iRobot Corp (IRBT) 2021 Q1 法說會逐字稿

Good day, everyone, and welcome to the iRobot First Quarter 2021 Financial Results Conference Call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Andrew Kramer of iRobot Investor Relations. Please go ahead.

Thank you, Tiffany. 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, profit and margin, non-GAAP effective tax rate, non-GAAP net income 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 first quarter 2021 financial results press release we issued last evening, which is available on our website at www.irobot.com.

Also, unless otherwise stated, the first quarter 2021 financial metrics as well as 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 first quarter of 2020. In terms of the agenda for today's call, Colin will briefly review the company's quarterly financial results, discuss major strategic accomplishments and related progress and share his perspective on our outlook into 2021. Julie will detail our first quarter financial results and offer insight into our expectations going forward. Colin will conclude our commentary with some closing remarks. After that, we'll open the call to questions.

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

Good morning. Thank you for joining us and Happy Star Wars Day. 2021 is off to a very good start. Our first quarter revenue of $303 million grew 58%, which we converted into operating income of $15 million, an operating profit margin of 5% and EPS of $0.41. We believe that our first quarter revenue growth demonstrates that our value proposition continues to resonate with consumers around the world. We generated strong top line growth in each major geographic region as we benefited from stronger-than-expected demand from our distribution partners in EMEA and vibrant retail orders in North America, including certain orders that were previously anticipated in the second quarter. These dynamics were complemented by another quarter of triple-digit growth in our direct-to-consumer channel. Based on our strong Q1 performance and favorable consumer demand tailwinds, we see continued growth ahead, and we have raised our full year revenue outlook. We also reaffirmed our 2021 profitability and EPS expectations as we have adjusted our spending plans to offset expected gross margin pressure from transitory supply chain challenges.

As we move forward, we are optimistic about our potential to deliver upside to our updated 2021 targets. I'll discuss our outlook in more detail shortly. But first, I'd like to highlight our progress in executing each element of our strategy. As a reminder, our strategy remains focused on driving greater customer engagement in ways that lead to more customers transacting directly with us more often. The first element of our strategy is to differentiate the iRobot experience for our customers. This means continued investment in AI, home understanding and machine vision technologies so that our floor cleaning robots can be tightly integrated into the customers' lifestyle and clean with unprecedented levels of thoughtfulness, reliability, control and support. We are pleased with our current progress on these fronts.

During the first quarter of 2021, we upgraded our iRobot Genius Home Intelligence platforms, adding several compelling new features, including estimated clean time, which helps customers know when a cleaning job may be finished, and clean while I'm away, which uses a smartphone's location services to tell the robot to start cleaning once you leave the house. Unique functionality of our Genius platform is helping drive sales of our mid-tier and premium robots by pushing innovation across more of our product line and making certain price adjustments. We are reinvigorating the mid-tier of our portfolio and generated strong first quarter revenue growth from these robots.

We believe that solid execution on this element of our strategy played an important role in enabling Roomba to occupy 7 of the top 10 best-selling RBC models in the U.S., EMEA and Japan in the first quarter.

The second element of our strategy is to build stronger, more enduring consumer relationships. Our connected customer base grew by 74% over 2020's first quarter to 10.7 million customers who have opted in to our digital communications. It has also been gratifying to see how the high-value features and functionality within the Genius platform are delighting our customers. As iRobot's customer community expands, we are enhancing all points of the consumer's journey with us on the moment they purchase a product from us and then unbox it, to when they complete their first cleaning mission and at various points over the months and years that follow.

The third strategic pillar is nurturing the lifetime value of the customer relationships to expand existing customer revenue. This involves accelerating the replacement cycle, upselling and cross selling, helping customers properly maintain their robots, and offering complementary products and developing new services, including new purchasing options to drive recurring revenue and higher gross margins. Since the start of the year, we have accomplished several important milestones. In early April, we introduced our new iRobot H1 handheld vacuum as a complement to Roomba and Braava robots. Many of you heard me say that the future of vacuuming is a Roomba and a cordless vacuum for areas that robots can't easily clean. Now our customers can get both products directly from us.

