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iRobot Corporation (NASDAQ:IRBT)
Q3 2018 Earnings Conference Call
Oct. 24, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the iRobot third-quarter financial results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Elise Caffrey of iRobot Investor Relations. Please go ahead.

Elise Caffrey -- Investor Relations

Thank you, and good morning. Before I introduce the iRobot management team, I'd like to note that statements made on today's call that are not based on historical information are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and risks and uncertainties, and involve many factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information on these risks and uncertainties can be found in our public filings with the Securities and Exchange Commission. iRobot undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information or circumstances.

During this conference call, we may also disclose non-GAAP financial measures, as defined by SEC Regulation G, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, net-merger acquisition and divestiture income and expenses, gain on business acquisition, restructuring expenses, net intellectual property litigation expenses, and non-cash stock compensation expense.

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

On today's call, iRobot Chairman & CEO, Colin Angle, will provide a review of the company's operations and achievements for the third quarter of 2018, and Alison Dean, Chief Financial Officer, will review our financial results for the third quarter of 2018. Colin and Alison will also provide our business and financial expectations for fiscal 2018. Then we'll open the call for questions. At this point, I'll turn the call over to Colin Angle.

Colin M. Angle -- Chairman and Chief Executive Officer

Good morning, and thank you for joining us. We delivered third-quarter revenue growth of 29% over Q3 2017, driven by a very successful launch of two new products in the United States, where revenue grew 45% over Q3 2017. Sales of our game-changing Roomba i7+ were so robust, that we were challenged to keep the product in stock.

As we roll out our premium product through additional domestic and overseas channels over the next year, we anticipate a similar response across the markets. The premium features we've introduced in our new Roomba e5 make it an affordable, highly featured product to add to our lineup, and one that we believe will stand up very well against competitors' products.

Third-quarter profit was higher than we anticipated due to the higher than expected revenue, along with some delayed marketing expense and a slightly higher gross margin. Given our Q3 results and our outlook for the holiday season, we are increasing our 2018 full-year financial expectations. We now anticipate full-year 2018 revenue of $1.08 to $1.09 billion, which is year-over-year growth of 22% to 23%.

As we said on last quarter's call, our full-year financial expectations at that time did not include any impact from the proposed tariffs. The imposition of 10% tariffs went into effect on September 24th, and we made the decision not to pass on those additional costs to U.S. retailers or consumers in 2018, and as a result, we expect lower gross margins in Q4 resulting from the tariff, with full-year gross margin of approximately 50%.

We have increased our full-year 2018 operating income expectation to $92 to $96 million, despite the previously un-forecasted $5 million tariff impact, and our expectations for full-year 2018 EPS have increased to $2.55 to $2.75, reflecting Q3 performance and the incremental Q3 EPS associated with stock compensation windfall benefit that we received.

Now I'll take you through some of the highlights of Q3 2018, and our business expectations for the rest of the year. The most important event of the third quarter was the introduction of our i7 and i7+ Roomba. This is the product that we've been working toward for the past decade. What makes it a game-changer is that it delivers a dramatically new kind of customer experience. Imagine coming home every day for up to a year and having freshly clean floors while never touching your robot.

If you make a mess, while cooking for example, you're able to say "Alexa, tell Roomba to clean the kitchen," and the right thing happens. Roomba drives to the kitchen, cleans it, and returns. What makes this new experience possible is the CleanBase accessory, which empties Roomba's full bin 30 times. The i7 also has the ability, based on new home understanding algorithms, to build a map of the home, segment that map into rooms, allow you to adjust and label these rooms all while keeping track of the robot's position, even if you start it in a random location. No virtual walls are required.

Why is this so critical to iRobot's future? Beyond extending our leadership in the RVC segment, it extends our ecosystem. These maps can be shared with other robots in the home, and the opportunity for robots working together is expected to be significant. Today, the smart home is a collection of robots and devices that don't understand the home. Our mapping robots will make the smart home work better. The larger our installed base, the more IoT companies will want their products to work with our products.

Today, consumers can already use Google Assistant and Amazon Alexa to operate Roomba. In addition, earlier this month, Google's Senior Director, Smart Home Ecosystems, and I demonstrated our shared vision of the smart home at HUBweek in Boston. We showed how our iRobot/Google collaboration can integrate robotic and smart home technologies that will advance the next-generation smart home.

