Q2 2024 iRobot Corp Earnings Call
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Unknown Attendee: Welcome to the iRobot's second quarter, 2024 financial results conference call. At this time, all participants have been placed in a listen-only mode. A question-and-answer session, and we'll follow the company's prepared remarks. 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. For the best sound quality, we ask that you pick up your handset. Today's call is being recorded. Lastly, if you should require operator assistance, please press star 0.
Speaker Change: Welcome to the iRobot Second Quarter 2024 Financial Results Conference Call. At this time, all participants have been placed in a listen-only mode. A question-and-answer session will follow the company's prepared remarks.
Speaker Change: If you would like to ask a question at that time, please press star 1 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 2.
Speaker Change: Today's call is being recorded. Lastly, if you should require operator assistance, please press star zero.
David Collusion: I would now like to turn the call over to David Collusion of the company's investor relations from Sharon Merrill Advisors. Please go ahead.
David Kalouzian: I would now like to turn the call over to David Kalouzian of the company's investor relations firm Sharon Merrill Advisors. Please go ahead.
David Collusion: Thank you, Jamie, and good morning, everyone. Joining me on today's call are Gary Cohen, iRobot's CEO, and Julie Zeiler, Executive Vice President and CFO.
Operator: Thank you, Jamie, and good morning, everyone. Joining me on today's call are Gary Cohen, iRobot's CEO, and Julie Zeiler, Executive Vice President and CFO.
David Kalouzian: Joining me on today's call are Gary Cohen, iRobot's CEO , and Julie Zeiler, Executive Vice President and CFO . At the outset, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance.
Gary Cohen: At the outset, 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 captioned risk factors in our filings with the SEC.
David Collusion: At the outset, I would like to remind everyone that today's discussion will include four 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 four looking statements. A discussion of these risk factors is fully detailed under the caption "Risk Factors" in our filings with the SEC.
Speaker Change: A discussion of these risk factors is fully detailed under the captioned risk factors in our filings with the SEC.
David Collusion: Related to our financial disclosures during this conference call, we will refer to certain non-gap financial measures as defined by SEC regulation G, including non-gap growth margin, non-gap operating expenses, non-gap research and development, non-gap sales and marketing, non-gap operating loss, and non-gap 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 reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP measure are provided in the earnings presentation included in the Q2 2024 earnings conference call event details, which is available on our website at www.iRobot.com.
Speaker Change: Non-Gap Sales and Marketing, Non-Gap Operating Loss, and Non-Gap Net Loss per Share.
Speaker Change: We believe that our non- GAAP financial results help provide additional transparency into iRobot's underlying operating performance and potential.
Speaker Change: Our definitions of these non-GAAP financial measures and reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP measure are provided in the earnings presentation included in the Q2 2024 Earnings Conference Call event details.
Speaker Change: which is available on our website at www.irobot.com
David Collusion: Also, unless stated otherwise, our second quarter financial metrics that will be discussed on today's conference call, including the financial metrics provided in our outlook, will be on a non-GAAP basis only, and all historical comparisons are with the second quarter of 2023.
Gary Cohen: Also, unless stated otherwise, our second quarter financial metrics that will be discussed on today's conference call, including the financial metrics provided in our outlook, will be on a non-gap basis only, and all historical comparisons are with the second quarter of 2023.
Speaker Change: Also, unless stated otherwise, our second quarter financial metrics that will be discussed on today's conference call, including the financial metrics provided in our outlook, will be on a non-GAAP basis only, and all historical comparisons are with the second quarter of 2023.
David Collusion: For today's call, our agenda is as follows. Gary will briefly cover the company's quarterly results, review important strategic milestones, and outline the company's expectations for the second half of the year. Julie will review iRobot's financial results and offer additional insights regarding the company's full-year outlook. Gary will then provide closing remarks before we open the call for questions.
Speaker Change: Gary will briefly cover the company's quarterly results, review important strategic milestones, and outline the company's expectations for the second half of the year.
Julie: Julie will review iRobot's financial results and offer additional insights regarding the company's full-year outlook. Gary will then provide closing remarks before we open the call for questions. With that, I will turn the call over to Gary and welcome him to what is his first earnings call as iRobot's new CEO .
David Collusion: With that, I will turn the call over to Gary and welcome him into what is his first earnings call as iRobot's new CEO.
Gary Cohen: Thank you, David, and good morning, everyone. Thank you for joining us today.
Gary Cohen: Thank you, David. And good morning, everyone. Thank you for joining us today. I'm very excited to be here as we start a new chapter in iRobot's history and build on the company's legacy of innovation. For today's call, I will begin with an overview of my background and discuss why I decided to join iRobot. I will then provide highlights of our second quarter performance and outline our opportunities to position iRobot for a bright future. Following our prepared remarks, we will open the call for Q&A.
Gary Cohen: It is a pleasure to speak to you on my first earnings call as iRobot's CEO. I'm very excited to be here as we start a new chapter in iRobot's history and build on the company's legacy of innovation. In my three months thus far at iRobot, I have had the opportunity to meet with our teams, major retailers, distributors, and key constituents around the globe. I've learned about what makes this a great company, and I've gained a deeper understanding of our capabilities, challenges, and opportunities. We're in the midst of a turnaround, and I am more confident than ever that we will be successful.
Gary: In my three months thus far at iRobot, I have had the opportunity to meet with our teams, major retailers, distributors, and key constituents around the globe.
Gary: We're in the midst of a turnaround and I am more confident than ever that we will be successful.
Gary Cohen: For today's call, I will begin with an overview of my background and discuss why I decided to join iRobot. I will then provide highlights of our second quarter performance and outline our opportunities to position iRobot for a bright future.
Gary: For today's call, I will begin with an overview of my background and discuss why I decided to join iRobot.
Gary: I will then provide highlights of our second quarter performance and outline our opportunities to position iRobot for a bright future.
