IRobot Expects Malaysia Production to Meet Most US Demand by 2022

IRobot is adding contract manufacturers and new lines to boost production in Malaysia over 2021, after a 25% tariff on Roomba robot vacuums imported from China was reinstated at the start the year, said Chief Financial Officer Julie Zeiler on the company’s Thursday earnings call. The company expects to have enough capacity by year-end to support most of its 2022 North American volume requirement, at an anticipated $41 million-$43 million in incremental costs. The company incurred $38 million in Trade Act Section 301 tariff costs in 2019 (see 2007220022).

Managing a “geographically diverse manufacturing footprint at scale” is prudent risk management, said Zeiler. Gross margin assumptions for 2021 take into account current travel restrictions into and within Malaysia, she said: “Should those restrictions tighten further, it may require us to shift more volume into China and incur additional tariff expense.” Operations teams are also grappling with rising freight and raw material costs and key component shortages, she said, citing resin and other raw materials.

On its patent infringement complaint against SharkNinja (see 2102020033), filed Jan. 28, CEO Colin Angle said iRobot expects to be at trial by year-end. The company seeks a limited exclusion order and cease and desist orders against SharkNinja and its affiliates.

Revenue for Q4, ended Jan. 2, grew 28% year on year to $544.8 million; 2020 revenue was $1.4 billion, up 18% from 2019. IRobot projects fiscal 2021 revenue of $1.63 billion-$1.67 billion. “While our profitability and [earnings per share] are expected to take a step back in 2021,” said Zeiler, iRobot is taking “necessary actions to sustain our top-line growth rate in 2022.” In addition to Malaysia manufacturing, “tailwinds” for 2022 are expected to come from higher-margin direct-to-consumer sales growth and other initiatives, she said. The company is spending over $20 million to support D2C channel growth.

D2C sales were 11% of 2020 revenue, up from 6% in 2019, said Angle. In Q4, the e-commerce site had strong sales from an exclusive Roomba-Braava bundle, he said. He called the D2C business a “powerful complement to strong retail partners.” By 2023, iRobot wants D2C to be 20% of revenue, and it's rolling out tools to better capture and “nurture the customer along a sales journey." The company is spending over $20 million to build out the D2C infrastructure, including adding headcount, he said. A positive indicator for the D2C business is "skyrocketing engagement" with consumers, offering upsell opportunities, said Angle. Over 10 million customers with connected Roomba vacs have opted in for in-app and email communications with the company, an 80% increase from 2019.

Angle referenced iRobot’s strategy for differentiation, targeting the market's premium end. He cited an “anti-commoditization" trend in the category. The differentiating features iRobot is bringing out are driving customers to “spend up” to get next-generation options, said the executive. New products this year will focus on robot intelligence, said Angle. It will be important to “extend the partnership” to make sure the customer feels in control of what the robot is doing, he said. Without trust and control, “We will undershoot the potential of the industry we’re leading.”

IRobot’s vision for its Roomba vacuums “extends beyond floor care,” said Angle. The product today -- limited to vacuuming and mopping with the Braava robot mops -- is a platform for the company to gain the understanding necessary “to increase the sophistication of what we’re able to do in the home." He referenced the August debut of iRobot’s artificial intelligence platform, iRobot Genius Home Intelligence, a “very ambitious long-term commitment" to building AI that's capable of doing "very sophisticated work in the home.” The industry is still in the beginning of what the smart home will evolve into, Angle said. IRobot is working on delivering the “context required to have a home that understands the types of things you want to have happen” in the “increasingly complex role the home is being asked to play.” Genius is extendable across the portfolio of Wi-Fi-connected robots, enabling new features and functionality that give users more control over where, when and how robots clean, said Angle.

IRobot's robots-as-a-service tests have shown promising results, but there’s “more work to do,” said Angle. The recurring-revenue program will move from test to commercialization this year, though impact from the program will be minimal in 2021, he said.