irbt-20240330

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________

FORM 10-Q

______________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-36414

______________________________________________

iROBOT CORPORATION

(Exact name of registrant as specified in its charter)

______________________________________________


Delaware			77-0259335
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

8 Crosby Drive

Bedford, MA 01730

(Address of principal executive offices, including zip code)

(781) 430-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	IRBT	The Nasdaq Stock Market LLC

______________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares outstanding of the Registrant’s Common Stock as of April 26, 2024 was 28,757,254.

iROBOT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED MARCH 30, 2024

INDEX


			Page
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of March 30, 2024 and December 30, 2023			3
Consolidated Statements of Operations for the three months ended March 30, 2024 and April 1, 2023			4
Consolidated Statements of Comprehensive Loss for the three months ended March 30, 202 4 and April 1, 202 3			5
Consolidated Statements of Stockholders' Equity for the three months ended March 30, 2024 and April 1, 2023			6
Consolidated Statements of Cash Flows for the three months ended March 30, 2024 and April 1, 2023			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			31

PART II: OTHER INFORMATION

Item 1. Legal Proceedings			31
Item 1A. Risk Factors			32
Item 5. Other Information			32
Item 6. Exhibits			33
Signatures			34

iROBOT CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)


	March 30, 2024		December 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	118,356	$	185,121
Restricted cash	40,012		—

Accounts receivable, net	39,318		79,387
Inventory	133,318		152,469

Other current assets	40,860		48,513
Total current assets	371,864		465,490
Property and equipment, net	34,330		40,395
Operating lease right-of-use assets	18,712		19,642
Deferred tax assets	8,153		8,512
Goodwill	169,740		175,105
Intangible assets, net	4,682		5,044
Other assets	18,642		19,510
Total assets	$	626,123	$	733,698
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	103,194	$	178,318
Accrued expenses	93,837		97,999

Deferred revenue and customer advances	10,330		10,830


Total current liabilities	207,361		287,147
Term loan	168,636		201,501
Operating lease liabilities	26,255		27,609

Other long-term liabilities	19,802		20,954
Total long-term liabilities	214,693		250,064
Total liabilities	422,054		537,211
Commitments and contingencies (Note 12)
Preferred stock, 5,000 shares authorized and none outstanding	—		—
Common stock, $0.01 par value, 100,000 shares authorized; 28,757 and 27,964 shares issued and outstanding, respectively	288		280
Additional paid-in capital	301,710		290,755
Accumulated deficit	(96,688)		(105,295)
Accumulated other comprehensive (loss) income	(1,241)		10,747
Total stockholders’ equity	204,069		196,487
Total liabilities and stockholders’ equity	$	626,123	$	733,698

The accompanying notes are an integral part of the consolidated financial statements.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended
	March 30, 2024		April 1, 2023
Revenue	$	150,014	$	160,292
Cost of revenue:
Cost of product revenue	113,913		123,269
Amortization of acquired intangible assets	—		282
Total cost of revenue	113,913		123,551
Gross profit	36,101		36,741
Operating expenses:
Research and development	33,878		41,269
Selling and marketing	29,716		42,476
General and administrative	(53,711)		30,310
Restructuring and other	14,146		3,805
Amortization of acquired intangible assets	172		178
Total operating expenses	24,201		118,038
Operating income (loss)	11,900		(81,297)
Other expense, net	(3,185)		(1,077)
Income (loss) before income taxes	8,715		(82,374)
Income tax expense (benefit)	108		(1,262)
Net income (loss)	$	8,607	$	(81,112)
Net income (loss) per share
Basic	$	0.31	$	(2.95)
Diluted	$	0.30	$	(2.95)
Number of shares used in per share calculations:
Basic	28,171		27,467
Diluted	28,266		27,467

