Helen Greiner - Chairman of the Board Colin Angle - Chief Executive Officer, Director Geoffrey Clear - Chief Financial Officer, Senior Vice President, Treasurer

Elise Caffrey - Investor Relations Alex Hamilton - Jesup & Lamont Jim Ricchiuti - Needham & Company Jonathan Dorsheimer - Canaccord Adams Mark Gross - California State University

This conference call may contain expressed or implied forward-looking statements relating to the company’s financial results, operations, and business conditions. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in the forward-looking statements.

In particular, the risks and uncertainties include those contained in our public filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.

Please note that a live audio broadcast of this conference call is available on the Investor Relations page of iRobot’s Web site at www.irobot.com. An archive version of the broadcast will be available on the same Web page shortly.

In addition, a replay of this conference call will be available through February 27th, 2008, and can be accessed by dialing (719) 457-0820, access code 8088134. On today’s call, iRobot’s CEO, Colin Angle, will provide a review of the company’s operations and achievements for the fourth quarter and full year 2007 and our operational plan for 2008.

Helen Greiner, Chairman of the Board, will provide an update on our various portable ground vehicle programs, and Geoff Clear, Chief Financial Officer, will review our financial results for the fourth quarter and full year 2007 and comment on our financial expectations for 2008. Then we’ll open the call for questions.

At this point, I’ll turn the call over to Colin Angle.

Hello and thank you for joining us. Last evening, we reported record results revenue of $98.7 million was 62% higher than the same quarter a year ago and pre-tax profit of $12.1 million was $13.8 million higher than Q4 2006.

The topline results were driven by a very successful holiday season for our new Roomba 500 Series robot despite widely reported weakness in general retail. Full year revenue growth of 32% was driven by a strong fourth quarter in home robots and a very strong contribution throughout the year from our Government and Industrial Division.

Our 2007 results demonstrate the strength of our business and we exited the year with excellent momentum and visibility into 2008. In our Government and Industrial Division’s fourth quarter, we prevailed in our legal battle to defend our intellectual property.

We won the highly publicized $286 million xBot contract and at the direction of the Army accelerated our work on the Small Unmanned Ground Vehicle, the SUGV. Our G&I successes in the quarter solidified iRobot’s leadership position in the portable ground robot market.

Based on our funded backlog of $26.1 million at the end of 2007, we have the best visibility going into 2008 that we have ever had going into a new year. We’ve sold more that 1300 Packbot robots and we expect sales of Packbots and SUGVs to drive 2008 G&I revenue growth.

In our Home Robot Division during the fourth quarter, we resolved the initial Roomba 500 production issues, proved that we could ramp up to meet our customers’ holiday order expectations and delivered a new generation Roomba that provides breakthrough performance and reliability. As a result of Roomba sell-through which is up more than 10% over the same period a year ago and full initial production ramp, inventory, and our retail partners is at good post-holiday levels.

Our customers are happy and we are optimistic about order levels for 2008. In fact we expect sales of Roomba to drive revenue growth in home robots this year.

The results for 2007 demonstrated our ability to sustain growth as we laid the foundation for continued expansion in 2008 and beyond. We raised revenue guidance throughout the year and delivered at the top end of the range.

Despite many cost challenges causing us to miss our gross margin target, which Geoff will explain further in a minute, we managed the business to deliver earnings exclusive of one-time charges within the increased earnings guidance range we provided. Our expectations for 2008 are for continuing strong topline growth with a focus on gross margin expansion and continued operating scalability that will result in an $8 million to $10 million pre-tax net income, an increase from 0.2% of revenue in 2007 to 2.7% to 3.3% of revenue in 2008.

I’d like to spend a few minutes reviewing the highlights of 2007 and then provide you with our financial expectations for 2008 as well as lay out our plan which gives me high confidence in achieving those goals. In the fourth quarter and full year 2007, we delivered revenue of $99 million and $249 million, respectively.

We achieved those record levels despite the distraction in our G&I division caused by the efforts to defend our intellectual property and initial production challenges in home robots that delayed shipments of our new Roomba 500 Series. The G&I division shipped 108 robots during the quarter and a total of 471 for the year.

Revenue for the quarter was up 31% from a year ago and 37% for the full year over 2006. We ended the year with $26.1 million in backlog compared with $7.5 million at the end of 2006 as well as excellent visibility into 2008, especially the first quarter.

Revenue in the Home Robot Division increased 76% in the fourth quarter and 29% for the full year compared with the same period in 2006. This growth was driven by sales of Roomba to our retail partners as well as direct to customers through our website.

