Q1 2022 iRobot Corp Earnings Call
Good day and thank you for standing by welcome to Irobot first quarter 2022 financial results Conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your Speaker today, Mr. Andrew Kramer Mr. Kramer the floor is yours.
Thank you Chelsea and good morning, everybody joining.
Joining me on today's call are Irobot, chairman and CEO , Colin angle, and executive Vice President and CFO , Julie Zeiler before.
Before I start the agenda for today's 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 1995.
Forward looking statements are subject to risks and uncertainties and involve many factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information on these risks and uncertainties can be found in our public filings with the Securities and Exchange Commission Irobot undertakes no obligation to update or revise these forward looking.
Statements, whether as a result of new information or circumstances.
Weighted to our financial disclosures during the 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 and loss non-GAAP operating profit margin non-GAAP effective tax rate and non-GAAP net income and loss per share.
We believe that our non-GAAP financial results help provide additional transparency into irobot underlying operating performance and potential our.
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 2022 financial results Press release, we issued last evening, which is available on our.
Website at Www Dot Irobot dot com.
So unless stated otherwise our first quarter 2022 financial metrics as well as the financial metrics provided in our outlook that will be discussed on today's conference call will be on a non-GAAP basis, only and all historical comparisons are with the first quarter of 2021.
Yeah.
In addition to posting a press release and today's prepared remarks on our website. We've also posted a document that summarizes our 2022 financial outlook, including all relevant modeling assumptions for the second quarter, the first and second half of 2022 and the full fiscal year.
For today's call our agenda will be as follows.
Alan will briefly cover the company's full first quarter financial results discuss market conditions, and recent achievements and provide an update on our expectations for 2020 to.
Julie will review, our financial results in detail and offer additional insight into our 2022 guidance.
Colin will conclude our commentary with some closing remarks about the important steps, we're taking to elevate our responsiveness to customers and improve our profit profile.
After that we'll open the call for questions at.
At this point I'll turn the call over to Colin angle.
Good morning, and thank you for joining us.
Yesterday, we reported a first quarter 2022 operating loss of $18 5 million and a net loss per share was <unk> 66 cents on revenue of $292 million.
Our Q1 profitability and EPS exceeded our February targets, primarily due to our recent tariff exclusion and prudent cost management.
Topline performance benefited from solid 33% growth in the U S and 25% growth in Japan.
This helped us largely offset a decline in EMEA as we lapped an exceptionally strong quarter in that region one year ago.
We also made important strategic progress that we believe will contribute to our anticipated revenue and EPS growth in FY 'twenty two.
However, our FY 'twenty two growth prospects are complicated by ongoing disruptions to the consumer marketplace, particularly in EMEA was due primarily to a combination of heightened inflation and reduced customer confidence stemming from the Russia, Ukraine War.
Although these emerging dynamics will limit our FY 'twenty two topline growth ambitions, we have slightly increased the high end of our full year operating profit and EPS targets.
Before I cover our updated outlook in more detail I'd like to review a number of Q1 accomplishments that we believe demonstrate that our innovate get keep growth strategy is succeeding.
The first element of our strategy is to drive innovation across our product lines differentiating them through thoughtful intelligence delivered on high performance beautifully designed hardware.
In March we released version four point Oliver operating software platform, which offers a range of pragmatic and convenient experiences that smart mapping to our mid range.
Roomba I three series and increases the rate specific objects that are roomba J seven robot can identify and avoid.
Based on sell through trends, thus far into the year as well as our commercial plans going forward. We believe that our software differentiation will enable us to successfully fortify our RBC share in key markets around this.
Yeah.
The gift component of this strategy is all about winning new customers. During Q1, we increased the number of connected customers, who have opted into our digital communications by 40%.
<unk> to $14 9 million over the same period a year ago.
A key part of our strategy involves making sure that our customers love our products and remain part of our franchise over the long term.
That continues to be the case customers are consistently using our floor care robots first quarter 2022 utilization was.
Just over 90%.
Okay.
Our customers are increasingly taking advantage of our new software capabilities since launching the roomba J seven period last year.
Over 95% of <unk> and owners are using the robot machine vision to detect and avoid an ever expanding number of objects.
Also please.
Roomba I three owners are increasingly using the new smart mapping capability that we recently added we expect adoption by three users to continue to grow as the new <unk> Evo model was rolled out in EMEA before the end of Q3.
