Apr 26, 2017
Executives
Elise Caffrey - IR Colin Angle - Chairman and CEO Alison Dean - CFO
Analysts
Bobby Burleson - Canaccord Genuity Jim Ricchiuti - Needham & Company Jon Fisher - Dougherty & Company Mark Strouse - JP Morgan Frank Camma - Sidoti & Company Ben Rose - Battle Road Research
Operator
Good day everyone, and welcome to the iRobot First Quarter 2017 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.
Elise Caffrey
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 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 for 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 as 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 first quarter 2017 earnings press release issued last evening, which is available on our Web site. On today's call, iRobot Chairman and CEO Colin Angle will provide a review of the company's operations and achievements for the first quarter of 2017 as well as our outlook on the business for 2017; Alison Dean, Chief Financial Officer, will review our financial results for the first quarter of 2017; and Colin and Alison will also provide our financial expectations for the full year ending December 30, 2017.
Then we'll open the call for questions. At this point, I'll turn the call over to Colin Angle.
Colin Angle
Good morning and thank you for joining us. Building off the strong momentum we experienced during the year-end holidays, iRobot delivered first quarter 2017 consumer revenue growth of 32% due to growth across all regions.
Domestic Q1 2017 revenue was up 34% over record growth in Q1 last year. Replenishment following exceptionally strong holiday sell-through at retailers, coupled with increasing demand for our category-leading robot vacuum cleaner, drove the growth.
Revenue in China for the first quarter increased nearly 25% compared with Q1 of 2016. Q1 of 2017 revenue in Japan grew 20% over the first quarter of 2016.
And the strong second-half 2016 sell-through in EMEA, that we discussed in February, coupled with selected investments in marketing programs in that region drove year-over-year Q1 2017 EMEA revenue growth of more than 35%. As I said on last quarter's call, we are more confident than ever in the robotic vacuum cleaner segment and that is at an inflection point; that is the explosion stage on the maturity curve we've previously shared.
For example, our entry level Roomba was the number one selling vacuum cleaner in the U.S. last year based on total retail dollars spent.
That's number one vacuum cleaner, not robot vacuum cleaner. Our exceptional 2016 performance, followed by an outstanding first quarter in 2017, reaffirms this assumption that we are at an inflection point.
Based on our Q1 results and our outlook for the rest of 2017, we are increasing our financial expectations. We now expect 2017 revenue of $780 million to $790 million, which equates to year-over-year consumer revenue growth of 19% to 20%, EPS of between $1.45 and $1.70, and operating income of $60 million to $70 million.
These expectations reflect our confidence that strong domestic momentum will continue, and 2017 revenue growth will accelerate over 2016 rates in the international markets we serve. Now, I'll take you through some of the details of the first quarter and our expectations for the rest of 2017.
Total year-over-year consumer revenue growth of 32% in Q1 reflects significantly increased demand for our premium Roomba 900 products across all regions. These connected robots have been launched in all markets except China, where they will be introduced in the second quarter.
Revenue in the U.S. increased 34% in Q1 2017 over last year, while overseas revenue grew 29% in the same period.
Keep in mind that we expect quarterly year-over-year growth rates to vary throughout the year due to product launch and distribution timing as well as the impact of our Japanese distributor acquisition in Q2. For the full year, we expect revenue in the U.S.
to grow from 18% to 20%, China and Japan to grow approximately 30% each, and EMEA to grow mid-teens over 2016. While Roomba is driving overall revenue growth this year, we are very pleased with the accelerating adoption of our wet floor care robots, Braava and Braava jet, and continue to believe these products will provide meaningful revenue diversification.
In the first quarter, Braava family revenue nearly doubled over Q1 2016, and comprised roughly 10% of total first quarter revenue compared with a year ago, when Braava robots generated just 7% of total consumer revenue. In addition, we are seeing a positive growth trend in the portion of revenue coming from Braava jet pad sales, which portends well for our future consumables model as we build the installed base.
In the U.S., where we have the best consumables data, we are selling at a rate of 2-2.5 boxes of pads per robot. As we have previously said, the predominantly hard floor surfaces in Asian homes, coupled with the need for daily mopping, particularly in China, make the Braava robots ideal for those households.
In Q1 of 2017, revenue from the sale of Braava robots comprised roughly 25% of our revenue in Japan, and 40% of our revenue in China, compared with 10% and 25% respectively for Q1, 2016. This growth as a percentage of revenue supports our enthusiasm for the potential of wet floor care in Asia.