Working together, we will seek additional ways to integrate Google's platform, providing customers with the choice to opt in to new, innovative smart home experiences that leverage a broader understanding of the home's space, enabled through Roomba's spatial awareness of the home. This is a significant step forward toward the realization of the smart home possibilities, and many of these future advancements will be delivered over the air and will not require the purchase of a new Roomba.

Not to be overlooked in its importance, the launch of our Roomba e5 during the third quarter further solidified the value proposition of our Roomba line. Our strategy of introducing new features and functionality in our premium-level robot, and then flowing that innovation to lower price points has been successfully executed again through the e5. Pet owners comprise a significant percentage of our customers, and they don't like cleaning pet hair out of their robots. We equipped the robot with debris extractors, previously only available in our high-end robots, and redesigned the dirt bin so it could be removed and rinsed with water. The customer can now have a cleaner home and a cleaner robot requiring minimal maintenance.

We are very excited about our Roomba competitive position with products across the board and across ranges of features, functionality, and prices; but we're not done yet. As exciting as these two new products are, you should expect the pace of new product introductions to continue into 2019. In addition to Roomba, our focus on growing Braava awareness and adoption continued in Q3. Our Q3 Braava family revenue grew 9% year-over-year, and we will run the planned exclusive Braava television advertisements in the fourth quarter in both the U.S. and Japan to further drive broader awareness of the category.

And finally, a comment about tariffs. As I mentioned, we are not increasing our prices in 2018 as a result of the 10% tariff imposed in September on all vacuum cleaners manufactured in China. As currently proposed, these tariffs are scheduled to increase to 25% on January 1, 2019. We expect the increased tariffs to put moderate pressure on a strong RVC category, and we are working to align our product mix and pricing with key retailers to maintain our momentum in the segment. Longer term, we will continue to look for cost-reduction opportunities to help mitigate the impact on prices, margin and the long-term growth of the segment.

In summary, I am very excited about our game-changing new products, our vision of the smart home and iRobot's role in it, and the pipeline of new products on the horizon. I'll now turn the call over to Alison to review our third quarter results in more detail.

Alison Dean -- Executive Vice President and Chief Financial Officer

Thanks, Colin. Our third-quarter performance was ahead of our expectations. We delivered record third-quarter revenue of $265 million, an increase of 29% from Q3 last year. Operating income for Q3 was $37 million, compared with $24 million for Q3 2017. EPS was $1.12 for the quarter, compared with $0.76 in Q3 2017. $0.13 of Q3 2018 EPS was attributable to the impact of stock compensation tax windfall compared with $0.16 in Q3 2017.

In addition, there was a positive impact from the timing of roughly $6 million of sales and marketing and R&D expenditures that we expect to incur in the fourth quarter of 2018 versus Q3. As a reminder, Q3 2017 EPS also included $0.08 from a non-taxable gain on the Japanese distributor acquisition.

Revenue growth of 29% for Q3 included domestic growth of 45%, EMEA growth of 19%, and growth in Japan of 13%. Revenue growth varies by region on a quarterly basis. In Q3, the U.S. benefited from the launch of our new products and their availability only in that region. As we continue to roll out distribution of these products in other markets over the next 12 months, you should expect similar fluctuations.

We manage our global business on an annual basis, provide annual financial expectations, and encourage investors to view us accordingly. The gross margin of 51% in the third quarter was slightly ahead of our expectations driven by less than planned promotional activities. We saw a 100 basis point increase year-over-year in Q3, due primarily to revenue uplift associated with the Robopolis acquisition.

Keep in mind that quarterly gross margin can fluctuate widely based on mix, seasonality, and promotional activity, among other things. We expect our Q4 gross margin to be negatively impacted by roughly $5 million from the 10% tariff on U.S. imports, as well as the typically heavy promotional activity due to the seasonal holidays.

Q3 operating expenses were 37% of revenue, compared with 38% in Q3 last year and slightly below our expectations. Q3 G&A was in line with our expectations, but as I just mentioned, there was roughly $6 million of other operating expenses originally planned for Q3 that is now planned for Q4.

Our Q3 actual effective tax rate before discrete items was 25%, versus our Q3 2017 rate of 37%, largely driven by the U.S. tax reform, as well as the implementation of our U.K. principal company in July. After discrete items, the ETR for Q3 was 15%, including the impact of the $4 million stock compensation tax windfall. The ETR after discrete items in Q3 2017 was 17% and included a $5 million benefit from stock compensation tax windfall. We still expect our full-year ETR before discrete items to be between 24% and 26%.

