Omnicell Inc (OMCL) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Omnicell Fourth Quarter 2006 Financial Results Conference Call. [Operator Instructions.] As a reminder, this conference is being recorded today, Tuesday, January 30, 2007. I would now like to turn our conference over to Rob Seim, Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon. With me today is Randall Lipps, Omnicell's President and CEO. Thanks for joining us today for Omnicell's Fourth Quarter 2006 Conference Call. You can find Omnicell's fourth quarter results press release in the Investor Relations section of our website at www.omnicell.com.

This conference call is the property of Omnicell, Incorporated. 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 applied.

For a more detailed description of the risks that impact these forward-looking statements, please refer to the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under the heading "Risk Factors," and Omnicell's Annual Report on Form 10-K filed with the SEC on March 16, 2006, as well as more recent quarterly 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 January 30, 2007. 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.

So for the call today, I'll start with an overview of the financial results for the quarter, followed by Randy, who will cover some of the quarters' business highlights. I'll then discuss Omnicell's guidance for 2007. After that, we'll open the call to your questions.

Now, for our results. I'm very, very pleased with the announcement that Q4 was a strong finish to a very good year for Omnicell. Once again, we had record orders, record revenues, and profits were above expectations. Omnicell's order rates were stronger than we have ever experienced, resulting in product backlog growth of $15 million. Orders were ahead of our internal forecast in every region and hospitals of every size and in every customer segment.

Product quarter backlog now totals $114 million, which is roughly three calendar quarters of future installations. Business for both our supplies dispensing systems as well as our medication dispensing systems were very strong and we are pleased to continue our momentum with corporate multi-hospital organizations.

Our success continues with large accounts as well. Our 10 largest deals made up 39% of our bookings for the quarter. We attracted a significant set of new customers with 31% of our bookings in Q4 coming from the combination of competitive conversions and greenfield accounts. Greenfield accounts are those customers installing automation for the first time. For the full year of 2006, 37% of our bookings were from greenfield and competitive conversion accounts, split approximately 50/50 between the two categories.

And as we've noted through 2006, our backlog provides us excellent visibility into installations in the next two quarters. We continue to add customers whose installation horizon is greater than six months from when we receive the order. Customer demand for our products has grown throughout 2006. And we have added staff to our operations team in order to schedule installation consistent with our customers' desired timing.

We maintain the capability to install on shorter notice when our customers' needs require it. And during Q4, we selectively added staff in other functions of the Company as we saw strength of customer demand for our products. In addition, we transitioned certain customer help desk functions formerly outsourced to a third party in India to Omnicell's own Bangalore office. With the combination of bringing in the help desk function in India and our internal growth, we ended the quarter with 626 staff members.

We have grown our staff to meet expanding demand during 2006, and we feel we are well poised to meet continuing customer growth in 2007. The new customers we are adding typically require extensive planning before our products can be installed, both by the hospital personnel and by our installation staff, which typically means longer installation cycles. These longer cycles give us the visibility to better manage our operations predictably and efficiently.

It also gives us the opportunity to carefully plan installations with our customers to ensure high satisfaction. Our continued goal is to have the highest customer satisfaction in the healthcare industry.

Now I'd like to discuss our fourth quarter and full year financial performance. Consistent with previous quarters this year, I'll remind listeners on the call that Omnicell adopted Statement of Financial Accounting Standard 123, as revised, in Q1 of 2006, which I'll refer to as FAS-123[R] during the rest of the call. 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 was applied prospectively, meaning there is no impact to periods prior to Q1 2006. Since stock compensation expense is a non-cash expense, we use financial statements internally that exclude stock-based compensation expense in order to measure some of our operating results. In addition, stock compensation expenses are significant in 2006, but did not exist in our reported results in 2005 [as] the accounting change was applied prospectively.

Therefore, we use non-GAAP financial statements internally for budget measurements and year-to-year comparisons. We use these statements in addition to GAAP financial statements and we feel it's useful to investors to understand the stock compensation expenses associated with the implementation of FAS-123[R] and non-GAAP results, excluding these expenses. In covering our results for the quarter I will first discuss our GAAP performance, and then I'll discuss our non-GAAP financial performance, excluding the effects of FAS-123[R].