We recently announced that the acquisition of our Japanese distributor closed on April 3, 2017 as expected. We are excited to begin a new chapter in Japan, a key strategic region for iRobot, and our second largest market.
We also announced that we had named Hajime Hikino, Vice President & General Manager, for Japan. Mr.
Hikino comes to iRobot with a successful global track record of establishing and growing profitable consumer businesses in Japan, most recently at Bose and previously at Hewlett-Packard. Through direct control of sales, marketing, branding, channel relationships, and customer service, we will be better able to maintain our leadership position and accelerate the growth of our business in Japan.
Mr. Hikino has responsibility for managing the highly successful existing team and all market activities in country.
We are optimistic that with the business built by our Japanese distributor, coupled with our direct control over consistent global messaging, we are well-positioned to optimize the opportunities in the Japanese market. On our last call, I said that we would not be launching a new consumer robot category this year, but that we will be driving connectivity down through our products and rolling out the new functionality to view mission maps via our app.
In the first quarter, we pushed out an update of our app that enables users who authorize the app to see a completed map of the cleaned area once the Roomba is finished cleaning. Not only does the map improve cleaning efficacy, but it provides proof to skeptics who previously doubted Roomba's total coverage.
As of last count, 200,000 connected Roomba 900 users were uploading maps at a rate of more than 75,000 maps per day or more than 3.5 million total maps. During the second quarter, we will extend the benefits of cloud-connected cleaning with the launch of additional Wi-Fi connected vacuuming robots at lower price points.
This will give consumers a variety of connected Roomba vacuum options to choose from, at price points that best meet their budget and cleaning needs. More people will be able to enjoy the benefits of smart home solutions, like our connected Roomba vacuuming robots.
In addition, consumers in the U.S. will be able to voice activate their Wi-Fi connected Roombas through Amazon Alexa devices.
As we have grown the robotic vacuum category as well as our share of it, we have seen an increasing number of entrants into the market. Given that we invest nearly $100 million annually in R&D to out-innovate the competition and widen our competitive moat, it is critical for us to protect our robust intellectual property portfolio comprised of 1,000 worldwide patents.
That is why we recently filed a legal action against several well-known appliance brands and Chinese manufacturers with the International Trade Commission in the U.S. After careful assessment of their products, we determined that each had infringed on numerous iRobot patents and felt that the time was appropriate to enforce our rights.
As competition has increased in this fast-growing and lucrative market, we have seen greater instances of infringement on our patents, and while we would rather innovate than litigate, we will vigorously defend our intellectual property. Note that the anticipated 2017 costs of this litigation are included in our financial expectations.
In summary, we are off to an excellent start in 2017. In the first quarter, we continued to see the positive impact of our targeted marketing programs as consumer revenue grew 32% year over year following record Q4 revenue.
We continue to invest in key technologies and successfully launched our Clean Map update to our iRobot Home App, enabling customers to view the job once complete. We closed the acquisition of our Japanese distributor enabling us to expand our global footprint and capitalize on the tech-savvy Japanese consumer market, and took a significant step to validate the strength of our IP and widen our competitive moat.
I will now turn the call over to Alison to review our first quarter financial results in more detail.
Alison Dean
Thank you, Colin. We delivered record first quarter revenue slightly ahead of our expectations.
Revenue of $169 million increased 29% from Q1 last year driven by growth in all regions. EPS was $0.58 for the quarter compared with $0.13 for the same period last year.
Keep in mind that the divestiture of the defense business negatively impacted Q1 2016 EPS by $0.12. In addition, in Q1 '17, we adopted the new accounting standard related to stock compensation expense.
As a result, we recorded a $1.7 million or $0.06 discrete tax benefit in the quarter. Our effective tax rate in Q1 before discrete items was 31.4%.
Q1 operating income was $22 million or 13% of revenue. As Colin discussed, domestic Consumer revenue grew more than 30% in Q1 over last year.
This growth was primarily driven by strong inventory replenishment by U.S. retailers.
Net revenue from life-to-date returns adjustments was negligible in Q1 '17 compared with $1.0 million last year. International revenue increased 29% as expected.
Year-over-year Q1 growth of roughly 25% in China compares with a 30% revenue decline in Q1 2016 as we worked down channel inventory ahead of our transition to a new distributor model at the end of Q2 '16. We remain optimistic about the significant opportunity in China.
