iRobot Corporation

Good day and thank you for standing by. Welcome to iRobot's first quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speakers' 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 keypad. Please be advised that today's conference is being recorded. If you require any assistance during today's 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, Chelsea. Good morning, everybody. Joining me on today's call are iRobot's Chairman and CEO, Colin Angle, 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 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 the 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 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 table at the end of the first quarter 2022 financial results press release we issued last evening, which is available on our website at www.iRobot.com. Also, unless stated otherwise, our first quarter 2022 financial metrics, as well as the financial metrics provided in our outlook that will be discussed on today's conference call, will be on a non-GAAP basis only, and all historical comparisons are with the first quarter of 2021. In addition to posting the press release and today's prepared remarks on our website, we've also posted a document that summarizes our 2022 financial outlook, including all relevant modeling assumptions for the second quarter, the first and second halves of 2022, and the full fiscal year. For today's call, our agenda will be as follows. Colin will briefly cover the company's first quarter financial results, discuss market conditions and recent achievements, and provide an update on our expectations for 2022. Julie will review our financial results in detail and offer additional insight into our 2022 guidance. Colin will conclude our commentary with some closing remarks about the important steps we're taking to elevate our responsiveness to customers and improve our profit profile. 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. Yesterday, we reported a first quarter 2022 operating loss of 18.5 million and a net loss per share of 66 cents on revenue of 292 million. Our Q1 profitability and EPS exceeded our February targets, primarily due to our recent tariff exclusion and prudent cost management. Our top line performance benefited from solid 33% growth in the U.S. and 25% growth in Japan. This helped us largely offset a decline in EMEA as we lapped an exceptionally strong quarter in that region one year ago. We also made important strategic progress that we believe will contribute to our anticipated revenue and EPS growth in FY22. However, our FY22 growth prospects are complicated by ongoing disruptions to the consumer marketplace, particularly in EMEA, due primarily to a combination of heightened inflation, and reduced customer confidence stemming from the Russia-Ukraine war. Although these emerging dynamics will limit our FY22 top-line growth ambitions, we have slightly increased the high end of our full-year operating profit and EPS targets. Before I cover our updated outlook in more detail, I'd like to review a number of Q1 accomplishments that we believe demonstrate that our Innovate, Get, Keep, Grow strategy is succeeding. The first element of our strategy is to drive innovation across our product lines, differentiating them through thoughtful intelligence delivered on high-performance, beautifully designed hardware. In March, we released version 4.0 of our operating software platform, which offers a range of pragmatic and convenient new experiences, adds smart mapping to our mid-range Roomba i3 series, and increases the range of civic objects that a Roomba J7 robot can identify. and avoid. Based on sell-through trends thus far into the year, as well as our commercial plans going forward, we believe that our software differentiation will enable us to successfully fortify our RVC share in key markets around the world. The get component of the strategy is all about winning new customers. During Q1, we increased the number of connected customers who have opted into our digital communications by 40%. to 14.9 million over the same period a year ago. The key part of our strategy involves making sure that our customers love our products and remain part of our franchise over the long term. That continues to be the case. Customers are consistently using our floor care robots. First quarter 2022 utilization was just over 90%. Our customers are increasingly taking advantage of our new software capabilities. Since launching the Roomba J7 series last year, over 95% of J7 owners are using the robot's machine vision to detect and avoid an ever-expanding number of objects. We are also pleased that Roomba i3 owners are increasingly using the new smart mapping capability that we recently added. We expect adoption by i3 users to continue to grow as the new i3 Evo model is rolled out in EMEA before the end of Q3. The grow element of our strategy is focused on increasing lifetime customer value by having more customers transact more often directly with us over the course of their ownership. Direct-to-consumer revenue increased 17% in Q1 and represented 14% of total revenue. we are seeing our connected customers increasingly use our website and app to buy our products and accessories. Existing connected customers generated approximately 46% of D2C revenue versus 35% in the same period a year ago. This is a promising trend that supports our plans for substantial D2C growth over the next several years. In addition, we made meaningful progress in Q1 with our digital transformation initiatives, We launched a new version of our UK website and conducted several small-scale tests of our CRM systems and related tools. In terms of product diversification, we are advancing our efforts to integrate the AERIS air purification business, which contributed $3 million to our Q1 revenue. In addition to these accomplishments, we took steps across our operations that will help us enhance our responsiveness to customers, advance key commercial and R&D initiatives, and increase our profitability. I'll call to this in more detail later on this call. Consistent with our commentary in February, our 2022 outlook remains anchored by our expectation for substantially better second-half performance. Since our last call, however, market conditions have become more challenging, which has impacted our view into overall category growth and our second-half growth rate. Most notably, rising inflation threatens to curb consumer spending, while the Russia-Ukraine conflict has further eroded consumer confidence in Europe and elsewhere. Given these dynamics, we now anticipate that modest category growth in EMEA during the second half of this year will essentially offset an expected first half decline. Our updated outlook now assumes low double-digit category expansion in North America, complemented by strengthening RBC demand in Japan. As a result, we now anticipate FY22 revenue in the range of 1.64 billion to 1.74 billion, which equates to annual growth of 5 to 11%. Much of this revision is tied to EMEA, where we have lowered our full-year top-line targets considerably from prior plans that assumed at least low double-digit growth. Despite the moderation in anticipated U.S. category expansion, we still expect solid mid-teens revenue growth in this region for 2022, complemented by even faster expansion in Japan. We have revised our full-year 2022 revenue targets. While we still anticipate a meaningful acceleration in our second-half revenue, we now expect second-half revenue growth of 18% to 26% over last year's relatively soft second half, which had been impacted by component constraints. Along with a better second half gross margin, we also plan to carefully manage spending, which will translate into low double-digit operating profit margins in the second half of the year. That will enable us to convert a full-year operating profit margin of 3% to 4% into 2022 EPS that ranges from $1.50 to $2.10. In summary, although today's playing field is less than optimal, we are moving forward with confidence that our strategy is working. Our competitive position is strengthening, our connected customer base continues to grow, our customers are happy, and we are putting new systems to work to increase how much these customers spend directly with us this year and in years to come. As a result, we believe that our anticipated second half revenue trajectory and improved profitability will enable us to end the year with the momentum necessary to achieve our long-term financial target. That concludes my initial remarks, so I'll turn the call now over to Julie.