iRobot Corp (IRBT) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Q4 and Full Year 2021 iRobot Corp. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Andrew Kramer. Mr. Kramer, the floor is yours.

Thank you, Chris, and good morning, everybody. Joining me on today's call are iRobot's Chairman and CEO, Colin Angle; and Executive Vice President and CFO, Julie Zeiler.

Before I set the agenda for today's call, I would like to note that statements made on today's call that are not based on historical information are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties and involve many factors that could cause actual results to differ materially from those expressed or implied by such statements.

Additional information on these risks and uncertainties can be found in our public filings with the Securities and Exchange Commission. iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information or circumstances.

Related to our financial disclosures during this conference call, we will reference certain non-GAAP financial measures as defined by SEC Regulation G, including non-GAAP gross margin, non-GAAP operating expense, non-GAAP operating income and loss, non-GAAP operating profit and loss margin, non-GAAP effective tax rate and non-GAAP net income and loss per share. We believe that our non-GAAP financial results help provide additional transparency into iRobot's underlying operating performance and potential.

Our definitions of these non-GAAP financial measures and reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP measure are provided at the end of these prepared remarks and in the financial tables at the end of the fourth quarter 2021 financial results press release we issued last evening, which is available on our website at www.irobot.com.

Also, unless stated otherwise, the fourth quarter and full year 2021 financial metrics as well as the financial metrics provided in our outlook that we reference on today's conference call will be on a non-GAAP basis only, and all historical comparisons are with the fourth quarter of 2020 and the full year 2020.

For today's call, our agenda will be as follows: Colin will briefly cover the company's quarterly and annual financial results, review important strategic milestones and outline our expectations for 2022. Julie will review our financial results in detail and offer additional insight into our 2022 guidance. Colin will then conclude our commentary with some closing remarks about our bright prospects over the longer term. After that, we'll open the call for questions.

At this point, I'll turn the call over to Colin Angle.

Good morning, and thank you for joining us. Despite a myriad of supply chain challenges, we delivered fourth quarter financial results within the parameters we outlined in October. We generated fourth quarter revenue of $455 million, even as shipping delays prevented us from fulfilling over $35 million in fourth quarter orders. Although our gross margins were lower than expected, we manage our costs carefully to report an operating loss of $34 million and a net loss per share of $1.05.

For the full year, we grew revenue by 9% to $1.565 billion with an operating profit of 2% and EPS of $1.34. Our 2021 performance can be best described as a tale of 2 halves, with outstanding first half revenue growth and profitability, followed by a second half that was shaped by ongoing supply chain challenges that impacted our top and bottom lines. More specifically, semiconductor chip shortages constrained our ability to keep pace with demand, especially for some of our most popular premium Roomba models.

In addition, our top line performance was also hampered by shipping delays. Our 2021 profitability reflected the combination of lower revenue and higher component costs, increased transportation costs, raw material, inflation and tariffs.

We made considerable progress during 2021 to execute our INNOVATE, GET, KEEP, GROW strategy, which we detailed during our recent Investor Day. I'd like to recap our 2021 accomplishments and review key 2022 goals against the backdrop of this strategy.

On the innovation front, consumer robotics is following PCs, cell phones and other sectors with software, not hardware, as the primary factor for consumer purchasing decisions. iRobot's product strategy is to win with consumers by delivering high-performance, beautifully designed products that are differentiated by the superior software intelligence of our Genius Home Intelligence Platform. Genius took center stage as a sustainable competitive advantage for our floor care robots during 2021.

Our September upgrade of Genius helped make the Roomba j7 Series our most successful new Roomba launch in recent years. With only 4 months of sales, the j7 became a top 5 selling U.S. RVC in the U.S. for all of 2021. The primary difference between the j7 and its predecessor robot, the i7, is its software.

The product strategy is paying off. Genius' highest value capabilities are showcased in our premium and mid-tier Roomba and Braava robots. Sale of these robots grew 15% in 2021 and represent approximately 83% of our 2021 robot revenue.

With Genius as a key differentiator, Roomba has remained the category's technology and share leader globally and in each primary geographic region. I'm excited for what's in store for 2022. We plan to deliver 2 major Genius updates this year aimed at bringing greater intelligence, thoughtfulness and personalization to our robots and more insights to our customers. To fortify our mid-tier leadership, we plan to cascade certain premium digital features down into our portfolio.

