Q1 2021 iRobot Corp Earnings Call
[music].
Good day, everyone and welcome to the Irobot first quarter 2021 financial results Conference call. This call is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Andrew Kramer of Irobot Investor Relations. Please go ahead go ahead.
Yeah.
Thank you Tiffany good morning, everybody joining me on today's call of Irobot, Chairman and CEO, Colin angle, and executive Vice President and CFO Julie Zeiler.
Before I set the agenda for today's call I would like to note that statements made on today's call that are not based on historical information are forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 of these forward looking statements are subject to risks and uncertainties and involve many factors that could cause actual results to differ materially.
<unk> from those expressed or implied by such statements additional information on these risks and uncertainties can be found there of public filings with the Securities and Exchange Commission.
The robot undertakes no obligation to update or revise these forward looking statements whether as a result of new information of circumstances.
Related to our financial disclosures. During this conference call, we will reference certain non-GAAP financial measures as defined by SEC regulation G, including non-GAAP gross margin non-GAAP operating expense non-GAAP operating income profit and margin non-GAAP effective tax rate non-GAAP net income per share we believe that our non-GAAP.
The financial results I'll provide additional transparency into irobot underlying operating performance and potential or.
Our definitions of these non-GAAP financial measures and reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP measure are provided at the end of these prepared remarks and in the financial tables at the end of the first quarter 2021 financial results Press release, we issued last evening, which is available on our website at.
Ww Dot Irobot Dot com also unless otherwise stated the first quarter 2021 financial metrics as low as financial metrics provided in our outlook that we referenced on todays conference call will be on a non-GAAP basis, only and all of historical comparisons are with the first quarter of 2020.
In terms of the agenda for today's call Colin will briefly review of the Companys quarterly financial results discuss the major strategic accomplishments and related progress and share his perspective on our outlook into 2021, Julie will detail, our first quarter financial results and offer insight into our expectations going forward Colin will conclude our call.
Jerry with some closing remarks after that we'll open the call the questions at this point I'll turn the call over to Colin angle.
Good morning, Thank you for joining us and happy Star Wars day.
2021 is off to a very good start our first quarter revenue of $303 million grew 58%, which we converted into the operating income of $15 million.
Operating profit margin of 5% and EPS of <unk> 41.
We believe that our first quarter revenue growth demonstrates that our value proposition continues to resonate with consumers around the world.
We generated strong strong top line growth in each major geographic region as we benefited from stronger than expected demand from our distribution partners in EMEA and vibrant retail orders in North America, including certain orders that were previously anticipated in the second quarter.
These dynamics were complemented by another quarter of triple digit growth in our direct to consumer channel.
Based on our strong Q1 performance and favorable consumer demand tailwind.
We see continued growth ahead.
And we have raised our full year revenue outlook.
We also reaffirmed our 2021 profitability and EPS expectations as we have adjusted our spending plans to offset expected gross margin pressure from transitory supply chain challenges.
As we move forward, we are optimistic about our potential to deliver upside to our updated 2021 target.
I'll discuss our outlook in more detail shortly but first I'd like to highlight our progress in executing each element of our strategy. As a reminder of our strategy remains focused on driving greater customer engagement in ways that lead to more customers transacting directly with us more often.
The first element of our strategy is to differentiate the irobot experience for our customers. This means continued investment in AI home understanding of machine vision technology, so that our floor cleaning robots can be tightly integrated into the customer's lifestyle and clean with unprecedented levels of thoughtful.
On this the liability control and support.
We are pleased with our current.
Progress on these fronts.
During the first quarter of 2021, we upgraded our Irobot genius home intelligence platforms, adding several compelling new features including estimated clean time, which helps customers no. One of the cleaning job may be finished and clean well on them away, which uses of smartphones the location services to tell the robot to start.
Cleaning once you leave the house.
Unique functionality of our genius platform is helping drive sales of our mid tier and premium robots by pushing innovation across more of our product line and making certain price adjustments. We are reinvigorating the mid tier of our portfolio and generated strong first quarter revenue growth from these robots.
We believe that solid execution on this element of our strategy played an important role in enabling roomba to occupy seven of the top 10, best selling RPC models in the U S EMEA and Japan in the first quarter.