Revenue for the fourth quarter of fiscal 2006 was 42.3 million, up 26% year-over-year, and up 3% from the third quarter of 2006. On a GAAP basis, gross margins were 55%, inclusive of .3 million associated with FAS-123[R] stock compensation expense. This was up .7 margin points from 54.3% last quarter and roughly flat to Q4 2005. Operating expenses were 19.8 million and included 1.6 million of stock compensation expenses.

Operating expenses increased .2 million from Q3 2006 and 3.2 million from 16.6 million in Q4 2005. Net earnings were 3.8 million or $0.13 per share, an increase of 1 million, or $0.03 per share, from 2.8 million and $0.10 per share last quarter, and up 2.2 million, or $0.08 per share from the fourth quarter of 2005.

For the 12 months ended December 2006, revenue was 153.2 million, up 26% year-to-year from 125--excuse me 121.5 million in the 12 months ended December 2005. Gross margins for the full year were 54.8%, down from 55.1% in 2005. Operating expenses were 75.6 million, up 8% from 69.7 million in 2005. Net earnings were 9.3 million, or $0.32 per share. This compares to a net loss of 2.1 million or a loss of $0.08 per share in 2005.

Now I'd like to cover our non-GAAP results. I'll cover non-GAAP gross margins, operating expenses, and earnings per share. For each of these discussions, the only adjustment to current year GAAP results is the exclusion of the stock compensation expense. Adjustments to 2005 are exclusions of one-time restructuring charges booked in Q1 2005. I will be making year-to-year comparisons to the reported results of Q4 2005 and reported non-GAAP results for the full year 2005. A full reconciliation of our GAAP to non-GAAP results is included in our press release and will be posted on our website.

[Let's] start with gross margins. Non-GAAP gross margins for the fourth quarter of 2006 was 55.8%, compared to non-GAAP gross margin of 55.1% reported for the fourth quarter of 2005. Fourth quarter non-GAAP gross margin was up sequentially from third quarter non-GAAP gross margin of 55.1%. Margins were up sequentially because of end of life inventory obsolescence and a final buyout of residuals from a leasing partner that were booked in Q3 '06 and did not repeat in Q4 '06.

For the full year 2006, non-GAAP gross margins were 55.5%, as compared to 2005 margins of 56%. Our non-GAAP operating expenses were 18.2 million, up 10% from our 2005 fourth quarter operating expenses, and also up 2% from our Q3 2006 non-GAAP operating expenses. As we commented last quarter, we are investing in the continued growth of the business, and you should expect us to continue to invest in sales, research, development, and infrastructure to help ensure we are able to capture the market opportunity that is available to us.

For the 12 months of 2006, non-GAAP operating expenses were 68.8%, up only 2% from 2005 operating expenses of 67.6 million. Our Q4 2006 non-GAAP net income was 5.7 million, or $0.19 per share, and that is $0.02 above analyst consensus. This compares to reported earnings of 2.2 million, or $0.08 per share in the fourth quarter of 2005. Our Q4 2006 non-GAAP net income was up .8 million from non-GAAP income in Q3.

The 12-month 2006 non-GAAP net income was 17.3 million, or $0.60 per share, up 16.2 million, or $0.56 per share, from 2005 non-GAAP net income of 1.1 million.

On the balance sheet, cash and short-term investments were 60.9 million, an increase of 31.4 from Q4 '05, and an increase of 10.8 million from Q3 2006. 7.8 million of our quarter-to-quarter cash increase was from business operations and the result of a prepayment from a leasing partner. 3 million of our cash increase was the result of stock option exercises.

We had record cash collections during the quarter. But because of our strong order rates, we had increased shipments to customers in anticipation of Q1 installations, and our DSO actually increased from 74 to 79 days. Since it is our practice to invoice upon product shipment, our overall accounts receivable balance has grown from 32.7 million in Q3 to 36.7 million in Q4.

Inventories of 16.3 million are an increase of 2.5 million from a year ago. However, inventories decreased 5.6 million [in] Q3 2006, as we had anticipated. Our factory had a higher than normal amount of finished goods and inventory in process at the end of Q3 2006. Inventory levels dropped because we shipped the inventory that we had on hand at the end of Q3 and because we transferred most of the inventory of one of our major [sub] assemblies to a subcontract supplier, as we continued our manufacturing outsource strategy.