In terms of new robots, we plan to introduce one new Roomba model in 2022 and complete the global rollout of the j7 Series and i1 Series that began last year. We are also excited about our plans for the Aeris air purifier products we acquired this past November. We anticipate rebranding the Aeris portfolio in the second half of 2022, followed by the introduction of at least one new air purifier along with initial integration of certain Genius-related capabilities across this product line.

Even as the RVC category has continued to grow, overall household penetration is still relatively low. As a result, bringing new customers into our franchise, the GET component of our strategy remains central to our success. During 2021, we continued to expand our base of connected customers who have opted into our digital communications by 44% to 14 million.

Retail continues to be a proven, scaled and profitable channel for new customer acquisition. Retailer and distributor revenue grew 8% in 2021. We move into 2022 with a great opportunity to continue bringing new connected customers into our franchise at all price points. Genius is fundamental to capitalizing on this opportunity because it enables feature and functionality that are unique to our products.

Since launch, the j7 has identified and avoided millions of cords, socks and shoes, thousands of pet accidents. By sharing images with the owner, the j7 gets smarter after every mission. And as a result, the j7's mission completion rates are the highest in our fleet. With our November Genius upgrade, owners can copy their existing maps to new robots. 70% of users took advantage of this feature when prompted.

We believe that this will help retain more users when they opt to replace their robot or add a new one into the house, like when smartphone users transfer data and apps to a new phone. We expect that the global rollout of the Roomba i1 Series during 2022 will enable us to strengthen our position in the entry-level segment. Having closed last year with about 74,000 subscribers worldwide, a key initiative for us in 2022 will be to continue scaling our robot-as-a-service subscription offerings globally.

After a customer buys our floor care robot, our goal is to make sure that they love it and use it often. That was the case in 2021, and we expect it to continue this year. Quarterly utilization was consistent in 2021 at just over 90%. We expect to maintain consistently high utilization levels and strong NPS and CSAT scores in '22. As we cascade certain premium Genius features further down into our robot family, we believe that will further increase our stickiness with these owners.

A major driver behind our long-term growth ambitions lies in our conviction that a happy iRobot customer will purchase more products and services directly from us over the course of their ownership, and we made tangible progress on this front in 2021.

We saw excellent growth in sales to our existing customers who we estimate make up nearly 1/3 of our revenue. In particular, we estimate that connected customer revenue grew 10% in '21 and represents 21% of total revenue.

Direct-to-consumer revenue increased 24% in 2021 and represented 12% of total revenue. Our target '22 is to accelerate DTC sales into the mid- to high teens as a percentage of our total annual revenue as we drive more transactional activity from more connected customers.

Accessory sales grew 24% in 2021 and represented approximately 4% of total revenue. We expect continued growth on this front in 2022, especially as we roll out new insights from Genius that help owners properly maintain their robots. In 2021, we made good progress with the implementation of new marketing technology systems and tools. Moving into '22, one of our highest priority GROW initiatives is to move our entire marketing technology stack into production. This investment is designed to enhance the online buying experience on our website and app and enable personalized digital marketing at scale to deliver the right promotions to the right customers at the right times.

Product diversification is intrinsically important to our efforts to further fuel existing customer revenue growth. Our November 2021 acquisition of Aeris expands our total addressable market and supports our ability to provide consumers with premium products that will keep their homes both cleaner and healthier. Aeris contributed just under $3 million to our fourth quarter revenue. The integration of Aeris into our organization is progressing. Overall, we expect air purification products to generate more than $40 million in '22.

Looking ahead, we expect that our anticipated 2022 performance will resemble 2021 as a tale of 2 halves, with top line strength in the second half of the year. Our 2022 revenue guidance ranges from $1.75 billion to $1.85 billion, which represents 12% to 18% growth over '21. We currently expect that approximately 65% of full year revenue will be generated in the second half, and we are optimistic about our potential to achieve these targets for a couple of very important reasons.

First, iRobot's 2022 annual revenue targets are based on maintaining our leadership in a growth-oriented category with a bright future. Thanks to low double-digit growth in the mid and premium price tiers, the RVC category grew 7% in '21 despite lapping a very strong 2020. The category averaged 17% growth over the past 2 years, which is in line with the CAGR since 2017. Just as important, there's considerable upside for further household penetration of these products around the world.