With our Shanghai team fully ramped coming into the year, we are confident about delivering 30% year-over-year growth in China this year, and further accelerating growth beyond 2017. In Q1, we had revenue growth of 20% in Japan over Q1 '16.
As a reminder, we expect Q2 Japan revenue to decline year-over-year as we sell through the inventory acquired from the distributor in the acquisition. We expect year-over-year revenue acceleration in Japan in the third and fourth quarters, after selling through the inventory we acquired, and approximately 30% revenue growth overall in 2017, in part due to the higher price points we receive having eliminated a tier in the distribution model.
In EMEA, we saw continued strong sell through and replenishment during the first quarter resulting in EMEA revenue growth of 36%. Due to expectations about product launch timing, we expect year-over-year growth in EMEA to be the strongest in the first and third quarters, and full-year EMEA revenue growth of mid-teens over 2016, which is slightly higher than our original expectations.
Gross margin was 51.8% for the first quarter of 2017, up 4.4 points from the same quarter last year. The increase was primarily due to region and product mix, as well as COGS improvements.
We continue to expect gross margin percent to decline in Q2 to the low 40's, or approximately 10 percentage points, due to the various accounting impacts of the Japanese distributor acquisition. Q3 and Q4 gross margins are expected to return to normal levels, and full-year gross margin is expected to be approximately 50%.
Q1 operating expenses were 39% of revenue, down from 43% in Q1 last year, reflecting overall leverage. In Q2, OpEx will increase to roughly 50% of revenue before returning to normal levels in the second half of the year.
In addition to the typical Q2 increase in Sales & Marketing expense to promote Mothers' Day and Fathers' Day, Q2 '17 OpEx will also include our investments in China which were much smaller last year, expenses associated with the patent litigation that Colin discussed, as well as the costs associated with the Japanese business we just acquired. For the full year, we continue to expect operating expenses to total roughly 42% of revenues consistent with the expectations we provided on the February earnings call.
Net income for the first quarter was $14.9 million, compared with $4.0 million in 2016. Operating income was $21.6 million or 13% of revenue and adjusted EBITDA was $30.3 million or 18% of revenue.
Q1 '17 EPS was $0.58, compared with $0.13 last year. And as mentioned previously, our effective tax rate before discrete items was 31.4% in Q1 and we expect a similar rate for the remainder of the year.
Although we received a $0.06 tax benefit in Q1 relating to the new stock compensation accounting treatment, it is difficult to predict the impact, if any, in future quarters, and therefore we are not providing an estimate for it. We ended the quarter with $275 million in cash, up from $247 million a year ago.
Inventory at quarter-end was $57 million or 64 days compared with $53 million or 86 days last year. Finally, I'd like to comment on our current financial expectations relative to the impact of the acquisition of our Japanese distributor, which are detailed in our earnings release.
We have reduced our Japan expectations versus those provided in February due to our analysis of inventory at retailers in Japan at the end of Q1, which was higher than we would typically like to see. We have lowered the level of incremental revenue post acquisition, as we work through this channel inventory.
We have additionally planned to increase Japan-related marketing expense to assist in driving sell through in 2017. And as with all acquisitions, we have a 45-day window to make all final purchase price adjustments.
We still expect the acquisition to be accretive in the second half, most likely in Q4. To summarize our current view, we now expect incremental Japan revenue of $10 million to $12 million for the year, with a likely negative EPS impact of $0.50 to $0.60, the majority of which, we expect in Q2.
We continue to expect the Japan acquisition will be fully accretive in 2018 at a revenue, gross margin, and EPS level. And we are pleased that the momentum in the remainder of the business indicates we will be able to offset the changes in Japan, and to increase our full year total company expectations.
I'll now turn the call back to Colin.
Colin Angle
Thank you. We are off to an excellent start in 2017 as we focus our efforts on extending our position as the world's leading global consumer robotics 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 floor care products. Leveraging our robust portfolio of mapping and navigation software will enable us to further develop and grow significant adjacent consumer product categories longer term.
With that, we'll take your questions.
Operator
[Operator Instructions] And our first question comes from Bobby Burleson from Canaccord. Your line is now open.
Bobby Burleson
Hi, good morning. Congratulations on the strong results and the guidance.
Colin Angle
Thank you.
Bobby Burleson
So, I guess, Colin, just to look at the success you're having in EMEA, curious your targeted marketing there, where the most impact you've had on a country basis might've been so far? And how you expect that to kind of play out as the year progresses and as you continue to focus on that marketing effort?