We also made tangible progress with new services that provide customers with greater purchase protection and flexibility. Consumers who purchase their robots directly from us can also add extended warranty, and we've been very pleased with the attachment rates thus far. In addition, customer feedback on our iRobot Select Robot as a service membership program has been very positive as these pilots have progressed. Moving forward, we plan to optimize the value proposition for iRobot Select and prepare to further scale this program as well as advanced testing of a premium care as a service offering. Overall, our direct-to-consumer sales grew by 146% in the first quarter and generated 12% of Q1 revenue. Accessories represent another opportunity to drive existing customer revenue growth through our D2C channel.

We generated very healthy Q1 growth in accessory sales, which includes filters, rollers, batteries, bags, mopping pads and mopping solution. We expect to build on this momentum over coming quarters as we further upgrade the buying experience in irobot.com and our home app and implement world-class digital marketing systems, tools and campaigns that will enable us to present our customers with the right offers for the right products at the right time.

With a strong Q1 behind us, we move forward with solid category momentum, a compelling value proposition of fast-growing and rapidly maturing D2C channel, excellent retailer relationships and healthy channel inventory positions. Our year-to-date sell-through growth through week 15 is not surprisingly substantially better than the same period a year ago, which was dramatically impacted by the early days of the pandemic. Nevertheless, we recognize that it is still early in the year. The pandemic continues to weigh on the macroeconomic landscape and limit our visibility. Additionally, our business is not immune to the semiconductor chip shortage that is disrupting a wide range of industries. To that end, certain component suppliers recently notified us of potential volume limitations. We have already made good progress in our efforts to mitigate these constraints, although additional work lies ahead on this front.

Taking all of these dynamics into consideration, we have raised our full year revenue expectations to the range of $1.67 billion to $1.71 billion. From a profitability perspective, the semiconductor chip shortage is resulting in higher costs for these components. At the same time, we are now grappling with rising costs for raw materials, airfreight and transportation. While these transitory costs are likely to remain elevated for the next few quarters, we expect that over time, they will revert to more normalized levels as market forces adjust. Nevertheless, to offset the near-term impact on our anticipated 2021 gross margin, we have recalibrated our spending over the coming quarters. As a result, we are able to reaffirm our 2021 operating income, operating income margin and EPS targets.

With 2/3 of the year still ahead of us, we are optimistic about our potential for further upside, especially if current demand trends remain healthy, and we successfully expand access to the semiconductor componentry which will enable us to increase production beyond what's embedded in our current expectations. That concludes my initial commentary.

I will now turn the call over to 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 operating profit margin, effective tax rate and net income per share will mean the corresponding non-GAAP metric. All quarterly comparisons are against the first quarter of 2020, unless otherwise noted.

As Colin noted, our Q1 performance represents a strong start to 2021. Total Q1 revenue grew 58% to $303 million and exceeded our original targets due primarily to stronger-than-expected orders from distributors in EMEA and U.S. retailers, including over $5 million in orders that were originally expected in the second quarter. Geographically, revenue grew 40% in the U.S., with international revenue up 70%, due primarily to 74% growth in EMEA and a 53% increase in Japan. From a product mix perspective, Roomba robots and accessories represented 89% of our Q1 revenue mix with Braava making up the remainder. Since the start of the pandemic over a year ago, more consumers are buying our products online. We estimate that approximately 56% of total first quarter revenue came from e-commerce, which comprises our own website and app-dedicated e-commerce websites and the online arms of traditional brick-and-mortar retailers.

Our gross margin of 40.7% in Q1 was largely unchanged from the prior year's first quarter. Changes in pricing and promotions, higher air freight fees and higher cost to procure certain components were essentially offset by leverage from higher sales, lower tariff costs, favorable channel mix and the timing of one-time write-offs associated with pausing certain activities in the first quarter of 2020 that did not reoccur in the first quarter. Tariffs on RBCs imported into the U.S. from China were reinstated on January 1, 2021. Taking advantage of the non-tariffed inventory that was in place at the end of 2020 helped us limit our first quarter tariff costs to just $3.4 million. Our gross and operating profit margin would have been 1.1 percentage points higher without tariffs.

First quarter 2021 operating expenses of $109 million increased by 17% and represented 36% of revenue. The increase primarily reflects higher personnel cost expenses and increased working media spending to drive sales growth. Our Q1 2021 operating income was $15 million or 5% of revenue. Our Q1 2021 effective tax rate was 19.2%, which was in line with our plans. Our net income per share was $0.41.