The second element of our strategy is to build stronger more enduring consumer relationships.
Our connected customer base grew by 74% over 2000, Twenty's first quarter to $10 7 million customers, who have opted in to our digital communications.
It has also been gratifying to see how the high value of features and functionality within the genius platform of delighting our customers as irobot.
Customer community expands we are enhancing all points of the consumer's journey with us on the moment they purchase the product from US and then on box it too when they complete their first cleaning mission and at various points over the months and years that follow.
The third strategic pillar is nurturing the lifetime value of the customer relationships to expand existing customer revenue. This involves accelerating the replacement cycle Upselling and cross selling helping customers properly maintained their robots and on.
<unk> complementary products and developing new services, including new purchasing options to drive recurring revenue and higher gross margins.
Since the start of the year, we accomplished several important milestone milestone.
In early April we introduced <unk>.
Our new Irobot, each one handheld vacuum as a complement to roomba and Bravo robots.
Many of you have heard me say that the future of vacuuming is of Roomba and the cordless vacuum for areas that robots can't easily clean.
Now our customers can get both product directly from us.
We also made tangible progress with new services that provide customers with greater purchase protection and flexibility consumers.
Who purchased the robust directly from US can also add extended warranty and we've been very pleased with the attachment rates. Thus far in addition customer feedback on our Irobot select robot as the service membership program has been very positive as these pilots have progressed moving forward, we plan to optimize the value.
<unk> for Irobot select and prepared to further scale of this program as well as advanced testing of our premium care as a service offering.
Overall, our direct to consumer sales grew by 146% in the first quarter and generated 12% of Q1 revenue accessories represents another opportunity to drive existing customer revenue growth through our D to C channel.
We generated very healthy Q1 growth in accessory sales, which includes filters rollers batteries bag mopping pads and mapping solution.
We expect to build on this momentum over the coming quarters as we further upgrade the buying experience and Irobot dot com and our home App and implement world class digital marketing systems tools and campaigns that will enable us to present, our customers with the right offers for the right products at the right time.
With a strong Q1 behind us we move forward with solid category momentum the compelling value proposition of fast growing and rapidly maturing DTC channel excellent retailer relationships and healthy channel inventory position our.
Our year to date sell through growth through week 15 is not surprising Lee substantially better than the same period, a year ago, which was dramatically impacted by the early days of the pandemic.
Nevertheless, we recognize that it is still early in the year.
The pandemic continues to weigh on the macroeconomic landscape and limit our visibility. Additionally, our business is not immune to the semiconductor chip shortage that is disrupting a wide range of industry to that end certain component suppliers recently notified us of potential volume limitations, we have already made good.
Progress in our efforts to mitigate these constraints. Although additional work lies ahead on this front.
Taking all of these dynamics into consideration we have raised our full year revenue expectations to the range of $1 67 billion to $1 71 billion.
From a profitability perspective, the semiconductor chip shortage is resulting in higher cost for these components at the same time, we are now grappling with the rising cost for raw materials air freight and transportation.
While these transitory costs are likely to remain elevated for the next few quarters, we expect that over time, they will revert to more normalized levels as market forces adjusted net.
Nevertheless to offset the near term impact on our anticipated 2021 gross margin, we have recalibrated, our spending for over the coming quarters. As a result, we are able to reaffirm our 2021 operating income operating income margin and EPS targets.
With two thirds of the year still ahead of US we are optimistic about our potential for further upside, especially if current demand trends remain healthy and we successfully expanded access to the semiconductor component tree, which will enable us to increase production beyond whats embedded in our current expectations.
That concludes my initial commentary I will now turn the call over to Julie Thank you Colin.
As Andy mentioned earlier, my review of our financial results and outlook will be done on a non-GAAP basis. So.
So unless stated otherwise each mention of gross margin operating expense operating income and operating profit margin effective tax rate and net income per share will mean, the corresponding non-GAAP metric all quarterly comparisons are against the first quarter of 2020, unless otherwise noted.
As Colin noted our Q1 performance represents a strong start to 2021 total Q1 revenue grew 58% of $303 million and exceeded our original target due primarily to stronger than expected orders from distributors in EMEA and U S retailers, including over $5 million in orders that were originally.