Colin Angle
Sure. So we've adopted a strategy where we are focusing market-by-market with an investment strategy.
The areas at this point where we're having success is a little across the board, highlighted by Germany, Spain, Switzerland, Poland, and Italy. So again, it's not a single region, this is generalized success as we have gone and optimized our strategy on a country-by-country basis.
Bobby Burleson
Okay, great. And then in terms of China, in Q4, you guys didn't like some mix of products you had on the ground there relative to what the demand patterns were.
And I'm wondering whether or not that's something that's been righted in Q1, or if you continue to work towards a more optimal mix. And just kind of curious, is it still skewing more to the high-end, and this is on the vacuum cleaner side, than you had originally expected?
Colin Angle
Sure. The trends continue.
As we mentioned in the call, we're seeing continued very, very strong demand for the wet floor care products, and on the dry floor care we are seeing the most success at the higher price point. Now, I mentioned that we'll be launching the 900 Series in second quarter.
So we're in China without our number one lead product at this moment in time, so that we feel that that's going to be a very positive event when we are able to launch that. But the 800 is the lead product today, and doing very well.
Bobby Burleson
Okay, understood. And it sounds like you're doing pretty well in terms of the attach rate or consumables on the wet floor care, and I'm wondering do we expect as scale grows there some kind of margin benefit on an absolute basis with the consumables margins?
And is there any kind of geographical difference in terms of what you can see so far in terms of the amount of consumables, say, in different countries that are being used per device?
Alison Dean
Bobby, we have the best data today of the U.S. market, where we're showing about 2.5 boxes of pads per robot cumulatively since we've launched the product, which we feel is a very good rate.
The data in the international markets isn't quite as strong, but we have seen a take-up of the disposable pads in those regions as well. In terms of the margin, it's really going to take some time to build up a margin benefit from the consumables model that'll really be driven by continued improvements in the installed base, but we do expect over time that that'll be a good margin contributor for us.
Bobby Burleson
Great. And congratulations again.
Colin Angle
Thank you so much.
Operator
Thank you. And our next question comes from Jim Ricchiuti from Needham & Company.
Your line is now open.
Jim Ricchiuti
Hi, good morning. Question about R&D, looks like the strongest year-on-year increase in, it looks like, four years or so.
And so I was wondering if you could comment on that as to whether we should assume a continued high level of -- this kind of high level of R&D over the balance of the year. And it's a little surprising just given that I think you commented that you're not planning any major new consumer launch this year?
Colin Angle
Well, we are planning, as we mentioned, launch of new connected products, and certainly have plenty in the pipeline. I mean, you should assume that R&D as a percentage of revenue on a full-year basis is going to be roughly consistent, so that as we grow we will continue to invest in accelerating our technology base in this increasingly exciting area.
As we've spoken before, the software content in the robots is growing very, very rapidly. And the connectivity and power of our robots continues to increase by leaps and bounds.
So we think that the market-leading position which we're enjoying is requires this level of investment to maintain relative to the other players in the marketplace, as well as necessary for us to tap into and take advantage of the growing smart home and Internet of Things marketplaces. So, again, sometimes the quarters are a little up and down on R&D depending on some of the product and fixed costs.
But we model the year to hold R&D constant as a percentage of revenue.
Jim Ricchiuti
Okay, that's helpful. Colin, can you comment about Japan.
It sounds like you're going to be doing some targeted marketing spending in country, in Japan. And you guys have had a pretty good track record of forecasting returns on these marketing investments.
What's the timing around this stepped-up marketing investment that you're planning in Japan?
Alison Dean
Jim, some of that spending will start as early as Q2, and then it'll be in effect in the second half of the year as well. So we're implementing those -- we've had a consistent implementation of program starting over a year ago, but we're definitely taking a little bit of a different approach, starting here in Q2 now that we have full control of that business.
Jim Ricchiuti
Okay. And last question from be and I'll jump back in the queue is, just with respect to the competitive environment in China.
Are you seeing any new entrants in the wet floor cleaning category? I mean, clearly you're seeing very good momentum with Braava there.
Just wondering if there's been any change in the competitive landscape? It's still a new category.
Colin Angle
Yes, I think it's sufficiently new that we do have some running room in the wet category. We certainly expect probably late this year or next year for there to be other low-end entrants into the wet category given our success, because that's just the physics of China.
