IRBT Irobot Corp - 10-K

ITEM 1A.      RISK FACTORS

We operate in a rapidly changing environment that involves a number of risks that have materially affected and could in the future materially affect our business, financial condition or future results, some of which are beyond our control. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.

The following is a summary of the principal risks that have materially affected and could in the future materially adversely affect our business, results of operations, and financial condition. Additional discussion of the risks included in this summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Annual Report on Form 10-K in its entirety before making investment decisions regarding our common stock. This summary should not be relied upon as an exhaustive summary of the material risks facing our business.

• We cannot assure you that our review of strategic alternatives will result in any transaction being consummated, and speculation and uncertainty regarding the outcome of this review may adversely impact our business.

• The waiver of events of default under our senior secured term loan credit facility is time-limited; if this waiver is not extended at the end of the applicable period, we will be in default.

• Our history of operating losses and negative cash flows from operations has raised substantial doubt about our ability to continue as a going concern.

• We have incurred substantial operating losses in past years, expect to continue to incur operating losses for the foreseeable future, and may not achieve a return to profitability in the future.

• We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

• Significant reductions in consumer demand has caused, and may continue to cause, a decrease in revenue from sales of our products and additional costs reducing both gross margin and operating income.

• We face intense competition from other providers of robots, including diversified technology providers, as well as competition from providers offering alternative products, which has negatively impacted, and could continue to negatively impact, our results of operations and cause our market share to decline.

• Designing new robotic products is complex and requires significant resources, and our ability to remain competitive requires significant continued investment and the successful implementation of our operational strategies.

• We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee may impair our ability to operate effectively.

• If we are unable to attract and retain additional skilled personnel, we may be unable to operate our business.

• If we are not successful in expanding our direct-to-consumer sales channel by driving consumer traffic and consumer purchases through our website, our business and results of operations could be harmed.

• Our success depends nearly entirely on our consumer robots, and our sales growth and operating results have been negatively impacted, and could in the future be negatively impacted, if we are unable to enhance our current products

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or develop new consumer robots at competitive prices or in a timely manner, or if our products do not achieve broad market acceptance.

• Our senior secured term loan credit facility provides our lenders with a first-priority lien against substantially all of our assets, and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.

• We have transitioned primarily to a single contract manufacturer, and our reputation and results of operations would be harmed if the contract manufacturer fails to meet our requirements.

• If critical components of our products, which we currently source from a small number of suppliers, become unavailable or if supply chain and shipping disruptions occur, we may experience cost increases and delays that could harm our business.

• If we fail to maintain or increase consumer robot sales through our distribution channels, our operating results would be negatively impacted.

• Significant developments in U.S. trade policies have had, and we expect will continue to have, a material adverse effect on our business, financial condition and results of operations.

• We collect, store, process, and use customer data, including certain personal and robot-specific information, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any cybersecurity incidents, data breaches, or our actual or perceived failure to comply with such legal obligations could harm our business.

Risks Related to our Business and Industry

We cannot assure you that our review of strategic alternatives will result in any transaction being consummated, and speculation and uncertainty regarding the outcome of this review may adversely impact our business.

On March 12, 2025, we announced that our board of directors is conducting a review of strategic alternatives, including, but not limited to, exploring a potential sale or strategic transaction and refinancing our debt. There can be no assurance this review process will result in any transaction or outcome. Whether the process will result in any transactions, our ability to complete any such transaction, and if our board of directors decides to pursue one or more transactions, will depend on numerous factors, some of which are beyond our control. Such factors include the interest of potential acquirers or strategic partners in a potential transaction, the value potential acquirers or strategic partners attribute to our business, regulatory approvals, market conditions, and industry trends. Potential strategic transactions that require stockholder approval may not be approved by our stockholders or, if required, a counterparty's stockholders. Furthermore, any strategic transaction into which we enter may be delayed or may ultimately not be consummated as a result of regulatory reviews (which may include domestic and foreign antitrust, CFIUS or other regulatory agency reviews) and determinations or other factors.

The price of our common stock may be adversely affected if the strategic review process does not result in transactions or if one or more transactions are consummated on terms that investors view as unfavorable to us. Even if one or more transactions are completed, there can be no assurance that any such transactions will be successful or have a positive effect on stockholder value. Our board of directors may also determine that no transaction is in the best interest of our stockholders. Our financial results and operations could be adversely affected by the strategic process and by the uncertainty regarding its outcome.

The attention of management and our board of directors could be diverted from our core business operations as a result of this strategic review process. We have diverted capital and other resources to the process that otherwise could have been used in our business operations, and we expect to continue to do so until the process is completed. We could incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those related to employee retention payments, equity compensation, severance pay and legal, accounting and financial advisor fees. A considerable portion of these expenses may be incurred regardless of whether a transaction is completed. In addition, the process could lead us to lose or fail to attract, retain and motivate key employees, and to lose or fail to attract customers or business partners. Furthermore, it could expose us to litigation. The public announcement of a strategic alternative may also yield a negative impact on operating results if prospective or existing customers, vendors or partners are reluctant to commit to new or renewed contracts.

We do not intend to disclose developments or provide updates on the progress or status of the strategic process until our board of directors deems further disclosure is appropriate or necessary. Accordingly, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of our company could cause the price of our common stock to fluctuate significantly. If we are unable to mitigate these or other potential risks related to the uncertainty caused by our evaluation of strategic alternatives, it could disrupt our business and adversely impact operating results and financial condition.

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The waiver of events of default under our senior secured term loan credit facility is time-limited; if this waiver is not extended at the end of the applicable period, we will be in default. Our senior secured term loan credit facility provides our lenders with a first-priority lien against substantially all of our assets, and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.

On March 11, 2025, we entered into Amendment No. 1 to our credit agreement (the "Credit Agreement") with TCG Senior Funding L.L.C., an affiliate of The Carlyle Group, as administrative agent and collateral agent (the "Agent") and the lenders party thereto (the "Lenders"). Pursuant to Amendment No. 1, the Lenders waived, until May 6, 2025 (the "Amendment Period"), our covenant obligations to (1) provide a report and opinion of our auditor with respect to our annual consolidated financial statements for fiscal year 2024 without an exception regarding our ability to continue as a going concern (the "Going Concern Covenant") and (2) maintain a minimum level of core assets (the "Minimum Core Assets Covenant") and, together with the Going Concern Covenant, the "Specified Covenants"). No event of default will occur under the Credit Agreement as a result of failure to comply with the Specified Covenants during the Amendment Period; however, we are still obligated to comply with the Specified Covenants after the end of the Amendment Period and if we do not, unless the Lenders further extend such waiver by the end of the Amendment Period, an event of default will occur.

The auditor report on the consolidated financial statements for the fiscal year ended December 28, 2024 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern; therefore, we would be in breach of the Going Concern Covenant and the Agent would be able to exercise all applicable remedies under the Credit Agreement but for Amendment No. 1 described above. The earliest we would be able to regain compliance with the Going Concern Covenant is upon the filing of our Annual Report on Form 10-K for the year ending January 3, 2026, which we do not anticipate will be filed until March 2026. As a result, we are dependent on continued waivers from the Lenders to avoid an event of default related to the Going Concern Covenant, which waivers are in the Lenders' sole discretion. We cannot assure you that the Lenders will provide any additional waiver of compliance with the Specified Covenants by the end of the Amendment Period.

Any failure by us to comply with the covenants or payment requirements specified in the Credit Agreement (including the Specified Covenants after the Amendment Period) would result in an event of default under the Credit Agreement, which may result in the termination of the Credit Agreement and acceleration of repayment obligations with respect to any outstanding loans. In addition, the Lenders would have the right to proceed against the collateral in which we granted a security interest to them, which consists of substantially all our assets. If our outstanding debt were to be accelerated, we may not have sufficient cash or be able to raise or borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could materially and adversely affect our cash flows, business, results of operations, and financial condition. In this event, we may be forced to terminate, significantly curtail or cease our operations or to pursue other alternatives, including, but not limited to, commencing a case under the U.S. Bankruptcy Code.

The Credit Agreement contains customary negative covenants that limit our and our subsidiaries' ability to, among other things, grant or incur liens, incur additional indebtedness, make certain restricted investments or payments, including payment of dividends on our capital stock and payments on certain permitted indebtedness, enter into certain mergers and acquisitions or engage in certain asset sales, subject in each case to certain exceptions. The Credit Agreement also includes certain restrictions on the use of a portion of the Parent Termination Fee payment received by us from Amazon.com, Inc., which the remaining amount thereof (after giving effect to certain periods for such amounts to be used for inventory in limited circumstances and upon satisfying certain conditions) will ultimately be required to be used to prepay a portion of the loan under the Credit Agreement. The terms of our outstanding debt may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute business strategies in the manner desired. In addition, complying with the covenants may make it more difficult for us to successfully execute our business strategy, invest in our growth strategy, and compete against companies who are not subject to such restrictions.

Our history of operating losses and negative cash flows from operations has raised substantial doubt about our ability to continue as a going concern.

We have received a report from our independent registered public accounting firm regarding our consolidated financial statements for the fiscal year ended December 28, 2024 that includes an explanatory paragraph stating that the consolidated financial statements have been prepared assuming that we will continue as a going concern. The report also states that we have a history of operating losses and negative cash flows from operations that raise substantial doubt about our ability to continue as a going concern. The substantial doubt about our ability to continue as a going concern may adversely affect the price of our common stock, our ability to raise capital or enter into strategic transactions, and our relationship with key stakeholders. As described above, on March 12, 2025, we announced that our board of directors is conducting a review of strategic alternatives. If this process does not yield sufficient, timely financial resources, or if we are not otherwise able to achieve management's cash flow forecast to allow us to maintain our debt covenant compliance as well as our liquidity and operations in the ordinary course, our business, results of operations, financial condition, and cash flows could be materially and adversely affected and

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we may be forced to terminate, significantly curtail or cease our operations or to pursue other alternatives, including, but not limited to, commencing a case under the U.S. Bankruptcy Code.

We have incurred substantial operating losses in past years, expect to continue to incur operating losses for the foreseeable future, and may not achieve a return to profitability in the future.

During each of the three most recent fiscal years, we have incurred substantial operating losses due to the combination of declining orders for our products and significant decreases in our gross margin. While we have taken and will continue to take actions to moderate operating expenses, we cannot guarantee that we will be able to return to profitability through a combination of revenue stabilization and significant gross margin improvement. In addition, our revenue may decline for a number of reasons, including reduced demand for our products, increased competition or macroeconomic conditions, and if our revenue does not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

Our future capital requirements will depend on many factors, including our rate of revenue growth or decline, the expansion or contraction of our marketing and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of our products and services, the overall macroeconomic conditions due to heightened inflation and reduced consumer confidence stemming from unstable geopolitical conditions, including the ongoing Russia-Ukraine and Israel-Hamas wars. In the event our future revenue or gross profit does not meet our expectations or our costs are higher than expected, we may eliminate or curtail expenses to mitigate the impact on working capital. Moreover, to the extent existing cash and cash equivalents and cash from operations are insufficient to fund our future activities, we may need to extend the timing of repayment of or refinance our existing debt or raise additional funds through public or private equity or debt financing. In such cases, we may need additional financing to execute on our current or future business strategies. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures would be significantly limited.

Significant reductions in consumer demand has caused, and may continue to cause, a decrease in revenue from sales of our products and additional costs reducing both gross margin and operating income.

Reductions in consumer demand for our products have caused a decrease in revenue from sales of our products. If we are not successful in increasing consumer demand, or if macroeconomic conditions impacting consumer demand do not improve, we will continue to experience adverse impacts to our revenue and profitability.

To ensure an adequate inventory supply, we must forecast inventory needs and place orders sufficiently in advance with our suppliers and contract manufacturers, based on our estimates of future demand for specific product SKUs by region. Failure to accurately forecast our needs has resulted, and may continue to result, in manufacturing delays, increased costs, or excess inventory. Our ability to accurately forecast demand could be affected by many factors, including changes in consumer demand for our products, changes in demand for the products of our competitors, unanticipated changes in general market conditions, and the weakening of economic conditions or consumer confidence in future economic conditions. Our failure to accurately forecast consumer demand has resulted, and may continue to result, in excess inventory levels or a shortage of certain product models available for sale. Inventory levels in excess of consumer demand has resulted, and may continue to result, in increased promotional intensity to support the sale of excess inventory, which would cause and has caused our gross margins to suffer.

In addition, we do not have long-term, fixed price contracts with our contract manufacturers. As we reduce production orders with our contract manufacturers to meet demand, we face increased cost of goods sold as both our own manufacturing overhead as well as that of our suppliers is amortized over smaller production levels. In addition, as production decreases, we may not be able to maintain manufacturing relationships with some of our suppliers, which has caused us to exit production at certain contract manufacturers. The process of exiting production at certain contract manufacturers has caused us, and may continue to cause us, to incur additional costs related to unused tooling, components, relocation of materials and fixtures, and unrecouped non-recurring engineering.

We face intense competition from other providers of robots, including diversified technology providers, as well as competition from providers offering alternative products, which could negatively impact our results of operations and cause our market share to decline.

A number of companies have developed or are developing robots that will compete directly with our product offerings. Our competition includes established, well-known sellers of floor cleaning robots such as Dreame, Ecovacs, Roborock, Shark, Samsung, as well as new market entrants. Many current and potential competitors are larger in size and more broadly

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diversified with substantially greater financial, marketing, research and manufacturing resources than we possess, and there can be no assurance that our current and future competitors will not be more successful than us. We also face competition from manufacturers of lower-cost devices, which has, and may continue to, further drive down the average selling price in the marketplace for floor cleaning products and impact demand for our products as macroeconomic conditions result in consumers shifting towards lower-cost alternatives. Moreover, while we believe many customers purchase our floor vacuuming robots as a supplement to, rather than a replacement for, their traditional vacuum cleaners, we also compete with providers of traditional vacuum cleaners.

The global market for robots is highly competitive, rapidly evolving and subject to changing technologies, including the utilization of evolving AI technologies, shifting customer needs and expectations and the likely increased introduction of new products. Our ability to remain competitive will depend to a great extent upon our ongoing performance in the areas of product development, operating efficiency and customer support.

