Omnicell Inc (OMCL) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the Omnicell third quarter financial results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Thursday, October 21st, 2004. I would like to now turn the conference over to Mr. Dennis Wolf, Executive Vice President of Finance and Operations. Please go ahead, sir.

Good afternoon all. Dennis Wolf here. With me today is Randy Lipps, our Chairman, President and CEO. Thank you for joining us today for our third fiscal quarter 2004 conference call. You can find Omnicell's third quarter financial results press release, as well as the financial and statistical information discussed on this call in the Investor Relations section of our website.

This conference call is the property of Omnicell, and any taping, other duplication or rebroadcast without the expressed 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 Discussion and Factors that may Affect Future Operating Results, in Omnicell's annual report on Form 10-K filed with the Securities Exchange on March 8, 2004, as well as other filings with the SEC.

Please be aware that you should not place undue reliance on any forward-looking statement made today. The date of this conference call is October 21, 2004. And all forward-looking statements made on this call are made based on our beliefs only as of this date. Future events or simply the passage of time may cause these beliefs to change.

Randy will now update you on the business, as well as the highlights of the quarter. I will then review with you the financial highlights for this first -- for the third fiscal quarter, as well as Omnicell's financial outlook for the remainder of fiscal 2004 and our current outlook for fiscal 2005. And of course at the conclusion of our remarks we will open the call up to your questions. I now turn the call over to Randy.

We are very pleased with our Q3 '04 results. We have posted record revenues and bookings, and continued to strengthen the value of our franchise by growing 24 percent in revenue and 36 percent in backlog over last year. We are leading the industry in technology and innovation, and we are gaining market share as a result.

We believe Omnicell's transformation to becoming the technological leader continues as we saw in this last quarter strong bookings for our new emerging products. And our ability to execute has improved significantly as we increased our book to bill ratio to 1.11. We're making good progress toward our goal of improving the operational efficiency of our Company to insure we grow faster than the market.

Now I would like to talk a little bit about the power of our technology. During the quarter we installed and took revenue for new Omnicell 8000 Release, which includes the wide range of features to increase patient safety, improve work flow efficiency and enhance security. In addition in early August we were extremely pleased by the enthusiastic market response to our unveiling of a prototype of OptiFlex RF ID, a radio frequency identification enabled supply system at the ARM conference and exhibit in Nashville.

OptiFlex RF ID is another example of Omnicell's continued innovation leadership among the major automation systems vendors. Speaking of OptiFlex, we have also been pleased with the early success of this product line. Not only has it redefined the supply automation market, it has been central to the improvement of our supply systems business, the general trend of which is up.

As we reviewed with you the last couple of quarters, Omnicell business is changing. Increasingly our customers are demanding comprehensive end-to-end solutions. And this has resulted in Omnicell evolving into a significant player in pharmacy automation, augmenting our leadership position in supply automation.

Revenue for Q3 '04 was 32.7 million, and earnings per share were 12 cents per share common, meeting Street estimates. Our revenue growth was 24 percent year-over-year and 12 percent sequentially. Our operational plan includes the following components, expanding backlog every quarter in order to minimize reliance on turns business. Our backlog expansion during Q3 represented year-over-year growth of 36 percent, well above market -- current market growth rates. And we will continue to focus on improving backlog.

Focusing on new business to grow the enterprise, but continuing to provide new solutions to current customers, thereby increasing Omnicell's account penetration. New business accounted for 16 percent of our bookings during the quarter. But we did have some large existing customers order new solutions, prevailing over intense competition which further validates our technology advantage.

While account expansion came primarily from pharmacy solutions, which represented about 75 percent of our bookings, an important component of our operational model is to balance our pharmacy business with supply solutions. Our supply bookings during the quarter represented approximately 25 percent of total bookings. And we believe this is the optimal mix between supply and medication automation. We expect the ratio to continue to grow on a go forward basis.

As I stated earlier, we were also encouraged by the introduction and early success of OptiFlex, our new hybrid solution, developed by our subsidiary BCX Technology. While we expect supply automation growth rates to be moderate, flat to 10 percent up, our supply business is a key component of our overall revenue growth goal. And a balanced mix of supply and pharmacy business is important for our operational model.

