Omnicell Inc (OMCL) 2003 Q3 法說會逐字稿

Good afternoon, Ladies and gentlemen and welcome to the Omnicell third quarter 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, please press the "star" followed by the "zero". As a reminder, this call is being recorded on Thursday, October 16th, 2003. I would now like to turn the conference over to Mr. Dennis Wolf, EVP and CEO. Please go ahead sir.

Hello everyone and thank you, Nicole. Good afternoon this is Dennis Wolf, EVP and CFO. With me today is Randy Lipps, our Chairman, President & CEO. Thank you for joining us for Omnicell third fiscal quarter 2003 conference call. You can find Omnicell third quarter financial results press release as well as the financial and statistical information discussed on the call in the Investor Relations section of our Web site, which is www.omnicell.com. This conference call is the property of Omnicell, and any taping, other duplication or rebroadcast without the expression, 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 risk that impact this forward-looking statements, please refer to the information under the heading factors that may affect future operating results in Omnicell's annual report on Form 10-K filed with the SEC on March 28th, 2003 and management's discussion and analysis of financial condition and results of operation, the MDA and Omnicell's quarterly report on Form 10-Q, filed with the SEC on August 7th, 2003, as well as our 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 October 16th, and all forward-looking statements made on this call are made based on our belief only as of this date. Future events are simply the passage of time may cause these beliefs to change.

Randy will now update you on the business, as well as the strategy on which we have embarked to take advantage of what is currently a favorable purchasing environment for Omnicell systems. In addition, he will review with you the progress we have made against our goals during the quarter, as well as a review of actions we are taking to enable us to grow the business. I will then review with you the financial highlights for the third fiscal quarter, as well as our financial outlook for Q4 '03, and our projections for fiscal 2004, and of course at the conclusion of my remarks, we will open the call up to your questions. I now turn the call over to Randy.

Thank you for joining us today. The third fiscal quarter of 2003 was another record quarter for Omnicell. We are well on our way leading our business goals for the year as we post record earnings, revenue, and bookings, and we also believe that we are well on our way to reshaping Omnicell as a major industry force. Our revenue for Q3, 2003 was $26.4 million, and represented year-over-year revenue growth of 48 percent We believe that the most important element of our business model, market share expansion, is beginning to take form. Our earnings of 9 cents per share provided an operating margin of 10 percent. Reaching a 10 percent operating margin this quarter was particularly gratifying since our goal was to reach this by year-end. These results put us in good position to attain our goal of 15 to 20 percent margins by the end of 2004. We are not sacrificing profitability for growth. Our backlog this quarter expanded by $3.9 million, and now stands at $36.6 million. Already meeting our backlog goal of $35 to 40 million by year-end. And our new customers during the quarter represented about 40 percent of our total bookings, while our top 10 customers represented about 25 percent of our total revenue.

I'm extremely pleased with the progress we have made during the past quarter relating to financial performance. I also want to highlight the very significant progress made on other fronts. New product expansion, new business with two key competitive wins, and an important new acquisition, the rollout of our out sourcing strategy, and the launching of service expansion strategy.

I will now review with you each of these important elements of our growth plan. Starting with new products, a quarter ago, we introduced Omni dispenser. This product is already shipping and holds the great deal of promise for both our current customer base, as well as new business prospects. In addition, recently we announced our SafetyPak product that packages in bar codes, oral solid drugs. We are active in many RFPs with this new product. Our Omnicell pharmacy central product continues to build very strong momentum, and as we build both a revenue stream and backlog for this innovative pharmacy automation are carousel. Our bedside product SafetyMed is now the focus of many end ended in which we are involved. All of us in the industry understand that the bedside devices have not yet achieved momentum; we believe that our SafetyMed product line holds great promise, and has helped us in competing in large accounts, because we now have end-to-end solutions.

The increased breadth of our product offerings has enabled us to win some very significant multi-year accounts. We won these accounts based on the success of our product breakout strategy. Today we announced the execution of a three-year multi-source agreement with Health Trust Purchasing Group, HPG, one of the nation's most successful Group Purchasing Organization. HPG has 1000 member facilities at an annual medical surgical purchasing volume of approximately 5.5 billion. This will -- allow us to provide our solutions to HPG's 700 acute care hospitals, and 300 non-acute members nationwide, and significantly expands the market for our products. As in the past, we were excluded from selling to these organizations. Obviously, we are very excited to receive this award.