The accompanying notes are an integral part of the consolidated financial statements.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended
	March 30, 2024		April 1, 2023
Net income (loss)	$	8,607	$	(81,112)
Other comprehensive loss, net of tax:
Net foreign currency translation adjustments	(7,226)		1,720
Net unrealized losses (gains) on cash flow hedges	3,213		(1,823)
Net gains on cash flow hedge reclassified into earnings	(4,886)		(5,403)
Change in fair value of term loan due to instrument-specific credit risk	(3,089)		—

Total comprehensive loss	$	(3,381)	$	(86,618)

The accompanying notes are an integral part of the consolidated financial statements.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)



	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss) ("AOCI")		Total Stockholders’ Equity
	Shares	Value
Balance at December 30, 2023	27,964	$	280	$	290,755	$	(105,295)	$	10,747	$	196,487


Vesting of restricted stock units	234	2		(2)						—
Stock-based compensation				7,948						7,948
CEO transition costs related to stock-based awards				(2,227)						(2,227)
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(38)	—		(390)						(390)
Issuance of common stock, net of issuance costs	597	6		5,626						5,632
Other comprehensive loss								(11,988)		(11,988)



Net income						8,607				8,607
Balance at March 30, 2024	28,757	$	288	$	301,710	$	(96,688)	$	(1,241)	$	204,069



	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income ("AOCI")		Total Stockholders’ Equity
	Shares	Value
Balance at December 31, 2022	27,423	$	274	$	257,498	$	199,415	$	18,529	$	475,716
Issuance of common stock under employee stock plans	9	—		9						9

Vesting of restricted stock units	199	2		(2)						—
Stock-based compensation				7,932						7,932
Stock withheld to cover tax withholdings requirements upon restricted stock vesting	(37)	—		(1,600)						(1,600)
Other comprehensive loss								(5,506)		(5,506)


Net loss						(81,112)				(81,112)
Balance at April 1, 2023	27,594	$	276	$	263,837	$	118,303	$	13,023	$	395,439

The accompanying notes are an integral part of the consolidated financial statements.

iROBOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended
	March 30, 2024		April 1, 2023
Cash flows from operating activities:
Net income (loss)	$	8,607	$	(81,112)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	5,812		7,542
Loss on equity investment	375		—
Stock-based compensation	7,948		7,932
Change in fair value of term loan	(1,008)		—
Debt issuance costs expensed under fair value option	239		—
Deferred income taxes, net	(127)		647
Other	(3,452)		(3,562)
Changes in operating assets and liabilities — (use) source
Accounts receivable	38,565		37,147
Inventory	16,266		52,947
Other assets	6,045		53
Accounts payable	(74,601)		(109,930)
Accrued expenses and other liabilities	(3,232)		(6,171)
Net cash provided by (used in) operating activities	1,437		(94,507)
Cash flows from investing activities:
Additions of property and equipment	(118)		(1,456)

Purchase of investments	—		(73)


Net cash used in investing activities	(118)		(1,529)
Cash flows from financing activities:
Proceeds from employee stock plans	—		9
Income tax withholding payment associated with restricted stock vesting	(390)		(1,600)
Proceeds from issuance of common stock, net of issuance costs	5,632		—

Proceeds from credit facility	—		27,000

Repayment of term loan	(34,947)		—
Payment of debt issuance costs	(239)		—
Net cash (used in) provided by financing activities	(29,944)		25,409
Effect of exchange rate changes on cash, cash equivalents and restricted cash	882		593
Net decrease in cash, cash equivalents and restricted cash	(27,743)		(70,034)
Cash, cash equivalents and restricted cash, at beginning of period	187,887		117,949
Cash, cash equivalents and restricted cash, at end of period	$	160,144	$	47,915

Cash, cash equivalents and restricted cash, at end of period:
Cash and cash equivalents	$	118,356	$	47,915
Restricted cash	40,012		—
Restricted cash, non-current (included in other assets)	1,776		—
Cash, cash equivalents and restricted cash, at end of period	$	160,144	$	47,915

The accompanying notes are an integral part of the consolidated financial statements.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of the Business

iRobot Corporation ("iRobot" or the "Company") designs, builds and sells robots and home innovations that make life better. The Company's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. iRobot's durable and high-performing robots are designed using the close integration of software, electronics and hardware. The Company's revenue is primarily generated from product sales through a variety of distribution channels, including chain stores and other national retailers, through the Company's own website and app, dedicated e-commerce websites, the online arms of traditional retailers and through value-added distributors and resellers worldwide.