We added 15 new accounts during Q3. Our top 10 accounts represented about 46 percent of bookings, virtually the same as a year ago. As a matter of fact, during this record booking quarter we had 17 accounts with bookings greater than 500,000, and 5 accounts with bookings greater than $1 million.

We believe that continued success in large accounts very important for Omnicell because it indicates market acceptance of our end-to-end solutions. In fact, most of our business once again came from deals larger than $500,000 per order. Our average deal has increased about 10 percent over the last year. This reflects a greater mix of products and provides for better gross margin performance.

Our new product lines which include Omnicell PharmacyCentral, SafetyPak, SafetyMed, and OptiFlex, represented about 13 percent of bookings in Q3 '04 and 12 percent year-to-date. This continues to meet our goal of 10, 15 percent of total product bookings for the full year.

As you know, during Q2 '04 we added 20 new sales reps, bringing our total sales headcount to 75. During Q3 '04 we completed the aligning of the sales organization at the supply and pharmacy units. Our intent was to increase market penetration in every product segment by focusing our selling expertise along product lines. We believe this will allow us to more effectively launch our supply business hybrid model and react faster to business opportunities. This strategy is working very well. And several of these new sales sales personnel are already making an impact.

I would now like to share with you some additional highlights from Q3. Consistent with the increasing success we have experienced in the pharmacy arena, as we mentioned during last quarter's call, we were gratified by Indie Byline's (ph) report in July that Omnicell ranked number 1 in customer satisfaction among medication dispensing systems vendors for the first two quarters of 2004.

Last year we decided to make quality a focal point. We are pleased to report that our efforts to build quality programs and initiatives within the Company have paid off, enabling us to obtain our ISO 9001 compliance this past quarter. In addition I am pleased to say that all of our product developer programs are either on or ahead of schedule.

As I shared during the Q2 '04 conference call at the ASHP 2004 Summer meeting in mid June, there's a lot of interest in our MedGuard line of end-to-end solutions for the medication use process, which utilizes bar code technology throughout. Also at the show we announced WorkflowRx , a unique integration of Omnicell's PharmacyCentral with SafetyPak. WorkflowRx enables complete pharmacy workflow integration, fulfilling virtually all of the inventory management and drug distribution needs of the central pharmacy. We do not believe any other vendor provides this level of integration. In addition, we announced OmniLinkRx 3.0, a major upgrade of our physician order management system which we believe gives us the most advanced product in the marketplace. All of these new products have been installed or are in the process of being installed in various accounts.

I would also like to highlight a major customer win. Baylor Health Care System, the prestigious 11 hospital system in Texas, that shows us both for supply and medication dispensing technology. Baylor was a displacement of a main competitor, and we are already booking and shipping product to this system.

In summary, we are pleased with our results for the third fiscal quarter and continue to drive the Company based on our market share expansion model. Q3 '04 was a very successful quarter for us. We believe that our focus on operational performance is improving the Company's results, and we will maintain this focus.

As I did last quarter, I would like to discuss our multiyear revenue expansion plan. As we have shared with you on previous calls, we believe that growing our market share is the most important part of Omnicell's model. Towards that end we have always considered growth through strategic acquisitions, as reflected in our most frequent acquisitions of BCX, ATRS and SafetyMed. We believe that there may be other opportunities open to us in the marketplace today that are accretive now or within short order. We will continue to look at acquisition prospects with an eye for those which will help us continue to be the technological leader in our industry.

I will now turn the call back over to Dennis who will review our outlook for the remainder of 2004 and fiscal 2005.

As Randy discussed, we are very pleased with the progress that we made this past quarter. We've taken a number of steps to improve our operations and believe that they are beginning to take form. Revenue for the third fiscal quarter was $32.7 million, up 24 percent year-over-year and 12 percent sequentially. Backlog was up 3.3 million sequentially and 36 percent year-over-year, with backlog ending fiscal Q3 '04 at just under $50 million. We posted net income of 3.3 million, and an operating margin of 3.3 million, or 10 percent, and earnings per share of 12 cents on 27.6 million fully diluted shares.