We expect that competition will continue to intensify as additional competitors enter the market and current competitors expand their product lines. Companies competing with us have, and may continue to, introduce products that are competitively priced, have increased performance or functionality, or incorporate technological advances that we have not yet developed or implemented. Increased competitive pressure has resulted and will continue to result in a loss of sales or market share or cause us to lower prices for our products, any of which would harm our business and operating results.

Many of our competitors have demonstrated an ability to rapidly replicate new features and innovations that we have introduced into the market, and therefore are able to offer products with similar capabilities to ours at lower prices. Other competitors have demonstrated the ability to innovate more rapidly than we have, and those innovations – particularly in the development of 2-in-1 robot vacuum cleaners and multi-function docks – have allowed competitors to offer products at premium price points as well as capture significant market share in certain geographic markets. In addition, some of our competitors aggressively discount their products and services in order to gain market share, which has resulted in pricing pressures, reduced profit margins and lost market share. In addition, new products often have lower volumes, lower selling prices or higher costs than products that have been sold for at least a year; any or all of those factors could negatively impact our gross margins and operating results.

We cannot assure you that our products will compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering the markets in which we provide products. Our failure to compete successfully has caused, and may continue to cause, our revenue and market share to decline, which has negatively impacted, and may continue to negatively impact, our results of operations and financial condition.

We operate in an emerging market, which makes it difficult to evaluate our business and future prospects.

Robots represent a new and emerging market. Accordingly, our business and future prospects are difficult to evaluate. We cannot accurately predict the extent to which demand for consumer robots will increase, if at all. You should consider the challenges, risks and uncertainties frequently encountered by companies using new and unproven business models in rapidly evolving markets. These challenges include our ability to:

• generate sufficient revenue and gross margin to regain and maintain profitability;

• maintain market share in our consumer market;

• attract and retain customers of our robots;

• attract and retain engineers and other highly-qualified personnel; and

• expand our product offerings beyond our existing robots.

If we fail to successfully address these and other challenges, risks and uncertainties, our business, results of operations and financial condition would be materially harmed.

Designing new robotic products is complex and requires significant resources, and our ability to remain competitive requires significant continued investment and the successful implementation of our operational strategies.

To remain competitive, we must continue to invest in developing tools and processes to improve the speed at which we are able to develop competitive products. Historically, we have made significant investments to develop tools and processes, including designing multiple hardware-based platforms and developing a reusable software architecture for use across those platforms. The development of multiple hardware platforms and a reusable software architecture requires the expenditure of significant resources that may not result in the designed efficiencies. As part of our 2024 operational restructuring plan, we plan to lower research and development expenditures by shifting to greater reliance on our manufacturing partners for lower-value commodity engineering work. Our manufacturing partners' efforts to implement such designs and developments may be unsuccessful and the speed of product development may not improve. Failure to improve the speed of product development, whether through our direct work or through the work of our manufacturing partners, could materially harm our business, results

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of operations and financial condition. In addition, any new product that we develop may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the market acceptance necessary to generate sufficient revenue. Our inability to reduce the cost to develop new products or product variants has substantially impacted, and may continue to substantially impact, our ability to offer products that compete favorably.

A critical component of our iRobot Elevate turnaround strategy is the development and launch of a revitalized product lineup beginning in 2025. Any delays or interruptions in the development, manufacture or shipment of our new products, or any failure to effectively ramp up the manufacturers of new products, would be likely to result in lost sales and revenue and damage our reputation in the market, both of which would harm our business and results of operations. In addition, failure to launch anticipated products in a timely fashion could result in failure to maintain a set of competitive products and materially harm our brand, business, results of operations and financial condition. Additionally, we may not realize the benefits of modifying our operations to increase the speed of product development, implementing our recent restructuring, increasing reliance on our partners for product development, which could result in a loss of potential revenue and increase our product return rate.

We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee may impair our ability to operate effectively.

Our success depends upon the continued services of our senior management team and key technical employees. Each of our executive officers, key technical personnel and other employees could terminate his or her relationship with us at any time. The loss of any member of our senior management team or key technical employee might significantly delay or prevent the achievement of our business objectives, result in a loss of institutional know-how and could materially harm our business and customer relationships. In addition, because of the highly technical nature of our robots, the loss of any significant number of our existing engineering and project management personnel could have a material adverse effect on our business and operating results. Also, increased turnover, particularly on the senior management team, with insufficient development of leadership talent and succession plans, could diminish employee confidence and increase risks for retaining key employees. Our failure to successfully attract well-qualified employees, retain and motivate existing employees or integrate new members of our senior management team and key employees, could materially and adversely affect our operations and our ability to execute our strategy. Leadership transitions and management changes can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover in key employees and senior management. In addition, recently appointed members of senior management may view our business differently than prior members, and have made and may continue to make changes to our strategic focus, operations, business plans, existing personnel and their responsibilities. We may not be able to properly manage such shifts in focus, and any changes to our business may not ultimately prove successful. Further, changes in our senior management team may be disruptive to our business, and any failure to successfully transition and assimilate key new hires or promoted employees could adversely affect our business and results of operations.

Most of our senior management team have turned over during the course of fiscal 2024. The Company believes that the execution of our iRobot Elevate strategy introduced during fiscal 2024 and led by the new management team will help facilitate the turnaround of our Company. However, these changes in our management team could cause retention and morale concerns among current employees, as well as operational risks. If this leadership transition is not successful, it could disrupt our business, affect our culture, cause employee retention concerns, be viewed negatively by our customers or investors, and affect our financial condition and operational results.

If we are unable to attract and retain additional skilled personnel, we may be unable to operate our business.

To execute our business stabilization plan and return to profitability, we must attract and retain additional, highly-qualified personnel. Competition for hiring these employees is intense, especially with regard to engineers with high levels of experience in designing, developing and integrating robots and engineers with expertise in artificial intelligence, machine learning, data science and cloud applications. Many of the companies with which we compete for hiring experienced employees have greater resources than we have. If we fail to attract new technical personnel or fail to retain and motivate our current employees, our business and future growth prospects could be severely harmed.

In addition, we have experienced increased employee turnover as a result of general market conditions, the impact of several reductions in force executed over the past several years, and the termination of the proposed acquisition by Amazon. These factors may cause additional attrition and affect the morale of our current employees and might adversely affect our reputation among job seekers. Significant or prolonged turnover or revised hiring priorities may negatively affect our operations and culture, as well as our ability to successfully maintain our processes and procedures. New hires require significant training and, in most cases, take significant time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain significant numbers of qualified individuals. Moreover, we may be forced to adjust salaries or other compensation in order to retain key talent. Job seekers and existing personnel often consider the value of the equity awards they receive in connection with their employment. The recent decline in our stock price may impact the actual or perceived value of our equity awards for current employees or new hires, and we may need to grant additional or larger equity awards to offer attractive compensation packages to hire and retain employees. If our retention efforts are not successful

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or our team member turnover rate continues to increase in the future, our business, results of operations and financial condition could be materially and adversely affected.

In 2024, we commenced and largely completed an operational restructuring plan to more closely align our cost structure with near-term revenue expectations and drive profitability. A critical component of our operational restructuring plan was the significant reduction of our overall global workforce. Completion of the restructuring plan may have continuing adverse effects on our workforce, including negative effects on employee morale, increased employee attrition, increased difficulty in hiring new employees, and diversion of management attention. Additionally, as we are operating our business with fewer employees, we face additional risks that we might not be able to execute on our strategic plans and product roadmap, which may have an adverse effect on our business, financial condition, and operating results.

If we are not successful in expanding our direct-to-consumer sales channel by driving consumer traffic and consumer purchases through our website, our business and results of operations could be harmed.

We continue to invest in our direct-to-consumer sales channel, primarily through our website and mobile app and the technology infrastructure used to support them. Our future growth relies in part on our ability to attract consumers to this channel, which requires significant expenditures in marketing, infrastructure and systems. If we are unable to drive traffic to, and increase sales through, our website and mobile app, our business and results of operations could be harmed. In addition, our efforts to carefully manage our cost structure may result in lower levels of investment in our direct-to-consumer infrastructure and systems. Our inability to adequately respond to these risks and uncertainties, successfully fund new infrastructure initiatives or maintain and expand our direct-to-consumer business via our website may have an adverse impact on our results of operations.

Our success depends nearly entirely on our consumer robots, and our sales growth and operating results would be negatively impacted if we are unable to enhance our current products or develop new consumer robots at competitive prices or in a timely manner, or if our products do not achieve broad market acceptance.

We primarily derive our revenue from consumer robot sales. For the foreseeable future, we expect that our revenue will be derived nearly entirely from sales of home floorcare products. Accordingly, our future success depends upon our ability to further penetrate the consumer home floorcare market, to enhance our current consumer products and to develop and introduce new consumer products offering enhanced performance and functionality at competitive prices. The development and application of new technologies involves time, substantial costs and risks. Our inability to achieve significant sales of our newly introduced robots, or to enhance, develop and introduce other products in a timely manner, or at all, would materially harm our sales growth and operating results.

Even if consumer robots gain wide market acceptance, our robots may not adequately address market requirements and may not continue to gain market acceptance. If robots generally, or our robots specifically, do not gain wide market acceptance, we may not be able to achieve our anticipated level of growth, and our revenue and results of operations would suffer.

Any efforts to expand our product offerings beyond our current markets or to develop new products may not succeed, which could negatively impact our operating results.

Efforts to expand our product offerings beyond our current markets are limited and those efforts may not succeed and may divert management resources from existing operations and require us to commit significant financial resources to an unproven business, either of which could significantly impair our operating results. Any new product that we develop may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the market acceptance necessary to generate sufficient revenue. Moreover, efforts to expand beyond our existing markets may never result in new products that achieve market acceptance, create additional revenue or become profitable.

As a result of the restructuring plan, we have re-focused our product roadmap on our core robotic floorcare business and exited our non-floorcare offerings in education and air purifiers. In addition, because of our current fiscal constraints, our ability to support investments in other non-floorcare innovations is limited, and this lack of investment in the near-term could allow other companies to develop more competitive products to our non-floorcare innovations, which could impact our ability to compete against such products in the future.

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We spend significant amounts on advertising and other marketing campaigns, which may not be successful or cost effective.

We spend significant amounts on advertising and other marketing campaigns, such as television, digital and print advertising, and social media, as well as increased promotional activities, to acquire new customers, and we expect to continue to spend significant amounts to increase awareness of our consumer robot products. For fiscal 2024, 2023 and 2022, sales and marketing expenses were $138.8 million, $199.3 million, and $290.1 million, respectively, representing approximately 20.4%, 22.4% and 24.5%, of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to purchase our products, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing or to fully understand or estimate the conditions and behaviors that drive customer behavior. If any of our advertising campaigns prove less successful than anticipated in attracting customers, we may not be able to recover our advertising spend, and our revenue may fail to meet our expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products.

If we fail to enhance our brand, our ability to expand our customer base will be impaired and our operating results may suffer.

We believe that developing and maintaining awareness of the iRobot brand is critical to achieving widespread acceptance of our existing and future products and is an important element in attracting new customers. Furthermore, we expect the importance of global brand recognition to increase as competition increases. If customers do not perceive our products to be of high quality, our brand and reputation could be harmed, which could adversely impact our financial results. In addition, brand promotion efforts may not yield significant revenue or increased revenue sufficient to offset the additional expenses incurred in building our brand. Maintaining, protecting, and enhancing our brand may require us to make substantial investments, and these investments may not be successful. If we fail to successfully maintain, promote, and position our brand and protect our reputation, or if we incur significant expenses in this effort, our business, financial condition and operating results may be adversely affected.

Our income tax provision and other tax liabilities may be insufficient if taxing authorities are successful in asserting tax positions that are contrary to our position. Additionally, there is no guarantee that we will realize our deferred tax assets.

From time to time, we are audited by various federal, state, local and foreign authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and foreign taxes. Although we believe our approach to determine the appropriate tax treatment is supportable and in accordance with relevant authoritative guidance, it is possible that a tax authority will take a final tax position that is materially different than that which is reflected in our income tax provision. Such differences could have a material adverse effect on our income tax provision or benefit, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period.

The realization of our deferred tax assets ultimately depends on the existence of sufficient income in either the carryback or carryforward periods under the tax law. We have concluded that a valuation allowance on our U.S. and certain foreign jurisdictions net deferred tax assets continues to be appropriate. As of December 28, 2024, we had net deferred tax assets of $9.8 million. Due to significant estimates utilized in establishing a valuation allowance and the potential for changes in facts and circumstances, it is possible that we will be required to record a valuation allowance in future periods. Our results of operations would be impacted negatively if we determine that an additional valuation allowance is required in a future reporting period.

If our goodwill or long-lived assets become impaired, our operating results could be negatively impacted.

Our goodwill and long-lived assets, including intangible assets, are susceptible to valuation adjustments as a result of changes in various factors or conditions. We assess the potential impairment of goodwill on an annual basis. Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill and other intangible assets. Factors that could trigger an impairment of such assets include the following:

• changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit;

• significant under performance relative to historical or projected future operating results;

• significant changes in the strategy for our overall business;

• significant negative industry or economic trends;

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• significant decline in our stock price for a sustained period; and

• our market capitalization declining to below net book value.

Future adverse changes in these or other unforeseeable factors could result in additional impairment charges that would impact our results of operations and financial position in the reporting period identified.

Our financial results could fluctuate substantially due to the accounting for the Term Loan that we measure at fair value.

We have elected to account for the Term Loan under ASC 825 "Financial Instruments." ASC 825 allows companies to account for certain financial assets and financial liabilities at fair value, with the change in fair value recognized in net income (loss) in each reporting period. The data used for the measurement must reflect assumptions that market participants would use in pricing the asset or liability. There is no current observable market for this debt instrument and, as such, we determine the fair value of the debt instrument using a discounted cash flow model. The valuation model uses various inputs, including the amount and timing of cash flows, expected interest rate and discount rate. Changes in the inputs for this valuation model may have a material impact on the estimated fair value of the debt instrument accounted for under the fair value option. The debt instrument accounted for under the fair value option may have a substantial effect on our balance sheet and statement of operations from quarter to quarter and it is difficult to predict the effect on our future financial results, since valuation of the debt instrument accounted for under the fair value option is based on factors largely outside of our control. The effects may cause our financial results to fluctuate materially, which may cause our stock price to decline. See Note 6 to our consolidated financial statements, Fair Value Measurements, for more information regarding the valuation of our outstanding debt.