We shipped 442,000 home robot units during the quarter, an increase of 66% over 2006 for a total of 899,000 for the year. Annual shipments grew 24% despite a products transition in the second quarter during which shipments decreased actually by 7.5%.

Quarterly pre-tax income was $12.1 million which was the highest in our history. Our full year pre-tax net income was $500,000.

Total litigation expenses and settlement costs associated with our actions against Robotic FX totaled $2.5 million for the year including bid protest costs. We felt it was absolutely essential to take whatever actions were necessary to defend our intellectual property and protect our trade secret.

Had we not incurred these one-time charges, our full year pre-tax income would have been approximately $3 million. Gross profit margin for the quarter and the year did not meet our expectations, primarily due to competing corporate priorities.

In the fourth quarter, we were intensely focused on ramping production of our Roomba 500 Series robot to meet customers’ holiday demand. As a result, we didn’t implement planned cost reductions, and in fact we experienced incremental costs associated with ramping up production.

In the fourth quarter, direct sales comprised a lower percentage of total home robot revenue than we had modeled due to stronger than expected retail performance. This phenomenon had an unanticipated negative impact on gross margins because margins from the sales to our retailers are lower than those generated through direct sales.

Direct sales which comprised 18% of home robot revenue in the fourth quarter continued to grow and were up 46% year-over-year. For the full year, direct sales were up more than 80%.

Our direct channel continues to be important to us and one in which we’ll continue to invest. In 2008 and beyond we expect continued growth in our direct business especially as we add direct capabilities to the international market.

Our direct business offers the highest gross margins but also gives us the best understanding of and connection to our customers, and provides the channel for our entire product line. Now, turning to 2008, in our government and industrial business the stage is set for another year of excellent growth.

We have talked to investors about inflection points in our divisions and 2008 is the knee in the curve for our government business. The commencement of shipments of robots to the regular infantry represents the beginning of a new phase of operation for the G&I division.

With contract wins and accelerated development of our Small Unmanned Ground Vehicles, we moved from serving just the explosive ordnance disposal market to serving the regular infantry market which is many times larger than the EOD market. We started 2008 with the best revenue visibility in the division’s history.

Revenue growth in this division will continue to be driven by orders of our battle-proven Packbot of which we’ve sold more than 1300 as well as orders for spare parts and service. As we move into the second half of the year, we expect sales to the U.S.

government and international customers to increase more than 60% from the first half of 2008. In December, we announced that we had won the xBot contract, a $286 million Indefinite-Delivery, Indefinite-Quantity (IDIQ) contract from the U.S.

Army. This brings the total of our three IDIQ contracts to $614 million of which 75% is still available.

More importantly the xBot award positions us as the market leader in the portable unmanned ground vehicles. Gross margins in this business has improved by 10 percentage points over the past two years due to cost reduction initiatives at our contract manufacturer and increased orders of higher margin spares, support, service, and training what we refer to as Product Life Cycle revenue or PLR.

We have previously said that we expect PLR to be sustainable at a rate of 25% of our government product revenue over time. In 2008 and beyond there will continue to be some gross profit margin expansion through the growth in PLR.

However, as order volume for our major product lines increase we will feel some pressure on both ASPs and gross margins. The 2008 opportunity for operating margin expansion in G&I is through leverage in our operating model especially with our expectation of higher volume orders.

Because we outsource our manufacturing our internal costs will increase at a lower rate than revenue. In 2007 we finished the build out of the G&I team required to cover the bases, so to speak.

As we look to 2008, additions to head count are variable and dependent on increased growth. This gives me confidence that we will see economies of scale starting to take place in the second half of the year.

Our highest priority for the Home Robot Division in 2008 is improved gross margin which will be driving a tripling of pre-tax profitability on a company-wide basis. The major initiatives of the gross profit improvement plan are implementing planned product cost reductions, maintaining timely and efficient product flow, and achieving material improvement in the return and warranty rate.

In 2007, we suffered from a sudden and dramatic increase in nickel prices which put significant pressure on margins. This year we have a program in place to mitigate any potential escalation in nickel pricing and initiated an aggressive cost out program on the Roomba 500 to further reduce product costs through engineering and use of alternate materials.

Intense focus on gross margin expansion this year will position us for improved operating leverage in 2009. This past year exposed some operational weaknesses creating opportunity for improvement.

We’ve initiated several programs to improve operational effectiveness and increase profitability. The most significant of these, a next-generation MRP system, has recently been implemented to improve support and facilitate scalability.

In 2007, we delivered a new product after hundreds of thousands of hours of testing with improved performance and reliability. We believe it will better meet customers’ expectations thus reducing the return rate, a key factor to achieving gross margin expansion in the Home Robot Division.

