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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 1, 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 October 28, 2022 was 27,351,440.
        



iROBOT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 1, 2022
INDEX
 Page
2





iROBOT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
October 1, 2022January 1, 2022
ASSETS
Current assets:
Cash and cash equivalents$89,588 $201,457 
Short-term investments 33,044 
Accounts receivable, net133,055 160,642 
Inventory419,088 333,296 
Other current assets84,067 61,094 
   Total current assets725,798 789,533 
Property and equipment, net67,173 78,887 
Operating lease right-of-use assets28,520 37,609 
Deferred tax assets8,223 37,945 
Goodwill159,531 173,292 
Intangible assets, net10,948 28,410 
Other assets38,089 38,753 
   Total assets$1,038,282 $1,184,429 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$233,169 $251,298 
Accrued expenses84,359 132,618 
Deferred revenue and customer advances12,875 11,767 
Short-term notes payable90,000  
   Total current liabilities420,403 395,683 
Operating lease liabilities33,246 43,462 
Deferred tax liabilities1,013 3,250 
Other long-term liabilities21,841 25,311 
   Total long-term liabilities56,100 72,023 
   Total liabilities476,503 467,706 
Commitments and contingencies (Note 10)
Preferred stock, 5,000 shares authorized and none outstanding
  
Common stock, $0.01 par value, 100,000 shares authorized; 27,349 and 27,006 shares issued and outstanding, respectively
274 270 
Additional paid-in capital247,656 222,653 
Retained earnings283,517 485,710 
Accumulated other comprehensive income30,332 8,090 
   Total stockholders’ equity561,779 716,723 
   Total liabilities and stockholders’ equity$1,038,282 $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 EndedNine Months Ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Revenue$278,191 $440,682 $825,511 $1,109,539 
Cost of revenue:
Cost of product revenue200,947 277,703 558,111 684,190 
Amortization of acquired intangible assets837 225 2,533 675 
Total cost of revenue
201,784 277,928 560,644 684,865 
Gross profit76,407 162,754 264,867 424,674 
Operating expenses:
Research and development41,425 40,262 125,893 120,859 
Selling and marketing60,273 59,055 197,355 186,722 
General and administrative31,508 22,688 84,585 72,587 
Amortization of acquired intangible assets11,568 251 12,603 661 
Total operating expenses144,774 122,256 420,436 380,829 
Operating (loss) income(68,367)40,498 (155,569)43,845 
Other (expense) income, net(979)26,585 (19,906)26,139 
(Loss) income before income taxes(69,346)67,083 (175,475)69,984 
Income tax expense59,020 9,867 26,718 8,083 
Net (loss) income$(128,366)$57,216 $(202,193)$61,901 
Net (loss) income per share:
Basic$(4.71)$2.09 $(7.44)$2.22 
Diluted$(4.71)$2.06 $(7.44)$2.17 
Number of shares used in per share calculations:
Basic27,264 27,413 27,159 27,923 
Diluted27,264 27,803 27,159 28,475 
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 EndedNine Months Ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net (loss) income$(128,366)$57,216 $(202,193)$61,901 
Other comprehensive income:
Net foreign currency translation adjustments(6,047)(3,974)(17,422)(8,743)
Net unrealized gains on cash flow hedges, net of tax18,278 5,181 50,865 18,113 
Net gains on cash flow hedge reclassified into earnings, net of tax(7,151)(878)(11,201)(1,420)
Net unrealized losses on marketable securities, net of tax   (4)
Total comprehensive (loss) income$(123,286)$57,545 $(179,951)$69,847 
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")Total Stockholders’
Equity
SharesValue
Balance at July 2, 202227,229 $272 $239,369 $411,883 $25,252 $676,776 
Issuance of common stock under employee stock plans5  186 186 
Vesting of restricted stock units118 2 (2) 
Stock-based compensation8,277 8,277 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(3) (174)(174)
Other comprehensive income5,080 5,080 
Net loss(128,366)(128,366)
Balance at October 1, 202227,349 $274 $247,656 $283,517 $30,332 $561,779 
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income ("AOCI")
Total 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 plans89 1 3,273 3,274 
Vesting of restricted stock units284 3 (3) 
Stock-based compensation23,508 23,508 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(30) (1,775)(1,775)
Other comprehensive income22,242 22,242 
Net loss(202,193)(202,193)
Balance at October 1, 202227,349 $274 $247,656 $283,517 $30,332 $561,779 
The accompanying notes are an integral part of the consolidated financial statements.

















