iRobot Corp (IRBT) 2016 Q3 法說會逐字稿

Good day, everyone, and welcome to the iRobot third-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 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 provision 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 third-quarter 2016 earnings press release issued last evening and 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 third 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 third quarter of 2016, and Colin and Alison will also provide our financial expectations for the fourth quarter and full year ending December 31, 2016. Then, we'll open the call for questions.

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

Good morning and thank you for joining us. I am happy to report that we had an outstanding third quarter, delivering revenue and profitability far exceeding our expectations. As a result, our expectations for full-year revenue and earnings have increased. We now expect fiscal 2016 revenue of $650 million to $655 million, net income of $38 million to $41 million, or roughly 6% of revenue, EPS of between $1.36 and $1.44, and adjusted EBITDA of $88 million to $92 million, or roughly 14% of revenue. These expectations reflect our confidence that 2016 growth in US consumer revenue at more than 25% will drive total consumer revenue growth of approximately 15% for the full year.

We are very excited about results year-to-date and the outlook for the fourth quarter. Our successful marketing programs continue to drive demand generation in the US and overseas.

To further capitalize on momentum, our marketing programs have created and better positioned ourselves for growth in 2017 and 2018. We are reinvesting a portion of 2016 incremental profitability while increasing our EPS and adjusted EBITDA expectations. We are extremely pleased to provide full-year expectations for EPS and adjusted EBITDA well above those we provided in February.

During Q3, we delivered year-over-year consumer quarterly revenue growth of 23% driven by APAC following a very successful launch of Braava jet in that region. Domestic revenue grew 13% over Q3 last year, and orders in hand plus anticipated Q4 orders support our expectation of substantial fourth-quarter growth. And we introduced the Roomba 960 and connectivity for Braava jet, expanding our suite of connected products for the home.

In Q3, for the fourth consecutive quarter, revenue in Japan increased year-over-year due to the use of iRobot created marketing programs initially implemented late last year in that market and the launch of Braava jet during the quarter. Our latest product was so well-received by Japanese consumers that our distributors sold out of the product. At the end of Q3, after only two months in the market, Braava jet is currently the number one selling SKU in Japan.

As in Japan, there was significant enthusiasm for Braava jet in China. We have previously said that our wet floor care products are tailor-made for the Asian market, and our experience with the launch of Braava jet confirms that. In fact, our new partner in China requested Q3 delivery of some Braava jet and Roomba orders that we were expecting to ship in Q4. China sell-through was up 70% quarter over last year, and quarterly revenue more than doubled as we completed the first quarter under our new distribution model in that market.

Revenue in EMEA was up roughly 5% year-over-year in Q3 2016, as we had anticipated. We continue to expect full-year growth of mid-single digits over 2015 in EMEA. International consumer revenue increased 30% in the third quarter from last year due to the timing of orders in China, as I mentioned.

In the US, revenue growth was driven by strong sales of Roomba 900, including a newly launched 960 and Roomba 800, partly driven by Costco transitioning from the 600 to the 800 series. Following the successful introduction of Braava jet in Q1, we also saw an increase in demand for Braava, our larger format mopping robot. The launch served to increase awareness of the category and drive demand for both products.

Perhaps the most important events of the quarter were the launch of the Roomba 960 and the iRobot HOME App support for Braava jet. Our second 900 series Roomba extends mapping, visual navigation and cloud connectivity to a wider range of customers. The iRobot HOME App helps users get the most out of their experience by allowing them to increase usability, customize their cleaning settings, and receive over-the-air software updates. These were significant milestones as we were now able to offer more robots with mapping capabilities and cloud connectivity at more accessible price points. iRobot will continue to build upon its connected robot technologies moving forward, allowing for an enhanced customer experience and for our products to play a larger role within the smart home.

Our relentless pursuit of product leadership through investment in key technologies and capabilities, coupled with our investments in furthering our global brand and targeting targeted marketing initiatives, allows us to continue to maintain our significant market-leading position despite competition.

In summary, we continue to execute successfully against our plan, delivering outstanding third-quarter performance. Those results, coupled with continuing global momentum, enable us to increase our revenue and profit expectations for the full year while continuing to make disciplined incremental investments.

