iRobot Corp (IRBT) 2016 Q2 法說會逐字稿

Good day, everyone, and welcome to the iRobot second-quarter 2016 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 Elise Caffrey of iRobot Investor Relations. Please go ahead.

Thank you and good morning. Before I introduce the iRobot management team, I'd 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 a number of 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.

During this conference call, we will also disclose non-GAAP financial measures as defined by SEC Regulation G, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, net merger acquisition and divestiture expenses, restructuring expenses, net intellectual property litigation expenses, and non-cash stock compensation expense. A reconciliation of GAAP and non-GAAP metrics can be found in the financial tables at the end of the second-quarter 2016 earnings press release which was issued last evening and is available on our website.

On today's call, iRobot Chairman and CEO, Colin Angle, will provide a review of the Company's operations and achievements for the second quarter of 2016, as well as our outlook on the business for 2016. Alison Dean, Chief Financial Officer, will review our financial results for the second quarter of 2016, and Colin and Alison will also provide our financial expectations for the third quarter ending October 1, 2016 and fiscal 2016. Then we will open the call for questions.

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

Good morning. Thank you for joining us. I am happy to report that we had a very strong second quarter with revenue at the high end of the range and earnings that exceeded our expectations. More importantly, we have good visibility into the rest of 2016 and are raising both revenue and earnings expectations for the full year.

During Q2, we delivered year-over-year consumer quarterly revenue growth for the United States of more than 25% due to successful Mother's Day and Father's Day promotions following record first-quarter revenue. We opened our new office in Shanghai and have begun executing our more direct eCommerce strategy. Japan sell-through continued to improve due to the successful implementation of iRobot marketing programs in that region. And due to nominal expectations for revenue in the UK, we expect no 2016 impact from Brexit.

Based on our Q2 results and our outlook for the rest of 2016 fueled by strong momentum in the US, we are increasing our financial expectations. We now expect 2016 revenue of $640 million to $645 million, net income of $36 million to $40 million, or roughly 6% of revenue, EPS of between $1.26 and $1.40, and adjusted EBITDA of $85 million to $90 million or roughly 13% to 14% of revenue. These expectations reflect our confidence that 2016 growth in the US of more than 20% will drive total consumer revenue growth of approximately 14% for the full year.

The success of the marketing programs we ran during Q2 for Mother's Day and Father's Day resulted in US sell-through that was up roughly 20% in the quarter versus last year. We anticipate this momentum will continue throughout 2016 as retailers begin to stock their shelves for the holiday season in late Q3 followed by significant promotional activities again in the fourth quarter.

As we discussed last year, our 2016 expectations include strategic incremental investments critical to achieving our three-year financial targets. The investments will impact earnings in 2016 versus last year, as expected, as they position the Company for accelerated growth and improved profitability and 2017 and 2018. We are beginning to see the positive impact from our incremental sales and marketing investments in overseas markets such as Japan as we implement the programs that have been highly successful in driving demand generation in the United States.

Now I'll take you through some of the details of the second quarter and our expectations for the rest of 2016. Total year-over-year consumer revenue growth of 8% in Q2 reflects demand for our high-end Roomba 980 as well as for our 600 series Roomba and the Braava family of wet floor care robots.

Through the second quarter, Braava jet, which we introduced in late Q1, was available only in the United States. In the third quarter, it will be on shelves in China and Japan where we expect to leverage the necessity for daily mopping and the Asian consumers' enthusiasm for automating this task. We will also be launching Braava jet in Europe at the end of Q3 in time for the holiday season. Sales of Braava jet in combination with increased sales of the larger format Braava fuel our enthusiasm about developing our wet floor care business into a material second revenue stream.

Revenue in EMEA was up 7% year-over-year in Q2 2016, as anticipated. We continue to expect EMEA's quarterly revenue to grow through the rest of the year and result in full-year growth of mid-single-digits over 2015.

For the third quarter in a row, revenue in Japan increased year-over-year due in part to the implementation of a new marketing program that proved to be highly successful in the US during 2015. As you'll recall, parts of our sales and marketing investment this year is earmarked for exporting our successful US demand generation programs overseas to expand worldwide consumer adoption of Roomba. We've begun implementing these programs in Japan, and while it is still early, we are very pleased with the results to date.