Expected in the second quarter.
Geographically revenue grew 40% in the U S with international revenue up 70% due primarily to 74% growth in EMEA and the 53% increase in Japan.
<unk> mix perspective, Roomba robots and accessories represented 89% of our Q1 revenue mix with Bravo, making up the remainder.
Since the start of the pandemic over a year ago more consumers are buying our products online.
We estimate that approximately 56% of total first quarter revenue came from E Commerce, which comprises our own website and app dedicated to dedicated ecommerce web sites and the online arms of traditional brick and mortar retailers.
Our gross margin of 47% in Q1 was largely unchanged from the prior year's first quarter.
Changes in pricing and promotion.
Air freight fees and higher cost for procure certain components were essentially offset by leverage from higher sales lower tariff costs favorable channel mix and the timing of one time write offs associated with pausing certain activities in the first quarter of 2020 that did not reoccur in the first quarter.
Tariffs on RBC is imported into the U S from China were reinstated on January one 2021, taking.
<unk> of the non tariff inventory that was in place at the end of 2020 helped us limit our first quarter tariff costs suggest $3 4 million.
Our growth in operating profit margin would have been one one percentage points higher without tariffs.
The first quarter 2021 operating expenses of 109 million increased by 17% and represented 36 per cent of revenue. The increase primarily reflects higher personnel cost expenses and increased working media spending to drive sales growth.
Our Q1, 'twenty, one operating income was $15 million or five per cent of revenue.
Our Q1 2021 effective tax rate was 19, 2%, which was in line with our plans are.
Our net income per share was 41.
We ended Q1 with $501 million in cash and short term investments an increase of $17 million from year end.
The increase primarily reflects the company's fundamental operating performance plus favorable changes in working capital.
Should also be noted that the reduction in short term investments since the end of 2020, primarily reflects the sale of our Teladoc stock early in the quarter once the restriction on selling those shares lapse.
First quarter Dsos for 20 days, a two day increase against the same period one year ago.
Q1, ending inventory was $233 million of 118 days compared with $147 million or 118 days at the same time last year.
The quarterly review complete let's move on to our 2021 outlook.
As Colin outlined we now expect 2021 revenue in the range of $1 six seven to $1 71 billion.
Our updated outlook assumes very strong sequential growth, which implied the split between the first and second halves of 2021 that approaches our historical 40 60 split.
As a reminder, our revenue expectations contemplate yen and Euro exchange rates roughly in line with the current rates plus or minus 5%.
Colin outlined several recent developments involving our supply chain that of resulting in higher than expected costs, including constrained availability of semiconductor component tree.
Rising raw material costs and increased freight airfreight and transportation fees in.
In addition, we expect slightly higher 2021 tariff costs in the range of $43 million to $45 million.
As a result, we now expect our full year 2021 gross margin of approximately 39%.
We anticipate on Q2 gross margin that is in line with our full year target, which reflects the timing of promotional activities as well as incrementally higher supply chain costs.
Many of the other factors shaping our 2021 gross margin are unchanged since the pandemic began our operations organization has been outstanding and keeping key initiatives on course, while moving with urgency and decisiveness to address unanticipated supply chain challenges.
Our plan to substantially increase our production in Malaysia over the course of this year is progressing well, even with the tight labor market.
We are also fortunate to have a strong balance sheet that will help us secure longer lead time on increasingly scarce componentry.
In terms of our 2021 operating costs, we have adjusted our full year spending plans to offset the anticipated gross margin pressure we.
We are now targeting full year operating cost in the range of $535 million to $555 million or approximately 32% of sales.
As a result, we still expect operating profit margin of 7% with anticipated operating income between 110 and $120 million.
While we expect relatively nominal increases in our Q2, R&D and G&A spending versus the first quarter 2021 level, we plan to significantly ramp up our Q2 sales and marketing activity as we continue to invest in scaling our DTC operations and to activate our working media programs to support major holiday and other CS.
And all of them.
Although we expect our Q2 operating profit margin will decline from the first quarter, we anticipate that the substantially higher second half revenue will support a meaningful improvement in our profitability in the second half of the year.