Gary Cohen: I will then turn the call over to Julie to review our financial results in more detail and to provide our outlook. Following our prepared remarks, we will open the call for Q&A. My passion is building brands, and I've had the opportunity to build iconic brands in many diverse categories of consumer goods. While I pride myself on marketing and innovation, I have significant experience in R&D and have run Asia sourcing and global operations. I directed businesses successfully through the pandemic and recent global supply challenges, and I have operated across all environments and stages of performance from turnaround and crisis management to stabilization and growth.
Gary: I will then turn the call over to Julie to review our financial results in more detail and to provide our outlook.
Julie: Following our prepared remarks, we will open the call for Q&A.
Speaker Change: While I pride myself on marketing and innovation, I have significant experience in R&D and have run Asia sourcing and global operations.
Gary Cohen: I directed businesses successfully through the pandemic and recent global supply challenges. I find it rewarding to enable positive change while energizing teams to work together to leverage skill sets. While at Playtex, I repositioned Banana Boat and Hawaiian Tropic, and they became the fastest growing products at the company.
Speaker Change: I directed businesses successfully through the pandemic and recent global supply challenges.
Speaker Change: and I have operated across all environments and stages of performance.
Gary Cohen: Over my career, I have architected and led the strategy, the organization, and operating platform that ultimately drove sustainable and profitable growth. I joined iRobot because it is an iconic brand that has a strong relationship with consumers and retail and distribution partners. In fact, even in turnaround, iRobot continues to be the leader in several markets. We have a culture of innovation that is evident in our passionate and talented employees, and I know that we can integrate our way to growth and value creation. I see incredible opportunities for this company. For the past 25 years, I have worked in leadership roles with consumer companies, many of which were turnaround.
Speaker Change: Over my career, I have architected and led the strategy, the organization, and operating platform that ultimately drove sustainable and profitable growth.
Speaker Change: We have a culture of innovation that is evident in our passionate and talented employees, and I know that we can innovate our way to growth and value creation. I see incredible opportunities for this company.
Speaker Change: For the past 25 years, I have worked in leadership roles with consumer companies, many of which were turnarounds.
Gary Cohen: I find it rewarding to enable positive change while energizing teams to work together to leverage skill sets, adapt best practices, and implement strategic plans that provide the framework for consistent, profitable growth. When I worked on the oral Bieber and at Gillette, I inherited an empty pipeline and built an innovation engine that delivered dozens of new products in a five-year period. While at Playtex, I repositioned Banana Boat and Hawaiian Tropic and they became the fastest growing products at the company. And most recently, a qualitor, I built a talented US-based R&D team that designed and developed a new product IP that was then sourced and manufactured in Asia, a similar model to what we are perfecting at iRobot.
Speaker Change: When I worked on the Oral-B brand at Gillette, I inherited an empty pipeline and built an innovation engine that delivered dozens of new products in a five-year period.
Gary Cohen: And most recently, Equalitor, I built a talented U.S.-based R&D team that designed and developed new product IP that was then sourced and manufactured in Asia, a similar model to what we are perfecting at iRobot. We had a high-cost product line that is now in the process of being refreshed in order to enhance our competitiveness and improve our profitability. Our restructuring plan addresses all of these issues.
Speaker Change: And most recently, at Qualator, I built a talented U.S.-based R&D team that designed and developed a new product IP that was then sourced and manufactured in Asia, a similar model to what we are perfecting at iRobot.
Gary Cohen: During the past three months, I have identified several inefficiencies within our business that I believe have hindered iRobot's ability to maximize the potential of our powerful technology, brand, and consumer appeal. We had a high cost product line that is now in the process of being refreshed in order to enhance our competitiveness and improve our profitability. At the same time, we had an organizational structure with too many layers that was built for a much larger company and that slowed decision making. Additionally, the R&D model carried too much overhead in high-cost countries for too many non-core ideas.
Speaker Change: During the past three months, I have identified several inefficiencies within our business that I believe have hindered iRobot's ability to maximize the potential of our powerful technology, brand, and consumer appeal.
Gary Cohen: Our restructuring plan addresses all of these issues. Since I have joined, we have made several changes to our executive leadership team and reorganized R&D to be better aligned with our vision of how to deliver new products.
Gary Cohen: In fact, I am pleased to announce Jeff Engel has officially joined iRobot as President and Chief Operating Officer, reporting to me. Jeff has been with iRobot for seven months as our Chief Restructuring Officer and Advisor. He will be responsible for R&D operations, supply chain, and product management and will continue his duties as CRO since our work in this area is not completed. Jeff's willingness to join iRobot at this time and his faith in our turnaround speaks volumes to the company's growth prospects, and he has been instrumental in helping us deliver against our restructuring targets. Our second quarter results demonstrate that our restructuring plan is on track and delivering the expected results.
Gary Cohen: In fact, I am pleased to announce Jeff Engel has officially joined iRobot as President and Chief Operating Officer, reporting to me. Our second quarter results demonstrate that our restructuring plan is on track and delivering the expected results. One driver of this was the launch of our Margin Accretive Essentials product line. We also lessened our use of operating cash.
Speaker Change: Jeff has been with iRobot for seven months as our chief restructuring officer and advisor.
Jeff: He will be responsible for R&D, operations and supply chain, and product management, and will continue his duties as CRO since our work in this area is not completed.
Jeff: Our second quarter results demonstrate that our restructuring plan is on track and delivering the expected results.
Gary Cohen: We have made tough but appropriate decisions to achieve our planned operating expense and headcount reduction targets. We have also reduced inefficient marketing spend and improved our product margins via our new contract manufacturing strategy. One driver of this was the launch of our margin accretive essentials product line, which is gaining traction in many markets and is now the unit leader in Japan. Furthermore, we have continued to reduce our finished goods inventory and narrowed our operating losses, despite incurring one-time charges. We also lessened our use of operating cash.
Jeff: We have made tough but appropriate decisions to achieve our planned operating expense and headcount reduction targets.
Jeff: We have also reduced inefficient marketing spend and improved our product margins via our new contract manufacturing strategy.
