Oct 26, 2016
Executives
Elise Caffrey - IR Colin Angle - Chairman and CEO Alison Dean - EVP and CFO
Analysts
James Ricchiuti - Needham & Company Josephine Millward - Benchmark Company Troy Jensen - Piper Jaffray Mark Strouse - JPMorgan Adam Fleck - Morningstar Ben Rose - Battle Road Research
Operator
Good day everyone and welcome to the iRobot Third Quarter 2016 Financial Results Conference Call. This call is being recorded.
At this time for opening remarks and introductions, I would like to turn the call over to Elise Caffrey of iRobot Investor Relations. Please go ahead.
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 will also disclose non-GAAP financial measures as defined by SEC Regulation G, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, net merger, acquisition and divestiture expenses, restructuring expenses, net intellectual property litigation expenses and non-cash stock compensation expense.
A reconciliation of GAAP and non-GAAP metrics can be found in the financial tables at the end of the third quarter 2016 earnings press release issued last evening, and available on our 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 third quarter of 2016, as well as our outlook on the business for 2016.
Alison Dean, Chief Financial Officer, will review our financial results for the third quarter of 2016; and, Colin and Alison will also provide our financial expectations for the fourth quarter and full year ending December 31, 2016. Then we'll open the call for questions.
At this point, I'll turn the call over to Colin Angle.
Colin Angle
Good morning and thank you for joining us. I am happy to report that we had an outstanding third quarter delivering revenue and profitability far exceeding our expectations.
As a result, our expectations for full-year revenue and earnings have increased. We now expect fiscal 2016 revenue of $650 to $655 million, net income of $38 million to $41 million, or roughly 6% of revenue, EPS of between $1.36 and $1.44, and adjusted EBITDA of $88 million to $92 million, or roughly 14% of revenue.
These expectations reflect our confidence that 2016 growth in U.S. consumer revenue of more than 25% will drive total consumer revenue growth of approximately 15% for the full year.
We are very excited about our results year-to-date and the outlook for the fourth quarter. Our successful marketing programs continue to drive demand generation in the U.S.
and overseas. To further capitalize on the momentum our marketing programs have created and better position ourselves for our growth in 2017 and 2018.
We are reinvesting a portion of the 2016 incremental profitability, while increasing our EPS and adjusted EBITDA expectations. We are extremely pleased to provide full-year expectations for EPS and adjusted EBITDA well above those we provided in February.
During Q3, we delivered year-over-year consumer quarterly revenue growth of 23% driven by APAC following a very successful launch of Braava jet in that region. Domestic revenue grew 13% over Q3 last year and orders-in-hand plus anticipated Q4 orders support our expectation of substantial fourth quarter growth.
And we introduced the Roomba 960 and connectivity for Braava jet expanding our suite of connected products for the home. In Q3, for the fourth consecutive quarter, revenue in Japan increased year-over-year, due to the use of iRobot created marketing programs initially implemented late last year in that market and the launch of Braava jet during the quarter.
Our latest product was so well-received by Japanese consumers that our distributor sold out of product. At the end of Q3, after only 2 months in market, Braava jet is currently the number one selling SKU in Japan.
As in Japan, there was significant enthusiasm for Braava jet in China. We have previously said that our wet floor care products are tailor made for the Asian market and our experience with the launch of Braava jet confirms that.
In fact, our new partner in China requested Q3 delivery of some Braava jet and Roomba orders that we were expecting to ship in Q4. China sell through was up 70% in the quarter over last year and quarterly revenue more than doubled as we completed the first quarter under our new distribution model in that market.
Revenue in EMEA was up roughly 5%, year-over-year in Q3 2016 as we had anticipated. We continue to expect full-year growth of mid-single digits over 2015 in EMEA.
International consumer revenue increased 30% in the third quarter from last year, due to the timing of orders to China as I mentioned. In the U.S., revenue growth was driven by strong sales of Roomba 900, including the newly launched 960, and Roomba 800, partially driven by Costco transitioning from the 600 to the 800 series.
