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[Introductory Disclaimer]
Colin Angle: Hello and thank you for joining us. Last evening, we announced our fifteenth consecutive quarter of year-over-year revenue growth. We continue to see strong demand for our products in both divisions. Home robot revenue was up 55 percent with international home robot revenue up more than 5 times from Q1 a year ago. G&I revenue grew 35 percent in the first quarter from the first quarter last year.
That said, we faced some macroeconomic challenges during the quarter that impacted our bottom line. Due to the financial conditions of one of our key customers, Linens and Things, we did not recognize revenue of 1.8 million dollars of shipments made to them in Q1. Compared with the first quarter of 2007, this accounted for a 2.3 percentage point decline in gross margins and a 5 cent decrease in earnings per share. Over the past two months since we provided our 2008 financial guidance on February 20th, the overall retail environment has deteriorated. Two of our retail customers have experienced severe financial decline one to the point of declaring bankruptcy, customer confidence is at the lowest point since 2003 and there is unprecedented turmoil in the credit markets. We developed guidance built upon unit growth rates that we thought were reasonable in a recession and we have seen sell through performance that meets or exceeds that model. We did not anticipate that retailers with previously high credit would choose not to pay for the products they ordered from us. Additionaly, in the current U.S. economic climate, we anticipate that it will be difficult for our retail partners to buy as aggressively as they have in the past in order to fill shelfs with products. Based on the uncertainty in the consumer market place particularly with respect to the holidays in the back half of the year we are maintaining our first half guidance and modifying our guidance for the full year of 2008.
When we spoke to investors at the beginning of the year, we outlined a plan for topline growth and improved profitability for each of the divisions. We are continuing to execute against that plan and our revenue expectations for the year remain relatively unchanged. What we found is that it is easier to preserve revenue than to maximize bottom line earnings in this environment, so based on our current view on the economy and its impact on our customers, we now expect our full year 2008 revenue to be 295 to 305 million, our pre-tax net income of 5 to 7 million dollars.
There are several key points that I'd like to emphasize on this call. First, demand remains strong. Demand for the iRobot Roomba contributed significantly to the companies year over year growth. Sell-through continues to be robust and on plan. In our government and industrial business, we continue to see increasing demand for PackBots, both from the US government and foreign customers.
Second, our financial performance in the first quarter coupled with the propability of receiving several significant orders in our Government business gives us a high level of confidence in meeting our revised full year financial guidance. There is no doubt that we will be negatively affected by overall weakness in the economy. We thought that we had factored the impact of a weaker economy into our models, but depending on the length and severity of the recession, we may have underestimated it. Interestingly, several retailers reported that despite widespread consumer pessimism the Roomba continues to be one of their best-selling products. As I review the results of the quarter, I hope to provide you with sufficient detail to support my confidence in achieving our 2008 goals. The Roomba 500 series is selling well. A significant effort to reducing product cost while improving quality. Year over year quarterly revenue increase by 55 percent was driven by substantial growth in our home robot division which represented 53 percent of total revenue for the quarter. R&D revenue of 30 million dollars grew 55 percent from Q1 in 2007 primarily as a result of the retail demand for the Roomba 500, driven by retailers orders to replenish reduced store inventory levels and stock the shelfes for mother's day and father's day, we shipped 169,000 units during the quarter compared with 129,000 units a year ago. An increase of 31 percent. Sell-through for Roomba was strong, up 10 percent from last year and we expect unit shipments in the second quarter to be at a level consistent with the first quarter which again represents substantial growth over the second quarter of 2007. Average selling prices for the first quarter where also up 16 percent year over year consistent with our expectations. Direct sales continued to be strong, up 50 percent year over year and comprised 26 percent of HRD revenue in the first quarter. While the growth was very significant, direct sales comprised a lower percentage of total home robot revenue than we had originally modeled for the quarter. International revenue was 10.4 million dollars and comprised 35 percent of home robot sales compared with 9.5 percent of sales a year ago. The strong international market is clearly a bright spot in contrast to the weakening domestic market. We are making substantial progress against our international goals and Helen will comment further on our strategy and execution to date in a minute. Gross profit margins in our home robot business declined to 26.8 percent from 30.2 percent a year ago. The impact from Linens and Things accounted for the entire 3.4 percentage point decrease. To offset this negative impact on gross margins we are reducing operating expenses in order to deliver first half financial results in line with our February 20th guidance.