In the third quarter, we continued to see the positive impact of our targeted marketing programs as consumer revenue grew more than 20% year-over-year. We began to capitalize on the large and growing eCommerce opportunity in China following our distributor transition by delivering 70% year-over-year sell-through growth in that market. And with the launch of the Roomba 960 and Braava jet connectivity, we took another strategically important step towards driving our installed base of mapping connected robots and thereby positioning ourselves as an emerging player within the smart home.

I will now turn the call over to Alison to review our third-quarter results in more detail.

Thanks, Colin.

We delivered third-quarter results well ahead of our expectations due to timing of orders and operating expenses. As we have consistently said, predicting the exact Q3/Q4 timing of orders for the holiday season is very difficult and, this year, we saw orders pulled in by our new China distributor in the third quarter.

Consumer revenue of $168 million increased 23% over Q3 last year. Third-quarter 2016 revenue includes negligible return reserve adjustments compared with $1.3 million in 2015.

As a reminder, total Company revenue of $144 million for the third quarter of 2015 included $6 million of D&S revenue compared with zero in Q3 2016 following the divestiture of that business earlier this year at the end of Q1.

Net income was $19.5 million in Q3 versus $12.8 million in 2015. EPS was $0.70 for the third quarter compared with $0.42 for the same period last year, and Q3 2016 adjusted EBITDA was $36 million compared with $26 million in Q3 of last year.

As Colin discussed, international revenue grew 30% in Q3 over last year as we received orders from our new Chinese distributor in Q3 that we were expecting Q4. Domestic revenue growth in the third quarter of 13% was driven primarily by strong demand for our high-end Roombas. With this, we now expect full-year revenue growth in the US to exceed 25%, up from our previous expectation of 20%. APAC and EMEA are expected to grow in the mid to high single digits over 2015.

Gross margin was 48.1% for the third quarter of 2016, down slightly from the same quarter last year. This decline was driven by the lower return reserve adjustments mentioned above along with additional warranty and other product costs versus last year.

Q3 operating expenses were 32% of revenue, down from 36% in Q3 last year. This year-over-year reduction was driven by Defense & Security and from Remote Presence expenses incurred last year that were not incurred in Q3 this year, slightly offset by increases in consumer related operating expenses, primarily R&D and, to a lesser extent, G&A, driven by headcount additions and related costs.

We ended the quarter with $203 million in cash and investments. We completed the $85 million accelerated stock repurchase program we announced in April, repurchasing approximately 2.3 million shares. During 2016, we have returned $97 million of cash to shareholders while investing to grow the business to create shareholder value.

Total Company DII of 64 days was consistent with our typical Q3 level. We anticipate lower inventory levels at the end of Q4 following shipment of product to US retailers for the holiday season.

Now, I'd like to provide you with additional detail for our Q4 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 view of our former D&S business by quarter and for the full year 2015 for comparative analysis.

We expect fourth-quarter consumer revenue of $202 million to $207 million, an increase of 15% to 18% over Q4 last year, driven by sales in the US. In Q4, total Company revenue is expected to be relatively flat year-over-year as we reported $31 million of D&S revenue in Q4 of 2015.

For the fourth quarter, net income is expected to be $10 million to $13 million, or roughly 5% to 7% of revenue. EPS is anticipated to be between $0.36 and $0.44, and adjusted EBITDA of between $22 million and $26 million, or 12% to 13% of revenue.

For the full year, we expect operating expenses to total roughly 40% of revenues. With our increased expectations for full-year revenue and our expectations for full-year gross margin at the high end of our 47% to 48% range, we plan to invest a portion of the incremental profitability to capitalize on the strong momentum we are seeing driving our business strategy while returning additional profit to shareholders and setting a strong foundation for 2017 and 2018.

As a reminder, the full-year impact of the D&S divestiture on net income, EPS and adjusted EBITDA is expected to be negative $3 million, negative $0.10, and $2.7 million, respectively. In addition, our full-year revenue guidance includes only the $3 million of D&S revenue we recognized in Q1.

I'll now turn the call back to Colin.

Thank you. We are coming into the homestretch of 2016 more excited about our opportunities than at any other time this year. We have faced increasing competition and continue to maintain our position as the world's leading consumer robotic technology company. Our investments have enabled us to drive further adoption of Roomba, expand the wet floor care category, and put a meaningful stake down in China, as well as to begin to lay the foundation for our connected products strategy. We have excellent momentum going into the holiday season and confidence in meeting our increased full-year financial expectations.