The growth element of our strategy is focused on increasing lifetime customer value by having more customers transact more often directly with us over the course of their ownership.
Direct to consumer revenue increased 17% in Q1 and represented 14% of total revenue.
We're seeing our connected customers increasingly use our website and app to buy our products and accessories existing connected customers generated approximately 46% of DTC revenue versus 35% from the same period a year ago.
This is a promising trend that supports our plans for substantial <unk> growth over the next several years.
In addition, we made meaningful progress in Q1 with our digital transformation initiatives, we launched a new version of our UK website and conducted several small scale tests of our CRM systems and related tools and.
Terms of product diversification, we are advancing our efforts to integrate the arris air purification business, which contributed $3 million to our Q1 revenue.
In addition to these accomplishments we took steps across our operations that will help us enhance our responsiveness to customers advance key commercial and R&D initiatives.
And increase our profitability I'll cover this in more detail later on this call.
Consistent with our commentary in February our 2022 outlook remains anchored buyer expectation for substantially better second half performance since our last call. However market conditions have become more challenging which has impacted our view into overall category growth.
And our second half growth rates, most notably rising inflation threatens to curb consumer spending while the Russia, Ukraine conflict has further eroded consumer confidence in Europe and elsewhere.
Given these dynamics, we now anticipate modest category growth in EMEA during the second half of this year will essentially offset an expected first half decline.
Our updated outlook now assumes low double digit category expansion in North America complemented by strengthening RBC demand in Japan.
As a result, we now anticipate FY 'twenty two revenue in the range of 164 billion to $1 74 billion, which equates to annual growth of 5% to 11% much of this revision is tied to EMEA, where we have lowered our full year topline targets considerably from prior plans that assumed at least.
Low double digit growth.
Despite the moderation and anticipated U S category expansion, we still expect solid mid teens revenue growth in this region for 'twenty, two complemented by even faster expansion in Japan.
We have revised our full year 2022 revenue targets.
While we still anticipate a meaningful acceleration in our second half revenue. We now expect second half revenue growth of 18% to 26% over last year relatively soft second half, which.
Had been impacted by component constraints.
Along with a better second half gross margin. We also plan to carefully manage spending which will translate into low double digit operating profit margins in the second half of the year that will enable us to convert our full year operating profit margin of 3% to 4%.
Into 2022, EPS that ranges from $1 50 to $2 10.
In summary, although today's Plainfield is less than optimal and we are moving forward with confidence that our strategy is working.
Our competitive position is strengthening our connected customer base continues to grow our customers are happy and we're putting new systems to work to increase how much these customers spend directly with us this year and in years to come.
As a result, we believe that our.
Anticipated second half revenue trajectory and improved profitability will enable us to end the year with the momentum necessary to achieve our long term financial targets.
That concludes my initial remarks, I'll turn the call now 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 unless stated otherwise each mention of gross margin operating expense operating income and loss operating profit margin effective tax rate and net income and loss per share will mean, the corresponding non-GAAP metrics.
All quarterly comparisons are against the first quarter of 2021, unless otherwise noted.
Irobot first quarter 2022 revenue up $292 million declined 4% and was slightly behind our February color due to unanticipated order delays and cancellations from certain EMEA retailers and distributors.
From a product mix perspective, roomba generated 89% of our Q1 revenue mix with Bravo and other products, making up the remainder.
We continued to see strength in our premium robots, which grew over 30% in the first quarter.
Our gross margin of 34, 5% exceeded the low 30% range target we outlined in February due primarily to the reinstatement of our tariff exclusion, which saved us approximately $6 million or.
Our Q1 gross margin declined nearly six percentage points from the same period last year.
Decrease was driven by several factors, which in order.
[noise] apprised unfavorable increases in raw materials, transportation, and componentry pricing reductions and higher promotional intensity and product mix. These combine to more than offset the benefits from our tariff exclusion and lower warranty expense.
In terms of the tariff exclusion we were granted a temporary exclusion from section 301 list three tariffs in late March by the USTR.
This exclusion eliminate the 25% tariff on roomba products imported from China, beginning on October 12, 2021, and continuing until December 31st 2022.
We expect to receive refunds totaling approximately $30 million, which are comprised of $6 million or two Q1 tariffs paid.