Risks Related to our Dependence on Third Parties and Distribution Channels

We have transitioned primarily to a single contract manufacturer, and our reputation and results of operations would be harmed if the contract manufacturer fails to meet our requirements.

In recent years, we have increasingly depended on third-party contract manufacturers to produce our products. These contract manufacturers manage the supply chain for all of the raw materials and provide all facilities and labor required to manufacture our products. In 2025, we will primarily depend on a single contract manufacturer, Shenzhen 3irobotix Co., Ltd. d/b/a Picea ("Picea"), located in China and Vietnam, to manufacture our products. Our agreement with Picea is scheduled to expire on August 17, 2025, but it can be extended if both parties agree in writing. Either party has the option to terminate the agreement for convenience with 180 days' advance written notice.

If Picea terminates its arrangement with us or fails to provide the required manufacturing ramp up, production capacity, and product quality on a timely basis, there would be a disruption in manufacturing our products until replacement contract manufacturing services could be obtained or volume transferred to an alternative manufacturing partner, each of which is a costly and time-consuming process. We cannot assure you that we would be able to establish alternative manufacturing arrangements on acceptable terms or in a timely manner. Any significant interruption in manufacturing at Picea would reduce the supply of our products, which could cause a delay in fulfillment of our orders or breach of our agreements with distribution partners, which in turn would reduce our revenue. Any adverse change in Picea's financial or business conditions could disrupt our ability to supply our products.

Our reliance on contract manufacturers, including Picea, involves certain product supply risks, including the following:

• lack of direct control over production capacity and delivery schedules;

• lack of direct control over quality assurance, manufacturing yields and production costs;

• lack of enforceable contractual provisions over the production and costs of consumer products;

• risk of loss of inventory while in transit; and

• risk of increased shipping and air freight costs, including as a result of attacks on commercial ships.

Any interruption in the manufacture of our products would be likely to result in delays in shipment, lost sales and revenue and damage to our reputation in the market, all of which would harm our business and results of operations. In addition, because our purchase contracts with contract manufacturers are typically denominated in U.S. dollars, changes in currency exchange rates may impact our contract manufacturers who operate in local currency, which may cause our suppliers to seek price concessions on future orders.

If critical components of our products, which we currently source from a small number of suppliers, become unavailable or if supply chain and shipping disruptions occur, we may experience cost increases and delays that could harm our business.

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We and our outsourced manufacturers obtain hardware components, various subsystems, raw materials and batteries from a limited group of suppliers, some of which are sole suppliers. We do not have long-term agreements with these suppliers obligating them to continue to sell components or products to us. If we or our outsourced manufacturers are unable to obtain components from third-party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, we may not be able to deliver our products on a timely or cost-effective basis to our customers, which could cause customers to terminate their contracts with us, reduce our gross margin and seriously harm our business, results of operations and financial condition. The supply of components and raw materials to us and our outsourced manufacturers, as well as our ability to efficiently receive inbound inventory and ship products to customers at customary costs, may be negatively affected by military conflicts, political or social instability or terrorism. For example, following the recent outbreak of conflict in the Middle East, there has been an increase in attacks on commercial ships transiting the Red Sea, disrupting an important global trade route. These disruptions have affected global ocean freight traffic, leading to shipping delays and higher freight costs. Although we have not yet experienced significant disruptions to our supply chain, continued or intensified hostilities in the Middle East or disruptions to other global trade routes could increase shipping times and ocean and air freight rates. This could adversely affect our delivery schedules, raise our costs, and harm our business, brand and financial and operating results. Moreover, if any of our suppliers become financially unstable, we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to re-tool our products to accommodate components from different suppliers. We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources. We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, or at all.

In addition, our lack of long-term agreements with certain component suppliers has caused us to purchase certain long-lead-time components well in advance of consumer demand. This added inventory increases the strain on our liquidity, as well as the risk of inventory becoming excess or obsolete.

Conflicts with our channel and distribution partners could harm our business and operating results.

The expansion of our direct-to-consumer channel could alienate some of our channel partners and cause a reduction in product sales from these partners. Channel partners may perceive themselves to be at a disadvantage based on the direct-to-consumer sales offered through our website. Due to these and other factors, conflicts in our sales channels could arise and cause channel partners to divert resources away from the promotion and sale of our products. Any of these situations could adversely impact our business and results of operations.

If we fail to maintain or increase consumer robot sales through our distribution channels, our operating results would be negatively impacted.

We do not have long-term contracts regarding purchase volumes with any of our retail partners. As a result, purchases generally occur on an order-by-order basis, and the relationships, as well as particular orders, can generally be terminated or otherwise materially changed at any time prior to delivery, by our retail partners. A decision by a major retail partner, whether motivated by competitive considerations, financial difficulties, economic conditions or otherwise, to decrease its purchases from us, to reduce the shelf space for our products or to change its manner of doing business with us could significantly damage our consumer product sales and negatively impact our business, financial condition and results of operations. In addition, during recent years, various retailers, including some of our partners, have experienced significant changes and difficulties, including consolidation of ownership, increased centralization of purchasing decisions, restructuring, bankruptcies and liquidations. These and other financial problems of some of our retailers increase the risk of extending credit to these retailers. A significant adverse change in a retail partner relationship with us or in a retail partner's financial position could cause us to limit or discontinue business with that partner, require us to assume more credit risk relating to that partner's receivables or limit our ability to collect amounts related to previous purchases by that partner, all of which could harm our business and financial condition. Disruption of the iRobot on-line store could also decrease our consumer robot sales.

Risks Related to our Legal and Regulatory Environment

Significant developments in U.S. trade policies have had, and we expect will continue to have, a material adverse effect on our business, financial condition and results of operations.

There is significant uncertainty about the future of trade relationships around the world, including potential changes to trade laws and regulations, trade policies, and tariffs. For example, effective February 4, 2025, the U.S. government implemented an additional 10% tariff on goods being imported from China and, in response, the Chinese government implemented a 15% tariff on certain goods being imported into China from the U.S. The new Presidential Administration has also announced additional 25% tariffs for goods imported into the U.S. from Mexico and Canada beginning in March 2025. We cannot predict what additional actions may ultimately be taken by the U.S. or other governments with respect to tariffs or trade relations, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. The imposition of additional tariffs or other trade barriers could increase our costs in certain markets and may cause our customers

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to find alternative sourcing or could make it more difficult for us to sell our products in some markets or to some customers, which may result in declines in our sales and operating income.

Changes or proposed changes in U.S. or other countries' trade policies may result in restrictions and economic disincentives on international trade. Tariffs, economic sanctions and other changes in U.S. trade policy have in the past and could in the future trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods. These tariffs, and other governmental action relating to international trade agreements or policies, may directly or indirectly adversely impact demand for our products, our costs, customers, suppliers, distributors, resellers and/or the U.S. economy or certain sectors thereof and, as a result, may adversely impact our business, financial condition and results of operations. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs, international trade agreements and policies on a short-term or long-term basis. We cannot predict future trade policy, whether exclusions will be reinstated, or the terms of any new trade agreements and their impacts on our business. Further, any emerging protectionist or nationalist trends (whether regulatory- or consumer-driven) either in the United States or in other countries could affect the trade environment. The new tariff increases on imports to the United States, including from China, should they be implemented and sustained for an extended period of time, would have a significant adverse effect on our supply chain and financial and operating results. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition and results of operations.

In response to international trade policy, as well as other risks associated with concentrated manufacturing in China, we relocated a meaningful portion of our supply chain from China. We plan on manufacturing only a limited number of accessories in China that are U.S. bound, and no robots. Over time, we anticipate relocating the manufacture of these remaining accessories outside of China. Such relocation activities increase costs and risks associated with establishing new manufacturing facilities, and any additional or increased tariffs may nonetheless result in compression on our margin on products sold and pricing pressures on our products. Any additional or increased tariffs may in the future cause us to further increase prices to our customers which we believe has reduced, and in the future may reduce, demand for our products.

Global economic conditions and any associated impact on consumer spending could have a material adverse effect on our business, results of operations and financial condition.

Continued economic uncertainty and reductions in consumer spending, particularly in certain international markets such as the European Union and Japan, may result in reductions in sales of our consumer robots. Additionally, disruptions in credit markets may materially limit consumer credit availability and restrict credit availability of our retail customers, which would also impact purchases of our consumer robots. Any reduction in sales of our consumer robots, resulting from reductions in consumer spending or continued disruption in the availability of credit to retailers or consumers, could materially and adversely affect our business, results of operations and financial condition.

Because we are an increasingly global business that in fiscal 2024, 2023 and 2022 generated approximately 51.2%, 51.9%, and 48.0%, respectively, of our total revenue from sales to customers outside of the United States, we are subject to a number of additional risks including foreign currency fluctuations. These foreign currency fluctuations may make our products more expensive to our distributors and end customers, which in turn may impact sales directly or the ability or willingness of our partners to invest in growing product demand.

Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales and operating expenses worldwide. Weakening of foreign currencies relative to the U.S. dollar could adversely affect the U.S. dollar value of our foreign currency-denominated sales and earnings, and lead us to raise international pricing, which may reduce demand for our products. In some circumstances, for competitive or other reasons, we may decide not to raise local prices to fully offset the strengthening of the U.S. dollar, or for any other reason, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies relative to the U.S. dollar, while generally beneficial to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, and incur increased operating expenses, thereby limiting any benefit. Additionally, strengthening of foreign currencies may also increase our cost of product components denominated in those currencies, thus adversely affecting gross margins.

We are subject to a variety of U.S. and foreign laws and regulations that are central to our business; our failure to comply with these laws and regulations could harm our business or our operating results.

We are or may become subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including laws and regulations regarding consumer protection, advertising, electronic commerce, intellectual property, product liability, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or sanctions. In the EU, recent changes to consumer protection laws and regulations have resulted in significant increases in the fines for non-compliance. We may also become subject to new EU laws mandating transparency for users of artificial intelligence systems.

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The global nature of our business operations subjects us to domestic and foreign laws and regulations such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery and anti-corruption laws in other jurisdictions. Our products are also subject to U.S. export controls, including the United States Department of Commerce's Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department's Office of Foreign Assets Controls.

We are also subject to a variety of laws and regulations regarding information security and privacy. These current and future data privacy laws and regulations may impede our initiatives designed to deliver targeting marketing.

Given the increasing number of foreign laws to which we are subject and the high level of complexity of these laws, there is a risk that some provisions may be inadvertently breached by us or by our subsidiaries, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements, or otherwise. If we incur liability for noncompliance under these laws or regulations, we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or services, which would negatively affect our business, financial condition, and operating results. In addition, any negative publicity directed to us as a result of lawsuits, regulatory proceedings, and legislative proposals could harm our brand or otherwise impact the growth of our business. Any costs incurred as a result of compliance efforts or other liabilities under these laws or regulations could harm our business and operating results.

We may incur costs in complying with changing tax laws in the United States and abroad, which could adversely impact our cash flow, financial condition and results of operations.

We are a U.S.-based company subject to taxes in multiple U.S. and foreign tax jurisdictions. Our profits, cash flow and effective tax rate could be adversely affected by changes in the tax rules and regulations in the jurisdictions in which we do business, unanticipated changes in statutory tax rates and changes to our global mix of earnings.

Environmental laws and regulations and unforeseen costs could negatively impact our future earnings.

The manufacture and sale of our products in certain states and countries may subject us to environmental and other regulations. We also face increasing complexity in our product design as we adjust to legal and regulatory requirements relating to our products. There is no assurance that such existing laws or future laws will not impair future earnings or results of operations.

Business disruptions resulting from international uncertainties could negatively impact our profitability.

We derive, and expect to continue to derive, a significant portion of our revenue from international sales in various European and Asian markets, and Canada. For fiscal 2024, 2023 and 2022, sales to non-U.S. customers accounted for 51.2%, 51.9%, and 48.0% of total revenue, respectively. We expect that international revenues will continue to account for a significant percentage of our revenues for the foreseeable future. Our international revenue and operations are subject to a number of material risks, including, but not limited to:

• difficulties in staffing, managing and supporting operations in multiple countries;

• difficulties in enforcing agreements and collecting receivables through foreign legal systems and other relevant legal issues;

• fewer legal protections for intellectual property;

• foreign and U.S. taxation issues, tariffs, and international trade barriers;

• difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;

• potential fluctuations in foreign economies;

• government currency control and restrictions on repatriation of earnings;

• fluctuations in the value of foreign currencies and interest rates;

• general economic and political conditions in the markets in which we operate;

• domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future;

• changes in foreign currency exchange rates;

• different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future; and

• our relationships with international distributors, some of whom may be operating without written contracts.

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Negative developments in any of these areas in one or more countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business, any of which could negatively impact our business, financial condition or results of operations. Moreover, our sales to customers outside the United States are primarily denominated in Euro and Japanese Yen and fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products more expensive than other products, which could harm our business.

If we experience a disaster or other business continuity problem, we may not be able to recover successfully, which could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.

If we or any of our key suppliers, contract manufacturers, distributors or customers experience a local or regional disaster or other business continuity problem, such as an earthquake, terrorist attack, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of personnel, office and manufacturing facilities, and the proper functioning of computer, telecommunication and other related systems and operations. Our insurance may not adequately cover losses resulting from such disruptions. Any expansion of our operations in new geographic regions will increase the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks. For example, the COVID-19 pandemic impacted our supply chain and manufacturers, resulting in a disruption in manufacturing our products.

The effects of regulations relating to conflict minerals may adversely affect our business.

The SEC requires companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties to research, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. These requirements could adversely affect the sourcing, availability and pricing of such minerals if they are found to be used in the manufacture of our products. In addition, we continue to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.

Risks Related to our Intellectual Property and Technology

If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

Our success depends on our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. Significant technology used in our products, however, is not the subject of any patent protection, and we may be unable to obtain patent protection on such technology in the future. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages, and may be challenged by third parties. In addition, the laws of countries other than the United States in which we market our products may afford little or no effective protection of our intellectual property. Patents which may be granted to us in certain foreign countries may be subject to opposition proceedings brought by third parties or result in suits by us, which may be costly and result in adverse consequences for us. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or otherwise gaining access to our technology. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products or otherwise obtain and use our intellectual property. If we fail to protect our intellectual property and other proprietary rights, our business, results of operations or financial condition could be materially harmed.

