Q4 2023 iRobot Corp Earnings Call
Speaker Change: [music].
Operator: Subs by www.zeoranger.co.uk Please stand by, we're about to begin. Welcome to the iRobot fourth quarter and full year 2023 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
Please standby we're about to begin.
Welcome to the Irobot fourth quarter and full year 2023 earnings conference call. At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the presentation.
If you would like to ask a question at that time. Please press star one on your telephone keypad.
If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Operator: So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Carrie Ann Wong, Chief Accounting Officer. Please go ahead.
So others can hear your questions clearly, we ask that you pick up your handset for best sound quality.
Lastly, if you should require operator assistance, please press star zero.
I would now like to turn the call over to carry on Wong Chief Accounting Officer. Please go ahead.
Carrie Ann Wong: Thank you, Jamie, and good morning, everybody. Joining me on today's call are iRobot Income CEO Glenn Weinstein and Executive Vice President and CFO Julie Zeiler. Before I set the agenda for today's call, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance. These statements reflect our views as of today only and should not be considered as representing our views as of any subsequent date. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption, Risk Factors in Our Styling with the FTC.
Carry Wong: Thank you Jamie and good morning, everybody joining me on today's call Irobot interim CEO Glen Weinstein Executive Vice President and CFO, Julie Zeiler before I set the agenda for today's call I would like to remind everyone that today's discussion will include forward looking statements regarding future events and all.
Carry Wong: Future financial performance. These statements reflect our views as of today only.
Carry Wong: It should not be computer as representing our views as of any subsequent date.
Carry Wong: These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward looking statements.
Carry Wong: A discussion of each of these risk factors is fully detailed under the caption risk factors in our filings with the SEC.
Carrie Ann Wong: Related to our financial disclosure during this conference call, we will reference certain non-GAAP financial measures as defined by FCC Regulation G, including non-GAAP gross margin, non-GAAP operating expense, non-GAAP operating loss, and non-GAAP net loss per share. We believe that our non-GAAP financial results help provide additional transparency into iRobot's underlying operating performance and potential. Our definitions of these non-GAAP financial measures and reconciliations of each of these non-GAAP financial measures to the most directly comparable gap measures are provided in the financial tables at the end of the fourth quarter 2023 and full year 2023 financial results press release we issued last evening, which is available on our website at www.irobot.com. Also, unless stated otherwise, our fourth quarter and full year 2023 financial metrics, as well as the financial metrics provided For today's call, our agenda will be as follows.
Carry Wong: Related to our financial disclosure during this conference call, we will reference certain non-GAAP financial measures as defined by F. T. SEC regulation G, including non-GAAP gross margin non-GAAP operating expense non-GAAP operating loss and non-GAAP net loss per share, we believe that our non-GAAP financial results I'll provide.
Carry Wong: Additional transparency into Irobot underlying operating performance and potential.
Carry Wong: Our definitions of these non-GAAP financial measures and reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP measures are provided in the financial tables at the end of the fourth quarter 2023, and full year 2023 financial results press release, we issued last evening, which is available on our website.
Carry Wong: At Www Dot Irobot dot com.
Carry Wong: Unless stated otherwise our fourth quarter and full year 2023 financial metrics as well as the financial metrics provided in Oh look that will be discussed on today's conference call will be on a non-GAAP basis, only and all historical comparison with the fourth quarter of 2022 and full year of 2022.
Carry Wong: For today's call our agenda will be as follows flattened.
Glenn Weinstein: Glenn will briefly cover the company's quarterly and annual financial results, review important strategic milestones, and outline our expectations for 2024. Julie will review our financial results in detail and offer additional insights into our 2024 guidance. Then we'll conclude our commentary with some closing remarks about prospects over the longer term. After that, we'll open the call for questions. At this point, I'll turn the call over to Glenn.
Carry Wong: Glenn will briefly cover the company's quarterly and annual financial results.
Carry Wong: Important strategic milestones and outline our expectations for 2024.
Carry Wong: Julian will review, our financial results in detail and offer additional insight into our 2020 for guidance.
Carry Wong: Glen will conclude our commentary with some closing remarks about prospects over the longer term after that we'll open the call for questions.
Carry Wong: At this point I'll turn the call over to Glenn.
Glenn Weinstein: Good morning, and thank you for joining me today. I'll start our call today by reiterating my confidence in iRobot, our mission, and our ability to navigate our next chapter. I have been part of this organization for more than two decades. I know who we were, who we are, and who we can become. At our foundation is a product that customers love, and an incredible team of builders and innovators who are passionate about the robots we create. And because of this, our potential is great. But our future is different than we had envisioned in August of 2022 or even at the start of this year, given the decision by iRobot and Amazon to terminate our transaction. The management team and board are confident in our ability to build on our legacy of innovation as a standalone company and to navigate this period successfully.
Glenn: Good morning, and thank you for joining us.
Glenn: Start our call today by reiterating my confidence in Irobot, our mission and our ability to navigate our next chapter.
Glenn: I have been part of this organization for more than two decades, I know, who we were who we are and who we can become.
Glenn: At our foundation, it's a product that customers love.
Glenn: And an incredible team of builders and innovators, who are passionate about the robots, we create and because of this our potential was great.
Glenn: Our future is different than we had envisioned in August of 2022 or even at the start of this year given the decision by I robot and Amazon to terminate our transaction with.
Glenn: The management team and board are confident in our ability to build on our legacy of innovation as a standalone company and to navigate this period successfully.
Glenn Weinstein: As we shared on January 29th, we are taking aggressive action to significantly improve our near-term operations. To that end, today I'm going to outline the tenets of the restructuring plan we announced last month. I'll also provide additional information on how that work is progressing and what you can expect from us going forward. Julie will then cover the financials for the quarter in greater detail, as well as our outlook for 2024. Then we'll open the call for questions.
Glenn: As we shared on January 29, we are taking aggressive action to significantly improve our near term operations.
Glenn: To that end today I'm going to outline the tenets of the restructuring plan, we announced last month.