We ended Q1 with $501 million in cash and short-term investments, an increase of $17 million from year-end. The increase primarily reflects the company's fundamental operating performance plus favorable changes in working capital. It should also be noted that the reduction in short-term investments since the end of 2020 primarily reflects the sale of our Teladoc stock early in the quarter once the restriction on selling those shares lapsed. First quarter DSOs were 20 days, a 2-day increase against the same period 1 year ago. Q1 ending inventory was $233 million or 118 days compared with $147 million or 118 days at the same time last year.

With the quarterly review complete, let's move on to our 2021 outlook. As Colin outlined, we now expect 2021 revenue in the range of $1.67 billion to $1.71 billion. Our updated outlook assumes very strong sequential growth, which implies a split between the first and second halves of 2021 that approaches our historical 40/60 split. As a reminder, our revenue expectations contemplate yen and euro exchange rates roughly in line with the current rates, plus or minus 5%. Colin outlined several recent developments involving our supply chain that are resulting in higher-than-expected costs, including constrained availability of semiconductor componentry, rising raw material costs and increased freight, airfreight and transportation fees. In addition, we expect slightly higher 2021 tariff costs in the range of $43 million to $45 million. As a result, we now expect a full year 2021 gross margin of approximately 39%. We anticipate a Q2 gross margin that is in line with our full year target, which reflects the timing of promotional activities as well as incrementally higher supply chain costs.

Many of the other factors shaping our 2021 gross margin are unchanged. Since the pandemic began, our operations organization has been outstanding in keeping key initiatives on course while moving with urgency and decisiveness to address unanticipated supply chain challenges. Our plan to substantially increase our production in Malaysia over the course of this year is progressing well, even with a tight labor market. We are also fortunate to have a strong balance sheet that will help us secure longer lead time and increasingly scarce componentry. In terms of our 2021 operating costs, we have adjusted our full year spending plans to offset the anticipated gross margin pressure. We are now targeting full year operating costs in the range of $535 million to $555 million or approximately 32% of sales.

As a result, we still expect operating profit margin of 7%, with anticipated operating income between $110 million and $120 million. While we expect relatively nominal increases in our Q2 R&D and G&A spending versus first quarter 2021 level, we plan to significantly ramp up our Q2 sales and marketing activity as we continue to invest in scaling our D2C operations and activate our working media programs to support major holiday and other seasonal events. Although we expect our Q2 operating profit margin will decline from the first quarter, we anticipate that the substantially higher second half revenue will support a meaningful improvement in our profitability in the second half of the year.

In terms of other major modeling assumptions for 2021, we now expect other expense to be between $2 million and $3 million, and we still anticipate an effective tax rate ranging from 18% to 19%. We still expect our full year EPS to range from $3.00 to $3.25 with an anticipated diluted share count of approximately 29 million shares. We continue to expect our 2021 capital spending to be in the low $50 million range. On the use of capital front, our previously authorized $200 million stock repurchase plan had $175 million available entering the second quarter. Earlier this month, we disclosed our intention to repurchase up to $50 million of our common stock under a 10b5-1 plan that began on April 12 and is expected to end on or before September 5. As a reminder, our 2021 expectations do not assume any repurchase activity.

On the inventory front, we expect that inventory, both in terms of absolute dollars and DII may fluctuate meaningfully from quarter-to-quarter over the remainder of the year as we navigate a challenging and fluid supply chain environment. In summary, Q1 was a good way to begin the year. We move forward focused on executing against our plans as we look to capitalize on the exciting opportunities we see and overcome the challenges that lie ahead. That concludes my commentary.

I'll now turn the call back to Colin for some closing thoughts.

Thank you, Julie. We are at the midway point of a multiyear strategic plan to transform iRobot into a more defensible, more profitable business, capable of sustaining solid growth with scale, channels and offerings to address the evolving needs of an expansive and expanding global customer base. Our recent accomplishments and progress from driving innovation in robotics floor care and introducing complementary cleaning products, to offer extended warranties, advance promising new high-value services, and selling more accessories all illustrate the importance of our investment to build out our e-commerce and digital marketing capabilities. They also highlight our potential to grow existing customer revenue and further improve the profitability of our enterprise in the process. We expect more progress on these and other related fronts over the coming quarters.