In addition, defending our intellectual property rights may entail significant expense. We believe that certain products in the marketplace may infringe our existing intellectual property rights. We have, from time to time, resorted to legal proceedings to protect our intellectual property and may continue to do so in the future. For example, on October 15, 2019, we initiated a patent infringement lawsuit in federal district court in Massachusetts against SharkNinja Operating LLC and its related entities ("SharkNinja") for infringement of five patents for technology related to robotic vacuum cleaners. During the third quarter of fiscal 2024, the litigation with SharkNinja was settled.

There is no guarantee that we will prevail on other patent infringement claims against third parties. We may be required to expend significant resources to monitor and protect our intellectual property rights. The intellectual property ownership and license rights, including copyright, surrounding AI technologies, which we are increasingly building into our products, have not been fully addressed by U.S. courts or other federal, state or foreign laws or regulations, and the use or adoption of AI technologies in our products and services may expose us to copyright infringement or other intellectual property misappropriation claims. In addition, any of our intellectual property rights may be challenged by others or invalidated through

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administrative processes or litigation. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could result in significant expense to us and divert the attention and efforts of our management and technical employees, even if we were to prevail.

In addition, in the United States certain of our patents have been, and may continue to be, challenged by inter partes review or opposition proceedings. If our patents are subjected to inter partes review or opposition proceedings, we may incur significant costs to defend them. Further, our failure to prevail in any such proceedings could limit the patent protection available for our innovations.

We may be sued by third parties for alleged infringement of their proprietary rights, which could be costly, time-consuming and limit our ability to use certain technologies in the future.

In the past we have faced multiple lawsuits based on claims of patent infringement. If the size of our markets increases, we would be more likely to be subject to claims that our technologies infringe upon the intellectual property or other proprietary rights of third parties. In addition, the vendors from which we license technology used in our products could become subject to similar infringement claims. Our vendors, or we, may not be able to withstand third-party infringement claims. Any claims, with or without merit, could be time-consuming and expensive, and could divert our management's attention away from the execution of our business plan. Moreover, any settlement or adverse judgment resulting from the claim could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. There can be no assurance that we would be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all, that we would be able to develop alternative technology on a timely basis, if at all, or that we would be able to obtain a license to use a suitable alternative technology to permit us to continue offering, and our customers to continue using, our affected product. In addition, we may be required to indemnify our retail and distribution partners for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling in such a claim. An adverse determination could also prevent us from offering our products to others. Infringement claims asserted against us or our vendors may have a material adverse effect on our business, results of operations or financial condition.

In addition, we incorporate open source software into our products, and we may continue to incorporate open source software into our products in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from offering or selling our products that contained the open source software and required to comply with the foregoing conditions. Any of the foregoing could disrupt and harm our business and financial condition.

Cybersecurity risks could adversely affect our business and disrupt our operations.

The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent cybersecurity incidents and data breaches, our devices, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to intentional or inadvertent insider personnel and vendor misconduct, cybersecurity risks, including cyber attacks such as viruses and worms, phishing attacks, distributed denial-of-service attacks, ransomware, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, and loss of consumer confidence. In addition, we have in the past and may in the future be the target of numerous attack vectors and methods, including email scams, social engineering, smishing, vishing, and identity spoofing, which attempt to acquire sensitive information or company assets. Despite our efforts to create security barriers to such threats, we may not be able to entirely mitigate these risks. These threats may be increased due to work-from-home policies implemented by us and our customers, suppliers and distributors. Any cyber attack that attempts to obtain our data and assets, disrupt our service, or otherwise access our systems, or those of third parties we use, if successful, could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our privacy and data security obligations. Further, our cyber insurance may not protect against all of the costs and liabilities arising from a cyber attack.

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If we suffer cybersecurity incidents or data breaches involving the designs, schematics or source code for our products, our brand, business and financial results could be adversely affected.

We attempt to securely store our designs, schematics and source code for our products as they are created. A breach, whether physical, electronic or otherwise, of the systems on which this sensitive data is stored could lead to damage or piracy of our products. If we or our partners are subject to data security breaches or cybersecurity incidents, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could materially and adversely affect our brand, business and financial results.

We operate our business in jurisdictions where intellectual property theft or compromise is common .

Currently, we maintain significant operations in Asia, where a majority of our products are manufactured. Subject to contractual confidentiality obligations, we are required to share significant product design materials with third-parties necessary for the design and manufacture of our products. We cannot be sure that our data or intellectual property will not be compromised through cyber-intrusion, theft or other means, particularly when the data or intellectual property is held by partners in foreign jurisdictions. Should our intellectual property be compromised, it may be difficult to enforce our rights in China and other foreign jurisdictions in which we operate.

We collect, store, process, and use customer data, including certain personal and robot-specific information, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any cybersecurity incidents, data breaches, or our actual or perceived failure to comply with such legal obligations could harm our business.

Our latest floor cleaning robots, as well as additional products in development, collect, store, process, and use certain customer data, which subjects us to governmental regulation and other legal obligations related to privacy, information security, and data protection, and any security breaches or our actual or perceived failure to comply with such legal obligations could harm our business. We collect, store, process, and use personal information and other user data, and we rely on third parties that are not directly under our control to do so as well. If we experience a cybersecurity incident, or if our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to or acquire sensitive user data, which may expose us to a risk of loss, litigation, or regulatory proceedings. Depending on the nature of the information compromised, in the event of a cybersecurity incident, data breach or other unauthorized access to or acquisition of our user data, we may also have obligations to notify users about the cybersecurity incident or data breach, and we may need to provide some form of remedy, such as a subscription to a credit monitoring service, for the individuals affected by the cybersecurity incident or data breach. In addition, the regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. For example, the EU GDPR, UK GDPR, and the CCPA impose significant requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance.

In the United States, at the federal level, failing to take appropriate steps to keep consumers' personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act (the FTCA), 15 U.S.C § 45(a). The FTC expects a company's data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities. In addition, laws similar to the CCPA have been passed in numerous other states and other states have proposed new privacy laws. State laws are changing rapidly and there are discussions in the U.S. Congress of new comprehensive federal data privacy laws to which we could become subject to, if enacted.

With respect to the collection and processing of personal data relating to the European Union ("EU"), European Economic Area ("EEA") and United Kingdom ("UK"), we are subject to the EU General Data Protection Regulation ("EU GDPR"), the UK General Data Protection Regulation ("UK GDPR"), as well as applicable data protection laws in effect in the Member States of the EEA and in the UK (including the UK Data Protection Act 2018) which govern the processing of personal data in connection with (a) the offering of goods or services to/the monitoring of the behavior of individuals in the UK and EEA; or (b) the activities of any of our establishments in the UK or any EEA Member State. The UK's data protection regime is independent from but aligned to the EU's data protection regime. In this Annual Report on Form 10-K, references to "GDPR" encompasses both the EU GDPR and UK GDPR, unless specified otherwise.

The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, limiting retention periods for personal data, creating mandatory data breach notification requirements in certain circumstances, and requiring that certain measures (including contractual requirements) are put in place when engaging third-party service providers. The GDPR also imposes strict rules on the transfer of personal data to countries outside of the UK and EEA that do not ensure an adequate level of protection, including the United States in certain circumstances, unless derogation exists or a valid GDPR transfer mechanism (for

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example, the European Commission approved Standard Contractual Clauses (SCCs) and the UK International Data Transfer Agreement or Addendum (UK IDTA) have been put in place, and transfer impact assessments conducted. Any inability to transfer personal data from the UK or EEA to the United States in compliance with data protection laws may impede our operations and may adversely affect our business and financial position. Following the UK's exit from the EU on January 31, 2020, or Brexit, there will be increasing scope for divergence in application, interpretation and enforcement of the data protection laws between these territories. For example, the UK introduced a Data (Use and Access) Bill into the UK legislative process with the intention for this bill to reform the UK's data protection regime following Brexit. If passed, the final version of the Data (Use and Access) Bill may have the effect of further altering the similarities between the UK and EEA data protection regimes and threaten the UK adequacy decision from the EU Commission allowing the free flow of personal data from the UK to the EEA, which may lead to additional compliance costs and could increase our overall risk. This lack of clarity on future UK laws and regulations and their interaction with those of the EEA could add legal risk, uncertainty, complexity, and cost to our handling of European personal data and our privacy and security compliance programs, and could require us to implement different compliance measures for the UK and EEA.

Failure to comply with the requirements of the GDPR and the related national data protection laws of the EEA Member States and the UK may result in fines up to €20 million (£17.5 million for the UK GDPR) or 4% of a company's global annual revenues for the preceding financial year, whichever is higher. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Complying with these European data protection laws may impose significant costs or otherwise require us to divert resources or implement changes to our business processes, and any actual or perceived non-compliance could result in significant penalties, claims and reputational damage.

Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes. Moreover, a growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification and consumer privacy laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data.

Further, we may be or become subject to data localization laws mandating that data collected in a foreign country be processed and stored only within that country. Russia adopted such a law in 2014, and a similar law became effective in China in November 2021. If other countries in which we have customers were to adopt a data localization law, we could be required to expand our data storage facilities there or build new ones in order to comply. The expenditure this would require, as well as costs of compliance generally, could harm our financial condition. Regulators and legislators in the United States are also increasingly scrutinizing and restricting certain personal data transfers and transactions involving foreign countries. For example, the Biden Administration's executive order Preventing Access to Americans' Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern as implemented by Department of Justice regulations issued in December 2024, prohibits data brokerage transactions involving certain sensitive personal data categories, including health data, genetic data, and biospecimens, to countries of concern, including China. The regulations also restrict certain investment agreements, employment agreements and vendor agreements involving such data and countries of concern, absent specified cybersecurity controls.

Any failure or perceived failure by us to comply with any applicable federal, state or foreign laws and regulations relating to data privacy and security could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, injunctions, penalties or judgments. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our products are complex and could have unknown defects or errors, which may give rise to claims against us, diminish our brand or divert our resources from other purposes.

Our robots rely on the interplay among behavior-based artificially intelligent systems, real-world dynamic sensors, user-friendly interfaces and tightly-integrated, electromechanical designs to accomplish their missions. Despite testing, our new or existing products have contained defects and errors and may in the future contain defects, errors or performance problems when first introduced, when new versions or enhancements are released, or even after these products have been used by our customers for a period of time. These problems have and may continue to result in expensive and time-consuming design modifications or warranty charges, delays in the introduction of new products or enhancements, significant increases in our service and maintenance costs, exposure to liability for damages, mandatory or voluntary recall or product upgrades, damaged customer relationships and harm to our reputation, any of which could materially harm our results of operations and ability to achieve market acceptance. Our quality control procedures relating to the raw materials and components that we receive from third-party suppliers as well as our quality control procedures relating to our products after those products are designed, manufactured and packaged may not be sufficient. In addition, increased development and warranty costs, including the costs of

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any mandatory or voluntary recall, could be substantial and could reduce our operating margins. The existence of any defects, errors, or failures in our products could also lead to product liability claims or lawsuits against us. A successful product liability claim could result in substantial cost, diminish our brand and divert management's attention and resources, which could have a negative impact on our business, financial condition and results of operations.

We use artificial intelligence ("AI") in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.

We have in the past and may in the future incorporate AI solutions into our products and features, and these applications may continue to become increasingly important in our operations over time. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our business, financial condition, and results of operations may be adversely affected. AI technologies, including generative AI, may create content that appears correct but is factually inaccurate or flawed, or contains copyrighted or other protected material, and if our customers or others use this content to their detriment, we may be exposed to brand or reputational harm, competitive harm, and/or legal liability. Developing, testing and deploying AI systems may also increase the cost profile of our products due to the nature of the computing costs involved in such systems.

The rapid evolution of AI, including government regulation of AI, requires significant resources to develop, test and maintain our products and features to help us implement AI ethically in order to minimize unintended, harmful impact. A growing number of legislators and regulators are adopting laws and regulations and have focused enforcement efforts on the adoption of AI, and use of such technologies in compliance with ethical standards and societal expectations. These developments may increase our compliance burden and costs in connection with use of AI and lead to legal liability if we fail to meet evolving legal standards or if use of such technologies results in harms or other causes of action we did not predict. For example, the EU's Artificial Intelligence Act ("AI Act") entered into force on August 1, 2024, with most provisions becoming effective on August 2, 2026. This legislation imposes significant obligations on providers and deployers of AI systems, and encourages providers and deployers of AI systems to account for EU ethical principles in their development and use of these systems. The scope of requirements depends on legal and risk determinations that rely on novel legal provisions that have not yet been interpreted by courts or regulators, and non-compliance can lead to significant fines. Likewise, in the U.S., several states, including Colorado and California, passed laws that will take effect in 2026 to regulate various uses of AI. If we develop or use AI systems governed by these laws or regulations, we will need to meet higher standards of data quality, transparency, monitoring and human oversight, and we would need to adhere to specific and potentially burdensome and costly ethical, accountability, and administrative requirements, with the potential for significant enforcement or litigation in the event of any perceived non-compliance.

Our vendors may also incorporate AI tools into their offerings, and the providers of these AI tools may not meet existing or rapidly evolving regulatory or industry standards, including with respect to privacy and data security. In addition, the use of AI applications may result in, cybersecurity incidents or data breaches that implicate the personal data of end users of such applications. Further, bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities involving the theft and misuse of personal information, confidential information and intellectual property. Any such cybersecurity incidents or data breaches related to our use of AI applications could adversely affect our reputation and results of operations. AI also presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, increased research and development costs, or legal liability. Any of these effects could damage our reputation, result in the loss of valuable property and information, cause us to breach applicable laws and regulations, and adversely impact our business.

Risks Related to Ownership of our Common Stock

The market price of our common stock may fluctuate significantly.