Early indicators are good. Our return rates this year for Roomba 500 compared with return rates last year for the Roomba 400 are favorable but we won’t have truly definitive data until the third quarter.

We expect home robot revenue growth in 2008 to be driven by the sales of Roomba and to a lesser extent Scooba, Verro, and Looj. Our plans for 2008 are based on a modest increase in volume augmented by higher ASPs and lower return rate and I am confident that we can achieve this goal.

Before turning the call over to Helen, I want to spend a few minutes discussing our financial guidance for 2008. As in the past, we are providing first half and full year guidance.

Our guidance can be summarized as follows: annual revenue increasing between 20% and 25% compared with 2007, gross margins of 36% to 37%, operating expense leverage, and a tripling of pre-tax net income even excluding one-time 2007 cost Our strong funded backlog position at year end 2007 in the Government and Industrial Division will drive substantial revenue growth in the first quarter. As we have discussed in the past, revenue from our G&I business tends to be lumpy due to the timing of government orders and in 2008, revenue will be at the lowest level in the second quarter where coincidentally operating expenses, primarily IR&D will peak during that period.

First half home robot results should compare favorably year-over-year in 2008, given our expectations for Mother’s Day and Father’s Day in the absence of a new product transition. Seasonality in our home robot business will continue to drive a substantial portion of our revenue to the second half of the year.

We expect home robot gross margins to improve substantially this year as we realize the impact of the initiatives I have discussed. In summary, in 2007, we demonstrated our ability to sustain growth in both divisions and laid the foundation for continued growth in 2008.

We exited the year with excellent momentum, good visibility, and better positioned than any other year in our history and we have an achievable plan for another year of topline growth, gross margin expansion, operational scalability, and improved profitability that will not carry the risks associated with a major new product transition. I will now turn the call over to Helen to provide an update on our portable ground vehicle programs.

Thank you, Colin. We have received a number of questions from investors about various classes of portable ground vehicles we are developing and I wanted to take a minute to help the audience understand the different programs.

As background, our biggest G&I market opportunity is providing robots for infantry tactical application. We have data that indicates the market demand could be for tens of thousands of units and we are addressing this market through three concurrent programs.

In 2004, we won a $32 million contract to develop a next generation SUGV for the U.S. Army’s groundbreaking Future Combat Systems or FCS program.

The scope and funding under this program now exceeds $50 million and we have billed development costs of more than 60% of that amount under the contract. FCS is a network system of systems composed of 18 components.

It uses advanced communications and other technologies to link soldiers with the components of the system, giving them access to data that can provide a much more accurate picture of the combat environment than is now available. In April 2007, we announced a strategic alliance with Boeing to accelerate the SUGV introduction into service by creating the SUGV early opportunity with commercial off-the-shelf or COTS equipment to meet the immediate need of the soldiers and first responders, following successful testing at the Army’s experiment 1.1.

In January of this year, we announced that the U.S. Army accelerated its testing schedules for evaluating the SUGV with COTS equipment.

The updated plans call for iRobot to deliver a total of 25 FCS SUGV robots by April 2008 which is three years sooner than called for under the original contract. Evaluation and testing of the robots will begin May 2008.

Training on the first three units has already begun. We will continue with development necessary to provide full network capability.

The initial soldier evaluations will determine the capabilities and limitations of the SUGV platform. These evaluations will support the Army’s production decision which is expected in September of 2008.

In addition to the SUGV, in December of 2007 we were awarded the xBot contract, a $286 million IDIQ contract from the U.S. Army.

Under the terms of the contract, the Army could order up to 3,000 iRobot Packbots with FasTac kits plus spare parts, training, and repair services over the next five years. The award marks a turning point in the way the Army uses robots in combat, which until now have been deployed in limited numbers only to explosive ordnance disposal specialists.

With this award the U.S. Army broadens the deployment of robots in larger scale to general infantry forces for a variety of critical missions in addition to EOD.

We began to deliver the first 101 robots for urgent deployment in the first quarter. Both the SUGV and the FasTac address the need for a lightweight tactical robot for infantry and other dismounted troops; however, there were some important distinctions between the two.

First, the mission. The FasTac mission is to provide a lightweight robot for infantry reconnaissance on potential improvised explosive devices or IEDs.

This would typically occur outdoors along roads while keeping the operator at a safe standup position. The SUGV mission is more of a general purpose reconnaissance and surveillance platform for infantry missions.

It is designed for both outdoor and indoor use and is expected to be used extensively in building clearing missions and other dangerous urban combat situations. The second difference is the type of requirement.