With that, we'll take your questions.

(Operator Instructions). Jim Ricchiuti, Needham & Company.

The question I have is just with respect to this incremental marketing spend. Can you give us some sense as to where that's going to be concentrated? Is it going to be spread across your major geographic regions? And I've got a follow-up as well.

Sure. Yes, it is spread. It's really focused on US and China and trying to capitalize on the momentum we are seeing in those markets, and also to help establish the Braava and Braava jet category.

We've been very excited in, as you know, working to create a second leg on our revenue drivers. And it appears that what we had hoped to achieve this year in wet floor care is happening. And so putting a little additional energy behind building of the wet floor care category both, in the US and in China, makes a lot of sense. It means that, in 2017, we'll have established wet floor care more firmly and can be part of our strategy in a more mature fashion than it would have been otherwise. And so taking the opportunity of the significant upside we are seeing to build that.

Colin, in the past, with at least in the US market, you guys have, as you've spent more in marketing, you generally I think have had a pretty good line of sight into what that could do to the Roomba business.

Yes.

Is China more of a wildcard in terms of as you step up marketing there? It sounds like there's some moving parts in Q4 with respect to the business in China. You've got two I guess major sales days in China, consumer selling days, 11/11 being one of them. To what extent is there the potential that China could drive some upside?

Well, I think that 11/11 and 12/12 are major events, sales events, in China. We do, in fact, have some visibility already in how 11/11 is going to go based on preorders. And so that as we -- we are giving ourselves the confidence to raise guidance, as we've done, we were able to look to that -- those indications in China that those events were going to be successful for us.

It is our operating procedure to, as we roll out our marketing programs in new markets, test, analyze and optimize the programs. And so that, we are running programs in Japan. We are running programs in China now. We are running programs in the US. And based on the results, we are able to go and add more energy to them as we've done in the US.

We -- 25% growth in the US this quarter was particularly satisfying. What we're seeing happening in China as we've doubled down on the marketing programs that early in the year and late last year we were starting to get more information on. In China, we have some data. As I mentioned, we get the pre-sale data from 11/11. We've gone through a distributor go-to-market strategy change in China and so that while the inventory levels we're working to optimize the expectations of our new distributor architecture, we felt we wanted to highlight just how effective the sell-through resulted insofar that up by 70%.

So we've got confidence in Q4 in what we have guided to as far as if there are additional upside. I think that we are very comfortable with the guidance ranges that we have given at this time, given all of those factors that I just described.

Are you in a position to size the market in China relative to your other major country markets just in terms of ranking as we look at it? It sounds like it's growing pretty rapidly.

It's growing very rapidly, and we think, in the next few years, it is -- the overall robot vacuum cleaning market is going to be larger than North America. And so our strategy and our willingness to invest in China is around the thesis that we should be the leading player in that market, and the success of the wet floor care launch in China is an important part of that strategy because the natural daily cleaning routine of the Chinese consumer is mopping, not vacuuming. And so the coming out and investing in driving the Braava and Braava jet category is a way of running around the existing vacuuming market and establishing our brand around this mopping category while bringing in the premium, high featured Roombas into that market and saying, as you grow to appreciate vacuuming, this is the best product. So we think that our strategy in China has great potential to drive the market share targets that we internally hold.

Thanks a lot.

Josephine Millward, The Benchmark Company.

Great quarter, Colin. It looks like you lowered -- you actually took down your APAC growth outlook to mid to high single digits from single to low double digits. Can you expand on why Japan is recovering and China seems very strong?

It all has to do with the inventory levels and trying to operate as a leaner operation, coupled with the changes in distribution. I know that's a little confusing. It's why we talked about explicitly how we are doing in Japan and what the sell-through in China was. So, as the Company continues to evolve, we're trying to keep our distributors at fewer days in inventory, which obviously has some impact on us in the moment, but long-term gives us much more ability to execute on different programs and work on SKU transitions and that sort of thing. So, it's an improvement in the overall organization, but should not be confused at all with any change in the momentum and rate of appetite for our products.

That's helpful. Can you talk about how is the new Roomba 980 different from the -- sorry, the 960, how is that different from the 980?

Sure.

And when do you plan to launch the 900s in China? Because that hasn't been launched in China yet, right?