On our Q4 call in February, we shared our preliminary thoughts on what our business may look like in 2022. That view remains unchanged regardless of the short-term supply chain turbulence we've recently encountered. Over the past several quarters, we've made good progress in refining our long-term strategic plan. As we finalize this activity, we have started our planning process for a virtual Investor Day event that we plan to hold later this year. We believe this will be an important opportunity for analysts and investors to fully appreciate why we are so enthusiastic about our prospects. We expect to finalize the timing for this event soon, and we'll share those details with you accordingly. That concludes our comments.

Operator, we will take questions now.

(Operator Instructions) Your first question comes from the line of Asiya Merchant with Citigroup.

Great. That was a very strong demand environment that you guys outlined, that you guys delivered and are outlining for the year. I had a few clarification questions. First, on the U.S. side. Based on the results and the data that you've provided, it seems like U.S., if I look at it not just last year because of the pandemic, but further out, kind of flattish relative to what it was in March '19. Are there any like inventory or channel dynamics here to consider? And then as we look ahead into a more normalized environment in fiscal '21 as it relates to Prime Day and spring activities and promotional activities, how should we think about 2Q this year versus sort of last year when there was -- when Prime Day was kind of shifted later into the year? If you can talk a little bit about the demand dynamic there. And then lastly, I know EMEA was very strong. I've heard some of my other companies also talk about the strength in EMEA. If you can talk to us about sell-in versus sell-through in EMEA and Japan, that would be helpful.

Sure. Let me start. Relative to your inventory question, what we said is that we're in a very good position. Which would mean superior from where we were a year ago when the pandemic was starting. Last year, we saw retailers drive their inventory to extremely low levels and then generally slowly build toward the back part of the year back to a more normalized position. We had a very strong Q4 last year which allowed us to enter into Q1 of this year in a superior position than we did in '20 and we've been able to, based on the strength of the sell-through that we described, keep those inventory levels at healthy positions. So on the question of is there any inventory fill or oversupply dynamics to consider for the balance of the year, I would say at this time, we don't see that. We don't see that we have an exposure either in -- with any of our retailers from an inventory position. And I think that we also see with retail doing, having weathered 2020, we don't see any unusual risks with channel viability. So I would say the answer to your first question is nothing out of the ordinary. We're very healthy in those dynamics. Relative to your comments around Prime Day, it is a choice of Amazon every year to either include or not include us in Prime Day, and we've been fortunate enough to have a strong history with Prime Day. But we have not announced what our situation is with Amazon and Prime Day at this point. It is, Julie, what do we know about the timing on Prime Day? I think it's -- it would happen in, at a more normal time, but is the expectation. So that would mean were it happening, selling would happen in Q2. Of course, last year, we did have some sell-in for Prime Day in Q2 as well.

And then, Asiya, as you know, I think that we always work hard to make sure that we find balance over time between sell-in and sell-through. As we mentioned in our prepared remarks, through week 15, we're seeing very solid global sell-through, particularly driven by the U.S. And overall, as we look forward to Q2, we expect strong sequential growth. We have to remember, as we go through 2021, we're going to be comping an unusual 2020. And so as we look to make sure that we're continuing to build on the customer demands that we're seeing, a lot of that is going to normalize as we go through 2021 and 2022 will have a more typical comp.

Okay. And if I may, one more on the accessories side, how should we think about contribution from accessories into kind of what you're expecting, your high teens, 20% kind of growth. What should we kind of think about accessories more in '21 and as then you ramp up into outer years?

I think at this point, we'll just give some high-level color on that answer. But as our direct-to-consumer business grows, the opportunity to drive more accessory sales is almost outpacing the growth in D2C. And so it is a definite tailwind on revenue and revenue growth and financial performance. So that as we look forward, we see the increase in D2C definitely accelerating the contribution of accessories to our performance.

Your next question comes from the line of John Babcock with Bank of America.

Starting out, you talked a little bit about component shortages as well as inflation in raw materials, freight and transportation. On that point, I was wondering if you could talk about your relationship with the contract manufacturers and also provide some color on how your contracts with them are structured just so we can get some sense on how this might roll through results?

