iRobot Corp (IRBT) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the iRobot Third Quarter 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 many factors that could cause actual results to differ materially from those expressed or implied by such statements.

Additional information on these risks and uncertainties can be found in our public filings with the Securities and Exchange Commission.

iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information or circumstances.

During this conference call, we may 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, income and expenses, gain on business acquisition, restructuring expenses, net intellectual property litigation expenses and noncash stock compensation expense.

A reconciliation of GAAP and non-GAAP metric is provided in the financial tables at the end of the third quarter 2018 earnings press release issued last evening, which is available on our website.

On today's call, iRobot's Chairman and CEO, Colin Angle, will provide a review of the company's operations and achievements for the third quarter of 2018 and Alison Dean, Chief Financial Officer, will review our financial results for the third quarter of 2018.

Colin and Alison will also provide our business and financial expectations for fiscal 2018.

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.

We delivered third quarter revenue growth of 29% over Q3 2017, driven by a very successful launch of 2 new products in The United States, where revenue grew 45% Q3 -- over Q3 2017.

Sales of our game-changing Roomba i7+ were so robust that we were challenged to keep the product in stock.

As we rollout our premium product through additional domestic and overseas channels over the next year, we anticipate a similar response across the markets.

The premium features we've introduced in our new Roomba e5 make it an affordable, highly featured product to add to our lineup and one that we believe will stand up very well against competitors' products.

Third quarter profit was higher than we anticipated due to the higher-than-expected revenue, along with some delayed marketing expense and a slightly higher gross margin.

Given our Q3 results and our outlook for the holiday season, we are increasing our 2018 full year financial expectations.

We now anticipate full year 2018 revenue of $1.08 billion to $1.09 billion, which is year-over-year growth of 22% to 23%.

As we said on last quarter's call, our full year financial expectations at that time did not include any impact from the proposed tariffs.

The imposition of 10% tariffs went into effect on September 24 and we made the decision not to pass those additional costs to U.S. retailers or consumers in 2018.

And as a result, we expect lower gross margin in Q4 resulting from the tariffs with full year gross margin of approximately 50%.

We have increased our full year 2018 operating income expectation to $92 million to $96 million, despite the previous unforecasted $5 million tariff impact.

And our expectations for full year 2018 EPS have increased to $2.55 to $2.75, reflecting Q3 performance and the incremental Q3 EPS associated with stock compensation windfall benefit that we received.

Now I'll take you through some of the highlights of Q3 2018, and our business expectations for the rest of the year.

The most important event of the third quarter was the introduction of our i7 and i7+ Roomba.

This is the product that we've been working towards for the past decade.

What makes it a game changer is that it delivers a dramatically new kind of customer experience.

Imagine coming home every day for up to a year and having freshly cleaned floors while never touching your robot.

If you make a mess while cooking, for example, you're able to say, "Alexa, tell Roomba to clean the kitchen" and the right thing happens.

Roomba drives to the kitchen, cleans it and returns.

What makes this new experience possible is the Clean Base accessory, which empties Roomba's full bin 30 times.

The i7 also has the ability, based on new home understanding algorithm to build a map of the home, segment that map into rooms, allow you to adjust and label these rooms, all while keeping track of the robot's position, even if you start at a random location.

No virtual walls are required.

Why is this so critical to iRobot future?

Beyond extending our leadership in the RVC segment, it extends our ecosystem.

These maps can be shared with other robots in the home and the opportunity for robots working together is expected to be significant.

Today, the smart home is a collection of robots and devices that don't understand the home.

Our mapping robots will make the smart home work better.

The larger our installed base, the more IoT companies will want their products to work with our products.

Today, consumers can already use Google Assistant and Amazon Alexa to operate Roomba.

In addition, earlier this month, Google Senior Director, Smart Home Ecosystem and I demonstrated our shared vision of the smart home at HUBweek in Boston.

We showed how our iRobot-Google collaboration can integrate robotic and smart home technologies that will advance the next-generation smart home.

Working together, we will seek additional ways to integrate Google's platform, providing customers with a choice to opt in to new innovative smart home experiences that leverage a broader understanding of the home's space, enabled through Roomba's spatial awareness of the home.

This is a significant step forward towards the realization of the smart home possibilities and many of these future advancements will be delivered over the air and will not require purchase of a new Roomba.

Not to be overlooked in its importance, the launch of our Roomba e5 during the third quarter further solidified the value proposition of our Roomba line.