That is correct. The will 980 and the 960 differ in pack-out slightly, but also the 960 does not have the Carpet Boost feature whether the robot will significantly up the power of the vacuum when it goes onto carpet. So, the added expense of the bigger motor and battery capacity required for Carpet Boost we held back and, as a result of that, COGs savings was able to significantly move down that entry level price point into mapping and navigation.

So, again, a very important part of our overall strategy to drive connectivity, mapping, and navigation deep into our product line, and we're trying to do that as aggressively as we can. And that's the true reason behind the 960.

Okay. And when do you plan to launch the 900 in China?

So, that will be at some point next year. We haven't announced the exact date. As soon as we work through the technical challenges of operating a device with very, very rich connectivity and sophistication in China, we'll be eagerly prepared to roll out.

Great. Thank you.

Troy Jensen, Piper Jaffray.

Congrats on great results.

Thank you very much.

So, quick for you, Colin. Do you have any data like maybe the percentage of the 980s and 960s that are using the connected features?

What do you mean by the connected features? The percentage that do connect?

Exactly. Are they just buying the high-end vacuum or are they buying it for the connected functionality?

An extremely high percentage of purchasers that buy the 900 series are in fact connecting. We've gone to great lengths to make it easy. And while the robot will work if you just unpack it and turn it on, we do encourage you to -- and prompt the customer to go and connect it. And so I won't disclose the exact percentage, but it is the vast, vast majority of Roomba 900 users.

The biggest impact thus far in connectivity is an extremely significant increase in the number of people who schedule their robots. And that's one of the metrics that we track because we are trying to encourage people to change their behavior in how they vacuum from explicitly thinking of doing it multiple times a week to setting it and just appreciating the fact that this is done for them. And the higher the percentage that schedule and reschedule the Roomba, we know that the product promise is being delivered.

And on the earlier models where we asked the consumer to schedule it on robot, despite our best efforts to make that as good an interface as possible, we were disappointed by the percentage of people who actually were doing it. And the app, in my mind, there's here folks at iRobot that might disagree with me, but, in my mind, that's the biggest single benefit of the app thus far is reducing the friction for scheduling.

Perfect. And then I had two quick questions for Alison. Can you give us any color on what percent of the international revenues come from China today?

We haven't disclosed that directly. I can tell you that, internationally, Japan is still our biggest market. And as we progress through this year, China is closing that gap, and we do think, in the not too distant future, China will certainly overtake Japan.

Great, fair. And then Alison, just the last one for you and I'll cede the floor. In your marketing deck, do have a slide that shows the summary of your three-year financial targets. And it looks like you're going to exceed the consumer revenue growth of 13% to 15% for this year. And for FY 2017, you talked about accelerating growth into the midteens, and FY 2018 accelerating growth in the high teens. Given the traction you have seen this year and assuming that you will endorse or maybe revise the three-year forecast?

You know, as normal, Troy, we won't talk about 2017 and 2018 until our February call, but certainly we are very pleased with the momentum we've already shown in 2016 relative to setting up for those targets.

Great. Keep up the good work.

Thanks, Troy.

Mark Strouse, JPMorgan.

Thanks for taking our questions. I think most of our questions actually have been asked, but regarding ASPs, they've come down year-to-date. I mean that's been a mix of international mix, a mix of Braava. So how should we think about that going forward? I'm just trying to weigh the strong demand for the high-end Roombas that you're talking about domestically versus the mix of Braava internationally? Do we think we've kind of hit a floor here for ASPs? How should we think about that? Thanks.

Well, Mark, you hit the main driver of what will be our average ASP in the consumer business, and that will be the mix of the Braava category, both Braava jet and Braava itself. We're trying to grow that portion of the business as a bigger and bigger percent. And as that happens, it will definitely be a drag on ASPs.

On the other hand, we are continuing to drive up the range in the Roomba category and, as you stated, particularly so far this year, the mix of 900 and 800 continues to be a very large portion of the Roomba. So that's a counterbalance to the negative of Braava. Certainly, in Q3, with our sell-in of Braava jet, that did have a -- it weighted more so to the overall ASP in Q3, but we'll have to see. Time will tell, but certainly as we push Braava as a category, both Braava and Braava jet, that will have a downward pressure on overall ASPs.