The market price of our common stock has at times experienced substantial price volatility as a result of variations between our actual and anticipated financial results, announcements by us and our competitors, projections or speculation about our business or that of our competitors by the media or investment analysts or uncertainty about current global economic conditions. Recently, our stock price has significantly fluctuated and declined. The stock market, as a whole, also has experienced extreme price and volume fluctuations that have affected the market price of the common stock of many technology companies in ways that may have been unrelated to such companies' operating performance. In addition, the market price of our common stock may be, and we believe recently has been, significantly impacted by investors covering large short positions in our common stock. Furthermore, we believe the market price of our common stock should reflect future growth and profitability expectations. If we fail to meet these expectations, the market price of our common stock may significantly decline.

In addition, there are many other factors that may cause the market price of our common stock to fluctuate, including:

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• loss of key personnel;

• actual or anticipated variations in our quarterly operating results, including fluctuations resulting from changes in foreign exchange rates, or the quarterly financial results of companies perceived to be similar to us;

• deterioration and decline in general economic, industry and/or market conditions;

• announcements of technological innovations or new products or services by us or our competitors;

• changes in estimates of our financial results or recommendations by market analysts;

• announcements by us or our competitors of significant projects, contracts, acquisitions, strategic alliances or joint ventures; and

• changes in our capital structure, such as future issuances of securities or the incurrence of additional debt.

Our financial results often vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and other operating results have varied in the past and are likely to continue to vary significantly from quarter-to-quarter in the future. These fluctuations may be due to numerous factors including:

• the size, timing and mix of orders from retail stores and distributors for our consumer robots;

• the mix of products that we sell in the period;

• disruption of supply of our products from our manufacturers;

• disruptions to our supply chain due to inclement weather, pandemics, labor disruptions, terrorism, hostile acts or other factors beyond our control;

• seasonality in the sales of our products;

• the timing of new product introductions;

• unanticipated costs incurred in the introduction of new products;

• costs and availability of labor and raw materials;

• costs of freight and tariffs;

• changes in our rate of returns for our consumer products;

• our ability to introduce new products and enhancements to our existing products on a timely basis; and

• warranty costs associated with our consumer products.

We base our current and future expense levels on our internal operating plans and sales forecasts, including forecasts of holiday sales for our consumer products. A significant portion of our operating expenses, such as research and development expenses, certain marketing and promotional expenses and employee wages and salaries, do not vary directly with sales and are difficult to adjust in the short term. As a result, if sales for a quarter are below our expectations, we might not be able to reduce operating expenses for that quarter. Accordingly, a sales shortfall during a fiscal quarter, and in particular the fourth quarter of a fiscal year, could have a disproportionate effect on our operating results for that quarter or that year. Because of quarterly fluctuations, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Moreover, our operating results may not meet expectations of equity research analysts or investors. If this occurs, the trading price of our common stock could fall substantially either suddenly or over time.

Provisions in our certificate of incorporation and by-laws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions of our certificate of incorporation and by-laws and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

• limitations on the removal of directors;

• a classified board of directors so that not all members of our board are elected at one time;

• advance notice requirements for stockholder proposals and nominations;

• the inability of stockholders to act by written consent or to call special meetings;

• the ability of our board of directors to make, alter or repeal our by-laws; and

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• the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval.

The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to amend or repeal the above provisions of our certificate of incorporation. In addition, absent approval of our board of directors, our by-laws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.

In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

ITEM  7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Overview

iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more. With over 30 years of AI and advanced robotics experience, we are focused on building thoughtful robots and developing intelligent home innovations that help make life better for millions of people around the world. iRobot's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation. Leveraging this portfolio, we plan to add new capabilities and expand our offerings to help consumers make their homes easier to maintain, more efficient, more secure and healthier places to live.

Since our founding in 1990, we have developed the expertise necessary to design, build, sell and support durable, high-performance robots through the close integration of software, electronics and hardware. Following the introduction of the Roomba RVC in 2002, we have sold over 50 million consumer robots worldwide to become a global, market-leading consumer robotics innovator with a strong presence in a number of major geographic regions worldwide. In recent years, we have seen increased competition with new product offerings in the robotic floorcare segment and have conceded some market share. We believe our iRobot Elevate strategy introduced during fiscal 2024 will help facilitate the turnaround of our Company.

In 2024, iRobot began a journey of transformation designed to rebuild our Company both financially and strategically. We initiated, and largely completed, an operational restructuring plan designed to more closely align our cost structure with near-term revenue expectations with the goal of improved profitability. Leveraging a new asset-light model, we began to streamline our supply chain to set us up for speed and scale, while relying on our partners and contract manufacturers to provide non-core engineering functions. We launched iRobot Labs where all innovation and development of our IP will reside with the expectation of optimizing our research and development organization to focus on key innovations and critical consumer needs throughout the home and beyond. We have continued to innovate across several core technology areas including robotic vacuums, robotic mops, robotic lawn mowers, general robotic software including AI and vision-enabled technologies and mobile applications for robotic floor cleaners. We anticipate our extensive patent portfolio will enable us to accelerate the time to market, while also reducing the costs, time and other risks associated with product development. These capabilities are amplified by our proprietary robot, cloud and iRobot OS. iRobot OS provides consumers with greater control over where, when and how our robots work, simple integration with other smart home devices, thoughtful recommendations to further enhance the cleaning experience, and provide control to improve overall cleaning performance. We believe that our expertise in robot design, engineering, and smart home technologies along with our targeted focus on understanding and addressing consumer needs, positions us well to capitalize on a wider range of robotic and smart home categories over time.

In 2024, we introduced Roomba Combo Essential robot, Roomba Combo 2 Essential robot + AutoEmpty dock and Roomba Combo 10 Max robot + AutoWash dock. The Roomba Combo Essential robots replace Roomba 600 series with an added mopping function, more suction power, longer battery life and intelligent iRobot OS automations. These robots make the 2-in-1 cleaning experience more accessible to customers given the lower price point. The Roomba Combo 10 Max robot + AutoWash dock is an advanced robot vacuum and mop which brings independent cleaning to a new level. The robot is engineered to powerfully vacuum and mop multiple floor types while the dock automatically refills and recharges the robot, washes and dries the mopping pad, empties debris and self-cleans. In March 2025, we announced the launch of Roomba Plus 405 Combo Robot + AutoWash Dock that asserts intense suction, deep scrubbing and a maintenance-free dock, and Roomba Plus 505 Combo Robot + AutoWash Dock, featuring PerfectEdge technology to get deep into corners and a hands-free, multi-function dock that automatically empties debris, washes and heat-dries mop pads and self-cleans when finished.

Our total revenue for fiscal 2024 was $681.8 million, declining 23.4% from revenue of $890.6 million in fiscal 2023. Geographically, domestic revenue declined by $95.8 million, or 22.4%, and international revenue declined by $112.9 million, or 24.4%. Continuing from 2023, our revenue performance was impacted by lower orders from retailers and distributors due in part to a decline in consumer sentiment and resultant spending. Our 2024 performance was also impacted by incremental promotional spending to stimulate sell-through during the holiday season prior to our 2025 new product launches. The overall market conditions continued to be challenging, and we saw aggressive competition in EMEA, Japan and the U.S. throughout fiscal 2024. In recent years, with increased competition in the floorcare segment, we have conceded some market share to the competitive entrants. Customer focused innovation, however, continues to be an opportunity to expand the RVC market segment. During 2024, we saw overall segment market growth in EMEA driven by the introduction and growing adoption of robotic floorcare products with multi-functional docks which can wash, dry and heat the mop pad allowing autonomy of cleaning over a longer period of time. We expect to more fully participate in the robotic floorcare with multi-functional docks market segment with our renewed emphasis on consumer-focused innovation under our Elevate Strategy and expected 2025 product launches. On March 11, 2025, we announced the launch of a suite of new floor cleaning robots featuring elevated, premium design, improved technology, advanced features and an upgraded Roomba Home app We are leveraging our brand

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and recently launched products with better design and more competitive features to improve our competitiveness in multiple price segments. Revenue from mid-tier robots (with an MSRP between $300 and $499) and premium robots (with an MSRP of $500 or more) represented 80% of our total robot sales during fiscal 2024 versus 83% during fiscal 2023.

In fiscal 2024, we focused on managing our cash and executing on our near-term robotic floorcare roadmaps. We announced an operational restructuring plan that was designed to more closely align our cost structure with near-term revenue expectations with the goal of improved profitability. During fiscal 2024, we initiated an overall workforce reduction of approximately 440 employees, which represented 40% of our global workforce as of December 30, 2023. We ended fiscal 2024 with 541 employees versus 1,113 employees at the end of fiscal 2023. In addition to the reduction of our headcount, we exited several smaller offices during fiscal 2024 and signed an additional sublease agreement during fiscal 2024 to sublease a portion of our headquarters. During fiscal 2024, we also scaled back working media and other demand-generation activities, limited investment in non-robotic product categories and engaged in minimal new hiring. These actions contributed to a total reduction of $126.4 million in operating expenses for fiscal 2024 as compared to the prior fiscal year, which excludes the one-time benefits of $75.2 million related to the Parent Termination Fee and $13.5 million related to the Litigation Settlement. During fiscal 2024, we continued to carefully manage our inventory to a level that aligns with current run rates and seasonality of the business.

In March 2022, the Section 301 List 3 Tariff Exclusion was reinstated, which eliminated the 25% tariff on Roomba products imported from China beginning on October 12, 2021 and continuing until December 31, 2022. This exclusion, which was subsequently extended until September 30, 2023 and then further extended until May 31, 2024, entitled us to a refund of approximately $32.0 million in tariffs paid. During fiscal 2022, we recognized a benefit of $11.7 million from tariff refunds as reduction to cost of product revenue related to tariffs paid on products imported after October 12, 2021 and sold during fiscal 2021.

Amendment to Credit Agreement

On March 11, 2025, we entered into Amendment No. 1 to our credit agreement (the "Credit Agreement") with TCG Senior Funding L.L.C., an affiliate of The Carlyle Group, as administrative agent and collateral agent (the "Agent") and the lenders party thereto (the "Lenders"). Pursuant to Amendment No. 1, the Lenders waived, until May 6, 2025 (the "Amendment Period"), our covenant obligations to (1) provide a report and opinion of our auditor with respect to our annual consolidated financial statements for fiscal year 2024 without an exception regarding our ability to continue as a going concern (the "Going Concern Covenant") and (2) maintain a minimum level of core assets (the "Minimum Core Assets Covenant" and, together with the Going Concern Covenant, the "Specified Covenants"). No event of default will occur under the Credit Agreement as a result of failure to comply with the Specified Covenants during the Amendment Period; however, we are still obligated to comply with the Specified Covenants after the end of the Amendment Period and if we do not, unless the Lenders further extend such waiver by the end of the Amendment Period, an event of default will occur. As noted elsewhere in this Annual Report on Form 10-K, the consolidated financial statements for the fiscal year ended December 28, 2024 included herein include an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern; therefore, we would be in breach of the Going Concern Covenant and the Agent would be able to exercise all applicable remedies under the Credit Agreement but for Amendment No. 1 described above. As of the date of filing of this Annual Report on Form 10-K, we are in compliance with the Minimum Core Assets Covenant. In connection with Amendment No. 1, we returned to a controlled account for the benefit of the Agent and the Lenders the $40.0 million that we elected to withdraw from such controlled account during the third quarter of 2024 for the purchase of inventory, and the Agent deferred payment of the related $4.0 million use fee until the end of the Amendment Period. Amendment No. 1 also requires us to provide more frequent supplemental financial reporting to the Agent. Fees payable by us to the Lenders in connection with Amendment No. 1 include (1) $3.6 million (representing 2.0% of the aggregate principal amount of term loans outstanding), which will be paid in kind via an increase of the outstanding principal amount of the Term Loan and (2) issuing to the Lenders on the date of Amendment No. 1 warrants to purchase an aggregate of 1,840,503 shares of our common stock (equal to six percent of our outstanding common stock as of March 10, 2025), with an exercise price of $0.01 per share.

Termination of Merger Agreement

As previously disclosed, on August 4, 2022, we entered into the Original Merger Agreement with Amazon and Merger Sub providing for, among other things, the merger of Merger Sub with and into us, with us surviving the merger as a wholly owned subsidiary of Amazon. On July 24, 2023, iRobot, Amazon and Merger Sub entered into the Amendment. The Amendment adjusted the merger consideration to reflect the incurrence of the Term Loan (see Note 10 to our consolidated financial statements).

On January 28, 2024, we and Amazon mutually agreed to terminate the Merger Agreement and entered into a mutual termination agreement effective as of such date. The termination of the Merger Agreement was approved by our Board of Directors. In accordance with the terms of the Termination Agreement, Amazon made a cash payment to us in the previously agreed amount of $94.0 million on January 29, 2024. During the first quarter of fiscal 2024, as a result of the termination of the

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Merger Agreement and receipt of the Parent Termination Fee of $94.0 million from Amazon, we made a payment of $18.8 million for professional fees incurred in connection with the Transactions. In accordance with the terms of the Credit Agreement, we applied $35.0 million to repay a portion of the Term Loan. The remaining $40.0 million of the Parent Termination Fee was set aside as restricted cash to be used for future repayments of the Term Loan subject to our limited rights to utilize such amounts for the purchase of inventory. The Parent Termination Fee received net of professional fees paid was $75.2 million and was recorded during the first quarter of fiscal 2024 as a benefit in operating expense, which is classified in general and administrative expenses on the consolidated statements of operations.

Fiscal Periods

We operate and report using a 52-53 week fiscal year ending on the Saturday closest to December 31. Accordingly, our fiscal quarters will end on the Saturday that falls closest to the last day of the third month of each quarter. As used in this Annual Report on Form 10-K, "fiscal 2024" refers to the 52-week fiscal year ending December 28, 2024, "fiscal 2023" refers to the 52-week fiscal year ended December 30, 2023, and "fiscal 2022" refers to the 52-week fiscal year ended December 31, 2022.