We are executing on the go-to-market transition in China, which we discussed on the last quarter's call, to provide us with more direct control of our eCommerce channel. Sell-in to China was more than 50% -- increased more than 50% in Q2 of the last year, and more than 75% through the first half, which leaves us well-positioned for significant second-half growth in China and to capture an even larger share of the rapidly growing Chinese market for robotic floor care.

We launched our new eCommerce operation at the beginning of Q3, and expect significant 11-11 and 12-12 online holidays to benefit from these enhanced operations. For the full year, we now expect APAC revenue growth of low double-digits driven by both Japan and China. International consumer revenue was down slightly in the second quarter from last year as expected, due to the go-to-market transition in China.

On another note we recently announced a new relationship with Amazon Web Services that we believe will enable iRobot to address significant opportunities within our consumer business and the connected home AWS' managed cloud service solution that enables connected devices to interact easily and securely with cloud applications and other devices. The AWS cloud will enable iRobot to scale the number of connected robots it supports globally and allow for increased capabilities in the smart home. This is a huge step forward for us as we address strategically important cloud robotics technologies. With this broad reach of services and world-class infrastructure, the AWS cloud will enable iRobot to more efficiently develop connected robot technologies and expand the value of robust within the smart home.

During the second quarter, we made the decision to end our remaining remote presence marketing and business development initiatives. As we reported on our Q4 2015 call, we had already reallocated R&D resources from a next generation remote presence platform to consumer opportunities. Going forward, 100% of the Company's resources will be focused on the consumer as our customer and I am very excited about the next chapter for iRobot.

We are poised for continued growth and success. Maintaining our market-leading position requires technology leadership. We will continue to make disciplined R&D investments to ensure that we remain the leader in robotic floor vacuuming and developing adjacent consumer product categories.

In summary, we continue to execute successfully against our plan, delivering excellent first-half performance. Those first-half results, coupled with continuing momentum in the United States, enable us to increase our financial expectations for the full year.

In the second quarter, we continue to see the positive impact of our targeted marketing programs as the US revenue grew 40% year-over-year in the first half over 2015. We better positioned ourselves in China to accelerate second-half revenue growth and capitalize on that large and growing opportunity. We fully exited the remote presence business, allowing us to focus our efforts solely on the vast home robotics market, and we will continue to invest in key technologies to extend our market-leading position in consumer robotics.

I'll now turn the call over to Alison to review our second-quarter results in more detail.

Thanks Colin. We delivered second-quarter revenue consistent with our expectations and earnings per share and adjusted EBITDA ahead of expectations due to the timing of certain operating expenses. Consumer revenue of $148 million increased 8% over Q2 last year. Second-quarter 2016 revenue includes approximately $1.2 million of favorable return reserve adjustments compared with $2.6 million in 2015.

As a reminder, total Company revenue of $149 million for the second quarter 2015 included $12 million of D&S revenue compared with zero in Q2 2016, following the divestiture of that business at the end of Q1.

Net income was $4.8 million in Q2 versus $7.3 million in 2015. EPS was $0.17 for the quarter compared with $0.24 for the same period last year, and Q2 2016 adjusted EBITDA was $16 million. For the first half, revenue of $280 million compared with $267 million in 2015. Net income was $8.7 million compared with $12 million last year. EPS was $0.30 compared with $0.40, and adjusted EBITDA was $30 million compared with $31 million last year.

Keep in mind that 2016 first-half results include defense and security revenue of $3 million versus $18 million in the first half of 2015, as well as divestiture costs that negatively impacted net income by $3 million, EPS by $0.11, and adjusted EBITDA by $3.3 million.

As Colin discussed, domestic revenue grew more than 25% in Q2 over last year. This growth was driven primarily by strong demand for our high-end Roombas as well as the Roomba 600 series and the Braava family of wet floor care robots.

International revenue was down slightly as expected and results varied from region to region. EMEA and Japan both delivered year-on-year growth. While China sell-through was up significantly again in the second quarter, revenue declined year-over-year as expected as we completed the transition to our new online distribution partner in that market. We have lowered second-half revenue expectations slightly due to the transition, but still expect APAC to deliver low double-digit growth for the year over 2015, driven by growth in both China and Japan. We continue to expect mid-single-digit growth in EMEA as we roll out distribution of the Roomba 980 and begin to sell Braava jet in the overseas market. Our revised expectations in APAC for 2016 are more than offset by increased expectations in the US, which continues to benefit from our investments in sales and marketing programs.