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

Thanks, Rob, and thanks for joining us this afternoon. Well, I'm very pleased with customers' positive responses in 2006 to Omnicell's offering of hospital automation solutions. We stayed focused on providing the best customer experience in the industry, and our customers responded with strong demand. As Rob mentioned, we have record revenues and for the third quarter in a row we had record order rates, demonstrating again the strength of our product line.

We won business everywhere we compete, including large orders in New York, Chicago, Detroit, Minneapolis, Philadelphia, West Virginia, Spokane, Miami, and Puerto Rico. We won business this year in Canada, the Middle East, Europe, and in Asia. And in this quarter, in California, our very first original customer from 1993 placed another large order.

Our business model is working. Our new customer mix is strong. The quality of our solutions is high. In the most recent MD Buyline survey, our customers again gave Omnicell the highest satisfaction ratings of any automation vendor. And we made new product announcements in Q4 that showed our commitment to bringing evermore useful solutions to the market.

At the American Society of Health System Pharmacists Mid-Year Clinical Meeting in Anaheim during early December, we introduced Omnicell 11 System Release, which provides a wide range of new and enhanced features and what we believe is the most advance technology on the market. One particular feature of Omnicell 11 is scheduled meds, which gives nurses a [filtered] list of a patient's medication orders that are due for administration. This feature helps improve safety, nursing work flow, and saves time.

In the wake of several highly publicized medication errors, Omnicell's safety stock barcode confirmation feature of our OmniRX medication dispensing systems stands out as an industry-leading technology to help clinicians improve patient safety. The Institute for Safe Medication Practices recommends that medication dispensing systems have a barcode check for restocking. Our SafetyStock solution provides a barcode checking for restocking as well as two additional barcode checks for ensuring as well as returning the medication.

The American Society of Hospital System Pharmacists has recommended only one technology for reducing medication errors, which was to implement a barcode system. Omnicell's entire line of medication use process solutions utilize this barcode technology for the initial stocking of a drug, in the Central Pharmacy to our SafetyStock solution at the medication dispensing system, and further to a SafetyMed barcode system at the patient's bedside. With barcode verification throughout the medication distribution process and three potential barcode checks at the dispensing system itself, Omnicell offers unparalleled support of patient safety.

Finally, at the end of December, we announced the launch of a new customer-only section on our website. Described in technical terms as a customer extranet, this section solely for our customer provides information about Omnicell's solutions, product documentation, training offerings, newsletters, a wide variety of ways to communicate with the Company and unique avenues for customers' interaction and information sharing. Customers have already been very active on the site.

In summing up 2006, I'd say Omnicell continues to build on the strength of our products for the future. Order rates have been robust. We continue to enjoy orders from the major IDN wins we've announced previously. And we're enjoying success with new IDN customers every quarter. We continue to win repeat business with our existing customers who expand and upgrade their installations. We're committed to providing our customers the best vendor experience in healthcare.

We're investing in our people, in our products, and in the future at Omnicell. With that, Rob, give us the guidance.

Okay. Thanks, Randy. We've reported today that strong order rates have allowed us to increase our paced installations during the last six months. And we really don't expect--we expect that pace to continue through 2007. We have selectively grown our staff. We've increased our investment in sales, R&D, customer support, and installation.

We previously guided to a 17 to 20% annual revenue growth for 2007, and non-GAAP EPS, excluding stock compensation expense, in the $0.71 to $0.75 per share range. In light of the record Q4 increase in backlog, we're increasing our guidance for 2007 to 21 to 24% revenue growth and $0.78 to $0.81 earnings per share, excluding stock compensation charges. And these estimates include an effective tax rate of 10% throughout 2007.

Omnicell is experiencing very strong demand for our automation products and that demand isn't slowing. You should expect us to invest in our business to assure we can continue to deliver high quality [indiscernible] solutions to our customers.

With that, Operator, we'd like to open the call to questions.

Thank you. [Operator Instructions.] Our first question comes from Steve Halper from Thomas Weisel Partners. Please go ahead.

Hi. This is Julia Thies in for Steve. Great quarter, guys. I just wanted to ask--I know you had made a comment in the past--obviously, this quarter you're seeing a bit more of a bump in staffing due to moving some of the help desk to India. But you had previously made a comment on the kind of growing staff at about half the rate of top line growth. So, can we assume then that you're going to see more like a 12% growth in staff in '07?

