Omnicell, Inc.
OMNICELL INC /CA/ (Form: 8-K, Received: 04/25/2006 16:33:21)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): April 20, 2006

 

OMNICELL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

000-33043

94-3166458

(State or other jurisdiction of
incorporation or organization)

(Commission File
Number)

(IRS Employer
Identification Number)

 

1201 Charleston Road

Mountain View, CA  94043

(Address of principal executive offices, including zip code)

 

(650) 251-6100

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 



 

Item 2.02.  Results of Operations and Financial Condition.

 

On April 20, 2006, Omnicell, Inc. issued a press release announcing its financial results for the first quarter ended March 31, 2006. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information in this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

The Company hosted an earnings conference call at 1:30 p.m. PST on April 20, 2006 to discuss its consolidated earnings for the quarter ended March 31, 2006. The transcript of the earnings conference call is attached hereto as Exhibit 99.2 and incorporated herein by reference.

 

Statement of Utility

 

Omnicell provides all information required in accordance with GAAP, but it believes that evaluating its ongoing operating results may be difficult if an investor is limited to reviewing only GAAP financial measures. Accordingly, Omnicell uses non-GAAP financial measures of its performance internally to evaluate its ongoing operations and to allocate resources within the organization.  The attached press release includes non-GAAP net income non-GAAP gross margin, non-GAAP operating expenses and non-GAAP earnings per share data.  These measures are not in accordance with, or an alternative for, generally accepted accounting principles.

 

Omnicell’s management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The non-GAAP financial measures used by Omnicell may not be consistent with the presentation of similar companies in Omnicell’s industry. However, Omnicell presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate its operating results in a manner that focuses on what it believes to be its ongoing business operations.

 

Omnicell’s management believes it is useful for itself and investors to review both GAAP information and the non-GAAP measures earnings per share to have a better understanding of the overall performance of its business and its ability to perform in subsequent periods.

 

Omnicell has computed the non-GAAP net income, non-GAAP gross margin, non-GAAP operating expenses and non-GAAP earnings per share impact for the first quarter of 2006 reflecting the accounting impact of non-cash compensation expense related to the impact Omnicell’s of adoption of SFAS No. 123(R).  Omnicell has computed the non-GAAP net income non-GAAP gross margin, non-GAAP operating expenses and non-GAAP earnings per share impact for the first quarter of 2005 of severance costs related to a reduction in force, charges related to the end-of-life of certain older products and the costs related to two suspended acquisitions, all occurring in the first quarter of 2005. Management believes that the inclusion of these non-GAAP financial measures provides consistency and comparability with past reports of financial results and better enables investors to evaluate the ongoing operations and prospects of Omnicell by providing a better comparison to prior periods. Omnicell has provided a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

 

Item 9.01.  Financial Statements and Exhibits.

 

(d)   Exhibits.

 

 

Exhibit

 

 

Number

 

Description

99.1

 

Press Release dated April 20, 2006, announcing Omnicell, Inc., financial results for the first quarter of 2006.

99.2

 

Transcript of Earnings Conference Call.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

OMNICELL,   INC.

 

 

 

Dated: April 25, 2006

By:

/s/ Robin G. Seim

 

 

Robin G. Seim

 

 

Vice President of Finance and

 

 

Chief Financial Officer

 

 

3



 

INDEX TO EXHIBITS

Exhibit

 

 

Number

 

Description

99.1

 

Press Release dated April 20, 2006, announcing Omnicell, Inc., financial results for the first quarter of 2006.

99.2

 

Transcript of Earnings Conference Call.

 

4


Exhibit 99.1

Contact:

 

Rob Seim

Omnicell, Inc.

Vice President of

1201 Charleston Road

Finance and CFO

Mountain View, CA 94043

800-850-6664, ext. 6478

 

robs@omnicell.com

 

 

For Immediate Release

Omnicell Announces First Quarter 2006 Financial Results

 

MOUNTAIN VIEW, Calif. — April 20, 2006 — Omnicell, Inc. (NASDAQ: OMCL), a leading provider of patient safety solutions preferred by nurses, today announced first quarter 2006 results.

For the first quarter of 2006, net income was $1.1 million or $0.04 per diluted share compared to $2.2 million or $.08 per diluted share in Q4 2005 and increased from a loss of $5.8 million or ($0.23) per share in the year-ago quarter. Excluding t he impact on our results of recording $1.7 million in share-based compensation expenses related to adoption of SFAS No. 123(R), non-GAAP net income was $2.9 million for the three months ending March 31, 2006 or $0.10 per diluted share. In comparison, for the three months ending March 31, 2005, and excluding of the impact of $1.1 million write-off of inventory obsolescence charges, $0.6 million charge for suspended acquisitions, and $1.5 million in restructuring expenses, non-GAAP net loss was $2.6 million or $0.10 loss per share.

 

Revenue for the first quarter of 2006 totaled $33.9 million, up $0.4 million or 1% from Q4 2005 revenue of $33.5 million, and up $5.2 million or 18% from the first quarter of 2005.

 

Product backlog grew to $77.2 million, up $7.6 million or 11% from the end of Q4 2005.

 

Omnicell Chairman, President and CEO Randall A. Lipps commented, “I’m very pleased with our results this quarter. Growing backlog once again, in our seasonally weakest quarter, shows the strength of our product offerings. We continue to demonstrate that our business can be predictable, and our strong growth in new customers shows that high-quality products and superior installation and support services prevail in the marketplace.”

