Jul 26, 2017
Executives
Elise Caffrey - IR Colin Angle - Chairman and CEO Alison Dean - CFO
Analysts
Jim Ricchiuti - Needham & Company Mark Strouse - JPMorgan Troy Jensen - Piper Jaffray Ben Rose - Battle Road Research Jon Fisher - Dorothy & Company
Operator
Good day everyone. And welcome to the iRobot Second 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 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 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 second 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 second quarter, our outlook on the business for 2017; and the acquisition of our European distributor.
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, including the financial impact of the acquisition. 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.
I'm very excited to report that we delivered another outstanding quarter in which revenue grew 23% over Q2 last year. Based upon this and our latest view of the second half, I'm also excited that we are increasing our core business 2017 full year revenue and product expectations.
And last but not least, I am very happy to report that we announced the signed definitive agreement to acquire our largest European distributor Robopolis. The transaction is expected to close in the beginning of Q4 this year.
This represents another element of our strategy to gain more direct control over our go-to-market execution in international markets. When completed, the acquisition will extend iRobot’s overseas control of market activities including consistent global messaging that will help drive greater adoptions over iRobot’s acting [ph] and affirm iRobot’s segment leadership.
Before discussing the acquisition of Robopolis, let’s look at our second quarter results. In Q2, total year-over-year revenue grew 23% driven by continued momentum in the United States where revenue grew 46% over Q2 of 2016.
For the full year 2017, we now expect revenue in the US to increase roughly 30% compared with our April estimate of 18 to 20%. Based on our Q2 results and our outlook for the rest of 2017, we are increasing our financial expectations.
We now expect 2017 revenue of 815 to $825 million which equates to year-over-year consumer revenue growth of 24 to 26%. Operating income of 67 to $75 million in EPS of between $1.80 and $2 before the impact of the European distributor acquisition.
These expectations reflect our confidence the strong momentum in the US and EMEA will continue and 2017 revenue growth will accelerate over 2016 rates in the international markets we serve. In EMEA, where our second quarter revenue was up 10% from Q2 2016, strong consumer demand for iRobot products particularly ruled at 800 and 900 field increases year-over-year sell-through of more than 15% over the second quarter of 2016.
Throughout Europe in the second quarter the Roomba 900 was the number one selling SKU. Our full year 2017 EMEA revenue growth outlook before any expected positive revenue impact of our Robopolis acquisition has improved from mid-teens to high-teens over 2016.
In April, we expected year-over-year growth in EMEA to be the strongest in the first and third quarters Given the positive expected impact of the Robopolis acquisition which Alison will discuss in more detail we expect strong year-over-year EMEA revenue growth in the fourth quarter as well. Revenue in China for the second quarter increased 38% compared with Q2 2016 due to the launch of the Roomba 900 in that market and a more favorable year-over-year comparison resulting from the dynamics of last year’s distributor transition that we have previously discussed.
We’ve featured our Roomba 800 on the 618-selling holiday and have performed very well. Second quarter 2017 revenue in Japan decreased 21% from Q2 2016 as we expected.
As Alison said on last quarter’s call, inventory of retailers in Japan at the end of Q1 was higher than we typically liked to see. While we’re pleased with the sell through activity generated from our incremental sales and marketing investments, we would like retail channel inventories to be even lower.
Similar to the actions we took in the US a number of years ago, we expect leaner inventory levels to provide us strong leverage with our Japanese retailers. And as a result, we now expect full year 2017 revenue growth in Japan of 20% to 25%.
Now, I'll take you through some of the details of the second quarter and our expectations for the rest of 2017. In U.S., we continue to see very strong growth momentum for both iRobot and robot vacuum cleaning segment.
Our investments in sales and marketing programs to build awareness and articulate the value proposition of our Roomba products are generating substantial results. On 7-11 Amazon Prime Day and the biggest selling day in Amazon's history, we sold more than twice the volume sold on Prime Day in 2016 which was twice the volume sold in 2015.