Gross margin was 46.8% for the second quarter 2016, down slightly from the same quarter last year. This decline was driven by one-time remote presence shutdown costs of $1.7 million, $1.3 million of which negatively impacted gross margin, as well as lower Q2 2016 return reserve adjustments compared with last year.

Q2 operating expenses were 43% of revenue, up from 40% in Q2 last year, primarily due to higher sales and marketing spending to support the Braava jet launch and to drive Roomba adoption, one-time G&A costs of $1.5 million, or $0.03 of EPS associated with the proxy contest, and $0.3 million of the remote presence shutdown costs.

We ended the quarter with $173 million in cash and investments. As we mentioned on last quarter's call, in April, we funded our accelerated stock repurchase program of $85 million. Coupled with the $12 million in share repurchases we executed in the first quarter, we have returned nearly $100 million of excess capital to shareholders to date in 2016 while still investing to grow the business in order to create shareholder value.

Total company DII of 54 days was consistent with our typical Q2 level. We anticipate higher inventory levels at the end of Q3 as we prepare to ship to US retailers for the holiday season.

Now I'd like to provide you with additional detail for our Q3 financial expectations. Keep in mind that these expectations and growth rates are based only on our consumer business. As a reminder, we provided a table in our Q1 2016 press release showing a pro forma view of D&S by quarter and for the full year 2015 for an easier comps analysis.

We expect third-quarter revenue of $155 million to $160 million, an increase of 14% to 17% over Q3 last year, driven by sales in the US. Net income is expected to be $11 million to $13 million, or roughly 7% to 8% of revenue. EPS is expected to be between $0.40 and $0.45, and adjusted EBITDA of between $25 million and $28 million, or 16% to 18% of revenue.

For the full year, we continue to expect operating expenses to total 38% to 39% of revenues, consistent with the expectations we provided on the February earnings call. The full-year impact of the D&S divestiture on net income, EPS, and EBITDA is expected to be negative $3 million, $0.10 and $2.7 million respectively. In addition, it is important to note that our full-year revenue guidance includes only the $3 million D&S revenue we recognized in Q1.

I'll now turn the call back to Colin.

Thanks. We are off to an excellent start in 2016 as we focus our efforts on maintaining our position as the world's leading consumer robotics technology company. With our efforts solely focused on robots for the home, we are confident that we can accelerate the Company's growth in the near term by seizing the tremendous opportunities we see in driving further worldwide adoption of robotic vacuum cleaners. Leveraging our robust portfolio of mapping and navigation software will enable us to further develop and grow significant adjacent consumer robot categories longer-term.

With that, we will take your questions.

(Operator Instructions). Jim, Needham & Company.

I want to go back to the comments you made about the Braava wet floor cleaning line. You talked about targeting this to be material -- contribute material revenue. And I wonder if you could perhaps talk a little bit about the timeline. Do you see it being material in 2017? And I wonder how you define material. Sometimes we define it is 10% or more of revenue. I wonder if you could just elaborate a little bit more on that.

Sure. So our rollout plan, as you described, we got started in the US. This product was -- the Braava jet was conceived of as being ideal for the Asian marketplace where the smaller format fits and plays very, very well in addition to the fact that, particularly in China, mopping is the dominant form of floor care. And so to sell a robot vacuum, you first have to convince them to vacuum. So this is -- we are very excited about the potential, and so the back half of the year and the rollout of Braava jet into Asia will be important to us.

Relative to your questions about materiality, we certainly don't believe that Braava jet is going to be over 10% in 2017, but we do think that, over time, it can become something that would meet your definition of materiality. So, we think it has a market opportunity that is maybe not same size as Roomba, but is sort of more in the range of 50% Roomba globally, which can ultimately drive some great growth. It is also a product for which we have much less competitive pressure on it at this point. And so we think we've got a little bit of blue ocean running room with this robot.

Okay. Thank you. And just maybe on that last note about just the competitive environment, how would you characterize the broader competitive environment that you are seeing across your geographies at the moment?

Sure. There continue to be new and more entrants, but iRobot's market share is holding up very well. And so we continue to raise the bar on performance. With the launching of the 980 and becoming a connected product, introducing our mapping technology, we've shown that we continue to be the technology leader. We're going to have to continue to innovate, and we are excited by that, because we have a deep pipeline of innovations to continue that leadership position. And we haven't seen any single competitor truly become a global threat. Depending on the region, sometimes we see a competitor who has some local advantages gain some share, but outside of their favorite region, that same competitor is sort of in the noise. And so there's no one out there that you could point to and say, okay, you should really worry about that brand. We continue to upgrade and announce new models aggressively, and we certainly intend to continue this leadership position.