Our strategy of introducing new features and functionality in our premium level robot and then flowing that innovation to lower price points has been successfully executed again through the e5.

Pet owners comprise a significant percentage of our customers and they don't like cleaning pet hair out of their robots.

We equipped the robot with debris extractors, previously only available in our high-end robots and redesigned the dirt bin so it could be removed and rinsed with water.

The customer can now have a cleaner home and a cleaner robot requiring minimal maintenance.

We're very excited about our Roomba competitive position with products across the board and across range of the features, functionality and prices, but we're not done yet.

As exciting as these 2 new products are, you should expect the pace of new product introductions to continue into 2019.

In addition to Roomba, our focus on growing Braava awareness and adoption continued in Q3.

Our Q3 Braava family revenue grew 9% year-over-year and we will run the planned exclusive Braava television advertisements in the fourth quarter in both the U.S. and Japan to further drive broader awareness of the category.

And finally, a comment about tariffs.

As I mentioned, we are not increasing our prices in 2018 as a result of the 10% tariff imposed in September on all vacuum cleaners manufactured in China.

As currently proposed, these tariffs are scheduled to increase 25% on January 1, 2019.

We expect the increase tariffs to put moderate pressure on a strong RVC category, and we're working to align our product mix and pricing with key retailers to maintain our momentum in the segment.

Longer term, we will continue to look for cost-reduction opportunities to help mitigate the impact on prices, margin and the long-term growth of the segment.

In summary, I'm very excited about our game-changing new products, our vision of the smart home and iRobot's role in it, and the pipeline of new products on the horizon.

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

Thanks, Colin.

Our third quarter performance was ahead of our expectations.

We delivered record third quarter revenue of $265 million, an increase of 29% from Q3 last year.

Operating income for Q3 was $37 million compared with $24 million for Q3 2017.

EPS was $1.12 for the quarter compared with $0.76 in Q3 2017.

$0.13 of Q3 2018 EPS was attributable to the impact of stock compensation tax windfall compared with $0.16 in Q3 2017.

In addition, there was a positive impact from the timing of roughly $6 million of sales and marketing and R&D expenditures that we expect to incur in the fourth quarter of 2018 versus Q3.

As a reminder, Q3 2017 EPS also included $0.08 from a nontaxable gain on the Japanese distributor acquisition.

Revenue growth of 29% for Q3 included domestic growth of 45%, EMEA growth of 19% and growth in Japan of 13%.

Keep in mind that year-over-year revenue growth varies by region on a quarterly basis.

In Q3, the U.S. benefited from the launch of our new products and their availability only in that region.

As we continue to rollout distribution of these products in other markets over the next 12 months, you should expect similar quarterly fluctuations.

We manage our global business on an annual basis, provide annual financial expectations and encourage investors to view us accordingly.

The gross margin of 51% in the third quarter was slightly ahead of our expectations, driven by less than planned promotional activities.

We saw a 100 basis point increase year-over-year in Q3 due primarily to revenue uplift associated with the Robopolis acquisition.

Keep in mind that quarterly gross margin can fluctuate widely based on mix, seasonality and promotional activity, among other things.

We expect our Q4 gross margin to be negatively impacted by roughly $5 million from the 10% tariff on U.S. imports as well as the typically heavy promotional activity due to the seasonal holidays.

Q3 operating expenses were 37% of revenue compared with 38% in Q3 last year and slightly below our expectations.

Q3 G&A was in line with our expectations, but as I just mentioned, there was roughly $6 million of other operating expenses originally planned for Q3 that is now planned for Q4.

Our Q3 actual effective tax rate before discrete items was 25% versus our Q3 2017 rate of 37%, largely driven by the U.S. tax reform as well as the implementation of our U.K. principal company in July.

After discrete items, the ETR for Q3 was 15%, including the impact of the $4 million stock compensation tax windfall.

The ETR after discrete items in Q3 2017 was 17% and included a $5 million benefit from stock compensation tax windfall.

We still expect our full year ETR before discrete items to be between 24% and 26%.

We ended Q3 with $135 million in cash, up slightly from $127 million at the end of Q2.

We expect to end the year with approximately $160 million of cash.

Q3 ending inventory was $161 million or 113 days compared with $93 million or 82 days last year.

In addition to the typically higher U.S. inventory for the holidays, the need to hold inventory for direct-to-retail sales in Japan and more than 50% of EMEA following our distributor acquisitions also contributed to the higher Q3 2018 inventory level as expected.