 
Financial Results Conference Call Details
Management will discuss financial results for the first quarter of 2006 on Thursday, April 20, 2006 at 1:30 p.m. PT via conference call. Investors and analysts may listen to this conference call by logging on to www.omnicell.com or by dialing 800-240-7305 (domestic) or 303-262-2137 (international) approximately 10 minutes prior to the scheduled start. A replay of the call will be available from 3:30 p.m. PT on April 20, 2006 through 11:59 p.m. PT on April 27, 2006. Dialing 800-405-2236 (domestic) or 303-590-3000 (international) and entering the passcode 11057927# for both numbers will access the call replay. On the conference call, management will be discussing certain additional financial and statistical information. That information can be located on the “Investor Relations” page of Omnicell’s Web site at www.omnicell.com.

About Omnicell
Omnicell, Inc. (NASDAQ: OMCL) is a leading provider of systems and software solutions targeting patient safety and operational efficiency in healthcare facilities. Since 1992 , Omnicell has worked with

 



 

more than 1,600 healthcare facilities to enhance patient safety and allow clinicians to spend more time with their patients.

 

Omnicell’s medication-use product line includes solutions for the central pharmacy, nursing unit, operating room, and patient bedside. Solutions range from large central pharmacy “smart inventory” carousels to small handheld devices. From the point at which a medication arrives at the receiving dock to the time it is administered, Omnicell systems store it, package it, bar code it, order it, issue it, and provide information and controls on its use and reorder.

 

Our supply product lines provide a healthcare institution with fast, effective control of costs, capture of charges for payor reimbursement, and timely reorder of supplies. Products range from high-security closed-cabinet systems and software to open-shelf and combination solutions in the nursing unit, cath lab and operating room.

 

Omnicell’s mission is to provide the best customer experience in healthcare, helping hospitals reduce medication errors, operate more efficiently, and decrease costs. For more information, visit www.omnicell.com.

 

Forward-Looking Statements
To the extent any statements contained in this release deal with information that is not historical, these statements are necessarily forward-looking. As such, they are subject to the occurrence of many events outside Omnicell’s control and are subject to various risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statement. The risk factors are described in the Company’s Securities and Exchange Commission filings and include, without limitation, the continued growth and acceptance of our products and services and the continued growth of the clinical automation and workflow automation market generally, the potential of increasing competition, the ability of the company to achieve profitability in the next few quarters, grow product backlog, retain key personnel, cut expenses, develop new products and integrate acquired products or intellectual property in a timely and cost-effective manner, and improve sales productivity. Prospective investors are cautioned not to place undue reliance on forward-looking statements.

 

2



 

 

Omnicell, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

March 31,

 

 

 

March 31,

 

 

 

2006

 

December 31,

 

2005

 

 

 

(unaudited)

 

2005 (1)

 

(unaudited)

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,853

 

$

29,536

 

$

15,251

 

Short-term investments

 

 

 

11,047

 

Accounts receivable, net

 

28,980

 

29,456

 

22,591

 

Inventories

 

12,165

 

13,763

 

15,291

 

Receivables subject to a sales agreement

 

2,175

 

2,551

 

2,987

 

Prepaid expenses and other current assets

 

10,634

 

10,286

 

7,083

 

Total current assets

 

87,807

 

85,592

 

74,250

 

Property and equipment, net

 

4,505

 

4,727

 

5,422

 

Long-term receivables subject to a sales agreement

 

1,507

 

1,292

 

2,852

 

Other assets

 

12,981

 

8,817

 

12,264

 

Total Assets

 

$

106,800

 

$

100,428

 

$

94,788

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,674

 

$

4,059

 

$

5,137

 

Accrued liabilities

 

11,400

 

12,664

 

11,745

 

Deferred service revenue

 

6,951

 

6,526

 

6,045

 

Deferred gross profit

 

10,764

 

7,981

 

7,653

 

Obligation resulting from sale of receivables

 

2,175

 

2,551

 

2,987

 

Total current liabilities

 

34,964

 

33,781

 

33,567

 

Long-term obligation resulting from sale of receivables

 

1,507

 

1,292

 

2,852

 

Long-term deferred service revenue

 

9,797

 

9,867

 

9,128

 

Other long-term liabilities

 

125

 

250

 

250

 

Total Liabilities

 

46,393

 

45,190

 

45,797

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

60,407

 

55,238

 

48,991

 

Total Liabilities and Stockholders’ Equity

 

$

106,800

 

$

100,428

 

$

94,788

 

 

(1) Information derived from the audited Consolidated Financial Statements.

 

3



 

Omnicell, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except for per share data, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2006

 

2005

 

2005

 

Revenues:

 

 

 

 

 

 

 

Product

 

$

26,248

 

$

26,604

 

$

22,742

 

Service and other

 

7,665

 

6,877

 

6,009

 

Total revenue

 

33,913

 

33,481

 

28,751

 

Cost of revenues:

 

 

 

 

 

 

 

Cost of product revenues

 

12,166

 

12,557

 

11,533

 

Cost of service and other revenues

 

3,283

 

2,445

 

2,837

 

Total cost of revenues

 

15,449

 

15,002

 

14,370

 

Gross profits

 

18,464

 

18,479

 

14,381

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

2,568

 

2,027

 

2,709

 

Selling, general, and administrative

 

15,066

 

14,547

 

17,142

 

Restructuring, facility and severance charges

 

0

 

0

 

406

 

Total operating expenses

 

17,634

 

16,574

 

20,257

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

830

 

1,905

 

(5,876

)

 

 

 

 

 

 

 

 

Interest and other income

 

350

 

303

 

125

 

Interest expense

 

(7

)

(21

)

(24

)

Total other income

 

343

 

282

 

101

 

 

 

 

 

 

 

 

 

Income (loss) before provision (benefit) for income taxes

 

1,173

 

2,187

 

(5,775

)

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

60

 

(50

)

17

 

Net income (loss)

 

$

1,113

 

$

2,237

 

($5,792

)

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.09

 

($0.23

)

Diluted

 

$

0.04

 

$

0.08

 

($0.23

)

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

26,442

 

26,249

 

25,490

 

Diluted

 

28,105

 

27,582

 

25,490

 

 

4



 

Omnicell, Inc.