Turning now to our G&I business we delivered 156 robots to drive revenue up 35 percent year over year to 27 million dollars. 67 of the robots where Packbots with FastTac Kits under the first xBot deliver order for 101 systems. Since the end of the quarter, we have delivered an additional 31 systems and expect to deliver the balance of this order this week. We received a second delivery order for 26 systems and will deliver those in May. We've gotten positive feedback from the field, the training on the systems is very quick and the robots are easy to use. The robots have been well received in theater and we expect to receive additional orders for FastTacs in the near term which will fuel our 2nd half G&I growth.
We have reasonable revenue visibility into the remainder of the year and have already captured 40 percent of the Governement and Industrial division annual revenue as contemplated in our full year guidance. This captured revenue is in the form of shipped products, services rendered, executed contracts to be performed, and products backlog expected to ship this year. This visibility figure is expected to increase substantially within the next several weeks as we are expecting significant orders shortly. Product backlog was 13 million dollars at the end of Q1, this level decreased from the level from the end of Q4 as we anticipated and discussed on our last call. Last week, we announced an increase in our Future Combat Systems contract. Over the past five years, this contract has grown from 23 million dollars in 2003 to approximately 63 million dollars. The most recent 6 million dollar increase supports the program accelleration we announced in January of this year. There has ben much discussion in the news about restructuring the FCS program. Robots being developed under this program are critical for the army's modernization and as such has seen both funding increases and development acceleration. The contracted task order for the SUGV accelereation calls for the delivery of 25 units. Three where deliverd in January to support the new equipment for training of soldiers at Fort Bliss, which the company accomplished in January and February. The balance of the 22 SUGVs with design improvements and updated sensors began delivery this week and we will complete delivery in May. Following testing this summer, we expect a production decision to be made by the Government in September. A positive decision would not significantly impact our 2008 results but would set the stage for meaningful growth in 2009. In anticipation of a positive production decision we selected Benchmark Electronics to produce the SUGV robots in their Hudson, New Hampshire facility following an extensive evaluation of potential manufacturers. Having a second manufacturing option in G&I will allow us to mitigate risks of production interruption and enable us to maintain a competitive cost structure.
As we look at the rest of 2008, I am confident in our ability to deliver first half results consistent with the guidance we provided on February 20th and full year financial results in line with our revised guidance. As we said on last quarter's conference call, we expect our second quarter to be the weakest of the year. In the second quarter, we expect revenues of 51 to 53 million dollars, and a pretax loss of 10 to 12 million. HRD revenues will be flat in Q2 while gross margins will improve substantially quarter to quarter because Q1 was so negatively impacted by Linens and Things. G&I revenue and gross margins will be down quarter to quarter as anticipated.
Looking at the second half, I want to discuss the formulas and assumptions that underly our financial projections. We expect home robot revenue to grow 25 to 30 percent over 2007. To do this, we have modeled a modest 10 percent increase in units sold, a higher ASP, and lower return rates. All driven primarily by further market penetration of our Roomba 500 series robots. In Q1 our unit sales where 31 percent higher, ASPs increased 16 percent and early indicators reflect a lower return rate on the Roomba 500 as compared with the Roomba 400. Our current expectation is that pretax net income in home robots will fall below expectations we set in February for several reasons. First, the revenue mix, based on detoriation in the retail sector, we had to revise our models to reflect less higher margin domestic sales, less higher margin direct sales and more lower margin international sales.