Glenn: So provide additional information on how that work is progressing and what you can expect from US going forward. Julie will then cover financials for the quarter in greater detail as well as our outlook for 2024, then we'll open the call for questions.
Glenn Weinstein: Before I jump into the restructuring plan, I'll touch on our financials at a high level. Our performance continues to be impacted by sluggish consumer spending as well as aggressive competition in all regions. We generated fourth-quarter revenue of $308 million with a gross margin of 19%. We managed our costs carefully to report an operating loss of $45 million and a net loss per share of $1.82. For the full year, revenue declined to $891 million with an operating loss of 22% and a net loss per share of $7.73.
Glenn: Before I jump into the restructuring plan I will touch on our financials at a high level. Our performance continues to be impacted by sluggish consumer spending as well as aggressive competition in all regions, we generated fourth quarter revenue of $308 million with a gross margin of 19% we managed our cost.
Glenn: Carefully to report an operating loss of $45 million and a net loss per share of $1.82.
Glenn: For the full year revenues declined to $891 million with an operating loss of 22% and a.
Glenn: Net loss per share of $7 73.
Glenn Weinstein: We have a plan to address our performance and these macro trends. The operational restructuring plan we announced last month is designed to stabilize the business in our current environment while also advancing our longer-term growth initiatives. The operational restructuring plan is centered around simplifying our cost structure, implementing a more sustainable business model, and focusing on our core value drivers. Those core value drivers are, first, leverage our brand and innovative products to extend or reclaim our leadership in the mid and premium segments.
Glenn: We have a plan to address our performance and these macro trends the <unk>.
Glenn: Operational restructuring plan, we announced last month is designed to stabilize the business and our current environments. While also advancing our longer term growth initiatives.
Glenn: The operational restructuring plan that centered around simplifying our cost structure implementing a more sustainable business model and focusing on our core value drivers.
Glenn: Those core value drivers are first leverage our brand and innovative products to extend or reclaim our leadership in the mid and premium segments.
Glenn Weinstein: And second, focus on geographies that offer the greatest scale and profitability. The immediate priorities in executing this plan are to more closely align our cost structure with near-term revenue expectations, improve liquidity, and drive bottom-line improvement. Specifically, the plan is structured to first achieve gross margin improvements through a focus on design to value and removal of unnecessary costs and more attractive terms with our manufacturing partners. Second, reduce R&D expenses by relocating certain non-core engineering functions, including increasing reliance on third parties to provide those functions and pausing work unrelated to our core floor care business. Third, centralize our global marketing activities to be more efficient in demand generation and provide a meaningful reduction in non-working marketing and agency fees.
Glenn: Second focus on geographies that also the greatest scale and profitability.
Glenn: Our immediate priorities and executing this plan are to more closely align our cost structure with near term revenue expectations improved liquidity and drive bottom line improvements.
Glenn: Specifically the plan is structured to first achieve gross margin improvement through a focus on design to value and removal of unnecessary costs.
Glenn: And more attractive terms with our manufacturing partners.
Glenn: Second reduced R&D expenses by relocating certain noncore engineering functions, including.
Glenn: Including increasing reliance on third parties to provide those functions and pausing work unrelated to our core floor care business.
Glenn: Third centralized our global marketing activities to be more efficient and demand generation.
Glenn: And provide a meaningful reduction in non working marketing and agency fees.
Glenn Weinstein: And fourth, streamline our legal entity and real estate footprint to fit our current business needs and near-term revenue expectations. The cornerstone of our gross margin improvement plans, which we have been working on for nearly a year, is a new relationship paradigm with our contract manufacturers, both existing and new. We are relying on the expertise of our contract manufacturers to a greater extent than we have in the past.
Glenn: And fourth streamline our legal entity and real estate footprint.
Glenn: Fit our current business needs and near term revenue expectations.
Glenn: The cornerstone of our gross margin improvement plans, which we have been working on for nearly a year.
Glenn: As a new relationship paradigm with our contract manufacturers, both existing and new.
Glenn: We are relying on the expertise of our contract manufacturers to a greater extent than we have in the past taking.
Glenn Weinstein: Taking advantage of a matured supply chain and expertise in Design for Manufacturing and Flexibility in Components, this ship, along with competitive bidding of our design package, is a key component in unlocking an approximately 9 12 to 11 12 percentage point improvement in full year 2024 gross margin. We expect to see the benefit of these improvements in the P&L, primarily in the second half of the year, as the higher-cost products are moved out of inventory, and we benefit from new products released during the year that have lower costs than the products that they will have replaced. We have more work to do, but we anticipate a gross margin between 32 and 34 percent in fiscal 24. Hand in hand with the shift to a greater reliance on contract manufacturers for certain work is the ability to decrease our R&D expenditures, particularly as it relates to lower-value commodity engineering work. We plan to continue to invest in higher-value robotics, computer vision, machine learning, and complex mechanical design to improve the core functionality of our robots. We plan to take advantage of opportunities to source subcomponents and, in some cases, nearly complete robot designs from third parties.
Glenn: Taking advantage of our matured supply chain and expertise in design for manufacturing and flexibility and components.
Glenn: This shift.
Glenn: Along with competitive bidding with our design packages.
Glenn: A key component in unlocking and approximately nine in one half 211, and one half percentage point improvement in full year 2020 for gross margin.
Glenn: We expect to see the benefit of these improvements in the P&L, primarily in the second half of the year as the higher cost products are moved out of inventory.
Glenn: And we benefit from new products released during the year that have lower costs than the products that they will have replaced.
Glenn: We have more work to do but we anticipate a gross margin of between 32 and 34%.
Glenn: In fiscal 'twenty four.
Glenn: Cans in hand, with the shift to a greater reliance on contract manufacturers for certain work is the ability to decrease our R&D expenditures, particularly as it relates to lower value commodity engineering work with.
Glenn: We plan to continue to invest in the higher value robotics computer vision machine learning and complex mechanical designed to improve the core functionality of our robots.
Glenn: We plan to take advantage.
Glenn: Of opportunities to source sub components and in some cases nearly complete robot designs from third parties.