$12 million of tariffs paid on roomba products imported after October 12th and sold in the fourth quarter of last year and $12 million for on hand inventory imported after October 12.
Similar to the refunds, we received for our 2020 tariff exclusion, we expect that U S. Customs will issue multiple refund payments over the next 12 months, although the timing of any and all payments is at the discretion of U S customers.
First quarter 2022, operating expenses of $119 million increased by 10% due to primarily higher sales and marketing costs attributable to working marketing programs and increased personnel costs.
Continued to carefully manage our spending in the first quarter.
Operating costs for Q1 were 41% of revenue versus our prior target of the mid 40% range.
Our Q1 operating loss was $19 million.
Our first quarter effective tax rate was approximately 2% and our net loss per share was 66 cents. We ended the first quarter with $113 million in cash and short term investments a decline of $121 million from year end.
The decrease primarily reflects our quarterly net loss and unfavorable changes in working capital.
We have received a waiver from certain credit facility covenants that will increase our near term fiscal flexibility. This is the first part of our plans to ultimately upsize and amend our $150 million unsecured revolving line of credit.
First quarter Dsos at 33 days, an increase of 13 days from the same period, one year ago, due primarily to customer mix and to a lesser extent the timing of orders within the quarter.
Our inventory balance at the end of the first quarter was $331 million or 158 days versus $233 million or 118 days at the end of Q1 last year.
In transit inventory continues to skew our inventory balance representing an additional 13 days versus the same period last year.
The increase also reflects healthy inventory that due to shipping delays in the fourth quarter of 2021 missed key promotional windows last year, we plan to sell this inventory into our customers over the next three quarters, which will help us improve our inventory levels by year end.
Consistent with our commentary last quarter, we still expect that inventory measured in dollars and days will stay elevated through Q3 before showing improvement to the low 70 day range at the end of 2022.
With the quarterly review complete I would like to focus on our updated 2022 outlook.
Given the potential for disruption in the European consumer marketplace, our revised FY 'twenty Q revenue targets now range from $1 six 4 billion to $1 74 billion. We currently anticipate that approximately 65% of our 2022 revenue will be generated in the second half which implies Q2.
Revenue in the range of $290 million to $318 million.
In contrast to an expected first half revenue decline between nine and 13%, we anticipate 18% to 26% growth in the second half of 2022 over the same period last year.
We believe our Q3 revenue growth rate will range from low double digits to the high teens over last year's Q3.
Our Q4 growth rate well above that.
As we look ahead. It is important to remember that our second half 2022 outlook will compare against the prior year period that was impacted by limited availability of components.
Our ability to support this year's second half revenue targets are underpinned by existing inventory levels and the steps, we've taken to improve supply chain continuity and resiliency.
In terms of product diversification, we remain on track to generate over $40 million in 2022 air Purifier revenue with more than 70% of that coming in the second half of the year.
As a reminder, we manage our business on a full year basis since the timing of larger orders may shift between quarters, especially in the second half of any year. That's why we encourage investors to focus on our annual target.
Our revenue expectations contemplate yen and euro exchange rates roughly in line with quarter end rates plus or minus 5%.
Our 2022 gross margin outlook is unchanged at 36% to 37%. Despite the change to our full year revenue targets, we anticipate that our second half gross margin will improve from first half levels into the 37% to 38% range, primarily as we begin to see the benefits of some of our productivity initiatives lower.
Shipping cost and fixed cost leverage on higher sales.
If our tariff exclusion had not been reinstated we would've expected to pay more than $40 million in tariff cost this year.
Our updated outlook reflects our plans to redirect approximately half of our tariff related savings to increase our promotional intensity and supportive both category growth and increased sell through.
The remainder of the savings will help us absorb the anticipated impact of lower revenue as well as our plans to work down on hand inventory that was burdened by incrementally higher supply chain costs.
As Colin outlined we have taken and will continue to take a range of actions to optimize our cost of goods sold which are expected to support a meaningful improvement in gross margin next year.
We expect our Q2 gross margin to be lower than Q1 at between 31, and 33% as increased promotional intensity associated with seasonal events will more than offset favorable channel mix shifts and improved leverage on fixed costs.
We are targeting 2022 operating costs in the range of $538 million to $574 million or approximately 33% of revenue we.
We have adjusted our hiring plans and working marketing and accelerated other cost optimization programs to better align our cost structure with anticipated revenue.