In terms of other major modeling assumptions for 2020. One we now expect other expense to be between two and $3 million and we still anticipate an effective tax rate ranging from 18% to 19%.
We still expect our full year EPS to range from $3 to $3 25.
With an anticipated diluted share count of approximately 29 million shares.
We continue to expect our 2021 capital spending to be in the low $50 million range on the use of capital front, our previously authorized $200 million stock repurchase plan at $175 million available entering the second quarter earlier. This month, we disclosed our intention to repurchase up to <unk>.
$50 million of our common stock under our <unk>. One plan that began on April 12, and is expected to end on or before September 5th.
As a reminder, our 2021 expectations do not assume any repurchase activity.
On the inventory front, we expect that inventory both in terms of absolute dollars and VII may fluctuate meaningfully from quarter to quarter over the remainder of the year as we navigate a challenging and fluid supply chain environment.
In summary of Q1 was a good way to begin the year, we move forward focused on executing against our plans as we look to capitalize on the exciting opportunities, we see and overcome the challenges that lie ahead that.
That concludes my commentary I'll now turn the call back to Colin for some closing thoughts.
Thank you Julie.
We are at the midway point of our multi year strategic plan to transfer of Irobot into a more defensible more profitable business capable of sustaining solid growth with scale channels and offerings to address the evolving needs of an expansive and expanding global customer base.
Our recent accomplishments and progress from driving innovation, and robotics floor care and introducing complementary cleaning products to offer.
The extended warranties.
The promising new high value services, and selling more accessories, all illustrates the importance of our investments.
To build out our e-commerce and digital marketing capabilities. They also highlight our potential to grow existing customer revenue and further improve the profitability of our enterprise in the process.
We expect more progress on these and other related fronts over the coming quarters.
On our Q4 call in February we shared our preliminary thoughts on what our business they looked like in 2022.
That view remains unchanged, regardless of the short term supply chain turbulent turbulence, we've recently encountered.
Over the past several quarters, we've made good progress in refining our long term strategic plan as we finalize this activity. We have started our planning process for the virtual Investor Day event. We plan to hold later this year. We believe this will be an important opportunity for analysts and investors to fully appreciate why we are so enthusiastic about our <unk>.
Aspects, we expect to finalize the timing for this event soon.
And we'll share those details with you accordingly.
That concludes our comments.
Greater we will take questions now.
Ladies and gentlemen at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star one.
Your first question comes from the line of Assia merchant with Citi Group.
Great. Thank you. Thank you everyone that was the very strong demand environment that you guys outlined that you guys delivered in our outlining for the year I had a few clarification questions first on the U S side.
Based on the results from the data that you provided seems like U S. If I look at it you know not just last year because of the pandemic, but further out it's kind of flattish relative to what it was in March 19 are there any like inventory or channel dynamics here to consider and then as you look ahead into them.
Normalized environment in fiscal 'twenty, one as it relates to prime day, and spring activities and promotional activity. How should we think about true Q. This year worse is sort of last year. When there was the when finding what's kind of shifted later into the year.
You can talk a little bit about the.
On the demand dynamic there and then lastly, I know EMEA was very strong I've heard some of my other companies also talk about the strength in EMEA. If you can talk to us about sell in versus the sell through.
In EMEA and Japan that would be helpful. Thank you.
Sure let me start.
Relative to your inventory questions.
What we said is that we're in a very good position.
Which would mean.
Superior from where we were a year ago.
The pandemic was starting.
Last year, we saw retailers drive their inventory to extremely low levels, and then generally slowly build towards the back.
Part of the year back to a more normalized position, we had a very strong Q4 last year, which allowed us to enter into Q1 of this year in of superior position than we did in 'twenty.
And we've been able to.
Based on the strength of the sell through that we described.
Keep those inventory levels at healthy positions so.
<unk>.
The question of is there any inventory fill or oversupply dynamics to consider for the balance of the year.
I would say at this time.
We don't see that.
Don't see that we have an exposure either.
With any of our retailers from an inventory position and I think that.
We also see with.
Retail doing.
Having weathered 2020, we don't see any unusual risks with the channel.
Viability.
So I would say the answer to your first question is nothing out of the ordinary we're very healthy of those dynamics.