Is it a bit more competitive in APAC?

You know, no. I think it is competitive in China because we were not the first to market in China. And so we came in, that was the only market where we didn't create the market. So we are playing catch up a little bit in China, one of the reasons why we felt it was important to get a more direct control over our distribution strategy so we can make sure the messaging was exactly what we wanted.

I think Japan has traditionally had some other brands come in, and certainly we have been seeing competition in Japan, but we've been able to maintain our market share quite nicely in Japan. It went down a little bit last year and then recovered nicely as the impact of sort of the new product offering diminished as the customers had a better opportunity to judge product by the merits of the product.

So I think that Europe has many competitive products, and we hold up very, very well in Europe. So I think that we've lived with competition since the second year of Roomba, and so we are organized and have a sustainable strategy for continuing to upgrade our features. And I think that all of our competitors would say that we are a difficult organization to win against.

Thanks very much.

Josephine Millward, The Benchmark Company.

Good morning. Great quarter. Colin, your guidance seems to imply slowing US growth to roughly 10% in the second half after a very strong first half. Are you being cautious there, or is it timing of order shipment? Can you expand on that?

So we always give you our best view based on the indications we are getting from our retailers and domestic partners in terms of when they are going to be placing their orders. So we are overall really excited about the annualized growth that we are expecting there for the full year. We are very excited about the first-half growth that we've seen, and we think the second half will be very powerful as well. But yes, the pure math would indicate it's a smaller growth rate in the second half than in the first.

Okay. Can you give us an update on China? Why the more cautious outlook there? Because previously I think you were looking for mid to high teens in Asia, and now it's low double-digits.

There is a little bit in the call around that would suggest that our transition to this new distribution model involved a little bit more complication and more disruption than we originally had hoped. It is behind us. It's going well, but -- and sell-through remains very, very strong. So you shouldn't read anything into it beyond we had to do a little more work on ensuring we had the right levels of inventory. So it is sort of a temporal impact based on the transition.

Thank you. Can you talk more about the nature of the new relationship with Amazon Web Services and how you see them moving forward?

Sure. The sales of the 980 are very, very strong, and we believe that connected robots are going to become an incredibly important part of our ongoing strategy. We talked a little bit about competition earlier. One of our tools in ensuring long-term leadership is connecting our robots and all of the features and capabilities of that being, and the maps that the robots are building can deliver. So having a partner that can scale globally with us and provide us the opportunity to put increasing amounts of intelligence in the cloud was critically important. And so working with Amazon Web Services to affect that and build that capability jointly with us is critically important. So I thought it was worth mentioning because we are at the beginning stages of what's going to be a very interesting future of robotics with more and more technology being brought to bear on home robots based on cost effective ways of putting computational data storage in the cloud.

Great. Thank you.

Bobby Burleson, Canaccord.

Good morning. Congratulations on the strong results. So, just a couple of questions. Back to the competition topic, one of your competitors at the very high end is going global, I guess launching in Canada, but then soon to launch in the US. And I'm wondering, in terms of any dynamics you might be seeing in your third quarter in terms of what your channel partners' demand appetite is with that competitor, whether or not that's making channel fill a little bit more cautious, or if you think that it's really just a non-issue on that subject. So just a little curiosity about how the high end might be impacted Q3 by that global launch.

Sure. I assume you're talking about Dyson.

Yes.

They launched about a year ago in Japan, and Japan is globally their strongest market from a percentage share. And they have failed to achieve anything but low single-digit market share performance in Japan. And so I think that we are respectful of the company. We believe that they will, as they did in Japan, put a reasonable effort behind awareness generation for their products. That's something that company does very well. And the impact, there may be, on launch, a temporarily short disruption, but we believe there is no fundamental reason why their product should perform better than it did in Japan. The product is a gen one product. It's too tall to get under the furniture. It has challenges cleaning larger areas, which was less of an issue in Japan, will be more of a challenge for them as they come into North America. So, they will be one of our competitors.

I think something that we did see in Japan was as other companies spend money to promote the category, there is opportunities for category growth acceleration as well. So depending how aggressively they promote, we could actually see a halo effect. But we are holding some resources in reserve to make sure that we have dry powder to respond, if need be, on the sales and marketing front. So we are taking them very seriously. But our confidence is very high that we remain the market leader, and that we can continue to command the very significant market share position we enjoy today.

