Omnicell Inc (OMCL) 2005 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to the Omnicell final first quarter 2005 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. (OPERATOR INSTRUCTIONS). As a reminder this call is been recorded today Tuesday, April 26, 2005. I would now like to turn the conference over to Mr. Jim Judson, Chief Financial Officer. Please go ahead, Sir.

Thank you, John. Good afternoon, everyone. This is Jim Judson, the interim Chief Financial Officer at Omnicell. Today with me is Randall Lipps, Omnicell's President and CEO. Thank you for joining us for today's Omnicell first quarter 2005 conference call. You can find Omnicell's press release for our first quarter results in the 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 risk, 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 piled with the SEC on March 16, 2005, 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 26, 2005, and all forward-looking statements made on this call are based on Omnicell's beliefs only as of this date. Future events or simply the passage of time may cause these beliefs to change.

For today's call, I will quickly summarize the final financial results for the quarter, followed by Randy who will provide some commentary on the business and the financial outlook for 2005.

We will then open the call for your questions.

Revenue for the first quarter of fiscal 2005 was $28.8 million up 3% year-over-year at the high end of the range we released last week. As mentioned previously, our turns business in the quarter represented 20% of revenue. Several large deals booked early in the quarter were major contributors to this total. Backlog as of March 31, 2005, was $45.2 million -- down 1.7 million as compared to the end of fourth quarter of 2004 but up 8% year-over-year.

Net income for the quarter includes the charge for the reduction in force of 2 additional onetime items which we previously discussed. GAAP net income for the quarter is a loss of $5.8 million or $0.23 per share. As mentioned previously, included in the loss are severance costs of 1.5 million for reduction for us of just over 6% and a $1.1 million charge for excess (indiscernible) inventory associated with the end of life (technical difficulty) products.

The only change in the onetime charges from our preliminary estimate (technical difficulty) is to the cost of the 2 suspended acquisitions which ended up at $600,000 vs. our initial sizing of $800,000. Excluding these charges, pro forma net income for Q1 2005 is a loss of $10 per share -- $0.10 per share.

Gross margin including excess and obsolete charge for the end of life product is 50%. Excluding this onetime charge, pro forma gross margin for Q1 ended at 53.9%, down 30 basis points from Q4 fiscal 2004. This is despite 3 large pharmacy deals that were very competitive and involved either competitive swap outs or early consolidation of leases, as previously mentioned.

Operating expenses, excluding the onetime charges, totaled $18.1 million for the first quarter of 2005 vs. 16.1 million for the fourth quarter of 2004. Again, as previously discussed, this increase is mainly due to higher fees for audit and SOX compliance; higher commissions expense paid on fourth quarter bookings that flowed through to revenue in the first quarter of 2005; higher sales and marketing expenses unique to the first quarter of 2005; and higher payroll taxes associated with the start of the new calendar year.

Looking at about the balance sheet briefly, cash balances plus short-term investments were 26.3 million, down 4.3 million sequentially. The decrease in cash flow from operating activities resulted primarily from the net loss as well as from increased inventories, accounts receivables and prepaid expenses. Inventories increased by 7/10 of 1 million during the period, primarily as a result of positioning inventory for expected customer orders that did not book during the quarter.

Our DSO this quarter was 71 days, up 12 days from the previous quarter. This was not the result of any issues with the credit worthiness of our customers. It resulted from some internal changes we made with our invoicing process that diverted resources from collection activities. DSO is expected to revert to more normal levels in Q2.

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

Thanks, Jim. Thanks for joining us today.

Since this is our second call within four business days, I will keep my comments short but reiterate a couple of very important points. I would first like to reemphasize that our business is being impacted by the unpredictability of large transactions. We are seeing large and midsized hospitals aggregating orders into single large purchases that require longer selling cycles and much more review within the hospital to close the deal.

While we are very comfortable competing in these situations and are winning our fair share, the unpredictability of when the transactions will close makes it very difficult for a company of our size to be predictable, unless we have a large backlog to smooth the fluctuations in booking. In fiscal 2004, we attempted to expedite turns to smooth this variability. However, for the long-term health of the business we will reduce our reliance on turns to improve the efficiency of the organization and to position our cost structures to enable us to better compete for these competitive transactions.