Glenn Weinstein: In 2024, we expect to see a decrease in overall R&D expenses by approximately $25 million. In sales and marketing, we had built an infrastructure to support revenue at the higher pandemic rate, and now we need to aggressively return to a more normalized level where we can operate the business profitably. We will focus resources on our more limited geographies and consolidate marketing efforts for greater efficiency.
Glenn: In 2024, we expect to see a decrease in overall R&D expenses by approximately $25 million.
Glenn: And sales and marketing.
Glenn: We have built an infrastructure to support revenue at the higher pandemic rates and now we need to aggressively return to a more normalized level, where we can operate the business profitably.
We will focus resources on a more limited geographies and consolidate marketing efforts for greater efficiencies.
Glenn Weinstein: In 2024, we expect to see a decrease in overall sales and marketing expenses of approximately $40 million, including a decrease in working capital of approximately $20 million. While this might put pressure on our revenue in the short term, we are returning to a more disciplined approach to demand generation. In line with these initiatives, we will reduce our workforce by approximately 350 employees, which represents approximately 31% of iRobot's workforce.
Glenn: In 2024, we expect to see a decrease in overall sales and marketing expenses of approximately $40 million, including a decrease in working marketing of approximately $20 million. While this might put pressure on our revenue in the short term we are returning to a more disk.
Glenn: The planned approach to demand generation.
Glenn: In line with these initiatives, we will reduce our workforce by approximately 350 employees, which represents approximately 31% of our robust workforce.
Glenn Weinstein: These reductions are expected to result in restructuring charges totaling between $12 and $13 million, primarily for severance and related costs, over the first two quarters of 2024. We are in the final planning stages for these difficult actions and expect to begin implementing these changes beginning in early March. As previously announced, we have engaged a Chief Restructuring Officer, Jeff Angle, to oversee these initiatives, and he is reporting directly to both the Board of Directors and me. Jeff is fully empowered to make not only these necessary changes but to scour our cost structure and look for opportunities for savings and efficiency improvement.
Glenn: These reductions are expected to result in restructuring charges totaling between 12 and $13 million, primarily for severance and related costs over the first two quarters of 2024.
Glenn: We are in the final planning stages for these difficult actions and expect to begin implementing these changes beginning in early March.
Glenn: As previously announced we have engaged a chief restructuring officer, Jeff angle to oversee these initiatives and he is reporting directly to both the board of directors and me.
Glenn: Jeff is fully empowered to make not only these necessary changes, but to scour our cost structure and look for opportunities for savings and efficiency improvements.
Glenn Weinstein: Liquidity and careful cash management are our top financial priority. We anticipate a significant improvement in our 2024 cash flow from operations compared with full year 2023 and anticipate generating positive cash flow from operations in both the third and fourth quarters of 2024. We have always had an amazing team of builders who are eager to identify problems and create solutions.
Glenn: Liquidity and careful cash management are our top financial priorities, we anticipate a significant improvement in our 2024 cash flow from operations compared with full year 2023, and anticipate generating modest.
Glenn: Positive cash flow from operations in both the third and fourth quarter of 2024.
Glenn: We have always had an amazing team of builders, who are eager to identify problems and create solutions. We recognize the importance of our people. They are vital to the success and growth of the company and.
Glenn Weinstein: We recognize the importance of our people; they are vital to the success and growth of the company, and we appreciate their ongoing hard work and dedication. While the financial actions we are taking are essential to the near-term operations of the business, they are not being taken at the expense of advancing important work on growth initiatives.
Glenn: And we appreciate their ongoing hard work and dedication.
Glenn: While the financial actions, we're taking are essential to the near term operations of the business.
Glenn: They are not being taken at the expense of advancing important work on growth initiatives as.
Glenn Weinstein: As we shared last month, we have made the decision to focus our innovation and development efforts on iRobot's key revenue generators, pausing all work related to non-floor care innovation. Our focus is on executing the near-term plans and moving quickly and decisively to continue to delight customers. We are laser focused on the initial impressions of our new customers. We know that the first experience of taking our products home, unboxing them, performing the initial setup routines, and creating the first maps and schedules is an important foundation for longer-term usage and customer satisfaction.
Glenn: As we shared last month, we have made the decision to focus our innovation and development efforts on Irobot key revenue generators pausing all work related to non floor care innovation.
Glenn: Our focus is on executing the near term plans and moving quickly and decisively to continue to delight customers.
Glenn: We are laser focused on the initial impressions of our new customers. We know that the first experience of taking our products home unboxing and performing the initial setup routines and creating the first maps and schedules are an important foundation for longer term usage and customer satisfaction.
Glenn Weinstein: Additionally, we continue to enhance our go-to-market play, which focuses the business on iRobot's most profitable customers, geographies, and channels, including our growing direct-to-consumer chat, while rebalancing our spending mix between price promotion and demand generation to optimize return. We believe it is important to meet our customers at the locations where they want to discover and purchase our products. We will retain an omni-channel presence in our large market, while further leveraging existing and new distributor partners in smaller geography. Our direct-to-consumer channel continues to be an area of focused investment, ensuring it is the easiest place to buy and own a Roomba.
Glenn: Additionally, we continue to enhance our go to market playbook, which focuses the business on our robots, most profitable customers geographies and channels, including our growing direct to consumer channel, while rebalancing, our spending mix between price promotion and demand generation to optimize <unk>.
Glenn: Churns.
Glenn: We believe it is important to meet our customers at the locations, where they want to discover and purchase our products. We will retain an omnichannel presence presence and our large markets, while further leveraging existing and new distributor partners in smaller geographies, our direct to consumer channel.
Glenn: <unk> to be an area of focused investment ensuring it is the easiest place to buy and own a roomba.
Glenn Weinstein: We expect that this channel will grow approximately 5% in 2024 and represent approximately 20% of total revenue. We have an iconic brand that people love. Our marketing efforts will support key retailers in stores and online to deliver the premium experience that our customers expect and deserve. In the near term, we are taking the necessary actions to stabilize the business, improve liquidity, and focus on bringing innovative products to our customers. We are confident in our ability to build on our legacy of innovation as a standalone company and to navigate this period successfully. Now, I'll hand it over to Julie to discuss finance. Thank you, Glenn.
