NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of 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.
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 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 January 1, 2022, filed with the Securities and Exchange Commission on February 15, 2022.
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.
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 performance obligations, standalone selling price, variable consideration and other obligations such as sales incentives and product returns; allowance for credit losses; accounting for business combinations; impairment of goodwill and long-lived assets; valuation of non-marketable equity investments; product warranties; loss contingencies; accounting for stock-based compensation including performance-based assessments; 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, including impact from COVID-19 pandemic and the uncertainty imposed by the conflict between Russia and Ukraine, 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.
Short-Term Investments
The Company's short term investments include marketable equity securities with readily determinable fair value and debt securities. The fair value of investments is determined based on quoted market prices at the reporting date for those instruments. The change in fair value of the Company's investments in marketable equity securities is recognized as unrealized gains and losses in other income, net at the end of each reporting period.
As of January 1, 2022, the Company held 1.6 million shares of Matterport, Inc. ("Matterport") from the Matterport merger in 2021 with shares received subject to time based contractual sales restrictions that expired in January 2022. During the three months ended April 2, 2022, the Company sold these Matterport shares and received net proceeds of $16.2 million and recognized a loss of $16.8 million during the period. In addition, during the three months ended April 2, 2022, the Company received an additional 0.2 million shares of Matterport upon achievement of conditions set forth in the merger agreement and recorded an unrealized gain of $1.5 million in other income (expense), net during the period. As of April 2, 2022 and January 1,
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
2022, the Company had $1.5 million and $33.0 million, respectively, in short term investments related to these shares. Subsequent to April 2, 2022, the Company sold the remaining Matterport shares and received net proceeds of $1.2 million and recognized a loss of $0.3 million during the second quarter of fiscal 2022.
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. As of April 2, 2022 and January 1, 2022, the Company had an allowance for credit losses of $4.1 million and $4.6 million, respectively.
Tariff Refunds
On March 23, 2022, the Company was granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion eliminates the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. This tariff exclusion entitles the Company to a refund of approximately $29.8 million in tariffs comprised of $11.7 million in tariffs paid on Roomba robots imported after October 12, 2021 and sold during fiscal 2021, $5.9 million for tariffs paid during the first quarter of 2022 and $12.2 million for on-hand inventory imported after October 12, 2021. While tariff refund claims are subject to the approval of U.S. Customs, the Company currently expects to recover the entire balance of $29.8 million within the next twelve months. The refund receivable is recorded in other current assets on the consolidated balance sheet.
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, tariffs, 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. 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 and have not been significant for the periods presented.
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. Changes in fair value of non-marketable equity investments are recorded in other expense, net on the consolidated statement of operations. At April 2, 2022 and January 1, 2022, the Company's equity securities without readily determinable fair values totaled $15.3 million and $16.3 million, respectively, and are included in other assets on the consolidated balance sheets.
Net (Loss) Income Per Share
Basic income per share is calculated using the Company's weighted-average outstanding shares of common stock. Diluted income 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.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents the calculation of both basic and diluted net (loss) income per share (in thousands, except per share amounts):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Net (loss) income | $ | (30,406) | | | $ | 7,443 | | | | | |
Basic weighted-average common shares outstanding | 27,051 | | | 28,257 | | | | | |
Dilutive effect of employee stock awards | — | | | 829 | | | | | |
Diluted weighted-average common shares outstanding | 27,051 | | | 29,086 | | | | | |
Net (loss) income per share - Basic | $ | (1.12) | | | $ | 0.26 | | | | | |
Net (loss) income per share - Diluted | $ | (1.12) | | | $ | 0.26 | | | | | |
Employee stock awards representing approximately 0.6 million and nil shares of common stock for the three months ended April 2, 2022 and April 3, 2021, 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, premium customer care 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’s consumer robots are highly dependent on, and interrelated with, the embedded software and cannot function without the software. As such, the consumer robots are accounted for as a single performance obligation. The Company has determined that the app, cloud services and potential future unspecified software upgrades represent one performance obligation to the customer to enhance the functionality and interaction with the robot (referred to collectively as "Cloud Services"). Other services and support are considered distinct and therefore are treated as separate performance obligations.