In addition, during the third fiscal quarter, we won our largest Greenfield account, Lennox Hill hospital in New York. Lennox is a 600-plus-bed hospital, part of the premier GPO organization. This is a multi-million dollar win, largely based on the strength of our end-to-end offerings.

Turning to our acquisition strategy, previously we had shared with you that our acquisition goals of the fine companies that are accretive now or within a couple of quarters, provide products that expand our overall footprints, and meet our business modeled 15 to 20 percent operating margin. Our acquisition of BCX technology is a perfect example of this strategy. BCX is a leading provider of inventory management software solutions for hospitals. With BCX, we offer the broadest range of supply chain management solutions in the industry. In addition, we added approximately 30 new hospital accounts. BCX is a testament to an expansion strategy that is singularly focused on hospital automation and workflow. We expect BCX to be moderately accretive in 2004. As a point of reference, during the third fiscal quarter, BCX represented about $250,000 in revenue, but about $450,000 in overall costs, so our results this quarter were impacted by about 150 to 200,000 during the first quarter of BCX operations. This will move to break even by as soon as Q4 '03, or Q1, '04.

While we continue to broaden our product lines and our customer base, we remain focused on cost management, because we want to get to a 15 to 20 percent operating margin as soon as possible. Our out sourcing strategy will help us manage cost as we expand our development efforts. During the quarter, we signed a software development partnership with a DD Technology Limited, a nine-year-old Bangalore, India based company. We have already begun to transfer our development center in India, some Omni buyer development soft ware, quality assurance, as well as expansion of automation software QA, and interface work.

We anticipate that our R&D expense next year will increase by 10 to 15 percent, but that our overall R&D head count will almost double, thereby allowing us to do a lot more in a very cost-effective manner.

Finally, I would like to briefly share with you our plans for service and quality improvement for Omnicell. During the quarter, we hired a new V.P. of service Michael Kline. Michael joins us with about 20 years of experience, most recently with Siemens. We have been very active in the hiring, the infrastructure needed to build our own service business, rather than depend on outside contractor. We are making a lot of progress in this endeavor. Michael has already made great strides in building a team and launching new processes and initiatives. In addition, about a quarter ago, we hired a senior director to manage our quality efforts for the company. Endra (ph) joins us with over 20 years of experience in quality with companies such as Credence Systems and Lamb Research, where he built company wide quality initiative, and helped develop the infrastructures needed for these companies to grow at much faster rates than overall respective industry counterparts. Endra (ph) has launched ISO 9001 quality in business and management systems, which include efforts to strengthen processes and product development, product release, order fulfillment, and install base management. We are on track for ISO certification by mid-2004.

In addition yesterday we announced that we had gained DISCAP certification. This will enable us to continue to bid on all department of defense proposal. DISCAP stands for Department of Defense Information Technology Security Certification and accreditation program. The certification is for all of our products and as an important standard, we accomplished it in a very short order and we are very pleased. All of these milestones taken together build on the momentum that we have created, and provide a pathway for what we believe to be a very significant growth opportunity for Omnicell. On another matter, during the quarter, we, at Amerisource Bergen (ph) mutually agreed to terminate the collaborative solutions provider agreement between our two companies. However we have agreed to continue to work together on an account-by-account basis. With each parties' expanded product offerings we are in competition more often than not, and it is in Omnicell's best interests to compete more freely, and to work with others in the industry as opportunities present themselves.

Our goal for Omnicell is focused squarely on growth, both organically, and through complementary acquisition. Each of our acquisitions to date has been very beneficial for Omnicell, with our goal of getting to $200 million in revenue by 2006, we are driven to build the momentum necessary not only to reach this goal, but also to continue to increase our market share. This is a very exciting time for Omnicell, and we are very optimistic about our future. I will now turn it back to Dennis for review financial and our outlook. Dennis?

Very good, thanks Randy. I would like to first review with you Omnicell's business model. Our goal is drive the 20 percent operating margins just as soon as possible. It is a multi-year goal with the expectation that we would achieve at least 10 percent operating margin by year-end 2003, and 15-20 percent in late 2004 or early 2005. As Randy mentioned earlier we have reached an important milestone of 10 percent operating margin, and accomplished it quarter before we had expected and we are very pleas pleased with this result.