Relative to your to your comments around Prime day.
<unk>.
It is a choice of Amazon every year or two either.
Include or not include us in Prime day, and we've been fortunate enough to.
Hobby of strong history with Prime day.
We have not announced.
What our situation is with Amazon Prime day at this point.
It is true.
What do we know about timing on Prime day.
I think it would happen in the.
At the more normal time, but.
Is the expectation so that that would mean.
Whereas happenings selling what happened in Q2 of course last year, we did have some selling for prime day in Q2 as well.
And then on C. As you know I think.
Net debt.
We always work hard to make sure that we find balance overtime between sell in and sell through.
As we mentioned in our prepared remarks through week 15, we're seeing very solid global sell through.
Particularly driven by the U S and overall as we look forward to Q2.
Expect strong sequential growth we have to remember as we go through 2021 we're going to be Comping, an unusual 2020.
And so as we as we look to make sure that.
We're continuing to build on the the customer demand that we're seeing a lot of that is going to normalize as we go through 2021 and 2022 will have a more.
Typical typical of comp.
Mhm, Okay, and if I may one more on the accessory side, how should we think about contribution from accessories into kind of what you're expecting here.
<unk> 20 per cent kind of growth what's the.
The kind of think about accessories more in 'twenty, one and I've been the ramp up into the outer years.
I think at this point, we'll just give some high level color on the on that answer, but as our direct to consumer business grows the opportunity to drive.
More accessory sales is almost outpacing the growth indeed of C and so that it is a definite tailwind.
On revenue and the revenue growth and.
Financial performance, so that as we look forward.
We see.
The increase in DTC.
Definitely accelerating the contribution of accessories to our performance.
Great. Thank you.
Net.
Your next question comes from the line of John Babcock with Bank of America.
Good morning, and thanks for taking my questions, let's find out you talked a little bit about component shortages as well as inflation in raw materials freight and transportation on that point I was wondering if you could talk about your relationship with the contract manufacturers on also provide some color on how the contracts with them our structure of just what we can get from Samsung.
On.
How this might roll through the results.
Yeah.
So we've got long term relationships with.
Our contract manufacturers and it definitely has a strong partnership to work through these challenges.
I think that what made the current situation of unusual was the component suppliers.
The committing.
The components that we had.
Expected than having to go into the open market in the spot buys which we did effectively although that was a driver of additional costs so that the.
<unk>.
And the impact the financial impact of that is included in the guidance that we have given.
This gets better.
As we are able to go and.
On a secure longer term commitments and take more.
For the higher inventory position on some of the components of that.
<unk> have been impacted and will lead to a normalization of cost.
As we roll the clock forward, it's why our expectations around the color for 2022 are remain unchanged.
And the guidance that we gave for 2021.
We are confident in raising our revenue guidance and covering the incremental cost of raw materials and transportation within our previously given operating income guidance.
Gotcha and much of be able to talk about some of the raw materials, where youre seeing the most of inflation.
Just resins are up.
You know 50 per cent and some.
Situations of it is a.
The disruption.
To supply chain.
That is temporal and that will take some time to work through.
But we do expect it to normalize back to traditional.
The levels of at this point so.
That's one significant example.
That's great.
And then also you know going back to kind of the last set of questions. I was just wondering if you might be able to talk about some of the key trends that are driving that strong growth in EMEA.
I think that.
Robot Vacuuming continues to.
Grow as the method of floor care for the future.
This is something that we've seen happening and continues its roomba and the handbag is increasingly how people think about.
Cleaning their floors and so.
We still have relatively low household penetration.
There is still strong opportunity for continued growth and we are at a phase of consumer adoption.
For.
<unk>.
Majority of consumers are now realizing that this is not a fad. This is the new normal.
And I think that realization was was accelerated last year through.
The spending more time at home and the work from home changes in consumer behavior. So.
I think that this is a <unk>.
<unk> industry.
At an exciting time in its growth.
Okay, and then did you.
Just wanted to squeeze on two other quick ones here first there have been some proposals.
In the U S about changes in the corporate tax rate as well as vehicle of the minimum tax on I was wondering if you might be able to just quickly talk about how that might impact Irobot and then also I think on the last call you mentioned that you're expecting in 2022 earnings to be above 2020 levels and just wanted to see you.