FasTac fulfills an urgent need requirement addressed by a Joint Urgent Operational Needs statement or JUONS written by commanders in Iraq. A JUONS is a means to quickly providing new technologies of equipment to meet needs that aren’t addressed by existing long-term programs.

The SUGV will be fielded very broadly over a period of years under a planned program of record. As such, it has a multiyear budget plan to equip forces both in theater and in the US.

With respect to the potential market size, there is a defined contract cap of 3,000 robots of FasTac but the opportunity for SUGV is far greater. The current stated FCS requirement is to provide more that 80 SUGVs to every FCS combat brigade team.

If the SUGV is accelerated for the current forces and a similar quantity is fielded for every brigade combat team worldwide then this would indicate that the potential demand for small portable ground robots will increase from hundreds to thousands and there will be greater opportunities for additional development, upgrades, training, service, and support. There are more than 10,000 infantry and combat engineer squads in the Army and Marine Corps and based on the Army’s concept of operations for the SUGVs, we expect the robot to be issued at the squad level.

By addressing other markets such as reserve and the National Guard we extend that opportunity even further. What does all this mean?

Regardless of which program is broadly adopted in the future we are well positioned with a continuum of products to meet the enormous ongoing needs of the infantry. I will now turn the call over to Geoff for a review of our financial results.

Thank you, Helen and good morning everyone. I’d like to begin by focusing on the factors that impacted our gross margins in the fourth quarter and by commenting on our business plan to improve our gross margins.

Gross profit for the fourth quarter was 36.6% of sales, down 0.7 of a percentage point from the fourth quarter last year and about 5 percentage points lower than we expected. For the year gross profit came in at 33.2% of sales compared with 36.9% last year and our guidance of 35% for this year.

The 5-percentage-point difference is entirely attributable to our Home Robot Division and was primarily the result of three factors. First, lower than anticipated direct sales in home robots as a percentage of overall Home Robot Division revenues.

This accounted for 3 percentage points. Second, higher than forecast transition costs from discontinued versions for our Roomba 400 Series robots contributed to the decline by 1 percentage point.

And third, our 2007 challenge to reduce battery costs and to realize other manufacturing cost savings contributed 1 percentage point. While we were disappointed that we were not able to achieve the gross margin expansion we had expected, we now have to find a detailed plan to substantially improve home robot gross margins during 2008 through programs and initiatives already in place.

The three most important elements of this plan include; (1) locking in lower battery costs with our supplier for our total forecast usage in 2008 including nickel and Chinese currency to address potential fluctuations, (2) multiple cost reduction initiatives, most of which are already online which are expected to increase HRD margin over the next 12 months, and (3) expectations that our higher quality Roomba 500 products and improved modular design will result in substantially reduced Roomba return and warranty rates. The combination of these HRD programs partially offset by slightly lower gross margins in the G&I xBot program should lead to our gross margin guidance for 2008 of 36% to 37%.

That’s an improvement of approximately 3.5 percentage points as compared to 2007. Pre-tax income was $12.1 million for the quarter and $500,000 for the full year.

The fourth quarter and full year results include one-time litigation, settlement, and bid protest costs which totaled $1.8 million and $2.5 million respectively. Exclusive of these one-time costs, pro forma results for the quarter and the year would have been $13.9 million and $3 million, respectively.

Now that we have achieved annual profitability for the past four years, it is likely that we will realize the favorable impact of previously deferred tax benefits. The 2007 quarterly and annual results included $8.6 million tax benefit largely associated with the released of federal deferred tax allowances.

Effective with the first quarter of 2008 we will record quarterly tax benefits or provisions more in line with a traditional tax rate of 40%. Combining this one-time tax benefit with our pre-tax operating financial figures results in after-tax net income $20.7 million for the quarter and $9.1 million for the year.

Earnings per share were $0.81 and $0.36, respectively. Excluding the effects of the two one-time events, Robotic FX charges, and the cumulative tax benefit, pro forma EPS would have been $0.55 per share for the quarter and $0.12 per share for the year.

Let’s go over our fourth quarter and full year financial results in a little more detail starting with revenue. In the Government and Industrial Division, contract, research, and development projects are significant sources of revenue and provide us with an independent source of growth.

In the fourth quarter, recurring contract development revenue of $5.4 million was up 14% from the same quarter last year and for the year, recurring contract revenues were up approximately 13% to $21.6 million. Steady increase for this important source of funding for future products.

G&I product revenues result from the sale of our PackBot line of military robots and from spare parts used to support the robots. In the fourth quarter, G&I product revenue increased 37% to $19.8 million from 14.5 million last year.