Jeff: One driver of this was the launch of our Margin Accretive Essentials product line, which is gaining traction in many markets and is now the unit leader in Japan.
Gary Cohen: While we are making progress, we recognize that turn around takes time, and in the near term, we will continue to operate in a dynamic operating environment. This is reflected in our revised 2024 outlook.
Gary Cohen: While we are making progress, we recognize that turnarounds take time, and in the near term, we will continue to operate in a dynamic operating environment. As we navigate near-term headwinds, we remain confident in our ability to build on iRobot's legacy of innovation to advance our long-term growth initiatives. To that end, we have launched iRobot Elevate, which is a new strategy centered on improving our financial performance. Continuing our operational and organizational improvements and developing and retaining our best talent.
Jeff: While we are making progress, we recognize that turnarounds take time. And in the near term, we will continue to operate in a dynamic operating environment.
Gary Cohen: Julie will discuss our Q3 and 2024 outlook shortly. As we navigate near-term headwinds, we remain confident in our ability to build on iRobot's legacy of innovation to advance our long-term growth initiatives.
Jeff: Julie will discuss our Q3 and 2024 outlook shortly.
Gary Cohen: To that end, we have launched iRobot Elevate, which is a new strategy centered on improving our financial performance, increasing consumer focus to elevate our brand, and bringing innovative products to market in an entirely new and more profitable way. Continuing our operational and organization improvements and developing and retaining our best talent. We are evaluating everything we do at iRobot to enhance our performance for the benefit of all stakeholders. Our restructuring is focused on cost savings and improving our gross margin and cash flow. Elevate is about growth. A big part of Elevate will be developing and commercializing new products.
Julie: To that end, we have launched iRobot Elevate, which is a new strategy centered on improving our financial performance.
Gary Cohen: We are evaluating everything we do at iRobot to enhance our performance for the benefit of all stakeholders. Last month, we announced our smartest and best cleaning robot yet, the Roomba Combo 10 Max. The Roomba Combo 10 Max will be followed by another new product in Q4 2024, and then an entire revamp of our 2025 lineup, including an unprecedented number of new product launches across our good, better, and best price points.
Julie: We are evaluating everything we do at iRobot to enhance our performance for the benefit of all stakeholders.
Julie: Our restructuring is focused on cost savings and improving our gross margin and cashflow. Elevate is about growth.
Gary Cohen: Last month, we announced our smartest and best-cleaning robot yet, the Roomba Combo 10 Max. This two-in-one robot vacuum and mop takes independent cleaning to a new level with more intelligence and our first multi-function auto wash dock. It is engineered to powerfully vacuum and mop multiple fortypes. While the dock automatically refills and recharges the robot, washes and drives the mopping pad, empties debris, and self-cleans. The Roomba Combo 10 Max will be followed by another new product in Q4 2020-24 and then an entire revamp of our 2025 lineup, including an unprecedented number of new product launches across our good, better, and best price points.
Julie: Last month, we announced our smartest and best cleaning robot yet, the Roomba Combo 10 Max.
Julie: The Roomba Combo 10 Max will be followed by another new product in Q4 2024 and then an entire revamp of our 2025 lineup, including an unprecedented number of new product launches across our good, better, and best price points.
Gary Cohen: We are also announcing the creation of iRobot Labs, which will serve as the company's innovation center. iRobot Labs is a global initiative and will harness the strength of our internal product and software engineering talent and selected partners around the world. The team will focus on reducing our time to market and securing the technological leadership that our company is known for. Overall, we are embarking on an exciting journey to reclaim our position as the global innovation leader and consumer robot for the home and beyond. We're a consumer products company that is backed by technology and serves a purpose for consumers around the world.
Gary Cohen: We are also announcing the creation of iRobot Labs, which will serve as the company's innovation center. iRobot Labs is a global initiative and will harness the strength of our internal product and software engineering talent and selected partners around the world. Overall, we are embarking on an exciting journey to reclaim our position as the global innovation leader in consumer robots for the home and beyond. We're a consumer products company that is backed by technology and serves a purpose for consumers around the world.
Julie: Overall, we are embarking on an exciting journey to reclaim our position as the global innovation leader in consumer robots for the home and beyond.
Julie: We're a consumer products company that is backed by technology and serves a purpose for consumers around the world.
Gary Cohen: We operate in a size of a global segment that has the potential for value expansion. This is demonstrated by the growth in multi-functional cleaning devices in our European market. As the category creator and innovator, we plan to lead and drive the global value expansion with new products. Our products enable our consumers to have more free time to enjoy their lives. We are working tirelessly to delight our consumers with every aspect of their Roomba experience. This includes opening the box, starting the robot for the first time, the initial cleaning experience, and using the app.
Julie: We operate in a sizable global segment that has the potential for value expansion.
Julie: This is demonstrated by the growth in multifunctional cleaning devices in our European market.
Julie: Our products enable our consumers to have more free time to enjoy their lives.
Roomba: We are working tirelessly to delight our consumers with every aspect of their Roomba experience.
Gary Cohen: We operate in a sizable global segment that has the potential for value expansion. As the category creator and innovator, we plan to lead and drive this global value expansion with new products. Our products enable our consumers to have more free time to enjoy their lives. This includes opening the box.
Gary Cohen: Our plans include rebuilding our mobile app and delivering a new and improved user experience for our consumers. We have a lot of work in front of us to reduce unproductive costs and become a more agile business. We will continue to make the difficult but necessary decisions to ensure that we will reduce our operating and casual losses and have a line of sight to achieve positive operating income and cash flow from operations over time. Our near-term goal is to stabilize the business, improve the balance sheet, and launch new products that set us on a path to revenue growth.
Gary Cohen: Our plans include rebuilding our mobile app and delivering a new and improved user experience for our consumers. We have a lot of work in front of us to reduce unproductive costs and become a more agile business. We will continue to make the difficult but necessary decisions to ensure that we will reduce our operating and cash flow losses and have a line of sight to achieve positive operating income and cash flow from operations over time. I am confident in our turnaround plan. With that, I'll turn the call over to Julie. Thank you, Gary. Hello everyone.