Reconcilation of GAAP to Non-GAAP (Pro Forma)

(in thousands, except for per share data, unaudited)

 

 

 

Three months ended
March 31, 2006

 

Three months ended
March 31, 2005

 

Three months ended
December 31, 2005

 

 

 

Revenue

 

Net
Income

 

Earnings
per
share
diluted

 

Revenue

 

Net Loss

 

Earnings
(loss) per
share-
basic

 

Revenue

 

Net
Income

 

Earnings
per
share-
diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

$

33,913

 

$

1,113

 

$

0.04

 

$

28,751

 

($5,792

)

($0.23

)

$

33,481

 

$

2,187

 

$

0.08

 

Non-GAAP Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SFAS No. 123(R) adjustment (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

 

 

269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

1,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory obsolecence due to product discontinuation (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

 

 

 

 

 

 

 

 

1,100

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring expenses (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write off for suspended acquisitions (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write off for suspended acquisitions (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,741

 

$

0.06

 

 

3,200

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

$

33,913

 

$

2,854

 

$

0.10

 

$

28,751

 

($2,592

)

($0.10

)

$

33,481

 

$

2,187

 

$

0.08

 

 


These Non-GAAP adjustments reconcile the Company’s GAAP results of operations to its non-GAAP results of operations.  The Company believes that presentation of results excluding such items as non-cash share based compensation, restructuring costs, inventory obsolescence, and write off of costs for suspended acquisitions provides meaningful supplemental information to both management and investors that is representative of the Company’s core operating results and allows comparison of operating results.  The Company uses these non-GAAP measures when evaluating its financial performance. These non-GAAP results of operations should not be viewed as a substitute for the Company’s GAAP results.

 

(a)   This adjustment reflects the accounting impact of non-cash compensation expense related to the impact of adoption of SFAS No. 123-R for the three months ending March 31, 2006.

 

(b)   This adjustment reflects a write off of $1.1 million in inventory obsolescence due to discontinutation of a product

 

(c)   This adjustment reflects a write off of $1.5 million associated with a reduction in force costs

 

(d)   This adjustment reflects a write off of $0.6 million write of costs associated with suspended acquisitions

 

5


Exhibit 99.2

 

OMNICELL, INC., #11057927

Omnicell 1 st Quarter 2006 Financial Results

April 20, 2006, 4:30 p.m. ET

Chairperson:  Robert Seim

 

Operator:

 

Thank you for standing by ladies and gentlemen. Good afternoon and welcome to Omnicell’s 1 st Quarter 2006 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, you may press the * followed by the 0 on your pushbutton phone. As a reminder, this conference is being recorded today, Thursday, the 20 th of April, 2006. I would now like to turn the conference over to Rob Seim. Please go ahead sir.

 

 

 

Robert Seim:

 

Thank you. Good afternoon. This is Rob Seim, Chief Financial Officer of Omnicell. With me today is Randall Lipps, Omnicell’s President and CEO.

 

 

 

 

 

Thank you for joining us today for Omnicell’s 1 st Quarter 2006 Financial Results Conference Call. You can find Omnicell’s 1 st Quarter Results Press Release in our ‘Investor Relations’ section of our website at www.omnicell.com.

 

 

 

 

 

This conference call is the property of Omnicell, Inc., and any taping, other duplication, or rebroadcast without the express written consent of Omnicell is prohibited. This call will include forward-looking statements subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied. For a more detailed description of the risks that impact these forward-looking statements, please refer to the information under the heading ‘Management’s Discussion and Analysis of Financial Conditions and Results of Operations’ and under the heading ‘Risk Factors’ in Omnicell’s Annual Report on Form 10k filed with the SEC on March 16, 2006 as well as other filings with the SEC. Please be aware that you should not place undue reliance on any forward-looking statements made today.

 

 

 

 

 

The date of this conference call is April 20, 2006, and all forward-looking statements made on this call are made based on Omnicell’s beliefs as of this date only. Future events or simply the passage of time may cause these beliefs to change.

 

 

 

 

 

For the call today, I will start with an overview of the financial results for the quarter followed by Randy, who will talk about some of the quarter’s business highlights. I will then provide some updated guidance for 2006, and after that, we will open the call for your questions. So, now for the Q1 results.

 

1



 

 

 

Q1 was a very solid quarter for Omnicell. The quarter was the fourth quarter in a row that we’ve experienced a positive book-to-bill ratio driving an increase in our backlog.

 

 

 

 

 

During the first quarter, the company added another 7 million to our product backlog. Our ending backlog now totals 77 million. We are very happy with the order rate given the usual seasonal weakness of Q1.

 

 

 

 

 

We continue to enjoy some large orders associated with our IDN wins announced in previous quarters, and we also experienced a strong order rate across the rest of our customer base. In addition, we continue to add new accounts; 30 percent of our bookings were from competitive wins and customers installing automation for the first time or accounts that we called ‘Greenfield Accounts.’ Like last quarter, about half of those bookings were from competitive wins, and about half were Greenfield.