The Roomba 652 ranked number one in Robotic vacuum cleaners, number one in all floor care, and number two in all home and kitchen for Prime Day. That is particularly significant when considering the context of the increasing availability of cheaper lower quality competitive products.
Our performance on Amazon Prime Day is an important gauge for the second half expectations in the U.S. While we expect the competitive landscape to be similar to last year's especially at the lower end of the market, we have high confidence in our increased expectations for full year U.S.
revenue growth. With respect domestic competition I reported on last quarter's call that we had filed legal action against several well-known appliance brand and Chinese manufacturers with the International Trade Commission, ITC in the U.S.
The ITC issued a decision to hear the case which is the first step in affirming the validity of our point. Since then discovery has been ongoing.
You have been informed that a trial date has been set for March 2018. We would expect an initial decision to be handed down in June of 2018 and finalized in October of 2018.
That is all the information we can provide at this time. As we promised on our last call, we introduced the Roomba 890 and 690 wi-fi connected vacuuming robots in the U.S.
EMEA, and China extending the benefits of cloud connected cleaning at lower price points. These robots give customers a variety of connected Roomba vacuum options to choose from a price points that best meet their budget and cleaning needs.
More people can enjoy the benefits of smart home solutions like our connected Roomba vacuuming robots. In addition, U.S.
customers are able to voice activate their wi-fi connected Roombas through Amazon Alexa and Google [indiscernible] and license. I think it's important to remind you about a component of our product development and launch strategy.
Based on feedback from the 10 million of Roomba customers, we have developed a prioritization of technology enabled features and functionality that we planned to integrated in future generations. As we've done in the past, we will introduce new capabilities at most premium products our best at highest price points.
Then through a combination of product reengineering and scale efficiencies, we cascade some of those capabilities into lower cost better or good product offerings at lower price points while maintaining or improving gross margins. A good example of this is the Roomba 980 to Roomba 960 transition by removing the carpet boost feature for the 960 we are able to offer at lower price similar margin version of our premium product for those customers for whom deeper net carpets were not a priority.
While Roomba is driving overall revenue growth this year. We continue to be pleased with the performance of our wet floor care robot Braava and Braava Jet.
We are seeing continued adoption of the category and expect high teen growth for the year versus 2016. Now, I’d like to provide you with additional information about our announcement to acquire Robopolis, our largest European distributor.
As we matured at the company, we have assessed our global markets to identify opportunities for potential forward integration for a more direct control. As with our Japanese distributor, we felt the timing was right to acquire our largest European distributor.
We have seen continued momentum and accelerated growth in the Western Europe over the past couple of quarters as we’ve previously discussed. This has been driven by a number of factors including the improving macro environment and positive consumer sentiment as well as the implementation of iRobot’s successful US marketing programs in this region.
The acquisition provides iRobot with an opportunity to capitalize on the market momentum, driving accelerated adoption of robotic floor cleaners. It will further expand the company’s direct controller distribution in an environment of ever increasing competition while ensuring global brand consistency in better serving the needs of European customers.
Robopolis has been an exclusive distributor of iRobot products since 2006 and sells across 11 markets in Western Europe through operations in Germany, Spain, France, Belgium, Austria, the Netherlands and Portugal. EMEA is a key strategic region for iRobot comprising approximately 25% of our 2016 consumer revenue and sales are robust to Robopolis represented roughly half our EMEA revenues last year.
The Robopolis team has been instrumental in establishing iRobot as the leading consumer robotics brand in Western Europe and we look forward to them formally joining iRobot. Turning now to China, we had a very strong year-over-year growth in Q2 of 2017.
Demand for our premium products the Roomba 800 during last year’s holiday season and the Roomba 900 following this launch in Q2 is strong and supports our premium products and market positioning. Sell through doubled on the 618 holiday this year over 618 in 2016.
We did see more aggressive moves by our competition at the low end of our target market during Q2. As a result, we are adjusting our expectations regarding growth in full year 2017 China revenue.
We now expect nominal full year 2017 revenue growth following the decline in 2016. In Japan, where our integration efforts have been underway since early this year, we are progressing well against our short and long-term integration goals.