Termination of Merger Agreement

As previously disclosed, on August 4, 2022, the Company entered into an Agreement and Plan of Merger (the "Original Merger Agreement") with Amazon.com, Inc., a Delaware corporation ("Parent" or "Amazon"), and Martin Merger Sub, Inc., a Delaware corporation and an indirect wholly owned subsidiary of Amazon ("Merger Sub"), providing for, among other things, the merger of Merger Sub with and into iRobot, with the Company surviving the merger as a wholly owned subsidiary of Parent (the "Merger", and, together with the other transactions contemplated by the Merger Agreement (as defined below), the "Transactions"). On July 24, 2023, iRobot, Amazon and Merger Sub entered into an amendment to the Original Merger Agreement (the "Amendment", and the Original Merger Agreement, as amended and supplemented by the Amendment, the "Merger Agreement"). The Amendment adjusted the merger consideration to reflect the incurrence of the Term Loan (see Note 9, Debt, for additional information).

On January 28, 2024, the Company and Amazon mutually agreed to terminate the Merger Agreement and entered into a mutual termination agreement effective as of such date (the "Termination Agreement"). The termination of the Merger Agreement was approved by the Company's Board of Directors ("Board"). In accordance with the terms of the Termination Agreement, Amazon made a cash payment to the Company in the previously agreed amount of $94.0 million (the "Parent Termination Fee") on January 29, 2024. As a result of the termination of the Merger Agreement and receipt of the Parent Termination Fee of $94.0 million from Amazon, the Company made a payment of $18.8 million for professional fees incurred in connection with the Transactions. In accordance with the terms of the Credit Agreement (as defined below), the Company applied $35.0 million to repay a portion of the Term Loan. The remaining $40.0 million of the Parent Termination Fee was set aside as restricted cash to be used for future repayments of the Term Loan subject to limited rights of the Company to utilize such amounts for the purchase of inventory. See Note 9, Debt, for additional information. The Parent Termination Fee received net of professional fees paid was $75.2 million and was recorded as a benefit in general and administrative expenses on the consolidated statements of operations.

2. Summary of Significant Accounting Policies

Basis of Presentation and Foreign Currency Translation

The accompanying consolidated financial statements include those of iRobot and its subsidiaries, after elimination of all intercompany balances and transactions. iRobot has prepared the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In addition, certain prior year amounts have been reclassified to conform to the current year presentation, including separate presentation of restructuring and other costs on the consolidated statements of operations. These reclassifications have no material effect on the reported financial results.

In the opinion of management, all adjustments necessary to the unaudited interim consolidated financial statements have been made to state fairly the Company's financial position. Interim results are not necessarily indicative of results for the full fiscal year or any future periods. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the Securities and Exchange Commission on February 27, 2024.

The Company operates and reports using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, the Company's fiscal quarters end on the Saturday that falls closest to the last day of the third month of each quarter.

Liquidity

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

In first quarter of fiscal 2024, the Company's performance continued to be impacted by lower orders from retailers and distributors largely resulting from a decline in consumer sentiment and increased pricing competition in the market. During the three months ended March 30, 2024, the Company's revenue declined 6.4% compared to the three months ended April 1, 2023. The Company's operating income of $11.9 million and operating cash inflows of $1.4 million for the three months ended March 30, 2024 benefited from the one-time receipt of the Parent Termination Fee net of professional fees paid of $75.2 million. At March 30, 2024, the Company's cash and cash equivalents were $118.4 million. The Company also had $41.8 million in restricted cash, $40.0 million of which is set aside for future repayment of the Term Loan subject to limited rights for the purchase of inventory in the third quarters of fiscal 2024 and 2025.