Yes.

Okay.

Yes. I'd say between 12 and 14% growth in staff. We're trying to keep our growth in the staff at 50 to 60% of the revenue growth rate, which we pretty much have been doing. So you should expect somewhere in the 12 to 14% range in 2007.

Great. And then, could you just provide a little bit of an update on the competitive environment coming out of ASHP and particularly the kind of the Pyxis environment?

Well, I think at the major clinical show, which I referenced in the script, we continue to believe we have the best technology in the marketplace. We still think that our order rates and competitive wins and greenfield accounts will continue in a like fashion. We--the 11.0 that we released we feel like will drive another upgrade cycle for us as customers want to invest in their systems to bring the system up to a better workflow and a better safety solution set.

Okay, great. Thanks, guys.

Our next question comes from Sean Wieland from Piper Jaffray.

Hi. Thanks a lot. And a fantastic quarter. Congratulations.

Thank you.

Thanks.

Could you comment on gross margins in '07? I think on your last Q you had mentioned that they might be declining into '07 and I wanted to give you the opportunity to maybe change that given your strong bookings.

Well, consistent with the past, we actually don't give guidance on gross margin specifically. In the Q, we commented that there are a number of risks that could affect gross margin, including increasing prices in components for some of our components--that's the [indiscernible] component and so forth. It's certainly a competitive position. If there's pricing decreases in the future, that could affect gross margins.

Yes. What we're seeing right now over the last four quarter is relatively consistent gross margins, except for a couple of one-time things, like we had last quarter with the lease residual buyout. The gross margins have been fairly consistent. We see a little bit of price pressure when we win a new competitive account usually from a lease buyout. But overall, we're not seeing a lot of price pressure in the industry. And we're making some good improvements in our costs. So we've been pretty much able to hold gross margins over the past and I don't see any real changes to the trends.

Okay. How about stock comp? Are we going to see that continue to be pretty flat still?

Yes. We're still amortizing off some of our earlier options. Actually through 2006, if you looked at the stock comp charges, they'd start out at about $0.08 per quarter and it's now down to $0.06 per quarter. Over time, as some of those options start falling off the amortization stream, from earlier in the Company when our volatility was high, which affects that calculation, you'll see that expense coming down. But for the near term, at least for the next couple quarters, you should expect it to be about the same.

Okay. And then, it would--one would assume based on your numbers--your results that the release of the MedStation 3500 didn't impact you guys at all. You didn't--you came close to addressing it, but maybe--I mean, did you see any--did you have any competitive scenarios where you were competing against the new Pyxis product and--or are you seeing in your pipeline the new MedStation 3500?

I don't know for sure that we've competed up against head-to-head, but we don't really believe that will change our current position in the marketplace. As they came out with the 3500, we've come out with 11.0, which, again, keeps us ahead of the game. So I think that's the most significant thing for us. We don't think that either Pyxis or anybody currently is a significant competitor with us in the marketplace.

Okay, great. And one last question. You mentioned recently a consulting arm to maybe help drive compliance within your customers for your safety solutions. Is there any update on that?

Well, we're just continuing to launch that. We've invested in some more consultants and it's actually just launching. But we've had good response from their services and the types of things they're going to offer. But it doesn't have a real big hit to the revenue line or the bookings line. It will toward the end of this year we hope.

Okay. All right. Thank you very much.

Our next question comes from Steven Crowley from Craig-Hallum Capital Group.

Good afternoon, guys. I like all the comments. Nice quarter. A couple of questions for you. One of them is a large one, qualitatively, and maybe I'll start qualitatively. In terms of looking--if we were to get a picture of your customer reference list now versus 18 months ago, what can you tell us about the differences, either types of customers, number of customers, type of impression you're able to leave.

Well, the big difference over the last 18 months is that we have won many more large hospital organizations than we had in Omnicell's past history. We announced a couple last year - Catholic Healthcare West and Advocate Health System. We've talked about those quite a bit. But we continue to win larger customers. And, yes, your point on the reference list is actually a good one because those customers become references for other large customers. And we continue to gain new large customers based on our experiences or the experiences customers have had with us when they install our systems in a large environment.

We have many more larger metropolitan hospitals in city centers. And so, the reference list now is very extensive in that we have hospitals of every size and every type--every type of organization. Randy, do you want to add anything to that?