Speaker Change: We have a lot of work in front of us to reduce unproductive costs and become a more agile business.
Speaker Change: We will continue to make the difficult but necessary decisions to ensure that we will reduce our operating and cash flow losses.
Speaker Change: Our near-term goal is to stabilize the business.
Speaker Change: improve the balance sheet, and launch new products that set us on a path to revenue growth.
Gary Cohen: I am confident in our turnaround plan, pleased with our early returns, and energized by our future potential.
Speaker Change: pleased with our early returns and energized by our future potential.
Gary Cohen: Turnarounds are challenging; take time, energy, and commitment. I have done it before, and I plan to do it again.
Speaker Change: Turnarounds are challenging, take time, energy, and commitment. I have done it before and I plan to do it again. I look forward to sharing updates with you on future calls.
Gary Cohen: I look forward to sharing updates with you on future calls.
Julie Zeiler: With that, I will turn the call over to Julie.
Julie Zeiler: Thank you, Gary.
Julie: With that, I'll turn the call over to Julie. Thank you, Gary. Hello, everyone. As David noted, my review of our financial results and outlook will be done on a non-GAAP basis.
Julie Zeiler: Hello, everyone. As David noted, my review of our financial results and outlook will be done on a non-GAAP basis. Unless otherwise noted, each mention of gross margin, operating expense, operating loss, operating margin, and net loss per share will mean the corresponding non-GAAP metrics. As Gary mentioned, our Q2 results reflected a more challenging consumer spending environment, heightened competition in our market segment, and a greater-than-expected foreign currency impact. Second quarter, 2024 revenue came in at the low end of our guidance range and totalled 166.4 million compared with 236.6 million in Q2 of 2023. Geographically, in the second quarter, revenue declined 36% in the U.S., 35% in Japan, and 22% in Amia.
Julie: Unless otherwise noted, each mention of gross margin, operating expense, operating loss, operating margin, and net loss per share will mean the corresponding non-GAAP metric.
Julie Zeiler: As Gary mentioned, our Q2 results reflected a more challenging consumer spending environment, heightened competition in our market segment, and a greater-than-expected foreign currency impact. Second quarter 2024 revenue came in at the low end of our guidance range and totaled $166.4 million, compared with $236.6 million in Q2 of 2023. Geographically, in the second quarter, revenue declined 36% in the US, 35% in Japan, and 22% in EMEA. Our Japan results reflect continued weakness in the yen against the dollar.
Julie: As Gary mentioned, our Q2 results reflected a more challenging consumer spending environment, heightened competition in our market segment, and a greater-than-expected foreign currency impact.
Speaker Change: Second quarter 2024 revenue came in at the low end of our guidance range and totaled $166.4 million compared with $236.6 million in Q2 of 2023.
Julie Zeiler: Our Japan results reflect continued weakness in the yen against the dollar. Excluding the unfavorable foreign currency impact, Japan revenue decreased 28% over the prior year period. From a product mixed perspective, two-in-one products represented 51% of total robot sales in Q2. Accessory revenue in the quarter grew 13% over the prior year, and represented approximately 11% of total revenue. Revenue from mid-tier robots with an MSRP between $300 and $499, and premium robots with an MSRP of $500 or more, represented 76% of total robot sales compared with 84% in the year-ago period, reflecting the Q1 introduction of the Rumba Combo Essential, which provides the iRobot 2-in-1 cleaning experience at a lower price point.
Speaker Change: Our Japan results reflect continued weakness in the yen against the dollar.
Julie Zeiler: Excluding the unfavorable foreign currency impact, Japan revenue decreased 28% over the prior year period. From a product mix perspective, 2-in-1 products represented 51% of total robot sales in Q2. Accessory revenue in the quarter grew 13% over the prior year and represented approximately 11% of total revenue. Revenue from mid tier robots with an MSRP between $300 and $499. And premium robots with an MSRP of $500 or more, represented 76% of total robot sales, compared with 84% in the year ago period, reflecting the Q1 introduction of the Roomba Combo Essential, which provides the iRobot 2-in-1 cleaning experience at a lower price, Our second quarter direct-to-consumer, or D-to-C, sales declined 6% from the year-ago period with 2% growth in North America and EMEA, offset by a 21% decline in Japan, or a decline of 14%, excluding the currency impact.
Speaker Change: Excluding the unfavorable foreign currency impact, Japan revenue decreased 28% over the prior year period.
Speaker Change: From a product mix perspective, 2-in-1 products represented 51% of total robot sales in Q2.
Speaker Change: and Premium Robots with an MSRP of $500 or more represented 76% of total robot sales.
Julie Zeiler: Our second quarter direct to consumer or DTC sales declined 6% from the year ago period, with 2% growth in North America and AMIA, offset by a 21% decline in Japan, or a decline of 14% excluding the currency impact. In the second quarter, our DTC revenue represented 23% of total revenue. Our Q2 results include a non-recurring $18.4 million charge for the write-off of excess component inventory, and the losses on non-cancelable purchase commitments. This manufacturing transition charge is entirely included in cost of product revenue, and is due to the transition to the new product development paradigm with our contract manufacturers, as well as changes to our 2025 product roadmap.
Julie Zeiler: In the second quarter, our D2C revenue represented 23% of total revenue. Our Q2 results include a non-recurring $18.4 million charge for the write-off of excess component inventory and losses on non-cancellable purchase commitments. This manufacturing transition charge is entirely included in the cost of product revenue and is due to the transition to the new product development paradigm with our contract manufacturers as well as changes to our 2025 product roadmap. As a result of the manufacturing transition charge, which impacted gross margin by 11.1 percentage points.
Speaker Change: In the second quarter, our D2C revenue represented 23% of total revenue.
Speaker Change: Our Q2 results include a non-recurring $18.4 million charge for the write-off of excess component inventory and the losses on non-cancellable purchase commitments.
