iRobot Corporation

Good day, and thank you for standing by. Welcome to the Q4 and full year 2021 iRobotCorp earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any assistance during the call, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Andrew Kramer. Mr. Kramer, the floor is yours.

Thank you, Chris, and good morning, everybody. Joining me on today's call are iRobots Chairman and CEO Colin Engel and Executive Vice President and CFO Julie Zeiler. 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 and 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 and loss, non-GAAP operating profit and loss margin, non-GAAP effective tax rate, and non-GAAP net income and loss per share. We believe that our non-GAAP financial results help provide additional transparency into iRobot'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 fourth quarter 2021 financial results press release we issued last evening. which is available on our website at www.iRobot.com. Also, unless stated otherwise, the fourth quarter and full year 2021 financial metrics, as well as the 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 fourth quarter of 2020 and the full year 2020. For today's call, our agenda will be as follows. Colin will briefly cover the company's quarterly and annual financial results, review important strategic milestones, and outline our expectations for 2022. Julie will review our financial results in detail and offer additional insight into our 2022 guidance. Colin will then conclude our commentary with some closing remarks about our bright prospects over the longer term. After that, we'll open the call for questions. At this point, I'll turn the call over to Colin Angle.

Good morning, and thank you for joining us. Despite a myriad of supply chain challenges, we delivered fourth quarter financial results within the parameters we outlined in October. We generated fourth quarter revenue of $455 million, even as shipping delays prevented us from fulfilling over $35 million in fourth quarter orders. Although our gross margins were lower than expected, we managed our costs carefully to report an operating loss of $34 million and a net loss per share of $1.05. For the full year, we grew revenue by 9% to $1.565 billion with an operating profit of 2% and EPS of $1.34. Our 2021 performance can be best described as a tale of two halves, with outstanding first half revenue growth and profitability, followed by a second half that was shaped by ongoing supply chain challenges that impacted our top and bottom line. More specifically, semiconductor chip shortages constrained our ability to keep pace with demand, especially for some of our most popular premium Roomba models. In addition, our top-line performance was also hampered by shipping delays. Our 2021 profitability reflected the combination of lower revenue and higher component costs, increased transportation costs, raw material inflation, and tariffs. We made considerable progress. during 2021 to execute our innovate, get, keep, grow strategy, which we detailed during our recent investor day. I'd like to recap our 2021 accomplishments and review key 2022 goals against the backdrop of this strategy. On the innovation front, consumer robotics is following PCs, cell phones, and other sectors with software, not hardware, as the primary factor for consumer purchasing decisions. iRobot's product strategy is to win with consumers by delivering high-performance, beautifully designed products that are differentiated by the superior software intelligence of our Genius home intelligence platform. Genius took center stage as a sustainable competitive advantage for our floor care robots during 2021. Our September upgrade of Genius helped make the Roomba J7 series our most successful new Roomba launch in recent years. With only four months of sales, the J7 became a top five selling US RBC in the US for all of 2021. The primary difference between the J7 and its predecessor robot, the i7, is its software. The product strategy is paying off. Genius's highest value capabilities are showcased in our premium and mid-tier Roomba and Brava robots. Sale of these robots grew 15% in 2021 and represent approximately 83% of our 2021 sales. robot revenue. With Genius as a key differentiator, Roomba has remained the category's technology and share leader globally and in each primary geographic region. I'm excited for what's in store for 2022. We plan to deliver two major Genius updates this year aimed at bringing greater intelligence, thoughtfulness, and personalization to our robots and more insights to our customers. To fortify our mid-tier leadership, we plan to cascade certain premium digital features down into our portfolio. In terms of new robots, we plan to introduce one new Roomba model in 2022 and complete the global rollouts of the J7 series and I1 series that began last year. We are also excited about our plans for the AERIS air purifier products we acquired this past November. We anticipate rebranding the AERIS portfolio in the second half of 2022, followed by the introduction but at least one new air purifier along with initial integration of certain genius-related capabilities across this product line. Even as the RBC category has continued to grow, overall household penetration is still relatively low. As a result, bringing new customers into our franchise, the get component of our strategy, remains central to our success. During 2021, we continued to expand our base of connected customers who opted into our digital communications by 44% to 14 million. Retail continues to be a proven scaled and profitable channel for new customer acquisition. Retailer and distributor revenue grew 8% in 2021. We move into 2022 with a great opportunity to continue bringing new connected customers into our franchise at all price points. Genius is fundamental to capitalizing on this opportunity because it enables feature and functionality that are unique to our products. Since launch, the J7 has identified and avoided millions of cords, socks, and shoes, thousands of pet accidents. By sharing images with the owner, the J7 gets smarter after every mission. And as a result, the J7's mission completion rates are the highest in our fleet. With our November Genius upgrades, Owners can copy their existing maps to new robots. 