Product Life Cycle revenue grew more that 150% in the fourth quarter year-over-year and amounted to 31% of our G&I product revenue this quarter as compared to 17% same quarter last year. PLR was also strong for the year comprising 25% of G&I product revenue.

Turning now to operating expenses, for the fourth quarter total operating expenses decreased 4% to $24.5 million from the fourth quarter last year. Excluding the $1.8 million in one-time litigation, settlement, and bid protest costs on the xBot contract, operating expenses would have declined by 11% thus demonstrating our ability to scale our operations and manage costs.

Total operating expenses for the year were $85.2 million or 34% of revenues including $2.5 million of one-time expenses compared with $69.7 million or 37% of revenues in 2006. Our fourth quarter operating profit was $11.6 million compared with an operating loss of $2.7 million last year in the fourth quarter.

This is inclusive of stock compensation expenses which totaled $1.3 million this year up from $800,000 last year. Full year stock comp expense was $4.7 million in 2007 compared with $2.6 million in 2006.

In addition, we recorded nearly $500,000 of net interest income resulting in a pre-tax profit of $12.1 million in the fourth quarter 2007 compared with a pre-tax loss of $1.7 million in the fourth quarter last year. For the full year, net interest income was $3.2 million and pre-tax income was $500,000.

Net income for the quarter was $20.7 million after the $8.6-million tax benefit compared with a net loss of $1.8 million a year ago. For the full year, net income was $9.1 million compared with $3.6 million last year.

Earnings per share were $0.81 for the fourth quarter and $0.36 for the full year 2007 compared with a loss per share of $0.08 and earnings per share of $0.14, respectively in 2006. Our balance sheet remains strong with no debt outstanding and cash and short-term investments at December 29th were $43 million compared with $49 million at the end of the third quarter.

Net accounts receivable were $48 million and day sales outstanding were 46 days. Before taking your questions, I’d like to discuss our financial outlook for 2008.

Our revenue continues to be highly seasonal with a majority of home robot revenue generated in the months leading up to the year end holiday season. As in prior years we expect more than 60% of our annual revenue will be generated in the second half of the year.

In 2008, we also expect that more than 60% of government and industrial revenues will be generated in the second half of the year due to the timing of delivery on several probable large government and international orders. Our G&I division will incur disproportionately high IR&D expenses in the first half of the half of the year particularly in the second quarter as we’ll ramp up to finalize product development in order to fulfill expected orders in the second half of the year.

Because of the seasonality in both of our businesses this year, we expect a net loss in each of the first two quarters and the loss in the second quarter could be substantially higher than in the first quarter because of the disparity of timing between expenditures and revenue generation. In the second quarter we will also incur $1 million of one-time charges associated with our move to a larger headquarters facility in Bedford, Massachusetts.

Here are some details on our guidance. For the full year 2008, we are expecting revenues to be in the range of $300 million to $310 million, a 20% to 25% increase over 2007’s record results.

We anticipate revenues to be in the range of $109 million to $112 million in the first half of the year. Revenues in the first quarter will be up significantly from last year’s first quarter due to the strong G&I backlog coming in to the quarter.

Revenues in the second quarter will reach a low point for the year before delivery of military robots to the U.S. government and international customers accelerates in the second half of the year.

As revenues increase throughout the year and Home Robot Division cost reduction programs kick in, we are projecting gross profit margin as a percent of revenues to increase as well. For the full year we expect margins to fall within the range of 36% to 37%.

For the first half, we project margins in the low 30s improving in the second half to nearly 40%. As in 2007, margins will fluctuate on a quarter-to-quarter basis depending upon product mix and other operational factors.

For operating expenses, we estimate total expenditures for the full year to approximate 32%, down 2 percentage points versus 2007. Stock compensation expense is determined by the number of stock options issued and the volatility and price of our stock.

We expect this expense to build throughout the year to a total of approximately $7 million for 2008, an increase of $2.3 million over 2007. I’d like to note that we use stock compensation to align the interests of employees and management with those of our shareholders.

We have done this at a level consistent with other high-tech companies and to a greater degree than analysts have modeled in the past. It is our expectation that stock comp expense will continue to increase for another couple of years until the initial impact of FAS 123R is fully amortized.

For the year, we anticipate pre-tax income of between $8 million and $10 million, a substantial improvement versus 2007, resulting in pre-tax margins of 2.7% to 3.3%. Given our expectation of revenue patterns and the expense ranges I’ve just provided, we expect a pre-tax loss in the first half of between $17 million and $19 million including stock compensation expense.