Speaker Change: This manufacturing transition charge is entirely included in cost of product revenue and is due to the transition to the new product development paradigm with our contract manufacturers, as well as changes to our 2025 product roadmap.
Julie Zeiler: As a result of the manufacturing transition charge, which impacted growth margin by 11.1 percentage points, Q2 growth margin was 16.7%, compared with 24.6% in Q1 of 2024 and 23.2% in Q2 of 2023. I'll note that this charge obscures the significant progress we made and continue to make in reducing the cost of product revenue. Excluding the impact from the manufacturing transition charge, which is a one-time charge taken in Q2 of 2024, we are on track with our growth margin improvement plan, which is driven by new products with a better cost profile, as well as cost reductions on existing products.
Julie Zeiler: Q2 gross margin was 16.7% compared with 24.6% in Q1 of 2024 and 23.2% in Q2 of 2023. Operating expenses for Q2 2024 totaled $75.9 million compared with $105.4 million in the year-ago period, representing a year-over-year decline of 28%. This decrease primarily reflects the impact of our aggressive restructuring plans and disciplined spending during the quarter. The key drivers of the reduction were people-related spending across all functions associated with the previously announced restructuring efforts, reduced marketing spend, a more disciplined approach to demand generation, and a continued focus on efficiencies across the organization. Unknown Attendee, Asiya Merchant, Glen Weinstein, Karian Wong, Gary Cohen, iRobot Corp.
Speaker Change: I'll note that this charge obscures the significant progress we made and continue to make in reducing cost of product revenue.
Julie Zeiler: Operating expenses for Q2 2024 total $75.9 million, compared with $105.4 million in the year-ago period, representing a year-over-year decline of 28%. This decrease primarily reflects the impact of our aggressive restructuring plans and disciplined spending during the quarter. The key drivers of the reduction were people-related spending across all functions associated with the previously announced restructuring efforts, reduced marketing spend, a more disciplined approach to demand generation, and a continued focus on efficiencies across the organization. Q2 gap results include an $8.2 million charge related to our restructuring plan, primarily for severance and related costs. Regarding expenses, I want to provide a quick update on where we are with respect to our full-year reduction goals for R&D, sales and marketing, and headcounts that we set out on our Q4 call in February of this year.
Speaker Change: The key drivers of the reduction were people-related spending across all functions associated with the previously announced restructuring efforts
Speaker Change: reduced marketing spend, a more disciplined approach to demand generation, and a continued focus on efficiencies across the organization.
Julie Zeiler: Regarding expenses, I want to provide a quick update on where we are with respect to our full year reduction goals for R&D, sales, and marketing, and headcount that we set out on our Q4 call in February of this year. In the first six months of the year, we have made significant progress in improving our cost structure, including reducing operating expenses by $52.8 million. We reduced R&D expenses by $18.7 million compared with a full year target of approximately $25 million. At the same time, we reduced overall sales and marketing expenses by $27 million, including $14.6 million in working marketing, compared with a full year target of $40 million, which included a decrease in working marketing of approximately $20 million. Lastly, we've reduced our workforce by 387 or 35% versus year end 2023. This compares with an original target of 350, or 31%.
Julie Zeiler: In the first six months of the year, we have made significant progress in improving our cost structure, including reducing operating expenses by $52.8 million. We reduced R&D expenses by $18.7 million, compared with a full-year target of approximately $25 million. At the same time, we reduced overall sales and marketing expenses by $27 million, including $14.6 million in working marketing, compared with a full-year target of $40 million, which included a decrease in working marketing of approximately $20 million. Lastly, we reduced our workforce by 387 or 35% versus year-end 2023. This compares with an original target of 350, or 31%.
Speaker Change: Lastly, we've reduced our workforce by 387 or 35% versus year-end 2023. This compares with an original target of 350 or 31%.
Julie Zeiler: Turning to operating loss, for Q2, we narrowed our operating loss to 48.2 million, compared with an operating loss of 50.5 million in the year-ago period. When you consider that the operating loss number includes an $18.4 million manufacturing transition charge, you can see the progress we have made here. Second quarter, non-operating expense was $8.6 million, reflecting interest expense and the impact of fair value accounting associated with our term loan. This was partially offset by interest income on cash balances. Our Q2 tax expense was $0.7 million, and net loss per share of $1.96, which included $0.63 per share for the manufacturing transition charge.
Julie Zeiler: Turning to operating loss, for Q2, we narrowed our operating loss to $48.2 million compared with an operating loss of $50.5 million in the year-ago period, when you consider that the operating loss number includes an $18.4 million manufacturing transition charge. Second quarter non-operating expense was $8.6 million, reflecting interest expense and the impact of fair value accounting associated with our term loans. This was partially offset by interest income on the cash balance.
Speaker Change: Turning to operating loss, for Q2 we narrowed our operating loss to $48.2 million, compared with an operating loss of $50.5 million in the year-ago period.
Julie Zeiler: Our Q2 tax expense was $0.7 million, and we had a net loss per share of $1.96, which included 63 cents per share for the manufacturing transition chart. We ended Q2 with $108.5 million in cash and cash equivalents, a sequential decline of $9.8 million from the end of Q1. Restricted cash totaled $41.9 million, with $40.5 million set aside for future repayment of the term loan and subject to limited rights for inventory purchases in the third quarters of fiscal 2024 and 2025.
Julie Zeiler: We ended Q2 with $108.5 million in cash and cash equivalents, a sequential decline of $9.8 million from the end of Q1. Restricted cash totalled $41.9 million, with $40.5 million set aside for future repayment of the term loan and subject to limited rights for inventory purchases in the third quarters of fiscal 2024 and 2025. In Q2, our cash outflow from operations was $21.7 million compared with a cash inflow from operations of $1.4 million in Q1 of this year. As disclosed in our Q1 2024 call, Q1 2024 cash flow from operations benefited from the one-time net proceeds of $75 million dollars from the Amazon termination fee.
Speaker Change: We ended Q2 with $108.5 million in cash and cash equivalents, a sequential decline of $9.8 million from the end of Q1.