I think, Mark, as our product revenue drivers diversify into vacuuming and homes, the blended ASP, as a calculated metric, becomes much less valuable because it is absolutely our strategy to go and build the wet floor care market as a great adjacency to the vacuuming market, and the price points of those two products categories are going to be very different.

Sure, understood, okay. And then just real quick on share count, it was flat quarter-over-quarter. Do you intend to go back to your board to seek another authorization? And how should we think about that over time? I think this latest buyback that you have had reduced the share count, but I think you've talked about in the past of buybacks primarily intended to offset stock-based comp, et cetera. So just any commentary there would be helpful. Thanks.

Sure. So, we don't expect to do any more share repurchases for the remainder of 2016. We are due to discuss with the board our plans for 2017. At this point, I think it would be reasonable for you to expect, at a minimum, a program focused on offsetting dilution of newly issued equity.

Got it. Okay. Thank you.

Adam Fleck, Morningstar.

I wanted to follow up on the 960 launch. I recall that the Roomba 980 launch was one of the more successful in your history. Can you comment on the 960 launch, particularly in the US and particularly as it relates to the 980?

So, the launch of the 960 was not done with the same type of energy and fanfare that the 980 was. And so it wasn't an explicit launch event. It was an expanding of the product line to create availability of connected mapping technology deeper into our line. It's rapidly become a very successful SKU, as we had hoped it would, and is serving the purpose that it was designed for, which is to -- it probably it cannibalizes some 800 series product, which it was designed to cannibalize, replacing those sales with products that are connected, that are mapping, which is our longer-term strategy to maximize the installed base of connected products in the home.

Great. That's helpful. And as you maximize that installation of connected products, you'll continue to scale I assume with AWS. How do the economics of that relationship with Amazon work? Does that impact profitability at all?

You know, it's built into the cost of the robots. I think that, as you think about iRobot going forward, you know, we've spoken in the past few years about the -- how we were going to drive improved profitability over time. We talked about OpEx leverage and suggested there were less opportunities than product margin. We feel like our software strategy and the value that we are creating in the marketplace with the software creates some potential margin opportunities, and so that we are starting to back off from that prior statement that there wasn't a lot of gross margin opportunity. So we are starting to see a little bit. So there's some foreshadowing, but certainly it's the paying off of the investments that we are making in software, creating consumer appreciated features that we can impact price with.

Great. That's interesting. Thank you. And then maybe just one quick housekeeping item for Alison. I just wanted to follow up on the $15 million earnout for D&S. Can you help us with the confidence of that figure at this point?

Adam, they have -- they are expecting a large Q4 just like we always did when we were managing that business. They have a lot they have to accomplish in the fourth quarter in order to hit the numbers in that earnout, so we really won't know until the quarter is complete.

Okay, great. That's it for me. Thank you.

Ben Rose, Battle Road Research.

Colin, you had referenced competition in your remarks. And one of my questions is now that there have been quite a few new entrants, particularly in the US, I know that you have a large patent portfolio, much of which doesn't expire for the next couple of years, do you have any just kind of high-level comments on what you're seeing in terms of potential patent infringement from some of these new competitors?

Sure. We take a very pragmatic view of intellectual property. We think that it is a huge asset of the Company and we will use it to aggressively defend our market position as we see competitors in the marketplace that have -- are actually having financial impact. I think that, yes, we have seen new entrants into the market.

We also have seen our market share hold up extremely well in all of the markets globally, but you should expect us to look with -- look very significantly at anyone that may be starting to gain momentum because we view our IP portfolio as extremely powerful and we have -- there are many competitive products in the market, which at least, in our mind, are in clear violation of our IP.

Okay, that's helpful. With regard to the Company's retail strategy in the United States, what we've noticed is that, in certain store chains, you are the exclusive robot vacuum cleaner and not in others. How much -- how big a factor is exclusivity in terms of your strategy going forward in terms of your, for example, being the only robotic product in a category within a store chain?

Sure. We have no explicit agreements with any of our vendors requiring us to be the exclusive distributor of robots. So, let me be clear. So, if we are in fact the exclusive robot vacuuming in a particular chain, it's because that chain looked at the relative demand for robot vacuum cleaners across brands and realized that the demand just wasn't there to justify carrying other vacuum cleaners. And we view that as a beautiful thing and a nod to the effectiveness of the products we create and the marketing programs we put behind them. So, we do have a very powerful brand and amazing, amazing products, and that's perhaps the ultimate compliment.