Management has considered and assessed its ability to continue as a going concern for the one year from the date that the unaudited consolidated financial statements are issued. Management's assessment included the preparation of cash flow forecasts taking into account the restructuring actions and maintaining debt covenant compliance. On January 29, 2024, following the termination of the Merger Agreement, the Company announced an operational restructuring plan to more closely align its cost structure with near-term revenue expectations and drive profitability. The 2024 operational restructuring plan is structured to:

•achieve gross margin improvements through a focus on design-to-value and more beneficial terms with the Company's existing and new manufacturing partners;

•lower research and development expenditure by pausing work unrelated to the Company's core floorcare business and shifting to greater reliance on contract manufacturers as it relates to the lower-value commodity engineering work;

•return selling and marketing expenditures to a more normalized level, consistent with industry standards in the consumer products market, by centralizing resources on more limited geographies and consolidating marketing efforts for efficiencies; and

•further reduce headcount by approximately 350 employees, which represents approximately 31% of the Company's global workforce as of December 30, 2023.

In addition to the reduction of its headcount, the Company signed three sublease agreements during fiscal 2022 and 2023 to sublease portions of its headquarters. iRobot expects these sublease agreements will generate $4.0 million in sublease cash payments in the future over the remaining lease terms. The Company expects to continue to right size its global real estate footprint through additional subleasing at its corporate headquarters and the elimination of offices in smaller, underperforming geographies.

Inventory has consumed a significant amount of cash and the Company continues to manage its inventory level carefully to ensure efficiency in its working capital. As of March 30, 2024, the inventory balance was $133.3 million, or 107 days, a reduction of $19.2 million from the end of fiscal 2023. The Company plans to continue to manage its inventory to a level that aligns with current run rates and seasonality of the business.

While management estimates such actions will be sufficient to allow it to maintain liquidity and its operations in the ordinary course for at least 12 months from the issuance of these financial statements, there can be no assurance the Company will generate sufficient future cash flows from operations due to potential factors, including, but not limited to, further inflation, the continuing higher interest rates, ongoing recessionary conditions or continued reduced demand for the Company's products due to consumer sentiment or competition. If the Company is not successful in increasing demand for its products, or if macroeconomic conditions further constrain consumer demand, the Company may continue to experience adverse impacts to revenue and profitability. Additional actions within the Company's control to maintain its liquidity and operations include optimizing its production volumes with contract manufacturers by reducing inventory supply forecast for cancellable purchase orders, further reducing discretionary spending in all areas of the business and realigning resources through ongoing attrition without rehiring activity. In addition, the Company may need additional financing, including public or private equity or debt financing, to execute on its current or future business strategy, and additional financing may not be available or on terms favorable to the Company.

The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption.

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses. These estimates and judgments, include but are not limited to, revenue recognition, including variable consideration and other obligations such as sales incentives and product returns; impairment of goodwill and long-lived assets; valuation of non-marketable equity investments; valuation of debt; inventory excess and obsolescence; loss contingencies; and accounting for income taxes and related valuation allowances. The Company bases its estimates and assumptions on historical experience, market participant fair value considerations, projected future cash flows, current economic conditions, and various other factors that the Company believes are reasonable under the circumstances. Actual results and outcomes may differ from the Company's estimates and assumptions.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with maturity of three months or less at the time of purchase to be cash and cash equivalents. The Company's restricted cash balance totaled $41.8 million as of March 30, 2024, $40.0 million of which is set aside for future repayment of the Term Loan subject to limited rights of the Company to utilize such amounts for the purchase of inventory in the third quarters of fiscal 2024 and 2025. The remaining $1.8 million of restricted cash is used as collateral for the Company's credit card program and to secure the outstanding letters of credit and is included in other assets on the consolidated balance sheet.