We’ve hired additional finance accounting staff to implement policies, procedures and reporting consistent with those in the US and are on track to deliver very strong year-over-year revenue growth of 20 to 25%. With our increased expectations for the total company full year 2017 revenue, we planned to reinvest some of the incremental profitability to ensure our continued product leadership in a rapidly growing competitive marketplace and capitalized on the strong US and EMEA momentum while still increasing profit expectations.
We will make additional investments in R&D to accelerate our product roadmap in anticipation of new product launches in 2018. In addition, we will make incremental sales and marketing investments to further promote our Braava family of robots, building on the momentum we have seen over the past couple of quarters.
We are firmly committed on improving profitability as we drive adoption and revenue growth and are pursuing a disciplined strategy of balancing our incremental investment with increased profit. In summary, it has been an exciting first half, and we are very optimistic about the outlook for the rest of the year.
In the second quarter, we saw the positive impacts of our targeted marketing programs especially in the U.S. as revenue in that market grew 46% year-over-year driving total Q2 consumer revenue growth of 24%.
We successfully launched Roomba 890 and Roomba 690 wi-fi connected vacuuming robots, extending the benefits of cloud connected cleaning at lower price points while maintaining margins. And we announced the planned acquisition of our largest European distributor, which we expect will enable us to capitalize on the current market momentum and drive robotics floor care adoption in EMEA.
I'll now turn the call over to Alison to review our second quarter financial results in more detail.
Alison Dean
Thanks, Colin. As I begin my comments, I will first discuss Q2 results and full year expectations before the Robopolis acquisition and I will explain the impact expected from the acquisition.
We delivered record second quarter revenue, slightly ahead of our expectations. Revenue of $183 million increased 23% from Q2 last year, driven primarily by growth in the U.S.
and China. Operating income was $4.1 million in the second quarter, compared with $5.9 million in Q2 last year and EPS was $0.27 this quarter compared with $0.17 for the same period last year.
Q2, 2017 included a $0.15 tax benefit relating to the new 2017 stock compensation accounting standard. As a reminder, given the difficulty with projecting the size and direction of the stock compensation tax impact, we communicated in Q1 that our guidance reflected our tax rate expectations prior to discrete items for future periods.
For the first half, revenue was $352 million compared with $280 million in 2016. Operating income was $25.7 million compared with $11.4 million last year.
EPS was $0.85 compared with $0.30 last year. Keep in mind that 2016 first half results include defense and security revenue of $3 million versus zero in the first half of 2017.
Divestiture of the defense and security business negatively impacted first half 2016 operating income by $5.6 million and EPS by a negative $0.11. Operating income and earnings per share were significantly higher in the quarter than our outlook in April driven by several factors, the largest of which were the timing of the Japan impacts and the significant favorability in the Q2 effective tax rate as just discussed.
Incremental revenue, delayed sales and marketing spend, favorable gross margin and another earn out on an investment were also factors. With respect to Japan accounting impact, the total 2017 effect of all Japan accounting requirements is in line with our previous expectations.
However, due to the types of the final accounting adjustments, the timing of the quarterly impact will be different. We will have longer amortization period on some of the intangible assets and as a result, there was a lower impact to Q2 results, but the impact to Q3 and Q4 will be higher.
To be clear, the impacts for the year is expected to be the same. As we said on our first quarter call, we adopted the new accounting standard for 2017 related to the accounting for stock compensation.
Windfalls and shortfalls are now accounted for in the quarter with the year effective tax rate rather than running through additional paid in capital as they had been previously. The impact in either direction is highly dependent on the company stock price.
We have seen favorable discrete benefits in both Q1 and Q2 from this new accounting guidance but the amount in Q2 was significantly higher than it was in Q1 primarily as a result of the higher stock price during the quarter. Our Q2 effective tax rate before discrete items was 35.7%.
As Collin discussed, consumer revenue grew 24% in Q2 over last year as we continue to see tremendous momentum at US retailers. In the US, net revenues from life-to-date returns adjustments was 500,000 in Q2 of 2017 compared with 1.2 million last year.