Following the successful introduction of Braava jet in Q1, we also saw an increase in demand for Braava, our larger format floor mopping robot. The launch served to increase awareness of the category and drive demand for both products.
Perhaps the most important events of the quarter were the launch of Roomba 960 and the iRobot HOME App support for Braava jet. Our second 900 Series Roomba extends mapping, visual navigation and cloud connectivity to a wider range of customers.
The iRobot HOME App helps users get the most out of their experience by allowing them increase usability, customizable cleaning settings and over-the-air software updates. These were significant milestones as we are now able to offer more robots with mapping capabilities and cloud connectivity at more accessible price points.
iRobot will continue to build upon its connected robot technologies moving forward, allowing for an enhanced customer experience and for our products to play a larger role within the smart home. Our relentless pursuit of product leadership, through investment in key technologies and capabilities, coupled with our investments in furthering our global brand and targeted marketing initiatives, allows us to continue to maintain our significant market leading position despite competition.
In summary, we continue to execute successfully against our plan, delivering outstanding third quarter performance. Those results, coupled with continuing global momentum enable us to increase our revenue and profit expectations for the full year while continuing to make disciplined incremental investments.
In the third quarter, we continue to see the positive impact of our targeted marketing programs as consumer revenue grew more than 20% year-over-year. We began to capitalize on the large and growing ecommerce opportunity in China, following our distributor transition, by delivering 70% year-over-year sell through growth in that market.
And with the launch of Roomba 960 and Braava jet connectivity, we took another strategically important step towards driving our installed base of mapping, connected robots and thereby positioning ourselves as an emerging player within the smart home. I will now turn the call over to Alison to review our third quarter results in more detail.
Alison Dean
Thanks Colin. We delivered third quarter results well ahead of our expectations, due to timing of orders and operating expenses.
As we have consistently said, predicting the exact Q3/Q4 timing of orders for the holiday season is very difficult and this year we saw orders pulled in by our new China distributor in the third quarter. Consumer revenue of $168 million increased 23% over Q3 last year.
Third quarter 2016 revenue includes negligible return reserve adjustments compared with $1.3 million in 2015. As a reminder, total company revenue of $144 million for the third quarter 2015 included $6 million of D&S revenue compared with zero in Q3 2016, following the divestiture of that business earlier this year at the end of Q1.
Net income was $19.5 million in Q3 versus $12.8 million in 2015. EPS was $0.70 for the third quarter compared with $0.42 for the same period last year, and Q3 2016 adjusted EBITDA was $36 million compared with $26 million in Q3 last year.
As Colin discussed, international revenue grew 30% in Q3 over last year as we received orders from our new Chinese distributor in Q3 that we were expecting in Q4. Domestic revenue growth in the third quarter of 13% was driven primarily by strong demand for our high-end Roombas.
With this, we now expect full-year revenue growth in the U.S. to exceed 25%, up from our previous expectation of 20%.
APAC and EMEA are expected to grow in the mid-to-high single digits over 2015. Gross margin was 48.1% for the third quarter 2016, down slightly from the same quarter last year.
This decline was driven by the lower return reserve adjustments mentioned above, along with additional warranty and other product costs versus last year. Q3 operating expenses were 32% of revenue, down from 36% in Q3 last year.
This year-over-year reduction was driven by Defense and Security and Remote Presence expenses incurred last year that were not incurred in Q3 this year, slightly offset by increases in consumer-related operating expenses, primarily R&D and to a lesser extent G&A driven by headcount additions and related costs. We ended the quarter with $203 million in cash and investments.
We completed the $85 million Accelerated Stock Repurchase program we announced in April, repurchasing approximately 2.3 million shares. During 2016 we have returned $97 million of cash to shareholders, while investing to grow the business to create shareholder value.
Total company DII of 64 days was consistent with our typical Q3 level. We anticipate lower inventory levels at the end of Q4 following shipment of product to U.S.
retailers for the holiday season. Now I’d like to provide you with additional detail for our Q4 financial expectations.