That is still the case.
Yes, so I'll take that one John.
Obviously some of the what's being written now about potential changes in the corporate tax rate are things that we are watching closely.
I have nothing new to add to that on.
And as.
As that evolves, we'll continue to look at that and its implications.
When we look forward into 2020 to the color that we've provided is that.
We underpinned by our expected continued healthy market growth.
And are the fact that Irobot will benefit.
Appropriately from from that continued growth.
We expect that we will see a number of things start to turn in our favor.
Gross margin headwind turning into a tailwind.
The continued.
Calibration of our spending and driving operating leverage and so that we expect our oi to be above 2020 levels and substantially stronger EPS performance those things all of which we talked about during our Q4 call are all things that we.
To feel confident in today.
Thanks for that.
Yeah.
Your next question comes from the line of Mike Latimore with Northland capital markets.
All right yeah. Thanks, a lot really strong growth on the quarter there.
In terms of the supply shortage did it did that influence your revenue guidance much or is it more of just on the margin side.
It certainly influenced both on we alluded to there being some.
Additional juice that may be in our financial performance, assuming we can unlock it.
Through.
Continued strong demand and.
Our continued ability to grow.
Our supply.
In a.
The constraint.
Constrained or on unfavorable supply situation companies are less able to meet.
Growth demand because of lead time, componentry lead time, which have been.
The substantially growing over the past.
A few months and so that.
Assuming that we can find the supply we believe the demand is there.
On.
The growth in revenue guidance.
We're signaling today represents.
The best view, we have at this moment in time.
We're we're admitting that there is some uncertainty.
Around the availability of incremental products that hampers, our ability to lean even further forward. So this is where we think we are today.
But.
Again, the demand is there we're very excited with our position and how customers are responding to our product.
It's a bit of a it's also early in the year for us too.
The touching our guidance at all so I think that there is a.
Strong message and the fact that Irobot just increased revenue guidance.
In the Q1 call which is not.
Not something we have done frequency in our history.
Yeah.
Okay, Great makes sense.
And then on EMEA.
Was the strength there largely related to <unk>.
Launched in the <unk> three in the region or the combo product or just our channel activity I mean, a little more color there would be great.
The.
It was largely on demand up and down on.
Our our product lines the <unk> definitely.
What are the contributor to it but.
I think that Europe is in the even just a very healthy.
Is it a very healthy market from a demand perspective.
And as catching up.
With North America and Japan.
Which.
Sort of where robots caught on a little bit earlier.
Okay, Alright, and then just last on the hiring of $10 7 million.
Consumers that have opted in.
What percentage of those are actually buying something you know.
Not a rumor of Robert but like an accessory of warranty that sort of thing.
That's a great question and something we look forward to giving more color on in the future.
We're sort of like.
As we.
Our rolling out on our direct program, we wanted to start.
Releasing new statistics to our analysts and Investor community. The first being what is the size of the connected pool.
We'll be talking about.
Existing customer revenue on some other key metrics.
In the future of as we continue to.
Implement the tools required to accurately measure and communicate those but great.
Great question stay tuned.
Okay. Thank you.
Your next question comes from the line of Ben Rose with the Battle Road Research.
Good morning.
Good morning question for Colin.
With regard to the Roomba combo.
I'm just curious to know from if.
If you could give some additional color in terms of its performance in the quarter and in general your thoughts about.
Combination of robots at this point.
The the Roomba combo as a.
Entry level of robot, the combined mopping and vacuuming.
Capabilities and is available.
And very very limited markets, where we think that tactically.
It makes sense Irobot is very committed to the fact that the premium.
And the best way to clean your floor is the separate vacuuming and mopping functionality.
The physics of both the cleaning process and getting the pad into.
Up to the edges and into the corners, where the.
For the most dirt is.
Benefit substantially from a.
Of two robot solution.
And as evidenced by.
Strong Bravo performance.
For our customers are agreeing with our strategy. So it's a tactical play there are some markets where.
Particularly at the lower price points.
We find ourselves.
Beating against products that have that too and one where people are on.
Are willing to.