The third fiscal quarter aligned well with our 2004 goal, and we believe it put these goals within reach. As a matter of fact, our results for Q3 were a record. Revenue was up 48 percent year-over-year, backlog was up 12 percent or $3.9 million sequentially and 72 percent year-over-year with backlog ending fiscal Q3 at $36.6 million. In addition, net income of $2.3 million, and an operating margin of $2.5 million or 10 percent, were all records for quarterly results. Our operating expense for Q3, 03' was 13.1 million compared to 13.3 million in Q2. Included in these results was BCX's operating expense of about $200,000. Excluding this expense, as well as the restructuring and employee severance charges of approximately $600,000 last quarter, our operating expense is up approximately 2 percent sequentially, while our revenue was up 5 percent, and we believe that this is a good tradeoff.

Head count stood at 404 at the end of Q3, '03, which is up 35 sequentially, 14 due to the acquisition of BCX. Outside of BCX, these increases were primarily in service and sales. Our spending for SG&A in the quarter was $10.8 million, up about 240,000 sequentially. SG&A is up primarily due to commission on increased revenue, as well as the BCX acquisition, and as we have discussed on previous conference calls, we do intend to expand the sales force, particularly focussing on our new product lines.

R&D spending was $2.3 million, up $150,000 sequentially. Randy discussed with you our out sourcing strategy. While we expect R&D expense to only increase by about 10 to 15 percent next year, the dedicated head count will almost double. Our out sourcing strategy is meant to augment our R&D efforts and to accelerate invention. We are focused on maximizing efficiency, and attracting the best personnel in R&D both here, as well as India, and have open acquisitions for both locations. In addition, acquisitions also bring to us very capable engineers who have specific technology talent, and we intend to use that talent in integrating our product lines even deeper.

Turning to revenue and backlog, our third fiscal quarter 2000 results were as follows:

Q3 revenue was $26.4 million, up $1.2 million sequentially or 5 percent. As previously mentioned this represents record quarterly revenue for the company, and follows record revenue from the second fiscal quarter of 2003. Product revenue it was $22.2 million, or up about 3.5 percent and service and other revenue represented $5.2 million, or up about 11 percent As a reference, BCX total revenue was only $257,000, due to its closing well into the third quarter. Backlog increased by $3.9 million sequentially, and ended the quarter again at $36.6 million, already meeting our full year goal.

Turning now to margins and expenses for the third quarter. Our Q3 '03 gross margin was 59 percent compared to 58.2 percent in Q2 '03, or up 80 basis points. The Q3 gross margin includes about $100,000 for amortization of the intangible assets of the BCX acquisition. But we begun to hire our service personnel, we expect most of this hiring ran to occur during the fourth fiscal quarter in order to prepare us for 2004. As such we expect our year-end service head count to be at about 85 to 90 personnel. This growth has already rationalized in our gross margin projection, and we expect gross margins to be relatively constant over the next several quarters, probably within 100 basis points up or down. We had an operating profit of $2.5 million this quarter, an improvement of approximately $1.2 million sequentially, and that represents an operating margin again of 10 percent. This result is more than $200,000 higher than Q3 03' consensus estimate.

In addition, while BCX did negatively impact the operating margin by about $150 to $200,000 this quarter, this acquisition is expected to be break even during Q4 '03, or Q1 04' and to be accretive by the second fiscal quarter of 2004. GAAP earnings per share in Q3 03 amounted 9 cents compared to net income per share of 5 cents last quarter, up 4 cents per share. This is despite an increase in share count of 2 million share on a fully diluted basis from the second fiscal quarter. The share count increases due to both exercises that previously granted option, as well as the average per share price for our stock increasing by almost $6 per share during the quarter, which resulted in an increase in the number of outstanding option that are dilutive.

We are particularly pleased that we could meet the creep expectation of 9 cents per share, despite the average share count increasing by $2 million. This increase was significantly higher than anyone's estimates, and of course it is not possible to forecast stock price and the effects of dilution. At this point, we expect to end fiscal 2003 with a fully diluted share count of about $27.5 million. Next year's share count is estimated to be about $28 to $29 million. And we recommend that your gesture amidst on share count and EPS accordingly.

The following are the balance sheet highlights. Cash balances for short term investment were $30.9 million, or up about $2.9 million sequentially. We did use $3 million to acquire BCX. Therefore, without this acquisition, our cash would have been up by about $6 million.