Given our top line guidance and spending plan. We currently expect an operating profit ranging from $45 to $61 million with an operating margin between three and 4%.
In terms of our second quarter spending, we anticipate Q2 operating cost of $143 million to $144 million or <unk>, 45% to 50% of total revenue.
This implies an operating loss between $39 million and $53 million.
The combination of substantially stronger revenue gross margin improvement and prudent spending is expected to enable us to deliver second half operating income of $116 million to $119 million.
In terms of other notable modeling assumptions for 2022, we anticipate other expense of around $2 million and an effective tax rate of approximately 2%.
As a reminder, relatively small dollar changes in pre tax income along with the jurisdictional mix of those profits can cause meaningful changes in the effective tax rate.
We anticipate a diluted share count of approximately 27 million shares.
As a result, we now expect full year EPS to range from $1 50 to $2 10 set for.
For Q2, we anticipate a net loss per share between $1 41, and $1 90.
In summary, we've moderated our top line growth expectations to reflect greater potential for macroeconomic trends and geopolitical events to temporarily disrupt RBC adoption, particularly in EMEA over the coming quarters.
We've taken actions to preserve our profitability, which has enabled us to slightly increase the high end of our 22 EPS range, most notably we still anticipate a meaningful inflection in our topline growth and profitability during the second half of this year.
I will now turn the call back to Colin for some additional thoughts on our near term prospects.
Thank you Julie.
As the RBC category creator and leader, we continue to be very enthusiastic about the global growth potential for both the category and Irobot.
Household penetration is low we design and deliver great products with a compelling and increasingly differentiated value proposition.
A powerful brand, we enjoy great access to consumers worldwide through vibrant retailer and distributor relationships.
And we are rapidly expanding our commercial capabilities to drive DTC revenue growth that will contribute to higher gross margins increased profitability as we expect more connected customers.
We will transact directly with us.
Ross all areas of the company, we are mobilizing to navigate short term turbulence and support the evolving needs of our retail partners and consumers around the world.
Yeah.
To elevate our responsiveness optimize inventory levels and increase sufficiently efficiency, we are consolidating our warehouse and distribution networks around the world.
We've also made meaningful progress in our efforts to increase supply chain continuity and resiliency.
While we are thrilled that the USTR has reinstated our section 301 tariff exclusion through the end of the year our plans to scale production in Malaysia are unchanged as a result, we expect to enter 2023 without meaningful exposure to these tariffs.
Additionally, we believe that our ongoing efforts to improve efficiency carefully manage head count in Peru controlled discretionary spending are critical for achieving this year's profitability targets and helping us further refine our cost structure over the longer term and while we have adjusted overall spending plans for FY 'twenty two we are not.
Sacrificing investment.
Those R&D projects that we believe will make the biggest impact on our business.
We still plan to deliver additional major software upgrades and bring a new roomba model to market this year.
Also taking important steps to support further product diversification.
Specifically, we continue to realign our engineering resources and allocate more funding for internal development of new robotic products targeting adjacent categories.
But it will be premature to offer additional insight into these activities right now we look forward to sharing more in the future. When we are closer to commercial launch.
But do we detailed our updated guidance for 2022 assumed a substantial acceleration in our second half financial performance. We expect that this momentum will enable us to exit this year well positioned to keep us on the path toward achieving the long term financial targets we've outlined.
And in the process create substantial value for our shareholders employees and customers.
That concludes our remarks, operator, we are ready to take questions.
Yes, Sir.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
You may remove yourself from the queue at any time by pressing the pound key.
Once again that is star and wanted to ask a question.
And our first question will come from Mike Latimore with Northland capital markets.
Yes. Thank you.
So I guess in terms of the outlook for the second half of the year are you assuming that the kind of U S and Japanese markets remain relatively healthy are you trying to factor in a little bit of.
Consumer sentiment deterioration there as well.
Yes.
We we see Japan is remaining very healthy we've taken down our North America targets from the beginning of the year modestly but still anticipate.
Good performance in North America, so slightly below traditional growth rates, but still contributing to that overall growth in the industry.
Okay got it.
Your.
Voting half of the.
Terrorists.
Got it exclusion to promotions does that does that reflect.
More competition or is that more about just trying to.
Deal with this.
Sooner hesitancy.
It's a little a little of both.