Keep in mind that these expectations and growth rates are based only on our consumer business. As a reminder, we provided a table in our Q1 2016 press release showing a view of our former D&S business by quarter and for the full year 2015 for comparative analysis.
We expect fourth quarter consumer revenue of $202 million to $207 million, an increase of 15% to 18% over Q4 last year driven by sales in the U.S. In Q4, total company revenue is expected to be relatively flat, year-over-year, as we reported $31 million of D&S revenue in Q4 2015.
For the fourth quarter, net income is expected to be $10 million to $13 million, or roughly 5% to 7% of revenue, EPS is anticipated to be between $0.36 to $0.44, and adjusted EBITDA of between $22 and $26 million, or 12% to 13% of revenue. For the full year we expect operating expenses to total roughly 40% of revenues.
With our increased expectations for full-year revenue, and our expectation for full-year gross margin at the high end of our 47% to 48% range, we plan to invest a portion of the incremental profitability to capitalize on the strong momentum we are seeing driving our business strategy, while returning additional profit to shareholders, and setting a strong foundation for 2017 and 2018. As a reminder, the full-year impact of the D&S divestiture on net income, EPS and adjusted EBITDA is expected to be negative $3 million, negative $0.10 and negative $2.7 million, respectively.
In addition, our full year revenue guidance includes only the $3 million of D&S revenue we recognized in Q1. I’ll now turn the call back to Colin.
Colin Angle
Thank you. We are coming into the home stretch of 2016 more excited about our opportunities than at any other time this year.
We have faced increasing competition and continue to maintain our position as the world's leading consumer robotics technology company. Our investments have enabled us to drive further adoption of Roomba, expand the wet floor care category and put a meaningful stake down in the China as well as to begin to lay the foundation for our connected products strategy.
We have excellent momentum going into the holiday season and confidence in meeting our increased full-year financial expectations. With that we’ll take your questions.
Operator
[Operator Instructions] And our first question comes from Jim Ricchiuti from Needham & Company. Please go ahead.
James Ricchiuti
Hi, good morning. Question I have is just with respect to this incremental marketing spend, can you give us some sense as to where that's going to be concentrated, is it going to be spread across your major geographic regions and got a follow up as well.
Colin Angle
Yes it is spread, it's really focused on U.S. and China and trying to capitalize on the momentum and we're seeing in those markets.
And also to help establish the Braava and Braava jet category. We've been very excited and as you know working to create a second lag on our revenue drivers and it appears that what we had hope to achieve this year in wet floor care is happening and so putting a little additional energy behind building of the wet floor care category both in the U.S.
and in China makes a lot of sense. It means that in 2017 will have establish wet floor care more firmly and be part of our strategy in a more mature fashion than it would have been otherwise and so taking the opportunity of the significant upside we're seeing to build that.
James Ricchiuti
China in the past with at least in the U.S. market you guys have - as you've spent more in marketing, you generally I think have had a pretty good line of sight into what that could do to the Roomba business.
Is China more of a wild card in terms of as you step up marketing there, it sounds like there is some moving parts in Q4 with respect to the business in China you get to, I guess major sales days in China consumer selling days 11/11 being one of them. To what extend is there the potential that China could drive some upside?
Colin Angle
Well I think that 11/11 and 12/12 are major sales events in China. We do in fact have some visibility already in how 11/11 is going to go based on preorders and so as we were giving ourselves the confidence to raise guidance as we’ve done, we were able to look to those indications in China that those events were going to be successful for us.
It is our operating procedure to as we roll out our marketing programs in new markets test, analyze and optimize the programs and so that we're running programs in Japan, we’re running programs in China now, we’re running programs in the U.S. and based on the results we’re able to go and add more energy to them as we’ve done in the U.S.
25% growth in the U.S. this quarter was particularly satisfying.
What we're seeing happening China as we’ve doubled downed on the marketing programs that earlier in the year and late last year we were starting to get more information on. And in China we've some data.