Glenn: We expect that this channel will grow approximately 5% in 2024 and represents approximately 2% of total revenue.
Glenn: We have an iconic brand that people love.
Glenn: Our marketing efforts will support key retailers in stores and online to deliver the premium experience that our customers expect and deserve.
Glenn: In the near term, we are taking the necessary actions to stabilize the business improve liquidity and focus on bringing innovative products to our customers.
Glenn: We are confident in our ability to build on our legacy of innovation as a standalone company and to navigate this period successfully.
Glenn: Now I'll hand, it over to Julie to discuss financials.
Julie Zeiler: Thank you Glenn.
Julie Zeiler: As Carrie Anne 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, non-operating expense, operating loss, other expense, and net loss per share will mean the corresponding non-GAAP metric. All quarterly comparisons are against the fourth quarter of 2022, and all full-year comparisons are against 2022 unless otherwise noted. iRobot's fourth-quarter 2023 revenue declined 14% to $308 million. Our performance was disappointing across all regions, driven by demand gaps and higher promotional and pricing support. Many retailers in EMEA and North America continue to carefully manage their inventory as part of their ongoing efforts to rebalance inventory levels amid relatively sluggish consumer spending on a range of categories, including robotic floor care products.
Julie Zeiler: As Carrie Ann mentioned earlier, my review of our financial results and outlook will be done on a non-GAAP basis.
Julie Zeiler: So unless stated otherwise each mentioned on gross margin operating expense nonoperating expense operating loss other expense and net loss per share will mean, the corresponding non-GAAP metrics.
Julie Zeiler: All quarterly comparisons are against the fourth quarter of 2022, and all full year comparisons are against 2022, unless otherwise noted.
Julie Zeiler: Irobot fourth quarter 2023 revenue declined 14% to $308 million, our performance was disappointing across all regions driven by demand gaps and higher promotional and pricing support.
Julie Zeiler: Many retailers in EMEA and North America continue to carefully manage their inventory as part of their ongoing efforts to rebalance inventory levels.
Julie Zeiler: Relatively sluggish consumer spending on a range of categories, including robotic floor care products.
Julie Zeiler: The overall market conditions continue to be challenging, and we will continue to see increased competition in EMEA, Japan, and the U.S. throughout 2023. Geographically, in the fourth quarter, EMEA declined 5%, Japan declined 19%, and the U.S. decreased 20%. From a product mix perspective, 2-in-1 products represented 43% of our Q4 revenue mix, with robotic vacuums and, to a lesser extent, robotic mops making up the remainder. Accessory revenue in the fourth quarter grew 18% over the prior year and represented approximately 7% of total revenue.
Julie Zeiler: The overall market conditions continued to be challenging and we continue to see increased competition in EMEA, Japan and the U S. Throughout 2023.
Julie Zeiler: Geographically in the fourth quarter, EMEA declined, 5%, Japan declined 19% and the U S decreased 20%.
Julie Zeiler: Product mix perspective, <unk> products represented 43% of our Q4 revenue mix with robotic vacuums and to a lesser extent robotic mop, making up the remainder.
Julie Zeiler: Accessory revenue in the fourth quarter grew 18% over the prior year and represented approximately 7% of total revenue.
Julie Zeiler: Our fourth-quarter D to C sales declined 9% versus the prior year, with flat growth in North America offset by declines in EMEA and Japan. In the fourth quarter, our D to C revenue represented 21% of total revenue. Our gross margin of 19% in Q4 declined five percentage points from the prior year. The year-over-year decrease primarily reflected six percentage points associated with higher pricing and promotion, two percentage points associated with suboptimal absorption of fixed operational costs, and two percentage points associated with higher losses related to purchase commitments with our contract manufacturers, and higher excess and obsolete inventory right now. These factors were partially offset by a four percentage point benefit of lower product cost of sales and transportation costs.
Julie Zeiler: Our fourth quarter D to C sales declined 9% versus prior year with flat growth in North America, offset by declines in EMEA and Japan.
Julie Zeiler: In the fourth quarter, our D to C revenue represented 21% of total revenue.
Julie Zeiler: Our gross margin of 19% in Q4 declined five percentage points from the prior year.
Julie Zeiler: Year over year decrease primarily reflected six percentage points associated with higher pricing and promotion two percentage points associated with sub optimal absorption of fixed operational costs and two percentage points associated with higher losses related to purchase commitments with our contract manufacturers.
Julie Zeiler: And higher excess and obsolete inventory write downs.
Julie Zeiler: These factors were partially offset by a four percentage point benefit of lower product cost of sales and transportation costs.
Julie Zeiler: We reduced our fourth quarter 2023 operating expenses by 30% to $104 million, representing 34% of revenue. The decrease primarily reflected disciplined spending during the quarter across the board, with the biggest drivers being reduced working marketing spending as a result of lower revenue, people-related costs associated with previously announced restructuring efforts, and other discretionary spend. Our Q4 operating loss was $45 million, and fourth quarter non-operating expense was $5 million, reflecting interest expense associated with our term loan. This was partially offset by interest income on the cash balance.
Julie Zeiler: We reduced our fourth quarter 2023, operating expenses by 30% to $104 million, representing 34% of revenue.
Julie Zeiler: The decrease primarily reflected discipline spending during the quarter across the board with the biggest drivers being reduced working marketing spending as a result of lower revenue.
Julie Zeiler: People related costs associated with previously announced restructuring efforts and other discretionary spend.
Julie Zeiler: Our Q4 operating loss was $45 million.
Julie Zeiler: Fourth quarter non operating expense was $5 million, reflecting interest expense associated with our term loan. This was partially offset by interest income on cash balances.