As we have previously said, due to this structural change in our business model for direct-to-retail sales, we expect DII to be approximately 100 days plus or minus on average in 2018.

We still expect Q4 inventory to decline sequentially, and we anticipate exiting the year with DII well below our 100-day average as is typical.

Now for color on our financial expectations.

We are expecting another strong fourth quarter coming off a record Q3, driven by double-digit year-over-year growth in all major regions.

Keep in mind, we will anniversary the acquisition of our European distributor in Q4, so our total year-over-year revenue growth rate will be lower in Q4 than each of the previous 3 quarters where we benefited from the revenue uplift associated with the acquisition.

In the fourth quarter, sales and marketing, as a percent of revenue, is expected to peak as we continue to rollout i7/i7+, promote Braava family robots and run our holiday advertising campaigns, which have already begun.

We still expect full year R&D of 13% of revenue and operating expenses to total roughly 42% of revenue.

We are increasing our full year operating income to $92 million to $96 million despite the $5 million unplanned tariffs and our EPS to $2.55 to $2.75.

We are very pleased with our year-to-date results and our ability to increase our expectations for the year again, especially in light of the tariff impact.

As Colin mentioned, we will discuss the 2019 increased tariff impact we expect on our Q4 and full year earnings call in February.

I'll now turn the call back to Colin.

Thank you.

We've delivered strong results thus far this year.

I am very excited about our positioning for the upcoming holiday season and confident in our ability to deliver our increased 2018 financial expectations.

In summary, we launched a game-changing products that will reinforce our leadership in consumer robotics.

We demonstrated the power of AI, coupled with home mapping in collaboration with Google, advancing the usability of the smart home.

And we will launch significant Braava family promotions during the holiday season to promote the category and further develop our revenue diversification.

We believe that consistent execution of this strategy is the most effective way to drive sustainable growth and shareholder value.

With that, we will take your questions.

(Operator Instructions) Your first question comes from Jim Ricchiuti with Needham & Company.

First, congratulations on the quarter and the new products, but I'd like to, if we could, maybe talk a little bit more about the tariffs and the impact.

And I know you're not in a position to talk about 2019, but what I'm wondering is back in March of 2018, you -- at Investor Day, you had your slide targeting 50% gross margins longer term.

So I'm wondering how we should think about it even the initial tariff in relation to that target?

Yes, we really can't comment on 2019 or beyond gross margins at this point, Jim.

But one thing I think it's worth clarifying is that for Q4 2018, we fully took on the burden of those tariffs, that $5 million we were absorbing ourselves without any price increases going out in 2018.

We're assessing a lot of different scenarios about how to tackle the 25% tariffs if they do in fact go into effect on January 1. And a lot of those scenarios do assume some level of potentially passing some of the pricing on to the consumers, but we haven't exactly settled on the final answer yet there, but it is likely that our expectations that we set in February would not assume that we carry the full burden of the tariff increases.

Let me add another just sort of high-level color as we think about tariffs.

The first is that, as evidenced by our continuing strong growth, this is a very healthy market so that many of our growth expectations, as we talked about them, are well below the market growth so that there is some ability to absorb an impact without putting us in a dangerous situation.

And so, really this is about competitive positioning within this growing market.

In which case, that leads me to 2 other insights that I would like you to carry away from this conversation.

The first is that iRobot is the premium player and that's very advantageous because price sensitivity at the high end is much lower than at the bottom end.

And so that we're well positioned as we think about whether or not what exactly the mix of margin and price increases will be our optimal strategy.

And then my last point is that iRobot is a global market -- a global player in the marketplace and that these tariffs only affect the business done in The United States.

And so because of our leadership throughout the globe, we have the

(technical difficulty)

again, build a 2019 model taking full advantage of the strong and growing market in Japan, the strong and growing market in Europe.

And so we've got a lot of levers to play with.

And so that

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are challenging and frustrating.

The other thing's that we have a lot of levers to deal with and our market positioning actually is quite favorable relative to the competition, who will also have to be dealing with the same issue, so we can work out...

That's very helpful, the additional color.

And just -- my follow-up question is just two quick questions.

Number one, is there any ability to make changes in your supply chain over the course of the next, call it, 6 months to 1 year?

And secondly, in the past, when the macro environment has changed, you'd spoken to some flexibility on OpEx.

And so I'm just wondering, in this environment with tariffs, is that a consideration as well, looking out into 2019?