Our OpEx for Q3 '04 was 15.8 million compared to 15.2 million in Q2 '04. And this increase was due to R&D spending. Our spending for SG&A during the quarter was 13.3 million, which was about flat sequentially, as increased spending for the added sales forces was offset by reduced marketing trade show expense.

Turning to revenue and backlog, our third fiscal quarter results were as follows. Again, our revenue for Q3, the $32.7 million, up 12 percent sequentially, of that product revenue was $26.8 million representing up 14 percent sequentially, and service and other revenue was about $6 million, up 2 percent sequentially. Again, backlog increased by 3.3 million to $49.7 million.

Turning now to margins and expenses for the third quarter, our Q3 '04 gross margin was 58.3 percent, down 220 basis points from Q2 '04. And that is consistent with what we had forecasted. Some of the larger deals that we took a year ago began to revenue this quarter. And those deals' product margins were a bit lower than average margins. During last quarter's conference call we estimated gross margin for the second half of the year to be in the 58 to 59 percent range, and we reconfirm that outlook. We had an operating profit of 3.3 million this quarter, up more than 800,000 sequentially, and again representing an operating margin of 10 percent.

Net income per fully diluted share in Q3 '04 was 12 cents compared to 9 cents last quarter. That is up 3 cents per share. Total share count again stood at 27.6 million fully diluted shares. We expect share count for year end to be about 28 million.

To cover the balance sheet now. Cash balances plus short-term investments were 32.6 million, down 3.8 million sequentially. While net income of 3.3 million, depreciation and amortization of 1 million, and stock option proceeds of about 2.5 million represented total cash sources of almost $7 million, there were several uses this quarter. And those uses of cash included inventory increases of about $4 million, AR increases of 3 million, and some capital additions of about 1 million.

The large inventory increase continues to be primarily due to revenue growth prospects for the second half of '04 and into 2005, and should now stabilized. And we expect it to come down 1 to $3 million in even this current quarter, Q4.

Our DSO this quarter was 48 days. That is up 4 days for the previous quarter. This increase in DSO was due to the lowered rates of leasing this past quarter. Leasing really represented only about one-third of total bookings. As a matter of fact, most of the reduction in sources of cash this quarter was due to the lower proportion of leases versus purchases, as well as the sheer number of deals that closed towards the end of the quarter. We expect cash levels, however, to around 40 million or higher this quarter, Q4.

Our guidance for the remainder of 2004 remains unchanged. I would like to make some comments about our recent results in order to set the table for fiscal 2005. Through the first three quarters of 2004 we have achieved strong backlog growth in the 35 to 40 percent range. In addition, we are unquestionably gaining market share, as we were growing at about 2.5 times or more the rate of the market. Going forward we expect to continue to grow at this level, 2.5 to 3 times the rate of the market, which will mean that backlog would grow by about 25 to 30 percent next year.

Due to the more complicated nature of larger multiproduct installations and our continued dependency on our hospital customers' time lines for installations, we are revising our guidance for fiscal 2005 revenue to be between 145 million and $150 million. This would mean that our revenue growth would be 15 to 20 percent. We expect our earnings to grow 20 to 30 percent in 2005, and that would represent 55 to 60 cents per share.

Please remember that the risks and uncertainties referred to earlier in our Safe Harbor statement are particularly relevant to this section, as this portion pertains to forward-looking statements.

I'm going to hand this call back to Randy for closing comments. (technical difficulty).

I just wanted to make it clear that we're having a very good year. The breadth of our vision and our technology leadership are clearly resonating with customers. We're taking market share away from our competitors, and we're growing over twice as fast as the market. We very optimistic about our future and our growth perspective.

We will take some questions.

(OPERATOR INSTRUCTIONS). Sean McKenna.

Merriman. Dennis, could you kind of go over a little more sort of why you are lowering the guidance for '05 and give us some more detail there?

Sure. There are a couple of things. If you look at this year, we have been able to obtain every quarter on bookings, on revenue, on operating margin. So we know we can get to the level that we put out there. However, what we also found is that our inventory, as you know, this quarter increased. There are certain built-in inefficiencies in trying to grow revenue as close to a rate as bookings as you can. And we're trying to moderate that.