Now that we have entered a more traditional taxable income status, you should assume tax credits during loss periods and tax provisions for profitable quarters at an annual rate of 40% for the full year. Share counts should be approximately 24 million basic and 26.5 million for diluted shares.

We anticipate earnings per share for the year to be between $0.18 and $0.23. Keep in mind that earnings per share is calculated using basic share count in loss quarters and diluted share count in profitable quarters.

In summary, we reported record revenues in 2007. We laid the foundation for significant growth in earnings in 2008 and we are confident in our ability to once again meet the expectations we are setting today.

With that, we will open the call to investors’ questions.

Hi, good morning.

Good morning.

You guys provided details on your guidance. One thing that you kept talking about was the visibility especially on the G&I side, if I missed it I apologize, that there was a funded backlog number.

Can we talk about that visibility and what gives you the comfort in that number and then would you say that the visibility you have this year is greater than when you provided your initial forecast in ‘07 and the reason I asked that is because obviously as we know, throughout the year you kept bumping up your topline guidance.

Alex, its Geoff. I'll start by giving the actual numbers and then I’ll invite Colin to comment on the visibility part of your question.

Great.

As of January 1st, we had $26.1 million in backlog, just for those on the call who may not be familiar we calculate backlog only in our G&I business on actual orders and contracts that we have in hand so that does not anticipate anything that we may sign in the days, weeks, and months to come. By the way, Alex that’s up as compared to $7.5 million of backlog at the beginning of 2006, excuse me beginning 2007.

And relative to our visibility beyond that backlog as Helen described we have a number of major programs that we have won that gives us a good degree of visibility. Basically we understand what we have won but additionally, last year, we talked about building, staffing up a more sophisticated sales and marketing organization.

Now that we have that organization up and functioning with some track record we’ve been able to develop a more sophisticated lookout into the year and estimate what we think we can actually get. So we have a lot of better confidence in what is going to roll out this year.

Great, thank you very much.

You bet.

Thank you. My question relates to your international business and two parts to the question.

You talked on the G&I side of that and expected to take up inactivity in the international order. So I was wondering if you'd comment a little bit more on that and the visibility you have in the second half of the year.

And then turning to the consumer business, I wonder if you would just comment on the international revenue in Q4 and just your general expectations for the international portion of the consumer business in ‘08. Thank you.

With respect to the government industrial orders, a PackBot order does have a gestation period. It doesn’t just happen immediately, someone calls up and so that we actually are tracking a number of different opportunities to sell robots internationally using the sales force which I described in the previous question.

So that when we talk about this uptick in international orders in the back half of the year, we have an identified a list of potentials that we are pursuing and we believe that they’ll mature in that second half time frame. So that’s where those comments came from.

The international side of the consumer division – we are doing a few things, we’ve been... in 2007 we’ve been upgrading and improving how we do business with Europe in particular and have developed some new relationships which are very exciting and additionally, we will be rolling out a European website that will allow for direct sales into Europe and both of those material improvements lead to my comments around international sales.

Just to give you the actual numbers Jim, I noticed on the phone, international for the Home Robots Division for last year was about 15% of our total revenues and for the G&I division, it was just a little bit over 10% on that home robot number, that’s up substantially 4 percentage points higher than it was in 2006. So you start to see some evidence of the different types of programs that we talked about impacting our revenues as we at the back half of 2007 and head into 2008.

And it sounds like you see both percentages moving up in ‘08?

We could see that although strong growth domestically could mask some of those increases but we definitely view it as an extremely healthy area of the business.

And lastly, if I could just slip one question in on the consumer business. Do you guys have any impact at all; see any impact from The Sharper Image of filing this morning?

The Sharper Image has decreased on time over as a critical retailer for us. They're a good retailer but they are not in our top...

they're not amongst our list of top retailers at this point.

Jim, let me add to that we’ve been watching this situation very closely over the last few months, this is not a surprise to us. They've been pretty much on a ship-cash ship-tight basis for at least the last four to five months so we'll wish them good luck in working through it and continue to deal with all of our customers.

Okay, thanks very much.

You bet.

Hi, thanks. I may have missed it.

I was wondering if you could provide any additional color on the consumer side of the business with respect to some of the new products and the reception that they’ve had in the marketplace. Thanks.

Sure. The Looj product which was one of the robots we launched on a trial basis at the end of the year has done very well for us in the fourth quarter and in January 1, an award for innovation at the consumer electronic show.

What we’re doing with it as we described earlier is to relaunch it during this test period, it will remain on sale in a limited distribution for the first part of this year then you should look to see that distribution expand in the back half of the year. So, we’re on track and our launch strategy seems to have worked very well for us then we got some valuable feedback on the product and we have more confidence in expanding the distribution as this year unfolds.