The key drivers attributing to the cash generation were as follows. Option sales yielding about $3.5 million, and employee loan repayments amounting to about $2.5 million. With growth comes cash usage, and during the third fiscal quarter, we did not generate meaningful levels of cash from operation as we added $2.3 million from net income and $1 million from increased payables and accrued liabilities. However, this was largely offset by a $2.8 million reduction in deferred growth profit and service revenue, and an $800,000 increase for prepaid insurance.

In addition, our depreciation for the quarter was $700,000, and new capital additions were $900,000. Our DSO this quarter was 40 days, versus 42 days in the previous quarter. We should have strong operating cash during Q4, particularly since most of our shipments will be done earlier in the quarter, due to the holidays. Therefore, we expect to generate cash during Q4 of about $3 million to $5 million.

Inventory decreased by about $40,000 this quarter and stood at 8.6 million. We do expect this small increase in inventory this quarter, due to the significant increase in revenue as expected over the next few quarters.

Our guidance for Q4 '03 and the full fiscal year follows, but please remember that the risks and uncertainties referred to earlier in our Safe Harbor statements are particularly relevant to this section as this portion pertains to forward-looking statement. We anticipate the total revenue in the fourth quarter of 2003 will increase between 7 and 10 percent from the third fiscal quarter and should enable us to post record revenue for the full year. The current street estimate for revenue is about $100 million, and we expect to exceed this. As a point of reference, DCX becomes break even at a quarterly revenue run rate of approximately $500,000, and we expect that result in Q1 '04.

Gross margin for Q4 are expected to be flat, plus or minus 100 basis points, as I stated earlier. OpEx is expected to be about $13.5 million. And therefore we expect EPS to come in at approximately 10 cents. While we expect net income to meet or exceed current street estimates for Q4, our expected share count of about $27.5 million per year end is approximately 2.5 million shares higher than street estimates, and therefore the current consensus earnings estimate for Q4 is expected to be overstated by a penny, even as we meet or probably exceed overall street financial expectations.

We also expect to generate approximately $3 million to $5 million of cash. Finally, we once a again expect our backlog to increase $1 to $3 million, and reach toward the higher end of our $35 to $40 million workout.

Now turning to fiscal 2004 expectation: The current revenue estimate for next year stands at approximately $130 million. We expect to exceed this revenue estimate. Current street expectations for net income are at about $17 million for the full year, we also expect to exceed this result. However, street share count estimates for next year calls for approximately 25 million shares, but we now expect next year's average share count to be about 28 to 29 million shares. Therefore, we expect that EPS will stand at approximately 65 cents per share, versus the current consensus of 68 cents. Again, bear in mind that our expectation next year is for higher revenue, operating margin, and net income, incurring consensus estimates. We will now open the call to your questions. Nicole, first question, please.

Operator Thank you, sir. Ladies and gentlemen, if you have a question, please press the "star", followed by the "one" on your push button phone. If you would like to (inaudible) from the point process, please press the "star" followed by the "two" You will hear a three-tone prompt acknowledging your selection, and your questions will be polled in the order they are received. If you are using a speaker equipment, you will need to pick up the handset before pressing the numbers. One moment please for the first question. First question comes from Mr. Sean McKenna. Please state your company name.

Yes, Merriman Curhan. Good job, guys. Just a question sort of about the direction of unit prices. Could you comment on that? It seems like -- it seems like maybe you're selling a greater number of units that are lower costs, but then the average site value seems to be higher. (inaudible) on-track with that, or could you make any comments about that?

Well, I just think in general that our new customers will tend to be a little more aggressive than current customers where we are in the account, so there might be some price differentiation for new customer acquisition, but we are focusing on doubling the amount of revenue from each account, so the actual profitability of our customer base is actually getting better, because of course it's a lot less costly to sell to that current customer than the new customer. But as we expand to get new customers, there is some slight pressure on margins, but we feel we are in that range now.

OK. So not far off the mark with those statements?

Not at all.

OK. Second question is a follow-up. I wonder if you guys could talk a little more detail about your plans for BCX, particularly with regards to cross-selling opportunities. I know you mentioned we think the run rate will be, what sort of -- if you could talk in a little more detail about the plans.

Sure. BCX is part of our component now of our end-to-end solution set. Starting with our Omni buyer products, products that we are working, now to the hospital for the nursing floor, all the way to the bed side, so BCX is one of those components that we now offer to our customers as an option so that we can gain more of the flow of transactions in the hospital. Before, we were basically focused only on systems that had our products in closed systems, so now we're offering a hybrid solution set to our customers, so all of our sales force is actively involved with selling this new product to spread all of our current customers, as well as else some customers who in the past have not been excited about closed system, for whatever reason, so we can start them off with open systems like the BCX solutions or closed systems as the relationship with the customer.