We have also found that these deals that we have built are larger and more complicated. They continue to be. We are ready to go on several of the accounts and the accounts aren't ready for us. We are continuing to grow in excess of 2.5 times the market. The market seems to be pretty stable right now. At this point we think to be prudent and to be efficient, we think that growth rates in the 15 to 20 percent range, at least over short order, are more beneficial to the model itself.

Maybe I could just follow up on that. Going back to backlog, could you refresh us as to why something needs to be -- that the criteria needs to be accounted as backlog. And I guess what I'm trying to get at here, you say that the customer -- you're ready but the customer is not. What percentage, or how far along is that deal? Are you literally just waiting to deliver it to the customer and they have no place to put it or if you could just --?

Those are all good questions. In some cases that's true. Some of the deals -- you look at Sisters of Mercy or you look at Linux, you see that those took up to a year to go out. You've got UHAC that we booked in Q1 that we are starting to position for installation. It is not quite ready yet. We're finding that when you look at the nature of the backlog, it is non-cancelable, totally shippable backlog over the course of the next four quarters, most of it happening within six to nine months. And that seems to still be the threshold.

Now what you're also finding is that more and more hospitals are not just saying, would you bring in one or two cabinets. They are saying, we want to upgrade all our systems. Even when we do a roll over it is, can you roll this product over for another five years? It is really more, we want to upgrade the software. We want to upgrade the cabinets. We want to integrate that with the pharmacy. We're interested in Keene (ph) and trying to deploy the bedside. And we're finding that to continue to happen pretty robustly.

And then another one if I may. Dennis, just as a follow up on that, could you sort of indicate to us then why maybe you wouldn't want to increase the turns piece of the business, just so you can kind of get more revenue recognized faster? I know last quarter we had discussed that it should be some kind of balance. But I guess I am a little bit confused again between what the balance -- I am confused rather as to what the balance should be between --?

Again, good question. The key to the kingdom, if you will, is to reduce turns business. And the reason for that is that we need to get to 15 to 20 percent operating margins, and in the current model that means it is going to be the last half of next year instead of the early part of the year. And it is really because of the inefficiencies in the market.

We don't want to have more inventory -- more inventory ready built, ready to go than we need. We don't want to have to install more than once. We don't want to hire temp help or overtime help to take the pressure the last week or two of every single quarter. We made the quarters. We will make next quarter. But what we believe is if we could reduce our turns business, and our turns business by the way has come down as a reliance, as a percent. But we really want to get it to be 10 percent. We think we getting closer to that. And clearly the model that we just laid out for you will get us there.

The last 2 or $3 million of any quarter is very expensive. And the fact that we're taking market share away and that we don't have to worry about those deals falling away, it is really more important to us to become more efficient and to improve those margins. As you recall, we're telling you that our gross margins are in the 58 to 59 percent range. We think it could be somewhat above that next year, and we believe that imposing some of these parameters are going to get us there.

Then finally one last one, Dennis. I appreciate your patience. I just wanted to again ask now about 75 percent of bookings this quarter you say were pharmacy. I guess I'm just kind of curious, is the inventory management process for pharmacy, specifically as it relates to the modular drawers, pretty much what you had expected, or is it very challenging to try to keep the right amount of stuff on hand using the JIT process?

No, we have learned a lot. Our learning curve has kicked in really well. Another way of asking the question that you're asking is, how are the margin margins doing? What's the differential? Supply is easier to do. We still get a little bit better margins, but pharmacy has really come up. And if we get an order we can get that thing deployed.

Gene Mannheimer.

Roth Capital Partners. Some questions for you. Are you still comfortable with your backlog goal of ending the year between 54 in 58 million?

Yes.

Okay. Can you characterize or talk about any revenue that you recognized from the Baylor contract in the latest quarter?

We just started there, so I don't believe we recognized hardly any. And we will begin to recognize a little bit this quarter, and probably spread out over the next year, year and a half.

And to your point, those are all ready to go. They are built. They're ready.

So that is a good 15 to $20 million or so revenues in the backlog from that deal alone?

No, in the backlog itself we really only -- the nice thing about the Baylor contract i you don't need to take it all into backlog and have a full 1, 1.5 year deployment schedule. What you have is that they -- you have got a master agreement and they lay on top of that purchase orders that they need to. So we get a nice 1 million, $2 million pop that could predictably work through the next 6 to 8 quarters.