We ended Q3 with $135 million in cash, up slightly from $127 million at the end of Q2. We expect to end the year with approximately $160 million of cash. Q3 ending inventory was $161 million or 113 days, compared with $93 million or 82 days last year. In addition to the typically higher U.S. inventory for the holidays, the need to hold inventory for direct-to-retail sales in Japan, and more than 50% of EMEA following our distributor acquisitions also contributed to the higher Q3 2018 inventory level, as expected.

As we have previously said, due to this structural change in our business model for direct-to-retail sales, we expect DII to be approximately 100 days plus or minus on average in 2018. We still expect Q4 inventory to decline sequentially, and we anticipate exiting the year with DII well below our 100-day average, as is typical.

Now for color on our financial expectations. We are expecting another strong fourth quarter coming off a record Q3, driven by double-digit year-over-year growth in all major regions. Keep in mind we will anniversary the acquisition of our European distributor in Q4, so our total year-over-year revenue growth rate will be lower in Q4 than each of the previous three quarters, where we benefited from the revenue uplift associated with the acquisition.

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

We still expect full-year R&D of 13% of revenue and operating expenses to total roughly 42% of revenue. We are increasing our full-year operating income to $92 to $96 million, despite the $5 million of unplanned tariffs, and our EPS to $2.55 to $2.75. We are very pleased with our year-to-date results and our ability to increase our expectations for the year again, especially in light of the tariff impact.

As Colin mentioned, we will discuss the 2019 increased tariff impact we expect on our Q4 and full-year earnings call in February. I'll now turn the call back to Colin.

Colin M. Angle -- Chairman and Chief Executive Officer

Thank you. We have delivered strong results thus far this year. I am very excited about our positioning for the upcoming holiday season, and confident in our ability to deliver our increased 2018 financial expectations. In summary, we launched game-changing products that will reinforce our leadership in consumer robotics. We demonstrated the power of AI coupled with home mapping, in collaboration with Google, advancing the usability of the smart home. And we will launch significant Braava family promotions during the holiday season to promote the category and further develop our revenue diversification.

We believe that consistent execution of this strategy is the most effective way to drive sustainable growth and shareholder value. With that, we will take your questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you would like to ask a question at this time, press the * and the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Again, that is * then 1 to ask a question. Your first question comes from Jim Ricchiuti with Needham & Company. Your line is open.

James Ricchiuti -- Needham & Company -- Analyst

Hi, good morning. First, congratulations on the quarter and the new products. I'd like, if we could, maybe talk a little bit more about the tariffs and the impact. I know you're not in a position to talk about 2019, but what I'm wondering is, back in March of 2018 at investor day, you had your slide targeting 50% gross margins longer term. I'm wondering how we should think about it, even the initial tariff, in relation to that target.

Alison Dean -- Executive Vice President and Chief Financial Officer

We really can't comment on 2019 or beyond gross margins at this point, Jim. But one thing I think is worth clarifying is that for Q4 2018, we fully took on the burden of those tariffs. That $5 million we are absorbing ourselves without any price increases going out in 2018. We're assessing a lot of different scenarios about how to tackle the 25% tariffs if they do, in fact, go into effect on January 1st. A lot of those scenarios do assume some level of potentially passing some of the pricing on to the consumers, but we haven't exactly settled on the final answer yet there. But it is likely that our expectations that we set in feedback would not assume that we carry the full burden of the tariff increases.

Colin M. Angle -- Chairman and Chief Executive Officer

Let me add another just sort of high-level color as we think about tariffs. The first is that as evidence by our continuing strong growth, this is a very healthy market. So that many of our growth expectations, as we've talked about them, are well below the market growth. And so that there is some ability to absorb an impact without putting us in a dangerous situation. Really this is about competitive positioning within this growing market.

In which case, that leads me to two other insights that I would like you to carry away from this conversation. The first is that iRobot is the premium player. That's very advantageous because price sensitivity at the high end is much lower than at the bottom end. We're well positioned as we think about whether or not what exactly the mix of margin and price increases will be our optimal strategy.