Julie Zeiler: In Q2, our cash outflow from operations was $21.7 million, compared with a cash inflow from operations of $1.4 million in Q1 of this year. As disclosed in our Q1 2024 call, Q1 2024 cash flow from operations benefited from the one-time net proceeds of $75 million from the Amazon termination, Unknown Attendee, Asiya Merchant, Glen Weinstein, Karian Wong, Gary Cohen, iRobot Corp., iRobot. Second quarter DSO was 37 days compared with 28 days in the year-ago period due primarily to customer mix.
Speaker Change: As disclosed in our Q1 2024 call, Q1 2024 cash flow from operations benefited from the one-time net proceeds of $75 million from the Amazon termination fee.
Julie Zeiler: Excluding the Amazon termination fee received in Q1, we improved cash flow from operations by $52 million sequentially. Second quarter DSO was 37 days compared with 28 days in the year-ago period due primarily to customer mix. Our quarter-end inventory balance was 101.4 million or 67 days and reflects our continued focus on carefully managing inventory balances and the impact of the manufacturing transition charge.
Julie Zeiler: Our quarter-end inventory balance was $101.4 million, or 67 days, and reflects our continued focus on carefully managing inventory balances and the impact of the manufacturing transition chart. As discussed on our Q1 call, we filed a shelf S3 registration statement in February to discuss ways to enhance our liquidity and provide capital planning flexibility. The shelf offering includes an at the market or ATM offering program for the sale of the company's common stock.
Speaker Change: Our quarter-end inventory balance was $101.4 million, or 67 days, and reflects our continued focus on carefully managing inventory balances and the impact of the manufacturing transition charge.
Julie Zeiler: As discussed on our Q1 call, we filed a Shell S-3 registration statement in February to discuss to enhance our liquidity and provide capital planning flexibility. The shelf offering includes an at-the-market or ATM offering program for the sale of the company's common stock. During the second quarter, we sold 1.1 million shares for total net proceeds of $12.3 million. As of the end of Q2, we had 81.1 million remaining under the ATM program. Careful cash management of our working capital efficiency remains a priority, and we have continued to make progress in managing our key working capital levels.
Speaker Change: As discussed on our Q1 call, we filed a Shelf S3 registration statement in February to enhance our liquidity and provide capital planning flexibility.
Julie Zeiler: During the second quarter, we sold 1.1 million shares for total net proceeds of $12.3 million. As of the end of Q2, we had $81.1 million remaining under the ATM program. Careful cash management of our working capital and our working capital efficiency remains a priority, and we have continued to make progress in managing our key working capital levers. Turning to our outlook, we are introducing our third quarter outlook and revising our full year.
Speaker Change: Careful cash management and our working capital efficiency remains a priority, and we have continued to make progress in managing our key working capital levers.
Julie Zeiler: Turning to our outlook, we are introducing our third quarter outlook and revising our full year. For Q3, we expect 3 to 34%. Operating income is expected to be in the range of 7 million to 10 million, and net loss per share is expected to be in the range of 11 cents to 1 cent per share. Due to persistent foreign currency headwinds and consumer market softness, we are updating the full year revenue outlook that we provided on May 7th. Regarding full year growth margin, operating loss, and net loss per share, our revised outlook primarily reflects the impact of the non-recurring 18.4 million dollar manufacturing transition charge recorded in Q2.
Julie Zeiler: For Q3, we expect revenue in the range of $217 million to $223 million and gross margin in the range of 33 to 34 percent. Operating income is expected to be in the range of $7 million to $10 million, and net loss per share is expected to be in the range of $0.11 to $0.01 per share. Due to persistent foreign currency headwinds and consumer market softness, we are updating the full-year revenue outlook that we provided on May 7.
Speaker Change: Turning to our Outlook, we are introducing our third quarter Outlook and revising our full year.
Speaker Change: For Q3, we expect revenue in the range of $217 million to $223 million and gross margin in the range of 33 to 34 percent.
Julie Zeiler: Regarding full-year gross margin, operating loss, and net loss per share, our revised outlook primarily reflects the impact of the non-recurring $18.4 million manufacturing transition charge recorded in Q2. For full year 2024, we expect revenue to be in the range of $765 million to $800 million and gross margin in the range of 28 to 29%. In order to meet our original full-year goals for operating loss and net loss per share that we provided on our first quarter call on May 7, we are now targeting full-year operating expenses in the range of $291 to $295 million, or approximately 37 to 38 percent of revenue.
Julie Zeiler: For full year 2024, we expect revenue to be in the range of $765 million to $800 million and growth margin in the range of 28 to 29 percent. In order to meet our original full year goals for operating loss and net loss per share that we provided on our first quarter call on May 7th, we are now targeting full year operating expenses in the range of $291 to $295 million or approximately 37 to 38 percent of revenue. The anticipated decrease from full year 2023, primarily reflects previously announced efforts to align our cost structure more closely with near-term revenue expectations, along with further actions to optimize the organizational structure, reduce inefficiencies, and minimize discretionary spending.
Speaker Change: For full year 2024, we expect revenue to be in the range of $765 million to $800 million, and gross margin in the range of 28 to 29 percent.
Speaker Change: In order to meet our original full-year goals for operating loss and net loss per share that we provided on our first quarter call on May 7th,
Julie Zeiler: The anticipated decrease from full year 2023 primarily reflects previously announced efforts to align our cost structure more closely with near-term revenue expectations, along with further actions to optimize the organizational structure, reduce inefficiencies, and minimize discretionary spending. We anticipate a full year operating margin of approximately negative 8% to negative 10% with an operating profit in the second half of 2024. We continue to make progress in improving our cash flow from operations and expect to generate modest, positive cash flow from operations during the second half of the year.
Speaker Change: along with further actions to optimize the organizational structure, reduce inefficiencies, and minimize discretionary spending.