70% of users took advantage of this feature when prompted. We believe that this will help retain more users when they opt to replace their robot or add a new one into the house, like when smartphone users transfer data and apps to a new phone. We expect that the global rollout of the Roomba i1 series during 2022 will enable us to strengthen our position in the entry-level sector. Having closed last year with about 74,000 subscribers worldwide, a key initiative for us in 2022 will be to continue scaling our robot as a service subscription offerings globally. After a customer buys our floor care robot, our goal is to make sure that they love it and use it often. That was the case in 2021, and we expect it to continue this year. Quarterly utilization was consistent in 2021 at just over 90%. We expect to maintain consistently high utilization levels and strong NPS and CSAT scores in 2022. As we cascade certain premium genius features further down into our robot family, we believe that will further increase our stickiness with these owners. A major driver behind our long-term growth ambitions lies in our conviction that happy iRobot customers will purchase more products and services directly from us over the course of their ownership. And we made tangible progress on this front in 2021. We saw excellent growth in sales to our existing customers. We estimate make up nearly one third of our revenue. In particular, we estimate that connected customer revenue grew 10% in 21 and represents 21% of total revenue. Direct-to-consumer revenue increased 24% in 2021 and represented 12% total revenue. Our target 22 is to accelerate D2C sales into the mid to high teens as a percentage of our total annual revenue as we drive more transactional activity from more connected customers. Accessory sales grew 24% in 2021 and represented approximately 4% of total revenue. We expect continued growth on this front in 2022, especially as we roll out new insights from Genius that help owners properly maintain their robots. In 2021, we made good progress with the implementation of new marketing technology systems and tools. Moving into 22, one of our highest priority grow initiatives is to move our entire marketing technology stack into production. This investment is designed to enhance the online buying experience on our website, and app and enable personalized digital marketing at scale to deliver the right promotions to the right customers at the right times. Product diversification is intrinsically important to our efforts to further fuel existing customer revenue growth. Our November 2021 acquisition of Eris expands our total addressable market and supports our ability to provide consumers with premium products that will keep their homes both cleaner and healthier. ARIS contributed just under $3 million to our fourth quarter revenue. The integration of ARIS into our organization is progressing. Overall, we expect air purification products to generate more than $40 million in 2022. Looking ahead, we expect that our anticipated 2022 performance will resemble 2021 as a tale of two halves with top line strength in the second half of the year. Our 2022 revenue guidance ranges from $1.75 billion to $1.85 billion, which represents 12% to 18% growth over 2021. We currently expect that approximately 65% of full-year revenue will be generated in the second half, and we are optimistic about our potential to achieve these targets for a couple of very important reasons. First, iRobot's 2022 annual revenue targets are based on maintaining our leadership in a growth-oriented category with a bright future. Thanks to low double-digit growth in the mid and premium price tiers, the RPC category grew 7% in 2021, despite lapping a very strong 2020. The category averaged 17% growth over the past two years, which is in line with the CAGR since 2017. Just as important, there's considerable upside for further household penetration of these products around the world. Looking closer into our targets, we are assuming high single digit to mid-teen organic expansion, augmented by several points of inorganic growth from air purifier sales. Our organic revenue growth outlook at the midpoint is in line with iRobot's revenue CAGR over the past two years. Second, we are increasingly confident that our access to semiconductor componentry will improve over the coming quarters. improved visibility reflects an ongoing dialogue with our largest and most strategic chip suppliers and meaningful progress in qualifying new components from both existing and new suppliers in terms of our 2022 profitability targets we expect modest non-gap gross margin improvement this year and full year 2022 operating income between 44 and 60 million dollars based on these dynamics Our 2022 non-GAAP EPS targets range from $1.50 to $2, which would represent 12% to 49% growth over 2021. Overall, we are extremely excited about our strategic direction. We believe that the second half of the year will represent a major turning point in our performance that will provide us with significant momentum going forward. I'd like to spend a few minutes on our long-term financial targets, but before I do, I'd like to turn the call over to Julie for her review of our 21 results and greater insight into our 2022 guidance. Julie.