Then my last point is that iRobot is a global player in the marketplace, and that these tariffs only affect the business done in the United States. And so because of our leadership throughout the globe, we have, again, built a 2019 model taking full advantage of the strong and growing market in Japan, the strong and growing market in Europe. And so we've got a lot of levers to play with. So that while the tariffs are challenging and frustrating, they are things that we have a lot of levers to deal with and our market positioning actually is quite favorable relative to the competition, who will also have to be dealing with these same issues. We can work --

James Ricchiuti -- Needham & Company -- Analyst

That's very helpful, the additional color. My follow-up question is two quick questions. No. 1, is there any ability to make changes in your supply chain over the course of the next call it 6 months to a year? Secondly, in the past when the macro environment has changed, you've spoken to some flexibility on opex. I'm just wondering in this environment with tariffs, is that a consideration as well looking out into 2019?

Colin M. Angle -- Chairman and Chief Executive Officer

Sure. We remain committed to profitable growth. Looking at exactly how the balance of that commitment breaks down between growth and profitability is something that we continually look at. And again, that's one of the tools that we will consider as we try to optimize our strategy for 2019. We've got a great market here. We have, especially with the i7 and i7+ launch, unambiguous leadership at the premium end, and with Aero, the e5 robot launch, also a stronger hand down at the entry price point level. So we're in a very good position relative to the competition to make good trades.

Alison Dean -- Executive Vice President and Chief Financial Officer

Jim, from a supply chain perspective, we're constantly looking at our supply chain. We're constantly working cost reductions as a way to achieve the margins we have in the past, as well. Again, that's another thing that we will look at. The timeframe to implement new actions as a result of supply chain initiatives are not as immediate, but that is definitely another piece of the puzzle that we're assessing.

James Ricchiuti -- Needham & Company -- Analyst

Thanks very much.

Operator

Thank you. Your next question comes from Mike Latimore with Northland Capital Markets. Your line is open.

Michael Latimore -- Northland Securities -- Analyst

Great, thanks. Excellent quarter.

Colin M. Angle -- Chairman and Chief Executive Officer

Thank you.

Michael Latimore -- Northland Securities -- Analyst

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

Alison Dean -- Executive Vice President and Chief Financial Officer

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

Colin M. Angle -- Chairman and Chief Executive Officer

One thing you should be aware of. These increased tariffs do not apply to Braava. So that is, again, in our mix, we have tools.

Michael Latimore -- Northland Securities -- Analyst

Right. Got it, good. Then you touched on this I think in the last comment a little bit, but you talked longer term, you would look at cost reductions options to deal with the tariffs. By longer term, I guess, what do you mean? What sort of timeframe there?

Colin M. Angle -- Chairman and Chief Executive Officer

I think that some cost reductions are continuous and would impact in '19. Longer-term things would involve looking at where we manufacture. It looks like we're in this for the long haul. We have options on that front as well.

Michael Latimore -- Northland Securities -- Analyst

By longer term, you're referring to a year or more?

Colin M. Angle -- Chairman and Chief Executive Officer

We would not materially be able to move manufacturing and avoid tariffs in 2019. It would be beyond that before you'd see a material impact.

Michael Latimore -- Northland Securities -- Analyst

Got it, OK. Then just last, you talked about in your prepared remarks that this tariff topic would have a moderate effect on a strong market. What do you view the market growth rate being, and then what does that moderate effect? If you could quantify that a little bit.

Colin M. Angle -- Chairman and Chief Executive Officer

Quantification is going to be challenging; it hasn't happened yet. I think that when you look at iRobot's growth rate in Q3 of 39%, and there is additional growth at entry level price points where we don't play, you can definitely get a sense of how fast this market is growing. A tariff would impact most directly price points below which we play. Where if you were a value player, a price increase has a very material impact on growth.

The further up the price chain, your premium customer is less price-sensitive. So it's a complex equation that favors the premium player. And so the markets where we depend most upon in order to deliver our growth are going to be markets that are less affected by tariffs. I'm not going to be satisfying in my quantitative articulation. You're going to have to give us a little more time on that front. But again, this is not a world-end kind of situation. This is something that will affect all competitors. In a very real way, we are better positioned that our major competitors who play at the low end, to maintain an aggressive stance.

Michael Latimore -- Northland Securities -- Analyst

Got it, thanks. Great. Congratulations on the new products.

Colin M. Angle -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Charlie Anderson with Dougherty & Company. Your line is open.

Charles Anderson -- Dougherty & Company -- Analyst

Thanks for taking my questions. A couple ones for me. I wonder on the new product the timing of the rollout? I think you're primarily in the U.S. right now. Sort of when we should expect EMEA to get the new products? When Japan? When we'll see more penetration of U.S. retailers? Then I've got a follow-up.