Sure.

We remain committed to profitable growth and looking at exactly how the balance of that commitment breaks down between growth and profitability is something that we continually look at.

And so that -- again, that's one of the tools that we will consider as we try to optimize our strategy for 2019.

We've got a great market here.

We have, especially with i7 and i7+ launch, unambiguous leadership at the premium end.

And with Aero, the e5 robot launched, also a stronger hand down at the entry price point level.

So we're in a very good position to -- relative to competition to make good trade.

And Jim, from a supply chain perspective, we're constantly looking at our supply chain.

We're constantly working cost reductions as a way to achieve the margins we had in the past as well.

Again, that's another thing that we will look at, the time frame to implement new actions as a result of supply chain initiatives are a little -- they're not as immediate, but that is definitely another piece of the puzzle that we're assessing.

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

Just thinking about the U.S. COGS, basically the product to which the tariff would be applied, what percent of U.S. COGS would be affected by the tariff, say, directly versus maybe some services that don't relate to China?

Mike, that level of detail we don't break out.

The tariffs are applied to the import cost of the products, which is a large piece of our product cost, but it certainly isn't the whole thing, that's not something we typically disclose.

One thing you should be aware of is these increased tariffs do not apply to Braava.

So that is a -- again, in our mix, we have tools.

Right.

Got it.

And then, you talked -- I mean, you touched on this, I think, in the last comment a little bit, but you talked about longer term, you would look at sort of cost reduction options to deal with the tariff.

I mean, by longer term, I guess, what do you mean, what sort of time frame there?

I think that some cost reductions, I mean, are continuous and would impact in '19.

Longer term things would involve looking at where we manufacture and this will look like we're in this for the long haul, we have options on that front as well.

And by longer term, you're referring to sort of a year or more?

We would not materially be able to move manufacturing and avoid tariffs in 2019.

It would be beyond that, before you'd see a material impact.

Okay.

And then just last, you talked about in your prepared remarks that this tariff topic would have a moderate effect on a strong market.

I guess, what do you view the market rate being -- market growth rate being?

And then what would it be -- what is that moderate effect, if you could quantify that a little bit?

So this quantification is going to be challenging.

It hasn't happened yet.

I think that when you look at iRobot's growth rate in Q3 of 39% and there is additional growth at entry-level price points where we don't play, you can definitely get a sense of how fast this market is growing.

A tariff would impact most directly price points below which we play, where if you're a value player, a price increase has a very material impact on growth.

But further up, the value -- the price change, your premium customer is less price sensitive.

And so it's a complex equation that favors the premium player, and so the markets where we depend most upon in order to deliver our growth are going to be markets that are less affected by tariffs.

So I can't -- I'm not going to be satisfying in my quantitative articulation.

You have to give us a little more time on that front.

But again, this is not a world end kind of situation.

This is something that will affect all competitors.

And in a very real way, we are better positioned than our major competitors play at the low end to maintain an aggressive stance.

Your next question comes from Charlie Anderson with Dougherty & Company.

A couple of ones from me.

I wonder, just on the new product, the timing of the rollout, I think you're primarily in the U.S. right now.

So when we should expect EMEA to get the new products, when Japan, when some -- when we'll see more penetration of U.S. retailers?

Then I've got a follow-up.

Sure.

Charlie, the e5 product is being launched in EMEA and Japan this quarter, Q4.

And then, in terms of the i7, i7+, it will show up in EMEA and Japan in Q1 of '19.

Great.

And then in terms of the new products, I wonder, given the use case is a little bit different, obviously, with the Clean Base and then the room designation, I wonder if you have any data that you could share with us that sort of quantify the usage trends, are they changing relative to prior robots?

We actually have a little bit of color we can give there.

We have a much sophisticated data analysis function going on.

So we look at how people use the robot.

The i7+ robot sees a significant increase in both duration and frequency of use.

Now -- and it's quite material so that the idea that the robot is running longer because with better understanding of where the robot can go, you can designate larger parts of the home to be cleaned because you don't need to use the virtual walls as a constraint.

You just tick off which boxes or which rooms you want clean, and so that's a -- that's very positive and then the ease of use where you can just literally say, "Okay Google, schedule my Roomba to clean the kitchen, dining room and entryway every Tuesday at 3" and how that works suggest that more people are activating the robot more frequently.

So that said, it's still early.

Our dataset is not incredibly large, but we're seeing some very material increases in utilization and that leads to customer satisfaction and differentiation for the competitors.