We also booked approximately 2 million of incremental price protection reserves during the quarter for potential future actions. In EMEA, we saw continued market momentum in the second quarter resulting in year-over-year revenue growth of 10%.
On last quarter’s call, we said that we expected year-over-year growth in EMEA to be the strongest in the first and third quarter and full year EMEA revenue growth of mid-teens over 2016. As the second quarter progressed, we saw momentum driving annual growth of high teens over 2016 with similar quarterly timing prior to the impact of the Robopolis acquisition.
Year-over-year Q2 growth was roughly 38% in China compares with a 45% revenue decline in Q2 2016 as we work down channel inventory ahead of our transition to a new distributor model at the end of Q2 2016. As Collin has discussed, our full year 2017 revenue growth expectations have changed due to the quickly changing competitive environment at the low end of our product offering in China.
We are now planning for a nominal year-over-year growth in China this year compared with the decline in 2016. In Q2, revenue declined roughly 20% in Japan from Q2 2016 as expected as we began selling through the inventory acquired from the distributor in the acquisition and allowed retail channel inventory to decline.
During the quarter, we made significant progress on reducing the retail inventory and we expect further reductions in Q3 and Q4. Year-over-year revenue growth in Japan is expected to resume in the third and fourth quarters as we expected resulting in full year revenue growth of 20 to 25% in 2017 in part due to the higher price points we received having eliminated the tier in the distribution model.
As Collin mentioned, the full year revenue has been reduced a bit as we look to target more aggressive retailer inventory levels. We are pleased that our stronger performance in the US and EMEA more than offset this impact and still allow us to increase our overall revenue guidance.
Gross margin was 49.1% for the second quarter of 2017, up 2.3 points from the same quarter last year. The gross margin was higher than we anticipated in April primarily due to the timing and P&L classification of the final accounting impacts for the Japanese distributor acquisition that I mentioned previously.
In total, Q2 was impacted by approximately 7 million of inventory profit adjustments and amortization of intangible assets. Not related to the acquisition, we also saw better than expected gross margin driven mostly by COGS savings and regional mix slightly offset by the incremental price protection reserves mentioned earlier.
In Q3 and Q4, we expect gross margin percent to be roughly the same level as Q2 before any impact of the Robopolis acquisitions. Q2 operating expenses were 47% of revenues compared with 43% in Q2 last year, driven largely by the acquisition of the Japanese distributor at the beginning of the quarter and additional R&D spend.
This was better than anticipated due to higher revenue and the timing of some planned expenses that were postponed until the second half of the year. OpEx is expected to decrease as a percent of revenue in Q3 and Q4 before the impact of the Robopolis acquisition.
For the full year, we continue to expect operating expenses to total roughly 42% of revenues, consistent with the expectations we have provided throughout the year and again, prior to the Robopolis acquisition. We ended the quarter with $260 million in cash, up from $173 million a year ago.
Inventory at quarter end was $83 million or 81 days compared with $47 million or 54 days last year. This increase in inventory and DII was largely driven by our Japan acquisition in Q2 and the inventory we now hold in Japan to serve this region under our direct model.
Looking forward to Q3 and Q4, we expect DII to increase further in Q3 as we build inventory for the holiday season and then come down significantly in Q4 before any impacts from Robopolis. Our full year 2017 financial expectations before the impact of the acquisition are for revenue of $815 million to $825 million, operating income of $67 million to $75 million, and EPS of $1.80 to $2.
Revenue is expected to grow sequentially in the third and fourth quarters and most significantly in Q4. Third quarter year-over-year growth is expected in all regions except China due to the difficult quarterly comparison.
As a reminder, we received a $11 million order in the third quarter of 2016 that we had expected to receive in Q4 last year. Finally, I'd like to comment on the expected impact of the acquisition of Robopolis, which is detailed in our earnings release.
We have signed a definitive agreement to acquire the company for cash in the amount of $141 million or approximately 0.9 times of Robopolis' 12 months trailing revenue ended June 2017, consistent with revenue multiples for comparable transactions and subject to customary purchase price and working capital adjustments. We expect the acquisition to close at the beginning of Q4, 2017 and to contribute incremental revenue of approximately $25 million to $35 million all in the fourth quarter.
