iRobot Corp (IRBT) 2020 Q4 法說會逐字稿

Good day, everyone, and welcome to the iRobot Fourth Quarter and Full Year 2020 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, Sarah, 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, profit and profit margin, non-GAAP effective tax rate and non-GAAP net income per share. We believe that our non-GAAP financial results help provide additional transparency to 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 2020 financial results press release we issued last evening, which is available on our website at irobot.com.

Also, unless stated otherwise, the fourth quarter 2020 and full year 2020 financial metrics as well as financial metrics provided in our outlook that will be discussed on today's conference call will be on a non-GAAP basis only, and all historical comparisons are with the fourth quarter of 2019 and full year 2019, respectively.

In terms of the agenda for today's call, Colin will briefly review the company's financial results, discuss major accomplishments and share his perspective on our outlook into 2021 and beyond. Julie will detail our results for the fourth quarter and full year and share additional insights about 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, and thank you for joining us. We closed our 2020 on a very strong note with revenue, operating income and EPS that surpassed expectations we shared at the end of October. Strong demand combined with outstanding collaboration and execution among our sales, marketing and operations team and our broader supply chain underpinned an excellent revenue performance. More specifically, fourth quarter revenue of $545 million grew 28% year-over-year with significant growth in all major regions worldwide. Our top line expansion resulted in an operating income margin of 6% and EPS of $0.84.

For the full year, we reported revenue of $1.43 billion, an operating profit margin of 10% and EPS of $4.14, all of which surpassed our original targets at the start of 2020. Just as important, we believe the steps we took during 2020 are putting iRobot on a very exciting path to drive substantial value creation over the coming years.

With that in mind, I'd like to briefly review the notable progress we've made to execute on our strategy which, at a high level, is focused on increasing the customer's engagement with our products, thereby creating a broader range of opportunities for our customers to transact directly with us.

The first component of our strategy is focused on differentiating the cleaning experience, and we are proud of our 2020 accomplishments in this area. The pandemic forced us to make tough choices about where and how we would invest. And we prioritized investment in software across our AI, home understanding and machine vision technologies to ensure that Roomba and Braava robots can be tightly integrated into the customer's lifestyle and deliver unprecedented levels of thoughtfulness, reliability, control and support. These investments are already resulting in new features and capabilities that are delighting customers.

In August, we introduced version 1.0 of our state-of-the-art robot AI platform, iRobot Genius Home Intelligence. Genius is extensible across our entire portfolio of WiFi-connected robots, unlocking a range of new features and functionality that give users greater control over where, when and how our robots clean.

We expanded our lineup of intelligent self-emptying robot vacuum cleaners in September of 2020 when we launched the Roomba i3 series in the U.S. We've been very pleased with customer demand for this product, which was introduced in EMEA last month. During the fourth quarter, we introduced the Roomba combo, our first 2-in-1 floor cleaning robot that consolidates vacuuming and mopping functionality. The product is now available in certain markets in Europe where this capability appeals to value-seeking customers, looking for a convenient solution to help with their everyday floor care needs.

As we move into 2021, our innovation engine shows no sign of slowing. We expect to introduce 2 new Roomba robots this year along with a wide range of exciting new digital features through upgraded versions of our Genius platform. We also took steps to aggressively defend our IP as we recently filed a new patent infringement action against SharkNinja.

Our success in differentiating the cleaning experience has enabled us to expand our premium robot sales over the past several years. Revenue for premium robots grew by nearly 50% in 2020 and represented 60% of total robot sales, while our average gross selling price has continued to trend upward.

Just as notable, in a year when overall adoption of robotic vacuum cleaners accelerated, we maintained our global leadership position in the RVC category. For the full year, we finished with 8 of the top 10 best-selling RVCs in the U.S., 6 of the top 10 in EMEA and 7 of the top 10 in Japan.

The second element of our strategy is focused on building stronger, more enduring relationships with the customer. We ended 2020 with nearly 10 million connected customers who have opted in to our digital communications, up more than 80% over 2019. Having a substantial portion of our connected customer base elect to receive in-app notifications and e-mails speaks volumes about the tangible value provided by our floor cleaning robots. The ever-expanding range of digital features within our Genius platform is helping to ensure that customers get great value from our products. For example, we are seeing consistently high levels of utilization by our connected customers each month and robust engagement around new capabilities like directed room cleaning and creating a favorite cleaning routine.