Great, thanks. And then I'm just curious about the mix. Amazon Prime Day was massive for the 600 series. And I'm just curious whether or not, in terms of the upside, you mentioned the high end being strong, but how surprising, if at all, was that strength in the 600 series?

We've been experiencing a little bit of barbelled sales performance for a while now where our higher-end robots and our 600-end robots account for the majority of our revenue. I think it's not a phenomenon that is unique to iRobot and robot vacuuming. It's a general trend in consumer.

The good news is the strong performance of the 980, where we increased our price with that robot relative to the 800 series when we launched last year. And we've seen customers valuing the functional improvements that we were able to pack into that robot and have stepped up and been willing to pay the $899 for that robot. So that was a little bit of a risk, and certainly it's played out in our favor that we did deliver the required step up in performance to warrant the cost.

At the low end, it has been traditionally strong. It continues to be strong. And the Prime Day performance I think thrilled everyone. We had a special SKU that was sort of truly a strip-down from an accessory perspective version of the 600, and I think we sold 23,000 in under six hours. So we will certainly continue to support those types of activities on a go-forward basis. It's profitable and a very exciting new channel or new way of selling the products. I think it's (multiple speakers)

Thanks a lot. Thanks and congratulations again.

Troy Jensen, Piper Jaffray.

Congrats on the nice results. I've got two or two and a half questions for Alison. If I back out the $1.3 million shut down cost, your gross margins would've been 47.7% there. You grew 30 BPS sequentially. Just curious to think -- do you expect gross margins can continue to kind of creep higher with revenue growth in the second half of the year?

The mix always plays an important role in determining what the gross margin is. You're right. We would have had year-over-year gross margin in Q2 had it not been for the remote presence shutdown cost.

The mix conversation we were just having with Bobby in terms of the mix of the 600 versus 980, the new Braava jet product as well, as that plays through, that can have a significant impact. So we are not expecting significant gross margin expansion in the second half, nor significant expansion year-on-year, as we've talked about previously. But as the different mix takes place in any given quarter, we could see these instances where gross margin has expanded.

Okay, that's fair. And then on the share count, Alison, it was down a lot because of the buyback, and the 27.8 million is obviously an average beginning quarter, ending quarter. Could you let us know what the share count was at the end of the quarter?

And then previously, I know you had an anti-dilutive buyback program. Can you keep the share count flat? Curious if that is still in place or did the recent buyback kind of supersede that?

We did have an anti-dilutive program initiated at the beginning of the year. We repurchased about $12 million under that. When we implemented the ASR, we actually ceased the anti-dilutive program but we augmented and included in the ASR a value, an incremental value, associated with what we would have won through with the other program. So we tried to reach the same end state of share repurchases. So we adjusted the total of the ASR to accommodate the remainder of the anti-dilutive program as well.

Okay. So what was the ending quarter share count?

So shares outstanding were about 28 million at the end of (multiple speakers)

27.8 million I thought was the average for the quarter, and you had 29.5 million last quarter. So (multiple speakers)

We are required to do the appropriate weighting of the shares throughout the quarter, so I'm not exactly sure what you're asking me.

I guess I want to figure out what you think share count is going to be in September.

We will have -- it will have the (technical difficulty) shares that we saw from the initial return in Q2, will have a bigger impact on the weighted shares we record in Q3, coupled with the fact that we have some final shares to be delivered which we expect to be delivered in Q3 to end that program. So it will definitely be lower. I can't give you an exact number here on the phone but it will be lower than it was in Q2.

Okay. Thank you.

Mark Strouse, JPMorgan.

Good morning. Thank you for taking our questions. Most of them have actually been answered already, but I just want to go back to the ASPs this quarter. The quarter-over-quarter dip was a bit larger than what we have seen in recent memory. I just really wanted to see what drove that and how we should think about that in the back half of the year.

That was really driven by two things, one of which was the success of the 600 series that we've been talking about, and then also the introduction of Braava jet, which, as you know, is at a much lower price point than we have had in the past.

Okay. Fair enough. And then a quick follow-up to Troy's question on the gross margin. So are there any other one-time costs or anything like that associated with remote presence perhaps in early 3Q that will lay on margins? And how should we think about, not necessarily in the back half of this year but over time, you know, corporate margins have always been 2 or 3 points below the home robot margins. But as the business evolves into more and more of just a home robot business, should we expect that to, say, kind of creep up over time kind of closer to the high 40s%, low 50s% range?