The Verro product line which is our pool cleaning robots which we experimented with in 2007, you’re going to see us broadening the product line in 2008 and so that's a success and the other new product we announced last year, the ConnectR is soon to enter into the pilot program that was delayed slightly from our early plan to get that into beta at the end of last year but still very healthy and we’re very excited about it.

Great, that’s helpful. And then Geoff, in terms of the hedging strategy against the nickel, I actually thought that that was already in place and to reduce any surprises on the margins, was there a delay in implementing that strategy or was I mistaken in my thinking there?

Thanks.

There was not a delay in implementing that strategy. We had said that this was going to be a major challenge that we were going to be dealing with and we have.

Just to clarify a little bit Jed, I don’t want you to misunderstand, the hedges that have been placed, have actually been placed by our supplier not by us, so they have hedges for both the cost of nickel which fortunately those hedges were placed when the cost was way down compared to where it was a year ago and they also have hedges in place against the Chinese currency since the basic supplier of this product is in China. So those are in place and have been for a little while and that program was right on time and when we needed it to assure our supply for this year.

Got you and then just looking at the map, in terms of the EPS, you’re expecting ‘08 to be a down year from ‘07 due in spite of the higher revenue growth because of the higher tax rate and the lower gross margins, am I looking at that correctly?

You are, that’s the reason that when I gave the numbers in the middle of my guidance, I wanted to focus on the fact pre-tax income is up so significantly to that $8 million to $10 million range, Jed and better than a factor of three on a percentage of sales basis, that’s why I wanted to focus on that metrics because obviously, as we enter the world of a real tax rate of 40% that has the type of impact that you cited.

Got you. Great, thank you and congratulations for a good quarter.

Thank you.

Thank you very much.

Yes, I just want to talk a little bit about the second half of ‘08 and just what do you see as the biggest execution challenges that you see in the G&I business to some sense as to is there a potential for slippage with some of your government customers, is it a question of being able to wrap some of the newer platforms?

Well, the risk factors have to do with executing and delivering the sales that are anticipated by our sales force. I mean, we have good leads, we think that they are high probability of success and we have an array from extraordinarily likely to merely probable and we try to handicap them but if there is some type of material change in or shortfall in our ability to handicap those orders, that would represent the single largest back out from military risk.

And Colin, as you’ve gone through the last couple of months, based on some of the order activity you’ve announced, I don’t want to put words in your mouth but it sounds like your government customers in particular in the U.S. appear to be in a mode of ramping the deployment of robots up not only the traditional PackBot but clearly SUGV and I wonder if...

Is there a way for you to give us some sense as to what SUGV you’ve given some indication for the early part of the year what they're looking for in Q1 but is there any kind of jump around or is just what we might expect them in for the year as a whole and how weighted that will be towards the second half?

I’ll take that one.

Thank you, Helen.

At the FCS program, there's really been a key change from a program about transformation to a program about modernization and getting equipment into the hands of the soldiers in a shorter time frame and all these goes into our favor because of the legacy PackBot systems because we’re ready to build and deliver the first SUVG this year. A program has been accelerated and we are well-positioned… can I speak specifically to SUGV in the back half of the year?

Not yet because the SUGVs are undergoing testing and evaluation, but as I said in September 2008, there's expected to be a production decision on the FCS SUGV which is a very important decision for us.

And that production decision would... assuming that were favorable, would that result in potential spike in orders and deliveries for Q4?

We would expect it to either be favorable or just making some changes to the robots and looking for a production decision later. We’ve gone through a lot of testing already, getting the robots into experiment 1.1, having the PackBot in the hands of the soldiers today.

The timing, as Colin mentioned in a previous question on military programs, timing is always an issue but I think we’re well-positioned for the SUGV in 2008 and even more importantly in 2009 and 2010.

Let’s add to that a little bit, the assumptions in the guidance we have given you are relatively conservative around any production decision on SUGV in that September time frame. We understand that there's great risk around exactly how timely units could be delivered.

So if, were there to be an immediate and strong demand based on that testing, that would represent upside.

Okay, thank you. That’s helpful.

Good morning, congratulations on a nice quarter and year despite the challenges.

Thank you.

Geoff, can you please talk about the year ending cash and the inventory position. You had guided that cash would come up in Q4 and that didn’t happen and in particular, what makes up most of the finished goods inventory right now or at the end of Q4?

Sure Mark, I’d be happy to. During the past several years, our cash flow has been positive in the last quarter of this year and it was based upon that trend that I made in my previous statement.

