iRobot Corporation

Good day, everyone, and welcome to the iRobot first quarter 2021 financial results conference call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Andrew Kramer of iRobot Investor Relations. Please go ahead.

Thank you, Tiffany. Good morning, everybody. Joining me on today's call are iRobot's Chairman and CEO, Colin Angle, and Executive Vice President and CFO, Julie Zeiland. Before I set the agenda for today's call, I would like to note that statements made on today's call that are not based on historical information are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and involve many factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information on these risks and uncertainties can be found in our public filings with the Securities and Exchange Commission. iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information or circumstances. Related to our financial disclosures during this conference call, we will reference certain non-GAAP financial measures as defined by SEC Regulation G, including non-GAAP gross margin, non-GAAP operating expense, non-GAAP operating income, profit and margin, non-GAAP effective tax rate, non-GAAP net income per share. We believe that our non-GAAP financial results help provide additional transparency into iRobot's underlying operating performance and potential. Our definitions of these non-GAAP financial measures and reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP measure are provided at the end of these prepared remarks and in the financial tables at the end of the first quarter 2021 financial results press release we issued last evening, which is available on our website at www.iRobot.com. Also, unless otherwise stated, the first quarter 2021 financial metrics, as well as financial metrics provided in our outlook that we reference on today's conference call, will be on a non-GAAP basis only, and all historical comparisons are with the first quarter of 2020. In terms of the agenda for today's call, Colin will briefly review the company's quarterly financial results, discuss major strategic accomplishments and related progress, and share his perspective on our outlook into 2021. Julie will detail our first quarter financial results and offer insight into our expectations going forward. Colin will conclude our commentary with some closing remarks. After that, we'll open the call to questions. At this point, I'll turn the call over to Colin Engel.

Good morning. Thank you for joining us and happy Star Wars Day. 2021 is off to a very good start. Our first quarter revenue of $303 million grew 58%. which we converted into operating income of 15 million and operating profit margin of 5% and EPS of 41 cents. We believe that our first quarter revenue growth demonstrates that our value proposition continues to resonate with consumers around the world. We generated strong top line growth in each major geographic region as we benefited from stronger than expected demand from our distribution partners in EMEA. and vibrant retail orders in North America, including certain orders that were previously anticipated in the second quarter. These dynamics were complemented by another quarter of triple-digit growth in our direct-to-consumer channel. Based on our strong Q1 performance and favorable consumer demand tailwinds, we see continued growth ahead, and we have raised our full-year revenue outlook. We also reaffirmed our 2021 profitability and EPS expectations as we have adjusted our spending plans to offset expected gross margin pressure from transitory supply chain challenges. As we move forward, we are optimistic about our potential to deliver upside to our updated 2021 targets. I'll discuss our outlook in more detail shortly. But first, I'd like to highlight our progress in executing each element of our strategy. As a reminder, our strategy remains focused on driving greater customer engagement in ways that lead to more customers transacting directly with us more often. The first element of our strategy is to differentiate the iRobot experience for our customers. This means continued investment in AI, home understanding, and machine vision technologies so that our floor cleaning robots can be tightly integrated into the customer's lifestyle and clean with unprecedented levels of thoughtfulness, reliability, control, and support. We are pleased with our current progress on these fronts. During the first quarter of 2021, we upgraded our iRobot Genius home intelligence platform, adding several compelling new features, including estimated clean time, which helps customers know when a cleaning job may be finished, and clean while I'm away, which uses a smartphone's location services to tell the robot to start cleaning once you leave the house. Unique functionality of our genius platform is helping drive sales of our mid-tier and premium robots. By pushing innovation across more of our product line and making certain price adjustments, we are reinvigorating the mid-tier of our portfolio and generated strong first quarter revenue growth from these robots. We believe that solid execution on this element of our strategy played an important role in enabling Roomba to occupy seven of the top 10 best-selling RVC models in the US, EMEA, and Japan in the first quarter. The second element of our strategy is to build stronger, more enduring consumer relationships. Our connected customer base grew by 74% over 2020's first quarter, to 10.7 million customers who have opted in to our digital communications. It has also been gratifying to see how the high-value features and functionality within the Genius platform are delighting our customers. As iRobot's customer community expands, we are enhancing all points of the consumer's journey with us from the moment they purchase a product from us and then unbox it to when they complete their first cleaning mission and at various points over the months and years that follow. The third strategic pillar is nurturing the lifetime value of the customer relationships to expand existing customer revenue. This involves accelerating the replacement cycle, upselling and cross-selling, helping customers properly maintain their robots, and offering complementary products and developing new services, including new purchasing options to drive recurring revenue and higher gross margins. Since the start of the year, we have accomplished several important milestones. In early April, we introduced our new iRobot H1 handheld vacuum as a complement to Roomba and Brava robots. Many of you have heard me say that the future of vacuuming is a Roomba and a cordless vacuum for areas that robots can't easily clean. Now, our customers can get both products directly from us. We also made tangible progress with new services that provide customers with greater purchase protection and flexibility. Consumers who purchase their robots directly from us can also add extended warranty, and we've been very pleased with the attachment rates thus far. In addition, customer feedback on our iRobot Select robot as a service membership program has been very positive as these pilots have progressed. Moving forward, we plan to optimize the value proposition for iRobust Select and prepare to further scale this program, as well as advanced testing of a premium care-as-a-service offering. Overall, our direct-to-consumer sales grew by 146% in the first quarter and generated 12% of Q1 revenue. Accessories represent another opportunity to drive existing customer revenue growth through our D2C channel. We generated very healthy Q1 growth in accessory sales, which includes filters, rollers, batteries, bags, mopping pads, and mopping solutions. We expect to build on this momentum over coming quarters as we further upgrade the buying experience in iRobot.com and our home app and implement world-class digital marketing systems, tools, and campaigns that will enable us to present our customers with the right offers for the right products at the right time. With a strong Q1 behind us, we move forward with solid category momentum, a compelling value proposition, a fast-growing and rapidly maturing D2C channel, excellent retailer relationships, and healthy channel inventory positions. Our year-to-date sell-through growth through Week 15 is not surprisingly substantially better than the same period a year ago, which was dramatically impacted by the early days of the pandemic. Nevertheless, we recognize that it is still early in the year. The pandemic continues to weigh on the macroeconomic landscape and limit our visibility. Additionally, our business is not immune to the semiconductor chip shortage that is disrupting a wide range of industries. To that end, certain component suppliers recently notified us of potential volume limitations. We have already made good progress in our efforts to mitigate these constraints, although additional work lies ahead on this front. Taking all of these dynamics into consideration, we have raised our full year revenue expectations to the range of 1.67 billion to 1.71 billion. From a profitability perspective, the semiconductor chip shortage is resulting in higher costs for these components. At the same time, we are now grappling with rising costs for raw materials, air freight, and transportation. While these transitory costs are likely to remain elevated for the next few quarters, we expect that over time they will revert to more normalized levels as market forces adjust. Nevertheless, to offset the near-term impact on our anticipated 2021 gross margin, we have recalibrated our spending for over the coming quarters. As a result, we are able to reaffirm our 2021 operating income margin and EPS targets. With two-thirds of the year still ahead of us, we are optimistic about our potential for further upside, especially if current demand trends remain healthy and we successfully expand access to the semiconductor componentry, which will enable us to increase production beyond what's embedded in our current expectations. That concludes my initial commentary. I will now turn the call over to Julie.