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 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 the Cloud Services is deferred and recognized on a straight-line basis over the estimated term of the Cloud Services. Other services and support are 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 April 2, 2022 and January 1, 2022 was $21.3 million and $20.9 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 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.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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 April 2, 2022, the Company had reserves for product returns of $44.7 million and other credits and incentives of $63.7 million. As of January 1, 2022, the Company had reserves for product returns of $56.8 million and other credits and incentives of $101.6 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 would be required to increase or reduce revenue to reflect the impact. During the three months ended April 2, 2022 and April 3, 2021, 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 | | |
| April 2, 2022 | | April 3, 2021 | | | | |
United States | $ | 153,174 | | | $ | 114,772 | | | | | |
EMEA | 65,661 | | | 116,233 | | | | | |
Japan | 50,521 | | | 40,575 | | | | | |
Other | 22,613 | | | 31,681 | | | | | |
Total revenue | $ | 291,969 | | | $ | 303,261 | | | | | |
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):
| | | | | | | | | | | |
| April 2, 2022 | | January 1, 2022 |
Accounts receivable, net | $ | 96,357 | | | $ | 155,659 | |
Unbilled receivables | 9,216 | | | 8,747 | |
Contract liabilities | 24,219 | | | 22,996 | |
The Company invoices customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Unbilled receivables represent revenue recognized in excess of billings Contract liabilities include deferred revenue associated with the Cloud Services and extended warranty plans as well as prepayments received from customers in advance of product shipments. During the three months ended April 2, 2022 and April 3, 2021, the Company recognized $4.7 million and $7.3 million, respectively, of the contract liability balance as revenue upon transfer of the products or services to customers.
4. 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.
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The components of lease expense were as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Operating lease cost | $ | 851 | | | $ | 1,987 | | | | | |
Variable lease cost | 918 | | | 895 | | | | | |
Total lease cost | $ | 1,769 | | | $ | 2,882 | | | | | |
Supplemental cash flow information related to leases was as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | $ | 2,039 | | | $ | 2,279 | | | | | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | | | |
Operating leases | $ | — | | | $ | — | | | | | |
At April 2, 2022, the Company's weighted average discount rate was 3.99%, while the weighted average remaining lease term was 7.30 years.
Maturities of operating lease liabilities were as follows as of April 2, 2022 (in thousands):
| | | | | |
| |
Remainder of 2022 | $ | 5,687 | |
2023 | 7,392 | |
2024 | 6,099 | |
2025 | 5,838 | |
2026 | 5,858 | |
Thereafter | 18,976 | |
Total minimum lease payments | $ | 49,850 | |
Less: imputed interest | 6,900 | |
Present value of future minimum lease payments | $ | 42,950 | |
Less: current portion of operating lease liabilities (Note 6) | 6,046 | |
Long-term lease liabilities | $ | 36,904 | |
During January 2022, the Company amended its lease on the corporate headquarters to reduce square footage. The reduction decreased the Company's future right-of-use assets and lease liabilities by $5.6 million.
5. Goodwill and Other Intangible Assets
The following table summarizes the activity in the carrying amount of goodwill and intangible assets for the three months ended April 2, 2022 (in thousands):
| | | | | | | | | | | |
| Goodwill | | Intangible assets |
Balance as of January 1, 2022 | $ | 173,292 | | | $ | 28,410 | |
Purchase accounting adjustments | (1,152) | | | — | |
Amortization | — | | | (1,331) | |
Effect of foreign currency translation | (2,176) | | | (452) | |
Balance as of April 2, 2022 | $ | 169,964 | | | $ | 26,627 | |
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
6. Accrued Expenses
Accrued expenses consisted of the following at (in thousands):
| | | | | | | | | | | |
| April 2, 2022 | | January 1, 2022 |
Accrued warranty | $ | 30,239 | | | $ | 32,019 | |
Accrued compensation and benefits | 17,319 | | | 19,029 | |
| | | |
Accrued manufacturing and logistics cost | 6,567 | | | 23,038 | |
Current portion of operating lease liabilities | 6,046 | | | 6,220 | |
Accrued sales and other indirect taxes payable | 4,922 | | | 9,599 | |
Derivative liability | 2,198 | | | 2,600 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Accrued bonus | 1,991 | | | 11,375 | |
Accrued income taxes | 642 | | | 1,788 | |
Accrued other | 19,458 | | | 26,950 | |
| $ | 89,382 | | | $ | 132,618 | |
7. Derivative Instruments and Hedging Activities
The Company enters into derivative instruments that are designated as cash flow hedges to reduce its exposure to foreign currency exchange risk in sales. These contracts typically have maturities of three years or less. At April 2, 2022 and January 1, 2022, the Company had outstanding cash flow hedges with a total notional value of $497.6 million and $423.3 million, respectively.