Your next question comes from Asiya Merchant with Citigroup.

Again, strong quarter.

So very impressive growth on the top line.

A quick question, on the -- when you guys talked about -- earlier at Analyst Day and when you gave guidance, you guys talked about, I think, outside of the acquisition impact, this year on ASP, kind of expect sort of that growth rate that you talk about CAGR of, let's say, 20%, implying unit growth of around 20% and maybe slightly higher, but little offset decline in prices.

Is that still a going assumption going forward?

I mean, obviously, ASPs have seen uptick this quarter, I believe, from the impact of the acquisition on a year-over-year basis and also with the launch of the new Roomba, which are slightly higher price point, albeit, you took your other Roomba prices down.

So maybe you can just help investors understand how you still think about that -- outside of the tariff, how do you think about that combination of unit growth versus ASPs as you look at the revenue CAGR of 20%?

I think on a go-forward basis, Asiya, it's very similar to what we said before that unit growth will be the main driver of revenue growth going forward.

As you said, we've had a few quarters where ASPs have improved year-on-year, but generally speaking, it's a better modeling assumption to have unit growth be the largest contributor to revenue growth versus ASP.

Okay.

And then, this quarter -- I know in the past you've provided some sort of mixed color on between your higher-end Roombas and your kind of lower-end Roombas, which is still around $300 price point.

If you could provide some of that color this quarter, that would be great.

In terms of revenue mix in Q3 within the Roomba family, we actually saw a nice mix between a combination of the $900 in the i7 at the high end and our entry point -- price point product in the $600 and that was a pretty even mix between those 2 categories.

Okay.

Great.

And then lastly, your expectations for Braava this year.

You did talk about it accelerating quite significantly into the year given all the promotional activities you're doing.

How do you guys still think about Braava in terms of growth rate for the year?

Yes, we still anticipate to have a nice growth rate year-on-year for the full year.

We do also expect that we won't be able to get it up to the 10% target that we've had.

It will probably still remain under 10% on a full year basis, but we do expect to see nice year-on-year revenue growth for the category.

To be clear, the 10% of revenue that -- I think that we would like to see, but we won't quite get there this year.

Right, with continued Roomba's strong performance, it's challenging to get to that 10%.

Okay.

Sorry, one last question from me then is, some of these new product introductions, I know you guys don't like to talk a lot about new products until you launch them, but if you could just help us -- are you still talking about innovation in your RVC category or the Braava line is something that looks like it's is ready for a refresh, talking about new product category?

I think that we are, as a company, committed to all of the above and next year is going to be very exciting year so that there is the pipeline based on the investments in innovation that we've been making over the past several years is starting to manifest itself.

And I think that it was a little dry between the launch of the 900 and the launch of the i7, but we are working at getting over this hurdle around understanding the home and having a -- the foundation of mapping where we could learn the home, improve our performance and introduce both memory and learning into the product.

So that was a huge hurdle that we've now deployed in the i7 and opens the opportunity to do much more.

So I think that when I said we're not done yet, we're not done yet.

It should be an exciting year next year.

Your next question comes from Troy Jensen with Piper Jaffray.

Colin, just for you.

You've been a little bit more open recently at some conferences talking about the lawn mower products.

So is this one of the product categories that you're alluding to here for the introductions next year?

Or any update you can on the lawn mower would be great.

We remain committed to launching a lawn mower and I'll stop there.

It's a -- well, I'll stop there.

Okay, perfect, understood.

So just -- I want to go back in the tariff question, and I apologize for asking so many times, but if I think about you guys exited Q3 with -- you guys exited Q3 with record inventory.

You had about 3 weeks to bring on more inventory before the tariffs were implemented.

It seems like only a fraction of units sold here in the fourth quarter will be impacted by these tariffs.

So can you just kind of quantify what percent of units are creating this $5 million drag?

So that one's -- that's our estimate of products that are going to be brought into the U.S. since September 24 through the end of the year.

So you're right, we have some products that will be sold in Q4 already in the U.S. before the 24, but we do have another significant amount as we prepare for the holiday season and get the new products where they need to be or their launches on a global basis.

So that's what it's based on.

And I would caution your hypothesis suggested that why did we bring in everything ahead of time and that's -- we were not able to do that.

And so that I think that your -- it sounds like you are likely overestimating the amount of product that we could have brought in before Q4 because we were ramping up new products like the i7 and e5 and it has been a normal year without such a significant new product content.