So we've got long-term relationships with our contract manufacturers and definitely a strong partnership to work through these challenges. I think that what made the current situation unusual was component suppliers decommitting components that we had expected and having to go into the open market and do spot buys, which we did effectively, although that was a driver of additional costs. So that the -- and the impact, the financial impact of that is included in the guidance that we have given. This gets better as we are able to go and secure longer-term commitments and take more, a slightly higher inventory position on some of the components that have been impacted and will lead to a normalization of cost as we roll the clock forward. It's why our expectations around the color for 2022 remain unchanged. And the guidance that we gave for 2021, we are confident in raising our revenue guidance and covering the incremental costs of raw materials and transportation within our previously given operating income guidance.

Got you. And might you be able to talk about some of the raw materials where you're seeing the most inflation?

Just resins are up 50% in some situations. It is a -- there's definitely a disruption to supply chain that is temporal. It will take some time to work through, but we do expect it to normalize back to traditional levels at this point. So that's one significant example.

That's great. And then also, going back to kind of the last set of questions, I was just wondering if you might be able to talk about some of the key trends that are driving that strong growth in EMEA?

I think that robot vacuuming continues to grow as the method of floor care for the future. This is something that we've seen happening and continues, it's Roomba and a hand vac is increasingly how people think about cleaning their floors. And so we still have relatively low household penetration. There's still strong opportunity for continued growth, and we are at a phase of consumer adoption where the majority of consumers are now realizing that this is not a fad, this is the new normal. And I think that realization was accelerated last year through spending more time at home and the work from home changes in consumer behavior. So I think that this is a vibrant industry at an exciting time in its growth.

Okay. And then I just want to squeeze in 2 other quick ones here. First, there have been some proposals in the U.S. about changes in the corporate tax rate as well as the global minimum tax. And I was wondering if you might be able to just quickly talk about how that might impact iRobot? And then also, I think on the last call, you mentioned expecting 2022 earnings to be above 2020 levels. And I just wanted to see if that is still the case.

Yes. So I'll take that one, John. Obviously, some of the -- what's being written now about potential changes in the corporate tax rate are things that we are watching closely. I have nothing new to add to that. And as that evolves, we'll continue to look at that and its implications. When we look forward into 2022, the color that we've provided is that we, underpinned by our expected continued healthy market growth and the fact that iRobot will benefit appropriately from that continued growth, we expect that we'll see a number of things start to turn in our favor. Gross margin headwinds turning into tailwinds, continued calibration of our spending and driving operating leverage. And so that we expect our OI to be above 2020 levels and a substantially stronger EPS performance. Those things all, which we talked about during our Q4 call, are all things that we continue to feel confident in today.

Your next question comes from the line of Mike Latimore with Northland Capital Markets.

Great. Thanks a lot. Really strong growth in the quarter there. In terms of the supply shortage, did that influence your revenue guidance much? Or is it more just on the margin side?

It certainly influenced both, and we alluded to there being some additional juice that may be in our financial performance, assuming we can unlock it through continued strong demand and continued ability to grow our supply. In a constrained or an unfavorable supply situation, companies are less able to meet growth demand because of lead time, componentry lead time, which have been substantially growing over the past few months. And so that assuming that we can find the supply, we believe the demand is there. And the growth in revenue guidance we're signaling today represents the best view we have at this moment in time, where we're admitting that there is some uncertainty around availability of incremental products that hampers our ability to lean even further forward. So this is where we think we are today. But again, the demand is there. We're very excited with our position and how customers are responding to our product. And it's a bit of a -- it's also early in the year for us to be touching our guidance at all. So I think that there's a strong message in the fact that iRobot just increased revenue guidance in the Q1 call, which is not something we have done frequently in our history.

Great. Makes sense. And then on EMEA, was the strength there largely related to launching the i3 in the region. Or this combo product? Or just more channel activity? I mean a little more color there would be great.

It was largely demand up and down our product lines. The i3 definitely was a contributor to it. But I think that Europe is in just a very healthy -- is a very healthy market from a demand perspective and is catching up with North America and Japan. Which is sort of where robots caught on a little bit earlier.

Okay. And then just last on the I think it's 10.7 million consumers that have opted in, what percent of those are actually buying something? Not a Roomba or Braava, but like an accessory or warranty, that sort of thing?