I just think the mix of more medication customers than we've had to traditionally supply customers would be the other change.

Great. That's very helpful. The second question I had that's more numbers oriented is to--you did see a bigger investment in R&D in the fourth quarter. Offer us a little bit of visibility as to why that was the case and what you might be working on or what that was tied to.

Well, we have said for the last few quarters that we will continue to invest in R&D. Now, from a research and development standpoint, we want to continue to enhance our current product set and we want to continue to add to our current product set. And I think we've said several times that at any hospital there is kind of the 80/20 rule. About 80% of the drugs that are distributed to the floor are kind of in 20% of the SKUs.

The other SKUs are drugs that are handled infrequently or are highly toxic or need refrigeration - a number of those just kind of exception type of things. And to the extent that we can automate all of that process, we provide additional patient safety, we provide additional efficiencies to the hospital, additional controls. And that's kind of our goal - to make sure that the hospital has the best patient safety, efficient solution that we can provide them. And so, we're centering our R&D on those type of areas. We--over the past years we've made some acquisitions, primarily for robotic systems in Central Pharmacy that extend our reach there--help automate the control of medication distribution there. And we're continuing to invest in those areas.

Excellent. I'll let you take some more questions and get back in the queue. Thanks again.

Thank you. Our next question comes from Glenn Garmont of First Albany Capital. Please go ahead.

Oh, hi. This is Ed Arsich for Glenn. I just had a quick question. Looking at the backlog growth now it looks--it appears to be about 3.4 times quarterly revenues. Do you see that as approaching some sort of a peak, or where do you see it going from here?

Well, I think we've said in the past that the backlog level that we've been operating at - kind of the eight to nine-month level for the last six months - is about where we want it to be. We had substantial orders in Q4. Q4 was very, very strong for us, as was Q3. And we've been increasing our installation staff, which means we're increasing our capability to take backlog out of the tally--to reduce the backlog kind of consistently here. That's our goal, to install all of these systems on our customers' schedule. So far, we're doing that. But we're going to continue to increase our capability to revenue goods to meet the customers' installation schedule.

And backlog in terms of total dollars will probably grow. But in terms of the number of months backlog, we're kind of in the range where we want to stay.

But you would characterize the current relative level as an equilibrium, or would you eventually be down a little?

Well, I think it will fluctuate a little bit. We'll--we won't install consistently over time. And order rates may fluctuate a little bit with some seasonality in our customers' year-ends. But I would say that on average we're kind of at a level where we want to stay. Like I said, the key factor here is whether or not a customer can get an installation when they want it. And as I mentioned, as we talked earlier, these bigger installations take a lot more planning time. We have customers that have given us orders that they don't want to install for six months or nine months. Some of them got ordered last year that they didn't even want scheduled within a year. And we don't even count those in our backlog.

So a high level of backlog for our type of capital equipment and hospital customers is not unusual I think. It shouldn't be considered as anything less than optimum. But again, what we're trying to do is make sure that we can install when the customer wants it.

Okay, great. And just one last thing. Could you repeat the percentage of greenfield and competitive wins in the quarter? Thanks.

Yes. It's 31% in Q4. I mentioned that it was 37% for the entire year of 2006.

Thank you. Our next question comes from Gene Mannheimer from Caris & Company.

Thanks. Guys, great quarter.

Thanks.

Can you tell us when you expect to begin paying a full tax rate?

2008.

2008. About 35, 40%?

Yes. 35 is what we expect.

Okay. Thanks, Rob. And you mentioned some orders with some of the larger customers. Are you able to name some of those? Are the--or they continue to be within Catholic Healthcare West and Advocate, or additional ones?

Oh, no. We've won several new customers. But we haven't actually been naming them off. Well, for--in some cases because the hospital doesn't really want to talk about their vendor selections publicly. And in other cases, just because we're--we've got quite a few of the same magnitude. Catholic Healthcare West, of course, was an unusually large order and that's why we specifically named it off.

Okay. And what was the mix of supply versus medication bookings in the quarter?

It was about 20% supply, which is pretty consistent to 2006.

Okay. Great. And just on margin once again. I understand that some of the large IDNs may have been done at somewhat of a discount. In terms of your backlog or your pipeline, do we--could we expect more of the same in '07, or is it going to be more typical standalone hospital type of deals?