Great. And then just one final follow up, maybe, for Dennis. Dennis, do you have any idea what you'll spend if we CapEx might be for '04, and also an idea what we might see up in the working capital?

You know, I think CapEx, Sean, will probably be 2 to $4 million, moving to a new facility, and answer your working capital, it's a little more granularity than were, I'm going to give out right now. We think that we'll be able to post -- you know, it's between what our growth -- what our growth is and what our overall growth and cash is going to be, but it will be a cash generator for probably every quarter, as we see it.

I'm sorry I missed that first number. You said 2 to 4?

Yeah, for capital, as we move into a new facility.

Thanks a lot guys.

Sure Sean.

Thanks Sean.

Operator Thank you. Our next question comes from Mr. Darren Marhula. Please state your company name followed by question.

Piper Jaffray. Could you give us some colors to how much of your new business in '02, and year-to-date '03 Amerisource was involved with?

That's a great question. Really, in the two and a half years we had a deal with Amerisource Bergen (ph), we only did one significant deal, sisters of mercy, and that was a deal that we brought them into, not a deal that they brought us into, and so we've actually recognized very little revenue from this agreement. In addition, we're selling an end-to-end solutions set, just not a solution set to work from the nursing floor, so when we enter a customer, we wanted to be able to offer that whole solution set, we don't want to be constrained by any type of previous agreements like we had with ABC, so really gives us -a lot more freedom in selling our whole ending story.

And then on the flip side, could you quantify or give color to how many deals you may have not been able to win year-to-date because of your ABC relationship?

I don't really think there's any that I can recall at the moment, zero.

OK, what is the stock ownership right now the company?

Also zero.

And then just to follow up you talked about the sisters of mercy deal. Can you tell us where you stand in that rollout?

Yes, we have just begun to collect. We have had some bookings in that rollout. We're just starting to do some installs, and our agreement is directly with the sisters of mercy, and it's not with ABC, even though it was a joint presented deal, and we think over the next three or four quarters, we'll recognize most of that revenue.

And then lastly on your head count, can you tell us where your sales for stand in terms of quarter caring reps? Was it 32 last quarter?

It's up 35 now. We are going to want to stick another 10 or 15 up, hopefully to prepare us for 2004, Darren.

And actually finally looking at your 2004 guidance net income in excess of 17 million, can you tell us type of tax rate you're expecting on that? Understand you have the centre wall

I think now let's keep it at 15 percent. We'll try to give you better judgment in a quarter. We're actually doing a tax assessment now, but I think 15 percent is safe.

So your guidance assumes 15 percent tax.

It does.

OK thanks guys.

Operator Thank you. The next question comes from Mr. Gene Mannheimer.

Roth Capital Partners. Randy and Dennis nice quarter once again.

Thank you.

Thanks you.

A couple of questions. Regarding 35 quota carrying reps, are those reps selling all products, or do you divide them among supply and med?

We have a brought base of geographically based reps, but then we also augment them with specialty reps, and it's a model --We are rather not break those numbers down to you, they are not all geographic reps, some of more especially reps that also help each of the geographic reps, so a mixture of the two.

Could you talk about this is revenue split between pharmacy sales versus supply sales in the quarter?

You know, the way we really look at it is we look at it based on where the bookings are going Gene, because what the mix is during any quarter is really dependent upon on what we decide to install, so we think a better indicator is really looking at what the bookings mix is, and it's -- you know, it continues to be a majority on the pharmacy side. It has the same resistance, 55 to 60.

OK, great. And about a year ago the revenue per customer average I believe was about $70,000, and the goal is to double, do you have a published figure on approximation on what revenue per customer was in the latest quarter?

Not yet. A quarter ago, it was at a hundred. So we're assuming it's higher than that now.

OK, in the press release, you mentioned that there were some competitive -- winning competitive accounts. Is that to suggest to you added products to a hospital where there was a competitor installed, or did you actually swap out a competitor product for yours?

I think you are referring to Lennox Hill, which is obviously a competitive break off, (inaudible) didn't have any product in it, and obviously we were in competition for the HPG contract. There were multiple winners, but there were also losers, so -

OK and was pharmacy central part of the Lennox Hill deal?