Alison Dean -- Executive Vice President and Chief Financial Officer

Sure. Charlie, the e5 product is being launched in EMEA and Japan this quarter, Q4. Then in terms of the i7/i7+, it'll show up in EMEA and Japan in Q1 of '19.

Charles Anderson -- Dougherty & Company -- Analyst

Great. Then in terms of the new products, I wonder, given the use case is a little bit different, obviously, with the CleanBase and then the room designation. I wonder if you have any data that you could share with us that quantify the usage trends? Are they changing relative to prior robots? Thanks.

Colin M. Angle -- Chairman and Chief Executive Officer

We actually have a little bit of color we can give there. We have a sophisticated data analysis function going on. We look at how people use the robot. The i7+ robot sees a significant increase in both duration and frequency of use. It's quite material. The idea that the robot is running longer because with better understanding of where the robot can go, you can designate larger parts of the home to be cleaned because you don't need to use the virtual walls as a constraint.

You just tick off which boxes of which rooms you want cleaned. That's very positive. Then the ease of use where you can literally say, "Okay, Google, schedule my Roomba to clean the kitchen and dining room and entryway every Tuesday at 3:00," and have that work, suggests that more people are activating the robot more frequently.

That said, it's still early. Our dataset is not incredibly large, but we're seeing very material increases in utilization, and that leads to customer satisfaction and differentiation from the competitors.

Charles Anderson -- Dougherty & Company -- Analyst

Great. Thanks so much.

Colin M. Angle -- Chairman and Chief Executive Officer

You bet.

Operator

Thank you. Your next question comes from Asiya Merchant with Citigroup. Your line is open.

Asiya Merchant -- Citigroup Global Markets -- Analyst

Hi, everyone. Again, strong quarter. Very improvement growth on the top line.

Colin M. Angle -- Chairman and Chief Executive Officer

Thank you.

Asiya Merchant -- Citigroup Global Markets -- Analyst

Yes. Quick question. When you guys talked about earlier at analyst day and when you gave guidance, you guys talked about, I think, outside of the acquisition impact this year on ASCs, kind of expect that growth rate that you talk about in the category of let's say 20%, implying unit growth of around 20%, and maybe slightly higher, but a little offset decline in prices. Is that still a going assumption going forward? I mean, obviously, ASCs have seen upticks this quarter, I believe, from the impact of the acquisition on a year-on-year basis, and also with the launch of the new Roombas, which are slightly higher price points, albeit you took your other Roomba prices down. So maybe you can just help investors understand how you think about that, outside of just tariffs, how do you think about that combination of unit growth versus ASCs as you look at the revenue CAGR of 20%?

Alison Dean -- Executive Vice President and Chief Financial Officer

I think on a go-forward basis, Asiya, it's very similar to what we said before, that unit growth will be the main driver of revenue growth going forward. As you said, we've had a few quarters where ASCs have improved year-on-year, but generally speaking, it's a better modeling assumption to have unit growth be the largest contributor to revenue growth versus ASC.

Asiya Merchant -- Citigroup Global Markets -- Analyst

Okay. And then this quarter, I know in the past you've provided some sort of mix color on between your higher-end Roombas and your [inaudible] Roombas, which is still around the $300 price point. If you could provide some of that color this quarter, that would be great.

Alison Dean -- Executive Vice President and Chief Financial Officer

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

Asiya Merchant -- Citigroup Global Markets -- Analyst

Okay, great. Then lastly, your expectations for Braava this year. You did talk about it's accelerating quite significantly into the year, given all the promotional activities you're doing. How do you guys still think about Braava in terms of growth rates for the year?

Alison Dean -- Executive Vice President and Chief Financial Officer

We still anticipate to have a nice growth rate year-on-year for the full year. We do also expect that we won't be able to get it up to the 10% target that we've had. It'll probably still remain under 10% on a full-year basis, but we do expect to see nice year-on-year revenue growth for the category.

Colin M. Angle -- Chairman and Chief Executive Officer

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

Alison Dean -- Executive Vice President and Chief Financial Officer

Right, so continue the Roomba strong performance. It's challenging to get to that 10%.

Asiya Merchant -- Citigroup Global Markets -- Analyst

Okay. I'm sorry. One last question from me then. These new product introductions. I know you guys don't like to talk a lot about new products until you launch them. But if you could just help us. Are you still talking about innovations in your RVC category? Or the Braava line is something that looks like it's ready for a refresh. Talking about new product categories.