Allowance for Credit Losses

The Company maintains an allowance for credit losses for accounts receivable using an expected loss model that requires the use of forward-looking information to calculate credit loss estimate. The expected loss methodology is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, customer concentrations, current and future economic and market conditions and age of the receivable. The Company reviews and adjusts the allowance for credit losses on a quarterly basis. Accounts receivable balances are written off against the allowance when the Company determines that the balances are not recoverable. At March 30, 2024 and December 30, 2023, the Company had an allowance for credit losses of $2.7 million.

Inventory

Inventory primarily consists of finished goods and, to a lesser extent, components, which are purchased from contract manufacturers. Inventory is stated at the lower of cost or net realizable value with cost being determined using the standard cost method, which approximates actual costs determined on the first-in, first-out basis. Inventory costs primarily consist of materials, inbound freight, import duties and other handling fees. The Company writes down its inventory for estimated obsolescence or excess inventory based upon assumptions around market conditions and estimates of future demand including consideration of product life cycle status, product development plans and current sales levels. Inventory write-downs and losses on purchase commitments are recorded in cost of revenue. Net realizable value is the estimated selling price less estimated costs of completion, disposal and transportation. Adjustments to reduce inventory to net realizable value are recognized in cost of revenue.

Impairment of Goodwill and Long-Lived Assets

During the three months ended March 30, 2024, the Company identified a triggering event as a result of the termination of the Merger Agreement. The Company performed a quantitative assessment of goodwill using the market capitalization approach and a discounted cash flow analysis. The discounted cash flow analysis involves significant estimates and assumptions such as discount rate, projected future revenues, projected future operating margins and terminal growth rates. The Company concluded that the fair value exceeded the carrying value at the triggering event date, which resulted in no impairment to goodwill. In addition, the Company performed an impairment assessment on its long-lived assets by comparing undiscounted future cash flows against the net book value of the underlying asset, and concluded no impairment to long-lived assets.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Strategic Investments

The Company holds non-marketable equity securities as part of its strategic investments portfolio. The Company classifies the majority of these securities as equity securities without readily determinable fair values and measures these investments at cost, less any impairment, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer. These investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires the Company's judgment due to the absence of market prices and inherent lack of liquidity. The Company monitors non-marketable equity investments for impairment indicators, such as deterioration in the investee's financial condition and business forecasts and lower valuations in recent or proposed financings. The estimated fair value is based on quantitative and qualitative factors including, but not limited to, subsequent financing activities by the investee and projected discounted cash flows. The Company performs an assessment on a quarterly basis to assess whether triggering events for impairment exist and to identify any observable price changes. Changes in fair value of non-marketable equity investments are recorded in other expense, net on the consolidated statements of operations. At March 30, 2024 and December 30, 2023, the Company's equity securities without readily determinable fair values totaled $11.0 million and $11.4 million, respectively, and are included in other assets on the consolidated balance sheets.

Net Income (Loss) Per Share

Basic income (loss) per share is calculated using the Company's weighted-average outstanding common shares. Diluted income (loss) per share is calculated using the Company's weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.

The following table presents the calculation of both basic and diluted net income (loss) per share (in thousands, except per share amounts):


	Three Months Ended
	March 30, 2024		April 1, 2023
Net income (loss)	$	8,607	$	(81,112)
Basic weighted-average shares outstanding	28,171		27,467
Dilutive effect of employee stock plans	95		—
Diluted weighted-average shares outstanding	28,266		27,467
Basic income (loss) per share	$	0.31	$	(2.95)
Diluted income (loss) per share	$	0.30	$	(2.95)

Employee stock awards representing approximately 3.0 million and 1.0 million shares of Common Stock for the three months ended March 30, 2024 and April 1, 2023, respectively, were excluded from the computation of diluted earnings per share as their effect would have been antidilutive.