Our gross margin is expected to be negatively impacted by roughly 500 basis points in Q4 and 200 basis points for the full year '17 as a result of the acquisition. We expect the acquisition to be between $0.30 and $0.45 dilutive in 2017 with the vast majority being incurred in the fourth quarter.
We have included a schedule in the earnings release showing the anticipated 2017 impacts of the acquisition. For 2018, we expect the transaction to generate incremental revenue and higher earnings per share.
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 in the longer term. Now let’s take your questions.
Operator
[Operator Instructions]. And our first question comes from the line of Jim Ricchiuti with Needham & Company.
Your line is now open.
Jim Ricchiuti
Thank you, good morning. Just two questions one on the acquisition and then first question just with respect to the growth you showed in the US up 46%.
I’m trying to reconcile the growth you showed in US as well as overall with a relatively modest Roomba unit growth. So, I’m wondering, it sounds like you’re seeing a pretty good mix shift towards higher end.
Should we anticipate over the balance of the year that with you guys maybe refreshing the mid-range that will see some pick up in unit growth in that segment of the business?
Alison Dean
Jim, we still see a pretty healthy mix across the high end and the low end in the US with the introduction of some of the Wi-Fi capabilities at lower price points. It's certainly our expectation that we could see some volume move that way.
But right now, it's still a pretty healthy mix between the 9 and 800 series and the 600 series.
Jim Ricchiuti
Got it. And then with respect to the acquisition, just a clarification for me.
So, the balance of the revenues that you generate in EMEA, is that the bulk of that is web based e-commerce?
Alison Dean
No, in Europe we have a very healthy mix of retail bricks and mortar still as part of our business.
Colin Angle
And other geographies not covered by Robopolis, so as we said there is only in about half of the countries we serve in Europe.
Jim Ricchiuti
Okay, that’s helpful. And Colin I’m trying also to get a sense as to why now.
You know it sounds like you’ve been seeing pretty good performance from this distributor. What should we anticipate, is this going to be an opportunity for you to drive more targeted marketing through certain of these countries with having direct control?
Colin Angle
You know I think that as we have grown our capabilities to execute on predictable and successful sales and marketing operations in the US. We feel like there is a price associated with more control of our channel partners and distributors overseas.
And so that we’re seeing that happen in Japan and we’re also optimistic that we’ll be able to go and accelerate growth over what it would have been through more direct control in Robopolis. An excellent team on the ground requiring and then this acquisition allows really a uniform strategy for branding and marketing and we are quite confident in our ability to benefit from that unified platform.
Operator
Thank you. And our next question comes from the line of Mark Strouse with JPMorgan.
Your line is now open.
Mark Strouse
Hi, good morning everybody. Thanks for taking my questions.
So, I just wanted to start with the impact of the Robopolis acquisition, just trying to make sure I'm thinking about it right. So, when you say the 4Q revenue impact will be $25 million to $35 million, is that the total revenue that Robopolis will generate or is that the incremental revenue that you get from eliminating the distribution tier essentially capturing that gross margin?
Alison Dean
Yes, that's the incremental revenue iRobot will record have to having acquire them. So, it is the delta of the increased price points we're seeing.
Mark Strouse
Got it, okay. And then how should we think about inventory levels with Robopolis?
And maybe lessons that you've learned from SODC, like what are you doing in advance of the acquisition clearing to make sure the inventory levels are where you meant them to be?
Alison Dean
We are doing our best to observe the retail inventory levels heading into the acquisition. We feel like we have a good handle on what's currently there and obviously we have a good handle on what will be selling in over the next quarter, but it remains an area that we have to be very vigilant on and we are watching it quite closely as we head towards the close of the transaction the beginning of Q4.
Colin Angle
We do have some structural advantages in how some of the inventory was held. And Japan made it more difficult to get our arms around levels.
There is a lot more visibility in the EMEA. And so that again certainly we learned from the Japanese acquisition that that’s something to look out for so we'll benefit from that.