In 2005, we are focused on building our backlog to 2 times forward product revenue as quickly as possible. This will enable us to operate as efficient as possible and gain predictability without having to do unnatural acts. We believe that this will enable us to better compete for market share and deliver better long-term value to our shareholders.

Looking at the marketplace, we view 2005 as the type of opportunity that comes along very seldom. Patient safety issues, cost structures in health care, and regulatory requirements are driving the demand for our products and services. At the same time, we believe our competitors are going through product and/or organizational transitions that create a window of opportunity to gain market share.

Omnicell is focused with a very competitive product set and we want to maximize the window of opportunity while we seek to expand our customer base.

Before I talk about guidance, I want to point out that Omnicell kicked off an effort in the middle of 2004 to cost reduce our products by sourcing many of our components from suppliers in China. This included our circuit boards, our dispensers, and many of our drawer assemblies and various other components. We are seeing these components start to flow in volume and it will build throughout the year. We feel that we will migrate margin pressure from large competitive deals and be margin positive in the second half of the year.

Turning to guidance, let me repeat what I said about Q2 in our last call. Coming into Q2, we believe we have sufficient scheduled backlog and an expense base to break even without needing significant turns. There remains risk in completing installations; but we believe we are now in a position to break even without turn. We see this occurring at revenue levels, similar to those experienced in Q1.

For the full year, we are targeting an ending backlog of approximately 60 million to achieve our goal of 2 quarters of product revenue and backlog. Doing this will suppress revenue growth in fiscal 2005 to a level approximating 2004. At this revenue level, we believe that we will achieve break even earnings per share, plus or minus a couple of cents on a pro forma basis.

Until we see more of the large transaction of our pipeline turning to bookings it is very difficult to forecast 2 to 3 quarters out. Let me repeat again, our 2005 plan is about positioning ourselves for future growth and earnings with more market share, higher backlog and lean and efficient operations.

In summary, our pipeline is strong and we continue to win business and add to our customer base. With the expense controls put in place in Q1 and the reduction in projected turns business, we expect to be breakeven in Q2 on a similar revenue basis in Q1.

We expect to be breakeven on a pro forma basis for the full year and plan to grow our backlog to 2 times our forward quarterly product revenue to improve predictability and enable us to operate efficiently.

We will now open the call to your questions.

(OPERATOR INSTRUCTIONS) James Lane.

Northstar Investments. My question is I know everything is preliminary now. But is there any reason fundamentally accounting wise or structurally, why the Company shouldn't eventually be able to get back to the peak margins that we might have seen late in '03, early in '04?

I guess I would comment that we believe that margins will improve from this point as we go throughout the rest of this fiscal year. There is, I would say, enough uncertainty about some of the large transactions that I'm not going to offer guidance at this point at the margin level. But we would expect to see margins improve throughout the balance of this fiscal year.

Well, just to do a follow-on then. At some point, will you be able to update us on what you think the sustainable longer-term margins of the Company should be, given that we've had quite a bit of volatility over the last couple of years? It seems like you are trying to build toward more predictability and that's why I would think there must be some kind of a target margin level.

I think it will really depend upon the mix of product that we see going forward. Some of our emerging products have very good margins there, software basically 100%. Some like the Pharmacy Central are lower margins. So a lot will depend on the mix.

(OPERATOR INSTRUCTIONS) Sir, we have no further questions at this time. Please continue.

I think that is it if there are no more questions. Thank you all for calling in. In approximately 15 minutes, Randy and I will be back in our offices to take any calls. You can reach us at 1-800-850-6664, extension 6113. Thank you for dialing in today.

Ladies and gentlemen, this concludes the Omnicell final first quarter 2005 financial results conference call. If you'd like to listen to replay of today's call please dial in at 303-590-300 or 1-800-405-2236 and enter the passcode of 11029146. You may now disconnect and thank you for using AT&T Teleconferencing.