6



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income ("AOCI")
Total Stockholders’
Equity
SharesValue
Balance at July 3, 202128,050 $281 $216,375 $557,452 $7,124 $781,232 
Issuance of common stock under employee stock plans1  27 27 
Vesting of restricted stock units105 1 (1) 
Stock-based compensation2,073 2,073 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(4) (362)(362)
Other comprehensive income329 329 
Directors' deferred compensation21 21 
Stock repurchases(1,198)(12)(2,541)$(97,447)(100,000)
Net income57,216 57,216 
Balance at October 2, 202126,954 $270 $215,592 $517,221 $7,453 $740,536 
Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss) ("AOCI")
Total Stockholders’ Equity
SharesValue
Balance at January 2, 202128,184 $282 $205,256 $599,389 $(493)$804,434 
Issuance of common stock under employee stock plans122 1 5,156 5,157 
Vesting of restricted stock units338 3 (3) 
Stock-based compensation16,195 16,195 
Stock withheld to cover tax withholdings requirements upon restricted stock vesting(45) (5,161)(5,161)
Other comprehensive income7,946 7,946 
Directors' deferred compensation64 64 
Stock repurchases(1,645)(16)(5,915)(144,069)(150,000)
Net income61,901 61,901 
Balance at October 2, 202126,954 $270 $215,592 $517,221 $7,453 $740,536 
The accompanying notes are an integral part of the consolidated financial statements.
7



iROBOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended
 October 1, 2022October 2, 2021
Cash flows from operating activities:
Net (loss) income$(202,193)$61,901 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization39,078 23,978 
Loss (gain) on equity investment18,828 (26,929)
Stock-based compensation23,508 16,195 
Deferred income taxes, net13,090 (8,190)
Other 4,209 4,496 
Changes in operating assets and liabilities — (use) source, excluding effects of acquisition
Accounts receivable23,767 (71,368)
Inventory(85,447)(173,986)
Other assets31,268 (5,851)
Accounts payable(24,054)93,530 
Accrued expenses and other liabilities(54,649)(4,551)
Net cash used in operating activities(212,595)(90,775)
Cash flows from investing activities:
Additions of property and equipment(8,895)(25,302)
Purchase of investments(3,150)(9,641)
Sales and maturities of investments17,723 63,976 
Net cash provided by investing activities5,678 29,033 
Cash flows from financing activities:
Proceeds from employee stock plans3,274 5,157 
Income tax withholding payment associated with restricted stock vesting(1,775)(5,161)
Stock repurchases (150,000)
Proceeds from borrowings90,000  
Net cash provided by (used in) financing activities91,499 (150,004)
Effect of exchange rate changes on cash and cash equivalents3,549 (2,877)
Net decrease in cash and cash equivalents(111,869)(214,623)
Cash and cash equivalents, at beginning of period201,457 432,635 
Cash and cash equivalents, at end of period$89,588 $218,012 
The accompanying notes are an integral part of the consolidated financial statements.
8



iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
iRobot Corporation ("iRobot" or the "Company") designs, builds and sells robots and home innovations that make life better. The Company's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. iRobot's durable and high-performing robots are designed using the close integration of software, electronics and hardware. The Company’s revenue is primarily generated from product sales through a variety of distribution channels, including chain stores and other national retailers, through the Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers and through value-added distributors and resellers worldwide.
Merger Agreement
On August 4, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, Amazon.com, Inc., a Delaware corporation ("Parent" or "Amazon") and Martin Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will merge with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent. As a result of the Merger, each share of common stock of the Company, par value $0.01 per share ("Common Stock"), outstanding immediately prior to the effective time of the Merger (the "Effective Time") (subject to certain exceptions, including shares of Common Stock owned by the Company, Merger Sub, Parent or any of their respective direct or indirect wholly owned subsidiaries and shares of Common Stock owned by stockholders of the Company who have validly demanded and not withdrawn appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware) will, at the Effective Time, automatically be cancelled and converted into the right to receive $61.00 in cash, without interest and subject to applicable withholding taxes. If the Merger is consummated, the Company’s Common Stock will be delisted from the Nasdaq Stock Market LLC and deregistered under the Securities Exchange Act of 1934.
2. Summary of Significant Accounting Policies
Basis of Presentation and Foreign Currency Translation
The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany balances and transactions. iRobot has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP").
In the opinion of management, all adjustments necessary to the unaudited interim consolidated financial statements have been made to state fairly the Company's financial position. Interim results are not necessarily indicative of results for the full fiscal year or any future periods. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended January 1, 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.
Liquidity
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The Company has a long history of profitable operations, positive operating cash flows and substantial liquidity that was further strengthened during the first year of the COVID-19 pandemic as consumer demand for iRobot's products increased considerably. For the nine months ended October 1, 2022, the Company’s revenue declined 26% from the nine months ended October 2, 2021 primarily due to lower orders from retailers and distributors in the United States and EMEA largely resulting from a decline in consumer sentiment, and resultant spending, driven by high inflation, rising interest rates, rising energy costs, the potential recessionary outlook and geopolitical instability, which was exacerbated by the Russia-Ukraine war. The lower revenue has resulted in operating losses for each of the first three quarters of 2022 totaling $155.6 million and operating cash outflows have exceeded cash inflows during this period. As a result, the Company's cash and cash equivalents and short-term investments have declined from $234.5 million as of January 1, 2022 to $89.6 million as of October 1, 2022 and the Company has incurred $90.0 million in outstanding borrowings from its $150.0 million unsecured revolving line of credit. Outstanding borrowings are due to be repaid under the Credit Agreement (as defined below) by June 2023 when the line of credit expires.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
On October 28, 2022, the Company entered into a Third Amendment (the "Third Amendment") to the Amended and Restated Credit Agreement (the "Credit Amendment") with Bank of America N.A. (the "Lender"), which temporarily increases the commitments under the facility to $200.0 million for the time period from October 28, 2022 to December 29, 2022 (see Note 7 for additional details about our Credit Agreement). Following the execution of the Third Amendment, the Company has initiated discussions with the Lender about extending the length of the credit facility by up to 24 months. There can be no assurance that any such negotiations to further amend the terms and conditions of the Company’s credit facility will be successful.
Management has considered and assessed its ability to continue as a going concern for the one year from the date that the unaudited consolidated financial statements are issued. Management’s assessment included the preparation of cash flow forecasts taking into account actions already implemented. Management considered additional actions within its control that it would implement, if necessary, to maintain liquidity and operations in the ordinary course.
Management has already undertaken the following actions to improve profitability and operating cash flows and align the organization to the lower revenue level:
During August 2022, the Company initiated a restructuring of its operations designed to better align its cost structure with near-term revenue and cash flow generation, advance key strategic priorities, increase efficiencies and improve its profitability going forward. As part of this restructuring, the Company reduced its workforce and terminated approximately 100 employees, which represents 8% of its workforce and eliminated a number of open positions entering the third quarter of 2022. The Company ended the third quarter of 2022 with 1,316 employees, a reduction of 122 employees since the end of the second quarter of 2022. In addition to the reduction of its headcount, the Company plans to consolidate its global facilities footprint, which includes taking action to resize its global headquarters by the end of 2022. iRobot currently anticipates that its second-half 2022 restructuring actions will deliver net cost savings in the range of approximately $5 million to $6 million in the fourth quarter of 2022 with approximately $30 million in net 2023 cost savings, including actions associated with the facilities consolidation.
The Company continued to limit hiring, reduced discretionary spending, managed the timing of payments to suppliers, recalibrated short-term incentive compensation and further lowered its investment in working media.