Colin M. Angle -- Chairman and Chief Executive Officer

I think that we are, as a company, committed to all of the above. Next year is going to be a very exciting year. The pipeline based on the investment in innovation that we've been making over the past several years is starting to manifest itself. I think that it was a little dry between the launch of the 900 and the launch of the i7, but we were working at getting over this hurdle around understanding the home, and having this foundation of mapping where we could learn the home, improve our performance, and introduce both memory and learning into the product.

So that was a huge hurdle that we've now deployed in the i7, and opens the opportunity to do much more. So I think that when I said we're not done yet, I meant we're not done yet. It should be an exciting year next year.

Asiya Merchant -- Citigroup Global Markets -- Analyst

Great. Thank you and congratulations on the solid growth on the top line. Impressive. Thank you.

Colin M. Angle -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Troy Jensen with Piper Jaffray. Your line is open.

Troy Jensen -- Piper Jaffray -- Analyst

I would like to also say congrats on the blow-out Q3. Colin, just for you, you've been a little bit more open recently at some conferences talking about the lawnmower product. Is this one of the product categories that you're alluding to here for the introductions next year? Or any update you can on the lawnmower would be great.

Colin M. Angle -- Chairman and Chief Executive Officer

We remain committed to launching a lawnmower and I'll stop there. It's a -- well, I'll stop there.

Troy Jensen -- Piper Jaffray -- Analyst

All right, perfect. Understood. I want to go back on the tariff question. And I apologize [inaudible] so many times here. If I think about it, you guys exited Q3 with record inventory. You had about three weeks to bring on more inventory before the tariffs were implemented. It seems like only a fraction of units sold here in the fourth quarter will be impacted by these tariffs. Can you quantify what percent of units are creating this $5 million drag?

Alison Dean -- Executive Vice President and Chief Financial Officer

That's our estimate of products that are going to be brought into the U.S. since September 24th through the end of the year. You're right, we had some product that will be sold in Q4 already in the U.S. before the 24th. But we do have another significant amount as we prepare for the holiday season and get the new products where they need to be for their launches on a global basis. That's what it's based on.

Colin M. Angle -- Chairman and Chief Executive Officer

I would caution, your hypothesis suggested that why didn't we bring in everything ahead of time? We were not able to do that. I think that it sounds like you are likely overestimating the amount of product that we could've brought in before Q4, because we were ramping up new products like the i7 and e5's. And had it been a normal year without such a significant new product content, we probably could've done a lot more to bring things in earlier. But because e5 and i7 were so fundamental to our Q4 plans, and those lines were just ramping up, a lot of that volume had to come in after that cut-over date on the tariffs. I think our model may --

Troy Jensen -- Piper Jaffray -- Analyst

That makes sense.

Colin M. Angle -- Chairman and Chief Executive Officer

Yeah.

Troy Jensen -- Piper Jaffray -- Analyst

Then one last question for me and kind of a follow-up on Mike's. Have you done any work on price elasticity? A 5% or a 10% increase on pricing? What do you think that would do to the growth rates?

Colin M. Angle -- Chairman and Chief Executive Officer

Yes, we have done a lot of research on price elasticity. I think that I tried to give as much color as we're able to give on the call, saying that it's good to be a premium retailer or a premium manufacturer. There's certainly more flexibility at the top than at the bottom. Again, we've got very good models as to how to craft our strategy next year.

Troy Jensen -- Piper Jaffray -- Analyst

Great. Understood. Keep up the good work.

Colin M. Angle -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Your next question comes from Mark Strouse with J.P. Morgan. Your line is open.

Mark Strouse -- J.P. Morgan Securities -- Analyst

Good morning. Thanks for taking our questions. Most of them have actually been answered already. Alison, last quarter you gave revenue growth expectations by region for the year. Did you update that? I'm sorry if I missed it.

Alison Dean -- Executive Vice President and Chief Financial Officer

No, we haven't. With the increase of our full-year revenue expectations, we're more or less in line of the same ranges that we gave before by region. The cause of us increasing the guidance came a little bit in all three places, but still leaves us in the same general ranges that we provided before.

Mark Strouse -- J.P. Morgan Securities -- Analyst

Okay. Now that we're lapping the anniversary of the acquisitions, or at least the last one, can you talk high-level about growth rates for overall international? Not looking for 2019 guidance. Just kind of high-level how you think about that going forward now.