 

 

 

 

 

The bulk of our backlog is scheduled for Q2 ‘06 and Q3 ‘06, but some of our customers have requested installation dates that are in later quarters. Our Operations Team works very closely with our customers to schedule installations at their desired timing, and we maintain the capability to perform installations on short notice. Most of our customers, especially the new customers, require a longer, carefully planned and carefully executed installation. We feel our backlog level is appropriate for our market, and it provides us with visibility to run our operations efficiently. It also gives us an opportunity to work with our larger customers well in advance to insure installation slots and plan the rollout across their network.

 

 

 

 

 

In Q1, our largest 10 deals made up greater than 40 percent of the bookings. We are pleased with our order rate, but we are also very pleased with the mix of our orders. Our booking rates are growing across our product lines. Year-to-year, we saw strength in medication, supply, and central pharmacy products, and our new accounts are purchasing products from the whole spectrum of our product line. So, entering 2006, we feel we have a very strong product lineup, and we believe we are very well positioned to take advantage of the current market opportunities.

 

 

 

 

 

Now, I’d like to discuss our first quarter financial performance, but before I do, I’d like to remind everyone that Omnicell has adopted Financial Accounting Standard 123, revised, this quarter, which we’ll refer to as FAS123R during the rest of the call. It was adopted using the modified perspective method. Under this accounting standard, the estimated future value of employee stock options and our employee stock purchase plan is treated as an expense. The accounting pronouncement is applied prospectively meaning there is no impact to prior periods. Internally, in addition to GAAP financial statements, we use financial statements that do not include stock-based compensation expense related to employee stock options and employee stock purchases, and we feel it’s useful to investors to understand the stock compensation expenses associated with the

 

2



 

 

 

implementation of FAS123R and non-GAAP results excluding these expenses. I will first discuss our GAAP performance. Then, I will discuss our non-GAAP financial performance without the affects of FAS123R.

 

 

 

 

 

Revenue for the first quarter of fiscal 2006 was $33.9 million, up 18 percent year-over-year and up 1 percent from the fourth quarter of 2005. On a GAAP basis, gross margin was 54.4 percent, and that included 269,000 associated with FAS123R stock compensation expense.

 

 

 

 

 

Operating expenses were 17.6 million, including 1.5 million of stock compensation expenses.

 

 

 

 

 

Debt earnings were 1.1 million or $.04 per share.

 

 

 

 

 

Now, I’d like to cover our non-GAAP results excluding the stock compensation expense associated with FAS123R. I will be making year-over-year comparisons to the reported non-GAAP results of Q1 2005, which excluded 3.2 million of one-time charges. The full reconciliation of our GAAP and non-GAAP results is included in our press release.

 

 

 

 

 

Let me start with gross margins. Excluding the $269,000 charge associated with stock compensation expense that was applied to COGS, our non-GAAP gross margin for the first quarter of 2006 was 55.2 percent, up from non-GAAP gross margin of 53.8 percent reported for the first quarter of 2005, and that excluded the one-time write off of Sure-Med excess inventory totaling 1.1 million.

 

 

 

 

 

Non-GAAP gross margin for the first quarter of 2006 was flat from Q4 ‘05. Although the reported gross margins are flat quarter-to-quarter, there are some significant offsetting variances that I’d like to discuss.

 

 

 

 

 

First, there has been a shift of expenses from the operating expense line to the cost of goods sold line of our income statement. This has occurred because the transition to linearity of installations has allowed our Operations Team to focus most of their time on post-sales installation and less time on presales activities. Correspondingly, our service staff is spending more of its time directly involved in supporting our maintenance contracts.

 

 

 

 

 

We reassessed the effort spent on installation activities annually and adjust our departmental charging accordingly, and this assessment, together with a more refined system of direct charging, has decreased the gross margin by 3 points overall from Q4 ‘05. This direct charging affects service margins to a greater extent than product margins. What I would like to point out is that this change is directly offset by a decrease in operating expenses. It does not represent an increase in our overall spending levels nor is it a decrease in our overall profit. However, the direct charging method that we are now utilizing should give us less variability in our gross margins going forward.

 

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Now, offsetting the margin decrease associated with this direct charging change are fundamental improvements in our gross margins.

 

 

 

 

 

First, our product material margins have improved slighting through our focus on material cost improvements. We’ve seen improvements from our vendor sourcing strategy, and we look forward to more cost reductions in this area.

 

 

 

 

 

Our efforts at establishing installation linearity in our business within each quarter and installing on our customer’s schedule have provided additional cost efficiencies in manufacturing overheads, in re-work costs, in scrap, in inventory losses, in installation materials, and in shipping charges, and all of that together improved gross margins 3 points this quarter.

 

 

 

 

 

We had a very good quarter in these areas, and we plan to continue our focus on maintaining the cost efficiencies that we’ve attained thus far.

 

 

 

 

 

Our non-GAAP operating expenses, excluding FAS123R, were 16.2 million, down 11 percent from our 2005 first quarter non-GAAP operating expenses, which excluded 2.1 million of one-time charges.

 

 

 

 

 

Non-GAAP operating expenses are down .4 million from Q4 ‘05. Now, as I previously mentioned, quarter-to-quarter, there was a shift of operating expenses to cost of goods sold associated with the direct charging of our operations’ installation activity, and that totaled 1.1 million. This shift was partially offset by severance costs, higher than normal accounting fees, and prototype expenses totaling .7 million.

 

 

 

 

 

Our non-GAAP net income, excluding stock-based compensation expense associated with FAS123R, was 2.9 million or $.10 per share, and that’s $.02 above the analyst’s consensus. This compares with non-GAAP loss of 2.6 million or a loss of $.10 per share in the first quarter of last year excluding 3.2 million of one-time charges. Our Q1 2006 non-GAAP net income is up from 2.2 million or $.08 per share in Q4 ‘05.