Julie Zeiler: Our fourth-quarter net loss per share was $1.82. From a full-year perspective, 2023 revenue declined 25% to $891 million. Geographically, we generated 48% of our revenue in the U.S., where revenue declined by 30%. International revenue declined by 19%, with EMEA decreasing by 11% and Japan declining by 21%.
Julie Zeiler: Our fourth quarter net loss per share was $1.82.
Julie Zeiler: From a full year perspective, 2023 revenue declined 25% to $891 million geographically, we generated 48% of our revenue in the U S where revenue declined by 30% International revenue declined by 19% with EMEA decreasing by 11%.
Julie Zeiler: And Japan declining by 21%.
Julie Zeiler: 2023 gross margin of 22.5% declined 7 percentage points from 2022. The full-year decline was impacted by five percentage points associated with pricing and promotion and four percentage points related to fixed costs across a lower revenue base. This was partially offset by improvements in product costs, transportation rates, and channel mass.
Julie Zeiler: 2023, gross margin of 22.5% declined seven percentage points from 'twenty to 'twenty two.
Julie Zeiler: Full year decline was impacted five percentage points associated with pricing and promotion and four percentage points related to fixed costs across a lower revenue base.
Julie Zeiler: Was partially offset by improvements in product cost transportation rates and channel mix.
Julie Zeiler: Full year operating expenses of $399 million declined by 23% due to the combination of lower working marketing based on lower revenue, a reduction in personnel expenses associated with headcount, and other discretionary spending. Our 2023 operating loss of $199 million was 22% of revenue. We reported 2023 non-operating expenses of $13 million and a net loss per share of $7.73. We ended 2023 with $185 million in cash and short-term investments, a decline of $5 million from the end of Q3. The timing of certain working capital levers impacted the quarterly usage and generation of cash from operating activities during 2023. For example, in Q4'23, cash flow from operations was negative $1.2 million.
Julie Zeiler: Full year operating expenses of $399 million declined by 23% due to the combination of lower working marketing based on lower revenue a reduction in personnel expenses associated with head count and other discretionary spending our.
Julie Zeiler: Our 2023 operating loss of $199 million was 22% of revenue.
Julie Zeiler: We reported 2023, non operating expense of $13 million and a net loss per share of $7 73 shops we.
Julie Zeiler: We ended 2023 with a $185 million in cash and short term investments a decline of $5 million from the end of Q3.
Julie Zeiler: Timing of certain working capital levers impacted the quarterly usage and generation of cash from operating activities during 2023.
Julie Zeiler: In Q4, 23 cash flow from operations was negative $1 2 million.
Julie Zeiler: In Q4'2022, cash flow from operations of $122.6 million benefited from the decrease in inventory from our elevated inventory level at the end of Q3'2022. We had another strong quarter of working capital efficiency. Fourth quarter DSO was 24 days. Our year-end inventory balance was $152 million, or 56 days for the fourth quarter.
Julie Zeiler: In Q4, 2022 cash flow from operations of $122 6 million benefited from the decrease in inventory from our elevated inventory level at the end of Q3 2022, we.
Julie Zeiler: We had another strong quarter of working capital efficiency fourth quarter. DSO was 24 days a year end inventory balance was $152 million or 56 days for the fourth quarter and 2022. The year end inventory was $285 million or 96 days for the fourth quarter.
Julie Zeiler: I am pleased with the progress we have made in managing our key working capital levers throughout 2023.
Julie Zeiler: In 2022, the year-end inventory was $285 million, or 96 days for the fourth quarter. I am pleased with the progress we have made in managing our key working capital levers throughout 2023. Careful management of working capital efficiency will continue to be a focus in 2024. With that said, let's take a deeper look at our 2024 outlook. We anticipate 2024 revenue will decline modestly in the range of 3 to 7% from $825 million to $865 million.
Julie Zeiler: Careful management of working capital efficiency will continue to be a focus in 2024.
Speaker Change: With that said, let's take a deeper look at our 2020 for outlook.
Speaker Change: We anticipate 2020 for revenue will decline modestly in the range of 3% to 7% to $825 million.
Speaker Change: $865 million.
Speaker Change: We anticipate that over 60% of our full year revenue will come in the second half of the year with an expected first half revenue decline of high teens to low 20% range.
Speaker Change: Within the first half of the year, we expect Q2 to be the weaker of the two quarters in terms of growth versus prior year as we anticipate a shifting of orders into Q3.
Speaker Change: For the second half of the year, we anticipate revenue growth in the mid single digit percentage.
Julie Zeiler: We anticipate that over 60% of our full-year revenue will come in the second half of the year, with an expected first-half revenue decline of high teens to low 20s percent range. Within the first half of the year, we expect Q2 to be the weaker of the two quarters in terms of growth versus the prior year, as we anticipate a shift of orders into Q3. For the second half of the year, we anticipate revenue growth of in the mid-single-digit percentage.
Speaker Change: Overall, our 2020 for revenue outlook assumes a modest decline in unit volume for robots and stable robot a S. P.
Speaker Change: As a reminder, and we say this every year, we manage our business on a full year basis and encourage investors to focus on our annual targets since the timing of orders is challenging to forecast even under ideal conditions.
Speaker Change: Large orders that shifts from one quarter to the next can cause material fluctuations in our quarterly growth rate.
Julie Zeiler: Overall, our 2024 Revenue Outlook assumes a modest decline in unit volumes for robots and stable robot ASX. As a reminder, and we say this every year, we manage our business on a full year basis and encourage investors to focus on our annual targets since the timing of orders is challenging to forecast even under ideal conditions. Large orders that shift from one quarter to the next can cause material fluctuations in our quarterly growth rate. Additionally, our revenue expectations contemplate yen and euro exchange rates roughly in line with current rates plus or minus 5%.
Speaker Change: Additionally, our revenue expectations contemplate yen and Euro exchange rates roughly in line with current rates plus or minus 5%.
Speaker Change: We anticipate that our 2024 gross margin will improve significantly to between 32% and 34%.
Speaker Change: As Glenn mentioned, we expect that the combination of our cost of goods sold productivity initiatives and a reduction in one time costs related to actions taken in 2023 reduce our elevated inventory level from fiscal 2022 will fuel this margin expansion.