The Euro has had some.
Good events since a more challenging events then we definitely.
Looking at our basket of resources and working too.
Ensure that we maintain our strong position in the markets.
And so some of it is motivating customers to get out of their chair and come in and help.
To drive this this category growth and others is definitely to make sure that our lineup remains.
As competitive as it can be.
And I think it's important to remember that as we looked at the potential for our category. We still look at overall penetration rates and believe there is a strong and long runway ahead of us for additional adoption and invest.
Investment there is to ensure that when you are able to continue to.
Foster category growth.
Okay, and just lastly on the comment about internal development of new robotic products.
Can't really talk about that but maybe whats the latest view on the lawnmower category.
I think that.
Again, we were at the beginning of the robot industry Irobot ambitions, certainly extend beyond robot vacuuming.
We have talked about.
Yes, specifically about one we continue to think long and is a very attractive.
Adjacent market.
And so I don't think anything has changed on that front irobot.
<unk> development of new enabling technologies, certainly position us well to attack multiple adjacent products.
Great. Thank you.
Yes.
Thank you. Our next question will come from Jim Ricchiuti with Needham <unk> company.
Just a couple of questions on the marketing spend.
Spend promotional activity.
Assume a lot of that.
It's set for Q2 I'm wondering how it changed as you exited Q1 interest the related question to that is as we think about the promotional activity over the balance of the year is it going to be mainly concentrated in North America in terms of the change versus what you were thinking.
Earlier in the year.
We as you know, we're very data driven.
And we try to.
Look at the return on AD spend and optimize that globally.
What youll see is.
US moving dollars around geographically to ensure that we are spending money, where it will work the best and so that that.
Definitely has evolved from the beginning of the year as well as looking at.
Which models.
<unk>.
Channels ways of spending our dollars is in constant evolution on a.
Frankly on a day to day basis so.
I think that.
The absolute dollars change with our XP.
Expectation around revenue, but.
The way we spend those dollars.
Very fluid.
Okay.
Question on Arris.
It's a small part of the business, but I'm just wondering.
How the rebranding effort is going.
You know how important is that to get to that full year.
Contribution it and should we assume.
Part of the activity that youre going to be doing in terms of driving.
Consumer demand that we might see.
Some joint marketing with Roomba and the Arris product.
No.
Certainly the reason one of the reasons why the air purification.
Hum.
Performance for the year has.
A larger.
Second half to first half ratio than the roomba is because.
Completing the integration completing the.
Efforts, we're doing to fully integrate.
The arris products into the Irobot line is underway.
The first part of your question is.
Absolutely.
Sound.
And as far as.
Joint marketing and so forth.
That is a strategy which is.
Underlie is our direct to consumer.
Our belief that.
As we bring customers into our franchise.
As our software technology enables us to better understand our.
Our customers' needs.
<unk> challenges.
That their homes.
Have and require and.
Better develop a partnership.
With the with our customers and their habits and how to operate.
Synergistically with how they live their lives we create opportunities to sell more things.
Two of those customers beyond just.
The first roomba that they bought and air purification is a powerful adjacency. So this idea that.
A roomba can lead to a sale of an air purifier to an existing customer is.
Core to our strategy.
We definitely look at lots of different ways that we can make that happen.
Thanks, I'll jump back in the queue.
Okay. Thank you.
Thank you. Our next question will come from Paul Chung with Jpmorgan.
Hi, Thanks for taking my question so just.
Just on the cancellations in Europe are these orders being pushed out.
Then how is your kind of visibility evolving in Europe , and I guess for other regions as well.
What's your order visibility into kind of second half today, and what's what's kind of driving your confidence for for the guide are there some key customers young firm orders for and then you know.
Again, you know what regions are you seeing relative strength, besides kind of Japan and North America.
So, let's turn and Julia can add color if you like the.
Yeah.
The orders that we had we talked about in the call. It EMEA some were pushed some were canceled.
As we.
<unk> indicated the.
Single largest driver for the change in the guide is the weakness that we're seeing in the.
EMEA market place.
Broadly and so we're definitely.
We're seeing the impact of the war in Ukraine, creating.
A very time correlated drop in consumer confidence increase.
Increase in inflation and decrease in.
Sort of sell through rates that lead to.
Retailers, becoming more conservative.
In taking inventory positions with our product and becoming less aggressive and so these are signs that throughout our history when we.