At present, it remains difficult to forecast precisely when, or if, consumer spending for iRobot's products will improve. As a result, management’s efforts to manage the business currently factors in the loss of a customer, which represents approximately 4% of year-to-date fiscal 2022 revenue, believed to be caused by the pending Merger into scenarios that range from relatively unchanged market conditions to further deterioration in market conditions. In addition, due to the uncertainty of timing on the close of the Merger, its impact on liquidity is not considered in the Company's liquidity plan. Additional actions within its control that management would implement, if necessary, to maintain liquidity and operations without using its $150.0 million revolving credit facility include:
Lowering personnel costs by carefully managing the size of the workforce and realigning resources through ongoing attrition and limited, if any, new hiring activity;
Further reducing discretionary spending in all areas of the business;
Decreasing working media spending;
Executing on plans to reduce the global facilities footprint through subleasing agreements;
Carefully managing the timing of payments to suppliers as well as working to amend agreements with certain suppliers to further extend the timing of payments;
Optimizing its production volumes with contract manufacturers by reducing inventory supply forecast for cancelable purchase orders;
Adjusting the timing and scope of new non-robotic product launches and development projects; and
Deferring or eliminating certain capital expenditures.
While management estimates such actions will be sufficient to allow it to maintain liquidity and its operations in the ordinary course for at least 12 months from the issuance of these financial statements, there can be no assurance the Company will generate sufficient future cash flows from operations due to potential factors, including, but not limited to, further inflation, the continued rising interest rates, ongoing recessionary conditions or continued reduced demand for the Company’s products. If the Company is not successful in increasing demand for its products, or if macroeconomic conditions further constrain consumer demand, the Company may continue to experience adverse impacts to revenue and profitability. Should the Company be unable to refinance its existing credit facility, or require further funding in the future, there can be no assurance that it will be able to obtain additional debt financing on terms acceptable to the Company, or at all.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
Recently 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 (expense) income, net at the end of each reporting period.
As of January 1, 2022, the Company had $33.0 million in short term investments made up of 1.6 million shares of Matterport, Inc. ("Matterport") from the Matterport merger in 2021 with shares received subject to time based contractual sales restrictions that expired in January 2022. During the first quarter of 2022, the Company sold these Matterport shares and received net proceeds of $16.2 million. In addition, the Company received an additional 0.2 million shares of Matterport during the first quarter of 2022 upon achievement of conditions set forth in the merger agreement, and sold these shares during the second quarter of 2022 for net proceeds of $1.2 million. During the nine months ended October 1, 2022, the Company recognized losses of $17.1 million in other (expense) income, net related to the sales of Matterport shares. As of October 1, 2022, the Company did not have any short term investments.
Allowance for Credit Losses
The Company maintains an allowance for credit losses for accounts receivable using an expected loss model that requires the use of forward-looking information to calculate credit loss estimate. The expected loss methodology is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, customer concentrations, current and future economic and market conditions and age of the receivable. As of October 1, 2022 and January 1, 2022, the Company had an allowance for credit losses of $5.3 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 and entitles the Company to a refund of approximately $32.0 million in tariffs paid. During the first quarter of 2022, the Company recognized $11.7 million of refunds as operating income (reduction to cost of product revenue) related to tariffs paid on Roomba robots imported after October 12, 2021 and sold during fiscal 2021. As of October 1, 2022, the Company had received $1.6 million of the tariff refund and the outstanding refund receivable of $30.4 million is recorded in other current assets on the consolidated balance sheet. While the outstanding tariff refund claims remain subject to the approval of U.S. Customs, the Company expects to recover the entire refund balance within the next twelve months.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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) income, net on the consolidated statement of operations. At October 1, 2022 and January 1, 2022, the Company's equity securities without readily determinable fair values totaled $16.0 million and $16.3 million, respectively, and are included in other assets on the consolidated balance sheets.
Restructuring Charges
During August 2022, the Company initiated a restructuring of its operations designed to better align its cost structure with near-term revenue and cash flow generation ("August 2022 restructuring"). The Company recorded restructuring charges of $5.0 million for employee severance and benefit costs related to the termination of approximately 100 employees during the three months ended October 1, 2022. The Company made severance and benefit payments of approximately $1.9 million during the three months ended October 1, 2022 resulting from the restructuring, and expects the remaining balance to be substantially paid during the fourth quarter of 2022. These restructuring charges are recorded in the consolidated statement of operations.
Net (Loss) Income Per Share
Basic income per share is calculated using the Company's weighted-average outstanding shares of common stock. Diluted income per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.
The following table presents the calculation of both basic and diluted net (loss) income per share (in thousands, except per share amounts): 
 Three Months EndedNine Months Ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net (loss) income$(128,366)$57,216 $(202,193)$61,901 
Basic weighted-average common shares outstanding27,264 27,413 27,159 27,923 
Dilutive effect of employee stock awards 390  552 
Diluted weighted-average common shares outstanding27,264 27,803 27,159 28,475 
Net (loss) income per share - Basic$(4.71)$2.09 $(7.44)$2.22 
Net (loss) income per share - Diluted$(4.71)$2.06 $(7.44)$2.17 
Employee stock awards representing approximately 0.9 million and 0.2 million shares of common stock for the three months ended October 1, 2022 and October 2, 2021, and approximately 0.9 million and 0.1 million shares of common stock for the nine months ended October 1, 2022 and October 2, 2021, respectively, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.