Speaker Change: We anticipate that the Q1 'twenty four gross margin will show slight improvement from Q1 last year, but we expect sequential improvement every quarter from 2023 with stronger gross margin expansion in the second half as more significant cost savings improvements moves through the P&L and we compare against annualized.
Julie Zeiler: We anticipate that our 2024 gross margin will improve significantly to between 32 and 34 percent. As Glenn mentioned, we expect that the combination of our Cost of Goods Sold productivity initiative and a reduction in one-ton costs related to actions taken in 2023 to reduce our elevated inventory level from fiscal 2022 will fuel this margin expansion. We anticipate that the Q1-24 gross margin will show slight improvement from Q1 last year, but we expect sequential improvement every quarter from 2023, with stronger gross margin expansion in the second half, as more significant cost savings improvements move through the P&L, and we compare against annualized pricing adjustments. We are targeting 2024 operating costs in the range of $322 to $340 million, or approximately 39% of revenue.
Speaker Change: Reising adjustments.
Speaker Change: We are targeting 2024 operating cost in the range of $322 million to $340 million or approximately 39% of revenue.
Speaker Change: The anticipated decrease from 2023, primarily reflects previously announced efforts to more closely align our cost structure with near term revenue expectations and drive towards profitability.
Speaker Change: Given our top line guidance and spending plans. We currently expect to make considerable progress as we execute our restructuring efforts in the first half of the year.
Speaker Change: Anticipate our full year operating margin of approximately negative 5% to negative 7% with an operating loss in the first half and an operating profit in the second half of 2024.
Speaker Change: In terms of other notable modeling assumptions in 2024, we anticipate other expense of around $45 million, including approximately $15 million and net cash interest expense and $29 million in estimated fair value adjustment associated with our term loan and full year.
Julie Zeiler: The anticipated decrease from 2023 primarily reflects previously announced efforts to more closely align our cost structure with near-term revenue expectations and drive toward profitability. Given our top-line guidance and spending plans, we currently expect to make considerable progress as we execute our restructuring efforts in the first half of the year. We anticipate a full year operating margin of approximately negative five percent to negative seven percent with an operating loss in the first half and an operating profit in the second half of 2024. In terms of other notable modeling assumptions, in 2024, we anticipate other expenses of around $45 million, including approximately $15 million in net cash interest expense and $29 million in estimated fair value adjustment associated with our term loan and full year tax expense of approximately $3 million driven by our foreign jurisdiction. We anticipate a diluted share count of approximately 28.3 million shares. As a result, we expect our full-year net loss per share to range from $3.73 to $3.35.
Speaker Change: <unk> expense of approximately $3 million driven by our foreign jurisdictions.
Speaker Change: We anticipate a diluted share count of approximately $28 3 million shares.
Speaker Change: As a result, we expect our full year net loss per share to range from $3 73 to $3 34.
Speaker Change: In terms of other 2024 financial guide posts, our business remains minimally capital intensive overall, we expect 2020 for capital spending to be approximately $5 million or roughly 1% of anticipated 2020 for revenue.
Speaker Change: As Glenn mentioned liquidity and careful cash management is our top financial priority with.
Speaker Change: With the operational restructuring plan, we announced last month, we anticipate a significant improvement in our cash flow from operations compared with the reported cash outflow from operations of $114 $8 million for full year 2023.
Speaker Change: Excluding the net proceeds from the $94 million breakup fee from Amazon, We expect cash flow from operations in Q1, and Q2, and we expect to generate.
Julie Zeiler: In terms of other 2024 financial guideposts, our business remains minimally capital-intensive. Overall, we expect 2024 capital spending to be approximately $5 million, or roughly 1% of anticipated 2024 revenue. As Glenn mentioned, liquidity and careful cash management are our top financial priorities. With the operational restructuring plan we announced last month, we anticipate a significant improvement in our cash flow from operations compared with the reported cash outflow from operations of $114.8 million for full year 2023. Excluding the net proceeds from the $94 million breakup fee from Amazon, we expect cash flow from operations in Q1 and Q2, and we expect to generate positive cash flow from operations in both Q3 and Q4. To provide further flexibility to our capital planning strategies, we intend to file a shelf S3 registration statement, which would include a $100 million at-the-market offering program for the sale of the company's common stock, along with our 10K this week.
Speaker Change: And we expect to generate positive cash flow from operations in both Q3 and Q4.
Speaker Change: To provide further flexibility to our capital planning strategies, we intend to file a shelf S. Three registration statement, which would include a $100 million at the market offering program for the sale of the company's common stock along with our 10-K this week.
Speaker Change: <unk> of any sales and the number of shares of common stock sold if any under the ATM program will depend on a variety of factors to be determined by the company with the net proceeds from the ATM program expected to be used for working capital purposes.
Speaker Change: In summary, we are managing through a very challenging period, and making important strategic progress that we believe will help us further expand our business reduce operating expenses and drive bottom line improvement.
Speaker Change: That concludes my commentary I will now turn the call back over to Glen for some additional comments on the coming year.
Glen Weinstein: Thank you Julie as we've outlined we have a plan in place to simplify our cost structure implement a more sustainable business model and focus on our core value drivers of leveraging our brands and innovative products to regain and extend our leadership across segments and geographies.
Glen Weinstein: Coupled with the restructuring actions, we announced we believe our second half 2020 for performance will serve as a springboard for our driving our future.
Julie Zeiler: The timing of any sales and the number of shares of common stock sold, if any, under the ATM program will depend on a variety of factors to be determined by the company. Is the net proceeds from the ATM program expected to be used for working capital purposes? In summary, we are managing through a very challenging period and making important strategic progress that we believe will help us further expand our business, reduce operating expenses, and drive bottom-line improvement. That concludes my commentary. I'll now turn the call back over to Glenn for some additional comments on the coming year. Thank you, Julie.