As I mentioned we get the presale data from 11/11, we’ve gone through a distributor and go-to-market strategy change in China and so that while the inventory levels we’re working to optimize the expectations of our new distributor architecture we felt we wanted to highlight just how effective the sell through resulted in so far they're up by 70%. So we’ve got confidence in Q4 in what we've guided to as far as there are additional upside I think that we're very comfortable with the guidance ranges that we’ve given at this time given all of those factors that I just described.
James Ricchiuti
Are you in a position to size the market in China relative to your other major country markets just in terms of ranking as we look at it. It sounds like it's growing pretty rapidly.
Colin Angle
It's growing very rapidly and we think in the next two years it is the overall robot vacuum cleaning market is going to be larger than North America so our strategy and our willingness to invest in China is around the thesis that we should be the leading player in that market and the success of the wet floor care launched in China is an important part of that strategy because the natural daily cleaning routine of the Chinese consumer is mopping not vacuuming. And so that the coming out and investing in driving the Braava and Braava jet category is a way of sort of and running around the existing vacuuming market and establishing our brand around this mopping category while bringing in the premium the high featured Roombas into that market and as you grow to appreciate vacuuming this is the best product.
So we think that our strategy in China has great potential to drive the market share targets that we internally hold.
James Ricchiuti
Thanks a lot.
Operator
Our next question comes from Josephine Millward from the Benchmark Company. Please go ahead.
Josephine Millward
Good morning. Great quarter Colin.
It looks like lowered, you actually took down your APAC growth outlook to mid-to-high single-digit from single-to-low double-digit. Can you expand why isn’t Japan is recovering and China seems very strong?
Colin Angle
It all has to do with the inventory levels and trying to operate as a leaner operation coupled with the changes in distribution so that - I know that’s a little confusing that's why we talked about the explicitly how we’re doing in Japan and what the sale through in China was. So it's - as the company continues to evolve we're trying to keep our distributors at fewer days in inventory which obviously has some impact on us in the moment, but long-term gives us much more ability to execute on different programs and work on SKU transitions and that sort of thing.
So it's an improvement in the overall organization, but should not be confused at all with any change in the momentum and rate of appetite for our products.
Josephine Millward
That's helpful. Can you talk about how it's new Roomba 980 difference - the 960, how is that different from the 980?
And when do you plan to launch the 900 in China because that hasn’t been launched in China yet, right?
Colin Angle
That is correct. The 980 and 960 differ impact out slightly, but also the 960 does not have the carpet boost feature where the robot will significantly up the power of the vacuum when it goes on to the carpet.
So the added expense of the bigger motor and battery capacity required for carpet boost, we held back and as a result of that COG savings was able to significantly move down that entry level price point into mapping and navigation. So again very important part of our overall strategy to drive connectivity mapping and navigation deep into our product line and we're trying to do that as aggressively as we can and that's the true reason behind the 960.
Josephine Millward
Okay. And when do you plan to launch the 900 in China?
Colin Angle
That will be at some point next year. We haven't announced the exact date.
As soon as we work through the technical challenges of operating devices with very, very rich conductivity and sophistication in China will be eagerly are prepared to rollout.
Josephine Millward
Great. Thank you.
Operator
And our next question comes from Troy Jensen from Piper Jaffray. Please go ahead.
Troy Jensen
Congrats on great results. And it's quick for you Colin.
Do you have any data like maybe the percentage of the 980s, 960s that are used in the connected features?
Colin Angle
What do you mean by the connected feature the percentages that do connect?
Troy Jensen
Exactly. It is buying high end vacuum are they buying it for the connected functionality?
Colin Angle
An extremely high percentage of purchasers that buy the 900 series are in fact connecting. We've gone to great lengths to make it easy.
And while the robot will work if you just unpack it and turn it on, we do encourage you to and prompt the customer to go and connect it, and so that I won't disclose the exact percentage, but it is the vast, vast majority of Roomba 900 users. The biggest impact thus far in connectivity is an extremely significant increase in the number of people who schedule their robots and that's one of the metrics that we track, because we're trying to encourage people to change their behavior in how they vacuum from explicitly thinking of doing it multiple times a week to setting it and just appreciating the fact that this is done for them.