The other two factors which will impact home robot results this year are the sale of discontinued products in the Roomba line and the full year impact of Linens and Things. We continue to make great progress on the Cost Out Program on the Roomba 500 - initiatives to reduce product costs through engineering and use of alternate materials. The Cost Out Actions will positively impact margins in the second half, however the savings will be not significant enough in 2008 to compensate for the other factors I just discussed. Looking at G&I, our lower backlog going into the second quarter was expected and we are projecting a 20-25 percent growth rate over the first half of 2007.
In that division, we expect a significant increase in units shipped, lower ASPs due to higher volume orders and a larger installed base into which we will sell more spare parts, support, training and service or product life cycle revenue. In Q1, we shipped 156 units compared with 97 last year and ASPs decreased 8 percent as expected. PLR was up seven percent over the first quarter of 2007. As I said earlier, we're anticipating several large orders for FastTac, which will initially drive an increase in backlog and then generate revenue in the second half of the year as we deliver against these orders. We expect at least one of the FastTac orders will be received in the near tearm for fullfillment starting in Q2. While we continue to expect significant order volume, product mix will impact gross margins in the second quarter and throughout the rest of the year. Based on the military's current need, we expect them to order a larger percentage of lower margin FastTacs than higher margin robots under the MTRS program as we originally modeled. This will impact our G&I margins despite the leverage on the back half of the year on the investments we made in 2006 and 2007.
In summary, we executed well against our plan, but our results suffered in a challenging economic environment. We reported revenue growth of 45 percent year over year. There continues to be strong demand for consumer and G&I robots in the U.S. and abroad and we are confident that we will deliver financial results in accordance with our revised guidance.
Before turning the call over to Helen, I'd like to comment on the other announcement we made last evening. On June 9th, John Leahy will be joining iRobot as EVP and Chief Financial Officer. Geoffrey Clear joined us six years ago as CFO when we where a 100 person company generating less then 20 million dollars in revenue. He lead us through our IPO and into our new headquarters building just this week. He will remain with the company as senior finance advisor to the CEO for as long as needed to ensure a smooth transition. With more than 25 years as a financial executive, John brings iRobot extensive experience from multinational companies in both technology and consumer industries. Prior to joining iRobot, he served for eight years as executive vice president and Chief Financial Officer at Kean incorporated, a 950 million dollar IT business, consulting and outsourcing services company which did significant business with the U.S. government. Prior to Kean, John spent sixteen years at PepsiCo Inc., both domestically and internationally. His impressive track record of leadership and accomplishment will help strenghten iRobot and he will be a significant contributor to the future success of the iRobot team as we continue to grow our global presence. We thank Geoff for his dedication and many contributions over the past six years and wish him all the best in his [inaudible] to assist other emerging companies. Now I will turn the call over to Helen.
Helen Greiner: Thank you. An essential element of our growth strategy is expansion in international markets and we see tremendous opportunities given strong international currencies. I wanted to update you on what we have done in both of our divisions to execute on this strategy and our expectations for 2008.
In home robots, international has been a growing part of the business. Last year international revenues comprised 15 percent of our home robot sales. In Q1 of this year, the business grew to 35 percent of the division's total revenue and we expect it to be approximately 20 percent for the full year.
One of the reasons that we are exited about the international opportunities is that now we have a product, the Roomba 500 series, which is better suited for international markets. In January, I traveled to visit home robot distributors and customers in Japan. Sales to Japan have now exceeded those to Korea and Japan now represents our largest market outside North America. Historically, individual markets, like Japan and Korea were our largest. The people in these countries are typically enthusiastic adopters of technology and labour saving devices. iRobot has invested in sales and marketing resources in Hong Kong to support these regions growth. We expect to see this business continuing to grow as the results of the investments in people and the acceptance of our Roomba 500 products.