Glen Weinstein: We are committed to significant gross margin improvement, we expect our gross margin will further benefit from our transformation to a more complete joint development manufacturer model ongoing DTC expansion and a relentless effort to achieve greater scale and efficiency across our operations <unk>.
Glen Weinstein: These dynamics underpin our expectations for material improvement in our bottom line performance and put us on a path towards profitability.
Glen Weinstein: Finally, as we noted in late January the <unk>.
Glen Weinstein: Board has initiated a search for a permanent CEO supported by a leading executive search firm.
Glenn Weinstein: As we've outlined, we have a plan in place to simplify our cost structure, implement a more sustainable business model, and focus on our core value drivers of leveraging our brand and innovative products to regain and extend our leadership across segments and geographies. Coupled with the restructuring actions we announced, we believe our second half 2024 performance will serve as a springboard for our growth in the future. We are committed to significant growth and margin and expect our gross margin will further benefit from our transformation to a more complete joint development manufacturer model, ongoing D2C expansion, and a relentless effort to achieve greater scale and efficiency across our operation. These dynamics underpin our expectation of material improvement in our bottom line performance and put us on a path toward profitability. Finally, as we noted in late January, the board has initiated a search for a permanent CEO, supported by a leading executive search firm. The board is already reviewing candidates.
Glen Weinstein: Our board has already reviewing candidates in the meantime, we are committed to stabilizing the business and returning to profitability.
Glen Weinstein: We expect that our success in 2024 will create a foundation that will deliver value for our shareholders our employees and our customers that concludes our remarks, operator, we're ready to take questions.
Speaker Change: Thank you the floor is now open for questions.
Speaker Change: At this time, if you have a question or a comment please press star one on your telephone keypad.
Speaker Change: If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
Speaker Change: Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.
Speaker Change: Our first question will come from Jim Ricchiuti with Needham <unk> company.
Jim Ricchiuti: Hi, Good morning, I was just wondering if you go through the <unk>.
Jim Ricchiuti: Bridge to the gross margin improvement that you're anticipating.
Speaker Change: Sorry for the background noise.
Jim Ricchiuti: Looking out to the full year, how much of that.
Jim Ricchiuti: Is.
Jim Ricchiuti: It's coming from the initiatives you've had.
Jim Ricchiuti: With the existing and it sounds like some new contract manufacturers and maybe what is what.
Operator: In the meantime, we are committed to stabilizing the business and returning to profitability. We expect that our success in 2024 will create a foundation that will deliver value for our shareholders, our employees, and our customers. That concludes our remarks. Operator, we're ready to take questions. Thank you. The floor is now open for questions. At this time, if you have a question or a comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
Jim Ricchiuti: What is baked into those assumptions also with respect to price and market share.
Speaker Change: Sure Jim why don't I take that.
Jim Ricchiuti: So as Glenn laid out in quite a bit of detail, we have programs well underway to drive solid improvements as we go through 2024 and our gross margin.
Speaker Change: As noted we expect to show slight improvement in Q1 over the same period of prior year, but sequential improvement every quarter.
Jim Ricchiuti: Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Our first question will come from Jim Ricchiuti with Needham and Company. Hi, good morning. I just wanted to go through the bridge to the gross margin improvement that you're anticipating. Sorry for the background noise. Um, looking out to the full year, how much of that is coming from the initiatives you have with the existing and, sounds like, some new contract manufacturers and maybe what is, uh, baked into those assumptions also with respect to price and market share? Sure, Jim. Why don't I take that?
Speaker Change: We go through 'twenty 'twenty four.
Speaker Change: Those initiatives are generally driven in a in a few buckets. The first one is product mix, which is the largest individual piece as we launch new products that come with a lower <unk>.
Speaker Change: Cost base and bring those into the market. We expect that we will see improvement in gross margin.
Speaker Change: We commented in our prepared remarks around fixed cost there are some expenses that we had in 2023 that we don't expect to continue to have an 24 as well as.
Julie Zeiler: So, as Glenn laid out in quite a bit of detail, we have programs well underway to drive solid improvements as we go through 2024 in our gross margin. As noted, we expect to show slight improvement in Q1 over the same period of the prior year, but sequential improvement every quarter as we go through 2024. Those initiatives are generally driven in a few buckets. The first one is product mix, which is the largest individual piece.
Speaker Change: Some of our restructuring efforts are around the organization in total and then finally there are.
Speaker Change: Things like ongoing cost improvements on existing products as well as taking advantage as compared to prior year of improved transportation rates that finally will drive the last big piece of those cost improvements.
Speaker Change: That's helpful Julie and maybe my follow up question.
Speaker Change: As we think about the recovery that youre anticipating in revenues in the back half of the year.
Julie Zeiler: As we launch new products that come with a lower cost base and bring those into the market, we expect that we will see improvements in gross margin. We commented in our prepared remarks around fixed costs. There are some expenses that we had in 2023 that we don't expect to continue to have in 24, as well as some of our restructuring efforts around the organization in total. And then finally, there are things like ongoing cost improvements on existing products, as well as taking advantage, as compared to the prior year, of improved transportation rates that will finally drive the last big piece of those cost improvements. That's helpful, Julie.
Speaker Change: Yes, I wonder if you would comment.
Speaker Change: About the conversations.
Julie Zeiler: You're having or maybe having with some traditional brick and mortar retailers just in the aftermath of the.
Julie Zeiler: The merger agreement being terminated.
Speaker Change: Sure why don't I start and then I'll, let Glenn jump in as well if you think about the the timing and the growth expectations in our quarters as I mentioned in my remarks, we'd like to point people to our full year targets.
Glenn: What we see sometimes and we expect to see that again this year as there can be movement in the timing of certain large orders associated with significant promotional events and as those move between as an example, Q2 and Q3 it can drive.
Julie Zeiler: And maybe my follow-up question, you know, as we think about the recovery that you're anticipating and revenues in the back half of the year. Yeah, I wonder if you could comment on the conversation you're having, or maybe you have with some traditional brick and mortar retailers, just in the aftermath of the merger agreement being terminated. Sure, why don't I start and then I'll let Glenn jump in as well.