 

 

 

 

 

On the balance sheet, cash and short-term investments are at 33.9 million, an increase of 4.3 million from Q4 ‘05 and an increase of 7.6 million from Q1 a year ago.

 

 

 

 

 

I’m very happy with the improved rate of collections that we made during the quarter, and the quality of the receivables has also improved with aged accounts sharply down.

 

 

 

 

 

Our DSO has improved from 81 to 79 days. Half quarter shifts from leasing to purchase customers and shipments against our backlog that are (INAUDIBLE) for installation have kept the overall accounts receivable balance roughly flat at 29 million.

 

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Inventories of 12.2 million showed improvement declining 1.6 million from Q4 ‘05 to Q1 ‘06. Inventories also declined 3.1 million from year ago levels primarily due to the efficiencies of linearity and better visibility to material requirements.

 

 

 

 

 

With that, I’ll turn it over to Randy to provide an update on the business.

 

 

 

Randy Lipps:

 

Thanks Rob and thanks for joining us today. Well, I’m very pleased with our results this quarter. Growing backlog again in our seasonally weakest quarter shows the strength of our product line in the marketplace. Operating our business in a linear fashion throughout quarter continues to drive benefits to Omnicell, our shareholders, and our customers. We are demonstrating yet again that our business can be predictable, and with the strengths of our new customers, we are showing that high-quality products and superior installation and support services win in the marketplace. Our product offerings have remained strong, and we are gaining customer momentum with our recent announcements. Let me take a few minutes to comment on some of the recent news regarding personnel moves at the company.

 

 

 

 

 

I’m very pleased that Renee Luhr has accepted the position of Vice President of Sales. Renee steps into this position after leading Omnicell’s Corporate Sales Team for the past 3 years bringing the firsthand customer experience a person only gets from managing deals such as Catholic Healthcare West and Advocate Healthcare. Renee brings over 20 years of experience in healthcare sales to the position, and we look forward to Renee’s leadership and perspective in the quarters to come.

 

 

 

 

 

Backfilling Renee’s position in Corporate Sales and reporting to her is Gary Robinson who has been with Omnicell for 11 years and most recently was our VP of International Sales. Like Renee, Gary brings continuity of experience with Omnicell.

 

 

 

 

 

I would also like to take a moment to thank Gary Wright for his more than 10 years of service to Omnicell and for his contributions in establishing our international business and growing our domestic sales organization. It is a tribute to his leadership and team building that we have the bench strength inside Omnicell to fill both the VP of Sales position and the Corporate Sales position. Gary made a great impact for the development of our company, and we wish him all the best in his new endeavors.

 

 

 

 

 

As part of Gary Wright’s transition of responsibilities, marketing will report to Brian Rodli, our Chief Strategy Officer. These changes, as well as the executive appointments we announced last quarter, have been done with a common theme of bringing in executives with the experience to manage continued growth in our company. I see Omnicell as being very well positioned to take advantage of a long-term growth cycle in our markets, and I believe that I’ve brought in, from both internal and external

 

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sources, a group of seasoned executives that will fully take advantage of the opportunity in front of them.

 

Speaking of opportunities, let me say a few words about a number of positive market developments that took place during the quarter.

 

First, in January, we were pleased to announce that Novation, one of the largest group purchasing organizations in the U.S., had awarded a 3-year contract to Omnicell. This announcement was particularly significant because Omnicell was the only company awarded a contract for its entire automation product portfolio.

 

Second, in mid-February, we issued press releases on the positive experiences of two of our customers who are using some of our most advanced solutions. Jeff Anderson Regional Medical Center, a hospital in Meridian, Mississippi, shared how our unique Point-to-Point Medication Safety Solution, the integration of our OmniRx Medication System and our SafetyMed RN Bedside System, has really benefited nurses. Also, the University of Maryland Medical Center reported that our Anesthesia Workstation has significantly improved billing accuracy and work flow in that facility’s 31 operating rooms.

 

And third, last month, Overlake Hospital Medical Center in Bellevue, Washington, announced that it had selected and is implementing our SafetyMed RN Bedside Solution. This announcement was especially significant because of Overlake’s status as a leading high-tech hospital and the interdisciplinary and comprehensive nature of Overlake’s evaluation process involving representatives from pharmacy, nursing, and information systems.

 

I think all of these customer wins underscore the reputation for quality and ease of installation that Omnicell’s products carry, and that reputation is substantiated even further by the recent results published by MD Buyline. MD Buyline is an independent third-party market intelligence firm that collects user satisfaction data for approximately 3,200 hospitals. In their most recent report published April 1, 2006, Omnicell had the highest user satisfaction ratings overall and the highest rating in all of the 6 specific categories surveyed by MD Buyline covering system performance, installation and training, and customer support. Omnicell’s high ratings are no surprise, because we are focused on making our installation experience the best in the healthcare industry, and we’ve focused on making our products easy to use. We have a great list of product features like OmniDispenser, our unique single-dose medication dispensing module; our guiding light technology; our touch-and-go biometric fingerprint reading security feature; our flexibility in our report writing; our clinical pharmacology drug information database integration; and our vSuite proactive remote monitoring service. All of these differentiate us in a substantial way, and the MD Buyline report is evidence that

 

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customers recognize these product features as well as our Service and Installation Team’s focus on customer satisfaction.

 

And finally, let me just comment about the overall strengths of the business as we complete our first quarter of 2006.