See them, we're able to.
Understand what they.
Lead to from a.
Full year perspective.
<unk>, two model and adjust expectations appropriately.
We do have.
The nature of our relationships with our retail partners as well as with our distributors.
<unk> conversations which extend beyond.
The immediate order and so that we're definitely engaged in dialogues with our partners around what they expect and what they are seeing.
And.
We have the current crop of orders.
As well, which gives us confidence in the guidance, we presented so it's a rich.
Our collaboration which is.
Frankly decades of history at this point.
Leading us to trying to make.
The best indication of what we see happening through the balance of the year, but to be honest there is still significant.
Certainty as to how the rest of the year is going to unfold.
But our confidence is buoyed not just based on those conversations is buoyed because we believe we have the best lineup that the company has ever had.
See very strong performance from a share perspective showing that.
Our products are holding up very well competitively.
We think that.
The back half of the year.
Also lapse.
A much weaker back half of last year, and so the percentage of growth that we are contemplating in the.
The earlier call.
It is relatively straightforward.
Easier comps and then certainly into the first half when.
A year ago, we were enjoying tremendous momentum and strength.
Bob.
So I think that all in all we have done our best to create a reasonable expectation.
Balancing the goods and the unknowns and the challenges to deliver.
The expectation that we are confident.
Yes, I will.
I'll just underscore a couple of things as Colin said, we've taken into account a series of factors as we've reset and rebase our expectations for the full year.
Okay that tried to balance all of those things, it's our best view.
And it's in knowing that we will be investing again in supporting that ongoing category growth that gives us the picture that we are.
Starting now for the full year.
Great and then just a follow up on.
Longer term margins, if we think about tariffs going away you know freight coming down.
Component cost easing with more normalized gross margins, maybe that starts to show in <unk> and 'twenty three.
We're progressing from their end.
Can they recover back to the mid 40% range or has something kind of.
Structurally changed maybe you have higher costs and Youre moving manufacturing and then on the Opex side.
You're seeing continued cuts since analyst day guide.
Where are you, making the cuts there and you mentioned commitments to R&D, but are there any tradeoffs on growth on.
Maybe some lowered opex investments here. Thank you.
Yeah sure why don't I start and then I'll, let Colin jump in but as we look forward with AR.
Our expectations around.
Second half expansion in gross margin over our first half.
And then.
Through 'twenty, three and 'twenty four.
We believe we are making the progress.
That puts us on a path to.
Toward those L. TSM targets that we established back in our Investor day.
That you hit on some of them already that we expect over that multiyear period, we will see a normalizing and easing of some of the headwinds that we saw.
We have.
An operations team that is just and working in partnership with the rest of the organization to drive Cogs productivity across the line and then the third thing that I would point to our some of our CRM levers, which as we continue to expand our direct.
Sumer reach and focus on the keep and grow parts of our strategy should provide.
Some expansion over time in our gross margin rates from us as we look forward to our <unk>.
Yes.
Little debt other than to reaffirm our commitment to the LTM.
Growth rates gross margin rates operating income rates that we shared in November .
We'll be execute exiting this year and a slightly lower base, but those rates that we committed to we believe that all of the reasons that Julie just laid out.
Give us confidence.
That long term financial model still holds.
And.
And I think that again.
Looking at that deeply is the best answer to where we think things are going to go.
And then you asked another question around Opex.
It's true we have made difficult choices associated with resetting our expectations for the year.
Colin already mentioned one of the things that I think we do very well, it's we're extremely data driven and how and where we put our investments and the cadence of those investments.
We remain very committed to.
Innovation at the center of what we do and the work that we're doing in R&D.
On innovation is and the speed of innovation is front and center in how we think about our spending as it will continue to evolve as we go through the year.
But they arent easy choices.
Okay, great. Thank you.
Sure.
Thank you. Our next question will come from SCA merchants with Citigroup on markets.
Great. Thank you for the opportunity.
Right.
Pricing relative to promotional intensity I'm, just trying to understand where you guys are thinking about that and you know at the start of the year you guys talked about Asp's benefiting you on a net basis gross acres, because even guide where it makes shifting to premium robot, which clearly is happening, but then at the same.
One you're driving higher promotional intensity.