So I wouldn't be surprised at all, but we're rapidly establishing our brand, and it's helping to drive our success in China. We think that will continue.
Jim Ricchiuti
Okay, thanks. Congrats on the quarter.
Colin Angle
Thank you so much.
Operator
Thank you. And our next question comes from Jon Fisher from Dougherty & Company.
Your line is now open.
Jon Fisher
Thank you, and good morning. Good quarter.
Just a couple of questions on China, Alison, not to kind of pick at words, but in the prepared comments you reiterated the 30% growth rate for China. And then you mentioned acceleration beyond 2017.
So are you stating that you believe China can grow faster than 30% on a sustainable basis?
Alison Dean
Those are our plans relative to how we see the market growing and our position within that market. We do feel, coming out of the transition we had last year, putting these good growth percentages on the books for '17, that we can follow that up with higher growth rates going into 2018.
Jon Fisher
Okay. And then just kind of comparing the Chinese market to the U.S.
market, the U.S. market is obviously a year-round market, fairly steady predictable sales.
Given the importance of 11-11 day in China, based on your analysis of the market, how heavily skewed towards either Q4 or the second half of the calendar year will or do you expect China revenues to be as far as a contributor to the overall year for the company?
Alison Dean
The majority of our revenue in China will still come in the second half. Because of comparables to last year, we will show good growth each quarter going into '17 versus '16.
But still, the bulk of the revenue on a full-year basis will come in the second half.
Jon Fisher
Okay. And then just to go back on kind of the China inventory mix coming out of -– or product mix coming out of Q4, have you alleviated the kind of the excess 600 SKU supply that you had in the China market in Q1?
Or, are you still working through that? And if so, how aggressive from a pricing margin standpoint did you need to get to clear that inventory?
Alison Dean
So, we definitely made inroads in selling through some of that inventory. In Q1, there is still a little bit more to go.
As you may recall, we put some reserves in place in Q4 to support some price protection -- contractual price protection, so we don't anticipate more at this point. We feel like we've reserved what we needed in Q4 for that.
So we are happy with the progress that we've made in Q1, but there's still a little bit more to do as we come into the second quarter.
Jon Fisher
Okay. And then final question, just I am not surprised that you had to take your revenue guidance numbers up for the year, but just given my perception of kind of the conservative prudent way you talk about the business with investors, we're surprised that one quarter end of the year, you are already taking numbers up, just kind of wondering what kind of either market data or feedback from retailers or what -- how strong or what are you basing the revenue increase already this year on?
Alison Dean
As we always do, we have deep conservations with our retailers, distributors. We understand the underlying sell through rates.
And based on those data points, we update our selling expectations and revenue expectations accordingly. So, it's the same process we use all the time.
The sell through momentum particularly in U.S. and EMEA has been quite strong and that's really driven the increase that we've put forward.
Jon Fisher
Okay. Thank you very much.
Alison Dean
Welcome.
Jon Fisher
Yes.
Operator
Thank you. And our next question comes from Mark Strouse from JP Morgan.
Your line is now open.
Mark Strouse
Good morning. Thanks for taking my questions, and my congrats on the 1Q results.
I just wanted to follow-up on an earlier question about EMEA and just confirming what I heard, the strength that you saw on 1Q do you say that's primarily related to the increased marketing, or was there anything else going on as far as new product launches or new channels, anything like that? And then, I guess as a quick follow-up would be also in Q3 you talked about expected strengths there, anymore details on what's driving that?
Colin Angle
Sure. In EMEA, yes, the increased marketing is part as we are continuing to export the marketing strategy that we developed and have proven out in the U.S.
And so, that's element of it. The market also continues to grow very strongly as robot vacuuming continues to be recognized as a category that has true disruptive potential.
And as we've spoken before, there is a tremendous upside in the current install base, so plenty of headway to grow in EMEA and the rest of the world. So, it's a combination of very positive factors.
Mark Strouse
Okay. Thanks, Colin.
And then Alison, just two quick -- two quick questions; any update on the expected use of cash?
Alison Dean
Not at this time. As we said coming into the year, we wanted to see how things evolved with administration and policies et cetera.
It's an ongoing conversation internally. We're only one quarter in.
There still could be something we do later in the year. But at this point, we're not implementing anything at this time.
Mark Strouse
Okay. And then last one from me.
Operating margins were pretty strong this quarter. Alison, I think on the last call you mentioned looking all the way out to next year, the operating margins being in the -- potentially being in the high single digits to low double digits.