Well, what we're seeing now is wins across all of the different hospital segments. So we have some salespeople that are in territories that are predominantly in rural hospitals and we're doing well there. We have some salespeople that are predominantly in urban settings and we're doing well there. And we have our corporate team that handles the large chains - the group purchasing organizations, the things we call IDNs, multi-hospital chains, and we're doing very well there. So I think we're going to see a mix across all types of customer segments.

Okay, thanks. And last question. On the sales organization, would you characterize your sales coverage as adequate or you're still augmenting to that organization?

Well, we started to augment in the second half of 2006. We will--as we gain more and more customers here, we will need to grow the sales organization because almost all of our customers do follow-on purchases, as you can see. Last quarter, almost 70% of our sales were to existing customers. So when we win a new customer they need to be called on on a regular basis.

And do your--is your sales organization separated out into new business and existing?

No, it's not.

Okay. Great. Thanks. Good job.

Thanks, Gene.

Thank you. Our next question comes from Newton Juhng from BB&T Capital Markets.

Thanks. Great quarter, guys. I just--most of my questions have been asked, but I did want to ask one on just the AR and DSOs. Are you planning for the DSOs to come back down to the 74-day level? Do you have a target level that you're looking for going forward?

Well, our DSO is kind of a strange function since we invoice on shipment, and then we don't, of course, count the revenue until the thing is fully installed. When we have a large installation or an installation that is a leasing--or an entity that is leased and is taking several units kind of on a sequential basis, those goods stay in accounts receivable until we finish out the installation, so that we can invoice our leasing partner. And it can cause the AR to go up. Also, when we have strong orders like we had in Q4, we start shipping in order to install some of those orders in the next quarter, and our AR goes up.

What you're really seeing is they are going up as a result of the bookings being very good and we're starting to ship that stuff out. And we haven't collected on it yet. So if that situation continues, AR--DSO will kind of stay in the range that it's been and it's been hovering between 70--it was 74 last quarter and kind of 79 to 80 days has been the high.

Okay. Thanks, Rob. That's very helpful.

We have a follow-up question from Steven Crowley. Please go ahead.

Yes. My follow-up relates to some of the potentially emerging segments of the business. There's a real pulse in areas like anesthesia workstations. Could you tell us a little bit about what you're seeing there and maybe some of the other segments, including bedside, that are on the horizon for you?

Yes. Some of our emerging market product lines have done very well - like supply and the Pharmacy Central product lines. We are taking some extra effort to consolidate some of the software platforms, which we think will help accelerate growth later on this year. But--and things like the anesthesia workstation and the like are picking up momentum as we continue on. So we see good growth prospects out of those. And the bedside product itself, I think, has an emerging--it's still sort of an emerging market product. And we'll see that come online as hospitals get better access to bar-coded drugs throughout the continuum. But it's still I would say in the early adopter stage there.

Thanks. Thank you. That's helpful.

You bet.

Thank you. [Operator Instructions.] Our next question comes from Kevin O'Boyle from KCO Investments. Please go ahead.

Yes. I have a question regarding the balance sheet. Can you tell me what this line item advanced customer deposits is, and then also remind me of the notes receivable--what that is?

Sure. The advanced customer deposits refers to a prepaid receipt of cash that we got from one of our leasing partners. When we do a lease deal with a customer, we typically sell off the payment stream to one of a number of leasing partners. And at the end of the quarter, we received approximately $10 million of cash - $4 million associated with leases that we had installed and $6 million associated with leases that were in process--they were partially installed. So we received it a little bit ahead of time. And that's showing up on the balance sheet in the advanced customer deposits.

Notes receivable--was that your other question?

Yes.

Notes receivable primarily represents the long-term portion of leases that we kept on our books that haven't--we have not sold off to leasing partners. They are almost all government leases where there is a very high probability of collection. And we have kept them on our own books and are servicing the lease. We actually book the revenue up front and carry it as a note.

Thank you very much.

Thank you. And we have no further audio questions at this time. Please continue.

Okay. Well, I think that sums it up for the quarter. Thank you all for joining the call.

Thank you. Ladies and gentlemen, this does conclude the Omnicell Fourth Quarter 2006 Financial Results Conference Call. You may now disconnect. Thank you for your participation and please have a pleasant day.