But also, structurally, it's a more transparent organization.
Mark Strouse
Okay. And then just one more quick one if I can.
For SODC, the charges the negative impact to gross margin in 2Q was obviously less than we are expecting. And so that's been going forward into 3Q and 4Q.
Can you talk about what the gross margin would be in the second half of the year without the impact of SODC? I think people are just trying to get a sense of how gross margin should look heading into 2018?
Thanks.
Alison Dean
I guess that I would tell you on that Mark, is that throughout Q2, 3, and 4 we are going to record about $30 million of impacts due to the acquisition, most of which will be beyond us after we exit 2017. If that helps give you a little modeling color.
Mark Strouse
And what was that number in 2Q?
Alison Dean
That was I'm giving you a total for the 30 was a total for the three quarters, 2,3 and 4 and about 7 of that was in Q2.
Mark Strouse
Perfect, okay. Alright, Thanks very much Alison.
Alison Dean
You're welcome.
Operator
Thank you. And our next question comes from the line of Troy Jensen with Piper Jaffray.
Your line is now open.
Troy Jensen
Hey, thanks. First of all, just wanted to congrats on inflection and execution, very well done.
Colin Angle
Thank you.
Troy Jensen
Hey so quick just another one on Robopolis here. So, if I'm doing my math right, [indiscernible] about $155 million in revenues last year based on 8.9 [ph] times sales?
Alison Dean
The figure that I gave you Troy, was the trailing 12 months that ended June of 2017.
Troy Jensen
Okay, perfect. Okay, and then you said that if I deal with this and maybe off a little bit here but it looks about 80 million of the sales is iRobot related products because I guess some I’m assuming they sell other products also outside of just the Roomba’s.
So, I guess…
Alison Dean
Yes, its predominantly iRobot product that they sell.
Troy Jensen
Okay. So, it’s well north of half of their sales would be iRobot products?
Alison Dean
Yes, it's probably over 90%.
Colin Angle
99%, they have a few other sales which are not material to the transactions.
Troy Jensen
Got you. And then just quickly on China, can you just talk about the dynamics there, I mean to guide kind of flattish given what’s going on in US and Europe.
So, if you just talk about competitive dynamics in US with Catherine Meyer transpiring in this year [ph]?
Colin Angle
Sure. I mean its early in the year, the sales in China are dominated by the 618 sales days and then 11/11 and 12/12.
The 618 went very well for us but we have seen a lot of entrants or growth in the low-end of that market and we’ve also seen some macros in China slowing the overall growth of that market. And so, you know we’re pleased with our performance on 618, we think we have strong validation that our premium strategy is successful and continuing to be successful.
But we’re bringing our numbers down a bit because of some competition in overall current macros in the country.
Troy Jensen
But then what’s the risk of those agent companies coming into the US. I mean I assume China can enter or are they kind of just exclusively [indiscernible].
Colin Angle
I think that we’ve seen some Chinese products coming in to the US and other markets. So, it's certainly at the low-end as the category continues to explosively grow, we’re going to see it developing low end opportunity for the companies that want to engage in that strategy.
So, I think that that’s a natural market dynamic. Our premium strategy for the mid to higher end robot vacuums I think is something we’re very, very confident in our position, confident in the R&D spend ability to continue to create new things in the market place to extend our leadership.
So, I think this is a natural process that’s going to happen as the category grows.
Operator
Thank you. And our next question comes from the line of Ben Rose with Battle Road Research.
Your line is now open.
Ben Rose
Thanks for taking my question. Just a clarification, on the script regarding the performance on Amazon Prime Day, could you clarify whether that was a doubling in unit volume or dollar volume?
Alison Dean
It’s doubling in unit volume.
Ben Rose
Okay, also just to clarify on Europe for the one half of Europe that is not covered by Robopolis is that served primarily through other distributors?
Colin Angle
Yes. Exclusively through other distributors.
And then the online is something that iRobot manages.