Julie Zeiler: We anticipate full year operating margin of approximately negative 8% to negative 10%, with an operating profit in the second half of 2024. We continue to make progress in improving our cash flow from operations and expect to generate modest, positive cash flow from operations during the second half of the year. In terms of other notable modeling assumptions for 2024, we anticipate other expense of around $30 million, including approximately $14 million in net cash interest expense, and $15 million in estimated fair value adjustments associated with our term loan, and full year tax expense of approximately $3 million and 29.5 million shares exclusive of any additional issuances under our ATM.
Speaker Change: We anticipate full year operating margin of approximately negative 8% to negative 10% with an operating profit in the second half of 2024.
Speaker Change: We continue to make progress in improving our cash flow from operations and expect to generate modest, positive cash flow from operations during the second half of the year.
Julie Zeiler: In terms of other notable modeling assumptions for 2024, we anticipate other expenses of around $30 million, including approximately $14 million in net cash interest expense and $15 million in estimated fair value adjustments associated with our term loan, and Full Year Tax Expense of approximately $3 million dollars driven by our foreign jurisdiction. We anticipate a share count of approximately 29.5 million shares exclusive of any additional issuances under our ATM. As a result, we expect a full-year net loss per share in the range of $3.77 to $3.31.
Speaker Change: We anticipate a share count of approximately 29.5 million shares exclusive of any additional issuances under our ATM.
Julie Zeiler: As a result, we expect a full year net loss per share in the range of $3.77 to $3.31. Our business remains minimally capital intensive, and we now expect full year capital spending to be approximately $2 million.
Speaker Change: As a result, we expect a full-year net loss per share in the range of $3.77 to $3.31.
Julie Zeiler: Our business remains minimally capital intensive, and we now expect full-year capital spending to be approximately $2 million. As a reminder, we manage our business on a full year basis and encourage our investors to focus on our annual targets, given that 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 rates and cash flow performance.
Julie Zeiler: As a reminder, we manage our business on a full-year basis and encourage our investors to focus on our annual targets, given that 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 rates and cash flow performance. Additionally, our revenue expectations for the remainder of the year contemplate a euro exchange rate of 1.1 and a Japanese yen exchange rate of 153 to 156 based on a Reuters FX poll.
Speaker Change: As a reminder, we manage our business on a full year basis and encourage our investors to focus on our annual targets, given that the timing of orders is challenging to forecast even under ideal conditions.
Speaker Change: Large orders that shift from one quarter to the next can cause material fluctuations in our quarterly growth rates and cashflow performance.
Julie Zeiler: Additionally, our revenue expectations for the remainder of the year contemplate a Euro exchange rate of 1.1 and a Japanese Yen exchange rate of 153 to 156 based on a Reuters FX poll. Before I turn the call back over to Gary, I want to mention that we will be participating in Needham's 13th Annual Virtual Industrial Tech Robotics and Clean Tech One-on-One Conference on Monday, August 19th. We hope you can join us. Gary
Julie Zeiler: Before I turn the call back over to Gary, I want to mention that we will be participating in the need of the 13th annual virtual industrial tech, robotics and clean tech one-on-one conference on Monday, August 19th. We hope you can join us, Gary.
Gary Cohen: Thank you, Julie. We are delivering our commitments to increase product margins, reduce operating expenses, and improve cash flow from operations. Our restructuring plan is on track. The execution of our elevate strategy gives us confidence that we can return to growth. Elevate is focused on financial improvement, consumer and brand building, new product innovation, operational improvements, and talent management.
Gary Cohen: We are delivering on our commitments to increase product margins, reduce operating expenses, and improve cash flow from operations. Our restructuring plan is on track. The execution of our Elevate strategy gives us confidence that we can return to growth. Elevate is focused on financial improvement
Speaker Change: Our restructuring plan is on track.
Gary Cohen: Consumer and Brand Building, New Product Innovation, Operational Improvements, and Talent Management. Before opening the call up for questions, I want to acknowledge and thank our dedicated and talented employees who are working harder than ever to support our ambitious objectives. Our employees are passionate about what they do and our mission, and they have a strong affinity for the brand and our company and our unique and innovative culture. I'm so proud of our people and know that together, we can accomplish great things.
Speaker Change: Elevate is focused on financial improvement, consumer and brand building, new product innovation, operational improvements, and talent management.
Gary Cohen: Before opening the call-up for questions, I want to acknowledge and thank our dedicated and talented employees who are working harder than ever to support our ambitious objectives. Our employees are passionate about what they do and our mission. and they have a strong affinity for the brand and our company and our unique and innovative culture. I am so proud of our people and know that together we can accomplish great things.
Speaker Change: Before opening the call up for questions, I want to acknowledge and thank our dedicated and talented employees who are working harder than ever to support our ambitious objectives.
Speaker Change: Our employees are passionate about what they do and our mission, and they have a strong affinity for the brand and our company and our unique and innovative culture.
Gary Cohen: In closing, we are mindful of the market and operational challenges ahead and believe our actions will elevate iRobot's overall performance and ultimately generate long-term growth and shareholder value.
Speaker Change: In closing, we are mindful of the market and operational challenges ahead and believe our actions will elevate iRobot's overall performance and ultimately generate long-term growth and shareholder value.
Unknown Attendee: We will now open the call to questions.
Gary Cohen: In closing, we are mindful of the market and operational challenges ahead and believe our actions will elevate iRobot's overall performance and ultimately generate long-term growth for shareholders. Operator, please go ahead.
Unknown Attendee: Operator, please go ahead. Thank you.
Speaker Change: We will now open the call to questions. Operator, please go ahead.
Operator: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality. Our first question is from Mike Latimore with Northland Capital Markets.
Unknown Attendee: The floor is not open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Again, we ask you to pick up your handset when posing your questions to provide optimal sound quality.
Speaker Change: Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad.
Speaker Change: If at any point your question is answered, you may remove yourself from the queue by pressing Star 2.
Speaker Change: Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.
Mike Latimore: Our first question is coming from Mike Latimore with Northland Capital Markets. All right, great. Yeah, Lauren, thank you.