It's a great question and something we look forward to giving more color on in the future. We're sort of -- as we are rolling out our direct program, we wanted to start releasing new statistics to our analysts and investor community, the first being what is the size of the connected pool. We'll be talking about existing customer revenue and some other key metrics in the future as we continue to implement the tools required to accurately measure and communicate those. But great question, stay tuned.

Your next question comes from the line of Ben Rose with Battle Road Research.

Question for Colin with regard to the Roomba combo. I was curious to know if you could give some additional color in terms of its performance in the quarter. And in general, your thoughts about combination robots at this point?

The Roomba Combo is an entry-level robot that combines mopping and vacuuming capabilities and is available in very, very limited markets where we think that tactically it makes sense. iRobot is very committed to the fact that the premium and the best way to clean your floor is to separate vacuuming and mopping functionality. Just the physics of both the cleaning process and getting the pad into, up to the edges and into the corners where the most dirt is, benefit substantially from a 2-robot solution. And as evidenced by strong Braava performance, our customers are agreeing with our strategy. So it's a tactical play. There are some markets where particularly at the lower price points, we find ourselves competing against products that have that 2 in 1 where people are willing to accept a lower level of clean, willing to accept more involvement in deciding before every mission whether you're going to mop or vacuum and what parts of your home are you going to do this. Again, it's a little anathema from our vision of how robots should care for your home, but it is a useful tactical play.

Okay. And just a follow-up, I'm intrigued by the progress in the Genius Home platform. And I wanted to know I guess strategically, whether you have thoughts about perhaps opening that up to other companies' products to participate in the benefits of the platform.

So we already integrate with other companies' products. And so you're starting to see that happen already. I think that it's very exciting. The growth and the utilization of things like clean while I'm away, particularly with work from home, just finding a good time to clean is a real challenge for many of our customers. And so the idea of the cell phone has left the building, time to go clean, is a compelling proposition. And we've integrated with other devices in the home. So we're very open to it. We think that as we move forward, you're going to see iRobot driving more thoughtfully and automatically configured opportunities for the home to do more in service of the customer. And the examples that we have rolled out and are beginning to see adopted are emblematic of that direction. So this is -- I guess that's a long way of saying yes.

Your next question comes from the line of Jim Ricchiuti with Needham.

This is [Tyler Daily]. I'm filling in for Jim. Congrats on the strong demand this quarter. Just wondering, you kind of mentioned various headwinds in supply chain, transportation, freight, and obviously, the component shortages. Just wondering if you might be able to opine, kind of parse out the impact of each on margins.

Yes. So [Tyler], this is Julie. I'll try to answer your question. And we -- as we've looked at a number of these things, we're giving our best aggregated view of what we think those incremental costs look like. And certainly, any one individually perhaps you'd have a way through, but when you start to look at them all together, it's a headwind for us as we look to the rest of the year. You named the big one. So as I look at as a percent of our total, the increased raw material costs are significant, as are roughly the same the increased transportation, which we would expect over time to normalize. Then I'd point to the scarcity of some of the componentry and our need to do spot buys out in the market. And then finally, the fourth piece would be air freight. Those 4 things make up the lion's share of the impact.

That's helpful. I appreciate that. And just, I guess, a follow-up, you obviously mentioned recalibrating some of your expenditures to adjust for some of those costs. Just wondering, are we going to see I guess a typical ramp-up in quarter 2? Or should we, I guess, more line thinking of later half, Q3, Q4 for those adjustments in spending?

Yes. So one of the things that we talked about in our prepared remarks is we do -- well, if you look at our spending, Q1 to Q2, we would expect fairly nominal growth across both R&D and G&A. Sales and marketing does have substantial sequential growth planned as it normally does, associated with our promotional environment, the holidays that happen in the second quarter.

Okay. And then just one last question. Interested to hear a little bit more about the launch of the handheld. Curious, obviously it's an extension towards sort of your existing customer base and sort of filling a need there. But do you see from a strategic standpoint, eating into any of the market share in the current handheld vacuum market?