The third strategic pillar is oriented around nurturing the lifetime value of our customer relationships by accelerating the replacement cycle, promoting upsell and cross-sale deals and adding new purchasing options that will ultimately lead to recurring revenue and higher margins. We believe that executing on this strategy will support greater revenue predictability and growth, and improve our profitability.

While it is still early days, we made considerable progress in this area over the past several quarters. We have continued to invest in making our website a desired destination for current and prospective customers. For example, during the fourth quarter, we enjoyed strong sales of an exclusive Roomba-Braava bundle, added a financing option for our European customers, successfully scaled to support the busiest online shopping days of the holiday season and gained valuable experience in moving with agility and creativity to increase traffic and drive conversion.

As a result, our direct-to-consumer sales more than doubled in the fourth quarter and generated 11% of total 2020 revenue, up from just 6% in 2019. We view our direct-to-consumer channel as a powerful complement to our strong retail partners. We expect that this higher-margin channel will grow to at least 15% of total revenue in 2021 and are optimistic that DTC revenue will exceed 20% of our total revenue by the end of 2023 even as we continue to enjoy growth with our retail partners.

As we move forward, we believe that there are a number of attractive opportunities to increase existing customer revenue and amplify the benefits of growing our connected customer base. During the fourth quarter, we began conducting tests of new services that span extended warranties, robots-as-a-service membership program and a premium care and maintenance offering. The results thus far have been promising, and we are optimistic that we will begin commercializing these services over the course of 2021. We plan to test other offerings in 2021 that can further increase existing customer revenue and contribute to building a high-margin, recurring revenue stream.

To effectively and efficiently grow existing customer revenue, we plan to accelerate investments that further enhance the buying experience on our digital properties and upgrade our digital marketing capabilities. We have selected our implementation partner and will continue to onboard the marketing and IT talent necessary to maximize the power of these tools and platforms. As we've discussed previously, we believe that these investments are critical for driving traffic, improving conversion rates and increasing transactional velocity. We also believe that these instruments, in combination with our trusted position inside the consumer's home, will enable us to further expand existing customer revenue opportunities.

While 2020 sell-through of RVCs accelerated well above prior year levels, overall household penetration remains relatively low. We believe that the fluid, often frenetic pace of day-to-day life continues to elevate our value proposition and product differentiation. As the benefits of robotic floor care become more widely appreciated and the home remains a central hub for everyday life, we plan to continue capitalizing on the many opportunities arising from the continued growth of our marketplace.

In terms of our 2021 outlook, as outlined in the press release, we anticipate 2021 revenue growth ranging from 14% to 17%. We expect strong revenue growth to start the year, especially since we ended 2020 with retail inventory in a very healthy position. We believe that our success in continuing to drive solid top line expansion in 2021 will also help us fund investments into key areas of our business and mitigate the impact of higher anticipated incremental costs on our 2021 profitability.

More specifically, we expect that the reinstatement of tariffs will add approximately $41 million to $43 million in incremental costs while we'll also absorb higher initial costs as we expand production in Malaysia. Additionally, our sales and marketing spend will increase by an incremental $20-plus million as we build out our direct-to-consumer infrastructure and bring on the additional headcount needed to operate it. As a result, we are targeting an operating profit margin of approximately 7% with EPS in the range of $3 to $3.25.

Looking ahead, we are increasingly optimistic about our longer-term prospects. We believe that our 2020 progress, combined with executing on our plans in 2021, will set the stage for substantially stronger performance in 2022. We expect that the progress we make in 2021 to execute on our plans will enable us to move into 2022 with a more defensible business that is well positioned to sustain mid- to high-teen top line growth.

At the same time, we believe that the gross margin headwinds of 2021 will turn into tailwinds in 2022 as we achieve scale in Malaysia, minimize our tariff exposure, continue growing higher-margin DTC sales and increase fulfillment and supply chain efficiency. As we calibrate our spending to drive further operating leverage, we expect to drive 2022 operating profit margin above 2020 levels, which would in turn yield a substantially stronger EPS performance.

At this point, I'll turn the call over to Julie. After her remarks, I will return to offer some additional closing thoughts. 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 fourth quarter of 2019 and all full year comparisons are against 2019, unless otherwise noted.