Key Financial Metrics and Non-GAAP Financial Measures

In addition to the measures presented in our consolidated financial statements in accordance with GAAP, we use the following key metrics, including non-GAAP financial measures, to evaluate and analyze our core operating performance and trends, and to develop short-term and long-term operational plans. The most directly comparable financial measures to the following non-GAAP metrics calculated under U.S. GAAP are gross profit, gross margin, operating loss and operating margin. In fiscal 2024, 2023 and 2022, we had gross profit of $142.4 million, $196.4 million and $350.1 million, gross margin of 20.9%, 22.0%, and 29.6%, operating loss of ($103.0) million, ($264.1) million, and ($240.4) million and operating margin of (15.1)%, (29.7)% and (20.3)%, respectively. A summary of key metrics and certain non-GAAP financial measures for fiscal 2024, 2023 and 2022, is as follows:

Fiscal Year Ended

December 28, 2024

December 30, 2023

December 31, 2022

(dollars in thousands, except average gross selling prices)

(unaudited, except for total revenue)

Total Revenue

Non-GAAP Gross Profit

Non-GAAP Gross Margin

Non-GAAP Operating Loss

Non-GAAP Operating Margin

Total robot units shipped (in thousands)

Average gross selling prices for robot units

Our non-GAAP financial measures reflect adjustments based on the following items. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results, provided below, should be carefully evaluated.

Amortization of Acquired Intangible Assets: Amortization of acquired intangible assets consists of amortization of intangible assets including completed technology, customer relationships, and reacquired distribution rights acquired in connection with business combinations as well as any non-cash impairment charges associated with intangible assets in connection with our past acquisitions. Amortization charges for our acquisition-related intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions.

Net Merger, Acquisition and Divestiture (Income) Expense: Net merger, acquisition and divestiture (income) expense primarily consists of transaction fees, professional fees, and transition and integration costs directly associated with mergers, acquisitions and divestitures, including with respect to the Merger. It also includes business combination adjustments including adjustments after the measurement period has ended. During the first quarter of fiscal 2024, the adjustment included the impact of the Termination Agreement and receipt of the Parent Termination Fee.

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Stock-Based Compensation: Stock-based compensation is a non-cash charge relating to stock-based awards.

Tariff Refunds: Our exclusion from Section 301 List 3 tariff was reinstated in March 2022, which temporarily eliminated tariffs on our Roomba products imported from China beginning on October 12, 2021 until December 31, 2022. This temporary exclusion, which was subsequently extended until December 31, 2023, and then further extended until May 31, 2024, entitled us to a refund of all related tariffs previously paid since October 12, 2021. We exclude the refunds for tariff costs expensed during fiscal 2021 from our fiscal 2022 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the past have no impact on our current period earnings.

Restructuring and Other: Restructuring charges are related to one-time actions associated with realigning resources, enhancing operational productivity and efficiency, or improving our cost structure in support of our strategy. Such actions are not reflective of ongoing operations and include costs primarily associated with severance and related costs, charges related to paused work unrelated to our core business, costs associated with the Chief Executive Officer transition and other non-recurring costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.

Gain/Loss on Strategic Investments: Gain/loss on strategic investments includes fair value adjustments, realized gains and losses on the sales of these investments and losses on the impairment of these investments.

Debt Issuance Costs: Debt issuance costs include various incremental fees and commissions paid to third parties in connection with the issuance of debt.

Income Tax Adjustments: Income tax adjustments include the tax effect of the non-GAAP adjustments, calculated using the appropriate statutory tax rate for each adjustment. We regularly assess the need to record valuation allowances based on the non-GAAP profitability and other factors. We also exclude certain tax items, including the impact from stock-based compensation windfalls/shortfalls, that are not reflective of income tax expense incurred as a result of current period earnings.

We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to our past operating performance. These items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities. In addition, we believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared with our peer companies.

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The following table reconciles gross profit, operating loss, net loss and net loss per share on a GAAP and non-GAAP basis for fiscal 2024, 2023, and 2022:

Fiscal Year Ended

December 28, 2024

December 30, 2023

December 31, 2022

(in thousands, except per share amounts)

GAAP Gross Profit

Amortization of acquired intangible assets

Stock-based compensation

Tariff refunds

Net merger, acquisition and divestiture (income) expense

Restructuring and other

Non-GAAP Gross Profit

GAAP Gross Margin

Non-GAAP Gross Margin

GAAP Operating Loss

Amortization of acquired intangible assets

Stock-based compensation

Tariff refunds

Net merger, acquisition and divestiture (income) expense

Restructuring and other

Non-GAAP Operating Loss

GAAP Operating Margin

Non-GAAP Operating Margin

GAAP Net Loss

Amortization of acquired intangible assets

Stock-based compensation

Tariff refunds

Net merger, acquisition and divestiture (income) expense

Restructuring and other

Loss on strategic investments

Debt issuance costs

Income tax effect

Non-GAAP Net Loss

GAAP Net Loss Per Diluted Share

Dilutive effect of non-GAAP adjustments

Non-GAAP Net Loss Per Diluted Share

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates and assumptions are based on historical experience and various other factors that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from our estimates.

The accounting policies, methods and estimates used to prepare our financial statements are described in Note 2, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. We consider the following accounting policies to be those that are most important to the portrayal of our financial condition and that require a higher degree of judgment:

• revenue recognition;

• goodwill and other long-lived assets;

• fair value of Term Loan; and

• accounting for income taxes.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect 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.

Frequently, our 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 and extended warranties. For these contracts, we account 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, we consider 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.

Our contracts with customers may contain multiple promises to transfer products and services as described above. Determining whether products and services are considered distinct may require judgment.

Determining the standalone selling price ("SSP") for each distinct performance obligation requires judgment. We allocate revenue to all distinct performance obligations based on their relative SSPs. When available, we use observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect our best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. Our 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.

Determining the revenue recognition period for services requires judgment. Services and support are recognized over their service periods.

Estimating variable consideration such as product returns and sales incentives requires judgment. We provide limited rights of returns for direct-to-consumer sales generated through its online stores and certain resellers and distributors. We record an allowance for product returns based on specific terms and conditions included in the customer agreements or based on historical experience and our expectation of future returns. In addition, we 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 our historical experience, current contractual requirements, specific known market events and forecasted inventory level in the channels. Returns and credits are estimated at the time of sale and updated at the end of each reporting period as additional information becomes available. We regularly evaluate the adequacy of our estimates for product returns and other credits and incentives. Future market conditions and product transitions may require us 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, we would be required to increase or reduce revenue to reflect the impact.

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Goodwill and Other Long-Lived Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized but rather is assessed for impairment at the reporting unit level annually during the fourth quarter of each fiscal year or more frequently if we believe indicators of impairment exist. Goodwill impairment, if any, is determined by comparing the reporting unit's fair value to its carrying value. An impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit.

Other long-lived assets primarily consist of property and equipment, operating lease right-of-use assets and intangible assets. We periodically evaluate the recoverability of other long-lived assets whenever events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the industry, indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

The impairment assessment of goodwill and other long-lived assets involves significant estimates and assumptions, which may be unpredictable and inherently uncertain. These estimates and assumptions include identification of reporting units and asset groups, long-term growth rates, profitability, estimated useful lives, comparable market multiples, and discount rates. Any changes in these assumptions could impact the result of the impairment assessment.

Fair Value of Term Loan

We elected to account for the Term Loan under Accounting Standards Codification ("ASC") No. 825 "Financial Instruments" using the fair value option. In valuing the Term Loan, we utilized the valuation from an independent third-party specialist, which uses a discounted cash flow valuation model. Estimates of the fair value are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, expected interest rate volatility and the discount rate. Changes in these estimates and assumptions or the relationship between those assumptions impact our valuation as of the valuation date and may have a material impact on the valuation.

Accounting for Income Taxes

We are subject to income taxes in the United States and other foreign jurisdictions. Significant judgment is required in determining our provision for income taxes, and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis using enacted tax rates in effect in the years in which those temporary differences are expected to be recovered or settled in each jurisdiction. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all the deferred tax assets will not be realized. In making this assessment, we consider historical profitability, projected future taxable income, future reversals of existing taxable temporary differences, as well as feasible tax planning strategies in each jurisdiction. Based on our assessment, we have concluded that a full valuation allowance on our U.S. and certain foreign net deferred tax assets continues to be appropriate. We intend to continue maintaining a full valuation allowance on our U.S. and certain foreign deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that, based on technical merits, the position will be sustained upon examination by the tax authorities. The tax benefits of the position recognized in the financial statements are then measured based on the largest amount of benefit that is greater than 50% likely to be realized upon settlement with a taxing authority. In addition, we recognize interest and penalties related to unrecognized tax benefits as a component of the income tax provision.

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Overview of Results of Operations

The following table sets forth our results of operations for the periods shown (in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

Revenue

Cost of revenue:

Cost of product revenue

Restructuring and other

Amortization of acquired intangible assets

Total cost of revenue

Gross profit

Operating expenses:

Research and development

Selling and marketing

General and administrative

Restructuring and other

Amortization of acquired intangible assets

Total operating expenses

Operating loss

Other expense, net

Loss before income taxes

Income tax expense

Net loss

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The following table sets forth our results of operations as a percentage of revenue for the periods shown:

Fiscal Year Ended

December 28,

December 30,

December 31,

Revenue

Cost of revenue:

Cost of product revenue

Restructuring and other

Amortization of acquired intangible assets

Total cost of revenue

Gross margin

Operating expenses:

Research and development

Selling and marketing

General and administrative

Restructuring and other

Amortization of acquired intangible assets

Total operating expenses

Operating loss

Other expense, net

Loss before income taxes

Income tax expense

Net loss

Comparison of Years Ended December 28, 2024, December 30, 2023 and December 31, 2022

Revenue

We primarily derive our revenue from sales of our consumer robots and accessories directly to consumers through online stores and through our Home app and indirectly through retailers and distributors. We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

The following table shows revenue for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Revenue

Year ended December 28, 2024 as compared to the year ended December 30, 2023

Revenue decreased 23.4% to $681.8 million in fiscal 2024 from $890.6 million in fiscal 2023. Geographically, in fiscal 2024, domestic revenue decreased $95.8 million, or 22.4%, while international revenue decreased $112.9 million, or 24.4%, which primarily reflected a 27.7% decrease in Japan and 24.5% decrease in EMEA. The decrease in revenue also reflected a 18.8% decrease in total robots shipped, as well as a 5.6% decrease in gross average selling price driven by product mix as we are leveraging our new product launches to the entry market. The decrease in revenue and robots shipped during fiscal 2024 was impacted by lower orders from retailers and distributors largely resulting from a decline in consumer sentiment, and continuing aggressive competition in the market, which required additional promotional activities and pricing adjustments.

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Year ended December 30, 2023 as compared to the year ended December 31, 2022

Revenue decreased 24.7% to $890.6 million in fiscal 2023 from $1,183.4 million in fiscal 2021. Geographically, in fiscal 2023, domestic revenue decreased $186.6 million, or 30.3%, while international revenue decreased $106.2 million, or 18.7%, which primarily reflected a 21.4% decrease in Japan and 10.8% decrease in EMEA. The decrease in revenue also reflected a 27.5% decrease in total robots shipped, offset by a 6.8% increase in gross average selling price driven by product mix to our premium robots for fiscal 2023, compared to fiscal 2022. The decrease in revenue and robots shipped during fiscal 2023 was impacted by lower orders from retailers and distributors largely resulting from a decline in consumer sentiment, and resultant spending, as well as increased pricing competition in the market.

Cost of Product Revenue

Cost of product revenue primarily consists of product cost, including costs of our contract manufacturers for production and component product costs, inbound and outbound freight, import duties, tariffs, logistics and fulfillment costs, manufacturing and tooling equipment depreciation, hosting costs, warranty cost and excess and obsolete inventory write-downs. In addition, we include other expenses associated with supply chain logistics including personnel-related expenses. We outsource the manufacture of our products to contract manufacturers in Southern China, Vietnam and Malaysia. During 2024, we continued efforts to scale manufacturing capacity in Vietnam and we expect substantially all of our robotic floorcare products for U.S. import to be produced by our contract manufacturers outside of China. In addition, because our purchase contracts with our contract manufacturers in China, Vietnam and Malaysia are typically denominated in U.S. dollars, changes in currency exchange rates may impact our suppliers and increase our prices.

The following table shows cost of product revenue for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Cost of product revenue

As a percentage of revenue

Year ended December 28, 2024 as compared to the year ended December 30, 2023

Cost of product revenue decreased $158.7 million, or 22.9%, to $534.3 million in fiscal 2024, compared to $693.0 million in fiscal 2023. The decrease in cost was primarily driven by the 23.4% decrease in revenue and improved cost profile by new products launched in 2024 and cost reductions on existing products. The decrease was partially offset by adjustments for obsolete or excess inventory and losses on purchase commitments in fiscal 2024. During fiscal 2024, we finalized our 2025 product roadmap as part of our transition to a new contract manufacturing paradigm. As a result, we recorded charges totaling $26.6 million during fiscal 2024, including a $11.8 million non-cash reserve for obsolete or excess component inventory and a $14.8 million charge for losses on non-cancelable purchase commitments with our contract manufacturers and suppliers.

Year ended December 30, 2023 as compared to the year ended December 31, 2022

Cost of product revenue decreased $132.9 million, or 16.1%, to $693.0 million in fiscal 2023, compared to $825.9 million in fiscal 2022. The decrease in cost was primarily driven by the 24.7% decrease in revenue and lower product costs and ocean freight costs on new inventory purchased and sold during fiscal 2023 as we saw improvements in the industry-wide supply chain environment post-pandemic. The lower costs were offset by higher rework costs on our fiscal 2022 on-hand inventory to fulfill orders in fiscal 2023 as we continued to focus on reducing inventory. During fiscal 2023, the cost was also impacted by higher losses related to purchase commitments with our contract manufacturers and higher excess and obsolete inventory write-downs. During fiscal 2022, we recorded a $11.7 million benefit to cost of product revenue related to tariffs expensed in fiscal 2021.

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Gross Profit

Our gross profit as a percentage of revenue, referred to as our gross margin, varies according to the mix of products sold, the channel mix through which we sell our products, the level of promotional activities, fluctuations of the impacts of our product and material cost saving initiatives, the foreign currency in which our products are sold, and tariff and duty costs imposed by governmental authorities.