3. Revenue Recognition

The Company primarily derives its revenue from the sale of consumer robots and accessories. The Company sells products directly to consumers through online stores and indirectly through resellers and distributors. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns and other credits and incentives. Revenue is recognized only to the extent that it is probable that a significant reversal of revenue will not occur and when collection is considered probable. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue. Shipping and handling expenses are considered fulfillment activities and are expensed as incurred.

Frequently, the Company's contracts with customers contain multiple promised goods or services. Such contracts may include any of the following, the consumer robot, downloadable app, cloud services, accessories on demand, potential future unspecified software upgrades and extended warranties. For these contracts, the Company accounts for the promises separately as individual performance obligations if they are distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract.

The Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices ("SSPs"). When available, the Company uses observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect the Company's best estimates of what the selling prices of the performance obligations would

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

be if they were sold regularly on a stand-alone basis. The Company's process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the facts and circumstances related to each performance obligation including market data or the estimated cost of providing the products or services. The transaction price allocated to the robot is recognized as revenue at a point in time when control is transferred, generally as title and risk of loss pass, and when collection is considered probable. The transaction price allocated to services and support is deferred and recognized over their service periods. For contracts with a duration of greater than one year, the transaction price allocated to performance obligations that are unsatisfied as of March 30, 2024 and December 30, 2023 was $17.0 million and $18.4 million, respectively.

The Company's products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified. The Company does not consider these assurance-type warranties as a separate performance obligation and therefore, the Company accounts for such warranties under Accounting Standards Codification ("ASC") 460, "Guarantees." For contracts with the right to upgrade to a new product after a specified period of time, the Company accounts for this trade-in right as a guarantee obligation under ASC 460. The total transaction price is reduced by the full amount of the trade-in right's fair value and the remaining transaction price is allocated between the performance obligations within the contract.

The Company provides limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. The Company records an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and the Company's expectation of future returns. In addition, the Company may provide other credits or incentives which are accounted for as variable consideration when estimating the amount of revenue to recognize. Where appropriate, these estimates take into consideration relevant factors such as the Company's historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Overall, these reserves reflect the Company's best estimates, and the actual amounts of consideration ultimately received may differ from the Company's estimates. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. As of March 30, 2024, the Company had reserves for product returns of $13.4 million and other credits and incentives of $60.5 million. As of December 30, 2023, the Company had reserves for product returns of $24.6 million and other credits and incentives of $95.3 million. The Company regularly evaluates the adequacy of its estimates for product returns and other credits and incentives. Future market conditions and product transitions may require the Company to take action to change such programs and related estimates. When the variables used to estimate these reserves change, or if actual results differ significantly from the estimates, the Company increases or reduces revenue to reflect the impact. During the three months ended March 30, 2024 and April 1, 2023, changes to these estimates related to performance obligations satisfied in prior periods were not material.

Disaggregation of Revenue

The following table provides information about disaggregated revenue by geographical region (in thousands):


	Three Months Ended
	March 30, 2024		April 1, 2023
United States	$	68,896	$	71,986
EMEA	45,088		46,681
Japan	27,718		32,894
Other	8,312		8,731
Total revenue	$	150,014	$	160,292

Contract Balances

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):


	March 30, 2024		December 30, 2023
Accounts receivable, net	$	36,613	$	77,112

Contract liabilities	17,549		18,702

The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include deferred revenue associated with services and extended warranty plans as well as prepayments received from customers in advance of product shipments. During the three months ended March 30, 2024 and April 1, 2023, the Company recognized $3.4 million and $4.2 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

4. Restructuring and Other Charges

During the three months ended March 30, 2024 and April 1, 2023, the Company recorded restructuring and other charges of $14.1 million and $3.8 million, respectively, in the consolidated statements of operations. The Company believes that the majority of charges relating to the restructuring announced in January 2024 have occurred in the first quarter of fiscal 2024.