And higher the percentage that schedule and reschedule the Roomba, we know that the product promises being delivered. And on the earlier models where we asked the consumer to schedule on robot despite our best efforts to make that as good and interface as possible, we were disappointed by the percentage of people who actually were doing it.
And the app in my mind that is here - folks that rather might disagree with me, but in my mind that's the biggest single benefits of the app thus far is reducing the friction for scheduling.
Troy Jensen
Okay, perfect. And then I had two quick questions for Alison, can you give us any color on what percent of the international revenue comes from China today?
Alison Dean
No, we haven’t disclosed that directly. I can tell you that internationally Japan is still our biggest market and as we progress through this year, China is closing that gap and we do think in not too distant future China will certainly overtake Japan.
Troy Jensen
And Alison just a last one for you and I’ll see the floor. In your marketing debt, you have a slide that shows the summary of your three-year financial targets and it looks like you're going to exceed the consumer revenue growth of 13% to 15% for this year.
And for FY '17, you talked about accelerating growth into the mid-teens and FY '18 accelerating growth in the high-teens. Given the traction you have seen this year and I'm assuming that [indiscernible] are maybe revise the three-year forecast?
Alison Dean
As normal Troy, we won’t talk about '17 and '18 and so our February call, but certainly we are very pleased with the momentum we've already shown in '16 relative to setting up for those targets.
Troy Jensen
Great. Keep up the good work.
Operator
And our next question comes from Mark Strouse from JPMorgan. Please go ahead.
Mark Strouse
Hi, good morning guys. Thanks for taking my questions.
So I think most of our questions are actually been asked, but regarding ASPs. So they've come down year-to-date and that's been mix of international mix of Braava.
So, how should we think about that going forward? I'm just trying to weigh the strong demand for the high end Roomba's that you're talking about domestically versus the mix of Braava internationally.
Do we think we’ve kind of hit a floor here for ASPs? How should we think about that?
Thanks.
Alison Dean
Well, Mark you hit the main driver of what will be our average ASP in the consumer business and that will be the mix of the Braava category, both Braava jet and Braava itself. We're trying to grow that portion of the business as a bigger and bigger percent and if that happens it'll definitely be a drag on ASPs.
On the other hand, we're continuing to drive up the range in the Roomba category and as you stated particularly so far this year, the mix of 900 and 800 continues to be a very large portion of the Roomba, so that's a counterbalance to the negative of Braava certainly in Q3 with our selling of Braava jet that did have a - it weighted more so to the overall ASP in Q3. But we'll have to see, time will tell, but certainly as we push Braava as the category both Braava and Braava jet that will have a downward pressure on overall ASPs.
Colin Angle
I think Mark as our product revenue drivers diversify into vacuuming and home, the blended ASP as a calculated metric becomes much less valuable because it is absolutely our strategy to go and build the wet floor care market as a great adjacency to the vacuuming market and the price points of those two product categories are going to be very different.
Mark Strouse
Sure, understood. Okay.
And then just real quick on share count is flat quarter-over-quarter. Do you intend to direct your Board to seek another authorization and how should we think about that over time?
I think this latest buyback that you had reduced the share count, but I think you’ve talked about in the past, buyback is primarily intended to offset stock-based comps et cetera. So just any commentary there would be helpful?
Thanks.
Alison Dean
Sure. So we don't expect to do any more share repurchases for the remainder of 2016.
We are due to discuss with the Board our plans for 2017 at this point. I think it would be reasonable for you to expect at a minimum a program focused on offsetting dilution of newly issued equity.
Mark Strouse
Got it. Okay, thank you.
Operator
And our next question comes from Adam Fleck from Morningstar. Please go ahead.
Adam Fleck
Thanks. Good morning.
I wanted to follow-up on the 960 launch. I recall that's Roomba 980 launch was one of the more successful in your history.