Is there any reason to update that outlook?
Alison Dean
No, we're executing against our '17 plan that set into those longer-term targets for executing. We are executing well against the current plan, so it doesn't change my view of the outer years.
Mark Strouse
Okay. Thank you very much.
Alison Dean
You're welcome.
Operator
Thank you. And your next question comes from Frank Camma from Sidoti.
Your line is now open.
Frank Camma
Good morning, guys, and congratulations.
Alison Dean
Thank you.
Colin Angle
Thank you.
Frank Camma
Couple of questions; Colin, you mentioned that obviously the entry level model obviously gained a lot in popularity. I was wondering, maybe it's too soon to kind say this, but do you see a lot of from a customer pattern, do you see people trade up over time?
Is that generally what happens as they replace these units?
Colin Angle
Yes. We do have strong data showing that the 600 series is a common entry point.
And, they come back and then they go up in models when they -- two, three years in as they hit the opportunity to replace the robot. So that is definitely quite a visible behavior pattern.
We also have plenty of new customers coming in at the high levels. So that it depends on your confidence and your household income as to where you join the franchise.
But the 600 has been very successful as a get way into the franchise.
Frank Camma
Great. And despite that, I mean obviously it impacts your overall average selling price, but it really hasn't affected your gross -- your ability to manage the gross margin.
Is that correct? Is that just because you are able to offset it with a higher end mix?
Alison Dean
There isn't a huge range in terms of our product margins across, it varies from the families' 900 and 800 probably are a little bit higher, but there isn't a dramatic difference on the 600. And all of our efforts for COGS improvements and margin improvements, we really focus on the entire line of product offerings.
So, we expect that we will have contribution from all the different series and we ensure that there is really strong margins across all of them to help maintain if not improve our margins over time.
Frank Camma
Okay. Great.
And my last question is similar to my first, Colin, it's just going the wet care products specifically in the U.S. as you probably have more data, but like patterns you see there, are you able to tell our customers that already have your vacuum productions more likely to order these vis-à-vis new users that may have not even tried the robotic vacuums?
Just kind of curious what you see there.
Colin Angle
Sure. It's a mix, but we don't have the same type of data at least to share at this time as to what the uptake rate is.
There certainly is a lift if you are a Roomba owner. We certainly have strong data to suggest that, but I wouldn't want to quote any specific at this time really, but -- so a mix.
Frank Camma
Okay. Thank you.
Operator
Thank you. And our next question comes from Ben Rose from Battle Road Research.
Your line is now open.
Ben Rose
Good morning. Couple of questions I guess starting with Colin.
With regard to voice activation, looks like that's a pretty interesting feature that you're adding. Do you expect that to be entirely linked to Amazon Alexa or could we see Roomba voice activated robots independent of Alexa?
Colin Angle
We certainly are a long-term player in the smart home. And, the first announcement we have has to do Alexa.
We certainly believe that this is an opening act that we will be doing more third party integration and I think that -- so lots more to come. This is step one of many.
Ben Rose
Okay. And with regard to some of the products that are emerging in the category, it does look like there is some companies out there that are kind of combining vacuuming and wet floor care, what is your kind of view on this combination robot?
Do you think it can be effective in the market? Is it flawed in some way?
Excuse me, is it flawed in some way?
Colin Angle
We've done extensive testing and believe that that's a very suboptimal compromise. You do much of less of a good job.
Wetting you lose the opportunity to agitate like the Brava Jet does. And by placing the pad in the center of the robot, getting to the edges and into the corners is far more problematic.
And the edges and the corners are where much of the dirt ends up. So, we don't view it as a strong approach.
Certainly that people are interested in both vacuuming and wet cleaning. So, at least that is a real market need.
Ben Rose
Okay. And as finally, you know, with regard to your patent protection strategy, is the goal ultimately to remove the offending models from the market, or could you foresee cross-licensing of some sort, is there any kind of commentary you can make around that?
Colin Angle
Sure. Our action with the ITC has the specific goal which we're confident in removing those products from the marketplace.
We believe that licensing is not in our interest, and we believe our case is very strong.
Ben Rose
Okay, thank you very much.
Colin Angle
Okay.
Colin Angle
That concludes our first quarter 2017 earnings call. We appreciate your support, and look forward to talking with you again in July to discuss our Q2 results.
Operator
That concludes the call. Participants may now disconnect.