The components of restructuring and other charges were as follows (in thousands):


	Three Months Ended
	March 30, 2024		April 1, 2023
Cash restructuring charges:
Severance and other personnel costs	$	11,346	$	3,665
Other restructuring costs	2,706		140
CEO transition costs	443		—
Total cash charges	14,495		3,805

Non-cash charges:
Asset write offs	1,878		—

CEO transition costs related to stock-based awards	(2,227)		—
Total non-cash charges	(349)		—

Total restructuring and other charges	$	14,146	$	3,805

On January 29, 2024, following the termination of the Merger Agreement, the Company announced an operational restructuring plan which includes a reduction in headcount. During the first quarter of fiscal 2024, 330 employees have been notified and the total estimated restructuring cost was approximately $15.0 million, of which $11.3 million is recorded in the three months ended March 30, 2024, with the remaining cost to be recognized during the second quarter of fiscal 2024. These charges consist primarily of employee termination benefits including severance, payroll taxes and other benefits.

In addition, the operational restructuring plan includes actions to pause work unrelated to the Company's core floorcare business and, as a result, recorded restructuring costs of $4.6 million. These charges typically consist of write-offs on certain fixed assets as well as material liabilities at contract manufacturers due to termination of programs.

In conjunction with the termination of the Merger Agreement, Colin Angle, the Company's then-Chief Executive Officer, stepped down as an officer of the Company and from his position as chairman of the Board effective January 28, 2024. The Board appointed Glen D. Weinstein, the Company's then Executive Vice President and Chief Legal Officer, as Interim Chief Executive Officer while a search was conducted for a permanent CEO. CEO transition costs represent costs incurred for CEO search fees and charges associated with the transition and separation agreement with Colin Angle which include compensation during the transition period as well as an adjustment for modification of stock-based awards.

The following table presents a roll-forward of cash restructuring-related liabilities, which is included within accounts payable and accrued expenses in the consolidated balance sheet (in thousands):


	Severance and other personnel costs		Other restructuring costs		CEO transition costs		Total
Balance as of December 30, 2023	$	—	$	—	$	—	$	—
Charges	11,346		2,706		443		14,495
Cash payments	(3,088)		(298)		(287)		(3,673)
Balance as March 30, 2024	$	8,258	$	2,408	$	156	$	10,822

The Company expects the remaining balance to be paid within the next twelve months.

5. Leases

The Company's leasing arrangements primarily consist of operating leases for its facilities which include corporate, sales and marketing and research and development offices and equipment under various non-cancelable lease arrangements. The operating leases expire at various dates through 2030. The Company currently has three sublease agreements for space at its headquarters. At March 30, 2024, the Company's weighted average discount rate was 4.17%, while the weighted average remaining lease term was 5.74 years.

iROBOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

The components of lease expense were as follows (in thousands):


	Three Months Ended
	March 30, 2024		April 1, 2023
Operating lease cost	$	1,358	$	1,715
Variable lease cost	1,091		825
Sublease income	(370)		(44)

Net lease cost	$	2,079	$	2,496

Supplemental cash flow information related to leases was as follows (in thousands):


	Three Months Ended
	March 30, 2024		April 1, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,708	$	2,008
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	—

Maturities of operating lease liabilities and sublease payments were as follows as of March 30, 2024 (in thousands):


	Operating Lease Payments		Sublease Payments		Net
Remainder of 2024	$	4,530	$	(831)	$	3,699
2025	6,083		(556)		5,527
2026	6,049		(572)		5,477
2027	5,904		(589)		5,315
2028	5,474		(607)		4,867
Thereafter	7,574		(840)		6,734
Total minimum lease payments	$	35,614	$	(3,995)	$	31,619
Less: imputed interest	4,278
Present value of future minimum lease payments	$	<

SEC Form 10-Q filed by iRobot Corporation