Looking closer into our targets, we are assuming high single-digit to mid-teen organic expansion, augmented by several points of inorganic growth from air purifier sales. Our organic revenue growth outlook at the midpoint is in line with iRobot's revenue CAGR over the past 2 years.

Second, we are increasingly confident that our access to semiconductor componentry will improve over the coming quarters. Our improved visibility reflects an ongoing dialogue with our largest and most strategic chip suppliers and meaningful progress in qualifying new components from both existing and new suppliers.

In terms of our 2022 profitability targets, we expect modest non-GAAP gross margin improvement this year and full year 2022 operating income between $44 million and $60 million. Based on these dynamics, our 2022 non-GAAP EPS targets range from $1.50 to $2, which would represent 12% to 49% growth over 2021.

Overall, we are extremely excited about our strategic direction. We believe that the second half of the year will represent a major turning point in our performance that will provide us with significant momentum going forward.

I'd like to spend a few minutes on our long-term financial targets. But before I do, I'd like to turn the call over to Julie for her review of our '21 results and greater insight into our 2022 guidance. Julie?

Thank you, Colin. As Andy mentioned earlier, my review of our financial results and outlook will be done on a non-GAAP basis. So unless stated otherwise, each mention of gross margin, operating expense, operating income and loss, operating profit margin, effective tax rate and net income and loss per share will mean the corresponding non-GAAP metric. All quarterly comparisons are against the fourth quarter of 2020, and all full year comparisons are against 2020, unless otherwise noted.

iRobot's fourth quarter 2021 financial results were within the ranges we outlined on the Q3 call in October. Total Q4 revenue of $455 million declined 16%. In addition to semiconductor chip constraints that impacted second half 2021 production levels, we were unable to recognize more than $35 million in fourth quarter orders due to shipping delays. These delays resulted primarily from a combination of port congestion, labor shortages at warehouses and a major snowstorm in the Pacific Northwest during the last week of the quarter. The delays caused many of these orders to miss key promotional windows, although some were fulfilled in the first quarter of 2022. Our commercial teams are working closely with retailers to sell that inventory over the coming quarters as they refine their 2022 promotional activities.

Geographically, strong 19% growth in Japan in the fourth quarter was offset by a 29% decrease in the U.S. and a 2% decrease in EMEA. From a product mix perspective, Roomba represented 90% of our Q4 revenue mix, with Braava making up the remainder. Our fourth quarter DTC sales declined slightly as strong growth in EMEA and Japan was offset by lower sales in the Americas as we lapped an exceptionally strong quarter a year ago.

Our gross margin of 27.8% in Q4 declined 13 percentage points from the prior year and was below our target. The year-over-year decrease primarily reflected 5 percentage points associated with higher air and oceanic transportation, 4 percentage points associated with tariffs with the bulk of the remainder split between changes in pricing and promotion, higher component costs, unfavorable product mix and suboptimal absorption of fixed operational costs. The lower-than-anticipated quarterly gross margin performance was largely due to higher-than-forecasted tariff expense arising from the combination of higher component costs and changes in geographic production as well as certain pricing and promotional activities.

Fourth quarter 2021 operating expenses of $160 million declined by 15% and represented 35% of revenue. The decrease primarily reflected disciplined spending during the quarter across the board, with the biggest drivers being adjustments to our working media and to a much lesser extent, lower program spend on certain R&D projects in the fourth quarter of 2020.

Our Q4 operating loss was $34 million. We had a tax benefit in the fourth quarter from adjustments to our full year tax rate, driven by lower operating income, combined with favorable FDII, foreign-derived intangible income, deduction. Our fourth quarter net loss per share was $1.05.

From a full year perspective, 2021 revenue grew 9% to $1.565 billion. Geographically, we generated 48% of our revenue in the U.S., which grew by 1%. International revenue grew by 18% highlighted by EMEA's 22% growth and Japan's 15% growth.

2021 gross margin of 35.3% declined 9 percentage points from 2020. 2/3 of the decline was split relatively evenly between tariffs and higher air and ocean transportation costs. The remainder was primarily attributable to product mix associated with shifts toward new products that have not yet achieved sufficient scale, higher component costs, increased warranty expense and pricing and promotion.