 

As we’ve seen with the strengths in orders from the last four quarters and the major IDN wins we’ve announced, demand for our products is strong and in head-to-head competition from these long-term sole-source awards. Hospitals are choosing Omnicell. Our product offerings have never been more robust and better positioned competitively, and as you can see from the continued contribution from Greenfield Accounts we are winning, even hospitals that have deferred investment in automation products are now moving forward. It’s rare when we lose one of our accounts, and we believe we are gaining market share. I am very pleased with our competitive position, and we are not stopping here. We are going to continue to focus our efforts on maximizing the quality of the customer experience in dealing with Omnicell, and we are making it our highest priority, and we plan to invest in customer-facing staff to continue to improve the customer experience. With Rene Luhr’s appointment, we’ve rounded out the management team to provide the depth we need to continue to make operational improvements and grow our business, and we continue to be the only company in the marketplace focused exclusively on medication and supply chain automation. I’m extremely excited about the health and the future of our company.

 

With that, let me turn it back over to Rob. Rob.

 

 

 

Robert Seim:

 

Thank you Randy and now for our guidance.

 

 

 

 

 

As we move into Q2 ‘06, our top priority continues to be working with our customers to understand their requirements and exceed them, whether it be in the installation experience, in product features, or in customer service.

 

The major IDNs we’ve won in the last several quarters have contributed to our gross in backlog, and we are working closely with them to schedule their installations and rollout Omnicell products across their networks, and these installations will continue provide a solid base of business for a number of quarters going forward.

 

As we’ve said for the last several quarters, entering Q2 ‘06, we had full visibility of the installations that we need to complete in the quarter to achieve our revenue goals. We also have excellent visibility to Q3 installations, and we manage our installation resources to provide the capability to install new orders to customers who need a quick installation. It is our goal to maintain this flexibility to meet our customers’ requirements.

 

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We did enjoy improved operating margins beyond our previous guidance for Q1 due to a slower spending ramp than anticipated and efficiencies that we gained from linearity, but as Randy mentioned, we do plan to invest in our staff to assure that we continue to meet the customers’ needs.

 

 

 

 

 

For Q2 ‘06, we expect 3 to 4 percent revenue growth sequentially.

 

 

 

 

 

For the full year, we had previously guided to a 16 to 18 percent revenue growth year-to-year and non-GAAP EPS, excluding stock-compensation expense, in the mid to high $.30 range. Now, we expect higher revenue and higher earnings. We now expect revenues to grow 19 to 21 percent year-over-year and non-GAAP profit to be $.44 to $.48 per share, excluding expenses of stock options and the employee stock purchase plan associated with the adoption of FAS123R.

 

 

 

 

 

With that, we’ll open up the discussion to your questions.

 

 

 

Operator:

 

Thank you sir. Ladies and gentlemen, at this time, we will begin the question and answer session. If you do have a question, please press the * followed by the 1 on your pushbutton phone. Once you have made that choice, if you decide that you would like to remove yourself from the polling process, you may press *2 to do that. You will hear a 3-tone prompt acknowledging your selection in either case. Questions will be polled in the order they are received. As a reminder, if you are using speaker equipment to listen to the conference, in most cases, you will need to lift the handset before pressing those numbers.

 

 

 

 

 

Glenn Garmont has the first question. Please respond with your company name followed by your question.

 

 

 

Glenn Garmont:

 

Thanks. Good afternoon. I’m with First Albany Capital. Just real quick, it was a great looking quarter. Backlog, guys, stands at about 3 – almost 3 quarters’ worth of product revenue. Just thinking about that on a go-forward basis, have we sort of – modeling this out going forward, have we seen the peak? How much larger can the backlog get with respect to – in relation to product revenues? Thanks.

 

 

 

Randy Lipps:

 

Yes. Thanks Glenn. I think the key is that we are really focused on the customer experience, and what’s a little misleading about backlog is that you can just kind of add it up and say, “Oh. Well, that’s 3 quarters of backlog,” but as we stated in the call, we’ve got the next couple of quarters scheduled out, and then, after that, we’ve got the next 2 quarters scheduled out with some of that backlog. So, it doesn’t – it didn’t all stack up end-to-end, and so, kind of based on that schedule, that’s the reason that we changed the guidance and look forward to that. So, again, our customer satisfaction is the most important thing here, and if our customers want to go fast, we figure out how to do it, but we want to have a quality experience. So, we’re comfortable with where we are today.

 

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Glenn Garmont:

 

Okay great. Thanks Randy.

 

 

 

Randy Lipps:

 

You bet.

 

 

 

Operator:

 

All right. Thank you. Gene Mannheimer is next. Please state your company name followed by your question.

 

 

 

Gene Mannheimer:

 

Thank you; Caris and Company. Terrific job guys, and that’s some great guidance too. My first question relates to the Novation statement you made Randy. Can you talk a little bit about how many hospitals are in that opportunity and of those how many currently are using automation?

 

 

 

Randy Lipps:

 

Well, I don’t know the specifics on Novation, but the key for that win was, because we’ve had a Novation agreement before, that our full line of products suite, which I think if you curtail it to each one individually in a group it’s about 6 or 7, we won every one of those. For their supply chain, medication systems, or bedside, we won all of those, which is really a testament to the unique nature of the product sets that we offer, and it allows us to go to our Novation accounts and say, “Look. After the careful study of this group, we’re the only ones that really can meet all of your needs in these areas.” Novation, I believe, is the first or second largest group purchasing organization in the country with, I believe, close to 1,800 hospitals, but we don’t typically give the exact breakdown of how many we have and how many we don’t.