The Company also enters into economic hedges that are not designated as hedges from an accounting standpoint to reduce foreign currency exchange risk related to short term trade receivables and payables. These contracts typically have maturities of twelve months or less. At April 2, 2022 and January 1, 2022, the Company had outstanding foreign currency economic hedges with a total notional value of $249.0 million and $325.4 million, respectively.
The fair values of derivative instruments were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| | | Fair Value |
| Classification | | April 2, 2022 | | January 1, 2022 |
Derivatives not designated as hedging instruments: | | | |
| | | | | |
Foreign currency forward contracts | Other current assets | | $ | 9,807 | | | $ | 8,362 | |
Foreign currency forward contracts | Other assets | | 994 | | | 1,627 | |
Foreign currency forward contracts | Accrued expenses | | 2,198 | | | 2,377 | |
| | | | | |
Derivatives designated as cash flow hedges: | | | |
Foreign currency forward contracts | Other current assets | | $ | 10,221 | | | $ | 4,110 | |
Foreign currency forward contracts | Other assets | | 11,549 | | | 9,610 | |
Foreign currency forward contracts | Accrued expenses | | — | | | 223 | |
Foreign currency forward contracts | Long-term liabilities | | 74 | | | 407 | |
Gain (loss) associated with derivative instruments not designated as hedging instruments were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | |
| Classification | | April 2, 2022 | | April 3, 2021 | | | | |
Gain (loss) recognized in income | Other expense, net | | $ | 2,064 | | | $ | (10,013) | | | | | |
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following tables reflect the effect of derivatives designated as cash flow hedging (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Gain recognized in OCI on Derivative (1) |
| | Three Months Ended | | |
| | April 2, 2022 | | April 3, 2021 | | | | |
Foreign currency forward contracts | | $ | 10,257 | | | $ | 17,154 | | | | | |
(1)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
| | | | | | | | | | | | | | | | | | |
| | Gain (loss) recognized in earnings on cash flow hedging instruments |
| | Three Months Ended | | |
| | April 2, 2022 | | April 3, 2021 | | | | |
| | Revenue | | |
Consolidated statements of operations in which the effects of cash flow hedging instruments are recorded | | $ | 291,969 | | | $ | 303,261 | | | | | |
| | | | | | | | |
Gain on cash flow hedging relationships: | | | | | | | | |
Foreign currency forward contracts: | | | | | | | | |
Amount of gain (loss) reclassified from AOCI into earnings | | $ | 1,639 | | | $ | (517) | | | | | |
8. Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of April 2, 2022 |
| Level 1 | | Level 2 (1) | | Level 3 |
Assets: | | | | | |
Money market funds | $ | 11,606 | | | $ | — | | | $ | — | |
Marketable equity securities, $0 at cost (2) | 1,461 | | | — | | | — | |
| | | | | |
| | | | | |
Derivative instruments (Note 7) | — | | | 32,571 | | | — | |
Total assets measured at fair value | $ | 13,067 | | | $ | 32,571 | | | $ | — | |
| | | | | |
Liabilities: | | | | | |
Derivative instruments (Note 7) | $ | — | | | $ | 2,272 | | | $ | — | |
Total liabilities measured at fair value | $ | — | | | $ | 2,272 | | | $ | — | |
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of January 1, 2022 |
| Level 1 | | Level 2 (1) | | Level 3 |
Assets: | | | | | |
Money market funds | $ | 33,003 | | | $ | — | | | $ | — | |
Marketable equity securities, $23,286 at cost | 33,044 | | | — | | | — | |
| | | | | |
| | | | | |
Derivative instruments (Note 7) | — | | | 23,709 | | | — | |
Total assets measured at fair value | $ | 66,047 | | | $ | 23,709 | | | $ | — | |
| | | | | |
Liabilities: | | | | | |
Derivative instruments (Note 7) | $ | — | | | $ | 3,007 | | | $ | — | |
Total liabilities measured at fair value | $ | — | | | $ | 3,007 | | | $ | — | |
(1)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
(2)The related unrealized gain recorded in other expense, net was $1.5 million for the three months ended April 2, 2022. Marketable equity securities are included in short-term investments on the consolidated balance sheet.