Full year operating expenses of $514 million grew by 6% due to the combination of higher personnel expenses associated with head count, increased consulting to support certain R&D initiatives and the investments associated with our DTC and marketing technology initiatives. Operating income in 2021 was $38 million, and our operating margin was 2%.

Our full year 2021 effective tax rate benefit was 0.4%. We reported 2021 EPS of $1.34. We ended 2021 with $235 million in cash and short-term investments, a decline of $13 million from the end of Q3. The decrease primarily reflects our acquisition of Aeris netted against our cash flow from operations in the fourth quarter.

Fourth quarter DSOs were 32 days, an increase of 1 day from the same period 1 year ago. Our year-end inventory balance was $333 million or 92 days. In 2020, the year-end inventory was $182 million or 55 days.

I'd like to spend a moment on this topic because the inventory balance is higher than historical norms. As I mentioned earlier, Q4 was particularly difficult due to both extended shipping time frames and supply constraints. Our year-end 2021 inventory balance and DII increase was primarily driven by a meaningful increase in in-transit inventory, which added 22 days to our DII. We also put our balance sheet to work as we carried higher inventory balances to maximize Q4 capacity utilization at our contract manufacturers and support end-of-life programs for certain products.

Work is under way to optimize our inventory, although we expect inventory, measured in dollars and days, will stay elevated over the next couple of quarters. We believe improvement on this front in 2022 will be somewhat limited due primarily to elongated shipping time frames. As a result, we are targeting year-end 2022 DII levels in the low 70-day range.

With that said, let's take a deeper dive into our 2022 outlook. As Colin noted, we anticipate 2022 revenue will grow in the range of 12% to 18% to $1.75 billion to $1.85 billion. We anticipate approximately 65% of our full year revenue coming in the second half with an expected first half revenue decline of 3% to 8% and an anticipated second half growth of 26% to 34%.

As we compare against a very unusual 2021, we expect 2022's first half/second half mix will resemble the way 2020 came together when 67% of our revenue was generated in the second half. Overall, our 2022 revenue outlook assumes higher unit volume for robots, complemented by higher gross robot ASPs along with $40-plus million from our newly acquired air purification products. We expect that between 70% and 75% of our air purifier revenue will come in the second half of the year following the completion of our rebranding work.

As a reminder, and we say this every year, we manage our business on a full year basis and encourage investors to focus on our annual targets. Since the timing of orders is challenging to forecast even under ideal conditions and large orders that shift from 1 quarter to the next can cause material fluctuations in our quarterly growth rates. Additionally, our revenue expectations contemplate yen and euro exchange rates roughly in line with current rates, plus or minus 5%.

We anticipate that our 2022 gross margin will improve modestly to between 36% and 37%. There are a lot of moving parts, but at a high level, we expect that the combination of COGs productivity initiatives, decreased air freight and reductions in warranty expense will be partially offset by higher pricing and promotional activity and increased ocean transport costs. In terms of tariffs, we currently anticipate $42 million to $44 million in full year 2022 tariff costs. This is higher than our expectations in early December, and it reflects our overarching focus on optimizing total landed costs across labor, materials, components and tariffs as we finalized our 2022 commercial plans, product roadmaps and negotiations with our contract manufacturers in both China and Malaysia. We now expect that up to 75% of all Roomba robots produced for North America in 2022 will be made in Malaysia. As we expand the range of robots produced in Malaysia and increase overall volume in the second half of the year, we expect our tariff costs will decline as we exit '22 and deliver meaningful savings in 2023.

We are targeting 2022 operating costs in the range of $578 million to $621 million or approximately 33% to 34% of sales. The anticipated increase over 2021 primarily reflects higher personnel costs associated with planned new hires this year and returning incentive compensation to historical norms, increased working marketing and incremental spend on new R&D programs.

While G&A and R&D are expected to trend near 2021 levels as a percentage of revenue, we anticipate sales and marketing will be slightly higher than 2021 as a percentage of revenue. This reflects working marketing returning to more historical levels to support our anticipated top line growth, the build-out of our martech stack and adding the talent necessary to operate it. Given our top line guidance and spending plans, we currently expect an operating profit margin of approximately 3%.