This past fourth quarter in November and December in particular, we experienced a very different trend in that a large portion of our shipments that did come to us towards the end of the quarter more than we previously experienced. This was mostly due to the fact that we have two challenges in ramping up productions of the Roomba 500 back in the September and October time frame.

As a result of that, Mark, we ended up with a considerably higher accounts receivable balance at the end of the year, $48 million as compared to the end of 2006 when we only get $28 million in receivable. The shift in that timing of the shipments in turn led to a shift in receivable collections from what we had in the past mostly November and December to this past quarter to December and in the January and even early February.

We have in fact seen our cash position increase in the months of January and February and we’re now back to the types of levels that I thought we would be at the end of December. As far as your question about inventory levels, Mark, as you’ll see, when we filed our K, our inventory is up substantially and that’s mostly driven by needs in our consumer business.

Keep in mind that we now have substantially more SKUs or part numbers that we’ve had in the past. We’re continuing to offer some of the Roomba 400 series as well as the new part numbers in the Roomba 500 and other products, the Scooba, Looj, and Verro as well and also our geographic diversity has led to an increased demand for the inventory.

So that increase in inventory while significant was anticipated and conscious and is required to support this growing international business.

Okay, that’s helpful, thanks. And as I’m sure you’ll appreciate the difference between a home robot sell-in and sell-through number has made interpreting data somewhat difficult and I know you stated that sell-through growth from Roomba in Q4 was over 10% but I wonder if it'll be possible for you to regularly and systematically provide sell-through data and also sell-through guidance for the Home Robots Division, starting possibly with 2007, Q4 of 2007 and 2008.

We have systematically talked to fill-through to try to give more color on really the health of the business, so it is our intention to continue to try to give sell-through figures where it can be clarifying. Part of our challenge is often getting good data on sell-through and so that committing to that on a continual basis is a bit challenging but I do agree with you that it is a great figure to clarify what’s going on.

In the fourth quarter you saw some channel fill as the store stocked up on these new SKUs that we were shipping and that’s why fill-in increases were larger than sell-through increases but the sell-through increases were very, very real and we ended the year in a superior in-store inventory position with our retailers than we’ve ever been in the last at least two to three years. So we’ll do our best is my commitment to you.

And can you give us sell-through guidance for 2008 for home robots?

No, we’re not prepared to do that at this time.

Okay, one more question. The company reportedly displayed a prototype of an elder care robot called CiCi last November.

Can you describe that and its capabilities and your development plans for that?

We do a lot of work with different prototypes and as part of our program for developing partnerships and expanding the market potential. CiCi is a robot that is a derivative of the technology that we're currently commercializing in the ConnectR program.

So you can think of it as an advanced version of that robot and it is certainly a ways off from being a formal iRobot product.

Thanks very much.

Yeah, I guess with the concerns that people have about the domestic economy we’d probably be remiss in asking, if not asking just what you guys are seeing and hearing from some of your large retail chain customers.

Well, we’ve been a break spot for our retailers in the fourth quarter. We were one of the short list of products that were substantially up year-over-year, so it’s a good news story.

I think that the economy does impact us but it’s what impacts us more is our success convincing customers that Roomba is an important and effective appliance for routinely cleaning your floors, so that in a way, I think that we are going to continue to focus on driving that message home in helping people understand that this is the better way of cleaning floors. So we’re hopeful that the economy can improve but we have a good strategy and a good track record thus far about expanding our market share independent of the economy.

Helen, is ‘08 going to be a year we could see iRobot significantly or meaningfully increase its penetration rate in the home vacuum cleaning market?

Well, I can tell you what’s modeled in our guidance. What we have built our home robot budget around is a very modest increase in units coupled with an increase in average selling price and a decrease in return and warranty experience with our robot leading to that more than 20% growth, so I think that we have a...

we’re focusing on making this a very achievable year and I don’t like to predict knees in the growth curve, unless, like on the government and industrial site, we really see material and extraordinary exciting news. So, if it happens, I’ll certainly tell you that it’s happening but our 2008 budget does not assume that it will happen.

Okay, thanks. And just on the average selling price, could you comment a little bit about what kind of increase you might be looking for?

Well, our Roomba 500 Series across the board carries a slightly higher ASP and our experience in 2007 is that we have seen very strong performance in our higher priced products. So that history is what we’re basing our predictions around the 2008 budget and we believe that there’s every reason to assume that that will continue.

Okay, thank you.

Great, thank you very much.

Well, I’d like to thank everyone for joining us and we look forward to speaking to you again next quarter.