We delivered a very strong quarterly performance that again exceeded our plans. Total Q4 revenue grew 28% to $545 million due to the stronger-than-expected orders from retailers and outstanding growth in our direct-to-consumer sales. Geographically, revenue grew 28% in the U.S. with international revenue up 27%, due primarily to 39% growth in Japan and a 26% increase in EMEA. From a product perspective, Roomba represented 89% of our Q4 revenue mix with Braava making up the remainder. Braava revenue grew by 56% due to robust growth in the m6. Roomba-Braava bundles performed exceptionally well over the holidays.

Our gross margin of 40.3% in Q4 was essentially unchanged with the prior year. The lack of tariff expense and, to a lesser extent, favorable channel mix was primarily offset by changes in pricing and promotion, and higher warranty expense.

Fourth quarter 2020 operating expenses of $189 million increased by 30% and represented 35% of revenue. The increase primarily reflects higher working media spending and DTC investments, as well as higher personnel costs tied to headcount and short-term incentive compensation. Our Q4 operating income was $30 million, or 6% of revenue.

Our Q4 2020 effective tax rate was 19%, which was in line with our plans. Our net income per share was $0.84.

From a full year perspective, 2020 revenue grew 18% to $1.43 billion. Geographically, we generated 52% of our revenue in the U.S., which grew by 23%. Outside of the U.S., international revenue grew by 12% with Japan having another stellar year of 20% growth while EMEA increased by 8%.

2020 gross margin of 44.5% was slightly lower than the prior year as the impact of price reductions, promotional activity and higher warranty expense was mostly offset by the benefit of our tariff exclusion, leverage from higher revenue and favorable channel mix shifts. Full year operating expenses of $488 million grew by 13%, driven primarily by the same factors influencing the increase in fourth quarter spending, namely increased personnel costs, working media and investment in key programs and projects, including our DTC initiatives. Operating income of 2020 -- in 2020 was $150 million, and our operating margin was 10%. Our full year 2020 effective tax rate was 19%, essentially unchanged from the prior year. 2020 EPS was $4.14 versus $3.62 in 2019.

We ended 2020 with $484 million in cash and short-term investments, an increase of $126 million from the end of September. The increase primarily reflects a good quarter of cash flow from operations. Fourth quarter DSOs were 31 days, unchanged against the same period one year ago. Q4 ending inventory was $182 million, or 55 days compared with $157 million, or 56 days at the same time last year.

Let’s turn to our outlook for 2021. Although visibility is less than optimal, we move into 2021 with good momentum in the category and generally favorable channel inventory positions. At the same time, the global macroeconomic landscape remains uncertain due in large part to the fluidity of the pandemic.

As Colin noted, we anticipate 2021 revenue in the range of $1.635 billion to $1.675 billion, which equates to 14% to 17% growth over 2020. In recent years, approximately 60% of our revenue is generated in the second half of the year, although 67% of 2020 revenue came in the second half. We expect our 2021 revenue mix between the first and second halves to move a bit closer to historical norms. With that said, we manage the 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 one quarter to the next can cause material fluctuations in our quarterly growth rates. As a reminder, our revenue expectations contemplate yen and euro exchange rates roughly in line with current rates, plus or minus 5%.

We anticipate that our 2021 gross margin will decline to the low 40% range. As you know, a 25% tariff on Roombas imported from China was reinstated at the start of 2021, and we anticipate that this will add between $41 million and $43 million in incremental full year costs. In addition to anticipated tariff expense, we expect that our 2021 gross margin will also be impacted to a lesser extent by higher initial costs associated with our Malaysia manufacturing, along with recent and anticipated pricing and promotional activity. We believe those factors will be partially offset by favorable channel mix shifts and certain onetime items in 2020 that are not expected to recur in 2021.

Our plan is to substantially increase our production in Malaysia over the course of this year. To facilitate this, we plan to qualify additional contract manufacturers and add new lines. By the end of 2021, we estimate that Malaysia manufacturing will have sufficient capacity in place to support the vast majority of our 2022 North America volume requirements. This will provide 3 important benefits. First, it will substantially reduce our tariff expense in 2022. Second, it will enable us to bring our Malaysia cost structure much closer to parity with China. Third, managing a geographically diverse manufacturing footprint at scale is simply prudent from a risk management perspective.

Our current gross margin assumptions also reflect current travel restrictions into and within Malaysia. Should those restrictions tighten further, it may require us to shift more volume into China and incur additional tariff expense.

In addition to our Malaysia manufacturing initiative, our operating teams continue to diligently grapple with a range of other supply chain challenges from rising freight and raw material costs to tighter availability of key components. Our outlook takes these variables into account, although any substantial improvement or deterioration in the supply chain may require us to revisit these assumptions.

We are targeting 2021 operating costs in the range of $555 million to $575 million or approximately 34% of sales. While we anticipate that G&A and R&D will trend a bit below historical levels as a percentage of revenue, sales and marketing is currently expected to be around 19% of total revenue. This primarily reflects incremental spending of over $20 million to support continued growth of our direct-to-consumer channel as well as higher working media investments. Given our top line guidance and spending plans, we currently expect an operating profit margin of approximately 7%.

In terms of additional Q1 color, we expect a strong start to the year with Q1 revenue growth of 35% or more. We currently expect Q1 gross margin in line with our annual target, with Q1 tariff costs in the ballpark of $3 million. We expect operating costs to range from the high 30s to 40% of total sales, driven largely by the accelerated sales and marketing investments. As a result, we expect operating profitability to range from essentially breakeven at the low end up to a 3% operating profit at the high end. As revenue grows over the course of the year, we expect our profitability will improve, especially in the second half of the year.

In terms of other notable modeling assumptions for 2021, we anticipate other expense between $3 million and $4 million and an effective tax rate ranging from 18% to 19% due primarily to the jurisdictional mix of profits, combined with the effect of lower anticipated worldwide pretax income. We anticipated a diluted share count of approximately 29 million shares. As a result, we expect the full year EPS to range from $3 to $3.25.

In terms of other 2021 guideposts, our business continues to be minimally capital intensive. Overall, we expect that capital spending is expected to be in the low $50 million range or approximately 3% of anticipated 2021 revenue, which is generally consistent with historical trends. The increase over 2020 levels reflects, in part, the shifting of certain investments in new tooling to increase production in Malaysia from last year into this year as well as spending to support new product introductions. We anticipate that our cash flow from operations in 2021 will remain healthy even as it declines from 2020 levels given our expected fundamental performance.

We move forward with good fiscal flexibility as it relates to use of capital. Our previously authorized $200 million stock repurchase plan remains largely intact as last year's buybacks were limited to repurchasing $25 million of our stock in the first quarter. We will continue to evaluate the merits of deploying cash to repurchase stock, particularly as it relates to neutralizing the dilutive effect of our equity programs. With that said, 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, will increase in the first quarter and remain elevated thereafter until they return to normalized levels at the end of the year.

While our profitability and EPS are expected to take a step back in 2021, we believe that we are taking the necessary actions to sustain our top line growth rate in 2022. Just as important, we believe that the tailwinds arising from our Malaysia manufacturing, higher-margin direct sales growth and other initiatives to increase efficiency and productivity will enable us to deliver a meaningful improvement in our 2022 operating income with an operating profit margin above 2020 levels, all of which will underpin strong EPS expansion in 2022.

In summary, our fourth quarter results were a very satisfying way to end the year. While we know 2021 will bring its fair share of challenges, we are incredibly excited about our prospects to continue expanding our business and drive long-term value creation in the process.

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

Thank you, Julie. I'd like to close by extending my sincere thanks to my colleagues around the globe. The hard work, resilience and commitment of our team helped iRobot to deliver record results and exceed the ambitious targets we set for ourselves.

It is an exciting time to be at iRobot. We created the RVC industry 18 years ago and have led it ever since. But we believe our best days are ahead of us. We have an expansive, growing installed base of nearly 10 million connected customers who want to engage with us. We're optimistic that the trust that our customers have placed in our products will unlock more opportunity for us going forward, especially as they look directly to us to help them maintain their robots, replace their robots, add new robots and potentially purchase other new services and products from us to complement our current role in helping them keep their homes clean.

On today's call, we've shared not only our outlook for 2021, but the opportunity to convert strong growth into higher profitability and faster EPS and free cash flow expansion in 2022.

As our businesses grow and evolve and as our relationship with the consumer deepens, we will remain committed to helping current and prospective analysts and investors better appreciate the opportunities we see, the strategies and initiatives that will help us capitalize on them and the metrics and KPIs that will best reflect our success and create value for our business.

That concludes our comments. Operator, we will take questions now.

(Operator Instructions) Our first question comes from the line of Mark Strouse with JPMorgan.

Congrats on a strong quarter here. I just wanted to dig into the commentary about 2022. Maybe reading maybe too much in between the lines here, but kind of what you're saying about the second half of 2021, I'm calculating kind of high single digits to maybe low double digits revenue growth. Can you just give a bit more color into what gives you that expectation that the revenue can accelerate in 2022?

Sure, Mark. I'll start that. The -- as we think about 2021 and our guide for the full year, and again, I would point everybody to the fact that we talk about full year growth targets because of the -- how shifts in the seasonality of our business can materially impact quarterly growth rate. So we are looking at 2021 as being a very good year of projected growth. And we look forward beyond that into 2022 with the momentum that we see in the market, recognizing that we are still very largely underpenetrated and believe that we have and look forward to continued strong growth in 2022.

I'll add some color to that, Mark. The -- some of the things that we talked about, what was a test in 2020, things like robots as a service, things like the other forms of existing customer revenue, in warranty and initial efforts to scale DTC become scaling commercial commitments from the company but still relatively immaterial in '21, growing to more significant materiality as we move into '22.

And so you've got a number, not just profitability tailwinds, but you have some revenue growth driving tailwinds that will be accelerating as well. And so that investments in '20 and '21, leading to growth in '22 is what we're seeing. Certainly, Q1 in 2020 was a weak quarter for us for a number of reasons. And so that -- the strong performance we're giving guidance on relative to Q1 2021 is against, what I would say, a pretty easy comp.

Okay. That's helpful. And then just looking at the gross margins for 2021 guidance, a bit better than what I was expecting. You've quantified the impact from tariffs, Julie. The delta is roughly 100, 125 basis points, something like that. Can you kind of dissect that, the remainder of the year-over-year decline from 2020? Is that, for example, ramp costs associated with Malaysia? Is it more promotions? Just anything you can do to kind of break that down a bit further would be very helpful.

Yes. Sure. And you're right. Tariffs are a material part of our move of gross margin from '20 to '21. There are a number of other factors that play both positively and negatively to a lesser extent. So on the negative side, there's the scaling of Malaysia as we go through the year as well as expected or anticipated pricing and promotional activity. Those things are offset to a certain extent by favorable channel mix shift as well as some nonrecurring costs from 2020.

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

A question first for Julie. You had alluded to some of the potential supply chain constraints that are out there. Could you maybe give us -- could you perhaps elaborate a bit on what you're seeing in terms of the health of your supply chain and your confidence in their ability to deliver throughout the year?

Sure. So we're incredibly proud of our supply chain and the work that they've been able to do throughout 2020 to manage through a very changing situation. As we look forward, there are a number of factors, whether we're talking about rising freight costs, I think globally there are things like a chip shortage as well as cost of resins and other raw materials that we look to as things that we are managing carefully as we go through this year.

Okay. And a question for Colin. If you could share with us your vision longer-term for the Roomba. Specifically, as you look out over the next couple of years, do you think the primary focus will continue to be on home cleaning exclusively? Or perhaps could we see some additional functionalities built into the Roomba as we see it today?

Certainly, the company's ambition extends beyond floor care and the role that the Roomba plays today in the home, while limited to right now vacuuming and then mopping with the Braava, is also serving as a platform for us to gain the type of home understanding necessary to increase the sophistication of what we're able to do in the home. As we've talked before, growth in AI is important, growth in the awareness of what is going on in the home so that AI can have the context required to succeed is really at the cutting-edge of technology. And so we are on a long journey to build the robots that we were promised growing up as kids.

I think we're at a very exciting place where we're starting to be able to understand the context to extend what we're capable of doing. And the iRobot Genius Home Intelligence really is a very ambitious long-term commitment to building a home AI capable of doing very sophisticated work in the home. So it's -- we're just still at the beginning of the industry. We're still at the beginning of what the smart home will evolve into. And iRobot is very excited about the role we will play in the home in both delivering physical work, but also delivering the context required to have a home that understands the type of things you want to have happen, enabling your home, not just your robot, to be a strong partner as you address the challenges of the increasingly complex role the home is being asked to play.

Our next question comes from the line of Asiya Merchant with Citigroup.

Great. Very, very strong results. So congratulations to the team for weathering all the challenges that came with the supply chain. Colin, just on this last comment that you talked about, if you can just peel it back a little bit more and talk a little bit about units versus ASPs and maybe Colin and Julie together, how you think about that ramp? And as you think about expanding to Roomba as a service, the warranties that you talked about, is that something that would drive incremental higher ASPs as you think about from each sale of that unit of Roomba that you lease or you sell, just so that we can help -- it can help us around the modeling.

And then you mentioned a bunch of onetime costs, Julie, that are unlikely to occur and as you look into fiscal '22 become a little bit of a tailwind. So if you can talk to us a little bit about that, on what things? Is it the $20 million that you're already investing in '21 for the D2C channel expansion unlikely to kind of repeat itself, and that's why you have that $20 million incremental in the OI?

Sure. So Asiya, maybe I'll start with your question, and then I'll let Colin jump in on units versus ASP. I think that we are excited about the early results that we're seeing in some of our services pilots. I think it's important to also remember that while we are looking optimistically to commercializing those during 2021, it will take a while before those become a material part of our number. As I think about looking forward, ASP and units, we've certainly seen during 2020 a nice increase in, what I would call, net price with shift in up towards our premium end of our category as well as mix shifts in our channel.

We also have seen nice unit growth. And as I look forward into '21 and beyond, I think the -- we will expect that we'll continue to see good unit growth, again, pointing to the relatively low penetration that our products have globally and a small amount of continued pricing strength, again, related to mix.

And I think the only thing I would add, Asiya, which is less about financial model, again more about momentum and the success of our strategy around differentiation is the shift that we talked about in the call to the premium is really a shift embracing the increased intelligence of the robot as well as some of the auto eVac technologies we introduced. And so that I like to see it, call it as almost an anti-commoditization that we're seeing where the differentiating features we're bringing out to the marketplace are being embraced by our customers and driving them to spend up to get these exciting and important features.

So again, I think it's all illustrative of a very healthy market, where there are continued opportunities to differentiate with new technology and new features, which is great news for us because that's where we're investing. The -- I'll stop there.

And then as it relates to, you were asking a question around the $20 million of what we've highlighted as incremental DTC investment during 2021. That's across a range of areas, both in terms of building capability and the talent required to run that capability to really focus on making the buying experience on our website and app an easy one, making sure that we've got the marketing insights to understand what customers need and how to build that relationship. And there's a portion of that, which is onetime. There is another portion, which will continue as we go forward. However, we would expect that we will get leverage on that as our business scale, we would expect that to grow more slowly.

Okay. So as I look into '22, you guys are assuming we ramp these margins back up from '21 level. The OpEx run rate as a percentage of revenue will drop quite meaningfully to get to 10% and higher op margins. Is that the right way? And that's what I was trying to kind of peel a little bit, like where are we seeing those benefits from? Is it R&D because you guys are kind of talking about trending that down as a percentage of revenue, G&A as well? And so that incremental marketing and selling and OpEx initiatives that you're doing in '21 should really be scaling back in '22, and that's what I'm trying to get to, OpEx as a run rate of revenues. Okay.

Right. And -- so as we've talked, it's -- we're thinking about -- and we tried to provide color on the entire P&L. We look at our gross margin and believe some of the headwinds that we are facing today in 2020 turn into tailwinds. As we -- I'm sorry, as we are facing today in 2021 turn into tailwinds as we move into 2022.

That, coupled with calibrating our spending and getting operating leverage should allow us to have operating margin in 2022 above 2020 levels. More specifically, I think we're continuing to diligently work through those longer-range plans and hope to provide more -- be able to articulate longer-term financial targets more specifically in coming months.

(Operator Instructions) Our next question comes from the line of John Babcock with Bank of America.

Just quickly tagging along on some of these modeling questions. I was wondering if you could just talk about what you're assuming for unit sell-in growth versus unit sell-through growth in the 2021 guide?

So John, as you know, we work to balance sell-in and sell-through, it's never a perfect science, based on the needs of our retail partners. But we are looking for continued good unit growth that would equate to good sell-in as well as sell-through momentum.

Okay. And then next question, you talked a little bit about the robot-as-a-service program. Could you share more about how the testing has gone so far with that? And what's working well, what the challenges are still left to be worked out?

Yes, this is a constant optimization challenge for us. I think that we've had very encouraging results and have already been able to optimize the experience, but there's more work to do. You definitely -- as I said, we'll see this move from a test to a commercial program this year and will begin to scale up. So something you're going to be hearing more about.

As I mentioned earlier, I think that the materiality of the robots-as-a-service program will be minimal in '21, but certainly increasing throughout the year. And also remember, we'll have to account for that with a significant deferred revenue portion of the income, which will also create a little bit of a lag on the -- on it showing up in our revenue and profitability numbers. But again, something we'll be more than happy to talk about as the year unfolds.

Okay. And then also on the 2 new products you're launching, I was wondering how you might have us think about that next generation of products and how these will fit in with the rest of your portfolio?

I think that we're really focused on the intelligence of the robot. We're focused on how we can extend that partnership between the customer and the robot to make sure that the iRobot customer feels in control of what the robot is doing and feel like they have an enlightened and trusted partnership between the company, the robot and themselves.

And so that as we continue to roll out our products, that will be sort of an overall guiding principle in what we are trying to accomplish. Without that trust, without that control, we will undershoot the potential of the industry we are leading.

Okay. And then just last question before I turn it over. Could you just provide us a sense of the time line for the patent infringement action iRobot is pursuing at the U.S. International Trade Commission? And then also any color you can provide on how this supplements the prior litigation would be helpful.

So the recent action, and I can only say a very limited set of things, is through the ITC which is a very aggressive and fast-moving, from the legal perspective, organization. We expect to be at trial by the end of this year.

Our next question comes from the line of Derek Soderberg with Colliers.

I wanted to start with direct sales. Can you elaborate on some of the reasoning behind the success there? What's driving the growth and your confidence longer term? And I guess, longer term, I'm curious how much of that 20% direct sales goal in 2023 can be services contribution? And what sort of gross margin for services are you targeting?

Sure. We can answer some of that. I think that the Roomba is a considered purchase. The Roomba customer tends to do research on what model, why should I believe this robot works? And just there's a very real curiosity, which all drives customers to be willing to go to a website to learn about the product.

Back in '18 and 2019, iRobot's ability to really capture that interest and translate that into a transaction was relatively pedestrian or uninspired. It wasn't where we were focusing our go-to-market energies. I think we were good, but we were certainly far from world-class. As we roll out tools to better capture expressions of interest, to better nurture the customers along a sales journey, the more effective we will be with direct-to-consumer.

The other thing is the skyrocketing engagement of our customers as the features that our customers are asking for and using are these online connected features. This growth of 80% in the -- since the end of 2019 in our connected customer to well over 10 million connected customers opting in for -- to our communications is really a profound growth in interest and a profound growth in our ability to go transact with a customer base.

And so all of these things give confidence. And I think that one of the things that is maybe a subtle point in the script that we gave today was, I think I used the words, we identified our implementation partner for many of the improvements in our direct-to-consumer, which suggests we're not done. We are making major investments in '21 to improve the tool set and our capabilities and our talent around this, which should pay continued dividends in our effectiveness online. So I think that 2020 showed tremendous progress. But what we're working on and continuing to implement in '21 should continue that strong momentum forward.

And just the last thing I would add is, we really view this direct-to-consumer channel as a powerful complement to our very strong retail partners. So we look to this growth as being a way once you find your way to iRobot and you're part of our family, we want to nurture that relationship with you and make sure that when you're ready to buy your next product that you're going to transact directly with us.

Yes. Absolutely.

Got it. Yes, it's helpful to think about it like that. And as my follow-up, I'm wondering what level of direct sales can be supported by some of the investments you're making? Will it be adequate to support that 2023 goal of 20% direct sales?

We are implementing best-in-class tools, which can scale well beyond even our 2023 goals, so that we're definitely making a real bet that this is going to be a long-term important dimension of our business. So that is not a concern that we're somehow undershooting what we're investing in.

Thank you. There are no further questions. I would now like to turn the call back to Andrew Kramer for closing comments.

Thank you so much. That concludes our fourth quarter 2020 financial results call. We appreciate your support. And we look forward to talking with you all over the coming weeks and months. Thanks, again.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.