At this point, there is pharmacy central, there are supplies, just pharmacy boxes.

OK, great and you mentioned -- last question, you mentioned SafetyMed is included in many end, ended. Are there any revenues yet from the product?

Not yet, but we're hoping to be able to demonstrate that over the next couple of quarters.

OK, thanks again, guys.

Thanks.

Thanks.

Operator Next question comes from Mr. David Francis.

Jefferies. Thank you. I'll add my congratulations, guys. My question is going to circle back to Amerisource and the relationship there again. I guess two questions, and in part following up on Darren's. Your expectation Randy is that you guys will be in a better position to win additional business by being perceived to be de-coupled from Amerisource from a strategic perspective, number 1, and number 2, can you describe a little bit more closely some areas in which you found yourselves more closely in competition with those guys going into accounts where you won't have to deal with again any perceived conflict there? Thanks?

Yes, let me answer those in reverse. We, Amerisource Bergen both have web site products and automation on the back (inaudible) by-product. The solution set on the floor, like the cash net systems that we have agreement with ABC on, obviously when our sales folks enter an account, we want to sell the whole end-to-end solution set. There's a risk that if we enter an account with ABC that we may not be able to position ourselves well enough to sell our bed side or automation piece if they happen to be there with us, so we want to maintain control of the account, and also maintain the ability to offer these additional products. It doesn't mean we won't be competitistic with ABC and we are concerned accounts where it makes good sense for us to work there, and for them to be there, as well, but I think in the end, we found that the products -- we had two lines of products that really were head-on competitors, and it made it difficult for us. It was confusing for the customer, and was slowing us down on some of our sales opportunities. We want to maintain that going-forward. I think it's also important that we have -- you know, we have the freedom to work with others going forward.

That's helpful. Again, congratulations.

Thanks David.

Thanks.

Thank you. And the next question comes from Mr. Peter Schindler (ph). Please state your company followed by your question.

Peninsula Capital. Nice quarter as well. I'm wondering if you have or can give us a sense of what the HPG business could mean for you, 6 to 9 months out, assuming a reasonable level of success?

I think, Peter, it's difficult for us to really be able to do that, because it's pretty much a hunting license, and we're go going to see how it goes going forward, but just to talk about how big the bread box is, we're talking about 700 hospitals that are looking for new technology that are now open for us, so we're highly excited about this, we're pretty optimistic.

And we were absolutely excluded from selling to these hospitals in the past this (inaudible) is very compliant group.

Randy, I can't hear you, what did you say?

I said we were excluded from selling to this group in the past because we were on the contract, and they are a very compliant hospital group, and so it's like a whole new market for us that our sales folks in the past used to just drive on by, because we weren't on the contract, and as significantly, our entire product line, we were able to get on the contract. We didn't have to bid it in segments, but we were able to get our entire product line on track with (inaudible). Those are our end-to-end strategies that we have going.

And then what about the DOD contract? Is that obviously not as large but has had a significant opportunity over the next -

Well it compels us to be at the top of the list when the DOD is looking at us, because this an important -really it's all about security, and any systems going into DOD facilities need to have the appropriate type of security and certification. Achieving this certification, it means that we can feel very confident that our products work the way that they need to work, and meet these tests, and it just makes it easier to sell to these groups.

Great. Thanks a lot.

Thank you Peter.

Thanks.

Thank you. Once again, if you have a question, please press the "star", followed by the "one" on your push button phone. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers. Our next question comes from Mr. Fred Tony. Please state your company followed by your question

Mid-Cap Management Research. Good afternoon, guys.

Hi, Fred.

Congratulations as well on continuing your momentum. Could you talk a little more about -- you've given some guidance for next year. Can you tell us, is any new business from the GPO win, or hunting license you just got, in those expectations?

I'm not going to go there, Fred. I feel confident saying that we'll exceed the 130 number, but I just - I don't feel confident or comfortable enough going there. I'm sorry.

OK. Let me try another one.

I knew you would.

The Sisters of Mercy contract win from last quarter, has that begun to show up in the backlog number you just reported?

: Yeah, this quarter we'll see a little bit?

This quarter being -

Last quarter we saw a little bit, we'll see a little more this quarter. I believe this quarter we'll begin to recognize some of the revenue. That's what I meant.

OK, so the first time we'll see revenues really fourth quarter?