Can you comment on the 960 launch particularly in the U.S. and particularly as it relates to the 980?
Alison Dean
So the launch of the 960 was not done with the same type of energy in fanfare that the 980 was and so it wasn’t an explicit launch event. It was an expanding of the product line to create availability of connected mapping technology deeper into our line.
It's rapidly become a very successful SKU and as we had hoped it would, is serving the purpose that it was designed for which is to - it probably cannibalizes some 800 series product which it was designed to cannibalize replacing those sales with products that are connected, that are mapping which is our longer term strategy to maximize the installed base of connected products in the home.
Adam Fleck
Great that's helpful. And as you maximize that installation of connected products you’ll continue to scale I assume with AWS.
How do the economics of that relationship with Amazon work. Does that impact profitability at all?
Colin Angle
It's built into the cost of the robots. I think that as you think about iRobot going forward we’ve spoken in the past few years about how we're going to drive improved portability over time.
We talked about OpEx leverage and suggested there were less opportunities on product margin. We feel like a software strategy and the value that we're creating in the marketplace with the software it creates some potential margin opportunities and so that we're starting to back off from that prior statement that there wasn't a lot of gross margin opportunity and so that we’re starting to see a little bit.
So there is some foreshadowing but certainly it’s the paying off of the investments that we’re making in software creating consumer appreciated features that we can impact price with.
Adam Fleck
Great, that's interesting. Thank you.
And then maybe just one quick housekeeping item for Alison. I just wanted to follow-up on the $15 million earn-out for D&S.
Can you help us with the confidence of that figure at this point?
Alison Dean
Adam they're expecting a large Q4 just like we always did when we were managing that business. They have a lot they have to accomplish in the fourth quarter in order to hit the numbers in that earn-out.
So we really won't know until the quarter is complete.
Adam Fleck
Okay, great. That’s it from me.
Thank you.
Operator
And our next question comes from Ben Rose from Battle Road Research. Please go ahead.
Ben Rose
Thank you for the compliment but it’s actually Battle Road Research. Good morning.
Colin you had referenced competition in your remarks and one of my question is, now that there have been quite a few new entrants particularly in the U.S. I know that you have a large patent portfolio much of which doesn't expire for the next couple of years.
Do you have any just kind of high level comments on what you are seeing in terms of potential patent infringement from some of these new competitors?
Colin Angle
Sure. We take a very pragmatic view of intellectual property.
We think that it is a huge asset of the company and we will use it to aggressively defend our market position as we see competitors in the marketplace that are actually having financial impact. I think that, yes, we've seen entrants into the market.
We also have seen our market share hold up extremely well in all of the markets globally but you should expect us to look very significantly at any one that maybe starting to gain momentum because we view our IP portfolio as extremely powerful and we have - there are many competitive products in the market which at least in our mind are in clear violation of our IP.
Ben Rose
Okay, that's helpful. With regard to the company's retail strategy in the United States what we've noticed is that in certain store chains you are the exclusive robot vacuum cleaner and not in others, how much - how big a factor is exclusivity in terms of your strategy going forward in terms of your - for example being the only robotic product in a category within a store chain?
Colin Angle
Sure. We have no explicit agreements with any of our vendors requiring us to be the exclusive distributor of robots, so maybe to clear so if we are in fact the exclusive robot vacuuming in a particular chain is because that chain looked at the relative demand for robot vacuum cleaners across brands and realize that the demand just wasn't there for to justify carrying other vacuum cleaners and we view that as a beautiful thing and a nod to the effectiveness of the product we create in the marketing programs we put behind them.
So we do have a very powerful brand and amazing, amazing products and that's perhaps the ultimate compliment. We expect to see in retailers over time the robot vacuuming, the robot mopping segments of those stores to grow because the future of vacuuming is robots, the future of mopping is robots and there is no future where this doesn't continue to grow and grow.
And so I think that we've had some experiences in retail where competitive products come in and that helps us because we actually create within the store, the robot cleaning section of the store and that helps us a lot. So it’s an interesting place, but it's not by design, it’s more of a merit-based phenomenon.