Alison Dean -- Executive Vice President and Chief Financial Officer

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

Mark Strouse -- J.P. Morgan Securities -- Analyst

Okay, sure. Then just lastly, last year you received quite a bit of essentially free advertising from your retail partners around Black Friday. Just curious what you're able to glean so far from your conversations with those retailers, and what your expectations are after the holidays that's baked into guidance?

Colin M. Angle -- Chairman and Chief Executive Officer

Sure. I think again I'll give some qualitative color. The retailers who supported us last year were handsomely rewarded based on the strength that Roomba delivered in retail. So that one would expect that we'll get strong support again, because our product line is even stronger than it was last year. We maintain to have excellent partnerships with our retailers. As I said, are very confident and excited about our positioning going into Q4.

Mark Strouse -- J.P. Morgan Securities -- Analyst

Okay. That's helpful. Thank you.

Colin M. Angle -- Chairman and Chief Executive Officer

You bet.

Operator

Thank you. Your next question comes from Bill Baker GARP Research. Your line is open.

William Baker -- GARP Research -- Analyst

Thank you. I'm thinking about Robopolis and how now it's coming up on this one-year anniversary, and simultaneously having this really major technological improvement in the product that would satisfy customers. It seems like with that one-two punch, you really should have an opportunity to increase market share in Europe, where it hasn't been as good as the United States to begin with. I'm just wondering if you could give us a little color, now that you've had this acquisition for a year. Are you in the stages of already executing what you're supposed to be doing? Or are you going to be making more of a push toward increasing market share? And any color by country would be helpful.

Colin M. Angle -- Chairman and Chief Executive Officer

Sure. I think that I can speak to Europe in general. The acquisition has absolutely, as we hoped it would, given us good control over the messaging. We had talked about rolling out the strength of our U.S. marketing campaign more fully into Europe. The results thus far in 2018 have shown that is definitely coming through. We're having very strong results in Europe as a result. I think that the i7 is a very differentiated product from anything else in the marketplace. In all of our markets, we expect that is going to be a powerful competitive tool, as iRobot extends its leadership. So that's all good news.

iRobot is in a very good position. Is there opportunity to increase our market share? There's certainly an opportunity to deliver very strong performance in Europe and Japan. Again, the market is growing, competition is coming, and we've got very exciting growth targets that we're pursuing. We've got a strong hand. We've increased our market share between 16% and 17% with the hand that we had last year, and we've only improved that.

William Baker -- GARP Research -- Analyst

Okay. Thank you.

Colin M. Angle -- Chairman and Chief Executive Officer

Sure.

Operator

Thank you. You have a follow-up question from Jim Ricchiuti with Needham and Company. Your line is open.

James Ricchiuti -- Needham & Company -- Analyst

I'm wondering if you could speak to the $6 million of the operating expense that shifted from Q3 to Q4. I'm assuming a large component of that was sales and marketing related. Is that tied to the new products? That with greater availability, you're just going to be stepping it up that much more in Q4? I wonder if you could just talk a little bit about that. I know opex shifts around.

Alison Dean -- Executive Vice President and Chief Financial Officer

The bulk of it was sales and marketing, Jim, that moved into Q4. Some of it is new product-related, and some of it isn't. We look constantly at when is the right time to deploy these different dollars. In some cases, we may deploy them differently than we initially planned going into the quarter, based on what we're seeing in the market. It's really just an updated analysis of when we think is the best time to execute and deploy those dollars.

James Ricchiuti -- Needham & Company -- Analyst

Okay. Thank you.

Colin M. Angle -- Chairman and Chief Executive Officer

Okay. That concludes our third quarter 2018 earnings call. We appreciate your support, and look forward to talking with you again in February to discuss our Q4 results.

Operator

That concludes the call. Participants may now disconnect.

Duration: 46 minutes

Call participants:

Colin M. Angle -- Chairman and Chief Executive Officer

Alison Dean -- Executive Vice President and Chief Financial Officer

Elise Caffrey -- Investor Relations

James Ricchiuti -- Needham & Company -- Analyst

Michael Latimore -- Northland Securities -- Analyst

Charles Anderson -- Dougherty & Company -- Analyst

Asiya Merchant -- Citigroup Global Markets -- Analyst

Troy Jensen -- Piper Jaffray -- Analyst

Mark Strouse -- J.P. Morgan Securities -- Analyst

William Baker -- GARP Research -- Analyst

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