In terms of other notable modeling assumptions for 2022, we anticipate other expense of around $2 million and an effective tax rate of approximately 3%. At these profitability levels, relatively small dollar changes in pretax income along with the jurisdictional mix of those profits can cause meaningful changes in the effective tax rate. We anticipate a diluted share count of approximately 28 million shares. As a result, we expect our full year EPS to range from $1.50 to $2.

One quick note on our GAAP EPS assumptions. We recently sold our stock in Matterport at the end of the lockup period. Due to the decline in the value of this investment since the end of 2021, we will recognize an approximately $17 million loss in our first quarter 2022 GAAP results as other income/loss. Overall, our strategic investment in Matterport delivered an outstanding return with a significant gain in our GAAP results over our initial investment.

In terms of other 2022 financial guideposts, our business remains minimally capital intensive. Overall, we expect 2022 capital spending to be in the low to mid-$30 million range or approximately 2% of anticipated 2022 revenue. We anticipate that our cash flow from operations in 2022 will improve modestly from 2021 levels given our expected fundamental performance.

In terms of some quick additional Q1 color, we currently anticipate Q1 revenue between $293 million and $313 million, which would range from a 3% decline to 3% growth. We currently anticipate a Q1 margin in the low 30% range and tariff costs of approximately $8 million. We expect operating costs to range in the mid-40% range. As a result, we expect our operating loss will range from $37 million to $44 million. Our net loss per share for Q1 is anticipated to be between $1.35 and $1.60.

In summary, we managed through a very challenging second half of 2021 as component shortages hamstrung our ability to meet demand and made it difficult to absorb a range of higher-than-expected supply chain costs. Nevertheless, we delivered Q4 within our prior expectations and made important strategic progress during 2021 that we believe will help us further expand our business, drive profit improvement and fuel EPS growth in 2022 and beyond.

That concludes my commentary. I'll now turn the call back to Colin for some additional color on the coming year.

Thank you, Julie. As we've outlined, achieving our 2022 outlook is primarily based on improving our access to critical semiconductor devices and accelerating production in the second half of the year to fulfill the demand that we've been unable to satisfy. We believe that our second half '22 performance will serve as a springboard to achieve the long-term financial model that we unveiled at our Investor Day 2 months ago. More specifically, by 2024, we expect to grow our revenue between $2.4 billion to $2.6 billion, increase gross margins into the low to mid-40% range and deliver operating profit margin between 12% and 13%, expanding our EPS between $7.50 and $9.25.

The underlying assumptions behind this long-term financial model are fundamentally sound and relatively easy to understand. We expect to more than double the size of our connected customer base over the next 3 years as more consumers increasingly choose Roomba and Braava, largely because of the way Genius delivers a new level of performance and collaboration between our robots and the people who own them.

We anticipate reasonable growth at retail with much faster growth in our DTC channel as an expansive growing base of loyal iRobot customers spends more money directly with us. We believe that our existing customers will buy more robots, accessories and other products like air purifiers directly. We expect significant growth in our air purifier sales over the next few years. And candidly, we'll be disappointed if this is not a $150 million-plus product category for us by the end of '24.

We're committed to significant gross margin improvement. We anticipate that our tariff cost will shrink meaningfully in 2023 as we anticipate that the vast majority of our North America volume will be produced in Malaysia. We also expect our gross margin will further benefit from the easing of supply chain cost headwinds, ongoing DTC expansion and a relentless effort to achieve greater scale and efficiency across our operations.

In terms of our operating costs as we exit out of '22, we plan to carefully calibrate our spending in ways that will enable us to fund our most promising growth initiatives while generating a point or more of operating leverage each year. Those dynamics will underpin our expectation for material improvement in our operating profitability and accelerated EPS performance. We believe that our targets are both compelling and achievable.

I know the entire team at iRobot has worked incredibly hard over the past year to help move our company forward. All of us are motivated by the opportunity that lies ahead as we build the future. It's exciting to see how our products are intelligently partnering with their owners to help make their lives better. We believe that our success in achieving the long-term financial targets that we've outlined will create substantial value for our shareholders, our employees and our customers.

That concludes our remarks. Operator, we are ready to take questions now.

(Operator Instructions) And our first question comes from Asiya Merchant of Citi.