Can you talk a little bit about '05, some of the parameters there? What type of tax rate are you looking to?

Yes. So our tax rate is unchanged at 13 percent. 2006, we haven't talked about tax rates yet, but we will reach into full taxation sometime in 2006. So you should use probably at this point about 30 percent growth there. If it is better, we will let you know. But that is what -- if you're starting to build any concepts on model growth why don't you start with that.

Along those lines, fully diluted shares, expecting 29 to 30 million?

No, actually we're thinking for next year we will be somewhere between 28.5 and 29 million shares. It depends upon the stock performance obviously. And if we do better then I suppose the performance will improve and there will be more shares. But I think the top of the market is probably between 28.5 and 29 million.

Very good. And on your balance sheet I noticed that other current assets seem to spike up year over year from about 4 million to 7 million. What is contained in other current assets?

We have in there prepaid expenses. That is mainly insurance which we just bought, D&O and also risk insurance -- other risk insurance. Commissions are in there. And some leases that we're taking internally.

And then last question and I will give up the floor. You mentioned targeting some accretive acquisitions. What areas would you be looking at, the operating room, the ER or other patient care areas of the hospital?

Those are great areas. And all of you guys online, if you would talk to your -- well, you can't talk to your bankers anymore -- but there are really good opportunities out there. And we think that we're in a market where we can actually be a consolidator instead of consolidating. I think that the transformation story that we put out of becoming the technology leader in this sector is taking form. So it is going to be around those kind of deals.

And you think these would be technology purchases or outright company purchases?

It could be both. It will be both.

Ryan Stewart.

Piper Jaffray. Just building off of Gene's question there, taking it a step further on the M&A front, with the shelves that you put out there can you speculate on -- or not speculate on -- can you kind of talk to the relative size of deals you're seeing? It is sort of my understanding that you see more tuck under type deals than anything else. But with that shelf out there to keep you nimble with the larger deals, is there anything you can say relative to the types of transactions, the actual size of things that are coming to you, or if in fact deals flow coming to you has increased since you registered that shelf?

Yes, they're all bigger than a bread box.

They're smaller than a kitchen.

You know there are a couple that you could just tuck in, technology plays, which are really interesting, really helpful. But they're not real -- I regard them as extenders to the Company as opposed to a real addition to footprint.

We have seen deals anywhere from a few million to upwards of 100. All companies that we would look at would be private companies that are leaders in their fields that would enjoy good gross margins, be self consistent with the operating model that we're trying to build, which is 15 to 20 percent, and being accretive, if not now then within the next few -- 3 or 4 quarters. So when you do that all of a sudden that list of 50 comes down to a list of 5 or 10, and we're working those all the time.

And then secondly, I guess I thought that the optimal mix was kind of -- and I don't mean to be splitting hairs here, but was kind of in the 65 to 35 percent range between pharmacy and supply. And I am thinking that before you comment on that, one of the primary drivers I think of the hiccup in the first quarter was the 80, 20 split, the larger deals to the smaller deals. Now I think you have normalized and improved the operations, but can you talk to that? Because 80, 20 to 75, 25 isn't that meaningful of a difference. And that was, again, one of the drivers in the first quarter. Now perhaps you can talk a bit about how operationally you're able to handle a higher share of pharmacy today than you were six months ago or so?

So a couple of things. One of course the denominator is bigger, so that what we're finding -- one of the comments that Randy made is that while we're not finding our competitors really growing on the supply side, maybe shrinking, we're continuing to grow. But that marketplace is not a fast-growing marketplace. So by virtue of that it is going to be in the 25 to 35 percent range as the denominator changes. Kind of really more than anything else that explains it.

But I think the other piece is that on the pharmacy side there are some really good learnings that we have been able to acquire through having the experience over the last year or two the pharmacy side. And it is now becoming a larger part. We're able to deploy and (technical difficulty). So I think it is the OptiFlex story. The hybrid solution story continues to build. You are probably right. It is going to be closer to the 30 or 35 percent range, but we feel that a range of 25 to 35 percent is roughly right.