The following table shows gross profit for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Gross profit

Gross margin

Year ended December 28, 2024 as compared to the year ended December 30, 2023

Gross profit decreased $54.0 million, or 27.5%, to $142.4 million (20.9% of revenue) in fiscal 2024 from $196.4 million (22.0% of revenue) in fiscal 2023. Gross margin decreased 1.1 percentage points driven by continued increases in promotional and pricing activities, lower leverage on our fixed costs due to decreased revenue, as well as charges related to non-cash reserve for obsolete or excess component inventory and losses on non-cancelable purchase commitments during fiscal 2024. The decrease in gross margin is partially offset by lower product costs from the improved cost profile of new products launched in 2024 and cost reductions on existing products as well as reduced people-related costs as a result of the restructuring activities during fiscal 2024. Although we have taken a wide range of actions to drive gross margin improvement through a multitude of product cost optimization, manufacturing and supply chain initiatives that have been implemented over the past few quarters, our ability to deliver sustainable gross margin improvement will largely depend on our ability to drive revenue growth and seasonality of our business.

Year ended December 30, 2023 as compared to the year ended December 31, 2022

Gross profit decreased $153.7 million, or 43.9%, to $196.4 million (22.0% of revenue) in fiscal 2023 from $350.1 million (29.6% of revenue) in fiscal 2022. Gross margin decreased 7.6 percentage points driven by continued increases in promotional and pricing activities, lower leverage on our fixed costs, higher rework costs on our on-hand inventory to fulfill orders as we continued to focus on reducing our inventory from fiscal 2022. The gross margin was also negatively impacted by higher losses related to purchase commitments with our contract manufacturers and higher excess and obsolete inventory write-downs during the year. In addition, during the first quarter of 2022, we recognized an $11.7 million benefit from tariff refunds. The decrease in gross margin is partially offset by lower product costs and ocean freight costs on new inventory purchased and sold during this fiscal year as we have seen improvements in the industry-wide supply chain environment post-pandemic, favorable impact from improved channel mix to our direct-to-consumer channel, as well as reduced people-related costs as a result of the restructuring activities.

Research and Development

Research and development expenses consist primarily of:

• salaries and related costs for our engineers;

• contractors and consulting expenses;

• costs of components and test equipment used for product, tooling and prototype development; and

• occupancy and other overhead costs.

Our research and development team develops new software and hardware products as well as improves and enhances our existing software and hardware products to address customer demands and emerging trends. On January 29, 2024, following the termination of the Merger Agreement, we announced the implementation of an operational restructuring plan to drive profitability. This plan includes a reduction in workforce as well as shifting lower-value commodity engineering work with greater reliance on contract manufacturers. We will continue to invest in software intelligence, higher-value robotics, computer vision, machine learning and complex mechanical design to improve the core functionality of our robots. We are committed to consistently maintaining our high level of innovative design and development of new products as we strive to enhance our ability to serve our existing consumer markets as well as new markets for robots.

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The following table shows research and development costs for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Research and development

As a percentage of revenue

Year ended December 28, 2024 as compared to the year ended December 30, 2023

Research and development expenses decreased $50.2 million, or 35.0%, to $93.3 million (13.7% of revenue) in fiscal 2024 from $143.5 million (16.1% of revenue) in fiscal 2023. This decrease was primarily due to a $38.7 million decrease in people-related costs and a $6.3 million decrease related to stock-based compensation associated with lower headcount resulting from the 2024 operating restructuring plan, as well as a $8.7 million decrease in program-related costs in fiscal 2024. During fiscal 2023, we reversed $1.8 million of costs for retention bonuses associated with the Merger and $1.5 million costs in short-term incentive compensation due to underperformance in fiscal 2023, both of which partially offset the decreases.

Year ended December 30, 2023 as compared to the year ended December 31, 2022

Research and development expenses decreased $21.7 million, or 13.1%, to $143.5 million (16.1% of revenue) in fiscal 2023 from $165.2 million (14.0% of revenue) in fiscal 2022. This decrease was primarily due to a $11.2 million decrease in people-related costs associated with lower headcount, a $6.4 million decrease in program-related costs, a $3.7 million decrease in retention bonuses associated with the Merger and a $1.8 million decrease in short-term incentive compensation cost due to underperformance in fiscal 2023. These decreases are partially offset by a $1.9 million increase related to stock-based compensation.

Selling and Marketing

Our selling and marketing expenses consist primarily of:

• salaries and related costs for sales and marketing personnel;

• advertising, marketing and other brand-building costs;

• product display expenses;

• customer service costs; and

• technology subscription and cloud expenses.

On January 29, 2024, following the termination of the Merger Agreement, we announced the implementation of an operational restructuring plan to drive profitability. This announced plan included a reduction in workforce and is designed to target our selling and marketing expenditures to a level consistent with industry standards in the consumer products market by centralizing resources on more limited geographies and consolidate marketing efforts for efficiencies. Entering 2025, we continued to fund critical marketing, advertising and public relations efforts to build demand generation in ways that amplify the iRobot and applicable product brands, generate consumer interest in our products and perpetuate customer word-of-mouth to encourage repeat purchases by existing customers and inspire new customers to buy our products. Since we anticipate that market conditions will remain challenging into 2025, we plan to carefully align working media and other demand-generation activities.

The following table shows selling and marketing costs for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Selling and marketing

As a percentage of revenue

Year ended December 28, 2024 as compared to the year ended December 30, 2023

Selling and marketing expenses decreased by $60.5 million, or 30.3%, to $138.8 million (20.4% of revenue) in fiscal 2024 from $199.3 million (22.4% of revenue) in fiscal 2023. This decrease was primarily attributable to scaled back working media and other demand-generation activities totaling approximately $45.3 million as well as a $11.6 million decrease in people-related costs associated with lower headcount.

Year ended December 30, 2023 as compared to the year ended December 31, 2022

Selling and marketing expenses decreased by $90.8 million, or 31.3%, to $199.3 million (22.4% of revenue) in fiscal 2023 from $290.1 million (24.5% of revenue) in fiscal 2022. This decrease was primarily attributable to scaled back working

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media and other demand-generation activities totaling approximately $65.9 million as well as a $16.4 million decrease in people-related costs associated with lower headcount.

General and Administrative

Our general and administrative expenses consist primarily of:

• salaries and related costs for executives and administrative personnel;

• professional services costs;

• information systems and infrastructure costs;

• travel and related costs;

• occupancy and other overhead costs;

• IP litigation related costs; and

• acquisition-related costs associated with the Merger, including termination fees, legal fees and retention bonuses.

The following table shows general and administrative costs for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

General and administrative

As a percentage of revenue

Year ended December 28, 2024 as compared to the year ended December 30, 2023

General and administrative expenses decreased by $121.2 million, or 116.4%, to ($17.1) million ((2.5)% of revenue) in fiscal 2024 from $104.1 million (11.7% of revenue) in fiscal 2023. This decrease was driven by receipt of the $94.0 million Parent Termination Fee, offset by a payment of $18.8 million for professional fees incurred in connection with the Transactions, a one-time benefit of $13.5 million related to the Litigation Settlement, and decreases of $7.6 million in people-related costs and $2.7 million in stock-based compensation associated with lower headcount resulting from the 2024 operational restructuring plan. The decrease is also attributable to $17.8 million of costs incurred in fiscal 2023 associated with the Merger which was terminated in January 2024.

Year ended December 30, 2023 as compared to the year ended December 31, 2022

General and administrative expenses decreased by $9.5 million, or 8.4%, to $104.1 million (11.7% of revenue) in fiscal 2023 from $113.6 million (9.6% of revenue) in fiscal 2022. This decrease was driven by reductions of $4.5 million in people-related costs associated with lower headcount, $3.8 million in retention bonuses associated with the Merger, $3.5 million in intellectual property litigation costs, $2.0 million related to the allowance for credit losses as well as $1.0 million in short-term incentive compensation costs in fiscal 2023. During fiscal 2023 and 2022, we incurred $17.8 million and $15.3 million, respectively, in fees associated with the Merger which was terminated in January 2024.

Restructuring and Other

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Cost of revenue

Operating expense

Total Restructuring and other

As a percentage of revenue

Year ended December 28, 2024 as compared to the year ended December 30, 2023

Restructuring and other expenses increased $25.8 million, or 315.8%, to $33.9 million (5.0% of revenue) in fiscal 2024 from $8.2 million (0.9% of revenue) in fiscal 2023. The increase was driven by the 2024 operational restructuring plan which began in March 2024 and includes $22.2 million of severance-related costs as well as other restructuring costs of $11.7 million, $9.4 million of which was associated with the write-offs and material liabilities related to our core floorcare business. In addition, we recorded CEO transition costs totaling $0.8 million, $2.1 million of which related to CEO search fees and cash compensation charges associated with the transition-related agreements with Colin Angle and Glen D. Weinstein, offset by modification adjustments of ($1.2) million related to their stock-based awards. The $8.2 million of restructuring and other expenses during fiscal 2023 was related to our previous restructuring plan initiated in February 2023.

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Year ended December 30, 2023 as compared to the year ended December 31, 2022

Restructuring and other expenses decreased $5.4 million, or 40.0%, to $8.2 million (0.9% of revenue) in fiscal 2023 from $13.6 million (1.1% of revenue) in fiscal 2022. The $8.2 million of restructuring and other expenses during fiscal 2023 was driven by the 2023 operational restructuring plan which began in February 2023 and included $4.0 million in asset write offs and impairment related to the plan to sublease portions of our headquarters in Bedford with the intent to reduce our global office footprint ("Facility restructuring"), as well as $3.6 million of severance-related costs. The $13.6 million of restructuring and other expenses during fiscal 2022 was related to $6.1 million in severance from the August 2022 restructuring, $4.0 million related to consolidation of warehouses and $3.4 million in asset write off and impairment related to the Facility restructuring plan.

Amortization of Acquired Intangible Assets

Amortization of acquired technology and reacquired distribution rights are recorded within cost of revenue whereas the amortization of acquired customer relationships, non-compete agreements and tradenames are recorded within operating expenses. Reacquired distribution rights are amortized on an accelerated basis, while all other intangible assets are amortized over their respective estimated useful lives on a straight-line basis, consistent with the pattern in which the economic benefits are being utilized.

The following table shows total amortization expense for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Cost of revenue

Operating expense

Total amortization expense

As a percentage of revenue

Amortization of acquired intangible assets during fiscal 2024 was primarily related to accelerated amortization on acquired intangible assets. Amortization of acquired intangible assets during fiscal 2023 and 2022 were primarily related to $4.9 million and $11.1 million, respectively, of recorded impairment loss on acquired intangible assets associated with the acquisition of Aeris Cleantec AG.

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Other expense, net

Other expense, net includes interest income, interest expense, foreign currency gains (losses) as well as gains (losses) from strategic investments, debt issuance costs, and adjustments related to the change in fair value of debt. Other expense, net during fiscal 2024, 2023 and 2022 consists of the following (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

Interest income

Interest expense

Changes in fair value of Term Loan

Debt issuance costs

Loss on strategic investments

Other

Total other expense, net

As a percentage of revenue

In connection with the Term Loan issued in July 2023, we incurred $0.6 million and $11.8 million of debt issuance costs, and $24.6 million and $5.9 million of non-cash charges due to change in fair value of our Term Loan, respectively, during fiscal 2024 and 2023. We also incurred cash interest expense during fiscal 2024 and 2023, which are partially offset by interest income due to higher yields on our cash and cash equivalents. In fiscal 2022, other expense included a net loss of $19.7 million from our strategic investments.

Income Tax Provision

The following table shows income tax provision for fiscal 2024, 2023 and 2022 (dollars in thousands):

Fiscal Year Ended

December 28,

December 30,

December 31,

$ Change 2024 vs. 2023

$ Change 2023 vs. 2022

Income tax provision

As a percentage of pre-tax income

Year ended December 28, 2024 as compared to the year ended December 30, 2023

We recorded an income tax provision of $0.4 million and $11.7 million for fiscal 2024 and fiscal 2023, respectively. The $0.4 million income tax provision for fiscal 2024 resulted in an effective income tax rate of (0.3)%. The $11.7 million income tax provision for fiscal 2023 resulted in an effective income tax rate of (4.0)%.

Our effective income tax rate of (0.3)% for fiscal 2024 differed from the federal statutory tax rate of 21% primarily due to the recording of a full valuation allowance against our U.S. and certain foreign deferred tax assets. We have assessed, on a jurisdictional basis, the realization of our net deferred tax assets, including the ability to carry back net operating losses, the existence of taxable temporary differences, the availability of tax planning strategies and available sources of future taxable income. We have concluded that a valuation allowance on our U.S. net deferred tax assets continues to be appropriate. In addition, valuation allowances were established in certain foreign jurisdictions during fiscal 2023 considering cumulative taxable losses in recent years and uncertainty with respect to future taxable income. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income. The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.

Year ended December 30, 2023 as compared to the year ended December 31, 2022

We recorded an income tax provision of $11.7 million and $24.6 million for fiscal 2023 and fiscal 2022, respectively. The $11.7 million income tax provision for fiscal 2023 resulted in an effective tax rate of (4.0)%. The $24.6 million income tax provision for fiscal 2022 resulted in an effective income tax rate of (9.4)%.

Our effective income tax rate of (4.0)% for fiscal 2023 differed from the federal statutory tax rate of 21% primarily due to the recording of a full valuation allowance against our U.S. and certain foreign deferred tax assets. We have assessed, on a jurisdictional basis, the realization of our net deferred tax assets, including the ability to carry back net operating losses, the

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existence of taxable temporary differences, the availability of tax planning strategies and available sources of future taxable income. We have concluded that a valuation allowance on our U.S. net deferred tax assets continues to be appropriate. In addition, valuation allowances were established in certain foreign jurisdictions during fiscal 2023 considering cumulative taxable losses in recent years and uncertainty with respect to future taxable income. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income. The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.

Liquidity and Capital Resources

At December 28, 2024, our cash and cash equivalents were $134.3 million. We also had $3.6 million in restricted cash, $2.4 million of which is used for collateral for our credit card program and to secure outstanding letters of credit and is included in other assets on the consolidated balance sheets. As part of the Termination Agreement and receipt of the Parent Termination Fee, $40.0 million of the fee was set aside as restricted cash to be used for future repayment of the Term Loan subject to our limited rights to utilize such amounts for the purchase of inventory during the third quarters of 2024 and 2025. During the third quarter of 2024, we elected to draw down $40.0 million of the restricted cash. See Note 10, Debt , for additional information. Our working capital, which represents our total current assets less total current liabilities, was $70.3 million as of December 28, 2024, compared to $178.3 million as of December 30, 2023. Cash and cash equivalents held by our foreign subsidiaries totaled $18.4 million as of December 28, 2024. The undistributed earnings of our foreign subsidiaries remain permanently reinvested outside of the United States as of December 28, 2024.