So just how you guys are thinking about units versus asp's in your updated guidance as well as as you kind of roll forward T. Our long term target towards the towards fiscal 'twenty four it. How you guys think about that mix shift and units worth of ESP benefiting you and then I just have a follow up on the.
The inventory balance I know you guys are talking about trending that now.
Is there anything to keep in mind, you know on how growth we're seeing that in.
Effective promotional effect impact sorry impact the inventory balances.
Do you guys recorded thank you.
Sure.
We look forward for the year.
We do.
About units versus ASP.
For the full year, we now anticipate low single digit growth in our units.
Mid single digit growth in E. S P and that that ASP is a balance of a number of thing dossier.
Certainly the mix of our products.
We will continue to play a role there as you said, we've been pushing up to the premium.
But also the channel with which we sell those products so as our direct to consumer business grows or we had benefit from pricing there as well.
As it relates to inventory.
We do expect inventory will.
Remained elevated as I said in our prepared remarks.
Both in dollars and engage through the first two.
Few quarters, and then trend down by the end of the year to that into the 70 <unk> in terms of days of inventory.
We as we look at that inventory.
As we've said previously that is healthy inventory that we expect that we will move through the normal course of events.
Great. Thank you and just as you guys have I know you guys talked about the several levers that you have to.
<unk> margin, but just given the higher promotional intensity that you guys are talking about to drive category growth and maintain or take share why should investors think about that.
Kind of negatively affecting your gross margins our operating margin targets that you laid out at the end.
And what isn't.
I think that.
The LTM.
<unk> contemplated.
Number of.
Tailwind as well as.
And evolving competitive dynamic.
And how we built it.
And so that.
We see the fruits of our R&D investments, giving us growing competitive strength.
I think that we are.
Managing <unk>.
Competitive.
It's already a promotional intensity in price as to levers to ensure we maximize the.
<unk>.
Oh y dollars in 'twenty.
In 'twenty, two that will shift a little bit toward meeting our gross margin rate targets.
As we move forward. So we do have a number of different levers and we use those levers slightly differently, depending on the challenges and the market situation, we find ourselves and so.
Again, it's a nuanced answer but.
Right now as we look what our priorities are for the year, we want to ensure that we maintain share we want to ensure that we deliver on our profitability commitments.
And we are in line with.
The gross margin rates that we committed to for the year and so we feel that's a good.
Set point for where we are today.
Acknowledging that.
We intend to demonstrate gross margin rate acceleration in the back half setting ourselves up for the <unk> that we've put on the street.
Great. Thank you.
You bet.
Thank you.
Again to ask a question that is star one on your telephone keypad.
And our next question will come from John Babcock with Bank of America.
Hey, good morning, Thanks for taking my questions I guess actually just firstly I wanted to understand a little bit is I think a couple of years ago, you started to increase in investments on the software side.
While continuing to invest in hardware just maybe not to the same extent so wanted to understand.
At least since then have you found this has helped too.
Hence your competitive position in the marketplace have you found this has helped to excite consumers.
So I think like consumers generally obviously the likes of new features but at the same time. They also I think that with new and innovative.
Just wanted to get your sense overall in terms of like how those investments in software are translating into into growth in that competitive moat.
It's a great question and I'm happy to address it.
As we looked at.
Our customer.
Requirements and customer satisfaction, what they were looking for.
That the current crop of robots.
Failed to deliver on several years ago, very clearly the ability of the consumer too.
Control, where when and how the robot operated well.
It was a huge priority as well as the robots.
Our ability to complete missions.
In an environment, which wasn't necessarily pre cleaned ahead of the roomba is.
Setting off an honest cleaning mission and so that pointed to a very challenging technical.
Issue, but also played into irobot strengths in artificial intelligence and machine learning.
We're beginning to be able to harvest.
The benefits of that.
Recognition and subsequent investments in AI technology in our J, seven plus robot where the.
The difference.
From a hardware perspective between the <unk>. The <unk> seven is relatively modest the difference in the intelligence between those two models.
Is tremendous and we are seeing the J seven robot.
<unk> to being the number one seller.
And many of our markets, including North America, we are seeing that robot.
Receiving exceptionally strong Amazon ratings were seeing the unique features that are unique software features that we introduced on those robot on that class of robot being.
Being.
Very highly utilized.
And so that really we're seeing a validation of this strategy.
Allegation of the insights that we perceived and.