Just then just lastly, there's a lot of discussion out there about the value of the bedside, or scanning at the bedside, mind you. Can you comment at all about what you're seeing just in bookings in this quarter from last quarter to the first quarter? And what you're expecting in next year, or next quarter, relative to actual -- the bedside scanning dynamic? How much of it is it a growth driver this year, or is it more kind of things are starring to fill up in the pipeline and we're going to see it more next year?

Yes, I think that is a good characterization of the bedside market. It feels like it is fairly embryonic, but it is changing. I think the enterprise players are developing solutions that -- so that you see some of the big enterprise player customers waiting for them. And so what is most important to our customers in that situation is that we have a good integration path backwards and forward to our systems so that while it is either our bedside or an enterprise bedside solution, it is very critical to the selection of the pharmacy automation in particular.

So it does influence choice. And because we have such a high-caliber bedside product not only can we deploy ours, but we can also integrate to these high-end product lines that the enterprise guys have. We feel like it is a grower for us, but it is an embryonic market. Next year I think we'll see some bookings there.

And then some of those deals that were in the 500,000 to 1 million, did they include some bedside solution -- scanning solutions?

Sure did. Yes.

(OPERATOR INSTRUCTIONS). Glenn Garmon.

First Albany Capital. What is the average time to install currently? And in light of the guidance that you provided, the revenue guidance for '05, are you contemplating any sort of decrease in that average time? Or I guess what I'm trying to sort of determine is there some conservatism built into that number to the extent that the installation slot plan goes fairly smoothly throughout '05 could we see some upside to that revenue expectation?

Actually, the average installation time has come down. It is the average wait time that seems to be going up a little bit. So I think that to the extent that we start -- I think part of what is going to really help is an end-to-end solution takes time. Just like the learning curve took us a little bit of time on pharmacy, on the pharmacy side. Once these hospitals start becoming attuned to getting their deployments done end-to-end, getting their integration done then it will start speeding up. But we're ready. I mean it really has come down.

I know it spiked up at one point, I think. Towards the end of the first quarter it was up over 100 days. Is it that back in that 75 to 80 days on average?

I would think so. It could even be somewhat -- I would think that would be about right. You're looking at it from a backlog perspective more than an installation perspective. But yes, I would say so.

Fred Toney.

Midcap Management. A couple of follow-up questions. And I guess first off you guys were in San Francisco recently. We were talking about backlog. And could you remind us how much of the Baylor and Vancouver -- those two big deals -- is there something like 20 or 30 million out of those two deals that is not included in your backlog number today?

Yes, I think in those deals we have less than -- roughly less than 5 million in both those deals combined in backlog today.

So that leaves what, 25 million of potential -- of revenue you think you've got, but is not in backlog?

Yes, POs to collect, right.

I guess the second question is with the slower growth for '05, do you think that the market, because there are more big deals happening in the marketplace, do you think that the overall market growth is slowing as well?

Its a hard one to answer because ours really isn't. But if you -- if the leaders in the industry are any indication then, you're closer to them that we are, but they seem to be thinking that. We have not experienced it. We keep hitting our numbers for bookings and revenue. We anticipate that for this quarter as well. But we don't know for sure.

When you say your isn't -- yours is slowing based on your guidance for '05 versus 04, correct?

Yes. And it is slowing (multiple speakers) guidance.

It is still growing better than the market. I'm just wondering what your thoughts are about the market growth and whether you think that is slowing because bigger deals throughout the market are happening?

Bigger deals are taking longer. Whether that means that bigger deals taking longer means that the market is shrinking, that is something that we couldn't answer. They are just taking longer.

And I'm not suggesting that the market is shrinking, but the growth may be slowing.

I mean the market rate shrinking is what I meant. So the answer really is more, is the timing in getting these deals done an indication of market softness?

And it sounds like it is logistically on the customer side just taking longer before they are ready to install because their other peripheral systems they need to get ready for your installation?

Yes, or they just have other systems in the hospital that they are upgrading, but that is generally true. A lot of people are putting in CPOE and EMR and those kinds of things. And we have to go in and install alongside those projects or around those oz. projects. So it does have some interruption in your schedule even though --.

There is more traffic to contend with?

Right.