We are also seeing strong growth in European markets. In 2007, iRobot made some key strategic changes which included the decision to change our Pan-European distributor and replace it with iRobot ressource sales and marketing staff to work directly with our partners. Our one pan-European partner in 2006 has now been replaced with focused iRobot support in 17 different markets. This change has resulted in better pricing for the customer (for the consumer), enabled our staff to know our distributors better and allowed us to get closer to the end users. This has set the stage for continued European growth as the potential of these markets continues to be significant. During the second quarter, we expect to launch our direct business in Europe, allowing consumers in the UK and Germany to purchase our robots from our website. GSI commerce, the company we are using for our domestic web business, will provide a web technology platform solution to service the international ecommerce opportunities for us.
In the Government and Industrial division, we continue to pursue an evergrowing range of international opportunities. This year, we've seen strong sales in Australia and Scandinavia where we recently won a major new contract and have launched marketing initiatives in several new regions including India, the Middle East, and Latin America.
Europe and East Asia continue to be our core international markets. The majority of our sales is direct to international customers, however, we are currently nearing completion of our first major sale through the U.S. government foreign military sales program which we see as a future growth area. Our direct sales are managed by three international sales managers and a network of more than ten international distributors. Our international customers have been quick to adopt the new, upgraded PackBot 510.
To date the majority of our PackBot 510 sales have been to international customers with sales in Australia, Scandinavia and Singapore. International market interest has also remained strong for the reconnesaince versions of PackBot, Scout and Explorer which accounted for a significant share of 2007 international sales and are expected to be a major contributor in 2008 as well.
We've also begun to market the larger Warrior robot and the smaller Small Unmanned Ground Vehicle (SUGV) internationally. We have made the first major demonstrations of these vehicles this year. The SUGV is marketed jointly with the Boeing company and Boeing Australia Ltd. will be our distributor in Australia. In June, we will be demonstrating a wide range of our robots at the EUROSATORY conference in Paris, that is attended by most of the defense agencies from around the world. The larger opportunity for us today is meeting the needs of the U.S. military, but the breath of our product offerings and our extensive marketing efforts positions us well for future international growth.
In conclusion, we see tremendous market opportunities for both of our divisions and the further penetration of those markets will continue to be an important part of our ongoing growth strategy. I will now turn over the call to Geoff, to review our financial results.
Geoffrey Clear: Thanks Helen. And good morning everyone. Revenue for the first quarter was 57.3 million dollars compared with 39.5 million dollars last year. The pretax loss in the first quarter was 6.4 million dollars compared with 5.5 million in Q1 a year ago. And net loss per share was 16 cents, compared with 23 cents last year.
In the Q1 press release we issued last evening we provided extensive supplemental detail for your review and analysis. Rather than to repeat all of these metrics, I'm going to address the financial highlights, the issues we faced during the quarter, an explanation of their accounting treatments, and our expectations going forward. I begin by discussing the issues which negatively impacted the first quarter. At the end of the first quarter we had cash and investments totalling 38 million dollars compared with 43 million at year end 2007. Included in the 38 million at the end of march was 15.4 million dollars of auction rate securities, or ARSes. We reclassified our ARSes to long term investments during the first quarter due to the uncertain timing of our ability to liquidate these securities in today's volatile credit markets. I'd like to provide some background on our position in these securities as well as an understanding of our investment objectives and policy. Within our investment policy we have three principle portfolio management objectives. First, to maintain readily available cash to fund our daily operating requirements. Second, to invest in only the most highly rated triple A securities. And third, to generate a reasonable investment return while keeping objective one and two in mind.
We manage our investments through several banks who recommended that we invest in ARSes because their characteristics best matched our investment objectives. With the relatively short duration of these securities, 7 to 44 days, ARSes offered us maximum flexibility for funding our operating cash requirements. In selecting the highest quality investments with reasonable yields, we chose ARSes that were all backed by student loans and were fully secured by the U.S. Government.
We currently have eight ARS investments and each has failed at auction at least once in the past few weeks. We are still receiving interest payments and in fact, we are receiving payments at the default rate of interest, which is frequently higher than the security rate. During the quarter, we engaged a third party valuation expert to provide us with data on the market and give us valuation assistance. We believe the value of this portfolio is not impared on a long term basis. But there has been a tempory decline in its fair value. As a result, during the first quarter, we made a balance sheet adjustment to recognize and unrealized loss of 2.1 million dollars on these investments.