So launching the handheld was strategic for a few reasons. The first, it was the first example of using a new capability with our direct-to-consumer engine so that's selling an additional product directly to our customers. And so we were testing out the plumbing. It's something that we've talked about doing as a way of enhancing our existing customer revenue. It's also something that is a very logical adjacency, given that the future floor care is a Roomba and hand vac. It's a very high-quality premium hand vac. Certainly, not the flagship of iRobot artificial intelligence technology, but it's a strong performer for what it does. And I think that you should expect that over time, the learnings from launching this hand vac will pave the path for other types of product offerings and developing direct as an additional channel for new product introductions. We think that the product we're offering is very competitive and that we definitely hope that it can grow and be a legitimate performer in the hand vac market against its competitors. So it's certainly not an anecdotal product that we just threw out there. We think it's strong and we can build on that category as a logical adjacency if that helps.

(Operator Instructions) We do have a follow-up question from the line of Asiya Merchant with Citigroup.

Great, thank you, again. Given the component shortages that are not just specific to iRobot, but across the industry, some of the companies have talked about a more benign pricing environment, less promo pricing. And just given your strong balance sheet and ability to get components, etc. perhaps better than some of your peers, can you talk a little bit about what you're seeing on a market share? Should we expect at the retail level to see iRobot gain share because of these dynamics? And how should we think about the limited promotional pricing on your gross margin guide for this year?

So I think it's difficult to predict the behavior of our competitors. In all markets, our major competitors are China-based manufacturers, and they have and are using slightly different chips than we have. And so that -- and then in 2019, when tariffs came in, we observed our competitors were content to continue some of their promotional pricing and leave their prices where they were and operate under a different margin structure. So we built our year assuming that our competitors would remain aggressive and we would go and react as we have traditionally done, leading to the optimistic look that we have communicated today. So I think that we're planning for competition to find ways of weathering the storm, and we don't view it today as a strategic advantage in the marketplace. Time will tell, but I think that's the safe way of viewing it.

And I guess the other thing to underscore is, we continue to believe that we have a very compelling value proposition as we look at our products and their ability to fit seamlessly into the lifestyle of our consumers. And so we will continue to focus our energy and effort on improving that overall user experience and ensuring in our promotional activities that we're explaining that effectively out to our customer base. We think that's the way to win long term.

And we do have a follow-up question from the line of John Babcock with Bank of America.

Just quickly, I was wondering if you might just be able to remind us how you're thinking about new product launches for this year. Obviously, you have the handheld vacuum, but I thought you also were talking about watching some other products. So if you can maybe help provide some rough color, recognizing you can't be too specific, just around kind of where that innovation might occur.

Sure. So we have communicated that there are 2 new robots to come this year, and we haven't specified any details about what those products are. I would tell you anecdotally, I'm very excited to see what's coming, but I will have to leave it at that. But I guess I can say they're on track and not affected by the supply chain challenges that we have talked about, so we've been able to mitigate the impact on these product launches. So it's all as per plan.

Okay. And then next question, I was just wondering if you might be able to talk about what you're hearing from traditional retailers about the reopening here and how they're kind of thinking about it? And then also how you are thinking about how consumers might adjust spending as we get more people vaccinated and hopefully at some point beyond the pandemic?

Well, we -- definitely, we saw a huge shift to online and e-commerce in 2020 and continuing through the first quarter of 2021. We talked about 56% of our revenue coming from e-commerce channels. That's significantly up from something closer to 40% in 2019 when we had a 60/40 split. I think that the -- we could see retail, brick-and-mortar come back a bit. But certainly, we would not expect a retreat to 2019 levels, more of a single-digit move over time as people get back to retail. We're pretty agnostic as to whether we're selling online or retail, with the exception that we're very, very excited about the continued strong growth in our direct-to-consumer dimension of our business, which we're investing substantially in and enjoying improved gross margin and access to consumers via that channel.

Okay. And then just my last question for the day, I suspect it may not be much here, but I was just wondering if there are any updates on the litigation with Shark.

Not at this time.

At this time, there are currently no further questions in queue. I will now turn the call back over to Mr. Kramer for any closing remarks.

Thank you very much, Tiffany. Thanks, everybody, for joining us. We look forward to speaking with our shareholders and analysts over the coming days and weeks and seeing you at various conferences that we'll be participating in over in May and June. So look forward to future engagements. And if you do have questions, feel free to ring Investor Relations. Thank you so much.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.