Ben Rose
Okay. And with regard to the robot and floor mopping category, I think you had said not too long ago that you believe that is about half as large as the Roomba opportunity.
And I wanted to ask, I realize it's still early going with the Braava jet in particular, but do you still feel that that is a good sort of metric to use in terms of measuring the market. And then secondly with regard to the Braava there's a significant consumables opportunity there.
I think it's the first time that for the company that consumables could be a significant portion of revenues for particular product. Could you give us some type of update on what you’re seeing in terms of demand for consumables?
Colin Angle
Yes, I’ll take the first question. The 50% I still hold by - I will give one bit of color is that that statistic was a U.S.
statistic. So I think in the U.S.
that continues to hold. As we think about Asia and in particular China I would not be surprised if the wet floor care category exceeds the vacuuming category in only a few years.
So just because of the fact that the daily cleaning habits in China are so much oriented around the hard floor wet cleaning methodology. So I think that as wet floor care becomes larger for us, it demands a little more granularity by region so that the 50% vacuuming is relative to North America.
On this emerging recurring revenue opportunity with the Braava jet we're seeing very good attachment rate for pads to robots and we've gone a little bit deeper and when you buy a Braava jet there's an attachment rate of pads you buy with the Braava jet which we view as healthy and now we're seeing that we analyze a number of pads sold divided by the installed base of the robots and at this point we're seeing the daily sales of pads growing faster than the rate of sales of Braava jet. So that's suggesting that people are coming back to the store and buying more pads as we would hope they would which suggest people are actively using the robots and buying into the model of use the pads and then go buy more.
The impact of this recurring revenue model is going to take some time to build. It's all based on the installed base.
And in China, we may see a phenomenon where we use robot pads are reasonably high percentage of the sales. And so that in Japan and North America, where consumables is well established as in the cleaning industry as desirable in China, it lags a little bit.
So the revenue from the wet cleaning products in China the recurring revenue maybe lower on a installed basis than they are in Japan and North America. So there is lot of moving parts.
Sorry for the complicated answer but it's an evolving situation and in 2017 it will be more material than it was in 2016 and in 2018, we'll probably start talking about it pretty exclusively because it will get exciting.
Ben Rose
Great. Thanks very much for the answers.
Operator
And we have a follow-up question from Jim Ricchiuti from Needham & Company. Please go ahead.
James Ricchiuti
Colin, with the 960 and with Costco transitioning to the 800, it sounds like you have really stepped up your position in the midrange segment of the market. And so I'm wondering if you could talk a little bit about that, do you see the opportunity to perhaps accelerate the penetration of robotic vacuums in just in overall in that category, or is this an opportunity maybe to go after some market share with some of the smaller players that have begun to come into the market more aggressively?
Colin Angle
Really is about having a product line that speaks to the growing acceptance of robot vacuuming is how we will be vacuuming our floors in the future. The upright vacuum cleaner is at this point obsolete.
The people are going to have a robot to clean their floors and a high-powered hand vac to clean couches and stairs, and that's the future. So, with that broadening of appeal we feel like the midrange which has been underperforming for us is a real growth opportunity.
And so that the 960 again we push the conductivity down as I said but we also bolster that middle price point domain. It is still if you look at the sales thus far for 2016 and remember the 960 is only newly out we truly are barbelled at the higher end of the range and then at the 600 series which has been fantastic.
And then lighter and the centre of category we think that this move of Costco and the 960 will at least bring additional respectability an opportunity to the middle. So it is at this point not driven by a competition, our market share remains in even more favorable than we would've dared hope.
So we're enjoying that and hope that it'll stay that way for a long period to come.
James Ricchiuti
Thanks a lot. Congrats on a quarter.
Colin Angle
So, thank you very much for the questions. That concludes our third quarter 2016 earnings call.
We appreciate your support and look forward to talking with you again in February to discuss our Q4 and full-year results.
Operator
That concludes the call. Participants may now disconnect.