The fact that we are well on our way investing in the intelligence of our robots.
<unk> gives us confidence that we have a sustainable competitive advantage in the marketplace based on those.
R&D investments.
We're able to continuously.
Continuously upgrade the software and our robots as an example, the eye purchaser of an <unk> three robots.
Received.
Major new functionality last.
Last year with the directed room cleaning coming out.
Hum.
The benefit that user and so.
We feel like we have a platform to accelerate the delivery of innovation to our customers and accelerate our ability to differentiate.
Happy to do a follow on question if you have one.
No.
Great.
Follow up certainly in due time on that.
But I guess like the next question on.
On supply chain I was wondering if you might be able to talk about how that compares with last quarter, what sort of disruptions, you're seeing there and particularly with some of the news around shutdowns in China I don't know if theres any update you might be able to provide on that but.
That's really what I wanted to focus on now okay sure.
I guess star.
Starting a year ago Irobot in most every consumer.
Tech Company has faced the challenge of supply chain issues shipping issues chip shortages, and so forth and we <unk>.
Jumping on that aggressively to start securing longer term.
Partnerships with our key suppliers.
Longer term partnerships with our shippers.
And develop the ability to second source many of our components to give us.
A better ability to.
Take advantage of what supply there is out there and so here we are a year later.
Having.
Substantially shifted our emphasis from.
Uh huh.
A pure efficiency perspective to our perspective on supply chain the balances.
Supply chain resiliency with efficiency and so that.
Right now we do have the inventory that we need we believe that.
We have sightline into commitments required to.
Produce the inventory reflected in the guidance that we gave today.
We definitely still see growing raw material costs, we see some easing of shipping.
Cost, but certainly.
It is not headed back to where it was.
18 months ago.
In foreseeable timeframe.
There continue to be sporadic shut downs in.
In factories and component shortages, but that's.
That's kind of.
Day to day living for Us at this point given that it's a year in and and our supply chain organization.
That has been up to the task given the.
The year that we've been through and the partnerships, we have reinforced to manage through those challenges so not out of the woods, but the headwinds that supply chain, where for us last year are definitely.
They actually eased.
In 2022.
We'll have the product that we need shipping costs are more manageable and.
With all of the work that we've done in dual sourcing. We believe we have access to the components that we need to build the products.
Alright Thats great.
Next question I, just wanted to follow up on one of the questions earlier on inventories.
Talk about your plan to ultimately reduce those inventory levels and then also how you can do that without having any meaningful impact on price I mean, it seems like inventories built up a R. R.
I guess heavier than they had been at least that I can do.
I can recall, so just wanted to get your color on that.
I think Julie.
Made the important point all of the inventory you have as healthy inventory that we have factored into the plan to sell this year so that.
It gives us more confidence from our inventory availability perspective that we're well.
Physician to meet our revenue targets for the year.
Think that is.
As we have.
Align production with demand.
We've been able to make some adjustments to change the the ramp from up to down through the balance of the year and we're taking a sensible approach to working that revenue down over time.
Limit the pressure.
To go take actions that might.
Negatively impact profitability.
A.
<unk> commented on a few minutes ago, we are looking at.
<unk>.
Go to market strategy for 2020 to that.
Prioritize profitability dollars over gross margin rate and so that we are willing to do.
Some activities, which would.
Protect share draw.
Drive.
Units.
Rather than maximizing gross margin rate.
And we think that it is prudent to do that and we can execute on that plan, while still showing the growth in gross margin rate.
That we committed to at the beginning of the year setting ourselves up for the L. P. F. M. Next year, so again, a lot of moving parts, but I would say that.
No unnatural acts required.
Relative to driving down inventory.
But with a willingness to go focus on driving profitability dollars that you probably won't see next year.
Okay, great. Thanks, that's all the questions I had.
Sure great. Thank you.
Alright, and there are no further questions in the queue. At this time, so I would like to turn the floor back over to Mr. Kramer for any additional or closing remarks.
Thank you that concludes today's call definitely appreciate everybody's support.
A very busy day for folks who we appreciate you listening we look forward to talking with shareholders and prospective shareholders and analysts over the coming weeks and months. Thank you once again.
Yeah.
Thank you ladies and gentlemen, this concludes today's teleconference and we appreciate your participation you may disconnect at any time.
Goodbye.
Yeah.
Yeah.
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