Glenn: Growth a flood.
Glenn: <unk> fluctuation I think.
Glenn: The other piece as we look at our revenue outlook for the year is we expect to continue to optimize certain channels, particularly internationally and that underpins as well our outlook in the second half.
Julie Zeiler: If you think about the timing and the growth expectations for our quarters, as I mentioned in my remarks, we'd like to point people to our full-year targets. What we see sometimes, and we expect to see that again this year, is that there can be movement in the timing of certain large orders associated with significant promotional events, and as those move between, as an example, Q2 and Q3, it can drive growth fluctuations. I think the other piece as we look at our revenue outlook for the year is that we expect to continue to optimize certain channels, particularly internationally, and that underpins as well our outlook for the second half of the year. Jim, I'll add, I know that after we announced the transaction with Amazon in the summer of 2022, we had some retailers exit business with us, both domestically and internationally, because they viewed Amazon as a particular competitor. With the announcement of the termination, we have begun conversations with those retailers to re-enter their stores, and we hope that that is something that we will be able to announce as the year goes on. Thanks very much. We'll go to Asiya Merchant now with Citi.
Speaker Change: Yeah, and Tim I'll add I know that we have.
Speaker Change: After we announced the transaction.
Speaker Change: With Amazon in the summer of 2022, we had some retailers exit business with us.
Speaker Change: Both domestically and internationally.
Speaker Change: Because they viewed Amazon as a particular competitor.
Speaker Change: With the announcement of the termination we have begun conversations with those retailers.
To reenter.
Speaker Change: Their stores and we hope that that is something that debt.
Speaker Change: It will be able to announce as the year goes on.
Speaker Change: Got it thanks very much.
Speaker Change: Well go now to I see a merchant with Citi.
Speaker Change: Great. Thank you for taking my question.
Speaker Change: Julie if you could just again walk us through why the first path is weak.
Citi: I guess, the second half strength that youre seeing in margin.
Citi: And obviously all the cost initiatives, but can you walk us through why you think the first half should be so much weaker.
Citi: Then the last year and my understanding was as well if I'm going back to my notes that there was orders that had shifted into for prime again into the back half of the year. So maybe you can just walk us through what youre seeing in the first half at least just so much pressure still in the first half and then.
Asiya Merchant: Great, thank you for taking my question. Julie, could you just again walk us through, you know, why the first half is weak? I guess the second half strength that you're seeing in margins and obviously all the cost initiatives, but can you walk us through why you think the first half should be so much weaker than last year? And my understanding was, if I'm going back to my notes, that there were orders that had shifted into for prime again into the back half of the year. So maybe you can just walk us through what you're seeing in the first half that leads to so much pressure still in the first half.
Citi: And my other question was just on the Opex initiatives that you've identified should we assume that this is still obviously going through some analysis here should we expect more to come or is this sort of how you think the full year was going to play out but the majority of the expenses being taken out.
Asiya Merchant: And then my other question was just on the op-ex initiatives that you've identified. Should we assume that this is still, you know, obviously going through some analysis here, and should we expect more to come? Or is this sort of how you think the full year is going to play out with the majority of the expenses being taken out, let's say in the first quarter or definitely by the first half? Thank you. Sure.
Speaker Change: Let's say in the first quarter and definitely by the first half. Thank you.
Speaker Change: Sure. Thank you Oscar.
Speaker Change: So as I think about the seasonality of our revenue in 2024.
Speaker Change: And you pointed to a couple of things every year.
Speaker Change: We see there there can be shifts of certain large orders and we expect some of that will happen first half versus second half of this year.
Julie Zeiler: Thank you, Asiya. So as I think about the seasonality of our revenue in 2024, and you pointed to a couple of things. Every year, we see there can be shifts in certain large orders, and we expect some of that will happen first half versus second half of this year, which plays into our. I think the second piece of it, as I mentioned, Glenn touched on some conversations with certain customers. I think also, we've talked in our prepared remarks about optimizing our channels, and as we work through that, we expect to see an improvement in performance, particularly internationally, in the back There's always more efficiency to look for, specifically in your question.
Speaker Change: Which plays into our.
Speaker Change: Our expectations around growth rates I think the second piece of it as I mentioned is.
Speaker Change: Glenn touched on some conversations.
Speaker Change: Conversations with <unk>.
Speaker Change: Certain customers I think also the.
Speaker Change: We've talked in our prepared remarks about our optimizing our channels and as we work through that we expect to see an improvement in performance, particularly internationally in the back half of the year.
Speaker Change: On the Opex.
Speaker Change: So first of all what we have explained is our year over year improvements and we think our exit rates.
Speaker Change: Will be better.
Speaker Change: Then just looking at the year over year about Theres always more efficiencies to look for.
Speaker Change: Specifically on your question.
Julie Zeiler: I think the majority of the restructuring will be done in Q1, some in Q2, with the vast majority happening in the first half of the year. Okay. Thank you. That is all the time we have left for questions today. I would now like to turn the floor over to Carrie Ann Wong for closing remarks. Thank you so much. This concludes our conference call today, and we appreciate your support and are looking forward to talking with you over the coming weeks. Thank you. Thank you. This concludes today's iRobot fourth quarter and full year 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day. Goodbye. www.iRobotCorp.com
Speaker Change: The majority of the restructuring will be done in Q1.
Speaker Change: Some in Q2 with the vast majority happening in the first half of the year.
Speaker Change: Okay. Thank you.
Speaker Change: That is all the time, we have left for questions today I would now like to turn the floor over to carry an Wang for closing remarks.
Speaker Change: Thank you so much. This concludes our conference call today, and we appreciate your support and I'm looking forward to talking with you over the coming weeks and months. Thank.
Speaker Change: Thank you.
Speaker Change: Thank you. This concludes today's Irobot fourth quarter and full year 2023 earnings Conference call. Please disconnect. Your line at this time and have a wonderful day.
Speaker Change: Goodbye.
Speaker Change: [music].
Speaker Change: Okay.
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Speaker Change: Yeah.
Speaker Change: Okay.
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