 

 

 

Gene Mannheimer:

 

Okay, and did you say that’s an exclusive?

 

 

 

Randy Lipps:

 

That is not an exclusive. The only key there was that we were able to win all 6 segments that we had products in. We won all 6 of them. We were the only vendor to win in all of these segments that were offered by this contract.

 

 

 

Gene Mannheimer:

 

Okay, and in the backlog number, 77 million, can you break out for us how much of that is CHW and Advocate?

 

 

 

Robert Seim:

 

We don’t breakout and give details in the backlog. The CHW and Advocate were large deals for us, and there are still installations going forward associated with them.

 

 

 

Gene Mannheimer:

 

So, is it fair to think about it as maybe 3, 4, 5 years down the road they’ll continue to be a part of backlog?

 

 

 

Randy Lipps:

 

I think the key is that they have placed some orders, and we are in the process of installing. They have more orders to place, and it isn’t just a 1 or 2 quarter phenomenon. It’s going to be stretched out over several quarters, and then, there are additional orders after that, and some hospitals aren’t even lined up for 18 months or more to get the product just because of some of the timing issues in some of those places. So, it’s –

 

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these large IDNs don’t – they do get stretched out over several quarters and years.

 

 

 

Gene Mannheimer:

 

Okay thanks, and final question; can you talk about the ratio of purchases versus leases throughout the quarter and how that stacks up historically?

 

 

 

Robert Seim:

 

Well, here again, we haven’t broken down our revenues through the quarter on that. Our lease business continues to be strong, and these are big capital equipment purchases, and most customers are looking to lease it in some way.

 

 

 

Gene Mannheimer:

 

Okay. Thank you Rob. Thank you Randy.

 

 

 

Randy Lipps:

 

Thanks Gene.

 

 

 

Operator:

 

Thank you sir. Mr. Len Podolsky please state your company name followed by your question.

 

 

 

Len Podolsky:

 

Hi. This is Len Podolsky with Piper. I’m filling in for Shawn Weiland. Just a couple of broad questions; first, congratulations on the great quarter and the guidance, but could you give some more detail on what’s going on with Advocate and Catholic Healthcare West? Are you penetrating further into those IDNs and how that’s going?

 

 

 

Randy Lipps:

 

Just to follow on Gene’s question, those are full-source agreements. Catholic Healthcare West has around 40 hospitals and about 7,000 beds, and I believe Advocate Healthcare has around 10,000 – I’m sorry – about 3,500 beds, about 10 hospitals, and we are progressing through those initial installs in mostly some of the larger institutions as they were geared up to go, but we are just starting the installation process. We haven’t exhausted initial orders, but as I said, they’ll be stretched out over the next few quarters.

 

 

 

Len Podolsky:

 

Okay, and then, regarding the Greenfield Accounts, who are you typically going up against?

 

 

 

Randy Lipps:

 

Well, our typical competitors, which I think we’ve stated before, would (INAUDIBLE) and (INAUDIBLE).

 

 

 

Len Podolsky:

 

Have you seen any changes in that respect I guess is what I’m trying to get at?

 

 

 

Randy Lipps:

 

No.

 

 

 

Len Podolsky:

 

Okay. All right. Thanks.

 

 

 

Operator:

 

All right. Thank you sir. Julian Allen you have the next question. Please state your company name followed by your question.

 

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Julian Allen:

 

Hi guys. Good afternoon. I’m Julian Allen with Cannell Capital. I have 3 quick questions. The first; on an accounting issue, your other (INAUDIBLE) accounts on the balance sheet increased from 8.8 million at December 31 to about 13 million. Could you tell us what’s in that number?

 

 

 

Robert Seim:

 

Sure. There are a number of the leases that we keep in-house, mostly leases associated with government institutions, and during the quarter, we consummated several of those leases, and so, the long-term portion of them shows up on the balance sheet in that category.

 

 

 

Julian Allen:

 

So, you don’t sell those off to a third party?

 

 

 

Robert Seim:

 

We do not.

 

 

 

Julian Allen:

 

Okay. Second question; from a higher level strategic perspective, do you have a sense of how penetrated the target markets are with respect to automation solutions?

 

 

 

Randy Lipps:

 

I think there have been several surveys on that, and I believe we’ve commented in the past that about 60 percent of the hospitals at least have some type of automation. It may even be higher than that; 70, but generally, it can only be just one unit, and that goes for our accounts and our competitive accounts. We see more penetration at the larger institutions; medium size, probably only about half penetrated; and really small accounts are even less than that. So, there’s quite a bit of upside in just the Greenfield Accounts that are left out there because of the pressure on the regulatory environment to get a control on the medication use process, and probably even more significant is that there is a lot of penetration – most of our accounts that we already own today are only about 1/3 to 40 percent penetrated. So, they could easily double in size in what they have today. The other thing is, generally, the technology kind of moves at least every 5 years. Most people upgrade or rotate out technology. So, you’ve got sort of people buying for the second and third time. You’ve got new accounts buying for the first time, and we have competitive swaps. So, when you add all those three together, they add up to a nice growth story for us.

 

 

 

Julian Allen:

 

Third question; can you comment on any thoughts you may have with respect to acquisitions or what, if you were to pursue acquisitions, what capabilities or regions would you be looking to cover?

 

 

 

Randy Lipps:

 

I think, for the most part, acquisitions are something that we would just focus on the things that would plug and play off of our platforms, and I think we do have some new segments that we’re working on within the company, acquisitions that we’ve made over the past year, that we want to continue to work on, and I think those are sort of the primary focus at this point, but if there were opportunistic accretive acquisitions out there that

 

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made sense that plugged off our platform, we would certainly look at those.