Ben Rose
Okay. And then with regards to the $35 million incremental impact from the Robopolis acquisition in the fourth quarter, is the way to think about that is assuming kind of a similar sales trajectory that you're experiencing now in Europe that you would essentially be generating an incremental $35 million each quarter going into 2018?
Alison Dean
So, Ben, the way to think about that is as we said in the call, we've been seeing increased momentum happening in Europe before the acquisition. So, we had increased our expectations from mid-teens growth to high-teen growth for the region.
And then all the sales that we will conduct in Q4 assuming this closed at the beginning of Q4 will generate incremental revenue. And we have a range of impact of $25 million to $35 million from that incremental revenue.
Ben Rose
Okay. Thank you.
And sorry, if I may just one final question, regarding the legal action against some of these potentially infringing products. Are you having any direct discussions with those companies or is everything at this point essentially being handled through the ITC?
Colin Angle
It's being handled through the ITC.
Operator
Thank you. And our next question comes from the line of Bobby Burleson with Canaccord Genuity.
Your line is now open.
Unidentified Analyst
Hi guys, this is John [indiscernible] on for Bobby. Just two questions for you, first off, the $4 million in unbilled receivables on the balance sheet.
Can you kind of explain what these are related to for the quarter?
Alison Dean
Yes, this is something unique to Japan as we've taken over this business. There is a -- they’ve had in the past of practice of shipping some products and billing them afterwards.
And so that balance is completely related to that previous practice that Japan has had.
Unidentified Analyst
Okay. And then a second question is related to the acquisition.
Approximately what was the dollar amount for Robopolis in the second quarter? And then what is baked into the third quarter guidance given they won't close until the fourth quarter likely?
Alison Dean
So, you need to think about Robopolis as part of our overall European guidance prior to close. So again, as I said earlier, our expectations are led our EMEA business, of which Robo represents roughly 50%.
We expect the EMEA business to grow in the high-teens for full year '17. And then we expect an incremental $25 million to $35 million of revenue when the transaction closes at the beginning of Q2.
Just as I talked you through the quarterly guidance as well, Q4 will be, Q3 and Q4 will be very strong quarters within the full year of EMEA. Q1 was a very strong quarter Q2 had 10% growth and then we expect strong growth in Q3 and Q4.
And Q4 in particular because of the acquisition.
Unidentified Analyst
Okay. And then actually one final question is just related to China on the lower end competition.
Are they any competitors in particular that stand out relative to the group that you are particularly worried about or that are gaining specific share?
Colin Angle
I mean the top two competitors at the lower end are a company called Xiaomi and a company called Echovac. They represent the bulk of the growth and revenue down at the low end.
Operator
Thank you. And our next question comes from the line of Jon Fisher with Dorothy & Company.
Your line is now open.
Jon Fisher
Good morning. On the EMEA, the other half of the revenues, how many distributors is that other half spread out over?
Alison Dean
It's probably handful five, six maybe.
Jon Fisher
Thank you. And then on the sales and marketing spend, I guess how much was moved from Q2 to the second half and I guess why did that occur?
Alison Dean
We’re talking you know maybe a couple of million dollars and then we reassess our plans for execution as the year unfolds and take different opportunities that might be coming towards us, so we just really go with the signals we’re getting from the business and determine when and where to best deploy those bills and marketing dollars.
Jon Fisher
Okay. And the earnout benefit that you mentioned, was that along a similar 1 to $2 million benefit?
Alison Dean
Are you talking about the earnout from the investment?
Jon Fisher
Yes.
Alison Dean
So that’s in non-operating income and that was a little over $1 million.
Jon Fisher
Okay. And then just on the performance in non-EMEA international markets, you know the significant step down in China growth expectations from 30% to flattish and even Japan at the beginning of the year inclusive of the acquisition was originally targeted at 30% and this is kind of the second time this year that there has kind of been a step down in numbers in Japan overall since the distributor.
What is your overall confidence level in being able to grow the business outside of normal western mature markets. Because it's kind of right now this year is playing out as predominantly a US driven and EMEA picking up type of performance.
And just kind of wondering what the ability of the business is to be able to grow outside of these more mature economies as penetration rates increase in these economies.