We probably could have done a lot more to bring things in earlier, but because e5 and i7 were so fundamental to our Q4 plans and those lines were just ramping up, a lot of that volume had to come in during -- after that cutover date on the tariffs, I think the model may -- yes.

And then one last question for me and kind of a follow-up on Mike's.

Have you done any work on price elasticity?

And a 5% or 10% increase on pricing, what do you think that will do to kind of the growth rates?

Yes, we have done a lot of interim research on price elasticity.

And I think that I tried to give as much color as we're able to give on the call saying that the -- it's good to be a premium retailer or a premier manufacturer.

There is certainly more flexibility at the top than at the bottom, and again, we've got very good models as to how to craft our strategy next year.

And your next question comes from Mark Strouse with JPMorgan.

Most of them have actually been answered already, but, Alison, last quarter, you gave revenue growth expectations by region for the year.

Did you update that?

I'm sorry, if I missed it.

No, we haven't.

With the increase of our full year revenue expectations, we're more or less in line of the same ranges that we gave before by region.

The cause of us increasing the guidance came a little bit in all 3 places, but still leaves us with same general ranges that we provided before.

Okay.

And then now that we're lapping the anniversary of the acquisitions, at least the last one, can you just kind of talk high level about growth rates for overall international, not looking for 2019 guidance, but just kind of high level, how do you think about that going forward now?

We're continuing to see good momentum in all the markets regionally, U.S., EMEA and Japan, and I think that will all be growth contributors as we look forward.

Okay.

Sure.

And then just lastly, so last year, you received quite a bit of essentially free advertising from your retail partners around Black Friday.

Just curious, what you're able to glean so far from your conversations with those retailers?

And what your expectations are for the holidays that's baked into guidance?

Sure.

I mean, I think, again, I'll give some qualitative color.

The retailers who supported us last year were handsomely rewarded based on the strength that Roomba delivered in retail.

And so that one would expect that we'll get strong support again because our product line is even stronger than it was last year.

So we're -- we maintain to have excellent partnerships with our retailers, and as I said, are very confident and excited about our positioning going into Q4.

Your next question comes from Bill Baker with GARP Research.

I'm thinking about Robopolis and how now it's coming up on this 1-year anniversary and simultaneously having this really major technological improvement in the product that would satisfy customers.

So it seems like with that 1, 2 punch, you really should have an opportunity to increase market share in Europe, where it hasn't been as good as The United States to begin with.

So I'm just wondering if you could tell us, give us a little color, now that you've had this acquisition for a year, are you like in the stages of already executing what you're supposed to be doing?

Or are you going to be making more of a push toward increasing market share, and any color by country would be helpful?

Sure.

I think that I can speak to Europe in general.

The acquisition has absolutely, as we hoped it would, given us good control over the messaging, and we've talked about rolling out the strength of our U.S. marketing campaign more fully into Europe and the results thus far in 2018 have shown that is definitely coming through and we're having very strong results in Europe as a result.

I think that the i7 is a very differentiated product from anything else on the marketplace.

And in all of our markets, we expect that, that is going to be a powerful competitive tool as iRobot extends its leadership.

And so that's all good news.

So iRobot is a very good position.

I think that -- is there opportunity to increase our market share?

There is certainly an opportunity to deliver very strong performance in Europe and Japan, and again, the market is growing, competition is coming, and we've got very exciting growth targets that we're pursuing.

So we've got a strong hand, and we've increased our market share between '16 and '17 with the hand that we had last year and we've only improved that.

You have a follow-up question from Jim Ricchiuti with Needham & Company.

Wondering if you could speak to the $6 million of operating expense that shifted from Q3 to Q4?

I'm assuming a large component of that was sales and marketing related.

Is that tied to the new products?

With greater availability, you're just going to be stepping it up that much more in Q4?

I wonder if you could just talk a little bit about that.

I know OpEx shifts around.

Yes, the bulk of it was sales and marketing, Jim, that moved into Q4.

Some of it is new product related.

Some of it isn't.

We look constantly when is the right time to deploy these different dollars.

In some cases, we may deploy them differently than we initially planned going into the quarter based on what we're seeing in the marketplace.

So it's really just an updated analysis of when we think is the best time to execute and deploy those dollars.

Okay.

That concludes our third quarter 2018 earnings call.

We appreciate your support and look forward to talking with you again in February to discuss our Q4 results.

That concludes the call.

Participants may now disconnect.