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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 October 1, 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.
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 October 1, 2022, the Company had reserves for product returns of $41.1 million and other credits and incentives of $68.3 million. As of January 1, 2022, the Company had reserves for product returns of $56.8 million and other credits and incentives of $101.6 million. The Company regularly evaluates the adequacy of its estimates for product returns and other credits and incentives. Future market conditions and product transitions may require the Company to take action to change such programs and related estimates. When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, the Company increases or reduces revenue to reflect the impact. During the three and nine months ended October 1, 2022 and October 2, 2021, changes to these estimates related to performance obligations satisfied in prior periods were not material.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Disaggregation of Revenue
The following table provides information about disaggregated revenue by geographical region (in thousands):
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
United States$147,075 $216,542 $439,626 $528,138 
EMEA52,454 132,130 174,037 339,918 
Japan53,187 66,823 142,637 154,652 
Other25,475 25,187 69,211 86,831 
Total revenue$278,191 $440,682 $825,511 $1,109,539 
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
October 1, 2022January 1, 2022
Accounts receivable, net$126,606 $155,659 
Unbilled receivables7,862 8,747 
Contract liabilities22,696 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 and trade-in liability recognized in excess of billings. Contract liabilities include deferred revenue associated with the Cloud Services, extended warranty plans and prepayments received from customers in advance of product shipments. During the three months ended October 1, 2022 and October 2, 2021, the Company recognized $5.7 million and $6.6 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers. During the nine months ended October 1, 2022 and October 2, 2021, the Company recognized $10.7 million and $10.5 million, respectively, of the contract liability balance as revenue upon transfer of the product or services to customers.