Colin Angle
Sure. First, just on to your last point.
Talking about using the word mature and robots in the same sentence doesn’t make a lot of sense to do. We’re still at the early stages as far as market penetration goes in both the United States and the rest of the world and so that the growth that we’re seeing is not going to decrease based on market saturation anytime soon.
We’ve done a lot of work showing that we have tremendous headway. As you think about sort of non-US non-European markets, you do need to think market-by-market.
In Japan, our sell through was very strong and so when we acquired SODC, there were some inventory issues and strategic issues that need to be addressed and we're working through them. We feel like the growth prospects in Japan are consistent with what we're seeing in Europe, and we have great confident that we'll see a nice return to growth supporting our overall long-term financial model in Japan shortly, so that's very, very good.
In China, I think that we're bullied by a performance on the 618-major selling day. Certainly, there is some as I said, earlier some macro concerns that are going to temper the overall growth of the category and then a little bit of realigning as far as who are the major players in what segment in the category in China with the lower price points being at least temporarily impacted by some very aggressive moves by Xiaomi and Echovac mentioned before.
But the premium segment is definitely alive then well in China. And over time we feel like we could see growth in line with market growth in the segment that were strongest in China.
So, I think that there is a little bit frost that we're working through in China and Japan two very different markets. And I think we've got the right people in place and we're taking a very disciplined approach to building the foundation that's required for long-term growth in those markets.
Jon Fisher
And just two quick questions, one on China and one on Europe. On your China comment, when you look at your segmentation in that market, is that segment the upper end of the market?
So as China GDP is growing 6.5% to 7.5% is that segment of the market growing in line or faster than overall China GDP growth?
Colin Angle
The overall growth in the Robot vacuum cleaning market as I said has slowed down slightly. And again period-by-period when you see different shifts in the most recent period, we've seen activity down at the low end, growth at the low end more strong than at the high end.
But that data excludes the three major selling days in China. So that's very premature to make any strong conclusion on that front.
Jon Fisher
Okay. And then the last question, on Robopolis, when you acquired your Japanese distributor you put in your own management team and leadership team.
Will you be leaving the Robopolis management team in place or you going to execute personnel changes there also?
Alison Dean
The Robo team that exists today will be coming to iRobot and the team leaders for each of those regions will remain with us.
Operator
Thank you. And our next question comes from the line of Frank Camma with Sidoti.
Your line is now open.
Unidentified Analyst
Hi, guys, this is Frank [indiscernible] on for Frank Camma.
Colin Angle
Hello.
Unidentified Analyst
Hi. I had a couple of things, first on Japan distributor.
Can you break out the Q2 EPS impact versus what it will be the rest of the year?
Alison Dean
I would just reiterate what I said earlier, Frank. So, we had about $7 million of impact in Q2 due to the various accounting items that we needed to book and we expect in total for Q2, Q3 and Q4 for that amounts to be about 13 million.
Unidentified Analyst
Okay. Thank you.
And then on Amazon Prime, you guys called out the 652 obviously did tremendously well. But I don’t see that on the website, is that something that you expect a lot of sales going forward or is that more of a discontinued and then additionally I know you have lot of incremental overall from Amazon Prime but do you see any of that strength as maybe a pull forward into the quarter from the back half of the year.
Thank you.
Colin Angle
So, the 652 is a unique SKU that we developed for Prime Day and its part of the special offer that we create for that event. So, you wouldn’t see that.
Unidentified Analyst
Okay, great. Thank you.
And then I just had one last thing, the Braava Jet, can you breakout maybe how it did versus the expectations both in US and internationally?
Alison Dean
What I can tell you is that what we did in Q2 for the category of Braava and Braava Jet was per our expectations. I don’t have specific international numbers in front of me here today but year-to-date that’s been performing as we had anticipated.
Unidentified Analyst
Okay, great. Thank you.
That’s all I had.
Colin Angle
Okay, that concludes our second quarter 2017 earnings call. We appreciate your support and look forward to talking with you again in October to discuss our Q3 results.
Operator
That concludes the call. Participants may now disconnect.