 

 

 

Julian Allen:

 

Okay. Thank you. My last question is can you comment again, at a high level, how far are you in plans to outsource production to third parties or indeed to Asia?

 

 

 

Randy Lipps:

 

We have outsourced some of our component production to Asia, and we are constantly revisiting our sourcing strategies. So, at this point, we’ve completed the component fees, and that’s where we stand.

 

 

 

Julian Allen:

 

Is it fair to say that’s still a work in process?

 

 

 

Randy Lipps:

 

I’d say that sir.

 

 

 

Julian Allen:

 

Okay great. Thanks very much.

 

 

 

Operator:

 

Thank you. Shawn Boyd has the next question. Please state your company name followed by your question.

 

 

 

Shawn Boyd:

 

Hi. This is Shawn Boyd from Westcliff. Congratulations gentlemen.

 

 

 

Randy Lipps:

 

Thank you.

 

 

 

Shawn Boyd:

 

I have a couple of questions. I came – the call was fading in and out. If you could, can you go back and just give me the product and service gross margins without (INAUDIBLE) for the options expense?

 

 

 

Robert Seim:

 

The total amount that hit the gross margin line from the options expense was 269,000.

 

 

 

Shawn Boyd:

 

Right.

 

 

 

Robert Seim:

 

I don’t have right in front of me the split between products and service. So, I’ll have to get back to you with that.

 

 

 

Shawn Boyd:

 

Okay. So, going back to your point in terms of the flip-flop in expenses that went from operating expenses to cost of goods sold, can you just go through that one more time?

 

 

 

Robert Seim:

 

Sure.

 

 

 

Shawn Boyd:

 

I apologize. I just – I lost the call temporarily.

 

 

 

Robert Seim:

 

No problem, and the net of the situation is this; we had previously charged all of our installation expense and our service expenses into OpEx, and then, we reallocated back into costs based on our rate, and that rate was based on units or production.

 

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Shawn Boyd:

 

All right.

 

 

 

Robert Seim:

 

What we’ve changed is that we’ve gone to a more direct charging method, and then, in addition to that, we found, in our annual assessment, that more of our Installation Team’s activity and our Service Team’s activity is involved is post-sales activity as opposed to presales activity. That’s directly related to us getting out of the “turns” business and operating more out of backlog, and so, more of their expense, although their expense is fairly much the same, more of their expense is going into the COGS line, and less is going into the OpEx line.

 

 

 

Shawn Boyd:

 

I see. So, in terms of the margins going forward, on the service side, are we thinking about kind of a lower – a low 60s gross margin on that at this point then? Where does that settle us out then in terms of a going-forward basis?

 

 

 

Robert Seim:

 

Well, we actually don’t give guidance on our gross margins, overall or on a segment basis between sales or product and service, but I think the effect that you saw this quarter from this particular change is going to be a fairly consistent effect going forward.

 

 

 

Shawn Boyd:

 

All right. Okay, and just in terms of the new guidance, what kind of tax rate and share count are you assuming for the full year?

 

 

 

Robert Seim:

 

We are using 4 percent tax rate, and we don’t expect significant changes in the share count going through the year.

 

 

 

Shawn Boyd:

 

Okay great. Thank you.

 

 

 

Operator:

 

All right. Thank you. Mike Bosman please state your company name followed by your question.

 

 

 

Mike Bosman:

 

Hi. I’m with Peninsula Capital. Great job on the quarter guys. Just one quick question, most of mine have been answered; have you guys seen any traction or the rubbing up against of (INAUDIBLE) new pharmacy product that they unveiled?

 

 

 

Randy Lipps:

 

We haven’t seen anything in the marketplace yet.

 

 

 

Mike Bosman:

 

Okay.

 

 

 

Randy Lipps:

 

We haven’t had any bids against them.

 

 

 

Mike Bosman:

 

Okay. Everything else has been answered. Great job on the quarter guys.

 

 

 

Randy Lipps:

 

Thank you.

 

 

 

Operator:

 

All right. Thank you Mike. We have a follow-up from Glenn Garmont. Please go ahead.

 

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Glenn Garmont:

 

Yes. Last quarter, the gross margin was negatively impacted by the pharmacy central; the OEM product issue. Was there any such mix issue this time around?

 

 

 

Robert Seim:

 

There was no mix issue. There is really no change quarter-to-quarter due to mix. We always have shifts, of course, in our one product versus another, but overall, there was no margin issue due to mix.

 

 

 

Glenn Garmont:

 

Okay. Thanks Rob.

 

 

 

Operator:

 

Ladies and gentlemen, if there are any additional questions at this time, please press the * followed by the 1 now. Do remember, if you’re listening on speaker equipment, you may need or will most likely need to lift the handset prior to making that selection. Again, *1, if you have a question.

 

 

 

 

 

Gentlemen, there do not appear to be any further questions at this time. Please continue with any closing comments.

 

 

 

Robert Seim:

 

Well, I think concludes the call for us. Thank you for joining us and good afternoon.

 

 

 

Operator:

 

Okay. Ladies and gentlemen, this concludes today’s Omnicell 1 st Quarter 2006 Financial Results Conference Call. We do thank you for your participation. If you would like to listen to a replay of today’s conference in its entirety, you may do so by dialing (303) 590-3000 or 1-800-405-2236 using the access code 11057927. Those numbers again; (303) 590-3000 or 1-800-405-2236 using the access code 11057927. Thank you for using ACT Teleconferencing. You may now disconnect. Have a very pleasant day.

 

END

 

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