4. Leases
The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and marketing and research and development offices and equipment under various non-cancelable lease arrangements. The operating leases expire at various dates through 2030.

The components of lease expense were as follows (in thousands):
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Operating lease cost$1,761 $2,181 $4,775 $6,315 
Variable lease cost861 837 2,789 2,765 
Total lease cost$2,622 $3,018 $7,564 $9,080 
Supplemental cash flow information related to leases was as follows (in thousands):
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,995 $2,150 $6,028 $6,529 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$ $ $ $ 
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At October 1, 2022, the Company's weighted average discount rate was 4.03%, while the weighted average remaining lease term was 7.01 years.
Maturities of operating lease liabilities were as follows as of October 1, 2022 (in thousands):
Remainder of 2022$1,529 
20237,236 
20245,968 
20255,723 
20265,753 
Thereafter18,884 
Total minimum lease payments$45,093 
Less: imputed interest6,027 
Present value of future minimum lease payments$39,066 
Less: current portion of operating lease liabilities (Note 6)$5,820 
Long-term lease liabilities$33,246 

5. Goodwill and Other Intangible Assets
The following table summarizes the activity in the carrying amount of goodwill and intangible assets for the nine months ended October 1, 2022 (in thousands):
GoodwillIntangible assets
Balance as of January 1, 2022$173,292 $28,410 
Purchase accounting adjustments(583) 
Amortization— (15,136)
Effect of foreign currency translation(13,178)(2,326)
Balance as of October 1, 2022$159,531 $10,948 
During the three months ended October 1, 2022, the Company evaluated its goodwill and long-lived assets, including intangible assets, for indicators of impairment given recent and anticipated unfavorable changes in the macroeconomic environment on the Company's short-term forecasts as well as the Company's negative operating cash flows and operating losses. As a result, the Company determined indicators of impairment existed for the asset group associated with the Company's acquisition of Aeris Cleantec AG and performed an undiscounted cash flow analysis. Based on this undiscounted cash flow analysis, the Company determined that the cash flows expected to be generated by this asset group over the estimated remaining useful life were not sufficient to recover the carrying value of the asset group. As a result, the Company was required to perform Step 3 of the impairment test and determine the fair value of the asset group utilizing the income approach which is based on a discounted cash flow analysis. The Company concluded that the fair value of the asset group was below its carrying value and recorded an $11.1 million impairment loss on these intangible assets. The impairment loss is recorded in amortization of acquired intangible assets under operating expenses on the consolidated statement of operations.
In connection with this analysis, the Company also evaluated goodwill for impairment using a qualitative analysis and determined goodwill was not impaired. As part of this analysis, the Company assessed goodwill using an entity valuation, which was derived based on the attribution of the agreed-upon purchase price for the Merger.
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. Accrued Expenses
Accrued expenses consisted of the following at (in thousands):
October 1, 2022January 1, 2022
Accrued warranty$25,820 $32,019 
Accrued compensation and benefits16,543 19,029 
Current portion of operating lease liabilities5,820 6,220 
Accrued sales and other indirect taxes payable5,181 9,599 
Derivative liability4,514 2,600 
Accrued bonus3,684 11,375 
Restructuring-related liabilities3,239  
Accrued manufacturing and logistics cost2,969 23,038 
Accrued income taxes2,879 1,788 
Accrued other13,710 26,950 
$84,359 $132,618 

7. Working Capital Facility
Credit Facility
The Company has a $150.0 million unsecured revolving line of credit which expires in June 2023. On May 4, 2022, the Company entered into a Second Amendment with an effective date of March 31, 2022 (the "Second Amendment") to the "Credit Agreement". The Second Amendment waived 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 Second Amendment also increased the borrowing rate under the facility for 2022 to LIBOR plus 1.5%. On October 28, 2022, the Company entered into the Third Amendment. The Third Amendment temporarily increases the commitments under the facility to $200.0 million for the time period from October 28, 2022 to December 29, 2022. On December 30, 2022, the commitment will be reduced by $50.0 million and will return to the previous $150.0 million. In addition, the Third Amendment replaces the quarterly tested leverage and interest coverage covenants with a new minimum cash requirement of $25.0 million to be tested on October 31, 2022 and November 30, 2022. The Third Amendment also requires that the borrowing under the Credit Agreement must be below $75.0 million on December 30, 2022 and for ten consecutive days during the first quarter in 2023. The Third Amendment changes the borrowing rate under the Credit Agreement to SOFR plus 1.5% plus a credit spread adjustment of 0.1%. In connection with the Third Amendment, the Company entered into a security and pledge agreement granting the Lender a security interest in substantially all of its U.S. assets.
As of October 1, 2022, the Company had outstanding borrowings of $90.0 million under the revolving credit facility, with $60.0 million available for borrowing. As of October 1, 2022, the Company was in compliance with the covenants under the Credit Agreement.

8. Derivative Instruments and Hedging Activities
The Company enters into derivative instruments that are designated as cash flow hedges to reduce its exposure to foreign currency exchange risk in sales. These contracts typically have maturities of three years or less. At October 1, 2022 and January 1, 2022, the Company had outstanding cash flow hedges with a total notional value of $380.8 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 October 1, 2022 and January 1, 2022, the Company had outstanding foreign currency economic hedges with a total notional value of $283.4 million and $325.4 million, respectively.
During the three months ended October 1, 2022, the appreciation of the U.S. dollar resulted in the Company’s foreign currency forward contracts being substantially in-the-money. Given the increased cash value of the hedges and the Company’s overall desire to strengthen its cash position, the Company terminated the contracts during the three months ended October 1, 2022, resulting in cash proceeds of $51.7 million which were recognized within cash used in operating activities in the consolidated statement of cash flows. Amounts previously recorded in AOCI were frozen at the time of termination, and will be
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iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
recognized in earnings when the original forecasted transaction occurs. In conjunction with the termination of the existing contracts, the Company entered into new foreign currency forward contracts with the same notional values and value dates.
The fair values of derivative instruments were as follows (in thousands):
Fair Value
ClassificationOctober 1, 2022January 1, 2022
Derivatives not designated as hedging instruments:
Foreign currency forward contractsOther current assets$16,251 $8,362 
Foreign currency forward contractsOther assets 1,627 
Foreign currency forward contractsAccrued expenses4,514 2,377 
Derivatives designated as cash flow hedges:
Foreign currency forward contractsOther current assets$4,568 $4,110 
Foreign currency forward contractsOther assets11,667 9,610 
Foreign currency forward contractsAccrued expenses 223 
Foreign currency forward contractsLong-term liabilities 407 