Yes, that's right. Does that still roll out over a sort of 5 or 6-quarter schedule?

Yes, probably a little shorter than that, 3 to 4.

3-to-4 quarters? And then you've talked about the fact you want to get larger deals. I presume this GPO win is one of them. Can you talk about strategy, about other potential large deals?

Getting large. They really are. It's hard to, because we are in such deep competitive situations I think what really a catalyst for the company right now is that the end-to-end solution story that we have seems to be resonating well, and the technology that we provide is perceived somewhat as a newer technology. So the deal sizes are getting larger, you know, Lennox was a large one. During the quarter, we didn't have any customers that were greater than 5 percent. Going forward, we think that we could begin to see, you know, backlog showing some higher largest customers.

OK. And does the ending of the Amerisource deal make it easier in the large account deals you are bidding on, or does it make it harder or are there other competitors that you could potentially partner with in some of those deals that now become easier? Was that one of the (inaudible) behind among the formal relationship?

I think we want to take the relationship to an opportunistic position so that we -- we have control of how it comes out for Omnicell's best interests, and it works that way in large accounts or small accounts, and doesn't mean we won't work together with them or somebody else, but you know every account is different as to where the political power is, who is the current customer, what kind of relationships each party has, so we want to make sure that we have all the opportunities to make sure Omnicell win, a matter who is partner with.

Sure.

And, you know, at the end of the day, you know, sometimes that means certain accounts, certain -- it's better to partner with other people, because they have more of a drive to win in those accounts than a different partner.

OK, let's see. Previously you had given guidance prior to the BCX acquisition. You're now saying 130 million-plus for '04. I presume BCX is in the 130 million plus since there's not an upper end to the target.

Yes.

Can you give us any better upper end to that target?

I would rather not at this point. You know, we'll talk more comprehensively when we have our year-end session.

OK, does that mean the low end of the range is somewhere above 130 million, since you're now saying 130 million plus?

Very good, Fred. You know I think I'm going to have to stand sturdy. I think I'll we should be able to exceed estimates that are currently sitting at $130 million. It depends n several factors. One is what kind of acquisition strategy we have going forward. The other is how material the HBP contract is going to be for us. Another is whether we're able to build or bolster up our BCX open platform capability with, you know, the 30 customers that they have, you know, to build on that, bring them in to ours. There's a lot in flux that we're still analyzing as part of year end planning, multi-year planning process, so we're comfortable with the guidance we gave today.

The timing of HPG contract, do you have your hunting license now? Are you out selling now to those customers?

Yes, absolutely. October 15th was the first day of the contract, so we're going full bore.

And none of your current customers are in those --in that 700-hospital customer base?

None.

OK, a couple of more questions. Just in terms of seasonality, is the fourth quarter generally the largest seasonally the highest bookings quarter, or has seasonality pretty much smoothed out?

Well I say first and third quarters are more difficult quarters. Second and fourth quarters are easier to hit on the booking side. Those tend to be the fiscal year end for tooth care facilities.

So even though Q3 is generally seemly weaker, you were able to basically sell through that and show sequential growth.

Yeah, we had a really strong booking quarter for typically a week quarter.

And then lastly, have you seen any -- what is the response, sort of a continuing question each quarter, what's the response to the pharmacy central product from pigs us customers, and have you seen any competitive response from them to date?

We'll continue to -- that's a very strong product, it's very sophisticated. Most recently, pigs us did, I believe, offer a product, but we're not -- we haven't --we don't know enough about it as to how it works, or it's capabilities. We feel like we have a very sophisticated top of the line product that has been there in the marketplace a long time, and is very appealing to both our customers, and anybody that has a lot of automation in place where the (inaudible) are our competitors, works really well.

Are they still selling their competitive refilling service?

Oh, I'm sure they are, yeah.

OK. I think that's it for now. Thanks, guys.

Thanks, Fred.

And, gentlemen, there are no further questions at this time. Please continue.

Very good. We thank you very much for joining us, and we'll look forward to talk with you again in a quarter. Thanks for joining. See you next quarter.

Ladies and gentlemen this concludes the Omnicell Q3 financial results conference call. If you would like to listen to a replay of today's conference, please dial 1800-405-2236 or 303-590-3000,and enter the access code of 555643. Once again, if you would like to listen to a replay of today's conference, please dial 1800-405-2236 or 303-590-3000 and enter the access code of 555643. You may now disconnect. Thank you for using ATC teleconferencing.