Great. I have a quick question on the expectations, obviously, for the year. Colin, you talked about the semiconductor challenges. What's kind of baked in -- what semiconductor specifically are you talking about that would ease in the second half that supports your inflection in growth in the second half?

And then I have a follow-up on the ASP assumptions. I think if I didn't mishear, Julie, you talked about ASPs also increasing in fiscal '22. Is that a function of a mix shift going here as you guys benefited a lot already in fiscal '21 from the shift to premium and mid-tier robots?

Sure. So I'll start off. You asked about the semiconductor chip shortages. This is something we've been aggressively working since the middle of last year where we're putting in place much longer commitments with our semi providers to ensure a continuity of supply. Some of the critical components include some of the microcontrollers, lower-level microcontrollers that operates some of the lower-level functions on the robot, some integrated logic chips, which are, frankly, quite lower tech, but because they use older manufacturing processes, the production of those components was more optimized and thus had less room to surge as demand was disrupted last year.

And so that -- this is a -- digging out of the hole of last year on semi has required a lot of commitment to forward-looking demand plans in a way that we hadn't done in the past when we were optimizing for supply chain efficiency. And so what we're talking about is the plain full outcome of a commitment to supply chain continuity that we adopted last year. And so that the expectation that we will see, the supply to meet the demand anticipated by our guidance is not wishful thinking. It is carefully architected on the backs of agreements we have with our suppliers.

Great. And then Asiya, I'll jump in on your question on ASPs. If I think about our aggregate revenue guide for the year, which is 12% to 18% growth. I think it's important to break it down into organic and inorganic growth expectation. So as we said in our prepared remarks, we expect in our guide, high single-digit to mid-teen organic growth coupled with several points of inorganic growth associated with our acquisition of Aeris.

If you look then at that organic growth expectation, it is primarily driven by an assumption of increased units. But there is also an expectation that we will see some complement associated with continued ASP expansion, particularly as we look at the ongoing growth in the market that we've seen in the mid and premium tiers as well, of course, with our mix of DTC.

Okay. Yes, that's what I was getting to, if the DTC was a component of the higher ASPs.

Next question comes from John Babcock of Bank of America.

I guess actually just a quick follow-up on that last question just on the ASP side of things. Have you looked at the opportunity to potentially get some pricing on the margin to offset some of these cost headwinds that you're seeing? I mean it seems like a lot of different categories across a broad range of products have been able to achieve pricing. And I recognize that your category is clearly competitive, but I was wondering if, even if you might be able to get, say, like a low single-digit percentage increase, that might not impact demand. Just wondering the extent to what you've looked at that and how you're thinking about that overall for 2022.

Sure. I'll take that. This is something we're continuously looking at testing in different ways. I think there's an assumption in some market for some models in 2022. There is an opportunity. In other areas that are more competitive, you can see things going the other way. One of the drivers that we have going for us in '22 is the global rollout of the j7, which is our most differentiated premium product. In 2021, that was in limited distribution, and we were unable to manufacture. It was one of the robots that we were certainly chronically short of and needed to scale back our launch plans because of shortages. That will be fully rolled out.

As we think about category growth in general, the mid- to premium tier products or segments of the marketplace actually demonstrated a very, very robust growth last year, while the entry levels saw actually some consolidation. And so that this favors us as the premium player and also underpins our optimism around ASPs.

Okay. And then as far as the guidance overall, could you just talk about what's changed in your thinking for 2022 since the Investor Day, recognizing obviously that those were preliminary targets?

I don't think anything has changed from the Investor Day. I think the full year numbers are consistent with what we conveyed on Investor Day. I think that the additional color that we're giving today is this tale of 2 cities or tale of 2 halves that we did our best to foreshadow on Investor Day, and now we are quantifying just the impact of the tail end of the supply shortages significantly impacting the first half and then the acceleration we're excited to enjoy in the second half.

And then, John, I agree with what Colin said. I'll just add on there. Certainly, and we talked about this in our prepared remarks, overall tariff assumptions changed from December. But I think it's important to note that we -- as we look to balance a number of factors, our expectation around gross margins is still in line with what we talked about.

Okay. Great. And then just last question before I turn it over. As far as revenue from existing customers, when customers come back, are they tending to buy replacement robots? Are they upgrading to more premium robots or buying accessories? Any color you can provide on that would be helpful.