Each quarter, we will do a market valuation of the securies and report any adjustments to our financial status. I want to emphasize that the company does not have a liquidity issue nor do I anticipate that the potential lack of liquidity on these investments in the near term will affect our ability to execute our current business plan. Based upon our projected operative cash flow and other sources of cash including our 50 million dollar unused line of credit with the Bank of America.
I'd like to take a minute now to discuss our position regarding Linens and Things, one of our top 10 retail partners. Our retail partners are very important to us and we carefully consider all of the elements relative to a customer's business before making a decision to deviate from agreed upon shipping times. During the first quarter, we shipped Linens and Things approximately 1.9 million dollars worth of product in the ordinary course of business. All of our receivables from Linens and Things were current going into the quarter and continued to be current through the middle of March. Throughout the first quarter, we had extensive conversations with the company's executives to access the collectability of our outstanding receivables in light of the market intelligence we were getting about their deteriorating financial situation.
At the beginning of April, the Wall Street Journal reported that Linens and Things might declare bankruptcy. Linens and Things subsequently announced that they had reached a 30 day standstill agreement with its noteholders to give the management team time to negotiate a debth restructuring. Since then we have been selected as a key vendor by Linens and Things. We are working with them to ship products on a cash in advance basis as they manage through this challenging period. At this point, we don't know the ultimate outcome for Linens and Things. But given the uncertainty, we were unable to recognize revenue on a majority of our first quarter shipments, a total of 1.8 million dollars. Had we recognized that revenue, our gross profit would have been 29.1 percent for the quarter compared with the 26.8 percent we actually reported. While we continue to make significant progress in reducing the effective costs of our products, our gross margin for 2008 should be approximately 35 percent, a decrease from the 36 to 37 percent estimate we provided on February 20th, in part because of this first quarter Linens and Things charge.
We are monitoring the financial condition of our other retail customers and while we don't feel that any additional reserves are warranted, we will take appropriate steps should we see any detoriation in any other customer channels. This is certainly a challenging time for consumers and the retail sector in the United States and we will continue to closely monitor the economic indicators and assess their potential impact on our business.
Operating expenses for the first quarter of 2008 were 22.2 million dollars or 38.8 percent of revenue compared with 17.5 million dollars or 44.4 percent of revenue a year ago. The 5.6 percentage point decrease reflects our increasing scalability and our focus on expense management as we continue to seek improvements to the profitability levels in our business models. In summary, for the first quarter, Linens and Things financial condition accounted for a 2.3 percentage point decrease in gross margin and a 5 Cent decrease in earnings per share.
We have revised guidance that reflects our estimation of the impact of a challenging domestic retail environment on our customers and we are pleased with continuing revenue growth and we remain focused on programs to improve profitability.
Before taking your questions, I'd like to speak briefly about my long-planned change in role at iRobot. As Colin mentioned, John Leahy will become the company's new CFO as of mid June. I will stay with the company until that time and as long after that date as needed to ensure a smooth transition. My interest and expertise lies in working with companies that are between 50 and 300 million dollars in revenue. Over the past six years I have helped iRobot grow to become the successful company it is today and I am now looking to move on to do the same thing with similar sized emerging companies. I've enjoyed working with the founders, taking the company from startup to IPO, and I wish everyone at the company success with their continued growth plans. With that, we will open the call to the audiences questions.
Question from Paul Coster, JP Morgan: Good morning, Colin, I think last conference call you talked about this year being the inflection year. Is it? And if not, then what's happening?
Colin Angle: Well certainly right now we are seeing some uncertainty in the consumer marketplace and it is our policy to try to get all the information out as clearly and early as we can and that was the main reason why we adjusted our guidance today. We anticipate that there is going to be some consumer weakness in the back half of the year and we've tried to build that in our model. That said, we are seeing strong sales of our consumer products according to our plan. So there is some challenge with predicting exactly how the back half is going to run.