Except the lower level of clean willing to accept more involvement in deciding before every mission, whether youre going to mop or vacuum.
And what parts of the of your home or are you going to do this.
Again, it's a little anathema from from our vision of how robots.
Good.
The care for your home.
But it is a useful tactical play.
Okay, and just a follow up.
Intrigued by the progress of the genius of home platform and wanted to know.
I guess strategically whether you have thoughts about perhaps opening that up to other companies' products to participate.
And the benefits of the month for them.
So we already integrate with other companies products and so youre starting to see that happen already I think that it's very exciting the.
Growth in the utilization of things like clean well I'm away.
Particularly with work from home just finding a good time to clean is a real challenge for many of our customers and so the idea of the cell phone has left the building.
Time to go clean.
It.
Is a compelling proposition and we've integrated with other devices in the home. So we're very open to it we think that.
As we move forward, you're going to see Irobot.
Driving more thoughtfully and automatically.
Configured opportunities for the home to do more in service of the customer.
And the.
The examples that we have rolled out and are beginning to see.
Adopted are emblematic of that direction.
So.
This is.
So I guess, that's a long way of saying yes.
Okay.
Okay. Thanks, very much of Thats helpful.
You bet.
Your next question comes from the line of Jim Ricchiuti with Needham.
Hi, This is Tyler daily on filling in for Jim. Thanks for taking my question and congrats on the strong demand. This quarter. Just wondering you kind of mentioned right various headwinds on supply chain transportation for right now to see the component shortages. Just wondering if you might be able to opine on kind of parse out the.
Impact of each on margins.
Okay.
Yeah. So Tyler this is Julie I'll I'll try to answer your question.
And we've.
As we've looked at a number of these things we're giving are our best aggregated view of what we think those incremental costs look like and certainly any one individually.
Ah.
Perhaps you know.
You'd have a way through but when you start to look at them all together.
On that is the.
Headwind for us as he looks for the rest of the year.
On.
You named the Big one so as I look at as a percent of our of our total.
But.
The increased raw material costs are significant.
As are roughly the same the increased transportation.
Which we would expect over time to normalize.
Then I'd I'd point to the scarcity of some of the componentry and our need to do spot buys them out in the market and then finally the.
Fourth piece would be airfreight.
So it's for things make up.
The lions share of of the impact.
That's helpful I appreciate that and interest.
I guess the follow up obviously you mentioned.
You know be calibrating some of your expense expenditures to adjust for some of those costs. Just wondering are we going to see I guess, the typical ramp up in quarter, two or should we.
I guess more of a line thinking of.
Later half of Q3 Q4 for those adjustments in the spending.
Yep.
So one of the things that we talked about in our prepared remarks is we do it well if you look at our spending.
Q1 percent of Q2, we would expect.
Fairly nominal growth across both R&D and G&A.
And marketing does have.
A substantial sequential growth planned as it normally does associated with our promotional environment on the holidays that happen in the second quarter.
Yeah.
Okay. Thank you and then just one last question.
Interested to hear a little bit more about the launch of the handheld curious obviously if the extension.
Towards sort of your existing customer base and sort of filling a need there, but you see from a strategic standpoint eating into any of the market share on the current I guess handheld vacuum market.
So launching the handheld.
Was strategic for a few reasons.
The first it was the first example.
Of using a new capability.
With our direct to consumer.
Engine, so that the selling a an additional product.
On directly to our customers and so that we were <unk>.
Testing out the plumbing, it's something that we've talked about doing as a way of <unk>.
Enhancing our existing customer revenue.
It's also something that.
Is a very logical adjacency given that the future floor care is a roomba in the handbag.
It's a very high quality premium handbag.
Certainly.
Not the.
The.
Our flagship of Irobot.
Artificial intelligence technology, but it's a strong performer and for what it does and I think that you should expect that over time.
The learnings from launching this hand back well.
We will pave the path for other types of product offerings and developing direct as a an additional channel channel for new product introductions.
We think that the product we're offering is very competitive and that we definitely hope that.
It can grow and be a legitimate performer in the handbag.
Market against its.
The competitors.
And so it's certainly not a.
Anecdotal product that we just throw out there we think it's.
