions in credit markets may materially limit consumer credit availability and restrict credit availability of our retail customers, which would also impact purchases of our consumer robots. Any reduction in sales of our consumer robots, resulting from reductions in consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely affect our business, results of operations and financial condition.
Moreover, in recent months, inflation has increased significantly in the United States, the European Union and in many of the countries where we conduct business. Inflation impacts consumer spending and increases the costs of many aspects of our business, including the costs of our products sold, transportation and travel costs, and labor costs. If inflation decreases consumer demand or we are unable to increase our prices to sufficiently offset the increased costs of doing business, our results of operations and profitability may be adversely impacted.
Because we are an increasingly global business that in the three month ended April 2, 2022 and April 3, 2021 generated approximately 47.5% and 62.2%, respectively, of our total revenue from sales to customers outside of the United States, we are subject to a number of additional risks including foreign currency fluctuations. These foreign currency fluctuations may make
27



our products more expensive to our distributors and end customers, which in turn may impact sales directly or the ability or willingness of our partners to invest in growing product demand.
Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar could adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings, and lead us to raise international pricing, which may reduce demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the strengthening of the U.S. dollar, or for any other reason, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, incur losses on our foreign currency derivative instruments, and incur increased operating expenses, thereby limiting any benefit. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.
We use derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any, or only a portion, of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. In addition, our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting counterparties to major financial institutions and by spreading the risk across several major financial institutions.
Business disruptions resulting from international uncertainties could negatively impact our profitability.
We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various European and Asian markets, and Canada. For the three months ended April 2, 2022 and April 3, 2021, sales to non-U.S. customers accounted for 47.5% and 62.2%, respectively. We expect that international revenues will continue to account for a significant percentage of our revenues for the foreseeable future. Our international revenue and operations are subject to a number of material risks, including, but not limited to:
difficulties in staffing, managing and supporting operations in multiple countries;
difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;
fewer legal protections for intellectual property;
foreign and U.S. taxation issues, tariffs, and international trade barriers;
difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;
potential fluctuations in foreign economies;
government currency control and restrictions on repatriation of earnings;
fluctuations in the value of foreign currencies and interest rates;
general economic and political conditions in the markets in which we operate;
domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future, including the invasion of Ukraine by Russia, the possibility of military action in countries near or adjacent to Ukraine, and the sanctions and other actions taken by the European Union, the United States and other governments around the world in response;
changes in foreign currency exchange rates;
different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future; and
our relationships with international distributors, some of whom may be operating without written contracts.
Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales to customers outside the United States are primarily denominated in Euro and
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Japanese Yen and fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.
The conflict in the Ukraine has, and we anticipate will continue to have, an adverse impact upon our business operations. In March 2022, in response to the Russian invasion of Ukraine, we halted all new sales of our products to Russia. It is unclear whether we will resume shipments to Russia in 2022. As this conflict continues, we have seen, and believe we will continue to see, an impact to consumer spending in other regions.
The United Kingdom’s exit from the EU, commonly referred to as "Brexit," has caused significant political and economic uncertainty in the United Kingdom, EU, and elsewhere. The impact of Brexit and the resulting turmoil on the political and economic future of the United Kingdom and the EU is uncertain, and we may be adversely affected in ways we cannot currently anticipate. The United Kingdom and the EU have signed a EU-UK Trade and Cooperation Agreement (the "TCA"), which became provisionally applicable on January 1, 2021 and will become formally applicable once ratified by both the United Kingdom and the EU. The ultimate effects of Brexit will depend, in part, on how the terms of the TCA take effect in practice and on any other agreements the United Kingdom may make with the EU. Brexit also may result in significant changes in the British regulatory environment, now that legislation can diverge from EU legislation in many areas, which could increase our compliance costs. We may find it more difficult to conduct business in the United Kingdom and the EU, as Brexit will result in increased regulatory complexity and increased restrictions on the movement of capital, goods and personnel. Any of these effects of Brexit, and other similar referenda that we cannot anticipate, could disrupt our operations and adversely affect our operating results.
Cybersecurity risks could adversely affect our business and disrupt our operations.
The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber attacks such as viruses and worms, phishing attacks, distributed denial-of-service attacks, ransomware, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence. In addition, we may be the target of email scams that attempt to acquire sensitive information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. These threats may be increased due to the work-from-home policies implemented by us and our customers, suppliers and distributors as a result of mitigation measures related to the COVID-19 pandemic. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation. Our cyber insurance may not protect against all of the costs and liabilities arising from a cyber attack.
On February 21, 2022, we were informed by our primary North American third-party logistics (3PL) partner that it had suffered a major cyber incident shutting down a significant portion of its ability to perform 3PL services on our behalf. While iRobot’s systems were not impacted in the incident, we took certain actions to mitigate the lack of 3PL services.
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Item 5. Other Information
10b5-1 Trading Plans
Our policy governing transactions in our securities by our directors, officers, and employees permits our officers, directors, funds affiliated with our directors, and certain other persons to enter into trading plans complying with Rule 10b5-l under the Exchange Act. We have been advised that certain of our officers and directors (including Colin Angle, Chief Executive Officer, and Glen Weinstein, EVP and Chief Legal Officer, as well as Mohamad Ali, and Deborah Ellinger, each a director of the Company) have entered into trading plans (each a "Plan" and collectively, the "Plans") covering periods after the date of this Quarterly Report on Form 10-Q in accordance with Rule 10b5-l and our policy governing transactions in our securities. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving the Company.
We anticipate that, as permitted by Rule 10b5-1 and our policy governing transactions in our securities, some or all of our officers, directors and employees may establish trading plans in the future. We intend to disclose the names of our executive officers and directors who establish a trading plan in compliance with Rule 10b5-1 and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on Form 10-Q and 10-K filed with the Securities and Exchange Commission. We undertake no obligation to update or revise the information provided herein.
Entry into a Material Definitive Agreement, Termination of a Material Definitive Agreement, and Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On May 4, 2022, iRobot Corporation (the "Company") entered into a Second Amendment to Amended and Restated Credit Agreement (the "Credit Facility Amendment") to its existing unsecured revolving credit facility (the "Credit Facility") with Bank of America, N.A. (the "Lender") dated December 20, 2013, (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of June 29, 2018) and a Second Amendment to Amended and Restated Reimbursement Agreement (the "Reimbursement Agreement Amendment") to its existing reimbursement agreement with the Lender dated December 20, 2013 (as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of June 29, 2018). The Credit Facility Amendment provides for the suspension of compliance with certain covenants, inter alia, those related to debt to EBITDA ratios in 2022, and the addition for fiscal year 2022 of a covenant requiring the company to maintain certain minimum cash balances ranging from $40 million to $75 million.
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Item 6. Exhibits
 
EXHIBIT INDEX
Exhibit
Number
 Description
Manufacturing Services Agreement between the Registrant and Jabil Circuit, Inc., dated as of March 18, 2010 (as amended to date)
 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
104*Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
 __________________________
*Filed herewith
**Furnished herewith