On the military side, we are strategically positioned exactly were we hoped to be. This year, as hoped, we are going to se a a lot of activity under the xBot contract and that will be driving our revenue this year as well as the production decision in September on the SUGV program, which, combined with the xBot contract gives us that real beginning to ship volumes into the infantry. So it is an inflection year, this adjustment in guidance is something that is primarily trying to factor in the uncertainty on the consumer basis and we like were we are!
Question from Paul Coster, JP Morgan: The guidance you previously issued for the military business sounded like it was loaded with upside insofar as any additional SUGV or xBot orders would bring revenues beyond the expectations. Now that doesn't seem to be the case, yet you are seeing those orders coming through, so am I correct in thinking here that this is kind of a cannibalization of the PackBot ASP by the xBot lower ASP that's causing that kind of not work out for us?
Helen Greiner: I wouldn't say that. The back half of the year will be driven by the xBot, which is built on a PackBot platform. We call it the iRobot PackBot with the FastTac kit. The contract that it's ordered under is called xBot. The SUGV is a production decision in September so orders will drive revenue growth in 2009 so that would be sort of the inflection point at the back half of this year and into 2009.
Paul Coster: 18 months ago you accelerated your R&D in order to try and get the Warrior to market. What's happened though with Warrior, it doesnt't seem like it got any traction so far.
Helen Greiner: The Warrior is gaining a lot of traction in the military market. As we said, it will be a product in the back half of the year. We have already sold one to a GOE facility who is working on mine clearance for the military and in additon, there is a $3+ million congressional appropriation to support additional Warrior development. Our strategy is to get the Warrior into the hands of the military labs and then refine it based on their needs. For many particular missions we consider the Warrior a multi-mission platform that can attack the EOD, engineering, mine clearance and other military markets.
Paul Coster: It has a much lower price point than any other mine clearing robot out there, is that sort of a value proposition?
Colin Angle: I think that the Warrior is a multi purpose platform and using the experience that we have making cost-effective practical robots I think you should anticipate the robot to be a platform which offers substantial advantage both in performance and price over older technologies. We are changing and helping the military bring practical robots into the field. Going back to my earlier comment: with the Warrior, with SUGV, and with the PackBot with the FastTac Kit we are strategically doing everything that we had hoped to accomplish and now we are letting this large, slow moving government contracting process to play out. So I don't see any change, there is no change in our strategy, there is no change in our optimism and our excitement about were we are on the Government Side. We are not on the phone talking about a deviation from our plan nor trying to change any expectations about how this is going to work.
Paul Coster: Ok, I get it. Last point is on the expense on the cost of goods sold side.
Can you give us your latest thinking on how you are locking in your margins and/or are able to sort of explore new cost cuts down that might yield perhaps better margins in the future? I mean the nickel issue was obviously the most recent manifestation of your sort of challenges in that regard?
Geoffrey Clear: Sure Paul, I'm happy to. As you recalled from previous conversations we have locked in our battery cost for this full year and not only by the way with regard to the nickel but also with regard to any potential exposure from the Chinese Yuan. So that piece is in place.
We've also had extensive conversations and have fixed commitments from our outsource partners in China both of them and then we have many programs ongoing to take costs out of our products in general and in particular take costs out of the Roomba 500 platform. Those programs where started in late 2007, most of them have now been completed and are actually being incorporated into the products that we will be manufacturing later this quarter and in the third quarter as we start to ramp up for the holiday season. So, those should improve our margins, particularly for the HRD business in the back half of this year.
Paul Coster: Ok, thanks very much.
Geoff Clear: You bet.
James Ricchiuti, Needham & Company: Hi, good morning. The question, just with respect to the G&I business in the second half of the year, did you say that you are assuming 20 to 25 percent growth in the second half?
Geoff Clear: That is correct.
James Ricchiuti: Needham & Company: Ok. And just...
Geoff Clear: For the full year we are expecting 20 to 25 percent growth.
James Ricchiuti: Ok. And maybe just for clarification: Has that changed from your prior expectations?