Gain (loss) associated with derivative instruments not designated as hedging instruments were as follows (in thousands):
Three Months EndedNine Months Ended
ClassificationOctober 1, 2022October 2, 2021October 1, 2022October 2, 2021
Gain (loss) recognized in incomeOther (expense) income, net$1,475 $(1,606)$7,707 $(11,229)

The following tables reflect the effect of derivatives designated as cash flow hedging (in thousands): 
Gain recognized in OCI on Derivative (1)
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Foreign currency forward contracts$24,219 $6,851 $67,680 $23,959 
(1)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
Gain recognized in earnings on cash flow hedging instruments
Three Months EndedNine Months Ended
October 1, 2022October 2, 2021October 1, 2022October 2, 2021
RevenueRevenue
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded$278,191 $440,682 $825,511 $1,109,539 
Gain on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into earnings$9,503 $1,161 $14,885 $1,878 
17

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. Fair Value Measurements
Fair Value Measurements - Recurring Basis
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
 Fair Value Measurements as of
October 1, 2022
Level 1Level 2 (1)Level 3
Assets:
Money market funds$56,841 $ $ 
Derivative instruments (Note 8) 32,486  
Total assets measured at fair value$56,841 $32,486 $ 
Liabilities:
Derivative instruments (Note 8)$ $4,514 $ 
Total liabilities measured at fair value$ $4,514 $ 
 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 8) 23,709  
Total assets measured at fair value$66,047 $23,709 $ 
Liabilities:
Derivative instruments (Note 8)$ $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.
Fair Value Measurements - Nonrecurring Basis
The Company measures the fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. During the three months ended October 1, 2022, in connection with the long-lived assets impairment analysis, certain intangible assets were measured and written down to fair value on a nonrecurring basis as a result of impairment. The fair value measurements were determined using a discounted cash flow method with unobservable inputs and were classified within Level 3 of the fair value hierarchy. The fair value of the remaining intangible assets was $5.5 million. The Company recognized an impairment charge of $11.1 million related to intangible assets on its consolidated statement of operations. See Note 5, Goodwill and Other Intangible Assets, for additional information.
10. Commitments and Contingencies
Legal Proceedings
From time to time and in the ordinary course of business, the Company is subject to various claims, charges and litigation. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations.
Guarantees and Indemnification Obligations
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses incurred by the indemnified party, generally the Company’s customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under
18

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 October 1, 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 EndedNine Months Ended
 October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Balance at beginning of period$26,814 $24,718 $32,019 $24,392 
Provision4,035 10,913 14,071 31,334 
Warranty usage(5,029)(7,570)(20,270)(27,665)
Balance at end of period$25,820 $28,061 $25,820 $28,061 
Merger Contingencies
On August 4, 2022, the Company entered into the Merger Agreement with Amazon.com, Inc., subject to the terms of which Amazon has agreed to acquire the Company. The Merger is conditioned upon, among other things, the expiration of the applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), certain other approvals, clearances or expirations of waiting periods under other antitrust laws and foreign investment laws, and other customary closing conditions. On September 19, 2022, the Company and Amazon each received a request for additional information and documentary material (the "Second Request") from the Federal Trade Commission ("FTC") in connection with the FTC's review of the transactions contemplated by the Merger Agreement. The effect of the Second Request is to extend the waiting period imposed by the HSR Act, until 30 days after the Company and Amazon have substantially complied with the Second Request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC. The Company and Amazon continue to work cooperatively with the FTC staff in its review of the Merger. Completion of the Merger remains subject to the expiration or termination of the waiting period under the HSR Act.
At a special meeting of stockholders of the Company on October 17, 2022, stockholders approved the Merger. In connection with the transaction, the Company expects to incur professional fees and expenses of approximately $