On January 28, 2024, we and Amazon mutually agreed to terminate the Merger Agreement and entered into a mutual termination agreement effective as of such date. In accordance with the terms of the Termination Agreement, Amazon made a cash payment to us in the previously agreed amount of $94.0 million on January 29, 2024. During the first quarter of 2024, as a result of the termination of the Merger Agreement and receipt of the Parent Termination Fee of $94.0 million from Amazon, we made a payment of $18.8 million for professional fees incurred in connection with the Transactions.

We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We believe this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels. By leasing our office facilities, we also minimize the cash needed for expansion, and only invest periodically in leasehold improvements a portion of which is often reimbursed by the landlords of these facilities. Accordingly, our capital spending is generally limited to leasehold improvements, business applications software and computer and equipment. With the shift to the new contract manufacturing paradigm in 2024, we are spending significantly less on tooling and machinery than in previous periods. During the fiscal years ended December 28, 2024 and December 30, 2023, we spent $0.1 million and $2.9 million, respectively, on capital expenditures.

Our strategy for delivering consumer products to our distributors and retail customers gives us the flexibility to provide container shipments directly from our contract manufacturers in Southern China, Vietnam and Malaysia to our customers or, alternatively, allows our distributors and certain retail customers to take possession of product on a domestic basis. Accordingly, our inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products, and they typically invoice us when the finished goods are shipped.

Cash used in operating activities

Year ended December 28, 2024

Net cash used in our operations for the fiscal year ended December 28, 2024 was $33.2 million, of which the principal components were our net loss of $145.5 million, partially offset by the non-cash charges of $78.6 million and the cash inflow of $33.7 million from change in working capital. The change in working capital was driven by net cash inflows of $59.0 million from inventory, $27.1 million from accounts receivable and $22.0 million from other assets, partially offset by net cash outflow of $74.4 million from accounts payable and accrued expenses and other liabilities. During fiscal 2024, the net cash used in operating activities benefited from the one-time receipts of the Parent Termination Fee, net of professional fees paid of $75.2 million, as a result of the termination of the Merger Agreement, and the $13.5 million related to the Litigation Settlement.

Year ended December 30, 2023

Net cash used in our operations for the fiscal year ended December 30, 2023 was $114.8 million, of which the principal components were our net loss of $304.7 million, partially offset by the non-cash charges of $85.7 million and the cash inflow of $104.2 million from changes in working capital. The change in working capital was driven by the reduction in inventory. During 2023, we continued to carefully manage our inventory to a level that better aligns with current run rates and seasonality

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of our business reducing days in inventory from 95 days at end of fiscal 2022 to 56 days at the end of fiscal 2023. As of December 30, 2023, our inventory balance was $152.5 million, a reduction of $132.8 million from the end of fiscal 2022.

Cash used in investing activities

Year ended December 28, 2024

Net cash used in investing activities for the fiscal year ended December 28, 2024 was $0.3 million and related to the purchase of computers and software and the purchase of investments.

Year ended December 30, 2023

Net cash used in investing activities for the fiscal year ended December 30, 2023 was $3.1 million, primarily related to the purchase of machinery and tooling for new products.

Cash (used in) provided by financing activities

Year ended December 28, 2024

Net cash used in financing activities for the fiscal year ended December 28, 2024 was $16.7 million, primarily related to the $34.9 million repayment of the Term Loan as a result of the termination of the Merger Agreement. During fiscal 2024, we sold an aggregate of 1.9 million shares under the ATM Agreement and received net proceeds of $19.3 million.

Year ended December 30, 2023

Net cash provided by financing activities for the fiscal year ended December 30, 2023 was $185.4 million, primarily related to proceeds from the Term Loan of $188.2 million, net of $11.8 million of debt issuance costs.

Debt

Term Loan

On July 24, 2023, we entered into a Credit Agreement (the "Credit Agreement") by and among us, as borrower, each lender from time to time party thereto and TCG Senior Funding L.L.C., an affiliate of The Carlyle Group, as administrative agent and collateral agent, providing for a $200.0 million senior secured term loan credit facility (the "Term Loan"). During fiscal 2023, we received total proceeds from the Term Loan of $188.2 million, net of $11.8 million of debt issuance costs. During the first quarter of 2024, as a result of the termination of the Merger Agreement and receipt of the Parent Termination Fee of $94.0 million from Amazon on January 29, 2024, $35.0 million of such Parent Termination Fee was used immediately to repay a portion of the Term Loan. The Term Loan matures on July 24, 2026 with additional terms more fully described in Note 10 to our consolidated financial statements.

Lines of Credit

As of December 28, 2024, we had letters of credit outstanding of $1.4 million with Bank of America, N.A. The letters of credit were collateralized with a cash deposit.

We have an unsecured guarantee line of credit with Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount of 250.0 million Japanese Yen. As of December 28, 2024, we had no outstanding balance under the guarantee line of credit.

ATM Equity Offering

In February 2024, we entered into an ATM Equity Offering Sales Agreement (the "ATM Agreement") with BofA Securities, Inc. ("BofA") pursuant to which we may offer and sell, from time to time, at our option, up to an aggregate of $100.0 million in shares of Common Stock through BofA, as sales agent, in an "at the market" offering. Under the ATM Agreement, shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission. BofA will receive a commission up to 3.00% of the aggregate gross sales proceeds of any Common Stock sold through BofA under the ATM Agreement.

During fiscal 2024, we sold an aggregate of 1.9 million shares under the ATM Agreement and received net proceeds of $19.3 million. The issuance costs incurred in connection with the offering were $1.1 million during the twelve months ended December 28, 2024. As of December 28, 2024, $79.6 million remained available for further sale under the ATM Agreement. As of the date of filing this annual report on Form 10-K, we have suspended any sales of our common stock pursuant to the ATM Agreement unless and until we file a new shelf registration statement on Form S-3 with the Securities and Exchange Commission.

Liquidity Risks and Uncertainties

After a surge in demand of robotic floorcare products during the pandemic, the segment experienced notable shifts driven by changes in consumer behavior and macro-economic factors. Since 2022, we faced declining revenue due to weaker demand from a decline in consumer sentiment, increased pricing competition in the market, and economic pressures resulting in

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significant operating losses and negative cash flows from operations. Total operating loss was $264.1 million in fiscal 2023 and $240.4 million in fiscal 2022. On January 28, 2024, we and Amazon mutually agreed to terminate the Merger Agreement. In response to declining sales and the termination of the Merger Agreement, we effected leadership changes and announced a restructuring plan designed to significantly reduce operating expenses, improve gross margin and reduce cash used in operations.

As part of the 2024 restructuring plan, we commenced and completed an overall workforce reduction of approximately 440 employees, which represented 40% of our global workforce as of December 30, 2023. In addition to the reduction of our headcount, we exited several smaller offices during fiscal 2024 and signed an additional sublease agreement during fiscal 2024 to sublease a portion of our headquarters. During fiscal 2024, we also scaled back working media and other demand-generation activities, limited investment in non-robotic product categories and engaged in minimal new hiring. These actions, along with the one-time benefits of $75.2 million related to the Parent Termination Fee and $13.5 million related to an intellectual property litigation settlement, resulted in a reduction of $215.1 million in operating expense during fiscal 2024. Total operating loss was reduced by $161.1 million to $103.0 million in fiscal 2024 despite revenue decline of 23%.

Inventory has consumed a significant amount of cash and we continue to manage our inventory level carefully to ensure efficiency in our working capital. As of December 28, 2024, our inventory totaled $76.0 million, compared with $152.5 million a year ago. We plan to continue to carefully manage our inventory to a level that aligns with near-term revenue expectations and the seasonality of the business. As of December 28, 2024, our cash and cash equivalents totaled $134.3 million, compared with $185.1 million a year ago. During the third quarter of fiscal 2024, we elected to draw down $40.0 million of the restricted cash to purchase inventory.

As of December 28, 2024, we have an outstanding term loan of $200.6 million under the fair value accounting. The Term Loan matures on July 24, 2026 and bears interest and a minimum guaranteed return on the Term Loan that ranges between 1.30x and 1.75x of the principal in accordance with the provisions within the Credit Agreement. The minimum guaranteed return range is based on the date on which it is paid. The Credit Agreement contains a financial covenant that we will not permit our consolidated core assets (comprising cash, accounts receivable and inventory), measured on the last day of each fiscal month, to be less than $200.0 million. As of December 28, 2024, we were in compliance with the covenants under the Term Loan.

On March 11, 2025, we announced the largest product launch in our history. The new products are expected to be margin-accretive due to lower product costs as compared to our legacy products and should begin to support year-over-year revenue growth. We plan to leverage that top-line growth with our lower cost structure to drive improved profitability, achieve gross-margin expansion and improved cash flow from operations in fiscal 2025.

Management has considered and assessed our ability to continue as a going concern for the next 12 months from the date of issuance of the consolidated financial statements. Management's assessment includes the preparation of cash flow forecasts considering the annualized savings from the completed restructuring actions and improved cash flow from operations driven by the new product launch in March 2025. While management's cash flow forecast shows sufficient cash and core assets to allow us to maintain our debt covenant compliance, as well as our liquidity and operations in the ordinary course for at least 12 months from the issuance of these financial statements, the forecast depends heavily on the assumption of a successful new product launch in 2025 achieving topline growth and improved profitability.

There can be no assurance that the new product launches will be successful due to potential factors, including, but not limited to: continued reduced demand for our products due to consumer sentiment or competition; challenging macroeconomic conditions that further constrain consumer demand; uncertainties surrounding tariff policy imposed by the administration; and we may continue to experience adverse impacts to revenue and profitability. Given these uncertainties and the implication they may have on the projected cash flow, there is substantial doubt about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of the consolidated financial statements.

As a result, the auditor report on the consolidated financial statements for the year ended December 28, 2024 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern, resulting in breach of the Going Concern Covenant. On March 11, 2025, we entered into Amendment No. 1 to our Credit Agreement. Pursuant to Amendment No. 1, the Agent waived, until May 6, 2025, any event of default under our Credit Agreement arising out of our non-compliance with covenants relating to (1) the Going Concern Covenant and (2) the Minimum Core Assets Covenant. In connection with the Amendment No. 1, we returned the $40.0 million withdrawn from restricted cash during the third quarter of 2024 to the restricted account.

Our Board of Directors has initiated a formal strategic review to evaluate a broad range of alternatives, including, but not limited to, exploring a potential sale or strategic transaction and refinancing our debt. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions. Additional actions within our control to maintain our liquidity and operations include optimizing our production volumes with contract manufacturers by reducing inventory supply forecast for cancellable purchase orders, further reducing discretionary spending in all areas of the business

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and realigning resources through ongoing attrition without rehiring activity. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Contractual Obligations

We generally do not enter into binding purchase commitments. Our principal commitments consist of obligations under the Term Loan, leases for office space, inventory related purchase obligations, and minimum contractual obligations. Other obligations consist primarily of subscription services. The following table describes our commitments to settle contractual obligations in cash as of December 28, 2024 (in thousands):

Payments Due by Period

Less Than

1 Year

Years

Years

More Than

5 Years

Total

Payments on Term Loan (1)

Operating leases (2)

Minimum contractual payments

Inventory-related purchase obligations (3)

Other obligations

Total

(1) Payments in Less than 1 Year represent cash interest using an effective cash interest rate of 10.99% per annum as of January 31, 2025. Payments in 1 to 3 Years represent principal and estimated minimum guaranteed return on Term Loan using 1.7x. Amounts exclude approximately $3.6 million in fees payable (representing 2.0% of the aggregate principal amount of Term Loan outstanding) to the Lenders in connection with Amendment No. 1, which will be paid in kind via an increase of the outstanding principal amount of the Term Loan.

(2) Operating leases obligations include cash inflows from existing contractual facility subleases through April 2030 as of December 28, 2024.

(3) Includes estimated obligations under purchase orders related to inventory. Excludes purchase orders that can be cancelled without penalty.

As of December 28, 2024, we had outstanding purchase orders aggregating approximately $126.1 million. The purchase orders are typically related to the purchase of inventory and marketing and media spend in the normal course of business. Included in these outstanding purchase orders is $61.7 million related to inventory purchases at our contract manufacturers, of which $25.7 million are not cancellable without penalty.

We utilize contract manufacturers to build our products and some of our accessories. These contract manufacturers manage the supply of components, capacity and resources to build products based on a forecasted production plan, which typically covers a rolling 12-month period. During the normal course of business, and in order to ensure adequate supply, we enter into purchase commitments with contract manufacturers and suppliers. In certain instances, these purchase commitments allow us the option to cancel, reschedule and/or adjust the supply requirements based on our business needs for a period of time before the order is due to be fulfilled. In some instances, these purchase commitments are not cancellable in the event of a change in demand or other circumstances, such as where the contract manufacturer and/or supplier has built products, semi-finished products or procured and/or ordered unique, iRobot-specific designs, and/or specific non-cancellable, non-returnable components based on the provided forecasts. If we cancel all or part of the orders, or materially reduce forecasted orders, in certain circumstances we may be liable to our contract manufacturers and/or suppliers for the cost of the excess components purchased by our contract manufacturers based on the forecasted production plan and the purchase terms of its component suppliers. During fiscal 2024, we finalized our 2025 product roadmap as part our transition to a new contract manufacturing paradigm. As a result, we evaluated our component inventory on-hand and non-cancelable purchase commitments with our contract manufacturers and suppliers and recorded charges totaling $26.6 million in cost of product revenue in fiscal 2024. These charges included a $11.8 million non-cash reserve for obsolete or excess component inventory and a $14.8 million charge for losses on non-cancellable purchase commitments. The loss on purchase commitments is included in accrued expenses on the consolidated balance sheets.

Recently Issued Accounting Pronouncements

See Note 2 to the accompanying consolidated financial statements for a description of certain recently issued accounting standards which may impact our financial statements in future reporting periods.

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