Geoff Clear: No, it hasn't.
James Ricchiuti: Ok. Thank you. And just as we think about some of the opportunities that you might have for expense containment as the environment has changed, Geoff, are there any areas of OpEx that in particular we would see you guys making from some savings initiatives?
Geoff Clear: Well, Jim, if you look at the numbers for the first quarter you will see that we got some operating expense leverage, about six percentage points worth. That came in two categories. The most traditional one of course is in our G&I area where we dropped as a percent of sales by a couple of percent as we start to grow we will probably see more leverage there. We also kept our R&D costs essentially flat, so obviously with the increase in revenue that means some leverage there. The one area that was essentially the same as a percentage of sales was the sales and marketing area and we continue to do the programs that are necessary to support our products particularly in this challenging economic environment.
James Ricchiuti: And Geoff, as we think about R&D going forward, can you give us any sense in how you see that trending?
Geoffrey Clear: We modeled in our long term financial model R&D at 6 to 8 percent and we see no reason why that has to change in order to achieve our long term model.
Helen Greiner: We also continue to win government supported programs to do research and development and our research division is going extremely strong and, you know, we have recently been awarded some new DARPA initiatives for the next generation of robot technologies.
James Ricchiuti: Just a followup question on this. The G&I business - it sounds that you are very confident that you will see an order soon, you alluded to I think 'a second order', is there a timeline around that second order?
Colin Angle: There is absolutely a timeline associated with how we model the back half of the year and what we see coming down the pipe but there is some uncertainty so we tend to be quite conservative in trying to predict when anything exactly is going to happen. So we do expect some orders to come down the road and I will be very very clear about all of them as soon as we have them in hand.
James Ricchiuti: Colin, last question: with respect to the September production decision (Go or No Go), can that slip or do you see the military make that decision in that September timeframe?
Helen Greiner: Any government decision can slip but I can tell you that right now we are going through the testing and checking all the boxes and it is going extremely well and on schedule.
James Ricchiuti: Ok, thanks very much.
Alex Hamilton, Jesup & Lamont: Hi, good morning. First, let me state, Geoff, it has been a pleasure knowing you, I hope to bump into you some time in the future and I definetely look forward to meeting Mr. Leahy. Let me ask this question: your cash balance obviously had to reclassify some of these auction rate securities. If I'm looking at the cash balance properly you have not as much cash on hand as you burned through last year. Has that become a concern or are there any contingency plans for that?
Geoffrey Clear: As I indicated in my text, Alex, we do not have a short term liquidity problem. It is something obviously we look at regularly. We did consume a fair amount of cash in the back half of last year as you know but keep in mind that was at least partly if not mostly as a result of the fact that we had to essentially rebuild our inventory position as we transitioned from Roomba 400 to Roomba 500. That will not be the case this year, we have sufficient inventory already at this particularly point of time, we have about 40 million dollars of home robot inventory. That doesn't mean that there won't be some cash requirements in the back half of the year, there undoubtely will but we do have a 50 million dollar working capital line of credit with Bank of America and if we have to draw upon that we certainly won't hesitate to do that.
Alex Hamilton: Alright, thank you. And then, just lastly, obviously the consumer market is a little jittery and I might have missed this, I apologize for having you rehash it, but you are talking about a detoriation in the retail business and the fact that there could still be some chargeoffs although you consider them not likely but they are possible, obviously, yet you are talking about higher ASPs, can you get me comfortable with the kind of conflict there?
Colin Angle: Sure, the higher ASPs are based on the increased price and value associated with the 500 series Roomba. So the 400 series carried slightly lower on average prices as the 500 series because of a more sophisticated, higher functioning robot can command slightly higher prices in the marketplace. That's the primary driver and we have seen, as we said, improvements in our sell-through as a result.
Alex Hamilton: Thank you.
Enclosing remarks by Colin Angle: Well, thank you all for joining us and we look forward to further communication through the quarter and our next call. Again, thank you and good night. Err, good morning.