We expect to see in retailers over time the robot vacuuming, the robot mopping segments of those stores to grow because the future of vacuuming is robots; the future of mopping is robots. And there is no future where this doesn't continue to grow and grow. And so I think that we've had some experiences in retail where competitive products have come in, and that helps us because we actually create within the store the robot cleaning section of the store, and that helps us a lot. So, it's an interesting place, but it's not by design. It's more of a merit-based phenomenon.

Okay, okay. And with regard to the Braava and floor mopping category, I think you had said not too long ago that you believe that it's about half as large as the Roomba opportunity. And I wanted to ask, I realize it's still early going with the Braava jet in particular, but do you still feel that that is a good sort of metric to use in terms of measuring the market?

And then, secondly, with regard to the Braava, there is a significant consumables opportunity there. I think it's the first time for the Company that consumables could be a significant portion of revenues for a particular product. Could you give us some type of update on what you're seeing in terms of demand for consumables?

Yes. So, the -- relative to the first question, the 50% I still hold by. I will give one bit of color -- is that that statistic was a US statistic. So I think, in the US, that continues to hold.

As we think about Asia and in particular China, I would not be surprised if the wet floor care category exceeds the vacuuming category in only a few years just because of the fact that the daily cleaning habits in China are so much oriented around the hard floor wet cleaning methodology. So, I think that, as wet floor care becomes larger for us, it demands a little more granularity by region so that the 50% vacuuming is relative to North America.

On this emerging recurring revenue opportunity with the Braava jet, we are seeing very good attachment rates for pads to robots. And we've gone a little bit deeper. And when you buy a Braava jet, there's an attachment rates of pads you buy with the Braava jet which we view as healthy. And now we are seeing that we analyze the number of pads sold divided by the installed base of the robots. And at this point, we are seeing the daily sales of pads growing faster than the rate of sales of Braava jets. So that's suggesting that people are coming back to the store and buying more pads, as we would hope they would, which suggests people are actively using the robots and buying into the model of use the pads and then go buy more.

The impact of this recurring revenue model is going to take some time to build. It's all based on the installed base. And in China, we may see a phenomenon where reusable pads are a reasonably high percentage of the sales, and so that, in Japan and North America where consumables is well-established in the cleaning industry as desirable, in China it lags a little bit so that the revenue from the wet cleaning products in China, the recurring revenue, may be lower on an installed basis than they are in Japan and North America. So, there's a lot of moving parts.

Sorry for the complicated answer but it's an evolving situation. And in 2017, it will be more material than it was in 2016 and 2018, and we'll probably start talking about it pretty explicitly because it will get exciting.

Great. Thanks very much for the answers.

Jim Ricchiuti, Needham & Company.

Colin, with the 960 and with Costco transitioning to the 800, it sounds like you have really stepped up your position in the midrange segment of the market. So, I'm wondering if you could talk a little bit about that. Do you see the opportunity to perhaps accelerate the penetration of robotic vacuums just overall in that category, or is this an opportunity maybe to go after some market share with some of the smaller players that have begun to come into the market more aggressively?

You know. it really is about having a product line that speaks to the growing acceptance that robot vacuuming is how we will be vacuuming our floors in the future. The upright vacuum cleaner is, at this point, obsolete. People are going to have a robot to clean their floors and a high-powered hand vac to clean couches and stairs. And that's the future.

And so the -- with that broadening of appeal, we feel like the midrange, which has sort of been underperforming for us, is a real growth opportunity, and so that the 960 again, we pushed the connectivity down, as I said, but we also bolstered that middle price point domain.

It is still, if you look at sales thus far for 2016, and remember the 960 is only newly out, we truly are barbelled at the higher end of the range. And then at 600 series, which has been fantastic and been lighter in the center of the category, we think that this move with Costco and the 960 will at least bring additional respectability and opportunity to the middle.

So, it is, at this point, not driven by competition. Our market share remains even more favorable than we would have dared hope, so we are enjoying that and hope that it will stay that way for a long period to come.

Okay, thanks a lot and congrats on the quarter.

So, thank you very much for the questions. That concludes our third-quarter 2016 earnings call. We appreciate your support and look forward to talking with you again in February to discuss our Q4 and full-year results.

That concludes the call. Participants may now disconnect.