Strong and we can build on that category as a logical adjacency.
Yes.
Yeah, that's great I appreciate it thanks, Thanks, Colin Thanks Julie.
Yep you're welcome.
And again, ladies and gentlemen, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star one.
We do have a follow up question from the line of Aussie of merchant with Citigroup.
Great. Thank you again.
And you know give me the component shortages that are not just specific to irobot, but across the industry. Some of the companies have talked about it in more benign pricing environment less promo pricing and just given your strong balance sheet and the ability to get components et cetera, perhaps better than some of your peers can you talk of a bit about what you saw.
On the market share should we expect at the retail level to see I vote on gain share because of these dynamics.
And yeah, and and how should we think about the limited promotional pricing on your gross margin guide for this year.
So I think it's it's difficult to predict the behavior of our competitors.
In all markets, our major competitors are China based.
Manufacturers and they have and are using a slightly different.
The chips that we have and so that and then in 2019 when tariffs came in we observed our competitors.
Were content too.
Continue some other promotional.
The pricing and leave their prices, where they were in and operate under a different margin structure. So we built our year, assuming that our competitors would remain aggressive.
And.
We would go in and react as we have traditionally done.
Leading to the optimistic.
Look that we have communicated today, so I think that were planning that.
The planning for competition to find ways of weathering the storm and we.
We don't view it today.
As a strategic advantage.
In the marketplace at the time will tell but I think that's the safe way of viewing it.
And I guess the other thing the underscores we continue to believe that we have a very compelling value proposition as we look at our products and the and their ability to fit seamlessly into the lifestyle of our consumers and so we will continue to focus all our energy and effort on it.
Improving that overall user experience and ensuring in our promotional.
Promotional activities that were explaining that affectively out to our customer base.
That's the that's the way to win long term.
Okay. Thank you.
Awesome.
And we do have plenty of follow up question from the line of John Babcock with Bank of America.
Hi, Thanks for taking my follow on share.
Just quickly I was wondering if you might just be able to remind us how youre thinking about new product launches for this year, obviously you have the handheld vacuum.
But I thought you also were talking about are watching.
Watching some other products. So if you can maybe help provide some rough color recognizing you can't be too specific.
You know just.
Just around kind of where that innovation might occur.
Sure. So we have <unk>.
Communicated that there are two new robots to come.
This year.
And the.
We haven't specified any details about what those products are.
I would tell you anecdotally I'm very excited.
To see what's coming.
We will have to leave it at that.
But I guess I would say the on track and unaffected by the supply chain challenges that we've talked about so we've been able to the.
Mitigate the impact on the on these product launches so it's all as per plan.
Okay.
And then next question I was just wondering if you might be able to talk about what you're hearing from the traditional rates hours.
About the reopening here and how they are kind of thinking about it and then also how you are thinking about.
How consumers might adjust spending as we get more people vaccinated and hopefully at some point and beyond the pandemic.
Yes.
Well, we do we do.
Definitely we saw a huge shift to online and e-commerce in.
In 2020, and continuing through the first quarter of 2021, we talked about 56% of our revenue coming from E Commerce channels.
That's significantly up.
From something closer to 40% in 2019.
When we had a 60 40 split.
The.
We could see retail brick and mortar come back a bit, but certainly we would not expect.
A retreat to 2019 levels.
More of a single digit move over time as people get back to them.
Back to retail.
We're pretty agnostic.
As to whether we're selling online or retail with the exception that we're very very excited about the continued strong growth on our direct to consumer.
Dimension of our business, which we're investing substantially in enjoying improved gross margin and the access.
Access to consumers of via that channel.
Okay and then just for my last question for them I suppose type of made up of pretty much share, but I was just wondering if there are any updates on the litigation with sharp.
Not at this time.
Got you.
Thanks, Kevin.
Alright.
At this time there are currently no further questions in queue I will now turn the call back over to Mr. Kramer for any closing remarks.
Thank you very much Tiffany thanks, everybody for joining us and look forward to speaking with our shareholders and analysts over the coming days and weeks and seeing you at various conferences that we'll be participating in over in May and in June So look forward to the future engagements and if you do have questions.
L three to ring Investor relations. Thank you so much.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
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Okay.
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