Mike Latimore: All right, great. Yeah, thank you. I guess part of the strategy I think this year was to you know kind of reinvigorate your Channel, Retail, and Customer Base. Unknown Attendee, Asiya Merchant, Glen Weinstein, Julie Zeiler, Karian Wong, Gary Cohen, iRobot, Unknown Attendee, Asiya Merchant, Glen Weinstein, Julie Zeiler, Karian Wong, Gary Cohen, iRobot Corp,
Gary Cohen: I guess on the part of the strategy I think this year was to reinvigorate your channel retail customer base and then maybe I would think add another few retailers or channel partners. Can you just kind of provide an update on what you're thinking in that regard? Yeah, sure, I might, you know, we have a lot of points of distribution, and we're actively engaged with customers, some of whom left during the Amazon transition. And we have active conversations, and we're working with them on their plan, a grand plan, a grand timing, and recess. So we're very optimistic about the product line launches that we talked about, and that will get us, you know, healthy discussions and the distribution that we're expecting.
Speaker Change: I guess on the
Speaker Change: You know, part of the strategy, I think, this year was to kind of reinvigorate your
Speaker Change: channel retail customer base and then maybe you know I would think add another few retail retailers or channel partners can you just kind of provide an update on
Speaker Change: what you're thinking in that regard.
Gary Cohen: Yeah, sure. Hi Mike.
Speaker Change: Yeah, sure. Hi Mike. You know, we have a lot of points of distribution and we're actively engaged with customers, some of whom who left during the Amazon transition.
Speaker Change: and we have active conversations and we're working with them on their planogram timing and resets. So we're very optimistic about the product line launches that we talked about and that will get us, you know, healthy discussions and the distribution that we're expecting.
Gary Cohen: Great, and it sounds like you're you indicated that in 2025 you'll have a fairly significant product portfolio update. Can you give us just some color around the thinking there, you know, and I can't sort of pre can't can't sort of pre-release these things, but what would be some, you know, enhancements you might see in a new product set. We're very excited about the 2025 roadmap. We know that there are several price point areas that we have gaps in performance, and our aim is to fill those gaps with consumer appealing products in all of those segments.
Gary Cohen: Um, you know, we have a lot of points of distribution, and we're actively engaged with customers, some of whom who left during the Amazon transition. And we have active conversations, and we're working with them on their planogram, planogram timing, and resets. So we're very optimistic about the product line launches that we talked about, and that will give us, you know, healthy discussions and the distribution that we're expecting.
Speaker Change: a fairly significant product.
Gary Cohen: Great, and it sounds like you're uh, you indicated that in 2025 you'll have a fairly significant product, portfolio update. Can you give us just some color around the thinking there? I know you can't sort of pre-release these things, but what would be some, you know..., enhancements you might see in a new product set.
Mike: I know you can't sort of pre-release these things, but what would be some enhancements you might see in a new product set?
Gary Cohen: We're very excited about the 2025 roadmap. We know that there are several price point areas where we have gaps in performance, and our aim is to fill those gaps with consumer-appealing products and all of those segments. So we'll be focusing on channels, and we'll be focusing on price points as we roll out the product.
Mike: We're very excited about the 2025 roadmap. We know that there are several price point areas that we have gaps.
Mike: and Performance and our aim is to fill those gaps with consumer appealing products in all of those segments. So we'll be focusing on channels and we'll be focusing on price points as we roll up the roll out the product line.
Gary Cohen: So we'll be focusing on channels, and we'll be focusing on price points as we roll out the product line.
Julie Zeiler: Great, and then just last question on maybe too early, but what do you think the gross margin of iRobot can be longer terms?
Julie Zeiler: Question on, maybe too early, but what do you think the gross margin of iRobot can be in the longer term?
Speaker Change: Great, and just last question on, maybe too early, but what do you think the gross margin of iRobot can be longer term?
Julie Zeiler: Yeah, Mike, this is Julie, and I see her from you. You know, we've talked over the last number of quarters about the work that we are doing to expand our gross margin. are moved to a new to rely more on the mature supply chains of our contract manufacturing partners and our new innovation paradigm with them. It has been something we've been working on for the last number of periods, and we are seeing encouraging results in the new products that we're bringing to market at a better cost profile, as well as continuing to take cost out of our existing products.
Julie Zeiler: Yeah, Mike, this is Julie. Nice to hear from you. We've talked over the last number of quarters about the work that we are doing to expand our gross margin, our move to a new, to rely more on the mature supply chains of our contract manufacturing partners, and our new innovation paradigm with them has been something we've been working on for the last number of periods, and we are seeing encouraging results in the new products that we're bringing to market at a better cost profile, as well as continuing to take costs out of our existing products.
Speaker Change: Our move to a new, to rely more on the mature supply chains of our contract manufacturing partners.
Speaker Change: paradigm with them.
Speaker Change: results in the new products that we're bringing to market at a better cost profile, as well as continuing to take costs out of our existing products.
Julie Zeiler: So as we look, and you can see in the expectations that we've given for our full year, we expect to expand our gross margins, and that will continue to be a focus of ours as we go forward.
Julie Zeiler: So as we look and you can see in the expectations that we've given for our full year, we expect to expand our gross margins, and that will continue to be a focus of ours as we go forward.
Speaker Change: So, as we look, and you can see in the expectations that we've given for our full year, we expect to expand our gross margins, and that will continue to be a focus of ours as we go forward.
Unknown Attendee: Great.
Unknown Attendee: Thanks very much.
Unknown Attendee: Thank you.
Speaker Change: Okay, great. Thanks very much.
Unknown Attendee: And it appears we have no further questions at this time.
Gary Cohen: I would like to hand the floor back over to Gary Cohen for any additional or closing remarks. Thank you again for joining us today. I'm looking forward to meeting many of you at the Needham Conference on the 19th and in the coming weeks. Have a great day, everyone. Thank you.
Unknown Attendee: This concludes our financial results conference call. You may disconnect at this time and have a wonderful day.