On your first question, we don't expect any gross margin impact in Q3 from remote presence. We feel the adjustments and reserves we took in Q2 will be the final impact of that business.

In terms of your longer-term question, we have said continuously that we don't expect significant moves in gross margin over time. We are certainly striving for that as we implement different initiatives to improve gross margin, but there are constant pressures in terms of pricing, increased Chinese labor rates, etc., that tend to counterbalance a lot of the initiatives we do. So from a modeling perspective, we don't recommend modeling significant gross margin expansion as the business goes forward.

Got it. Okay. Thanks Alison.

Adam Fleck, Morningstar.

Good morning. Thanks for taking my questions. I had a follow-up question on the Braava jet commentary. Colin, you obviously noted that the product is a natural fit for the Asian market, but ahead of the European launch this year, could you maybe compare and contrast that opportunity with that geography versus what you've seen in Asia so far?

So, the house size in Europe is smaller than in the United States. Hard floors are common. And Braava does a decent job and is a decent contributor in Europe. So we think that Braava has a good play in Europe. I think that this is realistically a made-for-Asia product with Braava jet with the form factor, but we think that, like we are doing a good job and seeing the category, the Braava category, benefiting and Braava jet, benefiting in North America, we think we can have a nice business in Europe as well. It's a very qualitative answer. I think the fit in Europe is better than North America, not as bull's-eye as Asia.

Okay. That's really helpful. Thank you. And then maybe following up on margins as well, digging a little bit deeper into the P&L, you've discussed in the past that you are looking to leverage some of the expenses, product costs, obviously R&D, but that selling and marketing expenses will remain a pretty significant expenditure. But just curious how you think about this on a longer-term basis. Clearly, the marketing dollars are showing a really nice return on the revenue side, but are we about right at a percentage of sales here or is this a leverageable expense as well?

I think that the investment in sales and marketing, we look very carefully as to what our return is. On the Roomba, we are seeing investment be ROI positive. As we start to build new markets, there is some investment that we allocate against building new categories, and we have to get over the hump before that starts to be ROI positive at significant spending levels. So, that would be iRobot investing in building a second leg on the stool.

So, it's not the simple question. And as Roomba continues to grow and accelerate, it creates some opportunities to build that second leg, which I think is an important part of revenue protection and risk mitigation on the Company's revenue stream. So, we will continue to view it as an important part of our go-forward strategy. We certainly are going to continue to invest strongly in Roomba as it is ROI positive. And as we roll it out internationally, we view it as one of the tools we have to achieve the very exciting revenue growth target we put out there for next year and the year after.

Great. Thanks very much.

Ben Rose, Battle Road Research.

How are you? I would imagine much better after the publication --

We are getting it done this quarter, so we are excited.

Okay, good. A question for you regarding what we see as an emerging category, and that is for the first time sort of a trickle of remote presence robots in the home, and that is kind of roaming robots hooked up with either cameras or sensors, beginning to create what appears to be an emerging category. Can you comment on what you're seeing in the market with regard to that, and any observation on what might be missing from some of these products or iRobot's intentions to maybe address the market?

That's a fun question. There's a lot going on in the home, and trying to build out the next great revenue and growth driver in the home, and what is that product, is something that many companies are thinking about. We believe the next material product in the home is wet floor care, and that's why we are investing significantly in building out the Braava category, which we think is the right strategy for doing that.

Longer-term, the static home monitoring market in the home, so these are webcams, has shown some pretty interesting growth perspectives, and making that static camera mobile we view as being an interesting new feature that could help that remote monitoring business increase.

So certainly when we -- the technology that we developed under our remote presence initiatives has positioned us well for that market, we do need to make -- be very balanced in our investments and ensure that, as a company, iRobot doesn't launch too many things.

And we just had a conversation about sales and marketing. And our bet is our next major product development initiative is around this wet floor care, and we are investing sales and marketing dollars against that and watching that grow. But certainly we think that remote monitoring, there is a play there, and I don't think any mobile camera solution has gotten a lot of traction yet. But I wouldn't be surprised if we see that as an emerging subsegment of the home monitoring smart home industry. And so we certainly are keeping our eye on that.

Okay. Thanks very much.

That concludes our second-quarter 2016 earnings call. We appreciate your support and look forward to talking with you again in October to discuss our Q3 results.

That concludes the call. Participants may now disconnect.