Then my next question, you added a lot of salespeople this year. And can you tell us how the newest group of salespeople that you have added are doing? And how can we -- what kind of yardstick can we look at to measure that production, A. And B, are you getting the production from the sales folks that you expected to get -- the new newly added folks in the second quarter?

Yes. You know as always, when you hire some new folks you've got some real stars. And we think -- and a few of those folks have really come through for us. But yes, I think what we really look at because of the lead time it takes to build a pipeline is we look down into the pipeline see that these folks are building adequate levels of pipeline that reflects significant activity.

And so we feel a really good about these 20 folks. And as they mature, get out to 6 months, 9 months and a year we expect full productivity out of them. And we're really proud of the people we have been able to hire and attract to this Company to come and work here. It is really a highlight. A lot of folks are coming to us, wanting to work here because we've got the great growth opportunities.

Sort of tying that back in, it sounds like you're getting the production out of the sales force you need. If it is really installation -- sort of wait time to installation that may be the gating factor for you right now, does it not make sense to come back behind those folks and grow your sales force again?

Yes, we're actually looking into that, because the opportunities are pretty strong. I think good possibilities also exist in supply where -- well, it may be about a third of our folks are doing that. We could probably use some more people.

Show so should we expect that sometime by early next year? And if so, does that lend upside to your new guidance given that maybe that'll help you get ahead of this -- obviously if you've got a big enough pool of backlog the installation time issue is going to moderate itself?

(technical difficulty). I think so.

So by early next year?

Yes.

Pete Snyder (ph).

Peninsula Capital. It sounds to me like you guys are doing kind of two things. You're trying to have complete visibility into the quarter by getting your turns business to zero or 10 percent. So that is a self-inflicted change in the growth rate and hence the guidance, is that right?

Yes, we would like to get our turns down. That's correct.

And then what changed in the last say 6 weeks from -- let's say even the last 3 months? Have you found some of your bigger customers are saying maybe even a Baylor and a Vancouver are saying, wait, we need a lot more time to install, or is that why you're changing guidance as well?

Yes, they are taking -- some of the larger ones are taking some time. We're also in the midst of our planning process which started about a month and a half ago. So we have (technical difficulty) information.

And some of our pipeline also shows that the order size seems to be growing even more, which would indicate potential for longer installs.

Dick Dury (ph).

It looks like your stocks won?

I confess. I am like the last guy who asked the question. I don't get it. I don't understand why the Street has been looking for 155 million in '05, and now you're once again reducing guidance to 145, 150. But worse than that there is an elephant in the room in terms of the earning earnings estimates. And the range in estimates for '05 it is, I don't know, 70 to 80 cents. And now you're saying it is 55 to 60 cents. I don't understand what you people are doing in terms of your guidance with the Street? There is quite a disconnect. Can you address that?

We addressed it. I'm not exactly sure what question you're asking.

I'm looking at a range of estimates for '05 from five analysts. And the range is from 65 cents to 80 cents. And they were all put in X1 (ph) estimate. They were all put in July 30. And they are all tomorrow morning going to take their estimates down to 55 to 60 cents, unless I missing something that you are saying. I'm just trying to understand what it is that has changed so dynamically in the last two months that you people feel compelled once again to haul in your guidance?

We talked about a couple of things. We talked about the fact that we want to continue to make things more efficient. The other thing that we're seeing is that we expect backlog to grow a little slower next year than it did this year. We can't really -- the disparity of 65 to 80 cents out there we can't really talk to.

Now, that's not the discrepancy. The discrepancy is from 65 to 80 cents going to 55 to 60 cents in 24 hours. And frankly I could deal with a hell of a lot less efficiency and a lot higher earnings estimates from you folks.

Hopefully you'll get that with --.

That's two strikes. Thank you very much.

Dan Mendoza.

It's been asked and answered. Thank you.

Are there any other questions?

At this time we have no further questions.

Very good.

Thanks for joining us today. And of course we will be doing a road show in the next three weeks or so. And so give us a call if you would like for us to come by and see you.

Ladies and gentlemen, this concludes the Omnicell third quarter financial results conference. If you would like to listen to a replay of today's teleconference, please dial 303-590-3000 or 1-800-405-2236 and enter the access number of 11011628. (OPERATOR INSTRUCTIONS). We appreciate your participation. You may now disconnect.