9. Commitments and Contingencies
Legal Proceedings
From time to time and in the ordinary course of business, the Company is subject to various claims, charges and litigation. The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations.
Guarantees and Indemnification Obligations
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses incurred by the indemnified party, generally the Company’s customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company had no liabilities recorded for these agreements as of April 2, 2022 and January 1, 2022, respectively.
Warranty
The Company provides warranties on most products and has established a reserve for warranty obligations based on estimated warranty costs. The reserve is included as part of accrued expenses (Note 6) in the accompanying consolidated balance sheets.
Activity related to the warranty accrual was as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| April 2, 2022 | | April 3, 2021 | | | | |
Balance at beginning of period | $ | 32,019 | | | $ | 24,392 | | | | | |
| | | | | | | |
Provision | 6,036 | | | 10,185 | | | | | |
Warranty usage | (7,816) | | | (10,673) | | | | | |
Balance at end of period | $ | 30,239 | | | $ | 23,904 | | | | | |
10. Income Taxes
Ordinarily, the Company’s interim provision for income taxes is determined using an estimate of the annual effective tax rate. The Company records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete tax items. However, for the first quarter of 2022, the Company concluded that the estimated
iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
annual effective tax rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate due to the range of potential impacts of the ongoing global COVID-19 pandemic, heightened inflation and reduced consumer confidence stemming from the Russia-Ukraine war may have on its business and results of operations. Accordingly, the Company has computed the tax provision using the actual effective tax rate for the three months ended April 2, 2022.
The Company recorded an income tax benefit of $9.6 million and $1.2 million for the three months ended April 2, 2022 and April 3, 2021, respectively. The $9.6 million income tax benefit for the three months ended April 2, 2022 resulted in an effective income tax rate of 24.0%. The $1.2 million income tax benefit for the three months ended April 3, 2021 resulted in an effective tax rate of (19.5)%. The change in effective income tax rate was primarily driven by a discrete tax item of excess stock-based compensation windfalls recognized for the three months ended April 3, 2021 compared to stock-based compensation shortfalls recognized during the current period.
The Company's 24.0% effective rate of income tax for the three months ended April 2, 2022 was higher than the federal statutory tax rate of 21% primarily because of the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.
11. Industry Segment, Geographic Information and Significant Customers
The Company operates as one operating segment. The Company's consumer robots are offered to consumers 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.
Significant Customers
For the three months ended April 2, 2022 and April 3, 2021, the Company generated 26.6% and 17.0%, respectively, of total revenue from one of its retailers.
12. Subsequent Event
Credit Facility
On May 4, 2022, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of America N.A. (the "Amendment") with an effective date of March 31, 2022. The Amendment waives the quarterly tested leverage and interest coverage covenants in the Credit Agreement for the first, second and third quarters of 2022. The interest coverage ratio calculation for the fourth quarter of 2022 was changed to a trailing nine months. Additionally, a new liquidity covenant was added for all of fiscal 2022. The Amendment also increases the borrowing rate under the facility for 2022 to LIBOR plus 1.5%. With this Amendment, as of April 2, 2022, the Company is in compliance with the covenants under the Credit Agreement.