There's -- I can't quantify it with a exact percentages. We don't disclose that. But in general, repeat customers are more likely to buy more premium robots. The -- this is part of the journey that customers take. As you have more experience with your robot, your desire to have that robot have superior mission completion, superior abilities to avoid obstacles and have more precision control because you simply understand the benefits of those features more fully is a driver of this repeat purchase laddering up of premium demand.

And then just to add on to that, I would say that if you take one thing away, it's the opportunity that exists and that we -- I've been highlighting in the last number of quarters with our existing customer base, even in taking something like accessories where, as in -- we said in '21, we enjoyed good growth, 24%, but it still represented a very small piece of our overall revenue base. So as we move those new marketing technologies into production as we are able to more seamlessly interact with those connected customers, there's opportunity for us across a number of fronts.

And next, we have Chris Grenga of Needham & Company.

Could you talk a bit about the factors that contributed to the headwind in e-commerce? Is that primarily supply chain? And then on -- specifically on DTC, do you expect to see sequential growth following the nice gains in connected customers in the Q1, Q2?

The -- so we do expect gains in DTC. It's based on just the math underlying the continued growth in our connected base. I mentioned it's up 44% in '21 over 2020. And we continue to see strong additions to that base then multiplied by, as we bring our new marketing tools online, improvements in conversion rate and then further augmented by the addition of the Aeris product line as an opportunity to increase basket size. So the DTC performance of the company will grow throughout 2022, and we're expecting pretty significant improvements in the -- in DTC's contribution to our overall revenue.

2020 Q4 was a really hard comp for 2021 just because of the dynamics of that year and certainly, supply did not help either. So it's -- we're coming off 2 very, very unusual years in 2020 and 2021. But we were proud and excited about the performance in Q4 of DTC and look forward to unleashing the power of the investments we've made against a growing customer base this year.

Great. And recognizing that it's still early days for the subscription service effort, but any update or any color that you could provide that over the quarter, that would be great.

Sure. I think that we remain very excited about subscriptions. We continue to scale at a modest rate the availability and the marketing dollars behind driving subscriptions as we gain more confidence in the underlying financial KPIs that will ultimately allow us to speak very specifically about expectations. So no update explicitly on this earnings call. I think you should expect to hear more from us later in the year around subscriptions as we have a bit more data. But I can say we remain excited and optimistic about the role subscriptions will play going forward.

(Operator Instructions) And next we have Ben Rose of Battle Road Research.

Question for Julie. With respect to transportation and logistics costs since we're almost halfway through Q1, is there any indication that some of those costs are easing up, particularly looking back relative to Q4 when there may have been a big rush to get lots of products in before the holiday season?

Yes. It's a great question, and it's one we look at closely. I would say as we look at ocean transportation, we have seen small examples of goodness. But overall, I would say the pricing that's out there and what we're seeing in terms of expectations is consistent with the -- what we've provided as guidance. It remains a very challenging environment.

Yes. It's something that if these bright spots continue to grow, we could talk about that. But at this point, they're only anecdotal. And well, North America looks to be vectoring positively. There's some negative signs in shipping costs in EMEA. So we're comfortable with our current expectations. Our fingers are crossed that we'll see some systemic and modelable improvements over this year.

Okay. And with regard, Colin, to the 2024 guidance with respect to revenue, just want to be clear, is that based on products and categories that you're in right now? Or does it assume some incremental contribution from new product categories or any other acquisitions?

It does not include new categories or new acquisitions beyond the progress of rolling out the Aeris air purifier business as we described. So we're hoping to get that over $40 million this year, it will benefit from the branding from the Genius incorporation and from the growth in our capabilities and connected customer base, which will continue all throughout this year.

Okay. Great. And if I may, just one more question with regard to the current case that's being examined by the ITC. Is there any update that you might provide with respect to your expected time line of it concluding?

We expect to have a indication, a verdict at the end of April, so that we should have more to say at that point in time. Until then, it's an ongoing activity and I have no further update.

And I'm seeing no further questions in the queue. I will turn it back over to Mr. Andrew Kramer for closing remarks.

Thanks so much, Chris. That concludes our conference call today. We appreciate everybody's support. We look forward to talking with folks over the coming weeks and months. Thanks again.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant...