IROBOT CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the "safe harbor" created by those sections. In particular, statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to statements concerning new product sales, product development and offerings, ability to address consumer needs, the expansion of our addressable market, factors for differentiation of our products, product integration plans, our consumer robots, our competition, our strategy, our market position, market acceptance of our products, seasonal factors, revenue recognition, our profits, growth of our revenues, composition of our revenues, our cost of revenues, units shipped, average selling prices, the impact of promotional activity and tariffs, operating expenses, selling and marketing expenses, general and administrative expenses, research and development expenses, and compensation costs, our projected income tax rate, our credit and letter of credit facilities, our valuations of investments, valuation and composition of our stock-based awards, efforts to mitigate supply chain challenges, availability of semiconductor chips, and liquidity, constitute forward-looking statements and are made under these safe harbor provisions. Some of the forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects," "may," "will," "should," "could," "seek," "intends," "plans," "estimates," "anticipates," or other comparable terms and negative forms of such terms. Forward-looking statements involve inherent risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. We urge you to consider the risks and uncertainties discussed in greater detail under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and in Part 1, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended
January 1, 2022in evaluating our forward-looking statements. We have no plans to update our forward-looking statements to reflect events or circumstances after the date of this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Overview iRobot is a leading global consumer robot company that designs and builds robots that empower people to do more. With over 30 years of artificial intelligence ("AI") and advanced robotics experience, we are focused on building thoughtful robots and developing intelligent home innovations that help make life better for millions of people around the world. iRobot's portfolio of home robots and smart home devices features proprietary technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction and physical solutions. Leveraging this portfolio, we plan to add new capabilities and expand our offerings to help consumers make their homes easier to maintain, more efficient, more secure and healthier places to live. As of April 2, 2022, we had 1,415 full-time employees. Since our founding in 1990, we have developed the expertise necessary to design, build, sell and support durable, high-performance and cost-effective robots through the close integration of software, electronics and hardware. Our core technologies serve as reusable building blocks that we adapt and expand to create next-generation robotic platforms. We believe that this approach accelerates the time to market, while also reducing the costs, time and other risks associated with product development. These capabilities are amplified by our Genius Home Intelligence ("Genius") platform, which leverages our considerable expertise and ongoing investment in AI, home understanding and machine vision technologies to provide consumers with greater control over our products, simple integration with other smart home devices, recommendations that further enhance the cleaning experience and the ability to share and transfer home knowledge across multiple iRobot robots. We believe that the capabilities within Genius will support our ability to build out a larger ecosystem that encompasses a broader range of adjacent robotic and smart home categories. We believe that our significant expertise in robot design, engineering, and smart home technologies and targeted focus on understanding and addressing consumer needs, positions us well to expand our total addressable market and capitalize on the anticipated growth in a wider range of robotic and smart home categories. To continue expanding our business globally and increase our profitability in a highly competitive marketplace, we have continued to make progress on each key element of our strategy: innovate, get, keep and grow. In March 2022, iRobot released Genius 4.0 Home Intelligence, which adds a number of new pragmatic, convenient new experiences, makes Imprint Smart Mapping available for Roomba i3 and i3+ customers, and increases the range of objects that our Roomba j7 robot can identify and avoid. In addition, we continued to expand our connected customer base, focus on ways to keep customer use of our products and overall satisfaction levels high, and advance key commercial activities aimed at increasing existing customer revenue, especially through our direct-to-consumer channel. In March 2022, we were granted a temporary exclusion from Section 301 List 3 tariffs by the United States Trade Representative ("USTR"). This exclusion eliminates the 25% tariff on Roomba products imported from Chinabeginning on October 12, 2021and continuing until December 31, 2022. The tariff exclusion entitles us to a refund of approximately $29.8 millionin tariffs comprised of $11.7 millionin tariffs paid on Roomba robots imported after October 12, 2021and sold during fiscal 2021, $5.9 millionfor tariffs paid during the first quarter of 2022 and $12.2 millionfor on-hand inventory imported after October 12, 2021. 17 -------------------------------------------------------------------------------- In addition to the ongoing impact of the COVID-19 pandemic, we anticipate potential disruptions in the consumer marketplace, particularly in EMEA, primarily driven by a combination of heightened inflation that threatens to curb consumer spending and reduced consumer confidence stemming from the Russia- Ukrainewar. In March 2022, in response to the Russian invasion of Ukraine, we halted all new sales of our products to Russia. Revenue from our Russian distributor in 2021 was not material to our business.
Key Financial Metrics and Non-GAAP Financial Measures
In addition to the measures presented in our consolidated financial statements in accordance with accounting principles generally accepted in
the United States of America("GAAP"), we use the following key metrics, including non-GAAP financial measures, to evaluate and analyze our core operating performance and trends, and to develop short-term and long-term operational plans. The most directly comparable financial measures to the following non-GAAP metrics calculated under U.S.GAAP are gross profit and operating (loss) income. During the three months ended April 2, 2022and April 3, 2021, we had gross profit of $107.5 millionand $122.9 million, respectively, and operating (loss) income of $(23.3) millionand $6.4 million, respectively. A summary of key metrics for the three months ended April 2, 2022, as compared to the three months ended April 3, 2021, is as follows: Three Months Ended April 2, 2022 April 3, 2021
(in thousands of dollars, except the average
gross selling prices) (unaudited) Total Revenue
$ 291,969 $ 303,261Non-GAAP Gross Profit $ 100,588 $ 123,531Non-GAAP Gross Margin 34.5 % 40.7 % Non-GAAP Operating (Loss) Income $ (18,516) $ 14,954Non-GAAP Operating Margin (6.3) % 4.9 % Total robot units shipped (in thousands) 974 1,088 Average gross selling prices for robot units $ 333 $ 319 Our non-GAAP financial measures reflect adjustments based on the following items. These non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results, provided below, should be carefully evaluated. Amortization of acquired intangible assets: Amortization of acquired intangible assets consists of amortization of intangible assets including completed technology, customer relationships, and reacquired distribution rights acquired in connection with business combinations. Net Merger, Acquisition and Divestiture (Income) Expense: Net merger, acquisition and divestiture (income) expense primarily consists of transaction fees, professional fees, and transition and integration costs directly associated with mergers, acquisitions and divestitures. It also includes business combination adjustments including adjustments after the measurement period has ended.
Stock-based compensation: Stock-based compensation is a non-cash expense related to stock-based awards.
Tariff Refunds: We were granted an exclusion from Section 301 List 3 in
March 2022, which temporarily eliminates tariffs on our Roomba products imported from Chinabeginning on October 12, 2021until December 31, 2022. This temporary exclusion entitles us to a refund of all related tariffs previously paid since October 12, 2021. We exclude the refunds for tariff costs expensed during fiscal 2021 from our fiscal 2022 non-GAAP measures because those tariff refunds associated with tariff costs incurred in the past have no impact to our current period earnings. IP Litigation Expense, Net: IP litigation expense, net relates to legal costs incurred to litigate patent, trademark, copyright and false advertising infringements, or to oppose or defend against interparty actions related to intellectual property. Any settlement payment or proceeds resulting from these infringements are included or netted against the costs. Restructuring and Other: Restructuring charges are related to one-time actions associated with realigning resources, enhancing operational productivity and efficiency, or improving our cost structure in support of our strategy. Such actions are 18 -------------------------------------------------------------------------------- not reflective of ongoing operations and include costs primarily associated with severance costs, certain professional fees, costs associated with consolidation of warehouses, and other non-recurring costs directly associated with resource realignments tied to strategic initiatives or changes in business conditions.
Gain/loss on strategic investments: Gain/loss on strategic investments includes fair value adjustments, realized gains and losses on the sale of these investments and impairment losses on these investments.
Income tax adjustments: Income tax adjustments include the tax effect of the non-GAAP adjustments, calculated using the appropriate statutory tax rate for each adjustment. We reassess the need for any valuation allowance recorded based on the non-GAAP profitability and have eliminated the effect of the valuation allowance recorded in the
U.S.jurisdiction. We also exclude certain tax items, including impact from stock-based compensation windfalls/shortfalls, that are not reflective of income tax expense incurred as a result of current period earnings. We exclude these items from our non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to our past operating performance. These items may vary significantly in magnitude or timing and do not necessarily reflect anticipated future operating activities. In addition, we believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared with our peer companies. 19 --------------------------------------------------------------------------------
The following table reconciles gross profit, operating profit (loss), net profit (loss) and net profit (loss) per share on a GAAP and non-GAAP basis for the three months ended
Three Months Ended April 2, 2022 April 3, 2021 (in thousands, except per share amounts) GAAP Gross Profit
$ 107,515 $ 122,944Amortization of acquired intangible assets 821 225 Stock-based compensation 441 362 Tariff refunds (11,727) - Restructuring and other 3,538 - Non-GAAP Gross Profit $ 100,588 $ 123,531Non-GAAP Gross Margin 34.5 % 40.7 % GAAP Operating (Loss) Income $
Amortization of acquired intangible assets 1,331 430 Stock-based compensation 7,208 6,782 Tariff refunds (11,727) - Net merger, acquisition and divestiture expense 109 - IP litigation expense, net 3,487 1,140 Restructuring and other 4,363 213 Non-GAAP Operating (Loss) Income $
Non-GAAP Operating Margin (6.3) % 4.9 % GAAP Net (Loss) Income $
Amortization of acquired intangible assets 1,331 430 Stock-based compensation 7,208 6,782 Tariff refunds (11,727) - Net merger, acquisition and divestiture expense 109 - IP litigation expense, net 3,487 1,140 Restructuring and other 4,363 213 Loss (gain) on strategic investments 16,835 (38) Income tax effect (9,185) (4,051) Non-GAAP Net (Loss) Income $
GAAP Net (Loss) Income Per Diluted Share $
Dilutive effect of non-GAAP adjustments 0.46 0.15 Non-GAAP Net (Loss) Income Per Diluted Share $
Significant Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with
U.S.GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates and assumptions are based on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results and outcomes may differ from our estimates and assumptions. The critical accounting policies affected most significantly by estimates and assumptions used in the preparation of our consolidated financial statements are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the Securities and Exchange Commissionon February 15, 2022. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements. There have been no material changes in these critical accounting policies and estimates. 20 --------------------------------------------------------------------------------
Overview of operating results
The following table sets forth our results of operations as a percentage of revenue: Three Months Ended April 2, 2022 April 3, 2021 Revenue 100.0 % 100.0 % Cost of revenue: Cost of product revenue 62.9 59.4 Amortization of acquired intangible assets 0.3 0.1 Total cost of revenue 63.2 59.5 Gross profit 36.8 40.5 Operating expenses: Research and development 14.6 13.8 Selling and marketing 20.9 16.8 General and administrative 9.1 7.7 Amortization of acquired intangible assets 0.2 0.1 Total operating expenses 44.8 38.4 Operating (loss) income (8.0) 2.1 Other expense, net (5.7) - (Loss) income before income taxes (13.7) 2.1 Income tax benefit (3.3) (0.4) Net (loss) income (10.4) % 2.5 %
Comparison of the three months ended
Revenue Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Revenue
$ 291,969 $ 303,261 $ (11,292)(3.7) % Revenue for the three months ended April 2, 2022decreased $11.3 millionto $292.0 million, or 3.7%, from $303.3 millionfor the three months ended April 3, 2021. Geographically, in the three months ended April 2, 2022, international revenue decreased $49.7 million, or 26.4%, which primarily reflected a 43.5% decrease in EMEA largely due to an exceptionally strong quarter in the EMEA region a year ago. The decrease was slightly offset by a $9.9 million, or 24.5% increase in Japan, while domestic revenue increased $38.4 million, or 33.5%, compared to the three months ended April 3, 2021. The decrease in revenue was also impacted by a 10.5% decrease in total robots shipped offset by a 4.4% increase in gross average selling price for the three months ended April 2, 2022, compared to the three months ended April 3, 2021. Despite the decrease in total revenue, our direct-to-consumer revenue growth of 16.8% to $40.8 million, or 14.0% of total revenue, reflected continued expansion of this channel as we invested in enhancing the online buying experience and upgrading our digital marketing capabilities. Cost of Product Revenue Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Cost of product revenue $ 183,633 $ 180,092 $ 3,5412.0 % As a percentage of revenue 62.9 % 59.4 % 21 -------------------------------------------------------------------------------- Cost of product revenue increased to $183.6 millionin the three months ended April 2, 2022, compared to $180.1 millionin the three months ended April 3, 2021. The increase in cost was driven by higher supply chain cost continuing from the second half of fiscal 2021 and a one-time action associated with the consolidation of warehouses in the U.S.These increases in cost of product revenue are mostly offset by lower product cost driven by a 3.7% decrease in revenue and lower Section 301 tariff expense during the three months ended April 2, 2022. In March 2022, we were granted a temporary exclusion from Section 301 List 3 tariffs which eliminates the 25% tariff on Roomba products imported from Chinabeginning on October 12, 2021and continuing until December 31, 2022. As a result of this exclusion, we recognized approximately $11.7 millionas a benefit to cost of product revenue related to tariffs expensed in fiscal 2021 during the three months ended April 2, 2022, compared to $3.4 millionin tariff expense during the three months ended April 3, 2021. Gross Profit Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Gross profit $ 107,515 $ 122,944 $ (15,429)(12.5) % Gross margin 36.8 % 40.5 % Gross margin decreased to 36.8% in the three months ended April 2, 2022, compared to 40.5% in the three months ended April 3, 2021. Gross margin decreased 3.7% driven by continuing supply chain headwinds with increases in freight and material costs, along with price reductions and higher promotional activities for certain products of varying magnitudes across regions. The decrease is offset by lower warranty expense and tariff cost as we were granted temporary exclusion from Section 301 List 3 which eliminates the 25% tariffs on Roomba products imported from Chinaas previously described. In addition, gross margin was favorably impacted from $11.7 millionrecognized as a benefit from tariff refunds during the three months ended April 2, 2022related to tariffs expensed in fiscal 2021. We expect gross margin pressure to continue over the next few quarters, as we anticipate continued elevated costs associated with increased raw materials, oceanic transport and air freight expenses as well as higher component costs associated with limited semiconductor chip availability. Research and Development Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands)
Research and development
$ 42,529 $ 41,920 $ 6091.5 % As a percentage of revenue 14.6 % 13.8 % Research and development expenses increased $0.6 million, or 1.5%, to $42.5 million(14.6% of revenue) in the three months ended April 2, 2022from $41.9 million(13.8% of revenue) in the three months ended April 3, 2021. This increase was primarily due to a $2.4 millionincrease in people-related costs associated with additional headcount, offset by lower short-term incentive compensation cost of $2.0 million. Selling and Marketing Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Selling and marketing $ 61,065 $ 50,990 $ 10,07519.8 % As a percentage of revenue 20.9 % 16.8 % Selling and marketing expenses increased $10.1 million, or 19.8%, to $61.1 million(20.9% of revenue) in the three months ended April 2, 2022from $51.0 million(16.8% of revenue) in the three months ended April 3, 2021. This increase was primarily attributable to higher marketing spend of $7.0 millionassociated with increased use of working media to drive sales growth, $2.0 millionincrease in people-related costs associated with additional headcount as well as $0.9 millionhigher technology related cost including cloud service and maintenance and support fees as we continue to invest in our digital marketing and e-commerce capabilities. These increases were offset by lower short-term incentive compensation of $0.8 million. 22 --------------------------------------------------------------------------------
General and Administrative Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands)
general and administrative
As a percentage of revenue 9.1 % 7.7 % General and administrative expenses increased
$3.3 million, or 13.9%, to $26.7 million(9.1% of revenue) in the three months ended April 2, 2022from $23.4 million(7.7% of revenue) in the three months ended April 3, 2021. This increase was primarily due to a $1.6 millionincrease in legal fees driven by higher intellectual property litigation costs and a $1.2 millionincrease in enterprise software maintenance, support and services. In addition, during the three months ended April 2, 2022, the allowance for credit loss decreased $0.5 millionas compared to a decrease of $2.1 millionduring the three months ended April 3, 2021. These increases were partially offset by lower vesting expectations related to our performance-based stock-based compensation and lower short-term incentive compensation cost of $1.9 million.
Amortization of acquired intangible assets
Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Cost of revenue
$ 821 $ 225 $ 596264.9 % Operating expense 510 205 305 148.8 % Total amortization expense $ 1,331 $ 430 $ 901209.5 % As a percentage of revenue 0.5 % 0.1 % The increase in amortization of acquired intangible assets in the three months ended April 2, 2022as compared to the three months ended April 3, 2021, was primarily related to the acquired intangible assets as part of the acquisition of Aeris Cleantec AGin the fourth quarter of 2021. Other Expense, Net Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Other expense, net $ (16,746) $ (160) $ (16,586)10,366.3 % As a percentage of revenue (5.7) % - % During the three months ended April 2, 2022, other expense, net primarily consists of a realized loss of $16.8 millionassociated with the sale of Matterport shares. Other expense, net includes interest income, interest expense, foreign currency gains (losses) as well as gains (losses) from strategic investments. Income Tax Benefit Three Months Ended Dollar Percent April 2, 2022 April 3, 2021 Change Change (Dollars in thousands) Income tax benefit $ (9,627) $ (1,214) $ (8,413)693.0 % Effective income tax rate 24.0 % (19.5) % We recorded an income tax benefit of $9.6 millionand $1.2 millionfor the three months ended April 2, 2022and April 3, 2021, respectively. The $9.6 millionincome tax benefit for the three months ended April 2, 2022resulted in an effective income tax rate of 24.0%. The $1.2 millionincome tax benefit for the three months ended April 3, 2021resulted in an effective income tax rate of (19.5)%. The change in effective tax rate was primarily driven by a discrete tax item of excess stock-based 23 --------------------------------------------------------------------------------
exceptional compensation gains recorded for the three months ended
with respect to stock-based compensation shortfalls experienced during the current period.
Our 24.0% effective rate of income tax for the three months ended
April 2, 2022was higher than the federal statutory tax rate of 21% primarily because of the recognition of R&D credits and the benefit associated with Foreign-Derived Intangible Income.
Cash and capital resources
April 2, 2022, our principal sources of liquidity were cash and cash equivalents totaling $112.0 million. Our working capital, which represents our total current assets less total current liabilities, was $371.3 millionas of April 2, 2022, compared to $393.9 millionas of January 1, 2022. Cash and cash equivalents held by our foreign subsidiaries totaled $51.2 millionas of April 2, 2022. We expect the cash held overseas to be permanently reinvested outside of the United States, and our U.S.operation to be funded through its own operating cash flows, cash, and if necessary, through borrowing under our working capital credit facility. We manufacture and distribute our products through contract manufacturers and third-party logistics providers. We believe this approach gives us the advantages of relatively low capital investment and significant flexibility in scheduling production and managing inventory levels. By leasing our office facilities, we also minimize the cash needed for expansion, and only invest periodically in leasehold improvements a portion of which is often reimbursed by the landlords of these facilities. Accordingly, our capital spending is generally limited to machinery and tooling, leasehold improvements, business applications software and computer and equipment. During the three months ended April 2, 2022and April 3, 2021, we spent $3.1 millionand $11.3 million, respectively, on capital expenditures. Our strategy for delivering consumer products to our distributors and retail customers gives us the flexibility to provide container shipments directly from our contract manufacturers in Southern Chinaand Malaysiato our customers and, alternatively, allows our distributors and certain retail customers to take possession of product on a domestic basis. Accordingly, our inventory consists of goods shipped to our third-party logistics providers for the fulfillment of distributor, retail and direct-to-consumer sales. Our contract manufacturers are also responsible for purchasing and stocking components required for the production of our products, and they typically invoice us when the finished goods are shipped.
Cash flows used in operating activities
Net cash used in operating activities for the three months ended
April 2, 2022was $102.3 million, of which the principal components were the cash outflow of $93.2 millionfrom change in working capital and our net loss of $30.4 million, partially offset by non-cash charges of $21.3 million. The change in working capital was driven by decreases in accounts payable and accrued liabilities of $119.0 million. This was partially offset by a decrease in accounts receivable of $54.3 million.
Cash flow from investing activities
Net cash provided by investing activities for the three months ended
April 2, 2022was $12.6 million. During the three months ended April 2, 2022, we received $16.2 millionfrom the sales and maturities of our investments while we paid $0.5 millionfor the purchases of investments. We invested $3.1 millionin the purchase of property and equipment, including machinery and tooling for new products.
Cash flows used in financing activities
Net cash used in financing activities for the three months ended
April 2, 2022was $0.7 million. During the three months ended April 2, 2022, we received $0.8 millionfrom employee stock plans and paid $1.5 millionupon vesting of restricted stock where 25,213 shares were retained by us to cover employee tax withholdings. Working Capital Facilities Credit Facility We currently have a $150 millionunsecured revolving line of credit which expires in June 2023. As of April 2, 2022, we had no outstanding borrowings under our revolving credit facility. The revolving line of credit is available to fund working capital and other corporate purposes. The interest on loans under our credit facility accrues, at our election, at either (1) LIBOR plus a margin, currently equal to 1.0%, based on our ratio of indebtedness to Adjusted EBITDA (the "Eurodollar Rate"), or (2) the lender's base rate. The lender's base rate is equal to the highest of (1) the federal funds rate plus 0.5%, (2) the lender's prime rate and (3) the Eurodollar Rate plus 1.0%. In the event USD LIBOR is discontinued as expected in June 2023, we expect the interest rates for our debt following such event will be based on either alternate base rates or agreed upon replacement rates. While we do not expect a LIBOR discontinuation would affect our ability to borrow or maintain already outstanding borrowings, it could result in higher interest rates. 24 -------------------------------------------------------------------------------- The credit facility contains customary terms and conditions for credit facilities of this type, including restrictions on our ability to incur or guarantee additional indebtedness, create liens, enter into transactions with affiliates, make loans or investments, sell assets, pay dividends or make distributions on, or repurchase, our stock, and consolidate or merge with other entities. In addition, we are required to meet certain financial covenants customary with this type of agreement, including maintaining a maximum ratio of indebtedness to Adjusted EBITDA and a minimum specified interest coverage ratio. The credit facility contains customary events of default, including for payment defaults, breaches of representations, breaches of affirmative or negative covenants, cross defaults to other material indebtedness, bankruptcy and failure to discharge certain judgments. If a default occurs and is not cured within any applicable cure period or is not waived, our obligations under the credit facility may be accelerated. On May 4, 2022, we entered into a Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement") with Bank of America N.A. (the "Amendment") with an effective date of March 31, 2022. The Amendment waives the quarterly tested leverage and interest coverage covenants in the Credit Agreement for the first, second and third quarters of 2022. The interest coverage ratio calculation for the fourth quarter of 2022 was changed to a trailing nine months. Additionally, a new liquidity covenant was added for the remainder of 2022. The Amendment also increases the borrowing rate under the Credit Agreement for 2022 to LIBOR plus 1.5%. With this Amendment, as of April 2, 2022, we are in compliance with the covenants under the Credit Agreement.
Lines of credit
We have an unsecured letter of credit facility with
Bank of America, N.A., available to fund letters of credit up to an aggregate outstanding amount of $5.0 million. As of April 2, 2022, we had letters of credit outstanding of $0.4 millionunder our letter of credit facility and other lines of credit with Bank of America, N.A. We have an unsecured guarantee line of credit with Mizuho, Bank Ltd., available to fund import tax payments up to an aggregate outstanding amount of 250.0 million Japanese Yen. As of April 2, 2022, we had no outstanding balance under the guarantee line of credit.
Working capital requirements and capital expenditures
We currently have no material cash commitments, except for normal recurring trade payables, expense accruals, capital expenditures and operating leases, all of which we anticipate funding through existing cash and cash equivalents as well as through our credit facility. We believe our outsourced approach to manufacturing provides us with flexibility in both managing inventory levels and financing our inventory. We believe our existing cash and cash equivalents, short-term investments, and funds available through our credit facility will be sufficient to meet our working capital and capital expenditure needs over at least the next twelve months. In the event our revenue plan does not meet our expectations, we may eliminate or curtail expenditures to mitigate the impact on our working capital. Our future capital requirements will depend on many factors, including our rate of revenue growth or decline, the expansion or contraction of our marketing and sales activities, the timing and extent of spending to support product development efforts, the timing of introductions of new products and enhancements to existing products, the acquisition of new capabilities or technologies, the continuing market acceptance of our products and services, the overall macro economic conditions due to heightened inflation and reduced consumer confidence stemming from the
Russia- Ukrainewar and the ongoing impact of the COVID-19 pandemic on our business. Moreover, to the extent existing cash and cash equivalents, short-term investments, cash from operations, and cash from short-term borrowing are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. As part of our business strategy, we may consider additional acquisitions of companies, technologies and products, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.
The disclosure of our contractual obligations and commitments is set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the year ended
January 1, 2022. Our principal commitments generally consist of obligations under our credit facility, leases for office space, inventory related purchase obligations, and minimum contractual obligations. Other obligations consist primarily of subscription services. There have been no material changes in our contractual obligations and commitments since January 1, 2022. At April 2, 2022, we had outstanding purchase orders aggregating approximately $327.4 million. The purchase orders, the majority of which are with our contract manufacturers for the purchase of inventory in the normal course of business, are for manufacturing and non-manufacturing related goods and services, and are cancellable without penalty.
Recently Adopted Accounting Pronouncements
See Note 2 to the consolidated financial statements for a discussion of recently adopted accounting pronouncements.
Recently issued accounting pronouncements
See Note 2 to the consolidated financial statements for a discussion of recently issued accounting pronouncements.
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